Merger Control 2022

Last Updated July 05, 2022

Brazil

Law and Practice

Authors



Madrona Advogados was founded in 2015 by seven highly experienced partners, all recommended in several national and international publications. The firm currently has 25 partners, whose achievements in their practice areas have been recognised both in the global and Latin American editions of the guides produced by Chambers and Partners. Madrona focuses on corporate law, M&A, antitrust law, capital markets, financial law, and infrastructure, and has a strong performance in antitrust, tax, real estate, civil litigation and labour law. The firm’s mission is to reflect the times and invest in people by working ethically and responsibly to ensure clients reach their goals. Comprising more than 110 expert legal professionals, the Madrona Advogados team is aligned with the principles and objectives that the firm has set out to achieve.

Brazilian merger control is governed by Law No 12,529/2011 (the “Brazilian Competition Law”) and administrative regulations issued by the Administrative Council for Economic Defence (CADE or the “Brazilian Competition Authority”) that provide further guidance concerning Brazilian competition legislation, including:

  • CADE’s by-laws, which set forth the main extensive set of procedural rules for merger control;
  • CADE’s Rule No 33/2022, which defines the economic group for the purpose of:
    1. assessing jurisdictional thresholds;
    2. thresholds for fast-track procedure and minority equity acquisitions;
    3. filing procedures; and
    4. the Brazilian fast-track/non-fast track transaction filing forms;
  • CADE’s Rule No 24/2019, which governs the investigation of gun-jumping violations and sets out guidance for fines calculation; and
  • CADE’s Rule No 17/2016, which defines the types of “associative agreements” that are subject to merger control.

CADE has issued several non-binding guidelines on key merger control topics, such as remedies, horizontal mergers and gun-jumping violations, since the adoption of the ex ante regime. Its Department of Economic Studies has also continuously published studies consolidating precedents in specific industries (eg, fuel, steel, healthcare, agriculture and digital platforms).

There is no specific legislation in Brazil for merger controls involving foreign transactions or investments. However, precedents indicate the type of foreign-to-foreign transaction that is subject to Brazilian merger control (see 2.8 Foreign-to-Foreign Transactions).

Conversely, transactions involving regulated sectors (eg, healthcare, telecommunications, transportation and energy) might require approval from regulatory agencies. Parties can generally submit independent filings to CADE and the relevant regulatory agency simultaneously in order to expedite the approval process. Timing for approval can differ significantly between one agency and another, however.

CADE has executed co-operation agreements with a few regulatory agencies after foreseeing that the exchange of information, along with technical and broad collaboration, between authorities enables a more accurate assessment of mergers in regulated sectors.

A case in point is the banking sector, where CADE and the Brazilian Central Bank (BCB) have issued Joint Normative Ruling No 1/2018 to ensure that transactions satisfying jurisdictional thresholds are ordinarily reviewed by both authorities (CADE and the BCB).

CADE is responsible for enforcing the merger control system throughout the Brazilian territory and has powers to review, approve, impose remedies on or block a transaction.

CADE has four main bodies, each with distinct roles in the merger control analysis.

  • General Superintendence – responsible for reviewing all fast-track and non-fast-track transactions, with legal powers to clear any transaction without restrictions, issue non-binding opinions and challenge transactions before the Tribunal.
  • CADE’s Tribunal – the final decision-making body charged with reviewing transactions challenged by the General Superintendence. It also reviews the General Superintendent’s clearance decisions when requested by one of its Commissioners or challenged by a third party. CADE’s Tribunal is responsible for issuing the final decision, approving, imposing remedies or blocking transactions.
  • Department of Economic Studies – responsible for preparing economic studies and opinions either ex officio or upon request, mainly in non-fast-track cases.
  • CADE’s Attorney General’s Office – essentially responsible for monitoring remedies imposed by CADE’s Tribunal.

Parties can still file for a judicial review of CADE’s final decision, even though this only happens on rare occasions (see 8.1 Access to Appeal and Judicial Review).

Transactions require mandatory notification in the following circumstances.

  • The transaction is considered a concentration act under the Brazilian Competition Law (including merger, incorporation, consortium, joint venture, share or asset acquisition and associative agreement; see 2.3 Types of Transactions).
  • The jurisdictional thresholds are met (see 2.5 Jurisdictional Thresholds).
  • The transaction has an impact in Brazil (see 2.8 Foreign-to-Foreign Transactions).
  • The transaction does not fall within one of the exceptions outlined by the Brazilian Competition Law.

Transactions that do not require mandatory notification include:

  • joint ventures, associative agreements and consortia undertaken with the specific purpose of participating in public auctions or bids; and
  • minority equity acquisitions that either (i) do not reach a specific threshold set out by CADE’s rules or (ii) are made by the sole controlling shareholder (see 2.4 Definition of “Control”).

Undertakings that fail to notify CADE of a transaction, or any that implement a transaction before CADE’s clearance decision is final, are subject to sanctions under the Brazilian Competition Law.

These types of infringements are also known as gun-jumping violations, as in other ex ante regimes. An administrative procedure may be launched against the parties specifically to investigate such violations.

Penalties that may be imposed by CADE as a result of such procedures include:

  • fines ranging from BRL60,000 to BRL60 million; and
  • the declaration of the transaction as null and void.

Sanctioned parties must still submit the transaction for CADE’s review, in addition to facing the penalties mentioned above.

