Merger control in Mexico: overview

A Q&A guide to merger control in Mexico.

The Q&A gives a high level overview of merger control, regulatory framework and regulatory authorities, relevant triggering events and thresholds in Mexico. It also covers notification requirements, procedures and timetables, publicity and confidentiality, third party rights, substantive test, remedies, penalties, appeals, joint ventures and proposals for reform.

For information on restraints of trade, monopolies and abuses of market power in Mexico, visit Restraints of trade and dominance in Mexico: overview.

This Q&A is part of the global guide to competition and cartel leniency. For a full list of jurisdictional Restraints of Trade and Dominance Q&As visit www.practicallaw.com/restraintsoftrade-guide. For a full list of jurisdictional Merger Control Q&As visit www.practicallaw.com/mergercontrol-guide.

For a full list of jurisdictional Cartel Leniency Q&As, which provide a succinct overview of leniency and immunity, the applicable procedure and the regulatory authorities in multiple jurisdictions, visit www.practicallaw.com/leniency-guide.

Christian Lippert H and Carlos Chávez A, Galicia Abogados, S.C.
Contents

Regulatory framework

1. What (if any) merger control rules apply to mergers and acquisitions in your jurisdiction? What is the regulatory authority?

Regulatory framework

Merger control is regulated by the Federal Competition Act (Ley Federal de Competencia Económica) (FCA) and its regulations (Disposiciones Regulatorias) issued by the Federal Economic Competition Commission (Comisón Federal de Competencia Económica) (COFECE).

Regulatory authority

Enforcement powers are divided between COFECE and the Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones) (IFT). Both are government agencies vested with constitutional autonomy. The former is a general anti-trust enforcement authority whereas the latter is a robust telecommunications and broadcast regulator and anti-trust authority for those industries.

While COFECE has general jurisdiction over anti-trust and competition matters (except for those specific matters reserved to the IFT), the IFT only has anti-trust and competition powers in the telecommunications and broadcast industries. Both agencies have issued their own regulations governing proceedings under the FCA.

See box, Regulatory authorities.

 

Triggering events/thresholds

2. What are the relevant jurisdictional triggering events/thresholds?

Triggering events

If a transaction qualifies as a "concentration" under the Federal Competition Act (FCA), notice must be filed with Federal Economic Competition Commission (Comisón Federal de Competencia Económica) (COFECE) and/or the Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones) (IFT) when certain statutory thresholds are met. This applies whether or not the transaction presents a competitive concern. Transactions subject to filing can be investigated by COFECE up to ten years after they take place.

A "concentration" within the meaning of the FCA is any acquisition of assets, merger or any other arrangement under which companies, shares or any other assets are combined or put under the control of an economic agent.

Thresholds

Concentrations require approval from the relevant regulator where the (Article 86, Federal Competition Act):

  • Transaction (or series of transactions) provides consideration in excess of 18 million times the general daily minimum wage applicable in Mexico City (about MXN$1.3 billion) regardless of where it is executed. The general daily minimum wage applicable in Mexico City for 2016 is MXN$73.04.

  • Transaction (or series of transactions) results in the acquisition of at least 35% of the total assets or capital stock of a company whose total assets or sales in Mexico are more than 18 million times the general daily minimum wage applicable in Mexico City (MXN$1.3 billion).

  • Following two events occur:

    • the transaction (or series of transactions) results in the acquisition in Mexico of assets or capital stock over 8.4 million times the general daily minimum wage applicable in Mexico City (MXN$613.5 million); and

    • the joint assets or annual sales in Mexico of the companies involved in the transaction (or series of transactions) amount to 48 million times the general daily minimum wage applicable in Mexico City or more (MXN$3.5 billion).

 

Notification

3. What are the notification requirements for mergers?

Mandatory or voluntary

Transactions exceeding at least one of the aforementioned thresholds must be reported.

Timing

Transactions must be notified to the competition authorities before:

  • The agreement is completed under the applicable law or before satisfaction of any conditions precedent.

  • Ownership and/or control over the target is acquired (either by law or de facto).

