Cosan (CSAN3), Localiza (RENT3) and Pague Menos (PGMN3) are impacted by Cade’s decisions: what is the market’s assessment?

Positive, although already expected. These were the conclusions of the various decisions taken by the Administrative Council for Economic Defense (Cade) the day before involving publicly traded companies on the Brazilian stock exchange.

Highlights include the approval of the purchase of Extrafarma, from Ultrapar (UGPA3), by Pague Menos (PGMN3), in addition to the sale of Unidas’ assets (LCAM3) to Brookfield, representing a major step towards the conclusion of the merger with Localiza ( RENT3).

The previous session was also marked by the approval by the municipality of the purchase of Petrobras’ (PETR4) stake in Gaspetro by Compass, of the Cosan group (CSAN3).

Check below the evaluations of the operations and the remedies adopted by Cade to complete them:

Extrafarma: now from Pay Less

CADE approved, subject to the execution of the Merger Control Agreement (ACC), the acquisition of
Extrafarma through the Pague Menos pharmacy chain. Through the ACC, the company undertakes to adopt structural measures to eliminate the potential competition concerns pointed out by the Board, which involves the divestment of 8 Extrafarma stores, corresponding to less than 3% of the acquired stores.

Cade’s decision was unanimous and included the approval of the purchaser of the units that will be divested. According to the company’s CFO, there is already a binding contract signed, with only administrative issues left to complete the sale. Pague Menos has 180 days to complete the sale of the stores.

“Last month, the General Superintendence of CADE even suggested the approval of the transaction with medicines, so that this divestment of stores, including the percentage of the total base of acquired stores that should be sold, was already expected by Pague Menos” , highlights Levante Ideias de Investimento. Now, with the approval of the Concentration Act by CADE, the parties will be able to proceed with the closing of the transaction, under the terms of the ACC, scheduled to take place on August 1st, when the joint operation of the networks should be allowed.

Credit Suisse points out that the approval news was positive, as the final decision came before Cade’s July recess (versus the August 31 deadline).

Genial Investimentos highlighted that the approval was already expected by the market, but also pointed out that the positive surprise was the timing, since the decision ended up coming sooner than expected.

After the news, XP reinforced its buy recommendation for the stock, with a target price of BRL 13 per PGMN3 asset, while Itaú BBA reiterated its outperform (above average performance) and a target price of BRL 16, respective appreciation potentials of 172% and 235% in relation to the closing of the previous day.

Extrafarma, controlled by Grupo Ultra since 2014, is the sixth largest pharmacy chain in the country, with 66% of its units focused on serving the expanded Brazilian middle class (classes B2/C/D).

Levante highlights that the acquisition of Extrafarma is an important milestone in the growth trajectory of Pague Menos,
reinforcing its presence in the North and Northeast regions. The company now moves from third to second largest pharmacy chain in Brazil in number of stores, behind only Raia Drogasil (RADL3), with 1,503 units in all states of the country.

With the transaction, Pague Menos will incorporate Extrafarma’s 402 stores, of which 212 are in neighborhoods aligned with the company’s expansion plan, 177 stores are in micro-regions of the North and Northeast, where the retailer will reinforce its market share, and 13 stores are in other locations, serving as a platform for entering new markets. The transaction will increase market share to 23.3% in the Northeast (versus 18.2% in 1Q22), to 18.9% in the North (versus 9.5% in 1Q22), with 7.0% in Brazil as a whole (versus 5.3% in 1Q22).

Levante highlights that the potential for synergies identified is quite expressive and should be captured from the first year with the incorporation of Extrafarma, whose potential for additional net contribution to earnings before interest, taxes, depreciation and amortization (Ebitda) is R R$ 150 million to R$ 250 million per year, of which 80% must be captured within 24 months.

The pharmacy network will also benefit from 4 additional distribution centers to the current structure, with the potential to
significant benefits in the out-of-stock rate and store supply time.

“Although already expected, the approval by CADE is positive for Pague Menos, even with the required divestments, allowing the company to now proceed with the integration of operations. However, it is worth noting that Extrafarma should actually start to impact Pague Menos’s results over the next year, as the joint operations, which should start in August, should not have a significant impact on this year’s revenues”, points out the company. analysis team.

For 2023, expectations are high. Initially, the use of the brand will be maintained and the first initiatives planned should be the increase in the assortment of products, with reinforcement of Extrafarma’s inventories and improvements in the presentation of the stores.

“We also estimate that there is potential for the implementation of Clinic Farma (the main asset of the Pague Menos health hub) in the vast majority of Extrafarma stores, as well as expansion of the omnichannel network, and combination of an active customer base of 20 million Brazilians ( 16 million customers of the Semper Bem Program and 4 million customers of Clube Extrafarma)”, highlights Levante.

Localiza and Unidas: final step to complete merger

CADE took a very important decision for the conclusion of the business combination of Localiza and Unidas, which will take place as of July 1, 2022.

The antitrust agency gave the approval for the sale of Unidas’ assets to Brookfield Asset Management for R$ 3.57 billion, which was a decisive remedy for the operation between the car rental companies. The sale of assets includes 49,000 vehicles, in addition to Unidas rent-a-car (car rental) and Seminovos stores.

The closing of the sale of the asset is still subject to CADE’s approval and will take place after the merger is completed. “In our view, the sale of assets may happen in 4Q22”, points out Bradesco BBI.

Levante points out that, in 2021, Localiza invested BRL 2.7 billion in the purchase of cars (capex), 75% of the amount it received from the sale of assets to the Brookfield fund. Therefore, the amount that Localiza will receive corresponds to more than one year of Capex (considering only the purchase of cars), leaving the company in a favorable position to start its fleet renewal strategy.

The closing of the operation represents a strong inflow of cash for Localiza, which will most likely be used to replace the cars sold, evaluates the analysis house.

At the other end, it could constitute the entry of a new competitor with a strong controller behind Localiza’s main segment, car rental. “However, given the scale of publicly traded companies, we do not see the entry of Ouro Verde as a relevant risk in the short term”, highlights Levante.

Regarding the competition, BBI reinforced that it hopes that Movida (MOVI3) will benefit from the conclusion of the sale, as the assets will go to Ouro Verde, which has expertise in the sector to operate in a rational way, without posing a sufficient threat to the fleet. than 192 thousand Movida vehicles.

In addition, it also sees an opportunity for Vamos (VAMO3) to enjoy a more comfortable position as a leader in the truck rental market. That’s because Ouro Verde, the current second-largest truck rental company, will likely need to focus on integrating its new car rental and fleet renewal business unit.

Ativa Investimentos highlighted that the approval of the sale of assets to Ouro Verde was already priced, but reinforces the vision of agility of approval, which will allow the companies Localiza and Unidas to close their business combination more quickly.

For Genial Investimentos, the merger between Localiza-Unidas will bring some positive points for the combined company’s operation. The main one is a result of the intensive use of capital necessary to acquire and renew their vehicles. A larger fleet will result in greater bargaining power with automakers, which may result in greater margins for companies due to a possible greater discount on the purchase of cars, assesses the analysis team.

Compass and Gaspetro: controversy, but approval given for the operation

In this case, the score was tight: 4 of CADE’s 7 evaluators were in favor of the idea of ​​approving the transaction for the purchase of Petrobras’ 51% stake in Gaspetro by Compass without imposing any restrictions, compared to 3 who defended restrictions.

It is worth mentioning that Cade’s General Superintendence had already approved the transaction in March, but, with third-party lawsuits showing that they were against the purchase, the transaction had to be taken to the council’s court.

Levante Ideias de Investimentos highlights that the operation has been marked by imbroglios but, with Cade’s decision the day before, it is heading towards a possible conclusion.

The share purchase agreement entered into in July 2021 provides for the payment of BRL 2.036 billion at the closing of the transaction. However, it had been blocked by several players and organizations in the sector, who argued against the Council’s approval, pointing out risks of market concentration. One of them is Mitsui Gás e Energia, Petrobras’ partner in Gaspetro and holder of the other 49% stake in the company.

Yesterday, part of the board expressed concerns that the operation could create a new “gas giant”, with Compass gaining a very large market share, especially in states such as São Paulo and Santa Catarina.

The main disagreement during the trial was about the need to make the sale of 12 distributors by Compass mandatory or not. During the process, the company voluntarily submitted a business plan that provides for the divestment of a dozen companies, out of a total of 18 acquired in the business.

The rapporteur of the process, Luiz Hoffmann, voted for the approval of the purchase of Gaspetro without restriction because he understands that the intention presented by Compass to get rid of distributors is sufficient. “When Compass comes to the file and explains its business plan, I cannot treat it as irrelevant information. It is essential information and, if not proven, it can lead to a review of the operation”, added the counselor Gustavo Augusto, who accompanied the vote of the rapporteur.

Counselor Luiz Braido, on the other hand, presented a dissenting vote in which he made the sale, within three years, of the 12 companies an obligation. The vote also determined that Compass and other Cosan companies could not enter into new gas commercialization contracts in the free market in regions where it had control over regional distribution companies.

“Compass reported that sales are part of its business plan, but business plans can change, especially when there are incentives,” added counselor Sérgio Ravagnani, who voted with Braido.

As the majority followed the rapporteur, the deal was approved without restriction.

“With the acquisition, we believe that Compass will be able to replicate the successful model of Comgás in these new companies, improving the service offered to customers, reducing inefficiencies and generating a good return for shareholders,” said Levante in a report released the day before about the operation. .

With the approval of Cade, the closing of the sale should happen in the next 2 months, projects the BBI. “We believe that the acquisition should add value. However, as the asset was valued at R$2 billion, even if Cosan doubled the asset’s value, it would represent only 5% of appreciation for the share. [CSAN3]”, point out the analysts of the house.

(with Estadão Content)

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About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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