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It should be noted that, with the approval of this Regulation, it is clear that Indecopi will not apply Urgency Decree Nº 013-2019 for the prior control of concentration operations - even though it entered into effect on March 1, but without its own regulations that make it operational - but rather wait for the Law to fully enter into effect, which now depends on the forthcoming publication of the Supreme Decree that will modify the regulations of the prganization and functions of Indecopi, adapting it to this new function, and then 15 calendar days will be counted. When the Law enters into effect, the Regulations will also enter into effect and, at the same time, Emergency Decree 013-2019 will be repealed.

Scope of Application: confirmation regarding what and to whom it reaches

As to what it applies, the Regulation has confirmed the scope that establishes the Law and, as such, there is no doubt that the system of prior control of concentrations applies to operations that produce effects in Peru (geographic link), including those that are developed abroad but that link companies that operate in the country.

For its part, as to who is applied, the Regulation also confirms what is indicated by the Law in the sense that it covers economic agents that offer or demand their products or services in the market and that, in addition, carry out acts of concentration that may produce or produce anti-competitive effects in Peru.

Calculating Thresholds: precisions regarding assets and inclusion of economic groups

As is known, the operations that must be notified to Indecopi for merger control, are those that meet the following concurrent requirements: i) that involve a permanent change of control (exercise of decisive and continuous influence in a company); ii) that have effects in Peru (geographic link); and iii) that meet or exceed legal thresholds.

There are two very important aspects that the Regulation has specified and that influence the calculation of the thresholds that will determine whether the notification of the operation to Indecopi is mandatory.

The first relevant precision is that only assets located in Peru during the fiscal year prior to the one in which the operation is notified will be taken into account in the calculation. In addition, the value that will be used to calculate the assets will be the "accounting value" or book value, since it is understood that this provides greater objectivity or security than determining the commercial or market value. Consequently, for an operation to be reportable before Indecopi, the “joint threshold” and the “individual threshold” must be reached concurrently , which will be calculated based on i) the value of sales, or ii) gross income , or iii) the book value of the assets located in Peru, as shown in this table:

The second important precision is that to calculate the threshold, not only the sales, gross income or assets of the companies participating directly in the operation will be taken into consideration, but also in some cases the sales, gross income or assets of the economic groups to which they belong, or in other cases those of the agents over whom they have control. This is shown in the following table:

It should be noted that the Regulation has defined "operational productive assets” as those tangible or intangible goods, which can be assigned revenue, income, cash flows or business volume, and have the potential to develop or increase participation of an economic agent in the market. An asset will be “operational” when it has generated revenue, income, cash flows or business volume in the year prior to the notification of the concentration operation. For example, if what is acquired were infrastructure that has not been used, then the operation would not be required to be notify to Indecopi, as it would not imply the purchase of an “operational productive asset”.

The threshold calculation rules set out in the table above, also apply to cases of “successive transactions”, that is, those that the Law considers a single concentration operation because they are a set of acts or operations carried out between the same economic agents within a fixed period of two (2) years, and the concentration operation must be notified before executing the last transaction or act that allows the legal thresholds to be exceeded.

Types of pre-control procedure: Regular and Simplified

There are two types of prior control procedures: the regular procedure and the simplified procedure, and they differ in the level or quantity of requirements or information that the parties must present when notifying the operation.

As long as it is clearer that the operation would not generate concern about affecting the market, then it can be notified via a simplified procedure and less information will be required, occurring this in two cases: i) when the companies involved in the operation demonstrate that neither they nor their economic groups carry out activities in the same product and geographic markets (horizontal competition), or when they do not operate in the same value chain (vertical competition), which is known as “mergers by conglomerates”; or, ii) when the concentration operation causes an economic agent to go from joint control to exclusive control of another economic agent , since there was already a permanent control in practice, which has simply been consolidated .

It should be noted that the simplified procedure is not a fast track and, therefore, only implies that less information will be presented, but not that Indecopi will necessarily resolve in a shorter period.

Regular procedure

The Regulation establishes an exhaustive and closed list of what companies must present to Indecopi. In addition to the typical information regarding the data of the companies, legal representatives, ownership structure and control of related companies, kinship ties or ownership or management ties with other companies operating in Peru, and procedure fees. It stands out the presentation of an affidavit form containing: i) the executed agreement between the parties or, in any case, MOU or letter of intent, ii) corporate approval of the transaction including, its motivation and effects, iii) reports and internal reports prepared for the discussions and evaluation and motivation of the operation, iv) identification and description of the markets involved, and supporting documentation and studies v) description of efficiencies inherent to the operation, if applicable, v) countries where the operation has been or will be notified, as well as status and resolutions of the respective competition agencies, and vi) the financial statements of the year prior to the notification.

Simplified procedure

In this case, the Regulation establishes the same requirements as the regular procedure, but removes the presentation of the following: i) corporate approval of the transaction including, its motivation and effects; ii) reports and internal reports prepared for the discussions and evaluation and motivation of the operation; iii) identification and description of the markets involved, requesting instead only a list of the economic activities of the parties (identifying products, services, distinctive signs, characteristics of supply and demand, and existence of cooperative agreements with third parties); iv) description of efficiencies inherent to the operation; nor v) countries where the operation has been or will be notified, as well as status and resolutions of the respective competition agencies.

