Q&A: merger notification and clearance in Brazil

Notification and clearance timetable

What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?

There is no deadline for filing in Brazil, but transactions of mandatory notification cannot be closed or implemented before clearance. Any failure to notify or gun jumping is subject to penalties that can include rendering the deal null and void. In addition, the Administrative Council for Economic Defence (CADE) may impose penalties ranging from 60,000 to 60 million reais, require the parties to file the transaction for merger control review, and launch an administrative proceeding to investigate whether the parties could have engaged in anticompetitive practices. In international transactions, carveout agreements (to hold Brazil-related assets separate and consummate the transaction elsewhere) are not acceptable under CADE’s current case law.

Notification should be submitted to CADE preferably after the execution of a formal binding document between the parties and, obviously, before the consummation of any act associated with the transaction. Also, it should be submitted, whenever possible, jointly by the parties participating in the transaction.

Regarding gun jumping, article 147, second paragraph, of CADE’s Internal Rules states that the parties involved in transactions being reviewed by the agency should keep their facilities and all competitive conditions unaltered until CADE’s final decision approving the transaction. In the meantime, any transfer of shares or influence of the parties in each other’s business is prohibited, as well as the exchange of competitively sensitive information outside of what is strictly necessary for the agreement between the parties to be arranged.

CADE has been increasingly strict in enforcing its gun-jumping regulations and has been employing all tools at its disposal to enforce its pre-merger control regime. For instance, CADE negotiated a fine of 30 million reais in Merger Review No. 08700.009018/2015-86 (Cisco/Technicolor) after the parties recognised that they closed the transaction during CADE’s analysis and made a carveout of the Brazilian portion of the target. In Merger Review No. 08700.002655/2016-11 (Blue Cycle/Shimano Inc), CADE imposed a fine of 1.5 million reais and determined the nullity of the distribution agreement between Blue Cycle and Shimano – this was the first time that the nullity sanction was imposed. In 2017, in the Merger Review No. 08700.007553/2016-83 (Mataboi Alimentos/JBJ Agropecuária), after negotiating a pecuniary fine of 664,983.32 reais, CADE blocked a transaction that had already been implemented, based on its effects, and determined that the transaction be undone entirely. Most recently, CADE negotiated a record fine of 57 million reais in the Merger Review No. 08700.001908/2019-73 (IBM/Red Hat), when the parties implemented the estimated 132 billion reais transaction worldwide while CADE’s review was still ongoing.

Per CADE’s decisional practice, in international transactions, carveouts or hold-separate mechanisms for Brazilian assets or businesses (while the transaction is implemented elsewhere) can be seen as a circumvention of the pre-merger control regime and do not exempt gun-jumping violations in Brazil.

Pecuniary sanctions can be collected from any of the parties of the transaction, whichever is easier for CADE. Failure to pay the fine will lead CADE to start proceedings for collection in a federal court.

On 20 May 2015, CADE published gun-jumping guidelines. These guidelines bring examples of the kinds of conduct that may be interpreted by CADE as gun jumping and also suggest measures to mitigate the risk of gun jumping, such as the creation of an antitrust protocol and the creation of clean teams.

Efforts are still undergoing to improve CADE’s gun-jumping detection efforts. Internal agency guidelines were issued in 2018 to streamline the assessment of third-party gun-jumping complaints. In July 2019, CADE’s Tribunal approved Resolution No. 24/2019 that replaces Resolution No. 13/2015 and establishes procedural aspects for gun-jumping investigations and the report of transactions that do not meet the threshold for mandatory reporting. It also sets forth the criteria for the calculation of gun-jumping fines, which includes the time elapsed since consummation of the transaction and transaction value and other aggravating factors (eg, timing, severity of conduct and intent).

Which parties are responsible for filing and are filing fees required?

The law makes no distinction between different parties to a deal, so that all parties (including the seller) are responsible for filing (one filing per deal only), and any party can be punished for non-compliance. The flat filing fee is in the amount of 85,000 reais. The payment receipt of CADE’s fee must be submitted along with the filing form on the filing date.

What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?

Under article 88 of Law No. 12,529 of 2011, merger control cases must be reviewed within 240 days. This deadline can be extended by 60 days, at the request of the parties, and no more than 90 days, based on a reasonable decision of CADE’s Administrative Tribunal. As per CADE’s Resolution No. 16/2016, the General Superintendence’s decision on fast-track cases should be issued within 30 days of filing or amendment. In 2020, the authority actually cleared simpler transactions incapable of raising competition issues in an average period of 17.5 days (plus 15 waiting days after the decision is published by the General Superintendence of CADE in the Official Gazette, during which the clearance can be challenged at CADE, in both fast-track and non-fast-track cases). For ordinary cases, parties should also take into account the pre-notification procedure (ie, time necessary for submitting drafts of the filing form with CADE before it green-lights the filing). The time frame for ordinary cases may substantially vary depending on the complexity of the case, yet the 2020 average review period was 104.1 days. Transactions can neither be closed nor implemented before clearance by CADE.

