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Ecuador

Last Verified on Thursday 11th January 2018

    Applicable legislation and the competent authorities

    • Ecuador

      The Organic Law for the Regulation and Control of Market Power (the Law) 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 a bill to the National Assembly proposing a number of amendments to the Law, specifically eliminating the turnover threshold for mandatory notifications. If the amendment is approved, the Ecuadorian regime will only have one threshold to trigger the obligation to file a mandatory notification: a market share of 30 per cent or more of the relevant market. The amendment is still under consideration and awaits a debate on the floor of Congress.

      Last verified on Thursday 11th January 2018

    • Ecuador

      There is no additional sector or industry-specific merger regulation. However, the Law dictates that in all investigations (including mergers) related to financial institutions, the Superintendency of Banks must participate. The extent of the participation is not set forth in the Law or regulations.

      Last verified on Thursday 11th January 2018

    • 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. Recently, the authority interpreted that the review period can be further extended for an additional 60 calendar days; the legality of this second extension is controversial. The parties are free to close a transaction under Ecuadorian antitrust law once the waiting period expires and any conditions imposed by the authority are met. The regulator typically takes an average of four to six months to review transactions.

      Last verified on Thursday 11th January 2018

    • Ecuador

      A  notified and authorised merger can be subsequently challenged by the regulator or by those with a legitimate interest. The legitimate interest standard has been generously interpreted, allowing the participation of any party alleging direct or indirect damages. Even though the Law dictates that challenges can only be filed if the merger approval was obtained based on false or incomplete information submitted by the applicants that was crucial in the approval decision, a number of challenges falling short of this standard have been admitted. The Ecuadorian leg of the AB InBev/SABMiller deal was challenged on November 2016 by Heineken and an association of producers of craft beer producers. 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 11th January 2018

    • Ecuador

      The Superintendency of Market Power Control is divided into five Intendancies; one is the Intendancy for the Control of Economic Concentrations, which is responsible for the review of notified transactions. Once the review is completed the Intendancy makes a recommendation to the Resolution Committee, which can ratify or reject the conclusions of the recommendation. The Committee can impose conditions on the transaction.

      Last verified on Thursday 11th January 2018

  • Time frames

    • Ecuador

      Unfortunately, there is no exception for notifiable transactions that raise no obvious competition concerns. The regulator typically takes an average of four to six months reviewing an individual transaction.

      Last verified on Thursday 11th January 2018

    • Ecuador

      The regulator typically takes an average of four to six months months to review a transaction. However, the time limit imposed by law has proved extremely burdensome in complex cases. In these cases the regulator was forced to issue its decision while the transactions were still being negotiated with American and European authorities.

      Last verified on Thursday 11th January 2018

  • Notifiable transactions: thresholds

    • Ecuador

      Under Ecuadorian Competition law an economic concentration is 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 11th January 2018

    • Ecuador

      Under Ecuadorian law, control is defined as decisive influence over strategic commercial decisions. An undertaking may exert control over another when it 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 legal structures employed in a transaction are irrelevant. Thus the regulator must conduct its review under an effects-based approach regardless of whether control is acquired de jure or de facto.

      Last verified on Thursday 11th January 2018

    • Ecuador

      Undertakings involved in vertical or horizontal mergers in any area of economic activity must comply with the pre-merger notification procedure provided they satisfy one of the following conditions:

      • The annual turnover of the undertakings exceeds the amount established by the Regulation Council. The Council has set the turnover threshold at US$1,235,200,000 for transactions related to banking and other financial institutions, US$82,604,000 for mergers in the insurance industry and US$77,200,000 for all other mergers.   
      • Mergers involving undertakings that possess a share equal to or greater than 30 per cent of the relevant national market.

      Economic groups to which the parties belong are considered for threshold analysis purposes as long as the turnover or market share stems from the Ecuadorian market. Even though the Regulation Council is tasked with the creation of a specific definition of economic group it has not yet enacted a guidance on the topic. The regulator has interpreted the concept of economic group broadly, including all undertakings with substantial links between them (ie, common ownership, common management, substantial financial ties, etc) This broad interpretation was inspired by laws and regulations pertaining capital markets.

      The Ecuadorian regulator can, ex officio or by a third-party request, compel an undertaking to notify a transaction even if it does not meet the thresholds. There are no specific rules constraining or detailing when the regulator may exercise this prerogative.

