Brazil: Bad Documents Under An Antitrust Perspective In Brazil – Consequences And How To Avoid Their Creation

The competition law (Law 12529/2011), in effect since May 29, 2012, brought about profound changes in the Brazilian competition system, particularly in merger control cases. These changes comprise the structural reform in Brazil's competition authority (the Administrative Council for Economic Defense, CADE, also currently known as the "New CADE"), new criteria for the notification of merger cases1, and the legal requirement for CADE's prior approval as a condition precedent for consummation of deals.

Business persons, lawyers and the New CADE authorities have been faced with challenges to keep up with those changes. Merger filings to New CADE now call for delivery of a wide range and robust volume of documents and information when compared to those under the previous system.

The volume of information and documents provided by the parties will depend on the complexity of deals from an antitrust perspective. In this respect, depending on the procedure to be adopted, there are two types of "notification forms". When it comes to the fast-track review procedure form (i.e. the form for non-complex deals that are likely to have minor potential to harm competition2, as set forth in the New CADE rules), in addition to submitting the relevant contracts, as already required under the former system, the parties must provide a "list of all other documents produced in connection with the deal".

The form to be completed if the deal falls within the ordinary review procedure, i.e. a complex deal likely to cause a more significant impact on the market3, goes much further and requires delivery of the following documents:

i. Copies of all documents prepared to evaluate or assess the proposed deal (in terms of market competition patterns, market share, competitors, projected sales growth rates, projected expansion to new geographic markets, and other significant competition matters);

ii. List of all other documents prepared in connection with the deal, such as input supply agreements, draft minutes of meetings concerning the deal, public offering documents sent over to the Brazilian Securities Commission (CVM), and other documents; and

iii. With respect to the activities carried out by the parties, they must submit all documents on the competitive positioning of the company and of its competitors; supply and demand conditions; dispute for clients; strategic behavior (price, sale, launching, innovation, entries/exits etc.); reporting on anticompetitive behavior of companies in the relevant market; effects on supply, demand, cost, price, product/service attributes caused by another directly and potentially competing product or service; industry estimations, market assessment studies; marketing report, business report, brand promotion plans and strategies, product positioning or other similar report; and strategic planning, business plan, expansion plan, downsizing plan, and any other similar plan. Under the previous law, the Brazilian competition authorities did not require such a type and range of documents.

This change, however, is in keeping with the practice adopted in more advanced jurisdictions, as it happens in the United States of America. In other words, where complex deals are involved, the parties must submit a wide range of documents on the deal and/or on the affected market, including information memoranda, presentations, e-mails, documents submitted to public bodies (such as the Securities and Exchange Commission - SEC) and other strategic planning and marketing documents. This also occurs in the European Union.

Within this scenario, companies, investment banks, external advisers and other agents involved must, especially in the course of negotiating M&A deals, be even more careful in drafting not only the relevant contracts, but also other documents substantiating the deal and the market involved.

Poorly written documents containing a language which defines market more restrictively or which defines market competitors improperly in a manner inconsistent with the truly existing competitive scenario, or otherwise containing expressions used oftentimes for marketing and promotion of the deal, suggesting, for instance, that this deal will "hamper competition" or will enable "price stabilization or increase" etc, may be viewed by the competition authorities as indications that the notified deal is likely to limit or lessen free competition, especially when considering that the parties themselves made this inference.

In addition, poorly written documents might increase the review timeline for mergers as a more detailed investigation will be required, strongly impacting upon the pre-merger approval mechanism introduced by the new law, more so when it comes to transactions actually falling within the meaning of non-complex deals.

Another risk involved in poorly drafted documents is to expose the parties to gun jumping issues. For example, contractual clauses that could be interpreted as indication of some integration between the parties prior to CADE`s approval or any type influence of one party over the strategic business aspects of the other party, could constitute gun jumping. Sanctions for gun jumping under the Competition Law may include a fine between R$ 60 thousand and R$ 60 million, the commencement of administrative proceedings and nullity of acts prior to CADE`s review4.

Finally, one cannot disregard the risk that poorly drafted documents may subject companies and individuals to investigations into potentially anticompetitive practices which may culminate in substantial penalties, in the administrative sphere (fines) as well as in the civil and criminal spheres. Moreover, one must take due account of questions involving disclosure of sensitive information pertaining to the parties or to the deal (even if the confidentiality of certain documents may be ensured by CADE under applicable laws).

In other jurisdictions, documents containing sensitive or doubtful wording were actually used by the competition authorities as indications that the notified deals would generate negative effects (this is illustrated by the US cases involving Whole Foods/Wild Oats; Office Depot/Staples; and AT&T/T-Mobile). In those deals, analysis of market-related matters conducted internally by the companies supported the competent authorities' conclusion that the deals were likely to limit competition in the markets involved.

What precautions should be taken in practice to avoid creating bad documents? First and foremost, preventive work (via compliance program) is essential to train executives and executive professionals of companies, investment banks and external advisers and consultants in general about the risks involved in poorly written communications. By doing so, companies can rest assured that all parties involved in a potential deal are aware that poorly drafted documents might impair the approval process of a certain deal or create (in more extreme circumstances) other contingencies arising out of potential investigations into practices in restraint of trade.

The involvement of a team of lawyers and economists knowledgeable in competition matters since the inception of negotiations, specifically in drafting strategic documents on market-related aspects of the deal, will ensure that the language of the documents offer a true picture of the market competitive conditions actually in place5.

The company must also establish a well-defined record-keeping policy in connection with retention of drafts, mark-ups and personal notes taken at meetings containing potentially ambiguous wording.

In conclusion, as a result of the change in merger filing criteria in Brazil, the implementation of the pre-merger review process, and the requirement for a large volume of documents on the deal and on the market involved, Brazil's competition authority has raised the bar for review of M&A deals, with greater focus on the "facts" potentially disclosed in the documents submitted by the parties (to the detriment of purely economic theories), in line with the merger review guidelines adopted in more advanced jurisdictions in this matter.

Shifting of this merger review focus exposes companies to greater risks, thereby calling for a stricter control over the whole process of drafting documents both by in-house professionals and external advisers/ consultants. ***

Footnotes

  1. Deals must be notified for CADE's prior approval if, on a cumulative basis: (i) at least one of the groups involved in the deal has posted, on the latest balance sheet, an annual gross turnover in Brazil that is equal to or above R$ 750 million, in the year before that of the deal; and (ii) at least another group involved in the deal has posted, on the latest balance sheet, an annual gross turnover in Brazil that is equal to or above R$ 75 million, in the year before that of the deal. In these events, the parties cannot consummate/close the deal until CADE's clearance.
  2. They mainly comprise deals not creating market concentration or where horizontal concentration is below 20% of a certain relevant market and/or vertical integration is below 30%.
  3. For instance, deals resulting in market concentration of 20% or more of a certain relevant market.
  4. In this respect, CADE has recently issued some guidelines on gun jumping in an attempt to lay down rules to avoid gun jumping and reduce the uncertainly created in the market.
  5. Phrases and expressions causing "impact" and aggressive marketing language, such as "dominate", "control", "monopo¬lize," must be used carefully. Some precaution must also be taken about using the word "market" incorrectly, when actually intending to describe sales of a certain product, a business unit or a market segment and not a relevant market as such is defined by the competition authorities. This generally creates overestimated market shares that are unrelated to the competitiveness in fact existing in a given market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.