Merger Control: CADE’s Tribunal rules on calculating a new cap for gun-jumping fines

In August 2024, the Tribunal at Brazil’s Antitrust Authority (CADE) revisited the issue of considering a cap on fines for gun-jumping, which is currently set at 20% of the transaction value. CADE’s Tribunal applied this cap in two recent cases, while also noting that it can be dismissed in exceptional circumstances.

In an investigation into ten resale concession transfer transactions involving companies within the Dahruj Group (APAC No. 08700.003447/2020-15), Reporting Commissioner Gustavo Augusto reiterated the need to apply the 20% of transaction value cap for gun jumping fines, except  in the following situations:

• When the parties have acted with malicious intent;
• Transactions with a merely symbolic value, where the 20% cap would always result in a fine lower than BRL 60,000 minimum, as per Article 88, Paragraph 3 of the Brazilian Competition Law (Law No. 12,529/2011);
• Cases in which the transaction could significantly harm the market.

As none of these potential situations were considered applicable to the case, CADE’s Tribunal applied the cap.

In a second case involving Cocamar’s total incorporation of assets and liabilities related to Coanorp’s activities (APAC No. 08700.009227/2022-59), Reporting Commissioner Diogo Thomson noted that the applicable fine would be lower than the 20% cap, therefore setting it would be unnecessary.

CADE’s Tribunal’s decision puts the spotlight on serial acquisitions

In September 2024, CADE’s Tribunal reviewed a merger case (No. 08700.006814/2023-77) in which SMR Participações e Investimentos S.A. (Plurix, controlled by FIP Pátria VI) acquired 85% of the capital stock of Cia Paraná de Alimentos S.A., a Brazilian supermarket chain with nine stores in the southern state of Paraná.

Despite CADE’s General Superintendence (GS) having recommended the transaction be cleared without conditions, Commissioner Diogo Thomson requested a second review due to (among other reasons) concerns about serial acquisitions in the self-service retail market.

Commissioner Thomson identified twelve different merger cases filed by the economic group Plurix belongs to in the last three years alone, four of which are in the same geographic region as the transaction, raising concerns that these acquisitions could lead to significant economic consolidation. Although the commissioner ruled there was insufficient evidence to justify reversing the GS’ decision, he recommended future transactions involving the group be monitored in light of the economic group’s ongoing consolidation of the self-service retail market in São Paulo and Paraná. Commissioner Thomson also noted the importance of a prospective analysis of serial acquisitions.

CADE’s Tribunal applies unilateral remedies to non-compete clauses and asset divestments

During the same trial session, CADE’s Tribunal reviewed another merger case (No. 08700.006814/2023-77) concerning Minerva S.A.’s acquisition of part of Marfrig Global Foods’ and Marfrig Chile’s beef and lamb business in South America (including cattle and sheep slaughtering and deboning units), without entailing a full market exit by Marfrig. This case was significant as it signaled both a need  for the parties to carefully review non-compete clauses – especially when the seller does not exit the relevant market – as well as the possibility of establishing unilateral conditions and remedies in the absence of a consensus.

Reporting Commissioner Carlos Jacques’ vote (which was unanimously followed by the Tribunal) found that the clearance of the transaction should be subject to unilateral restrictions, as the parties had not reached a consensus among themselves nor with CADE. The Commissioner has nevertheless acknowledged that the application of unilateral remedies should be considered a last resort, as negotiated remedies tend to cause fewer distortions in the market and preserve the transaction structure as the parties intended.

In order to clear the transaction without harming competition, CADE’s Tribunal identified two specific concerns: (i) an agreement for Marfrig to not expand its production at its Várzea Grande plant in the state of Mato Grosso – which was considered an anomalous non-compete clause without support from CADE precedents; and (ii) the level of market concentration in the city of Pirenópolis (state of Goiás).

Regarding the first concern, CADE’s Tribunal acknowledged that non-compete clauses have an economic rationale, such as to protect investments, often ensuring that the seller does not re-enter the market in a way that harms the acquired business. However, CADE’s Tribunal ordered the broad geographic scope of the clause to be altered, along with specific duties in the clause that had restricted the expansion of Marfrig’s production capacity at the Várzea Grande plant. CADE determined the clause must be amended to:

• Limit it to the Brazilian states in which the assets would be acquired;
• Remove a restriction on installing slaughterhouses in South America whose production would supply Brazil, Chile and certain other jurisdictions;
• Reduce the scope of applicable products in order to exclude restrictions on sheep slaughtering activities in Brazil; and
• Remove the restriction on Marfrig expanding its Várzea Grande plant.

On the other hand, CADE’s Tribunal did not alter a five-year term and a restriction on Marfrig expanding its operations by opening or acquiring new plants in the restricted locations in the clause at issue.

CADE’s Tribunal also determined that Minerva must sell the cattle slaughtering and deboning plant in Pirenópolis in order to avoid an overlap in this geographical market.

