Challenged by Petlove, deal would gain final approval if not reviewed this year.
Amid an intense behind-the-scenes dispute, the Administrative Council for Economic Defense (CADE) is expected to take up the merger between pet products retailers Petz and Cobasi during its last regular session of the year, scheduled for December 10. That is the expectation circulating within the antitrust regulator and among people close to the case. If the deal is not reviewed by year-end, it will be automatically cleared.
The antitrust watchdog’s technical arm, the General Superintendence, recommended unconditional approval, but the assessment has been challenged by other players in the sector, particularly Petlove. Within the regulator, officials are discussing the possible imposition of remedies—measures designed to address competition concerns, such as asset divestitures.
In an opinion commissioned by Petlove, former CADE General Superintendent and councilor Carlos Ragazzo recommends that the regulator impose a series of restrictions on the merger, including divestment of stores, the sale of one of the brands, inventory, and distribution centers.
“We are looking at a Sadia–Perdigão situation,” he told Valor, referring to a transaction of similar concentration levels, size, brands, and divestment volume required to dispel competitive concerns. “It is on the edge of rejection.”
The merger of the two food processing industries that created BR Foods was approved by CADE in 2011, subject to extensive remedies. Mr. Ragazzo, a law professor who served as a CADE councilor at the time, voted against the merger and was overruled.
In his opinion, he concluded that the deal raises significant competition concerns and that approval without restrictions would be “impossible,” citing the combination of the two largest national chains in the segment. Petz and Cobasi are “close and symmetrical” rivals, according to Mr. Ragazzo, competing directly in scale, geographic footprint, and digital presence; the merger would eliminate the sector’s main source of rivalry.
The report states that the transaction would create a company with “near-total” dominance in organic online traffic for the sector, with volumes far higher than those of any competitor.
It also points to a high incentive for price increases among the stores analyzed if the merger is approved. The document further suggests the sale of 105 of the 267 stores the companies jointly operate in the state of São Paulo, equivalent to R$1.4 billion in combined sales by year-end. This represents 37% of the companies’ revenue in the state. That would leave the two chains with 162 stores in São Paulo, with revenue of R$2.3 billion, or 63% of their current takings. Petz and Cobasi together operate 508 units in Brazil.
People familiar with the deal say that divesting these assets would make the transaction unworkable. Even so, Mr. Ragazzo argues that the divestment of stores alone would not be enough, highlighting the importance of digital sales volumes. He considers other assets essential to the transaction, particularly distribution centers (DCs). “They concentrate the logistical advantage that sets national leaders apart from regional chains,” he noted.
Petz and Cobasi, on the other hand, dismiss the technical reasoning behind Petlove’s analysis.
“They suggest measures designed to make any agreement impossible, and none of it has anything to do with competition or consumer protection. If the solution is to sell the Petz or Cobasi brand and/or lose R$1.5 billion in sales, why would anyone close a deal?” says a person close to the companies. “A merger should make one plus one equal three, but under what they are proposing, one plus one becomes much less than one or two.”
The two companies believe the document should have no practical impact on the antitrust watchdog’s review and are working to explain their position to CADE’s members.
According to sources, submissions filed with the regulator by the companies have been challenged by both sides, including calculations used to show market concentration levels. Petz/Cobasi, for example, pointed to mix-ups between denominators and numerators in formulas used by Petlove to estimate market consolidation, which resulted in allegedly flawed calculations. Lawyers for the companies are reviewing all figures and arguments submitted to the authority to identify potential gaps and correct possible inaccuracies.
In a report published Thursday night (13), Citi’s research team said Petlove is urging CADE to require the full closure of between 120 and 132 stores in São Paulo and other regions as a condition for approving the merger. This reduction would account for 23% to 25% of the combined company by year-end, according to the bank’s estimates.
In addition, according to the report — titled “The plot thickens” — the competitor is also recommending that Petz/Cobasi sell brand assets, logistics infrastructure, and other properties to rebalance competition in the market. Analysts João Soares and Felipe Hussein note that the antitrust regulator is approaching its final extended deadline (the end of December, totaling 330 days) to rule on the merger of the two retailers.
Citi says Petlove’s study could lead the regulator to revisit its initial recommendation of unconditional approval, but information reviewed by Valor indicates that a remedy is now highly likely.
“While we expected Petz/Cobasi would not face difficulties finding buyers for their strong brands, which could increase proceeds from a brand sale, this scenario would likely affect earnings estimates (Citi currently forecasts combined net income of R$215 million for 2026),”
the bank wrote.
“It could also encourage the entry of a third competitor, keeping the pet products market highly competitive. We maintain our neutral/high-risk rating for Petz, acknowledging the elevated risk stemming from this reassessment,”
the institution added.
Cobasi did not comment. Petz also declined to comment.
Petlove said it “understands that any approval would require the adoption of a robust structural remedy, with divestiture of sufficient assets to create a viable and effective competitor.”
Source: Valor International
