The Competition Law2 introduced a pre-merger control regime, whereby a transaction is subject to a pre-merger notification whenever a double turnover test is met and the transaction may generate effects in Brazil (thus including foreign-to-foreign transactions).
In contrast with the double turnover criterion above, which is objectively quantifiable, the former competition law (valid until May 2012) provided one additional criterion (i.e., that the transaction involves a horizontal overlap or vertical integration). This additional criterion requires merits analysis, the interpretation of which has varied pursuant to CADE's case law. Under the current Competition Law, in practice, a merger transaction is notifiable whenever the double turnover threshold is met, regardless of the assessment of effects in Brazil, as the Brazilian competition authorities tend to consider potential effects, even if not proven, as enough to assume the fulfilment of the effects test.
The assessment of potential or materialised effects in Brazil, or even the existence of horizontal overlap or vertical integration, is carried out upon analysis of the merits of the case.
Finally, even though the Competition Law provides for the assessment of the case with basis on the rule of reason, due to the high costs involved in an investigation, the Guidelines for Analysis of Horizontal Overlap Transactions (the 'H Guidelines', published in July 2016) set out that the review of horizontal transactions is subject to assumptions as to the occurrence of effects which are detrimental to the competition in the relevant market.
The rule of reason (i.e., the assessment of efficiencies deriving from the transaction that would prevail over its detrimental effects), is typically only applicable to complex cases, under a close-scrutiny proceeding.
In extreme cases where the transaction creates a monopoly in the market, the Brazilian authorities tend to block the transaction. Other than these extreme cases, when facing competition concerns, the Brazilian authorities tend to approve the transaction by imposing restrictions such as structural (for instance divestiture of assets or trademarks, or veto of part of the transaction) or behavioural remedies, as provided in the Guidelines for Antitrust Remedies (published in October 2018). In cases of gun-jumping, the authorities may impose a fine and may also render the transaction null and void, thus reinstating the status quo ante.
II MAIN RULES AND CONCEPTS
i Main laws and regulations
The Brazilian pre-merger control is governed by the Brazilian Competition Law, Resolutions published by CADE, and guidelines, such as the Internal Manual for Concentration Acts under the Close-Scrutiny Procedure issued in July 2017, the H Guidelines and the Guidelines for the Analysis of Previous Consummation of Merger Transactions (Gun-jumping) issued in May 2015. The main resolutions are:
- Resolution No. 2/2012: provides for the pre-merger control regime;
- Resolution No. 8/2014: introduced amendments to Resolution No. 1/2012, providing for transactions in the stock exchange and for CADE's second review of cases approved by the Superintendence General (SG);
- Resolution No. 9/2014: introduced amendments to Resolution 2/2012, including the definition of economic group for purposes of turnover thresholds, notifiable minority holdings, rules concerning investment funds, and transactions eligible to fast-track proceeding;
- Resolution No. 13/2015: provides for sanctions for gun-jumping and the investigation of transactions by CADE;
- Resolution No. 16/2016: sets out the 30-day deadline for fast-track proceedings;
- Resolution No. 17/2016: revoked Resolution No. 10/2014, and provides for notifiable 'associative agreements'; and
- Resolution No. 20/2017: provides for CADE's Internal Rules.
ii Main concepts
Double turnover criterion
Pursuant to the Brazilian Competition Law, transactions are subject to prior clearance by the Brazilian antitrust authorities whenever the following double turnover is met: (1) one of the economic groups involved in the transaction had annual gross turnover derived in Brazil equal to or in excess of 75 million reais; and (2) another economic group involved in the transaction derived an annual gross turnover in Brazil equal to or in excess of 750 million reais, in the fiscal year immediately preceding the transaction.
In contrast to other jurisdictions, Brazilian law takes into account the turnover of the economic group of the acquirer as well as the economic group to which the target pertains, instead of the turnover of the target itself.
For the purposes of calculating the turnover, the following companies are deemed to pertain to a same economic group: (1) companies under common control; and (2) companies in which any company under common control holds, directly or indirectly, at least 20 per cent of the voting or total capital.
Investment funds are subject to a different definition of economic groups for purposes of the double turnover criterion, that was introduced by CADE's Resolution No. 9/2014. Whenever investment funds are involved in the transaction, the following entities are deemed as pertaining to a same economic group: (1) the fund directly involved in the transaction; (2) the economic group of each investor that holds, directly or indirectly, participation of at least 50 per cent of the fund directly involved in the transaction, individually or through an agreement with other investors; and (3) portfolio companies that are controlled by the fund directly involved in the transaction, as well as the portfolio companies in which such fund is holder, directly or indirectly, of at least 20 per cent of the voting or total capital.
