Since 1994, when the current Brazilian antitrust law (Law no. 8,884/1994) was enacted, the merger review process has been subject to criticism, mainly focused on the post-closing emphasis of the review process. According to the 1994 law, any transaction that meets one of the legal criteria1 must be submitted for review by the antitrust authorities.2 Such notification must be made within 15 business days from the execution of the first binding transaction document. Thus, the parties can execute the transaction agreements and implement all provisions set forth (i.e., close the transaction) without waiting for the antitrust clearance.
The absence of conditions precedent and a waiting period—common in a pre-closing regime—have restricted the effectiveness of CADE’s decisions, since the authority has refrained from taking severe decisions (e.g., disapproval and/or divestiture) years after the completion of a merger between competitors. Thus, the purpose of the authority (to restore and protect competition) is hardly achieved in the current legal framework.
Other sensitive issues related to the current legal framework have been pointed out by scholars and antitrust practitioners. For example, the 2010 report3 issued by the Organization for Economic Co-operation and Development (OCDE) and the Inter-American Development Bank (IDB) presented several recommendations that could be adopted through the issuance of a new antitrust law modifying the merger review process. The OECD/IDB report addressed two main topics for adjustments. The first suggestion made by the report was to consolidate the investigative, prosecutorial and adjudicative functions of the SBDC into one autonomous agency. The second suggestion was to modify the merger notification and review process to (i) establish a pre-merger notification system, (ii) eliminate the market share notification threshold and adopt criteria based on the domestic turnover of both the larger and the smaller parties in a transaction and (iii) eliminate the notification of non-merger transactions.
Seeking to improve the Brazilian antitrust system, the new Brazilian antitrust Law no. 12,529/2011 (New Antitrust Law) was enacted after several years of discussion in the Congress. The law revokes the previous framework of Law 8,884/1994 and sets forth significant changes.4 As expected, one of the major modifications is the adoption of a pre-merger review system with the centralization of the activities by CADE.5
Notification Scope and Thresholds
One sensitive aspect of the prior law was the scope of the transactions filed with SBDC for merger review, as encompassed in the definition of “concentration act.” According to Art. 54 of Law no. 8,884/1994, any transaction that may restrict competition is to be considered a concentration act, regardless of its corporate structure.
The New Antitrust Law in contrast lists the acts that may be considered as a concentration act: (i) merger of two or more independent companies; (ii) direct or indirect acquisition, by one or more companies, of control of a company or part of another company (through the acquisition or transfer of shares, securities, tangible or intangible assets); (iii) merger of a company with another company; and (iv) execution of joint venture, consortium or association agreements between two or more companies.6 Therefore, the new wording seems to exclude commercial agreements, such as supply and distribution agreements, which were not clearly exempted by the previous law and thus caused constant discussion in the case law.
Another change has focused on the thresholds applicable in order to trigger the obligation to submit a transaction to CADE. The previous antitrust law set forth two alternative thresholds: (i) if any economic group involved in the transaction achieved gross turnover (in its official financial statements) in the last financial year in Brazil of at least R$400 million or (ii) if the transaction would result in a market share in any relevant market of at least 20 percent.
These thresholds were considered inadequate as criteria for mandatory notification of transactions, because they triggered the obligation to notify a number of transactions that did not have any anticompetitive effects. For example, if an economic group with high turnover decided to divest operations and cease activities in a specific market and sell the business to a new company without activities in Brazil, the transaction would still have been filed with SBDC due to the turnover threshold.
The New Antitrust Law applies a different rationale, deleting the market share threshold and restructuring the turnover thresholds, in order to create a two-step test: (i) gross turnover in the last financial year in Brazil of at least R$750 million by one of the economic groups involved and (ii) gross turnover in the last financial year in Brazil of at least R$75 million by another economic group involved. This new threshold seeks to reduce the submission of insignificant transactions to CADE and to focus on the relevant transactions.7
New CADE and the Clearance Timeframe
The New Antitrust Law created a new position in CADE’s structure: the Superintendent. After the notification by the parties, the transaction documents will be accepted by the Superintendent (in case the notification provides all the required information)8, who will analyze the documents and either promptly decide to clear the transaction or request additional information.
The Superintendent can clear a transaction after additional information is requested, or can request extra time, if the transaction is considered a complex concentration act. Even complex cases can be cleared by the Superintendent after the analysis is completed.
