By: Fidel Márquez
When we are involved in projects of purchase and sale of shares or assets, mergers of companies, or transactions of similar nature, our focus is usually concentrated on the negotiation and preparation of the necessary documentation so that the parties can achieve their objective. Occasionally, they may -involuntarily- omit other issues that are equally important and that could have important consequences for the economic agents involved.
One of them, and one that should always be present in projects of this nature, is the prior analysis that must be carried out to determine whether an economic concentration request must be filed before the Superintendency of Competition (the “Superintendency”) before the transaction takes effect.
If from the result of such analysis it can be concluded that it does not comply with the parameters determined by the Competition Law (the “LC”), the transaction cannot proceed and be fully effective. Otherwise, if it is concluded that the transaction does comply with the parameters, it will be necessary to file the request according to the provisions of the LC and its regulations.
This is an issue that is not new in El Salvador and that over the years has allowed both the Superintendency and the economic agents obliged to comply with it, to become aware of its relevance so that all agents in a market can participate under equal conditions and in order to seek the benefit of consumers. Therefore, the Superintendency is actively working to review transactions that imply total or partial business combinations and that, due to their nature and relevance according to the parameters currently in force, should be under its control and determine whether or not they would have a negative effect on the relevant market.
So, what are the parameters established by the LC for a transaction to be subject to the control of the Superintendency?
In this regard, article 31 of the LC establishes that a concentration is understood to exist:
- When economic agents that have been independent from each other, perform among others: acts, contracts, agreements and/or agreements, which have as their purpose the merger, acquisition, consolidation, integration or combination of their businesses in whole or in parts.
- When one or more economic agents that already control at least one other economic agent, acquire by any means the direct or indirect control of all or part of more economic agents.
Nevertheless, if the above parameters have been met, the concentration must meet the following economic thresholds for authorization to be requested:
- Combination of total assets exceeding fifty thousand annual urban minimum wages in the industry (US$219,000,000.00).
- Combination of total income of the same exceeds sixty thousand annual urban minimum wages in the industry (US$262,800,000.00).
In case the authorization of an economic concentration that is subject to the preventive control of the Superintendency is not requested, the economic agents could be exposed to economic fines and conditions imposed by the Board of Directors.
Finally, it is important to mention that, although reforms to the LC were recently approved to adapt it to the Law of Administrative Procedures, the Superintendency is in the process of preparing a new reform package that, among other aspects, would allow reducing the current economic thresholds and adjusting them to the economic reality of the country, as well as allowing other complementary alternatives that would reinforce the preventive regulation of the Superintendency.
For further information, please contact Oscar Samour (osamour@consortiumlegal.com) and Fidel Márquez (fmarquez@consortiumlegal.com).