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The Cartels and Leniency Review
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This article was first published in The Cartels and Leniency Review, 2nd edition(published in January 2014 – editor Christine A Varney).
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The Merger Control
Review
Law Business Research
Seventh Edition
Editor
Ilene Knable Gotts
The Merger Control Review
Reproduced with permission from Law Business Research Ltd.
This article was first published in The Merger Control Review, 7th edition(published in August 2016 – editor Ilene Knable Gotts).
For further information please [email protected]
The Merger Control
Review
Seventh Edition
EditorIlene Knable Gotts
Law Business Research Ltd
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The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:
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Acknowledgements
ii
JEFF LEONG, POON & WONG
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iii
Editor’s Preface ..................................................................................................viiIlene Knable Gotts
PART I GENERAL PAPERS �������������������������������������������������� 1–76
Chapter 1 CHINA’S MERGER CONTROL IN THE PHARMACEUTICAL SECTOR..................................................................................... 3
Susan Ning, Hazel Yin and Ting Gong
Chapter 2 ECONOMICS TOOLS USED IN MERGER CONTROL ......... 10S Murthy Kambhampaty and James A Langenfeld
Chapter 3 EU MERGER CONTROL IN THE PHARMACEUTICAL SECTOR................................................................................... 30
Pablo Figueroa and Alejandro Guerrero
Chapter 4 INTERNATIONAL MERGER REMEDIES .............................. 46John Ratliff, Frédéric Louis and Cormac O’Daly
Chapter 5 US MERGER CONTROL IN THE HIGH-TECHNOLOGY SECTOR................................................................................... 61
C Scott Hataway and Michael S Wise
Chapter 6 US MERGER CONTROL IN THE MEDIA SECTOR .............. 68Gary W Kubek and Michael Schaper
CONTENTS
iv
Contents
PART II JURISDICTIONS ������������������������������������������������ 77–524
Chapter 1 AUSTRALIA ............................................................................. 79Peter Armitage and Ross Zaurrini
Chapter 2 AUSTRIA.................................................................................. 95Gerhard Fussenegger and Valentina Schaumburger
Chapter 3 BELGIUM .............................................................................. 105Carmen Verdonck and Steffie De Cock
Chapter 4 BOSNIA AND HERZEGOVINA ............................................ 122Rastko Petaković
Chapter 5 BRAZIL .................................................................................. 131Cristianne Saccab Zarzur
Chapter 6 CANADA ............................................................................... 141Dany H Assaf, Rebecca Moskowitz and Marina Chernenko
Chapter 7 CHINA ................................................................................... 152Susan Ning and Hazel Yin
Chapter 8 COSTA RICA ......................................................................... 160Edgar Odio
Chapter 9 CROATIA ............................................................................... 170Goran Durmiš, Tea Radmilo and Karla Ressler
Chapter 10 ECUADOR ............................................................................. 180Diego Pérez-Ordoñez, Luis Marín-Tobar and Natalia Almeida-Oleas
Chapter 11 FRANCE ................................................................................ 189Hugues Calvet and Olivier Billard
Chapter 12 GERMANY ............................................................................. 206Alexander Rinne and Andreas Boos
Chapter 13 HONG KONG ....................................................................... 215Marc Waha, Pearl Yeung and Sophie Chen
v
Contents
Chapter 14 INDIA .................................................................................... 225Samir R Gandhi, Fadi Metanios, Rahul Satyan and Shruti Aji Murali
Chapter 15 INDONESIA .......................................................................... 237Theodoor Bakker, Luky I Walalangi and Miriam Andreta
Chapter 16 ISRAEL ................................................................................... 248Ran Ben-Ari
Chapter 17 ITALY ..................................................................................... 258Rino Caiazzo and Francesca Costantini
Chapter 18 JAPAN .................................................................................... 267Yusuke Nakano, Vassili Moussis, Takeshi Suzuki and Kiyoko Yagami
Chapter 19 KOREA ................................................................................... 282Sai Ree Yun, Seuk Joon Lee, Cecil Saehoon Chung, Kyoung Yeon Kim and Kyu Hyun Kim
Chapter 20 MACEDONIA ........................................................................ 291Tatjana Popovski-Buloski
Chapter 21 MALAYSIA ............................................................................. 298Jeff Leong
Chapter 22 MEXICO ................................................................................ 309Rafael Valdés Abascal and José Ángel Santiago Ábrego
Chapter 23 MOROCCO ........................................................................... 317Corinne Khayat and Maïja Brossard
Chapter 24 NETHERLANDS ................................................................... 325Gerrit Oosterhuis and Weyer VerLoren van Themaat
Chapter 25 NEW ZEALAND .................................................................... 336Ross Patterson, Oliver Meech and Kristel McMeekin
Chapter 26 POLAND ................................................................................ 348Małgorzata Szwaj and Mariusz Łaszczyk
Chapter 27 PORTUGAL ........................................................................... 357Ricardo Bordalo Junqueiro and Marta Flores da Silva
Country
vi
Chapter 28 ROMANIA ............................................................................. 369Carmen Peli and Mihaela Ciolan
Chapter 29 RUSSIA ................................................................................... 383Maxim Boulba and Maria Ermolaeva
Chapter 30 SERBIA ................................................................................... 392Rastko Petaković
Chapter 31 SINGAPORE .......................................................................... 401Daren Shiau and Elsa Chen
Chapter 32 SOUTH AFRICA .................................................................... 418Candice Upfold
Chapter 33 SPAIN ..................................................................................... 436Joaquín Hervada and Emilio Carrandi
Chapter 34 SWITZERLAND .................................................................... 446Pascal G Favre and Patrick Sommer
Chapter 35 TAIWAN ................................................................................ 455Victor I Chang, Margaret Huang and Deven Lu
Chapter 36 THAILAND ........................................................................... 464Panuwat Chalongkuamdee and Parithat Chamnongsilp
Chapter 37 TURKEY ................................................................................ 469Gönenç Gürkaynak and K Korhan Yıldırım
Chapter 38 UKRAINE .............................................................................. 480Maksym Nazarenko and Valentyna Hvozd
Chapter 39 UNITED KINGDOM ............................................................ 489Jordan Ellison and Paul Walter
Chapter 40 UNITED STATES................................................................... 502Ilene Knable Gotts
Chapter 41 VENEZUELA ......................................................................... 511Pedro Ignacio Sosa, Rodrigo Moncho Stefani and Mauricio Ramírez Gordon
Appendix 1 ABOUT THE AUTHORS ...................................................... 523
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS ....... 555
vii
EDITOR’S PREFACE
Pre-merger competition review has advanced significantly since its creation in 1976 in the United States. As this book evidences, today almost all competition authorities have a notification process in place – with most requiring pre-merger notification for transactions that meet certain prescribed minimum thresholds. Additional jurisdictions, particularly in Asia, are poised to add pre-merger notification regimes within the next year or so. In our endeavour to keep our readers well informed, we have expanded the jurisdictions covered by this book to include the newer regimes as well.
