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20 December 2018
The Administrative Council for Economic Defence (CADE) recently requested, for the second time, the compulsory notification of a transaction that did not meet the legal turnover thresholds.
The Competition Law (12,529/2011) provides that a transaction is reportable as a merger control case, and therefore subject to the suspensory obligation, if:
These are cumulative criteria that must all be met for a notification to be mandatory in Brazil. Nevertheless, the CADE has discretionary powers to require the mandatory notification of any transaction that does not satisfy the turnover thresholds within one year of its completion.
On 5 September 2018 the CADE ruled that a purchase involving two pharmaceuticals companies had to be submitted for review, even though the transaction did not meet the criteria for mandatory notification.(1)
The CADE's Administrative Tribunal ruled that although the transaction was not subject to mandatory notification, Law 12.529/2011 gives the CADE the power to require that any merger or acquisition be submitted for review within one year of its completion, even if it does not meet the legal criteria for prior notification. In short, the CADE confirmed the position of its superintendent general and concluded as follows:
The CADE unanimously decided that a more detailed analysis of the transaction's impact on competition was justified and gave the parties 30 days to notify the transaction. The parties notified the transaction on 11 October 2018.(2)
As stated, the CADE has previously required only two transactions that did not meet the mandatory notification criteria to be notified. The first case occurred in 2016, when the CADE received a complaint regarding a global transaction closed in December 2015 and its effects on competition. The transaction involved the acquisition of Mallinckrodt's contrast media and injection system business units by Guerbet.
In the Mallinckrodt/Guerbet case, although the acquisition did not meet the legal revenues threshold for mandatory submission, the CADE's superintendent general opened an administrative inquiry to investigate the third-party complaints and recognised that the market shares of the companies involved in the transaction were exceedingly high (up to two-thirds of the market, depending on the relevant market definition).
Given the need for a more detailed analysis of the transaction's effects, the superintendent general ordered notification of the transaction, which was submitted by the companies on 15 August 2016.(3)
In a third relevant precedent, a recent merger case involving gun-jumping accusations, the CADE cleared a transaction that had closed before receiving the required antitrust authorisation (and after a settlement in which the companies had agreed to pay R700,000 for breaching the suspensory merger control regime),(4) but made a clear recommendation that future acquisitions by that same economic group must be informed to the CADE even when the relevant turnover thresholds are not met. This decision directly refers to the provision in the Competition Law which guarantees the CADE the right to review transactions that could damage the Brazilian market, even if they do not meet the turnover thresholds.(5)
Although uncommon, these cases demonstrate the CADE's willingness to require parties to submit concentrations that do not meet the compulsory notification thresholds within one year of their conclusion when circumstances indicate uncertainties regarding their impact on competition. This right allows the authority to review the business strategies of successive small acquisitions or acquisitions of nascent rivals in the event that they do not trigger the turnover thresholds. The risk that the CADE may require notification of such transactions seems to increase following complaints by competitors or third parties (even if these are submitted anonymously).
For further information on this topic please contact José Inácio Ferraz De Alemeida Prado Filho, Patrícia Avigni or Vivian Terng at BMA Barbosa Müssnich Aragão by telephone (+55 21 3824 5800) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The BMA Barbosa Müssnich Aragão website can be accessed at www.bmalaw.com.br.
(4) See Administrative Inquiry 08700.010071/2015-20. The plaintiff in this case was anonymous, while the defendants were SMAFF Automóveis Ltda, SMAFF Japan Ltda, Karlos Cesar Fernandes, Kenya Camila Fernandes Beltrão and Nilson Barbosa Machado.
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