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Ecuador

Last Verified on Thursday 9th March 2017

    Applicable legislation and the competent authorities

    • Ecuador

      The Organic Law for the Regulation and Control of Market Power (Antitrust Law or Antitrust Statute) was enacted in October 2011. The Ecuadorian regulator (Superintendency of Market Power Control) was created a year after that in October 2012. On 26 November 2016 the President sent to the National Assembly a proposal to modify the law, specifically eliminating the turnover threshold for mandatory notifications. If the amendment is approved, under the Ecuadorian regime there will only be one threshold to trigger the obligation to file a mandatory notification notice: a market share of 30 per cent or more of the relevant market.

      Last verified on Thursday 9th March 2017

    • Ecuador

      The pre-merger notification regime in Ecuador has suspensory effects. The parties must wait for a clearance decision. Once the pre-merger notification is filed the regulator certifies it as complete. The certification commences an initial 60 working day review period, which can be extended by a further 60 working days to request additional information. The parties are free to close under Ecuadorian antitrust law once the waiting period expires and any conditions imposed by the authority are accepted. The regulator typically takes an average of four to six months to review transactions.

      Last verified on Thursday 9th March 2017

    • Ecuador

      The Ecuadorian Antitrust Law provides that a notified and authorised merger can be subsequently challenged by the regulator or by those with a legitimate interest. The challenges can only be filed if the merger approval was obtained on the basis of false or incomplete information submitted by the applicants and if that false information was key in the approval decision. The Ecuadorian leg of the AB InBev/SABMiller deal was challenged on November 2016 by Heineken and an association of producers of craft beers whom asked for additional structural conditions for the transaction. Ultimately the appeal was dropped by the appellants, but the regulator took additional structural conditions that are now being challenged before administrative courts.

      Last verified on Thursday 9th March 2017

    • Ecuador

      The Superintendency of Market Power Control is divided into Intendancies. One is the Intendancy for the Control of Economic Concentrations, which is responsible for the investigation of notified transactions. Once the investigation by the Intendancy is complete it makes a recommendation to the Resolution Committee, which either fully or partially rejects or endorses the recommendation. The Committee can impose conditions on the transaction. 

      Last verified on Thursday 9th March 2017

  • Time frames

    • Ecuador

      The regulator typically takes an average of four to six months months to review all transactions. However, the time limit imposed by law has proved extremely burdensome in complex cases in the iron ore and oilfield services and equipment markets, where the regulator was forced to issue decisions while the mergers were still being negotiated with American and European authorities.

      Last verified on Thursday 9th March 2017

  • Notifiable transactions: thresholds

    • Ecuador

      For the purposes of the law, economic concentration is understood as the change or taking control of one or more companies or economic operators through acts such as:

      • a merger between companies and economic operators;
      • the transfer of all assets of a merchant;
      • the direct or indirect acquisition of property or any right over shares or equity interests, or debt securities that may be converted to shares or equity interests or that have any influence over the decisions of the person who issued them, when the acquisition awards control or substantial influence to the purchaser;
      • affiliation based on common management; and
      • any other agreement or act that transfers the assets of an economic operator in a factual or legal way to an economic person or group, or gives them decisive control or influence in decisions regarding ordinary or extraordinary administration of an economic operator.

      Last verified on Thursday 9th March 2017

    • Ecuador

      Ecuadorian law understands control as companies or economic operators in which the notifying parties directly or indirectly have:

      • more than half of subscribed and paid-in capital;
      • the power to exercise more than half of voting rights;
      • the power to designate more than half of the members of administrative bodies, monitoring bodies or legal representatives of the company or economic operator; and
      • the right to run the activities of the company or economic operator.

      Even though the regulator has not applied the concept of joint or de facto control, the law states that the type of legal acts used by economic operators will not affect the authority’s analysis of the true nature of conducts underlying said acts, which can lead to an analysis of de facto control for pre-merger notification purposes.

