Rio de Janeiro will be the first Olympic location in the history of South America. This is the result of Brazil gaining status internationally and integrating to the global market. Apart from sports, globalization has had a great impact on the business transactions and also in the rules enacted in Brazil. An increasing number of international merger companies and nations had switched a red light on the antitrust law regime for merger control that coexists in the many jurisdictions. The different views of antitrust law in each country are important to determine the approach and practical implications of the review systems application. In the merger context, there are significant burdens in international business operations when companies are required to comply with a diversity of procedural requirements in domestic regimes regulations. Over sixty nations have merger notification requirements. Transactional costs are elevated when the merging parties have to report and produce detailed information for each jurisdiction to assess the transaction.
This article discusses the challenges and benefits of the harmonization of merger reviews procedures among different countries. Part II identifies the importance of the suggested modifications in the Brazilian antitrust law while seeking the internationalization of the merger review process. Part III describes the likely coming new rules for the Brazilian antitrust organization. Part IV concludes by pointing out the increased convergence to the procedures in effect by the Unites States antitrust authorities.
II. The Marathon for Harmonization in Merger Review Systems
One of the benefits of a merger review process is the identification of prejudicial mergers and the complications of having to piece apart the merger of a previously concluded transaction. There are advantages for consumers and markets to identify and remedy problematic mergers. The detection protects the market against transactions that could lessen competition and increase prices. Also prior notice of mergers reduces post acquisition litigations. According to an estimate of the Department Of Justice, from 1998 to 2008, merger efforts have saved consumers about 20 billion dollars.
Nevertheless, the obligation of merger reviews has its burdens and imposes costs to the companies interested in merging, especially if the merger triggers thresholds in different jurisdictions with diverse merger review system. Those burdens can be divided broadly in two categories: (a) high fees and onerous requirements and (b) uncertainties in procedural and substantive standards. When companies have to confront nations with premerger and post merger reviews, while the authorities in a nation that adopts a premerger review would be closing its own review of the merger, the authority in the second merger review model will be just getting started with their own analysis. As a result, we have increased uncertainties and delays in the outcome of the transaction.
A harmonization of merger review rules may resolve part of the issues raised above. Despite the obstacles to enforce a harmonization process, the movement towards a congruent system certainly diminishes transactional costs in the international business. The dissimilar arrangement of antitrust law reduces efficiency gains in the operations, and can deter companies from the outcome of the business deal. For this matter, the convergence of nations’ rules and the cooperation between jurisdictions to a more common approach of merger reviews can bring many advantages for companies and enhance efficiency gains. Likewise, consumers benefit when productive mergers are not discouraged by the excessive costs of numerous compliances.
III. A 5K to a Pre-Merger Review System in Brazil: Bill 3.937/04
Under U.S. antitrust law, authorities analyze mergers to identify potentially anticompetitive transactions and prevent market concentration. The existence of a premerger review system means that U.S. antitrust authorities will analyze the transaction before its consummation, and during this verification period the companies are prohibited to conclude the transaction. As a result, the authorities have the opportunity to challenge a problematic merger and reduce a post-acquisition litigation scenario.
Under Brazilian antitrust law, any act that may limit or otherwise restrain open competition or any form of economic concentration (including mergers), or that result in the control of relevant markets for certain products or services, shall be submitted to the antitrust authorities for review. The Brazilian antitrust law currently does not required a pre-merger notification, but only imposes a mandatory post-merger notification to be submitted to the antitrust authorities in no longer than 15 days after the occurrence of the transaction.
However, Bill nr. 3.937/04 providing a structural reformulation of the Brazilian antitrust system is currently under analysis. It has already been approved by the House of Representatives and is at present being discussed in the Brazilian Congress to be approved probably by the end of this year. The Bill includes, among other important modifications, the introduction of a premerger review notification system in Brazil.
A. A Bilateral Agreement: Warming the Big Muscles
Extraterritorial jurisdiction in antitrust issues can bring a set of difficulties for the implementation of the competition law in a globalized context. Bilateral agreements are one of the means available to negotiate cooperation, mutual assistance for enforcement and also accomplish a movement towards a merger control convergence that strengthens assistance between antitrust authorities. These agreements functions as a binding positive instrument, which allows a setting of a minimum antitrust rules and also an efficient dispute settlement instrument. Also agreements avoid conflicts in the application of domestic antitrust law, especially in international transactions.
In 1999 Brazil and Unites States signed a bilateral agreement to promote cooperation between their antitrust authorities, including technical cooperation, in the enforcement of their antitrust laws. Both countries agree that the cooperation and coordination in antitrust law may result in a more effective resolution of the country’s concerns in identifying anticompetitive practices. The cooperation agreement reflects an important connection between the two countries, through the consideration of the other country’s objectives in the application of antitrust law.