Transactions carried out in the over-the-counter or in the stock exchange markets do not require CADE’s prior clearance to be implemented. However, political rights related to the acquired shares shall not be exercised by the buyer before CADE’s approval.

What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?

The gun-jumping penalties are:

• to make the deal null and void;
• the payment of a penalty ranging from 60,000 to 60 million reais; and
• the launching of an administrative proceeding if the deal is considered harmful to competition.

There have been several cases in which CADE imposed pecuniary gun-jumping penalties on the parties, and a couple of cases in which CADE made the deal null and void.

Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?

There are no examples of sanctions applied in cases involving closing before clearance in pure foreign-to-foreign mergers under the new Brazilian Competition Law.

Nevertheless, CADE has stated in its decision-making practice, first in the Cisco/Technicolor case (Merger Review No. 08700.009018/2015-86) and most recently in IBM/Red Hat (Merger Review No. 08700.003660/2019-85), both international transactions, that carveouts or hold-separate mechanisms for Brazilian assets or businesses (while the transaction is implemented elsewhere) can be seen as a circumvention of the pre-merger control regime and do not exempt gun-jumping violations in Brazil (implying that there will be no distinction for the application of the gun-jumping sanctions on foreign-to-foreign mergers).

What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?

CADE may, upon request of the parties, agree to authorise them to partially implement the transaction so that some measures can be undertaken by the parties before final clearance is issued. This involves uncertain negotiations with the authorities and remains an exceptional measure.

CADE’s Internal Rules provide that an injunction and preliminary authorisation may be exceptionally granted when there is no danger of irreparable damage to the competitive conditions of the market, the measures for which authorisation is sought are fully reversible, and there are imminent substantial and irreversible financial losses to the acquired company.

According to Law No. 12,529 of 2011 and CADE’s Internal Rules, upon request, CADE may authorise parties to close a notified transaction before clearance if there would be no irreparable harm to competition, the measures for which the authorisation was requested are fully reversible and the target company would face serious financial losses if it could not proceed more quickly. For the first time since the enactment of Law No. 12,529 of 2011, in December 2017, CADE’s Tribunal granted an injunction and preliminary authorisation for the anticipated closing of Merger Review No. 08700.007756/2017-51, involving Excelente BV and Rio de Janeiro Airports. In this exceptional case, the General Superintendence already had unconditionally approved the deal, but the parties would have to wait the statutory 15 days (after the publication of the approval decision in the Official Gazette), during which the clearance could be challenged by CADE’s Tribunal. This was a national case related to a public agreement and with a certain background of public and political interest (which is the due activity of the international airport of Rio de Janeiro). According to CADE, should the transaction not be closed immediately, one of the parties would not receive the necessary capitalisation and payments, which could interrupt the activities of Rio de Janeiro’s international airport.

Are there any special merger control rules applicable to public takeover bids?

The main difference on the merger control rules applicable to public takeover bids is that CADE does not demand their clearance before the offer is consummated. However, CADE still prohibits that any voting rights be exercised by the new owner before clearance.

What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?

Filing requires the preparation of a notification form (either a simple form for transactions that are eligible for the fast-track proceeding, or a complete form for ordinary transactions). Both forms require corporate information on the parties and the economic groups to which they belong, and on the transaction itself. In contrast to some other jurisdictions, Brazil requires the parties to present a relevant market definition up front. Estimates of market shares for the parties and their main competitors, clients and suppliers are also required, as well as some elaboration on barriers to entry and other market conditions. The information is requested in a substantially more detailed way in the complete filing form, which usually demands a considerable time for the parties to prepare.

The main documents that the parties must present accompanied by the filing form, to the extent that they are available, are:

• a copy of the final version of the contractual instrument concerning the transaction, listing the respective exhibits relevant to the antitrust review;
• copies of non-compete and shareholders agreements, if any;
• a list containing all other documents that have been prepared in connection with the transaction; and
• the latest annual report or audited financial statements of the parties directly involved in the transaction, and of their respective economic groups.

Other documents are specifically required for non-summary cases, to the extent that they are available, such as copies of reviews, reports, studies, inquiries, presentations and other similar documents prepared with the purpose of evaluating or analysing the proposed transaction, and market studies, researches, reports, forecasts and any other document, either prepared by third parties or not, which are relative to the affected market dynamics.

The payment receipt of CADE’s fee must be submitted along with the filing form on the filing date. CADE’s filing fee is the same and applied for both fast-track and ordinary proceedings.

