Substantial increase in merger filings

According to numbers published by the SDE, the Brazilian competition authority that receives the notifications of mergers and acquisitions, the first semester of 2010 saw an increase of 50% in comparison to the same period of the preceding year (332 vs. 207).

SDE explains that during the course of 2009 it received 476 filings, a substantial decrease compared to 2008 when it registered 604 merger notifications due to the financial crisis and that the numbers for January to June of this year reflects the recovery of the economic activity.

Federal Prosecutor says CADE’s clearance of concrete deals could be challenged before Judiciary

Following yesterday’s judgment session during which two acquisitions of assets related to concrete services market were cleared without conditions (please refer to the post below), the Federal Prosecutor before CADE has stated the administrative decision could be challenged before the Federal Judicial Courts.

According to him, CADE’s decision was contrary to the opinions from the SDE and SEAE (the two other agencies involved in the Brazilian merger review system) and allows high concentration which could have a negative impact in the market.

Highlights of CADE’s 471th Judgement Session

The bulletin published at CADE’s official website (www.cade.gov.br) with highlights of the July 21^st Judgment Session comments the following:

(i) the unconditional approval of the acquisition of concrete services assests from Camargo Corrêa Cimentos S.A. (CCC) by Polimix Concreto Ltda. (Concentration Act 08012.000836/2009-23). The transaction involves assets located in the cities of Tatuí and Ubatuba, in the State of São Paulo.

Polimix is one of the largest nationwide concrete services company with equity held by Group Votorantim, which is very active in the cement market

Reporting Commissioner César Mattos identified the substitution of a vertical integration (cement – concrete) in the Camargo Correa Group by other involving the Group Votorantim. Mattos highlighted that the decision could be reviewed in the future if it is verified that the verticalization increases coordinated market power and allows cartelization in the cement market. If that happens, Cade could order the deverticalization of the industry.

Chairman Arthur Badin reminded that CADE’s decision was taken assuming as true the information that there is no coordination in the relevant market in analysis. He also suggested that the clearance decision should wait for the end of the investigations conducted by the Secretaria de Direito Econômico (SDE) about suspicion of catel in the sector. However, the majority of commissioners opted for approving the transaction.

On previous transactions, Polimix and Group Votorantim have executed an agreement (Termo de Compromisso de Desempenho) with CADE to neutralize the influence of Votorantim in the management of the concrete services business of the Vieira Family, which has interest in Polimix Concreto, in Polimix Cimento and in Mizu S.A.

[it is interesting to note that the SEAE (Secretaria de Acompanhamento Economico) issued an opinion suggesting this transaction should be approved with restrictions]

(ii) the unconditional approval of the acquisition of assets from Cimpor Cimentos do Brasil Ltda. By Supermix Concreto S.A. in the city of Capivari de Baixo in the State of Santa Catarina (Concentration Act 08012.008947/2008-05). Cimpor is active mainly in the production and sale of cement and concrete services. Supermix provides concrete services and is jointly controlled by Soton Participações Ltda. and Silcar Empreendimentos Comércio e Participações Ltda. Silcar is a holding belonging to Group Votorantim.

Reporting Commisioner Carlos Ragazzo highlighted the fact that there were 16 similar transactions notified to CADE between 2003 and 2009 relating to vertical integration (through acquisition of control or acquisition of minority interest on independent concrete service companies). To him, such verticalization may constitute a risk to competition if, in some way, they are part of an attempt to undermine the strengthening of the bargain power of the independent concrete companies.

Ragazzo recommended that the CADE’s Department of Econômic Studies conducts a study about these similar transactions. The aim of the study would be to verify if the verticalization through the acquisition of the independent concrete companies has resulted in the exit of competitors, avoided entry of newcomers and if there was an impact on prices and quantities.

[it is interesting to note that the SEAE issued an opinion suggesting this transaction should be blocked]

CADE, SEAE, SDE and ANEEL signed a covenant to improve investigations in the energy sector

During the CADE's 471st Section of Judgement today National Agency of Electric Energy (Agência Nacional de Energia Elétrica - ANEEL), CADE, SEAE and SDE has set a Covenant in order to act with grater integration in order to eliminate any conflict btween the policies, to better set the roles of the parties, besides padronizing the understanding of the bodies regarding some issues.

