The Brazilian Administrative Council for Economic Defense ("CADE") has just released the "Report for Analysis of Previous Completion of Concentration Acts ("Gun-Jumping Guidelines"), setting the parameters to be used as guidelines during negotiations and for analysis of economic transactions, in order to prevent gun-jumping practices.
Following the enactment of Law No. 12529/2011, transactions of mandatory submission cannot be completed before its clearance by CADE. In this sense, gun–jumping consists of integration measures or the abusive sharing of sensitive competitive information between the parties that exceeds the essential for the celebration of the transaction before its approval. Such practice subjects companies to the following penalties: (i) a fine ranging from 60.000,00 BRL to 6.000.000,00 BRL, (ii) voiding of acts practiced by the involved companies, (iii) compulsory transaction notification (if the notification had not been performed voluntarily), and (iv) commencement of administrative proceedings to investigate the existence of anticompetitive effects.
Seeking to set guidelines on the types of business activities that may lead to jumping the gun, the Gun-Jumping Guidelines divided such activities into three groups:
- information exchange between the parties involved in a certain transaction;
- definition of contractual clauses governing the relationship between economic agents; and
- activities of the parties before and during the implementation of the transaction.
With regard to information exchange, the Gun-Jumping Guidelines stipulated that sensitive competitive information consists of specific information related directly on the performance of players’ core activities, and that may include particularly specific information on:
- costs of the companies involved;
- capacity level and expansion plans;
- marketing strategies;
- product pricing (prices and discounts);
- key customers and guaranteed discounts;
- employees’ salaries;
- main suppliers and terms of agreements entered into with them;
- non-public information about trademarks and patents and research and development (R & D);
- plans of future acquisitions; and
- competitive strategies, etc.
However, according to the Gun-Jumping Guidelines, the presentation of aggregated data on counterparties, data with a certain time lag, as well as the establishment of an environment and mechanisms of neutrality (e.g., clean teams and parlor rooms) can minimize concerns about gun jumping practice on information sharing between competitors.
With regard to the definition of contractual clauses governing the relationship between economic agents, the Gun-Jumping Guidelines stressed those that will be subject to scrutiny:
- clauses preceding the execution date of the contract implying any integration between the parties;
- prior non-competition clauses;
- full or partial prepayment clauses related to the consideration paid that are non-refundable, except for:
- down payment in commercial transactions;
- deposit to an escrow account; or
- break-up fees clauses (payments to be made in the event the transaction is not completed);
- clauses allowing the direct management by one party of the strategic aspects of the other, such as the submission of decisions on prices, clients, sales policy, planning, marketing strategies and other material decisions (which are not mere protection against deviation from the natural course of business and, consequently, protection of the value of the business transferred);
- generally speaking, any clauses providing for activities that cannot be reversed at a later time or whose reversal implies expenditure of a significant amount of resources by the agents involved or by the authority, etc.
In relation to the activities of the parties before and during the implementation of the transaction, the Gun-Jumping Guidelines indicated the activities of CADE’s greatest concern, emphasizing specially those that deal with the partial completion of the transaction before its clearance, such as:
- transfer and / or enjoyment of overall assets (including securities with voting rights);
- exercise of voting rights or relevant influence on the activities of the counterparty (such as decisions on pricing, clients, sales policy / planning, marketing strategies, interruption investments, discontinuation of products and other);
- receiving profits or other payments related to the performance of the counterparty;
- development of joint sales strategies or marketing of products that constitute a single management unit;
- integration of sales force between the parties;
- licensing of exclusive intellectual property to the counterparty;
- joint development of products;
- appointment of members to management bodies; and
- interruption of investments, etc.
Finally, the Gun-Jumping Guidelines still stipulated: (i) specific proceedings to be observed by independent committees (clean team, executive committee and parlor room) during negotiations of complex transactions or already in the antitrust analysis phase, when necessary to exchange a significant volume of information; and (ii) possible penalties to be applied in cases of gun-jumping practice (mentioned above).
Since the enactment of Law No. 12529/2011, CADE has already imposed penalties for gun-jumping practice in five concentration acts:
- Goiás Verde Ltda. / Brasfigo Ltda. e Brasfigo S.A., issued on April 2015, implying the execution of the Agreement of Concentration Control (“ACC”) and imposition of a 3 million BLR fine;
- Fiat S.p.A. / Chrysler Group LLC, issued on May 2014, implying the execution of an ACC and imposition of a 600.000,00 BLR fine;
- Potióleo S.A. / UTC Óleo e Gás S.A., issued on February 2014, implying the execution of an ACC and the imposition of a 60.000,00 BLR fine;
- Aurizônia Petróleo S.A. / UTC Óleo e Gás S.A., issued on February 2014, implying the execution of an ACC and the imposition of a 60.000,00 BRL fine;
- OGX Petróleo e Gás S.A. / Petróleo Brasileiro S.A., issued on August 2013, implying the execution of an ACC and the imposition of a 3 million BLR fine.