FTC Column: Defining mergers
THE world of commerce is no longer limited to a brick and mortar presence. It is buoyed by the Internet and various related technologies, and is conducted across time zones and continents, creating a global exchange which never closes for business. Companies which were once independently owned and operated are now part of conglomerates, contributing to a new era of mergers and acquisitions, which, companies claim, leads to the creation of synergies and economies of scale.
This is evident in our own local business environment – the announcement of the acqui
sition of Cable & Wireless Communications (Plc) by Liberty Global (Plc) and SLU Beverages/AmBev’s acquisition of Banks Holdings Limited, are two recent examples of how the corporate landscape is being transformed.
These developments have piqued public interest in the legislation which governs such matters. The Fair Competition Act, CAP. 326C (FCA), which is enforced by the Fair Trading Commission (FTC), governs merger activity. Section 2 of the FCA defines a merger as “(a) the cessation of two or more enterprises from being distinct, whether by amalgamation, by one or more enterprises acquiring control over another or otherwise; or (b) the engagement in a joint venture between enterprises which results in two or more enterprises ceasing to be distinct entities”. Under the FCA, merger approval is required for:
• Joint ventures;
• Amalgamated companies that will continue to operate separately and will not cease to be distinct ;
• One company’s acquisition of another company’s shares;
• Companies that are not currently in operation in Barbados but have acquired a company in this jurisdiction.
Section 2 of the FCA offers immediate clarity with regard to joint ventures, as it states that engagement in such activity is encompassed in the definition of a merger. However, in the case of “companies that will operate independently and not cease to be distinct”, one must look further.
Section 2 (2) states that “For the purpose of the Act, (a) one body corporate is affiliated with another body corporate if one of them is the subsidiary of the other, or both are subsidiaries of the same body corporate or each of them is controlled by the same person; and (b) if 2 bodies corporate are affiliated with the same body corporate at the same time, they are affiliated with each other”. Subsection (3) defines ‘control’ within this context. In short, while two companies may be separate body corporates for the purposes of business activity, they are quite capable of acting together as affiliates, as they are essentially controlled by the same person.
The issue of jurisdiction also arises quite often in the discourse on mergers. Some companies may be of the view that acquiring companies that operate outside of Barbados do not fall under the purview of the FCA. It is also believed that if activity is not given the ‘merger’ title – such as the acquisition of another company’s shares – that it is exempt from the merger approval requirement. The provisions of Section 20 of the Act illustrate why both interpretations are flawed.
With regard to shares traded on the stock market, subsection (4) notes that the requirement for seeking the permission of the Commission applies to “any public bid for the control of an entity”. This means that the Act would apply in any circumstance where the transfer of ownership takes place, including stock market trading, as no distinction is made between control acquired on the stock market or otherwise.
Likewise, in the case of companies which operate outside of Barbados, the legislation does not require that the transaction be local or that both companies operate in Barbados. Instead, the critical factor is that one of the enterprises operates some entity in Barbados which has at least 40 per cent market share.
According to Section 20 (1) of the FCA, “From the commencement of this Act, all mergers by an enterprise that (a) by itself controls, or (b) together with any other enterprise with which it intends to effect, the merger is likely to control not less than 40 per cent of any market or such other amount of the market, as the Minister may by Order prescribe are prohibited unless permitted by the Commission in accordance with this section”.
While no global standard for mergers exists, the International Competition Network’s (ICN) Recommended Practices for Merger Notification and Review Procedures offers useful guidance on how merger activity may be determined. Moreover, the ICN paper “Defining Merger Transactions for Purposes of Merger Review” emphasises the need for balance in determining what qualifies as a “merger” transaction. If defined too broadly, transactions that are unlikely to have a substantial impact on competition will be included. On the other hand, a definition that is too narrow would see transactions which should be reviewed going unchallenged. The FCA was crafted with all of this in mind, and seeks to provide guidance to ensure fair competition in Barbados is maintained.
If you have any questions, e-mail us at firstname.lastname@example.org, call us at 424-0260 or visit us online at www.ftc.gov.bb or www.facebook.com/BarbadosFairTradingCommission. You may also visit our offices at ‘Good Hope’, Green Hill, St. Michael.