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, 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 before the consummation of any act associated with the transaction. It should also be submitted, whenever possible, jointly by the parties participating in the transaction.

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, it negotiated a fine of 30 million reais in Cisco/Technicolor (Merger Review No. 08700.009018/2015-86) after the parties recognised that they closed the transaction during CADE’s analysis and made a carve-out of the Brazilian portion of the target. In Blue Cycle/Shimano Inc (Merger Review No. 08700.002655/2016-11), CADE imposed a fine of 1.5 million reais and determined the nullity of the distribution agreement between Blue Cycle and Shimano.

In 2017, in the Mataboi Alimentos/JBJ Agropecuária (Merger Review No. 08700.007553/2016-83), after negotiating a pecuniary fine of 664,983.32 reais, CADE blocked a transaction that had already been implemented and determined that the transaction be undone entirely. CADE negotiated a record fine of 57 million reais in the IBM/Red Hat (Merger Review No. 08700.001908/2019-73) when the parties implemented the estimated 132 billion reais transaction worldwide while CADE’s review was still ongoing.

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 suggest measures to mitigate the risk of gun jumping, such as the creation of antitrust protocol and clean teams.

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

The law makes no distinction between different parties to a deal, so 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. Decisions on fast-track cases should be issued within 30 days of filing or amendment.

In 2021, CADE cleared simpler transactions that were incapable of raising competition issues in an average of 20.3 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 pre-notification procedure (ie, the 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. The average review period in 2021 was 113.7 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:

• the nullification and voidance of the deal;
• the payment of a penalty ranging from 60,000 to 60 million reais; and
• the launching of administrative proceedings 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 Competition Law.

Nevertheless, CADE has stated in its decision-making practice, first in Cisco/Technicolor (Merger Review No. 08700.009018/2015-86) and most recently in IBM/Red Hat (Merger Review No. 08700.003660/2019-85), both of which are international transactions, that carve-outs 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.

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.

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.

This exception has been granted once. in December 2017, CADE’s Tribunal granted an injunction and preliminary authorisation for the anticipated closing involving Excelente BV and Rio de Janeiro Airports (Merger Review No. 08700.007756/2017-51). 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 any voting rights from being exercised by the new owner before clearance.

SAS Shipping/LogIn (Merger Review No. 08700.005700/2021-48) involved a public takeover bid. In that case, CADE granted an exceptional authorisation for the exercise of certain limited political rights, which usually can only be exercised after CADE has cleared the transaction (even if shares may be acquired immediately). According to CADE, the exemption was only justified owing to the risk of the acquired company lacking a reference shareholder for an extended period, so political rights were granted strictly to the extent the acquiring party could protect its investment.

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, that being either a simple form for transactions that are eligible for fast-track proceedings, 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 considerable time for the parties to prepare.

In addition to the filing form, the main documents that the parties must present, to the extent that they are available, are:

• a copy of the final version of the contracts and exhibits that are 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-fast-track cases, to the extent that they are available, such as copies of reviews, reports, studies, enquiries, presentations and other similar documents prepared for the purpose of evaluating or analysing the proposed transaction, as well as market studies, research, reports, forecasts and any other documents, regardless of whether they are prepared by third parties, that 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 applies to both fast-track and ordinary proceedings.

There are legal sanctions for 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 is 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 varies 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 with regard to the submission of information that is central to the antitrust assessment, and it has sanctioned parties on a few occasions for supplying misleading or incomplete information.

In 2020, in Ultra Som/Hapvida/GSFRP (Merger Review No. 08700.002566/2019-17), CADE imposed a fine of 2 million reais on the parties for presenting conflicting market share information at different stages of the merger review proceedings. Most recently, in 2021, in Delta/LATAM (Merger Review No. 08700.003258/2020-34), CADE decided to reopen previous merger proceedings 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 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 fast-track proceedings. Not responding to CADE’s requests for information is an administrative violation and can subject offenders to fines.

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 (the Triage Unit) that is in charge of a preliminary analysis to distinguish fast-track from non-fast-track or complex mergers. Complex mergers are sent to one of CADE’s specialised units (according to the market area involved) for analysis.

The final decision on either path comes from the General Superintendent, who can approve the merger outright as it normally does for cases involving fast-track proceedings 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 take longer and are usually analysed by CADE’s 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 that are incapable of causing any anticompetitive impact may be subject to fast-track proceedings. This fast-track treatment is granted at the authority’s discretion if:

• the transaction involves a horizontal overlap inferior to 20 per cent;
• 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;
• the transaction concerns the creation of classic or cooperative joint ventures; or
• the transaction concerns the entry of a new player; or
• the horizontal concentration is below 50 per cent and does not surpass a variation of 200 points in the Herfindahl-Hirschman Index.

The General Superintendence’s decision on fast-track cases should be issued within 30 days of filing or amendment (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, although the average review period is 113.7 days. With regard to cases where remedies have to be negotiated, our experience shows they take an average time of approximately 180 days.

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.