Legislation and jurisdictionRelevant legislation and regulators
What is the relevant legislation and who enforces it?
The main legislation is Law No. 12,529 of 2011 and a series of resolutions issued by the Administrative Council for Economic Defence (CADE), the antitrust agency. In terms of merger control, the main resolutions are as follows:
- CADE’s Internal Rules of Proceeding (Resolution No. 01 of 2012, as amended by Resolution No. 22 of 2019);
- Resolution No. 02 of 2012, as amended, provides for the definition of ‘group of companies’, the cases eligible for the fast-track proceeding, required information under both the fast-track and ordinary proceedings, and stake acquisition rules;
- Resolution No. 12 of 2015 establishes the rules for consultation on CADE’s position on the application of merger control rules in specific cases;
- Resolution No. 13 of 2015 establishes the procedural aspects for gun jumping investigations and the notification of transactions the submission of which is not mandatory;
- Resolution No. 16 of 2016 establishes the 30-day deadline for fast-track merger reviews;
- Resolution No. 17 of 2016 establishes the criteria for filing of associative (collaborative) agreements;
- Resolution No. 24 of 2019 establishes the procedural aspects for gun jumping investigations and the notification of transactions the submission of which is not mandatory; and
- Resolution No. 25 of 2019 provides the formal aspects and establishes the standards for the Commissioners of CADE’s Tribunal to write and present their votes on cases before they are read during CADE’s hearing sessions.
CADE includes three distinct bodies: an Administrative Tribunal, the General Superintendence in charge of merger analysis and antitrust investigations, and a Department of Economic Studies. With respect to merger review enforcement, the General Superintendence is responsible for reviewing and clearing transactions that do no raise antitrust concerns, including those reviewed under the fast-track proceeding, and challenging complex cases before the Tribunal, while CADE’s Tribunal is responsible for deciding on the cases challenged by the General Superintendence, by the Tribunal itself or by interested third parties and regulatory agencies.
CADE has issued a series of Guidelines establishing directives on issues related to competition policy or institutional procedures and to provide explanations of the existing legislation, in terms of merger control, including the Guidelines on Gun Jumping and the Guidelines on the Assessment of Horizontal Mergers. In July 2017, CADE published an Internal Manual for the Analysis of Ordinary Merger Cases, describing the best practices for the review of such cases by CADE’s officials based on the experience of the agency since the entry into force of the Law No. 12,529 of 2011, including pre-filing, granting of waivers and infraction notices in the course of the proceeding. In October 2018, CADE issued the Guidelines on Remedies, which gathers the best practices and procedures adopted by CADE in the design, implementation and monitoring of remedies established by the agency. In April 2019, CADE issued the Guidelines for the Submission of Information to the Department of Economic Studies, aiming at improving, standardising and expediting the economic analysis of the cases.Scope of legislation
What kinds of mergers are caught?
Mergers, equity and assets acquisitions, joint ventures, consortia, associations and any foreign-to-foreign transactions are caught, provided they produce effects in Brazil and meet the double turnover jurisdictional threshold. Effects, for the purposes of Brazilian merger notification, are defined very broadly to include deals in which the target company (including joint ventures) has either assets or legal entities in Brazil or revenues originating in Brazil, even if through exports only and regardless of their amounts. There is no precise definition by CADE as to what level of sales in Brazil in the business involved in the transaction could establish sufficient nexus or effects to trigger CADE’s jurisdiction - generally, even minimal sales or revenues can require a notification in case the other thresholds are met.
Control and equity acquisitions requirements are detailed in question 4 below.
Associative or collaborative agreements between competitors must be filed with CADE if the following criteria are met:
- the parties or groups meet the double Brazilian turnover criterion (further detailed in question 5); or
- the agreement is for a period of at least two years and its object is the creation of a ‘joint enterprise’ to develop a certain economic activity, provided that:
- it establishes the sharing of risk and results between the parties regarding the object of the agreement; and
- the parties or groups are competitors in the relevant market that is the object of the agreement.
