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CADE issues Merger Remedies Guidelines


The Administrative Council for Economic Defense (CADE) has issued its Merger Remedies Guidelines (Guidelines), seeking to provide general guidance for remedies in merger cases which CADE believes give rise to competition concerns. A preliminary version of the Guidelines was released by CADE for public consultation last May.

The Guidelines establish that before any negotiation regarding remedies begins, CADE should present to the parties the potential competition concerns which CADE has regarding the merger [1], allowing the parties an opportunity to submit any additional information or clarification they may deem necessary.

Please find below the main topics covered in the Guidelines, which also contain provisions regarding the monitoring of settlement agreements with respect to remedies, penalties  to be imposed for non-compliance with such agreements and the possibility of amending them, which is permitted only in exceptional circumstances.

(i) Principles

Remedies should consider the following principles: (i) proportionality (remedies should be necessary, adequate and sufficient to address specific concerns raised by the merger); (ii) timeliness (remedies should address competition concerns as quickly as possible and, in any case, in a timely manner); (iii) feasibility (remedies should be easily implemented); and (iv) verifiability (CADE must be able to easily verify fulfillment of such remedies).

(ii) Types of remedies

CADE expressed its preference in the Guidelines for structural remedies (such as disposing of assets) as opposed to behavioral remedies (i.e. obligations undertaken by the parties, such as elimination of exclusivity clauses or maintenance of non-discriminatory behavior in supply agreements).

Under the Guidelines, the first step towards the implementation of a structural remedy is a well-defined set of tangible and intangible assets to be divested, sufficient to exert enough competitive pressure on the merged entity.

The Guidelines also establish CADE's "preferred" type of buyer for the divested assets, which is a buyer that demonstrates legitimate interest in the divested asset and an ability to keep such assets operating in the market in a competitive manner. The buyer must also be independent from the merging parties' economic groups.

With respect to timing, the buyer may be selected before the approval of the transaction ("fix-it-first"), especially in cases with few viable buyers. However, there may be cases in which the buyer may be defined only after closing, but this is a riskier option according to the Guidelines.

In general, CADE may clear the transaction in such cases, but the closing will be subject to the identification of the buyer ("upfront buyer"). According to the Guidelines, having an upfront buyer benefits both CADE (which will have a higher degree of certainty involving remedies) and the parties, who will benefit from a faster approval process and avoid the need for "crown-jewel provisions" [2]. In all cases: (i) the buyer must be approved by CADE [3]; and (ii) preferably, the parties should complete the sale of the assets within three to six months of the date when remedies were imposed or agreed with CADE.

Behavioral remedies may be used in connection with structural remedies or on a stand-alone basis whenever the disposal of assets is not appropriate in order to effectively address the competition concerns raised by a merger case – for instance, in vertical mergers where efficiency gains need to be preserved.

CADE's main concerns with respect to behavioral remedies involve the long duration and the difficulties with monitoring such remedies. The Guidelines suggest, in the case of behavioral remedies, the hiring of a monitoring trustee to assist CADE in keeping track of compliance with behavioral remedies.

(iii) Trustees

The Guidelines stipulate that such trustees will be hired by the parties when necessary to implement or monitor compliance with remedies. Trustees may undertake monitoring functions (to supervise and guarantee a successful implementation of the remedies), operating functions (to manage the assets to be disposed of until they are transferred to the buyer) or divestment functions (whenever the parties are not able to timely find a suitable buyer). Although they are hired and paid for by the parties, the trustees must be approved by CADE in advance and will report only to CADE.

(iv) Market test

The Guidelines establish that market tests are a useful tool when CADE is negotiating remedies. CADE is likely to test the remedies with competitors, clients and third parties (which formally challenge the merger), seeking to verify whether or not the remedies under negotiation will be sufficient to address the concerns raised by the merger, whether there is any foreseeable risk in the implementation of such remedies and potential obstacles to the remedies being effective.

Although not binding, the Guidelines are based on CADE's experience and reflect the way CADE is likely to approach the negotiation of remedies in future cases.

The Portuguese version of the Guidelines is available on CADE's website:

[1] Even if such concerns are preliminary, depending on the status of the merger review.

[2] Crown-jewel are assets that are not directly related to the transaction, but which are included in the remedies package as a way to increase the likelihood of having a potential buyer.

[3] Such approval does not exempt the parties from the obligation to file the transaction if the sale of assets is subject to mandatory notification, under Brazilian merger rules. 

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