The congressional review process of a bill that seeks to abolish Mexican competition authorities is leading to regulatory uncertainty that could last for months and could potentially hamper ongoing deal review procedures, said lawyers, M&A transactions founders and two former competition authority presidents.

Mexican outgoing President Andres Manuel Lopez Obrador submitted on the 5th of February a constitutional bill that aims to remove competition watchdog COFECE, telecommunications authority IFT, energy regulator CRE, and hydrocarbon industry agency CNH as autonomous institutions, and merge them into federal secretariats.

The bill was preliminarily approved by the Congress’ lower chamber on 23 August and is pending approval by the Congress floor and the Senate, as reported.

Lopez Obrador party MORENA and its allies PT and PVEM enjoy a two-thirds majority in the lower Chamber of Deputies, while on 10 September they gained the same supermajority needed to amend the Constitution in the Senate as lawmakers from opposition parties PAN, PRD and MC defected to the government’s alliance.

The bill does not specify if the authorities subject to abolition will remain with their original structure and governance or if they will be amended, said Vicente Grau, economic competition partner at Mexico City-based Santamarina y Steta law firm.

This uncertainty has caused some clients to put their M&A processes on hold as they wait for more clarity on subjects such as the review procedure terms, he added.

Others have asked to wait until the new President Claudia Sheinbaum takes oath on 1 October and to evaluate the development of this bill in the upcoming weeks, a Mexican law firm partner who deals with these procedures told this news service.

Potential restrains on deals and a pullback in investments

A manager director at a global private equity firm with offices in Mexico expressed his concerns about an ongoing deal that was recently announced.

“We have three lawyers advising us regularly, and they don’t have a way of knowing what awaits us with these changes,” he said, adding that it is difficult to explain the current political scenario to players outside of Mexico.

The proposed bills have already caused a delay of more than USD 35bn in new investments and reinvestments in the country, including M&A opportunities, according to Bruno Ferrari, CEO at Mexico City-based investment bank Cross Finanz.

Although COFECE does not publish the number of M&A deals it is currently reviewing, it registered 67 approved transactions since January 1, while it solved 143 merger procedures in 2023, as reported.

In addition to raising doubts regarding waiting periods and the terms in processes, experts in the sector share concerns about the motives behind the elimination of these institutions and the possibility that M&A approvals become politicized, a Mexican law firm management partner said.

In his experience with COFECE and the IFT in recent years, Ariel Fischman, director at financial advisory firm 414 Capital, told this news service that both institutions have carried out the M&A approval processes correctly and in favor of fair competition.

However, the long waiting time for M&A approvals have been common for years, ranging from three months to a year, experts agree. According to a press release published last month by the country’s employers’ federation Coparmex , while the intention to abolish seven autonomous bodies is presented under the argument of austerity, they represent only 0.05% of the federal budget.

Legislative timing 

When the constitutional amendment that gave birth to the COFECE and the IFT took place in 2013, a 180-days term was contemplated just to make the transfer between former agencies Cofeco and Cofetel to their replacements COFECE and IFT, according to the Mexican law firm managing partner.

The current bill text only stipulates that the Mexican Congress will have a 90-days term to update laws and regulations affected by the reform.

However, it is very unlikely that laws like the competition law (Ley Federal de Competencia Economica) and the telecommunications law (Ley Federal de Telecomunicaciones y Radiodifusion, LFTyR) are amended in such a short term, according to Mony de Swaan, former Cofetel president and founder and CEO at Mexico City-based CEIAP public policy consultancy.

There is a risk that during the law’s amendment process provisions, unexpected changes would be added in matters like concentration notification thresholds, he said. As a precedent he recalled a transitory provision (articulo transitorio) added to the 2013 LFTyR that allowed fixed telecommunications mergers to be approved only with a notice instead of the formal review procedure.

Alejandra Palacios, former COFECE president said during a virtual seminar hosted by Washington-based Wilson Center think tank on 11 September that M&A procedures could be changed after the constitutional reform to create national champions through competition rules that grants them favorable M&A reviewing procedures.

In the meantime, firms that have pending deals waiting to be approved are hoping that this deadline won’t be met so that they can be reviewed by COFECE or the relevant authority before the changes take place, a Mexican PE firm director told this news service.

The Chamber of Deputies has not set a date for the constitutional bill’s floor vote, Israel Tello, associate director at Mexico City-based Analitica Parlamentaria legislative consultancy told this news service.