Agreements between vertically related parties are not subject to notification as ‘associative or collaborative agreements’ since 2016, when Resolution No. 17/2016 came into force.
What types of joint ventures are caught?
All types of joint ventures are subject to merger review in Brazil provided they produce effects in Brazil and meet the double turnover jurisdictional threshold. The only exception envisaged in the Brazilian Competition Law concerns joint ventures, consortia, or associative or collaborative agreements for the specific purpose of participating in public bids.
Is there a definition of ‘control’ and are minority and other interests less than control caught?
Brazilian competition legislation does not provide any definition of ‘control’. CADE states broadly that control involves the ability to interfere with the activities of a company or undertaking, either by the majority of the equity interest or by contractual arrangements, for example. The control can be unitary or shared. The acquisition of minority and other interests is also caught by merger control rules under certain circumstances described in Resolution Cade No. 02, article 10:
- when said acquisition results in acquisition of control, unit or shared;
- provided that the activities of the purchaser group and the target do not overlap or are vertically related:
- when it grants to the purchaser direct or indirect participation of 20 per cent or higher in the target; or
- acquisition made by the holder of 20 per cent or more of the social capital or voting capital, provided that the acquired participation, direct or indirectly, of at least one individual seller, represents 20 per cent or more of the social or voting capital;
- provided that the activities of the purchaser group and the target overlap or are vertically related:
- when it grants to the purchaser direct or indirect participation of 5 per cent or higher in the target; or
- when the purchaser already had 5 per cent of participation in the social or voting capital of the target and the last acquisition, individually or added to others, results in an increase of participation of 5 per cent or more in the social or voting capital.
What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?
Law No. 12,529 of 2011 introduced a double turnover system. The legal thresholds for mandatory notification are turnover or volume of sales in Brazil in the year preceding the transaction, by one of the parties equal to or in excess of 750 million reais, and by another party equal to or in excess of 75 million reais. These values have been established in Interministerial Ordinance No. 994/2012 MJ/M. Parties are considered as the consolidated economic groups to which they belong.
For the purposes of calculation of the turnover, CADE considers as part of the same economic group the companies that are subject to a common control (internal or external) and companies in which any of the companies under common control has, directly or indirectly, at least 20 per cent of the voting or share capital.
For investment funds, the following will be considered as part of the same economic group: the quota holders with more than 50 per cent participation in the fund directly involved in the transaction, and the companies of its economic group; and the companies in which the fund directly involved in the transaction has more than 20 per cent of the voting or share capital.
CADE may require the submission of any transaction within a period of one year as of its closing date, even if it did not satisfy the notification thresholds mentioned herein.
Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?
Filing is mandatory whenever the transaction produces any effects in Brazil and satisfies the double Brazilian turnover jurisdictional threshold. The only exception contained in the Brazilian Competition Law concerns joint ventures, consortia or associative or collaborative agreements with the specific purpose of participating in public bids and the agreements derived from these public bids. Resolution No. 02 of 2012, as amended, provides for other exceptions in case of equity acquisition (further detailed in question 4). CADE can request the filing of transactions that do not fulfil the jurisdictional thresholds up to one year after the closing.
Lastly, the mandatory notification of associative or collaborative agreements must fulfil the requirements established in the Resolution No. 17 of 2016 (further detailed in question 2).
Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?
Yes, foreign-to-foreign mergers must be notified whenever they produce or can potentially produce effects in Brazil and the double Brazilian turnover jurisdictional threshold is met. As previously mentioned, effects, for the purposes of Brazilian merger notification, are defined very broadly to include the presence of assets or legal entities in Brazil or revenues originating in Brazil related to the business involved in the transaction, even if through exports only. There is no ‘minimum or sufficient effects’ test in place, and even minimal sales or revenues generated in Brazil can trigger a notification.
Are there also rules on foreign investment, special sectors or other relevant approvals?