Commitments: presentation, evaluation, approval and review in time. Creation of the Register of Conditions

When the parties involved in the notified operation consider that there is a possibility that it may be denied by Indecopi, then the Law provides for the possibility of submitting a proposal for commitments intended to avoid or mitigate the possible anti-competitive effects derived from the operation and, in this way, try to get the operation to be authorized, with commitments or conditions.

The commitments or conditions can be structural (for example, the sale of a business line to a third party) or of conduct (for example, not entering into exclusivity agreements).

In this regard, the Regulation requires that the commitments can be submitted in both Phase 1 and Phase 2. These commitments must be feasible and practical. In addition to confirming the deadlines of the Law for their evaluation, a consultation process is offered with Indecopi on the form of their presentation and their viability during Phase 1. In addition, while the Law allows the authority to consult opinions of third parties on the commitments, the Regulation establishes that public and private agents will be summoned to receive their comments.

In both Phase 1 and Phase 2, if Indecopi does not accept the commitments, then it issues a resolution that is not open to challenge, without this affecting the continuation of the evaluation process of the concentration request. If Indecopi accepts the commitments, then it issues a resolution authorizing the operation with conditions, which are precisely the fulfillment of such commitments for a specified period. It should be noted that Indecopi can also establish ex officio conditions.

The approved conditions of conduct, which allowed the authorization of the operation, can be maintained, lifted or modified, either before the expiration of the term due to a variation in the conditions of competition (review due to change of circumstances) or at the expiration date of the term (sunset review). This can be seen in the following graph:

The review "due to change of circumstances" before the expiration of the term of the condition, can be ex officio at the request of the party, and will be resolved by the Indecopi Court. While the "sunset review" to the expiration date of the term of the condition, will be in charge of the Commission. When the condition is modified, the new condition can never be more burdensome than the old one.

Finally, the Regulation provides the creation of a record of conditions that will be implemented by Indecopi, in which all commitments, conditions, agreements and other measures approved by the Commission will be registered, in order to publicize them and, likewise, provide security to third parties that contract with companies obliged to comply with them.

Ex officio action or voluntary notification when legal thresholds are not exceeded: two sides of the same coin

The Law itself establishes that even in those cases where the operation does not reach the legal thresholds, although the mandatory notification to Indecopi does not correspond, there is the possibility that Indecopi investigates the operation ex officio when it considers that there are “reasonable indications” to consider that it "may generate a dominant position" or affect "effective competition in the relevant market". But the parties can opt for a voluntary notification of the operation to Indecopi, before it is executed, when they consider that the same “reasonable indications” of generation of dominion power or possible affectation on effective competition are presented; it is important to highlight that, in this case, the parties may consult the Technical Secretariat of the Commission in advance to determine if it is justified to carry out the voluntary notification of the operation.

The Regulation has specified that the ex officio action may be carried out within a maximum period of one (1) year after the formal closure of the operation, and that it occurs if there are “special circumstances” in which reasonable indications are identified that the operation can generate dominance position or affect the effective competition in the relevant market. And, in this sense, it indicates in a declaratory way that "special circumstances" are considered as, among other assumptions, i) horizontal operations carried out in concentrated markets; ii) horizontal operations that involve the acquisition of an economic agent with a small participation in the market, but with growth potential, or an innovative economic agent that has recently entered the market (cases of start-ups or “nascent firms”, and even potential "killer acquisition" ); iii) horizontal operations in which the acquiring economic agent or its economic group has previously carried out operations that involved the acquisition of a competitor; or, iv) other operations that have the potential to generate possible significant restrictive effects on competition.

Likewise, the Regulation contains the rules of the procedure that is followed in these cases, establishing that the companies involved in the operation can support the efficiencies so that it is not objected by Indecopi or, in any case, they can also offer commitments that eliminate or mitigate the possible restrictive effects of the operation on competition, and if they are accepted then the procedure will be terminated early. Finally, if Indecopi considers that the operation could not generate significant restrictive effects on competition, then it terminates the procedure; but if it concludes otherwise, then it will issue the orders or measures it deems pertinent to eliminate or mitigate the restrictive effects on competition, and may even order the sale of the shares or assets acquired, if this is feasible, reasonable and proportional.

It should be noted that Indecopi will not be able to review ex officio those concentration operations that, before the date of entry into effect of the Law, have concluded with the closing acts necessary to make the transfer or change of control effective.

Process for the Promotion of Public Private Partnerships (PPP) and the possible report of Indecopi due to impact on competition

The Regulation has introduced an assumption not provided for in the Law: that Indecopi may issue a report on concentration operations that take place within the framework of a process to promote private investment for the development of public infrastructure projects and the provision of public services under the modality of PPP.

In this sense, if during a PPP promotion process under Legislative Decree 1362, the Private Investment Promotion Agency identifies that a concentration operation within the framework of said process may generate risks to competition, then it requests a report on the possible anti-competitive effects of said operation to Indecopi’s Antitrust Commission. This can be requested up to and including the evaluation and selection stage, and before the contract is signed. Indecopi has a maximum of 30 business days to issue the report and, if not, then it is understood that there are no anti-competitive risks.

This provision is not applicable to those projects of public infrastructure and provision of public services under the PPP modality, by state initiative, which, on the date of entry into effect of the Law, are in the structuring or transaction stage and are awarded before December 31, 2021; nor to those investment projects under the same modality, by private initiative, that are in a stage after the opinion of relevance of the sector.