Merger Control

Chile

Javier Velozo Alcaide and Pablo Pardo Murillo
Aninat Schwencke & Cia

    Applicable legislation and the competent authorities

  1. 1.

    What is the legislation applicable to merger control and how long has merger control legislation been in force?

  2. Enacted in 1973, Decree law No. 211 (Competition Act) originally did not provide specific merger control provisions. Therefore, mergers were subject to the general rule of article 3 of the Competition Act, which prohibits every act that impedes, restricts or hinders competition, or sets out to produce those effects.

    Merging parties could voluntarily request clearance of a proposed transaction within an ex ante non-adversary proceeding before the Competition Court (TDLC). In case parties implemented the merger without requesting approval of the TDLC, the operation could be challenged in an ex post adversary proceeding initiated by either the National Economic Prosecutor’s Office (FNE) or third parties.

    Additionally, the FNE made available a voluntary pre-merger procedure for horizontal concentrations. Nevertheless, decisions of the FNE under such procedure were not binding for the parties or the TDLC. Therefore, third parties were entitled to challenge a transaction before the TDLC in spite of the transaction having been "cleared" by the FNE.

    This system was subject of widespread criticism, because the FNE’s decisions were unable to provide certainty to the merging parties. Moreover, proceedings before the TDLC generally last more than a year, which could hinder commercial transactions that do not raise competition concerns.

    In July 2016, Law No. 20.945 introduced major amendments to the Competition Act, establishing a mandatory pre-merger notification system and a new substantive standard for analysing mergers. Also, the legal reform endowed the FNE with decision-making powers for merger control. These provisions were incorporated in the new section IV of the Competition Act (Merger Regulation), which will enter into force by June 2017. Until that date, the former system remains applicable.

  3. 2.

    Is there any additional sector- or industry-specific merger regulation legislation?

  4. In the media industry, article 38, subsection 2, of Law No. 19733 establishes a specific merger regulation. Any proposed modification or change in ownership or control of a social media entity subject to the state concessions system shall be notified to the FNE for a competition assessment. In case the FNE does not clear the transaction, the TDLC must evaluate the concentration within a non-adversarial proceeding.

    Also, concentrations in some regulated industries require clearance of the correspondent sector-specific agency. That is the case of concentrations of financial institutions (article 35 bis of Decree-Law No. 252) and water companies (article 64 of Decree-Law No. 252). Similarly, telecom regulator (SUBTEL) must authorise transferences of state concessions.

    Where approval of sector-specific regulators is required, there is no jurisdictional overlap with competition authorities. The FNE and the TDLC have jurisdictional exclusivity for the application of competition law. In turn, sector specific regulators assess concentrations from a technical and regulatory standpoint.

  5. 3.

    Are parties that are required to file notification of a transaction pre-closing obliged not to close their transaction pending regulatory review?

  6. Yes, according to article 49 of Chilean Competition Act parties required to file notification cannot implement the merger until it is cleared by the competition authority. The effects of the merger are automatically suspended until the decision of approval is final and legislation provides penalties for gun-jumping (see question 25).

    The Merger Regulation does not consider exceptions whereby parties may close the transaction before the authority’s clearance. Nevertheless, a strict timetable is set forth for obtaining a decision of the authority and, along the merger proceeding (see question 20), silence of the authority is regarded as a clearance decision.

  7. 4.

    Where pre-closing notification and approval is required, can a transaction that has been approved be challenged after closing? Has this ever happened? 

  8. Transactions closed after clearance cannot be challenged and they generate no further liability for the merging parties.

    However, article 32 of Competition Act establishes that acts and contracts performed according decisions of FNE and TDLC are subject of an infringement assessment if new information, different from that taken into consideration at the time of approval, is provided. This rule allows the TDLC to review closed transactions, for instance, where clearance was obtained throughout misleading or false information.

    Besides, according to article 3 bis of Competition Act, where a merger is cleared conditionally by the authority, the FNE and third parties may challenge the transactions before the TDLC if merging parties do not observe the conditions after closing.  

  9. 5.

    Who are the authorities responsible for merger enforcement and how is responsibility for investigation and decision-making allocated between authorities or within an authority?

  10. Within pre-merger notification proceedings the FNE is the main authority responsible for the enforcement of the Merger Regulation and it is endorsed with both, investigatory and decision-making powers. To date, the FNE has not allocated these powers into different divisions within its structure. 

    The TDLC exercises judicial review, at request of the merging parties, exclusively in respect of the FNE’s blocking decisions. The Supreme Court intervention is exceptional and it is limited to review – at the request of the merging parties or the FNE – the TDLC’s decisions imposing remedies not proposed by the merging parties.

    In other hand, at the request of the FNE or third parties, the TDLC has jurisdiction to judge the following infringements of the Merger Regulation, under an adversarial ex post proceeding: (i) breach of the obligation of notification; (ii) implementation of the transaction before the authorities’ approval; (iii) contravention of remedies established by competition authorities; (iv) implementation of the transaction against a blocking decision of the authority; and, (v) providing false information within a pre-merger notification proceeding, Decisions of the TDLC in those cases are subject to judicial review of the Supreme Court in points of law and fact, at the request of any party of the proceeding.

    Time frames

  11. 6.

    Identify the last three times merger control legislation was used to prohibit a transaction, and for each, provide the ultimate outcome.

