CADE’s Tribunal discusses criteria for determining economic groups

In April 2024, the Tribunal at Brazil’s Antitrust Authority (CADE) ruled on a case involving Digesto and JusBrasil (Merger Case No. 08700.000641/2023-83). In doing so, it revisited a long-running debate on the interpretation of Article 4 of CADE Resolution No. 33/2022, which provides for how to determine economic groups and, consequently, calculate their revenue.

The case presented further important elements, expressly clarifying that the starting point for determining the existence of an economic group is to identify the parties directly involved in the transaction. If the party involved is a company, the concept of ‘economic group’ that will be applied is provided in Paragraph 1 of Article 4, whereas the concept in Paragraph 2 applies to investment funds. In this specific case, CADE’s Tribunal determined that the parties directly involved were the companies that had signed the SPA (not their investors), therefore applying the rule in Paragraph 1.

Reporting Commissioner Victor Fernandes’s vote reignited discussions on how to evaluate shareholders holding 20% or more of the party directly involved in the transaction – it was suggested that 20% may not be enough to presume that such a shareholder has control (even if shared) over the invested company. In this case, the specific governance rights held by the shareholders (kept confidential in the decision) were analyzed, leading to the conclusion that the combination of these rights with the 20% stake would be sufficient to establish control in the context of determining an economic group.

The vote also included a historical analysis of rights that CADE’s General Superintendence (GS) has already considered relevant to analyzing control in other cases. Although the Tribunal did not specifically discuss each of these rights, it emphasized that this is an important topic for future discussions.

CADE’s Tribunal discusses criteria and limits for gun-jumping fines

The first half of 2024 saw a series of interesting discussions on the calculation of fines for gun-jumping cases.

In a recent case, CADE’s Tribunal debated the possibility of applying a cap of 20% of the transaction’s value when setting a gun-jumping fine. This was in the context of Kurumá’s acquisition of tangible and intangible assets from Govesa, which was carried out in 2017 yet only filed with CADE in 2019 (Merger Case No. 08700.005463/2019-09).

Reporting Commissioner Gustavo Augusto had initially proposed a fine that would have exceeded 30% of the transaction’s value in practice. In a joint vote, Commissioners José Levi and Diogo Thomson proposed moderating (and consequently reducing) this amount, arguing that the originally suggested amount went against the principles of reasonableness and proportionality. Instead, these commissioners suggested setting a cap with the same maximum percentage established by the Brazilian Competition Law (Law No. 12,529/2011) for fines regarding other violations of the economic order. CADE’s Tribunal unanimously accepted this proposal but noted that while it was justified in this specific situation, it might not be applicable in other cases – especially if there is evidence of the companies acting in bad faith, if the transaction’s value is symbolic, nominal, or negligible or if the transaction causes significant damage to the market.

In two other cases involving the incorporation of joint ventures (Merger Cases No. 08700.009028/2023-21 and No. 08700.009331/2023-80), Reporting Commissioners Diogo Thomson and Carlos Jacques, respectively, made important remarks on the need to ascertain the tangible and intangible resources required to carry out the joint venture, or the actual contributions made by the companies (rather than just the share value of the incorporated vehicle) to determine a transaction value in greenfield joint ventures. Given the specific circumstances in the second case (particularly the fact that the joint venture had not yet started activities), the commissioner accepted adjusting this criterion to ensure the fine was proportional.

Finally, in a recent case involving a global transaction between Agrofert and Borealis Nitro (Merger Case No. 08700.006175/2023-40), CADE’s Tribunal accepted Reporting Commissioner Diogo Thomson’s vote, which concluded that a lower rate be applied to ensure the fine remained proportional, reflecting the fact that the parties’ Brazilian business was relatively minor in the context of the global transaction.

These important precedents indicate that rather than applying a blanket judgment, CADE’s Tribunal is open to considering and analyzing the specific characteristics of each case. Moreover, an existing provision in CADE Resolution No. 24/2019 allows the Tribunal to adjust criteria for calculating fines to ensure the fines are reasonable and proportional to the violation in question.

