Pre-Merger Notification Guide BRAZIL Demarest e Almeida Advogados CONTACT INFORMATION Mário Roberto Villanova Nogueira Bruno De Luca Drago Demarest e Almeida Advogados Av: Pedroso de Moraes, 1201 05419-001 - São Paulo/SP - Brazil Tel : (55-11) 3356-1519 (55-11) 3356-1776 Fax: (55-11) 3356-1700 mnogueira@demarest.com.br bdrago@demarest.com.br www.demarest.com.br 1. Is there a regulatory regime applicable to mergers and similar transactions? Yes. The Brazilian regime for merger control is set forth by the Brazilian Competition Law (Law 12.529/2011). The Brazilian System for Competition Defense (SBDC), with competences attributed by Law 12.529/201, has two main attributes: preventive and repressive. The preventive role refers to the analysis and control of mergers that may lead to economic concentration or to the abusive use of a dominant market position. The repressive role has the objective to identify and punish the economic agents that had practiced infringements against the economic order (anticompetitive conducts). With regard to the preventive role of the SBDC, the Brazilian Competition Law requires companies or individuals contemplating a concentration act, to submit the notification of the concentration act and to wait until a final decision is rendered before consummating the transaction.
Further provisions regarding merger control are set forth by Resolutions published by the Administrative Council for Economic Defense - CADE. 2. Identify Applicable National Regulatory Agency/Agencies. The Brazilian System for Competition Defense, which is responsible for the defense of competition in Brazil, including merger reviews, is formed by the Administrative Council for Economic Defense CADE, composed by CADE's Tribunal, General Superintendence and Department of Economic Studies, which are directly involved in the analysis and decision of concentration acts, as well as the Secretariat of Economic Monitoring - SEAE, which is in charge of competition advocacy. 3. Is there a supranational regulatory agency (e. g., the European Commission) that has, or may have exclusive competence? If so, indicate. No. 4. Are there pre-merger filing requirements; if so, where are they published? The submission of the transaction must be made "a priori", which means, prior to its completion. The transaction is therefore subject to a mandatory waiting period, and may only be consummated after CADE's final decision. In addition, please note that CADE s Internal Ruling provides that the transaction shall be preferably submitted after a first biding document is executed between the parties 5. What kinds of transactions are "caught" by the national rules? (Identify any notable exceptions) According to article 90 of the Brazilian Competition Act, a concentration act occurs whenever: (i) there is a merger involving two or more companies previously independent; (ii) one or more companies directly or indirect acquire by purchase or swap of shares, membership units (quotas), securities or convertible shares, or tangible or intangible assets, by operation of contract or through any other means the control over, or parts of, one or more companies; (iii) one or more companies absorb another company or companies; or (iv) two or more companies enter into an association, consortium or joint venture agreement. Exception is made with regard to consortiums, associations or joint ventures formed with the specific purpose to participate in public bids. 6. Is there a "size of transaction" threshold? No.
7. Is there a "size or turnover of the parties" test; if so, what is it and how are size and turnover to be calculated? Yes, The submission of a concentration act is only mandatory in cases of concentration acts in which: (i) any of the entities involved in the transaction, or the respective "group of companies" to which they belong, had an annual gross turnover or overall volume of business equal or in excess of R$ 750 million in Brazil, during the preceding fiscal year; cumulatively with: (ii) annual gross turnover or overall volume of business in Brazil, by any other entity involved, or its respective "group of companies", of R$ 75 million during the preceding fiscal year. According to CADE's Resolution nº 2, "group of companies" means, cumulatively: (i) the companies under common control, internal or external; and (ii) the companies in which any of the companies referred to in item I directly or indirectly owns at least twenty percent (20%) of the capital stock or voting capital. Special rules also apply for calculating turnovers in cases of investment funds. 8. Is geographic scope/national market effect of transaction an issue with respect to filing or approval requirements? If so, specify. The Brazilian antitrust authorities generally consider the competitive effects of a transaction in the context of one or more geographic markets (relevant markets). Besides being defined with respect to the products/services offered, the relevant market shall also be determined according to its geographic aspect. Depending on the level of imports, barriers to entry and other factors, the geographic market may have a regional, national or international scope. Irrespective of its geographic scope, the Brazilian antitrust authorities shall balance potential anti-competitive effects in the market with the expected efficiencies in order to conditionally or unconditionally approve the transaction, or block it. 9. Is the filing voluntary or mandatory? What are the penalties for noncompliance? The filing is mandatory provided that the thresholds described on items 5 and 7 are met. According to Paragraph 3, Article 88 of the Antitrust Law, if a transaction is implemented before CADE's final decision, a fine, which can vary from R$ 60.000,00 to R$ 60.000.000,00 shall be imposed to the parties involved in the transaction. 10. Time in which a filing must be made. There is no legal term set forth for the filing of the transaction. However, CADE s Internal Ruling provides that the transaction shall be preferably submitted after a first biding document is executed between the parties.