  12. Only two blocking decisions have been adopted by the TDLC, both under the former merger control system (see question 1).

    The first case was related to a proposed merger between one of the main Chilean retail companies, Falabella, and the main supermarket chain, D&S (now Walmart). The transaction was prohibited by decision issued on January 2008. The TDLC found the merger would lead to a considerable change in market structure by creating a company that would be the dominant player in virtually all segments and functions of retailing: department stores, home improvement stores, supermarkets, real estate and financing. The TDLC assessed the potential effects of the merger on the ‘integrated retail’ market, encompassed by a combination of retail stores, shopping centres and consumer credit activities. The TDLC’s decision was not appealed and, therefore, the deal could not be completed.

    The other case referred to a projected acquisition of assets of the company Terpel Chile by the controller of Shell Chile (Quiñenco). Both companies were competitors in the markets related to the import, storage, transportation and wholesale and retail distribution of liquid fuels. The transaction was banned on 26 April 2012. However, the decision was overturned by the Supreme Court, which cleared the transaction upon divestiture conditions.

    No mergers have been prohibited thereinafter.

  13. 7.

    With respect to notifiable transactions that do not raise obvious competition concerns, what is the expected time frame from notification to a decision? 

  14. If notification is considered complete by the FNE, the approval of transactions that do not raise competition concerns shall be obtained within 30 working days from the notification date. In case of silence of the FNE during that time frame, the transaction automatically is considered cleared.

    This is notwithstanding suspensions of proceedings and extensions granted where remedies are proposed by the parties (see question 20).

  15. 8.

    With respect to notifiable transactions that raise obvious competition concerns, what is the expected time frame from notification to a decision?

  16. If notification is considered complete by the FNE, the approval of transactions that raise competition concerns shall be obtained within 120 working days from the notification date. In case of silence of the FNE during that time frame, the transaction automatically is considered cleared.

    This is notwithstanding suspensions of proceedings and extensions granted where remedies are proposed by the parties (see question 20).

    FNE's blocking decisions can be challenged by the merging parties before the TDLC and, exceptionally, certain TDLC's decisions are subject to the Supreme Court judicial review. In such cases proceedings could be extended for an additional period (see question 20). 

    Notifiable transactions: thresholds

  17. 9.

    Which type of transactions must be notified?

  18. Any type of concentration, whether horizontal, vertical or conglomerate, must be notified to the FNE, as long as the established thresholds are met (see question 11).

    Article 47 of Competition Act defines operation of concentration as any fact, act or convention, or a combination of them, with the effect that two or more previously independent economic agents not forming part of the same economic group, cease in their independency, in any scope of their activities. The definition is broad and economic-based.

    Operations may take the form of (i) proper mergers; (ii) acquisition of rights that allow one of the parties to exercise decisive influence in the other; (iii) joint ventures; and (iv) acquisition of assets.

    Regarding joint ventures, their qualification as an operation of concentration relies on a full functionality criterion. Only joint ventures whereby merging parties form an independent economic agent, which perform in a lasting basis, are regarded as operations of concentration.

    There are not specific provisions or guidance for assessing acquisitions of minority or non-controlling shareholdings in the context of pre-merger notification obligations. Therefore, it is necessary to appraise if the acquisition grants decisive influence in a case-by-case basis. Nevertheless, alongside the Merger Regulation, article 4(d) of Competition Act imposes the obligation of notifying the FNE acquisitions of more than t10 per cent of a competitor´s capital, within 60 days from the day the acquisition has been implemented. This post-merger notification obligation is triggered only if sales of both companies, separately, exceeded ap0rox. US$3.9 million in the preceding financial year.

    To date, the FNE has not issued guidance for assessing specific cases such as the acquisition or licensing of intellectual property rights and long-term supply agreements.

  19. 10.

    Where change in control is part of the test, what is the standard for defining control and changes thereof for pre-merger notification purposes? 

  20. According to the applicable Chilean legislation, in general the controller of a company is any person or group of persons with a joint action agreement that, directly or through other individuals or legal entities, participate in the ownership and have the power to carry out any of the following actions:

    • to ensure the majority of votes in the shareholders' meetings and elect the majority of the directors in the case of corporations, or to ensure the majority of votes in the assemblies or meetings of its members and to appoint the administrator or legal representative or the majority thereof, in other types of companies; or,
    • to decisively influence the management of the company.

    In this context it shall be understood that any person or group of persons with a joint action agreement decisively influences the administration or the management of a company when they, directly or through other individuals or corporate entities, control at least 25 per cent of the voting capital of the company, or the capital thereof if it is not a joint stock company, with the following exceptions:

    • that another person, or another group of persons exists with a joint action agreement that controls, directly or through other individuals or legal entities, an equal or larger percentage;
    • that it does not control, directly or through other individuals or corporate entities, more than 40 per cent of the voting capital of the company, or the capital thereof if it is not a joint stock company, and that simultaneously the controlled percentage is lower than the sum of the holdings of the other partners or shareholders with more than 5 per cent of such equity. To determine the percentage of the holdings of such partners or shareholders, the amount they own alone and the amount they own with the parties with whom they maintain a joint action agreement shall be added together; and
    • when the Security Market Regulator (SVS) so determines in consideration of the distribution and dispersion of the ownership of the company (articles 97 and 99 of the Securities Market Act (Law No. 18.045, as last amended by Law No. 20448 of 13 August 2010)).