Gun-Jumping Fine Calculation

According to CADE’s Rule No 24, fines imposed in gun-jumping violations begin at a minimum of BRL60,000.

This amount may be increased by:

  • 0.01% of the value of the transaction per day for the duration of the time by which notification is delayed;
  • up to 4% of the value of the transaction depending on the severity of the violation; and
  • up to 0.4% of the economic groups’ average turnover in the year preceding the transaction, depending on the parties’ intent and good faith.

The fine calculation also considers the timing of the notification, meaning that the spontaneous submission of a transaction to CADE can lead to fines being reduced by up to 50%.

Precedents

CADE takes a very strict approach towards gun-jumping violations – all penalties mentioned above are applied by CADE in practice and made public upon conclusion of the investigation.

One recent example is CADE’s May 2022 decision on Procedure No 08700.005713/2020-36, which fined Veolia Environnement SA and Engie SA the highest amount ever imposed (the maximum BRL60 million) for failing to notify the transfer of 29.9% of the shares of a third company, Suez SA, in October 2020 from Engie SA to Veolia Environnement SA.

Also, in November 2021, CADE issued a decision on Procedure No 08700.002914/2020-81, penalising the companies FD do Brasil Soluções de Pagamento Ltda and Software Express Informática Ltda for failing to notify the acquisition of the latter by the former. The parties settled with CADE and agreed to pay a fine of BRL6.7 million.

Other fines imposed by CADE for gun-jumping violations so far amount to:

  • BRL57 million – imposed in December 2019 in Merger Review No 08700.001908/2019-73 (IBM and Red Hat Inc); and
  • BRL30 million – imposed in January 2016 in Merger Review No 08700.009018/2015-86 (Technicolor SA and Cisco Systems Inc).

The types of transaction subject to mandatory notification, provided that they meet the jurisdictional thresholds (see 2.5 Jurisdictional Thresholds), include:

  • merger or incorporation of previous independent companies;
  • acquisition of sole or shared control of another entity;
  • acquisition of a minority stake in another company;
  • acquisition of bonds or securities convertible or exchangeable into stocks or assets;
  • acquisition of assets;
  • joint venture;
  • consortium; and
  • associative agreements executed between competitors foreseeing the exploitation of a joint commercial activity for at least two years, in which risks and results are shared.

Jurisdictional thresholds require that the transaction should involve at least two different corporate groups (defined by CADE as “economic groups” – see 2.7 Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds) before notification becomes mandatory. Meeting the double turnover threshold criteria, restructurings, reorganisations or other intra-group transactions do not therefore require mandatory notification.

Transactions not involving the transfer of shares or assets could still be subject to merger control if there is any change in control (eg, via shareholders’ agreements or changes to articles of association) – see 2.4 Definition of “Control”.

Change of Control

One event that can trigger mandatory notification is change of control, as mentioned in 2.1 Notifications and 2.3 Types of Transactions. The Brazilian competition legislation, however, does not provide a clear definition of “control”.

CADE uses a case-by-case analysis to identify whether a particular shareholder has sole or shared control (internal control) or, rather, a third party is interfering in the activities of a company (external control).

CADE’s precedents indicate that relevant evidence of control includes:

  • the power to manage or direct the business;
  • the power to elect most members of the management bodies; and
  • voting/political rights that directly – or even through shareholders’ agreement – enable an autonomous decision on competitively sensitive issues (eg, production, sales, commercial policy and pricing).

Minority Interest Acquisition

The Brazilian merger control system covers minority interest acquisitions in the following circumstances.

  • Any amount of interest acquired grants the acquirer sole or shared control.
  • The direct or indirect acquisition results in at least 5% of the total or voting capital stock of a company that competes or is active in vertically related markets to the acquirer economic group.
  • The direct or indirect acquisition made by an acquiring economic group, which already owns at least 5% of a company, resulting in the ownership of at least another 5% of the same company where it competes or is active in vertically related markets to the acquirer economic group (whether via a single acquisition or the sum of past acquisitions).
  • An economic group’s direct or indirect acquisition of at least 20% of the total or voting capital stock of a company that is neither a competitor nor active in any vertically related market.

A shareholder, who owns at least 20% of the total or voting capital stock of a company that is neither a competitor nor acts in any vertically integrated market, either directly or indirectly acquires an additional 20% or more of the total or voting capital stock of the same company.

The following turnover criteria (or “jurisdictional thresholds”) must be cumulatively met for notification of a concentration act (see 2.3 Types of Transactions) to be mandatory, according to the Brazilian Competition Law, as amended by the Interministerial Ordinance No 994/2012.

  • At least one economic group involved in the transaction had a gross turnover or business volume in Brazil (including exports) equal to or greater than BRL750 million in the year before the transaction.
  • At least another business or corporate group involved in the transaction had a gross turnover or business volume in Brazil (including exports) equal to or greater than BRL75 million in the year before the transaction.

The Brazilian jurisdictional thresholds are not updated annually but the Ministry of Defence and Ministry of Finance can make a joint decision to adjust them.

Brazilian jurisdictional thresholds are based on a double turnover system that counts the gross turnover or business volume in Brazil of the economic groups involved in the transaction (see 2.5 Jurisdictional Thresholds).

Asset value and size of transaction do not feature in the calculation of jurisdictional thresholds (see 2.7 Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds).

CADE’s by-laws state that, for the purpose of calculating jurisdictional thresholds, all foreign currency must be converted to Brazilian currency based on the exchange rate as it was on the last business day of the previous year.

