Cencosud / Ahold: the end of uncertainty

On August 3, 2005, a Federal Court of the City of San Rafael, Province of Mendoza, issued its final decision on the amparo proceeding which adjourned the approval proceeding of a transaction between Cencosud, a Chilean supermarket holding owner of Jumbo supermarkets and Easy home improvement outlets, for the acquisition of Disco and Vea supermarkets from the Dutch company Ahold.

The Court partially accepted the claim on the amparo proceeding and decided that the National Commission for the Defense of Competition (the “Commission”) was irregularly formed as only two of its five members had been appointed. However, it rejected the claim that the Commission was not the agency that the Antitrust Law No 25,156 (the “Antitrust Law”) created for the control of economic concentrations.

This case was filed on April 2004 and the Judge, through different decisions (April 16, July 8, and December 2, 2004) granted preliminary injunctions suspending the approval of the transaction and preventing the parties from closing it until the effective creation of the Antitrust Tribunal. All the decisions were confirmed by the Federal Court of Appeals of the Province of Mendoza. Additionally, in a rare decision on April 25, 2005 the Court modified the terms of the preliminary injunction and allowed the parties to close the transaction but imposed the obligation of keeping separate and independent administrations.

The final decision on the amparo proceeding was issued and is divided in two different matters: (i) whether the Commission was legally formed at the time of filing the amparo proceeding; and (ii) whether the Commission was empowered to review and analyze economic concentrations before the Antitrust Tribunal is set up.

On the first matter, the decision states that on April 7, 2004 the Board of the Commission was only formed by two members (the President and one member). As the former law which created the Commission stated that it is to be formed by five members and decisions must be taken by a majority of its members, the decision declared that the Commission was acting illegally. However, this matter was solved on July 8, 2004, with the appointment of an additional member to the Commission (on October, 2004 the fourth member was appointed and on February of this year, the fifth member was also appointed). Therefore, on this specific issue, the amparo proceeding was favorable to plaintiff.

However, plaintiff also requested that the analysis of the transaction be suspended until the effective creation of the Antitrust Tribunal. On this matter, the decision did not accept the claim. Under the Court’s interpretation, the Commission is the agency to apply the Antitrust Law until the effective creation of the Antitrust Tribunal. This issue is specifically provided for in Section 58 of the Antitrust Law that states that the Commission shall enforce the Antitrust Law during the transition period until the creation of the Antitrust Tribunal. Although the Court joined the agreement that a six year delay to set up the Antitrust Tribunal evidences a serious lack of interest on the part of the Executive and it could be considered as contrary to law; however, as the Antitrust Law provides for its application by the Commission during the transition period, such fact is not relevant to suspend the analysis of a transaction.

The Court did not accept the second claim and declared that the Commission, with its current composition must continue with the analysis of the Cencosud / Ahold transaction. Therefore, the suspension period decided by different preliminary injunctions ended.

The Court followed a rational interpretation. The Commission was irregularly formed at the time the amparo proceeding was filed; however, with the appointment of the other members, the Commission decided that it is the agency in charge of applying the Antitrust Law until the effective creation of the Antitrust Tribunal. The decision grants certainty on the Commission’s powers to analyze M&A transactions until the Antitrust Tribunal is set up.