1 Legal and enforcement framework
1.1 Which legislative and regulatory provisions govern merger control in your jurisdiction?
- The Organic Law for the Regulation and Control of Market Power ('Competition Law'); and
- The Regulations on the Competition Law.
1.2 Do any special regimes apply in specific sectors (eg, national security, essential public services)?
No. The merger control provisions of the Competition Law are applicable to all economic sectors.
1.3 Which body is responsible for enforcing the merger control regime? What powers does it have?
The Market Power Control Superintendency.
2 Definitions and scope of application
2.1 What types of transactions are subject to the merger control regime?
The merger control provisions of the Competition Law apply broadly and capture:
- asset transfers;
- share transfers;
- management agreements; and
- any other action or agreement that results in a change of control of one or more undertakings.
In relation to conglomerate mergers, according to the latest decisions of the Market Power Control Superintendency (SCPM), such transactions are not subject to pre-merger control. Nevertheless, given that the relevant market definition can be challenging and that its final determination falls to the SCPM, in case of doubt, it is advisable to file a consultation before the regulator or to file a pre-merger notification.
Intra-group reorganisations are not notifiable.
2.2 How is 'control' defined in the applicable laws and regulations?
Under Article 12 of the Regulations on the Competition Law, 'control' is defined as the possibility of exerting a substantial or decisive influence over an undertaking.
2.3 Is the acquisition of minority interests covered by the merger control regime, and if so, in what circumstances?
Yes. The Ecuadorian merger control regime captures any change of control, notwithstanding its proportion. For instance, a minority interest that entails negative control over an undertaking is a notifiable event under the Competition Law.
2.4 Are joint ventures covered by the merger control regime, and if so, in what circumstances?
There is no legal requirement for a joint venture to be 'fully functional' or similar in order to be notifiable. However, this parameter has been considered by the SCPM in its substantive analysis of a joint venture.
The establishment of a new legal entity as a preparatory step for a new joint venture is not notifiable, but clearance may be required before assets or personnel are transferred by the parent companies.
2.5 Are foreign-to-foreign transactions covered by the merger control regime, and if so, in what circumstances?
Yes. The Ecuadorian merger control regime captures any change of control that affects the Ecuadorian market. For example, insofar a transaction executed between companies headquartered outside of Ecuador affects domestic subsidiaries or related undertakings, it is subject to merger control in Ecuador.
2.6 What are the jurisdictional thresholds that trigger the obligation to notify? How are these thresholds calculated?
The Competition Law provides for two alternative thresholds that can be met:
- Turnover: The parties' combined turnover in Ecuador in the year prior to the transaction was $85 million (in 2022; rising to $90 million for 2023); or
- Market share: This is calculated based on the parties' combined participation in a given relevant product market, which will be met by the acquisition or increase of market share equal to at least 30% of the relevant product market.
However, the SCPM may also require notification for transactions that do not meet the above thresholds for information purposes.
The thresholds and fines under the Competition Law are set in multiples of the unified basic salary (UBS), which is reviewed annually. The UBS is set in US dollars, which is the official currency of Ecuador. The UBS for 2022 was $425 and for 2023 it is $450.
2.7 Are any types of transactions exempt from the merger control regime?
Yes. The Regulations on the Competition Law identify three types of transactions that do not require pre-merger notification:
- the acquisition of preferred shares, bonds or fiduciary rights without voting rights;
- the acquisition of a failing firm that is undergoing liquidation or that has not operated in the last three years; and
- control acquired as part of a seizure or other administrative process in accordance with relevant legislation.
Moreover, purely internal reorganisations (ie, within the same control group) are not notifiable.
The establishment of a new legal entity as a preparatory step for a new joint venture is not notifiable, but notification and clearance may be required before the parent companies transfer assets or personnel to it.
3.1 Is notification voluntary or mandatory? If mandatory, are there any exceptions where notification is not required?
Notification is mandatory pre-closing where either of the thresholds set out in question 2.6 is met.
The Market Power Control Superintendency (SCPM) may also require notification of a transaction that does not meet these thresholds for information purposes.
Undertakings may also choose to notify transactions voluntarily for information purposes.
3.2 Is there an opportunity or requirement to discuss a planned transaction with the authority, informally and in confidence, in advance of formal notification?
Yes. The Regulations on the Competition Law provides for preliminary review meetings in the context of which parties can expect to receive guidance from the SCPM on the documentation and information that must be provided to complete the pre-merger procedure smoothly.
3.3 Who is responsible for filing the notification?
- The acquirer in an acquisition of shares or assets;
- The surviving undertaking in the case of a merger;
- The party whose directors will become directors of another undertaking; or
- If multiple undertakings will acquire control of another undertaking, a joint notification.
