Cade approves with restrictions Itaú's acquisition of a stake in XP Investimentos

The Administrative Council for Economic Defense – CADE approved on 14 March the acquisition by Itaú Unibanco of a stake in XP Investimentos. The approval was conditioned to the signature of a Merger Control Agreement (ACC in its acronym in Portuguese) proposed by the parties within CADE’s Administrative Tribunal.

The transaction will occur in three stages. In 2022, at the end of the final stage, Itaú will hold 49.9 percent of the voting shares of XP and 74.9 percent of its share capital. After that, the deal also establishes a put option, by XP, and a call option, by Itaú. In case of exercise of these options, the operation shall be notified to Cade for a new analysis.

The conditions imposed by CADE’s Administrative Tribunal through the ACC aimed to reduce possible negative effects to the competition on the relevant markets analyzed. In his vote, the reporting commissioner, Paulo Burnier da Silveira, followed the recommendation of Cade´s General Superintendence and emphasized that the "operation does not transfer the control of XP, and this can only occur after 2024. From this year on, and if the put option is exercised by XP or the call option is exercised by Itaú, the parties must, once more, notify the transaction to Cade and, therefore, a new analysis will be undertaken based on the future market conditions."

The ACC includes obligations for both companies, XP Investimentos and Itaú. The compliance will be monitored by a Trustee, who will have access to the information provided by the companies.

"Cade took all the necessary precaution in this transaction in order to ensure that there is no possibility for Itaú to interfere in XP’s operation. XP will continue with its autonomy to deliberate independently from Itaú’s position. Therefore, Itaú will not be able to impose decisions that differ from XP controller’s interests" said Cade´s president, Alexandre Barreto.

Remedies

Under the ACC, the companies committed to strengthening their mechanisms of governance that ensure the independence of the current XP controllers’ management, maintaining the pre-merger incentives. This eliminates Cade's concerns about the possible reduction of XP's competitive pressure on the market. The other commitments agreed by the companies aim to mitigate the risks of discrimination or market foreclosure resulting from the reinforcement of vertical integrations between XP and Itaú.

XP has committed not to discriminate investment products offered by Itaú’s competitors and is forbidden to adopt exclusivity clauses with other providers of investment products, in order to not hinder the access of other open platforms to these products.

XP is not allowed to require exclusivity clauses from autonomous investment agents, except when required by the Securities and Exchange Commission of Brazil (CVM in its acronym in Portuguese). The goal is to facilitate the acess of other platforms to this distribution channel. The company must also offer conditions that ease the portability of its consumers (investors) to another investment platform of their choice.

Itaú, from its side, has committed not to discriminate platforms that compete with XP if the bank decides to distribute its investment products through open platforms. The agreement also prohibits the targeting of Itaú customers to XP, in order to avoid the reinforcement of the dominant position that the company currently holds.

Both companies agreed to maintain an online complaint channel, managed by an external auditor, which allows third parties to report alleged noncompliance with the ACC and exclusionary practices.

Finally, XP has committed to maintaining its zero rate or zero tariff policy for investment products related to fixed-income securities, stock exchange and structured investment products, direct purchase of Brazilian Public bonds, and bank transfers for withdrawals, regardless of the amount invested or the number of operations, keeping this information available at its website.

Cooperation

The merger involving XP Investimentos and Itaú is the first to be judged by the Council after the signing of the Memorandum of Understanding between Cade and Central Bank of Brazil (BC), which seeks to set coordinated actions between both institutions.

In the analysis of this transaction, the cooperation between the two agencies began in the evidentiary stage at the General Superintendence and continued in the Administrative Tribunal. The technical cooperation allowed the exchange of perspectives over the transaction and concerns on the consistency of the assessment and about possible remedies. The CVM also collaborated with the Administrative Tribunal's work in analyzing this transaction.

Throughout the assessment of the transaction between XP and Itaú, Cade issued 125 official letters and received opinions from 66 third parties, among competitors, banks, and entities representing investors.