TerraLex Cross-Border Guide to Pre-Merger Notification Guide

Yes. The Brazilian Antitrust Law - Law No. 12.529/2011 (“Brazilian Antitrust Law”), valid since May 29, 2012, introduced the pre-merger control regime whereby a transaction is subject to a pre-merger notification whenever a double turnover test is met, and the transaction may generate effects in Brazil (thus including foreign-to-foreign transactions). The Brazilian Antitrust Law is complemented by the Resolutions No. 2/2012, 8/2014, 9/2014, 13/2015, 16/2016,17/2016, and 20/2017, issued by the Administrative Council of Economic Defense (“CADE”), and its guidelines, such as the Antitrust Remedies issued in October 2018, the Internal Manual for Concentration Acts under the Ordinary Proceeding issued in July 2017, the Analysis of Horizontal Overlap Transactions (H Guidelines) issued in July 2016, and the Analysis of Previous Consummation of Merger Transactions (Gun Jumping) issued in May 2015.

The Resolution No. 2/2012 amended by Resolution No. 09/2014, established all necessary documents and information to be presented before CADE, determined the concept of economic group – only for purposes of calculation of the turnover in respect of the filing thresholds – and its requirements, and provided other rules concerning to the fast-track procedure and what kinds of transactions can be included in this procedure, as informed below.

The Resolution No. 8/2014 introduced amendments to Resolution No. 1/2012, providing for transactions in the stock exchange and for CADE’s second review of cases approved by the General Superintendence (SG).

The Resolution No. 13/2015 established the procedural rules concerning gun-jumping infractions and investigations of transactions by CADE.

The Resolution No 16/2016 sets forth the 30-day deadline for the review of fast-track proceedings, counted as from the filing date or any amendment to the notification. In case this term is exceeded, the General Superintendent shall justify the reasons concerning the delay and prioritize the analysis of such merger case.

The Resolution No. 17/2016 revoked the Resolution No. 10/2014, clarifying the concept of notifiable associative agreements, providing that any agreement with a term of two or more years shall be deemed as an associative agreement in case it establishes a joint enterprise for the development of a business activity.

Finally, CADE edited the Resolution No. 20/2017, providing CADE’s Internal Rules and procedures related to the filing and analysis of pre-merger analysis.

It is noteworthy to mention that the Bill of Law No. 350/2015, approved by the Senate on April 2018, and submitted to the House of Representatives, which approval may occur this year, provides that merger transactions involving financial institutions are notifiable not only to CADE, but also to the Brazilian Central Bank (BACEN). In December 2018, these two authorities executed a Normative Act to line up actions to stimulate competition in the regulated markets, to ensure greater coordination and consistency in the assessment of the proceedings and in the enactment of standards of common interest, and to provide that transactions involving financial institutions are notifiable to both BACEN and CADE. Nevertheless, BACEN should be allowed to unilaterally decide on cases that may present significant risks to the stability of the national financial system, provided that it notifies CADE about the rationale of its decision.

No. If a merger falls below the notification thresholds, the transaction is not subject to analysis by CADE. If the parties file a pre-merger notification regarding a merger that does not meet the relevant thresholds, CADE will not acknowledge the transaction and, thus, will not analyze whether the transaction is subject to approval or rejection.

However, it is worth mentioning that CADE, pursuant to Article 88, 7th paragraph, of Brazilian Antitrust Law, has discretionary powers to require the mandatory notification of any transaction that does not meet the turnover thresholds (based on complaints made by competitors or third parties), within one year of its closing. In this sense, on September 5, 2018, CADE decided that a merger between two pharmaceutical companies had to be submitted for review, although the transaction did not fall below the criteria for mandatory notification (Administrative Proceeding No. 08700.006355/2017-83).

Any acts that may limit or otherwise restrain open competition, or that may affect, horizontally or vertically, the control of relevant markets for certain products or services, must be submitted to CADE for review. Types of transaction that are caught include, but are not limited to, (i) merger with or into other companies; (ii) organization of companies to control third companies; (iii) the acquisitions, directly or indirectly, of assets, stocks, shares, bonds or securities convertible into stocks or assets; (iv) execution of associative, collaborative, consortium or joint venture agreement between two or more companies; and (vii) any other form of corporate grouping that meets the thresholds. The formation of consortia, joint ventures, or associative/collaborative agreements for purposes of public bids are not considered as concentration acts pursuant to Article 90 of the Brazilian Antitrust Law, provided that the voting rights derived from such transaction shall not be exercised until CADE’s clearance.