The effects test
In view of CADE's recent case law, for a transaction to be deemed as potentially able to generate effects in Brazil, the market must be considered international in its geographical scope or the economic group of at least one of the companies involved in the transaction (acquirer's or target company's group) must be able to sell in or export to the Brazilian market. 'Effects in Brazil' include any transaction where the target company has assets, legal entities or revenue generated in Brazil. There is no definition of a minimum revenue amount that would be relevant to the antitrust analysis. Direct effects in Brazil are achieved, for instance, through local sales representatives, local subsidiaries or distributors, while indirect effects are verified, most frequently, through export sales to Brazil, whether by the parties themselves or third parties.
The most recent decisions on foreign-to-foreign mergers on the existence or not of potential effects in Brazil are the following.
Twenty-First Century Fox/The Walt Disney Company3
The Walt Disney Company intended to acquire the totality of Twenty-First Century Fox's capital. Given the antitrust concerns in the market of pay-TV sports channels, owing to the lack of competition and the fact that ESPN (one of the few competitors) is already owned by Disney, CADE conditioned the approval of the transaction on the sale of Fox Sports, among other measures negotiated in the Merger Control Agreement (ACC).
The divestiture of Fox Sports in Brazil aimed not only to avoid potential reductions of quality and diversity of available sports content, but also to avoid the potential increase of costs that could be passed on to customers.
Monsanto Company/Bayer Aktiengesellschaft4
Bayer intended to acquire Monsanto's unitary control. In Brazil, Monsanto operated through its subsidiaries, and CADE found that a merger would likely result in competition problems related to, among others, horizontal overlaps, and reinforcement of vertical integrations in the markets of soybean seeds and transgenic cotton.
To ensure the approval of the merger, the parties proposed: (1) the structural remedy of divestment of all Bayer's current assets related to soybean seeds and cotton business, as well as the unit of non-selective herbicides based on ammonium glufosinate, on behalf of BASF for approximately €5.9 billion; and (2) a behavioural remedy involving the transparency of commercial policies, the prohibition of exclusivity requirements on the sales channels, tie-in sales and bundling, as well as requiring a wide and non-discriminatory licensing practice of its products. A trustee was assigned to support the monitoring of the commitments set forth under the ACC.
The Brazilian Competition Law sets forth, in Article 90, that a notifiable transaction occurs upon (1) the merger of two or more companies; (2) the acquisition of direct or indirect control of companies through the acquisition of shares or assets or any other means; or (3) the entering into of an associative agreement, consortia or joint ventures, except if created for the specific purpose of participating in public bids.
In respect of transactions that have met the double turnover threshold requirement and relate to an acquisition of equity participation that falls under the specific event provided item (2) of the previous paragraph, CADE's regulation sets forth that any such transaction shall be mandatorily notified whenever:
- it results in the purchase of sole or joint control of the target;
- there is no horizontal overlap or vertical integration and:
- the acquisition grants the purchaser at least 20 per cent of the target's total or voting capital; or
- in case the purchaser already holds 20 per cent equity participation and the acquisition grants such purchaser at least additional 20 per cent of the target's total or voting capital; or
- there is horizontal overlap or vertical integration and:
- the acquisition grants the purchaser at least 5 per cent, direct or indirect, equity participation in the target's total or voting capital; or
- in case the purchaser already holds 5 per cent equity participation, the acquisition (by means of one or a series of transactions) grants such purchaser at least additional 5 per cent participation in the target's total or voting capital (Resolution No. 2/2012, as amended by Resolution No. 9/2014).
Resolution No. 2/2012, as amended, also provides that the acquisition of equity participation in the target's capital by a company that already has sole control of the target is not subject to mandatory pre-merger notification.
Resolution No. 17/2016 amended the concept of associative agreements, providing that any agreement with a term of two or more years shall be deemed as an associative agreement in case it establishes a joint venture for the development of a business activity, provided that, cumulatively: (1) such agreement establishes the sharing of risk and outcome derived from the business activity; and (2) the parties are competitors in the market that is the subject matter of the agreement. CADE emphasised that the notification of short-term agreements is dispensable due to the low impact that they create in the market, while associative agreements that have a term of, or which term is extended to, two or more years are notifiable given the impact they can create in market structures.5
In this sense, the Resolution No. 17/2016 provides that agreements, the terms of which correspond to less than two years, but are subject to renewal, or agreements for undetermined periods of duration, are subject to notification prior to its renewal or whenever it achieves a duration of two years. According to such Resolution governing associative agreement, vertical integration between the contracting parties (for instance, supply and distribution agreements) is no longer a trigger, per se, for the notification of associative agreements with CADE (as was provided under former Resolution No. 10/2014, revoked by Resolution No. 17/2016).