Given the ability of most competition agencies with pre-merger notification laws to delay, and even block, a transaction, it is imperative to take each jurisdiction – small or large, new or mature – seriously. For instance, in 2009, China blocked the Coca-Cola Company’s proposed acquisition of China Huiyuan Juice Group Limited and imposed conditions on four mergers involving non-China-domiciled firms. In Phonak/ReSound (a merger between a Swiss undertaking and a Danish undertaking, each with a German subsidiary), the German Federal Cartel Office blocked the entire merger, even though less than 10 per cent of each of the undertakings was attributable to Germany. It is, therefore, imperative that counsel for such a transaction develops a comprehensive plan prior to, or immediately upon, execution of an agreement concerning where and when to file notification with competition authorities regarding such a transaction. To this end, this book provides an overview of the process in 41 jurisdictions, as well as a discussion of recent decisions, strategic considerations and likely upcoming developments. Given the number of recent significant M&A transactions involving media, pharma and high-technology companies, we have included chapters that focus on the enforcement trends in these important sectors. In addition, as merger review increasingly includes economic analysis in most, if not all, jurisdictions, we have added a chapter that discusses the various economic tools used to analyse transactions. The intended readership of this book comprises both in-house and outside counsel who may be involved in the competition review of cross-border transactions.
Some common threads in institutional design underlie most of the merger review mandates, although there are some outliers as well as nuances that necessitate careful consideration when advising a client on a particular transaction. Almost all jurisdictions vest exclusive authority to review transactions in one agency. The United States and China may
Editor’s Preface
viii
end up being the exceptions in this regard. Most jurisdictions provide for objective monetary size thresholds (e.g., the turnover of the parties, the size of the transaction) to determine whether a filing is required. Germany, for instance, provides for a de minimis exception for transactions occurring in markets with sales of less than €15 million. There are some jurisdictions, however, that still use ‘market share’ indicia (e.g., Bosnia and Herzegovina, Colombia, Lithuania, Portugal, Spain, Ukraine and the United Kingdom). Most jurisdictions require that both parties have some turnover or nexus to their jurisdiction. However, there are some jurisdictions that take a more expansive view. For instance, in Poland, a notification may be required even though only one of the parties is present and, therefore, there may not be an impact on competition in Poland. Turkey recently issued a decision finding that a joint venture (JV) that produced no effect on Turkish markets was reportable because the JV’s products ‘could be’ imported into Turkey. Germany also takes an expansive view by adopting as one of its thresholds a transaction of ‘competitively significant influence’. Although a few merger notification jurisdictions remain ‘voluntary’ (e.g., Australia, Singapore, the United Kingdom and Venezuela), the vast majority impose mandatory notification requirements. Moreover, in Singapore, the transaction parties are to undertake a ‘self-assessment’ of whether the transaction will meet certain levels, and, if so, should notify the agency to avoid potential challenge by the agency.
Although in most jurisdictions the focus of the competition agency is on competition issues, some jurisdictions have a broader mandate. For instance, the ‘public interest’ approach in South Africa expressly provides for consideration of employment matters, local enterprises and procurement, and for economic empowerment of the black population and their participation in the company. Many of the remedies imposed in South Africa this year have been in connection with these considerations. Although a number of jurisdictions have separate regulations and processes for addressing foreign entity acquisitions when national security or specific industrial sectors are involved, in Romania, for example, the competition law provides that the government can prohibit a merger if it determines that such merger could have a potential impact on national security.
The potential consequences for failing to file in jurisdictions with mandatory requirements vary. Almost all jurisdictions require that the notification process be concluded prior to completion (e.g., pre-merger, suspensory regimes), rather than permitting the transaction to close as long as notification is made prior to closing. Many of these jurisdictions can impose a significant fine for failure to notify before closing, even where the transaction raises no competition concerns (e.g., Austria, Cyprus, India, the Netherlands, Romania, Spain and Turkey). In France, for instance, the competition authority imposed a €4 million fine on Castel Frères for failure to notify its acquisition of part of the Patriache group. In Ukraine, the competition authority focused its efforts on discovering consummated transactions that had not been notified, and imposed fines in 32 such cases in 2015 alone.
