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Chambers and Partners

Waiting in Uncertainty for the Inevitable: The new Peruvian Merger Control Act


About a year ago, and after much political and legal discussions, the Peruvian Government enacted the long-awaited Merger Control Act[1] through an emergency decree[2] (the “Merger Control Act”). It was expected for it to enter into force in August 2020. However, due to the effects of COVID-19, the Peruvian government was pressured to extend it to March 2021. Once the Merger Control Act enters into force, Peru will be one of the last countries in Latin America to incorporate a proper merger control for M&A transactions. Though, since 1998, there has been an antimonopoly and merger control procedure for transactions applicable to the electricity sector.

Although the merger control procedure in Peru is expected to start in approximately five months, there is still much uncertainty mainly due to political issues. On October 23, 2020, the new Peruvian Congress approved a bill[3] (the “Bill”) that (i) revoked the Merger Control Act approved by emergency decree and Decreto Legislativo N° 1510 that partially amend such decree, and (ii) approved a new Merger Control Act. However, the Economy Ministry has express that they will return the Bill to Congress for further debate on certain matters[4].

There have not been many changes in comparison with the already approved act, but there are some material issues which does generate concern.

Main material issues approved by the Congress in the Bill:

1. Ex Officio Procedure and Thresholds

Although the current Merger Control Act establishes reasonable thresholds to begin the procedure before the Peruvian competition agency – INDECOPI – the Bill has incorporated that if INDECOPI presumes that the closing of a transaction may create anticompetitive effects in the Peruvian market – even though the thresholds have not been met or surpassed – then INDECOPI may begin an ex officio procedure and, for reducing risks, the parties of a transaction are permitted to voluntarily begin the merger control procedure. This will be inevitably create uncertainty as both the Merger Control Act and the Bill establishes tough sanctions, including that the transaction is void. In that order, parties should, and will be recommended, to start such voluntary proceedings. Consequently, INDECOPI would face an overloading administrative capacity to handle all procedures, which will slow down the closing of many M&A transactions; or, if INDECOPI does not resolve inside the legal term (around five to six months), the transaction will be approved under affirmative administrative silence.

The thresholds have also been amended in the Bill. Such thresholds will include either the revenues or the assets’ value. Although the Bill does not specify how the assets’ value threshold will apply (this should be further regulated in the Regulation), we presume that this threshold will be applicable only when acquiring assets or to avoid killer acquisitions in, for example, transactions involving startups and technology companies. In those transactions it is highly likely that they will not meet the revenues threshold and its closing might generate anticompetitive effects in the economy.

2. Financial Instability

Due to the effects of COVID-19, the emergency decree established that INDECOPI would consider if any transaction is closed due to financial instability of the target company. In that order, it was intended that a transaction may be approved (or approved under conditions) if the merger or acquisition were deemed necessary to save and stabilize such negative financial conditions, even if there could be any anticompetitive effect.

However, the Bill has removed such analysis factor endangering potential transactions which will be entered by the parties under these grounds. Economic performances in sectors such as tourism and hospitality, education, construction and real estate and retail have been highly affected by the pandemic, which have caused many of the companies in these sectors to either increase their leverage or to wind-up. Potential M&A transaction could be one way to save these companies.

Additionally, due to gun jumping rules and standstill obligations, the acquiror is not permitted to participate or act in benefit of the target company until a final resolution is issued by INDECOPI (around 5 to 6 months since the procedure begins). Until this occurs, the target company may face risks such a drastic decrease in its enterprise value and bankruptcy claims from creditors.

3. Transactions in the Financial Sector

The Bill has established that in case of macroeconomic financial instability in the financial sector (i.e. banks, private insurance companies and private pension fund management companies), it should be INDECOPI that approved, or not, the transaction.

Previously, in case this kind of events occur, the Banking, Insurance and Private Pension Funds Superintendence (SBS) was the only governmental entity to approve an M&A transaction. The Bill has revoked this faculty to the SBS and has reassigned it to INDECOPI, who does not have financial knowledge and competency to resolve in this kind of matters. It should be clear that only the SBS is in a position to approve or deny this transaction as it has the information regarding its impact in the financial system.

4. Enter into Force Date and Ongoing Transactions

Although the Bill does specify expressly an exact date when the Merger Control Act would enter into force, it is established that it will be around 45 days since the bill is approved and published in the Gazette “El Peruano”. In a worst-case scenario the Merger Control Act should enter into force in January 2021. And, in the best-case scenario, it will enter into force in March 2021 as planned.

It must be taken into account that transaction that have been “closed”[5] prior to the entry into force of the Merger Control Act will not be subject to the control procedure. Any ongoing transaction, even if the transaction documents have been executed by the parties but closing has not yet occurred, will have to notify INDECOPI and start the procedure accordingly prior to closing.

Article publised in Chambers and Partners

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[1] Decreto de Urgencia N° 013-2019

[2] On September 30, 2019 President Vizcarra closed the Peruvian Congress. In that order, the Executive Branch of the Peruvian State was able to approve laws under emergency decree (Decretos de Urgencia).

[3] Proyecto de Ley 5913/2020-CR

[4] At the time this article was written, President Vizcarra and its government were ousted after an impeachment by Peruvian Congress. There is still uncertainty if the Bill will be approved or not by Congress as is.

[5] By “closed” means that the shares or assets transfer have already occurred.

Wilfredo Cáceres