Antitrust Alert: Brazil Requires Divestiture in Coca-Cola’s Iced Tea Acquisition

Brazil’s competition authority – Conselho Administrativo de Defesa Econômica (the Administrative Council for Economic Defense or “CADE”) – has ordered a divestiture after a two-year review of Coca-Cola's acquisition of a Brazilian bottled tea company. The acquisition of Leão Junior already was completed in 2007, and CADE now has ruled that Coca-Cola must end its partnership with Nestlé to avoid excessive concentration in the local tea market. This is the most recent example of CADE’s aggressive approach to large mergers in Brazilian markets.

Merger Authority of CADE

Brazilian Antitrust Law authorizes CADE to enforce Brazil’s antitrust laws and to prohibit any action that might limit or restrict free competition or result in control over any relevant market for products or services. The law covers transactions involving assets anywhere in the world involving economic concentration (i.e. mergers, acquisitions, joint ventures and any other type of corporate grouping) that produce a (broadly-understood) effect in a Brazilian market. Parties must notify CADE of the transaction for its review, within 15 business days after the signature of the first binding agreement, if (i) the parties together have more than a 20 percent share of Brazil sales or (ii) the annual gross revenues in Brazil of any participant exceed R$400 million (approximately US$180 million).

In contrast to the laws in the United States, European Union, and some other jurisdictions, Brazil’s antitrust laws do not require antitrust approval or expiration of any mandatory period prior to closing a transaction. Therefore, as a general rule, the parties may close their deal anytime, at their own risk, subject to any remedial measures later imposed by CADE. However, in transactions involving a high level of market concentration, CADE may adopt certain measures to impede the parties from closing before CADE’s final ruling, even by the imposition of precautionary measures or by negotiating an agreement to preserve the reversibility of the transaction (Acordo para Preservação e Reversibilidade da Operação or “APRO”).

Iced Teas

CADE’s imposition of conditions on the acquisition by Coca-Cola of Brazil’s leading iced tea producer, Leão Junior, is the most recent example of the exercise of this authority by CADE. Coca-Cola announced in March 2007 that its Brazilian unit had purchased Brazil's largest maker of bottled teas, Leão Junior, and its flagship brand Matte Leão. At that time, Matte Leão held 46 percent of the bottled tea market, compared to the 25 percent market share of Pepsi’s Lipton and the 24 percent held by Nestea (produced by a joint venture of Coca-Cola and Nestlé).

In August 2007, CADE obliged the parties to execute an APRO to avoid irreversible changes in market conditions and preserve the authorities’ ability to impose remedies if the conditions of such agreement were not complied with by Coca-Cola and Leão Junior.

On June 18, 2009, CADE announced that Coca-Cola must abandon its joint venture with Nestlé in Brazil. The Brazilian antitrust authorities’ justification for this order was that the Brazilian iced tea market is highly concentrated in the hands of very few companies, which already have robust systems for distributing product, making entry by newcomers extremely difficult.

CADE had been urged to take action by Coca-Cola’s global competitor, Pepsi, owner of Lipton tea. Shortly after the announcement of the acquisition of Leão Junior by Coca-Cola, Pepsi filed an opposition with the Brazilian antitrust authorities to block the transaction. Pepsi argued that the acquisition could harm the iced tea industry by causing a larger concentration of the market in the hands of Coca-Cola, owner of both Nestea and Matte Leão.


CADE’s decision in Coca-Cola/Leão Junior follows its recent practice of reviewing very carefully transactions involving high market concentration and, in many of them, implementing an APRO and ultimately requiring partial or total divestiture of overlapping businesses. CADE currently is reviewing the merger of Sadia and Perdigao, which would create one of the world's largest companies dedicated to the production of frozen and processed food, and is expected to impose some remedy. Now just fifteen years after its founding, CADE is one of Latin America’s most active antitrust enforcement agencies. Its divestiture decision in the iced tea merger is just the latest example of the aggressive remedies it now regularly imposes on large mergers in Brazil.

Read the August 2007 Acordo para Preservação e Reversibilidade da Operação (APRO) here.

CADE’s official decision had not yet been published. Read the March 2008 Technical Opinion of the Secretariat of Economic Monitoring (“SEAE”), which submits to CADE non-binding opinions on economic aspects of merger analysis, here. The September 2008 and June 2009 reports of CADE counsel can be read here: 

Lawyer Contacts

For more information, please contact your principal Jones Day representative or either of the lawyers listed below. 

Artur L. Badra

Javier Martínez del Campo L.
Mexico City

Manuel Romano
Mexico City

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