Some jurisdictions impose strict time frames within which the parties must file their notification. For instance, Cyprus requires filing within one week of signing of the relevant documents and agreements; Serbia and India provide for 15 days after signing of the agreement; and Hungary, Ireland and Romania have a 30-calendar-day time limit for filing the notification that commences with entering into the agreement. Some jurisdictions that mandate filings within specified periods after execution of the agreement also have the authority to impose fines for ‘late’ notifications (e.g., Bosnia and Herzegovina, Indonesia, India and Serbia). Most jurisdictions also have the ability to impose significant fines for failure to notify or for closing before the end of the waiting period, or both (e.g., Austria, Canada,
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China, Greece, Portugal, Ukraine and the United States). In Macedonia, the failure to file can result in a misdemeanour and a monetary fine of up to 10 per cent of the worldwide turnover. In Belgium, the competition authority fined a party for late submission of information.
In addition, other jurisdictions have joined the EC and the United States in focusing on interim conduct of the transaction parties. Brazil, for instance, issued its first ‘gun-jumping’ fine in 2014 and recently issued guidelines on gun-jumping violations. In most jurisdictions, a transaction that does not meet the pre-merger notification thresholds is not subject to review or challenge by the competition authority. In Canada – like the United States – however, the Canadian Competition Bureau can challenge mergers that were not required to be notified under the pre-merger statute. In Korea, Microsoft initially filed a notification with the Korea Fair Trade Commission (KFTC), but when it faced difficulties and delays in Korea the parties restructured the acquisition to render the transaction nonreportable in Korea and consummated the transaction. The KFTC, however, continued its investigation as a post-consummation merger investigation and eventually obtained a consent order.
In almost all jurisdictions, very few transactions undergo a full investigation, although some require that the notification provide detailed information regarding the markets, competitors, competition, suppliers, customers and entry conditions. Most jurisdictions that have filing fees specify a flat fee or state in advance a schedule of fees based upon the size of the transaction; some jurisdictions, however, determine the fee after filing or provide different fees based on the complexity of the transaction. For instance, Cyprus is now considering charging a higher fee for acquisitions that are subjected to a full Phase II investigation.
Most jurisdictions more closely resemble the EC model than the United States model. In these jurisdictions, pre-filing consultations are more common (and even encouraged); parties can offer undertakings during the initial stage to resolve competitive concerns; and there is a set period during the second phase for providing additional information and for the agency to reach a decision. In Japan, however, the Japan Federal Trade Commission (JFTC) announced in June 2011 that it would abolish the prior consultation procedure option. When combined with the inability to ‘stop the clock’ on the review periods, counsel may find it more challenging in transactions involving multiple filings to avoid the potential for the entry of conflicting remedies or even a prohibition decision at the end of a JFTC review. Some jurisdictions, such as Croatia, are still aligning their threshold criteria and processes with the EC model. Some jurisdictions even within the EC remain that differ procedurally from the EC model. For instance, in Austria, the obligation to file can be triggered if only one of the involved undertakings has sales in Austria, as long as both parties satisfy a minimum global turnover and have a sizeable combined turnover in Austria.
The role of third parties also varies across jurisdictions. In some jurisdictions (e.g., Japan), there is no explicit right of intervention by third parties, but the authorities can choose to allow it on a case-by-case basis. In contrast, in South Africa, registered trade unions or representatives of employees must be provided with a redacted copy of the merger notification from the outset and have the right to participate in merger hearings before the Competition Tribunal: the Tribunal will typically also permit other third parties to participate. Bulgaria has announced a process by which transaction parties even consent to disclosure of their confidential information to third parties. In some jurisdictions (e.g., Australia, the EC and Germany), third parties may file an objection to a clearance decision. In some jurisdictions (including Canada, the EC and the United States), third parties (e.g., competitors) are required to provide information and data if requested by the antitrust authority. In Israel, a third party that did not comply with such a request was recently fined by the authority.
Editor’s Preface
x
In almost all jurisdictions, once the authority approves the transaction, it cannot later challenge the transaction’s legality. The United States is one significant outlier with no bar for subsequent challenge, even decades following the closing, if the transaction is later believed to have substantially lessened competition. Canada, in contrast, provides a more limited time period of one year for challenging a notified transaction (see the recent CSC/Complete transaction). Norway is a bit unusual, where the authority has the ability to mandate notification of a transaction for a period of up to three months following the transaction’s consummation. In ‘voluntary’ jurisdictions, such as Australia and Singapore, the competition agency can investigate and challenge unnotified transactions.
It is becoming the norm in large cross-border transactions raising competition concerns for the United States, Canadian, Mexican and EC authorities to work closely together during the investigative stages, and even in determining remedies, minimising the potential of arriving at diverging outcomes. The KFTC has stated that it will engage in even greater cooperation with foreign competition authorities, particularly those of China and Japan, which are similar to Korea in their industrial structure. Regional cooperation among some of the newer agencies has also become more common; for example, the Argentinian authority has worked with Brazil’s CADE, which in turn has worked with the Chilean authority. Competition authorities in Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Montenegro, Serbia, Slovenia and Turkey similarly maintain close ties and cooperate on transactions. Taiwan is part of the Asia-Pacific Economic Cooperation Forum, which shares a database. In transactions not requiring filings in multiple European jurisdictions, Member States often keep each other informed during the course of an investigation. In addition, transactions not meeting the EC threshold can nevertheless be referred to the European Commission in appropriate circumstances. The United States has signed cooperation agreements with a number of jurisdictions, including most recently Peru and India. China has ‘consulted’ with the United States and the EC on some mergers and entered into a cooperation agreement with the United States authorities in 2011.
