It seemed like a done deal: instead, Cade refers the purchase to the Court of Justice.
The technical staff of Brazil’s antitrust watchdog, Cade, or Administrative council for economic defense, has given the body its negative opinion on the sale of Dpa, Dairy partners america Brazil, from Nestlé and Fonterra to Lactalis. The transaction had been announced in december 2022 and seemed to be a done deal: Fonterra and Nestlé had announced that they had agreed to sell the joint venture Dairy partners americas Brazil, to Lactalis, for 700 million reais (over 134 million Euros). Instead, everything comes to a standstill.
“The General Superintendence of the Administrative council for economic defense (SG/Cade) -the authority writes in the official statement- has referred to the Court of justice the acquisition by Lactalis do Brasil of the entire share capital of Dpa Brasil, currently held by Fonterra and Nestlé, and, indirectly, the entire share capital of its subsidiary Dpan. The order deciding to challenge the transaction was published in the Federal Official Gazette on Tuesday, 07/25/2023”.
The Brazilian Cade tribunal, at this point, will conduct a broader review of the transaction and vote on whether to approve the sale. “In its opinion -the authority states- the SG/Cade analyzed the effects resulting from combining the companies’ activities in the domestic markets for fermented milk, yogurt, petit suisse, milk-based desserts and curd, and milk collection in the states of São Paulo, Pernambuco, Paraná and Minas Gerais. Vertical integrations between milk collection activities in these states, the supply of milk powder and the supply of whey powder as an input for the production of refrigerated dairy products were also evaluated”.
The competition concerns raised in the Brazilian antitrust opinion concern likely “horizontal effects in the markets for refrigerated dairy products, especially fermented milk, petit suisse and milk-based desserts”. The agency, whose mission is to ensure free competition, identified a “small number of rival firms in these markets at the national level”: competitors, according to the authority, would have “little ability to challenge the market power arising from the transaction in the markets for fermented milk, petit suisse and milk-based desserts”. In fact, the potenxial rivals of the Fonterra-Lacctalis giant would have “a low ability to challenge the market power arising from the transaction”.
The difficulties, according to SG/Cade would be reinforced by “the large combined brand portfolio of Lactalis and Dpa and the resulting gains in scale and scope in terms of marketing, the companies’ logistical and distribution capillarity, and easy and privileged access to store shelves”. Moreover, the authority adds in its opinion, “there is the likelihood of coordinated effects due to the reduction from three to two effective players in the markets, with a possible price increase by both competitors, to the common benefit and detriment of consumers”.
The government authority, on the contrary, did not identify any “competitive risk” arising from the transaction for the yogurt, cream cheese and milk collection markets. Having said all this, the authority nevertheless decided for “the referral of the merger to the Cade Tribunal: the financial transaction will be entrusted to an adviser who will be responsible for conducting the case and, thereafter, will bring it to the panel for adjudication”.