3.4 Are there any filing fees, and if so, what are they?
Yes. The pre-merger filing procedure requires the payment of an analysis fee determined yearly by the SCPM.
The base fee is defined annually based on:
- the costs and expenses of the SCPM incurred in the previous year in analysing mergers whose notification is mandatory; and
- the average number of mandatory notifications presented in the last three years.
For 2022, the base fee was $24,563.
3.5 What information must be provided in the notification? What supporting documents must be provided?
The information that must be provided is as follows:
- the names of the undertakings;
- the addresses of the undertakings;
- details of the economic activities carried out by the undertakings, indicating specifically the goods or services marketed by each of them;
- the relevant product market or markets in which the undertakings participate, determined in accordance with Article 5 of the Competition Law;
- the turnover of the undertakings, calculated in accordance with Article 17 of the Competition Law;
- the market shares of each undertaking in the relevant product market to be affected by the transaction;
- a detailed description of the relationship of each undertaking with companies belonging to the same economic group operating in any of the markets affected by the merger, indicating their domicile and specifying the nature and means of control with respect to such undertakings;
- the legal structure of the undertakings, illustrated in organisational diagrams that establish their ownership and control structure;
- a description of the structure of the offering in the relevant product market in which each undertaking participates, identifying:
- its main suppliers;
- market share;
- the parties' production capacity;
- the costs structure;
- operational and non-operational expenses; and
- principal competitors; and
- a description of demand in the relevant product market in which each undertaking participates, identifying:
- its main clients;
- the percentage that each client represents in terms of overall sales; and
- if they exist, the barriers to market entry.
The documentation to be provided is as follows:
- a copy of the act or contract for the transaction that is subject to merger control;
- the financial statements for the last fiscal year of each undertaking involved in the transaction;
- economic studies or reports that may be relevant for the analysis of the transaction;
- a request for confidentiality of the information provided or part thereof;
- a sworn statement that the information provided in the pre-merger notification is true and that the opinions, calculations and estimates have been made in good faith;
- in the case of documents prepared in languages other than Spanish, translations of the complete document. Following consultation with the SCPM, this may not be necessary for documents written in English. The SCPM is entitled to request complete translations of foreign language documents, certified by a notary, at its discretion; and
- a copy of the duly authorised powers of attorney, formalised according to the requirements of the company's jurisdiction of incorporation. As Ecuador is a signatory to the Hague Convention, all public documents (notarised and/or legalised) should be apostilled and must be submitted with the notification. Further formalisation is not required.
Considering the specificities of each merger and relevant product market, the SCPM may require the notifying undertaking to submit additional information.
3.6 Is there a deadline for filing the notification?
Yes. Notification must be filed to the SCPM within eight calendar days of the conclusion of the agreement that entails a change of control. Article 17 of the Regulations on the Competition Law establishes the parameters for identification of the point at which conclusion is deemed to take place for each kind of transaction.
3.7 Can a transaction be notified prior to signing a definitive agreement?
Yes. Pre-merger notifications can be made based on preparatory binding agreements. If the material conditions of the preparatory agreement are modified by the parties, its execution may require a new pre-merger procedure, since the analysis carried out by the SCPM will be based entirely on the conditions of the initially notified agreement.
3.8 Are the parties required to delay closing of the transaction until clearance is granted?
Yes. Undertakings cannot take or change control until the authorisation of the SCPM has been obtained.
3.9 Will the notification be publicly announced by the authority? If so, how will commercially sensitive information be protected?
The notification of a transaction is not publicly announced by the SCPM. Nevertheless, given that the SCPM publishes all its decisions, once a transaction has been authorised, conditioned or denied, such decision will be publicly announced.
In the context of the authorisation procedure, the SCPM protects all information that can be considered confidential. The rest of the information, as a general rule, is publicly accessible.
4 Review process
4.1 What is the review process and what is the timetable for that process?
In terms of the procedure itself, the Market Power Control Superintendency (SCPM) has 60 business days to clear a merger. This period is divided in two phases:
- Phase I: The SCPM can take up to 25 business days to clear a merger in Phase I if the transaction raises no competition concerns due to its lack of economic effects. Such lack of effects must be evidenced from the information presented on the pre-merger filing.
- Phase II: The SCPM can take the whole clearance period set forth in the Competition Law to investigate a merger that raises competition concerns, which can be extended for another 60 working days if necessary.
In addition to these terms, the SCPM can suspend the investigation in either phase for up to 45 business days if information requests must be issued to investigate the merger.
4.2 Are there any formal or informal ways of accelerating the timetable for review? Can the authority suspend the timetable for review?
