This country-specific Q&A provides an overview to merger control laws and regulations that may occur in Peru.
It will cover jurisdictional thresholds, the substantive test, process, remedies, penalties, appeals as well as the author’s view on planned future reforms of the merger control regime.
This Q&A is part of the global guide to Merger Control. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/merger-control-3rd-edition
In Peru, the Defense of Free Competition has as its main normative base Legislative Decree 1034 - Law of Repression of Anticompetitive Behaviors (hereinafter, LRCA), which establishes an ex post control of anticompetitive conducts, such as abuse of dominant position and horizontal and vertical collusive practices, in order to promote economic efficiency in markets for the welfare of consumers. The National Institute for the Defense of Competition and Protection of Intellectual Property – INDECOPI applies the LRCA in all sectors of the economy, except in the public telecommunications services sector where the Supervisory Body of Private Investment in Telecommunications – OSIPTEL is the entity competent to apply the LRCA.
Likewise, in terms of defense of competition, in the case of the electricity sector, Peru has ex ante (prior) control of business concentration operations, regulated by Law 26876 – Electricity Sector Anti-monopoly and Anti-Oligopolistic Law – and by the norms that regulate this Law (Supreme Decrees 017-98-ITINCI and 087-2002-EF). However, to date, Peru does not have a general corporate merger control system applicable to all sectors of the economy that allows control of structures in the market.
In this context, INDECOPI is the agency in charge of the general application of competition policies in the country, including the application of Law No. 26876 – Electricity Sector Anti-monopoly and Anti-Oligopolistic Law (hereinafter, Law No. 26876), through its Commission for the Defense of Free Competition in first instance; and, through the Special Court for the Defense of Competition of the INDECOPI Tribunal, in the second instance of review.
Currently, eleven (11) bills aimed at establishing ex ante control of business concentrations in all sectors of the economy are under discussion in the Congress of the Republic. These bills have been presented by representatives of almost all parliamentary groups, so there is some consensus on their possible approval. The referred bills are the following:
- Bill 3279/2018-CR, presented on August 27, 2018.
- Bill 2660/2017-CR, presented on April 5, 2018.
- Bill 2654/2017-CR, presented on April 5, 2018.
- Bill 2634/2017-CR, presented on March 28, 2018.
- Bill 2604/2017-CR, presented on March 21, 2018.
- Bill 2569/2017-CR, presented on March 15, 2018.
- Bill 2567/2017-CR, presented on March 15, 2018.
- Bill 2558/2017-CR, presented on March 15, 2018.
- Bill 2398/2017-CR, presented on February 7, 2018.
- Bill 0367/2016-CR, presented on October 11, 2016.
- Bill 0353/2016-CR, presented on October 3, 2016.
From now on, we will analyze Law 26876 and its respective regulations, as well as the three bills aimed at establishing ex ante control of business concentrations in all sectors of the economy that have had the greatest media and academic importance: 2654/2017-CR , 2634/2017-CR and 2604/2017-CR (hereinafter, Bill No. 2654, 2634 and 2604, respectively, and "the Bills", when we refer to them jointly).
Is mandatory notification compulsory or voluntary?
In all cases, the notification is compulsory if the firms have exceeded the thresholds.
Is there a prohibition on completion or closing prior to clearance by the relevant authority? Are there possibilities for derogation or carve out?
Yes, if all the requirements are met, the firms are forbidden to complete the transaction without the authority’s clearance. If the transaction is completed without this clearance, the transaction is deemed null.
What types of transaction are notifiable or reviewable and what is the test for control?
Law No. 26876 includes all vertical and horizontal concentrations taking place in the generation, transmission and/or distribution activities of the electricity sector. Concentration, according to Peruvian Law, is the realization of any of the following actions: mergers; setting-up of a company in common; direct or indirect acquisitions of control of other companies through the acquisition of stock shares, participation, through any contract or legal act that confers direct or indirect monitoring of a company including joint ventures, association agreements, use of shares or participations, management contracts, shares syndication contracts or any act with an effect akin to a business collaboration contract. Likewise, the acquisition of productive assets of any company that develops activities in the sector; or any other legal act or contract including agreements concluded between competitors, suppliers, clients, shareholders or any other economic operators by which companies, associations, shareholdings, partnerships, trusts or assets in general, are formed or concentrated.
On the other hand, according to Supreme Decree 017-98-ITINCI, the control test is defined by the regulation established by the Superintendence of Banking, Insurance and AFP (SBS). According to SBS Resolution No. 5780-2015, control is understood as the preponderant and continuous influence in the decision making of the governing bodies of a company. Control is direct when a person or company exercises more than half of the voting power in the general meeting of shareholders or partners of a company, and indirect when a person or company has the power to appoint, remove or veto the majority of the members of the board of directors or equivalent body, to exercise the majority of the votes in the meetings of the board of directors or equivalent body, to approve the operational and/or financial policies, to approve the decisions on dividends and other distributions, to designate, remove or veto the general manager or the manager who is authorized to manage the funds; even if it does not exercise more than half of the voting power in the general meeting of shareholders.
