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CADE vetoed the acquisition of Alesat by Ipiranga

Merger

The merger would harm the regional markets for fuel distribution; No agreement was reached with the parties to mitigate the identified problems
published: Aug 02, 2017 07:00 PM last modified: Aug 02, 2017 07:00 PM

The acquisition of the fuel distributor Alesat Combustíveis S/A by its competitor Ipiranga Produtos de Petróleo S/A was rejected, unanimously, by the Tribunal of the Administrative Council for Economic Defense – CADE during the judgment session held on 2 August. The commissioners understood that regional markets would be negatively affected by the merger (Merger n° 08700.006444/2016-49) and no agreement was reached with the parties to adopt remedies capable of neutralizing the risks identified during the assessment of the transaction.

 According to the Reporting Commissioner, João Paulo de Resende, Alesat is the biggest fuel distributor in the region, having more capacity to compete with Ipiranga, Petrobrás and Raízen, the three companies that operate on a national level. Since the structure of the distribution market affects the resale market, the acquisition of Alesat by Ipiranga would generate a significant impact in the capacity of the fuel distributors to compete in the region and the “white flag” stations, the fuel distributors which are not tied up to a supply contract with petrol companies and refineries.

 “The transaction would eliminate, in most part of the markets analyzed, the main fuel distributor with potential to supply fuel stations interested in remaining as a “white flag”. It would also remove the possibility of having another negotiation option either than the three biggest national distributors”, stated the Reporting Commissioner.

Resende verified that Ipiranga’s market share in a post-merger scenario would raise the probability of it exercising its market power in 11 states and in the Federal District (corresponding to approximately 65% of the operation), without the presentation of efficiencies that could neutralize the harmful effects to the economic order. Furthermore, the entry of a new agent is unlikely and there is low possibility of other regional or local distributors absorbing Alesat’s current demand in these areas.

For the Commissioner, the mitigation of the competition concerns would require the divestiture of Alesat’s assets in the problematic markets, an alternative which was not accepted by the parties. He explained “the severity of the remedy to be applied in this case would be justified by the high level of market concentration, by conduciveness of the market for coordination and because of the history of sector”. 

In order to address the potential harms to competition, the parties presented a Merger Control Agreement (ACC in its acronym in Portuguese), which was rejected by the Tribunal’s majority because it did not present sufficient remedies to address the identified concerns.