Unusual development in the Cencosud / Ahold transaction injunction in Mendoza

As from September 1999, antitrust matters in Argentina have been ruled by Law No 25,156, as amended and modified (the “Antitrust Law”). The Antitrust Law provides for the control of certain merger and acquisition transactions and the creation of the National Tribunal for the Defense of Competition (the “Antitrust Tribunal”).In section 58 the Antitrust Law stipulates that, until the appointment of the members of the Antitrust Tribunal, its role should be fulfilled by the pre-existing National Commission for the Defense of Competition (the “Commission”).

This saga started on December 2, 2004 with the resolution of the Federal Judge of San Rafael which prevented the parties from closing the transaction until the Antitrust Tribunal had been set up (please see “Judicial decision subordinates approval of transaction to the effective creation of the Antitrust Tribunal” in Marval News # 36, February 28, 2005). This decision was preceded by the fact that Ahold / Cencosud closed their transaction on November 1, 2004.

On April 23, 2005 the Federal Court of Appeals of the Province of Mendoza confirmed the decision, although the Antitrust Law, as currently instituted, authorizes the parties to notify any economic concentration within a week from closing.Therefore, the preliminary injunction suspending the effects of the closing of the transaction has been confirmed.

The Federal Court of Appeals pointed out the importance of creating the Antitrust Tribunal, as it is the agency appointed by the Antitrust Law with powers to review and approve, condition or reject mergers and acquisition transactions; the Commission, the former antitrust agency, does not have the legal endorsement to carry out the Antitrust Tribunal’s duties. The Federal Court of Appeals held that the transitional clause provided in the Antitrust Law (section 58) cannot authorize the Commission as the official antitrust agency permanently (six years have passed as from the enactment of the Antitrust Law).

Based on this fact, the Court of Appeals specifically stated that the Federal Court’s decision was correct and that the parties should backtrack on all negotiations and acts performed during and after the closing of the transaction and return to the “mere offer” stage of the negotiation.

The decision finally stated that the Antitrust Law rules the exercise of the free competition right provided in section 42 of the Argentine Constitution. The partial application of the Antitrust Law, as the Antitrust Tribunal has not yet been set up, grossly damages constitutional rights.

However, on April 25, 2005, two days after the Court of Appeals upheld the decision, in a highly unusual move the Federal Judge decided to issue a new decision clarifying and limiting the effects of its previous injunction and also authorized the parties to close the transaction.

He stated that the Antitrust Law mentions that the parties may close a transaction without antitrust approval (section 8 provides that transactions must be notified to the antitrust agency within the week following closing). Therefore, in order to avoid unnecessary damages, he authorized Cencosud S.A. and Disco Ahold International Holding N.V. to transfer the Disco S.A. and Vea S.A stocks subject to the following obligations:

(i)   registration of the limitations on future transfers with the Public Registry of Commerce;

(ii)   Cencosud must keep separate management for Disco S.A. / Vea S.A. and Jumbo Supermarket / Easy Homecenters; and

(iii)  issuance of an express consent to all of the above by the seller, Disco Ahold International Holding N.V.

This latest development in the Cencosud / Ahold case is a new step in an apparently endless story and is highly unusual. The Court of Appeals decided to confirm an initial decision that has been considered as constructed under an erroneous interpretation of the Antitrust Law (the Antitrust Law authorizes the parties to close transactions without antitrust approval and the Commission is the entity with powers to analyze antitrust effects until the Antitrust Tribunal is set up).

It is rare and exceptional that, after the decision was confirmed by the Court of Appeals, the Federal Judge should modify such initial decision and authorize the parties to close the transaction.

This last decision was appealed by plaintiff and it is not possible to foresee the Court of Appeals’ new judgment. Moreover, the contradictions between the decisions on the preliminary injunction will be another argument that the Supreme Court will have to bear in mind when judging on this matter. A decision of the Supreme Court revoking the preliminary injunction will terminate the uncertainty caused and help clarify the matter for future transactions.