There are legal sanctions on supplying wrong or missing (labelled ‘false or misleading’) information in merger reviews to CADE. Based on article 43 of Law No. 12,529 of 2011, as a general rule, false or misleading information, documents or statements provided by any agent to CADE shall be punishable by a pecuniary fine that may vary from 5,000 to 5 million reais. Moreover, if CADE delivers its clearance decision based on false or misleading information, according to article 91 of Law No. 12,529 of 2011, the applicable fine shall vary from 60,000 to 6 million reais without prejudice to the revision of CADE’s previous decision and the adoption of other applicable measures.

CADE is becoming especially sensitive as regards the submission of information that is central to the antitrust assessment and has sanctioned parties on a few occasions for supplying misleading or incomplete information.

In 2016, in Merger Review No. 08700.010688/2013-83 (JBS/Rodopa), CADE closed a deal with complex remedies and later learned that the parties had withheld the information that environmental licences did not allow production levels agreed in the remedies to take effect. CADE fined the parties 3.5 million reais and stated it would not declare the transaction null and void solely because of the delicate financial situation of the target. Still in 2016, in Merger Review No. 08700.002084/2016-14 (Marcopolo/San Marino), CADE fined the parties 250,000 reais for misidentifying a company that pertained to the parties’ economic group as a competitor. In 2020, in Merger Review No. 08700.002566/2019-17 (Ultra Som/Hapvida/GSFRP), CADE imposed a fine of 2 million reais on the parties for presenting conflicting market share information at different stages of the merger review proceeding. Most recently, in 2021, in Merger Review No. 08700.003258/2020-34 (Delta/Latam) CADE decided to reopen a previous merger proceeding filed by the same notifying parties to investigate the accuracy of potentially conflicting information.

Providing accurate information to CADE should be a priority even during pre-notification contacts, since the same regulations also apply. The inaccurate information presented in Marcopolo/San Marino was part of pre-notification contacts.

CADE often contacts third parties during market investigations in merger reviews (especially in those not eligible for the fast-track proceeding). Not responding to CADE’s requests for information is an administrative violation and can subject offenders to fines between 5,000 and 100,000 reais for each day past the original response deadline.

What are the typical steps and different phases of the investigation?

The review starts at CADE’s General Superintendence, which oversees the merger investigation. Within the General Superintendence, all cases are first analysed by a specific unit (Triage Unit) in charge of a preliminary analysis to distinguish fast-track from non-fast-track or complex mergers. The latter ones are sent to one of CADE’s specialised units (according to the market area involved) for further analysis. The final decision on either path comes from the General Superintendent, who can approve the merger outright as it normally does for fast-track proceeding cases or ordinary cases that are not considered harmful to competition. If the General Superintendence believes the merger cannot be cleared or needs remedies, it challenges the merger to the Tribunal. Therefore, complex cases will certainly take longer and are usually analysed by CADE’s Administrative Tribunal. If the merger review is to be analysed by the Administrative Tribunal, a commissioner will be assigned to the case by draw. The commissioner will prepare a report and the decision vote, which is then submitted to the full commission during a public session. The final decision at the tribunal is taken by a majority vote.

What is the statutory timetable for clearance? Can it be speeded up?

Simple transactions incapable of causing any anticompetitive impact may be subject to a fast-track proceeding. This fast-track treatment is granted at the authority’s discretion whenever the transaction involves a horizontal overlap inferior to 20 per cent; whenever the transaction involves a vertical relationship in which none of the parties has more than 30 per cent in any of the vertically related markets; or if the transaction concerns the creation of classic or cooperative joint ventures; or if it is the entry of a new player; or finally if the horizontal concentration is below 50 per cent and does not surpass a variation of 200 points in the Herfindahl-Hirschman Index. As per CADE’s Resolution No. 16/2016, the General Superintendence’s decision on fast-track cases should be issued within 30 days of filing or amendment. In addition, these cases are likely to be reviewed in an average period of 15 days (plus 15 waiting days after the publication of the approval of the General Superintendence of CADE in which the clearance can be challenged at CADE’s Tribunal). Ordinary cases will take longer, up to the 330-day legal limit (yet the average review period is 104.1 days). With regard to cases where remedies have to be negotiated, our experience shows they take an average time of approximately 180 days, especially because usually the commitments do not provide a clear-cut solution, and also because they heavily rely on the timing of the proposal, in addition to the complexity of the transaction, and eventually CADE’s need for market tests related to the proposed remedies.

Besides trying to provide the relevant information as completely and clearly as possible and arranging pre-notification meetings with the authorities to try to anticipate discussions with the case handlers, there is not much the parties can do to speed up clearance.