If a merger does not fall below the notification thresholds, the transaction is not subject to analysis by CADE. However, it is worth mentioning that CADE, pursuant to Article 88, Paragraph 7 of the Brazilian Competition Law, has discretionary powers to request the mandatory notification of any transaction that does not meet the turnover thresholds (based on complaints made by competitors or third parties) within one year of its closing. As a result, on 5 September 2018, CADE decided that a merger between two pharmaceutical companies had to be submitted for review, although the transaction did not fall below the criteria for mandatory notification (Administrative Proceeding No. 08700.006355/2017-83).
Acquisition of convertible securities and stock exchange transactions
Resolution No. 9/2014 introduced rules applicable to the acquisition of convertible securities, providing that such acquisition is subject to mandatory notification whenever: (1) a future conversion into shares would result in the acquisition of control over the target company or falls under the definition of a notifiable minority shareholdings (acquisition of minority participation of 20 or 5 per cent, as the case may be, as provided under Resolution No. 2/2012); or (2) the convertible securities already provide the right to participate in the administrative bodies of the target company, or provide veto or voting rights in respect of matters that are relevant under competition law.
Should the acquisition of convertible securities meet the above criteria and the applicable notification thresholds, at the time of its conversion, the transaction will be subject to notification at such time. In the event of a public offering of convertible securities, the subscription does not require a prior clearance by CADE, but the acquirer shall only exercise the relevant voting rights upon clearance. Pursuant to Resolution No. 8/2014, the same is applicable for transactions done via the stock exchange, which are exempted from pre-merger clearance, on the same terms applicable to public offerings (i.e., that the relevant voting rights may not be exercised prior to clearance), provided that CADE may, however, exceptionally authorise the exercise of voting rights, in order to protect the full value of the investment (Resolution No. 8/2014).
Exemptions to the pre-merger notification obligation exist for joint ventures, consortia or associative agreements created for the specific purpose of participating in public bids, provided that the voting rights derived from such transactions shall not be exercised until CADE's clearance.
Definition of control
The Competition Law does not provide a definition of control. Decisions rendered by CADE deem that an acquisition of control occurs whenever the acquirer of participation in the target company becomes its sole main investor or acquires significant influence on the business strategy of the target company, through the right to appoint managers, to determine or influence commercial and sensitive competition policies, or veto rights in respect of any commercial and sensitive competition-related decisions.
The current case law understanding on the concept of control comprises effects mainly within a corporate aspect, and such definition is currently under discussion. Recent doctrines defend that 'control', for competition purposes, should be the power of an individual or legal entity to define, directly or indirectly, even if temporarily, on actions of a company or group of companies in the market. Accordingly, it would also be important to provide a definition of 'influence', given that the power of an individual or legal entity to determine acts of a certain company that produce competitive effects in the market, would thus characterise a notifiable transaction.
Brazilian Competition Law prohibits the consummation of transactions (and any part thereof) before clearance of the transaction by the antitrust authorities.
According to the Competition Law (Article 88), and the Guidelines for the Analysis of Previous Consummation of Merger Transactions6 the following acts may be deemed as 'consummation acts':
- exchange of commercially sensitive information between the parties involved in the transaction in excess of that strictly necessary for the execution of a binding agreement and that is non-historical (typically, more recent than one to three months, depending on the specific relevant market) and disaggregated (typically, information in respect of less than three competitors in the relevant geographic market);7
- establishment of contractual clauses that regulate the relationship between the parties; and
- acts performed by the parties, anticipating the implementation of the merger, before clearance, such as:
- asset or share transfers;
- payment of the purchase price;
- exertion of influence over the target company; or
- carrying out joint sales, marketing activities, product research and development (R&D), or reciprocal licensing of intellectual property.
CADE's recent case law deems the following information as sensitive, among others: disaggregated and non-historical data in respect of production costs, production capacity, marketing and commercial strategies, expansion plans, prices and rebates, main clients, main suppliers and supply conditions, employee wages, and R&D data.
Certain transactions may be implemented before CADE's clearance upon an exceptional approval, when at least one of the following requirements are met: (1) the transaction does not cause irreparable damages to the competition market; (2) the acts involved are entirely reversible; or (3) irreversible and imminent damages would be caused to the target company if the exceptional approval is not granted. The criteria for imposition of fines for gun-jumping are detailed in Section IV.ii below.
