Superintendence concludes opinion on ICL and Fosbrasil transaction

In an opinion issued on 24 October 2014, the General Superintendence of the Administrative Council for Economic Defense – CADE referred to the Tribunal’s analysis the acquisition by ICL Brasil Ltda. of 44,25% of Fosbrasil S/A, which was previously held by Vale S/A. With the transaction, ICL will own 88,50% of Fosbrasil, consolidating its control over the company’s capital.

Fosbrasil is the main national supplier of Food Grade Phosphoric Acid – PPA, used for the production of phosphate salts, which is a raw material used in several industries, such as the food, and the hygiene and cleaning industries. ICL is the main company in the market of phosphate salts in Brazil, and uses the product made by Fosbrasil as starting material for its activities.

Due to the supply relationship between the two companies, the General Superintendence understood that the merger (file no. 08700.000344/2014-47), as presented, could encourage Fosbrasil to discriminate or even refuse to supply PPA to other phosphate salts manufacturers, in order to favor ICL.

After studies and market consulting, the Superintendence verified that the option of importing PPA and most of phosphate salts could be impractical to the competing companies, and that it would facilitate an eventual discrimination strategy by Fosbrasil. Furthermore, it was also ascertained that the only competitor in the country do not own productive and technical capacity to properly compete in this segment.

The eventual competitiveness reduction in the phosphate salts market could result in supply constraints and rises in the product’s prices in Brazil, with potential to hinder the productive chain that uses salts as inputs, including the food industry.

By reason of this anticompetitive potentiality, the General Superintendence challenged the merger before CADE’s Tribunal, which will be responsible for a final decision on the approval, block or adoption of eventual remedies to address the identified competition concerns. The Tribunal’s resolutions can be applied unilaterally or by agreement with the parties.

The merger was filed on 30 April 2014. The legal deadline to CADE’s final decision is 240 days, extendable for 90 more days.