Document ID: 32016M8136
Language: ENG

<table><tr><td><p><span><img/></span></p></td><td><p><span>EUROPEAN COMMISSION</span></p><p/><p/><p/><p/><p/></td></tr></table>
Brussels, 28.10.2016
C(2016) 7118 final
To the notifying party:
Subject : Case M.8136 - BASF / Chemetall Commission decision pursuant to Article 6(1 )( b) of Council Regulation No 139 /2004 1 and Article 57 of the Agreement on the European Economic Area 2
Dear Sir or Madam,
(1) On 26 September 2016, the Commission received notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 , by which BASF S E (Germany, “BASF”) acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of Rockwood Specialties Group GmbH (Germany, “RSGG”) and of Chemetall U.S. Inc. (USA, together with RSGG referred to as “ Chemetall ”) by way of purchase of shares, hereinafter the “Transaction”. 3 BASF and Chemetall are collectively referred to as “the Parties” and BASF is referred to as “the Notifying Party”.
1. The parties
(2) BASF is a global chemical company active in five main product segments: chemicals, performance products, functional materials and solutions, agricultural solutions and oil and gas. In particular , BASF develops, produces and markets automotive OEM coatings, automotive refinishes and industrial coatings as well as decorative paint.
(3) Chemetall develops, manufactures and supplies surface treatment products and services for a range of industries including aerospace, aluminium and automotive as well as the general industry. Chemetall US and RSGG are both currently indirectly wholly-owned and controlled by Albemarle Corporation (“Albemarle”).
(4) BASF and Albemarle entered into a Share Purchase Agreement on 17 June 2016. Upon completion, wholly-owned affiliates of BASF will own all of the shares of Chemetall . BASF will thus acquire sole control over Chemetall pursuant to Article 3(1 )( b) of the Merger Regulation.
2. EU Dimension
(5) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 m illion 4 (BASF EUR 70,400 million and Chemetall EUR […] ). Each of the parties ha s a n EU -wid e turnover in excess of EUR 250 million (BASF EUR […] and Chemetall EUR […] ) , and they do not achieve more than two-thirds of their aggregate EU -wide turnover within one and the same Member State.
(6) The Transaction therefore has a n EU dimension within the meaning of Article 1(2) of the Merger Regulation .
3. Commission's assessment
3.1. Market definition
(7) Chemetall supplies paint materials, including surface treatment products , and electrical insulation coatings and pre-treatment primers , permanent coatings and anti-corrosion coatings for the coil coating industry.
(8) BASF manufacture s coil coatings including paint materials (primers, topcoats and backcoats ) through its i ndustrial c oatings business. BASF also manufacture s various chemical products and intermediates used as an input fo r in several industrial sectors, including for the production of surface treatment products.
(9) In February 2016 BASF agreed to sell its i ndustrial c oatings business (BASF IC) , excluding the automotive OEM coatings business, to AkzoNobel . The Transaction is subject to Commission review and is expected to be implemented by the end of 2016. 5 Accordingly, the p roposed Transaction leads to a hypothetical horizontal overlap, since , once BASF IC is acquired by AkzoNobel , the horizontal overlaps between BASF and Chemetall activities would no longer exist .
3.1.1. Product market definition
3.1.1.1. Industrial coatings
(10) Industrial coatings are applied to the surface of a substrate to improve its surface properties, including appearance, adhesion, wettability, corrosion resistance, wear resistance and scratch resistance. Industrial coatings comprise coatings supplied to producers of goods on which the coating needs to be applied and that have as part of their production process an integrated paint application line ( as opposed to, for example , decorative coatings).
(11) The Commission has previously identified several distinct product markets within the industrial coatings category: coil coatings, wood finishes, protective coatings, powder coatings, and other industrial coatings. 6 In a previous decision, the Commission concluded that coil coatings form a product market distinct from other industrial coatings, based on the particular characteristics of coil coatings . 7 The Commission, however, left open the question whether coil coatings for steel and for aluminium are distinct product markets . 8
(12) In a parallel transaction reviewed by the Commission, the la t ter considered a possible further segmentation o f the coil coatings market by type of layer (primer, backcoats , topcoats) or by end-application (construction, transport, domestic appliances) , however the scope of the precise product market definition was left open. 9
(13) Finally, the Commission has also considered a separate market for automotive OEM coatings, but ultimately left the precise market definition open. 10
(14) The precise scope of the product market definition can be left open for the purpose of the present case since the proposed transaction does not raise serious doubts as to its compatibility with the internal market under any market definition discussed above .
3.1.1.2. Surface treatment products
(15) Chemetall develops, manufactures and supplies surface treatment products and services for a range of applications. Surface treatment is used to make the treated substrate more uniform and better suited to coating as well as to enhance corrosion protection. The process usually involves cleaning, activating, phosphating and passivating.
(16) The Commission has reviewed severa l times markets involving metal treatment products. 11 The Commission has previously considered a market for i ndustrial surface treatments as chemical and technical processes which modify the properties of certain substrates, such as metal , describing that such treatments include a variety of products, such as cleaners, pre-treatment and lubricants. The Commission has also analysed a market for anticorrosion metal surface treatment. 12
(17) The Notifying Party submits that the scope of the relevant market(s), e.g. whether a distinction is to be made between different substrates, various application, various technologies, and/ or between the different surface-treatment steps (cleaning, activating, phosphating and passivating), can be left open since effective competition continues and remains unaffected under any plausible market definition.
(18) For the purpose of this case, the Commission has considered all surface treatment products together but also looked into surface treatment products by end-application.
3.1.2. Geographic market definition
3.1.2.1. Industrial coatings
(19) The Commission has previously left open whether the m arket for industrial coatings and its segments ( decorative coatings, car re-finishes, marine, protective coatings, industrial woo d finishes, packaging coatings , and other industrial coatings ) is EEA wide or national in scope. 13 The Commission has also concluded that the market for automotive OEM coatings is EEA wide. 14 A market investigation in a parallel case review ed by the Commission has indicated that the market for coil coatings and its sub-segments is EEA wide because customers source , and manufacturers ship, coil coatings across the EEA and the sales price of coil coatings of the same type does not differ substantially between various countries in the EEA . 15 Finally the Commission has recently left open the question whether the market for other industrial coatings is national or EEA wide. 16
(20) The Parties submit that automotive OEM coating is a global business. The transportation costs represent a relatively small proportion of the average sales value. The OEM customers (large automotive groups) conduct their business on global basis and invite the coating suppliers to participate in global bids.
(21) For the purpose of this case, the precise scope of the geographic market definition of industrial coatings and its segments can be left open since the transaction does not raise serious doubts as to its compatibility with the internal market irrespective of the market definition as discussed above .
3.1.2.2. Surface treatment
(22) In previous cases t he Commission has left open the geographic market definition for a market related to surface treatment products. 17
(23) The Notifying Party submits that t he relevant market appears to be global for surface treatment products and services as they are sourced frequently by customers (e.g., automotive OEM customers) on a global basis. At a minimum, t he geographical market for surface treatment products and services is EEA-wide.
(24) For the purpose of this case, the Commission considers that the precise scope of the geographic market can be left open since the T ransaction does not raise serious doubts as to its compatibility with the internal market irrespective of whether the market is considered EEA-wide or global.
