Remedies for the Approval of Avon/Natura Merger

On January 10, 2020, a transaction was notified to the National Commission for the Defense of Competition (CNDC), involving the acquisition of exclusive control over Avon Products, Inc. by Natura & Co Holding SA. This merger would result in the combination of their respective businesses, operations, and shareholder bases.

Based on the analysis conducted, the CNDC concluded that the transaction created horizontal overlaps in various segments of the beauty and personal care markets. Specifically, in the color cosmetics market, the combined companies would hold 40% of the market share. This scenario was mirrored in specific sub-segments, such as cosmetics for eyes, face, and lips. Furthermore, in the mass fragrance market, the combined market share would rise to 53.7%.

The transaction would result in a combined entity with a 54% market share, further exacerbated by the role of brand loyalty. Additionally, entry barriers were identified in both markets that could hinder the entry of new competitors or the growth of existing ones. Portfolio effects were also noted, linked to the possibility of bundling or packaging mass fragrances and color cosmetics from both brands, heightening the risk of the merged entity abusing dominant market position.

In light of these findings, in June 2022, the CNDC issued an Objection Report identifying competition risks in two specific markets: color cosmetics (including the sub-segments of cosmetics for eyes, face, and lips) and mass fragrances.

Following the publication of the Objection Report, the parties proposed a series of commitments involving behavioral obligations aimed at preserving competition and mitigating the identified risks.

The Secretariat of Industry and Commerce, through Resolution 362, conditionally approved the transaction, subject to the fulfillment of the commitments presented under the terms of article 14(b) of the Competition Law (Law 27442). The commitments include the following measures:
1. Exclusion of Exclusivity Clauses: The merged entity must refrain from including exclusivity clauses in contracts with toll manufacturers, raw material suppliers, and resellers related to the products involved in the transaction.
2. Product Availability: The entity must ensure the availability and individual sale of products belonging to the mass fragrance and color cosmetics segments that are typically offered as part of product kits or bundles during each commercial cycle.

The first measure aims to preserve competitive conditions in the affected markets by maintaining low entry barriers concerning production capacity and the development of distribution networks in the “door-to-door” channel. The second measure ensures that consumers can access items sold in kits independently, mitigating potential portfolio effects arising from the transaction.

The commitment has a duration of three years from the transaction's approval, and the companies will have three months to adjust their commercial offerings accordingly. Additionally, the companies are required to provide the CNDC with semi-annual reports detailing their compliance with the commitments during the corresponding period.