André Martin, Marina Takitani, Leonardo de Paula, Leonardo Baroni e Juan de Paula
On June 7th, the Tribunal of the Administrative Council of Economic Defense (“CADE”) judged the Concentration Act No. 08012.001697/2002-89, which delas with the acquisition of Chocolates Garoto (“Garoto”) by Nestlé Brasil (“Nestlé”). The case, initiated in 2002, became one of the most emblematic in Brazilian antitrust law, with more than two decades of history, including the initial disapproval of the transaction and its subsequent judicialization.
Nestlé’s acquisition of Garoto was completed in 2002 and notified to CADE under the terms of the antitrust law then in effect, which, unlike the current one, did not adopt the pre-merger review system. In February 2004, CADE disapproved the acquisition since it generated a concentration of more than 50% of the national market of chocolates, determining the deconstitution of the operation and the imposition of structural remedies, such as the disposal of acquired assets and the transfer of technology and commercial and industrial information.
Nestlé appealed to the Judiciary in 2005, opposing CADE’s decision by filing an annulment action with the Federal Court of the Federal District, questioning the validity and proportionality of CADE’s decision. In May 2005, through the concession of a preliminary injunction, the suspension of the effects of the decision and, in March 2007, a decision was issued determining CADE’s decision as null and void, accepting Nestlé’s thesis of tacit approval of the operation in the administrative sphere due to the alleged lapse of time for analysis of the act. In 2009, the Federal Regional Court of the 1st Region (“TRF-1”) reformed the lower court decision to annul the judgment of the request for reconsideration filed with CADE by Nestlé in 2004, for CADE to issue a new judgment. After several appeals were filed over the years, on 27/04/2021, the 3rd Section of TRF-1 issued a unanimous decision recommending CADE to provide a new judgment.
Thus, the analysis of the concentration act was resumed in June 2021, by the General Superintendence (“SG”), which found a significant movement of new competitors entering the market, especially in the segments of greatest concern to the authority at the time of the disapproval decision, those of chocolates in all forms (industrialized ready to consume) and chocolate coating. In both segments, the combined shares of the Applicants were substantially reduced.
Such findings by the SG highlight the effects that a time lapse of such a long period for the second decision brought to the antitrust analysis. According to SG’s opinion, there was a reconfiguration of rivalry in the national chocolate market, much due to the concentration effects generated by the Nestlé/Garoto having already been accommodated by the market over two decades.
In the 215th Ordinary Judgment Session of CADE´s Administrative Tribunal, the vote of Reporting Commissioner Alexandre Cordeiro reiterated the content of SG’s Opinion, through which it was “concluded that there are sufficient elements to mitigate the probability of exercise of market power by Nestlé after the transaction in the four relevant markets”. Based on this understanding, the Reporting Commissioner voted for the approval of the transaction, subject, however, to compliance with some behavioral remedies defined in a Merger Control Agreement, namely:
The Reporting Commissioner also authorized the execution of a judicial agreement to terminate by mutual agreement the ordinary lawsuit that was being processed in the Judiciary. The other Commissioners approved the order of the Reporting Commissioner, in full and without reservations.
In addition to defining one of the longest running and most relevant cases in Brazilian antitrust law, its outcome reveals the importance of the notification model in vogue in the country today, which provides greater legal certainty based on CADE’s prior approval before the transaction is consummated. It is also an example of the challenges imposed by the judicialization of administrative decisions, especially regarding the impacts of the delay of the Brazilian Judiciary, which can generate losses to economic agents and to the antitrust authority, from the delay in the consummation of the transaction and its impacts on the antitrust analysis.
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