The conclusion of the operation by which Petrobras PETR4.SA negotiated the sale of its Liquigás liquefied petroleum gas distribution unit to a group formed by Copagaz, Itaúsa and other companies will depend on an agreement with the Brazilian regulatory agency CADE.
As published in the Official Gazette, the General Superintendence of the Administrative Council for Economic Defense (Cade) pointed out that it decided to “challenge the Court” of the case, “with a recommendation for approval subject to the conclusion of an Agreement on Control of Concentrations (ACC) “.
Petrobras signed a contract in November last year to sell 100% of Liquigás for 3.7 billion reais to a group of companies that also includes Nacional Gás Butano and Fogás.
In an opinion on the transaction, Cade pointed out that the liquefied natural gas (LPG) sector has “low levels of competition” and high barriers to the entry of new competitors, as well as a great possibility of coordination between market agents, which has already been the target of a series of investigations and convictions by the agency.
“Given the market context and the applicants’ initial proposal, the operation raises concerns about market power”, concluded Cade, when evaluating that the deal “would strengthen the oligopoly among the big four in the sector”.
The companies involved in the operation, however, presented a new proposal for an agreement to address competitive concerns, according to the opinion.
“The ACC proposal presented by the applicants, in theory, is sufficient to mitigate the competitive problems resulting from the operation”, signaled Cade’s superintendence.
According to this opinion, the negotiated agreement “addresses the competition concerns raised” and “strengthens a new player in the Southeast and Midwest regions”.
Petrobras had already seen an attempt to sell Liquigás barred by Cade in February 2018, which prevented a deal already sealed with Ultragaz. The company resumed the process to privatize the unit at the beginning of last year.
Liquigás has a 21.4% market share, with a presence in almost all Brazilian states and 23 operating centers, in addition to 19 warehouses and a network of approximately 4,800 authorized resellers.