Before considering any M&A operation in Brazil, it is important to check whether or not the operation falls within the hypotheses for submission to the local antitrust agency. The Administrative Council for Economic Defence (“CADE”) is the Brazilian antitrust body which analyses and judges acts of economic concentration, such as mergers and other deals which may affect free competition in the Brazilian market.
Such economic concentration operations must mandatorily be previously notified to CADE whenever certain financial criteria are met, regardless of the economic sector of the companies involved. Nowadays, notification to CADE is mandatory when - in the year prior to the transaction - at least one of the participating groups recorded annual gross revenues or turnover in Brazil equal to or greater than BRL 750 million and at least one other group recorded revenues or turnover equal to or greater than BRL 75 million. This prior control aims at preventing operations from being consummated before a detailed assessment by the CADE. Thus, until there is a final decision, the conditions of competition between the parties involved must be preserved, ensuring that the market remains in balance and avoiding any practices potentially harmful to free competition.
This prior control applies to different types of concentration operations, as defined in Brazilian antitrust legislation which details the hypotheses that constitute acts of concentration subject to CADE’s analysis, including mergers of independent companies, deals for control or substantial shareholdings, incorporations and association agreements, consortia or joint ventures between companies. These definitions allow CADE to assess a wide range of potentially market-impacting operations with the aim of preserving competition and preventing abuses of economic power.
Through this mechanism, CADE ensures that mergers and acquisitions take place in a way that respects the principles of the economic order, carefully assessing the impact of each deal on the market environment before it is consummated.
Requests for approval must be filed directly with CADE and accompanied by the required documents (according to such agency's regulations) as well as the payment of a procedural fee which is currently BRL 85,000.00. The operation is analysed within a period of up to 240 days from the filing which can be extended for a further 90 days - if justified by CADE - to ensure a complete and accurate investigation.
CADE's analysis considers that many concentration operations are aimed at the efficiency of economic agents, whether by reducing logistical costs, gains in scale or synergies in production. However, these same operations can also increase the risk of anti-competitive practices, whether unilateral or coordinated. If the potential negative effects on competition outweighs the efficiency benefits, CADE can impose restrictions, such as the sale of specific assets, or - in extreme situations - prohibit the operation.
Failure to submit a transaction that meets the notification criteria to CADE can result in significant penalties. Under the current antitrust legislation, if a transaction is consummated without due consideration by CADE, the transaction will be considered null and void and may also result in a penalty ranging from BRL 60,000.00 (sixty thousand Brazilian reais) to BRL 60,000,000.00 (sixty million Brazilian reais). This sanction is intended to reinforce compliance with prior control procedures. May we recall in this respect that until CADE issues its final decision the conditions of competition between the parties involved must be maintained unchanged (failure to comply with this requirement also subjects companies to the aforementioned penalties).
In practical terms, lawyers involved in any M&A transaction in Brazil should make a prior analysis of the need (or recommendation) to submit the operation to CADE. The analysis should be confirmed during the Legal Due Diligence and, in any case, before the execution of the definitive documents implementing the deal.
In several cases, the need to notify CADE is reflected in the definitive agreements of the transaction (e.g., the SPA – Share Purchase Agreement) as a condition precedent to the implementation of the deal (with the specificity that it cannot be waived by either party).