Another transaction halted by a different court in the Province of Mendoza

In the February 2005 issued of Marval News we reported on a decision of a Federal Court of the City of San Rafael, Province of Mendoza, which affected a transaction between Ahold and Cencosud for the latter’s acquisition of the Disco and Vea supermarkets (please see “Judicial decision subordinates approval of transaction to the effective creation of the Antitrust Tribunal”). On February 16, 2005 another decision from a different Federal Court of the Province of Mendoza affected another transaction, and one of the arguments to grant the preliminary injunction was the Government’s lack of interest in creating the National Tribunal for the Defense of Competition (“Antitrust Tribunal”).

As from September 1999, antitrust matters in Argentina are 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 has as one of its purposes to create the Antitrust Tribunal. The Antitrust Law stipulated that until the appointment of the members of the Antitrust Tribunal, this role should be fulfilled by the pre-existing Commission for the Defense of Competition (the “Commission”). The Commission’s power to enforce Antitrust Law is specifically granted in section 58 of the Antitrust Law.

This new case relates to negotiations held among the shareholders of Multicanal S.A. and Cablevisión S.A. The former is interested in acquiring Cablevisión S.A., currently under a bankruptcy reorganization proceeding. Both companies are the most important providers of cable TV services in Argentina, with practically 65% of the market in the City of Buenos Aires and Greater Buenos Aires. The claim was filed by Supercanal S.A., one of the competitors of Multicanal S.A. and Cablevisión S.A., through an injunction proceeding (“amparo”), on the grounds that those negotiations are contrary to the laws that regulate broadcasting services and antitrust matters. Plaintiff requested a preliminary injunction in order to halt all current negotiations until the injunction proceeding is decided.

Judge Bernardo Beltrán Calderón, Federal Judge in the City of Mendoza, granted a preliminary injunction and suspended all negotiations among the shareholders of the two companies. According to plaintiff, the negotiations involved were being conducted outside Argentina between the controlling entities of the companies involved to avoid local authority’s control.

The Federal Judge of the City of Mendoza decided that the requirements of “likelihood of the law” and “danger in the delay” were met. He stated that the Antitrust Law, the Radio Broadcasting Law and the Protection of Cultural Heritage Law were aimed at protecting the public interest, as the three statutes specifically state. The public interest can not protected if the transaction takes place in a manner which avoids the controls provided thereby. This fact is sufficient to demonstrate “likelihood of the law”.

In addition, he specifically pointed out that the Government’s lack of interest in creating the Antitrust Tribunal is public and manifest. This fact may also lead the parties “to obtain an approval by an agency that may not be legally authorized to review the antitrust aspects of the transaction”. The “danger in the delay·requirement is justified by the lack of creation of the Antitrust Tribunal (sic). Lastly, he also requested plaintiff to grant bond of 1 million Argentine Pesos (approximately US$ 300,000) to guarantee possible damages that the preliminary injunction may cause if, eventually, lack of plaintiff’s right to claim is demonstrated.

During the last six years, and from enactment of the Antitrust Law, the Ministry of Economy has issued only one resolution approving the rules of the contest for the election of the members (October 30, 2002) and has received the résumés of 39 potential candidates (April 2003). As explained above, until the Antitrust Tribunal is constituted, the Antitrust Law is applied and enforced by the Commission, which is legally entitled to enforce the provisions during the transition period until the Antitrust Tribunal is created. On the other hand, the Ministry of Economy has also filled all vacancies on the Board of the Commission by appointing Mauricio Butera, an economist (June 2004), Humberto Guardia Mendonça, a lawyer (October 2004) and recently, Diego Povolo, a lawyer (February 2005). At the beginning of 2004 only two members, Horacio Salerno, an economist, and Ismael Malis, a lawyer (Chairman) were in office.

It should be pointed out that in the case mentioned above, as in the Cencosud / Ahold case, the decision was taken in an injunction proceeding, known as “acción de amparo” (an extraordinary proceeding with limited legal defense for the defendants) that gave plaintiffs the possibility of obtaining a preliminary injunction as ex-parte (“inaudita parte” or without defendant’s participation).

It has been shown that another potentially outstanding transaction with an impact throughout Argentina has been suspended for the potential effects it may have in a specific geographical area, the Province of Mendoza. One of the arguments for the suspension, as in the Cencosud / Ahold case, was the non-appointment of the Antitrust Tribunal even though the Antitrust Law specifically provides that in the interim the Commission will enforce the Antitrust Law. Once again this decision advances over the powers of the Executive Power (i.e. the formation and appointment of Antitrust Tribunal members), violates private property rights and may affect future merger and acquisition transactions.