An extract from The Public Competition Enforcement Review, Edition 13

Merger review

Law 1,340 of 2009 sets forth that a business integration occurs whenever there is an acquisition of shares or assets, a merger, spin-off, a joint creation of a company or a joint venture agreement between competitors, or any other type of legal agreement, in which, before the closing of the transaction, competition existed in at least one relevant market; and after the transaction, the parties involved act as a single unit in such relevant market and cease to compete.

Business integrations can take one of the following forms:

  1. horizontal integration: when an integration takes place between companies that perform the same or similar economic activities (such as whenever integration occurs between competitors); or
  2. vertical integration: when an integration takes place between companies that participate in the same economic process but at different stages of the value chain (such as when integration occurs between a manufacturer and its suppliers of raw materials or its distributors).

The relevant market is composed of the product market and the geographic market. The product market is composed of the products that directly compete and the substitute products that are considered by consumers as close-competing products. The geographic market is the smallest geographic area in which the parties involved, if acting as a single unit, may influence in a profitable manner the price, quality, variety, service, publicity, innovation and other conditions of competition of the market. The geographic market can be local, regional or national, and shall include national and imported products.

Transactions that constitute a business integration must be informed ex ante to SIC if they meet at least one of the following subjective thresholds and one of the following objective thresholds:

  1. subjective threshold: the companies involved in the transaction develop the same economic activity (horizontal transactions), or are part of the same value chain (vertical transactions); and
  2. objective threshold: the combined annual operating income of the companies involved is equal to or more than 60,000 current monthly minimum legal wages), or the total combined assets of the companies involved is equivalent to or more than 60,000 current monthly minimum legal wages, in the year prior to the transaction.

After the fulfilment of the above requirements has been assessed, the following may occur:

  1. If none of the above-mentioned subjective and objective thresholds are met, the business integration does not need to be reported to SIC.
  2. However, if the business combination meets any of the above subjective and objective thresholds, and the combined market share of the companies involved is less than 20 per cent of the relevant market, the transaction shall be deemed authorised by simply giving prior notice to SIC regarding the transaction. In this case, the information to be furnished to SIC is basically the parties involved, the legal form of the transaction (merger, acquisition of control, acquisition of shares or assets, etc.), the relevant market (product market and geographic market), the share participation in the relevant market and the methodology to calculate them.
  3. If the business combination meets any of the above subjective and objective thresholds, and the combined market share of the companies involved equals or exceeds 20 per cent of the relevant market, prior authorisation must be requested from SIC, subject to the following rules:
    • pre-evaluation filing: the parties interested in obtaining antitrust clearance must file a summary of the business integration and a pre-evaluation request before SIC;
    • review of the pre-evaluation filing: SIC has 30 business days to determine whether the business combination is approved, without further information requirements, or whether a full review must be carried out; and
    • full evaluation filing (in-depth review): if SIC decides that a full review must be carried out, the involved parties must file all the information required for a complete study. After the complete filing is made, SIC has three months to decide if it approves or rejects the combination, or imposes conditions for its clearance. If antitrust clearance is not issued within the three months granted to SIC the transaction would be deemed as unconditionally authorised.

In a merger review, SIC may raise objections; raise no objections but impose certain conditions on the merger (either structural or behavioural); or raise no objections and no conditions.

The economic sanctions that SIC may impose in the case of a violation of antitrust provisions (cartels, restrictive agreements, dominance and merger review regulation) are as follows:

  1. fines imposed on each company involved of up to 100,000 current monthly minimum legal wages, or a fine equivalent to 150 per cent of the profit derived from the conduct – whichever is higher; and
  2. fines imposed on any manager, director or statutory auditor who facilitates, authorises, executes or tolerates conduct violating the rules on protection of competition of up to 2,000 current monthly minimum legal wages. In this case, it is expressly prohibited that the company, the parent company, subsidiary companies or associated companies with the same corporate group to which the manager, representative or statutory auditor belongs or belonged to, pay or guarantee the fine imposed on behalf of such individuals.

Additionally, in the case of merger review, and without prejudice to the imposition of the above-mentioned fines, SIC may order the reversal of a transaction for failure to properly report it, or for gun jumping, provided that it unduly restricts competition. Reversal of the transaction is also applicable to cases in which the transaction is closed after being blocked by SIC or when the conditions under which the operation had been approved are not fulfilled.

i Significant cases

In 2013, the government began an auction process for its 57.5 per cent share in Isagen, an energy generation and retail public utilities company that also participates in the commercialisation of natural gas in the Colombian market. Grupo Argos, a potential bidder, participates in the same markets as Isagen. Empresa de Energía de Bogotá (EEB), another potential bidder, participates indirectly in the same market through its shareholding in Emgesa and Codensa. The energy market is regulated by the Energy and Gas Regulation Commission (CREG), which has established certain restrictions, including a maximum market share of 25 per cent for energy generating and retailing companies, and a maximum power output of 3,402MW for 2012. A merger review process filing was made by both Grupo Argos and EEB. SIC conditionally approved both acquisitions based on the following:

  1. Grupo Argos: the merger would represent a total 3.459MW of participation in the energy generation market, which exceeded CREG's limit. Thus, SIC imposed on Grupo Argos the obligation to divest assets related to the energy sector and to neutralise the market power after the merger;18 and
  2. EEB: the merger would represent a 31.31 per cent share of the energy generation market, which exceeds SIC's limit. SIC imposed conditions, inter alia, that EEB must divest its voting rights in the energy companies Emgesa and Codensa, and divest certain assets, especially in the thermal generation plant Transportadora de Gas Internacional.19
ii Trends, developments and strategies

In 2020, 166 cases were submitted to SIC for merger review, which represents a small reduction in cases compared with the 201 cases filed in 2019.

In 2015, SIC issued Resolution 10,930, in which it:

  1. clarified certain issues, such as the definition of control;
  2. outlined the events in which no merger review is required (e.g., events that do not fulfil the subjective and objective thresholds, business integrations among controlled parties20 or between parties of an entrepreneurial group);21
  3. outlined the criteria to determine the assets and income of the parties involved in a transaction that are to be taken into account in relation to the reporting thresholds. Specifically, it clarified the instances when foreign income should be included in the calculation; and
  4. adjusted some of the documents that have to be filed to SIC for merger review.
iii Outlook

Since April 2012, all documents for merger review may be submitted online via SIC's website.22 SIC encourages this to simplify the merger review process.

Furthermore, SIC has made a clear distinction between collaboration agreements, which are subject to specific cartel and restrictive agreement regulation, and business integrations under joint venture agreements (with or without the incorporation of a new company), which are subject to merger review regulation. The main difference is that in business integrations, competition ceases definitively or for a long time between competing market agents of a relevant market, while collaboration agreements are entered into for a determined term, and at least a certain form of competition is retained between the competing market agents, which can be either actual or potential. Other differing elements are the degree of independence and integration between the competing companies. In 2018, SIC updated its merger review guidelines following an OECD recommendation. In December 2019, Congress authorised SIC to establish and charge a merger review filing fee and in January 2021, SIC published the applicable filing fees.