Pursuant to Resolution No. 17/2016, all associative agreements with a duration exceeding two (2) years is subject to approval by the Brazilian antitrust authority – whenever the parties meet the applicable turnover thresholds –, provided that, cumulatively: (i) such agreement establishes the sharing of risk and outcome derived from the business activity; and (ii) the parties are competitors in the market that is the subject matter of the agreement. Accordingly, agreements with terms of less than two years and agreements with undetermined terms are subject to notification prior to its renewal or whenever achieves a duration of two years. Such Resolution revoked the effects of the Resolution No. 10/2014, which established that associative agreements should be submitted for CADE’s approval if it also generated horizontal overlap or vertical integration, or in case that an interdependent relationship between the parties results from such association.

Finally, considering that CADE did not provide a clear criterion for submission of transactions which take place in stages (whether it constitutes a single transaction or a series of transactions), the recommended attitude in such cases is to submit each stage of the relevant transaction for CADE’s prior approval.

Transactions are subject to prior clearance by the Brazilian antitrust authorities whenever the following double turnover is met: (i) one of the economic groups involved in the transaction has turnover derived in Brazilian equal or more than BRL 75 million; and (ii) another economic group involved in the transaction derived a turnover in Brazil equal or in excess of BRL 750 million, registered in the financial statements in respect of the fiscal year immediately preceding the transaction.

For purposes of calculation of the turnover for mandatory notification threshold, CADE’s Resolution No. 02/2012 established that the following entities shall be considered as part of the same economic group: (i) entities subject to common control; and (ii) all the companies in which any of the entities subject to common control holds, directly or indirectly, at least 20% of the voting or total capital stock.

The Brazilian Antitrust Law does not provide a definition of control. Decisions rendered by CADE deem that an acquisition of control occurs whenever the acquirer of participation in the target company becomes its sole main investor or acquires significant influence on the business strategy of the target company, through the right to appoint managers, to determine or influence commercial and sensitive competition policies, or veto rights in respect of any commercial and sensitive competition-related decisions.

The current case law understanding on the concept of control comprises effects mainly within a corporate aspect, and such definition is currently under discussion. Recent doctrines defend that ‘control,’ for competition purposes, should be the power of an individual or legal entity to define, directly or indirectly, even if temporarily, on actions of a company or group of companies in the market. Accordingly, it would also be important to provide a definition of ‘influence,’ given that the power of an individual or legal entity to determine acts of a certain company that produce competitive effects in the market, would thus characterize a notifiable transaction.

Investment funds are subject to a different definition of economic groups for purposes of the double turnover criterion that was introduced by CADE’s Resolution No. 9/2014. Whenever investment funds are involved in the transaction, the following entities are deemed as pertaining to a same economic group: (i) the fund directly involved in the transaction; (ii) the economic group of each investor that holds, directly or indirectly, participation of at least 50% of the fund directly involved in the transaction, individually or through an agreement with other investors; and (iii) portfolio companies that are controlled by the fund directly involved in the transaction, as well as the portfolio companies in which such fund is holder, directly or indirectly, of at least 20% of the voting or total capital.

CADE’s Resolution No. 02/2012 provides that, in case companies are not horizontally or vertically related, a filing is mandatory when: (i) as a result of the transaction, the acquirer holds at least 20% of the voting or capital stock of the target company; or (ii) in case the party already holds at least 20% of the voting or capital stock, when the party acquires additional 20% or more voting or capital stock from the same seller. Additionally, the abovementioned Resolution provides that, in case companies are horizontally or vertically related, a filing is mandatory when (i) as a result of the transaction, the acquirer holds at least 5% of the voting and capital stock of the target or (ii) in case the party already holds at least 5% of the voting and capital stock of the target, whenever the party acquires additional stake of at least 5%.