Economic Group Definition

All businesses/corporate entities that meet the following criteria at the time of transaction must be considered part of the same business or economic group when calculating jurisdictional thresholds, according to Brazilian competition case law.

For companies

  • All companies under common control (internal or external).
  • All companies in which the company involved in the transaction or any of those that satisfy the above criteria hold, directly or indirectly, an interest equal to or greater than 20% in the total or voting capital stock.

For investment funds

  • The economic group of all quotaholders that, individually or through any type of quotaholder agreement, directly or indirectly hold 50% or more of the fund’s quotas.
  • All companies in which the investment fund involved in the transaction holds, directly or indirectly, control or in which the fund holds, directly or indirectly, an interest equal to or greater than 20% in the total or voting share capital.

CADE’s precedents indicate that economic group definitions should be assessed at the point the transaction takes place. Past turnovers of recently acquired companies should be fully considered as part of the economic group turnover calculation.

Moreover, state-owned companies could be considered part of separate or autonomous business/corporate groups for the purpose of calculating jurisdictional thresholds. Thus, transactions between two state-owned companies can be subject to the Brazilian merger control system as though they were fully independent.

Foreign-to foreign transactions can be subject to Brazilian merger control if the double turnover criteria is met and the transaction has concrete or potential effects in Brazil.

The local effects test is conducted by CADE on a case-by-case basis, and in the past has considered:

  • whether the target company has a direct presence in Brazil through subsidiaries or assets located in the country;
  • revenues originating in Brazil through exports, regardless of their amount;
  • plans to expand activities or enter the Brazilian market; and
  • the geographic nature of relevant markets affected by the transaction (ie, global, national, regional, etc).

The current Brazilian Competition Law does not establish a market share threshold.

All types of joint ventures are subject to the Brazilian merger control system if they meet the double turnover criteria and produce effects in Brazil.

Joint ventures with the specific purpose of participating in public auctions or bids and acquisitions of shares through public offering are exempt from compulsory notification in the Brazilian Competition Law, as mentioned in 2.1 Notification.

Additionally, under the Brazilian merger control system, “contractual joint ventures” are treated as associative agreements and compulsory notification depends not only on the fulfilment of the jurisdictional thresholds but also on specific conditions of the arrangement (see 2.3 Types of Transactions).

The Brazilian Competition Law allows CADE one year to investigate any transaction that does not meet the jurisdictional threshold. Such investigation may be instigated by a complaint from third parties – which can be submitted anonymously – or may occur on a discretionary basis whenever CADE understands that a transaction potentially causes competition concerns.

Merger Review No 08700.006853/2021–11 (Odontoprev SA, Mogidonto Planos Odontológicos Ltda and Boutique Dental Ltda) was recently notified at the request of the General Superintendence, even though the parties did not meet the jurisdictional thresholds. The General Superintendence requested notification in order to investigate whether the transaction could lessen competition and increase prices in the affected markets.

Similarly, Merger Review No 08700.001227/2020-49 (Prosegur Brasil SA Transportadora de Valores e Segurança and SACEL Serviços de Vigilância e Transporte de Valores-Eireli) was submitted to CADE at the request of CADE’s Tribunal while in the process of analysing another merger from Prosegur.

Brazil adopted the pre-merger (ex ante) review system after the new Brazilian Competition Law entered into force in 2012. Any implementation of a transaction subject to the Brazilian merger control system, therefore, must be suspended until CADE’s final clearance – ie, a final decision issued by CADE’s Tribunal or when clearance is granted by CADE’s General Superintendence following a 15-day waiting period.

Any act of implementation carried out before obtaining CADE’s final clearance may result in gun-jumping violations and the parties could be subject to the penalties mentioned in 2.2 Failure to Notify (ie, fines of up to BRL60 million and the transaction declared null and void).

The penalties imposed by CADE are publicly disclosed – for example, as in May 2022 when CADE imposed the maximum fine of BRL60 million on Engie SA and Veolia Environnement SA for implementing a transaction before filing it to CADE (see 2.2Failure to Notify).

Joint ventures, associative agreements, and consortia undertaken with the specific purpose of participating in public auctions or bids are not subject to the Brazilian merger control system, as mentioned in 2.1 Notification. Furthermore, acquisitions of shares through public offering before CADE’s clearance are allowed, provided that clearance is obtained before parties can exercise political or decision-making rights.

The Brazilian Competition Law allow parties to submit a formal request for precarious and preliminary authorisation by CADE to fully or partially implement a transaction, where parties can prove that waiting for CADE’s approval would lead to substantial and irreversible financial damages.

Such preliminary authorisation is rarely granted by CADE and involves a lengthy and uncertain negotiation with authorities. The parties must clearly demonstrate (and provide substantial evidence of) not only irreversible and substantial financial damages, but also that the implementation acts are fully reversible and will not cause irrevocable harm to competition in the affected markets.

Any waiver granted by CADE to implement certain parts of the transaction does not imply its automatic clearance. CADE will continue to analyse the impact of the transaction on competition and can ultimately block a transaction in which a waiver has been granted.

One such example was Merger Review No 08700.005700/2021-48 (SAS Shipping Agencies Services SÀRL and MSC Mediterranean Shipping Company Holding SA). CADE granted an authorisation for the exercise of political rights in the target company before final clearance in order to protect the investment to be made within the transaction.