The impact of such multijurisdictional cooperation was very evident this year. For instance, the transaction parties in Applied Materials/Tokyo Electron ultimately abandoned the transaction due to the combined objections of several jurisdictions, including the United States, Europe, and Korea. In Office Depot/Staples, the FTC and the Canadian Competition Bureau cooperated and both jurisdictions brought suits to block the transaction (although the EC had also cooperated on this transaction, it ultimately accepted the undertakings offered by the parties). In the GE/Alstom transaction, the United States and the EC coordinated throughout, including at the remedies stage. Additionally, in the Halliburton/Baker Hughes transaction, the United States and the EC coordinated their investigations, with the United States suing to block the transaction while the EC’s investigation continued. Also, in Holcim/Lafarge, the cooperation between the United States and Canada continued at the remedies stage, where both consents included assets in the other jurisdiction’s territory. The United States, Canada and Mexico coordinated closely in the review of the Continental/Veyance transaction. In fact, it is becoming the norm for coordination among the jurisdictions in multinational transactions that raise competition issues.
Although some jurisdictions have recently raised the size threshold at which filings are mandated, others have broadened the scope of their legislation to include, for instance, partial ownership interests. Some jurisdictions continue to have as their threshold test for pre-merger notification whether there is an ‘acquisition of control’. Many of these jurisdictions, however, will include, as a reportable situation, the creation of ‘joint control’, ‘negative (e.g., veto) control’ rights to the extent that they may give rise to de jure or de facto control (e.g., Turkey),
Editor’s Preface
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or a change from ‘joint control’ to ‘sole control’ (e.g., the EC and Lithuania). Minority holdings and concerns over ‘creeping acquisitions’, in which an industry may consolidate before the agencies become fully aware, have become the focus of many jurisdictions. Some jurisdictions will consider as reviewable acquisitions in which only a 10 per cent or less interest is being acquired (e.g., Serbia for certain financial and insurance mergers), although most jurisdictions have somewhat higher thresholds (e.g., Korea sets the threshold at 15 per cent of a public company and otherwise at 20 per cent of a target; and Japan and Russia at any amount exceeding 20 per cent of the target). Others use, as the benchmark, the impact that the partial shareholding has on competition; Norway, for instance, can challenge a minority shareholding that creates or strengthens a significant restriction on competition. The UK also focuses on whether the minority shareholder has ‘material influence’ (i.e., the ability to make or influence commercial policy) over the entity. Several agencies during the past few years have analysed partial ownership acquisitions on a stand-alone basis as well as in connection with JVs (e.g., Canada, China, Cyprus, Finland and Switzerland). Vertical mergers were also a subject of review (and even resulted in some enforcement actions) in a number of jurisdictions (e.g., Belgium, Canada, China, Sweden and Taiwan). Portugal even viewed as an ‘acquisition’ subject to notification the non-binding transfer of a customer base.
For transactions that raise competition issues, the need to plan and to coordinate among counsel has become particularly acute. Multi-jurisdictional cooperation facilitates the development of cross-border remedies packages that effectively address competitive concerns while permitting the transaction to proceed. The consents adopted by the United States and Canada in the Holcim/Lafarge merger exemplify such a cross-border package. As discussed in the International Merger Remedies chapter, it is no longer prudent to focus merely on the larger mature authorities, with the expectation that other jurisdictions will follow their lead or defer to their review. In the current enforcement environment, obtaining the approval of jurisdictions such as Brazil and China can be as important as the approval of the EC or the United States. Moreover, the need to coordinate is particularly acute to the extent that multiple agencies decide to impose conditions on the transaction. Although most jurisdictions indicate that ‘structural’ remedies are preferable to ‘behavioural’ conditions, a number of jurisdictions in the past few years have imposed a variety of such behavioural remedies (e.g., China, the EC, France, the Netherlands, Norway, South Africa, Ukraine and the United States). For instance, some recent decisions have included as behavioural remedies pricing, sales tariffs and terms of sale conditions (e.g., Korea, Ukraine and Serbia), employee retrenchment (South Africa) and restrictions on bringing antidumping suits (e.g., Mexico). Many recent decisions have imposed behavioural remedies to strengthen the effectiveness of divestitures (e.g., Canada’s decision in the Loblaw/Shoppers transaction, China’s MOFCOM remedy in Glencore/Xstrata, and France’s decision in the Numericable/SFR transaction). This book should provide a useful starting point in navigating cross-border transactions in the current enforcement environment.
Ilene Knable GottsWachtell, Lipton, Rosen & KatzNew YorkJuly 2016
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Chapter 5
BRAZIL
Cristianne Saccab Zarzur1
I INTRODUCTION
Since the new Brazilian Competition Act (Law 12,529/2011) entered into effect, a new competition structure was implemented within the country, through the New CADE. The Administrative Council of Economic Defence (CADE) is the authority responsible, among other tasks, for merger reviews within the Brazilian System for Competition Defence, and is essentially composed by the General Superintendence (GS) and by the CADE Tribunal. A Department of Economic Studies is also part of the New CADE.
The first authority to review mergers in Brazil is the GS. In ‘non-complex’ cases (i.e., those with ‘minor potential to harm competition’), the GS may issue a definitive decision approving the deal without conditions.
In more complex cases (i.e., if the GS concludes that the transaction requires further diligences and an in-depth review, ultimately considering that the deal could be rejected or approved with conditions), the case would be sent to the CADE Tribunal. In such situations, the General Superintendence will issue a non-binding opinion and the CADE Tribunal will be the body responsible for reviewing and judging the transaction.
The following transactions are deemed acts of concentration requiring merger review in Brazil, provided that the following turnover thresholds are met: a a merger between two or more previously independent firms; b a direct or indirect acquisition, by one or more companies, of control or parts of one
or more companies, through purchase or leasing of shares, quotas, titles or convertible securities, tangible or intangible assets, or by means of any kind of agreement;
c one or more companies absorbs another company or companies; and d two or more companies enter into an associative agreement, consortium or joint
venture (except when intended for participation in bidding procedures opened by the direct or indirect government authorities and for execution of the ensuing contracts).
