CADE blocks proposed Kroton-Estácio merger

The Tribunal considered that the remedies presented do not settle the competition concerns; the majority of the Council adopted the decision.

On the judgement session of 28 June 2017, the Tribunal of the Administrative Council for Economic Defense – CADE blocked, by majority, the merger regarding the acquisition of Estácio Participações S/A by Kroton Educacional S/A (Merger 08700.006185/2016-56).

The transaction would result in the merger of the two Brazilian biggest private higher education institutions and CADE’s Tribunal considered that the proposed remedies would not solve the potential competitive impacts identified during the transaction analysis. CADE’s General Superintendence issued an opinion on the case in last February that had already pointed that the merger could harm competition and that there were not specific and verifiable efficiencies that could be passed on to consumers.

According to the Reporting Commissioner, Mrs. Cristiane Alkmin J. Schmidt, the merger between Kroton and Estácio would generate competitive concerns related to the on-site education modality, due to the lack of sufficient rivalry, in eight Brazilian municipalities: Macapá, Campo Grande, Niterói, São José, Santo André, São Luís, Belo Horizonte and Brasília. Mrs. Schmidt pointed that Kroton already has 37% of the distance education modality market (EAD in its acronym in Portuguese) and would have 46% after the transaction, increasing its national capillarity.

In addition, she stated that, “as Kroton has strong brands in the on-site modality, such as Anhanguera and Pitágoras, that leverage the EAD, the concern is that the Estácio’s purchase will give the company an even larger competitive advantage”.

During her vote, the Reporting Commissioner said that the remedies presented by the parties were not satisfactory to solve the identified concerns and, because of that, rejected the Merger Control Agreement (ACC in its acronym in Portuguese) proposed by both companies.

Then, she voted for the merger approval conditioned to the fulfillment of structural and behavioral restrictions that would sufficient to mitigate the issues that could harm competition in the analyzed markets. Mrs. Schmidt suggested remedies such as the proscription to other mergers and acquisitions for a five-year period and the obligation to divest on-site assets, the Anhanguera brand and the totality of the Uniderp assets, which is related to the EAD modality.

After Mrs. Schmidt’s manifestation, the other members of the Tribunal presented their respective vote and all of them made considerations related to the insufficiency of the proposed remedies – both by the Reporting Commissioner and the companies – to mitigate the risks identified during the merger analysis.

CADE’s President, Alexandre Barreto de Souza, and Commissioners Gilvandro Araújo, Alexandre Cordeiro, João Paulo de Resende and Paulo Burnier da Silveira voted for the rejection of the transaction.

CADE’s President made observations that, according to him, should be considered by the authority in future mergers analysis.

“The parties involved in a transaction should be those to indicate the efficiencies, remedies or effective solutions to the concerns identified by CADE’s General Superintendence or by CADE’s Tribunal. The safeguard of public interest, companies’ social role and competition defense are principles that demand the parties’ collaboration with the public power in order to address measures that prioritize and benefit consumers”, the President concluded.