Brazil: Latin Lawyer Reference: Merger Control 2016 - Brazil

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Applicable legislation and the competent authorities

1. What is the legislation applicable to merger control and how long has merger control legislation been in force?

The first merger control legislation in Brazil was enacted by Law No. 8,158/91, which created the then National Secretariat of Economic Law. This Law was later replaced by Law No. 8,884/94, which coincided with the country's transition to a market-based economy. Then, in May 2012, Law No. 12,529/2011 (the Antitrust Law) took effect and introduced key changes to the previous system, including a new institutional framework, a mandatory pre-merger notification system and new filing thresholds. The Administrative Council for Economic Defence (CADE) may issue resolutions to regulate specific aspects of the merger control system; key merger control resolutions are:

  • Resolution No. 02/2012, which provides (i) the short and standard filing forms; (ii) the definition of economic group for purposes of the calculation of the relevant turnover for determining the need for a filing; (iii) transactions eligible for the fast-track proceeding; and (iv) rules governing notifications regarding bonds, debentures and other securities convertible into shares;
  • Resolution No. 10/2014, which establishes rules for determining the need for a filing in case of associative contracts; and
  • Resolution No. 13/2015, which establishes rules for gun-jumping investigations and for the determination of the filing of transactions that do not meet the statutory thresholds.

Finally, under CADE's internal regulations, CADE shall issue a binding statement after ruling in the same direction at least 10 times. To date, CADE has issued nine binding statements, all but one related to merger review (the great majority still under the previous competition law). CADE has not yet issued horizontal merger guidelines under the current regime and it generally resorts to the guidelines issued by the former Secretariat of Economic Law (SDE) and the Secretariat for Economic Monitoring (SEAE) in 2001. No major changes to the legislation are currently being discussed.

2. Is there any additional sector- or industry-specific merger regulation legislation?

Additional sector legislation applies to regulated industries such as energy, oil and gas, banking and telecoms, which are enforced separately by regulatory agencies. These sector-specific rules may establish that certain mergers (eg, transfers of control) are subject to review by the regulatory agency as well (eg, Law No. 9,472/1997 sets forth the rules that apply to the telecoms sector). There has been a long-running controversy between Brazil's Central Bank and CADE to determine which agency has jurisdiction to enforce competition rules in the financial sector. Transactions that fulfil the thresholds provided by each agency must be filed with each of those agencies for antitrust review. This controversy will only be solved through the issuance of new legislation.

3. Are parties that are required to file notification of a transaction pre-closing obliged not to close their transaction pending regulatory review?

Under the Antitrust Law pre-closing notification and approval is required. The Reporting Commissioner may allow parties in complex cases to close the transaction before CADE's clearance. Such closing, however, is subject to conditions related to limitations on asset settlement, closing of stores or productive units, integration of activities, dismissal of employees, termination of brand or product lines and alteration of marketing plans. We are not aware of any case where CADE has resorted to this provision to date. Please note that transactions carried out in the over-the-counter or in the stock exchange markets do not require CADE's clearance to be completed. However, political rights related to the acquired shares shall not be exercised by the buyer before CADE′s approval, unless exceptionally authorised by CADE to allow the buyer to preserve its investment.

4. Where pre-closing notification and approval is required, can a transaction that has been approved be challenged after closing? Has this ever happened?

Decisions by CADE's Directorate General for Competition (DG) (see question 5) can be challenged before the Tribunal by third parties within 15 days after the decision was made public. Decisions by CADE's Tribunal are final at the administrative level and are subject to judicial review only. Moreover, according to article 91 of the Antitrust Law, CADE can revise its decision in the following circumstances: (i) the decision was based on false or misleading information provided by the parties; (ii) there was a failure to comply with the obligations established by the authority; or (iii) the alleged efficiencies were not achieved. In 2013 CADE decided, based on article 91, to reassess a joint venture cleared in 2007 in view of alleged failures to comply with the obligations established by the authority. The revision process has not yet been finalised and the parties are challenging its legality (see Merger Case No. 08012. 001015/2004-08).

5. Who are the authorities responsible for merger enforcement and how is responsibility for investigation and decision-making allocated between authorities or within an authority?

The investigative, prosecutorial and adjudicative functions are consolidated into one independent agency: CADE, which includes a Tribunal composed of six commissioners and a president, the DG and an economics department. With respect to merger enforcement, the DG is responsible for clearing simple transactions and challenging complex cases before the Tribunal, while CADE's Tribunal is responsible for adjudicating complex cases challenged by the DG, by the Tribunal itself or by third parties.

Time frames

6. Identify the last three times merger control legislation was used to prohibit a transaction, and for each, provide the ultimate outcome.