3.2. Competitive assessment
3.2.1. Horizontal overlap s and vertical links
(25) The Transaction leads to limited horizontal overlaps in respect of coil coatings , other industrial coatings and automotive OEM coatings (the latter overlap only exists were the market to be worldwide – no overlap in the EEA exists). However, since the market shares in the reportable markets appear to be rather low, such horizontal overlaps will not be discussed further in this Decision. 18
(26) As regards actual or potential vertical links, Chemetall uses over […] input materials for the production of its various products. BASF produces a number of chemicals that can be used by Chemetall in the production of its products. However, BASF does not produce or market any of Chemetall's main input materials. 19 Moreover, BASF's products are used for various end-applications (i.e. not just for surface treatment). In total, Chemetall globally purchased over […] different chemicals from BASF in 2015 which amounted to around […] of the respective sales of BASF and around […] of Chemetall’s overall raw material purchases. Given the fact that these chemicals have a wide variety of use and the fact that none of them belongs to Chemetall's main input materials, this Decision will not discuss these supply relationships further. 20
3.2.2. Conglomerate relationships
(27) The proposed Transaction leads to some neighbouring relationships between surface treatment and coating. Chemetall offers surface treatment products , which are applied to a substrate before it is being coated and BASF offers coating products for the following product/customer categories: ( i ) automotive OEMs; (ii) automotive components; (iii) coil ; 21 and (iv) general industry . In the first three categories Chemetall’s share of sales is estimated to exceed [30-40 ] % in respect of surface treatment products in the EEA. BASF’s share of sales of coating products in the EEA is estimated to exceed [30-40 ] % in respective of automotive OEMs and automotive components.
(28) As regards the market of surface treatment products, Chemetall’s market share in the EEA is [30-40 ] % . Chemetall has, however, been unable to provide reliable market share estimates for surface treatment products by end-application . The estimates it has provided are as such to be treated with caution .
(29) I n respect of the neighbouring activities of surface treatment products for automotive OEMs and coatings for automotive OEMs , the Parties estimate that their share of sales in the EEA are [30-40] - [40-50] % and [30-40] % respectively . Henkel remains the market leader in automotive OEM surface treatment products with around [30-40] - [40-50 ] % and BASF is followed by PPG ( [30-40] %) and Axalta ( [10-20] %).
(30) In respect of automotive components, Chemetall estimates its share of sales of surface treatment products in the EEA to be around [40-50] - [50-60 ] % , followed by Henkel, whilst BASF estimates its share of sales of coatings for automotive components to be around [30-40] - [40-50] % , followed by Woerwag and PPG (each [10-20]-[20-30] %) . However, the Parties do not necessarily provide surface treatment products and coatings for the same automotive components.
(31) As regards coil, Chemetall estimates its share of sales of surface treatment products in the EEA to be around [40-50] - [50-60 ] % whilst the Parties’ combined share of coil coatings in the EEA is less than [10-20] %. 22
(32) BASF in few instances also acts as a so-called “system supplie r” to automotive OEM customers. A system supplier is responsible for supplying a range of products in an overall service to automotive OEM customers. In this respect, BASF supplies surface treatment products acquired from surface treatment providers (including Chemetall ), along with its own automotive coating products. The sur f ace treatment products which BASF supplies are nevertheless selected by the end customer (who also negotiates the price with the surface treatment product manufacturer). System suppliers, such as BASF, therefore de facto only logistically coordinate the subcontr actors’ supplies, all products and suppliers have to be ultimately approved by the end customer.
(33) The Commission considers that for the following reasons the Transaction does not lead to conglomerate concerns.
(34) First, responses to t he market investigation indicated that customers generally procure coatings and surface treatment products separately , typically through separate tenders . This is in particular the case f or the automotive industry.
(35) Second, a lthough some respondents noted that BASF might become stronger post-Transaction because it will be able to offer both surface treatment products and coatings, those same respondents also noted that PPG already supplies both surface treatment products and coatings and customers are still able to (and in fact sometime s choose to) purchase the two products separately. Coating suppliers do not generally actively recommend a particular surface treatment product and customers remain free to select a given product according t o their technical specifications .
(36) Third , customers consist of a limited number of large m anufacturers active in the automotive industry among which […] . Many automotive components markets also tend to be rather concentrated. The Commission also notes that were even one customer to switch, the loss of sales would result in a significant drop in market share.
(37) Fourth, customers all hav e a multi-sourcing strategy which means foreclosure is unlikely ; respondents also confirmed that they mix and match products from different suppliers .
(38) F ifth , c ustomers rather perceive the opportunity to purchase both products from the same supplier as a positive outcome of the T ransaction and do not consider that there will be any restriction regarding their choice of products and ability to switch .
