18 Sep The risks of acts of economic concentration and the necessary attention to mergers and acquisitions transactions
Business activities aimed at the implementation of a transaction, or producing its effects, even if partially, before final clearance by the Administrative Antitrust Council for Economic Defense (CADE), are considered acts of economic concentration, or concentration acts.
Pursuant to Law No. 12,529 of November 30, 2011 (Antitrust Law), such competitive violation – also known as gun jumping – may void the transaction and subject the parties to penalties, ranging from R$ 60,000.00 (sixty thousand reais) to R$ 60,000.000.00 (sixty million reais), depending on CADE’s analysis of the seriousness of the conduct, bad faith, intent and the anticompetitive potential of the transaction.
The Antitrust Law determines that transactions defined as concentration acts cannot be consummated without previous analysis by CADE. Since the law came into in effect, CADE has analyzed more than 15 alleged gun jumping cases and declared, for the first time in 2006, the nullity of a contract based on economic concentration in view of the absence of notification to the antitrust authority before the consummation of the transaction, applying a fine to the involved parties of R$1,500.000,00 (one million and five hundred thousand reais). 
In practice, the risks for companies involved in economic concentration acts result from the fact that the Antitrust Law does not stipulate a list of activities or practices that may lead to gun jumping, despite establishing that competitive conditions between the parties involved in a transaction must be preserved until final clearance by the authority.
CADE’s Internal Rules determines that the parties involved in concentration acts must keep their premises and competitive conditions unchanged up to the final approval by CADE. Therefore, the following is prohibited:
- Any transfer of assets;
- Any type of influence of a contracting party on the other party;
- The exchange of any confidential competitive information which is not strictly necessary for the execution of the legal instrument binding the parties.
In addition, CADE published, in 2015, a guide for the analysis of gun jumping cases, stipulating important information and procedures guiding companies, but it does not contain express rules; the competition violation analysis must be carried out on a case-by-case basis, following the particularities of each case.
For this reason, it is extremely important that during negotiations and structuring of M&A transactions, the parties pay careful attention to the limits of competitive information to be exchanged and other practices that may constitute an anticipation of the expected results of the transaction, reducing, therefore, the risk of gun jumping.
It must be avoided, for example, that competitive sensitive information regarding the performance of the parties’ core activities is unnecessarily exchanged. They include expansion plans, competitive strategies, product pricing, employees’ salaries and information on main suppliers.
Another important issue is the definition of contractual clauses governing the relation between the economic agents until CADE reaches a final decision. Accordingly, contractual provisions preventing competition, direct interference by one party on strategic matters of the other and anticipated payment of the amount of the transaction, for example, should be avoided.
However, not only the contractual dispositions must be observed carefully. Certain behaviors by the parties prior and during the implementation of the transaction can cause concern, such as: the transfer of assets between the parties; exercise of influence over the activities of the counterpart; presentation to the counterpart of decisions related to pricing, clients, trade policies, among others; integration of sales force between the parties and joint development of products.
Considering the lack of legal and unequivocal definition of the acts that may constitute gun jumping, as well as a fact-based analysis to each transaction by CADE, the companies involved in M&A transactions that may characterize economic concentration must take all necessary precautions, or at least observe the guidelines published by CADE, to avoid, even in good faith or by oversight, the practice of gun jumping.
 Administrative Procedures for the verification of the Concentration Act no. 08700.002655/2016-11.