Rivals and Clients Apply for Third-Party Status in CADE Review of Linde-Praxair Merger

Rivals and clients of industrial gas giants Linde and Praxair have asked Brazilian antitrust regulator CADE to be admitted as third parties in the review of the planned merger, confirming that the deal is facing strong opposition in Brazil.

Air Liquide, Brazilian metallurgic company Companhia Brasileira de Alumínio (CBA), healthcare services provider Empresa de Serviços Hospitalares S.A (ESHO), petrochemical company Braskem, and refractory services supplier Magnesita have all applied for third-party status in the proceedings.

As earlier reported by CTFN, third parties are concerned that the combination could lead to market foreclosure and price increases.

A São Paulo-based antitrust lawyer familiar with the industry believes that CADE will decide on the third-party requests within a week. The lawyer told CTFN that the Brazilian industrial gas market is “very concentrated,” and that the 2010 cartel case in which Linde, Praxair (White Martins), IBG, Air Products, and Air Liquide were involved, shows that the industry structure is not dynamic, and that there are high barriers to entry.

“I think it is going to be a very complex case,” the lawyer said, adding that the case will not take less than six months, and will certainly require remedies.

“If you have a transaction where there are so many parties willing to intervene, it means that there is something wrong with it. CADE does not take the intervention of competitors as seriously as clients’ intervention because clients only intervene if they really have to,” the source said.

Asked how the relevant markets are likely to be defined, the lawyer noted that the agency has tended to be more conservative in market definition compared to other jurisdictions, and in many cases the Brazilian authorities have defined the market regionally, or even locally, when other countries defined it globally.

This is due to the fact that Brazil has high import barriers, and given the size of the country, intra-state commerce is also common.

“We believe that the Administrative Council for Economic Defense (CADE) may impose some type of restriction on the union of the business of the two multinationals. The sale of part of assets may be a viable measure,” Matheus Dias, who represents Brazilian hospital association Associação dos Hospitais de Minas Gerais (AHMG) in a compensation claim against the parties in relation to the 2010 cartel case, told CTFN.

On January 10, Air Liquide filed a petition with CADE, arguing that as a direct competitor and client of the parties, it is has legitimate interests in the deal.

Air Liquide also has commercial relations with both Linde and Praxair, as a consumer of gases (namely acetylene) and other related products, particularly calcium carbide, which is regularly purchased from Praxair for the production of acetylene. “In this sense, it is important to highlight that Praxair is the only local manufacturer of calcium carbide. In addition, there are many obstacles to the importation of calcium carbide, including the exchange variation and the logistical procedures involved in the import process,” Air Liquide lawyers wrote in the filing.

The rival believes that the deal will result in high market concentration in the supply of various gases, and also in a vertical integration between the only local calcium carbide producer (upstream), and a market leader in the supply of acetylene (downstream).

Air Liquide called for the merger to be analyzed “thoroughly,” given the potential of creating structural conditions leading to incentives for the adoption of anti-competitive conduct.

CBA, a client of the parties, filed its request on January 11, arguing that the import of gases could not represent a viable alternative to rival products produced in the country, in view of the high international transport costs.

In a petition on January 11, Brazilian healthcare services provider ESHO said that as a consumer of both industrial and specialty gases, it has an interest in intervening in the review, given that the deal may alter the dynamics of such markets.

As a producer of petrochemicals and plastic resins, Braskem asked to be admitted as a third party in the case in a filing on January 11, in view of its dependence on industrial gases (and to a lesser extent specialty gases). “The merger between Linde and Praxair will bring together two major economic players in the market of industrial and specialty gases, increasing the level of market concentration and reducing the supply alternatives to customers, such as Braskem. In fact, the industrial and specialty gas markets are already highly concentrated,” the company said in the filing.

In a filing on the same day, international supplier of refractory products, systems, and services, RHI Magnesita, expressed an interest in intervening as a third party in the transaction through its Brazilian subsidiaries Magnesita Mineração and Magnesita Refratários, given that its industrial exploitation of ores, as well as its industrial manufacturing and reuse of refractory materials, insulation, and anti-acids depend on the supply of industrial gases, which represent a significant part of its cost of operations.

Other clients of the parties also voiced concerns over the deal. In a submission on January 15, Janio Cesar Nogara, technical manager of Laminação Brasileira de Cobre (CBL) told CADE: “The impact (of the merger) will be negative due to the high volume of CBL consumption, we do not know if another supplier will be able to meet our demand. The competition between Linde and Praxair was very convenient in the gas market. I believe that it will be a monopoly for large consumers. I do not see how to mitigate the impact of the combination. The two together will exterminate the small ones.”

Munich-based Linde and American peer Praxair notified their combination to CADE on December 8. However, the agency deemed the information provided insufficient and asked the parties to amend the filing, whose revised version was published in the Official Gazette on December 27.

Linde and Praxair did not return requests for comment.

©2018 CTFN. All rights reserved. No reprints, forwarding, sharing, or redistribution permitted. Use of this article is subject to the CTFN Terms of Service.

Bringing the marketplace leading coverage of major corporate developments, CTFN‘s seasoned reporters pursue news that matters to event-driven investors and deal professionals. Learn more at ctfn.news.

For subscription inquiries email sales@ctfn.news or call +1 203 635 6555 or +44 (0)203 514 5314.

Top stories on CTFN this week: TRCOSNI, MON.

Valeria Camerino

Valeria Camerino

Valeria Camerino began reporting for CTFN in September 2015 and has covered various regulatory agencies such as the European Commission, CADE, the Competition Commission of South Africa, and others. Prior to joining CTFN, Valeria was a Senior Reporter at London-based TelecomFinance, where she wrote about telecom M&A, financing, and regulation across Southern Europe and Latin America, providing proprietary intelligence and analysis on the latest industry developments. Before that, she worked as Middle East correspondent at Mergermarket, where she covered corporate M&A. Valeria has held editorial positions for Dubai-based Climate Control Middle East, MEGAWHAT, and Security Advisor Middle East. She holds a B.A. in Languages and Public Relations from Leeds Beckett University and an M.A. in International Journalism from University of Central Lancashire.

X

Interested in a trial?

Simply fill out the form below and one of our representatives will be in touch.