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Cisco and Technicolor admit practice of gun jumping in global transaction

Gun Jumping

The parties closed a global transaction for the takeover of a wholly-owned subsidiary of Cisco Systems Technicolor S/A
published: Jan 21, 2016 09:00 AM last modified: Apr 13, 2016 02:48 PM

The Tribunal of the Administrative Council for Economic Defense – CADE, in its judgment session of 20 January 2016, determined to the companies Cisco Systems Inc. and Technicolor S/A the payment of BRL 30 million for the practice of gun jumping – when a transaction of obligatory notification is consummated before CADE’s approval. The practice is foreseen by Article 88, paragraph 3 of Law No. 12.529/2011.

In the case (Administrative Proceeding for Assessments regarding Mergers No. 08700.011836/2015-49), the parties closed a global transaction for the takeover of a wholly-owned subsidiary of Cisco Systems Inc., based in the USA, by Technicolor S/A, based in France.

The merger was notified in Brazil, Canada, USA, Colombia, the Netherlands and Ukraine. In Brazil, the notification was considered complete by CADE’s General Superintendence on 16 October 2015 and the parties consummated the transaction on 19 November 2015, before the conclusion of CADE’s analysis.

The companies informed about the beginning of their joint activities on 20 November 2015, by means of a press release published in their website: “Technicolor has completed the acquisition of Cisco Connected Devices. (…) The integration of the Cisco Connected Devices assets is starting immediately and the strategic collaboration agreement between Technicolor and Cisco is now moving into the implementation stage”. These excerpts of the companies’ press release was considered sufficient proof of gun jumping.

“Besides that, CADE had notice of the situation by its own means, being informed by the companies only three days after the publication of the press release”, said the reporting Commissioner for the case, Paulo Burnier.

Carve-out agreement

Another question analyzed pertains to the carve-out agreement signed by Cisco and Technicolor, which, according to the parties, would keep the competitive conditions observed before the transaction in Brazil. The carve-out agreement is a contractual term with the intention to isolate the effects of a global transaction in jurisdictions where the transaction has not yet been approved by antitrust authorities.

The majority of the antitrust authorities does not accept carve-out agreements as means of excluding or mitigating the penalty for gun jumping, due to concerns about its effectiveness and difficult monitoring. Authorities from the USA, Canada, European Union, Germany, among others fit in this situation.

According to Burnier, the effectiveness of carve-out agreements is highly questionable when it comes to avoiding the exchange of sensitive information between competitors. “It seems very reasonable to me the large reticence and suspicion of the foreign antitrust authorities in regards to the using of this instrument in the control of international mergers”, noted the Commissioner.

For Commissioner Burnier, the previous consummation of the transaction in this case “was part of a rational choice, within a deliberate strategy of the parties to close the deal before CADE’s approval”.

In face of the parties’ admission of the previous consummation of the transaction, and in order to guarantee the effective and fast application of Law No. 12.529/2011, the Administrative Council for Economic Defense – CADE signed a Merger Control Agreement (ACC in its acronym in Portuguese) with Technicolor S/A and Cisco System, Inc., in the Tribunal’s judgment session of 20 January 2016.

Considering the seriousness of the violation and the position of the Commissioner not to negotiate the value of the pecuniary contribution, the companies agreed to pay BRL 30 million, which will revert to the Federal Council of the Diffuse Rights Fund (CFDD in its acronym in Portuguese). The value is ten times the amount defined in the case Goiás Verde/Brasfrigo, the most serious case of gun jumping analyzed by CADE until now.


This was the first case of gun jumping at CADE after the entry into effect of the Resolution No. 13/2015, which regulates the Administrative Proceeding to Assessments Regarding Mergers (APAC in its acronym in Portuguese).

The analysis of the merits of the Merger File No. 08700.009018/2015-86, the original Administrative Proceeding, follows now to CADE’s General Superintendence, which shall conclude the case analysis, recommending either for the approval or for the challenging of the transaction before the Tribunal.