Fri 09/28/2018 10:56 AM
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Technical Note

Takeaways
 
  • Brazil’s antitrust authority, the Administrative Council for Economic Defense, or CADE, will likely take more than 120 days to complete its review of Disney’s purchase of 21st Century Fox, antitrust practitioners in Brazil told Reorg M&A.
  • On Thursday, Sept. 27, CADE declared the Fox/Disney transaction to be complex. This indicates that the authority will perform additional investigations into areas of concern. CADE’s initial investigation indicated that the transaction could lead to a substantial increase in the applicants’ market share and market concentration in pay-TV sports channels and the distribution of films for exhibition, according to the Sept. 27 filing.
  • CADE’s declaration of complexity also increases the likelihood that the authority will attempt to assuage any antitrust concerns it has by imposing remedies, practitioners told Reorg M&A.

Brazil’s Administrative Council for Economic Defense, or CADE, is likely to take more than 120 days to complete its review of Disney’s purchase of 21st Century Fox, antitrust practitioners in Brazil told Reorg M&A.

The shift in the expected review timeline follows CADE’s declaration of complexity of the transaction filed late on Thursday, Sept. 27. The declaration indicates that CADE will perform additional investigations into areas of concern. CADE also stated that an extension of the statutory 240-day review period was not necessary at this time.

CADE’s initial investigation indicated that the transaction could lead to a substantial increase in concentration and the applicants’ market share in the markets for pay-TV sports channels and the distribution of films for exhibition, according to the Sept. 27 filing. Additionally, CADE stated it would further scrutinize the transaction’s efficiencies due to a dearth in details showing the applicable transfer of consumer benefits and other benefits of the merger. Additional concerns include the potential increase in the combined company’s bargaining power and the deal’s potential impact on negotiations between programmers and operators in contracting bundle channels in the pay-TV market.

CADE’s declaration of complexity also increases the likelihood that the authority will attempt to assuage any antitrust concerns it has by imposing remedies, practitioners also told Reorg M&A.

Vicente Bagnoli Advogados, an antitrust practitioner and law professor at Mackenzie Presbyterian University in Brazil, told Reorg M&A that an approval accompanied by behavioral remedies is possible given the characteristics of the markets that appear to be at issue. For example, a behavioral remedy for the deal may be a prohibition on Fox/Disney requiring cinemas to exclusively show the combined companies’ films, Bagnoli said.

Another antitrust practitioner in Brazil told Reorg M&A that CADE, like the U.S., has a strong preference for structural remedies over behavioral remedies and that behavioral remedies are rare. That said, behavioral remedies are more likely in cases involving industries in which exclusionary agreements are common, the practitioner said.

Additionally, Disney and Fox are seeking to rebut third-party concerns and persuade the tribunal to approve the transaction without conditions, according to a filing submitted by the companies on Sept. 24. The companies state that there is fierce competition in the operation and licensing of pay-TV channels and in the distribution of films. Disney and Fox also urge CADE to be cautious regarding the claims of third parties, saying that they may be motivated by private interests that are not consistent with consumer interests.

21st Century Fox and Disney’s notification to CADE was filed on July 20. Therefore, the authority’s 240-day statutory review runs through March 20, 2019. The statutory review can be extended by a maximum of 90 days.

The Superintendence General reviews all notified transactions and decides whether they should be approved or submitted to the Administrative Tribunal if remedies may be necessary or if there is a recommendation that the merger should be blocked. Because Fox/Disney has been declared as complex, the deal will likely be reviewed by the tribunal.

In June, the DOJ conditionally approved the Fox/Disney deal, requiring the companies to divest 22 regional sports networks, or RSNs, to mitigate antitrust concerns.

--Hannah Deichman and Alexandra Wilts
 
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