  • Any steps comprising the transaction reach the relevant monetary thresholds.

Formal/informal guidance

Both formal and informal guidance are available.

Formal guidance is available when the proposal is novel and clarification of an aspect of the Federal Competition Act (FCA) is necessary. A request for such a ruling must be filed.

Informal guidance is not regulated but staff at the Federal Economic Competition Commission (COFECE) and the Federal Telecommunications Institute (IFT) will normally provide their views on a matter, even on a confidential basis, but no confirmation will follow.

Responsibility for notification

It is the parties' joint responsibility to give notice to COFECE and/or the IFT. Exceptionally, in the case of a short-form filing (see below, Form of notification), notification can be made by the purchaser or merging party only.

Relevant authority

Notifications must be made to either COFECE or the IFT (see box, Regulatory authorities).

Form of notification

There is no standard form. However, there are two ways to notify under the FCA:

  • Short-form filing is available where it is evident that the relevant transaction will not have an anti-competitive effect in the relevant market.

  • Long-form filings apply to all other cases.

From an information perspective, the difference between short and long forms is not relevant but the distinction has an impact on timing and the parties who must sign the relevant application.

Filing fee

Since 1 January 2016, merger filings before COFECE have incurred a filing fee of MXN$160,000, per filing. It is unclear whether merger filings before the IFT will also result in a filing fee.

Obligation to suspend

The FCA provides that the parties to a reportable transaction must refrain from completing it until COFECE and/or the IFT have cleared it.

 

Procedure and timetable

4. What are the applicable procedures and timetable?

After filing, the agencies will first evaluate whether the filing requirements under the Federal Competition Act are met. If not, the competition agencies will issue a first request for information, which the notifying parties will have to respond to within ten business days. This time period can be extended for duly justified causes. If the original filing is complete or the information under the first request has been provided, the agencies will then decide whether or not they need additional information for the purposes of analysing the transaction. If they do, a second request for information will be sent to the parties with a time limit of 15 days to satisfy it. After the information is submitted and if the relevant agency is satisfied, a full analysis of the decision by the relevant staff will follow.

During this period, the parties can request meetings with staff and address concerns raised in the course of an interview. If no substantive concerns arise or they are resolved to the satisfaction of the agency, a report will be prepared proposing to clear the transaction. This report will be subsequently distributed to the commissioners for their review. Once the commissioners are satisfied, the matter is listed for discussion at the plenum (the ultimate decision-making body of the Federal Economic Competition Commission (COFECE) and and the Federal Telecommunications Institute (IFT) comprised of seven commissioners) and a final decision is entered.

If, on the other hand, the staff raise concerns in their analysis of a transaction, they can ask the parties to consider providing remedies. If the parties accept such suggestion and present the remedies, the report to the commissioners will include the conditions provided by the parties and the recommendation of the staff to approve the transaction subject to such condition.

If the parties cannot accept the conditions or do not agree with them (or with the concerns that were raised), they can ask to have an audience with the commissioners directly to express their views. This audience is formal and must be scheduled.

If the parties are unable to persuade the COFECE or the IFT, formal notice will be given stating the concerns identified by the regulator and giving the parties ten business days to propose remedies. After that, COFECE or the IFT will make a final decision. At this point, any conditions imposed will be on a "take it or leave it" basis. Offering conditions resets the term within which the agencies must resolve the matter.

A resolution on a short-form filing must be issued within 15 business days. For long-form filings, the term is 60 business days from the date of the filing, or submission of additional requested information (if any). The regulator can extend the period for an additional 60 business days where the case is particularly complex.

 

Publicity and confidentiality

5. How much information is made publicly available concerning merger inquiries? Is any information made automatically confidential and is confidentiality available on request?

Publicity

Filings are not made public until they are resolved. Once a matter is resolved, a public version, (that is, a redacted version) of the decision is made public. Both regulatory agencies have transparency obligations that require them to publish notices and events on their websites relating to matters pending before them. Accordingly, the names of the parties to a procedure and the fact that clearance is pending will become public shortly after a filing is made.