      Last verified on Thursday 9th March 2017

    • Ecuador

      Undertakings involved in vertical or horizontal concentration operations in any area of economic activity are obliged to comply with the pre-merger notification procedure provided they satisfy one of the following conditions:

      • That the total annual turnover of business of the participants’ organisation in Ecuador exceeds the amount established by the Regulation Council. The Council has set this threshold at US$1,132,800,000 for transactions related to banking, US$75,756,000 for mergers where the targets are insurance companies and US$70,800,000 for all other mergers.
      • Concentrations involving companies that as a consequence of the concentration acquire or increase a share equal to or greater than 30 per cent of the relevant national market of the product or service, or of a geographic market within Ecuador.

      Economic groups to which the parties belong are considered for threshold analysis purposes. According to regulations of the Antitrust Law, the Regulation Council is tasked with the creation of a specific definition of economic group; unfortunately the Council has not yet enacted its definition. However, and until the Council produces the definition, the regulator has interpreted the concept of economic group broadly, including in a group entities that while legally independent have links in ownership, management, financial ties or any other links that suggest the companies are guided by common interests or common financial risks.

      Last verified on Thursday 9th March 2017

  • Notification procedure, timing and penalties for non-compliance

    • Ecuador

      The regulator enacted Resolution No. SCPM-DS-2013-002 where it has established the specifics regarding the application of the filing fee.

      Article 2 of the Resolution establishes the obligation to present the receipt of the deposit of the filing fee in the accounts of the Superintendency as a prerequisite to the start of analysis of the transaction by the Superintendency. The Resolution establishes in article 3 that the amount of the fee will be determined by the highest of the following amounts:

      • 0.25 per cent of the income tax paid in Ecuador;
      • 0.005 per cent of the sales in Ecuador;
      • 00010 per cent of the assets in Ecuador; and
      • 0.05 per cent of the book equity in Ecuador.

      In the case of a merger, the percentages should be applied to the aggregate income tax, sales, assets, and book equity of both of the parties to the merger within Ecuador (despite the fact that the Filing Fee Resolution does not establish that the aforementioned values are limited to those generated or in operation regarding the Ecuadorian business of the involved undertakings, to date the regulator has been consistent in allowing this limitation). In the case of an acquisition, these percentages should be applied to the values solely of the acquired party. Once the filing is submitted to the Superintendency, the officials of the Merger Control Intendancy will check that the filing fee has been calculated correctly. The acquiring entity must pay the fee.

      Last verified on Thursday 9th March 2017

    • Ecuador

      Preparing a filing usually takes three weeks to a month. The standard form for pre-merger notifications is available at: www.scpm.gob.ec/operaciones-de-concentracion-2/.

      The information required by the regulator is the following:

      • legal representation (legal representative’s appointment and certificate of existence; legalised certificate of existence of the local subsidiaries involved in the operation and a power of attorney granted by the notifying parties to an Ecuadorian resident or to the local attorneys for the filing of the notification with the Ecuadorian antitrust authority);
      • full names and domiciles of the involved parties, both parent companies and local subsidiaries;
      • description of the activities (line of business) of the involved parties;
      • description of the relevant markets where the involved parties operate;
      • description of the transaction, including corporate and financial documents of the intervening parties: (company by-laws, and financial statements of local target and parent company);
      • turnover (net sales) of the intervening parties during the immediate prior year;
      • information related to the parties’ market share in the relevant markets in Ecuador;
      • detailed description of the relationship between the involved parties and their related companies (globally, not just in Ecuador), including a description of the relationship (related by ownership, common administration, etc);
      • description of the structure of the supply in the relevant markets in which each of the involved parties participate (eg, suppliers, distributors, production capacity, etc);
      • description of the structure of demand in the relevant markets in which each of the involved parties participate (eg, main clients, entry and expansion barriers, etc);
      • description of the economic efficiencies that might result from the transaction;
      • declaration under oath that the information and documentation provided is true, and that the opinions, calculations and estimations have been made in good faith. This document may be granted in Ecuador by the proxy of the power of attorney established in section 1.d);
      • payment of the filing fee. See below for a description of the determination of the fee to be paid.

