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CADE’s General Superintendence concludes opinion about WEG and TGM transaction


The opinion recommends the merger approval conditioned to the signature of a Merger Control Agreement with the parties
by Assessoria de Comunicação Social published: Nov 24, 2017 04:27 PM last modified: Nov 24, 2017 04:28 PM

The General Superintendence of the Administrative Council for Economic Defense – CADE recommended, in an opinion published in the Federal Official Gazette on 24 November, the approval with remedies of the acquisition of TGM Indústria e Comércio de Turbinas e Transmissões Ltda. by WEG Equipamentos Elétricos S/A (Merger 08700.008483/2016-81). The case was forwarded to the analysis of CADE’s Administrative Tribunal.

The transaction affects the markets of equipment used in systems for triggering machines and for cogeneration of energy – which encompasses process of production and utilization of different forms of energy (generally electric and thermal). These products provide a better use of the primary energy contained in the fuels, such as biomass and natural gas.

According to the opinion, the transaction does not raises competition concerns in markets in which there is horizontal overlap and vertical integration between WEG and TGM equipment. As examples of these markets, the markets for geared motors and industrial gears, since the other players are capable to maintain the rivalry in these segments after the merger. 

However, the Superintendence’s analysis concluded that the merger presents competition problems in tied selling of WEG and TGM products that integrates the energy generation system (turbo generator), formed by three equipment: steam turbines, turbo gears and electric generators.

WEG is the national leader in the sales of electric generators and TGM is the leader in the commercialization of steam turbines and turbo gears. These segments have potential to harm the market, through activities of discrimination of competitors that depend on WEG and TGM to complement its products portfolio. There is also the possibility of cross subsidy in the selling of equipment to the final consumer.

For these reasons, CADE’s General Superintendence concluded that the transaction could not be approved how it was presented to the authority. Therefore, the General Superintendence forwarded the merger to the analysis of CADE’s Tribunal, which is responsible for issuing a final decision, and recommended its approval conditioned to the signing of a Merger Control Agreement (ACC in its acronym in Portuguese).

The ACC was proposed by the parties and encompasses behavioral remedies, which, in the Superintendence’s opinion, can address the competition concerns pointed after the analysis of the transaction. The Superintendence’s opinion is not binding.

The merger was notified on 3 July and CADE is legally due to issue a final decision within 240 days, which could be extended for 90 more days.