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Merger review
In 2018, 406 mergers were submitted to CADE's review. CADE continued to clear merger filings under a pre-merger review system quickly and efficiently, leaving far behind the anxieties and doubts that had been raised when the current Brazilian Competition Act entered into force in 2012. Simple cases eligible for the fast-track procedure have been cleared in less than 20 days on average, while more complex cases have taken, on average, no more than 100 days to be decided.
i Significant casesBlocksCADE blocked only one merger in 2018. In February 2018, the Administrative Tribunal blocked the acquisition of Liquigás Distribuidora S/A by Companhia Ultragaz S/A, the largest and second largest domestic market share of liquefied-petroleum gas (LPG). The Administrative Tribunal argued the purchase of Liquigás would increase the possibility for Ultragaz to exercise the abuse of market power in the LPG market. In a post-merger scenario, the new company would hold more than 40 per cent of sales in many states. The Reporting Commissioner also highlighted the existence of significant entry barriers and the lack of effective competition among the companies.
In January 2018, the SG issued an opinion stating that the transaction involving the acquisition of Owens-Illinois Brazil's glass household items unit by Nadir Figueredo Indústria e Comércio SA should not be approved. According to the SG, the Brazilian market of glass household items presents a high concentration level that would be worsened by the transaction. The SG also indicated that competition from other domestic producers and the probability of new entrants to the market were low. In June 2018, Nadir Figueredo dropped the acquisition of Owens-Illinois.
RemediesCADE reviewed several high-profile merger cases in 2018, including transactions that were approved subject to sophisticated remedies packages (including structural and behavioural commitments). This is a positive effect of the merger control system enacted in 2012, which provides better incentives and a more suitable legal framework to encourage CADE and parties to seek negotiated solutions in merger cases.
In February 2018, CADE approved with restrictions the acquisition of TGM Indústria e Comércio de Turbinas e Transmissões Ltda by WEG Equipamentos Elétricos S/A, a transaction in the markets of equipment used in systems for triggering machines and for cogeneration of energy. CADE was especially concerned with the competition issues in tied selling of WEG and TGM products that integrate the energy generation system. For this reason, the Brazilian competition authority conditioned the approval of the merger to behavioural commitments. In the merger control agreement, the parties agreed to non-discriminatory conditions for the supply of the products to competitors providing third parties interested in acquiring the products with the individual prices for each components of the integrated energy generation system and guaranteeing that customers would be able to purchase each component separately or the integrated system at their own discretion.
CADE also approved with restrictions Bayer's acquisition of Monsanto. As this was a multi-jurisdictional merger, several remedies were coordinated with the jurisdictions involved. The main remedy consisted in the divestment of all of Bayer's assets that were related to the soybean seeds and cotton businesses, as well as the unit of non-selective herbicides based on ammonium glufosinate. Most of CADE's commissioners said those measures would be sufficient to address antitrust concerns, since the structural remedies solved all horizontal overlaps and the vertical integrations in the affected markets created by the merger in Brazil.
In March 2018, CADE also approved with restrictions a deal in the banking sector: Itaú-Unibanco S/A's acquisition of XP Investimentos S/A's stake. The transaction was approved conditioned to the parties' compliance with certain behavioural remedies aimed at ensuring the independence of the current XP controllers' management, maintaining the pre-merger incentives, and at mitigating the risks of market discrimination through the reinforcement of vertical integrations between XP and Itaú. As an example, XP is not allowed to require exclusivity clauses from autonomous investment agents and must ease the portability of its consumers to competing investment platforms. XP also committed to maintain its zero rate or zero tariff policy for investment products related to fixed-income investments. In August 2018, the Brazilian Central Bank also approved the transaction, but imposed more strict restrictions (e.g., BCB's decision prohibits Itaú from acquiring control of XP in the future).
Another noteworthy transaction that was cleared in 2018 subject to remedies was the acquisition of Votorantim Siderurgia S/A by its competitor ArcelorMittal Brasil S/A. The transaction consisted in the merger between two of the three main suppliers of common long steel in Brazil. The companies negotiated a merger control agreement with behavioural and structural remedies, including the obligation to divest two packages of assets: the first package was related to the production of drawn and ordinary long rolled steel, which must be sold to an individual acquirer, without any related partner participation, directly or indirectly to the applicants or its respective economic groups; the second package was related to the markets of wire drawing and steel wire rod machines. It must be offered to an individual acquirer, different from the buyer of the first package of assets. The acquirer of the second package cannot have partner participation linked to the applicants or to the economic groups they belong to.
CADE's Administrative Tribunal also approved two other transactions subject to remedies in 2018. In February, the agency approved the acquisition of Companhia Petroquímica de Pernambuco and Companhia Integrada Têxtil de Pernambuco, owned by Petrobras, by the Petrotemex Group. The companies agreed to set certain conditions (such as volume and price) to provide purified terephthalic acid to other companies for a limited time period. In June, CADE's Administrative Tribunal approved the merger of Praxair, Inc (White Martins) with Linde AG in the industrial, special and medicinal gases market subject to structural and behavioural remedies. The merged parties agreed to divest several businesses and to provide calcium carbide gas without any discrimination.
Compulsory notificationOn 5 September 2018, CADE's Administrative Tribunal requested the compulsory submission of the acquisition of All Chemistry do Brasil by SM Empreendimentos Farmacêuticos, a merger that did not meet the legal criteria for mandatory filing. The authority based its decision on Article 88, Paragraph 7 of the Brazilian Competition Act, which allows CADE to request the submission of any transaction within one year from its performance.
Although CADE had already initiated several proceedings to assess whether a given transaction required compulsory submission to CADE despite not meeting the notification thresholds, this is only the second time that the body has effectively triggered this exceptional mechanism since the Brazilian Competition Act came into effect. The first case occurred in 2016, when CADE received a complaint regarding an international transaction with effects in Brazil, whereby Guerbet SA acquired the business of contrast for X-rays and computerised tomography and magnetic resonance from Mallinckrodt Group Sarl.
ii Trends, developments and strategiesThe new trends in merger review in 2018 and 2019 are as follows:
- As CADE's merger review grows more sophisticated, the amount of merger challenges – and their relevance to the result of merger cases – is on the rise.
- In the past few years, CADE has toughened its assessments regarding mergers in general. Vertical integrations that, at another time, would be easily cleared under the fast-track procedure are now strictly scrutinised by CADE. In addition, CADE also increased the number of mergers blocked.
- Based on the profile of the new government and on analyses carried out by the specialised press, the several new authorities to be appointed by the new government in 2019 are expected to adopt a pro-business approach, reducing CADE's involvement in mergers and acquisitions.
CADE has proved capable of efficiently examining simple transactions under a pre-merger review system, overcoming the difficulties of a limited staff and a lack of experience of the new model. Nevertheless, there are aspects of the interpretation and implementation of the new Competition Act regarding merger control that are still unclear. The improvement of the Brazilian merger control system continues to be on CADE's agenda, as demonstrated by the new regulations and procedural matters enacted in 2018.