11. Form and Content of Initial Filing. The information and documents to be provided before the Administrative Council for Economic Defense - CADE are set forth in CADE's Resolution nº 02/12. There is a single form to be presented jointly by the Applicants before the Administrative Council. It is important to mention that deals falling within the scope of summary proceeding, may be submitted through a notification containing a less complex and less detailed level of information and documents. The following information and documents must be submitted to the Brazilian authorities: Description of the transaction: summary of the deal, specifying the parties involved in the transaction, the respective areas of activity, the nature of the transaction, the markets affected, the strategic and economic rationale for the transaction, value of the transaction, filings in other jurisdictions and assets involved; Involved parties: name, contact data, business activities and corporate structure of the parties, economic group to which the parties belong, previous transactions submitted before CADE, gross revenues, list of companies within the same economic group and their activities; Documents: agreements related to the transaction, documents prepared by the Applicants for the evaluation of the transaction, ancillary or additional agreements (such as agreements related to the management of the company, if any), annual report or financial reports, reports related to the market structure, marketing or commercial reports, business plans, Powers-of-Attorney granted by the Applicants; Regarding the relevant market: description of all products/services commercialized by the Applicants and other companies of the economic groups involved in the transaction, identification of the overlapping products/services (horizontal, vertical and/or complementary), definition of the relevant market (considering the substitutability from both the demand and supply standpoint), products/services' features; importance of prices; clients' profiles; consumers' preferences; distribution/transportation costs; structures of supply and prices regarding determined areas; possibility of imports; CADE's jurisprudence; international jurisprudence and other factors; Please note that the following items are not applicable for transactions that fall within the summary proceeding and that do not result in horizontal overlap and/or vertical integration. Supply structure: estimates of the volume and value of sales in the relevant markets, market share of the Applicants and their competitors in each relevant market; estimates of imports and market conditions for such imports (e.g. such as regulatory barriers); estimates of exports;
Demand structure: main clients of the Applicants' in each relevant market, providing their contact data, representativeness of the clients in the Applicants' gross revenue, levels of concentration or dispersion of the clients, supply agreements, information regarding distribution channels and service network and their relevance, price policies, clients' preferences, relevance of clients' switching costs regarding the relevant markets; Monopsony power analysis: main suppliers of the Applicants' in each relevant market, providing their contact data, supply agreements, relevance of suppliers' switching costs, alternative clients and channels available for those suppliers, existence of compensatory power; Entry conditions and rivalry: legal/regulatory barriers, barriers regarding access to inputs or infrastructure, existence of IP rights, relevance of economies of scale and/or scope, existence of sunk costs, existence of barriers derived from the consumers' preferences, minimum viable scale for entering the market, time for entering the market, production capacity, level of idle capacity, competition level of the relevant markets and main strategies adopted by competitors; Coordinated power: number of companies in the relevant market, homogeneity of products/services offered, costs' structure, availability of input, raw materials, parts and components to the producer, as well as information concerning prices and offered quantities, supply and demand conditions and possible effects of the transaction; Counterfactual: market configuration if the transaction does not happen for any reason. 12. Are filing fees required? In addition to the documents and information listed above and pursuant to Article 23 of the Law 12.529/2011, the parties are requested to pay a filing fee of R$ 45,000.00 (forty-five thousand Reais). The fee must be paid prior to the submission of the transaction. In case of delay, a fine of 20% (twenty percent) and interests of 1% (one percent) per month shall apply. 13. Is There An Automatic Waiting Period? If so, specify. Please note that, under the new regime, until the final decision from CADE on the Concentration Act, the Applicants shall maintain the competition conditions between the involved companies, subject to the penalties provided for in the law (nullity of the acts performed and a fine which may vary from R$ 60 K to R$ 60 million, according to article 88, paragraphs 3 and 4 of Law 12.529/11). The regulation set forth by CADE further provides that the Applicants shall maintain their physical structures and competition conditions unchanged until final approval from CADE, being prohibited, for instance, any assets transfer and any type of influence from one party into the other, as well the exchange of sensitive commercial