There are no other circumstances in which CADE authorises the closing of the transaction before final clearance, apart from the exceptions described in 2.14 Exceptions to Suspensive Effect. Moreover, CADE has been consistently rejecting carve-out to allow global closing before receiving clearance in Brazil.

The Brazilian Competition Law does not set forth a deadline for notification. Notwithstanding, compulsory notifications cannot be implemented before obtaining CADE’s final clearance. Regarding the penalties for implementing a transaction before a formal competition approval, please refer to 2.2 Failure to Notify and 2.13 Penalties for the Implementation of a Transaction Before Clearance.

Transactions should be submitted to CADE preferably following the execution of binding documents between the parties. However, CADE usually also accepts filings based on preliminary binding documents that outline the transaction, such as a letter of intent or a memorandum of understanding.

Regardless of the type of agreement, CADE’s approval will be limited to the scope of the transaction described in the submitted documents. Any modification concerning the structure of the transaction or ancillary restraints (such as non-compete or exclusivity provisions) may need to be reported and approved by CADE, and could trigger a new filing.

A fee of BRL85,000 is required to file a transaction before CADE. Proof of such payment is one of the mandatory documents that must be submitted to CADE.

Both parties are responsible and liable for filing a compulsory transaction before CADE. The Brazilian Competition Law, however, permits a new transaction to be notified jointly by both parties or unilaterally by just one party. Regardless of the party responsible for submitting to CADE, a single filing is required per transaction.

CADE’s filing form for both fast-track and non-fast-track procedures requires detailed information, such as the following, from the parties and affected relevant markets.

  • Information and documents concerning the involved parties and their businesses and/or economic groups (eg, gross turnovers, latest financial statements, organisational charts, line of business and activities of all companies from a corporate group).
  • Information on the transaction (eg, structure, terms and conditions, price and means of payment, non-compete or exclusivity clauses).
  • The transaction’s main documents (eg, agreement and shareholders’ agreement). CADE can require other documents prepared for the purposes of the transaction (eg, presentations to the board or shareholders, company market intelligence, estimates for market trends).
  • Competition analysis and information on the affected relevant markets, including market shares, market structure, regulatory framework, information on suppliers, customers and competitors.

Further and even more detailed information is required specifically for non-fast-track procedures (eg, parties’ and competitors’ historical market shares, demand structure, entry and rivalry conditions, monopsony analysis, co-ordination and counter-factual effects of the transaction).

Additionally, on a discretionary basis, CADE can request the presentation of further information and documents for cases submitted through both the fast-track and non-fast-track procedures.

All documents should be submitted in Portuguese, including the filing form. CADE’s rules require all original documents in other languages to be translated, which should be prepared in advance to expedite filing.

The parties have a single opportunity to amend the notification if CADE deems it incomplete. However, if the incompleteness persists and CADE is not satisfied with the level of information provided in the amendment, the notification is shelved without a decision on its merits and the parties will have to file the transaction again after paying another filing fee.

CADE can fine parties that provide inaccurate or misleading information within the scope of a merger filing anything from BRL60,000 to BRL6 million. Additionally, CADE can launch an administrative proceeding against the party and adopt any other appropriate measures.

The merger control process within CADE has two main stages of analysis (as mentioned in 1.3 Enforcement Authorities). 

  • Phase I – General Superintendence: all fast-track transactions and non-fast-track transactions are first reviewed by the General Superintendence. It has legal powers to clear any transaction without restrictions or challenge transactions before the Tribunal.
  • Phase II – CADE’s Tribunal: the final decision-making body is responsible for reviewing transactions challenged by the General Superintendence or interested third parties (see 7.1 Third-Party Rights) and reviewing the General Superintendence’s clearance decisions upon request of one of its commissioners. CADE’s Tribunal is responsible and has legal powers for issuing the final decision to impose remedies on, block or approve transactions.

CADE’s deadlines for analysis may vary according to the type of procedure.

  • Fast-track cases – the overall timeline for clearance shall not last longer than 30 days from filing or amendment of the information (regarding the amendment, see 3.6 Penalties/Consequences of Incomplete Notification). Should CADE’s analysis exceed 30 days, the General Superintendence must justify the delay before CADE’s Tribunal and prioritise the case. The average time taken to analyse fast-track cases in 2021 was 20.3 days.
  • For non-fast-track cases – the overall timeline for clearance is within 240 days from filing or amendment of the information (regarding the amendment, see 3.6 Penalties/Consequences of Incomplete Notification), which can be extended for up to 90 additional days, totalling 330 days of analysis. If CADE’s analysis exceeds 330 days without a final decision, the transaction is considered automatically approved. The analysis of non-complex, non-fast-track cases usually takes approximately 90 days, whereas the analysis of complex non-fast-track cases may take 120 days or more, especially when parties need to negotiate remedies. The average timeline for analysis of non-fast-track cases (considering complex and non-complex cases) in 2021 was 113.7 days.

There is also a 15-day waiting period following clearance from CADE’s General Superintendence, whether the case was filed under the fast-track review or not.

In non-fast-track procedures, parties are encouraged by CADE to engage in pre-notification discussions. The pre-notification entails sharing a draft filing form and engaging in discussions with the authority. The whole process is kept confidential.

CADE’s by-laws limit the pre-notification discussions for non-fast track cases, so fast-track cases should be formally submitted before parties start interactions with the authority.