If the Superintendent concludes that the transaction under analysis should be restricted or blocked, the Superintendent will present an opinion memorandum to CADE’s Commissioners (collectively called the Tribunal9). Then, the Reporting Commissioner will review the transaction and present it to the Tribunal for a vote. Although all concentration acts may be reviewed and decided by the Tribunal, several transactions10 may be cleared directly by the Superintendent. This mechanism will allow the Commissioners to develop a better analysis, without the burden of reviewing and voting on the clearance of every concentration act.
The New Antitrust Law sets forth that final CADE clearance must be given before the completion of the transaction under antitrust review. Hence, the New Antitrust Law also establishes a maximum term of 240 days from the date of the notification for CADE to issue its decision, which can be extended for 60 days by request of the parties, or for 90 days by decision of the Tribunal. CADE’s Attorney General Office has stated11 that any concentration act under review for more than 330 days will be automatically approved without restrictions. Concern has been expressed that the time frame for clearance under the new law is inconsistent with international merger control review practice.
After significant developments in the Brazilian antitrust policy and CADE case law during the effectiveness of the 1994 antitrust law, the antitrust framework is mature to improve and implement the pre-merger regime. The New Antitrust Law will thus allow Brazil to establish itself as a country with a serious merger review system, enabling CADE to confirm its role as a leading international competition agency.12
1 Market share threshold (one of the parties involved in the transaction or the resulting entity owns 20 percent or more of a relevant market) or turnover threshold (the turnover in Brazil in the last financial year, by at least one of the economic groups to which one of the parties to the transaction belongs, is greater than 400 million reais).
2 The Brazilian Antitrust System (SBDC) is composed of three administrative entities that are jointly responsible for the antitrust enforcement: (i) Secretariat for Economic Law of the Ministry of Justice (SDE); (ii) Secretariat for Economic Monitoring of the Ministry of Finance (SEAE); and (iii) Administrative Council for Economic Defense (CADE).
3 OECD / IDB. Competition Law and Policy in Brazil – A Peer Review. 2010.
4 The New Antitrust Law was approved by the President on November 30, 2011 and published in the Brazilian National Gazette on December 1, 2011. Considering the 180-day vacatio legis from the publication date, the New Antitrust Law will be in force on May 29, 2012. Thus, transactions notified until June 19, 2012 (i.e., 15 business days from May 28, 2012, the last effective day of the previous law) shall follow the previous post-closing merger review process.
5 According to the new law, the SBDC will now be composed only of CADE and SEAE. SDE will be merged into the new CADE, and SEAE will only handle competition advocacy issues.
6 Consortium agreements executed by companies in order to participate of public bids and to execute agreements with the Brazilian Government are not considered to be concentration acts (exception set forth in Art. 90, sole paragraph, of the New Antitrust Law).
7 However, as under current law, the turnover of the entire group of both the seller and the buyer must be considered. As a result, if a subsidiary of a parent group with Brazil turnover in excess of the threshold is being sold, the threshold is met even though the target subsidiary itself may not meet the threshold. It should be noted that the figures stated in the text above reflect the increased turnover thresholds established by Interministerial Ordinance No. 994/2012 issued on 31 May 2012.
8 After the acceptance by the Superintendent, the concentration act will be disclosed to third parties by the publication in the Brazilian National Gazette of the name of the parties, the purpose of the transaction and the economic sector involved.
9 The Tribunal is composed by one Chairman and six Commissioners. The Tribunal will hold regular fortnightly meetings to review the concentration acts. Each member of the Tribunal has one vote (the Chairman has the deciding vote). Each Commissioner’s term of office is four years, and the terms are designed in order to avoid coincident expiration.
10 The decision of the Superintendent to approve a transaction without restrictions shall be considered as the final CADE decision, if no third party or the Tribunal challenges the Superintendent’s decision within 15 days of its publication.
11 Opinion No. 17/2012/PROCADE/PGF/AGU issued by the CADE’s Attorney General Office on December 16, 2012.
12 CADE was awarded the prize of Best Agency of the Americas 2011 by the Global Competition Review.
Observations in this article about Brazilian law are by Tauil & Chequer Advogados. They are not intended to provide legal advice to any entity; any entity considering the possibility of a transaction must seek advice tailored to its particular circumstances.