      Parties need to disclose information as long as it is relevant to assess the antitrust concerns of the transaction; the regulator only asks for a copy of the signed contract of the deal and we have never seen a case where they ask for documents prepared for the board and reports and strategy papers prepared during the negotiation of the deal.

      Last verified on Thursday 9th March 2017

    • Ecuador

      Mergers that require prior authorisation in accordance with the law must be notified within eight days from the date the agreement is executed. An agreement is deemed executed in the following cases:

      • In the case of mergers, the eight-day period begins once the general shareholders meetings or at least one of its members agrees to the merger.
      • In transfers of all of the effects of a merchant, from the moment the parties to the transaction agree to the form, term and conditions of the concentration. When the merged entities are companies, the agreement shall be deemed to exist when it is adopted by the general shareholders meeting or its equivalent.
      • In direct or indirect acquisitions of rights, shares, equity or debt securities that gives the acquirer control or substantial influence over the target, the merger agreement exists from the moment the companies consent to perform the transaction and determine the form, timing and the conditions of the deal. When the participants are companies, the agreement shall be deemed to exist when it is adopted by the general shareholders meeting or its equivalent.
      • In cases of a merger by common management, the agreement exists from the moment that the administrators or officers that will manage the company have been appointed by the general shareholders meeting or its equivalent.
      • In all other cases, an agreement exists from the moment that the merging parties consent to the transaction and determine the form, term and conditions to be implemented. When the merging parties are companies, the agreement shall be deemed to exist when it is adopted by the general shareholders meeting or its equivalent.

      Even though all these conditions depend on the moment consent is given to trigger the obligation to notify, it is not clear how this consent should be expressed (eg, orally, written, etc). The regulator has not clarified this point. 

      Last verified on Thursday 9th March 2017

    • Ecuador

      Unfortunately there is no alternative available to allow closing before formal clearance. In between signing and closing the acquirer should not exercise control of the target to avoid any penalty or risking the approval of the transaction. However, a number of undertakings involved in global transactions have filed before the Ecuadorian regulator a side-letter by which they pledge that even though the global closing will proceed, the Ecuadorian companies involved in the transaction will suffer no changes (and no control will be exercised by the acquirer) before formal clearance is received by the Superintendency.

      Last verified on Thursday 9th March 2017

    • Ecuador

      The transaction must be notified within eight days of the execution of the merger agreement. After receiving the notification the regulator has 10 business days to ask for additional information or to certify the documentation as complete. If the transaction is certified an initial 60 working day review period begins, which can be extended by a further 60 working days to request additional information. This is the only track currently available under Ecuadorian law and there are no exceptions for sensitive and non-sensitive transactions.

      It is common for the regulator to ask for at least one interview with the merging parties and to ask the opinion of the most important clients and suppliers of the merging entities during the 60 working day review period. The regulator only allows formal communications to occur during the review period, and purposely avoids pre-merger meetings or interviews.

      Last verified on Thursday 9th March 2017

    • Ecuador

      If the Superintendency imposes conditions after analysing a merger, the merging parties must comply with them within 90 business days after being notified with the decision. This 90-day period imposes serious practical problems and the regulator has accepted a broader interpretation of the statute and its regulations, only requiring that a formal plan to comply with the conditions is submitted within the 90-day window.

      Last verified on Thursday 9th March 2017

    • Ecuador

      The regulation to the law provides a prior consultation mechanism. The parties must identify themselves and submit a description of the transaction, the annual turnover of the merging parties and “all other information necessary to determine the relevant markets and shares of companies participating in them”. The consultation is filed before the head of the antitrust regulator and must be answered within 90 business days. The answer is binding for the parties who submitted the consultation. There are no public answers of consultations.

