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.
Conclusion
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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