Merger control: new developments in Cade’s analysis

The Tribunal at Brazil’s Administrative Council for Economic Defense (Cade) has recently raised concerns about certain long-term partnerships between competitors, such as joint ventures and so-called “associative agreements”. As such, interested companies should pay extra attention if entering into these types of partnerships, planning for them well in advance with a clear rationale and justifications for doing so – especially in the case of longer-term partnerships. In this regard, Cade’s Tribunal has ruled on three particularly significant transactions this year. 

In August 2023, Cade’s Tribunal approved a consortium among Ultragaz, Bahiana Distribuidora, Supergasbras and Minasgás subect to conditions (Merger Case No. 08700.008322/2022-35). The consortium established shared operational structures for Liquefied Petroleum Gas (LPG) production, storage, filling and loading for an agreed period of 35 years (renewable for the same period). Cade’s Tribunal found that the transaction could potentially reduce the groups’ capacity and incentives to compete with each other, particularly due to the long-term nature of the consortium. In a majority ruling, the Tribunal decided the transaction would only be approved if the duration of the partnership was reduced from 35 years to 13 years. Moreover, should the parties wish to renew the project after the 13-year term, they must also re-submit the transaction to Cade for a new merger review. 

In September, Cade’s Tribunal unconditionally approved a set of infrastructure-sharing agreements in the telecom space between Telefônica Brasil and Winity Telecom, a company in the portfolio of private equity firm Pátria Investimentos that won an auction for one of the lots of a 5G auction Brazil in 2021 (Merger Case No. 08700.008322/2022-35). Although one of the Tribunal’s Commissioners voted for the approval of the transaction being conditional on reducing the term from 20 to five years, the majority of Commissioners approved the deal without conditions, finding that the 20-year term was both reasonable and justified given the characteristics of that particular project. 

A second case ruled on in September entailed a similar discussion. The Brazilian broadcasting companies SBT, Record and RedeTV were seeking to extend the term of a venture focused on jointly negotiating the distribution and exhibition of their content with pay-TV operators (Merger Case No. 08700.009574/2022-81). When the joint venture was first incorporated in 2016, Cade’s Tribunal found that the arrangement would allow the companies to raise the prices they charged. Therefore, it was determined the joint venture could not continue in perpetuity, and the broadcasters would have to re-submit the transaction to the authority after six years (Merger Case No. 08700.006723/2015-21). Earlier this year, the companies re-submitted the transaction to Cade for a new merger control approval. They requested the extension of the joint venture for an undetermined period, which the Cade’s Tribunal denied once more. After negotiating certain remedies with the authority, it was agreed that the companies would re-submit the transaction to Cade in 14 years’ time, should they wish to continue the joint venture for a longer period. The authority explained that its decision to permit a longer term stemmed from a lack of evidence that the joint venture has caused any harm to competition since it was established in 2016. 

For companies interested in long-term partnerships with competitors, these cases demonstrate the importance of being able to clearly explain and justify the rationale and the reasons for entering into such projects, especially if they are intended to last for longer periods of time. 

Cade finally approves Nestlé’s acquisition of rival Garoto after 20 years of debates 

A recent highlight on the Brazilian merger control front saw a final ruling on Nestlé’s acquisition of the Brazilian confectionery company Chocolates Garoto. The deal was originally closed back in 2002, yet was ultimately blocked by Cade two years later. At the time, Brazil’s merger control regime allowed companies to implement the transactions prior to Cade’s approval. In 2004, Nestlé challenged Cade’s rejection of the transaction in court, and ever since, the company and the authority were involved in a legal dispute and attempts to negotiate a solution (Merger Case No. 08012.001697/2002-69). 

The merger review was eventually re-opened, and in June 2023, Cade’s Tribunal accepted Nestlé’s remedy proposal and approved the transaction. The approval followed an in-depth investigation by Cade’s General Superintendence into the reconfiguration of the Brazilian confectionery market over the last 20 years. In summary, the remedy proposal Cade approved prevents Nestlé from acquiring any assets or businesses in the Brazilian confectionery market representing 5% market share or greater during the next five years. It also requires Nestlé to submit any transactions in the confectionary market during the next seven years for review, regardless of whether the notification criteria are met, as well as certain other conduct-related commitments. 

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