1 Cristianne Saccab Zarzur is a partner at Pinheiro Neto Advogados.
Brazil
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According to the Brazilian Competition Act, the transactions above must be filed with CADE for prior approval whenever they meet the following cumulative thresholds: a at least one of the economic groups involved in the transaction registered gross
revenues or volume of businesses in Brazil equal to or exceeding 750 million reais in the fiscal year preceding the transaction; and
b at least one of the other economic groups involved in the transaction registered gross revenues or volume of businesses in Brazil equal to or in excess of 75 million reais in the fiscal year preceding the transaction.
For the purpose of calculating revenues, economic group means: a companies under common control, either internal or external; and b companies in which any of the companies dealt with in item (a) own, directly or
indirectly, at least 20 per cent of the capital stock or voting capital.
In Brazil it is necessary to calculate 100 per cent of the gross turnover of such entities (not pro rata) in the year preceding the transaction.
In the case of investment funds, the economic group comprises:a the economic group of each shareholder that directly or indirectly holds at least 50 per
cent of the shares in the fund involved in the deal, whether individually or through any type of shareholders’ agreement; and
b the companies controlled by the fund involved in the deal, as well as the companies in which such fund directly or indirectly holds an ownership interest equal to or higher than 20 per cent of the capital stock or voting capital.
In early 2015, CADE’s Resolution No. 10/2014 came into effect, establishing the specific circumstances in which conciliatory agreements (set forth in Article 90, Item IV of the Brazilian Competition Act) must be submitted. This results in the mandatory submission of agreements with terms exceeding two years that involve vertical or horizontal cooperation or risk-sharing and entail an interdependent relationship among the contracting parties. Independent horizontal or vertical cooperation or risk-sharing occurs with the following: a agreements in which the parties and their economic groups have horizontal relation
in connection with the object of the agreement, and their combined shares in the relevant market affected by the agreement is at least 20 per cent; or
b agreements where the contracting parties and their economic groups are vertically related in connection with the object of the agreement, whenever at least one of the parties holds a share of 30 per cent or more in the relevant markets affected by the agreement, as long as at least one of the following conditions is met: • if the agreement establishes that the parties will share profits or losses; and• if the agreement establishes exclusivity.
In the acquisition of minority stakes, and according to CADE’s Resolution 2/2012, once the turnover thresholds are met a filing is required when the economic group of the purchaser and the target are horizontally or vertically related, and: a that acquisition will confer a direct or indirect ownership interest equal to 5 per cent
or more of the voting capital or capital stock of the target; or
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133
b the acquisition is of an additional 5 per cent stake in the total share or voting capital when the purchaser already holds an interest of at least 5 per cent in the target.2
If the entities affiliated with the purchaser economic group and the target are not competitors and do not operate in any vertically integrated market, the transaction would only be notifiable if it: a confers upon the acquiring company the direct or indirect ownership of 20 per cent
or more of the capital stock or voting capital of the target; or b the purchaser already holds 20 per cent or more of the capital stock or voting capital,
and the ownership interest directly or indirectly acquired from at least one seller taken individually is equal to or higher than 20 per cent of the capital stock or voting capital of the target.
Acquisitions of additional ownership interest carried out by an entity already holding sole control over the target are not subject to mandatory filing in Brazil.
The subscription of securities convertible into shares is subject to mandatory notification when, cumulatively: a the future conversion into shares results in acquisition of control or falls under the
definition of a notifiable minority shareholding; and b the security or value involved entitles the acquirer to designate members for management
or inspection bodies, or provides voting or veto rights over competition-sensitive issues, except for the rights already prescribed by law.
For a public offer of securities convertible into shares, no prior approval is required from CADE for subscription of such securities, but any decision-making rights attached to the securities acquired shall not be exercised until the deal is cleared by CADE. The notification of the acquisition of convertible securities exempts their conversion into shares from the analysis of the antitrust authority.
Once a concentration act is submitted for CADE’s analysis, it may be subject to either a fast-track or close-scrutiny review process (long-form review). The former involves a more expedite merger control procedure,3 provided in cases of (among others, under the authorities’ discretion): a classical or cooperative joint ventures;b replacement of economic agent, when the acquiring company or its economic group
did not perform any activities in in the market involved, or in the vertically related markets, or in other markets in which the acquired company or its group operated;
c horizontal overlap with a low market share, when the transaction results in a player holding less than a 20 per cent market share in the relevant market;
2 This acquisition can be held through one or more transactions: when multiple transactions add up to 5 per cent, the last one, that effectively meets the threshold, should be submitted to CADE’s analysis.
3 A proposal to the fix a 30-day term for the GS to issue its decision under the fast-track procedure is currently out for public consultation.
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d vertical integration with low market share, when none of the applicants or their economic groups control more than 30 per cent of any of the vertically integrated relevant markets; or
e lack of causal link.
Other well-received recent regulatory advancements include the introduction of Resolutions No. 12, 13, and 14/2015. The former provide for consultations with CADE, allowing parties to inquire about interpretations of the law. The consultation mechanism has been employed on nine occasions since its implementation.4 Resolution 13/2015 establishes rules for gun-jumping investigations (Administrative Proceeding to Investigate Merger Control). Resolution 14/2015 instituted the electronic filing of merger transactions before the antitrust authority.
CADE has also issued guidelines regarding antitrust compliance policies, such as the Gun Jumping Guidelines5 and the Horizontal Merger Guidelines. The latter is still under public consultation.6
II YEAR IN REVIEW
In 2015, CADE demonstrated a willingness to refine its pre-merger review process, having addressed several complex cases in a competent and timely fashion. The antitrust authority concluded merit analyses of 384 concentration acts, of which 376 were unconditionally cleared, seven were approved with restrictions and one was refused. CADE’s Administrative Tribunal decided only 16 of such cases, which were more complex in nature. For illustration purposes, some of such concentration acts will be briefly commented on below.
