Introduction

The Ecuadorian competition authority (the Superintendency for Market Power Control (SCPM)) recently made significant strides in the M&A field. On 20 April 2020 the SCPM published a resolution which established a fast-track merger control procedure and introduced the so-called 'failing firm' defence.(1)

The new procedure grants several advantages to undertakings that fulfil its application requirements. In addition to saving time, the procedure has removed the uncertainty surrounding the failing firm defence.

Analysis

In Ecuador, the SCPM normally takes between four and seven months to review, approve, deny or shape a merger. Under the fast-track procedure, that time has been reduced significantly, making it highly attractive for undertakings that meet the application requirements.

Undertakings that wish to access the new procedure must fulfil at least one of the following requirements:

  • the undertaking that acquires control cannot carry out economic activities directly or indirectly in Ecuador;
  • the market share of the parties involved in the merger must be less than 30% for horizontal or vertical acquisitions;
  • for horizontal mergers, prior to the operation, the Herfindahl-Hirschman Index (HHI) must be less than 2,000 points and less than 250 points after the merger;
  • for vertical mergers, prior to the operation, the HHI must be less than 2,000 points; there is no established HHI for post-merger scenarios; or
  • the merger involves a failing firm.

If the parties comply with one of the abovementioned requirements, they can notify the SCPM and request a fast-track procedure. The review period and its resolution must be made within 25 days.

Similarly, if an undertaking needs to apply for a failing firm defence, the following requirements must be met:

  • the undertaking cannot comply with its future economic obligations;
  • there are potentially no other alternatives; and
  • without the merger the undertaking would exit the market.

Notably, before the latest resolution was introduced, the failing firm defence was highly confusing in practice and only referred to in Article 13(b) of the Organic Law for the Regulation and Control of Market Power.(2)

Comment

The new fast-track merger procedure has been long overdue and is a welcome development, especially as it makes Ecuador an advantageous M&A venue and will save time and money for the SCPM and undertakings that meet the application requirements. Further, it has clarified the application procedure for the failing firm defence, making the Ecuadorian competition regime more attractive and simpler for all economic players.

Endnotes

(1) SCPM-DS-2020-18. 20 April 2020.

(2) Article 13(b) states as follows: "When control is acquired by a person by virtue of a mandate conferred by the authority public pursuant to the regulations regarding the liquidation, bankruptcy, insolvency, suspension of payments, creditors agreement or other similar procedures."