Resolution No. 9/2014 introduced rules applicable to the acquisition of convertible securities, providing that such acquisition is subject to mandatory notification whenever: (i) a future conversion into shares would result in the acquisition of control over the target company or falls under the definition of a notifiable minority shareholdings (acquisition of minority participation of 20% or 5%, as the case may be, as provided under Resolution No. 2/2012); (ii) the convertible securities already provide the right to participate in the administrative bodies of the target company, or provide veto or voting rights in respect of matters that are relevant under competition law. In the event of a public offering of convertible securities, the subscription does not require a prior clearance by CADE, but the acquirer shall only exercise the relevant voting rights upon clearance. Pursuant to Resolution No. 8/2014, the same is applicable for transactions done via the stock exchange, which are exempted from pre-merger clearance, on the same terms applicable to public offerings (i.e., that the relevant voting rights may not be exercised prior to clearance), provided that CADE may, however, exceptionally authorize the exercise of voting rights, in order to protect the full value of the investment.

Finally, as mentioned above, Resolution No. 17/2016 introduced a clarification to the consent of associative agreements, providing that any agreement with a term of two or more years shall be deemed as an associative agreement in case it establishes a joint enterprise for the development of a business activity, provided that, cumulatively: (i) such agreement establishes the sharing of risk and outcome derived from the business activity; and (ii) the parties are competitors in the market that is the subject matter of the agreement.

The assessment of potential or materialized effects in Brazil, or even the existence of horizontal overlap or vertical integration, is carried out upon analysis of the merits of the case. Even though the Brazilian Antitrust Law provides for the assessment of the case with basis on the rule of reason, due to the high costs involved in an investigation, the H Guidelines set out that the review of horizontal transactions is subject to assumptions as to the occurrence of effects which are detrimental to the competition in the relevant market.

The rule of reason (i.e., the assessment of efficiencies deriving from the transaction that would prevail over its detrimental effects), is typically only applicable to complex cases, under a close scrutiny proceeding. In extreme cases where the transaction creates a monopoly in the market, the Brazilian authorities tend to block the transaction. Other than these extreme cases, when facing competition concerns, the Brazilian authorities tend to approve the transaction by imposing restrictions such as structural (for instance divestiture of assets or trademarks, or veto of part of the transaction) or behavioral remedies. In cases of gun jumping, the authorities may impose a fine and may also render the transaction null and void, thus reinstating the status quo ante.

The formation of joint venture (whether it is full function or not) must also be submitted for CADE’s review whenever the notification thresholds are met. Please refer to item 3 for more information.

The Brazilian Antitrust Law applies to transactions wholly or partially performed within the Brazilian territory, or the effects of which are or may, even if potentially, generate effects in the Brazilian territory.

Effects in Brazil’ include any transactions where the target company has assets, legal entities or revenues generated in Brazil. There is no definition of a minimum revenue amount that would be relevant to the antitrust analysis. Direct effects in Brazil are achieved, for instance, through local sales representatives, local subsidiaries, or distributors, while indirect effects are verified, most frequently, through export sales to Brazil, whether by the parties themselves or third parties.

In view of CADE’s recent case law, for a transaction to be deemed as potentially able to generate effects in Brazil, the market must be considered international in its geographical scope and/or the economic group of at least one of the companies involved in the transaction (acquirer’s or target company’s group) must be able to sell in or export into the Brazilian market.

The information required by the authorities includes (i) description of transaction up to 500 words; (ii) all the applicants’ information (corporate and financial data); (iii) the relevant information about the transaction; (iv) copy of the documents referring to the applicants and the transaction (agreements, MoU, companies annual reports, the direction chart, shareholders agreement, etc.); (v) definition of relevant market; (vi) description of the business and products offered by the companies; (vii) structure of the demand; (viii) assessment of monopoly in purchase power; (ix) assessment of entry and rivalry conditions, (x) assessment of coordinated power and (xi) comments or information considered relevant.

It is applicable to fast-track or simple proceeding: (i) description of transaction up to 500 words (ii) all the applicants’ information (corporate and financial data); (iii) material information about the transaction; (iv) copy of the documents referring to the applicants and the transaction (agreements, MoU, companies annual reports, direction chart, shareholders agreement, etc.); (v) definition of relevant market; (vi) description of the business and products offered by the companies; and (vii) comments or information considered relevant.

The duration of the compiling of information and documents depends on the complexity of the case and also on the parties’ understanding of the relevant market under discussion and its swiftness in gathering all relevant information to prepare the submission form to file with CADE.

If transaction is deemed as simple, a fast-track proceeding is applicable. If the transaction is deemed not as simple but is also not deemed as “complex,” it falls below an ordinary proceeding (close scrutiny proceeding). On a case-by-case basis, CADE may accept less information or documents in case it understands that the information provided is sufficient to conduct its assessment. Notwithstanding the above, it is advisable that the parties provide all information requested in the submission form in order to avoid further requested by CADE, which might delay CADE’s assessment or even a rejection of the filing.