Merger Case No. 08700. 004054/2012-19; the acquisition by Brazilian steel processor Armco Staco of the guard rails and galvanised steel units of Brazilian reroller Mangels Industrial. CADE considered that the transaction would result in a 70 per cent combined market share and considerable economic market power in the market of guard rails. CADE blocked the transaction on 9 October 2013.

Merger Case No. 08700. 00436/2014-27; the acquisition by Braskem S/A of Solvay Indupa. The companies were the only producers in the Brazilian market of suspension PVC and Emulsion PVC. CADE considered that the transaction had the potential to give considerable market power to the parties in the affected market. CADE blocked the transaction on 12 November 2014.

Merger Case No. 08700. 009988/2014-09; the acquisition by Tigre S/A – Tubos e Conexões of Condor Pincéis Ltda. The companies were players in the paint accessories market. CADE considered that the post-transaction market would have high entry barriers and extremely low rivalry and that efficiencies argued by the parties to offset the potential anticompetitive effects would not be enough to remove the concerns. CADE also rejected the parties' allegations that imported products would substantially reduce the parties' market power.

To the best of our knowledge, there were no appeals pending in court on any of these decisions as of 25 November 2015.

7. With respect to notifiable transactions that do not raise obvious competition concerns, what is the expected time frame from notification to a decision?

Twenty days is the average review time for fast-track cases and CADE's DG self-imposes a target of reviewing these simpler cases in no later than 30 days.

8. With respect to notifiable transactions that raise obvious competition concerns, what is the expected time frame from notification to a decision?

According to CADE's report of its activities, published in May 2015, three years after Law No. 12,529/11 took effect, the average review period for cases that are not eligible for fast-track is 84 days. Cases considered complex by the DG may take six to nine months to be reviewed. The maximum review period provided in the law is 330 calendar days and the longest period parties have had to wait for a final decision to close the transaction was 324 calendar days (Merger Case No. 08700. 009924/2013-19 – Videolar/Innova). Where CADE is happy with the proposed remedies submitted along with the notification, the agency may clear complex cases in a shorter time frame. For example, in Merger Case No. 08700. 007621/2014-42 – Lafarge/Holcim, which was cleared subject to structural remedies, the review period was 98 days from the notification to a final decision.

Notifiable transactions: thresholds

9. Which type of transactions must be notified?

Transactions that amount to an economic concentration, as defined by the Antitrust Law and CADE's Resolution No. 02/2012 must be notified provided that the turnover thresholds are met and the transaction has effects in Brazil. The statutory definition for concentration acts is broad and encompasses (i) the merger of two or more companies; (ii) the acquisition, directly or indirectly, of sole or joint control of the stock or assets of a given company by another company, even a minority shareholding; (iii) the absorption of a company or companies; or (iv) the formation of a consortium, association or a joint venture. Consortia used for public bids are not considered as concentration acts in terms of the Antitrust Law.

CADE's Resolution No. 02/2012, as amended by Resolution No. 09/2014 set forth a clear criteria for the determination of whether a filing is required for acquisitions that do not involve change in control. When 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 per cent of the voting or capital stock of the target company; or (ii) in case the party already holds at least 20 per cent of the voting or capital stock, when the party acquires at least 20 per cent more of the voting or capital stock from the same seller. If companies are horizontally or vertically related, a filing is mandatory when (i) as a result of the transaction, the acquirer holds at least 5 per cent of the voting and capital stock of the target or (ii) in case the party already holds at least 5 per cent of the voting and capital stock of the target, whenever the party acquires additional stake of at least 5 per cent.

Resolution No. 02/2012, as recently amended, also provides rules regarding the notification of bonds and securities convertible into stock. A filing is mandatory only if: (i) the percentage of equity to be acquired, once the bonds are converted into equity, meets the type-of-transaction threshold provided in Resolution No. 2/2012 (including the 5 per cent or 20 per cent rule depending on whether the parties are horizontally or vertically related); and (ii) the acquirer has the right to appoint members to the board or to internal control bodies or has voting or veto rights on commercially sensitive subjects, except if those rights are already provided under the applicable legislation.

Pursuant to Resolution No. 10/2014 all associative contracts with a duration exceeding two years where there is a horizontal or vertical cooperation or a risk-sharing arrangement and that lead to an 'interdependent relationship' between the contracting parties require antitrust approval if the parties meet the applicable turnover threshold. An interdependent relationship is found:

  • between parties that are horizontally related regarding the object of the contract whenever their combined shares in the relevant market affected by the contract is at least 20 per cent; or
  • between parties that are vertically related regarding the object of the contract whenever one of the parties holds at least a 30 per cent market share in the vertically related relevant market affected by the contract and at least one of the following conditions is fulfilled: (i) the parties to the agreement share revenues or costs in the context of that specific agreement; or (ii) the contract provides for a formal or de facto exclusive relationship between the parties. If the duration of a contract fulfilling these criteria was initially under two years but later extended to over two years, a filing would also be required.

