Brazil’s Administrative Council of Economic Defence has objected to a deal between the country’s largest sugar exporter and one of its busiest railway companies after unprecedented pressure from a group of industry rivals.
CADE’s general superintendent, which studies the competitive effects of mergers, called on the authority’s Tribunal to take action against the 6.96 billion reais ($US2.67 billion) acquisition of América Latina Logística (ALL) by Rumo Logística e Operadora Multimodal in a decision on Tuesday.
The authority says the deal could give Rumo’s owner, agribusiness giant Cosan, power to exclude its rivals in multiple sectors and charge them discriminatory rates to use ALL’s railway network in southern Brazil.
"After consulting the market, the superintendence verified that although it presents possible beneficial effects regarding the extension of the railway capacity, the merger has potential to generate risks such as limitation to access the infrastructure and discriminatory prices for other users," CADE said in a statement.
The deal will now go before the authority’s tribunal, which has 280 days to decide whether to block the deal outright or adopt remedies.
ALL is Latin America’s largest independent logistics company, with concessions in six Brazilian states, including populous Sao Paulo and the agricultural regions Matto Gosso and Rio Grande do Sul. CADE says the areas covered by ALL’s concessions produce around 80 per cent of Brazil’s GDP and its railroads serve four of the country’s busiest ports.
Cosan, meanwhile, produces bioethanol, energy and foods and is Brazil’s largest sugar producer.
In the months since the deal was announced, CADE has received as many as 17 third-party complaints from players in Brazil’s agricultural and energy sectors, many of whom fret the deal could give Cosan power to squeeze its domestic and international rivals.
Longtime observers of Brazil’s antitrust bar say this is likely the highest number of intervenors in any merger control case before CADE. Clearly the pressure has had some influence.
Oil refiner and distributor Ipiranga was the first to intervene before CADE. In August the company said allowing the deal will let Cosan favour Raizen, the fuel company formed as a joint venture between Cosan and Shell. Since then, CADE also heard concerns from several trade associations, including Agrovia, which counts powerful multinationals Bunge, Louis Dreyfus and Cargill as members.
Jose Del Chiaro, counsel to Ipiranga, told GCR in August that allowing Cosan to control ALL could increase the transportation costs of important commodities like fuel and sugar, and ultimately lead to higher prices in the supermarket and at the petrol pumps.
During discussions, Cosan and ALL proposed appointing a monitoring committee to ensure it is treating rivals fairly. A source close to the case, however, says some competitors would prefer that CADE ordered multiple structural remedies – or block the deal outright – over a package of behavioural promises.
Deal advocates, though, have argued that railroads are not essential assets to compete in fuel distribution in Brazil, claiming that only four of 200 distributors in Brazil use the railroads.
Counsel to Rumo and ALL did not respond to requests for comment.
Counsel to Rumo Logística e Operadora Multimodal (Cosan)
Sampaio Ferraz Advogados
Partners Tercio Sampaio Ferraz and Juliano Souza de Albuquerque Maranhão in Sao Paulo
Counsel to América Latina Logística
Barbosa Müssnich & Aragão Advogados
Partners Barbara Rosenberg and José Carlos da Matta Berardo in São Paulo assisted by Amanda Barelli and Daniela Fernandes
Counsel to Ipiranga
Advocacia José Del Chiaro
Partner José Del Chiaro in São Paulo, assisted by Ademir Antonio Pereira and Luiz Felipe Ramos
Counsel to Federation of Agriculture of the State of Paraná
Levy & Salomão Advogados
Partners Ana Paula Martinez and Alexandre Ditzel Faraco in São Paulo
Counsel to Agrovia, the Brazilian Association of the Vegetable Oil Industry, Fibria Celulose, the Labor Union of the Sugar Cane and Alcohol Insdustry of the Estate of Mato Grosso
Mattos Muriel Kestener
Partners Ubiratan Mattos and Maria Cecília Andrade in São Paulo assisted by Ana Carolina Estevão and Bruno Moreno
