Since the new Brazilian Competition Act (Law 12,529/2011) entered into effect, a new competition structure was implemented within the country, through the New CADE. The Administrative Council of Economic Defence (CADE) is the authority responsible, among other tasks, for merger reviews within the Brazilian System for Competition Defence, and is essentially composed by the General Superintendence (GS) and by the CADE Tribunal. A Department of Economic Studies is also part of the New CADE.
The first authority to review mergers in Brazil is the GS. In ‘non-complex’ cases (i.e., those with ‘minor potential to harm competition’), the GS may issue a definitive decision approving the deal without conditions.
In more complex cases (i.e., if the GS concludes that the transaction requires further diligences and an in-depth review, ultimately considering that the deal could be rejected or approved with conditions), the case would be sent to the CADE Tribunal. In such situations, the General Superintendence will issue a non-binding opinion and the CADE Tribunal will be the body responsible for reviewing and judging the transaction.
The following transactions are deemed acts of concentration requiring merger review in Brazil, provided that the following turnover thresholds are met:
- a a merger between two or more previously independent firms;
- b a direct or indirect acquisition, by one or more companies, of control or parts of one or more companies, through purchase or leasing of shares, quotas, titles or convertible securities, tangible or intangible assets, or by means of any kind of agreement;
- c one or more companies absorbs another company or companies; and
- d two or more companies enter into an associative agreement, consortium or joint venture (except when intended for participation in bidding procedures opened by the direct or indirect government authorities and for execution of the ensuing contracts).
According to the Brazilian Competition Act, the transactions above must be filed with CADE for prior approval whenever they meet the following cumulative thresholds:
- a at least one of the economic groups involved in the transaction registered gross revenues or volume of businesses in Brazil equal to or exceeding 750 million reais in the fiscal year preceding the transaction; and
- b at least one of the other economic groups involved in the transaction registered gross revenues or volume of businesses in Brazil equal to or in excess of 75 million reais in the fiscal year preceding the transaction.
For the purpose of calculating revenues, economic group means:
- a companies under common control, either internal or external; and
- b companies in which any of the companies dealt with in item (a) own, directly or indirectly, at least 20 per cent of the capital stock or voting capital.
In Brazil it is necessary to calculate 100 per cent of the gross turnover of such entities (not pro rata) in the year preceding the transaction.
In the case of investment funds, the economic group comprises:
- a the economic group of each shareholder that directly or indirectly holds at least 50 per cent of the shares in the fund involved in the deal, whether individually or through any type of shareholders’ agreement; and
- b the companies controlled by the fund involved in the deal, as well as the companies in which such fund directly or indirectly holds an ownership interest equal to or higher than 20 per cent of the capital stock or voting capital.
In early 2015, CADE’s Resolution No. 10/2014 came into effect, establishing the specific circumstances in which conciliatory agreements (set forth in Article 90, Item IV of the Brazilian Competition Act) must be submitted. This results in the mandatory submission of agreements with terms exceeding two years that involve vertical or horizontal cooperation or risk-sharing and entail an interdependent relationship among the contracting parties. Independent horizontal or vertical cooperation or risk-sharing occurs with the following:
- a agreements in which the parties and their economic groups have horizontal relation in connection with the object of the agreement, and their combined shares in the relevant market affected by the agreement is at least 20 per cent; or
- b agreements where the contracting parties and their economic groups are vertically related in connection with the object of the agreement, whenever at least one of the parties holds a share of 30 per cent or more in the relevant markets affected by the agreement, as long as at least one of the following conditions is met:
- • if the agreement establishes that the parties will share profits or losses; and
- • if the agreement establishes exclusivity.
