We have previously reported the crucial decision of the agency monitoring the competition in Colombia after Postobon, a large emporium drinks sector in Colombia, acquired 100 percent of the shares of Productora de Jugos SA, a subsidiary of Bavaria SA (in turn owned by SABMiller in Colombia). The main brand owned Postobón in the sector is the Hit brand juices.
The operation also included property used for bottling and juice processing and trademarks Tutti Frutti and Orense also distinguished beverages. Postobón tried to convert Productora de Jugos an important export fruit participant.
The intention of the parties was also horizontally integrated production of fruit juices and fruit distribution vertically. The transaction was subject to approval by the Superintendency of Industry and Commerce (SIC), which approved with certain conditions.
In its decision of March 30, 2007, the promoter of the competition office considered that vertical integration was positive for the market because it increased the upstream access Postobon the supply of fruit. However, the office was concerned that the Hit and Tutti Frutti brands together had a very high participation in certain market segments, which restrict competition from third parties.
SIC Postobón gave options to sell or license the brand Tutti Frutti, technical knowledge related to the preparation of fruit juices under the brand and all related assets. If Postobón chose to license the brand, the license had to be granted under strict conditions, including a 15-year term for the contract.
The decision was appealed unsuccessfully and was executed. Now Postobón has asked the SIC to modify the structural guarantee imposed on the company in order to prevent the sale of the brand Tutti Frutti.
This article aims to analyze how the promotion office handles guarantees competition and what the basis for this entity to accept a modification of the structural guarantees Postobón imposed in March 2007.
Changing the structural guarantees
Powers of the SIC
The SIC has broad authority to accept or offer guarantees that they can overcome obstacles to the authorization of a merger. This entity has proposed and accepted both structural and behavioral safeguards. When is the SIC that proposed safeguards should be included within the context of the resolution of first instance for the parties. When guarantees are proposed by the parties to the merger, they must provide guarantees for the regulator, without are acceptable, the agency must issue a resolution accepting them, imposing conditions for monitoring if appropriate and authorizing the merger.
Once guarantees have been imposed or accepted by the SIC, this entity usually establishes a monitoring procedure to be observed by the parties to the merger. If the parties do not meet the terms and conditions of that procedure, the SIC may impose fines and penalties or even revoke the authorization of the merger.
Elements of security
The Colombian office of promoting competition does not publish any guideline related to the guarantees. However, based on international practice, one could say that the evaluation of the effectiveness of a security comprising the following elements: (a) It is expected that the restoration process of rivalry among competitors through guarantees to restore the structure of market expected in the absence of the merger (called structural guarantees such as disposals) Address the adverse effects on the source. Such guarantees are normally preferable to measures that seek to regulate the current behavior of the relevant parties (called guarantees of behavior such as price caps and supply commitments), as these will probably not handle the side effects as widely as structural guarantees and may result in distortions compared with the results of a competitive market.
(B) guarantees are effectively manage the time that is expected to take a restrictive position.
(C) the guarantees must be practical. Which are difficult to implement or involve high costs for the parties may be more difficult to implement, monitor and enforce.
(D) Although the effect of the guarantees is always uncertain to some degree, it is important that the developer Competition Bureau ensures customers or suppliers of the merging parties do not involve significant risk that the guarantees have no impact for which they were imposed or accepted.
The structural warranty Postobón
Neither the promoter office practices of competition or the SIC establish rules in the context of merger control. A few cases have addressed this issue.
Televisa – Five Editor: This notification business integration consisted of the acquisition by Editorial Televisa Colombia SA of various tangible and intangible assets for the publication of magazines owned by Editora Cinco Cultural SA. The relevant product markets in this case were: (i) sale of advertising space in magazines; and (ii) magazines. The geographic market was national.
The developer competition agency concluded that from the point of view of readers and advertisers, the proposed merger would entail a considerable variation in the position of market segments Televisa in magazines New Parents and Youth.
It also concluded that the proposed transaction would imply a substantial lessening of competition, not only because Televisa would get a substantial market segments magazines New Parents and youth, but also by the difference between its market share and that of its rivals and the barriers to entry for new competitors.
The parties proposed a consistent structural warranty on disposal by Editora Cinco your magazine you and your child within five months of the approval of the merger. The promoter of the competition office called the proposal put it on the sale of all tangible and intangible assets required in accordance with industry standards for the publication of the magazine you and your child. This included the brand, copyright, all rights of intellectual property, customer lists and subscribers and key personnel.
In this case, the parties requested modification of guarantees based on changes in market conditions, but the developer competition agency denied the request without analyzing the situation much.
Mexichem – Amanco Group: in this case a third party not involved in the notification requested structural modification warranties imposed by promoting competition office.
Mexichem, a chemical company, focused on chemicals derived from salt in 2007, after receiving conditional approval of the SIC.
