MAIN ARTICLE

I.  Introduction

Law No. 12,529/2011 (the “New Antitrust Law”) has come into force on May 29, 2012.  Several regulations were issued by the Administrative Council for Economic Defense (“CADE”), as well as by the Ministries of Justice and Finance in the last couple of days, bringing significant changes to the Brazilian merger control system.

The main changes to the Brazilian merger control system are summarized below.  Please do not hesitate to contact our team should you require additional clarification.

II.  Filing thresholds

Under the new system, a filing with CADE will be mandatory when (i) the transaction has effects in Brazil; (ii) the transaction constitutes an economic concentration; and (iii) one of the economic groups involved in the transaction had Brazilian gross revenue of at least R$ 750,000,000 and one of the other economic groups involved in the transaction had Brazilian gross revenue of at least R$ 75,000,000 in the last fiscal year.

Effects

The New Antitrust Law and the above-mentioned regulations do not entail any changes to the so-called effects test, which is met whenever the target has direct presence (subsidiary, branch, distributor, sales agent) in Brazil or indirect presence through export sales to Brazil.  There is still no de minimis rule on the value or volume of export sales that trigger a filing obligation.

Economic concentration

Article 90 of the New Antitrust Law clarifies that an economic concentration is deemed to occur when (i) two or more independent companies merge; (ii) one or more companies acquire, directly or indirectly, by contract or any other means, control or parts of one or more companies by virtue of purchase or exchange of shares, equity interests or convertible securities, or purchase of tangible or intangible assets; (iii) one or more companies take over one or more companies; and (iv) two or more companies enter into an associative agreement, consortium or joint venture, except if such transaction is aimed at participating in public bids or entering into agreements derived from public bids.

Complementing this provision, CADE’s regulations clarify that the acquisition of equity interests or assets described under (ii) above is subject to mandatory filing when:

a)  It entails the acquisition of control over another undertaking;

b)  The buyer already has control over the target and acquires directly or indirectly an additional shareholding equal to or higher than 20% of the target’s total or voting capital stock, from at least one of the sellers individually considered; or

c)  There is no acquisition of control, but:

i)  The buyer becomes the target’s largest individual shareholder;

ii)  In a conglomerate merger, the buyer acquires directly or indirectly 20% or more of the target’s total or voting capital stock, or the buyer already holds 20% or more of the target’s total or voting capital stock and acquires directly or indirectly an additional shareholding equal to or higher than 20% of the target’s total or voting capital stock from at least one of the sellers individually considered; or

iii)  In a horizontal merger or vertical merger, the buyer acquires directly or indirectly 5% or more of the target’s total or voting capital stock, or the buyer already holds 5% or more of the target’s total or voting capital stock and acquires, as a result of one transaction or of a series of transactions, an additional shareholding equal to or higher than 5% of the target’s total or voting capital stock.

Revenue

CADE’s regulations bring a definition of economic group, which is relevant for revenue calculation purposes and also for the preparation of the new filing forms.

Pursuant to such rules, an economic group comprises (i) all the companies that are under common internal or external control; and (ii) all the companies in which any of the companies under common control holds, directly or indirectly, at least 20% of the total or voting capital stock.

CADE’s regulations also clarify that, when dealing with investment funds, an economic group comprises (i) all the funds that are under common management; (ii) the manager itself; (iii) the quotaholders/investors who hold, directly or indirectly, more than 20% of the quotas of at least one of the funds indentified in (i); and (iv) the portfolio companies in which any of such funds holds, directly or indirectly, at least 20% of the total or voting capital stock.

Therefore, whenever one of the economic groups involved in the transaction had Brazilian gross revenue of at least R$ 750,000,000 and the other economic group had Brazilian gross revenue of at least R$ 75,000,000 in the last fiscal year a filing obligation will arise, provided that the effects test is met and that the transaction constitutes an economic concentration.

III.  Pre-merger suspensory regime

The New Antitrust Law has adopted a pre-merger control system, under which parties are prevented from consummating the transaction before CADE’s clearance.  In other words, CADE’s clearance has become a condition precedent to closing.

Under the new system, the merging parties shall keep their facilities and the competitive conditions unchanged before CADE’s clearance.  Further, the merging parties shall not transfer any asset or exercise any type of influence over the target, and the exchange of confidential information shall be limited to the minimum level necessary to execute the binding agreement.  In other words, the merging parties shall not adopt any measure amounting to gun jumping.

Exception

Only in exceptional circumstances the merging parties may be preliminary authorized by CADE to close pending clearance.  To require a such a preliminary authorization the parties will have to prove that (i) the transaction does not entail any risk to the competition environment in the relevant market; (ii) the required closing measures can be totally reversed; and (iii) the target would suffer severe and irreversible financial losses should closing take longer to occur, based on documentary evidence such as financial statements.

