On August 9, 2022, the acquisition of Leterago del Ecuador S.A. (hereinafter, Leterago) was denied to Distribuidora Farmacéutica Ecuatoriana DIFARE S.A. (hereinafter, Difare) by the Superintendencia de Control del Poder de Mercado (SCPM). Our associate, Christian Razza, writes about it for The Legal Industry Reviews (LIR).
To understand the current situation, one must also know the context: Difare is an Ecuadorian company dedicated to the distribution and commercialization of pharmaceutical products that manages the Pharmacys pharmacy chains and the Cruz Azul and Comunitarias franchise systems. Leterago, on the other hand, is a national company that primarily markets and distributes all types of pharmaceutical products.
Razza, in order to explain why the operation was denied, states that “the economic concentration operation was denied by the authority when considering that it generates multiple risks for the competitive scheme of the following relevant markets: distribution of pharmaceutical products at national level and commercialization of pharmaceutical products at local level”.
The Superintendence for the Control of Market Power carried out an investigation in which it was determined that there were high levels of concentration resulting from the operation. This produced a joint share of more than 60% within the pharmaceutical distribution market, “due to the fact that the transaction involves the concentration of the two main distributors of pharmaceutical products in Ecuador, eliminating the independence of Difare’s main competitor”, he adds.
After the study, the authority determined that “there are no behavioral or structural measures that would mitigate the reduction of the competition schemes of the defined markets, without sacrificing the current efficiency levels of the sector, as well as the welfare of the clients of the operators involved”. It also adds that “the measures proposed by Difare did not solve the risks identified by the SCPM, since they would not have modified the structure of the market, nor the behavior of the participants to generate or make viable a dynamic competitive environment”.
This operation is not the first to be denied by the SCPM. It is the fourth economic concentration operation denied throughout its history, the three previous ones being: the merger between Holcim Ltd. and Lafarge S.A. (2014), the acquisition of Swissgas del Ecuador S.A. by Indura Ecuador S.A. (2014) and the acquisition of International Laboratories Services Interlab S.A. by Synlab Sociedad Anónima.
Razza, to conclude the article, also focuses on detailing how the first three cases were denied:
“The first case was denied since the merger between Lafarge and Holcim would result in a concentration in the Ecuadorian cement market with more than 95% share by the merged entity, thus there would be a serious risk of anticompetitive practices.
The second case was rejected on the basis of a highly concentrated market and regulators’ concerns about the potential for collusion.
The third case was denied since the parties opted not to proceed with the transaction, for which the withdrawal of the notification was requested, but the SCPM considered that Synlab failed to comply with the condition of subscribing a document of commitments within the 90-day term determined in the resolution of January 7, 2021 and therefore denied the authorization of the economic concentration operation”.