There is no specific legislation for merger control involving foreign investment in Brazil. Merger review provisions apply similarly across the board.
Law No. 12,529 of 2011 applies to all economic sectors, which means that no special clearance should be fulfilled by sector regulators or agencies, except for the banking sector. In February 2018, CADE and the Central Bank entered into an agreement (memorandum of understanding) regarding each agency’s jurisdiction in merger control cases involving the banking sector, ending a long dispute over their jurisdiction for such cases. Mergers in the banking sector now must be submitted to both agencies, but transactions that may pose ‘high and imminent’ risks to the stability of the Brazilian financial system - at the Central Bank’s discretion - may be unilaterally approved by the Central Bank, and CADE will have to approve the deal without restrictions as well, based on the aspects of a prudential nature applied by the Central Bank.
Other regulated sectors may require not only the standard merger review clearance by CADE, but also special clearance by their respective sector regulators or agencies. Depending on the nature of the transaction, this may be the case, for example, for the telecommunications industry, insurance, oil and gas, electricity, aviation, health insurance, securities and hydro transportation.
CADE has cooperation agreements in place with several other government agencies - including most regulatory agencies and other bodies, such as the Internal Revenue Service - and will regularly interact with them in more complex cases for further information on the markets and these agencies’ views on the transaction. This has been the case, for instance, in the recent reviews of AT&T/Time Warner (Merger Review No. 08700.001390/2017-14), Disney/Fox (Merger Review No. 08700.0044944/2018-53) and Banco Itaú/XP Investimentos (Merger Review No. 08700.004852/2018-28).
Notification and clearance timetableFiling formalities
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, 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, carve-out 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:
parties should maintain their physical structures and competitive conditions unaltered until CADE’s final approval, being prohibited any transfer of shares or any influence of one party over another’s business, as well as the exchange of competitively sensitive information outside of what is strictly necessary for the execution of the relevant binding agreement by the parties.
CADE has enforced its gun-jumping regulations increasingly strictly. For instance, CADE negotiated a fine of 30 million reais in the 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 (the highest gun-jumping penalty ever imposed by CADE). 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 the transaction based on its effects and determined that the transaction be undone entirely. In 2018 and up to mid-May 2019, CADE negotiated another six settlements in gun-jumping cases, which is an increase over previous years.
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 in an exemplificative manner 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 of 2019 that replaces Resolution No. 13 and establishes procedural aspects for gun-jumping investigations and the notification of transactions the submission of which is not mandatory. It also sets forth the criteria for the calculation of gun-jumping fines based on CADE’s practices, including 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. In practical terms, the authorities normally select a party to apply monetary sanctions based on their belief that enforcement against such party will be more effective and readily available. 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 2018, the authority actually cleared simple transactions incapable of raising competition issues in an average period of 13.3 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 time necessary for submitting drafts of the filing form with CADE before it deems the filing valid. The time frame for ordinary cases may substantially vary depending on the complexity of the case, yet the 2018 average review period was of 96.3 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 (see question 15).Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
As mentioned in question 9, 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.
As mentioned in question 9, 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 clearly stated in the decision of the Cisco/Technicolor merger review (merger review No. 08700.009018/2015-86) that CADE will not accept carveouts of the Brazilian assets, 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 with the parties to authorise them to implement some preliminary acts envisaged in the agreement, so that some measures can be anticipated by the parties before a final clearance is issued. This involves a lengthy and uncertain negotiation with the authorities, and remains as an exceptional measure. 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. It is important to remark that, 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 exceptional case 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. CADE’s Internal Rules provide that an injunction and preliminary authorisation may be granted exceptionally when there is no danger of irreparable damage to the conditions of competition in the market, the measures for which authorisation is sought are fully reversible, and the demonstration of imminent substantial and irreversible financial losses to the acquired company.Public takeovers
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 put in place by the new owner before clearance.Documentation
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 simpler form for transactions that are eligible for the ‘fast-track proceeding’, or a complete form for ordinary and complex transactions). Both forms require corporate information on the parties and the economic groups to which they belong, and on the transaction itself. The complete form requires additional information on the parties, similar to a second request of other jurisdictions. 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 may be required for more complex cases or non-subject to the fast-track proceeding, 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. As already mentioned in question 10, the payment receipt of CADE’s fee must be submitted along with the filing form on the filing date.
