By Glenn Hamel-Smith & Jeanelle Pran
Changes in corporate structures are often fueled by globalization, technological advancements and economic instability. Global deal-making, through mergers and acquisitions and similar transactions, can define some companies, change the face of entire industries and accelerate growth and shareholder return, and, as such, companies are constantly looking at ways to diversify, adapt and reposition themselves. Such transactions can, however, also have negative effects on a market.
Competition regulators play a significant role in analysing the effects (or potential effects) of proposed mergers and determining which merger transactions should be permitted. For instance, the UK’s competition regulator recently indicated that Microsoft’s $69 Billion bid to acquire Activision Blizzard (the publisher of popular games such as Call of Duty and World of Warcraft) would harm competition in gaming by resulting in higher prices, few gaming choices and less innovation for UK gamers. One of the concerns raised was that Microsoft could take games such as Call of Duty exclusive, and not allow competitors such as Sony’s PlayStation to have access to same.
Although the Trinidad and Tobago (‘T&T’) market is comparatively small, the local merger control regime should not be overlooked when determining what regulatory approvals may be required prior to the closing of a merger or acquisition transaction. With the introduction of a new merger control regime in T&T approximately three (3) years ago, merging entities now have to consider whether a proposed merger would be captured by T&T’s Fair Trading Act (the ‘FT Act’), even in those instances where the parties to the transactions may have relatively insignificant local sales or limited local presence.
Below we take a look at how the T&T Fair Trade Commission (the ‘Commission’) has treated with merger applications over the past three (3) years as well as some of the main lessons derived.
A merger filing in T&T is required where all of the following three (3) thresholds are satisfied:
- The transaction meets the definition of a merger (broadly defined as the cessation of two or more enterprises from being distinct whether by purchase or lease of shares or assets, amalgamation, combination, joint venture or any other means through which influence over the policy of another enterprise is acquired);
- The parties to the proposed merger have assets of at least TT$50M; and
- Any of the parties to the proposed merger carries on business in T&T or intends to carry on business in T&T (post-merger).
The carrying-on-business test
The Commission has not issued definitive guidance as to what constitutes “carrying-on-business” in T&T at this time and the FT Act is silent in that regard. However, the Commission has tended to take into account a company’s local presence (or lack thereof) in determining whether it is carrying-on-business in T&T. For instance, if a company has significant local revenue, assets, subsidiaries, registered businesses, employees and/or operations in T&T, the Commission has been more likely to form the view that it is carrying-on-business in T&T. In contrast, where a company has limited to no local revenue and no other local presence, an argument can be advanced that it is not carrying-on-business in T&T. Each case will turn on its facts and the Commission encourages parties to treat each merger individually and provides guidance on specific merger transactions when approached.
Lack of Local Effects
There is no local guidance (whether in the FT Act or the Draft Merger Guidelines) as to how mergers involving a lack of local effects should be treated. However, there have been a few instances where the Commission has accepted that a proposed merger transaction would have a lack of local effects, and as a result, issued confirmation that no filing was required or that an exemption from a full filing would be granted.
In order to make a case that there would be a lack of local effects, the parties to the proposed merger would need to satisfy the Commission that the merger would be unlikely to have anti-competitive effects in T&T and that the parties to the merger have limited or no local presence. For instance, if one party has no local revenue, subsidiaries, assets, employees or operations and is not otherwise active in T&T, and the other party has only insignificant revenue generated in T&T but no other local presence, the parties may be able to persuade the Commission that the proposed transaction would not have any local effects on competition in the relevant product market. On the other hand, if one party has no local presence but the other generates considerable revenue in T&T, the Commission may be less easily persuaded that there would be a lack of local effects as the revenue generating party may be deemed to be carrying on business in T&T.
Notably, the amount of revenue generated in T&T is usually one of the main factors in determining if one or more of the enterprises to a proposed merger carries on or intends to carry on business in T&T and whether there would be a lack of local effects. However, there has been no specified minimum level of revenue below which a filing can be ruled out.
Where the parties to the proposed merger consider that the merger would have a lack of local effects, guidance can be sought and a reasoned request can be made to the Commission for an exemption from a filing, or to obtain a confirmation that no filing is required.