CADE’s pre-merger review process is progressively advancing, and appears to present less challenges as the antitrust authority consistently applies sophisticated methodologies to examine cases that require in-depth economic approaches, also capably relying on international cooperation to review global scale transactions.
This substantial improvement becomes especially prominent in transactions that require remedy negotiation and enforcement. In spite of the lack of proper regulation to safely outline such procedures, CADE has dealt with these situations both cautiously and effectively, reaching negotiated solutions that tend to the authority’s disquietudes while compromising, to some extent, with the applicants’ needs and maintaining the feasibility of the proposed investments.
Among the cases that display such features, certain transactions carried out through 2015 deserve distinct attention, such as the acquisition of Rexam PLC by Ball Corporation, a worldwide merger submitted to several antitrust authorities around the globe. CADE was the first national competition authority to issue a final decision in the case, recommending the implementation of structural remedies in order to clear the transaction.7 In this particular
4 According to CADE’s 2015Annual Administrative Report. 5 Available at www.cade.gov.br/acesso-a-informacao/publicacoes-institucionais/guias_do_Cade/
guia-gun-jumping-versao-final-3.pdf (Portuguese version only). 6 Available at www.cade.gov.br/acesso-a-informacao/participacao-social-1/contribuicoes-da-
sociedade/arquivos/guia-de-ac-horizontal.pdf (Portuguese version only).7 Case No. 08700.006567/2015-07 (Ball Corporation and Rexam PLC).
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deal, CADE’s pre-eminence was not limited to issuing a decision first, but also and most distinctively to conforming and applying the selected remedies, which certainly impacted other jurisdictions.
Similarly, CADE mediated solutions for the broadly announced joint venture between Itaú Unibanco and MasterCard, which aims at establishing a new brand in the Brazilian payment means market.8 This transaction was initially submitted in April 2015, but, in the course of the review procedure, CADE’s indications led the parties to subtly alter the scope of the proposed partnership, resulting in the early closure of the proceedings and the resubmission of a new notification in September 2015.
Moreover, this case is revealing in terms of the amplitude of tools that are at CADE’s disposal in order to perform its antitrust analyses, within the conditions that it deems adequate. Among such mechanisms, it is common to consult the transaction’s vertically and horizontally related markets, as well as the associations that group their players. Also, CADE maintained intense contact with the applicants, which accelerated and provided transparency to the review process.
After many issuances of official letters and market research, also led by the applicants themselves, in January 2016 the GS challenged the concentration act, thus remitting the case files to the CADE Tribunal for final review. The councillors were then tasked with deciding whether the Agreement on Concentration Controls9 (ACC) proposed by the applicants was adequate, and its possible implementation, until a final structural solution was eventually reached. The deal was only able to achieve approval by means of the effective instalment of an ACC in early 2016.
Nevertheless, in cases such as the acquisition of HSBC Bank by Bradesco10 (two of the largest Brazilian financial institutions), despite the existence of high concentration levels in over 20 relevant markets affected by the transaction, CADE decided that it did not have sufficient basis to justify intervening with drastic structural measures such as in the previously mentioned examples. It also recognised that few remedy options were available.
8 Case No. 08700.003699/2015-79 (Itaú Unibanco SA and MasterCard Brasil Soluções de Pagamento Ltda).
9 Acordo em Controle de Concentrações. For cases in which this same solution was employed, please refer to Case No. 08700.001437/2015-70 (Dabi Atlante SA Indústrias Médico Odontológica e Gnatus Equipamentos Médico Odontológicos Ltda); Case No. 08700.009732/2014-93 (Telefônica Brasil SA, Telefónica SA, GVT Participações SA e Vivendi SA); Case No. 08700.008607/2014-66 (GlaxoSmithKline PLC and Novartis AG); Case No. 08700.005719/2014-65 (Rumo Logística Operadora Multimodal SA and ALL – América Latina Logística SA); Case No. 08700.004185/2014-50 (Continental Aktiengesellschaft and Veyance Technologies, Inc); Case No. 08700.007621/2014 – 42 (Holcim Ltd and Lafarge SA); Case No. 08700.000344/2014-47 (Bromisa Indústrial e Comercial Ltda, ICL Brasil Ltda e Fosbrasil SA); Case No. 08700.009924/2013-19 (Videolar SA, Sr Lirio Albino Parisotto, Petróleo Brasileiro SA – Petrobras e Innova SA); Case No. 08700.010688/2013-83 (JBS SA, Rodopa Indústria e Comércio de Alimentos Ltda e Forte Empreendimentos e Participações Ltda).
10 Case No. 08700.010790/2015-41 (Banco Bradesco SA and HSBC Bank Brasil SA - Banco Múltiplo).
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In this particular situation, CADE outlined a negotiated solution with the applicants, addressing competition concerns without jeopardising the transaction, and applying remedies related to:a communication and transparency – commitments that aim toward the reduction of
clients’ informational deficit, so that account holders are duly aware of their portability options, in order to choose the financial institution that offers the most advantageous conditions, thereby stimulating competition in the segment;
b training programmes – to improve the bank’s services;c quality meters – Bradesco committed to reducing its disapproval indexes; andd compliance – to mitigate risks of the exercise of coordination.
The solutions that are being negotiated in these cases, which are paradigms, demonstrate that CADE adopts both structural and behavioural remedies in its merger review procedures.