    This formalistic definition of “control” is not applicable under competition law. Although the Merger Regulation does not provide a definition of control, article 47, subsection b, refers to the notion of “decisive influence” which appears substantively different to any formalistic assessment.

    Indeed, in the past the TDLC had the opportunity to define control within antitrust investigations as “the ability of a natural or legal person to exercise a decisive influence over the competitive decisions made by one or more natural or legal persons’” (Judgment 117/2011 of the TDLC). On the other hand, the precedent of the TDLC related to merger control (Judgment 22/2007 of the TDLC on a joint venture) has stated that, for competition law purposes, what is relevant is the fact that two companies will jointly exercise control over another company; that is to say, that they will get to exert, de iure or de facto, a decisive influence over its activities, its trade policy and, hence, over the fundamental decisions that will determine its business strategy and competitive behaviour, precisely in the same market in which the parent companies are competitors.

    Therefore, despite the absence of a legal definition of control, the precedent of Chilean Competition Law recognises the concepts of “de facto control” and “joint control” so the legal assessment is economic-based rather than formalistic.

  21. 11.

    What thresholds apply for determining whether a transaction must be notified? May the authority require the parties to notify a transaction that does not meet the thresholds?

  22. Above the following copulative thresholds merging parties must notify operations of concentration with effects in Chile:

    • Merging parties’ joint total sales in Chile reached in the financial year before the notification an amount of approx. US$72 million; and,
    • At least two of the merging parties have individually reached in the preceding financial year an amount of sales in Chile up to approx. US$11.5 million.

    Article 48 of the Merger Regulation provides guidance for calculating the turnovers. In the case of proper mergers and joint ventures, it is necessary to consider total sales in Chile of the merging parties and those of their respective economic group. Regarding the acquisition of rights, it is considered the total sales in Chile of the party that acquires decisive influence, its economic group and the economic agent acquired. Finally, in respect of the acquisition of assets, the analysis should include the sales in Chile of the economic agent that acquires the assets, its economic group and those related to the assets acquired.

    The thresholds themselves, based on the economic importance of the transaction, represent a de minimis rule. Also, the thresholds require that both parties must be operative in Chile.

    Finally, it is important to highlight that the Merger Regulation does not define the concept of “economic group”. In this regard, the TDLC has established that the assessment should rely on whether the economic interests of one party are aligned with those of the group or subordinated to them (Judgment 103/2010 of the TDLC).

  23. 12.

    In what conditions must transactions between foreign companies be notified? 

  24. Thresholds require that, at least, two of the merging parties must have sales in Chile (measured by in-country turnover). However, Chilean competition law has jurisdiction to catch any concentration having direct or indirect effect on a domestic market and, even if the thresholds are not met, mergers may be investigated within one year from their implementation.

    Therefore, if a transactions between foreign companies do not met the thresholds but may raise competition concerns (eg, because one of the parties, with no sales in Chile, is a potential competitor), could be advisable to voluntarily notify the operation to the FNE in order to avoid an ex post investigation.    

    Notification procedure, timing and penalties for non-compliance

  25. 13.

    Who must file the notification?

  26. All economic agents taking part on the operation of concentration should file the notification.

  27. 14.

    Are there filing fees?

  28. No, there are no filling fees.

  29. 15.

    Is there a standard form? How long does it take to prepare a filing? What type of information is generally required? 

  30. Recently the FNE invited bodies and individuals to participate in a consultation process regarding a draft of the standard form for filing notification and to debate about the sort of information that should be required.

    The proposed standard form under consultation requires detailed information about the transaction, the merging parties, their economic group, the horizontal and vertical markets affected by the merger and the possible efficiencies of the operation. Merging parties will have to disclose strategic information to the FNE, notwithstanding they might request confidentiality.

    Standard form will be available by June 2017, but it is foreseeable that preparation of filling will require 1-4 months prior submission.

    The FNE also brought to consultation a simplified form for notifications of transactions that, first sight, do not rise competition concerns (eg, where there is no horizontal or vertical market overlapping, where parties held small market shares and where Herfindahl-Hirshman Index reveals low levels of concentration post-merger).

    Based on the drafted thresholds for making applicable the simplified form, it seems that notification of transactions under the standard form will be exceptional. Nevertheless, the proposed simplified form still requires providing detailed information about the transaction, the merging parties, their economic group and the horizontal and vertical markets affected by the merger. Hence, it is foreseeable that preparation of filling under simplified form will require 15 days to two months’ prior submission.

  31. 16.

    When must notification be made? Is there a triggering event that requires a filing to be made within a specified period? 

  32. According to article 48 of Competition Act, operation must be filed before closing.

    Competition Act does not provide any guidance about triggering events for filing notification depending on the structure of the transactions. Therefore, the FNE and the TDLC will have to develop a criterion regarding the kind of events considered as “closing”. The interpretation of this rule is relevant, because delay in filing notification is subject to fines to be imposed in a daily basis (see question 25).

  33. 17.

    Is there a pre-notification requirement or custom whereby a draft notification is submitted first to the authority for comments and questions to be addressed before formal notification is made? How does that work in practice and what are the risks of submitting a formal notification without this step? 