General Superintendence discusses filing criteria for asset acquisitions in the real estate sector

The GS has issued several decisions concerning asset acquisitions in the real estate sector. In two transactions involving the acquisition of non-operational properties from the Carrefour Group (in which supermarkets and wholesale stores were previously located), the GS concluded that these transactions did not amount to an ‘act of concentration’ (i.e., a merger) and therefore, filing was not mandatory. This conclusion was based on the following grounds:

• The buyer was not involved in the activities previously conducted on the properties (supermarket/wholesale stores);
• The asset was not considered essential to the activities the buyer intended to conduct on the property (which was kept confidential);
• The property would require structural modifications and significant investments before the buyer could use it;
• As it stands, without the planned investments, the property would not increase the buyer’s productive capacity (Merger Cases No. 08700.001216/2024-92 and No. 08700.000735/2024-33).

In a subsequent merger case, the GS found the acquisition of property by a company active in real estate development met the criteria for mandatory filing. Based on available public information, the developer acquired the property to build and sell a residential real estate project. As such, the GS found that the property should be considered an essential asset for the buyer’s real estate development activities, even though further investments were necessary. Consequently, it concluded that the transaction did amount to an ‘act of concentration’, and therefore, filing it with CADE was required (Merger Case No. 08700.002034/2024-39).

Another noteworthy case involved a beverage distributor’s acquisition of logistics warehouses that it had already been renting (these were integrated into its factory). The GS determined that these warehouses played an ancillary role in the buyer’s core business (manufacturing and selling beverages) and, as a result, would not increase its productive capacity (Merger Case No. 08700.001580/2024-52). The transaction was, therefore, not considered subject to filing. The GS’ view in this case is significant, as in the past, the authority had considered that the buyer’s use of the warehouses prior to the transaction indicated that it could at least serve to maintain the buyer’s productive capacity (Merger Case No. 08700.005698/2023-79).

These precedents suggest the GS will continue to thoroughly review real estate acquisition transactions. The buyer’s (and its economic group’s) core business and the intended activity to be carried out on the property appear to be essential factors for identifying whether the transaction qualifies as an ‘act of concentration’ and requires filing with CADE. Analyzing the elements of each specific transaction is paramount to concluding whether prior filing is necessary.

GS concludes the necessity of prior notification for a project finance transaction

The GS recently approved a transaction involving Mitsui, MOL MPIC, and MV32 (Merger Case No. 08700.001537/2024-97), in which there was a significant discussion of the criteria for classifying a transaction similar to a loan as an ‘act of concentration’ under Brazilian antitrust regulations. According to the parties, the transaction involved project finance, a financing mechanism used globally for large-scale infrastructure projects. MV32 was specifically created to hold, operate, and run a floating production storage and offloading (FPSO) unit in Brazil’s Búzios oil and gas field, the subject of a public tender from Petrobras. Mitsui, MOL, and MPIC’s entry into this partnership was solely for the purpose of financing the project, without an active role in the target company’s business and commercial decisions.

Even if CADE disagreed with this interpretation, the parties argued, the transaction would ultimately be equivalent to a joint venture providing services contracted through Petrobras’ public tender. They suggested that on these grounds, the transaction would stand to benefit from an exemption in the Brazilian Competition Law that states that mergers targeting public tenders and resulting contracts are not required to be filed with CADE.

However, the GS disagreed with both arguments. It found that the transaction documents indicated an acquisition of part of the target company (MV32) rather than merely a joint venture specifically created to participate in a public tender. Moreover, the GS concluded that the shareholders’ agreement that Mitsui, MOL, and MPIC were to sign entailed they would actively participate in MV32 rather than just being creditors. In the GS’ view, these shareholders’ rights went beyond mere financial investment protection and constituted a shared control acquisition by Mitsui, MOL, and MPIC. As the transaction occurred in 2019, the GS approved it without restrictions, though a gun-jumping investigation was launched.

This precedent highlights the precautions companies involved in project finance transactions must take when preparing corporate documents and assessing whether prior filing with CADE is necessary.

CADE receives first merger filing via its e-Notifica system

As mentioned in the previous edition of this series, in December 2023, the GS launched e-Notifica, a new electronic merger filing system for cases that qualify for the fast-track procedure. CADE received its first filing through the new system in April this year.

The transaction involved the acquisition of approximately 96% of Petmate’s outstanding shares by funds managed or advised by Arbour Lane, Fortress Credit, Gamut Capital, and Silver Point (Merger Case No. 08700.002147/2024-34), and it took only two days to publish the decision for clearance without restrictions. The GS received additional notifications via e-Notifica in May and June and has been actively encouraging companies to use the system, especially as it allows the authority to expedite clearance decisions for transactions that are more straightforward from an antitrust standpoint.

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