Enforcement in 2015 was also marked by a significant 30 million reais gun-jumping fine applied to Cisco and Technicolor, relating to the closing of an acquisition of Cisco’s subsidiary abroad, without prior notice to the Brazilian antitrust watchdog. The most relevant detail pertaining to the case, however, was the refusal of CADE to accept the parties’ plea for mitigation in the penalties received, considering they had established a carve-out agreement beforehand.11 CADE discovered the facts by its own means, and required the economic groups to properly submit the operation to their approval, along with the payment of the indicated files.
III THE MERGER CONTROL REGIME
i Review procedures
As provided in Resolution No. 2/2012, merger reviews may occur under a fast-track procedure, if the transaction meets the legal requirements as previously described.12 This procedure has achieved demonstrable results in terms of time-efficiency, having greatly reduced the analysis period of less complex transactions.
CADE aims to analyse fast-track cases in 30 days. In 2015, the average time between the filing of a transaction under the fast-track procedure and its approval was around 18 days. This represents an almost two-day reduction when compared to 2014 figures, which indicated an average 20.5 days of analysis for the same type of review procedure.
However, such 30-day deadline is not formallyset forth in the law or resolutions: the law only states the maximum term of 330 days13 (which is only applied to more complex cases and unrealistic to simple cases). Such effort in diminishing the duration of review of simple merger cases and providing legal certainty for businesses has resulted in the proposed preliminary resolution mentioned above, which sets the maximum duration of fast-track procedures at 30 days (see footnote 8).
11 Case No. 08700.011836/2015-49 (Technicolor SA and Cisco Systems Inc).12 See Section II, supra.13 Under Section 88 of the Brazilian Competition Law, merger reviews must be carried out
within the term of 240 days, subject to one justified extensions of 90 additional days, totalling a maximum period of 330 days of analysis.
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As regards the Brazilian full-form procedure, the average time for review is approximately 90 days,14 which is much less than the 330-day term that law provides.
ii Further assessment
Under Brazilian law, the publication of CADE’s initial decision in the Federal Official Gazette is not sufficient to ensure that applicants can close their respective deals. There is an additional 15-calendar-day waiting period in which third parties15 can appeal the GS findings, or, if reputed necessary, CADE’s Administrative Tribunal can decide to place the concentration act under second review. Both requests must be indistinctively presented within this non-extendable 15-day term. After it is concluded, the applicants can freely carry out their deal, and no other kind of review is required under the administrative perspective.
iii Tender offers
As regards tender offers to acquire convertible bonds, acquirers are able to close deals prior to CADE’s approval, but will be unable to exercise any political rights granted by such stakes until it is effectively approved, being susceptible to incurring illicit gun-jumping conduct under Brazilian law. In addition, the notification can be made either when bonds are subscribed or at the time of conversion. An approval on the subscription eliminates the need for a second approval of the conversion.
iv Administrative review
A particular concentration act filed in 2015 provided the opportunity for CADE to improve its scrutiny when analysing third parties’ appeals of cleared cases. On 7 April 2015, FedEx notified the acquisition of its Dutch rival, TNT Express, in the context of a billionaire worldwide transaction.16
The Brazilian antitrust authority performed an in-depth analysis of the acquisition, detecting concentrations exceeding 50 per cent on a combined market share basis in certain affected services. After almost a year of closely evaluating the merger, it was unconditionally cleared by CADE’s lower instance, the GS, which concluded that even though the transaction created significant concentrations, applying local remedies would be practically ineffective competitive-wise, and disproportionately burdensome to the applicants.
In this circumstance, US package delivery company UPS – which unsuccessfully tried to acquire control of TNT on a global basis in 2012 – presented an appeal alleging that a more detailed price concentration study of the transaction was necessary, and would demonstrate that it could not be approved without the imposition of restrictions. This appeal was then remitted to CADE’s Administrative Tribunal, whereby it was received and accepted.
14 Source: www.cade.gov.br/servicos/imprensa/balancos-e-apresentacoes/balanco-4-anos-nova-lei-1.pdf/view.
15 Article 118 of CADE’s Internal Regulations provides that third parties that may have their interests affected by the merger can request to be accepted as interested third party within 15 days after the public notice is released.
16 Case No. 08700.009559/2015-12 (FedEx Corporation and TNT Express NV).
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The reporting councillor for the case, however, indicated that UPS’s arguments were inconsistent, given that the appellants did not introduce any complementary data to the case files that would enable the suggested detailed economic study regarding price concentration.
Following a brief one-month review of the appeal, CADE’s Tribunal sustained the GS’s initial decision and unconditionally cleared the transaction. The arguments presented by UPS generated a strong reaction among the Commissioners, mostly holding during the judgment session that the full reasoning and all documents and data necessary to support the case should be present when an appeal is filed.
This provision is contained in CADE’s internal procedure rules, which provide for all the conditions and procedures regarding appealing a decision issued by the GS. Such provisions are present precisely to avoid companies starting appeals with the sole purpose of delaying the implementation of a deal. During the adjudication session, there were also statements that expressly indicated that the parties could consider seeking damages for the undue postponement of the closing of their transaction.
All such statements point out to the market and their respective counsel the precautions that should be taken before appealing a merger clearance in Brazil, which should be governed by good faith, diligence and robustly evidenced argumentation.
IV OTHER STRATEGIC CONSIDERATIONS
i Coordination with other jurisdictions
In recent years, general awareness regarding the relevance of international cooperation in merger control has increasingly gained momentum. The complex and transnational nature of global transactions, carried out by large and powerful economic groups, demands antitrust analyses that simultaneously contemplate effects generated in all affected markets. For such reasons, to guarantee the accuracy of the conclusions reached by competition authorities, as well as the effectiveness of the measures they impose, it has become important to establish channels for international cooperation.
