On December 1, 2011, Brazil's new competition law was
published in its final form, having been approved by President
Dilma Rousseff. The new law goes into effect on May 29,
2012. Before approving the new law, President Rousseff vetoed
several provisions that affect timing of review, settlement
procedures and transitional measures.
The new law transforms merger review in Brazil by requiring parties to reportable mergers (and other qualifying transactions) to notify and obtain antitrust approval prior to consummating the transaction. This alert highlights key features of the new law (as amended by President Rousseff's vetoes) and its impact on the antitrust review of mergers and other "acts of concentration" in Brazil.
Three important vetoes
1. No automatic approval of transactions upon
expiration of time period. Brazil's new
competition law sets out a strict statutory time period for review
of a transaction: a final administrative decision must be issued as
of 240 days from the date of notification. This may be extended by
60 days at the request of the merging parties or 90 days if CADE
determines the transaction requires further review, for a maximum
of 330 days.
The original version of the law, passed by Brazil's Congress in October, stated that if CADE failed to reach a conclusion on the transaction within the statutory time period, then the transaction would be automatically approved. However, President Rousseff vetoed this clause, stating that such a rule could result in "harm to society." This veto undermines the certainty of a statutory time period, as it permits CADE to continue to investigate and potentially challenge transactions beyond the statutory review period created by the new law. It also relieves the pressure on CADE to complete its investigation and reach a decision within the 330 day maximum time period.
2. Settlement procedures. President Rousseff also vetoed the provision that enabled the Superintendence General to negotiate a settlement with the parties before CADE had commenced its review of the transaction. President Rousseff was concerned that the provision was too narrow and might be interpreted to preclude CADE from negotiating settlement agreements at other stages of the investigation. Removing the provision should remove any doubt that settlements can be negotiated throughout the merger review process.
3. Transition period of the new law. The version passed by Congress would have permitted parties notifying a transaction within the first year of the law to ask for permission to close prior to receiving CADE's approval. President Rousseff did not want to delay full implementation of the new regime. Brazilian competition authorities therefore must transfer to a pre-merger notification system as soon as the law becomes effective on May 29, 2012.
Overview of new merger review system
The final version retains three major changes to Brazil's
merger review system: (i) consolidation of merger review
responsibilities into a single competition agency, (ii)
introduction of a pre-merger notification system and new
notification thresholds, and (iii) modifications to penalties for
violations of the competition law.
One agency. The new competition law consolidates the investigative, prosecutorial and adjudicative functions into one agency (CADE), made up of three parts. The Administrative Tribunal will remain the decision-making body in charge of rendering final and binding administrative decisions with respect to notified mergers. The Superintendence General will investigate anticompetitive practices and will be empowered to render administrative decisions to approve mergers. Third parties may appeal the Superintendence General's approval of a merger to the Administrative Tribunal within fifteen days of the Superintendence General's approval of the merger. The Department of Economic Studies, led by CADE's chief economist, will be responsible for rendering non-binding economic opinions and preparing economic studies.
Pre-merger notification and approval. The new competition law establishes a mandatory pre-merger notification system. Merging parties must obtain approval from CADE before closing their deal. This is a significant modification to the merger review system currently in place, which requires pre-merger notification but permits merging parties to complete their transaction before obtaining CADE's approval.
The new competition law also amends and clarifies the mandatory notification thresholds. Under the new law, a transaction must be notified if one of the parties has reported revenues in Brazil of at least R$400 million (US$215,000 million) in the previous year and the other party at least R$30 million (US$16 million). The new competition law also eliminates the current law's mandatory notification when one party has a 20% market share.
Modifications to penalties. Finally, the new law provides a range of corporate fines for antitrust violations ranging from 0.1% to 20% of a company's (or group of companies') gross revenue obtained in the field of business in which the offense occurred starting from the year before the initiation of the investigation. This is a significant change from the fining system under the current law, which is not based on revenues in a particular market and can range from 1% to 30% of a company's turnover.
Brazil's new competition law was designed to improve the efficiency of the merger review process and bring greater legal certainty to business by establishing a pre-merger notification system, clarifying transaction notification thresholds, and defining the types of transactions that must be notified. However, the President's removal of automatic approval where CADE has not issued its final decision by the end of the statutory period creates uncertainty about the timing of merger review and may undermine the efficiencies of a pre-merger review system.
For further discussion of the major changes to Brazil's merger review system, please see our prior alert, Efficiencies of Brazil's Newly Approved Competition Law, available at http://www.jonesday.com/efficiencies_of_brazil/
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