Modernise our merger laws!
FTC angles for more power to deal with mergers and acquisitions
JAMAICA’S competition watchdog said it is hoping that by 2026 companies proposing to merge will, by law, be required to give it pre-merger notification, with it also having the power to approve or object to proposed mergers and acquisitions (M&A) before the combination takes place. Draft proposals to effect the change have been submitted to Cabinet since 2015. The provision was originally proposed to be included in The Fair Competition Act but was removed.
Currently, the Fair Trading Commission (FTC) has no explicit authority to stop mergers and acquisitions which it deems could be inimical to consumers and competitors as is done from time to time by antitrust bodies in other jurisdictions. It, however, evaluates certain M&A transactions and offers opinions which the parties may or may not follow.
“Our law does not require us to give specific permission for firms to merge or be acquired,” David Miller, executive director of the FTC told the
Jamaica Observer on the matter. “So if firms decide to merge, notwithstanding our view, they could go ahead.”
“But we are required to examine that agreement pursuant to Section 17 [of the Fair Competition’s Act], and I must say that it is in the interest of the parties to advise us, because if it is that when we conduct our assessment we believe that it is or may be in breach of the Fair Competition’s Act, one of the routes that the Fair Trading Commission will take is to take the parties to court to have the court decide whether or not the Act has been breached.”
Despite the threat, Miller said, “in practice and in reality, what happens is that we would advise the parties and we would negotiate and remove the sections of the agreement that are likely to breach the competition’s law”.
Still, while he said the FTC is now powerless to stop an M&A without seeking assistance from the court, for the past five years it has found most firms proposing to consolidate are willing to work with it to reduce the likelihood that their combination would lessen competition. But the FTC does not want to continue leaving things like pre-merger notifications and firms requiring to get its opinions before the transaction is completed to the goodwill of the merging parties.
“So what we are seeking to do in Jamaica is to modernise our merger review regime and to insert into the Fair Competition’s Act provisions that require that firms of a certain size who are planning to merge to seek approval from the Fair Trading Commission, similar to what happens in the United States,” Miller continued.
He did not specify the size of the firms that would be excluded from the FTC’s pre-merger scrutiny, but said research had been done on what that size should be, using entities listed on the Jamaica Stock Exchange as a guide to inform the process.
“We have limited resources and so we are not in a position to examine every merger. That’s unrealistic,” he argued as he pointed out the reason for excluding certain mergers from the FTC’s scrutiny when it gets more teeth to enforce competition’s law. He also said the size of the firms to be excluded from its antitrust probes “will not be cast in stone forever” and “could change” after three years.
Still, he said there should be no reason for firms to fear that the FTC would be wary of mergers between firms above the minimum size threshold.
“The numbers internationally, I think it’s 91 per cent of mergers are approved without conditions, and there are about six per cent that are approved after negotiations and conditions are attached, and three per cent are just blocked completely. We don’t expect our percentages in Jamaica should be any different from what obtains in countries all over the world,” Miller noted.
“Having the ability to review mergers doesn’t mean we will block it, and if the merger results in efficiencies, then we wouldn’t object. We will only reject those that we believe will harm competition and/or consumers,” Kevin Harriott, the competitions bureau chief at the FTC added.
Miller, for his part, said when entities are required to notify the FTC ahead of merging, just like in other jurisdictions, a series of events will set in play.
“Now in that process, the Fair Trading Commission has 30 working days to make an assessment as to whether or not there could be harm. If it is that the Fair Trading Commission says, ‘Yes, there could be harm,’ then we would require additional information not only from the parties who are merging but also from the competitors and the general public…and we would take another 60 days to complete that.”
Miller said that process is already being followed even though, in law, there is no requirement for it now, “because it gives the businessman some level of certainty”.
“There are three outcomes that could arise from a proposed merger,” Harriott said. “We could say one, ‘We have no objection as is and you can go ahead after 30 days,’ or we could say, ‘We object,’ we block it and we challenge it. We could also seek the middle ground where we would say, ‘Listen, it looks good, except for this little part. Would you mind changing it and coming to a consent agreement that you will make these changes,’ and then we would approve it subject to the tweaking,” Harriott added.
Arguments have been made in the past that the FTC should not have powers to review and approve or object to proposed mergers, including that the Jamaican economy is too small to stop certain M&As that would make local companies more competitive with multinationals. But Miller dismisses that line of reasoning.
“Being small should not mean we shouldn’t have this type of protection for our consumers. We certainly don’t want super- large companies from overseas coming here and raising prices unconditionally because we are a small country and because Jamaica is such a small number on this big company’s balance sheet.
“Competition drives economic growth. Competition drives innovation. So even if the market is $1000, the more firms competing for that $1000 suits us as consumers. It drives prices to a competitive level and improves quality. So the size of the market is neither here nor there — we must have intense competition,” Miller outlined.