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 5,000,000 reais. Moreover, if CADE delivers its clearance decision based on false or misleading information, based on 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.
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. In merger review No. 08700.005560/2016-41, CADE fined Azul Brazilian Airlines 250,000 reais for omitting information, during the 2013 acquisition of competitor Trip Airlines, that could have led CADE to identify a vertical integration that was ultimately not part of the assessment. 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.
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 complex merger reviews (especially 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.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
The review starts at CADE’s General Superintendence, which is in charge of 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 to be 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 he or she normally does for fast-track proceeding cases or ordinary cases that are not considered as harmful to competition. 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. He or she 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 authorities’ discretion whenever the transaction involves a horizontal overlap inferior to 20 per cent or a vertical relationship in which none of the parties has more than 30 per cent in any of the vertically related markets, if the transaction concerns the creation of classic or cooperative joint-ventures, if it is the entry of a new player, if the horizontal concentration is below 50 per cent and does not surpass the ∆HHI inferior to 200. 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 has been of 95 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.
Substantive assessmentSubstantive test
What is the substantive test for clearance?
The Brazilian Competition Law contains both a dominant position test and a lessening or restriction of competition test. Although not much elaboration has been done regarding either one, in practice most decisions tend (usually implicitly) to focus more on the dominant position test, meaning that a deal will normally be cleared if not deemed to create or strengthen a dominant position, even without a deeper analysis of the possible lessening of competition effects.
In July 2016, CADE published the Guideline for the Analysis of Horizontal Concentration Merger Reviews, setting forth the main arguments that would be taken into consideration for the analysis of merger reviews with horizontal concentration.
CADE’s recent case law and the Guidelines on the Assessment of Horizontal Mergers show a special concern with the loss of a firm through a transaction that may facilitate coordination among the remaining firms in the industry, leading to reduced output, increased prices or diminished innovation. Further, the authority recognises the principle that a reduction in the number of firms in a market increases the potential for coordinated conduct, including both overt and tacit collusion. In July 2017, CADE also published an Internal Manual for the Analysis of Ordinary Merger Cases, describing best practices for the review of such cases by CADE’s officials based on the experience of the agency since the entry into force of Law No. 12,529 of 2011, including pre-filing, granting of waivers and infraction notices in the course of the proceeding.
Is there a special substantive test for joint ventures?
No, it is the same test applicable to mergers, with the already mentioned exemption of joint ventures aiming at taking part in public bids, which are not subject to merger review by CADE.Theories of harm
What are the ‘theories of harm’ that the authorities will investigate?
As mentioned above, in accordance with the Brazilian Competition Law, the authority will investigate transactions that lead either to market dominance or to a lessening of competition. For these purposes, the authority will analyse both unilateral effects and coordinated effects, though the latter are much more frequently used in practice. Vertical issues are becoming more important in the review and several remedies have already been imposed based on foreclosure or essential facility-like theories. One new feature in the filing form for complex cases is that the Brazilian authority tends to pay attention to conglomerate effects of the transaction.Non-competition issues
To what extent are non-competition issues relevant in the review process?
Traditionally, non-competition issues such as industrial policy or public interest are not factored into the review process by the competition authorities. Other governmental bodies cannot intervene in merger control analysis but merely participate on whatever grounds they deem appropriate. As already mentioned in question 8, in February 2018, CADE and the Central Bank entered into an agreement regarding each agency’s jurisdiction in merger control cases involving the banking sector, ending a long dispute over their jurisdiction for such cases. Mergers in the banking sector must now be submitted to both agencies, but transactions whose delay in closing may pose ‘high and imminent’ risks to the stability of the Brazilian financial system - at the Central Bank’s discretion - may be unilaterally approved by the Central Bank and CADE will have to approve the deal without restrictions. as well, based on the aspects of a prudential nature applied by the Central Bank.Economic efficiencies
To what extent does the authority take into account economic efficiencies in the review process?
