In recent years, the Administrative Council of Economic Defense (Cade) analyzed several vertical mergers that could potentially lead to competition concerns in several markets, such as supplementary health, banking, payments, petrochemical, telecommunications and retail.
On some of these occasions, the authority imposed remedies to mitigate concerns. However, contrary to the experience in jurisdictions such as the United States and the European Union, so far there is no guideline in Brazil to instruct and organize the steps of the assessment of vertical mergers.
Vertical mergers are transactions involving the acquisition of equity or assets between two or more companies that offer products and/or services at different levels of the same supply chain.
Pursuant to Cade’s Resolution No. 33/22, if neither party has a stake above 30% of the vertically integrated markets, the merger filing shall be reviewed under the fast-track procedure. Otherwise, it will be subject to a longer and thorough assessment under the non-fast-track procedure.
These transactions can benefit competition when they generate efficiencies, such as double margin elimination, alignment of economic incentives between the parties, reduction of transaction costs, better allocation of resources and optimization of the production process.
However, they can also entail concerns, primarily related to the imposition of difficulties for the entry and expansion of the combined entity’s competitors, through strategies that hinder competitors’ access to inputs (such as refusal to deal and price discrimination) or to a significant share of the customer base.
In addition, there is a risk that such transactions may distort competition if the combined entity is able to access commercially sensitive information of competitors that are also suppliers or customers of its products or services.
Cade recently resumed plans to draft guidelines for the assessment of vertical mergers. To this end, it formed a working group in June 2022 and, in January 2023, started a proceeding to hire an external consultant to support the drafting of such guidelines.
This course of action follows an international trend of increased concerns regarding vertical mergers and can be influenced by ongoing discussions in other jurisdictions.
In the United States, for example, the Federal Trade Commission (FTC) is no longer enforcing the guidelines published in 2020, which, in its view, does not adequately reflects market reality and could be based on questionable economic theories. Currently, studies are being carried out to develop new guidelines, which may address topics such as the methodology for the assessment of digital markets and transaction involving the acquisition of nascent and disruptive companies (mavericks).
For now, in view of the absence of guidelines for the review of vertical mergers in Brazil, the risk assessment of this kind of transaction should be guided by elements already considered in Cade’s precedents, such as: the players’ market shares in vertically integrated markets; incentives and ability to hinder competitors' access to input or a significant share of customers; and access to information that may distort competition.
