Brazil’s New Antitrust Law: A Paradigm Shift In National Competition Policy
On 29 May, 2012, after a long-lasting legislative process, Brazil’s New Antitrust Law (Law no. 12,529/11) will finally enter into force, resulting in a paradigm shift in the country’s competition policy. Such legal reform, on the one hand, has led to intense and interesting debates within the business community, and, on the other hand, will likely pose relevant challenges to policymakers, firms and legal experts.
Although the New Antitrust Law has introduced significant reforms in various important aspects of Brazilian competition policy – such as institutional matters and anticompetitive practices –, the new merger review framework has unquestionably drawn most of the attention in the marketplace.
In particular, one of the most discussed issues arising in connection with the enactment of the New Antitrust Law concerns the shift from a post-merger review system to a pre-merger review system. Under the Antitrust Law currently in force in Brazil (Law no. 8,884/94), mergers can be, and usually are, consummated before the Administrative Council for Economic Defence (CADE) – antitrust authority in charge of merger reviews – issues its opinion. Nevertheless, after the New Antitrust Law enters into force, the consummation of mergers meeting the thresholds set forth in law will be contingent upon previous approval by CADE. That is to say, such deals shall be suspended until CADE issues a final decision about the transaction.
Allegedly, the pre-merger review system was adopted as a regulatory response to two main problems identified throughout Brazilian antitrust experience. Firstly, the post-merger review system created incentives to the parties involved in mergers to extend as much as possible the period of antitrust review. In general terms, the longer the review took, the better it is for the parties who would be free to engage in their activities without any sort of restrictions. Secondly, the post-merger review system implemented in Brazil compromised the imposition of post-merger remedies by CADE, which would only occur after the consummation of transactions, increasing the costs of having the deal undone or restricted.
Under this perspective, the implementation of the pre-merger review system may be interpreted as an attempt to align interests as well as to give incentives to the parties involved in merger transactions to cooperate and to accelerate the antitrust review processes. Such reform also can be seen as an attempt to facilitate the imposition of post-merger remedies by CADE.
An additional important reform introduced by the New Antitrust Law concerns thresholds for triggering mandatory merger filings with CADE, which have also been significantly changed. In the first place, the market share test – which concerned the analysis of whether market shares resulting from the merger exceeded 20% of a particular relevant market – was excluded from the New Antitrust Law.
Moreover, the new legislation innovates by foreseeing a secondary objective threshold. That is to say, contrary to the previous Antitrust Law, the revenue threshold test set forth in the New Antitrust Law requires not only that one of the parties involved in the deal has reached in Brazil group-wide revenues of at least BRL 400 million (approx. GBP 125 million), but also that another party to the deal has reached in Brazil group-wide revenues of at least BRL 30 million (approx. GBP 9.5 million). Hence, under the new law the revenues of more than one party involved in the deal are considered for the purposes of determining mandatory filings.
Notwithstanding the establishment of new objective criteria for determining mandatory submission of mergers, the New Antitrust Law also authorises CADE to review on an ex post basis, within one year of the consummation of the deal, mergers falling below the aforementioned threshold.
Such new thresholds, and in particular the abolition of the market share test, were intended to ensure legal certainty, since in various transactions it was difficult to access in specific circumstances whether parties exceeded 20% of a particular relevant market. On the other hand, the new monetary secondary threshold was aimed at reducing the amount of mergers submitted to CADE that had no significant impact in competition (e.g. cases in which a large company acquired very small businesses).
It is worth noting that in case transactions subject to mandatory filing are consummated before filed with CADE, they will be regarded as null and void, and the parties involved in the deal may be subject to fines ranging from BRL 60,000 (approx. GBP 19,000) to BRL 60 million (approx. GBP 19 million).
Another regulatory innovation, which is a direct consequence of the new pre-merger review system, concerns the timing of review by CADE. Such issue has gained importance since the longer the antitrust review proceeding takes, the later deals will be consummated. As per the New Antitrust Law, a final decision by CADE must be reached within 240 days of the filing. Tough, in more complex transactions, the referred deadline may be extended for up to 60 or 90 days upon request of the parties involved in the deal or of CADE’s Tribunal, respectively. Hence, as per the new legislation the maximum review period is of 330 calendar days from the date of filing.
It is interesting to note that President Dilma Rousseff has vetoed a provision that stated that mergers would be automatically approved in case CADE failed to comply with the referred maximum review period.
Considering the above, both public and private sectors will probably face significant challenges in connection with the New Antitrust Law. From the public perspective, CADE will have to quickly adapt its structure and personnel, within a short period of time, to a radically different institutional design as well as to an entirely new merger review system.
Firms and legal experts will have to adapt their practices to the new institutional arrangement as well as to different rules governing merger review and anticompetitive practices. While drafting transaction documents, parties will have to carefully consider the recent reforms. In particular, parties will have to draw special attention to clauses governing, among other matters: conduct of business throughout the merger review; adjustment of price and conditions; as well as consequences of the imposition of antitrust remedies by CADE.
The New Antitrust Law seems to be inaugurating a new era in Brazil’s competition policy. Interestingly, this occurs at important times, when the Brazilian economy is facing a positive momentum and foreign investment inflows have been consistently rising. As a consequence, it is important that public and private players quickly adapt to the new regulation promoting the consolidation of Brazil as solid and reliable jurisdiction in what regards antitrust law and enforcement.
Fabio Weinberg Crocco is a partner at Lilla, Huck, Otranto, Camargo Advogados. He earned his Bachelor's Degree in Law from São Paulo Law School of Fundação Getulio Vargas (EDESP-FGV). He has attended the Trade Policy Training Program at the Brazilian Embassy in Washington D.C. He will read the University of Oxford’s Magister Juris program beginning September 2012. He is a member of the Brazilian Bar Association (OAB). Fabio also speaks three languages: Portuguese, English and Italian.
Luís Gustavo Haddad is a partner at Lilla, Huck, Otranto, Camargo Advogados. He graduated in Law from the Universidade de São Paulo (USP) and holds a Master Degree in Civil Law from the same university. He is a member of the Brazilian Bar Association (OAB). His practice is focused on contracts and corporate law. Luís also speaks two languages: Portuguese and English.
Luís can be contacted by calling +55 (11) 3038-1008, or alternatively by email at email@example.com