      Last verified on Thursday 9th March 2017

    • Ecuador

      Executing a merger subject to control before having notified the regulator or before it has been authorised is a serious infraction of the law. Serious infractions can be fined with up to 10 per cent of the merging parties’ annual turnover of the fiscal year immediately before the application of the fine. Carrying out acts or contracts after a merger that was subject to control but was not notified is a very serious infraction of the law. Very serious infractions can be fined with up to 10 per cent of the merging parties’ annual turnover of the fiscal year immediately before the application of the fine.

      In addition to these, when the offender has committed very serious infractions, each of its legal representatives or members of the directing bodies that participated in the agreement or decision can be fined up to 500 Basic Unified Remunerations (US$183,000) according to their degree of participation in the gun-jumping. There are no criminal penalties for antitrust violations in Ecuador.

      Even though there are no public cases of gun-jumping, the general standard of “control” applies. If the acquirer legally or de facto exercises control over the target before the transaction is approved, the regulator can fine the parties.

      Last verified on Thursday 9th March 2017

  • The review process, confidentiality and the role or influence of third parties

    • Ecuador

      The regulator has the following investigative powers:

      • Demand the presentation for examination of all securities, books, accounting and financial statements, correspondence, electronic or computer files and any other document related to the conduct under investigation, without the right to claim exemption of any kind.
      • Notify, examine and receive declarations or testimonies from persons involved in an investigation or from their representatives, employees, officials, advisers, dependants and third parties; using the technical means necessary to generate a complete and reliable registry of declarations including tape recordings, video recordings or other similar means. For this purpose, the declaration will be made in the presence of a lawyer or a public defender provided by the state.
      • Carry out inspections with or without prior notice at the establishments, shops or properties of natural or juridical persons. Examine books, registers, commercial correspondence, assets and any other document relevant to the conduct under investigation; and receive voluntary declarations from persons encountered.

      Judicial authorisation is required to inspect the address of a natural person. Copies of physical, virtual or computer files and any other document or information deemed relevant can be taken during inspection, as well as necessary photographs or recordings. If forced entry to closed shops or establishments is necessary, any information that is irrelevant or unrelated to the investigation (which was procured during the investigation) will be kept in strict confidentiality by the regulator and its officials until its return, as they are responsible for maintaining secrecy in observance of privacy rights.

      Even with these broad powers, the regulator exercises them conservatively and only interviews third parties in the course of a review, especially clients and suppliers. There are some instances where the regulator has asked for specific market-related information to third parties.

      Last verified on Thursday 9th March 2017

    • Ecuador

      The regulator is under a general legal obligation to maintain confidentiality and secrecy regarding the facts and information that come to their knowledge under a review. The obligation to maintain confidentiality and secrecy applies to all persons who in the exercise of their position, specialisation or profession (even when not part of the regulator) may come to know information contained in pre-merger reviews. The breach of the duty of secrecy or confidentiality is considered grounds for dismissal, without prejudice to corresponding civil and criminal liabilities.

      Even though it gives the same treatment to both, the regulator distinguishes between confidential (ie, its publication will affect fundamental rights of persons) and reserved information (ie, the information has commercial value). The procedure for confidentiality to apply only requires a formal request that has to be submitted with a public extract of the information that will be declared confidential. There are no requirements for the public extract. 

      Last verified on Thursday 9th March 2017

    • Ecuador

      The Ecuadorian regulator has a number of international agreements with foreign competition authorities (at least 13 as of December 2016). It does not seek a waiver from the parties to disclose confidential information. In the recent Halliburton-Baker Hughes merger, the Ecuadorian regulator asked extensive questions to the Brazilian authority. The consultations were not made public.

      Last verified on Thursday 9th March 2017

    • Ecuador

      The Law only allows challenges from third parties with a legitimate interest (legitimate interest has been interpreted under a similar light of the American injury-in-fact doctrine). The only possibility for third parties without a legitimate interest is to challenge the decision arguing that it was rendered based on false information. As at December 2016 this has never happened.

