Gesner Oliveira was meeting counterparts from Portugal’s competition regulator in Lisbon more than a decade ago when he heard the news.
Brahma and Antarctica, the Brazilian beer groups, had agreed to merge in a deal that would eventually help form Anheuser Busch-InBev, the world’s largest brewer by sales.
“I thought it was a joke,” said Mr Oliveira, then head of Cade, Brazil’s fledgling antitrust body, recalling his surprise that the arch rivals were joining forces.
More importantly the transaction marked the start of Brazil as a globally important market for mergers and acquisitions.
While Cade approved the Brahma-Antarctica deal in the relatively quick time of around one year, the size, volume and complexity of mergers in Brazil has risen to such an extent that its antitrust regime is now being overhauled.
Last week, Brazil launched what the local press has been calling “super Cade” – a revamped body that will have more staff and will move from the previous, unwieldy “post-merger” approval system to a more conventional “pre-merger” framework.
“It will be a more sophisticated framework that brings Brazil in line with American and European antitrust standards,” said Fernando Iunes, head of investment banking for Itaú BBA, the Brazilian investment bank.
As Brazil has become more integrated with the global economy, the volume of cross-border and domestic deals has increased.
In the first quarter of this year, Brazil ranked seventh in the world for deal volumes, according to data company Dealogic. In the year-to-date, Brazil has hosted 214 transactions worth about $22bn.
Brazil’s post-merger antitrust approval system was one of the few of its kind in the world, alongside those of Egypt and Pakistan.
Merging parties would close their deals and worry about Cade later. Any disputes could be diverted to Brazil’s labyrinthine legal system, where cases can languish for years. In one example, Cade retrospectively blocked a link-up in 2002 between Switzerland’s Nestlé and Brazilian chocolate company Garoto. The case still continues.
As a result, only eight deals were blocked out of a total of about 8,000 transactions reviewed by Cade.
The post-merger notification system “made it very costly for Cade and very difficult to prohibit non-competitive mergers”, said Mr Oliveira, who now runs Go Associados, a consultancy specialising in antitrust and regulation.
The new system, in which companies will have to wait for Cade approval before closing their transactions, looks superior but is far from perfect, critics say.
Most concerning is the time Cade has to approve mergers – 60 days for simple deals but with maximum leeway of 330 days. This compares with the US system, in which 98 per cent of deals are approved within 30 days.
“In the US, a merger could get filed, reviewed, go to trial and [be] resolved in that time,” said Michael Cohen, a partner specialising in international antitrust issues at Paul Hastings, the law firm. “In Brazil that’s just the period for their review.”
Another earlier concern was a low threshold for the size of deals that should be scrutinised – initially set at R$400m ($195m) minimum revenue for the larger company in a transaction and R$30m for the smaller party. This has since been increased to R$750m and R$75m.
Ana Paula Martinez, lawyer with Levy & Salomão Advogados in São Paulo, estimates that the higher threshold will reduce Cade’s caseload by about half. This was positive since there were concerns over whether the agency would have sufficient staff.
The new law includes a “clawback” mechanism that allows Cade to review any transactions between companies smaller than the minimum thresholds up to one year after they are closed on antitrust grounds.
“In such cases it would be fair to assume that consumer associations, clients, suppliers, and competitors would file complaints against the transaction before the agency,” Ms Martinez said.
The new regime promises to be complicated but few dispute that it looks like a step in the right direction.
“Most firms, when they thought about mergers, they did not consider the competition risks. Now they will have to do that,” says Mr Oliveira
Source: Financial Time