Mexichem had acquired the Colombian Petrochemical Company (Petco). Soon after, he asked for permission to merge with Pavco, a local producer of PVC pipes.
Among Pavco and Celtic, the latter another local subsidiary of the industry PVC tubes, had 65.80 percent of the market share of piping systems. This fact, coupled with the recent increase in market dominance due to integration and the already dominant position of Petco, strengthen the incentive to restrict access to competitors of PVC resins in the downstream market for these systems, possibly would lead to a forced sale and strengthening Pavco.
Mexichem was vertically integrated through four production lines: (i) chlorine-vinyl chain, which is based, among others, the PVC;
(Ii) chain solutions for fluid handling, which produces pipe solutions and driving;
(Iii) fluorine chain directed to the production of hydrofluoric acid; Y
(Iv) a chemical distribution business in bulk in Mexico.
Given the likelihood of abuse of dominant position by Mexichem, local producers of PVC pipes objected to the approval of the acquisition issued by the office promoting competition.
In its decision of first instance, in July 2007, the office objected to the transaction, it would have ‘adverse effects on competition’.
The two sides (Mexichem and Pavco) presented two requests for reinstatement in August 2007, which proposed a guarantee. The office did not accept it because “it did not fit the parameters of independence of information and implementation of a fair price that could address the competition concerns that would arise from the merger ‘.
In its decision on appeal, the Office imposed a warranty and a structural behavior. The first was to Petco order to guarantee the supply of raw material for PVC pipes Pavco competitors. The structural warranty ordered the transfer of a factory pipe owned by Celta had the capacity to produce 12,000 tons annually.
During the sales process, local pipe manufacturers asked the Competition Bureau developer to modify the structural guarantee alleging that the terms of the resolution were unclear and that the sale of Celta not be enough to address the anticompetitive effects of the acquisition . The fact that the business as a whole can not sell caused concern. The assets were to be sold in accordance with the resolution of the office promoting competition were limited to certain machinery and certain properties that were not essential to continue the business of Celta and did not include any trademark or any intellectual property. In practice, Celta sold but a new plant being built in a neighboring district and business continued as usual. The promoter of the competition office denied the request for modification of local producers arguing that the amendment required the consent of the parties concerned.
Bavaria – Leone in July 2000, SIC imposed guarantees integration notification by Bavaria SA, Cerveceria Aguila SA, Latin Development and Cervecería Leona SA. structural warranty stated: ‘The parties to the transaction must remain in the market at least two brands of Cervecería Leona SA whose combined sales represent at least equal to ten percent of the production capacity of the plant Leone . ‘
After some time, Bavaria SA requested the modification of the guarantee alleging that the destination of ten percent of the production capacity of the plant Leone was too high at that time ‘due to the deterioration of economic indicators surrounding the brand Lioness’.
In fact, the office confirmed that the final consumer preferences regarding the brand Leone had changed, resulting in a decline in sales. For this reason, the office found that: ‘the factual situations that preceded and led the guarantee have been modified. For this reason, the Office accepts the application submitted by … Bavaria SA in the sense of changing the guarantee imposed … ‘.
Postobón – Bavaria
As already he mentioned, in March 2007 imposed Postobón SIC sold its business Tutti Frutti. According to the decision of the office, the guarantee would restore competition to the state it was in the period under review at that time (late 2006).
Postobón office requested a modification of the warranty on the following grounds: (a) During the two years since the date of termination of the office, the market for fruit juices has changed substantially with increasing number of competitors and the intensity of competition. (B) Several beverage companies, such as Danone Alqueria SA, Ajegroup, Jumex and Jugos del Valle, entered the Colombian market. Bavaria SA, the seller of the business, also has a juice factory. (C) The Colombian beverage market has evolved over the past two years and now there are several substitutes for fruit juices.
The applicants requested that the guarantee be amended so that if a new competitor requesting distribution and delivery services for its soft fruit sold in disposable bottles, Postobón had to conclude a contract for the delivery of such products at the point of sale competitors who request it. With this modification, Postobón is trying to avoid the disposal of its brand Tutti Frutti.
At the time this article was written, the office was still reviewing the case and had not made a decision.
Alienation should seek remedy a substantial lessening of competition, either creating a new source of competition through the sale of a business or assets to a new market participant or strengthening a source of competition through transfer to a non-existing participant parties to the merger. To be effective in restoring or maintaining the rivalry in a market on which the developer Competition Bureau has decided that presents a substantial lessening of competition, ensuring the disposal must be analyzed always within the framework of a market constantly changing. In the case of Colombia, where there is now a significant flow of foreigners and where foreign industries are establishing their business capital, the office must maintain a balance between ensuring that their guarantees are duly implemented and assessing whether those guarantees still produce the expected results an environment of rapidly changing market.
* (This article was originally published in the IBA Antitrust Bulletin, March / 2009, Vol. 22 No. 1, pp 12-14).