Executive Summary/Highlights:

• The Brazilian House of Representatives has approved a bill that substantially changes merger review procedures and antitrust investigations in Brazil.  The new law is subject to Presidential approval and will likely become effective in mid-2012.
• The new law creates a pre-merger review system (clearance will be a condition precedent to closing) and changes the fines applicable to antitrust violations.
• The old market share threshold is abolished by the new law in favor of a new revenue threshold which will require the mandatory filing of transactions in which one of the groups involved had Brazilian annual gross revenues of at least R$400 million in the past fiscal year  and the other group had Brazilian revenues of at least R$30 million in the past fiscal year.

Introduction

The current Brazilian antitrust law (Law 8,884/94) sets forth the institutional framework of what is known as the Brazilian Antitrust System (“SBDC”), which is composed by the following agencies: the Administrative Council for Economic Defense of the Ministry of Justice (“CADE”), the Secretariat of Economic Law of the Ministry of Justice (“SDE”) and the Secretariat of Economic Monitoring of the Ministry of Finance (“SEAE”).

CADE is composed of 6 Commissioners (lawyers and/or economists) and a Chairman, and is responsible for judging merger review cases and alleged antitrust violations. SEAE is responsible for issuing non-binding economic opinions in all merger cases, and SDE is mainly responsible for the prosecution of violation cases.

Main changes of the new law

The new law changes the institutional framework of SBDC. SDE is abolished and SEAE’s participation is reduced and limited to promoting competition advocacy and issuing non-binding opinions in merger cases when requested. CADE will be restructured and the activities currently carried out by SDE and SEAE will be developed by a new department at CADE – the Directorate General. CADE will also comprise a Department of Economic Studies and an Administrative Tribunal, which will be composed by six Commissioners and a Chairman.

The current term of CADE Commissioners is 2 years, renewable for another 2-year term, and this will be converted to a single mandate of 4 years without the possibility of being reappointed. In addition, the new law establishes a permanent staff by providing for the creation of 200 new positions at CADE.

In relation to merger review, deep changes will be made.

First of all, a pre-merger review will be introduced. Clearance by CADE will become a requirement for the closing of notifiable transactions, subject to a fine ranging from R$ 60 thousand to R$ 60 million. After the filing is made, the Director General has up to 60 business days to issue its decision to approve the transaction without restrictions, or up to 90 business days to issue a decision in a case that requires further investigation (complementary phase). The Administrative Tribunal must review the cases that were blocked by the Directorate General or that were approved with restrictions, and may review, if there is an interest, cases approved without restrictions. The new law establishes that the final decision must be reach within 240 days of the filing, a deadline that can be deferred for up to 60 days at the Applicants’ request, or for up to 90 days based on the Administrative Tribunal’s decision.

The thresholds for the mandatory merger filing have also changed. The market share threshold was abolished, and the new revenue threshold will only require the mandatory filing of transactions in which one of the groups involved had Brazilian annual gross revenues of at least R$400 million in the past fiscal year, and the other group had Brazilian revenues of at least R$30 million in the past fiscal year. Apparently the local revenue of the target is still irrelevant under the new law for the assessment of whether the transaction should be submitted to antitrust scrutiny.

It is important to note that, despite the introduction of a pre-merger review system, it is established that for a period of one year after the new law enters into force the parties to a transaction will be able to request the Administrative Tribunal the immediate closing of the transaction.

For those merger cases that are currently pending CADE’s decision, after its entry into force the new law will be applied only (i) in respect of procedural issues, (ii) if the practice is no longer considered an antitrust violation, or (iii) if the applicable penalty is less severe compared to the old legislation.

Finally, the bill is still subject to eventual amendments by the President Dilma but no major changes to the document approved by the House of Representatives are expected. After presidential approval, the bill will be published in the official gazette, and the new law will enter into force 180 days of its publication.

* Please note that this article reflects our preliminary opinion based on the follow up of the voting session of the Brazilian Congress that passed the new law. Since voting was quite confusing, and the final text of the new law has not yet been made available, adjustments this article may be required and will be made in due time.