The Covenant innovates by stating that the Reporting Commissioner responsible for a proceeding involving the energy sector can request a member of ANEEL to work together on the case, providing technical information.

As soon as we obtain the text of the convenat we will post a link here - in Portuguese, unfortunatelly.

471st CADE's Judgment Session

471st CADE's Judgment Session will take place Wednesday, July, 21st.

Lists of case being judged can be found at http://www.cade.gov.br/Documentos/pauta.aspx?pc=150.

We expect to have the case over the sham litigation decided as well as some interesting merger cases. We will keep you posted!

New Antitrust Investigation against ECAD (the Copyrights Collecting Office) in Brazil

The Secretariat of Economic Law of the Ministry of Justice – SDE initiated today a formal investigation against the Central Office for Collection and Distribution of Performing Rights (ECAD) (a privately owned civil society responsible for the collection and distribution of copyrights arising out of public exhibition of national and foreign songs under monopoly regime) and several associations that manage it: Brazilian Unit of Composers (UBC), Brazilian Society of Administration and Protection of Intellectual Rights (SOCINPRO), Brazilian Music Association and Arts (ABRAMUS), Maestros, Arrangers and Musicians Association (AMAR), Brazilian Society of Music Writers, Composers and Authors (SBACEM) and Independent Society of Music Authors and Composers (SICAM).

The investigation followed a Representation by the Brazilian Association of Pay-TV (ABTA). ECAD and the Associations are accused of (i) setting or offering - in collusion with competitors - prices and conditions for the sale of a certain product or service, (ii) obtaining or otherwise procuring the adoption of uniform or concerted business, (iii) limiting or restraining market access by new companies practices among competitors, (iv) posing difficulties for the establishment, operation or development of a competitor company or supplier, purchaser or financier of a certain product or service, and (v) imposing abusive prices, or unreasonably increase the price of a product or service.

Two other investigations against ECAD were previously dismissed by the Brazilian Antitrust Authority, but this time the object is different.

Antitrust investigations against collecting societies are spreading worldwide.

(Thanks to Ana Carolina Zoricic for her help with this post)

Commissioner Ragazzo mandate renewed by the Senate

Commissioner Carlos Emmanuel Joppert Ragazzo had his mandate at CADE renewed by the Senate last July 7th. His mandate commenced August, 2008 and was to expire next month.

The proposed renewal is still pending of presidential approval. That is soon expected, under panalty of disrupting CADE's work.

CADE's minimum attendance is of five members (of seven in total) and besides Commissioner Ragazzo, Commissioners Olavo Zago Chinaglia and Vinícius Marques de Carvalho also had their mandates renewal proposed, but Senate has not yet had it voted.

If Chignalia and Carvalho's mandate is not renewed until August 08, when Carvalho's mandate expire, and president approval on Ragazzo's renewal does not come to that date, CADE will be short of 3 Commissioners, interrupting CADE's work due to lack of quorum.

Highlights of CADE’s 470th Judgment Session

According to the bulletin published today at CADE’s official website (www.cade.gov.br), highlights of the Judgment session were:

(i) the approval of the transaction among Ipiranga Produtos de Petróleo SA, Chevron Latin América Marketing LLC and Chevron Amazonas LLC (Concentration Act n. 08012.009025/2008-15). The parties agreed to a Consent Decree disposing about conditions in connection the transaction. Ipiranga (part of Ultra Group) acquired the whole business of distribution and resale of liquid fuels and distribution of natural gas for use in vehicles that belonged to Texaco (part of Chevron Group), and

(ii) the continuation of the judgment of the case involving Seva and Continental’s Division VDO (acquired by Continental a few years ago from Siemens). CADE’s President Arthur Badin interrupted the judgment. He will review the case and bring his vote in the next session, after 4 votes for conviction and 2 for the acquaintance. Seva represented against VDO for sham litigation and invitation to collude in the tachographs.

It is also worth mentioning, although not included at CADE’s Bulletin, the analysis of a settlement proposal in connection to a cartel investigation in the air cargo industry. We will comment on it in an specific post, later on today.

