THE Fair Trading Commission (FTC) is set to get new powers to not only assess mergers and acquisitions, but also to break-up merged entities if they are found to suppress competition.

In guidance notes posted in February 2022, the fair competitions agency indicated, “The FTC has a responsibility to review merger activities and may investigate, on its own initiative, mergers that it has not been notified about.” And unlike in the past where it merely reviewed and gave recommendations, in the new notes, the FTC outlined that if it finds that mergers (and acquisitions and joint ventures) lessen competition substantially in a market, it may seek an interim injunctive order from the Supreme Court of Jamaica to prohibit the transaction from being completed.

“Where the merger has been consummated, the FTC may request that the court declare the merger agreement void. In which event, the parties to the merger could be required to separate themselves or divest the areas that have anti-competitive effects on the market,” it said in the notes.

The commission stated further, “An important fact to note is that until the merger is consummated, the parties are still governed under the FCA provisions that assess the sharing of information. No information should therefore be shared between the parties that have the likelihood to substantially lessen competition in the event that the merger is not consummated.”

The FTC indicated this week to the Jamaica Observer, “The Fair Competition Act (FTA) will be amended to expand the provisions related to mergers and acquisitions (M&A). The legislative process has started, but we are not sure when it will be completed. The [new] guidelines are internal procedures that give information to the business community as to how the FTC assesses M&A.”

However, with the FTC seemingly growing a set of teeth and baring its fangs, at least two accounting professionals who work within the mergers and acquisitions field in Jamaica are expressing concern.

Wilfred Baghaloo, a partner in PricewaterhouseCoopers (PwC), said, in principle, “We need more oversight in the M&A space in particular in sectors that have duopoly, oligopoly, cartel-like behaviour — in particular price fixing activities or systems that are designed to prevent true competition in the market place which ultimately affect consumers and the economy of the country. He, however, indicated he has some reservations.

Baghaloo states, “I do not believe in another level of bureaucracy that prevents or hinders private sector growth and ultimately the country’s economic growth and I believe the pending amendments to the Fair Trading Act (FTA) could have such an effect if the regulators get too zealous in their actions.

The PwC partner warns of market challenges which could arise if the FTC sticks to its guns for every case. Baghaloo said, “I do not believe that all M&As should require prior approval before consumption because this will create significant market challenges including information leakage.”

However he notes, “I do agree that for certain sectors of the economy in particular where you have duopoly and oligopoly practices then in certain limited circumstances prior approval of M&As should be required .

FTC Executive Director David Miller, in a response communicated to the Jamaica Observer, said the agency is simply trying to head off problems which may arise.

Miller stated, “Mergers and acquisitions is a legitimate strategy implemented by enterprises to efficiently expand operations within existing markets or enter new markets. In most instances, M&As stimulate competition within the affected market(s). However, there are circumstances, however, when the consummated M&A significantly lessens the competitive environment that existed prior to the M&A.”

The FTCs latest initiative , he said, is in line with evolving best practices internationally. Miller asserted, “Fortunately, the international competition law community has developed tools that allow competition authorities such as the Fair Trading Commission to identify those potentially problematic aspects of M&As and propose remedial measures to correct the issues identified before the M&A is consummated.”

Merger notification

The FTC head outlined, “The FTC’s main concern with monitoring M&A transactions is that there is no merger notification system in Jamaica to allow the FTC to review M&As before consummation. This situation has resulted in situations where the FTC became aware of an M&A transaction only after it was consummated, which has severely hindered the FTC’s ability to carry out its mandate of protecting competition within the affected market(s).”

Miller noted that the absence of a Merger Notification Regime from the FCA was identified as an anomaly by a UNCTAD-sponsored peer review in 2005 since most jurisdictions have such a regime in place. He said, “The FTC has been seeking to address this concern since then and is taking steps to create a Merger Review Framework that is appropriate for Jamaica’s economy.”

However Dawkins Brown, founding partner of the Kingston-based accounting firm Dawgen Global Group, told the Business Observer that the FTC, similar to other competition watchdog agencies abroad, does have a duty to identify problematic aspects of mergers and acquisitions.

However, Brown said, “Their main aim should be to ensure that mergers and acquisitions do not lessen the competitive environment that existed prior to the M&A.”

He continued, “It is critical that any system of monitoring that the FTC adopts is tailored to Jamaica’s special economic situation. It should not be another bureaucracy requiring mountains of paper and rules as that will only slow an organisation’s capacity to achieve stated goals. We cannot accept more governmental red tape which costs taxpayers both time and money.”

He noted, “Mergers and acquisition activity has been viewed as a tool for everything from increasing market share to diversifying products and services; gaining operational flexibility, new skills, and personnel; improving innovation and learning, sharing risk; pruning managerial deadwood; and trimming the fat in the national economy and increasing global competitiveness.

Brown said that it will be unproductive for the FTC to review all M&A before consummation. He outlined, “The guidelines would need to be very clear and exempt some M&A activities.”

“While Jamaica does not have a monitoring system currently, there are safeguards in place to deal with some level of M&A,” he noted, also. Some mergers in some industries such as financial and the utilities already have requirements for M&A to be approved by regulators such as Office of Utilities Regulations (OUR) and FSC and BOJ.

Is there a real risk in Jamaica not having a Merger Notification Regime?

Brown asserts that, while the Fair Competition Act does not yet have a Merger Notification Regime, it does contain adequate provision for the FTC to ensure competition in the marketplace.

– The FTC has the power to carry out investigations in relation to the conduct of business in Jamaica to determine if any enterprise is engaging in practices that are in contravention of the Act. Such investigations may be self-initiated by the FTC or be carried out following a complaint. All investigations are carried out by the staff of the FTC.

– The FTC has the power to obtain any information that it considers necessary for the purposes of the investigation. Where necessary, an authorised officer of the FTC may, with a warrant, enter and search any premises. The officer may remove any documents from the premises. Copies of documents removed may be made and the original must be returned within seven days.

– In addition, the commissioners have the power to summon and examine witnesses; to call for and examine documents; and to administer oaths. Where they find that an arrangement has contravened Sections 17, 20 or 33 of the Act, they may prohibit the arrangement. For prohibitions under Sections 20 and 33, they may also direct the enterprise concerned to take steps that are necessary to overcome any anti-competitive effects resulting from the arrangement.

– The FTC can also take to court any business or individual who has been found guilty of anti-competitive practice and has failed to take corrective measures, after being instructed by the commissioners.

Brown, noting that the FTC has in recent times investigated several mergers and acquisitions, commented, “I don’t think the absence of a merger notification affected these reviews and actions.”

Brown recommended: “Jamaica can benefit greatly from mergers and acquisition activities among SMEs and hence any action, which increases transaction cost and causes delays, should be discouraged. If the FTC Merger Notification Regime should at least exempt this category.”