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Changes ahead: CADE proposes modifications to its merger regulations

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24/02/2014 21:00 Demarest News

Changes ahead: CADE proposes modifications to its merger regulations 
​During the judgment session held this week, on February 02, 2014, CADE's President, Mr. Vinícius Marques de Carvalho announced the release of public consultations on proposed amendments to the merger regulation.
Through three different Public Consultations, important topics such as the definition of associative contracts, hypothesis of fast track procedures, thresholds for notification and economic group definition were addressed, as follows below: 
(i) Associative Contracts: associative contracts - which according to the Antitrust Law are of mandatory notification - have been defined as:
(a) any contract executed between competitors; or
(b) any contract executed between economic agents active in vertically related markets, if any of the parties involved has a market share of 20% or more and at least one of the following criteria is observed: (i) the contract sets forth the sharing of revenues and losses between the parties; or (ii) the contract sets forth an exclusivity obligation - either factual or legal.
(ii) Definition of Economic Group for Investment funds: Regarding the concept of economic group of investment funds, the proposed amendment excludes the manager and quotaholders of interdependent funds. The new provision suggests cumulative consideration of: (a) the economic group of each quotaholder owning more than 20% of the quotas of the fund involved in the transaction; (b) the companies controlled by such fund and the companies in which the fund holds 20% or more; and (c) the companies controlled by the funds under the same management of the fund involved in the transaction, including  the ones in which those funds have an interest of at least 20% of the capital or voting stock.
The aforementioned definition of economic group shall apply for thresholds calculation purposes, but CADE will not be bound to such definition for the assessment of cases and information requests.
(iii) Fast track procedure: in relation to the fast track procedure hypothesis, it is proposed that (a) the consolidation of control will no longer be eligible for fast-track procedure; (b) for cases involving vertical integration, the threshold for the application of the simplified procedure shall be raised from 20% to 30%; and (c) on horizontal mergers, the fast track shall be applied whenever the HHI variation is below 200 and the transaction does not lead to a combined market share above 50%.
(iv) Reportability and Thresholds: (a) in transactions concerning acquisition of ownership interests, not only the acquisition of control will be of mandatory submission, but now also any change of control; (b) transactions that turn the shareholder into the 'major individual investor' - which used to be applied irrespective of the significance of the increase in the shares or governance rights - will no longer be of mandatory notification; (c) acquisitions of convertible securities will be mandatory whenever the possible conversion results in a direct or indirect ownership of 20% or more of capital or voting stock, or 5% if the companies involved are competitors or active in vertically related markets. The acquisition may take place irrespective of CADE's final approval, as long as no political rights (if any) are exercised.
(v) Closing of stock exchange deals: stock exchange transactions that are subject to antitrust clearance can be implemented despite of CADE's prior approval, but parties must refrain from exercising any political rights related to the acquired interest until CADE's final decision. Parties may request an authorization for exercising such rights before clearance is granted, in order to protect the investment value. The authorization will however need to be expressly granted by the authority. 
(vi) Certification of the definitive decision:  CADE will formally certify in the case records that clearance granted by the General Superintendence has not been arrogated by CADE's Tribunal and neither appealed by a third party.
The proposed amendments are under public consultation. Contributions can be sent until March 21, 2014.

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