The economic efficiency defence is expressly accepted by the Brazilian Competition Law within certain conditions, which include evidence that the gains will also benefit consumers. Although they are regularly analysed and taken into account in substantially complex transactions, it is fairly uncommon for CADE to authorise a deal based on efficiencies. In the authority’s opinion, efficiencies presented by the parties in merger transactions are rarely accepted because they are normally either unproven, not related to the transaction, or insufficient to justify the approval.
CADE has been adopting high standards of proof in the analysis of efficiency claims and, as a rule, efficiencies normally are not decisive for the clearance of a given transaction, especially if it involves significant concentration in the markets involved. Even so, there are some cases in which the efficiency claims were accepted by CADE and therefore played a more relevant role to approve a transaction without restrictions, such as:
- merger review No. 08700.009559/2015-12 (TNT/Fedex), after the appeal opposed by a third party, CADE’s Tribunal maintained the unconditional clearance decision posed by the General Superintendence and, among other arguments, understood that there were duly quantified efficiencies that demonstrated that the net effect of the transaction is at least non-negative;
- merger review No. 08700.003252/2016-81 (Casino/Dia), efficiency claims of countervailing power;
- merger review No. 08700.012062/2015-73 (Universal Studios/Sony Pictures), efficiency claims of costs reduction owing to the sharing of the distribution agreement; and
- merger review No. 08700.010033/2015-77 (TIM/Vivo/Claro/Oi), efficiency claims of costs reduction owing to the sharing of infrastructure.
Moreover, CADE’s practice is to assess efficiencies only at the latest stage of the merger review (ie, after being unable to ascertain that the exercise of market power is unlikely through the traditional analyses of merger control, especially in vertical mergers), as an opportunity to the parties to demonstrate that the effects of the transaction are non-negative. This careful assessment of the efficiencies was reinforced in merger review No. 08700.004446/2017-84 (Essilor/Luxottica), in which, after facing third-party allegations that efficiencies were unproven, CADE noted that the probability of exercise of market power had been settled earlier on, following the market test, and that the deal did not need to have proven efficiencies to go through. If it is the case, CADE will likely decide for additional investigation that gives the parties the opportunity to present efficiencies in complex deals, and these may be used as a base to negotiate remedies further.
Remedies and ancillary restraintsRegulatory powers
What powers do the authorities have to prohibit or otherwise interfere with a transaction?
CADE has very broad enforcement powers, with the law expressly allowing it to take whatever measures are deemed necessary to remedy damages caused by a transaction, including up to dissolution or break-up of a company. As an administrative authority, CADE can request judicial backing to forcibly carry out decisions such as the collection of fines or the performance of a specific obligation. Since the pre-merger control regime in Brazil entered into force by means of Law No. 12,529/11 in 2012, CADE has reported to have increased the use of remedies in complex deals or transactions reviewed under a non-fast-track proceeding. Since the enactment of Law No. 12,529/11 in 2012, remedies have been rather negotiated between CADE and the parties, and unilateral imposition of restrictions by CADE on the deals are rare.
In addition, CADE has the power to require, within one year of the date of consummation, the submission of any merger to analysis, even when the specific merger is not included under the thresholds provided by Law No. 12,529/2011.Remedies and conditions
Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?
