Mexico's Antitrust Authority Updates Merger Guidelines

Newly revised merger control guidelines ("Guidelines") from the Comisión Federal de Competencia ("COFECE"), Mexico's competition law authority, clarify when parties to joint ventures or collaborations ("JVs") must report those transactions to COFECE. The Guidelines provide much needed guidance about JV notification obligations and narrow the types of JVs that parties must report. The Guidelines also incorporate a "failing firm" defense and a number of technical changes to Mexico's notification requirements. 

Mexico requires parties to certain "concentrations" to report those transactions to COFECE prior to closing. Mexican law defines concentrations to include mergers, acquisitions, or "any act by virtue of which companies, associations, shares, social shares, trusts or assets in general that is carried out between competitors, suppliers, clients or any other economic agents." The Guidelines introduce factors to help JV parties determine whether Mexican merger control law requires a premerger notification to COFECE under the broad definition of a "concentration." Like other M&A, JVs are reportable in Mexico only if they also meet one of the three alternative thresholds regarding revenues and assets of the parties and transaction size. Those thresholds remain unchanged. 

According to the Guidelines, the most common types of JVs that could be notifiable "concentrations," include: (i) consolidation of business or production activities analogous to a merger; (ii) creation of a network involving the sharing of a majority of or all marketplace assets; (iii) joint selling, marketing, distribution, or commercialization; (iv) joint purchasing (buyers' clubs); and (v) R&D JVs.

To determine whether a notification is necessary, COFECE will consider the duration, independence, and scope/effect (competitive impact) of the JV on a case-by-case basis. A filing is more likely to be necessary if:  

• Duration. The JV is of permanent, long-term, or undetermined duration (compared to short-term agreements).
• Independence. The parties create a new marketplace participant with operational autonomy with respect to marketing, prices, distribution, sales, financial, or other decisions.
• Scope/Effect. The JV reduces or eliminates competition between the parties. 

Failing Firm Defense

Although COFECE already considers the impact of a target's failing financial condition in its antitrust analysis, the Guidelines introduce the first written guidance on a "failing firm" defense to an otherwise anticompetitive transaction. The elements of the defense are similar to the failing firm defense in the U.S. Horizontal Merger Guidelines (see our Jones Day Alert from July 2017, "Federal Court Rejects Failing Firm Defense in Merger Case," and this article) and require the parties to show that: (i) the company cannot meet its financial commitments; (ii) there is imminent risk that the company will exit the market; (iii) there are no reorganization alternatives; and (iv) the seller made good faith efforts to find an alternative buyer. Parties to a transaction involving a failing business should consider the best evidence to present COFECE about the company's financial deterioration and lack of alternative transactions.