Review proceedings – fast-track or close-scrutiny review
Transactions submitted to CADE's pre-merger analysis shall be subject either to a fast-track or close-scrutiny review proceeding.
Fast-track proceedings are applicable whenever there is low market concentration, pursuant to Resolution No 2/2012, as amended (i.e., the transaction derives a market share corresponding to less than 20 per cent of the relevant market in respect of transactions with horizontal overlap and 30 per cent in the case of transactions involving vertically integrated relevant markets) or whenever there is a variation of the Herfindahl-Hirschman Index (HHI) lower than 200 points.
Resolution No. 2/2012 (as amended) provides that transactions that involve one of the following aspects are eligible for a fast-track review:
- classical or cooperative joint ventures;
- replacement of the economic agent – whenever, before the transaction, the acquirer (or its economic group) was not engaged in the seller's relevant market, or in the seller's vertically related markets, or in other markets in which the seller or its economic group have participated;
- horizontal overlap with a low market share – when the transaction results in a market share up to 20 per cent in the relevant market, at the discretion of the SG, which may deem such transaction as irrelevant from a competition standpoint even when a party to the transaction ends up holding more than 20 per cent of the market share in the relevant market;
- vertical integration with low market share – when none of the applicants (or the relevant economic group) provenly controls more than 30 per cent of any of the vertically integrated relevant markets;
- lack of causation – horizontal concentrations which result in a HHI variation lower than 200 points, provided that the transaction does not result in the control of the market share in excess of 50 per cent of the relevant market; and
- other cases that, although not comprised in the above categories, may be deemed by the SG as simple enough so as to not require a thorough analysis.
In cases of transactions that fall within the above, and thus the effects of which do not raise competition concerns, SG may render a definitive decision, approving the transaction without any restrictions, thus terminating the proceeding without its remittance to CADE's tribunal.
Conversely, the H Guidelines expressly set out the grounds for a decision to initiate a close-scrutiny proceeding, incorporating CADE's practice in recent cases: transactions that derive a high variation in market concentration, assessed by reference to the HHI, whenever such variation exceeds 200 points. In the close-scrutiny proceeding the following shall be assessed by CADE, in addition to the information provided under a fast-track proceeding: relevant market under an offer structure and a demand perspective; analysis of monopsony conditions; conditions of entry in market, barriers and rivalry; analysis of coordinated power.
Proof of efficiencies shall be assessed under the rule of reason, in practice, only in a close-scrutiny proceeding, owing to the high costs involved in an investigation thereof. The competition authorities have the burden of proof of detrimental effects, if any, in which case the parties to the transaction have the burden of proof in respect of efficiencies deriving from the transaction, which are passed through to the consumers. Typically accepted by the competition authorities as efficiencies that are passed through to consumers are marginal cost reductions. Marginal costs are equivalent to the average variable costs, such as reduction of input prices and quality gains. For their acceptance by the competition authorities, the parties must show causation between the transaction and efficiency gains that are specific to this particular transaction. In cases where the efficiencies are insufficient for an approval of the transaction without restrictions, they may justify the imposition of less stringent behavioural or structural remedies.8
Complex cases will be subject to CADE's tribunal review after the issuance of the SG's non-binding opinion.
Other factors, other than market concentration, may be taken into consideration on a case-by-case basis, such as market structural conditions, previous decisions, willingness by the parties, clients or competitors to cooperate with the competition authorities.
CADE may impose structural or behavioural restrictions on the transaction and, in extreme cases, such as monopoly resulting from the transaction, the transaction may be blocked.
Market share in the relevant market
In order to assess the market share in a relevant market, it is first necessary to understand the concept of 'relevant market'.
Relevant market means, from a product standpoint, the group of products the consumers consider interchangeable or substitutable, that is, if one of them is not available, it is subject to substitution for other products based on the characteristics, price and use of such other products. From a geographic standpoint, the relevant market means the area where the companies offer their products or where the products are available – for instance, the international market or the Brazilian territory.
In accordance with CADE's H Guidelines, to assess the relevant market in terms of geographic area, CADE may take into consideration factors such as: where the parties to the transaction are located; where their competitors are located; where the customers are located; where the sales take place; purchase habits of the customers – if customers go where the products are or the sellers go where the customers are, or both; the distance that the customers usually go to purchase the products; difference in the offer or prices among neighbouring geographic areas, including the possibility of imports; costs in relation to the product price, distribution or transport; required time and other difficulties in the transport of the products (in terms of transport security, feasibility of transport, and issues related to regulation and tax); costs involved in the change of suppliers located in other geographic markets; need for proximity of suppliers in relation to the customers; participation in the domestic offer; and evidence of migration of customers among different geographic areas in response to a price increase or changes in relation to commercialisation.
