Brazil: Antitrust Merger-Review Rule Changes

On December 1, 2010, the Federal Senate approved Bill of Law No. 06/09 (initiated in the House of Deputies as Bill of Law No. 3,937/04), which aims to amend Law No. 8,884/94 that regulates the Protection of the Brazilian Antitrust System.

One of the main changes introduced by such Bill of Law concerns the raising of the gross turnover threshold triggering submission of a given transaction to the Brazilian antitrust authorities. Pursuant to the current criteria, in the event that one of the groups involved in a transaction subject to merger review (including mergers and acquisitions and joint ventures) has registered gross turnover in Brazil of at least R$400 million in the last financial year, such transaction must be notified to the Brazilian antitrust authorities.

The Bill of Law aims to increase the threshold for such gross turnover by determining that corporate groups with gross turnover in Brazil of R$1 billion, on one side of the transaction, and R$40 million on the other, must have their transaction scrutinised by the Administrative Economic Defence Council (CADE). This threshold will also become the only test triggering submission of a transaction, thereby eliminating the other test currently adopted, which is a 20% market share in the given relevant market.

In addition, all filings are to become pre-closing instead of post-closing, as is the case today.

The changes proposed may also affect other transactions, such as supply and distribution agreements, which have also been subject to CADE's analysis under merger review rules. Should this Bill of Law be approved, the number of merger filings, which have currently been overwhelmingly approved without restrictions, will significantly decrease.

Moreover, the Bill of Law aims to reduce the deadline for merger review by the Competition/Antitrust Authorities. Besides introducing changes to the economic criteria of merger review filings, the Bill of Law introduces a reduction in penalties for anticompetitive behaviour. Such penalty varies from 1% to 30% of the gross turnover registered by the corporate group under the current scenario (registered in the financial year prior to which the infraction occurred). The Bill of Law will change such threshold to 0.1% to 20% of the gross turnover registered either by the individual company in the relevant market, or by the group or conglomerate, calculated in respect of the gross turnover registered in the financial year prior to the investigation. The Bill of Law introduces the criteria of 1% to 20% of penalties for directors who lead anticompetitive behaviour calculated on the actual penalty imposed on the group committing the infraction.

The Bill of Law will now return to the House of Deputies for final approval. CADE's commissioners believe the Bill of Law will be approved by the Brazilian Congress and confirmed by recently elected President Dilma Rouseff by mid 2011. Once the Bill of Law has been approved, CADE will have one year to implement the new rules.

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