Hidracor and Arco-Íris Tintas enter into an agreement after completing a transaction not cleared by CADE

In the hearing of this Wednesday (9 September), The Administrative Council for Economic Defence (CADE) has approved a Merger Control Agreement (ACC in its acronym in Portuguese) to the companies Hidracor and Arco-Íris Tintas for having completing a transaction without prior approval of the agency – a practice internationally known as gun jumping.

In July 2019, the companies entered into a contract in which Hidracor acquired part of the assets related to the business of manufacturing and selling paints for real estate and decorative painting, and hydrated lime of the brand Hipercor, which were until that moment held by the Arco-Íris Tintas and Midol Mineração, members of the Grupo Edson Queiroz.  

However, prior to signing the contract, the companies orally agreed that Arco-Íris Tintas and Midol would give Hidracor the right to produce and sell paints under the Hipercor brand, with the equipment already in place at its plant, as of the second fortnight of January 2019, until negotiations for the transaction were concluded. The grant of rights was evidenced by means of a joint declaration and invoice issued by Hidracor related to the first sale of Hipercor brand products.   

After an internal audit at the end of 2019, the companies noticed that they should have submitted the acquisition for assessment by CADE. Consequently, they spontaneously submitted the transaction to the antitrust authority on January 2020. In the report, the companies recognised the untimely conduct and requested the opening of an Administrative Procedure for Merger Assessment (APAC in its acronym in Portuguese) in order to solve the issue through an agreement with the agency.   

The Merger Control Agreement was unanimously approved this Wednesday, requiring companies to pay a financial contribution of BRL 193,289.97 due to the anticompetitive behaviour. The acquisition, on the other hand, was approved without restrictions by the General Superintendency last February.

According to the rapporteur commissioner, Mauricio Oscar Bandeira Maia, among the requirements observed for determining the financial contribution are, for instance, the good faith in reporting the operation after acknowledge of its mandatory nature and the low competitive impact resulting from the transaction.

“The transaction was promptly analysed within the scope of the General Superintendency, by summary proceedings, and approved without any restrictions or competition concerns of any nature. In this context, given the extremely low competitive impact on the market resulting from the transaction, the seriousness factor in the case file is inapplicable,” he stated in his vote.

Mandatory report

Law 12529/2011 establishes that merger and acquisitions must be mandatorily reported to CADE in case at least one of the parties involved in the transaction has registered an annual gross revenue or total turnover in Brazil, in the year prior to the transaction, equal or superior to BRL 750 million, and at least one other party involved in the transaction has registered an annual gross revenue or total turnover in Brazil, in the year prior to the transaction, equal or superior to BRL 75 million.

Transactions that meet the legal threshold for mandatory reporting cannot be consummated before being cleared by CADE, which assess potential risks to free competition as a result from merger and acquisitions.