ArcelorMittal’s purchase of Votorantim is approved with restrictions

On the judgment session of 07 February, the Tribunal of the Administrative Council for Economic Defense – CADE approved the acquisition of Votorantim Siderurgia S/A (owned by the Votorantim Group) by the competitor ArcelorMittal Brasil S/A (Merger nº 08700.002165/2017-97). The transaction was conditioned to the signature of a Merger Control Agreement - ACC in its acronym in Portuguese.

According to the reporting commissioner, Polyanna Vilanova, the transaction generates concerns related to the high probability of abuse of market power regarding the manufacturing and the commercialization of common long steel: light profiles; medium profiles; common wire rods; rebar CA-60; welded mesh; annealed wire trusses; and purchase of scrap. 

Besides that, Vilanova highlighted that the entry and the rivalry of competitors were not sufficient to prevent an eventual abuse of dominance by the company resulting from the merger. It was still demonstrated that the import of goods is also not significant to enhance competition.

The General Superintendence had also issued an opinion pointing out the possible damages to the competition environment, highlighting that the transaction consists in the merger between two of the three main suppliers of common long steel in Brazil – the applicants and Gerdau.

To address the competition issues identified and to enable the transaction authorization by the antitrust authority, the companies negotiated an ACC that includes the commitment of the company to comply with behavioral and structural measures.

“The ACC coverages all the competition concerns raised during the instruction stage of the transaction. The agreement was elaborated considering the major obligations, in order to preserve the competition conditions in the relevant markets impacted directly and indirectly by the merger”, said Vilanova.

CADE’s president, Alexandre Barreto, said that the remedies on merger control applied by the authority should comply with two primordial functions: effectiveness and feasibility. In this case, according to him, the remedies set is the necessary measure to mitigate the competition concerns, and also the sufficient one, since it does not imply in an attempt from CADE to organize the sector. “I understand that the option for two structural remedies and also for one behavioral remedy properly addresses the concerns resulting from the transaction”, he said.

The majority of the Tribunal followed the reporting commissioner’s vote. Commissioners’ João Paulo de Resende and Cristiane Alkmin J. Schmidt votes, for the disapproval of the transaction, were defeated.

Agreement
The companies assumed the obligation to divest two packages of assets according to the agreement signed with CADE.

The first package is related to the production of drawn and ordinary long rolled steel, which must be sold to an individual acquirer, without any related partner participation, directly or indirectly to the applicants or its respective economic groups.

The second package is related to the markets of wire drawing and steel wire rod machines. It must be offered to an individual acquirer, different from the buyer of the first package of assets. The acquirer of the second package cannot have partner participation linked to the applicants or to the economic groups they belong to.

For both cases, the acquiring companies should present financial health and administrative capacity, and cannot have more than 20% of the market share in the corresponding markets related to the packages.

The packages of assets and the divestment deadline are confidential.

Regarding the behavioral remedy, the ACC includes a “Performance Commitment” with annual minimum sales volumes, which clauses are also restricted to the parties.