Cade approves with restrictions joint-venture between Saint Gobain and SiCBRAS in the silicon carbide market

The Tribunal of the Administrative Council for Economic Defense – CADE approved with restrictions the proposed joint venture between Saint Gobain of Brazil and SiCBRAS Silicon Carbide of Brazil Ltda., conditioned to the compliance with a set of measures provided by the Merger Control Agreement (ACC for its acronym in Portuguese) signed between the companies and CADE (Merger File No. 08700.010266/2015-70).

The purpose of the new company is the joint management with Saint Gobain and SiCBRAS of a silicon carbide factory, which is being constructed in Paraguay – the main destination of the production is the Brazilian market and each party will be able to acquire up to 50% of the joint venture’s annual productive capacity.

The silicon carbide is used for the production of abrasives and refractories in the metallurgical industry. Both companies, Saint Gobain and SiCBRAS, have plants of the material in Brazil, being therefore considered competitors in this market.

The Reporting Commissioner Alexandre de Cordeiro explained that the joint action of Saint Gobain and SiCBRAS in the Paraguayan plant raises competitive concerns, such as the risk of exchange of sensible information amid competitors; the joint strategic decision making by the companies; and the possible reduction of the competitive incentives, considering that the companies became partners.

CADE’s Tribunal has determined a set of behavioral measures, by means of the ACC, to resolve the competitive problems and to ensure the operational independence of the joint venture. Some restrictions were assembled to avoid the exchange of sensitive information between Saint Gobain and SiCBRAS, especially to future production.

The ACC also determines that CADE will conduct inspections in the areas of activity of the companies related to the manufacturing and commercialization of the silicon carbide of the joint venture, as long as the joint operation remains.

According to the Reporting Commissioner, the joint venture is a new investment, capable of significantly raising the offer of inputs in the Brazilian market. He also highlighted that the establishment of the company in Paraguay is due to the country’s competitive advantage, especially those related to the low cost of energy.

“I understand that CADE could not ignore these gains, under the risk of restraining the full utilization of the productive capacity of the Paraguayan factory. So, we focused in finding behavioral measures, which avoid the competitive risks without efficiency loss, and tend to be beneficial, not only to the parties, but also to consumers”, added Cordeiro.