10. Where change in control is part of the test, what is the standard for defining control and changes thereof for pre-merger notification purposes?

Control is not defined by the Antitrust Law, but CADE's case law has consistently defined it as the ability to exercise decisive influence on a company. Each case is decided on its facts and CADE usually considers the existence of shareholder agreements, board representation, and ownership. Joint control is usually characterised when two or more shareholders need to reach a common understanding to determine the strategic commercial decisions of the target.

11. What thresholds apply for determining whether a transaction must be notified?

The Brazilian Antitrust Law provides for minimum size thresholds, which take into account the parties' total revenue in Brazil. Pursuant to the Ministries of Finance and Justice Joint Resolution No. 994/2012, one party must have Brazilian revenues of at least 750 million reais in the last fiscal year, while the other party must have revenues of at least 75 million reais. For the purposes of calculating whether thresholds are met, both acquirer and seller, including their respective economic groups, should be taken in consideration.

CADE's Resolution No. 02/2012 establishes that the following entities shall be considered as part of the same economic group for the purposes of determining whether a filing is mandatory:

  • entities subject to common control; and
  • all the companies in which any of the entities subject to common control holds, directly or indirectly, at least 20 per cent of the voting or total capital stock.

In case the transaction involves private equity, the turnover of the following entities shall be taken into account:

  • the economic group of each entity that holds 50 per cent or more of the fund; and
  • portfolio companies controlled by the fund or in which the fund holds 20 per cent or more of the total or voting capital.

Regarding the "effects" test, see question 12.

Finally, under the clawback provision in the current statute and CADE's Resolution No. 13/2015, CADE may review transactions that fall outside the merger thresholds within one year of its closing.

12. In what conditions must transactions between foreign companies be notified?

Transactions between foreign companies must be notified to CADE, provided the nature of the transaction so requires and the turnover thresholds are met, whenever it is wholly or partially performed within Brazil or, if performed abroad, it may produce effects in the country. This will be the case if the target in a given transaction has direct or indirect activities within the country. Direct activities are achieved through, for example, a sales representative, local subsidiary or distributor. Indirect activities are most frequently established through export sales into the country. Still, a scenario in which CADE would consider third-party sales (eg, via a licensing agreement) as evidence of indirect activities in Brazil cannot be ruled out.

CADE's case law does not provide objective criteria for the application of the effects test. CADE has occasionally cleared a transaction that was subject to mandatory review because the parties fulfilled the turnover threshold, even though the target had no activities in Brazil (eg, Merger Case No. 08012. 002945/2012-81, in which the target was an international airport in Curaçao). In March 2013, while adjudicating another case, CADE's DG decided the case was not subject to mandatory review because the transaction had no effects in Brazil as (i) the scope of the geographic market was local; (ii) the target did not operate in Brazil; and (iii) there were no vertical or horizontal relationships between the parties that could affect Brazil (see Merger Case No. 08700. 001204/2013-13). More recently, in January 2014, parties to a transaction claimed their case did not require antitrust approval in Brazil, despite the fact that they fulfilled the turnover threshold. The central argument was twofold: (i) the target sales into or in Brazil were negligible when compared with the size of the Brazilian and worldwide markets; and (ii) no horizontal overlaps or vertical integration arose from the transaction. Nonetheless, the DG concluded that a filing was necessary and that any discussion on the competition impact (assuming there is one under the effects test, be it positive, neutral or negative) is related to the merits of the case and, therefore, shall not be considered for the purposes of determining the need for a filing (see Merger Case No. 08700. 011324/2013-10). On the other hand, in December 2014, a case was dismissed by the DG based on the effects test, in which the parties had significant turnover in Brazil (above the thresholds) but the joint venture that was target had no activities at all in Brazil (see Merger Case No. 08700. 008819/2014-43). CADE's Tribunal has not yet positioned itself regarding the scope of the effects test under the new regime and has not reviewed any of the DG's decisions on the issue.

Notification procedure, timing and penalties for non-compliance

13. Who must file the notification?

Under CADE's Internal Rules, whenever possible the following companies should file the notification: (i) the acquirer and the target in acquisitions of control or shareholding; (ii) the merging entities in a merger; and (iii) contracting parties in the remaining cases.

14. Are there filing fees?

There is a 45,000 reais filing fee that is allocated entirely to CADE and that will be raised to 85,000 reais in January 2016. All parties to the transaction are responsible for the payment of the filing fee; however, there are no rules as to how the fee amount should be allocated between the parties.

15. Is there a standard form? How long does it take to prepare a filing? What type of information is generally required?

Notification is made through the standard of the short filing form, as provided by CADE's Resolution No. 02/2012. (see

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.

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