CADE can, at any time and discretionarily, request additional information from the parties during the review process and/or test the market by sending requests for information to third parties, including clients, competitors, suppliers and public agencies.

Although the Brazilian Competition Law allows CADE to request information in all types of procedures, this practice is usually adopted in non-fast-track transactions.

Requests for information can require very detailed information, which could impact timing for approval, but they never stop the clock or suspend the review process.

The following transactions are considered eligible in Brazilian competition legislation for the fast-track procedure.

  • Transactions resulting in horizontal overlaps below 20% of market share in the affected relevant markets.
  • Transactions in which the concentration results in a variation of the Herfindahl-Hirschman Index below 200 points, provided they do not result in concentrations over 50% of market share in the affected relevant markets.
  • Transactions resulting in vertical integrations lower than 30% of market share in the downstream and upstream affected relevant markets.
  • Transactions involving classic or co-operative joint ventures, whose activities are not vertically or horizontally related to the activities of the merging parties.
  • Transactions resulting in no horizontal overlaps or vertical relationships between the activities of economic groups involved in the transaction.
  • Other cases not encompassed above that CADE’s General Superintendence could consider simple enough to not warrant a detailed analysis.

Regardless of the above-mentioned provisions, any fast-track procedure can be ultimately converted to a non-fast-track procedure at CADE’s discretion, especially when a more detailed analysis is deemed necessary.

According to CADE’s Guidelines for Horizontal Mergers, the Brazilian merger control system aims to focus the substantive test generally on a dominant position and a substantial lessening of competition analysis.

CADE usually analyses the level of concentration and the structural conditions of the affected markets, including:

  • ability to exercise market power unilaterally;
  • entry barriers; level of rivalry; idle capacity of established competitors; buying power; and
  • possible co-ordinated effects arising from the transaction.

There are ancillary methods that may be used by CADE depending on the relevant markets, such as mathematical and econometric simulations, counterfactual analysis, elimination of maverick firms and potential competition.

Regardless of the method employed, the Brazilian Competition Law establishes that efficiency gains in the affected markets must prevail over potential negative effects as a condition for the approval of a transaction.

CADE’s relevant market definition commonly begins by applying the hypothetical monopolist test to evaluate the boundaries of product and geographic dimensions, frequently relying on its own precedents.

When determining the relevant product market, CADE could consider:

  • customer profile;
  • market size;
  • buying patterns;
  • relevance of goods’ and/or services’ prices;
  • quality for customers;
  • relevance of brand;
  • credit;
  • payment conditions; and
  • moment of consumption.

The relevant geographic market is defined by the precise location in which companies offer their products, and, more importantly, the area in which customers seek to make a purchase. CADE should consider transportation timing and costs, local prices, customers search radius, among others, in order to investigate the geographic market definition.

CADE is willing to consider foreign case law examples as ancillary persuasive arguments or starting points for competition analysis, but the agency seldom relies solely on foreign precedents without actually testing the market and evaluating effects on the Brazilian market. Foreign case law, however, can be even more relevant in markets with an international scope or where national precedents are limited.

CADE’s analysis usually focuses on investigations into dominant position and lessening of competition, as mentioned in 4.1 Substantive Test. The multiple competition analysis tests CADE uses to investigate actual or potential negative competitive effects, particularly in non-fast-track complex cases, include the analysis of:

  • unilateral and co-ordinated effects;
  • vertical foreclosure;
  • barriers to entry;
  • network effects;
  • elimination of potential competition; and
  • conglomerate or portfolio effects.

CADE recently imposed structural remedies in Merger Review No 08700.000149/2021-46 (Localiza Rent a Car SA and Companhia de Locação das Américas) after analysis demonstrated that rivalry levels and entry conditions were not sufficient to avoid the exercise of market power by the parties. It conducted a deep analysis in Luxottica/Essilor (08700.004446/2017-84) of whether portfolio effects would increase the merged-company ability to harm competition. Ultimately the authority didn’t find concrete evidence that would support an intervention and the case was cleared.

Pursuant to the Brazilian Competition Law, CADE must consider economic efficiencies during a merger review process.

A transaction should be approved whenever economic efficiencies outweigh adverse competition effects arising from the transaction, as mentioned in 4.1 Substantive Test.

CADE’s analysis of economic efficiencies usually considers whether they are:

  • measurable and verifiable;
  • achievable in less than two years; and
  • beneficial to consumer welfare.

It also looks at whether externalities (eg, cost reduction) related to the transaction can be achieved by other means.

The Brazilian Competition Law grants CADE the power to enforce competition matters, meaning that non-competition issues (such as industrial policy, national security, employment and the environment) are not therefore considered during a merger review process.

The agency has, nevertheless, in the past suggested improvements for industry policy and regulation for different sectors in order to improve competition. CADE indicated, for example, in Merger Review No 08700.005719/2014-65 (Rumo Logística Operadora Multimodal SA and All-América Latina Logística SA) that the regulation for railways and highways did not set forth enough measures to avoid anti-competitive concerns.

Spill-over effects, including co-ordination and exchange of competitively sensitive information, can be taken into special consideration during CADE’s substantive review of joint ventures. The authority specifically verifies whether the transaction agreements contain appropriate measures to ensure that involved parties will not engage in anti-competitive practices.

