Cade’s analysis of conglomerate effects

Conglomerate mergers have increasingly caught the eye of antitrust authorities, both in Brazil and worldwide. In Brazil, the Administrative Council for Economic Defense’s (Cade) growing interest in this matter recently materialized with the Department of Economic Studies’ (DEE) publication of a working paper titled ‘Conglomerate Mergers: Theories of Harm and Cade’s Case Law, 2012-2022’ (Fusões Conglomerais: Teorias de Danos e Jurisprudência do Cade entre 2012 e 2022). The paper provides important references in regard to academic discussions and practical cases Cade has reviewed. 

Although the number of cases subjected to in-depth review in Brazil remains small so far, Cade has gradually formulated its view of potential concerns that may arise from these conglomerate mergers, as well as its approach to reviewing them. According to data in the working paper, Cade reviewed a total of 61 cases involving conglomerate mergers from 2012 to 2022. Of these, over 50% were reviewed from 2019 onward. 

Cases involving the expansion of the parties’ portfolios – especially when one party already holds a substantial market share – have raised a series of questions about potential conglomerate effects. One reason for this is that Cade’s filing form requires parties not only to submit vertical relationships and horizontal overlaps, but complementary relationships as well. 

Among recently reviewed cases, Cade assessed whether Microsoft Corporation’s global acquisition of Activision Blizzard, Inc. (Merger Case No. 08700.003361/2022-46) would increase Microsoft’s incentives to foreclose its digital ecosystem to competing producers in other markets. Cade also looked into whether the transaction would stifle potential innovation in the digital game distribution market through subscription services for multiple games and cloud gaming services. Cade eventually concluded that there were no incentives to adopt any foreclosure strategies post-transaction – including, above all, the discontinuation of sales of third-party developer’s games in the Xbox ecosystem. 

Another notable case concerns a transaction involving Brazilian payments fintech STNE Participações S.A. (Stone) and management software company Linx S.A. (Linx) (Merger Case No. 08700.003969/2020-17), in which Cade assessed potential antitrust risks related to a potential increase in portfolio power resulting from the complementary nature of the two companies’ business activities. There were concerns that the companies could adopt a discriminatory and exclusionary strategy that would force Linx’s customers to only use Stone’s payment acquirer solutions. In the end, Cade concluded that the parties did not have any incentives to adopt these strategies, given the dynamics of the market. 

Another concern with conglomerate mergers is related to access to information. This concern was raised both in the Stone/Linx case and during the analysis of a deal between Magalu Pagamentos Ltda. (Magalu Pagamentos) and Hub Prepaid Participações S.A. (Hub) (Merger Case No. 08700.000059/2021-55). In the latter case, Cade looked into the possibility of Hub transferring customer data to Magalu Pagamentos, which, in theory, could have resulted in undue advantages. However, this concern was ruled out in both cases due to contractual safeguards between the parties and obligations stemming from Brazilian Central Bank regulations applicable to financial and payment institutions, both of which prevented unauthorized access to information. 

In addition to the working paper, Cade recently submitted a preliminary draft of its Non-Horizontal Mergers Guidelines (V+ Guidelines) to public consultation. The draft guidelines consolidate a series of best practices and procedures for Cade to apply when analyzing the non-horizontal effects of merger cases. Further information on the V+ Guidelines can be found in this article. 

These cases and working papers indicate that competitive concerns stemming from conglomerate mergers emerge when at least one of the parties has been identified to hold market power in a segment whose customer base overlaps with those of the other market(s) affected by the transaction – even if these are not horizontally or vertically related. 

Although all the possible effects of conglomerate mergers have yet to be analyzed comprehensively, Cade is gradually developing its stance on the matter. The cases that the authority has already reviewed serve as important references for potential areas of concern in regard to this type of transaction. Cade may adopt new theories of harm as it gains more experience in scrutinizing conglomerate mergers, especially within digital ecosystems. 

For further information on this topic, please contact Mattos Filho’s Antitrust practice area.