There is no local legislated position, regulation or guideline that makes it clear or confirms that an internal re-organisation would be definitively exempted from the merger control regime in T&T in all cases. As such, a filing cannot be automatically ruled out merely because the transaction is considered to be a purely internal re-organisation.
That said, the Commission has on a case-by-case basis provided exemptions from a full filing (or confirmations that no filings were required) in purely internal re-organisations where, upon the merger taking effect, there would be no change to the entity that influenced the target or the level of influence that entities previously had over the target.
Where parties are able to show that there would be no meaningful change in the ultimate beneficial ownership of the target as a result of a proposed transaction, there is room to present a case that no filing ought to be required in respect of a merger or that, if one is required, an exemption should be granted.
The FT Act does not provide any specific exceptions for foreign-to-foreign transactions (which are transactions involving two or more companies which are incorporated in countries outside of T&T and which are not registered as external companies in T&T). As such, a filing cannot be automatically ruled out by mere reason of the transaction being a foreign-to-foreign transaction. However, if the foreign-to-foreign transaction involves parties with relatively nominal local sales and limited or no other local presence (whether in the form of local assets, registered businesses, subsidiaries, employees, etc.), the parties may be able to make a case that no filing ought to be required on the basis that the transaction is likely to have a lack of local effects on competition in the relevant market.
Consultations with Commission
While parties may feel confident that their proposed merger is not captured by the merger control regime in T&T or that, if captured, no filing should be required (because, for example, there appears to be a lack of local effects or the transaction involves a purely internal re-organisation), parties are encouraged by the Commission to consult with them to obtain confirmation of same.
The Commission has provided that each case will turn on its particular facts and therefore an exemption granted in one transaction, does not guarantee an exemption in another transaction.
As the FT Act prohibits parties from effecting a merger without permission and the penalties can be severe, parties considering a merger or acquisition transaction must plan ahead if the thresholds mentioned above are met. The legislative review period within which the Commission must make its determination on whether permission to merge will be granted is one month (30 days) from the date on which the Commission receives the merger application. In practice however, the one month review period commences when the Commission signals that an application is complete and that no further information is required for it to make its determination. That confirmation usually comes within a week or so of submitting an application.
Additionally, it has become customary for the Commission to request a further two week extension, beyond the initial one month review period, in order to complete its review process. In most instances, this extension is requested when the Commission is still seeking relevant market data or conducting further research.
As such, the timeframe for receiving a decision from the Commission is usually seven to eight weeks from submission of an application. This would however be dependent on whether any complexities arise in respect of the particular merger (e.g. competition concerns arising from overlaps) and on the parties’ ability to provide any documents or information requested by the Commission in a timely manner.
Other Potentially Affected Regimes
The merger control regime in T&T must not be viewed in isolation. Depending on the varying factors, including the type of business which the parties are involved in, other regulators in T&T may need to be approached, whether to notify of the proposed merger or to obtain approval prior to merging.
- Permission to merge may need to be obtained from the Regulated Industries Commission in respect of mergers involving service providers in T&T (entities involved in the supply and distribution of electricity, water, sewerage and waste-water services).
- Under the Financial Institutions Act, where there is an intention to merge and one of the merging companies is a licensee or the financial holding company of a licensee, an application must be made in writing to the Central Bank of T&T by the companies proposing to merge.
- In certain circumstances, the purchase of shares in a local company or land in T&T by a foreign investor, may trigger the requirement for a foreign investment licence or for the Ministry of Finance to be notified prior to the closing of the merger.
What in store for the merger control regime in T&T
The merger control regime in T&T is still developing but the past three (3) years have proved fruitful in understanding how the Commission applies the legislation in practice and in what types of scenarios a case can be made that no filing ought to be required or when an exemption may be attainable.
As far as the future of merger control in T&T, there is buzz of potential amendments to the legislation being considered to extend the review period, increase the asset threshold (which is currently fairly low) and to introduce a local turnover threshold (so that transactions involving parties with only nominal sales and no other local presence in T&T might not be captured by the carrying-on-business threshold).
There is no clear indication as to when these changes would be implemented and adopted but the sense is that they are still relatively far off.
Disclaimer: This post contains general information on legal topics and does not constitute legal advice