A “beyond-the-borders” interpretation of the Argentine Antitrust Commission

According to a new Advisory Opinion[1] issued by the Antitrust Commission, in certain cases the amount of the transaction as well as of the assets that are being transferred should be taken into account on a global scale, not limited to an Argentine examination as per prior interpretation of the Antitrust Law.

1.    Mandatory notification under the Antitrust Law. Applicable exemptions

Under the Antitrust Law, certain transactions are deemed to be economic concentrations when they result in the assumption of control of one or more companies by means of any of the following acts:

(i)      merger;

(ii)     transfer of businesses;

(iii)    acquisition of shares or equity interests, any interest thereto, convertible debentures or securities that grant the acquirer control of, or a substantial influence over, the issuer; and

(iv)   any other agreement or act through which assets of a company are transferred to a person or economic group, or which gives decision-making control over the ordinary or extraordinary management decisions of a company.

These economic concentrations require approval if the aggregate volume of business of the companies involved in the transaction exceeds Argentine Pesos 200,000,000 (approximately US$ 54,054,000) in Argentina.

One of the exemptions to this mandatory notification, under Section 10, sub-section e) of the Antitrust Law, exists for the acquisition of companies if the total local assets of the acquired company and the local amount of the transaction do not exceed Argentine Pesos 20,000,000 (approximately US$ 5,405,000.) However, the exemption would not apply if any of the involved companies were involved in economic concentrations in the same relevant market for an aggregate of Argentine Pesos 20,000,000 (approximately US$ 5,405,000 at the current exchange rate) in the last 12 months or Argentine Pesos 60,000,000 (approximately US$ 16,216,000 at the current exchange rate) for the last 36 months.

The Antitrust Commission has already analyzed global transactions in which a local value was not determined, namely, the “Seminis Inc. and Semillas Seminis Sudamericana Limitada S.A.” and the “National Oilwell Varco Inc. – Grant Prideco, Inc.” precedents.[2] In these cases, the Antitrust Commission used the financial statements of the local target companies in order to determine whether the Argentine Pesos 20,000,000 threshold was met regarding the assets to be acquired and resorted to estimates filed by the notifying parties regarding the amount of the global transaction to be allocated to Argentina. In both cases, the Antitrust Commission deemed that no notice was necessary.

2.    The new interpretation

On November 12, 2008, the Chilean company Viña San Pedro S.A. (“Viña San Pedro”) requested the issuance of an Advisory Opinion from the Antitrust Commission regarding a transaction by means of which it would acquire Viña Tarapacá ex Zabala S.A. (“Viña Tarapacá”), a rival winemaker company in Chile. Viña San Pedro is controlled by Compañía Cerveceras Unidas S.A: (“CCU”), which controls several beverage companies in Argentina.

The transaction would be realized by means of acquisition by a merger in Chile in which Viña San Pedro would be the surviving entity and Viña Tarapacá’s shareholders would become shareholders of Viña San Pedro.

As a part of the transaction, CCU would acquire 25% of the outstanding shares of Tarapacá. Afterwards, in order to include of Viña Tarapacá’s shareholders in Viña San Pedro, a capital increase would be performed for the share exchange, wherein Viña Tarapacá’s shareholders would receive 40% of the merged company’s shares.

Both Viña San Pedro and Viña Tarapacá have subsidiaries in Argentina.

The parties held in their request for the Advisory Opinion that the transaction fell under the settings for mandatory notification under the Antitrust Law since the volume of business of the CCU group exceeded the Argentine Pesos 200,000,000 threshold set in Argentina for merger notice.

However, they also stated that the exemption set out by Section 10, sub-section e) of the Antitrust Law was applicable, since the financial statements of the local subsidiary of Viña Tarapacá showed that its assets amounted up to Argentine Pesos 9,147,083 and that its volume of sales during 2007 had been Argentine Pesos 3,581,643. As such, the value of the assets was less than Argentine Pesos 20,000,000.

On the other hand, the notifying parties informed the Antitrust Commission that they could not determine the consideration for Argentina, since the transaction was being performed by the Chilean controlling companies.

The Antitrust Commission rejected the application of the exemption, since it stated that, as a prior step to the performance of the merger, the controlling company of Viña San Pedro would pay US$ 33,100,000 for the acquisition of the 25% of Viña Tarapacá in Chile, which would already surpass the threshold set out by the exemption.

The regulator also stated that, since the parties could not determine the exact consideration of the transaction corresponding to the Argentine subsidiary, the amount of the shares that were received by Viña Tarapacá shareholders was to be taken into account for the analysis, which also surpassed the exemption threshold.

Thus, the Antitrust Commission required notice for this transaction.

3.    Conclusions

This resolution issued in this Advisory Opinion indicates a change in the Antitrust Commission’s interpretation regarding the exemption set out by Section 10, sub-section e) of the Antitrust Law.

As it was impossible for the parties to fully determine the value of the consideration in Argentina, the Antitrust Commission used the consideration for the whole transaction for the purpose of its analysis. This means that in some cases not only the local value of the transaction in Argentina would have to be taken into account, but the global amount of the transaction as well.

It is too soon to determine whether this case will become a spearhead precedent for a global analysis by the Antitrust Commission, but it shows a new broader approach by it.