|EUROPEAN COMMISSION |

Brussels, 5.7.2012

C(2012) 4780 final

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description. MERGER PROCEDURE ARTICLE 6(1)(b) DECISION PUBLIC VERSION

To the notifying party

Dear Sir/Madam,

Subject: Case No COMP/M.6455 - SCA/GEORGIA-PACIFIC EUROPE Commission decision pursuant to Article 6(1)(b) in conjunction with Article 6(2) of Council Regulation No 139/2004 [1]

(1) On 15 May 2012 the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which the undertaking Svenska Cellulosa Aktiebolaget SCA AB ("SCA", Sweden) acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of Georgia-Pacific LLP's ("Georgia Pacific", United States) European consumer tissue business ("GPE") by way of purchase of shares and assets. [2] SCA is designated hereinafter as the "Notifying Party" and together with GPE as "the Parties".

I. THE PARTIES

(2) SCA is a global hygiene and paper company that develops, produces and markets personal care products, tissue, publication paper and solid wood products. In Europe SCA supplies a range of consumer tissue ("CT") products under both its own brands which differ from country to country and also to retailers for their own retailer brands. [3] SCA is also a supplier to the Away-From-Home ("AFH") sector where it supplies products under the Tork brand as well as unbranded products. [4]

(3) GPE is the European business of the American company Georgia-Pacific LLP which is itself part of the privately held Koch Industries. GPE manufactures a range of CT products under its own brands, which differ from country to country, and private labels for retailers. GPE also supplies the AFH sector under the Lotus Professional brand and unbranded products. GPE also supplies a range of cotton make up remover products under the Demak'Up brand.

II. THE OPERATION AND THE CONCENTRATION

(4) In 2011 Georgia-Pacific decided to divest its European tissue business. The Finnish company Metsä Tissue OY licensed GPE's Russian consumer brands, while Lucart purchased the entire Italian tissue business. GPE's joint venture in Turkey was sold to its joint venture partner. SCA's binding offer for GPE (excluding Italy and Turkey) represents the final stage of this process. [5]

(5) On 7 February 2012, SCA entered into a Sale and Purchase agreement to acquire GPE's consumer product business by way of purchase of shares and assets. After the completion of the proposed transaction, SCA will acquire all the shares and assets of GPE and will therefore have sole control over GPE.

(6) The proposed transaction therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

III. EU DIMENSION

(7) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million [6] (SCA: EUR 11 444 million, GPE: […] million). Each of them has an EU-wide turnover in excess of EUR 250 million (SCA: EUR […] million, GPE: EUR […] million), but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. The notified operation therefore has an EU dimension pursuant to Article 1(2) of the Merger Regulation.

IV. RELEVANT MARKET AND COMPETITIVE ASSESSMENT

Introduction

(8) The Parties produce and supply converted tissue products for the CT and AFH sectors in the EEA. [7]

(9) The production of tissue products involves two main steps: (i) the making of paper and (ii) the conversion of this paper into tissue products.

(10) The making of paper involves treating the pulp (or alternatively, waste paper) in order to form a liquid base stock (1% fibre and 99% water), which is then dried by the paper machines. These paper machines form large rolls of paper called "parent reels".

(11) The conversion of paper consists of unwinding the parent reel, embossing, decorating or perforating the paper and then transforming it into rolled products (such as toilet paper and household towel) or folded products (like napkins). Different converting machines are required for rolled and for folded products.

(12) The activities of SCA and GPE overlap and give rise to affected markets in relation to the sale of parent reels (IV.1), the supply of certain AFH products (IV.2.) and the supply of certain CT products (IV.3.). Each of these product groups will be treated separately in the assessment below.

IV.1. PARENT REELS

(13) Parent reels are large sheets of tissue paper from which converted products (CT and AFH) are made. A range of final tissue products can be produced from the same parent reels, irrespective whether they are CT or AFH products.

