CADE conditionally clears the acquisition of Unidas by Localiza

In the last hearing of 2021, held this Wednesday (15 December), the Administrative Council for Economic Defense (CADE) cleared the acquisition of the firm Companhia de Locação das Américas (aka Unidas) by the firm Localiza Rent a Car. The clearance, however, was subject to remedies aimed at mitigating competition issues. The parties agreed to it by signing a merger control agreement with the authority.

The transaction affects the markets of wholesale and retail second-hand cars, fleet management, and car rental. The authority did not find any competition issues associated with the second-hand car segment as it is fragmented, with an enormous number of players; the same happened with the fleet management sector, as there are competitors able to compete with Localiza and Unidas after the merger completion.

On the other hand, according to Commissioner Lenisa Prado, the rapporteur of the case, the transaction is likely to result in abuse of economic power in the car rental market, with significant risks to competition in this sector. The risk involves Localiza–the market leader in Brazil–acquiring Unidas–its biggest rival. As a result, only one firm that operates nationwide, i.e. Movida, would be able to compete with Localiza.

The case review indicated that the acquisition would result in significant changes in the structure of the car rental market and a high joint market share for the firms, which would hold more than 50% of the market share in some cities and airports in Brazil.

"The way it was reported, neither entry conditions nor the current market rivalry would remove the likelihood of market power by the firms in the Brazilian rent-a-car market", suggested Ms Prado.

Thus, to preserve the competitive conditions of the affected sector, the transaction has been cleared subject to the signing of a merger control agreement that imposes structural and behavioural remedies as a solution.

Merger Control Agreement

Concerning structural remedies, the agreement signed by the parties with CADE determines the disposal of assets in the car rental segment, including the branch network, stores, systems and part of the operational fleet of Unidas. Further information related to the divestment process is restricted to the parties.

Additionally, Localiza must sell the brand Unidas. The new buyer will be allowed to use the trademark in car rental, fleet management, second-hand car or any other sector.

The Tribunal understands these measures can reduce concentration levels in some affected cities, providing the buyer better ability to compete with Localiza.

As to the behavioural remedies, the main remedy concerns the firms' commitment to making no new acquisitions in the car rental market in Brazil for a term of three years. Furthermore, after the three years and for an additional two years, the firms are to submit for approval by the authority any transactions made in this segment (including those that do not meet the turnover criteria for mandatory reporting as per the terms of Law 12529/2011, the Brazilian Competition Law).

The agreement also establishes that, for a five-year term, the firms are to report to CADE any purchases related to the Brazilian fleet management market, regardless of the target company's turnover or business group.

Finally, the last condition determines Localiza must not enforce the non-compete clause of the non-circumvention agreement signed in 2020 with the American company Vanguard Car Rental–the owner of brands Alamo, Enterprise and National.

That is to reduce the entry barriers for a great international player in the car rental sector in Brazil. "The condition does not guarantee market entry, but if the player desires to enter the Brazilian market, such condition will expedite the process", explained Ms Prado.

Access case no. 08700.000149/2021-46.