In the acquisition of minority stakes, and according to CADE’s Resolution 2/2012, once the turnover thresholds are met a filing is required when the economic group of the purchaser and the target are horizontally or vertically related, and:
a that acquisition will confer a direct or indirect ownership interest equal to 5 per cent or more of the voting capital or capital stock of the target; or
b the acquisition is of an additional 5 per cent stake in the total share or voting capital when the purchaser already holds an interest of at least 5 per cent in the target.2
If the entities affiliated with the purchaser economic group and the target are not competitors and do not operate in any vertically integrated market, the transaction would only be notifiable if it:
- a confers upon the acquiring company the direct or indirect ownership of 20 per cent or more of the capital stock or voting capital of the target; or
- b the purchaser already holds 20 per cent or more of the capital stock or voting capital, and the ownership interest directly or indirectly acquired from at least one seller taken individually is equal to or higher than 20 per cent of the capital stock or voting capital of the target.
Acquisitions of additional ownership interest carried out by an entity already holding sole control over the target are not subject to mandatory filing in Brazil.
The subscription of securities convertible into shares is subject to mandatory notification when, cumulatively:
- a the future conversion into shares results in acquisition of control or falls under the definition of a notifiable minority shareholding; and
- b the security or value involved entitles the acquirer to designate members for management or inspection bodies, or provides voting or veto rights over competition-sensitive issues, except for the rights already prescribed by law.
For a public offer of securities convertible into shares, no prior approval is required from CADE for subscription of such securities, but any decision-making rights attached to the securities acquired shall not be exercised until the deal is cleared by CADE. The notification of the acquisition of convertible securities exempts their conversion into shares from the analysis of the antitrust authority.
Once a concentration act is submitted for CADE’s analysis, it may be subject to either a fast-track or close-scrutiny review process (long-form review). The former involves a more expedite merger control procedure,3 provided in cases of (among others, under the authorities’ discretion):
- a classical or cooperative joint ventures;
- b replacement of economic agent, when the acquiring company or its economic group did not perform any activities in in the market involved, or in the vertically related markets, or in other markets in which the acquired company or its group operated;
- c horizontal overlap with a low market share, when the transaction results in a player holding less than a 20 per cent market share in the relevant market;
- d vertical integration with low market share, when none of the applicants or their economic groups control more than 30 per cent of any of the vertically integrated relevant markets; or
- e lack of causal link.
Other well-received recent regulatory advancements include the introduction of Resolutions No. 12, 13, and 14/2015. The former provide for consultations with CADE, allowing parties to inquire about interpretations of the law. The consultation mechanism has been employed on nine occasions since its implementation.4 Resolution 13/2015 establishes rules for gun-jumping investigations (Administrative Proceeding to Investigate Merger Control). Resolution 14/2015 instituted the electronic filing of merger transactions before the antitrust authority.
II YEAR IN REVIEW
In 2015, CADE demonstrated a willingness to refine its pre-merger review process, having addressed several complex cases in a competent and timely fashion. The antitrust authority concluded merit analyses of 384 concentration acts, of which 376 were unconditionally cleared, seven were approved with restrictions and one was refused. CADE’s Administrative Tribunal decided only 16 of such cases, which were more complex in nature. For illustration purposes, some of such concentration acts will be briefly commented on below.
CADE’s pre-merger review process is progressively advancing, and appears to present less challenges as the antitrust authority consistently applies sophisticated methodologies to examine cases that require in-depth economic approaches, also capably relying on international cooperation to review global scale transactions.
This substantial improvement becomes especially prominent in transactions that require remedy negotiation and enforcement. In spite of the lack of proper regulation to safely outline such procedures, CADE has dealt with these situations both cautiously and effectively, reaching negotiated solutions that tend to the authority’s disquietudes while compromising, to some extent, with the applicants’ needs and maintaining the feasibility of the proposed investments.
Among the cases that display such features, certain transactions carried out through 2015 deserve distinct attention, such as the acquisition of Rexam PLC by Ball Corporation, a worldwide merger submitted to several antitrust authorities around the globe. CADE was the first national competition authority to issue a final decision in the case, recommending the implementation of structural remedies in order to clear the transaction.7 In this particular deal, CADE’s pre-eminence was not limited to issuing a decision first, but also and most distinctively to conforming and applying the selected remedies, which certainly impacted other jurisdictions.
