Antitrust Alert: Brazil’s New Merger Law Enters into Force, with Increase in Filing Thresholds and New Merger Regulations
On May 29, 2012, Brazil's New Merger Law entered into force and the Administrative Council for Economic Defense ("CADE") issued Merger Regulations that further define what transactions must be reported and what filing procedures followed in Brazil's new pre-merger control regime. On May 31, 2012, the Ministry of Justice and the Ministry of Finance issued a joint decision to increase the revenue thresholds applicable to the New Merger Law. This Alert summarizes the new rules, which will affect businesses involved in mergers and acquisitions that could affect markets in Brazil.
Increase in filing thresholds. Effective May 31, 2012, the mandatory filing thresholds in Brazil have been increased. Transactions must be reported if:
i. the corporate group of one of the parties to the transaction had turnover of at least R$ 750 million (approximately US $375 million) in Brazil in the last calendar year and
ii. the corporate group of another party to the transaction had turnover of at least R$ 75 million (US$ 37 million) in Brazil in the last calendar year.
Corporate Group includes (a) entities subject to common control and (b) all entities in which any company subject to common control holds a direct or indirect share of at least 20%.
Investment Funds includes (a) funds subject to common control, (b) the manager or managing entity, (c) investors that hold a direct or indirect share of more than 20% of any of the funds, and (d) portfolio companies in which at least one of the funds holds a direct or indirect share of at least 20%.
Transition arrangements. Transactions in which binding documents have been signed prior to May 29, 2012, where a merger notification is filed before June 19, are subject to Brazil's previous merger control regime. CADE has indicated that these deals may be closed prior to CADE's approval even if they are notified after June 19.
Timing. CADE has up to 240 days to issue a merger review decision, which may be extended by 60 days at the request of the merging parties or by 90 days if CADE determines the transaction requires further review. There is no period of time designated as an initial waiting period or first phase, but CADE has stated that it expects to clear "non-complex" transactions within 40-60 days.
Derogation. CADE may authorize the parties to close a notified transaction before clearance if (a) there would be no irreparable harm to competition, (b) the merger would be easily reversible if CADE later concluded that the transaction harmed competition, and (c) the target company would face serious financial losses if it could not proceed more quickly.
Acquisitions of minority interests. Notification is required for transactions (or a series of acquisitions) that result in the acquirer:
i. holding a 20% or greater interest in the target company, or increasing its interest by 20% or more, when the groups involved in the transaction are neither competitors nor vertically related,
ii. holding a 5% or greater interest in a target company that is a competitor of, or vertically related to, the purchaser.
Corporate reorganizations. Notification is required only where a shareholder with an interest of 20% or more acquires an additional 20% stake from a single seller.
Public takeover bids. Notification may be made on public announcement and the bid may be completed pending CADE's approval. However, during this time, the acquirer cannot exercise voting rights to stock acquired except with CADE's permission, where it is necessary to preserve the value of the investment.
Cooperation agreements. CADE will in the future issue a specific regulation to address whether certain types of cooperation agreements, such as distribution, franchising, technical cooperation, are subject to notification.
New notification forms. CADE has adopted a regular and short form notification forms for "complex" and "non-complex" transactions.
"Non-complex" transactions – short-form notification. The short-form notification or "Summary Procedure" is available for "non-complex" transactions, which CADE has identified have "less potential to harm competition." However, it remains at the discretion of the Superintendent General to determine whether or not a transaction can be filed using the summary procedure form. These include:
transactions with low market share (horizontal overlap below 20% and "without a doubt" posing no potential harm to competition; vertical overlap below 20%)
greenfield joint ventures or cooperatives
consolidation of controlling interests
entry of a new player, and
other deals that the Superintendent General considers do not risk potential harm to competition.
"Complex" transactions – regular notification. The complete notification form or "Non-Summary Procedure" applies to all transactions that CADE considers potentially complex from an antitrust perspective. Although CADE has dropped some of the more onerous proposed information requests, the amount of information required from notifying parties is still quite burdensome.
For further discussion of the substantive changes in the New Merger Law and its impact on companies doing business in Brazil, please see our prior alert, Brazil's New Merger Control Law – A New Hurdle for Global M&A.
For more information, please contact your principal Jones Day representative or either of the lawyers listed below.
Fiona A. Schaeffer
S. Wade Angus
New York / São Paulo
+1.212.326.3755 / +5511.3018.3914
Michael Culhane Harper
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