(14) The Parties produce parent reels, mainly for internal consumption, but sell excess production to third party tissue manufacturers and converters. [8] Parent reels are sold both to integrated and non–integrated tissue manufacturers. [9]

IV.1.1 Relevant product market

(15) The Parties submit, in line with the definition in the Kimberly-Clark/Scott Paper decision, [10] that parent reels constitute a separate product market. The Commission, in its previous decisions, followed this definition and considered the relevant market to be the supply of parent reels to third parties. [11]

(16) The Parties further put forward that most parent reels are standard grade products which can be easily sourced from a range of different suppliers. [12]

(17) In the market investigation the majority of customers and competitors in both the CT and AFH categories considered the supply of parent reels to third parties to constitute a relevant product market. As a result, the supply of parent reels shall be considered a relevant product market for the assessment of this transaction.

IV.1.2 Relevant geographic market

(18) The Commission has previously considered that the geographic market for the parent reels is (at least) EEA-wide. [13] The Parties consider that the relevant geographic market is at least EEA-wide and probably broader, since parent reels are sold at similar prices across the EEA, there are no tariffs or barriers to trade, transportation costs for parent reels are much lower than for the finished products and there are imports from Asia.

(19) The market investigation has suggested that the geographic market for parent reels is EEA-wide. According to the market investigation parent reels are regularly transported and traded all over the EEA.

(20) The respondents to the market investigation explained that in surplus countries, parent reels are sold to customers across the EEA so as to maximise the utilisation of installed capacity and therefore minimise unit costs of production. [14]

(21) Based on the above the relevant geographic market for supply of parent reels is considered to be EEA-wide for the purposes of analysing the effects on competition of the notified operation.

IV.1.3 Competitive assessment

(22) The Parties overlap in the supply of parent reels. Post transaction the merged entity will achieve a market share of [20-30]% in the supply of parent reels to third parties in the EEA. In addition, the Parties' activities in parent reels give rise to a number of vertically affected markets, since both companies are active downstream in the production of converted tissue products (CT and AFH) with important market shares in a number of Member States.

(23) The market investigation did not show concerns as regards the horizontal and vertical overlaps stemming from the Parties' presence in parent reels. First, with regards to the horizontal overlap, there still exist a number of important competitors in the supply of parent reels, such as Sofidel ([10-20]%), ICT ([0-5]%) and Metsä ([0-5]%).

(24) As regards the vertical links, the market investigation revealed that there is overcapacity in the market for parent reels, with almost all tissue producing companies, including vertically integrated ones, selling parent reels to external converters. [15] The Parties would therefore not be able to limit supply or charge increased prices for parent reels as these can easily be sourced from a range of different suppliers.

(25) Moreover, the market investigation indicated that an important number of market players already have a vertically integrated business model and therefore the merged entity would not be able to limit access to parent reels for these competitors in the market.

(26) In view of the above, the Commission considers that the proposed transaction does not raise serious doubts as to its compatibility with the internal market with respect to parent reels in the EEA.

IV.2. AWAY FROM HOME

IV.2.1 Relevant product market

(27) In its previous decisions the Commission decided that AFH products constitute a separate product market from CT due to the different customer base and distribution channels. [16] The Commission also observed that the quality as well as the importance of brands differs between AFH and CT products. [17]

(28) In previous decisions [18] the Commission identified the following product markets within the AFH category: (i) toilet tissue; (ii) hand wiping and drying ("hand wiping"); (iii) general wiping/object wiping; (iv) health care [19] and (v) napkins. In the same precedent the Commission concluded that the distinction between branded and non-branded products, which was relevant for the CT category, was not applicable to AFH products.

(29) The Parties agreed with the above delineation of the product market and have presented their market shares in the following segments:

· Toilet paper;

· Hand wiping (HW);

· Object wiping (OW);

· Health care;

· Napkins;

· Other AFH products. [20]

(30) The Parties however presented a number of arguments with respect to the delineation of product market for hand wiping which were not analysed by the Commission in its previous decisions concerning this sector. They also advanced a number of arguments in support of their submission that branded and non-branded AFH products should be considered as forming part of one and the same AFH market. These arguments are analysed below.