Yes. The filing fee for merger notification is BRL 85 thousand.

Transactions must be notified to CADE any time prior to its closing (or before the consummation of any act related to the transaction) and, preferably, after the execution of the final binding agreement.

The parties are required to wait a certain period of time before completing the transaction. CADE’s Internal Rules provide a 15-day waiting period, counted as from CADE’s final decision, during which the transaction may be challenged or requested by CADE’s Tribunal. In case the transaction is not challenged, the transaction may be completed.

Certain transactions may be completed before its approval by the antitrust authorities upon an exceptional approval when the following requirements are met: (i) the transaction does not generate irreparable damages to the competition market; (ii) the acts involved are entirely reversible; (iii) irreversible and imminent damages would be caused to the target company if the exceptional approval is not granted; (iv) in case of public bids for the acquisition of shares of listed companies, provided that the buyer must refrain from exercising any political rights over the acquired shares until CADE’s final decision.

The implementation of a transaction before the issuance of CADE’s final decision and the expiration of the 15-day term provided above may be considered as gun jumping, in which case the parties will be subject to sanctions. For more information regarding gun-jumping, please refer to question 13 below.

The overall statutory period to clear a complex transaction will be limited to 240 days. This term is subject to plus an extension of 60 to 90 days upon request of the parties or of CADE, as the case may be.

For fast-track proceedings, CADE edited the Resolution No. 16/2016, which introduced a 30-day deadline for its review, counted as from the filing date or any amendment to the notification. In case this term is exceeded, the General Superintendent shall justify the reasons concerning the delay and prioritize the analysis of such merger case.

In practice, CADE has been clearing transactions up to 20 days for fast-track proceedings and up to 80 days for close-scrutiny proceedings (but also not “complex”).

Noncompliance with the notification of pre-merger review (or “gun jumping”) will be punishable with: (i) annulment of the transaction; (ii) commencement of an administrative proceeding to investigate the effects derived from such prior consummation, imposing fines ranging from 0.1% to 20% of a company’s (group of companies’ or conglomerate’s) gross revenues generated in the field of activity affected by the violation in the year prior to the commencement of the investigation; and (iii) fines ranging from R$ 60,000.00 (approximately US$18,650) up to R$ 6 million (approximately US$1.865 million).

Activities that may lead to gun jumping can be, as defined by CADE, separated in three groups: (i) exchange of commercially sensitive information between the parties involved in the transaction in excess of that strictly necessary for the execution of a binding agreement and that is non-historical (typically, more recent than one to three months, depending on the specific relevant market) and disaggregated (typically, information in respect of less than three competitors in the relevant geographic market); (ii) definition of contractual clauses which regulate the relationship between the parties; and (iii) activities performed by the parties before and during the implementation of the concentration act, such as transfers of shares or assets, payment of the purchase price, exertion of influence over the target company, or carrying out joint sales, marketing activities, product R&D, or reciprocal licensing of intellectual property.

It is important to note that certain transactions may be implemented before CADE’s clearance upon the parties request and CADE’s exceptional approval, when at least one of the following requirements are met: (i) the transaction does not cause irreparable damages to the competition market; (ii) the acts involved are entirely reversible; or (iii) irreversible and imminent damages would be caused to the target company if the exceptional approval is not granted.

There are no provisions under the Brazilian law permit carve-out agreements as a means of avoiding gun-jumping. Based on the current understandings of foreign antitrust authorities1, CADE has unofficially stated that they would be unlawful, in principle, but considering that its jurisdiction is limited to acts with effects (even if potential) to the Brazilian market, it would be possible to argue that partial foreign closings, with no effects whatsoever in the Brazilian territory, would be permitted. However, parties are advised to be extremely careful when assessing the possibility of carveouts as it is still unclear how CADE will deal with this matter.

The procedural rules concerning gun-jumping infractions and investigations of transactions are presently provided by Resolution No. 24/2019. This Resolution governs the investigation of: (i) transactions which were filed with CADE, but that produced effects prior to CADE’s clearance; (ii) transactions which were not submitted to CADE and produced effects without CADE’s analysis and decision; and (iii) transactions that were not caught by the filing criteria, but which submission is requested by CADE.

