The Administrative Council for Economic Defense ("CADE") issued yesterday, May 29, 2012, the applicable regulations for the new Brazilian pre-merger control regime.
Under the new Brazilian antitrust law (Law No 12,529/2011), filing with CADE shall be required if: (i) at least one of the groups involved (seller or buyer) registered gross revenues in Brazil in excess of R$400 million (approx. USD200 million) in the previous fiscal year; and (ii) at least one of the other groups involved registered gross revenues in Brazil in excess of R$30 million (approx. USD15 million) in the previous fiscal year.1
It is expected that said revenues thresholds will be increased by means of a joint rule that may be issued by the Ministry of Justice and the Ministry of Finance shortly. If this is confirmed, the new revenues thresholds will be R$750 million (approx. USD375 million) and R$75 million (approx. USD37 million).2
The main rules under the new Brazilian merger control regulations are the following:
- Transition rule: there is a specific provision in the regulations setting forth that notifications filed during the period in which the previous Brazilian antitrust law (Law No. 8,884/94) was in force shall be subject to the previous regime; under said provision, this rule applies to notifications filed with CADE by June 19, 2012. During public hearing yesterday, CADE's Chairman interpreted said provision as follows: (a) transactions formalized by means of a binding document executed on or before May 28, 2012 are subject to Law No. 8,884/94, regardless of the date of their notification to CADE, the parties having the right to close such transactions before CADE's approval; (b) in the event of a mere non-binding document executed prior to May 29, the transaction shall be subject to the new law, even if the relevant notification is filed with CADE before June 19.
- Formal filing: it is "preferred" that the transaction be filed with CADE only after a binding document is signed. However, there is no provision under the new regulations prohibiting CADE to accept filing on the basis of preliminary documents
- Review period: CADE shall have up to 240 days to issue its final decision on the notified transaction. This review period may be extended for an additional period of 60 days, if requested by the parties, or for an additional period of 90 days, by means of a justified order issued by the Tribunal. The regulations do not set forth intermediary review periods for non-complex transactions. CADE expects non-complex deals to be cleared in approximately 60 days.
- Filing forms: there will be two filing forms: (a) a short-form for non-complex transactions (summary procedure); and (b) a full-form for more complex deals from an antitrust perspective. There has been a considerable reduction in the volume of information and documents that was expected to be required from the notifying parties as previously indicated in the original draft regulations, in particular for summary procedure cases. The regulations set forth that the summary procedure shall apply to greenfield joint ventures, consolidation of a controlling interest, entry of a new player, transactions resulting in low market shares, amongst others. It is at the discretion of the General-Superintendent to apply the summary procedure to a given notified transaction.
- Definition of "group": the following entities shall be viewed as part of one single economic group: (a) entities subject to common control; and (b) all the entities in which any of the companies subject to a common control holds, directly or indirectly, at least 20% share.
- Investment funds: the following entities shall be viewed as part of one single economic group: (a) the funds subject to a common manager; (b) the manager; (c) the investors holding, directly or indirectly, over 20% of the quotas of any of such funds; and (d) the portfolio companies in which any of such funds holds at least 20% share.
- Acquisition of stake: the following transactions shall amount to an acquisition of "control" or "part of a company" that may be subject to mandatory filing with CADE: (a) acquisition of a 20% stake, when the parties involved are neither competitors nor vertically related to each other; (b) acquisition of a 5% stake, if the transaction involves competitors or vertically related companies; this includes the situation under which a current shareholder acquires a further stake in the invested company of at least 5% (either individually or in the aggregate).
- Corporate reorganizations: corporate reorganizations shall only be notifiable in the event of an acquisition by a shareholder having at least 20% share of an additional 20% stake from one single seller.
- Public takeover bids: a public takeover bid may be notified to CADE as from the date of its announcement and do not depend on CADE's approval to be completed. However, the acquirer cannot exercise the political rights attached to the shares acquired before getting clearance. CADE may authorize the exercise of said political right if necessary to maintain the full value of the investment.
- Derogation: CADE may authorize the parties to close a notified transaction before clearance if: (i) there would be no irreparable harm to competition resulting from such a derogation; (ii) the situation would be easily reversible in the future if the authority concludes that the notified transaction harms competition; and (iii) the target company will face serious financial losses in the absence of the requested derogation.
- Cooperation agreements: CADE has decided to leave the discussion on whether cooperation agreements, such as distribution, franchising, technical cooperation, amongst others, are subject to mandatory filing to be dealt with in a specific regulation yet to be issued.
1 Based on the exchange rate of May 28, 2012 (Source: Bacen).
2 Based on the exchange rate of May 28, 2012 (Source: Bacen).
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