Brazil’s House of Representatives passed a long-awaited competition bill (the Competition Bill) on 5 October 2011, making significant changes to Brazilian competition law. The Competition Bill has yet to be signed into law by the Brazilian President and will take effect 180 days after signing. Once in force, it will have wide-reaching implications across a number of areas, but from the perspective of international companies, some of the most important changes relate to merger control.
At the moment, Brazil’s competition authority (CADE), requires notification by companies that reach relatively low thresholds—which are based currently on revenues or market share—within 15 working days of the signing of the first documents relating to the deal. Once the parties have notified CADE, they are free to complete the deal; there is no obligation to suspend the deal pending clearance.
This will change substantially once the Competition Bill takes effect, and will have major implications for the strategy and timing of transactions that must be notified in Brazil.
- Notification threshold. The Competition Bill requires CADE to be notified of a merger when one of the parties has achieved group-wide revenues of at least R$400 million (approximately €160 million/US$210.5 million) in Brazil in the previous financial year, and another party to the transaction has achieved group-wide revenues in Brazil of R$30 million (approximately €12.5 million/US$15.8 million). Significantly, this removes the market share threshold, which is likely to be welcomed by companies.
- Suspension of the transaction. Parties will no longer be able to close the deal simply after notifying CADE. Instead, parties will need to wait to receive clearance from CADE before closing, which can mean potential delays. Closing a deal without clearance will expose parties to substantial penalties for “gun-jumping” and risk having the transaction deemed void. The fines that can be imposed range from R$60,000 to R$60 million (approximately €24,000-€24 million/ US$32,000-US$32 million).
- Timing. As parties cannot close a deal notified in Brazil until CADE clears it, timing is critical. The Competition Bill envisages a two-phase merger procedure similar to those used in the United States and the European Union. In total, CADE will have a maximum of 240 days to complete its review of a proposed merger. This is subject to a 60 day extension (if requested by the applicant) or 90 days if required by CADE for a justifiable reason. It is expected, however, that CADE will endeavour to complete its review in a much shorter time period in most cases, to align itself with international practice.
International companies with interests or potential interests in Brazil are urged to be aware of these important changes and to consider the implications of the new rules on their business objectives.