# C_2008006EN.01001101.xml

| 11.1.2008 | EN | Official Journal of the European Union | C 6/11 |
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11.1.2008

EN

Official Journal of the European Union

C 6/11

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Summary of Commission Decision

of 12 December 2006

declaring a concentration compatible with the common market and the functioning of the EEA Agreement

(Case COMP/M.4187 — Metso/Aker Kvaerner)

(notified under document number C(2006) 6513)

(Only the English version is authentic)

(Text with EEA relevance)

(2008/C 6/07)

On 29 March 2006, the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1), and in particular Article 8(1) of that Regulation. A non-confidential version of the full Decision can be found in the authentic language of the on the website of the Directorate-General for Competition, at the following address:

On 29 March 2006, the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1

http://ec.europa.eu/comm/competiton/index_en.html

http://ec.europa.eu/comm/competiton/index_en.html

I.   SUMMARY

| 1. | This case concerns the acquisition by Metso of Aker Kvaerner's Pulping and Power business. |
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1.

This case concerns the acquisition by Metso of Aker Kvaerner's Pulping and Power business.

| 2. | On 23 June 2006, the Commission received a notification of a proposed concentration by which Metso Corporation Oy (‘Metso’, Finland) acquires sole control within the meaning of Article 3(1)(b) of Regulation (EC) No 139/2004 on the control of concentrations between undertakings (‘the EC Merger Regulation’) of parts of the undertaking Aker Kvaerner ASA (‘Aker Kvaerner’, Norway), namely Aker Kvaerner's pulping and power business (‘Kvaerner’), by way of purchase of shares and assets. |
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2.

On 23 June 2006, the Commission received a notification of a proposed concentration by which Metso Corporation Oy (‘Metso’, Finland) acquires sole control within the meaning of Article 3(1)(b) of Regulation (EC) No 139/2004 on the control of concentrations between undertakings (‘the EC Merger Regulation’) of parts of the undertaking Aker Kvaerner ASA (‘Aker Kvaerner’, Norway), namely Aker Kvaerner's pulping and power business (‘Kvaerner’), by way of purchase of shares and assets.

| 3. | After its initial examination of the notification, the Commission concluded that the operation falls within the scope of the Merger Regulation and, even taking into account commitments entered into by Metso on 24 July 2006 and modified on 27 July 2006, raised serious doubts as to its compatibility with the common market and with the EEA Agreement. It therefore decided on 11 August 2006 to initiate proceedings pursuant to Article 6(1)(c) of the EC Merger Regulation. |
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3.

After its initial examination of the notification, the Commission concluded that the operation falls within the scope of the Merger Regulation and, even taking into account commitments entered into by Metso on 24 July 2006 and modified on 27 July 2006, raised serious doubts as to its compatibility with the common market and with the EEA Agreement. It therefore decided on 11 August 2006 to initiate proceedings pursuant to Article 6(1)(c) of the EC Merger Regulation.

| 4. | On 6 October 2006, Metso offered new commitments with a view to rendering the concentration compatible with the common market. These commitments were subsequently modified on 8 November 2006. |
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4.

On 6 October 2006, Metso offered new commitments with a view to rendering the concentration compatible with the common market. These commitments were subsequently modified on 8 November 2006.

| 5. | The Commission concludes that the commitments entered into by Metso remove the serious doubts as to the compatibility of the notified operation with the common market and declares the operation compatible with the common market and the functioning of the EEA Agreement pursuant to Articles 8(2) and 10(2) of the EC Merger Regulation and Article 57 of the EEA Agreement. |
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5.

The Commission concludes that the commitments entered into by Metso remove the serious doubts as to the compatibility of the notified operation with the common market and declares the operation compatible with the common market and the functioning of the EEA Agreement pursuant to Articles 8(2) and 10(2) of the EC Merger Regulation and Article 57 of the EEA Agreement.

II.   THE PARTIES AND THE OPERATION

| 6. | Metso Corporation Oy (‘Metso’, Finland) is a publicly listed company, active in process engineering, development and manufacture of machinery. |
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6.