Automatic confidentiality

Under transparency and public information laws, the agencies must classify the information delivered by the parties as "reserved", "confidential" or "public" within the meaning of those laws and regulations.

Confidentiality on request

Under the transparency laws and the Federal Competition Act, the parties to a merger control filing can request that information provided to the agencies be classified as confidential, provided that the request is based on the law. The agencies can request that public versions (with redacted confidential information) of documents filed by the parties be attached to a confidential treatment request.

 

Rights of third parties

6. What rights (if any) do third parties have to make representations, access documents or be heard during the course of an investigation?

Representations

Third parties are not considered parties to the merger control proceeding. In principle, they have no standing.

Document access

Only the applicants have access to the file. Third parties seeking access to documents must file an access request under transparency laws and regulations. To the extent that any request is granted, parties can only access non-confidential or reserved information.

Be heard

Third parties do not have formal standing. However, the regulatory agencies usually allow submissions from third parties (competitors, consumers), request information from third party market participants, and consider them in their resolution.

 

Substantive test

7. What is the substantive test?

After defining the relevant markets, the participants and their respective market shares, the agency then analyses the transaction. As in other jurisdictions, the agencies look at the Herfindahl–Hirschman Index (HHI). While concentration indexes are just one of several factors that the agencies consider when making an assessment of a transaction, the Federal Economic Competition Commission has issued guidance stating that a concentration will be unlikely to affect competition if the merger yields:

  • An increase in the HHI of less than 100 points.

  • A market HHI of less than 2,000 points.

  • An increase in HHI of less than 150 and a market HHI of less than 3,000 points.

Generally, the agencies consider that a transaction resulting in an entity having a market share of 35% or more may raise competitive concerns even if HHI values fall within the aforementioned ranges.

Following this analysis, the agencies look at the structure and potential effects in related markets. The agencies will look closely at any entry barriers affecting the relevant markets and potential entrants. Finally, they will weigh the potential anti-competitive and pro-competitive effects of the transaction.

 
8. What, if any, arguments can be used to counter competition issues (efficiencies, customer benefits)?

Claims of efficiency are allowed under the Federal Competition Act (FCA) and the agencies must consider them in their decision. The standard under the FCA, however, is particularly high and the parties must evidence or prove such efficiencies and that they will result in increased consumer welfare. This is in contrast to the agencies' obligation to only show plausible anti-competitive effects when challenging a transaction.

 
9. Is it possible for the merging parties to raise a failing firm defence?

The failing firm defence is not available under the Federal Competition Act.

However, guidance issued by the Federal Economic Competition Commission states that it has at least once considered this defence and cleared a transaction despite it having the potential to create market power. Its theory was that not doing so would have reduced consumer choice because the viability of the target was in jeopardy.

 

Remedies, penalties and appeal

10. What remedies (commitments or undertakings) can be imposed as conditions of clearance to address competition concerns? At what stage of the procedure can they be offered and accepted?

Remedies must be tied directly to the competition concerns identified in the review process. They can be structural (such as divestiture) or behavioural in nature. Both agencies have taken different approaches, imposing some of the following remedies:

  • An obligation not to participate in certain boards.

  • A prohibition on entering into certain types of agreements.

  • Rules for the discussion of certain matters in board meetings.

  • Reporting obligations.

  • Withdrawal of legal actions seeking to block imports.

Under the Federal Competition Act, if remedies are not voluntarily offered by the parties in their application, offering new conditions resets the statutory term within which the agencies must resolve the matter.

Remedies are monitored by the agencies under the specific conditions imposed in the relevant decision.

 
11. What are the penalties for failing to comply with the merger control rules?

Failure to notify correctly

Failure to give prior notice of a transaction under the Federal Competition Act can result in fines of up to 5% of the parties' taxable income in Mexico.

Implementation before approval or after prohibition

Fines of up to 5% of the parties' taxable income can be imposed if the agencies take the position that the transaction was not notified before de facto control was exercised.

Effecting a merger after it has been prohibited can result in an investigation and fines of up to 8% of the parties' annual taxable income in Mexico and an order to unwind the transaction.

