Brazilian antitrust watchdog sees no competition risk in purchase of Kovr, formerly owned by Banco Master, but will investigate possible early completion of transaction
PicPay’s purchase of insurer Kovr, which belonged to Banco Master, was approved this week by Brazil’s antitrust watchdog, the Administrative Council for Economic Defense (Cade), but one loose end could still create problems for the companies.
At the same time it cleared the deal without restrictions, after finding no risk of market concentration, Cade’s General Superintendence opened an investigation into the transaction.
The technical staff will look into whether “gun jumping” occurred, an antitrust violation that involves completing a deal before approval and can lead to a fine by the agency. In addition, a person familiar with the matter told Valor officials are also checking whether the transaction involved any fraud against creditors or against the bank’s liquidation.
If confirmed, that issue would not have consequences at Cade, but would be referred to other authorities, such as the Central Bank.
Red flags
The way Master disposed of Kovr raised red flags at Cade. The sale of the insurer was announced in September as a “management buyout,” a transaction in which the company’s own executives acquire the business.
Market participants later began to suspect that the real buyer was J&F. In January, PicPay’s IPO prospectus indicated that part of the proceeds from the offering would be used to buy Kovr, as reported by Pipeline, Valor’s business news website.
The transaction with PicPay, however, was only filed with Cade in February. At the time, the company argued that the deal represented an opportunity to expand into insurance, savings bonds and open private pension plans, as well as to enter the insurance brokerage segment.
In March, Cade’s technical staff requested additional documents in the case, noting that, based on the notification, no transactions by the Kovr Group had been submitted to Cade in the previous five years.
Kovr structure
When the merger-control filing involving Banco de Brasília (BRB) and Master was signed, the parties said an initial stage of the transaction would be to carve out a group of companies wholly owned by Master and transfer them to a new company called Master Serviços, to be controlled by former banker Daniel Vorcaro. Those companies included Kovr Participações. Kovr notified Cade of the change in its ownership structure.
Inside the agency, however, technical staff were wary of approving the transaction, because they had not ruled out the possibility of fraud or gun jumping. As a result, the approval moved forward in parallel with the opening of the investigation.
People connected to the deal, however, said the gun-jumping allegation makes no sense because PicPay still has no influence over Kovr. They also argue that the fraud investigation at Cade is unfounded because the deal is not related to Master.
They say this had already been clarified in a response to Cade, indicating that when Kovr was sold to PicPay, it was no longer owned by Master.
Asked for comment, Daniel Vorcaro’s defense team declined to comment. PicPay said it is aware that the relevant authorities were consulted during the process in which Kovr’s managers acquired the company and that everything has been conducted in compliance with the law and applicable regulatory guidance.
Representatives of Kovr could not be reached.
Source: Valor International