information which are not strictly necessary for the execution of the formal agreements between the parties (Art. 108, paragraph 2 of CADE's Resolution nº1). In addition, please note that law 12.529/11 sets forth, in its article 58, paragraph 1, that the Reporting Commissioner may authorize the precautionary implementation of the concentration act, provided that the conditions for the reversibility of the transaction are maintained. Further guidelines on the situations for the precautionary authorization are set forth under CADE's Resolution nº 1. 14. Are There Time Limits Within Which The Regulatory Agency Must Act? Can they be shortened by the parties or be extended by the regulatory agency? The Administrative Council for Economic Defense have 240 days to decide the transaction, extendable for a further 90 days upon request by CADE in cases of more complex transactions, or 60 days upon request by the Applicants. The procedural terms will not be halted, which will make it possible, in practice, that transactions not reviewed by the authorities within the legal term shall be considered automatically approved 15. What is the substantive test for clearance? The defense of competition in Brazil is based upon article 173, 4º of the Federal Constitution and Law 12.529/2011 (Antitrust Law) which seeks to protect constitutional principles such as free enterprise and open competition, the social role of property, consumer protection, and restraint of abuses of economic power. According to the Paragraphs 5 and 6, Article 88 of the Law 12.529/2011, mergers and acquisitions whose effect may be substantially to lessen competition on a relevant market, tend to create or reinforce dominant position or result in a market domination, must be prohibited by the antitrust authorities, unless the Applicants demonstrate that the transaction should increase the productivity or competition, improve the quality of goods and services, provide the technological and economic development and also demonstrate that the benefits could be transmitted to the consumers. 16. What are the common Post-Filing Procedures: Requests for further information, etc? In verifying that the submission does not meet the requirements set out in the Antitrust Law and Resolution nº 2 or otherwise contains defects or irregularities that may impair the judgment on its merits, CADE's General-Superintendence will order that the Applicants amend the submission, which will only be possible once, under the penalty of shelving of the submission and need for a new request. Once the actions above have been fulfilled, the General Superintendence will: (i) directly cognize the application and render a decision approving the case, whenever the proceeding does not require further investigation or otherwise has a minor potential to harm free competition; or (ii) request additional clarifications and/or
information, through a request for information, specifying the actions and investigations to be carried out. Once the additional evidence is presented, the General Superintendence shall: (i) give its unqualified approval for the act; or (ii) file an objection before the Tribunal, after declaring the complexity of the transaction, if it believes that the transaction should be rejected or conditionally approved, or else if there are no conclusive elements as to the effects of such transaction on the market. Then, the Tribunal may also request further information before the final decision. 17. Describe the sanctions for not filing or filing and incorrect/incomplete notification. The filing of an incorrect or incomplete notification may be treated as a non-submitted transaction. The submission of the transaction must be made "a priori", which means, prior to its completion. The transaction is therefore subject to a mandatory waiting period, and may only be consummated after CADE's final decision. Until a final decision is rendered on the deal, the competitive conditions among the companies involved must be preserved and the parties shall be prevented from any actions towards the closing of the transaction or its implementation. According to the Paragraph 3, Article 88 of the Antitrust Law, if a transaction be implemented before CADE's final decision, a fine, which can vary from R$ 60.000,00 to R$ 60.000.000,00 shall be imposed to the Applicants. 18. Describe the procedures if the agency wants to challenge the transaction? As mentioned above, the General Superintendence may file an objection before the Tribunal, after declaring the complexity of the transaction, if it believes that the transaction should be rejected or conditionally approved, or else if there are no conclusive elements as to the effects of such transaction on the market. The involved parties, as well as third-parties, may present their arguments to the Tribunal. In hearing a merger filing application, CADE's Tribunal may unconditionally approve it; reject it; or approve it conditionally, then establishing or negotiating the restrictions that must be observed as a condition to validity and efficacy of the deal. As a general matter, the Administrative Council for Economic Defense seek to challenge transactions that are likely to create or enhance marker power or to facilitate the exercise of market power. Generally, when the antitrust authorities conditionally approve a concentration act, the Applicants have a fixed period to prove the accomplishment of all restriction imposed by CADE, which is a condition to validate the deal.
19. Describe the penalties applicable to the implementation of a merger before clearance or of a prohibited merger? As mentioned above, the transaction shall not be implemented/consummated until CADE renders a final decision, preserving the competitive conditions between them. In other words, submission of the transaction must be made "a priori", which means, prior to its completion. The transaction is therefore subject to a mandatory waiting period, and may only be consummated after CADE's final decision. Until a final decision is rendered on the deal, the competitive conditions among the companies involved must be preserved and the parties shall be prevented from any actions towards the closing of the transaction or its implementation. According to the Paragraph 3, Article 88 of the Antitrust Law, if a transaction be implemented before CADE's final decision, a fine, which can vary from R$ 60.000,00 to R$ 60.000.000,00, shall be imposed to the Applicants. 20. Describe, briefly, your assessment of the regulatory agency's current attitudes/activities. CADE has two main attributes: preventive and repressive. The preventive role refers to the analysis and control of mergers that may lead to economic concentration or to the abuse of a dominant market position. The repressive role has the objective to identify and punish the economic agents that had practiced infringements against the economic order (anticompetitive conduct). Considering that the new Antitrust Law entered into force in May, 2012, there are some aspects that are not very clear to the parties and to the antitrust authorities. Thus, CADE expect to publish soon further guidance regarding such matters. However, it is noted that the recent legislative change meant an advance in the Brazilian competition policy. 21. Other Important Information: