Keywords: competition, antitrust, mergers, Administrative Council for Economic Defence, CADE, Brazilian System for Economic Defence, SBDC,
Enforcement of antitrust law in Brazil has continued its trend toward consolidation and evolution.1 Brazil's economic growth has resulted in more complex transactions being submitted to merger control, as well as more complex and veiled antitrust investigations. In turn, this has increased the visibility and relevance of the Brazilian System for Economic Defence (SBDC) and, especially, of the Administrative Council for Economic Defence (CADE), the country's main antitrust agency.2
According to CADE's 2012 Annual Report, CADE has increased the number of its technical staff, and given them more responsibility, resulting in a rise in the number of cases analyzed per year: from 666 in 2005 to 955 in 2012, out of which 825 were merger filings notified under the old regime and 102 merger filings submitted under the new regime. In the first half of 2013, 82 new proceedings were filed, 158 were ruled on (out of which 59 were merger filings) and only 219 remain under analysis.
In addition to the staff increase, the reformulation and the enhancement of cooperation within the SBDC (i.e., the Secretariat of Economic Monitoring— SEAE, the Secretariat of Economic Law—SDE, CADE's Attorney General Office, and Federal Public Prosecution Office and CADE) eliminated overlapping activities and significantly reduced the average analysis period of merger filings—from 252 days in 2005 to 48 days (ordinary procedure) and 19 days (summary procedure), both in 2012.
The depth and strength of the decisions can also be regarded as an achievement. For example, since the New Brazilian Antitrust Law (Law No. 12529/2011) came into effect, CADE has been keeping an eye on healthcare markets. This has resulted in significant restrictions being imposed in some transaction involving the acquisition of hospitals in several Brazilian cities, including Rede D'Or and Medgrupo Participações S.A., the veto of the acquisition of Hospital Regional de Franca by Unimed and the acquisition of Aliança by Qualicorp in the healthcare insurance sector.
Additionally, in May 2012, CADE authorized the assets swap between Brasil Foods (BRF) and Marfrig Alimentos S.A., in compliance with heavy commitments of selling assets assumed by BRF involving approximately 35 percent of the parties' production capacity in Brazil comprising production facilities, distribution centers and an important portfolio of products and brands.3 Also, the authority cleared the transaction between the airline companies LAN and TAM, subject to the swap with a competitor of some slots and infrastructure in the São Paulo International Airport and to the exit of one of the worldwide airline company's alliances (One World or StarAlliance).4
In the steel sector, CADE granted an injunction to prevent completion of the acquisition by the Brazilian Companhia Siderúrgica Nacional (CSN) of additional stakes in its competitor, Usinas Siderúgicas de Minas Gerais S.A. (Usiminas).5 CADE ordered that until a final decision is rendered and subject to the imposition of fines of Brazilian Real (BRL) 10 million plus BRL 10,000 per day of violation, CSN would not be allowed to appoint any member to the board of directors or any other management board of Usiminas. Cade also ordered that no company of CSN's economic group should have access to competitively sensitive information or exercise any management or political rights over Usiminas (e.g., voting in the general shareholders' meetings). In addition to this, CADE imposed restriction in the creation of a partnership between Usiminas and nineteen distributors of flat steel, eliminating an exclusivity clause set forth in their agreement.
While still under the old regime, CADE executed some Agreements to Preserve Reversibility of the Transaction (APROs) in important transactions in order to maintain the competitive environment, as well as to keep the parties independent until a final decision was reached. This was the case in the merger between the Brazilian airline companies Gol and WebJet,6 as well as the transaction concerning the acquisition by Diagnósticos da América S.A. (DASA) of control over MD1 Diagnósticos S.A.,7 and the subsequent acquisition by AMIL Group of participation on DASA's shares in the health assistance and diagnosis services sector.
Under the new regime, CADE has entered into the first merger control settlement agreements (ACCs) in transactions that raised competition concerns, as a condition for their clearance under the Law No. 12529/11. The first such case refers to the acquisition of Mach by Syniverse. During examination, the General Superintendence found that the transaction would result in high concentration in the GSM data clearing and Near Real Time Roaming Data Exchange (NRTRDE) markets, which are technological services provided to mobile telecommunication companies for the charging of roaming. To remedy competition concerns, Mach and Syniverse proposed executing the agreement, through which they undertake certain obligations to remove any anticompetitive outcomes from the transaction.
In the second case, involving Ahlstrom Corporation and Munksjö AB, CADE concluded that there was high concentration in the pre-impregnated decorative paper (PRIP) market and in the heavy abrasive paper market, and that there were neither prospects of new entrants into the sectors nor sufficient firms able to compete in these markets. Therefore, the sale of an industrial unit of Ahlstrom was established as a condition to the deal.
CADE also cleared complex transactions, e.g., the merger between two big retailers Casas Bahia and Ponto Frio, acquisition of Skype by Microsoft, several acquisitions in the meat sector by JBS (although CADE is monitoring the market by means of monthly reports sent by the company).
Interestingly, CADE cleared the transaction between airline companies Azul and Trip, on the condition that by the end of 2014, the flight share agreement (code share) that Trip has with TAM be terminated as well as the use with intensity at least of 85 percent of their scheduled takeoffs and landings at the Santos Dumont airport, located in Rio de Janeiro. However, this case demonstrated that CADE is carefully reviewing and verifying all the information provided by the applicants, as the authority imposed an R$3.5 million fine (out of a maximum of R$5 million) on the companies for presenting misleading information. This kind of penalty had already been provided by former Law No. 8884/94, although there are no decisions that are worth mentioning in this sense. The penalty was maintained in Law 12529/2011, and only now has CADE applied a strict analysis of accuracy and completeness to information provided by the parties and demonstrated its willingness to punish any minimal evidence of misleading information.
