The Fair Trading Commission’s

Merger Investigation Procedures

Introduction

The Fair Competition Act (the Act), at Section 20 states, that mergers which are likely to result in the control of in excess of forty (40) percent of any market in Barbados are prohibited unless permitted by the Commission. This provision requires the Commission to investigate all mergers that meet this threshold with a view to granting or denying permission to the parties. The investigation focuses on the extent to which the proposed transaction impacts competition positively or negatively in the domestic market. 

This merger law should not be interpreted as an intention to prevent or restrict in any way, the merging process or business expansion in Barbados. The Commission is aware that in the combining of resources through a merger, firms are able to increase their efficiency through reduced costs, strategic reorganization, new technologies and combined expertise. In addition mergers and acquisitions are easily one of the quickest, cheapest and often times the only means whereby firms can increase their efficiency or source the capital needed to compete with larger and more efficient firms.

In this modern era of industrial organization mergers can be viewed as almost essential for sustained economic expansion. The Commission therefore recognizes the importance of its mandate and the need to undertake its responsibility in a very considered manner.  

Preliminary ANALYSIS

Having received an application for the effecting of a merger the Commission will first review the proposal in accordance with the forty (40) percent market share threshold established, to determine if the transaction requires an investigation. This analysis will involve:

• A determination of the specific market(s) for consideration, this is done through a review of the various products and services supplied by the enterprises, and the geographic area over which their products are distributed.
• A determination of the relevant percentage market share(s) of the enterprise(s) pre and post merger in each market affected. This is done through a calculation of the volume of output supplied by the enterprises relative to the total market. 

If based on the preliminary analysis the merged enterprises do not control in excess of the threshold market share as determined by the Act, the applicant will be notified by letter, that the proposed merger falls outside the jurisdiction of the Commission and therefore does not require the permission of the Commission.

Formal Enquiry

If the preliminary analysis indicates that the combined enterprise will control an amount equal to or greater than the 40 percent threshold market share, the applicant will be formally notified of the intention of the Commission to investigate the proposed arrangement to determine the extent to which it affects competition in the domestic economy.

The Commission shall allow itself a maximum period of ninety (90) business days, to conduct an investigation into the arrangement. In conducting its investigation the Commission will give consideration to:

The structure of the markets likely to be affected by the proposed merger including the number and size of competitors in the various product markets before and after the merger and the barriers to entry that will impact on these market structures.

• The degree of control exercised by the enterprises, particularly the economic and financial power of the enterprises; and the extent to which the merged enterprises will have the market power to raise prices unilaterally or will have incentives to enter into collusive arrangements with the other market  participants.
• The availability of alternatives to the services or goods provided by the enterprises concerned in the merger; i.e. the degree to which following the merger there will be an adequate supply of alternatives to the goods and services provided by the merging parties.
• The likely effect of the proposed merger on consumers and the economy; or the degree to which there will be improvements in the quality and delivery of the goods and services supplied in the market, and the extent to which any reduction in costs are passed directly to the consumer in reduced prices or indirectly through strategic investments.
• The actual or potential competition from other enterprises and the likelihood of detriment to competition i.e. the impact of the merger on the productivity and viability of the existing market participants and potential new entrants.

Commission Decisions

There are a series of outcomes possible once the Commission has completed its investigation and adjudication of the merger.

Where having assessed the transaction the Commission finds that the merger will not affect competition adversely or be detrimental to consumers, the Commission shall grant its permission for the merger to proceed.

On the other hand should the Commission determine that the merger will restrict competition but the merger parties can convincingly demonstrate that the transaction will produce significant cost efficiencies which will be shared with consumers in the form of lower prices, improved quality of products, etc. the merger is again likely to be permitted. 

If however the merger is likely to materially restrict competition or be detrimental to consumers without sufficient redeeming efficiency benefits as outlined above, the Commission may direct the enterprises within an agreed period to divest specific interests or part of the combined operation. This would be the case where the Commission is satisfied that such divestment would make the merger less likely to lessen competition or to adversely affect the interests of consumers or the economy. 

Where no prudent divestment arrangement can be reached given the significant harm to competition, then the merger is likely to be prohibited. 

If you have any query about the Commission’s role in regulating Mergers in Barbados, please consult the Commission’s Merger Guidelines at this site.