Associative agreement criteria tested in two important cases: Latam/Decolar and Novelli/Grupo Recicla BR (Latasa)

In July 2024,  CADE’s GS decided that a case) regarding a vertical contractual partnership that Latam and Decolar entered into to create, maintain and run an internet sales platform (a hotsite) was not subject to mandatory filing (Merger Case No. 08700.003964/2024-18). According to the agreement, Decolar would develop and manage a hotsite, via which it would offer its tourism products to clients originating in Latam’s airline ticket sales portal.

The parties filed this partnership to CADE on an ad cautela basis as they believed it did not qualify for a prior mandatory review by the authority. In reviewing if the partnership could qualify as an associative agreement (contrato associativo) to determine if mandatory notification was required, CADE’s GS found at least two of the four necessary criteria in CADE Resolution No. 17/2016 had not been met. Therefore, the partnership did not classify as an associative agreement.

CADE’s GS also established certain parameters to determine whether one of the criteria in Resolution No. 17/2016 – the creation of a common venture – was met, as described below:

• The impossibility of the activity covered by the agreement being provided in isolation (i.e., in the absence of the agreement);
• The existence of a governance structure for joint decisions between the parties;
• The likelihood of sharing competitively sensitive information; and
• The existence of joint marketing actions.

None of these criteria were identified. As for the analysis of loss or profit-sharing (another criterion for qualifying as an associative agreement), CADE’s GS also found that although there were mechanisms for asymmetrically sharing results under the agreement, no risks or costs would be shared. In relation to the third criterion – regarding whether the parties compete within the market relevant to the partnership – CADE’s GS noted that the transaction gave rise to potential vertical links between their activities, while identifying a horizontal overlap (albeit a very limited one) between the parties’ activities in the market for the sale of online tour packages. Therefore, besides a final objective requirement for the partnership to endure for a minimum of two years, CADE’s GS conservatively considered this third criterion to be the only one met.

This decision takes place within the context of important debates about vertical agreements qualifying as associative agreements. In June 2024, CADE’s GS reviewed an agreement covering Novelis’ supply of aluminum products to the Recila BR Group (Latasa) (Merger Case No. 08700.003099/2024-00). CADE’s GS acknowledged that all four criteria of Resolution No. 17/2016 must be identified but indicated that the lack of a horizontal relationship between the parties in the context of the agreement does not rule out the competition criterion being met. According to CADE’s GS, this particular criterion contemplates both horizontal and vertical links.

CADE’s GS investigates digital platforms’ acquisitions of AI startups

In October 2024, CADE’s GS initiated three investigations to assess whether the following transactions should be subject to mandatory filing:

• A partnership between Anthropic and Amazon (APAC No. 08700.005962/2024-55);
• A partnership between Mistral AI and Microsoft (APAC No. 08700.005961/2024-19);
• An agreement between Character.ai and Google (APAC No. 08700.005638/2024-37).

The investigations began in August 2024, in the wake of complaints from the General Coordination of Antitrust Analysis 5 (CGAA5). These were based on news about Google’s alleged ‘silent acquisition’ of Character.ai and a press release from the UK’s Competition and Markets Authority (CMA) informing that it was collecting information about the Amazon/Anthropic and Microsoft/Mistral AI partnerships.

• The Amazon/Anthropic partnership entailed (i) expanding existing non-exclusive collaboration between the companies to develop generative AI and improve access to it; and (ii) Amazon’s non-controlling minority investment in Anthropic through two convertible notes.
• On the other hand, the Microsoft/Mistral AI partnership concerned (i) Mistral’s commitment to use Microsoft’s Azure infrastructure for a specific period and to make its core business models and variants available on the Azure platform for a specific period; (ii) Amazon’s investment of EUR 15 million in Mistral convertible bonds, which could be converted into a future equity interest; and (iii) the possibility of future collaboration on research and development, including training industry-specific models and providing support for European public sector workloads.
• In the Character.ai/Google transaction, the companies entered into a license and release agreement that saw a group of Character.ai employees residing in the US released from their jobs at the company, as well as a non-exclusive license for some of the startup’s technologies, according to Google’s response to CADE’s GS. Google also reinforced that Characater.ai remains independent, without any control or influence exerted by Google.

Other competition authorities have also investigated the first two transactions. In April 2024, the CMA invited third parties to comment on whether the Amazon/Anthropic and Microsoft/Mistral AI partnerships comply with UK antitrust laws and their potential impacts. In assessing whether the partnerships would result in relevant merger situations under the 2002 UK Enterprise Act as well as their potential impacts, it concluded (in May 2024 and September 2024, respectively) that the Microsoft/Mistral AI partnership and Amazon/Anthropic partnership did not qualify for further investigation. This was due to the AI companies’ registered UK revenues not exceeding GBP 70 million and the companies themselves not representing 25% or more of the market. The CMA closed the investigations as a result.

Meanwhile, CADE continues to investigate these transactions in Brazil.

For further information on these topics, please contact Mattos Filho’s Antitrust practice area.