Yes. CADE has a tradition of attempting, whenever possible, to remedy specific competition problems rather than barring a whole deal. Divestment and behavioural commitments have been adopted, tailored to the characteristics of the markets affected, targeting, for instance, brands, production facilities and distribution networks. If, in the post-merger notification regime, such undertakings were unilaterally imposed by CADE, in the pre-merger notification regime it is expected that discussing and negotiating the commitments with CADE will be routine for more complex cases and within the new (and shorter) time frames envisaged in the Brazilian Competition Law. In the past few years, especially from 2016 onwards, we have noticed a predominance of the use of behavioural remedies by CADE. Such behavioural remedies may include objective pricing criteria, transparent commercial policies, as well as prohibitions to impose exclusivity, discriminatory conditions, tying and bundling strategies.
What are the basic conditions and timing issues applicable to a divestment or other remedy?
The remedies have to be specific, they should address the competition problems raised by the deal, and they have to be adequate to the market. CADE is usually concerned with the effects of the remedies on consumers rather than on competitors. Although, in theory, CADE tends to favour structural remedies owing to its liquidity, the practice shows that, since 2016, most of the remedies negotiated by CADE have been behavioural ones. Timing will depend on the specific remedy being adopted by the authorities; however, offering remedies earlier on in the process in complex cases may increase the chances of successfully negotiating remedies with CADE. Based on article 165 of CADE’s Internal Rules, CADE may receive proposals of remedies from the parties from the filing up to 30 days after the challenge by the General Superintendence to CADE’s Tribunal.
What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?
There has never been a foreign-to-foreign case involving foreign companies without any assets in Brazil (parties exclusively active in Brazil through export sales) in which remedies were required by the authorities. Foreign-to-foreign mergers involving assets in Brazil have been subject to the same remedies mentioned above.Ancillary restrictions
In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?
Clearance decisions routinely include non-compete provisions. In 2009, CADE released two internal rulings (Súmulas 4 and 5) based on its case law and consolidating the understanding about such ancillary agreements. In Súmula 4, CADE consolidated the understanding that it will accept non-compete agreements in joint ventures, provided that they have a close relationship with their corporate purposes and their relevant markets. In Súmula 5, CADE consolidated its prevailing understanding that a reasonable period for such non-compete agreements is five years as of the acquisition of the company or business, provided that it is related only to the affected business sold. CADE has frequently ordered the parties, even in foreign-to-foreign mergers, to change the original agreement if a non-compete clause provides for a longer period or comprises a broader territory. Ancillary exclusivity agreements can also be covered by the decision, and CADE has in the past ordered the elimination of exclusivity clauses it did not deem reasonably justified.
Involvement of other parties or authoritiesThird-party involvement and rights
Are customers and competitors involved in the review process and what rights do complainants have?
Clients, suppliers and competitors are often involved in high-profile cases, voluntarily or upon a calling by the authorities. Third parties can present submissions, request meetings with officials or even challenge the clearance made by the General Superintendence. Often, the authorities also bring clients and competitors into the process by sending them official requests for opinions and additional information. Their input is traditionally taken into consideration by the authorities. Third parties that act in bad faith may receive penalties that vary from 5,000 to 5 million reais.Publicity and confidentiality
What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?
The process is given full publicity. After notification, CADE publishes in the Official Gazette a summary of the notification, including the names of the parties and inviting comments from anyone. The parties can require confidential treatment of certain information, but third parties can request access to the remainder of the files. If relevant business information such as business secrets is requested during the review, the parties may request restricted access to that information or confidential treatment. The decision is also published in the Official Gazette and the merger review reaches CADE’s Administrative Tribunal, the decision will be taken in an open public session, which is streamed in real time through CADE’s website. The entire contents of merger review cases, except for confidential appendixes, is made publicly available after the final clearance.Cross-border regulatory cooperation
Do the authorities cooperate with antitrust authorities in other jurisdictions?
CADE has cooperation agreements or memoranda of understanding with several jurisdictions, including Canada, Chile, the European Union, Mercosur (Argentina, Paraguay, Uruguay and Venezuela), the BRICS (Russia, India, China and South Africa), Portugal, the United States, France, Peru, Ecuador, Colombia, Japan and South Korea. CADE has also signed similar agreements with the Inter-American Development Bank and the World Bank Group. Contacts and discussion between Brazilian authorities and those of other jurisdictions are steadily increasing, especially with respect to the investigation of international cartels, and stimulated by repeated contacts in international organisations such as the Organisation for Economic Co-operation and Development (OECD) and the International Competition Network.