Hand wiping

(31) As far as hand wiping is concerned, the Parties submitted that relevant market should consist of tissue, textile, jet air dryers as well as traditional dryers. The Parties acknowledged that such a product market definition has not been recognized by the Commission in previous decisions (for example SCA/Metsä Tissue), but they consider that the market has developed since that time for the following reasons.

(32) First, the Parties observe that hot air dryers and textile hand wiping products have always been significant competitive constraints on AFH hand wiping tissue suppliers.

(33) Second, the Parties put forward that the main development of the hand wiping market since the SCA / Metsä decision has been the introduction of jet air dryers ("JADs"). These devices were invented by Mitsubishi Electric in the nineties and then developed by a company called Dyson. According to the Parties, Dyson started to produce Dyson Airblade JADs in 2006 and successfully managed to market its products at the expense of AFH tissue and traditional hot air dryers. As a result, at present JADs compete with traditional hand wiping products in particular with regards to price, [21] effectiveness, hygiene and environmental standards.

(34) In order to support the above arguments the Parties provided evidence that a number of their customers have switched from hand wiping tissue to JADs. [22] They also put forward that in the United Kingdom JADs have succeeded in gaining 10% of the entire HW market and that further rapid growth of JADs is expected in other Member States.

(35) The Parties further submit that even if the Commission considers that hand wiping tissue constitutes a separate product market, the competitive constraint from non-tissue hand wiping solutions should be taken into account as part of the competitive assessment as having a strong disciplining effect on tissue pricing.

(36) The market investigation produced mixed results as to whether JADs form part of the same product market as hand wiping tissue. Whilst the majority of respondents explained that JADs and hand wiping tissue could constitute part of the same product market, mainly because they serve the same use, [23] the majority of respondents in all Member States also expressed the opinion that they did not observe switching from tissue hand wiping into JADs and that they would not switch in case of 5-10% price increase of tissue hand wiping to JADs.

(37) Respondents often underlined that despite a number of factors which make JADs attractive for end users (such as lower costs of usage and lack of waste paper). There are also certain disadvantages such as high electricity costs and noise associated with the use of JADs. Some respondents also stated that the hygiene benefits of JADs compared to tissue hand wiping are not yet entirely proven. Other respondents also underlined that in some places, such as workshops, garages and patient rooms, tissue hand wiping is more appropriate than JADs.

(38) The results of the market investigation point to the conclusion that JADs could be seen as part of the same product market as tissue hand wiping or at least as a factor putting competitive pressure over the hand wiping only for certain applications (such as hand drying in bathrooms). However, for purposes of this decision, it is sufficient to analyse the Parties' position on the narrow market for tissue hand wiping, since no competition concerns would arise even under this product market definition.

Branded vs non branded

(39) The majority of the Parties' AFH sales in the EEA are of branded products. SCA sells its products under the Tork brand whereas GPE’s brand for AFH is Lotus Professional.

(40) The Parties agree with the Commission’s precedents that branded and non-branded AFH products are part of the same product market. According to the Parties, brands are of little relevance in the AFH sector. As a result AFH brands are not supported with advertising and promotions. The Parties explained that, with regards to AFH products, branding is not an indicator of product quality and the differentiation within brands themselves (due for example to particular characteristics such as embossing) is of little relevance. In general, according to the Parties, price and not brand, is the main decision driver when it comes to AFH products.

(41) The market investigation largely confirmed the Parties’ statements as a vast majority of respondents consider branded and non-branded AFH products to constitute one product market. The respondents stated that when purchasing AFH products, “customers search for quality and function disregarding the brands” [24] and that “tissue products are usually low involvement goods. When you can convince the customer to the price advantage, and quality is the same, a switch to private label is quite common.” [25]

(42) Therefore, for the purposes of this decision, branded and non-branded AFH products will be considered as part of the same product market.

IV.2.2 Relevant geographic market

(43) The different markets for AFH products have been typically considered as national in previous Commission decisions [26] due to transport cost constraints and customers' national purchasing patterns.