Similarly, CADE mediated solutions for the broadly announced joint venture between Itaú Unibanco and MasterCard, which aims at establishing a new brand in the Brazilian payment means market.8 This transaction was initially submitted in April 2015, but, in the course of the review procedure, CADE’s indications led the parties to subtly alter the scope of the proposed partnership, resulting in the early closure of the proceedings and the resubmission of a new notification in September 2015.
Moreover, this case is revealing in terms of the amplitude of tools that are at CADE’s disposal in order to perform its antitrust analyses, within the conditions that it deems adequate. Among such mechanisms, it is common to consult the transaction’s vertically and horizontally related markets, as well as the associations that group their players. Also, CADE maintained intense contact with the applicants, which accelerated and provided transparency to the review process.
After many issuances of official letters and market research, also led by the applicants themselves, in January 2016 the GS challenged the concentration act, thus remitting the case files to the CADE Tribunal for final review. The councillors were then tasked with deciding whether the Agreement on Concentration Controls9 (ACC) proposed by the applicants was adequate, and its possible implementation, until a final structural solution was eventually reached. The deal was only able to achieve approval by means of the effective instalment of an ACC in early 2016.
Nevertheless, in cases such as the acquisition of HSBC Bank by Bradesco10 (two of the largest Brazilian financial institutions), despite the existence of high concentration levels in over 20 relevant markets affected by the transaction, CADE decided that it did not have sufficient basis to justify intervening with drastic structural measures such as in the previously mentioned examples. It also recognised that few remedy options were available.
In this particular situation, CADE outlined a negotiated solution with the applicants, addressing competition concerns without jeopardising the transaction, and applying remedies related to:
- a communication and transparency – commitments that aim toward the reduction of clients’ informational deficit, so that account holders are duly aware of their portability options, in order to choose the financial institution that offers the most advantageous conditions, thereby stimulating competition in the segment;
- b training programmes – to improve the bank’s services;
- c quality meters – Bradesco committed to reducing its disapproval indexes; and
- d compliance – to mitigate risks of the exercise of coordination.
The solutions that are being negotiated in these cases, which are paradigms, demonstrate that CADE adopts both structural and behavioural remedies in its merger review procedures.
Enforcement in 2015 was also marked by a significant 30 million reais gun-jumping fine applied to Cisco and Technicolor, relating to the closing of an acquisition of Cisco’s subsidiary abroad, without prior notice to the Brazilian antitrust watchdog. The most relevant detail pertaining to the case, however, was the refusal of CADE to accept the parties’ plea for mitigation in the penalties received, considering they had established a carve-out agreement beforehand.11 CADE discovered the facts by its own means, and required the economic groups to properly submit the operation to their approval, along with the payment of the indicated files.
III THE MERGER CONTROL REGIME
i Review procedures
As provided in Resolution No. 2/2012, merger reviews may occur under a fast-track procedure, if the transaction meets the legal requirements as previously described.12 This procedure has achieved demonstrable results in terms of time-efficiency, having greatly reduced the analysis period of less complex transactions.
CADE aims to analyse fast-track cases in 30 days. In 2015, the average time between the filing of a transaction under the fast-track procedure and its approval was around 18 days. This represents an almost two-day reduction when compared to 2014 figures, which indicated an average 20.5 days of analysis for the same type of review procedure.
However, such 30-day deadline is not formallyset forth in the law or resolutions: the law only states the maximum term of 330 days13 (which is only applied to more complex cases and unrealistic to simple cases). Such effort in diminishing the duration of review of simple merger cases and providing legal certainty for businesses has resulted in the proposed preliminary resolution mentioned above, which sets the maximum duration of fast-track procedures at 30 days (see footnote 8).
