CADE’s General Superintendence concludes opinion about transaction between JBJ Agro and Mataboi
Agreement of Sale and Purchase of Shares
The General Superintendence of the Administrative Council for Economic Defense – CADE concluded its opinion regarding the acquisition of the total capital share of Fratelli Dorazio Investimentos Ltda. (currently known as Mataboi Participações Ltda.) and its wholly owned subsidiary, Mataboi Alimentos Ltda, by JBJ Agropecuária (Merger n° 08700.007553/2016-83). The opinion was forwarded to CADE’s Administrative Tribunal through an order published in the Federal Official Gazette on 8 June 2017.
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.
Complexity and challenge of the case
On March 16 2017, CADE’s General Superintendence issued an order declaring the transaction as complex, in accordance with article 56 of the Law 12.529/2011.
According to the opinion delivered on 7 June 2017 by CADE’s General Superintendence, JBJ performs its primary activities in the market for rearing and slaughtering of cattle, while the acquiring company operates in the market for slaughtering and trading of cattle and fresh bovine meat and its by-products. Therefore, the transaction might result in a vertical integration between the two companies.
In addition, JBJ is owned by José Batista Júnior, who is a relative of JBS major shareholders – a leading company in the national market for the slaughter and trade of fresh bovine meat.
As stated by the General Superintendence, despite there currently not being a cooperative relationship between JBS and JBJ, the family relationship and the activities of the major shareholders - such as the recent indication of José Batista to assume the presidency of JBS in the absence of the current major shareholders – are evidence of the potential for coordination between the companies. This evaluation was corroborated by CADE’s Department of Economic Studies and the Administrator of Mataboi’s judicial reorganization.
In that sense, CADE concluded that it was necessary to evaluate the potential horizontal overlap between the activities of JBS, JBJ and Mataboi. The analysis verified that the merger would result in horizontal concentration in the market for cattle slaughter in the States of Goiás, Minas Gerais and Mato Grosso and an overlap in the national market of boneless fresh beef for the wholesale.
CADE’s General Superintendence consulted the main competitors in the market and concluded that the operation would provoke a higher concentration in the market of trading of boneless fresh beef for the wholesale. This would happen because JBS is the biggest cold meat store of this segment, while Mataboi is the fourth. Beyond that, it was verified that it would create a higher concentration in the market of slaughtering cattle, especially in the Goiás state.
Regarding the coordination effects, the competition analysis also considered that the 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).
CADE’s Department of Economic Studies opinion highlighted the risk of a coordination activity of JBS with JBJ/Mataboi, but refused the argument that the financial situation of Mataboi would be a reason for the merger approval – opposing the statement presented by the parties.
It was also mentioned in several opinions (General Superintendence, Department of Economic Studies and the administrator of the Mataboi’s judicial reorganization) that, after the transaction, JBJ closed one of the acquired plants. This would contradict the claims of the company, which stated was trying to maintain its activities.
For these reasons, the transaction was challenged and forwarded to CADE’s Tribunal, which is responsible for the final decision – approval, rejection or adoption of remedies to solve identified competition concerns. The Tribunal decisions can be applied unilaterally or by means of a settlement negotiated with the parties.
The merger was notified on 12 November 2016 and declared complex on 16 March 2017. The legal deadline for CADE’s decision is 240 days, which can be extended for more 90 days.