CADE clears the acquisition of DPA Brasil by Lactalis

On 11 October, the Tribunal of the Administrative Council for Economic Defense (CADE) conditionally cleared the acquisition of the total share capital of DPA Brasil by Lactalis Brasil. The transaction was cleared conditional on a merger control agreement which establishes multiple behavioural remedies to maintain competition levels in the market.

Lactalis operates in the development and production of dairy products whereas DPA Brasil develops and produces chilled dairy products in the country. DPA Brasil is currently held by Fonterra and Nestlé.

According to Commissioner Victor Oliveira Fernandes, rapporteur of the case, the transaction results in a horizontal overlap in nine relevant markets. CADE analysed the effects of the merger in the Brazilian markets of fermented milk, yoghurt, petit suisse, dairy desserts, and cream cheese, as well as in the milk collection in the states of São Paulo, Pernambuco, Paraná, and Minas Gerais. It reviewed the vertical integration among milk production, powdered milk, and powdered whey supply for chilled dairy.

According to Mr. Fernandes, the market has quite significant competition from regional players, especially in the Northeast, South, and Southeast of Brazil. "Though the authority considered it a national market, it is noted that the regional players can compete with large companies that operate at a national level. Additionally, following the transaction, the perception of the market concentration level has shifted for a less concerning one", he stated.

For CADE, dairy desserts such as petit suisse and fermented milk raise competition concerns. Thus, the transaction will lead to market concentration. In addition, these are market sectors with high entry barriers.

To avoid this issue, Lactalis and DPA Brasil submitted a merger control agreement proposal. The companies proposed licensing the brands Batavo and Batavinho in the markets of fermented milk and petit suisse for Tirol, a renowned company in the dairy industry, especially in the South region of Brazil. The merger control agreement will last seven years, with a possible three-year extension.

"Licensing the brands for an extended period, enables the emergence of a strong competitor in the industry, which effectively ensures that the market remains dynamic and competitive. CADE has the development and monitoring expertise, since it implemented this solution in previous cases." he explained.

Access case nº  08700.001128/2023-18.