Argentine thresholds for pre-merger review of foreign-to-foreign transactions

1.    The Argentine antitrust regime and international transactions

When carrying out an international transaction, Argentine Antitrust Law No. 25,156 (the "Antitrust Law") must be analyzed. An international transaction is a transaction that takes place abroad and may include the direct or indirect transfer of control over stocks or assets in many jurisdictions.

These transactions, also known as foreign-to-foreign transactions, may include direct or indirect transfers of control in Argentina and may therefore have to be previously notified to the Antitrust Tribunal for the Defense of Competition (the "Antitrust Tribunal"). As explained in detail in Marval News # 1, Argentina has passed new Antitrust provisions affecting certain acquisition transactions.

Since the Antitrust Law has accepted the world-wide recognized "theory of effects", foreign-to-foreign transactions with an impact in the Argentine market are subject to its provisions.

2.    Mandatory filing of certain foreign-to-foreign transactions

The Antitrust Law provides that certain transactions, deemed as 'economic concentrations', must be previously notified to the Antitrust Tribunal, if they result in the control of one or more companies by means of any of the following acts:

(i) Mergers;
(ii) Transfer of businesses or going concerns;
(iii) Acquisitions of shares or equity interests, any interest thereto, convertible debt securities or securities that grant the acquirer the 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 a company.

Foreign-to-foreign transactions where there is an acquisition of control by means of any of the above-mentioned acts with effects in Argentina are also included in the mentioned definition. The Antitrust Tribunal has the authority to analyze the local effects of any foreign-to-foreign transaction since the Antitrust Law is applicable to all individuals and entities who carry out business activities within Argentina and to those who carry out business activities abroad, to the extent that their acts, activities or agreements may have any effects in the Argentine market.

The parties which fall within the definition described above and meet the thresholds detailed below, must deliver a mandatory notice to the Antitrust Tribunal before or within one week after the first to occur of: (i) the date that any transfer effectively occurs, or (ii) the publication of any cash tender or exchange offer.

Upon submission of the notice and within 45 business days of the submission, the Antitrust Tribunal must decide whether to: (i) unconditionally approve the transaction; (ii) approve the transaction but impose conditions; or (iii) reject the transaction. If the Tribunal issues no decision within 45 business days from the filing of the application and relevant documents, the transaction will be considered to be tacitly approved.

3.    Thresholds for assessing filing obligation

To determine whether a foreign-to-foreign transaction must previously be notified to the Antitrust Tribunal, the Antitrust Law provides for two thresholds and there is a third threshold derived from an interpretation made by the Antitrust Tribunal. The third threshold is applicable only if the involved companies have imports into Argentina.

The three thresholds will be detailed in three different tests. If the result of the first is higher than 200 million Argentine pesos, the second and the third thresholds must be applied. If the first thresholds are not met, the rest of the thresholds are not applicable and the transaction is not be subject to the Antitrust filing requirements.

(a) Size of the parties

The Antitrust Law states that only those transactions where the aggregate volume of business of the companies involved exceeds 200 million Argentine pesos in Argentina require previous notice and approval by the Antitrust Tribunal.

The volume of business is equal to the gross sales of products or services during the preceding fiscal year arising from their ordinary businesses net of discount sales, Value Added Tax and other direct taxes. The volume of business arises only from the economic activities performed in Argentina and the worldwide turnover that the economic group may have is not taken into account for those purposes.

To calculate the volume of business the following must be included: the total volume of business of the target company (the company being acquired), the buyer and all those companies under control of the buyer or any of those companies that directly or indirectly controls the buyer.

If the total amount of the volume of business for the preceding fiscal year in Argentina is 200 million Argentine pesos or more than such amount, the principal threshold provided in the Antitrust Law is met. The transaction has to be previously filed to the Antitrust Tribunal and the other two tests mentioned below will have to be applied.

