Why Chilean mergers risk higher fines

Author: | Published: 12 Jul 2012
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Local antitrust lawyers believe the Chilean National Economic Prosecutor (fiscalia nacional económica) has overstepped the Law for the Defense of Free Competition, raising concerns of higher costs and longer closing periods.

Film theater operators Chile Films and Inversiones acquired a chain of cinemas from competitor Hoyts through a share purchase agreement last year. The FNE petitioned the merger to the Competition Tribunal (TDLC) on June 27. Although this is normal practice for the FNE, it then requested the TDLC to impose a fine of 1,000  Unidades Tributarias Annualise ( UTA) upon each of the buyers.

Chilean law does not require merging companies to notify the TDLC prior to closing, but pre-closing competition review can be requested by the consolidating companies or an interested third party, as was the case with last month's  LATAM Airlines exchange offer. No party had requested a TDLC review in this instance.

"It is difficult to imagine that the TDLC will impose a fine when no law has been breached and a previous antitrust clearance is only optional for the parties," Ricardo Riesco, partner at Philippi Yrarrázaval Pulido & Brunner Abogados, told IFLR.

Riesco thinks the FNE could have been making a statement that Chilean antitrust law should require pre-merger review if certain consolidation thresholds are met. He said legislation is being discussed in Chile that would require such approval.

Merging companies might want to request prior approval from the TDLC as a result of the FNE’s decision, to avoid possible fines. This is notwithstanding the fact that they are not required to do so under the competition law.

Pedro Pellegrini, a partner with Guerrero Olivos Novoa y Errázuriz, has advised corporate attorneys to seriously evaluate consultation with the TDLC when they are working on a merger with high levels of market concentration.

"Unfortunately, this is an important change in the criteria for our prosecutor because this agency is factually creating a formality that is not in the law," Pellegrini said.

He thinks some deals might not close because of increased transaction costs and longer closing periods arising from pre-notification by more conservative parties not wanting to receive an FNE fine.

The FNE proposed new horizontal draft merger guidelines on June 28. The guidelines do not mention a policy of imposing fines upon companies that have not notified the TDLC of their consolidation.

"Until this case is closed or until our Chilean antitrust provisions are changed, it is a matter of how much risk the parties are willing to take," said Riesco.