Mergers & Acquisitions: Future and Effectiveness of Jamaica’s Competition Legislation Determined
The Fair Trading Commission (the "FTC") is entitled under the Jamaican Fair Competition Act (“FCA”) to deal with any matter on its own initiative or at the request of any person adversely affected by a merger and acquisition (M&A) of enterprises. Consequently, the FTC is empowered to investigate whether any enterprise is engaging in business practices that give effect to any agreement with an anti-competitive purpose or effect in a market.
The scope of the FTC’s jurisdiction over merger agreements and business conduct has been the subject of many debates, and notably so in the Jamaican telecommunications industry.
In March 2011, Digicel Jamaica Limited, trading as "Digicel" and Oceanic Digital Jamaica Limited, trading as "Claro" entered into a merger agreement whereby control over Claro's operations was transferred to Digicel. The parties also obtained the approval of the Prime Minister as required for a transfer of a telecommunications licence or associated business under the Telecommunications Act. The FTC opened an investigation into the merger and found that Digicel being leader in the market for telecommunications at that time and Claro being an economically significant competitor, the merger would substantially lessen competition in the telecommunications market, with the result that prices would be likely to rise, consumer choice would be diminished and technological advance would likely be impeded.
Consequently, the FTC commenced an action, seeking: (1) a declaration that Digicel and Claro had contravened Section 17 of the FCA which concerned agreements which had the purpose or effect of substantially lessening competition in a market; (2) an injunction restraining them from giving effect to the principal provisions of the merger agreement; and (3) the imposition of a financial penalty. Digicel contended that the merger agreement was shielded from intervention by the FTC because the Prime Minister had approved the agreement by exercise of his statutory powers granted to him by section 17 of the Telecommunications Act.
The FTC won at the Supreme Court where Justice Sinclair-Haynes ruled that: the FTC has the jurisdiction to intervene in the market for telecommunication services; section 17 of the FCA applies to merger agreements; and section 17 of the FCA applies to transactions approved by the Minister under section 17 of the Telecommunications Act. However, except for agreeing with the Supreme Court that the FTC has the jurisdiction to intervene in the market for telecommunication services, the Court of Appeal overruled the Supreme Court’s other decisions and allowed Digicel’s appeal in part.
Upon further appeal by the FTC to the Judicial Committee of the Privy Council (the “Privy Council”), the Privy Council recently held that anti-competitive conduct is governed only by the FCA in Jamaica. In its decision, the Privy Council emphasized the fact that anti-competitive conduct represents a significant public policy, and is controlled only by the FTC by the exercise of powers derived from the FCA.
The FTC – Relevant Competition Authority
The Privy Council ruled that where any other statute requires the approval of a Minister for the transfer of a licence associated with the business being acquired; such approval is to ensure that the transferee has satisfied the principal qualifications required of a licensee for the original award of the licence. The Minister’s approval therefore is not concerned with the transferee’s compliance with the licensee’s distinct obligation to refrain from anti-competitive conduct prohibited by the FCA, unless otherwise provided by statute. In other words, a Minister’s approval will have no effect on the statutory functions of the FTC as the relevant competition authority unless a statute says otherwise.
Substantial Lessening of Competition
It is therefore the duty of all companies seeking to enter into merger agreements to consider whether any practices contemplated by the agreement have as their purpose, or is likely to have the effect of substantially lessening competition in the market within which they operate in Jamaica. Merger agreements must therefore be carefully reviewed and considered so as to ascertain if they would contravene this provision. The FCA sets out the following specific examples of transactions that would lessen competition:
- the fixing of purchase or selling prices, or, any other trading conditions;
- the limit or control of production, markets, technical development or investment;
- the sharing of markets or sources of supply;
- placing competitors at a competitive disadvantage by applying dissimilar conditions to them;
- making the conclusion of contracts contingent upon obligations or conditions that have no connection with the subject of the contract.
Compliant Merger Agreements
While these prohibited activities are listed in the FCA, that list is not exhaustive. The presence of any provision in any merger agreement which seeks to do any of the above will be unenforceable. Although section 17 of the FCA does not refer in terms to mergers, it establishes a regime of control over a class of transactions which includes mergers. It follows that mergers may fall for different purposes within both the FCA and other different statutory requirements. Therefore, the enforceability of a merger agreement may depend on its compliance with any number of different applicable statutory requirements, all of which must be satisfied.
What happens when two competitors merge?
The present state of the law now stands with the Privy Council’s decision that seems to have established a primary presumption that an agreement by which two economically significant competitors merge is an agreement which contains provisions that has as its purpose the substantial lessening of competition, or has or is likely to have the effect of substantially lessening competition in a market, unless of course the parties to the agreement can rebut such a presumption. The Privy Council reasoned that this is because the reduction in the number of significant competitors in a market is self-evidently likely to have the effect of lessening competition.
For that reason, companies need to act prudently in the drafting of merger agreements so as to ensure that they; (i) comply with all relevant statutes; (2) do not cause for the investigation by the FTC: and (iii) if merging with a competitor, rebut the primary presumption of substantially lessening competition. Additionally, when in doubt, the FTC has the statutory duty to co-operate with and assist any company in developing and promoting the observance of standards of conduct for the purpose of ensuring that the merger agreement complies with the FCA.
Jezeel Martin is an Associate at Myers, Fletcher & Gordon and is a member of the firm’s Commercial Department. He may be contacted via Jezeel.Martin@mfg.com.jm or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.