      Last verified on Thursday 11th January 2018

    • Ecuador

      Transactions between foreign companies must only be notified when there is an economic link to Ecuador. This local-link requirement is understood as in-country revenues or presence that meets one of the two thresholds established by the law (turnover and market share). There is no specific case law that distinguishes a spurious relation from a substantial link that triggers the obligation to notify.

      Last verified on Thursday 11th January 2018

  • Notification procedure, timing and penalties for non-compliance

    • Ecuador

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

      The fee is 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;
      • 0.0010 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 merging undertakings in Ecuador. In the case of acquisition of control, these percentages should be calculated considering only the acquired undertaking. The acquiring entity must pay the fee.

      Last verified on Thursday 11th January 2018

    • 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/servicios/concentraciones/formulario-op-concentracion.

      The information required by the regulator for both the parent companies and local subsidiaries is the following:

      • legal representation (legal representative’s appointment and certificate of incumbency and good standing, 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 parties, both parent companies and local subsidiaries;
      • description of the activities (line of business) of the parties;
      • description of the relevant markets where the parties compete and their market share;
      • description of the transaction, including corporate and financial documents of the parties: company by-laws and financial statements;   
      • turnover (net sales) of parties during the immediate prior year;
      • detailed description of the relationship between the parties, parents and and their related companies (globally, not just in Ecuador);
      • description of supply structure in the relevant markets in which each of the parties compete (eg, suppliers, distributors, production capacity, installed capacity, etc);
      • description of demand structure in the relevant markets in which the parties compete (eg, main clients, entry and expansion barriers, etc);
      • description any economic efficiencies that might result from the transaction;
      • affidavit stating that the information filed 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; and
      • filing fee. See below for a description of the determination of the fee to be paid.

      Parties need to disclose all information as long as it is relevant to assess the antitrust concerns of the transaction; the regulator only asks for a copy of the executed agreement. In our experience, the regulator does not ask for documents prepared for the board and reports or strategy papers prepared during early negotiations, but the legal faculties of the regulator are broad and it may request any documents deemed relevant for the review.

      Last verified on Thursday 11th January 2018

    • Ecuador

      Mergers or acquisitions of control 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 one or more of the shareholders agree to the merger.
      • In an asset acquisition, the agreement is deemed executed when the parties agree on the general terms and conditions of the transaction.
      • In direct or indirect acquisitions of rights, shares, equity or debt securities that gives the acquirer control or substantial influence over the target, the agreement is deemed executed when the undertakings consent to perform the transaction and agree on the form, timing and general conditions of the deal. 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.   
      • In cases of a merger by common management, the agreement exists from the moment that the administrators or officers with managerial duties are appointed by a general shareholders’ meeting.
      • In all other cases, an agreement exists from the moment that the merging parties consent to the transaction and reach a general  agreement on terms and conditions. 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.    

      Unfortunately, these standards are vague and allow contradictory interpretations. The regulator has not yet enacted a decision clarifying this point.

      Last verified on Thursday 11th January 2018

    • Ecuador

      There are no precedents regarding this point. However, due to the fact that the law and the regulator attribute major importance to the standard of change of control, it is reasonable to notify before or when the actual exercise or conversion takes place.

      Last verified on Thursday 11th January 2018

    • 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, several undertakings involved in global transactions have filed before the Ecuadorian regulator a side-letter with carve-out provisions by which they pledge that, even though the global closing will proceed, the Ecuadorian leg of the transaction will not move forward before formal clearance is received.

      The carve-out arrangement has been submitted and accepted by the Superintendency on a number of cases, the most prominent being Nokia’s global acquisition of Alcatel-Lucent.

      Last verified on Thursday 11th January 2018

    • 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. When the transaction is certified as complete the clock starts ticking. An initial 60 working day review period can be extended by a further 60 working days. This is the only track currently available under Ecuadorian law and there are no exceptions for transactions that do not pose any significant or obvious risk to competition. Recently, the regulator has interpreted that it has an additional 60 calendar days to review the transaction. This interpretation has been contested by several undertakings and the point is pending judicial review.

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

      Last verified on Thursday 11th January 2018

    • Ecuador

      If the Superintendency imposes conditions, the parties must submit within a 90-day period a detailed proposal outlining specific steps and efforts that will be undertaken to meet the conditions. The regulator then reviews the proposal and may suugest specific amendments.