One example was Merger Review No 08700.004934/2019-53 (ADM International Sàrl, Bunge SA, Cargill International SA, COFCO Resources SA, Louis Dreyfus Company Suisse SA and Glencore Agriculture BV). CADE thoroughly analysed the purpose and scope of the joint venture (“Covantis JV”), including:

  • whether there were compliance rules to guarantee the independence of the parties’ businesses;
  • the type of information that would be exchanged among the parties;
  • safeguards to prevent the exchange of sensitive information; and
  • whether the negotiation and contracting process, in which the parties should remain independent, would be involved.

CADE has broad powers to prohibit or interfere, by means of antitrust merger remedies, with all transactions submitted to the merger review, including those transactions that do not represent compulsory notifications (see 2.11 Power of Authorities to Investigate a Transaction).

Remedies are adopted by CADE mainly when the actual or potential negative effects of a transaction outweigh its positive effects or efficiencies (see 4.1 Substantive Test). CADE can impose all necessary structural or behavioural measures to remedy the identified adverse effects, including:

  • divestment of assets;
  • discontinuing of products or services;
  • refraining from limiting capacity; and
  • obligations to grant access to inputs or intellectual property rights.

Any intervention in the transaction is carried out during its assessment and does not require a judiciary decision.

Pursuant to the Brazilian Competition Law, remedies may be both (i) suggested by the parties, upon agreement and negotiations with CADE, or (ii) unilaterally imposed by CADE’s Tribunal.

Remedy negotiations are encouraged by the authority and can start from the very beginning of the merger review (see 5.5 Negotiating Remedies With Authorities).

There are no legal standards that remedies must meet to be deemed acceptable. However, CADE’s Guidelines on Antitrust Remedies suggests the following main principles to consider when assessing their effectiveness.

  • Proportionality – remedies must be sufficient to address competition concerns.
  • Timeliness – remedies that mitigate concerns faster are preferable.
  • Feasibility – remedies will only be effective if:
    1. they can be monitored;
    2. they do not generate risks; and
    3. there is no regulatory impediment.
  • Verifiability – the following must be verifiable and/or feasible:
    1. means to ascertain obligations;
    2. monitoring of actions taken by the parties; and
    3. identifying consequences and the type of actions necessary to achieve the agreed or imposed remedies.

CADE prefers to impose structural remedies (such as divestiture or sale of assets), rather than behavioural remedies, because the former are generally more effective at reducing impacts on market structure and monitoring costs are lower. Additionally, the authority understands that structural remedies are less likely to create market distortions. Nonetheless, in practice, CADE has been applying behavioural and/or hybrid remedies more often than standalone structural remedies. It approved six transactions, subject to remedies, in 2021. The following are three examples.

  • Merger Review No 08700.003553/2020-91 (Hypera SA and Takeda Pharmaceuticals International AG) – the parties voluntarily offered to divest part of the target’s portfolio, including all rights and necessary know-how for the manufacturing of the divested products.
  • Merger Review No 08700.002569/2020-86 (Tupy SA and Teksid SpA) – the remedies imposed consisted of a set of behavioural measures and the transferral of supplying agreements to third parties.
  • Merger Review No 08700.005598/2020-08 (White Martins Gases Industriais Ltda and Petróleo Brasileiro SA) – the remedies imposed concerned the dissolution of a pre-existent consortium among the parties.

According to CADE’s by-laws, the parties may submit a remedy proposal from the date the transaction is submitted for merger review until 30 days after the case is submitted to CADE’s Tribunal.

Although parties can negotiate remedies with CADE’s General Superintendence, all proposals are subject to final approval from CADE’s Tribunal. Ordinarily, a remedy proposal approved by the Tribunal will set out detailed information on the following matters.

  • How parties should conduct divestitures and/or comply with behavioural remedies, including:
    1. the specific assets to be divested;
    2. buyers eligible to purchase divested assets and whether an upfront buyer would be required;
    3. timetable;
    4. pricing terms; and
    5. deadlines for behavioural commitments.
  • How the remedies will be monitored by CADE and whether parties will be required to send recurrent reports on remedies compliance.
  • Whether remedies will require the appointment of a monitoring trustee.
  • Sanctions for breaching the remedies agreement.

CADE’s Tribunal has powers to unilaterally impose remedies as a condition for clearance, but precedents indicate CADE’s preference for the adoption of negotiated remedies.

Conditions and Timing for Divestitures

All remedies imposed under the Brazilian merger control system must be specific and address the competition concerns caused by the transaction.

CADE may impose behavioural, structural or hybrid remedies, as mentioned in 5.2 Parties’ Ability to Negotiate Remedies. Although it is a non-binding document issued by the agency, CADE’s Guidelines on Antitrust Remedies recommends prioritising structural remedies and completing any divestiture process within the shortest possible timeframe (certainly no longer than 3–6 months). A timeline for behavioural remedies is established by taking the actual competitive concern that needs addressing into consideration.

Completion of the Transaction

There is no rule under the Brazilian Competition Law regarding completing a transaction before remedies have been implemented; this varies on a case-by-case basis.

Generally, for parties to complete a transaction before remedies are complied with, several measures must be adopted and monitored by CADE (and/or a monitoring trustee) to preserve market conditions. These include maintaining the integrity and commercial viability of the assets and avoiding the exchange of sensitive commercial information.

CADE specifically ruled in Merger Review No 08700.000726/2021-08 (Oi SA, Tim SA, Telefônica Brasil SA and Claro SA) that part of the remedies had to be implemented before closing, otherwise the parties would not have enough incentives to comply with them at a later stage.