(39) Given the customers ’ purchasing pattern s, the existence of separate tenders, the existence already of suppliers providing both surface treatment and coating products, the existence of strong competitors in respect of each of surface treatment products and coatings, BASF will not have the ability and the incentive to bundle surface treatment products and coatings in a way to foreclose competitors. It follows from the above that this neighbouring relationship will not lead to any conglomerate effects.
4. Conclusion
(40) For the above reasons, the European Commission has decided not to oppose the notified operation and to declare it compatible with the internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1 )( b) of the Merger Regulation and Article 57 of the EEA Agreement .
For the Commission
(Signed) Phil HOGAN Member of the Commission
<note>
(1) OJ L 24, 29.1.2004, p. 1 (the ' Merger Regulation ' ). With effect from 1 December 2009, the Treaty on the Functioning of the European Union ( ' TFEU ' ) has introduced certain changes, such as the replacement of ' Community ' by ' Union ' and ' common market ' by ' internal market ' . The terminology of the TFEU will be used throughout this decision.
(2) OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
(3) Publication in the Official Jo urnal of the European Union No C363, 01.10.2016 . p.23.
(4) Turnover calculated in accordance with Article 5 of the Merger Regulation and the Commission Consolidated Jurisdictional Notice (OJ C95, 16.4.2008, p. 1).
(5) See case M.8004 – AkozoNobel /BASF IC.
(6) Case M.4853 - PPG/ SigmaKalon , para 7 -and sub. Case ,IV /M.1182 - Akzo /Nobel Courtaulds para 9.
(7) Case M.4853 - PPG/ SigmaKalon ,
(8) Case M.4853 - PPG/ SigmaKalon , Commission decision of 10 December 2007, para 7.
(9) See case M.8004 – AkozoNobel /BASF IC.
(10) COMP/M.1363 - DuPont/Hoechst/Herberts, paras . 7-20, Case , IV/M.1182 - Akzo /Nobel Courtaulds para 7-9.
(11) IV/M.1363 - DuPont/Hoechst/Herberts, para . 8, COMP/M.3454 - KKR/Dynamit Nobel, para . 18, COMP/M. 4941 - Henkel/ Adhesives & Electronic Business, para . 37, COMP/M. 5469 - Renova /Sulzer, paras 9-33.
(12) COMP/M.3454 - KKR/Dynamit Nobel, para . 18, COMP/M. 4941 - Henkel/ Adhesives & Electronic Business, para . 37.
(13) Case ,IV/M.1182 - Akzo/Nobel Courtaulds , para 14.
(14) COMP/M.1363 - DuPont/Hoechst/Herberts, para 21 .
(15) Case M.8004 – AkozoNobel /BASF IC .
(16) Case M.8004 – AkozoNobel /BASF IC.
(17) COMP /M.3454 - KKR/ Dynamit Nobel, para 22.
(18) In resp e ct of coil coatings. BASF‘s market share does not exceed [10-20 ] % on the overall coil coatings market, whereas the Chemetall market share does not exceed [0-5] %. Should the market be segmented per type of layer , the Parties' combined market share is [10-20 ] % (primers), [10-20] % (topcoats) and [0-5] % ( backcoats ). In respect of other industrial coatings, the Parties combined market share would remain below [0-5 ] % at EEA level and below [5-10] % at national level. As regards automotive OEM coatings, Chemetall is only a distributor in China and South Africa of automotive OEM coating products manufactured by a competitor. Once the AkzoNobel’s acquisition of BASF’s industrial coatings business is completed the overlaps in coil coatings and industrial coatings disappear.
(19) For example, raw material inputs such as […] .
(20) Chemetall also manufacturers coating tests panels which are used by various coating manufacturers to test their coating products. Such test panels are therefore not important input materials into the production of Chemetall's products but similar to other production equipment .
(21) Were AkzoNobel’s acquisition of BASF’s industrial coatings business to take place, t his neighbouring relat i onship w ould disappear .
(22) Were AkzoNobel’s acquisition of BASF’s industrial coatings business to take place, t his neighbouring relat i onship w ould, for the large part, disappear .
</note>