Failure to observe

Failure to comply with any remedies imposed by the agencies can result in an investigation and fines of up to 10% of the parties' annual taxable income in Mexico and an order to unwind the transaction.

 
12. Is there a right of appeal against the regulator's decision and what is the applicable procedure? Are rights of appeal available to third parties or only the parties to the decision?

Rights of appeal

Only final decisions of the agencies (those that adjudicate a specific matter) are appealable.

Procedure

Appeals are heard after an amparo writ is filed before specialised federal district courts sitting in Mexico City. The appeal process can take between four to eight months. This decision is subject to further appeal before a circuit court.

Third party rights of appeal

Third parties are generally not allowed to appeal. In some instances, third parties have sought recognition from federal courts that they should have been made a party to the original proceedings before the agencies, and have been successful in presenting such claims.

 

Automatic clearance of restrictive provisions

13. If a merger is cleared, are any restrictive provisions in the agreements automatically cleared? If they are not automatically cleared, how are they regulated?

Non-compete clauses do not by themselves require anti-trust clearance. They must, however, be disclosed and are subject to review in the context of merger control filings.

Generally, the Federal Economic Competition Commission (COFECE) considers non-compete agreements to be acceptable and necessary for preserving the value of the acquired assets in most merger transactions. COFECE will not usually object to non-compete clauses or agreements if they do not exceed three years and are limited to the relevant areas of the transaction in Mexico. This is provided that such non-compete clauses are limited to a restricted number of persons and competing businesses.

 

Regulation of specific industries

14. What industries (if any) are specifically regulated?

There are no special rules governing merger control filings that are industry-specific.

The Federal Telecommunications Institute is the anti-trust regulator for the telecommunications and broadcast industries, but it applies the Federal Competition Act.

 
15. Has the regulatory authority in your jurisdiction issued guidelines or policy on its approach in analysing mergers in a specific industry?

The Federal Telecommunications Institute has issued specific regulations applicable to merger control filings. They deal mainly with procedural matters and do not modify statutory provisions such as thresholds or timing.

 

Joint ventures

16. How are joint ventures analysed under competition law?

Joint ventures are not specifically regulated under the Federal Competition Act. They have sometimes been treated as concentrations where they have exceeded the thresholds (see Question 2) therefore requiring clearance. However, this is still a grey area under Mexican competition law, as joint ventures can also involve co-operation among competitors.

 

Inter-agency co-operation

17. Does the regulatory authority in your jurisdiction co-operate with regulatory authorities in other jurisdictions in relation to merger investigations? If so, what is the legal basis for and extent of co-operation (in particular, in relation to the exchange of information, remedies/settlements)?

Both agencies have authority to co-operate with regulatory authorities in other jurisdictions and have ample authority to discuss remedies with them. If the agencies want to share information with other authorities, they must seek consent from the merging parties.

 

Recent mergers

18. What notable recent mergers or proposed mergers have been reviewed by the regulatory authority in your jurisdiction and why is it notable?

The Federal Economic Competition Commission (COFECE) recently analysed two mergers originally notified to its predecessor, COFECO:

  • The acquisition of the Mexican assets of Cinemark by Cinemex was rejected by COFECO. It was appealed and went on to be cleared by COFECE reversing the original objections based on a three-to-two analysis on the grounds that another player in the market existed with a significantly larger market share.

  • The acquisition of Mexican paint and coatings manufacturer Comex by Sherwin Williams was rejected by COFECO. On appeal COFECE confirmed the objection on the basis that significant market power would be concentrated.

In addition, the COFECE reviewed the acquisition by Soriana of the stock and several stores and assets of Comercial Mexicana (both publicly traded supermarket chains in Mexico). As of 1 January 2016, this transaction is still pending but has been cleared subject to divestiture remedies imposed by COFECE.

The Federal Telecommunications Institute recently cleared the acquisition of Mexican wireless carriers Iusacell and Nextel, by AT&T. These decisions are relevant because the wireless market features a preponderant player and now the combined firms will now be able to compete more vigorously. Iusacell and Nextel were the third and fourth carriers in terms of users in Mexico.