CADE issues decision on ABN/Interprint/Incard deal

The transaction concerned the market for smart cards, and was filed to merger review in Brazil in February 2008. By means of the deal, American Banknote S.A. (ABN) had acquired the totality of Interprint Ltda.'s capital stock, and, indirectly, the totality of Tecnofarma Indústria Gráfica Ltda. and half of Incard do Brasil Ltda.'s capital stock.

Although prior recommendations enacted by the Secretariat of Economic Monitoring (linked to the Ministry of Finance) and the Office of CADE's Attorney General had previsously opined for the clearance of the share acquisition, CADE, as per the terms of the vote issued by the reporting commissioner (Mr. Fernando Furlan), opted to clear the transaction subject to the signature of an “Agreement for Specific Performance” by the parties.

According to such an agreement, ABN has agreed to divest certain assets from Incard and Interprint related to the markets for pre-paid and inductive cards, as CADE considered that the overlaps in certain product markets affected by the transaction could lead to antitrust concerns.

The exact scope of the obligations assumed by ABN is not public at this point.

470th CADE's Judgment Session

470th CADE's Judgment Session will take place tomorrow morning.

Lists of case being judged can be found at http://www.cade.gov.br/Documentos/pauta.aspx?pc=149 .

We will keep you posted on the interesting cases.

New Investigation

SDE has done a search and seizure operation in Minas Gerais and São Paulo, investigating the existence of a cartel between suppliers of school lunches to nearly 30 city halls in those States. Besides the antitrust violation, a scheme of misuse of public funds and corruption is also investigated.

Brazilian Government Published the New Goals in connection to cartel persecution

In June 11, 2010, the Brazilian Government officially announced several goals to be achieved by the authorities of the SDE, the Federal Police, the Public Prosecution Offices in both federal and state spheres, the Public Security Secretariats, among others, in order to improve the repression to cartels in the country. The goals are the result of debates promoted during the 2nd edition of the meeting of the National Strategy of Cartel Repression ("Estratégia Nacional de Combate a Cartéis" - ENACC), held in Brasilia.

Due to the substantial increase of construction and infrastructure projects, in connection to the World Cup (2014) and the Olympic Games (2016) to take place in Brazil, the repression to bid rigging has been elected as a priority for the years to come.

As a result, a document called "Declaration of Independently Presented Bid or Proposal" (see attached Administrative Rule n. 51/2009, Annex II) will be mandatory for all contracts related to the major sportive events mentioned above, including when a bidding procedure is not required. Such declaration is already necessary since September 2009 in connection to bidding procedures conducted by entities of Federal Administration, according to a Instruction of Secretariat of Logistics and Information Technology of the Ministry of Planning.

Another important measure that has come out of the meeting between the authorities is the recommendation directed to the Brazilian Exchange Commission, in order for it to require from publicly traded companies (i) the publication of a material fact in case an administrative investigation of offense to the economic order is initiated and (ii) the adoption of a compliance program.

The accomplishment with these goals (and others) will be monitored by the authorities represented in the meeting, especially the members of the ENACC's Permanent Council (created in June 11, 2010 and integrated by the Secretariat of Economic Law of the Ministry of Justice, the Federal Police, the Public Prosecution Office, among others.

CADE, SDE and INPI set a Covenant to work more closely

During the Internation Seminar of Intelectual Property and Competition Policy that took place in Rio de Janeiro between June 7 and 8, 2010, Brazilian Institute for Intelectual Property (Instituto Nacional da Propriedade Industrial - INPI), Administrative Council of Economic Defense (Conselho Administrativo de Defesa Econômica - CADE) and the Secretariat Of Economic Law (Secretaria de Direito Econômico -SDE) of the Ministry of Justice has set a Covenant in order to act with grater integration.

The partnership is set for the next two (2) years and will allow CADE and INPI to aknowledge one another's investigations and Proceedings, being able to issue opinion regarding theirs expertise - respectively Competition and Intelectual Property - when requested.

INPI's General Attorney, Mauro Maia, has stated that the preocupation is that companies intend to extend the patent period through litigation, aiming to maintain an improper monopoly. With the covenant, both authorities will then have the proper information to deal with those sham litigation cases.

INPI has made contact with CADE for the agreement after noticing a series of suits promoted by pharmaceutical companies.