      Last verified on Thursday 11th January 2018

    • Ecuador

      The only special rule is the failing firm doctrine, which so far has never been used in a merger review process. An interesting point regarding the failing firm doctrine in Ecuador is its statutory wording. Even though it is conceived as a defence in other jurisdictions, the text of the Ecuadorian statute seems to suggest that it is an exception rather than a defence, meaning the evidentiary burden may lie with the regulator. However, this is only speculative and we would advise against closing a transaction without giving the regulator the opportunity to analyse a failing firm argument.

      Last verified on Thursday 11th January 2018

    • 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 11th January 2018

    • Ecuador

      Notifying a transaction after the eight-day period constitutes an infraction fined with up to 8 per cent of the parties’ annual turnover in Ecuador. Executing a merger subject to control before having notified the regulator or before obtaining clearance is a serious infraction of the law. Serious infractions can be fined with up to 10 per cent of the parties’ annual turnover in Ecuador. If the resulting undertaking post-merger executes contracts or any other commercial transactions before obtaining clearance it can be fined up to 12 per cent of the parties’ annual turnover in Ecuador.    

      In addition to these fines, when an undertaking has committed very serious infractions, each of its legal representatives or members of the governing bodies that directed the decisions can individually be fined up to 500 Basic Unified Remunerations (US$193,000). There are no criminal penalties for antitrust violations in Ecuador.    

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

      Even though the Superintendency has pursued gun-jumping cases, none of them have concluded in a fine.

      Last verified on Thursday 11th January 2018

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

    • Ecuador

      The regulator has the following investigative powers:

      • Request and examine all securities, books, accounting and financial statements, correspondence, electronic files and any other document related to the merger under review, without the parties having a right to claim exemptions or privileges of any kind.   
      • Notify, examine and receive declarations or testimonies from undertakings or their representatives, employees, officials, advisers, dependants and third parties; using any 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 declarations must be made in the presence of a lawyer or a public defender provided by the state.
      • Carry out dawn raids in which the regulator can examine books, registries, commercial correspondence, assets and any other document relevant to the case.

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

      Last verified on Thursday 11th January 2018

    • Ecuador

      The regulator is under a general legal obligation to maintain confidentiality and secrecy regarding the facts and information that comes to its knowledge. The obligation to maintain confidentiality and secrecy applies to all persons who in the exercise of their position, specialisation or profession may come to know information contained in pre-merger review filings. The breach of the duty of secrecy or confidentiality is considered grounds for dismissal of any public servant working for the regulator, in addition to civil and criminal liabilities.    

      Both confidential and secret information are treated identically, even though they are theoretically distinguishable. Confidentiality refers to any information related to the fundamental rights of the parties. Reserved information refers to any information with economic value to the parties. When a party submits confidential information, it must file it along a public excerpt. The public excerpt is available for review to any other parties that are formally part of the merger notifications procedures, but they are not publicly available. 

      Last verified on Thursday 11th January 2018

    • Ecuador

      The regulator is under a legal obligation to publicise all final decisions. The final decisions regarding mergers are made public though the regulator’s web page after the Superintendency completes its review and approves, denies or conditions a transaction. This means the decision will be public even if any judicial or administrative challenges are still pending.

      Last verified on Thursday 11th January 2018

    • Ecuador

      The Ecuadorian regulator has a number of international agreements with foreign competition authorities (at least 16 as of January 2018). It does not seek a waiver from the parties to disclose confidential information when it exchanges documents with foreign authorities. 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 11th January 2018

    • Ecuador

      It is common for the regulator to consult all the parties that may be significantly affected by the transaction, especially the most important suppliers, competitors and clients. The regulator places great weight on the information provided by the notifying parties and conducts its review using it as a baseline.

      Last verified on Thursday 11th January 2018

    • Ecuador

      Third parties generally know about the transaction only when the regulator notifies them requesting information or an interview. Even though the regulator listens to the concerns of all affected parties, there is no legal mechanism to formally intervene and participate in a review. The Superintendancy has recently seen a surge in third-party claims. Once the third party demonstrates a legitimate interest in the case (the standard has been broadly interpreted), it is formally included in the proceedings and heard. The content of a participation may be publicised during the decision, but the Superintendancy is under no obligation to do so.

      Last verified on Thursday 11th January 2018

    • Ecuador

      The Law only allows challenges from third parties with a legitimate interest (legitimate interest has been interpreted much more broadly than the American injury-in-fact doctrine). Even though the las state that third-party challenges can only be heard when a decision was rendered based on false information, the regulator has admitted challenges based on competition concerns.

