The regulation of concentrations or mergers is important in economic competition since the union between companies can have a significant impact on market dynamics.
The LFCE defines concentrations as the union in which two or more economic agents merge, combine, or acquire assets or direct or indirect control over another economic agent. This definition covers mergers, acquisitions, and in general, any act that may imply the union between economic agents.
The LFCE regulates mergers in a preventive manner to avoid harm to economic competition and the difficulty separating companies once they have merged.
Mergers that exceed certain monetary thresholds set by the LFCE must be notified to and approved by the Federal Economic Competition Commission (Cofece). The amounts of the thresholds have been changing since the 1992 LFCE to date. However, concentrations that do not exceed the thresholds established in the LFCE do not require prior notification and may be challenged if they affect economic competition, within one year from the date of the concentration.
The LFCE establishes a procedure for analyzing concentrations that have changed little over the past 30 years. Throughout these years, the figure of the affirmative ficta has stood out, i.e., if the authority does not decide within the time limits established by the law, it is assumed that the merger has been approved. The 2011 reform establishes exceptions to the prior notification, for example, under certain conditions, corporate restructuring, the relative increase in the capital stock of a company, or the creation of trusts.
However, a fundamental change in these years is that initially, the economic agents could implement the merger once it had been notified to the Competition Authority. With the 2006 amendment, the Competition Commission was empowered to issue an agreement to the parties stating that they could not carry out the merger until the authority had issued its decision approving the pre-merger notification. Under the current law, Cofece’s approval is required for the merger to proceed.
Another important change is that the Competition Authority was not initially required to notify the parties that it would impose conditions or challenge the merger. With the new LFCE, the Appeal for Reconsideration was repealed, and the competition authority must inform the economic agents involved in the merger of the risk to competition and free market access that the merger would create so that the parties can propose conditions to overcome the negative effects of the merger on economic competition.
The parties involved in a concentration that meets the established thresholds must notify Cofece, providing legal and economic information to assess the potential impact on competition. Cofece has the power to request additional information from the parties or third parties to carry out an analysis of the transaction and its possible impact on the markets.
The procedure involves an evaluation of various factors, such as the market share of the parties, the existence of barriers to entry, the possibility of coordination among competitors, and other circumstances for Cofece to determine whether the concentration may affect economic competition and free market access. The quantitative and qualitative analysis is carried out in each notified transaction and the conditions prevailing in one market are not necessarily applicable to other markets, so it is difficult to argue that there are precedents of approval applicable to all concentrations.
The competition authority may approve the merger, impose conditions, or deny the merger, to protect economic competition and free market access. Mergers that may have a significant impact on competition may be subject to remedies (conditions), such as the sale of certain assets or the implementation of measures to prevent the impact on competition.
It should be noted that, in general, mergers are approved by Cofece. Approximately 5% of all notified mergers are challenged or subject to remedies; therefore, the merger itself does not constitute prohibited conduct under the LFCE.
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