This operation is part of the implementation of the National Lithium Strategy and projects a long-term collaboration, with a shared governance model, which means that between 2025 and 2030 it will be led by SQM, and between 2031 and 2060 by Codelco.
The FNE detected unilateral and coordination risks derived from the association, especially considering the joint participation of both companies in different market segments.
As part of the analysis, structural and behavioral measures were established to prevent the exchange of sensitive commercial information, limit reciprocal influence on competitive decisions and preserve competitive conditions in the related markets.
This case not only marks a milestone for the lithium industry in Chile, but also reaffirms the key role of the competition authority in ensuring that strategic alliances do not materialize to the detriment of the market or consumers.
The publication of the corresponding report by the FNE is pending, which will clarify the reasoning adopted for this approval, as well as the technical grounds that support it.
You can review the details of the resolution and the measures imposed by the FNE. 👇🏻
Link: https://lnkd.in/eqgxM3wA
FNE Publication👇🏻
The National Economic Prosecutor’s Office (FNE) approved today, in Phase 1 of investigation and subject to compliance with mitigation measures, the concentration operation consisting of a public-private partnership agreement between Corporación Nacional del Cobre de Chile (Codelco) and Sociedad Química y Minera de Chile S.A. (SQM).
The operation submitted to the Prosecutor’s Office consists of an agreement between Codelco and SQM for the creation of a joint venture for the extraction, production and commercialization of minerals from the Salar de Atacama, mainly lithium hydroxide and carbonate.
The joint venture contemplates two distinct stages for its management. During the first period, which runs from 2025 to 2030, it will be controlled by SQM and during the second period, which runs from 2031 to 2060, its control will be in the hands of Codelco.
Risks to competition and mitigation measures
After an in-depth analysis of the competitive conditions in the lithium carbonate and hydroxide production and commercialization markets, the FNE verified that the operation could substantially reduce competition, given that it would imply the creation of a new structural link between current and future players in the lithium industry in the medium to long term, which could increase the risks of coordination and access to commercially sensitive information between competitors.
In response to these risks identified by the FNE, Codelco and SQM offered a series of mitigation measures in order to restrict the possible flow of sensitive commercial information that could arise from the transaction and its related agreements.
These measures, which were considered proportional, adequate and effective by the Office of the Prosecutor, contain periodic reporting commitments that will allow monitoring of compliance.
The remedies offered by Codelco and SQM cover the configuration of the corporate governance of Codelco and SQM. joint venture and its control structure, in line with the meaning and scope that the Prosecutor General’s Office has given to the interlocking The Company is subject to the provisions of Article 3 letter d) of Decree Law No. 211 of 1973 (DL 211), which prohibits the simultaneous participation of a person in relevant executive or director positions in two or more companies that compete with each other, and which in turn, requires economic agents that are competitors to comply with a preventive and purgative duty of care based on their strict compliance.
This is also consistent with the ruling issued by the Court for the Defense of Free Competition on April 14, which condemned Juan Hurtado Vicuña, Consorcio Financiero and Larraín Vial for violating the prohibition of simultaneous participation of the same director or relevant executive in two or more competing companies, accepting an injunction filed by the FNE in December 2021.
Thus, with respect to the joint venture, the prohibition of interlocking was extended to those persons who hold the position of employee and to those who have provided advice in the lithium market within the last year. Also, the relevant directors and executives of the joint venture must assume as their own the commitments assumed by the parties before the Public Prosecutor’s Office, committing themselves especially not to share with third parties sensitive commercial information of the company.
With respect to the controlling shareholder of the joint venture, it was established that, in addition to committing not to share sensitive commercial information of the joint venture with third parties, it must urge its directors to assume equivalent commitments.
In this regard, considering the existence of Article 3 letter d) of DL 211, which prohibits the simultaneous participation of a person in relevant executive or director positions in two or more competing companies, the measures oblige the controlling shareholder to urge its directors to declare that they do not serve as directors or relevant executives in a competitor of the lithium industry, as well as possible links with competitors in broader terms than such regulations, and to inform the Prosecutor’s Office in case such declaration is not received.
This is especially relevant for this Office in its role of ensuring strict compliance with DL 211, particularly Article 3 letter d), given the current shareholding structure of one of the constituents of the joint venture -SQM-, in whose ownership participates a competitor of the lithium industry.
To monitor and oversee compliance with the measures, once the transaction has been completed, the FNE’s Oversight Division will initiate an investigation to verify compliance with the commitments adopted by the parties.
Considering the legal mandate of the Prosecutor’s Office, which is to project whether a concentration operation will produce a substantial reduction in competition, in this case the approval of the agreement between SQM and Codelco subject to mitigation measures did not refer to other aspects, such as the economic and financial convenience of the agreement or the suitability of the choice of the partners entering into the agreement.
Thus, the FNE’s pronouncement did not reach possible vertical restrictions derived from the potassium productsofftake agreement -through which SQM would acquire 100% of the potassium chloride production of the joint venture-, considering that the agreement is not ancillary to the creation of the joint venture and that the operation does not generate a significant change in the conditions of competition in the potassium chloride market.
Notwithstanding the above, in view of the competitive conditions observed in the potassium fertilizer industry, the Antitrust Division of the FNE initiated an investigation to determine the possible existence of infringements to free competition regulations in the potassium products market in the country.
The report and the resolution of approval of the transaction, together with the mitigation measures that conditioned its approval, will be available on the FNE’s website once the public versions of the same have been prepared.
Parts of the operation
Codelco is a Chilean state-owned company with a global presence in the mining industry. Its activities are focused on the exploration, exploitation, processing and commercialization of copper mining resources, its derivatives and other by-products. Also, in accordance with the National Lithium Strategy, it is developing a new line of business, whose objective will be the exploitation, processing and commercialization of this mineral.
SQM is a private mining company active in this industry worldwide. Its main activities include the exploitation, refining and commercialization of lithium products and other minerals.
