CADE’s General Superintendence concludes opinion on transaction between Ultragaz and Liquigás
On 28 August, the General Superintendence of the Administrative Council for Economic Defense – CADE forwarded its opinion on the acquisition of Liquigás Distribuidora S/A – a Petrobras subsidiary – by the company Companhia Ultragaz S/A (Merger No 08700.002155/2017-51) to the Administrative Tribunal final analysis. The General Superintendence recommended the disapproval of the merger.
According to the opinion of the General Superintendence, the transaction affects the markets of distribution of liquefied petroleum gas (GLP in its acronym in Portuguese) supplied in gas bottles, including the P13 bottles (known as gas cylinder); GLP supply by tank trucks, which supplies mainly commercial and industrial clients; and propellant GLP, input used by the aerosol industry.
The evaluation shows that the merger would generate considerable overlaps in most of the states analyzed, both in the segments of GLP supplied in gas bottles and tank trucks, and would result in a monopoly of the representatives in the market for the distribution of GLP propellant.
The Superintendence noted that, considering the GLP distribution market as a whole, from a nationwide perspective, the merger involves the two main distributors of a key input, present in 94% of the Brazilian residences - the gas cylinder. In that sense, the transaction would result in the elimination of the main competitor in a market where the four biggest companies control more than 85% of the supply.
In addition, the Superintendence identified high barriers to entry in all the markets analyzed, by virtue of regulation restrictions, difficult to access the input from Petrobras and exclusive advantages obtained by the consolidated companies. The analysis also concluded that the existing rivalry is not sufficient to eliminate competition concerns.
The Superintendence also verified that the local distributors, when present in the state, do not have effective capacity to compete with the high market power of Liquigás and Ultragaz. Although there are other distributors of large size in the market, it seems that these companies do not have incentives to compete effectively with the merging companies, since the market share of the parties has been significantly stable in the last ten years. There is low rivalry among the participants in the sector.
For the General Superintendence, there is evidence that the merger would increase the possibility of collusion in the markets analyzed. The opinion presents several structural elements which would incentivize coordination of practices in the sector. It was also taken into account ongoing investigations and previous decisions issued by CADE linked to the GLP market.
Moreover, the General Superintendence concluded that it would be difficult to implement and monitor an effective package of divestments in order to solve the identified competition concerns. For this reason, the General Superintendence concluded that the disapproval of the merger is the most suitable alternative in this case.
The merger was forwarded to the analysis of CADE’s Administrative Tribunal, which is responsible for issuing a final decision – approval, disapproval or the adoption of remedies that eliminate the problems identified. The Tribunal’s decision can be applied unilaterally or by an agreement between the parties.
The merger was filed on 7 April 2017 and CADE is legally due to issue a final decision within 240 days, which could be extended for 90 more days.