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CADE disapproves the acquisition of Mataboi by JBJ

Merger

Companies have 30 days to revert the transaction
by Assessoria de Comunicação Social published: Oct 24, 2017 02:29 PM last modified: Oct 24, 2017 02:29 PM

During the judgment session of 18 October, the Tribunal of the Administrative Council for Economic Defense – CADE decided, unanimously, for the disapproval of the acquisition of the total shareholding of Fratelli Dorazio Investimentos Ltda. (actual Mataboi Participações Ltda.) and its wholly-owned subsidiary, Mataboi Alimentos Ltda., by the company JBJ Agropecuária Ltda. (Merger No. 08700.007553/2016-83).

According to CADE’s Tribunal, the merger would result in significant risks to competition and any behavioral or structural remedies could be identified in order to mitigate these risks. The companies will have 30 days, from the date of the publication of CADE’s decision in the Federal Official Gazette, to revert the transaction.

JBJ operates in the market of raising and slaughtering of cattle and the market of retail of fresh bovine meet in Goiânia (GO), and in other sectors that are not related to this transaction. Mataboi performs its activities in the market of slaughtering and trading of cattle and fresh bovine meat and its by-products.   

Commissioner Alexandre Cordeiro, Reporting Commissioner in this case, stated that the transaction, considering only the participation of JBJ and Mataboi, results in vertical integration in the following markets: cattle breeding, in wich JBJ Agro operates; cattle slaughtering, which comprehends the activities developed by Mataboi in Goiás, Minas Gerais and Mato Grosso; trading of boneless fresh beef for the wholesale, in wich Mataboi operates; and trading of fresh meat in retail in Goiânia, where Grupo JBJ operates.

In addition, the transaction would result in horizontal concentration in two stages of the chain, if the participation of JBS is considered. These stages are the markets of cattle slaughtering in Goiás, Minas Gerais and Mato Grosso and the market for trading of boneless fresh beef for the wholesale in Brazil.

JBJ is owned by José Batista Júnior, who has a family relationship with JBS shareholders – the company is the leader of the national market of slaughtering and trading of fresh meat. Although there is not a formal corporate relationship between JBS and JBJ, the family ties and acts of shareholders of the two companies, such as the recent appointment of José Batista Júnior to assume JBS’ presidency in the absence of the current shareholders, pointed out to a significant potential for coordination between the companies after the transaction.

The analyses conducted by CADE’s General Superintendence and the Department of Economic Studies – DEE also considered that, in the event of coordination with JBS, merger would represent one more movement of concentration of the company in this market. This was already a CADE’s concern in previous analysis of mergers involving JBS. In these cases, the authority prohibited new acquisitions of the company in certain regions where the concentration level is still high (such as merger n° 08700.010688/2013-83, involving JBS and Rodopa).

According to the Reporting Commission, when the whole scenario is analyzed, it is possible to identify a low level of rivalry and high entry barriers, in other words the competition concerns are high.

Untimeliness 

The acquisition of the Mataboi by the JBJ Agro was concluded on 22 December 2014, when the parties signed an Agreement of Sale and Purchase of Shares. However, the transaction was only notified to CADE on 12 November 2016, after its conclusion.

During the judgment session of 7 December 2016, CADE’s Tribunal noted that the merger was concluded before the notification and the final decision of the authority – known as gun jumping – in consonance with the opinion of the General Superintendence (Assessment of merger n° 08700.007612/2016-13). For this reason, CADE imposed a fine of BRL 664,000 on the parties involved in the transaction.

In the judgment session, CADE’s Tribunal also established an agreement with the company, preventing the shareholder of JBJ Agro, especially José Batista Júnior, from occupying any position in the competitor JBS S/A, or obtaining and/or supplying sensitive competitive information for each of the merging companies, until the merger judgment session.