Metso Corporation Oy (‘Metso’, Finland) is a publicly listed company, active in process engineering, development and manufacture of machinery.

| 7. | Aker Kvaerner ASA (‘Kvaerner’, Norway) designs and delivers machinery and equipment for chemical pulp mills. It is also a supplier of other specialized process technology ancillary to chemical recovery and power generation, including the production of power boilers used in pulp mills. |
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7.

Aker Kvaerner ASA (‘Kvaerner’, Norway) designs and delivers machinery and equipment for chemical pulp mills. It is also a supplier of other specialized process technology ancillary to chemical recovery and power generation, including the production of power boilers used in pulp mills.

| 8. | The proposed transaction consists in the acquisition of 100 % of the shares in Kvaerner Pulping AB (Sweden), Aker Kvaerner Power Oy (Finland) and all assets related to Aker Kvaerner's pulping and power business, currently held by various subsidiaries of Aker Kvearner. |
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8.

The proposed transaction consists in the acquisition of 100 % of the shares in Kvaerner Pulping AB (Sweden), Aker Kvaerner Power Oy (Finland) and all assets related to Aker Kvaerner's pulping and power business, currently held by various subsidiaries of Aker Kvearner.

| 9. | The transaction will confer sole control of Kvaerner to Metso and therefore constitutes a concentration within the meaning of Article 3(1)(b) and Article 1(3) of the EC Merger Regulation. Although the transaction did not have a Community dimension within the meaning of Article 1 of the EC Merger Regulation, the Commission became competent to review the operation after a referral request of 4 April 2006 pursuant to Article 4(5) of the EC Merger Regulation. |
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9.

The transaction will confer sole control of Kvaerner to Metso and therefore constitutes a concentration within the meaning of Article 3(1)(b) and Article 1(3) of the EC Merger Regulation. Although the transaction did not have a Community dimension within the meaning of Article 1 of the EC Merger Regulation, the Commission became competent to review the operation after a referral request of 4 April 2006 pursuant to Article 4(5) of the EC Merger Regulation.

III.   RELEVANT PRODUCT MARKETS

| 10. | The transaction concerns the markets for pulp mill equipment. The Commission has already dealt with pulp mill equipment markets in previous cases (2). |
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10.

The transaction concerns the markets for pulp mill equipment. The Commission has already dealt with pulp mill equipment markets in previous cases (2).

2

1.   Separate markets for different process islands

| 11. | In line with its practice in previous cases, the decision defines separate product markets for so-called ‘process islands’. Indeed, different process stages can be distinguished in a pulp mill for which different equipment is used. |
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11.

In line with its practice in previous cases, the decision defines separate product markets for so-called ‘process islands’. Indeed, different process stages can be distinguished in a pulp mill for which different equipment is used.

| 12. | The following table shows which process islands the three leading players in the pulp mill equipment market (Andritz, Metso and Kvaerner) offer: |
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12.

The following table shows which process islands the three leading players in the pulp mill equipment market (Andritz, Metso and Kvaerner) offer:

Image

| 13. | The merging parties' activities overlap only in four process islands, namely in the field of digesters (‘cooking’ stage, where wood is mixed with chemicals and heated with steam in order to dissolve the lignin), equipment for brown stock washing (washing and cleaning of chemical residues), for oxygen delignification (further delignification with oxygen) and for bleaching (bleaching of the pulp which is still brown after the delignification stage). |
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13.

The merging parties' activities overlap only in four process islands, namely in the field of digesters (‘cooking’ stage, where wood is mixed with chemicals and heated with steam in order to dissolve the lignin), equipment for brown stock washing (washing and cleaning of chemical residues), for oxygen delignification (further delignification with oxygen) and for bleaching (bleaching of the pulp which is still brown after the delignification stage).

| 14. | For each of these stages, suppliers typically offer process islands, that is a ‘bundle’ of equipment which is assembled by the supplier (e.g. washers plus tanks, pipes and mixers for the washing stage). When it comes to replacing major parts of the mill with a view to upgrading the mill's capacity, most customers buy such integrated process island for the respective stage. The Commission found that also customers of new mills, although often combining several process islands, invite tenders for separate process islands. |
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14.