As a result of improving communication between the antitrust authorities, both countries are frequently coordinating investigations and working towards a more extensive international collaboration. In the last year, for instance, the representatives of the American antitrust authority traveled to Brazil to lecture on the premerger review system employed in the U.S. since the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
B. Unambiguous Thresholds: the Trigger to Run
One way of eliminating unnecessary obstacles to merger parties is the establishment of objective notification thresholds. Asset or revenue bases thresholds are examples of tests that can be easily calculated. These tests will reduce transactions costs and uncertainty.
The United States authorities require a premerger notification procedure when certain thresholds are achieved in certain transactions. The Section 7A of the Clayton Act, requires the merging parties to notify the Department of Justice (DOJ) when the acquisition will result in an “acquired person” holding (i) more than $200 million in voting securities and assets of the acquired person or (ii) more than 50 million where one of the parties to the transaction has annual net sales, or revenues, or total assets exceeding $100 million and the other party has annual net sales, or revenues, or total assets exceeding 10 million.
Under current Brazilian law, notification is required when the resulting company or group of companies accounts for twenty percent (20%) of a relevant market, or in which any of the participants has posted in its latest balance sheets an annual gross revenue equivalent to R$ 400,000,000 (about 200 hundred million dollars). The Brazilian Bill under analysis proposes to change such requirement, establishing a more objective notification threshold, based only in the company’s revenue, and not its market share in the relevant market. The relevant market definition is in most of the times a subjective exam of the market, which is in the long run is defined by the antitrust authority. Therefore, in many situations the companies might not have this information ex ante. This result in uncertainty: whether the firm’s product is or is not a portion of the relevant market for notification purposes. Furthermore, the trigger to thresholds will be limited to the satisfaction of an objective nexus to Brazilian jurisdiction.
Nevertheless, the Bill also proposes discretion to the antitrust authority and requires the notification of a transaction that does not match the thresholds specified above in a period of one year after the consummation of the transaction. Under this Bill, the antitrust authorities in Brazil have no restrictions to implement such a provision. This mechanism functions as a safeguard for the antitrust authorities, making a notification feasible when it appears to have anticompetitive effects in the market. Even if such a stipulation might be used as an exemption and not as a frequent applied rule by the authorities, it can undermine the safety of merger transactions sought through objective revenue thresholds. A minimum set of requirements might be advantageous in limiting the discretion of the authorities, assuring then a more reasonable application of antitrust law.
1. Waiting Periods: Keep the Pace
The HSR Act requires the parties to the transactions to observe a 30 calendar days waiting period after the completion of the pre merger filing before consummating the merger. This thirty day period is subject to another extension of 30 calendar days by the issuance of a Second Request. The Second Request counts from the day the parties have substantially complied with this request. Once both of the periods mentioned expire, the parties are free to complete the transaction, unless the authority had obtained an injunction relief.
Once the revision of the Brazilian antitrust law proposes a premerger notification, it will also launches a waiting period and require antitrust conditions between the merging parties to be in the same premerger level. Therefore, the Bill includes both the formal consummation of the transaction and prevents behavior by the parties that might restraint competition. Unlike the U.S. regulation, it does not establish successive waiting periods, and does not contain a provision of automatic acceptance of the transaction in the case of the expiration of the authorities’ deadlines for analysis.
The automatic approval of the transaction provision when there is no answer from the authorities is an incentive to follow up with the analysis period. However, the implementation of certain incentive in the Brazilian authority could lead to perverse results and approval of monopolistic merger transactions. If the regulation is approved, it will not only establish new procedures, but also will change the dynamics of the authorities. This can eventually results in delays. The interested merging parties, on the other hand, have and must respect the waiting period established, or serious fines might be imposed onto the parties that do not follow the rule.
2. Reasonable Time Period: Finishing the Race
The period of time the authorities take to review the merger shall not be extended to disincentivize the merging parties to continue the transaction. The review will be better exercised by the authorities in a reasonable time frame. The antitrust authorities shall have sufficient time to analyze the transaction, but delay can create excessive costs and disincentives to efficient deals. A similar time frame following notification employed by the U.S. authorities is proposed in the Bill.
The premerger review system in analysis in the Brazilian Congress proposes that the first analysis of the notification documents will be in 20 days. At the end of those twenty days, authorities will either approve the transaction or required more specific documents to continue the analysis. In a 50 days maximum period, the authorities will then either declare the transaction as not complex, and pronounce a decision in 60 days, or establish the transaction as complex and require more information and documents for the merging parties. The authorities will have 10 days after the instruction is completed by the parties to assess the new information and judge the transaction.
The proposal in the steps analysis described above intents to provide the Brazilian antitrust authorities with all the essential information about the transaction and if any competitive concerns are not well evaluated the authority will have the discretion to determine the transaction as complex and require the production of further information. The choice of the Bill to embrace a similar structure exhibits the influence of the U.S. antitrust regime in Brazil. Thus, its adoption will facilitate examination of merger parties in both countries.