      Last verified on Thursday 11th January 2018

    • Ecuador

      We would advise against filing a prior consultation. Once the authority is consulted its decision is binding for the parties and it may create a negative bias against the transaction. Furthermore, the consultation mechanism produces an answer in a similar time as a formal review. The only upside to a prior consultation is that no fee must be paid.

      Last verified on Thursday 11th January 2018

  • 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 undertakings and of their main competitors;
      • the need to develop and/or maintain free competition of economic operators in the market, considering its structure and current or potential competitors;
      • whether the the merger generates or strengthens market power or produces a clearly foreseeable or proven decrease, distortion or hindrance of free competition (unilateral and/or coordinated effects); and
      • the contribution the merger may provide to the:
      1. i Improvement of production or commercialisation organisations;
      2. ii encouragement of technological or economic advances of the country;
      3. iii competitiveness of national industry in the international market provided that it does not significantly affect the economic well-being of national consumers;
      4. iv the well-being of national consumers;
      5. v whether said contribution is sufficient to compensate determined and specific restrictive effects on competition; and
      6. vi diversification of capital stock and worker participation in companies.      

      The regulator closely follows European decisions and cites them regularly. The Ecuadorian authority has sent out a strong message stating that its main concern is consumer welfare and the protection of small entrepreneurs, small companies and national champions. In blocked cases, the main concern of the authority was unilateral or non-coordinated effects.

      Last verified on Thursday 11th January 2018

    • 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 11th January 2018

    • Ecuador

      Yes. Even though there is no specific mechanism to negotiate remedies, the regulator addresses its concerns and negotiates remedies in interviews with the parties. Interviews can be requested by the authority or the parties. 

      Last verified on Thursday 11th January 2018

    • Ecuador

      Negotiated remedies are not part of an established mechanism; however, in recent cases, several undertakings have unilaterally proposed remedies if the transaction raises obvious competitive concerns. It is the Superintendancy’s prerogative to begin informal negotiations or to follow through with unilaterally imposed remedies. The fact that the negotiation of remedies is only informal implies that the Superintendancy is under no legal obligation of enacting agreed-upon conditions.

      Even though the regulator does not formally consider the feasibility of implementation of remedies in its analysis, they moderate conditions when the undertakings prove a specific remedy imposes an unreasonable burden.

      Last verified on Thursday 11th January 2018

    • Ecuador

      Yes. The decision can be challenged through administrative and judicial proceedings. There are three possible 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 appearance of 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 substantive reconsideration is the challenge of structural conditions imposed on the Ecuadorian leg of the AB InBev-SAB Miller merger. The challenge was based on constitutional grounds. A lengthy judicial showdown between the undertakings and the regulator is under way. Other challenges to decisions have been minor and address only ancillary concerns.

      Last verified on Thursday 11th January 2018

  • Judicial review

    • Ecuador

      All decisions can be appealed before administrative courts. The parties have 90 business days starting from the day they was made public to challenge it.     

      There are currently more than 25 lawsuits before administrative courts in which the regulator is a party, three of them related to the AB InBev-SAB Miller merger decision.

      Last verified on Thursday 11th January 2018

    • Ecuador

      The most prominent case was the judicial reversal of the condition by which the Ecuadorian subsidiary of SAB Miller was forced to sell one of its premium beer brands, Cerveza Club. After this condition was imposed, the parties challenged it before a constitutional tribunal, which declared it null. There is currently an appeal pending before the Constitutional Court.

      Besides this case, there are no judicial challenges to merger decisions.

      Last verified on Thursday 11th January 2018

    • Ecuador

      Administrative courts have the power to fully review a decision, including substantive analysis performed by the regulator and procedural aspects. However, the AB InBev challenge was founded on procedural and due process.

      Last verified on Thursday 11th January 2018

  • Case law

    • Ecuador

      The AT&T-Time Warner, Bayer-Monsanto and AB InBev-SAB Miller are the most relevant decisions of the past 12 months, considering the sophisticated markets where they took place and the importance of the companies in the Ecuadorian market. During these transactions the Intendancy, under the leadership of Daniel Cedeño, has demonstrated openness and willingness to work alongside notifying parties to reach negotiated solutions. 

      Last verified on Thursday 11th January 2018

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