CADE's Tribunal will review the acquisition of Unidas by Localiza

On 6 September, CADE's Office of the Superintendent General (SG) signed a direction submitting for review of the agency's Tribunal the acquisition of firm Companhia de Locação das Américas (named Unidas) by the firm Localiza Rent a Car. The SG recommended the transaction be cleared subject to remedies that mitigate competition issues.

After carrying out market studies and consulting market players, the SG observed that, amongst sectors affected by the transaction, those related to the sale of second hand cars and fleet management do not present further competition concerns.

The sector of second-hand cars is fragmented; therefore, Localiza and Unidas would not be able to exercise market power upon completion of the acquisition. As to the fleet management sector, it was evidenced other competitors in the market can effectively compete in a post-merger scenario.

In contrast, the assessment carried out by the SG suggests the acquisition results in significant risks to competition in the car rental market. The risks regard that Localiza — the market leader in Brazil — is acquiring Unidas — their biggest rival.

As a result, only one company with nationwide activities, i.e. Movida, would be able to compete with Localiza, in addition to other competing firms with smaller market shares. Besides, the conditions for the entry of new players in the market were not considered sufficient to eliminate the risk of the companies involved in the transaction exercise market power.

Other concerns

Another concern regards an agreement between Unidas and the American company Vanguard Car Rental that runs internationally in the car rental market. Their agreement defined that Alamo, Enterprise and National — brands owned by Vanguard — would be represented in Brazil by Unidas. Upon consummation of the transaction, the agreement would also include Localiza. In addition, the agreement establishes a long term non-compete clause through which Vanguard commits not to hold activities in Brazil for a given period.

The Office of the Superintendent General understands it as a concern since the foreign company has the expertise and strong brands and market shares. Such characteristics could provide Vanguard with the ability to operate with market capillarity and effectively compete with Localiza if intended to enter the Brazilian market.

Additionally, the SG indicated another issue derived by the agreement that could harm competition. According to the opinion of the SG, with this partnership, Localiza would operate five brands disclosed in price comparison websites for renting cars, namely: Localiza, Unidas, Alamo, Enterprise and National. Thus, this could give customers a false impression that they would be comparing prices from competitors, when in fact the same player manages the five brands.

Companies that could actually compete with Localiza would be placed to less favoured search positions, reducing their visibility to customers. Therefore, the SG considered that the portfolio power held by Localiza after the transaction would result in competition concerns in the supply of car rental through online travel agency platforms.

Moreover, the SG suggests further competition concerns derived by the transaction; in accordance with the review carried out by the Department of Economic Studies of CADE, the efficiencies presented by the applicants are not sufficient to mitigate the likely anticompetitive effects of the acquisition in the car rental market.

For such reasons, the Office of the Superintendent General understood the acquisition cannot be cleared as originally submitted to the antitrust authority. To mitigate competition issues, the SG recommended the Tribunal — responsible for giving the final decision — clear the merger subject to the signing of a Merger Control Agreement that should include structural and behavioural remedies. The expressions of the SG have no binding effect on the final decision.

The term for review was initiated on 9 February 2021. After the initial date, CADE has up to 240 days, extendable for another 90 days, to give a final decision on the case.

Access the Merger no. 08700.000149/2021-46.