Argentine Antitrust Commission cleared major deal in the textile industry

1.    Introduction

On October 23, 2008, the National Commission for the Defense of Competition and the Secretary of Domestic Trade (jointly the “Antitrust Authorities”) authorized an important transaction in the textile industry in which Brazilian company São Paulo Alpargatas S.A. (“SPASA”), a subsidiary of the Camargo Correa Group, acquired a controlling participation in Alpargatas S.A.I.C. (“ASAIC”) (the “Transaction”). The Antitrust Authorities found competitive concerns in the jeans-wear and work-wear markets but approved the transaction accepting certain divestments proposed by SPASA.

2.    Background

The Transaction was notified on October 16, 2007 and it comprised horizontal relationships in the jeans-wear and work-wear sectors.

The consolidated market share participation in the jeans-wear market was of approximately 45% in the Argentine market where the parties are the No 1 and No 2 players. The Antitrust Authorities concluded that, although the market was concentrated, there were limits to a potential abusive behavior from the parties, which consisted in the low barriers of entry due to the import of products from third countries (Brazil and the Asiatic countries) and the recent incorporation of a new competitor in Argentina (Brazilian company Santana Textiles S.A.). The Antitrust Authorities finally disregarded the concerns it initially found in this market.

Regarding the work-wear market, the parties are the owners of the main brands in this segment, namely “Grafa” and “Ombu” brands (SPASA) and “Pampero” brand (ASAIC), which are licensed to certain manufacturers. Although the parties do not participate directly in the manufacture and sale process, the Antitrust Authorities assessed the market considering all the licensees of each company as only one player in the market.

The consolidated participation of the parties in the work-wear market after the Transaction was of approximately 45% in the Argentine market in which the parties are also the No 1 and No 2 players and the No 3 player enjoys only 5% market share participation. The Antitrust Authorities stated that the Transaction implied the concentration of the most important players and that there were no competitors with sufficient power to limit potentially abusive behaviors from the parties. The Antitrust Authorities mentioned that the work-wear market is a market of differentiated products, in which the brands of the parties are the closest substitutes and they concluded that this is a market with high barriers of entry.

In this scenario, SPASA offered a commitment to divest the brand “Pampero” (ASAIC), including all license agreements, to a third party. The divestment was accepted and that lead to the authorization of the Transaction.

The transaction received a conditional authorization under Section 13.b of the Argentine Antitrust Law, which states that the Antitrust Authorities may subordinate the authorization to the compliance of certain conditions. The Antitrust Authorities expressly stated that the parties are authorized to integrate their business and also pointed out that the non-compliance of the divestment operates as a condition subsequent (condición resolutoria) meaning that in the event of non-compliance, the conditional authorization is no longer valid.

3.    Conclusion

The authorization granted by the Antitrust Authorities is important since it made an in-depth analysis of the barriers of entry in the jeans-wear sector. Regarding the assessment of the work-wear sector, it is important to stress the way in which the Antitrust Authorities analyzed the competitive effects, taking into account all the licensees of each company as only one player in the market.

Finally, it must be pointed out that the scope under which the authorization was granted comprises an innovation from the Antitrust Authorities since it expressly stated that the parties are authorized to integrate their business and that the non-compliance of the divestment operates as a condition subsequent.