For each of these stages, suppliers typically offer process islands, that is a ‘bundle’ of equipment which is assembled by the supplier (e.g. washers plus tanks, pipes and mixers for the washing stage). When it comes to replacing major parts of the mill with a view to upgrading the mill's capacity, most customers buy such integrated process island for the respective stage. The Commission found that also customers of new mills, although often combining several process islands, invite tenders for separate process islands.

2.   Process islands for new mills v process islands for rebuild projects

| 15. | Nevertheless, the Commission's tender analysis showed that separate markets should be defined for equipment for the process islands used in new mills on the one hand and for rebuild projects on the other hand. Indeed, the size of a typical ‘package’ of different process islands is larger for new mills than for rebuild projects, where in most cases only one island is bought. Know how involved in new mill projects is also different from rebuild projects, not the least since it involves more planning and engineering activities and more know how on ‘plant building’ than process islands for rebuild projects. |
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15.

Nevertheless, the Commission's tender analysis showed that separate markets should be defined for equipment for the process islands used in new mills on the one hand and for rebuild projects on the other hand. Indeed, the size of a typical ‘package’ of different process islands is larger for new mills than for rebuild projects, where in most cases only one island is bought. Know how involved in new mill projects is also different from rebuild projects, not the least since it involves more planning and engineering activities and more know how on ‘plant building’ than process islands for rebuild projects.

| 16. | It should be noted that the Commission's market investigation has not supported the definition of a market for ‘entire new pulp mills’. The large majority of new mill customers has not bought a full mill but chosen to buy separate process islands. Only some of the customers indicated that they planned to buy a full new mill from one supplier in the future (post-merger) when there will be two suppliers able to offer products for an entire mill. Most customers stated that they will continue to buy also new mills in ‘packages’ from different suppliers. It appears that these customers believe that this enables them to choose the best product for every island. |
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16.

It should be noted that the Commission's market investigation has not supported the definition of a market for ‘entire new pulp mills’. The large majority of new mill customers has not bought a full mill but chosen to buy separate process islands. Only some of the customers indicated that they planned to buy a full new mill from one supplier in the future (post-merger) when there will be two suppliers able to offer products for an entire mill. Most customers stated that they will continue to buy also new mills in ‘packages’ from different suppliers. It appears that these customers believe that this enables them to choose the best product for every island.

3.   Separate markets for ‘batch’ and ‘continuous’ new mill digesters

| 17. | The Commission also concluded that the two main types of digesters used in the cooking process, i.e. ‘batch’ and ‘continuous’ digesters (3), are in competition with each other, at least as concerns digesters for new mills (4). Indeed, a significant part of customers invite tenders that do not specify the digester type when tendering for a digester for a new mill. Although some ‘new mill’ customers have a preference for continuous digesters and although there is another customer group that always chooses batch digesters, many customers consider both types of digesters without a pre-defined preference for either type. For this customer group, both digester types exert directly competitive pressure on each other (5). |
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17.

The Commission also concluded that the two main types of digesters used in the cooking process, i.e. ‘batch’ and ‘continuous’ digesters (3), are in competition with each other, at least as concerns digesters for new mills (4). Indeed, a significant part of customers invite tenders that do not specify the digester type when tendering for a digester for a new mill. Although some ‘new mill’ customers have a preference for continuous digesters and although there is another customer group that always chooses batch digesters, many customers consider both types of digesters without a pre-defined preference for either type. For this customer group, both digester types exert directly competitive pressure on each other (5).

3

4

5

4.   No separate markets for service and maintenance

| 18. | As regards service and maintenance work, the decision concludes that there is no or only negligible competition in the field of the competitors' service & maintenance business. While pulp mill equipment is also sold to customers who want to replace minor parts of a broken machine or a process island, the Commission's market investigation showed that for this part of the business (also referred to as ‘stay-in-business’ replacement), suppliers do not compete with each other, since in most of these cases customers usually turn to the original supplier of the product. |
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18.

As regards service and maintenance work, the decision concludes that there is no or only negligible competition in the field of the competitors' service & maintenance business. While pulp mill equipment is also sold to customers who want to replace minor parts of a broken machine or a process island, the Commission's market investigation showed that for this part of the business (also referred to as ‘stay-in-business’ replacement), suppliers do not compete with each other, since in most of these cases customers usually turn to the original supplier of the product.

