CADE approves with restrictions the purchase of BRF’s slaughtering units by Minervastrictions the purchase of BRF’s slaughtering units by Minerva

The Administrative Council for Economic Defense - CADE approved with restrictions on 20 August 2014 the acquisition by Minerva S/A of cattle slaughtering units of BRF S/A located on the cities of Várzea Grande and Mirassil D’Oeste, both in the state of Mato Grosso (Merger File no. 08700.000658/2014-40). As part of the payment, BRF will have 16.77% of the shares of Minerva.

The Tribunal followed the understanding of the General Superintendence that the transaction is potentially pro-competitive on the bovine fresh meat market. The transfer of the production units subject to the transaction will enable Minerva to compete with JBS under better conditions. JBS is the absolute leader in this market segment.

However, it was verified that the minority stake of BRF in Minerva’s capital presents the potential to create anticompetitive effects in some processed food markets. According to the Reporting Commissioner, Gilvandro Araújo, the conjoint participation of the companies in the segments of kibbeh and meatballs, chicken processed meat, healthy cold cuts (turkey breast and blanquettes) and bacon showed to be very high, reaching a level of 80% of market share in some cases.

To the Commissioner, the already relevant presence of the companies in these segments, and the absence of entry and rivalry conditions in the problematic markets prevent the approval of the transaction in the exact terms as it was notified to the agency. Furthermore, in accordance with CADE’s decision in the transaction that created BRF, it is necessary to continue "preventing the increase of market power of BRF derived from mergers and acquisitions”.

To remedy the competition problems identified, CADE’s Tribunal determined that the companies must divest assets to prevent the transaction to result on the raise of BRF’s market share in the production of processed food. The structural measure was signed through a Merger Agreement (ACC for its acronym in Portuguese) with the parties involved in the merger and it is confidential.

CADE also determined that BRF and Minerva should maintain themselves independent until the obligations foreseen in the ACC are fulfilled.