  34. The Merger Regulation does not include a pre-notification stage. Nevertheless, article 50 states that, where a notification is incomplete, the FNE shall identify and communicate the mistakes or oversights to the merging parties, who have 10 days to make amendments. It may be possible for the merging parties to use this opportunity to exchange comments with the FNE, because notification remains confidential until the investigation is officially initiated.

    Furthermore, nothing prevents the merging parties to contact the Merger Division of the FNE for informal guidance. Although they are not binding, comments of the FNE could be useful for preparing a complete notification and proposing accurate remedies.

  35. 18.

    When must notification be made with respect to acquisitions of convertible non-voting securities or options? 

  36. The Merger Regulation does not provide specific provisions in this regard. In application of the general merger control provisions (see questions 9 and 16) the operation should be notified before the acquisition.

  37. 19.

    Where there is an obligation not to close the transaction pending review, is there any alternative available to allow closing before formal clearance? Is there any guidance from the authority as to how the parties should conduct business between signing and closing?

  38. It is not possible to close the transaction before clearance and the FNE has not provided guidance about how merging parties must conduct business until the decision of the authority. 

  39. 20.

    What is the timeline for review and clearance?

  40. Although the Merger Regulation does not include a pre-notification stage, parties may set informal meetings with the FNE (see question 17).

    From the notification date, in a period of 10 days the FNE must establish whether the notification is complete. Silence of the FNE implies the notification is considered completed and the investigation is automatically initiated.

    Pre-merger notification procedure establishes two phases of investigation. Phase I may last no longer than 30 days. Within this stage the FNE can: (i) clear the transaction unconditionally; (ii) clear the transaction conditionally to remedies proposed by the merging parties; or (iii) extend the investigation to Phase II. The silence of the FNE in this stage implies the transaction is unconditionally cleared. Consequently, transactions that are not likely to raise competition concerns should be cleared within Phase I no more than 40 working days from the notification date.

    Stage II may last no longer than 90 days. Within this stage the FNE can: (i) clear the transaction unconditionally; (ii) clear the transaction conditionally to the remedies proposed by the merging parties; or (iii) block the transaction. Silence of the FNE in this stage implies the transaction is unconditionally cleared. Consequently, transactions that are likely to raise competition concerns should be cleared within Phase II in no more than 130 working days from the notification date.

    This timetable could be subject to delays related to the accuracy of the notification form (see question 17). Also, each stage can be suspended once, for up to 30 working days in Phase I, and for up to 60 working days in Phase II. The suspension must be agreed between the merging parties and the FNE, so it is not a right for the merging parties to obtain it. Moreover, every time merging parties propose remedies to the FNE proceeding is suspended; up for 10 working days in Phase I, and up for 15 working days in Phase II.

    Merging parties can challenge blocking decisions of the FNE before the TDLC. They have 10 working days to appeal the FNE’s decision. As soon as the file is received by the TDLC, a public hearing must be set within the next 60 working days. The TDLC must take a decision in no longer than 60 working days from the public hearing date.

    Therefore, transactions first blocked by the FNE and then cleared by the TDLC, could require 260 working days of investigation, regardless delays related to the completeness of the notification form, suspension of proceedings, the proposition of remedies and the period that the FNE takes to send the file to the TDLC.  

    Where the Supreme Court exceptionally exercises judicial review of TDLC decisions (see question 5), investigation is extended for an additional undefined period (six to 18 months).

  41. 21.

    Are there post-clearance obligations imposed on the parties for a clearance decision to remain valid? 

  42. The FNE only can impose remedies and conditions proposed by the merging parties. The TDLC exceptionally might impose other post-clearance obligations; however, in such cases merging parties may challenge the decision before the Supreme Court.

  43. 22.

    Is there a simplified notification procedure with accelerated review periods? What type of transactions qualify?

  44. There is a simplified notification form for certain transactions (see question 15), nevertheless, the applicable procedure is the same.

    It is likely, though, that transactions notified throughout the simplified form do not raise competition concerns, so it is expectable for them to be cleared in Phase I (see question 20).

  45. 23.

    Are there special rules applicable for public takeover bids, private equity transactions or for corporate restructuring under bankruptcy procedures? 

  46. No, there are no special rules for those cases.

  47. 24.

    Can the authority be consulted on a no-names basis for guidance on notification requirements? Is this practice useful? 

  48. Although the Merger Regulation does not establish this possibility, in practice it is possible to approach the FNE for guidance on a no-name basis. Although the FNE may provide some guidance to the parties, it is not binding and it will not confirm that no filing is required for any given transaction.

  49. 25.

    What are the risks if the parties do not file, if the transaction is closed before clearance or if notification is untimely? What type of behaviour can be considered gun-jumping? What sanctions can be imposed and on whom? What is the highest fine imposed to date for failure to file or gun-jumping? 

  50. The Merger Regulation establishes periodic penalty payments, not exceeding approx. US$17 per day calculated from the closing date, to be imposed to the merger parties where they infringe the obligation of notifying the operation.

    Also, sanctions of article 26 of Competition Act are applicable if merger parties (i) close the transaction before clearance (gun-jumping); (ii) close the operation against a blocking decision of the authority; or (iii) infringe a condition subject to which the authority cleared the transaction.

