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CADE’s General Superintendence concludes opinion on transaction between ArcelorMittal and Votorantim Siderurgia


CADE’s Administrative Tribunal will issue a final decision on the case
published: Sep 08, 2017 03:57 PM last modified: Sep 08, 2017 03:57 PM

On 5 September, the General Superintendence of the Administrative Council for Economic Defense – CADE forwarded its opinion on the acquisition of Votorantim Siderurgia S.A. – a subsidiary of Grupo Votorantim – by its competitor ArcelorMittal Brasil S.A. (Merger nº 08700.002165/2017-97). The General Superintendence challenged the merger and the case was forwarded for the analysis of CADE’s Administrative Tribunal.

According to the opinion, the transaction affects the markets of common long steel – in particular the national market of raw materials for the steel industry; billets; merchant bars; light and middle section steel; common wire rods; drawn CA-60; welded mesh; annealed wire trusses; and rebars; in addition to regional markets of reinforcing rebars’ fabrication and scrap metal’s purchase.

The General Superintendence stated that the transaction would result in the merger between two of the three main Brazilian suppliers of common long steel – the parties and Gerdau. The transaction would eliminate a relevant player in a segment where the three main companies share more than 80% of the market offer. In a hypothetical post-merger scenario, the merger would mainly affect the sectors related to welded mesh, trusses, annealed wire, rebars, drawn, common wire rod, and light and middle section steel.

During its analysis, the General Superintendence verified that the existing rivalry in markets wherein several of competitors operate – such as CSN, Silat, Sinobrás and Simec — is not sufficient to eliminate competition concerns, considering that these competitors do not have an effective capacity to contest ArcelorMittal and Votorantim’s high market power.

CADE’s investigative body also confirmed that the incumbent companies have a high idle capacity due to the demand decrease for long steel because of the current Brazilian economic crisis, which makes the entry of new competitors unlikely.

There is also sound evidence that the merger could increase the risk of collusion in the analyzed markets. The opinion points to several structural elements that could facilitate coordinated practices among the largest companies, in addition to mention CADE’s investigations and condemnations related to cartels in the steel market.

Furthermore, the transaction would significantly increase the metal scrap purchase power of the merged parties in the Southeast region, which could harm product suppliers – in most cases, small and dispersed companies, which depend on the inputs from the steel industry.

According to the opinion, it would be difficult to implement and monitor an effective package of divestments in order to address the identified competition concerns.

Therefore, the General Superintendence concluded that the transaction could result in long steel prices’ increase caused by ArcelorMittal’s market power and the risk of coordinated conduct between the major companies in the sector. The opinion issued by CADE’s Department of Economic Studies (DEE for its acronym in Portuguese) raised similar concerns.

For these reasons, the General Superintendence concluded that the most suitable measure is to block the proposed transaction.

The merger was forwarded to CADE’s Administrative Tribunal, which is responsible for issuing a final decision – approval, disapproval or the adoption of remedies that eliminate the identified concerns. The Tribunal’s decision can be applied unilaterally or by an agreement with the parties.

The merger was filed on 8 April 2017 and CADE has to issue a final decision within 240 days, which can be extended for 90 additional days.