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Abril Distribution Monopoly | «An Indecent Proposal»

Source: GGN

Jornal GGN (Brazil) – Currently, Brazil’s Abril Group owns 100% of the national market for distribution of editorial products and newsstand material.

And now it is beginning to represent a threat to smaller, regional publishers by forcing an abusive scheme of payments.

Jornal GGN has uncovered the document of CADE — the Brazilian antitrust agency — that gave the green light to the Abril monopoly.

On October 11, 2007, Abril executed a major merger with two of the largest magazine distributors in Brazil —  Dinap and the FCD (Fernando Chinaglia Distributorship).

As a result, NewCo, known as DGB Logistica SA, concentrated 100% of indirect distribution of editorial products.

[ … ]

On November 26, 2007,  the publishing houses Carta Editorial, Confiança, Escala, Globo, Panini and Três manifested their opposition to the deal. On November 29, Intervozes and the Brazilian Institute in Defense of the Consumer added their voices.

Publishers and other entities argued that the deal would harm competition, since in this scenario, Abril would be “in a position to charge less than competitive prices in the indirect distribution,  keeping third parties out of the market.”

Together with the distribution monopoly, there were potential conflicts of interest as well — Abril seems to be undertaking a vertical integration between distribution and production of magazines.

This because the group also detains more than 50% of the market for print products and could wind up with the entire distribution market.

CADE received a petition to impugn the Concentration Act and suspend the operation with an injunction.

The prosecutorial arm [ … ]  of CADE, ProCADE, then prepared a series of opinions on the issue.

«That the M&A deal not be allowed in its current form»

«That the M&A deal not be allowed in its current form»

Before the final decision, the Secretaria de Direito Econômico (SDE) and the Secretaria de Acompanhamento Econômico (SEAE) recommended that the deal not be approved as currently drafted.

The rapporteur of the case, Paulo Furquim de Azevedo, however, voted to approve the transaction, on the condition that a Performance Commitment Agreement be executed, providing, among other things, that if the assets of FCD in São Paulo or Rio were to be sold or alienated, then the software, databases and intellectual property of the company shall be open and available to any interested party.

arranjo_societario

And that is how FCB was acquired by DGB Logística.

Indecent Proposal

That would have been the end of the story had it not been for an article published Monday in the Diário de São Paulo, titled “Grupo Abril Subsidiary Makes Indecent Proposal to Magazine Publishers.”

According to the article, DGB is exercising its superior economic power by adopting an abusive scheme of payments to smaller publishing houses.

On February 26, representatives of DGB visited these publishers (who fearing retaliation, requested anonymity) and DGB announced that from then on, payments were to be made four months after the realization of the sale.

Naturally, these companies complain that this scheme undermines their businesses, which requires operating capital and cashflow to continue producing in the editorial market. CADE had been alerted to this risk when it received the petition to impugn the deal.

“The publishers who sought out the DIÁRIO said that this situation is everywhere now, with the proposal for payments imposed by DGB,” the newspaper reported.

Now, CADE has resolved to issue a new cautionary injunction to the Abril Group, prohibiting any alteration in the standards of the fused companies without explaining this change in detail to the CADE rapporteur of the case.

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