‘stay-in-business’ replacement

5.   Conclusion on product markets

| 19. | The decision therefore defines the following relevant product markets (6):






  I. | Digesters:






  1. | Digesters for new mills |
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19.

The decision therefore defines the following relevant product markets (6):

6

I.

Digesters:

1.

Digesters for new mills

| 2. | Batch digesters for rebuilds |
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2.

Batch digesters for rebuilds

| 3. | Continuous digesters for rebuilds. |
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3.

Continuous digesters for rebuilds.

| II. | WOB equipment:






  4. | Equipment for the brown stock washing stage for new mills |
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II.

WOB equipment:

4.

Equipment for the brown stock washing stage for new mills

| 5. | Equipment for the delignification stage for new mills |
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5.

Equipment for the delignification stage for new mills

| 6. | Equipment for the bleaching stage for new mills |
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6.

Equipment for the bleaching stage for new mills

| 7. | Equipment for the brown stock washing stage for rebuild projects |
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7.

Equipment for the brown stock washing stage for rebuild projects

| 8. | Equipment for the delignification stage for rebuild projects |
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8.

Equipment for the delignification stage for rebuild projects

| 9. | Equipment for the bleaching stage for rebuild projects. |
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9.

Equipment for the bleaching stage for rebuild projects.

IV.   THE RELEVANT GEOGRAPHIC MARKETS

| 20. | The decision defines all affected markets as world-wide in scope. Market conditions are similar world wide and customers from all regions in the world invite for tenders and actually buy pulp mill equipment on a world-wide basis. |
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20.

The decision defines all affected markets as world-wide in scope. Market conditions are similar world wide and customers from all regions in the world invite for tenders and actually buy pulp mill equipment on a world-wide basis.

V.   COMPETITIVE ASSESSMENT

1.   Digesters for new mills

| 21. | In the market for digesters for new mills, Kvaerner and Metso would hold around [60-70] % of the market, with Kvaerner's continuous cooking technology accounting for approximately [50-60] % and Metso's batch digester accounting for around 14 % of the sales value between 2001 and 2005. Andritz has around [30-40] % of the market. The Canadian company GL&V is also present in the market and takes part in tenders for batch digesters. |
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21.

In the market for digesters for new mills, Kvaerner and Metso would hold around [60-70] % of the market, with Kvaerner's continuous cooking technology accounting for approximately [50-60] % and Metso's batch digester accounting for around 14 % of the sales value between 2001 and 2005. Andritz has around [30-40] % of the market. The Canadian company GL&V is also present in the market and takes part in tenders for batch digesters.

60-70

50-60

30-40

| 22. | The merger would therefore reduce the number of eligible suppliers for digesters for new mills from three to two, with a market share of the parties of more than [60-70] %. Such a high market position in a very concentrated market is in itself indicative for a dominant position on the digester market. The merger is therefore likely to reduce competition in the new mill digester market. |
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22.

The merger would therefore reduce the number of eligible suppliers for digesters for new mills from three to two, with a market share of the parties of more than [60-70] %. Such a high market position in a very concentrated market is in itself indicative for a dominant position on the digester market. The merger is therefore likely to reduce competition in the new mill digester market.

60-70

2.   Equipment for washing, oxygen delignification and bleaching

Dominant position in the WOB markets

| 23. | The Commission's market investigation has also shown that the transaction would lead to high market shares between [40-50] % to [80-90] % in the markets for equipment for washing, oxygen delignification and bleaching (‘WOB’), both for new mills and for rebuild projects. Andritz, with market shares between [40-50] % and [20-30] %, would remain the main competitor, while the next largest competitor, GL&V, would only hold market shares of [0-10] % to [0-10] % in the rebuild market and less than [0-10] % in the new mill market. The merger would therefore significantly reduce the number of competitors in the field of WOB equipment, bringing together the two market leaders in this field, who are the only suppliers of a wash press technology which is widely accepted by all main customers world-wide. Not the least because GL&V's washing technology is perceived by many customers as ‘outdated’ and too expensive, some respondents to the Commission's market test considered the transaction as a ‘3 to 2’ merger, possible allowing the parties to increase prices in this field of equipment. |
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23.

The Commission's market investigation has also shown that the transaction would lead to high market shares between [40-50] % to [80-90] % in the markets for equipment for washing, oxygen delignification and bleaching (‘WOB’), both for new mills and for rebuild projects. Andritz, with market shares between [40-50] % and [20-30] %, would remain the main competitor, while the next largest competitor, GL&V, would only hold market shares of [0-10] % to [0-10] % in the rebuild market and less than [0-10] % in the new mill market. The merger would therefore significantly reduce the number of competitors in the field of WOB equipment, bringing together the two market leaders in this field, who are the only suppliers of a wash press technology which is widely accepted by all main customers world-wide. Not the least because GL&V's washing technology is perceived by many customers as ‘outdated’ and too expensive, some respondents to the Commission's market test considered the transaction as a ‘3 to 2’ merger, possible allowing the parties to increase prices in this field of equipment.

40-50

80-90

40-50

20-30

0-10

0-10

0-10

| 24. | It should, however, be noted, that for those customers within the ‘new mill’ market who plan in the future to buy an entire mill from one supplier, the effect of the merger is rather positive. For those customers Andritz has currently a monopoly, and the merger will enable Metso/Kvaerner to compete with Andritz for the supply of such full mills. The competition concerns brought about by the creation of a dominant position in the field of WOB equipment therefore relates only to those customers within the new mill customer market who prefer buying in packages. For this group of new mill customers and for rebuild customers, the merger will create a dominant supplier with high market shares for WOB equipment, with only two competitors left (Andritz and GL&V), one of which (GL&V) has only achieved limited sales over the last five years. In addition the market has high entry barriers, due to the know-how and patents needed to manufacture pulp mill equipment and the importance of reputation and reference products. |
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24.

It should, however, be noted, that for those customers within the ‘new mill’ market who plan in the future to buy an entire mill from one supplier, the effect of the merger is rather positive. For those customers Andritz has currently a monopoly, and the merger will enable Metso/Kvaerner to compete with Andritz for the supply of such full mills. The competition concerns brought about by the creation of a dominant position in the field of WOB equipment therefore relates only to those customers within the new mill customer market who prefer buying in packages. For this group of new mill customers and for rebuild customers, the merger will create a dominant supplier with high market shares for WOB equipment, with only two competitors left (Andritz and GL&V), one of which (GL&V) has only achieved limited sales over the last five years. In addition the market has high entry barriers, due to the know-how and patents needed to manufacture pulp mill equipment and the importance of reputation and reference products.

No elimination by mitigating factors

| 25. | The Commission has also verified to what extent the anti-competitive effects of the merger could be mitigated by other factors. Some large customers indeed claimed that they had buyer power vis-à-vis their suppliers. Most customers stressed also that the merger was not only negative for them, but entailed also positive effects for their business. Customers mentioned that the merging parties' larger product portfolio would facilitate to buy packages of more process islands from one single supplier. Buying packages (e.g. digester and WOB equipment together) helps customers to save ‘interface costs’ which can result from the adjustment of various process islands from different suppliers. Combining several process islands can also help to avoid conflicts in liability cases. The majority of customers also expect that the merger will be beneficial for the quality of the products supplied by the merging parties. They argue that combining the complementary knowledge of Metso and Kvaerner (e.g. Metso's and Kvaerner's different cooking technologies or Metso's knowledge on the fibreline with Kvaerner's knowledge on the recovery part) will stimulate innovation. |
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25.

The Commission has also verified to what extent the anti-competitive effects of the merger could be mitigated by other factors. Some large customers indeed claimed that they had buyer power vis-à-vis their suppliers. Most customers stressed also that the merger was not only negative for them, but entailed also positive effects for their business. Customers mentioned that the merging parties' larger product portfolio would facilitate to buy packages of more process islands from one single supplier. Buying packages (e.g. digester and WOB equipment together) helps customers to save ‘interface costs’ which can result from the adjustment of various process islands from different suppliers. Combining several process islands can also help to avoid conflicts in liability cases. The majority of customers also expect that the merger will be beneficial for the quality of the products supplied by the merging parties. They argue that combining the complementary knowledge of Metso and Kvaerner (e.g. Metso's and Kvaerner's different cooking technologies or Metso's knowledge on the fibreline with Kvaerner's knowledge on the recovery part) will stimulate innovation.

vis-à-vis

| 26. | While these factors might to some extent mitigate the negative impact of the transaction in the cooking and WOB markets, the Commission takes the view that they are not likely to entirely neutralise or eliminate the anti-competitive effects from the merger on customers. Indeed, most customers confirmed that the positive effects do not outweigh the possible harm through the merger and that they would prefer a divestiture of the overlapping businesses. |
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26.

While these factors might to some extent mitigate the negative impact of the transaction in the cooking and WOB markets, the Commission takes the view that they are not likely to entirely neutralise or eliminate the anti-competitive effects from the merger on customers. Indeed, most customers confirmed that the positive effects do not outweigh the possible harm through the merger and that they would prefer a divestiture of the overlapping businesses.

| 27. | The Commission's investigation therefore confirmed that the merger will lead to a significant impediment of competition in the market for digesters for new mills and for WOB equipment sold to new mill and rebuild customers. |
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27.

The Commission's investigation therefore confirmed that the merger will lead to a significant impediment of competition in the market for digesters for new mills and for WOB equipment sold to new mill and rebuild customers.

VI.   COMMITMENTS

1.   The parties' commitment proposal

| 28. | The parties offered commitments on 6 October 2006 in order to remove the Commission's serious doubts as to the compatibility of the transaction with the common market. The commitments, which were modified on 9 November 2006, concern the WOB and the cooking markets: |
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28.

The parties offered commitments on 6 October 2006 in order to remove the Commission's serious doubts as to the compatibility of the transaction with the common market. The commitments, which were modified on 9 November 2006, concern the WOB and the cooking markets:

Full divestiture of Kvaerner's WOB business

| 29. | Metso proposes to divest Kvaerner's entire WOB business to the Canadian competitor GL&V. The divestiture includes all tangible and intangible assets related to Kvaerner's WOB business, including all know how, intellectual property rights, machines, ongoing contracts and key personnel. Metso has already entered into a binding Sale and Purchase Agreement on the WOB business with the Canadian competitor GL&V (‘fix-it-first’ solution). |
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29.

Metso proposes to divest Kvaerner's entire WOB business to the Canadian competitor GL&V. The divestiture includes all tangible and intangible assets related to Kvaerner's WOB business, including all know how, intellectual property rights, machines, ongoing contracts and key personnel. Metso has already entered into a binding Sale and Purchase Agreement on the WOB business with the Canadian competitor GL&V (‘fix-it-first’ solution).

Divestiture with a back license for Metso's digester business

| 30. | Metso also commits to divest the whole of its batch cooking business to the GL&V. This divestiture will enable the acquirer not only to use a license for Metso's ‘SuperBatch’ cooking technology, but to dispose of all tangible and intangible assets forming the batch cooking business currently held by Metso, including all know how, intellectual property rights, machines, ongoing contracts and key personnel. Unlike for the WOB business, the commitments provide for a back-licence for the SuperBatch technology to Metso, enabling Metso to offer its technology in parallel to GL&V. Metso has also already entered into a binding Sale and Purchase Agreement with GL&V for the cooking business. |
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30.

Metso also commits to divest the whole of its batch cooking business to the GL&V. This divestiture will enable the acquirer not only to use a license for Metso's ‘SuperBatch’ cooking technology, but to dispose of all tangible and intangible assets forming the batch cooking business currently held by Metso, including all know how, intellectual property rights, machines, ongoing contracts and key personnel. Unlike for the WOB business, the commitments provide for a back-licence for the SuperBatch technology to Metso, enabling Metso to offer its technology in parallel to GL&V. Metso has also already entered into a binding Sale and Purchase Agreement with GL&V for the cooking business.

back-licence

2.   Assessment of the commitment proposal

WOB business

| 31. | The Commission considers that the divestment of Kvaerner's WOB business can be regarded as the divestiture of a viable business, since it comprises not only the divestiture of some patents or machines but of all elements forming Kvaerner's WOB business, including ongoing contracts and key personnel. The Commission has also come to the conclusion that GL&V is a suitable purchaser for the divested business, since it is already active in the WOB business and since GL&V is the only remaining competitor offering equipment for many different process islands of a pulp mill apart from the merging parties and Andritz. Although GL&V's sales of new equipment in the WOB area were limited between 2000 and 2003 due to previous financial problems of the respective business (which GL&V had taken over in 2000), GL&V has fully re-entered the markets for pulping equipment for rebuilds and new mills in 2003 and increased its market share significantly since then. GL&V therefore has both the incentives and the ability to become a credible ‘third player’ in the markets for pulp mill equipment though the acquisition of Kvaerner's and Metso's divested businesses. |
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31.

The Commission considers that the divestment of Kvaerner's WOB business can be regarded as the divestiture of a viable business, since it comprises not only the divestiture of some patents or machines but of all elements forming Kvaerner's WOB business, including ongoing contracts and key personnel. The Commission has also come to the conclusion that GL&V is a suitable purchaser for the divested business, since it is already active in the WOB business and since GL&V is the only remaining competitor offering equipment for many different process islands of a pulp mill apart from the merging parties and Andritz. Although GL&V's sales of new equipment in the WOB area were limited between 2000 and 2003 due to previous financial problems of the respective business (which GL&V had taken over in 2000), GL&V has fully re-entered the markets for pulping equipment for rebuilds and new mills in 2003 and increased its market share significantly since then. GL&V therefore has both the incentives and the ability to become a credible ‘third player’ in the markets for pulp mill equipment though the acquisition of Kvaerner's and Metso's divested businesses.

Digester business

| 32. | The Commission has found that a full divestiture of Metso's batch digester business without any possibility for Metso to stay in the business is not the most adequate solution for the digester market. Indeed, in the Commission's market test of the remedies, customers almost unanimously voted for a shared license for the SuperBatch technology. This is because any remedy in the field of digesters effects different customers differently. Customers fear that a complete divestiture of the SuperBatch technology to GL&V would create a ‘monopoly’ for those customers who are bound to use batch digesters. It should in this context be recalled that GL&V, although its sales in the field of digesters are de minimis today, currently already offers its own batch digester technology and takes part in tenders for new mills. A full divestiture would therefore effectively reduce the number of digester suppliers from 2 to 1. Customers of large new mills who want to buy very large packages or even a full mill from one supplier could also be negatively affected, since GL&V does not offer full mills and does not have an equally broad portfolio of pulp mill equipment as Andritz or Mesto/Kvaerner. A complete divestiture would also necessarily affect rebuild customers, which would be forced to change their supplier. Accordingly, the present commitments provide for a back-licence for the SuperBatch technology to Metso, enabling Metso to offer its technology in parallel to GL&V. |
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32.

The Commission has found that a full divestiture of Metso's batch digester business without any possibility for Metso to stay in the business is not the most adequate solution for the digester market. Indeed, in the Commission's market test of the remedies, customers almost unanimously voted for a shared license for the SuperBatch technology. This is because any remedy in the field of digesters effects different customers differently. Customers fear that a complete divestiture of the SuperBatch technology to GL&V would create a ‘monopoly’ for those customers who are bound to use batch digesters. It should in this context be recalled that GL&V, although its sales in the field of digesters are de minimis today, currently already offers its own batch digester technology and takes part in tenders for new mills. A full divestiture would therefore effectively reduce the number of digester suppliers from 2 to 1. Customers of large new mills who want to buy very large packages or even a full mill from one supplier could also be negatively affected, since GL&V does not offer full mills and does not have an equally broad portfolio of pulp mill equipment as Andritz or Mesto/Kvaerner. A complete divestiture would also necessarily affect rebuild customers, which would be forced to change their supplier. Accordingly, the present commitments provide for a back-licence for the SuperBatch technology to Metso, enabling Metso to offer its technology in parallel to GL&V.

de minimis

No anticompetitive effects through coordination

| 33. | The proposed divestiture remedy will also address any potential increase of the risk of coordination in the pulp mill equipment markets, since it will largely maintain the market structure with three eligible suppliers. The divestiture package will strengthen GL&V significantly and enable GL&V to take over Kvaerner's role as a third player which will exercise competitive pressure on the two other suppliers in situations. Although GL&V's ability to exercise competitive pressure on Andritz and Metso/Kvaerner in projects in which require the supply of a full or almost full pulp mill might be limited, the merger will not negatively affect this situation. Today, Andritz has a monopoly for such projects. The change brought about by the merger is therefore rather positive, since there will be two suppliers competing for ‘full mill’ projects in the future, which can be regarded as a clear improvement of the competitive structure. |
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33.

The proposed divestiture remedy will also address any potential increase of the risk of coordination in the pulp mill equipment markets, since it will largely maintain the market structure with three eligible suppliers. The divestiture package will strengthen GL&V significantly and enable GL&V to take over Kvaerner's role as a third player which will exercise competitive pressure on the two other suppliers in situations. Although GL&V's ability to exercise competitive pressure on Andritz and Metso/Kvaerner in projects in which require the supply of a full or almost full pulp mill might be limited, the merger will not negatively affect this situation. Today, Andritz has a monopoly for such projects. The change brought about by the merger is therefore rather positive, since there will be two suppliers competing for ‘full mill’ projects in the future, which can be regarded as a clear improvement of the competitive structure.

| 34. | The commitments will therefore remove the entire competitive overlap between the notifying parties, thereby creating conditions of competition comparable to those prevailing pre-merger. |
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34.

The commitments will therefore remove the entire competitive overlap between the notifying parties, thereby creating conditions of competition comparable to those prevailing pre-merger.

VII.   CONCLUSION

| 35. | The commitments as proposed by the Notifying Party modify the notified concentration to such an extent that the serious doubts of the Commission as to the compatibility of that concentration with the common market are removed and that the transaction would not significantly impede effective competition in the common market or in a substantial part of it. Subject to full compliance by Metso with the commitments offered, the concentration is therefore declared compatible with the Common Market and the EEA Agreement, in accordance Article 8(2) of the EC Merger Regulation and Article 57 of the EEA Agreement. |
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35.

The commitments as proposed by the Notifying Party modify the notified concentration to such an extent that the serious doubts of the Commission as to the compatibility of that concentration with the common market are removed and that the transaction would not significantly impede effective competition in the common market or in a substantial part of it. Subject to full compliance by Metso with the commitments offered, the concentration is therefore declared compatible with the Common Market and the EEA Agreement, in accordance Article 8(2) of the EC Merger Regulation and Article 57 of the EEA Agreement.

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(1)  OJ L 24, 29.1.2004, p. 1.

1

(2)  See e.g. Cases COMP/M.4092 — Andritz/Küsters; COMP/M.1930 — Ahlström/Andritz; IV/M.1431 — Ahlström/Kvaerner.

2

(3)  In batch digesters, pulp is cooked in ‘batches’ by putting wood chips into a batch digester, together with the necessary chemicals and cooking it over a period of one or more hours. When the process is complete, the entire pulp is then pumped to the next stage, and the batch digester has to be filled again. Unlike in the ‘sequential’ process of a batch digester, in a continuous digester there is a steady flow of wood chips and chemicals into the continuous digester where it is cooked and continuously discharged from the outlet end of the digester.

3

(4)  The investigation showed that for rebuild projects, customers choose in most of the cases the same digester type as before and have never replaced a continuous digester by a batch digester.

4

(5)  Although theoretically three different markets for the three customer groups could be defined, it is more appropriate not to further subdivide the digester market, because boundaries between the different customer groups are blurred. In the competitive assessment of the decision, the effects on all three customer segments are considered.

5

(6)  The Commission has also assessed whether a vertically affected market for automation (e.g. process island automation systems, pulp mill equipment automation or industrial process automation) should be defined. This question could ultimately be left open for the purpose of the present decision, since no competition concerns would arise under either scenario.

6

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