The Competition Law expressly allows CADE to enforce measures deemed as necessary to remedy damages that would be caused by a transaction, including behavioural commitments, such as prohibition to impose exclusivity on sales and structural obligations such as partial or full divestments, dissolution or break-up of a company.9 The relevant behavioural and structural remedies ensure that a given transaction does not lead to anomalies in a given market by counterbalancing competitive concerns identified by the authorities.10
In 2018, CADE approved certain transactions that were conditioned to behavioural and structural remedies, such as the above-mentioned Twenty-First Century Fox/The Walt Disney Company and Monsanto Company/Bayer Aktiengesellschaft, and other transactions such as Praxair/Linde11 and Banco Itaú/XP Investimentos.12 Accordingly, in 2017 CADE rejected two high-profile transactions (Estácio/Kroton and Alesat/Ipiranga, as explained in Section III.i below) based on detrimental effects that they would cause to the Brazilian market, and discussions involving remedies became more frequent. For this reason, CADE issued in October 2018 the guidelines on antitrust remedies, so as to establish a pattern on remedies to be applied in complex merger cases. In 2018, only one merger transaction was rejected (Companhia Ultragaz/Liquigas Distribuidora13).
III YEAR IN REVIEW
Although no material changes to the law and rules related to merger control have occurred since 2016, it is noteworthy that the Guidelines for Antitrust Remedies (published in October 2018) have clarified CADE's understanding concerning remedies to be applied in merger cases, and also provided information regarding:
- the definition of behavioural and structural remedies;
- the principles and legal basis related to each type of remedy;
- the definition of 'trustee' and when to use it;
- monitoring, revision and compliance of the ACC, such as penalties in case of noncompliance; and
- aspects of regulated sectors and international cooperation related to merger cases that involve other jurisdictions.
Moreover, the Bill of Law No. 350/2015, approved by the Senate on April 2018, and submitted to the House of Representatives, which approval may occur this year, provides that merger transactions involving financial institutions shall become notifiable not only to CADE, but also to the Brazilian Central Bank (BACEN). In December 2018, these two authorities executed a Normative Act to line up actions to stimulate competition in the regulated markets, to ensure greater coordination and consistency in the assessment of the proceedings and in the enactment of standards of common interest, and to provide that transactions involving financial institutions are notifiable to both BACEN and CADE.
Currently, pursuant to Law No. 4,595/1964, BACEN is responsible for supervising the national financial system and protecting the Brazilian economy from any harmful situations and, thus, it has authority to approve corporate transactions involving financial institutions and regulate competition conditions between such entities. Accordingly, the Competition Law sets forth that CADE is the competent authority to analyse and authorise corporate transactions, not specifying or restricting the nature thereof. Owing to such conflict, certain companies were notifying transactions involving financial institutions solely to one of the competent authorities, which resulted in judicial discussions.
Although the relevant bill of law is pending approval by the House of Representatives, transactions involving financial institutions are notifiable to both BACEN and CADE, as set forth in the above-mentioned Normative Act executed between CADE and BACEN. Nevertheless, BACEN should be allowed to unilaterally decide on cases that may present significant risks to the stability of the national financial system, provided that it notifies CADE about the rationale of its decision.
i Significant cases of merger filings
On 28 June 2017, CADE rejected, by majority, the acquisition of Estácio Participações SA by Kroton Educacional SA.14 The transaction would result in the merger of the two biggest private higher education institutions in Brazil. CADE's tribunal considered that the remedies proposed by the parties were not satisfactory to solve or mitigate the potential competitive impacts identified during the assessment of the transaction, based on the lack of sufficient rivalry in eight Brazilian municipalities. Therefore, the ACC proposed by the parties was rejected.
On 2 August 2017, CADE rejected the acquisition of the fuel distributor Alesat Combustíveis SA by its competitor Ipiranga Produtos de Petróleo SA.15 According to CADE's analysis, considering that Alesat is the largest regional fuel distributor in Brazil, the transaction would eliminate the main supplier to 'white flag' stations, and reduce the number of suppliers from four to only three national distributors available to these stations. Accordingly, the parties did not accept the adoption of certain remedies capable of mitigating the risks verified during the assessment of the transaction, such as the divestiture of Alesat's assets in the problematic markets. The proposed ACC was considered by CADE as not sufficient to address the relevant concerns and was, therefore, rejected.
