Brazil’s competition authority has advised the regulator to block the sale of the joint-venture assets in the country owned by Fonterra and Nestlé to Lactalis.
The recommendation from the technical team at the Administrative Council for Economic Defense (CADE) will lead to a broader review of the transaction from the watchdog’s court.
According to CADE, the sale of Dairy Partners Americas (DPA) would lead to horizontal competition issues in Brazil’s dairy chilled products markets, specifically fermented milk, petit suisse and dairy desserts.
CADE also pointed out there is a small number of rival companies in those specific markets, leading to the “existence of a low capacity of competitors to challenge the market power resulting from the transaction”.
The “extensive combined portfolio of brands of Lactalis and DPA” as well as the “gains in scale and scope in marketing” from the deal would worsen the issue of a lack of competition. The regulator added the technicians requested a study from the Department of Economic Studies (DEE), which showed the “existence of positive pressure to increase prices in the three markets in question”.
Just Food has approached Lactalis, Nestlé and Fonterra for comment on the recommendation to block the deal.
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The sale of DPA was initially announced in December when Lactalis bought the company for 700m reais (then $131.5m). Fonterra holds a 51% stake in the venture, set up in 2003, and Nestlé owns 49%.
Fonterra and Nestlé put the DPA business up for review in 2019 as the two parties considered the future of the chilled dairy products venture.
DPA operates two plants located in Araras, Sao Paulo and Garanhuns in Pernambuco state, employing 1,300 people, all of whom will be retained by Lactalis. It supplies dairy products, including milk-based beverages and yogurts, under the Nestlé brand and also Chamyto, Ninho, Chandelle, Chambinho, Neston and Molico.