The Administrative Council for Economic Defense (“CADE”) has enacted two new Resolutions, which were published on October 7th, 2014, in the Federal Official Gazette. They are minor, yet significant, changes to CADE’s Internal Regulations as well as to Resolution No. 02/2012. The changes proposed therein resulted from suggestions received from Public Hearings No. 01/2014 and No. 02/2014, carried out in February 2014.
The proposed changes concern both material and procedural aspects, some of which directly impact the merger clearance procedures, and include issues that had not yet been sufficiently addressed by Law No. 12529/11 (“Brazilian Antitrust Law”).
The most relevant changes are briefly described below.
Investment Funds’ Economic Groups – for the purpose of calculating turnover figures, from now on, the following should be deemed as a part of the same economic group, in transactions involving investment funds:
- the economic group of all shareholders directly or indirectly holding an interest equal or superior to 50% of the quotes of the fund involved in the transaction, individually or pursuant to any kind shareholders’ agreement, and
- the companies controlled by the fund involved in the transaction, as well as the companies in which the fund directly or indirectly holds an interest equal or superior to 20% of the corporate or voting capital.
It is noteworthy that the calculation of the turnover figures of the parties involved in a transaction is one of the criteria to verify the applicability of the Brazilian Antitrust Law and, therefore, the existence of the obligation to notify a transaction to CADE or not.
Consolidation of control – transactions involving the acquisition of minority interests, by a sole controlling shareholder, should no longer be notified to CADE.
Subscription of securities convertible into shares – this type of transaction should be notified to CADE whenever, cumulatively:
- the future conversion of such securities into shares falls within one of the hypotheses of mandatory notification to CADE (as established by articles 9 and 10 of Resolution No. 2/2012); and
- when the subscribed securities grant to the acquirer or subscriber the right to appoint management board members or directors, vote and/or veto rights concerning sensitive competitive matters, except for the rights already granted by law.
The notification of transactions involving the subscription of securities, based on the criteria described above, prevents the need to notify the transaction again whenever the securities are effectively to be converted into shares. For the transactions that may not meet the requirements above, the notification may be presented to CADE only at the moment of the conversion of the securities, as long as on such occasion the transaction meets the notification requirements.
Transactions in the stock exchange or over-the counter markets – this type of transaction may be carried out regardless of CADE’s clearance. The exercise of the political rights, however, remain forbidden until CADE definitely clears the transaction, respecting what was already applied to transactions involving public offers. Exceptionally, and if requested by the parties, CADE may grant an authorization for the exercise of political rights related to the acquired securities, in the cases in which such measure is required to protect the value of the investment.
Merger Clearance Fast Track Procedure - the new Regulations altered and increased the number of hypotheses that allow the use of fast track procedure to notify a transaction to CADE, and they now include the following possibilities:
- transactions that result in horizontal overlaps with a combined market share lower than 50%, as long as by economic criteria, such as the Herfindahl-Hirschman Index (“HHI”), it is possible to evidence that the market share increase would be insignificant (variation under 200 points);
- transactions resulting in vertical integration, as long as the parties and their respective economic groups, do not control a share superior to 30% of any relevant market affected by the transaction (according to the former rule, this limit was a 20% share of the affected market).