 

Proposals for reform

19. Are there any proposals for reform concerning merger control?

Mexican competition law underwent a thorough overhaul in 2014, and no more changes are envisaged in the near future.

 

Online resources

Federal Telecommunications Institute (IFT)

W www.ift.org.mx

Description. Website of the IFT containing public versions of its decisions and certain English language resources.

Federal Economic Competition Commission (COFECE)

W www.cofece.mx

Description. Website of the COFECE containing public versions of its decisions and certain English language resources.



The regulatory authorities

Federal Economic Competition Commission (COFECE)

Av. Santa Fe No. 505, Col. Cruz Manca, Del. Cuajimalpa,
C.P. 05349, México, Distrito Federal,
T +52 55 2789 6500 or 01 800 COFECE 1 (2633231 )
F +52 55 2789-6610
E comunicacionsocial@cofece.mx (for general inquiries)
W www.cofece.mx

Outline structure. COFECE is a general anti-trust enforcement authority. Its main bodies are the plenum, staff and the investigative authority. The plenum is the ultimate decision-making body of COFECE and is comprised of seven commissioners. The investigative authority is the division vested with powers to investigate anti-competitive practices, mergers and conduct market probes. Any objections are brought by the investigative authority. The staff is made up of the executive secretariat and different directors who assist the plenum in connection with merger control and investigations.

Responsibilities. COFECE is a general anti-trust enforcement authority.

Procedure for obtaining documents. Public versions are available through the COFECE website. Parties with standing can request copies of the files on the matters before COFECE. All other requests must be made under the transparency laws and are subject to review and resolution by information access committees.

Federal Telecommunications Institute (IFT)

Insurgentes Sur #1143, Col. Nochebuena, Delegación Benito Juárez,
México, D.F. 03720
T +52 55 5015 4000
E atencion@ift.org.mx
W www.ift.org.mx

Outline structure. Its main bodies (from an anti-trust perspective, as it has a wide array of regulatory offices and directions) are the plenum, the economic competition unit and the investigative authority. The plenum is the ultimate decision-making body of the IFT and comprises seven commissioners. The investigative authority is the division vested with powers to investigate anti-competitive practices, mergers and conduct market probes in the telecommunications and broadcast industries. Any objections are brought by the investigative authority. The Economic Competition Unit is headed by a chief officer and includes different directors assisting it in connection with merger control and investigations.

Responsibilities. The IFT is a robust telecommunications and broadcast regulator and anti-trust authority. The IFT only has anti-trust and competition powers in the telecommunications and broadcast industries.

Procedure for obtaining documents. Public versions are available through the IFT website. Parties with standing can request copies of the files on the matters before the IFT. All other requests must be made under the transparency laws and are subject to review and resolution by information access committees.



Contributor profiles

Christian Lippert H., Partner

Galicia Abogados, S.C.

T +52 55 55409233
F +52 55 55409202 ext. 2223
E clippert@galicia.com.mx
W www.galicia.com.mx

Professional qualifications. Mexico, Licenciado en Derecho (attorney-at-law), (Universidad Anáhuac del Sur, 1996)

Areas of practice. Competition and anti-trust, regulation, M&A.

Recent transactions

  • Advised Soriana in its acquisition of several Comercial Mexicana stores.
  • Advised AT&T in the acquisition of Iusacell.
  • Advised Cinemex in the acquisition of the Mexican theaters of Cinemark.
  • Advised Grupo México in its acquisition of Ferrosur.

Languages. Spanish, English

Carlos Chávez A., Partner

Galicia Abogados, S.C.

T +52 55 55409228
F +52 55 55409202 ext. 2228
E cchavez@galicia.com.mx
W www.galicia.com.mx

Professional qualifications. Mexico, Abogado (attorney-at-law), (Escuela Libre de Derecho, 2002).

Areas of practice. Competition and Anti-trust, regulation, compliance.

Recent transactions

  • Advised AT&T in the acquisition of Iusacell.
  • Advised Cinemex in the acquisition of the Mexican theaters of Cinemark.
  • Advised Grupo México in its acquisition of Ferrosur.

Languages. Spanish, English


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