(44) At the same time, the Commission observed, that certain neighbouring countries, such as Sweden and Norway could be considered as forming a single market or "country cluster". The Commission remarked in SCA/Metsä Tissue [27] that Nordic countries were characterised by a low level of population density. At the same time, the Nordic countries were seen as being distant from the main continental tissue production clusters. All these factors contributed to an alternative assessment of the Nordic countries as a country cluster though ultimately the geographic market definition was left open.

(45) In the present case the Parties consider that the market has evolved in a way that there are a number of country clusters for AFH products. These country clusters are in the Parties' view the following: (i) the Baltic States; (ii) Belgium and Luxembourg; (iii) Germany and Austria and (iv) the United Kingdom and Ireland. [28] At the Commission's request, the Parties have also provided their market shares on a disaggregated basis (i.e. national level) for each of the aforementioned country clusters with the exception of Belgium and Luxembourg. [29]

(46) The market investigation confirmed in principle that national product markets are the most relevant for the assessment of the AFH markets since prices and customer preferences (mainly with regards to the product quality) usually vary depending on the Member State in question. [30]

(47) The respondents to the Commission' requests for information also underlined that the conditions of competition differ between various Member States since they are influenced by population density, country demographics and economic conditions as well as by the distributor landscape and presence or otherwise of tissue product manufacturers. [31]

(48) Finally, some respondents also underlined the importance of local sales teams for the different markets. [32]

(49) The market investigation did not produce clear results with regards to the country clusters proposed by the Parties. The respondents within the various country clusters explained that the competition conditions and customer preferences vary within different Member States and not necessarily within the groups of Member States presented as country clusters. While some of these respondents were of the opinion that country clusters would be the most relevant for the assessment of the case, others argued that the markets should be regarded at the national level.

(50) As a result this transaction shall be assessed at both levels, national and country clusters as proposed by the Parties. In any event the question of the exact geographic market definition can be left open since the transaction does not raise competition concerns irrespective of the geographic market definition.

IV.2.3 Competitive assessment [33]

IV.2.3.1 The Baltic States

(51) Looking at the geographic market based on the country cluster, the Parties' main overlaps occur in object wiping ([60-70]% with [10-20]% increment due to GPE) and hand wiping sector ([40-50]% with [10-20]% increment due to GPE). In these markets Metsä will be the number two competitor post transaction ([10-20]% in object wiping and [30-40]% in hand wiping). The market is characterised by the presence of several suppliers, such as Grigiskes ([0-5]% hand wiping and [10-20]% object wiping) and Kimberly-Clark ([10-20]% hand wiping and [5-10]% object wiping) among the most important ones.

(52) The Parties overlap, to a more limited extent in toilet paper (combined market share of [20-30]% with [5-10]% increment due to GPE) and napkins (combined market share of [5-10]% with [0-5]% increment due to GPE). In these markets the main competitors are Metsä for toilet paper ([30-40]%) and Grigiskes for napkins ([20-30]%).

(53) If the transaction were to be analysed on the basis of separate countries, the merged entity would have high market shares in Estonia with major overlaps in hand wiping ([60-70]% with [20-30]% increment due to GPE), object wiping ([40-50]% with [5-10]% increment due to GPE) and toilet paper ([30-40]% with [5-10]% increment due to GPE). However, even under such a scenario, Metsä will remain the second largest supplier with a market share of [20-30]% in hand wiping, [30-40]% in object wiping and [30-40]% in toilet paper, followed by Grigiskes (market shares of [0-5]% , [10-20]% and [10-20]%) and Kimberly-Clark ([5-10]%, [5-10]% and [10-20]%).

(54) Under a national market definition, the most significant overlaps in Lithuania appear in hand wiping and object wiping markets ([40-50]% and [60-70]%), although the increments from GPE are relatively small ([5-10]% and [5-10]% respectively). The major competitors are Metsä ([30-40]% in hand wiping and [10-20]% in object wiping) and Kimberly-Clark ([10-20]% in hand wiping and [5-10]% in object wiping) and Grigiskes ([0-5]% in hand wiping and [10-20]% in object wiping). There is also a multitude of smaller players on the market such as Wepa, Sofidel and Carma.