The General Superintendence is in charge of the initiation of an administrative proceeding for assessment of a concentration act (APAC - Administrative Proceeding for Assessment of Concentration Act) ex officio, by request of any member of CADE’s Tribunal, or due to a duly substantiated compliant by a third party. Upon the initiation of an APAC, the analysis of the concentration act shall be suspended until a decision regarding the gun jumping is rendered.

It is theoretically possible to challenge a merger in court, even after the closing, subject to a statute of limitations of five years.

No. It is not possible to prevent challenges in court if there are justifiable grounds for that. It is advisable that the request for antitrust clearance is based on correct and complete information, since the Brazilian Antitrust Law allows a review of the approval if it was based on false or misleading information rendered by the interested party, in the event of default on obligations undertaken before the competition authorities, or if the intended benefits have not been attained.

The Brazilian Antitrust Authorities consist of (i) the Secretariat for Economic Monitoring (SEAE) and (ii) the Administrative Council for Economic Defense (CADE), composed, in summary, of an Administrative Tribunal, with its six commissioners and a president, plus a General Superintendence (SG), which is, in fact, the merger of part of former Secretariat of Economic Law (SDE).

The General Superintendent conducts merger investigations and decides whether a transaction will be (i) approved without further inquiry, or (ii) deemed as complex and be subject to additional investigations. CADE’s commissioners remain in office for four years (as opposed to two years as provided by the former Law). The Brazilian Antitrust Law introduced staggered terms for CADE’s commissioners to avoid simultaneous vacancies and the resulting postponement of hearings. The introduction of staggering terms and longer office terms aim to avoid the current lack of stability of officers and high turnover rate, while enabling the passing of expertise to new commissioners.

The Brazilian Antitrust Law expressly allows CADE to enforce measures deemed as necessary to remedy damages that would be caused by a transaction, including behavioral commitments, such as prohibition to impose exclusivity on sales and structural obligations such as partial or full divestments, dissolution, or break-up of a company. The relevant behavioral and structural remedies ensure that a given transaction does not lead to anomalies in a given market by counterbalancing competitive concerns identified by the authorities.

As rule, the case records are public. However, the Brazilian Antitrust Authorities may grant confidential treatment to certain parts of the notification such as: (i) commercial bookkeeping; (ii) economic and financial situation of the company; (iii) tax or banking secrecy; (iv) company secrets; (v) production process and industry secrets, notably industrial processes and formulas for the manufacturing of products; (vi) revenues of the interested person; (vii) date, amount and method of transaction payments; (viii) documents that formalize a merger; (ix) annual reports to shareholders or quota holders, except when such document has a public aspect; (x) value and volume of sales and financial statements; (xi) clients and suppliers; (xii) installed capacity; and (xiii) costs and expenses with research and development of new products or services.

It is noteworthy mentioning that the request for confidential treatment of information that is in fact of public nature may subject the parties to fines.

Mergers are likely to face challenge whenever (i) the resulting market share is equal to or greater than 20% of the relevant market and when (ii) the concentration makes the sum of the participation of the four largest firms (C4) equal to or larger than 75% or the participation of the newly formed firm is equal to or larger than 10% of the relevant market.

The Brazilian Antitrust Law established that mergers (i) that result in the elimination of competition in a substantial part of a relevant market; (ii) that may create or strengthen a dominant position; or (iii) that may result in the domination of a relevant market should not be authorized by CADE

It is necessary to be cautious in the statements made to the Brazilian Antitrust Authorities. Before filing the request for clearance, it is advisable that the antitrust planning had already indicated the critical points that will raise concerns.

Certain sectors, such as airlines, telecommunications, broadcasting financial, re-insurance and land ownership, are subject to specific foreign ownership controls. Besides the fact that transactions involving financial institutions are notifiable to both BACEN and CADE pursuant to the Normative Act executed by both authorities in December 2018 (please refer to item 1), depending on the nature of the investment, the parties may be bound to BACEN’s regulations to transfer money into Brazil.

In addition, investors must be aware of the Brazilian Privacy Act (Law No. 13.709/2018), which is in force since September 18, 2021, and foresees cooperation between the Federal Privacy Authority (ANP) and CADE regarding the use of data and sensitive information for both guaranteeing free competition and privacy protection purposes. In this regard, a Cooperation Agreement between CADE and ANP was entered on June 2nd, 2021.