It is said that the new framework also incentivised greater interaction and coordination between CADE and international antitrust authorities during ordinary merger reviews, including the coordination of remedies. At the same time, such interaction and experience has substantially improved the design and implementation of remedies by CADE in comparison to past precedents. In 2019, the OECD accepted Brazil’s application for membership as associate member of the entity’s Competition Committee.
CADE can and will, in high-profile international cases, cooperate with antitrust authorities in other jurisdictions and may share information with them if the parties grant a waiver.
Judicial reviewAvailable avenues
What are the opportunities for appeal or judicial review?
Administrative appeals against CADE’s decisions are submitted to the same panel of commissioners, as it is a one-tier agency within the Brazilian public administration. This means that decisions are rarely changed in the administrative sphere, unless there is evidence of a new fact or document that could result in a more favourable decision. However, the parties always have the right to go to court to challenge a CADE decision. The Brazilian Constitution provides for the judicial review of administrative acts. If the capacity of the courts to go over procedural aspects is unlimited, the extent to which they can review the merits of CADE decisions remains unclear and will only be decided by the judiciary itself as more appeals reach the higher courts in the next few years. In any case, the trend seems to be that most CADE decisions that are substantively adverse to the parties will be challenged in the courts.Time frame
What is the usual time frame for appeal or judicial review?
As judicial review in Brazil begins with a court of first instance and may ascend on successive appeals up to the Supreme Court, a final judicial decision on an administrative act may take several years. However, an injunction suspending the effects of CADE’s decision may be obtained in a few weeks. This will tend to be the crucial judicial battle, in that if the appealing parties do not get an injunction suspending a CADE order immediately, they will have to comply with it first and then wait for years until a final judicial decision is issued. The number of court challenges to CADE decisions is still quite small, but at least in some high-profile cases, parties were able to secure an injunction suspending a divestment order until the end of the judicial review.
Enforcement practice and future developmentsEnforcement record
What is the recent enforcement record and what are the current enforcement concerns of the authorities?
Enforcement of the notification rules was quite rigorous under the former law, and led to a large number of penalties imposed for non-compliance including foreign-to-foreign mergers. Unfiled deals, which were subsequently discovered, were almost always fined. As mentioned above, CADE has already imposed some penalties for gun jumping events. Moreover, CADE has been imposing several remedies (be it structural or behavioural) in several transactions that are considered as harmful to competition.
In the merger control area, as mentioned above, apart from the already published gun jumping guidelines, CADE published a Guideline for the Analysis of Horizontal Concentration Merger Reviews, setting forth the main arguments that are taken into consideration for the analysis of merger reviews with horizontal concentration.
In July 2017, CADE also published an Internal Manual for the Analysis of Ordinary Merger Cases, describing best practices for the review of such cases by CADE’s officials based on the experience of the agency since the entry into force of Law No. 12,529 of 2011, including pre-filing, granting of waivers and infraction notices in the course of the proceeding. In October 2018, CADE issued the Guidelines on Remedies, which gathers the best practices and procedures adopted by CADE in the design, implementation and monitoring of remedies established by the agency. In April 2019, CADE issued the Guidelines for the submission of standardised information, as requested by the agency, to the Department of Economic Studies, to improve and expedite the analysis of the cases.Reform proposals
Are there current proposals to change the legislation?
CADE informed that the agency is developing new Guidelines about the methodology for imposition of fines in case of gun jumping (it is expected that a preliminary version of the new Guidelines will be made available for public consultation and discussion in the second half of 2019).
Update and trendsKey developments of the past year
What were the key cases, decisions, judgments and policy and legislative developments of the past year?Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?