As regards the Brazilian full-form procedure, the average time for review is approximately 90 days,14 which is much less than the 330-day term that law provides.
ii Further assessment
Under Brazilian law, the publication of CADE’s initial decision in the Federal Official Gazette is not sufficient to ensure that applicants can close their respective deals. There is an additional 15-calendar-day waiting period in which third parties15 can appeal the GS findings, or, if reputed necessary, CADE’s Administrative Tribunal can decide to place the concentration act under second review. Both requests must be indistinctively presented within this non-extendable 15-day term. After it is concluded, the applicants can freely carry out their deal, and no other kind of review is required under the administrative perspective.
iii Tender offers
As regards tender offers to acquire convertible bonds, acquirers are able to close deals prior to CADE’s approval, but will be unable to exercise any political rights granted by such stakes until it is effectively approved, being susceptible to incurring illicit gun-jumping conduct under Brazilian law. In addition, the notification can be made either when bonds are subscribed or at the time of conversion. An approval on the subscription eliminates the need for a second approval of the conversion.
iv Administrative review
A particular concentration act filed in 2015 provided the opportunity for CADE to improve its scrutiny when analysing third parties’ appeals of cleared cases. On 7 April 2015, FedEx notified the acquisition of its Dutch rival, TNT Express, in the context of a billionaire worldwide transaction.16
The Brazilian antitrust authority performed an in-depth analysis of the acquisition, detecting concentrations exceeding 50 per cent on a combined market share basis in certain affected services. After almost a year of closely evaluating the merger, it was unconditionally cleared by CADE’s lower instance, the GS, which concluded that even though the transaction created significant concentrations, applying local remedies would be practically ineffective competitive-wise, and disproportionately burdensome to the applicants.
In this circumstance, US package delivery company UPS – which unsuccessfully tried to acquire control of TNT on a global basis in 2012 – presented an appeal alleging that a more detailed price concentration study of the transaction was necessary, and would demonstrate that it could not be approved without the imposition of restrictions. This appeal was then remitted to CADE’s Administrative Tribunal, whereby it was received and accepted.
The reporting councillor for the case, however, indicated that UPS’s arguments were inconsistent, given that the appellants did not introduce any complementary data to the case files that would enable the suggested detailed economic study regarding price concentration.
Following a brief one-month review of the appeal, CADE’s Tribunal sustained the GS’s initial decision and unconditionally cleared the transaction. The arguments presented by UPS generated a strong reaction among the Commissioners, mostly holding during the judgment session that the full reasoning and all documents and data necessary to support the case should be present when an appeal is filed.
This provision is contained in CADE’s internal procedure rules, which provide for all the conditions and procedures regarding appealing a decision issued by the GS. Such provisions are present precisely to avoid companies starting appeals with the sole purpose of delaying the implementation of a deal. During the adjudication session, there were also statements that expressly indicated that the parties could consider seeking damages for the undue postponement of the closing of their transaction.
All such statements point out to the market and their respective counsel the precautions that should be taken before appealing a merger clearance in Brazil, which should be governed by good faith, diligence and robustly evidenced argumentation.
IV OTHER STRATEGIC CONSIDERATIONS
i Coordination with other jurisdictions
In recent years, general awareness regarding the relevance of international cooperation in merger control has increasingly gained momentum. The complex and transnational nature of global transactions, carried out by large and powerful economic groups, demands antitrust analyses that simultaneously contemplate effects generated in all affected markets. For such reasons, to guarantee the accuracy of the conclusions reached by competition authorities, as well as the effectiveness of the measures they impose, it has become important to establish channels for international cooperation.
In the Brazilian scenario, CADE has undertaken efforts to facilitate cooperation, including entering into cooperative agreements and coordinating during and post review of multinational close-scrutiny cases.
