What are the regulations when it comes to acquiring companies? How does Brazilian law apply? This article will answer not only these questions, but will also give a panorama of the governmental oversight of acquisitions in Brazil.
Acquisition of companies can generate a number of competition problems between companies as well as can harm consumers. In order to prevent both things Brazilian Government created few organizations and mechanisms, also aiming to secure and control the financial activities between companies.
In the last few years, the Brazilian legislation suffered modifications that resulted in changes in the process of acquiring companies and in the organizations that were responsible for monitoring and approving the acquisitions.
Changes in the Brazilian Legislation
The main difference that existed between Brazilian legislation and the ones established by other countries was that normally – in developed economies – the operation of acquisition it is only completely done after having been previously authorized by a competent organization. In Brazil, the previous evaluation wasn't mandatory, was optional for companies.
The optional aspect of the Brazilian legislation made companies chose first to realized the acquisition and after submit it to the competent organizations. If the operation wasn't approved, there was the risk of having the operation undone.
Now with the new changes in Brazilian law of acquisitions, these operations have to be authorized before being complete. Without the changes, the acquisition of a company – after being done – was examined by three governmental competent organizations:
- First by the Secretaria de Acompanhamento Econômico (SEAE), of the Ministério da Fazenda.
- Then by the Secretaria do Direito Econômico (SDE), of the Ministério da Justiça.
- And last by the Conselho Administrativo de Defesa Econômica (CADE).
With the new law, there was a reduction in the number of organizations responsible for authorizing operations. Instead of three organizations, the acquisition of a company was submitted to only one organization for analysis: CADE, short for Conselho Administrativo de Defesa Econômica, which is Brazil's Council for Economic Defence.
Introduction to CADE
CADE's mission is to ensure free competition in the market, the entity is not only responsible for investigating and deciding on the competitive matter, but also for promoting and disseminating the culture of free competition. The entity performs three functions and is composed by the following bodies:
- CADE’s Tribunal – responsible for rendering final decisions on antitrust infringement cases and for the review of complex transactions after they are challenged by the general superintendence, or if such review is claimed by the tribunal at its discretion. CADE’s tribunal is composed of seven commissioners and the decisions are taken by a majority vote. CADE’s commissioners are appointed by the president of the Republic and take office after approval by the Brazilian Senate for a term of four years that cannot be renewed.
- General Superintendence – responsible for granting clearance to less complex transactions and for challenging transactions deemed harmful for competition before CADE’s Tribunal. The General Superintendence is also in charge of investigating anti-competitive conducts. The general superintendence is headed by the general superintendent, who is appointed by the president of the Republic and takes office after approval by the senate for a term of two years, which can be renewed once.
- Department of Economic Studies, entrusted with the economic analysis of mergers and behavioral cases.
CADE is headquartered in Brasília, in the Distrito Federal, but it's competencies are exercised in the entire national territory. The entity has as a major importance in the process of companies acquisition in Brazil, since CADE analyses and decides which acquisitions may or not occur in the country.
New Rules to Companies Acquisitions
CADE made clear to companies the new rules for reporting the purchase of shares or acquisition of another company. The entity also set the cases in which investment funds are required to report acquisitions. The new rules try to be more objective, with the establishment of participation percentages that define if CADE must be or must be not notified about purchase and acquisition operations. The adjustment was made in 2012.
Companies Must Notify CADE When:
| When companies involved in acquisitions where competitors have vertical relationship in the supply chain. || 5% or more of the company participation. |
|New acquisitions of participation.||Multiples of five of the company participation.|
| Companies non-competitors or unrelated in the supply chain. || 20% or more of the company participation. |
| Companies non-competitors or unrelated in the supply chain. || Multiples of twenty of the company participation. |
| Total purchase of a company or control of a company (majority shareholding). || More then 50% of the company participation. |
Before the new rules, there should be approval by CADE of operations that caused "significant influence" on a company, which was a broad concept, according to an evaluation of the president of CADE, Vinicius Marques de Carvalho.
Carvalho said that the acquisitions of participation should be taken to CADE even if they occur in the capital market. The percentages above were fixed in order to avoid the analysis of minor cases in the competitive point of view. As the law refers to acquisitions of shares of the company, Carvalho also said that CADE had to give these directives to not cause insecurity.
Regulatory Law on Investments Fund Acquisitions
The antitrust entity has also defined the cases in which the investment fund acquisitions where CADE must be notified. To calculate the revenues, the funds should add:
- the total earnings from all funds that are under the same management
- the revenue of the shareholders that holds directly or indirectly more than 20% of the shares of at least one of the funds
- the revenue of the companies that are part of the portfolio of the fund, since it has 20% or more of the share capital of the company.
Together these billings led to the result of the economic group. If this value exceeds 400 million USD the operation of the fund must be notified to CADE. According to the new law, the case must involve a company with sales of 30 million USD or higher. These values must be adjusted to 750 million USD and 75 million USD respectively, after the publication of a ministerial decree in preparation.
Once completed these requirements, the operation of the fund follows the common procedure of analysis. If you acquire complete control of the company or the same, the operation must be notified to CADE. If operations are acquisitions of partial control, the rules presented in the table above must be followed.