Brazil’s antitrust authority publishes non-horizontal merger guidelines

On April 17, 2024, the Brazilian Antitrust Authority (”CADE”) published the final version of its Non-Horizontal Merger Guidelines (V+ Guidelines). As expected, the final version of the V+ Guidelines is very similar to a draft version of the guidelines that was put to public consultation last year.

The V+ Guidelines establish non-binding instructions to help companies understand the framework and criteria CADE has adopted for assessing competition-related aspects of non-horizontal transactions, providing greater legal certainty to the parties involved. Non-horizontal transactions are those in which the parties are active at different levels of the production chain (vertical integration) or that have related activities (conglomerate mergers).

According to the V+ Guidelines, CADE’s framework consists of five stages: defining relevant markets, determining market shares and concentration indexes, analyzing potential harm to competition, analyzing benefits stemming from the transaction, and antitrust remedies. In many cases, the authority’s analysis ends at the third stage.

The final version of the V+ Guidelines contains a methodology found in the draft version for analyzing the potential harm of non-horizontal mergers. This includes an examination of the parties’ ability to exercise market power, whether the merged entity has economic incentives to engage in market foreclosure strategies to the detriment of competitors, and the existence of anticompetitive effects. Some of the key changes included in the final version of the V+ Guidelines are highlighted below:

• Ability to exercise market power: The V+ Guidelines recognize that a downstream player’s market power is more closely related to its purchasing power vis-à-vis the relevant input than to its share in product sales in downstream markets. Traditionally, CADE has taken the parties’ market shares for the sale of their products into account (both downstream and upstream, e.g., in the case of vertical mergers), assuming that a non-horizontal transaction does not raise competition concerns if the parties’ respective market shares are below 30%. CADE has therefore indicated that its traditional method for analyzing market shares in downstream markets may not be the best metric for analyzing the potential harm of a non-horizontal merger.
• Incentives to exercise market power: The V+ Guidelines make it clear that CADE’s analysis in this regard concerns economic incentives. The V+ Guidelines expressly acknowledge that the economic incentive structures for market foreclosure (or other theories of harm) vary according to the percentage of the acquired share ownership. This is because economic incentives are not unilaterally aligned in cases of partial acquisitions, and as such, they must be adequately considered.
• Effects: The V+ Guidelines have expanded discussions on how non-horizontal mergers may involve access to competitively sensitive information. This concern arises from the possibility that an integrated company’s upstream activities may act as a supplier to a competitor in the downstream market, thereby gaining access to relevant information about that competitor.

The final version of the V+ Guidelines also covers the question of portfolio power in conglomerate mergers. According to the guidelines, portfolio power could hinder the entry of new competitors and harm competition. Companies with larger portfolios in markets with economies of scope would have production cost advantages, allowing for reduced transaction costs for customers. Such advantages could also result in smaller companies facing difficulties in gaining access to customers. Moreover, an extensive portfolio would also allow for cross-subsidization and impact marketing strategies, as promoting a given brand would automatically promote all its associated products.

According to Cade, one of the V+ Guidelines’ objectives is to make Cade’s analysis more transparent, providing clear guidelines in relation to non-horizontal mergers and therefore guiding companies’ decision-making processes in business transactions.

For further information on this topic, please contact Mattos Filho’s Antitrust practice area.