Triggers’ Updates for Antitrust and M&A Controls

Triggers’ Updates for Antitrust and M&A Controls

1. New criteria of Antitrust Law incidence

In accordance with the Antitrust Law, the general concept of act of business concentration is quite wide. Article 54 of Law nº 8884/94, which rules the cases of business concentration, refers to “any form of market concentration”, including in its scope agreements between cooperatives, contracts, and other arrangements. The amendments inserted by Law 12.529/11 (the so called  New Brazilian Antitrust Law (“NBAL”) follows the same line, listing some examples of operations which would configure business concentrations, however enacting along its content some new provisions as mentioned herein below.

1.1  A main innovation brought by NBAL was to define the first antitrust exemption for control of business structures (art. 90, sole paragraph. – For the purposes of what is set forth in subsection IV of Section  88 of this law,  it shall not be considered as a concentration act when it is intended for the bidding promoted, directly or indirectly, by the government and the contracts arising therefrom). Thus, associations or consortiums for bidding purposes shall no longer be  subject to  business structures’ control in Brazil, although they remain subject to conduct control (as practice of cartel, trust, abuse of dominant position, etc.).

1.2 Law nº 8.884/94 has provided for a double criterion of incidence applicable to acts of both horizontal (between competitors), and upright (between supplier and customer) concentration. Such criterion, once satisfied, leads to the mandatory submission requiring the parties to present the operation to the Brazilian Competition Defense System (SBDC). The criteria are: gross revenue of the economic groups involved in the operation and market share; more specifically when one of the parties involved has recorded an annual gross revenue equivalent to or exceeding US$ 200 million in the year prior to performing the operation; and/or the resulting market share derived from the operation exceeds 20% in any of the relevant markets.

1.3 With the amendments brought by NBAL, the market share is no longer used as a trigger to subject the transaction to SBDC control, remaining gross revenue trigger for that purpose only: whenever one of the groups involved in the operation has recorded, in the last balance annual sheet, gross revenue or total volume of business in Brazil, equivalent to or exceeding US$ 200 million; and the other group involved has recorded, in the last balance sheet, annual gross revenue or total volume of business in Brazil equivalent to or greater than US$ 15 million.

2. New antitrust risk for M&A operations

2.1 Despite of the extended discussion about NBAL, little has been discussed about gun jumping by the authorities in charge of those regulations regarding the matter as “something that shouldn’t concern the investors”. In truth, it is an extremely important issue for private economic agents who desire business operations (mergers, incorporations, etc.) as of May 30, 2012.

2.2  From that date onwards it has been incorporated the international model (USA and EU) by the effectiveness of NBAL implementation of the prior analysis concept, or a system of a priority control of business operations, in which the M&A transaction cannot be consummated (there cannot be the closing) before the previous final decision of CADE – Economic Defense Administrative Council (section. 88, of the NBAL – something similar to that known as prior consent in regulated sectors as telecommunication and transportation, for instance). Thus, besides the risk related to the merit of the business (partial approval or veto), the economic agents have to face that which is known internationally as gun jumping.

2.3 Jumping the gun (or gun jumping) is the practice of acts of consummation of the operation before the judgment by the antitrust authority. The international experience, which shall probably be the basis for CADE precedents has moved the Council to  list some cases which would constitute gun jumping: allocation of customers; stoppage of competitive marketing between the parties;  management unification; pricing sharing information, production capacity and commercial strategies (cases Gemstar/TV Guide, 2003, and Qualcomm/Flarion, 2006, both in the USA); because those acts alter the incentives between the players, as sale of products of the acquired company (case Bertelsmann/Kirch/Premier, 1998, EU); unification of the exercise of  power within the companies, as ceasing to do business and offering discounts related to the possible operation (case Computer Associates / Platinum Technology, 1999, USA); sharing confidential information (list of customers, prices, strategies etc.) for several reasons out coming from a due diligence procedure or otherwise (case Gemstar/TV Guide, 2003, EUA).

2.4 Besides the high fine for gun jumping practice (from US$ 30 thousand to US$ 30 million), the parties shall be able to have their business operation declared null and undergo investigation for practice of cartel, given the nature of the acts of consummation (example: in operations of horizontal concentration – executed between competitors – the sharing of information as the list of customers and prices can alter the incentives of the parties for competing). Therefore, a good measure to avoid those risks would arise from the following question: “what would you say to your competitor if there was no M&A operation in progress?”

2.5  As the authorities have already indicated that they shall leave the identification of the limits of gun jumping concept  to be ruled by the  precedents, the first period of validity and application of the NBAL may be hard for private investors in Brazil. Thus, in order to avoid undesirable exposure to those risks, it is important, whenever possible, that the professionals of antitrust law are involved at the start-up of the negotiations and exchange of information in M&A’s transactions, to avoid the incidence of gun jumping  and related sanctions, for the sake of the business.

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