On 7 February 2018, CADE approved, with restrictions, the acquisition of Votorantim Siderurgia SA by its competitor ArcelorMittal Brasil SA.16 Since the transaction would generate a high probability of abuse of market power regarding the manufacturing and commercialisation of common long steel, common wire rods, welded mesh and others, in a market that the entry and the rivalry among competitors are not sufficient to prevent an eventual abuse of dominance,17 the merger was conditional on the execution of an ACC. In the ACC, the parties undertook the obligation to divest two packages of assets, one related to the production of drawn and ordinary long-rolled steel, and the other related to the markets of wire drawing and steel wire rod machines, so that the acquiring companies cannot have more than 20 per cent of market share in both such markets.
On 5 June 2018, CADE approved, with restrictions, the merger between Praxair Inc and Linde Aktiengesellschaft in a recently incorporated Irish company. From a global perspective, the merger would impact every activity performed by the companies in the market of industrial and special gases. The Reporting Commissioner of the case stated that the evidentiary stage of the proceeding confirmed a general perception that this market is highly concentrated in Brazil, and the interested parties act as its main players. For this reason, and in order to mitigate potential competition concerns, the merger was conditional on the execution of an ACC that provides, among other remedies, the divestiture of several businesses and the prohibition of acquisition, by the company resulting from the merger, of any assets that integrate divested business.
On 11 October 2018, CADE approved, without restrictions, the merger between operations and shareholding bases of Suzano Papel e Celulose SA and Fibria Celulose Ltda, upon a corporate restructuring that resulted in the conversion of Fibria as Suzano's wholly owned subsidiary. Although the companies are vertically and horizontally related in many activities, such as wood commercialisation, manufacturing and commercialisation of cellulose and forestry activity, the authority concluded that other factors specifically related to this market (such as the fact that short fibre pulp is a commodity and, therefore, its prices are internationally established) would not trigger any competition concern.
On 7 November 2018, CADE approved, without restrictions, an associative agreement to be executed between Oi SA and TIM Participações, two of the largest telecommunication companies in Brazil. This associative agreement provides the network (2G and 3G) sharing between the companies in towns with a population of under 30,000.
iii Gun-jumping cases
On 9 August 2018, CADE's tribunal imposed a fine on GGSH Participações SA for executing an investment agreement with Rede D'Or São Luiz SA, by which the latter acquired 21.23 per cent of GGSH's capital stock without submitting the transaction for CADE's approval. After the investigation conducted by CADE, the authority decided that the relevant transaction should have been notified, which was why it was considered gun-jumping. The total fine imposed in this case was 700,000 reais.
Although this proceeding relates to 2016 and not the past year, it is still worth noting that CADE's tribunal imposed a fine on Cisco Systems Inc and Technicolor SA18 for closing a transaction without CADE's final approval, which was considered gun-jumping – this is the only case in which the parties executed a carve-out agreement to prevent effects in a determined jurisdiction where the transaction was not yet approved. However, CADE did not consider such agreement as effective compliance with the parties' obligation not to consummate merger acts before competition clearance. The imposed fine was 30 million reais, representing the higher fine amount in relation to other gun-jumping cases analysed by CADE.19 After this transaction, no other proceedings based on carve-out agreements were analysed by CADE.
There are no provisions under Brazilian law that allow carve-out agreements as a means of avoiding gun-jumping. Based on the current understandings of foreign antitrust authorities,20 CADE has unofficially stated that they would be unlawful, in principle, but considering that its jurisdiction is limited to acts with effects (even if potential) to the Brazilian market, it should be possible to argue that partial foreign closings, with no effects whatsoever in the Brazilian territory, would be permitted. However, parties are advised to be extremely careful when assessing the possibility of carve-outs as it is still unclear how CADE will deal with this matter.
iv Preliminary authorisation to close a transaction
The last known case in which CADE authorised the closing of a transaction before its approval occurred on 13 December 2017, with regard to the transaction between Excelence BV and Odebrecht.21 In this case, Excelence acquired from Odebrecht a 60 per cent stake in Rio de Janeiro Aeroportos, which is the concessionaire of Galeão Airport. The Brazilian Aviation Agency stipulated the deadline for the payment of the concession's first instalment on 20 December 2017 and the lack of payment thereof would lead to the interruption of the airport's activities. Since such deadline would end before CADE's concentration act revision period, CADE understood that the requirements for the granting of an exceptional and prior authorisation were met, as no detrimental effects to the competition in this market would result from the relevant injunction and, even if there were harmful effects, they would be reversible, unlike the substantial and financial losses that the concessionaire would suffer if the injunction was not authorised.
Iv THE MERGER CONTROL REGIME
Transactions must be submitted for CADE's analysis any time prior to its closing (or before the consummation of relevant acts related to the transaction) and, preferably, upon the execution of the final binding agreement. The overall statutory period to clear a transaction will be limited to 30 days for fast-track proceedings and 240 days for close-scrutiny proceedings – subject to an extension of 60 to 90 days upon request of the parties or of CADE. In practice, CADE has been clearing transactions up to 20 days for fast-track proceedings and up to 80 days for close-scrutiny proceedings.
In fast-track proceedings, in which the SG is solely in charge of deciding whether to approve or reject a transaction, the parties are required to stand still for an additional 15 days, during which the decision may be challenged by CADE's tribunal. If the transaction is not challenged, then it may be completed by the parties.22
The implementation of a transaction before the issuance of CADE's final decision and the expiration of the 15-day term described above may be considered as gun-jumping, in which case the parties will be subject to the sanctions mentioned in Section IV.ii, below.
The notification contains a significant amount of information, including but not limited to the following:
- a description of the transaction of up to 500 words;
- all the applicants' information (corporate and financial data);
- the relevant information about the transaction;
- a copy of the documents in respect of the applicants and the transaction (agreements, MOU, companies' annual reports, the direction chart, shareholders' agreement, etc.);
- a definition of the relevant market;
- a description of the business and products offered by the companies;
- structure of the demand;
- assessment of monopoly in purchase power;
- assessment of entry and rivalry conditions;
- assessment of coordinated power; and
- comments or information considered relevant.
i Confidential information
As a rule, the case records are public. CADE may treat certain parts of the transaction act as confidential such as:
- commercial bookkeeping;
- the economic and financial situation of the company;
- tax or banking secrets;
- the production process and industry secrets, notably industrial processes and formulas for the manufacturing of products;
- revenues of the interested person;
- date, amount and method of transaction payments;
- documents that formalise a merger;
- annual reports to shareholders or quotaholders, except when such document has a public aspect;
- value and volume of sales and financial statements;
- clients and suppliers; and
- costs and expenses with research and development of new products or services.
ii Fines for gun-jumping
The consummation of a transaction prior to CADE's clearance subjects the parties to the sanction of nullity of the transaction and the imposition of fines ranging from 60,000 to 60 million reais, depending on the peculiarities of the case (such as the economic condition and bad faith of the parties and the anticompetitive potential of the transaction). CADE may also initiate antitrust investigations and impose fines ranging from 0.1 to 20 per cent of a company's (group of companies' or conglomerate's) gross revenue generated in the field of activity affected by the violation in the year prior to the commencement of the investigation.
iii Administrative proceeding for assessment of merger transactions
The procedural rules concerning gun-jumping infractions and investigations of transactions were provided by Resolution No. 13/2015. This Resolution governs the investigation of: transactions that were filed with CADE, but that produced effects prior to CADE's clearance; transactions that were not submitted to CADE and produced effects without CADE's analysis and decision; and transactions that were not caught by the filing criteria but whose submission is requested by CADE.
The SG is in charge of the initiation of an administrative proceeding for assessment of a concentration act (APAC) ex officio, by request of any member of CADE's tribunal, or due to a duly substantiated complaint by a third party. Upon the initiation of an APAC, the analysis of the concentration act shall be suspended until a decision regarding the gun-jumping is rendered.
iv Challenges in court
The Competition Law allows for a second review by the competition authorities in the event of false or misleading information, default on obligations undertaken before the competition authorities, or if the intended benefits have not been attained.
The parties may challenge CADE's decision in court mainly on the grounds of procedural matters. The extent of a review in court on the merits of CADE's decisions is still uncertain.
V OTHER STRATEGIC CONSIDERATIONS
Multi-jurisdictional cases and cooperation with foreign authorities
Although it is not possible to assess the exact number of transactions submitted to CADE in 2018 that had effects in multiple jurisdictions, it is clear that multi-jurisdictional cases have increased in recent years, and the cooperation between CADE and foreign authorities has strengthened. Since 2016, CADE has increased the enforcement of multilateral and bilateral agreements executed with foreign authorities (e.g., US Department of Justice, European Commission, Japan Fair Trade Board, China's State Administration for Market Regulation) by actively cooperating with them not only in respect of merger cases, but also in investigations related to cartel conducts.
The main multi-jurisdictional cases notified in 2018 were the following: Siemens/Alstom (which was blocked by the European Commission on 6 February 2019, with the notifying parties thereafter requesting the termination of the proceeding in Brazil before the authority's analysis); Bayer/Monsanto; and Praxair/Linde.
Vi OUTLOOK and CONCLUSIONS
In 2018, the number of mergers assessed by CADE's Administrative Tribunal increased, by which six were approved upon the execution of the ACC and only one was rejected, as mentioned above. This indicates that the Brazilian authority is constantly aiming at a better economic assessment of complex transactions and, consequently, a better regulation of the national market.
Even though the Competition Law provides for the review of transactions with basis on the rule of reason, because of the high costs involved in an investigation, the review of transactions is subject to assumptions as to the occurrence of detrimental effects to competition. Those assumptions are applicable upon achievement of thresholds deriving from the application of the HHI or C4 index.
The rule of reason (i.e., the assessment of efficiencies that would prevail over the transaction's detrimental effects) is, as a rule, only applicable to more complex cases (close-scrutiny cases).
Extreme cases where the transaction would lead to a monopoly in the market tend to be blocked by Brazilian authorities. In cases where there are competition concerns (but that would not lead to a monopoly), the Brazilian authorities tend to approve the transaction by imposing restrictions such as structural (for instance, divestiture of assets or trademarks, or veto of part of the transaction) or behavioural remedies, whose guidelines were issued by CADE on October 2018.
1 Cecilia Vidigal M de Barros is a senior partner, and Paula Beeby M de Barros Bellotti and António José D R da Rocha Frota are associates at Motta Fernandes Advogados.
2 Law No. 12,529/11, in force as of May 2012.
3 Merger Case No. 08700.004494/2018-53 – decision by CADE's tribunal dated 27 February 2019.
4 Merger Case No. 08700.001097/2017-49 – decision by CADE's tribunal dated 7 February 2018.
5 Merger Case No. 08700.002699/2017-13, whereby CADE rejected a request for a provisional authorisation to extend the term of an associative agreement between companies Hamburg Südamerikanische Dampfschifffahrts-Gesellschaft KG, Aliança Navegação e Logística SA and MSC Mediterranean Shipping Company SA. CADE argued that applicable law requires the prior notification of such transaction and that awaiting CADE's decision would not result in financial losses to the companies involved.
7 Opinion edited by the Department of Economic Studies at the request of Sindicato Nacional da Indústria do Cimento, attached to the case records of Administrative Proceeding No. 08012.011142/2006-79.
8 Furchin, Paulo F de Azevedo, Competition Defense: Principles, Rule of Reason, Concepts and Economic Efficiency, Practical Cases, Ibrac 2017 – class 2.
9 The International Competition Network (ICN), in its Merger Remedies Guide (2016), explains that 'competition authorities are responsible for ensuring that remedies are necessary, clear, enforceable, effective, sufficient in scope and capable of being effectively implemented within a short period of time'. The relevant Guide is available at www.internationalcompetitionnetwork.org/uploads/library/doc1082.pdf.
10 ANDERS, Eduardo Caminati and MISALE, Guilherme T Castillho, Antitrust Remedies: in search of a balanced dosage, CPI – Competition Policy International, 2017. Available at
11 Merger Case No. 08700.00777/2017-76, approved on 15 June 2018.
12 Merger Case No. 08700.004431/2017-16, approved on 14 March 2018.
13 Merger Case No. 08700/002155/2017-51.
14 Merger Case No. 08700.006185/2016-56.
15 Merger Case No. 08700.006444/2016-49.
16 Merger Case No. 08700.002165/2017-97.
17 In Brazil, although the abuse of dominant position is assumed when a company or group of companies is able to unilaterally or jointly change market conditions or when it controls 20 per cent or more of the relevant market, CADE's recent understanding is that whenever such dominance is achieved by a natural process (and by being the most efficient economic agent in relation to other competitors), such dominance does not characterise a violation to the economic order. The violation provided in the Competition Law depends on several other aspects other than the dominance, such as exercising its dominant position in a way that could, even if potentially, result in any anticompetitive act, such as impairing competition, setting abusive prices, creating barriers for the entering of other players in the relevant market, among others.
18 Administrative Proceeding for Assessment of Concentration Act (APAC) No. 08700.011836/2015-49.
19 In comparison to the gun-jumping cases in the transaction between OGX Petróleo e Gás and Petróleo Brasileiro SA (Merger Case No. 08700.005775/2013-19); Aurizônea Petróleo and UTC Óleo e Gás (Merger Case No. 08700.008289/2013-52); and Potióleo SA and UTC Óleo e Gás SA (Merger Case No. 08700.008292/2013-76).
20 Such as from the European Union, Canada, the United States and Germany.
21 Merger Case No. 08700.007756/2017-51.
22 Depending on the case, CADE may impose remedies as a condition for clearance. These remedies can be, but are not limited to, structural and behavioural aspects. In these cases, CADE's Attorney General Office is responsible for monitoring the compliance of CADE's decision by the parties.