The revision of the Brazilian antitrust law today confirms the relevant and modern international discussion to manage and increase efficiency of the rules in a context of proliferation of international business. The development of the Brazilian economy and the increasing participation of Brazilian companies nationally and internationally, require changes for a more effective set of rules. The development of a uniform process intends to prevent contradictory Courts and administrative court ruling in how to deal with international transactions that have business in a variety of different jurisdictions.
At this time, legal systems have been developing from a modest standard of internal enforcement relying on technical assistance from a foreign country to a strong system that cooperates in the international level, embracing and adopting the objective of convergence and harmonic regulation. That is Brazil’s goal and this should be continuously pursued
See Dane Holbrook, International Merger Control Convergence: Resolving Multijurisdictional Review Problems, 7 UCLA J. Int’l L. & Foreign Aff. 345 (Fall 2002/Winter 2003).
See Alan Devlin and Michael Jacobs, Antitrust Divergence and the Limits of Economics, Nw. U. L. Rev. (forthcoming 2009), available at http://ssrn.com/abstract=1429541.
See Daniel A. Crane, Substance, Procedure, and Institutions in the International Harmonization of Competition Policy, 10 Chi. J. Int’l L.143 (Summer 2009).
See Holbrook, supra note 1.
See Andrew G. Howell, Why Premerger Review Needed Reform – And Still Does, 43 Wm. & Mary L. Rev. 1703 (2002).
Department of Justice, Antitrust Division, Congressional Submission FY 2008 Performance Budget, available at http://www.usdoj.gov/jmd/2008justification/pdf/21_atr.pdf.
See Holbrook, supra note 1.
See Alexandr Svetlicinii, Competitiveness and Competition: International Merger Control from the Business Prospective (European University Institute, Working Paper), available at http://ssrn.com/abstract=1311069, ( “A system based in notification prior to the merger transaction is designed for the ex ant control of the level of the concentration on the relevant market preventing the elimination of competition that might follow the proposed concentration. Unlike the ex post competition control (…) merger control is always based on the degree of prediction of the future structure of the market and behavior of market participants.”).
See Crane, supra note 3 (stating that some preconditions may be satisfied for a effective harmonization to facilitate international business transactions, such as (i) the legitimacy of government control and market economies to intervene to correct the failures of the private enterprise, (ii) the purpose and to whom is the antitrust law addressed and (iii) an analytical mode free from explicit balancing considerations of interest groups).
FEDERAL TRADE COMMISSION, THE EVOLUTION OF U.S. MERGER LAW, available at http://www.ftc.gov/speeches/other/dvperumerg.shtm
Brazilian Antitrust Law no. 8.884 (June 6, 1994) (Br)
Id. Section Title II, Section I and Title IV. The Brazilian Competition Policy System is composed by the Secretariat of Economic Law (SDE), the Secretariat for Economic Monitoring of the Ministry of Finance (SEAE) and the Administrative Council for Economic Defense (CADE). Id. SDE and SEAE play an investigative and analytical role, while CADE is an administrative tribunal and only Courts can review its decisions. Id.
Resolution for CADE Procedures and Formalities Applicable to Concentration Acts, Laws and Res. No. 15, Sec. I Article 2 (Aug. 19, 1998) (Br). That meaning of “occurrence of the transaction” has been interpreted by CADE as the execution of the binding document among the parties. Id.
BRAZILIAN DELEGATION, ANNUAL REPORT ON COMPETITION POLICY DEVELOPMENTS IN BRAZIL, 2008 available at www.mj.gov.br.
Antitrust Bill No. 3.937 (2004) Title VII, Chapter 1 (Br.).
See Spencer Weber Waller, Public Choice Theory and the International Harmonization of Antitrust Law, 48 Antitrust Bulletin 427 (2003), available at http://ssrn.com/abstract=1146607.
See Holbrook, supra note 1.
Department of Justice, supra note 7.
15 U.S.C.A. § 18A, the Hart-Scott-Rodino (HSR).
ILENE K. GOTTS, THE MERGER REVIEW PROCESS 67 (American Bar Association, 2001).
See INTERNATIONAL COMPETITION NETWORK, SETTING NOTIFICATION THRESHOLDS FOR MERGER REVIEW, available at http://www.internationalcompetitionnetwork.org/media/library/mergers/Merger_WG_2.pdf (“Jurisdiction should be asserted only over transactions that have a nexus with the jurisdiction concerned that meets an appropriate standard of materiality, based on the merging parties’ activity within that jurisdiction. The “local nexus” thresholds should also be confined to the relevant entities or businesses that will be combined in the proposed transaction. In particular, the relevant sales and/or assets of the acquired party should generally be limited to the sales and/or assets of the business being acquired.”).
See MERGERS AND ACQUISITIONS, UNDERSTANDING THE ANTITRUST ISSUES 32, ABA Section of Antitrust Law (2008).
MERGERS AND ACQUISITIONS, UNDERSTANDING THE ANTITRUST ISSUES, supra note 20.
See Gesner Oliveira, Competition Policy in Brazil and Mercosur: Aspects of the Recent Experience, 24 Brook. J. Int’l L.465, 466-70 (1998)