    According to mentioned article 26, at the request of the FNE or private litigants, the TDLC may impose fines up to either: 30 per cent of the firm’s turnover in Chile correspondent to the product related to the infringement; or, the double of the economic benefit related to the infringement. In case it is not possible to determine the turnover of the merging parties or their economic benefit, the TDLC can impose fines up to approx. US$50,000. Furthermore, the TDLC is empowered to impose ex post remedies or even to reverse the merger through divestiture orders.

    In all cases, the sanctions could be imposed on the correspondent corporation, directors, managers and every individual who intervened in the infringement.

    There are no specific provisions or guidance regarding what type of behaviour can be considered as gun-jumping. The TDLC has not provided decisions on the matter either.

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

  51. 26.

    What are the investigative powers of the authority? 

  52. The FNE has wide powers of investigation regarding merger control and they are oriented to carry up a complete analysis of the relevant markets that may be affected by the transactions. This is in line with the substantive analysis set forth by the Merger Regulation, which require addressing whether the transaction substantially lessens competition.

    The FNE may request third parties (eg, competitors, customers, or suppliers not involved in the transaction) to submit any information considered relevant for the investigation. For this purpose, the FNE may send questionnaires to third parties, ask them to produce certain documents, and summon them to declare.

    In particular, according to articles 39 and 52 of the Competition Act, the FNE may: (i) request information, documentation and collaboration of public organisms, state companies and international agencies or organisations; (ii) request all necessary information to any individual or corporation; (iii) request the compulsory declaration – in person or by any means – of any natural or legal persons who may acknowledge the subject matter of the investigation; and, (iv) request reports and opinions to public entities and experts.

  53. 27.

    Are there confidentiality rules to protect sensitive proprietary information provided to the authority and what procedure must be followed for confidentiality to apply? 

  54. The FNE decision initiating a merger investigation is public. However, strategic information of the merging parties remains confidential. In the same vein, decision of termination of Phase I must protect confidential information of the parties.

    Once Phase II is initiated, investigation file becomes public. Nevertheless, the FNE may order, ex officio or at the request of the interested party, that information provided remains reserved or confidential. In order to request the confidentiality of the information, it is necessary for the interested party to explain the grounds on which such request is based and to provide public versions of the documents.

    Finally, regardless confidentiality, if a request of information issued by the FNE damages the interests of any person, they may plea the TDLC to declare the complete or partial annulment of the correspondent request.

  55. 28.

    Is notification and its content publicised? 

  56. The FNE decision initiating the investigation is public; however, strategic information of the merging parties provided with the notification shall remains classified.

  57. 29.

    Are there agreements in place to exchange information with foreign competition authorities? Must the authority seek a waiver from the transaction parties to disclose confidential information submitted in their filing? 

  58. Apart from the Competition Chapters contained in various trade agreements, there are a number of cooperation agreements between the FNE and foreign competition authorities (the US’s FTC and DoJ, Canada’s Competition Bureau, Mexico’s CFC, Brazil’s CADE and Peru’s INDECOPI, among others), all of which include exchange of information provisions. In all cases, if the information to be exchanged is confidential, the FNE must seek a waiver from the parties that submitted such information.

    The TDLC may exchange information with foreign competition authorities, following the procedures applicable to exchange of information and upon a formal written request. If the information requested is confidential, the TDLC must seek a waiver from the parties that submitted such information.

  59. 30.

    As a matter of practice, how do the authorities investigate a transaction? Whom do they consult?  What weight, based on your experience, does the authority give to the information provided? 

  60. It is not possible to forecast the way the FNE will conduct investigations under the new merger regulation.

    Under the former merger control system though, the FNE used to collect comments and information, in writing, from competitors, suppliers and customers of the merging parties; trade, business and consumer associations; and any public agencies concerned. Occasionally, the FNE also requested information to foreign authorities. The FNE used this evidence to support its market analysis and its study of the risks and efficiencies of the merger.

  61. 31.

    What rights do third parties such as competitors, suppliers or customers have to intervene and participate in the investigation process, including rights to access the investigation file? Is the content of their participation publicised?

  62. In Phase I third parties have no right to intervene in the investigation, unless the FNE requests information to them. Third parties only have access to the decision that initiate and terminate this phase.

    Conversely, in Phase II file becomes public and any interested party have the right to be heard within 20 days from the date this phase is initiated.

    In both, Phase I and Phase II, for appraising whether remedies imposed by the merging parties are sufficient to alleviate anticompetitive effects, the FNE may communicate the remedies to interested third parties in order to request their opinion.

    If the merging parties challenge the FNE blocking decisions before the TDLC, and exceptionally before the Supreme Court, third parties have the right to intervene in the correspondent public hearings.

  63. 32.

    Can third parties appeal clearance decisions, and has this ever happened successfully?

  64. It is not possible for third parties to appeal clearance decisions.

  65. 33.

    In a transaction that appears to raise competitive concerns, is it recommended to consult the authority prior to filing and, if so, why? 

  66. Nothing prevents the merging parties from contacting the FNE for informal guidance, but it is not possible to predict whether it will be advisable to so under the new merger control system. 

  67. 34.

    Do the authority and its staff share their concerns about a transaction with transaction parties at each stage of review? How can parties productively participate in the evaluation and decision processes?