Penalties

Parties may be subject to fines, which are established within the scope of the merger control agreement executed for the transaction’s conditional approval. The amount may vary according to the relevance of the obligation. Fines for non-compliance with the main obligations (eg, structural or behavioural) tend to be higher than fines for non-compliance with ancillary obligations such as the presentation of documents or reports.

It is worth noting that the parties will have the opportunity to justify any failure to meet deadlines or other commitments. Ultimately, however, CADE may also fully reassess or even block the transaction if obligations are not fulfilled in a timely manner.

CADE issues formal decisions on all transactions submitted to merger control. All decisions issued by CADE (by both the General Superintendence and the Tribunal) can have two versions: a confidential (available only to the parties) and a non-confidential version (publicly disclosed). It is only the parties’ sensitive information and strategic and structural aspects of the transaction that are generally not disclosed in the non-confidential versions of CADE's decisions.

CADE has already imposed remedies in several foreign-to-foreign transactions that generated effects in Brazil.

The authority recently imposed both structural (eg, divestiture of business units and related assets) and behavioural remedies (eg, assignment of IP rights) within the scope of Merger Review No 08700.003307/2020-39 (Danfoss SA and Eaton Corporation PLC), which concerned a global transaction in the auto parts sector.

CADE also imposed behavioural remedies related to the licensing of distribution rights and the prohibited exchange of sensitive information in Merger Review No 08700.001390/2017-14 (AT&T and Warner).

Ancillary restraints set forth within the scope of transaction, particularly non-compete and exclusivity provisions, are reviewed by CADE.

The authority’s consolidated understanding of such restraints allows for provisions that do not exceed five years’ duration and are limited to the product and the geographical scope of the target’s activities. Where ancillary restraints do not comply with the criteria described above, CADE can request that these obligations are amended as a condition of the transaction’s approval.

According to the Brazilian Competition Law, “Interested Third Parties” can officially intervene or oppose a transaction during merger review process, subject to CADE’s approval. Undertakings must submit a formal request for CADE’s approval to be formally considered Interested Third Parties.

The third party must demonstrate its financial interest in the case and how the potential effects of the transaction will negatively impact its business. Interested Third Parties may include trade associations, competitors, suppliers, retailers and consumers.

Requests containing grounded reasons for intervention must be submitted to CADE within 15 consecutive days of the merger review’s public notice in TheBrazilian Official Gazette.

Interested Third Parties are considered part of the merger review and are allowed to engage actively in the review process by presenting all types of submissions at any time, including technical opinions, reports or even studies to provide alternative market scenarios.

More importantly, as it could impact the timeline, Interested Third Parties are allowed to file an appeal if the transaction is cleared by CADE’s General Superintendence.

CADE typically contacts third parties via email questionnaire as part of its review process’ market test (see 3.10 Requests for Information During the Review Process). The authority can also consult third parties on the effectiveness of remedies offered by the parties involved. Third parties may usually actively engage in these discussions.

Publicity of the Transaction

Brazilian law generally permits all types of administrative procedures to be made available to the public, and only confidential information is redacted in the public case files.

The transaction in a merger review is made public through the publication of a notice in The Brazilian Official Gazette, but only when the authority is satisfied with the first set of information sent by the parties (see 3.6 Penalties/Consequences of Incomplete Notification). The public notice usually identifies the name of the merging parties, their lawyers, the type of transaction and the affected sector.

The non-confidential version of the filing form, as well as other non-confidential documents submitted by the parties, can be publicly accessed at CADE’s official website immediately following the notice’s publication in The Brazilian Official Gazette.

Confidential Data

Any strategic, sensitive and commercial information (eg, business secrets, information on future plans, strategy and commercial information) included in the filing form and documents submitted to CADE can be kept confidential at the merging parties’ request and CADE’s approval.

The parties must present redacted non-confidential versions of the filing form and all written petitions submitted to CADE. Other documents submitted to CADE (such as the transaction’s binding agreement) can be kept entirely confidential.

CADE often co-operates with other jurisdictions and currently has agreements with several foreign authorities regarding general policy matters and co-operation within the context of specific transactions.

However, the parties must grant CADE a waiver to share confidential information with other jurisdictions in specific transactions. The authority has contacted other jurisdictions to maintain a coherent and balanced analysis of Merger Review No 08700.003307/2020-39 (Danfoss SA and Eaton Corporation PLC) and the remedies imposed in all jurisdictions. The transaction was also filed before the competition authorities of the USA, EU, Ukraine, Egypt, China, South Korea, Mexico, Australia and Turkey).

Administrative Review

All decisions issued by the General Superintendence clearing a transaction can be:

  • appealed by an Interested Third Party;
  • reviewed by CADE’s Tribunal at the request of one of its Commissioners; and/or
  • appealed by regulatory agencies if the transaction involves regulated markets, as explained in 3.8 Review Process and 8.3 Ability of Third Parties to Appeal Clearance Decisions.

If the General Superintendence recommends imposing remedies or blocking a transaction, it will be necessary for the Tribunal to review this opinion. However, parties can also present their arguments to challenge the General Superintendence’s conclusions. Finally, decisions issued by CADE’s Tribunal are final and cannot be appealed.

Judicial Review

Although CADE’s Tribunal decision is final and not subject to appeals, as an administrative decision it can be reviewed by the judiciary.