No. Besides the bifurcation of the procedure in two phases, there is no formal or informal way to accelerate the timetable for review. Nevertheless, undertakings can ask to be heard in meetings with the SCPM to clear any concerns or doubts the authority might have.
4.3 Is there a simplified review process? If so, in what circumstances will it apply?
The Competition Law and its Regulations do not provide for a simplified review process as such. Nevertheless, Phase 1 of the merger review process can be considered a fast-track process, as this phase is intended for mergers that raise no competition concerns. A merger can be authorised in Phase 1 if the following conditions are met:
- The undertaking that will take control does not directly or indirectly carry out economic activities in Ecuador.
- In the case of a horizontal merger:
- the joint market share of the undertakings in the relevant product market is less than 30%. If the merger will result in horizontal integration in several relevant markets, this criterion must be met in each of them; and
- prior to the transaction, the Herfindahl–Hirschman Index (HHI) of the relevant product market is than 2,000 points and the ex-post delta is less than 250 points. If the merger generates a horizontal integration in several relevant markets, this criterion must be met in each of them.
- In the case of a vertical merger:
- the undertakings have a market share of less than 30% in the integrated markets. If the merger will result in vertical integration in several relevant markets, this criterion must be met in each of them; and
- prior to the transaction, the HHI of the vertically integrated markets is less than 2,000 points. If the merger will result in a vertical integration in several relevant markets, this criterion must be met in each of them.
4.4 To what extent will the authority cooperate with its counterparts in other jurisdictions during the review process?
The SCPM cooperates with other competition authorities around the world. The SCPM has signed international agreements with 12 competition agencies (in Mexico, Argentina, Chile, Spain, Tunisia, Greece, Uruguay, El Salvador, Russia, Austria, the Dominican Republic and Peru). The SCPM is also part of, and cooperates with, the Andean Community.
4.5 What information-gathering powers does the authority have during the review process?
The SCPM may request, on a general basis, any information it deems necessary for the analysis of a transaction. Submission of the requisite information is mandatory, under penalty of fines. For the purposes of its investigation, the SCPM can also exercise its powers to conduct visits or raids.
4.6 Is there an opportunity for third parties to participate in the review process?
At any time during the proceedings, the SCPM may request from third parties any information it deems necessary for its investigation. This information can also be provided ex parte by any undertaking that has an interest in the reviewed merger.
4.7 In cross-border transactions, is a local carve-out possible to avoid delaying closing while the review is ongoing?
Yes: as long as there is no change of control that has economic effects on the Ecuadorian market, a carve-out is perfectly feasible, given that this does not constitute a merger in the Ecuadorian jurisdiction. Thus, for example, a carve-out will eliminate the risk of gun-jumping because it will allow a transaction to be put on hold until a decision has been issued.
4.8 What substantive test will the authority apply in reviewing the transaction? Does this test vary depending on sector?
As a general parameter for the analysis of a transaction, Article 15 of the Competition Law provides for a traditional dominance test. Nevertheless, given that one of the criteria set forth in Article 22 of the Competition Law for the analysis of transactions also refers to a variant of the substantial lessening of competition test, it can be concluded that the substantive test applied in Ecuador for merger control is a mixture of both.
4.9 Does a different substantive test apply to joint ventures?
No. The same structural and effects-based approach will apply to all transactions.
4.10 What theories of harm will the authority consider when reviewing the transaction? Will the authority consider any non-competition related issues (eg, labour or social issues)?
Typically, the theories of harm that the SCPM considers in its investigations are related to concentration levels on the relevant product markets affected by a merger and the possible effects (unilateral or coordinated) that the merged entity could generate once the transaction is executed. However, the SCPM has also considered public interest matters as part of its theories of harm – for example, for the promotion of small businesses or to preserve jobs.
5.1 Can the parties negotiate remedies to address any competition concerns identified? If so, what types of remedies may be accepted?
Yes. The parties can negotiate the remedies to be imposed with the Market Power Control Superintendency (SCPM). The remedies most commonly applied by the SCPM are behavioural, given that due to the realities of the Ecuadorian market, the exercise of structural remedies can be very challenging, if not impossible. However, as each remedy depends on the effects that the SCPM seeks to mitigate, it is not impossible that the SCPM may impose structural remedies such as divestments.
5.2 What are the procedural steps for negotiating and submitting remedies? Can remedies be proposed at any time throughout the review process?
Remedies can be proposed at any stage of the proceedings. However, remedies are typically discussed in the final phase of the investigation – that is, before the technical report is sent to the resolution body of the SCPM. By this stage, the SCPM will have identified the concerns and potential problems that a transaction may generate and, in this sense, can begin the negotiation of remedies.