  68. According to article 53 of Competition Act, merging parties have the right to be heard along every stage of the investigation, whether about the operation, the information provided by third parties and the investigation itself.

    Moreover, at any stage of the investigation, merging parties may request the FNE to provide information about the risks of the operation so far identified in the investigation.

    Substantive analysis and remedies

  69. 35.

    Are there published guidelines for merger analysis? 

  70. Currently the FNE’s ‘Internal Guide for the Analysis of Horizontal Mergers’ spells out the criteria the FNE will use to analyse horizontal mergers during its voluntary merger procedure. However, once new merger regulation enters into force, this guide will be no longer applicable.

  71. 36.

    What are the prevailing theories of competitive harm and analysis, and how are they typically applied? 

  72. Owing to the absence of specific merger provisions, under the former merger control system the substantive analysis consisted in assessing whether the transaction impedes, restricts or hinders competition, or sets out to produce those effects .New merger regulation, in  line with the US Horizontal Merger Guidelines, bases its substantive standard in assessing whether the transaction "substantially lessens competition".

    It is uncertain whether this substantive standard’s change will modify the analysis developed by the TDLC and the FNE during these years in respect of horizontal mergers.

    To date, in horizontal mergers investigations the TDLC and the FNE balance the anticompetitive effects of the transaction with its likely efficiencies. For this purpose, the assessment of a merger encompasses the following steps: (i) the qualification of the transaction as a operation of concentration, from an economic perspective rather than legal; (ii) the definition of the relevant markets affected by the merger; (iii) analysis of market shares as a proxy for appraising the levels of concentration pre and post merger; (iv) identification of barriers to entry; (v) analysis of anticompetitive risk of the transaction; and (vi) analysis of efficiencies and other countervailing factors such as exiting firms scenarios or the existence of countervailing buyer power.

    The analysis of anticompetitive risks considers unilateral effects related to the incentives that each market participant would have to raise its prices as a result of the less competitive pressure ensuing from the merger; and the higher likelihood of coordination post-merger among participants in the relevant markets (coordinated effects).

    To take into account alleged efficiencies of a merger, the FNE and the TDLC have stated that they must be verifiable, inherent to the transaction (ie, that they cannot be achieved, within a reasonable period of time, by other operations that do not entail market concentration) and must not be the result of anticompetitive reductions in the quantity or quality of the products. Additionally, the alleged efficiencies of a concentration must be significantly likely to result in lower prices or better product quality for consumers, within a reasonable period of time. All these criteria are shared, in general, by the competition authorities of both the United States and the European Union.

    It is worth mentioning that since 2011, the FNE and the TDLC have begun to explicitly cite consumer welfare effects in their investigations and decisions, despite the fact that such considerations are not expressly mentioned in the Competition Act.

  73. 37.

    Are there safe harbours and what are they? 

  74. There are no safe harbours established by legislation. Transactions below the thresholds set by the Merger Regulation can be investigated by the FNE within one year from its implementation. In such cases, the FNE investigates whether the merger itself embodies an infringement of competition law and may request to the TDLC the application of fines and divestiture orders within an ex post adversarial proceeding.

    In order to avoid an ex post investigation, parties of a transaction below the thresholds may voluntarily notify the merger to the FNE. Merger Regulation makes available to voluntary notifications the same procedure applicable to mandatory notifications.

    The absence of dominance post-merger and the absence of horizontal and vertical overlap do not prevent the FNE to analyse the anticompetitive effects of the transactions. Although those circumstances might make applicable a simplified notification form, the merger has to be investigated anyway and the FNE could condition or block the transaction, respectively, due to a possible reduction of the competitive strength or the presence of conglomerate effects.

  75. 38.

    To what extent are economic efficiencies and non-competition issues taken into account in the review process? 

  76. As explained in question 36, in merger control procedures, the FNE and the TDLC carefully analyses the efficiencies of the operation and weighs them up against the risks to competition the transaction may bring about. Their assessment is purely competition-based so they do not take into account non-competition issues such as national security, local interests and preserving jobs.

    Under the former merger control system the TDLC cleared mergers based on efficiencies. For instance, in the LAN-TAM merger review, while imposing a series of mitigating measures, the TDLC approved the merger and stated that the transaction would create a more efficient company that would make a better use of its capacity to transport both cargo and passengers.

  77. 39.

    Can remedies be negotiated, and, if so, at what stage in the process? How are they enforced? 

  78. Merger parties may propose remedies to the FNE at any stage of the investigation. It is uncertain whether in practice the right to propose remedies will apply through a negotiation process or rather within a formal request context.

    The infringements of conditions imposed by the FNE or the TDLC in merger investigations are subject to fines and divestiture orders (see question 25) enforceable before the TDLC upon the request of the FNE or private litigants.

    Under the former merger control system the FNE could reach extrajudicial agreements with the merging parties, which had to be reviewed and approved by the TDLC. This negotiation leeway is no longer available for transactions investigated under the pre-merger procedure. Nevertheless, in respect of mergers below the thresholds investigated ex post by the FNE, extrajudicial agreements may still available as a pathway for negotiating remedies.

  79. 40.

    How common are negotiated remedies? Can negotiated remedies be challenged by third parties? 

  80. Under the former merger control system, the FNE used to negotiate remedies with merging parties throughout extrajudicial agreements. In each case the agreements were approved by the TDLC.