Correspondingly, as has become standard in recent years, CADE established a new partnership for cooperation and information-sharing in 2015, with the Inter-American Development Bank.17 Apart from other similar, pre-existing agreements, Brazilian authorities also participated in the activities of many other multilateral competition-related organisations, such as:
- a the International Competition Network;
- b the Organisation for Economic Co-Operation and Development;
- c the Common Market of the South (Mercosul); and
- d the United Nations Conference on Trade and Development.
According to CADE Councillor Paulo Burnier da Silveira:
…international cooperation may occur at a regional level or involve several jurisdictions, and could aim at discussing market definitions, remedies and even cross-checking merging companies’ stories.
He also believes that approximately 20 per cent of non-fast-track cases are undertaken using such cooperation.18 In this regard, 2015 provided many noteworthy examples of substantial transactions that were more thoroughly assessed by means of international collaboration.
For instance, Continental Aktiengesellschaft’s acquisition of Veyance Technologies Inc involved the imposition of remedies in 2015 on an international basis, in connection with obtaining clearance by CADE and other authorities. Many jurisdictions coordinated to ensure the successful implementation of the remedies, which entailed the sale of production facilities located both in Mexico and in Brazil.19
As previously mentioned, placing Brazilian merger control closer into the spotlight, CADE was the first antitrust authority to approve the Rexam-Ball deal in 2015, aided by other foreign watchdogs.20 This case provides a remarkable decision, in which CADE was the first authority to deeply analyse a very complex transaction that could produce its effects all over the country’s territory and the world, and reached a negotiated solution that simultaneously reflected their, and other, major global antitrust authorities concerns about the deal.
Given such actions, it is unclear whether CADE has achieved a level of sophistication in competition policy, intertwined with an advancement of cooperation on an international level.21
In addition, ARRIS’s acquisition of Pace involved international cooperation that facilitated the parties’ getting CADE’s fast clearance on the deal. The authority had not previously analysed the market sufficiently.
The parties granted a waiver letter so that CADE and the DoJ could share information and documents regarding the transaction, and briefly after the US authority approval the applicants got an unconditioned clearance in Brazil.
V OUTLOOK and CONCLUSIONS
The antitrust community has praised CADE’s efforts to improve the legal certainty of deals and investigations carried out in Brazil.
One example of such efforts is the release of several guidelines, involving matters such as: compliance, leniency, settlement agreements and analysis of horizontal merger cases (the latter was recently placed under public consultation and should be released soon).
In this field, it is important to mention CADE’s efforts to try to solve the questions and concerns in deals that involve ‘ancillary agreements’, such as partnerships, supply agreements, etc. CADE’s current regulations are very broad and have been heavily criticised by the private community (companies, counsel). For instance, under the current rule, and assuming that the revenue thresholds are met, a distribution agreement exceeding two years, with exclusivity provisions and in which at least one of the parties holds more than a 30 per cent market share, would need to be filed with CADE for prior analysis. Also, there is additional reasonable doubt regarding what happens if the agreement had a term of less than two years, but it is then renewed for an additional term: should the parties be obliged to file the agreement for antitrust review, ‘stop’ the business during the antitrust analysis and then wait for CADE’s approval?
Trying to address these issues, CADE has currently placed under public consultation a new proposal of regulation for these types of agreements, as a prompt response for the legal and business communities.
This year, CADE has also put in place electronic filing mechanisms – even though physical filing of petitions at CADE (located in Brasilia) is still possible, there has been a huge effort on the authority’s side to promote and encourage electronic filing, not only reducing an enormous quantity of paper but also trying to increase the transparency and access of information by parties, lawyers and third parties.
CADE’s tribunal has also seen a major change in its composition: formed by seven commissioners, three of those commissioners took office in 2015. However, one of the most important changes is the president, Mr Vinicius Carvalho – his mandate ended on 29 May 2016, but his successor has not been named yet.
1 Cristianne Saccab Zarzur is a partner at Pinheiro Neto Advogados.
2 This acquisition can be held through one or more transactions: when multiple transactions add up to 5 per cent, the last one, that effectively meets the threshold, should be submitted to CADE’s analysis.