The General Superintendence’s non-binding recommendations to impose remedies or block transactions will necessarily be reviewed by CADE’s Tribunal, as explained in 8.1 Access to Appeal and Judicial Review. However, once the opinion is issued, parties have 30 days in which to challenge the General Superintendence’s conclusions.

Interested Third Parties and/or regulatory agencies (if the transaction involves regulated markets) can appeal an approval decision or CADE’s Tribunal may decide to review the case by a request of one of its Commissioners. For both cases, there is a deadline of 15 days following the decision’s publication.

The appeal will be assigned to a Commissioner, who will (i) submit it to trial if no further analysis is required or (ii) determine the execution of a supplementary analysis of the case.

It should be noted that the above-mentioned appeals and the submission of a case to trial do not suspend CADE’s analysis deadline, as mentioned in 3.8 Review Process. The overall timeline will remain the same – ie, 240 days, which may be extended for up to 90 additional days, totalling 330 days.

Interested Third Parties may challenge a clearance decision issued by the General Superintendence within 15 days of its publication in The Brazilian Official Gazette. These appeals can affect the timeline for approval and, more importantly, reverse the General Superintendence’s clearance decision.

There have been a few cases in which interested third parties appealed a decision and were successful. The case in Merger Review No 08700.000627/2020-37 (Grupo SBF SA and Nike do Brasil Comércio e Participações) was cleared by the General Superintendence and, after the third party’s appeal, CADE’s Tribunal decided to impose remedies on the transaction.

CADE recently issued Rule No 33/2022, which consolidated matters related to merger control previously set forth in several administrative resolutions that are now revoked (Rules No 02/2021, 09/2021 and 16/2016).

There are currently no official proposals to change the Brazilian competition legislation substantially, although the current General Superintendent has publicly stated that the jurisdictional threshold could be revised to increase the turnover criteria in order so that the number of fast-track cases to be analysed by CADE is reduced.

There is also an ongoing draft bill proposing to reduce the number of CADE’s Tribunal members from seven to five. However, if this bill is approved, the merger review process and timelines shall not be affected.

CADE has recently settled with Veolia Environnement SA and Engie SA in Procedure No 08700.005713/2020-36 on an investigation related to gun-jumping practices (see 2.2 Failure to Notify). The parties agreed to pay a fine of BRL60 million (the maximum fine and the highest ever imposed by CADE) to close the investigation.

As previously mentioned, FD do Brasil Soluções de Pagamentos and Software Express Informática have recently settled with CADE in Procedure No 08700.002914/2020-81 and agreed to pay a fine of BRL6.7 million (see 2.2 Failure to Notify).

CADE also recently imposed remedies within the scope of Merger Reviews No 08700.000726/2021-08 (involving the acquisition of the telecom company Oi SA by its major competitors Tim SA, Telefônica Brasil SA and Claro SA) and No 08700.004426/2020-17 (concerning the incorporation of J3 Operadora Logística SA by Bus Serviços de Agendamento SA). CADE imposed structural and behavioural remedies in the first case for disinvestment of assets and sharing of the parties’ infrastructure with smaller and regional players. The authority has forbidden the parties in the second case from entering into exclusivity agreements with its clients, among other remedies.

Finally, in November 2021, CADE rejected parties’ proposal to comply with structural remedies imposed by the Tribunal within the scope of a merger involving two Brazilian health plan providers (Merger Review No 08700.001846/2020-33) and the transaction was ultimately rejected. Parties recently refiled the transaction with a fix-it-first solution that includes an upfront buyer and the merger is currently under CADE’s review (Merger Review No 08700.002862/2022–13).

Overall, CADE has focused on deepening the economic analysis of the transactions, which is seen in the detailed and lengthy requests to third parties for additional data. CADE has shown a particularly conservative approach to sectors that have been subject to consolidation movements in Brazil during the past few years (eg, healthcare, telecommunication, pharmaceutical, financial and digital markets).

Recently CADE has also demonstrated concerns about digital markets and big data, including the increase of market power due to data acquisition in the following three cases.

  • Merger Review No 08700.000059/2021-55 (Magalu Pagamentos Ltda and Hub Prepaid Participações SA) – CADE investigated if data acquisition could represent a competitive advantage
  • Merger Review No 08700.006373/2020-61 (Serasa SA and Claro SA) – the scope of the transaction was purely data acquisition.
  • Merger Review No 08700.003969/2020-17 (STNE Participações SA and Linx SA) – CADE’s analysis comprised an investigation of information asymmetry through the data acquisition.

Considering the continuous expansion of digital sectors, including the consolidation and expansion of the metaverse, CADE should continue to have a thoughtful look at all digital markets.

Madrona Advogados

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+55 11 4883 8750

Luis.nagalli@madronalaw.com.br www.madronalaw.com.br
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Madrona Advogados was founded in 2015 by seven highly experienced partners, all recommended in several national and international publications. The firm currently has 25 partners, whose achievements in their practice areas have been recognised both in the global and Latin American editions of the guides produced by Chambers and Partners. Madrona focuses on corporate law, M&A, antitrust law, capital markets, financial law, and infrastructure, and has a strong performance in antitrust, tax, real estate, civil litigation and labour law. The firm’s mission is to reflect the times and invest in people by working ethically and responsibly to ensure clients reach their goals. Comprising more than 110 expert legal professionals, the Madrona Advogados team is aligned with the principles and objectives that the firm has set out to achieve.

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