    For instance, in the Electrolux/GE merger (2015), a multinational producer of home appliances with presence in Chile (Electrolux) projected a global acquisition of its competitor GE. Although GE did not commercialise directly its products in Chile, it had a minority shareholding in a Mexican joint venture (Mabe) which sold home appliances in Chile as the exclusive distributor of GE in Latin America. Since the acquisition of GE would grant to Electrolux a minority shareholding of a competitor, the FNE negotiated remedies, imposing several safeguards regarding the administration and operation of the Chilean affiliates of Electrolux and Mabe.

    Under the new system, the FNE can only impose remedies proposed by the merging parties. When reviewing the FNE’s blocking decisions, the TDLC may impose remedies different to those proposed by the merging parties, but they can be challenged by the FNE and the merging parties before the Supreme Court.

    Third parties are not entitled for challenging remedies adopted either by the FNE or the TDLC.

  81. 41.

    Is there a vehicle for reconsideration by the authority of its decision? If so, please describe and provide recent examples where reconsideration led to a revised outcome.

  82. Only blocking decisions of the FNE may be challenged before the TDLC. In turn, only decisions of the TDLC imposing remedies not proposed by merging parties can be challenged before the Supreme Court. Whether before the FNE, TDLC or the Supreme Court, it is not possible for the parties to request to the same authority the reconsideration of its decision.

    Judicial review

  83. 42.

    Can a decision from the regulator be appealed and if so what is the timetable for judicial review to take place?

  84. The FNE blocking decisions can be appealed by the merging parties before the TDLC. A public hearing is set within 60 days from the date the file is sent by the FNE. The TDLC must take a decision in no longer than 60 working days from the public hearing date.

    Exceptionally decisions of the TDLC can be appealed by the merging parties and the FNE before the Supreme Court. There is no timetable for Supreme Court’s decisions, but often judicial review takes a range of 6-18 months.

    Both appeals have to be submitted within 10 days from de notification date of the correspondent decision.

  85. 43.

    What has been the most important challenged decision in the past five years that has been overruled and how often generally do appeals result in reversal?

  86. Under the former merger control system, only once (January 2013) the Supreme Court overruled a merger decision of the TDLC. In the Terpel/Quiñenco case the Supreme Court cleared the acquisition by the controller of Shell Chile (Quiñenco) of Terpel’s assets in the market of retail distribution of liquid fuels, reversing the blocking decision rendered by the TDLC. The TDLC found that the risks to competition, arising both from unilateral and coordinated effects, were very high, especially in the market for the retail distribution of liquid fuels. Instead, the Supreme Court allowed the transaction to go ahead, imposing divestiture conditions.

    There have not been any quashed decisions under the new Merger Regulation. 

  87. 44.

    When reviewing decisions from the competition authority, do courts restrict themselves to procedural aspects, or can they review the substance of the authority’s analysis?

  88. Both, the TDLC and the Supreme Court, are entitled to carry out a full merit judicial review. Therefore, judicial review in merger control may address substantive analysis and it is not confined to procedural aspects.

    Case law

  89. 45.

    Briefly highlight any notable merger control decisions rendered over the past 12 months.

  90. In April 2016, the TDLC unconditionally cleared the acquisition of two luxury hotels by a hotel investment fund that already owned three hotels in Santiago. The TDLC found that a change in the ownership of the hotels it was not capable to affect competition, because their administration relied in independent operators. The TDLC went further, concluding that, even if the hotel investment fund could exercise decisive influence in the administration of the hotels, the transaction did not raise competition concerns given the concentration levels in the relevant market, measured by the Herfindahl-Hirshman Index.

    In 2015 the FNE accused the supermarket chain SMU of infringing divestiture conditions subject to which the acquisition of a supermarket chain was cleared in 2012. The TDLC imposed fines to SMU for US$2.3 million for delays in the accomplishment of divestiture conditions. The decision was upheld by the Supreme Court in September 2016. 

  91. 46.

    Update and trends

  92. The new merger regulation came to solve the lack of certainty that the former merger control system used to create.

    In itself, the application of a complete new merger control system will impose a great challenge to competition authorities and also to practitioners.

    A specific challenge arises regarding the substantive analysis of mergers. Due to the absence of specific merger control rules, to date Chilean competition authorities based their substantive analysis on general competition law provisions. In this context, they had to address whether the merger was "anticompetitive". 

    The new system establishes a different paradigm, which takes in hand if the "merger substantially lessens competition". The way this amendment shall influence the methodology of analysis is something that the FNE and the TDLC will have to tackle during the first years of the new merger regulation.

    Another interesting topic relates to the assessment of vertical and conglomerate mergers. Unlike the FNE horizontal guidelines issued under the former merger control system, the new regulation also spans vertical and conglomerate mergers. There is not much precedent about these two types of concentrations and the FNE will have to build up a methodology of analysis on the matter.

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Questions

    Applicable legislation and the competent authorities

  1. 1.

    What is the legislation applicable to merger control and how long has merger control legislation been in force?


  2. 2.

    Is there any additional sector- or industry-specific merger regulation legislation?


  3. 3.

    Are parties that are required to file notification of a transaction pre-closing obliged not to close their transaction pending regulatory review?


  4. 4.

    Where pre-closing notification and approval is required, can a transaction that has been approved be challenged after closing? Has this ever happened? 