5.3 To what extent have remedies been imposed in foreign-to-foreign transactions?
The imposition of remedies will depend on the local effects that are expected once the transaction has been executed. It is not common for this type of transaction to be conditioned, but there have been cases where this has happened.
6.1 Can the parties appeal the authority's decision? If so, which decisions of the authority can be appealed (eg, all decisions or just the final decision) and what sort of appeal will the reviewing court or tribunal conduct (eg, will it be limited to errors of law or will it conduct a full review of all facts and evidence)?
Yes, although this is not common. As a general principle, all administrative decisions can be challenged. In the case of merger control procedures, the parties may appeal the final decision of the Market Power Control Superintendency (SCPM) – that is, the administrative act through which the merger is conditioned or denied – before the SCPM or an administrative court.
The scope of analysis in the appeal will depend on its grounds. However, since the administrative courts do not have experience in competition matters, this type of appeal is commonly resolved on the basis of formal or legal considerations, without the need for further analysis. By contrast, if the decision is appealed before the SCPM, an analysis of the entire transaction can be executed.
6.2 Can third parties appeal the authority's decision, and if so, in what circumstances?
Yes. Pursuant to Article 24 of the Competition Law, authorised mergers can be challenged by the SCPM or third parties if such authorisation was obtained based on false or incomplete information.
7 Penalties and sanctions
7.1 If notification is mandatory, what sanctions may be imposed for failure to notify? In practice, does the relevant authority frequently impose sanctions for failure to notify?
Although infrequent, the Market Power Control Superintendency (SCPM) has imposed fines for failure to notify a transaction and for gun jumping. One of the most recent fines imposed in this regard was issued in 2021 and amounted to $2 million.
Failure to notify and gun jumping will incur fines as set forth in Article 79 of the Competition Law, as follows:
- Minor infraction – failure to notify a transaction within eight days of a triggering event: 8% of the turnover in Ecuador in the previous fiscal year.
- Serious infraction – execution of a transaction without notification: 10% of the turnover in Ecuador in the previous fiscal year.
- Very serious infraction – commencing the combined business without notification of the transaction: 12% of the turnover in Ecuador in the previous fiscal year.
These limits do not apply in the case of repeat offences. In addition, if the benefit attributable to the breach exceeds these limits, the SCPM can increase the fine to equal the benefit.
The mandatory methodology for the calculation of fines is set out in Article 80 of the Competition Law and Articles 95 to 100 of the Regulations on the Competition Law.
SCPM Resolution SCPM-DS-2021-19 sets out the applicable considerations for fine calculations. The considerations include, among other things:
- the generation of effects on the rights of consumers and other undertakings; and
- the extent of involvement of legal representatives.
7.2 If there is a suspensory obligation, what sanctions may be imposed if the transaction closes while the review is ongoing?
If a transaction is closed while a review is ongoing, the notifying undertaking can be penalised with fines of between 10% and 12% of its turnover in Ecuador in the previous fiscal year, as such infractions are deemed to be serious or very serious under Article 79 of the Competition Law. Also, if several parties jointly participate in a notifiable transaction, all parties are liable to fines.
The seller is not liable to fines unless it will retain control of the target post-transaction as a joint-controlling parent.
7.3 How is compliance with conditions of approval and sanctions monitored? What sanctions may be imposed for failure to comply?
Most of the conditions imposed are monitored by monitoring trustees which are specialised in competition matters. A smaller percentage are monitored through the direct intervention of the SCPM, but always in cooperation with the concentrated undertaking – for example, through the presentation of biannual reports on the application of the remedies.
In case of non-compliance with the conditions, the SCPM can impose additional corrective measures or fines of up to 12% of the turnover of the notifying undertaking.
8 Trends and predictions
8.1 How would you describe the current merger control landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The merger control regime in Ecuador has been shifting towards the technical application of the Competition Law, moving away from political criteria that can bias the behaviour of the Market Power Control Superintendency (SCPM). In the future, it is expected that concentration control will be strengthened due to the experience of SCPM personnel and their specialisation in these issues. No legislative developments or proposals are foreseen that may affect merger control.
9 Tips and traps
9.1 What are your top tips for smooth merger clearance and what potential sticking points would you highlight?
The key to smooth merger clearance rests in the detail of the information provided to the Market Power Control Superintendency (SCPM), to give it a clear understanding of the relevant product markets and the possible effects of the transaction, so that it does not have to delay the procedure to gather information. Ecuador is a country with high information asymmetries and therefore data is precious working capital for the SCPM. The cooperation of the undertakings is thus critical for successful merger clearance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.