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Cade blocks merger between Condor and Tigre

Merger

The merger could result in a highh concentrationin the market
published: Sep 03, 2015 03:00 PM last modified: Apr 15, 2016 04:19 PM

The Tribunal of the Administrative Council for Economic Defense – CADE, blocked, on 02 September 2015, the acquisition of all the quotas of Condor Pincéis Ltda. by Tigre S/A – Tubos e Conexões (Merger File 08700.009988/2014-09). The companies have negotiated a Merger Agreement (ACC for its Brazilian acronym), but they considered the structural measures imposed by the antitrust agency unfeasible.   

Condor Pincéis is responsible for the manufacturing and selling of tools for artistic and school painting and estate property painting.  Tigre S/A - Tubos e Conexões belongs to Grupo Tigre, also comprising the companies Pincéis Tigre – Ferramentas para Pintura, Plena – Acessórios em PVC, Claris – Portas e Janelas em PVC e Tigre ADS – Tubos Corrugados em PEAD. In its wide portfolio, Grupo Tigre commercializes paint brushes, brushes, paint rollers and other painting accessories.

The Reporting Commissioner Márcio de Carvalho Oliveira Júnior, followed CADE’s General Superintendence opinion that the merger, as presented in the file, would result in damages to the sector, as high concentration, barriers to entry and low rivalry in some markets. In order to remedy competition concerns, the companies have proposed to the antitrust agency the signature of a Merger Agreement, which has been negotiated by the Reporting Commissioner’s Office. 

To the Reporting Commissioner, the premise for the analysis of the remedies proposed by the parties – which were behavioral measures – would be the existence of structural remedies that could also avoid anticompetitive effects resulting from the merger. In this sense, CADE has presented measures that should be added to the ones brought by the companies. 
 
The first structural measure presented would be the sale of assets in the market of paint brushes, included in the so-called Artistic Line.  That is because after the operation, the joint market share of the companies in this market would overcome 65% and there would not be any other agents able to compete with Tigre and Condor in the segment. 

Regarding the State Property Line – which includes brushes, rolls and accessories for painting –, Commissioner Oliveira Júnior proposed the sale of wholesales centers. This measure would impose the reduction of duplicated wholesale structures, which would be resultant from the merger, and would have the potential to reduce the final product price, if there were an effective transfer of cost reductions to the consumers.     

“On the other hand, the transfer of these centers to third parties could give a competitive advantage to other players increasing the rivalry in the market”, explained Oliveira Júnior. 

At last, it was proposed that Tigre could not own the brand Condor. The solution presented by CADE foresees the concession to the brands license to another competitor. To the Reporting Commissioner, the licensing, even if temporary, of the brand Condor to Tigre has the potential to suppress this important brand from the market, what would reduce the consumers’ options in substituting the products from Tigre.    

“The permanence of the brand Condor in the market is a relevant factor to keep options for consumers in relation to the products of the artistic and state property lines”, the Commissioner clarified. 

After CADE has presented these measures, the parties argued several times that the only the behavioral remedies and the structural remedies suggested to the state property line (sale of wholesale centers and brand licensing for third parties) would be enough to end the identified competition problems. Furthermore, the parties were willing to develop a stronger measure package to avoid those concerns. However, they have not presented any counter-proposal considering a structural measure that would provide a higher rivalry in the state property brushes market.      

“In addition to the behavioral measures, I understand that the structural side of the operation would be solved if the three pillars presented [sale of assets for paint brushes production, sale of wholesale centers and licensing of the brand Condor to third parties] were adopted. It is worth to highlight that the absence of any of these pillars makes the approval of the merger impossible because of the high anticompetitive potential of the new market structures created by it”, concluded the Reporting Commissioner.