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CADE’s General Superintendence concludes opinion about acquisition in the market of masculine condoms and lubricants

Merger

The Proceeding is now going to CADE’s Tribunal analysis
by published: Aug 01, 2016 03:23 PM last modified: Aug 01, 2016 03:23 PM

In a decision published at the Official Gazette on Monday 1 August, the General Superintendence of the Administrative Council for Economic Defense – CADE has submitted to the authority’s Tribunal the analysis of the acquisition of the brands Olla, Jontex and Lovetex, which are currently owned by Hypermarcas, by Reckit Benckiser (Administrative Proceeding No. 08700.003462/2016-79).

The Superintendence’s opinion explains that the markets involved in the transaction are those of masculine condoms and lubricants. After the acquisition, Reckitt would hold the main brands on both markets – the company is currently the owner of Durex and KY, which raised competition concerns.

While analyzing the lubricants market, the Superintendence verified high levels of market concentration and considered that there are no rival brands competing with Reckitt, in case the operation is concluded as proposed. Econometric tests developed by CADE’s Department of Economic Studies (DEE in its acronym in Portuguese) also indicated that the operation might result in relevant price increase in this market.

The market of masculine condoms, differently from the lubricants one, has more relevant competitors, such as Blowtex and Prudence, which means a lesser risk of anticompetitive effects as a result of the merger. CADE’s General Superintendence highlighted, however, that there is also some anticompetitive concerns regarding the condoms’ market, since the transaction would result in the concentration between the leader brands in the Brazilian market (Jontex and Olla) with Durex, a brand that has been increasing its market share in the last few years.

According to the Superintendence’s opinion, there are also anticompetitive issues related to the deepening of the market concentration in the market of condoms and lubricants – which in recent years were stage of other merger operations; the coincidence of brands among both markets, as well as the creation of a large portfolio power by Reckitt in the sexual well-being sector are factors that raised anticompetitive concerns, in case the operation is approved.

Due to these anticompetitive potentialities, the General Superintendence understood that the transaction, as it was submitted, could result in price raise and other possible damage effects to consumers. Therefore, the Superintendence contested the merger and sent the file to CADE’s Administrative Tribunal, which will be responsible for the final decision about the approval, block or adoption of eventual remedies to adjust the identified problems. The Tribunal’s decision can be applied unilaterally or by agreement signed with the parties.

The merger was notified in April 2016. The legal deadline for CADE’s final decision is 240 days, which can be extended for 90 more days.