3 A proposal to the fix a 30-day term for the GS to issue its decision under the fast-track procedure is currently out for public consultation.
4 According to CADE’s 2015Annual Administrative Report.
5 Available at www.cade.gov.br/acesso-a-informacao/publicacoes-institucionais/guias_do_Cade/guia-gun-jumping-versao-final-3.pdf (Portuguese version only).
6 Available at www.cade.gov.br/acesso-a-informacao/participacao-social-1/contribuicoes-da-sociedade/arquivos/guia-de-ac-horizontal.pdf (Portuguese version only).
7 Case No. 08700.006567/2015-07 (Ball Corporation and Rexam PLC).
8 Case No. 08700.003699/2015-79 (Itaú Unibanco SA and MasterCard Brasil Soluções de Pagamento Ltda).
9 Acordo em Controle de Concentrações. For cases in which this same solution was employed, please refer to Case No. 08700.001437/2015-70 (Dabi Atlante SA Indústrias Médico Odontológica e Gnatus Equipamentos Médico Odontológicos Ltda); Case No. 08700.009732/2014-93 (Telefônica Brasil SA, Telefónica SA, GVT Participações SA e Vivendi SA); Case No. 08700.008607/2014-66 (GlaxoSmithKline PLC and Novartis AG); Case No. 08700.005719/2014-65 (Rumo Logística Operadora Multimodal SA and ALL – América Latina Logística SA); Case No. 08700.004185/2014-50 (Continental Aktiengesellschaft and Veyance Technologies, Inc); Case No. 08700.007621/2014 – 42 (Holcim Ltd and Lafarge SA); Case No. 08700.000344/2014-47 (Bromisa Indústrial e Comercial Ltda, ICL Brasil Ltda e Fosbrasil SA); Case No. 08700.009924/2013-19 (Videolar SA, Sr Lirio Albino Parisotto, Petróleo Brasileiro SA – Petrobras e Innova SA); Case No. 08700.010688/2013-83 (JBS SA, Rodopa Indústria e Comércio de Alimentos Ltda e Forte Empreendimentos e Participações Ltda).
10 Case No. 08700.010790/2015-41 (Banco Bradesco SA and HSBC Bank Brasil SA - Banco Múltiplo).
11 Case No. 08700.011836/2015-49 (Technicolor SA and Cisco Systems Inc).
12 See Section II, supra.
13 Under Section 88 of the Brazilian Competition Law, merger reviews must be carried out within the term of 240 days, subject to one justified extensions of 90 additional days, totalling a maximum period of 330 days of analysis.
14 Source: www.cade.gov.br/servicos/imprensa/balancos-e-apresentacoes/balanco-4-anos-nova-lei-1.pdf/view.
15 Article 118 of CADE’s Internal Regulations provides that third parties that may have their interests affected by the merger can request to be accepted as interested third party within 15 days after the public notice is released.
16 Case No. 08700.009559/2015-12 (FedEx Corporation and TNT Express NV).
18 Interview by MLex on the sidelines of the 2016 International Competition Network Annual Conference, April 26-29, 2016, Singapore, available at www.mlex.com/GlobalAntitrust/DetailView.aspx?cid=790171&siteid=203&rdir=1.
19 Case No. 08700.004185/2014-50 (Continental Aktiengesellschaft’s and Veyance Technologies Inc).
20 Case No. 08700.006567/2015-07 (Ball Corporation and Rexam PLC).
21 Case No. 08700.007621/2014-42 (Holcim Ltda and Lafarge SA); Case No. 08700.009559/2015-12 (FedEx Corporation and TNT Express NV); Case No. 08700.008607/2014-66 (GlaxoSmithKline PLC and Novartis AG); and Case No. 08700.007191/2015-40 (Halliburton Company and Baker Hughes Incorporated).