The acquisition made by CSN Cimentos of the assets of LafargeHolcim in Brazil for more than $1 billion may face questioning in the analysis of the operation by the antitrust regulator CADE, not scheduled yet. It may be postponed to the second half, according to sources consulted by Valor, and may be subject to some remedies, such as giving up assets, to be approved by the watchdog.
The delay was not foreseen by CSN, which was expecting an outcome in April. Now, the company has already acknowledged that it may come out at the end of June.
Announced at the beginning of September, the approval of the operation — without any restriction by the antitrust body at the beginning of April — was questioned by competitor Cimento Tupi. The order favorable to the deal was issued by the acting superintendent, Diogo Thomson de Andrade, on March 31.
Tupi argued — in manifestations and appeals submitted to the CADE (seen by Valor) — that the deal generates high concentration power. The company points out up to 50% in some markets of the Southeast region, especially Minas Gerais and Rio de Janeiro.
This fact, it argues in the documents, was ignored by CADE’s acting general superintendent. The company’s appeal, dated April 19, was accepted by the rapporteur Luis Henrique Bertolini Braido on May 2. The case had already been analyzed by the member Lenisa Rodrigues Prado, also in April, who favored a deeper investigation by the antitrust body.
Tupi – which is under protection from creditors – operates in Minas Gerais, Rio de Janeiro and São Paulo, with production units in Carandaí (Minas Gerais) and Mogi das Cruzes (São Paulo). The installed capacity totaled 3.4 million tonnes per year. In 2015, it had to close its mill in Volta Redonda after the end of the supply of basic slag by CSN’s steel unit that is located in the city. The case generated a dispute between the companies that lasted several years and was even analyzed by the CADE. At the beginning of the battle, in 2004, CSN was not yet active in cement.
With the acquisition of LafargeHolcim’s assets, CSN jumps from three production units to nine units in the Southeast — four in Minas Gerais, three in Rio de Janeiro, one in São Paulo and one in Espírito Santo. The acquisition also adds to the cement company a plant in Paraíba and another one in Goiás.
A source who knows well the industry and the behavior of CADE in cases of market concentration told Valor that from the point of view of the volume involved in the merger of the operations in the Southeast region, the unrestricted approval of the acting superintendent-general goes against the decision of the body itself, in 2014, when it analyzed the merger of Lafarge and Holcim in the country. The source says that at the time, the operation involved 12.9 million tonnes of combined capacity. “Now it is 13.9 million tonnes. What has changed?”. At that time, the CADE forced the two companies to sell assets totaling 3.7 million tonnes.
Besides this issue, another point raised by Tupi is the transportation logistics, via MRS railroad, in which CSN is one of the controlling companies. Both Tupi (for transportation of inputs and final products) and LafargeHolcim are major users of the railroad.
Tupi also questions the supply of basic slag, a byproduct of steel production which is a relevant input in the manufacture of some types of cement, such as CP-III, added to the clinker in the grinding unit. It alleges that CSN would be left with more than 50% of this input available in the Southeast region. Tupi produces CP-II-E, which contains 34% slag.
The major suppliers of slag besides CSN are Ternium Brasil (formerly CSA), ArcelorMittal Tubarão, Usiminas, Aperam and Gerdau, but all already have long-term contracts committed to other cement companies, including Lafarge Holcim. CSN supplies its own grinding mill located in Volta Redonda, Rio de Janeiro.
Tupi’s lawyers also point to the coordinated power of the deal, saying it could prevent small producers from having access to raw materials and logistics infrastructure.
According to their information, in the markets served by the Barroso and Rio de Janeiro plants, the participation of CSN+Lafarge is between 40% and 50%. In the case of Pedro Leopoldo+Cantagalo the percentage ranges from 30% to 40% and this was not allowed.
By the CADE’s criteria, the market is analyzed within a radius of up to 300 km and between 300 and 500 km, counting from the plants’ units. Even admitting that there is concentration higher than 20% — a reason for deeper analysis — Mr. Andrade said in his order that “after an individual analysis of each cement market affected by the operation, it was found that the levels of rivalry existing in each one are sufficient to make unlikely the exercise of market power by the applicants (CSN and LafargeHolcim).”
According to Tupi, among such rivals mentioned by CSN in the case are not very significant companies, such as UAU (250,000 tonnes) and Hypermix.
Ms. Prado, in her order, pointed out several concerns in the operation, which “should be further investigated by the court.” She also said that the sheer existence of rivalry would not be enough to justify approval without restrictions.
Meetings may take place soon between Mr. Braido (rapporteur), the third interested party (Tupi) and CSN before the case is sent to the court for a final decision.
In a note, CSN said that it “continues to cooperate with the instruction made by the rapporteur in the process of acquisition of the assets of LafargeHolcim Brasil.” Tupi said its allegations are in the documents sent to the CADE.
(Beatriz Olivon contributed to this story from Brasília.)
Source: Valor International