      Last verified on Thursday 9th March 2017

    • Ecuador

      It is recommended to file the notification without consulting. If the authority is consulted, generally it does not have enough information to make a precise recommendation and the consultation may create a negative bias against the transaction. Furthermore, the consultation mechanism produces an answer in a similar amount of time as the Intendancy would take reviewing the pre-merger notification. 

      Last verified on Thursday 9th March 2017

  • Substantive analysis and remedies

    • Ecuador

      The regulator takes the following criteria into account:

      • the state of competition in the relevant market;
      • the degree of market power of the economic operator in question and of its principle competitors;
      • the need to develop and/or maintain free competition of economic operators in the market, considering its structure and actual or potential competitors;
      • whether the concentration generates or strengthens market power or produces a clearly foreseeable or proven decrease, distortion or hindrance of free competition of economic operators and/or competition; and
      • the contribution that concentration may provide to the:
      1. Improvement of production or commercialisation systems;
      2. encouragement of technological or economic advances of the country;
      3. competitiveness of national industry in the international market provided that it does not significantly affect the economic well-being of national consumers;
      4. the well-being of national consumers;
      5. whether said contribution is sufficient to compensate determined and specific restrictive effects on competition, and;
      6. diversification of capital stock and worker participation.

      The regulator closely follows European decisions and cites them regularly. Finally, the Ecuadorian authority has sent out a strong message stating that its main concern is consumer welfare and the protection of small entrepreneurs.

      Last verified on Thursday 9th March 2017

    • Ecuador

      The regulator relies heavily on economic efficiencies in its decisions. A number of times the Intendancy has focused only on the efficiencies that the transaction will produce. This was especially evident in the Nokia-Alcatel (telecommunication equipment and computer software markets) and AB InBev-SAB Miller cases.

      Last verified on Thursday 9th March 2017

    • Ecuador

      Yes. The decision can be challenged through administrative and judicial actions. There are three administrative challenges: reconsideration before the Resolution Committee, ordinary appeal before the Superintendent and an extraordinary appeal (devised only for major mistakes in the interpretation of the law, violation of due process or new evidence) before the Superintendent. Even third parties with a legitimate interest can file an extraordinary review challenge. The decision can also be challenged before administrative courts. 

      The only case of reconsideration is the challenge of one structural condition imposed on the Ecuadorian leg of the AB InBev-SAB Miller merger. The challenge was based on constitutional grounds. A lengthy judicial showdown is expected between the undertakings and the regulator.

      Last verified on Thursday 9th March 2017

  • Judicial review

    • Ecuador

      The decision of the authority can be appealed before administrative courts. The parties have 90 business days starting from the day they were notified of the decision to challenge it.

      There are currently more than 25 lawsuits before administrative courts in which the regulator is a party, none of them related to merger decisions.

      Last verified on Thursday 9th March 2017

  • Case law

    • Ecuador

      Recently the Nokia-Alcatel (telecommunication equipment and computer software markets), CCR-Odinsa cases (airport management and concession market) and Halliburton-Baker Hughes (oilfield services and equipment market) are the most relevant decisions in the past 12 months, taking into account the sophisticated markets where they took place, the importance of the companies in the Ecuadorian market and the fact that all three were approved by the regulator. During these transactions the Intendancy, under the leadership of José Andrade, has demonstrated openness and willingness to work alongside notifying parties to reach negotiated solutions. 

      Last verified on Thursday 9th March 2017

    • Ecuador

      The regulator is working on possible changes to the law that would create an expedited process for transactions that do not pose competitive risks, and most importantly to modify the law so that it won’t require notification in cases where there is no actual economic concentration but a mere change of control which poses no risk (no change in market share or annual turnover) to the market. 

      Last verified on Thursday 9th March 2017

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