The Administrative Council for Economic Defense (“CADE”) is a Brazilian governmental agency responsible for analyzing corporate transactions that may impact the market and free competition. Corporate transactions, which may include mergers, acquisitions, asset purchases, and joint ventures, must be submitted to CADE for approval if, in the year prior to the transaction, at least one of the parties involved had gross annual revenue or total business volume in Brazil equal to or greater than BRL 750 million and at least one other party involved in the transaction had gross annual revenue or total business volume in Brazil equal to or greater than BRL 75 million. In 2023, CADE reviewed 611 concentration acts, approving 594 transactions with an average review period of 21.5 days.
It is important to mention that, even in the case of an international transaction, if there is an impact in Brazil, CADE will have the jurisdiction to analyze it, as established by the Supreme Federal Court in 2023. Thus, even if the country where the transaction was signed has its own regulatory agency – such as the United States’ Federal Trade Commission (FTC) – CADE may still intervene if there is an impact on the Brazilian market.
Once a transaction is submitted to CADE, until the agency takes a position on its approval or not, the parties involved need to take some precautions to avoid premature consummation, which could result in the application of pecuniary and administrative penalties. In 2023, CADE concluded 54 investigations related to potential breaches of the duty to preemptively notify corporate transactions. As a result, 23 administrative proceedings were initiated to investigate concentration acts.
The concept of Gun Jumping, of North American origin, was incorporated by the Brazilian Competition Defense Law (Law No. 12,529/11), which establishes that the competitive conditions of the parties involved in a transaction submitted to CADE must be preserved until a final decision is made. Failure to comply may result in a fine of BRL 60,000.00 to BRL 60,000,000.00, in addition to the instauration of administrative proceedings and the declaration of nullity of the transaction.
This rule aims to prevent mutual influence between the involved parties that could compromise competition and the exchange of sensitive information without CADE’s endorsement, that is, it seeks to maintain the status quo until the transaction is approved and concluded, avoiding potential market impacts.
In order to avoid being characterized as Gun Jumping, the physical structures and competitive conditions between the involved companies must be preserved. Additionally, it is also necessary to await CADE’s analysis of the transaction for an effective exchange of competitively sensitive information. Until then, only information strictly necessary for the conclusion of the agreement between the parties may be exchanged.
In other words, the exchange of information, such as, but not limited to, clients and suppliers, marketing and business strategies, product pricing methods, and even employee salaries, must await the approval of the transaction.
To ensure that the parties involved in the transaction do not engage in any behavior that could be considered gun jumping, there are a few tools that can be used, such as the Antitrust Protocol, to outline specific internal procedures to be followed until CADE’s final approval, or even a Clean Team, a team of independent consultants dedicated exclusively to the treatment of sensitive information, aiming to ensure that only essential data is shared during the process. An Executive Committee, composed of employees of the companies involved, can also be created to support the Clean Team.
Having a team capable of structuring appropriate preventive measures can make a real difference to those involved and ensure the success of a transaction.