In the case Azul/Tryp, for instance, CADE imposed such a high fine because the parties did not provide information about the existence of a code share agreement with TAM. This information came out during complementary discovery by CADE and was determinant to the imposition of restrictions to the transaction.
The second, and more recent case of misleading information involves Lauriate Group and the Brazilian private university Anhembi Morumbi, which were fined in R$4 million for hiding information of their economic groups, which would show that a Lauriate Group's members were already active in the educational sector. The transaction involved the rise of equity interest of Lauriate Group in the managing company of Anhembi Morumbi from 51 percent to 100 percent.
The first precedent of misleading information concerned the transaction between the companies Cruzeiro do Sul Educacional S.A. and ACEF S.A., in the distance learning sector. According to CADE, the parties did not inform an accurate number of courses offered and the number of students enrolled. CADE imposed a fine of R$200,000.
Under the new regime, CADE has also focused the analysis of merger filings on consolidating a restrictive and objective approach in regard to the notification thresholds, as well as acknowledging the need to enact regulations concerning some concepts of Law No. 12529/11, such as the "associative agreements" (including distribution agreements, consultancy agreements, partnerships in general, service agreements, etc.) that fall within the scope of antitrust law, as well as the concepts of control and relevant influence for the purposes of submitting a transaction to merger control.
CADE also evolved controlling behaviors, such as cartels and unilateral conducts; however, society is still waiting for a development in this sense, be it in terms of speedy to conclude the cases, be it in terms of willingness to face more cases.
All of the changes to the SBDC that have taken place are still not enough to put Brazil in the first tier in terms of antitrust enforcement and competition culture. Cultural and latent problems, not exclusively related to competition law and to the SBDC, but rather related to Brazil as a whole, have made the challenge that much greater.
In this regard, it is important to recognize that competition law in Brazil is still less than 20 years old. Competition culture has not yet been fully established at the academic or governmental levels, let alone the business environment or society as a whole.
The tripod underlying the Brazilian Competition Policy (merger control, behavior control and competition advocacy) is still being developed. In merger control, CADE is facing a quite settled case law and methodology, which, in addition to the institutional maturity, gives the society the desired predictability of whether a transaction should be submitted to CADE and whether there will be difficulties for unconditional clearance.
CADE has continued to develop its efforts at behavioral control. This can be observed by the number of cases it has ruled on, the level of penalties applied and the outcomes of the judicial decisions when CADE's rulings have been challenged. However, CADE needs to keep developing and refining its investigations in order to signal to society that it is not worth the risk to violate antitrust laws.
For new cases, the leniency program is still something of an unknown. It brings little confidence because Brazil's legal tradition is not used to granting benefits to criminals who, in admitting to and giving information on their crimes, assist in the conviction of other possible wrongdoers. However, leniency agreements are useful for the authorities because they make it possible to obtain information that would be very hard to obtain in the normal course of an investigation.
Additionally, the unilateral conduct cases are not a small challenge to be faced. CADE has not many cases of conviction, but stared to fix its position, what was seen in the case SKF (2013), the first conviction for resale price maintenance. The case involving Banco do Brasil and exclusive dealing in payroll loans (2012) can be also regarded as an achievement. More cases of unilateral conducts, including those related to state-owned enterprises, might arise and lead CADE reinforce its mandate for free competition and a level playing field regime within the Brazilian markets.
CADE is commencing to define its role on competition advocacy, which might be shared with SEAE. Problems related to taxation could trigger this very important pillar of competition law in Brazil. Both of them shall think antitrust in a broader manner in order to contribute to social welfare as much as possible. The Brazilian society is anxious for a support of the expert on competition to help the country become more competitive and fair.
1 Competition and Antitrust are synonyms in Brazil; thus this article uses either Competition Law or Antitrust Law.
2 The SBCD, the Brazilian antitrust system, is composed of three administrative entities that are jointly responsible for the antitrust enforcement: (i) Secretariat for Economic Law of the Ministry of Justice (SDE); (ii) Secretariat for Economic Monitoring of the Ministry of Finance (SEAE); and (iii) Administrative Council for Economic Defense (CADE).
3 Brasil Foods S.A./Marfrig Alimentos S.A. Concentration Act No. 08012.011210/2011-67. Introduced in November 2011, and cleared in July 2012.
4 TAM S.A./Lan Airlines S.A. Concentration Act No. 08012.009497/2010-84. Introduced in September 2010, and cleared in December 2011.
5 Companhia Siderúrgica Nacional/Usinas Siderúgicas de Minas Gerais S.A. Concentration Act No. 08012009198/2011-21. Introduced in September 2011 and cleared in April 2012.
6 Webjet Linhas Aéreas S.A./VRG Linhas Aéreas S.A. Concentration Act No. 08012.008378/2011-95. Introduced in July 2011, and cleared in October 2011.
7 MD1 Diagnósticos S.A./Diagnósticos da América S.A. Concentration Act No. 08012.010038/2010-43. Introduced in September 2010, and cleared in October 2011.
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