Cade reviews transaction involving JBS and Rodopa in meat markets
At the judgment session of last October 18, the Administrative Council for Economic Defense – Cade reviewed the terms established in the Merger Control Agreement (ACC in its acronym in Portuguese) entered with JBS S/A, Rodopa Indústria e Comércio de Alimentos Ltda. and Forte Empreendimentos e Participações Ltda in 2014. The agreement was a condition to the Council’s approval for the transaction in which JBS leased three units of Rodopa and Forte’s cattle slaughtering and meat markets located in the municipalities of Santa Fé do Sul (SP), Cassilândia (MS) and Cachoeira Alta (GO).
The merger review (merger proceeding n. 08700.010688/2013-83) was recommended by CADE’s Attorney General (ProCade in its acronym in Portuguese) because the companies failed in fulfilling the measures ruled in the ACC concerning the elimination of competition problems identified during the merger analysis.
In reviewing the merger, the reporting comissioner, Márcio de Oliveira Júnior, established new deadlines and conditions (including new sanctions as well) for the companies complying with all the behavioral and structural obligations of the ACC – excluded the ongoing nature ones. That means that the parties will have a cut-off date (confidential) to solve the pending issues with CADE and to prove the compliance with the measures, if the companies decide to maintain the lease according to the original date of the contract.
The non compliance with this decision until the date requested by Cade may cause the merger disapproval, as determined by the reporting commissioner.
“The automatic undoing of the transaction should be the measure to be adopted in this case. However, regarding Rodopa’s financial situation, this undoing must be modulated in order to avoid the industrial plants shutdown, since Rodopa is not active. The immediate return of the plants to Rodopa could implicate their shutdown, with a consequent supply reduction and negative competition impacts”, explained the reporting commissioner.
The possibility of meeting the new deadlines does not exclude the fines identified by CADE that are related to the previous undoings. So, the Tribunal imposed Rodopa and JBS a penalty for disrespecting the clauses predicted in the ACC.
According to the agreement celebrated in 2014, JBS has committed itself to maintain the plants leased of Rodopa active at the same cattle slaughtering levels practiced during the year before the filing - 2013. Though, according to Oliveira Júnior, the company observed those levels for a little time.
The parties also should sell one of Rodopa’s brand and two Rodopa’s plants of cattle slaughtering that were not active at the time of the filing. The buyer of these assets could not belong to JBS’s economic group. However, JBS continues operating with the assets not sold. The reporting commissioner highlighted, although, that one of these plants were not sold because of one judicial pendency that already existed by the time of the signature of the ACC.
Also at the judgment session of last October 18, the Council imposed a fine of BRL 3.5 million to JBS, Rodopa and Forte for wrongful information provided during the analysis of the merger by Cade.
In August 2016, the companies asked CADE, for the second time, to review the ACC’s clause that held the obligation to maintain active the leased plants at the medium levels of cattle slaughtering produced in 2013.
In this request, the parties alleged that it was not possible to fulfill the obligation regarding to Santa Fé do Sul because of a determination imposed by the Secretariat of the Environment of São Paulo state, which limits the cattle slaughtering to a lower threshold than the one set in the ACC. Though, this restriction was already provided in an operational license issued in 2011 by the Environmental Protection Agency in São Paulo – CETESB to Rodopa before the plant’s leasing.
According to Gilvandro Araújo, reporting commissioner of the proceeding (administrative procedure for imposition of incidental procedural sanctions n. 08700.0006554/2016-19), the wrongful information derived from the absence of information about the existence and the content of the operational license at the moment of the filing and also after the approval of the merger by Cade.
Cade understood that the license limits of production were known by Rodopa at the moment of the filing, but there was no mention to this document on the case files. Furthermore, “after the merger approval and the signature of the ACC, we can conclude that the other applicants unequivocally knew the terms of the operational license and they still remained inert. The information was provided only to support the request to review the clause”, explained commissioner Araújo.