On the contrary, if the total amount of the volume of business is lower than 200 million Argentine pesos, the transaction does not have to be previously filed with the Antitrust Tribunal and the other two thresholds do not need to be applied since the principal threshold provided in the Antitrust Law has not been met. In this case, the Antitrust Law does not require a review of the transaction.

(b) Size of the transaction

The size of the transaction threshold is derived from one of the exemptions mentioned in the Antitrust Law. The information that must be evaluated for the purpose of this test is:

(i) The total value of the part of the foreign-to-foreign transaction in Argentina, in the cases where the foreign-to-foreign transaction includes the acquisitions of stock/quotas or any other interest or participation in Argentina; or

(ii) The total value of the assets of the foreign-to-foreign transaction involved in Argentina in the cases where the foreign-to-foreign transactions includes the acquisition of certain assets in Argentina.

The Antitrust Law provides that even when the volume of business of the transaction is higher than 200 million Argentine pesos but the value of the transaction in Argentina or the value of the assets in Argentina is lower than 20 million Argentine pesos, the transaction is exempted from the previous Antitrust filing. To be eligible for this exemption, the parties involved must not have participated in similar transactions for a total or in the aggregate amount of 20 million Argentine pesos during the preceding twelve months or 60 million Argentine pesos during the preceding thirty six months.

(c) Size of the effects

The size of the effect is used to measures the effects that a foreign-to-foreign transaction may have in Argentina. This test may be applied only if the parties involved in the foreign-to-foreign transactions have sales/imports into Argentina.

The Antitrust Tribunal has interpreted that the effects in the local market of a foreign-to-foreign transaction must be substantial, normal and regular for previous antitrust clearance.

There is no precise rule to determine when the effects can be considered substantial, normal and regular. The Antitrust Tribunal has decided several cases based on (a) the market participation of the products imported by the parties of the foreign-to-foreign transaction and (b) the regularity of the imports over a certain period of time (the last preceding three years). The effects are substantial if the exports into Argentina represent an important percentage of the total relevant market of that specific product (more than 20%). The effects are regular and normal if the imports have been constant during the last preceding 3 years.

4.    Exemptions provided in the Antitrust Law

In the event that the three thresholds mentioned above have been met, the Antitrust Law provides for certain specific exemptions to the antitrust pre-filing obligation. The exemptions are as follows:

(i) Acquisitions of companies, when the purchaser already holds more than 50 per cent of the shares;

(ii) Acquisitions of bonds, debentures, non-voting shares or debt securities of companies;

(iii) Acquisitions of only one company by only one foreign company that does not have any assets or shares of other companies in Argentina;

(iv) Acquisitions of wound up and liquidated companies (which have not performed any activity in Argentina during the preceding calendar year);

(v) The size of the transaction mentioned in 3(b);

(vi) Gratuitous transfers of goods to the Argentine State, the Provinces, Municipalities and the City of Buenos Aires; and

(vii) Transfer of goods among mandatory heirs, by acts among living persons or by cause of death

5.    Notification procedure - Scope reduced

If the thresholds provided below are met and none of the exemptions are applicable to the foreign-to-foreign transaction, the transaction shall have to be notified. According to the Decree 89/2001 and Resolution # 40/2001 the amount of information to be filed and the timing for filings have been reduced.

Notifications must be made on the so-called Forms F-1 and F-2. Depending on the size of local transaction, the parties would be advised to file simultaneously Forms F-1 and F-2. Should the Antitrust Tribunal deem that the information filed is insufficient to analyze the competition effects of the foreign-to-foreign transaction, it may request additional information through a "tailor made" Form F-3.

The 45 business days period to review the transactions has been divided into three different steps. After filing the complete Form F-1, the Antitrust Tribunal has 15 days to approve the transaction or require further information through Form F-2. Once the information of Form F-2 has been filed, the Antitrust Tribunal has to issue the approval within the next 20 days or require additional information through Form F-3. Finally the Antitrust Tribunal has only 10 days to approve, reject or impose conditions on the Argentine side of the foreign-to-foreign transactions.