In the Brazilian scenario, CADE has undertaken efforts to facilitate cooperation, including entering into cooperative agreements and coordinating during and post review of multinational close-scrutiny cases.
Correspondingly, as has become standard in recent years, CADE established a new partnership for cooperation and information-sharing in 2015, with the Inter-American Development Bank.17 Apart from other similar, pre-existing agreements, Brazilian authorities also participated in the activities of many other multilateral competition-related organisations, such as: a the International Competition Network; b the Organisation for Economic Co-Operation and Development; c the Common Market of the South (Mercosul); and d the United Nations Conference on Trade and Development.
17 www.cade.gov.br/assuntos/internacional/cooperacao-bilateral-1/convenio-cade-bid.pdf/view.
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According to CADE Councillor Paulo Burnier da Silveira:
…international cooperation may occur at a regional level or involve several jurisdictions, and could aim at discussing market definitions, remedies and even cross-checking merging companies’ stories.
He also believes that approximately 20 per cent of non-fast-track cases are undertaken using such cooperation.18 In this regard, 2015 provided many noteworthy examples of substantial transactions that were more thoroughly assessed by means of international collaboration.
For instance, Continental Aktiengesellschaft’s acquisition of Veyance Technologies Inc involved the imposition of remedies in 2015 on an international basis, in connection with obtaining clearance by CADE and other authorities. Many jurisdictions coordinated to ensure the successful implementation of the remedies, which entailed the sale of production facilities located both in Mexico and in Brazil.19
As previously mentioned, placing Brazilian merger control closer into the spotlight, CADE was the first antitrust authority to approve the Rexam-Ball deal in 2015, aided by other foreign watchdogs.20 This case provides a remarkable decision, in which CADE was the first authority to deeply analyse a very complex transaction that could produce its effects all over the country’s territory and the world, and reached a negotiated solution that simultaneously reflected their, and other, major global antitrust authorities concerns about the deal.
Given such actions, it is unclear whether CADE has achieved a level of sophistication in competition policy, intertwined with an advancement of cooperation on an international level.21
In addition, ARRIS’s acquisition of Pace involved international cooperation that facilitated the parties’ getting CADE’s fast clearance on the deal. The authority had not previously analysed the market sufficiently.
The parties granted a waiver letter so that CADE and the DoJ could share information and documents regarding the transaction, and briefly after the US authority approval the applicants got an unconditioned clearance in Brazil.
V OUTLOOK AND CONCLUSIONS
The antitrust community has praised CADE’s efforts to improve the legal certainty of deals and investigations carried out in Brazil.
18 Interview by MLex on the sidelines of the 2016 International Competition Network Annual Conference, April 26-29, 2016, Singapore, available at www.mlex.com/GlobalAntitrust/DetailView.aspx?cid=790171&siteid=203&rdir=1.
19 Case No. 08700.004185/2014-50 (Continental Aktiengesellschaft’s and Veyance Technologies Inc).
20 Case No. 08700.006567/2015-07 (Ball Corporation and Rexam PLC).21 Case No. 08700.007621/2014-42 (Holcim Ltda and Lafarge SA); Case No.
08700.009559/2015-12 (FedEx Corporation and TNT Express NV); Case No. 08700.008607/2014-66 (GlaxoSmithKline PLC and Novartis AG); and Case No. 08700.007191/2015-40 (Halliburton Company and Baker Hughes Incorporated).
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One example of such efforts is the release of several guidelines, involving matters such as: compliance, leniency, settlement agreements and analysis of horizontal merger cases (the latter was recently placed under public consultation and should be released soon).
In this field, it is important to mention CADE’s efforts to try to solve the questions and concerns in deals that involve ‘ancillary agreements’, such as partnerships, supply agreements, etc. CADE’s current regulations are very broad and have been heavily criticised by the private community (companies, counsel). For instance, under the current rule, and assuming that the revenue thresholds are met, a distribution agreement exceeding two years, with exclusivity provisions and in which at least one of the parties holds more than a 30 per cent market share, would need to be filed with CADE for prior analysis. Also, there is additional reasonable doubt regarding what happens if the agreement had a term of less than two years, but it is then renewed for an additional term: should the parties be obliged to file the agreement for antitrust review, ‘stop’ the business during the antitrust analysis and then wait for CADE’s approval?
Trying to address these issues, CADE has currently placed under public consultation a new proposal of regulation for these types of agreements, as a prompt response for the legal and business communities.
This year, CADE has also put in place electronic filing mechanisms – even though physical filing of petitions at CADE (located in Brasilia) is still possible, there has been a huge effort on the authority’s side to promote and encourage electronic filing, not only reducing an enormous quantity of paper but also trying to increase the transparency and access of information by parties, lawyers and third parties.
CADE’s tribunal has also seen a major change in its composition: formed by seven commissioners, three of those commissioners took office in 2015. However, one of the most important changes is the president, Mr Vinicius Carvalho – his mandate ended on 29 May 2016, but his successor has not been named yet.
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Appendix 1
ABOUT THE AUTHORS
CRISTIANNE SACCAB ZARZURPinheiro Neto AdvogadosCristianne S Zarzur has been a partner in the competition and antitrust practice at Pinheiro Neto Advogados since 2006. She joined Howrey LLP (US) as a foreign associate within 2000–2001. She undertook the chair position of IBRAC (the Brazilian Institute for Competition and Consumer Relations) as its first chairwoman from 2014–2015. Ms Zarzur holds an LLB from Universidade Presbiteriana Mackenzie and a further specialisation in economics from Fundação Getúlio Vargas (FGV/SP).
PINHEIRO NETO ADVOGADOSRua Hungria 1100São Paulo 01455-906BrazilTel: +55 11 3247 8400Fax: +55 11 3247 [email protected]
