Questions on Mergers
What is a merger?
According to Article 90 of the Law No 12.529/2011, mergers are: (i) the consolidation of two or more previously independent companies; (ii) the acquisition of the controlling interest or parts of one or more companies by other companies; (iii) the incorporation of one or more companies by other companies; or, also, (iv) the celebration of associative agreements, consortium or joint ventures between two or more companies. Only consortia or associations for bids conducted by the direct and indirect public administration and the agreements arising from that are not considered as mergers, for legal effects.
What is a consolidation?
Consolidation is a corporate act through which two or more independent economic agents establish a new economic agent, by ceasing to exist, as distinct legal entities.
What is an incorporation?
Incorporation is a corporate act through which one or more economic agents fully or partially incorporate other economic agents into the same legal entity, in which the incorporated agent ceases to exist as a legal entity, but the acquirer maintains the legal identity prior to the operation.
What is an acquisition?
Acquisition takes place when an economic agent acquires the control or a substantial portion of the shareholdings of another economic agent.
What is a joint venture?
Joint venture is the association between two or more economic agents for the creation of a new economic agent, without the extinction of those agents that originated it. It may have as purpose research and development of new products and services, by acting in a new market, distinct from the individual markets of each company, or also participate in the same relevant market of the economic agents, among other purposes.
Which aspects does CADE considerate when analyzing a merger?
CADE is responsible for analyzing the competition aspects of mergers which notification is mandatory.
CADE’s antitrust analysis relies on the legal criteria set forth in Law No 12.529/11, CADE’s Internal Statute, the Guidelines for Economic Analysis of Horizontal Mergers (SEAE/SDE Joint Ordinance No. 50 of August 1st, 2001), CADE’s Resolution No 2 and its own case law.
When analyzing a merger, the market share of the companies involved in the transaction, the existence of competition among economic agents, as well as other aspects related to the sector under analysis are taken into consideration. CADE protects competition, aiming at the diversity and quality of products and services provided to the consumer, among other concerns.
After concluding the analysis of the merger, CADE decides for the approval, with restrictions (when there is imposition or negotiation of measures) or without restrictions, or, otherwise, for the rejection of the operation.
Does any merger have to be analyzed by CADE?
No, only those subject to the legal mandatory notification criteria.
According to Article 88 of Law No 12.529/2011, whose amounts were adjusted by the Interministerial Ordinance 994, of May 30, 2012, mergers in any sector where at least one of the groups involved in the operation registered gross annual turnover or total trading volume in Brazil, in the year prior to the transaction, equivalent to or above BRL 750 million, and at least another group involved in the transaction registered gross annual turnover or total trading volume in Brazil, in the year prior to the transaction, equivalent to or above BRL 75 million, must be notified to CADE.
The notification that must be submitted to CADE’s approval will precede the merger, that is, such operations cannot be consummated before being analyzed by the antitrust authority. In other words, the competition conditions between the companies must be maintained until the final decision on the merger.
What if companies consummate a merger that is subject to the legal mandatory notification criteria without submitting the operation to CADE’s analysis?
The consummation of mergers before CADE’s final decision on their approval is a practice known as gun jumping, which is prohibited by Article 88, §3 of Law No 12.529/11.
Such provision requires the parties to abstain from consummating a merger before CADE’s prior analysis is complete, under the penalty of possible declaration of annulment of the operation, imposition of monetary fine in amounts varying between BRL 60 thousand and BRL 60 million – depending on the economic condition of the parties, willful misconduct, bad faith, and the anticompetitive potential of the operation, among others – and the possibility of opening of an administrative proceeding against the parties involved.
Hence, the competitive conditions between the companies involved in the operation must be preserved until the final decision on it (Article 88, §4 of Law No 12.529/11).
Does the notification of a merger submitted to CADE imply expenditures to the companies?
The request for approval of mergers generates a procedural fee of the amount of BRL 85 thousand.
Is there a maximum period for CADE to analyze mergers?
Yes. Article 88 of the Law No 12.529/11 sets forth that the previous assessment of mergers must be made within no more than 240 days, counted from the filing of the notification or its amendment. Such deadline can be extended for no more than 90 days, based on a reasonable decision of CADE’s Administrative Tribunal, that outlines the reasons for the extension, the extension period (which cannot be renewed), and the measures that are required for the judgment of the proceeding.
What is the Merger Control Agreement – ACC in its acronym in Portuguese?
The Merger Control Agreement is an instrument used to solve potential problems identified in mergers submitted to CADE. The ACC’s objective is to solve a structural situation that may prevent the approval of the operation under analysis. According to Article 125 of CADE’s Internal Statute, the agreement can be submitted within up to 30 days from the decision of the General Superintendence for the impugnation of the operation and it must be homologated by CADE’s Administrative Tribunal.