The Bills have essentially the same test to determine the existence of control.
In which circumstances is an acquisition of a minority interest notifiable or reviewable?
Only if the acquisitions confer direct or indirect control over the target company, in terms of the Resolution SBS No. 5780-2015. In the case of the Bills, the regulation is essentially the same.
What are the jurisdictional thresholds (turnover, assets, market share and/or local presence)? Are there different thresholds that apply to particular sectors?
Under the Electrical Sector Antitrust Law and Regulation, an authorization from INDECOPI (the Peruvian competition agency) is required prior to the acquisition of direct or indirect control of an electrical company, provided that the following conditions are met:
a) the purchaser and its affiliates or group companies hold – or will hold after the transaction – a concession or authorization for power generation, transmission and/or distribution;
b) the local market share of the companies involved in the operation (including all affiliates and subsidiaries) amounts to, or exceeds, individually or in the aggregate, either before or after the operation, 15% (for horizontal integration) or 5% (for vertical integration).
c) the condition is considered fulfilled even if only one of the thresholds set above is met. Market share is determined on the basis of the ratio between total annual revenue of the companies involved in the operation for the year preceding the filing and total annual revenue of all companies engaged in the same electrical activity within the Peruvian Interconnected System. When calculating the ratio, the shares issued outside of Peru by that the companies involved are not considered;
d) the shares or interest to be purchased i) represent at least 10% of the outstanding capital stock of the relevant company, or ii) provides control over the relevant company; and,
e) the operation under assessment, either within one of its individual acts or taken as a whole, involves the acquisition, directly or indirectly, by the acquirer of productive assets, amounting to 5% or more of the acquirer's total assets (on the basis of market value at the time of notification).
According to Bill No. 2634, aimed at establishing ex ante control of business concentrations in all sectors of the economy, the thresholds depend on sales (it is required that at least one of the companies involved register a level of annual sales above 20,000 Tax Imposition Units or "UIT", approximately US$ 26,000,000, or together they exceed 50,000 UIT, approximately US$ 65,000,000); or, they depend on the market share, in this case, when as a consequence of the concentration they obtain more than 30%.
On the side of Bill No. 2604, aimed at establishing ex ante control of business concentrations in all sectors of the economy, the concentration acts must be notified when, concurrently, the sum of the value of the gross sales of the companies involved is equal to or greater than 120,000 UIT (approximately US $ 160,000,000) and the total gross sales of at least two of the companies involved equals or exceeds 20,000 UIT (approximately US $ 26,000,000).
Finally, according to Bill No. 2654, aimed at establishing ex ante control of business concentrations in all sectors of the economy, when the operation has the effect that the resulting group obtains at least 51% of the participation quota in one or more markets; or, if one of the participating agents registers in the balance of the previous fiscal year annual gross sales or total business volume in the country equal to or greater than 100 000 UIT (approximately US $ 130,000,000), it must notify the concentration act.
How are turnover, assets and/or market shares valued or determined for the purposes of jurisdictional thresholds?
The participation market shares of the companies involved in the concentration operation are established according to the total income during the year before the notification date of the companies that undertake the same activities in the Electric Interconnected System (generation, transmission and/or distribution). This information is produced bi-annually by the Energy Sector Supervising Organism (OSINERGMIN). It includes parents and subsidiaries, both owners and companies that are directly or indirectly owned, if they are involved in the relevant activities (i.e. generation, transmission and/or distribution of energy).
In the case of the Bills, the value of sales will be that corresponding to the previous fiscal year during which the concentration operation takes place.
Is there a particular exchange rate required to be used to convert turnover and asset values?
The Law No. 26876 does not have specific provisions on the exchange rate required.
Also, the Bills do not establish anything in this regard.
In which circumstances are joint ventures notifiable or reviewable (both new joint ventures and acquisitions of joint control over an existing business)?
If through the joint venture no control is acquired, there would be no need to notify the operation to INDECOPI. Nevertheless, as long as the joint venture qualifies as a concentration operation that grants direct or indirect control of a company and the thresholds are exceeded, it will be necessary to notify it to INDECOPI.
In the case of the Bills, the regulation is essentially the same.
Are there any circumstances in which different stages of the same, overall transaction are separately notifiable or reviewable?
No. According to Law No. 26876, there is a prohibition on closing the operation before notifying it and getting the authorization, so it is not relevant for the INDECOPI if the transaction has different stages.
According to Bill No. 2604, the transaction is only notified once, although it can be carried out in different stages. All of these will be reviewed in a single procedure. Bills No. 3279 and 2634 make no reference about it.
In relation to “foreign-to-foreign” mergers, do the jurisdictional thresholds vary?
No. According to Law No. 26876, the thresholds are the same for all kinds and forms of mergers and acquisitions.
Under the Bills, thresholds are also the same.
For voluntary filing regimes (only), are there any factors not related to competition that might influence the decision as to whether or not notify?
Since there is not a voluntary filing regime in Peruvian regulation, this does not apply.
What is the substantive test applied by the relevant authority to assess whether or not to clear the merger, or to clear it subject to remedies? Are there different tests that apply to particular sectors?
The substantive test under Law No. 26876 is whether a proposed merger may have the effect of diminishing, damaging or impeding competition in the generation, transmission and/or distribution of electric power markets.
To this end, INDECOPI determines the position of companies in the market, the relevant market, the structure of the market, the possibilities of choosing suppliers, distributors and users, barriers to entry, among other criteria.
Likewise, INDECOPI must evaluate the following aspects:
a) The improvement of the production and commercialization systems, the promotion of technical progress and the efficiencies that the operation can create within the market and if said contribution is sufficient to compensate the possible restrictive effects on competition.
b) If the operation produces a significant increase in concentration in the market, significantly limiting competition.
c) If the operation facilitates the performance of anti-competitive behavior and/or generates barriers to the entry of new competitors.
d) The possible exclusion effect that competing companies may suffer in the market.
The Bills also provide the significant impediment of effective competition in the market test so is essentially the same.
Are factors unrelated to competition relevant?
Are ancillary restraints covered by the authority’s clearance decision?
Ancillary restraints are covered by the INDECOPI’s evaluation and decision. They do not require an additional notification, according to Law No. 26876.
The Bills state the same.
For mandatory filing regimes, is there a statutory deadline for notification of the transaction?
The involved undertakings must request regulatory clearance before any corporate and/or commercial transaction is carried out. Without this clearance the referred process will have no legal effect and liabilities are triggered.
Bill No. 2604 allows the parties to submit the authorization request after the transaction is carried out but does not set a deadline for doing so. On the other hand, Bill No. 2634 does establish a term of 10 working days from the consummation of the operation, while Bill No. 2654 establishes the same term, counted from when the corresponding bodies of each company have approved the operation. The three Bills state that the operation will not take effect until its approval by INDECOPI.
What is the earliest time or stage in the transaction at which a notification can be made?
Law No. 26876 states that the notification must be made before its closing, without indicating an earliest time or stage in the transaction. However, the transaction will not take effect if it has not been notified and approved.
Under Bill No. 2604, the operation must be notified when the contract has been concluded, the acquisition of a controlling interest has taken place, or the transaction related to the takeover bid has been made, as appropriate.
Is it usual practice to engage in pre-notification discussions with the authority? If so, how long do these typically take?
It is not usual to engage in pre-notification discussions with INDECOPI.
What is the basic timetable for the authority’s review?
The evaluation period of the merger or acquisition shall not exceed 30 working days. The Commission will likely extend the evaluation term for 30 more days if there is additional information to be requested to the Energy Sector Supervising Organism (OSINERGMIN) and/or the petitioner. Recently filed operations were finally decided in a range of 3 to 5 months.
The Bills provide for a similar procedure and terms. Bill No. 2604 establishes a fast track procedure, which allows operations that do not generate doubts about their impact on effective competition to be approved within 30 working days of notification. If it raised serious concerns, a second phase of 90 working days, renewable for 30 more days, will start.
Under what circumstances may the basic timetable be extended, reset or frozen?
According to Law No. 26876, the basic timetable shall be extended in cases in which authority needs more information to analyze the possible effects in competition. In these cases, INDECOPI usually requires to the Energy Sector Supervising Organism (OSINERGMIN) and/or the petitioner the needed information.
Are there any circumstances in which the review timetable can be shortened?
Which party is responsible for submitting the filing?
Under Law No. 26876, for mergers, creation of common corporations or joint ventures, notification must be made by both parties. However, if one corporation acquires the totality of another corporation or part of one or more companies, responsibility for the filing rests with the buyer.
The Bills also state the same.
What information is required in the filing form?
INDECOPI requires the following information to the undertakings, under Law No. 26876:
a) Identification of the persons or companies that make the notification and of the others that also intervene in the operation.
b) Description of the ownership and control structure, as well as the kinship and management links of each of the participants and between these and third parties that also operate in the electricity sector, including that of the companies that belong to the same economic group.
c) Information regarding the affected markets: geographical scope, existing degree of competition, ease or difficulty of access to the market, among others.
d) Description of the details of the operation and its effects on the market, as well as the economic efficiencies generated.
Additionally, INDECOPI may request the information it deems pertinent.
The information required according to the Bills is essentially the same.
Which supporting documents, if any, must be filed with the authority?
INDECOPI requires a copy of the documents related to the closing of the operation, as well as a copy of the analysis or studies of the conditions of competition, the competitors and the market situation.
Notwithstanding this, all the information presented by the parties constitutes a declaration under oath.
Is there a filing fee?
The filling fee is the 0.1% of the concentration operation’s value, up to a limit of 50 UIT (approx. USS 70,000).
Is there a public announcement that a notification has been filed?
No, according to Law No. 26876.
According to Bill No. 2634, INDECOPI must publicize the notified operation in the media.
Does the authority seek or invite the views of third parties?
INDECOPI may request from third parties the information it deems pertinent to analyze the request for authorization, as well as its opinions on the merits.
What information may be published by the authority or made available to third parties?
Third parties can only have access to the information when the procedure ends. However, the information that qualifies as confidential can only be known by INDECOPI and the party that submitted it.
Does the authority cooperate with antitrust authorities in other jurisdictions?
What kind of remedies are acceptable to the authority?
Law No. 26786 does not state what remedies or kind of remedies are acceptable to authorize the merger or acquisition. In practice, the principal remedy is the exclusion of an asset or business units.
What procedure applies in the event that remedies are required in order to secure clearance?
Law No. 26876 does not provide for a specific procedure if remedies are required. In practice, INDECOPI grants a deadline for the parties to adopt the proposed remedies if they agree. If they do not agree or adopt it within the term, the authorization is denied.
What are the penalties for failure to notify, late notification and breaches of a prohibition on closing?
Law No. 26876 sanctions with a fine up to 500 UIT (approx. USS 700,000) for failure to notify. There is also a fine up to 10% of the sales or gross income of the previous year when a concentration operation is carried out without notifying INDECOPI, when it has not been approved, or without adopting the proposed remedies.
According to Bill No. 2604, the fine is up to 1% of sales or gross income of the previous year for failure to notify. If there is a breach of a prohibition the fine can be up to 10% of sales or gross income of the previous year
In case of Bill No. 2634, the fine for late notification is up to 500 UIT (approx. USS 700,000), provided that the fine does not exceed 8% of sales or gross income of the previous year. The fine for failure to notify is up to 1000 UIT (approx. USS 1 200,000), provided that the fine does not exceed 10% of sales or gross income of the previous year. The fine for breaches of a prohibition is not less than 1000 UIT, provided that the fine does not exceed 12% of sales or gross income of the previous year.
Finally, Bill No. 2654 sanctions the failure to notify and the breaches of a prohibition with a fine not less than 1000 UIT, provided that the fine does not exceed 12% of sales or gross income of the previous year.
What are the penalties for incomplete or misleading information in the notification or in response to the authority’s questions?
Law No. 26876 sanctions with a fine up to 500 UIT (approx. USS 700,000) when inaccurate data has been provided to the authority.
According to Bill No. 2604, the fine is up to 1% of sales or gross income in the previous year. In case of Bill No. 2634, the fine is up to 1000 UIT (approx. USS 1,200,00), provided that the fine does not exceed 10% of sales or gross income in the previous year. Finally, Bill No. 2654 sanction with a fine not less than 1000 UIT the failure to notify, provided that the fine does not exceed 12% of sales or gross income in the previous year.
Can the authority’s decision be appealed to a court?
The decision is taken in the first instance by the Commission for the Defense of Free Competition of INDECOPI, which can authorize the operation, condition its authorization to the adoption of certain remedies or deny it. This can be appealed before the Special Court for the Defense of Competition of the INDECOPI Tribunal, this is part of the administrative procedure.
The decision issued by the Court, when it is final, may be challenged before the judiciary, following a contentious administrative process, this institution may annul the ruling in administrative headquarters by INDECOPI.
What are the recent trends in the approach of the relevant authority to enforcement, procedure and substantive assessment?
Being limited to the electricity sector, there are not enough authorization requests to define any trend in the practice of INDECOPI. However, it is important to note that during the last three years every transaction has been unconditionally approved by the INDECOPI.
Are there any future developments or planned reforms of the merger control regime in your jurisdiction?
There are currently 11 bills that are being discussed in the Congress of the Republic, which seek to establish an ex ante (prior) authorization procedure for concentration operations for all economic sectors, as is the case in most of the countries of the region and the world. The most important aspects of the main bills have been outlined in each of the previous answers.