09.09.16

To Merge or Not to Merge?

Stephanie Ewbank
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To Merge or Not to Merge?

Mergers and acquisitions (“M&As”) on the surface may ordinarily be considered a question of business and economics, but in fact they also attract several legal and regulatory issues. M&As are typically regulated in many countries under the purview of antitrust legislation. While Jamaica has antitrust legislation in force as the Fair Competition Act (“FCA”), there are no express provisions in it regarding mergers and acquisitions. This has resulted in continued uncertainty and controversy regarding what the FCA does and doesn’t impliedly regulate.

Jamaica’s telecommunications industry has been a significant part of this controversy. The merger between Digicel Jamaica Limited (“Digicel”) and Oceanic Digital Jamaica (trading as “Claro”) in 2011 was a major development in Jamaica’s telecommunications industry and a headline business deal. Though the merger has been completed for years now, the potential anticompetitive effects of the merger agreement are still being litigated in our Court system. At the heart of this dispute, is a question of the scope of the Fair Trading Commission’s (“FTC”) jurisdiction over merger agreements, and business conduct generally, in the local telecommunications industry. Meanwhile, the future and effectiveness of Jamaica’s competition legislation hangs in the balance.

In December 2014, our Court of Appeal adjudicated on the matter, which judgment the FTC was recently granted final leave to appeal to our highest Court, the Privy Council. However, until this final judgment comes forth, we are left to construe the nuances of the Court of Appeal’s decision, which ruled that the FTC does not have jurisdiction to intervene in the Digicel/Claro merger; a reversal of the Supreme Court’s earlier decision.

The Court of Appeal was tasked with examining the interactions between the FCA and the Telecommunications Act (“TCA”), in light of the FTC’s contention that the merger was in breach of the FCA. LIME also joined the matter, as an interested party, in support of the FTC’s contention. The FTC had previously investigated the merger and concluded that the merger agreement breached Section 17 of the FCA, on the basis that it has the effect (actual or likely) of substantially lessening competition in the telecommunications market to the detriment of consumers. A breach of this section would mean that the merger agreement would be illegal and thus no longer enforceable. The Court, however, held that the agreement between Digicel and Claro does not fall within the scope of agreements governed by Section 17 of the FCA.

During the proceedings, Digicel and Claro, the appellants, contended that the telecommunications industry falls exclusively within the jurisdiction conferred by the TCA, not the FCA. The Court disagreed with them on that point, while highlighting the FTC’s mandate to oversee and supervise industries generally, including the telecommunications industry, as it regards competition issues.

However, the Court agreed with the appellants that its merger agreement, which involved the purchase by Digicel of Claro’s entire stock, is not subject to Section 17 of the FCA. While acknowledging that some telecommunications agreements could possibly fall within the scope of Section 17 FCA, it focused on the right accorded under the TCA to a telecommunications company to assign its licence or to transfer control of its operations, subject to the Minister’s approval. Digicel and Claro had obtained the Minister’s approval regarding the merger transaction, which approval is subject to his consultation with the Office of Utilities Regulation (“OUR”). The Court reasoned that an agreement sanctioned by the Minister under the TCA, after all the statutory requirements have been satisfied, could not then be made subject to invalidity under Section 17 of the FCA. This, according to the Court, would not be in accordance with business efficacy, and would obstruct the purpose of the licensing process under the TCA.

The Court also highlighted that the FCA is silent as to the regulation of mergers and acquisitions generally, and that the purpose and effect of Section 17 of the FCA is to restrict collusion, which it held did not exist in the Digicel/Claro merger agreement.

It remains to be seen whether the Privy Council will disturb these findings. Until then, this case confines the FTC’s powers to regulate telecommunication mergers, and possibly merger agreements in other industries.

Stephanie Ewbank is an Associate Attorney-at-Law at Myers, Fletcher & Gordon and is a member of the firm’s Litigation department. Stephanie may be contacted via stephanie.ewbank@mfg.com.jm or www.myersfletcher.com This article is for general information purposes only and does not constitute legal advice.