Following the promulgation of Brazil’s new antitrust law, the Council for Economic Defence (CADE) has published new rules outlining its updated merger control procedures.
CADE this week released the new form merging parties need to file to obtain clearance in Brazil, along with rules on fast-track merger control procedures and the authority’s new internal regulation.
CADE opened a public consultation on the rules, asking lawyers and interested parties to provide comments.
Olavo Chinaglia, CADE’s interim head: “There are several aspects which are yet to be discussed, such as transactions in the stock exchange market or involving private equity funds. Our objective is to finalise the three documents prior to 29 May, when the new antitrust law comes into force.”
Discussion among lawyers in Brazil focused on the changes introduced with the new merger notification form, which contributes to defining how CADE will implement the change from a post-merger to a pre-merger notification system introduced by the new competition law, approved in October and amended by President Dilma Roussef in December.
Under the new rules, the parties must sign a binding document formalising their merger before filing their notification. The merging companies must refrain from concluding their deal and maintain completely separate activities, preserving the reversibility of the merger. But they can apply for temporary exceptions.
Informal discussions between the companies and the authority’s superintendent-general before the filing will be regulated.
José Del Chiaro Ferreira da Rosa, at Advocacia José Del Chiaro in São Paulo, says the rules also provide for a deal to be cleared if CADE fails to review the transaction within a legal term, a point disputed when the law was first passed.
But several lawyers say the rules also give the authority too much power and increase the burden for merging companies to obtain clearance.
José Inácio Gonzaga Franceschini, at Franceschini e Miranda - Advogados in São Paulo, says the authority’s top officials will have too much say over whether to open merger control proceedings.
“The superintendent-general, who has already been awarded excessive authority under the new law, has been granted many more functions and authority than those listed in the new act, including the authority to decide whether an investigation or procedure will be initiated, at his sole and absolute discretion, and based on no specific standards.”
Sérgio Varella Bruna, at Lobo & de Rizzo Advogados in São Paulo, says the new notification form is very complex and CADE requires too much information from merging parties, including information that is unlikely to help in a merger review.
“The new draft form requires the parties to inform the turnover in the previous fiscal year of all companies of their economic groups in relation to all products and services sold by them, without limitation to Brazil, nor to the relevant markets, or to vertically related markets,” he says. “This is certainly too much and it is unlikely that this load of information will bring anything useful for the review of the transactions by CADE.”
Ana Paula Martinez, at Levy & Salomão Advogados in São Paulo, says the new merger form imposes a “significant burden” on the merging parties.
“One example is the list of supporting documentation required, even for cases that do not involve horizontal overlap or vertical integration,” she says. “They require the parties to present all market studies available that are related to all the parties to the transaction. The draft merger form also requires information on the parties' turnover and relevant market in the last five years, rather than in the last year, or the last three years. The draft rules failed to exclude the vendor turnover of the turnover threshold, based on the effects theory. Interpreting the turnover threshold as applicable to the seller's entire corporate family is not consistent with international best practices and CADE could have included this in the new set of rules.”