  5. 5.

    Who are the authorities responsible for merger enforcement and how is responsibility for investigation and decision-making allocated between authorities or within an authority?


  6. Time frames

  7. 6.

    Identify the last three times merger control legislation was used to prohibit a transaction, and for each, provide the ultimate outcome.


  8. 7.

    With respect to notifiable transactions that do not raise obvious competition concerns, what is the expected time frame from notification to a decision? 


  9. 8.

    With respect to notifiable transactions that raise obvious competition concerns, what is the expected time frame from notification to a decision?


  10. Notifiable transactions: thresholds

  11. 9.

    Which type of transactions must be notified?


  12. 10.

    Where change in control is part of the test, what is the standard for defining control and changes thereof for pre-merger notification purposes? 


  13. 11.

    What thresholds apply for determining whether a transaction must be notified? May the authority require the parties to notify a transaction that does not meet the thresholds?


  14. 12.

    In what conditions must transactions between foreign companies be notified? 


  15. Notification procedure, timing and penalties for non-compliance

  16. 13.

    Who must file the notification?


  17. 14.

    Are there filing fees?


  18. 15.

    Is there a standard form? How long does it take to prepare a filing? What type of information is generally required? 


  19. 16.

    When must notification be made? Is there a triggering event that requires a filing to be made within a specified period? 


  20. 17.

    Is there a pre-notification requirement or custom whereby a draft notification is submitted first to the authority for comments and questions to be addressed before formal notification is made? How does that work in practice and what are the risks of submitting a formal notification without this step? 


  21. 18.

    When must notification be made with respect to acquisitions of convertible non-voting securities or options? 


  22. 19.

    Where there is an obligation not to close the transaction pending review, is there any alternative available to allow closing before formal clearance? Is there any guidance from the authority as to how the parties should conduct business between signing and closing?


  23. 20.

    What is the timeline for review and clearance?


  24. 21.

    Are there post-clearance obligations imposed on the parties for a clearance decision to remain valid? 


  25. 22.

    Is there a simplified notification procedure with accelerated review periods? What type of transactions qualify?


  26. 23.

    Are there special rules applicable for public takeover bids, private equity transactions or for corporate restructuring under bankruptcy procedures? 


  27. 24.

    Can the authority be consulted on a no-names basis for guidance on notification requirements? Is this practice useful? 


  28. 25.

    What are the risks if the parties do not file, if the transaction is closed before clearance or if notification is untimely? What type of behaviour can be considered gun-jumping? What sanctions can be imposed and on whom? What is the highest fine imposed to date for failure to file or gun-jumping? 


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

  30. 26.

    What are the investigative powers of the authority? 


  31. 27.

    Are there confidentiality rules to protect sensitive proprietary information provided to the authority and what procedure must be followed for confidentiality to apply? 


  32. 28.

    Is notification and its content publicised? 


  33. 29.

    Are there agreements in place to exchange information with foreign competition authorities? Must the authority seek a waiver from the transaction parties to disclose confidential information submitted in their filing? 


  34. 30.

    As a matter of practice, how do the authorities investigate a transaction? Whom do they consult?  What weight, based on your experience, does the authority give to the information provided? 


  35. 31.

    What rights do third parties such as competitors, suppliers or customers have to intervene and participate in the investigation process, including rights to access the investigation file? Is the content of their participation publicised?


  36. 32.

    Can third parties appeal clearance decisions, and has this ever happened successfully?


  37. 33.

    In a transaction that appears to raise competitive concerns, is it recommended to consult the authority prior to filing and, if so, why? 


  38. 34.

    Do the authority and its staff share their concerns about a transaction with transaction parties at each stage of review? How can parties productively participate in the evaluation and decision processes?


  39. Substantive analysis and remedies

  40. 35.

    Are there published guidelines for merger analysis? 


  41. 36.

    What are the prevailing theories of competitive harm and analysis, and how are they typically applied? 


  42. 37.

    Are there safe harbours and what are they? 


  43. 38.

    To what extent are economic efficiencies and non-competition issues taken into account in the review process? 


  44. 39.

    Can remedies be negotiated, and, if so, at what stage in the process? How are they enforced? 


  45. 40.

    How common are negotiated remedies? Can negotiated remedies be challenged by third parties? 


  46. 41.

    Is there a vehicle for reconsideration by the authority of its decision? If so, please describe and provide recent examples where reconsideration led to a revised outcome.


  47. Judicial review

  48. 42.

    Can a decision from the regulator be appealed and if so what is the timetable for judicial review to take place?


  49. 43.

    What has been the most important challenged decision in the past five years that has been overruled and how often generally do appeals result in reversal?


  50. 44.

    When reviewing decisions from the competition authority, do courts restrict themselves to procedural aspects, or can they review the substance of the authority’s analysis?


  51. Case law

  52. 45.

    Briefly highlight any notable merger control decisions rendered over the past 12 months.


  53. 46.

    Update and trends


Other chapters in Merger Control

  • Bolivia
    Guevara & Gutiérrez Servicios Legales
  • Brazil
    Stocche Forbes Advogados
  • Chile
    Aninat Schwencke & Cia
  • Ecuador
    Pérez Bustamante & Ponce
  • Venezuela
    D'Empaire Reyna Abogados