Merger control activity in Brazil fluctuated somewhat in the period of the economic crisis in Brazil. From a high of 442 cases decided by CADE in 2014, CADE reviewed 406 cases in 2015, 390 cases in 2016, 378 cases in 2017 and 404 cases in 2018. However, CADE’s merger control enforcement has increased its notoriety, with a number of high-profile cases between 2018 and the beginning of 2019 (both national and international), some of them involving complex remedies, such as: Disney/Fox (merger review No. 08700.004494/2018-53); Amcor/Bemis (merger review No. 08700.005911/2018-85); Bayer/Monsanto (merger review No. 08700.001097/2017-49); ArcelorMittal/Votorantim (merger review No. 08700.002165/2017-97); Linde/White Martins (merger review No. 08700.007777/2017-76); Essilor/Luxottica (merger review No. 08700.004446/2017-84); Itaú Unibanco/XP Investimentos (merger review No. 08700.004431/2017-32) and a number of blocked cases, as seen below. A recent trend observed in the cases above is that CADE’s remedies practice has evolved to accept the inclusion of third-party trustees for monitoring the compliance with the negotiated remedies, and to employ arbitration clauses to solve disputes - in an effort to reduce monitoring costs to the authority.
In the period between 2018 and the beginning of 2019, CADE blocked one merger between Liquigás/Ultragaz (merger review No. 08700.002155/2017-51) and another three deals were abandoned as a result of antitrust concerns: Nadir Figueiredo/Owens-Illinois do Brasil (merger review No. 08700.005137/2017-21); Siemens/Alstom (merger review No. 08700.004077/2018-19); and Saint-Gobain/Rockfibras (merger review No. 08700.004162/2018-79). In the Liquigás/Ultragaz case, CADE blocked the deal after concluding that the transaction could give rise to anticompetitive concerns in the liquefied petroleum gas (LPG) market, as the new entity would account for more than 40 per cent of the market in several states of the Brazil. In the Nadir Figueiredo/Owens-Illinois and Saint-Gobain/Rockfibras cases, after that the General Superintendence challenged the case to CADE’s Tribunal, the parties dropped each case considering that they could not settle with the agency the proper remedies to mitigate the anticompetitive concerns pointed out by CADE. Lastly, in the Siemens/Alstom case, the parties abandoned the case in Brazil after the European Commission blocked the deal in Europe.
CADE’s competition advocacy practice has also seen a recent boost. Following the late-2018 to early-2019 beginning of bankruptcy proceedings for Avianca Brazil Airlines (Brazil’s fourth-largest airline), CADE proactively issued a study on concentration in the air travel market, and even suggested that an acquisition by some of the incumbents could result in greater competition concerns. It also issued a recommendation to the Brazilian Civil Aviation Authority that, in case the airline goes bankrupt, its slots should be distributed preferably to a new entrant or companies with low market share.
In July 2019, CADE’s Tribunal approved Resolution No. 24 of 2019 that replaces Resolution No. 13 and establishes procedural aspects for gun-jumping investigations and the notification of transactions the submission of which is not mandatory. It also sets forth the criteria for the calculation of gun-jumping fines based on CADE’s practices, including aggravating factors (eg, timing, severity of conduct and intent). On the same date, CADE approved Resolution No. 25 of 2019 that provides for the formal aspects and standards for the Commissioners of CADE’s Tribunal to write and present their votes on cases before they are read during CADE’s hearing sessions.
Lastly, in terms of internal organisation, it is worth noting that CADE’s Tribunal has seven seats: one for the agency’s President and the other six for appointed Commissioners. Up to May 2019, the Tribunal has six seats filled (followed by the departure of one Commissioner in January 2019) and three other Commissioners will have their terms ended in July 2019. New commissioners are appointed by the Federal President and go through a confirmation process in the Brazilian Senate, and it is expected that at least two seats will be filled before CADE’s scheduled mid-year break, with the rest until the end of 2019.