FONTE: THE BRAZILIAN REPORT
The Challenger Brazilian antitrust watchdog will face after the pandemic
BRENNO GRILLO . MAY 04, 2020
Monopoly board game. Photo: Nazar Skladanyi/Shutterstock
With the in-person economy all but halted by the Covid-19 pandemic, many of Brazil’s small businesses are expected to perish. Even among major players, the situation is dire — and in this emerging form of corporate Darwinism, only the biggest will survive. In many sectors, companies are unlikely to endure the crisis without significant government help — not only by way of direct financial assistance but also through changing antitrust regulations to allow mergers and acquisitions, according to a major shareholder at Brazil’s leading domestic airline Gol, who spoke to The Brazilian Report.
Analysts expect a marked increase in mergers and acquisitions in the post-pandemic world. A part of this jump will be down to an existing pre-pandemic backlog, as PricewaterhouseCoopers identified 168 such operations pending analysis before many government agencies reduced their operations — a 63-percent increase from the average of the previous five years.
However, the coronavirus will drive these numbers up even further. Many companies are seeing their debts pile up on a weekly basis and may need to merge with their competitors to weather the crisis. Moreover, the devaluation of the Brazilian currency makes local assets cheaper and thus more appealing to foreign players.
Investment analyst Pedro Galdi is gambling on mergers and acquisitions in the banking, infrastructure, aviation, and telecommunications sectors. “In the best-case scenario, the economy will start a W-shaped recovery in the second half [of 2020],” he says.
Competition or economic recovery?
If these predictions come true, Brazil’s antitrust watchdog Cade will face the twin Challenger of regulating these operations with the goal of keeping these companies alive, while preventing monopolies from emerging during a severe economic crisis. “Cade must analyze these agreements from the failing company’s perspective, thinking that it is better to keep a company alive then let it die,” says lawyer José Del Chiaro, who helped shape the modernization of Cade in the early 1990s.
As soon as Covid-19 landed in Brazil, Cade stated that it would remain vigilant while being aware that many of its decisions would soon need to be put into perspective. “This scenario will make Cade analyze many situations in a different way. And when applying fines, the amounts must be reduced, considering the company’s capacity in the post-pandemic world. And the payment term — which is usually 30 days — must be made more flexible,” says lawyer Pedro Zanotta.
But in addition to this delicate balance, there is some doubt over whether Cade will be able to analyze all of the cases on its docket. In 2019, Microsoft’s purchase of software producer Red Hat waited a seemingly endless amount of time for approval in Brazil as the board of the antitrust watchdog was down four members. The advisory positions were only filled in October of last year, after being left vacant for 15 months.
There is also a concern about political interference in the antitrust authority. Cade’s superintendent-general Alexandre Cordeiro Macedo is linked to the right-wing Progressive Party (PP) and was appointed thanks to intense lobbying by PP Senator Ciro Nogueira, during the presidency of Michel Temer.
Another Cade member brought into the fold thanks to outside influence is the current chairman, Alexandre Barreto de Souza, who was supported by members of the Federal Accounts Court, which monitors public spending.
A new world, a new law
One of the main changes in societal behavior since the beginning of the pandemic is the acceleration of adopting digital technologies. It is already common for many people to hold work or family meetings via videoconference. “The market’s interest in the technology and telecom sectors will increase. Cars stayed in garages and few people left their homes. So much so that the price of oil fell,” says Gustavo Taiar, a lawyer specializing in corporate law.
Indirectly, one of the key sectors affected by this behavioral change is education. Many schools have used computer software to keep up with the school calendar, even at a distance. This will force Cade to direct its attention to the digital market.
“In mergers and acquisitions, the online and offline markets will need to be seen as one. Before, this was difficult because the customer’s consumption model focused on the real world. But this is falling apart due to the pandemic,” says Juliano Maranhão, a lawyer specialized in antitrust law.
In 2017, a dominant digital presence was among the reasons that prevented the merger of education giants Kroton and Estácio. If approved, the BRL 5.5 billion deal would have created a company that controlled 23 percent of the Brazilian education market, with 1.5 million students, 1,080 distance learning centers, and 213 brick-and-mortar facilities.
However, this concern with the digital sphere was not applied to the purchase of online secondhand bookstore Estante Virtual by major bookseller Livraria Cultura in 2017. Earlier that year, Livraria Cultura had already bought over Fnac, which, despite being a smaller competitor, had a robust presence on the online sales market. The acquisition of the digital book store, which today belongs to Magazine Luiza, was approved by Cade.
Often overlooked by the Brazilian population, Cade will play a pivotal role in determining what the Brazilian economy will look like after the coronavirus pandemic.