The Administrative Council for Economic Defense ("Cade") published last Wednesday (May 20, 2015) the "Guidance for Analysis of Prior Consummation of Transactions" ("Guidance"). The Guidance, which is non-binding, aims at orienting the conduct of companies during the negotiation and implementation of transactions subject to Cade's prior approval.
Since the entry into force of Law No. 12,529/11, on May 29, 2012, transactions requiring antitrust premerger filing shall not be consummated prior to Brazilian antitrust authorities' approval. Nonetheless, the specific scope of such prohibition has been decided by Cade only on a case-by-case basis, remaining many uncertainties regarding the acts and practices that would lead to an early and improper consummation of a transaction (the so-called gun jumping).
In order to mitigate the risks of gun jumping, the Guidance provides guidelines to orient the conduct of companies with respect to: (i) exchange of sensitive commercial information, (ii) drafting of contractual provisions, and (iii) activities that may be carried out by the parties before and during the implementation of the transaction.
The Guidance acknowledges that the phase of negotiation and implementation of a transaction involves the exchange of sensitive information among the parties, especially in view of need for detailed assessment of the target business. However, it highlights that the parties must avoid abuse in the exchange of sensitive information which may alter the competitive dynamics among them (exemplified in the Guidance as costs, level of capacity and expansion plans, pricing policies, contractual terms with key suppliers, marketing strategies, among others), recommending that such information be shared only as aggregate and/or historical data.
Moreover, in transactions that raise antitrust concerns or where significant volume of sensitive information is exchanged, the Guidance recommends the adoption of the following governance mechanisms: (i) preparation of an antitrust protocol with the description of the procedures to be observed by the parties during the exchange of commercial sensitive information, (ii) adoption of clean teams, composed of employees and independent consultants, who should receive and analyze sensitive information under the duty of confidentiality, which should not be transmitted to executive bodies unless it is aggregated or it consists of historical data with at least three (3) months of its occurrence, and (iii) formation of executive committees in each company that should receive and analyze the reports prepared by the clean team, preferably in meetings held specifically for this purpose, recorded and monitored by an independent member to prevent undue exchange of sensitive information from the competition standpoint (parlor rooms).
With regard to the relationship between the parties prior to approval of the transaction by Cade, the Guidance provides for an illustrative list of contractual provisions that may indicate the early integration of the parties' activities and, as such, should be avoided – such as clauses establishing (i) prior/immediate non-competition, (ii) interference of one party over the strategic issues of the business of the other party (e.g. decisions on prices and customers) and (iii) full or partial non-refundable early payment of price. In the latter case, the Guidance points out that clauses providing for typical down payment, deposit in escrow account, and break-up fees are not deemed gun jumping.
Finally, the Guidance lists certain practices that, when carried out by the parties prior to the approval of the transaction by Cade, would raise gun-jumping concerns depending on the circumstances of each case. Among these practices are the transfer and/or usufruct of assets in general, exercise of voting rights or relevant influence over the activities of the other party, development of joint strategies for sales or marketing that characterize unification of management, among others.
Penalties for gun jumping encompass (i) fine of BRL 60 thousand up to BRL 60 million, and (ii) declaration of nullity of consummated acts and agreements. Furthermore, the practice of gun jumping may lead to formal investigation of possible anticompetitive practice. To date, Cade decided at least six cases that addressed possible practices of gun jumping. In one of them, there was no evidence to support a conviction for gun jumping. In the others, Cade entered into settlements agreements with the parties, according to which parties paid financial contributions ranging from BRL 60 thousand to BRL 3 million. In none of them Cade declared the nullity of acts and contracts.
Although the Guidance is non-binding to Cade and does not set forth clear-cut thresholds defining the proscribed conduct, its long waited release is very positive as it certainly reduces the legal uncertainty surrounding the matter.
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