CADE will have up to 60 days to issue a decision on such requirement, and CADE’s preliminary authorization may be revoked in the course of the merger review procedure.

Should the parties fail to fulfill the obligations set forth in the preliminary authorization, they will be subject to a daily fine ranging from R$ 5,000 to R$ 250,000 and the revocation of the authorization.

Stock market transactions

CADE’s regulations provide that tender offers may be filed after their issuance and may be consummated pending clearance.  However, buyers shall not exercise their voting rights before CADE’s clearance, except when the exercise of such rights is necessary to protect the investment’s value.

IV.  Penalties

Under the New Antitrust Law there will be no fines for late filing.  However, merging parties that consummate the transaction before CADE’s clearance or engage in gun jumping may have the transaction declared null and void, will be subject to fines ranging from R$ 60,000 to R$ 60,000,000, and will also be subject to prosecution for anticompetitive conduct.

CADE has not issued yet any specific regulation on the method for calculating fines under the New Antitrust Law.  CADE’s Internal Regiment provides in a broad manner that the calculation of the fines will take into account inter alia the size of the companies, whether the measure was taken with malicious intent and the potential anticompetitive effects of the transaction.

V.  Merger review procedure

Merger review will be conducted only by CADE, which will be composed of a Directorate General and an Administrative Tribunal.

Under the New Antitrust Law, the Directorate General and the Administrative Tribunal shall conclude the merger review within 240 days.  Such term may be extended to up to 60 days upon request of the parties, or to up to 90 days upon decision of CADE.  Therefore, the maximum merger review term will be 330 days.  Pursuant to the article 133 of CADE’s Internal Regiment, cases that are not ruled within such term will be automatically cleared.

Merger cases that clearly do not raise antitrust concerns may be reviewed under the fast-track procedure.

Fast track procedure

Pursuant to CADE’s regulations the following transactions are eligible to fast track review, at CADE’s sole discretion:

i)  Non full function/cooperative joint ventures;

ii)  Consolidation of control;

iii)  Substitution of economic agent;

iv)  Horizontal mergers when the parties have a joint market share below 20%; and

v)  Vertical mergers when the buyer does not have a market share above 20% in any upstream or downstream market.

CADE’s regulations do not establish any deadline for the conclusion of the merger review under the fast track procedure.  However, CADE unofficially informed that transactions which clearly do not raise antitrust concerns and are reviewed under the fast track procedure will be cleared in approximately 60 days.

VI.  New merger filing form

Pursuant to CADE’s regulations, there will be different filing forms for transactions that will be analyzed under the ordinary procedure (Annex I) and those that do not raise antitrust concerns and are eligible to be reviewed under the fast track procedure (Annex II).

We provide below an overview of the information and documents that will have to be submitted to CADE under these two scenarios.

Annex I – Ordinary procedure

I.  Summary of the transaction (up to 500 words)

II.  Information about the parties involved in the transaction

III.  Information about the transaction

IV.  Documents (transaction agreements, shareholders agreement, list of documents created by virtue of the transaction, copy of all studies and reports prepared for the internal analysis of the transaction, list of all the documents that were prepared in the negotiation of the transaction, annual reports and financial statements, market studies and researches, business plans, etc.)

V.  Relevant markets

VI.  Supply structure

VII.  Demand structure

VIII.  Buyer power

IX.  Conditions of entry and rivalry

X.  Coordinated market power

XI.  Counterfactual (possible future structure of the relevant markets in the absence of the transaction

XII.  Final comments

Annex II – Fast track procedure

I.  Summary of the transaction (up to 500 words)

II.  Information about the parties involved in the transaction

III.  Information about the transaction

IV.  Documents (transaction agreements, shareholders agreement, list of documents created by virtue of the transaction, annual reports and financial statements, etc.)

V.  Relevant markets

VI.  Supply structure – only in cases that entail horizontal overlap and/or vertical integration

VII.  Final comments

Timing of filing, filing parties and filing fee

The New Antitrust Law does not establish when a merger filing must be submitted to CADE.  Article 108 of CADE’s Internal Regiment provides that it must be submitted at any time preferably after the execution of a formal binding document between the parties and before the consummation of any act associated with the transaction (i.e., before closing or any integration measure).

The parties involved in the transaction (e.g., buyer and seller, parent companies of a joint venture, etc.) are jointly responsible for the merger filing.

In practical terms, until the enactment of the New Antitrust Law the buyer usually took the lead in preparing the filing, counting on the cooperation of the seller to provide the necessary information on its side.  Now this practice will likely change and the seller will be directly involved in the preparation of the filing and the monitoring of the merger review procedure.

A merger filing in Brazil continues to require the payment of a filing fee of R$ 45,000 under the New Antitrust Law.