(55) In Latvia the Parties would achieve the highest combined market share in object wiping ([60-70]% with [20-30]% increment due to GPE), hand wiping ([40-50]% with [10-20]% increment due to GPE) and toilet paper ([30-40]% with [5-10]% increment due to GPE). Metsä is the strongest competitor ([10-20]% in object wiping, [40-50]% in hand wiping and [20-30]% in toilet paper), followed by Grigiskes ([10-20]%, [0-5]% and [20-30]%) and Kimberly-Clark ([0-5]%, [5-10]% and [0-5]%). The market in these segments is serviced by other small suppliers such as Wepa, Sofidel and Carma.

(56) The Parties argue that the proposed concentration will not have a significant impact on competition in the Baltic States since: (i) the market is characterised by a number of large distributors, such as Inpacs, with strong purchasing power, (ii) the proximity to Germany, Nordic countries and Poland makes it easier for new players to enter the market and (iii) SCA and GPE supply to different distributors with strong buyer power that can easily switch to alternative suppliers in case they no longer wish to buy from the merged entity.

(57) In the market investigation one customer raised limited concerns regarding a possible increase in price which could stem from a reduction of competition. However, the majority of respondents indicated that competition in the market will not allow any significant price increases and that actually a positive development of prices is expected as competitors will be stimulated to react by bringing benefits to end-customers who will be looking for new alternatives in the AFH market. According to the market investigation market players also expect the Parties to achieve cost efficiencies via a more efficient allocation of production between factories and sharing know-how.

(58) The market investigation revealed that there are several European wide buyer groups active in the Baltic States, such as Metro Group, Bunzl Europe, Igefa/Inpacs and GVS Germany with strong bargaining power in negotiating contracts for AFH products. In addition, according to the respondents to the market investigation in the Baltics there is still overcapacity in at the EEA level which could be used in the markets in question. [34]

(59) As far as entry barriers are concerned, several competitors, such as Wepa, Sofidel, Carma and Celtex, have entered the market in the last five years, although no new entries are expected in the near future due to the large number of existing suppliers already competing in what remain relatively small markets in volume terms. [35]

(60) Based on the above arguments it is concluded that the proposed transaction does not raise serious doubts as regards the markets for the supply of AFH products in the Baltic States considered as a whole or individually.

IV.2.3.2 Belgium/Luxembourg

(61) Following the transaction, the most significant overlaps in the Belgium and Luxembourg cluster [36] will occur in hand wiping ([40-50]% with [10-20]% increment due to GPE) and napkins ([30-40]% with [10-20]% increment due to SCA) markets. Kimberly-Clark will remain second player in hand wiping with [30-40]% of the market, followed by Metsä ([5-10]%), Van Houtum ([5-10]%), Ecoline ([0-5]%) and MTS ([0-5]%). In the napkins segment, Duni will continue to be the market leader with a market share of [50-60]%.

(62) The remaining overlaps between the Parties are limited as they would have market shares of [20-30]% in object wiping (with [0-5]% increment due to GPE) and [20-30]% in toilet paper (with [5-10]% increment due to GPE).

(63) The Parties do not consider that the present transaction will have a negative effect on the market for the following reasons: (i) there are plenty of suppliers in the market with Kimberly-Clark, Van Houtum and Metsä as the major ones, (ii) the proximity to France and Germany means that distributors can switch to different suppliers in case of a price increase.

(64) The market investigation has validated the Parties' arguments with respect to other competitors active in the market, as the majority of respondents perceive Kimberly-Clark as the closest competitor of SCA, followed by Van Houtum, Sofidel, Metsä and Wepa.

(65) In case of a price increase, distributors confirm they would be able to switch to different brands or to non-branded products as customers are price sensitive, especially to commodity products such as toilet paper, basic napkins and object wiping. For contracts where prices are negotiated on a yearly basis, distributors will reduce margins for these products before switching to other suppliers as there are, according to the respondents, no costs involved in the switching process. [37]

(66) In view of the above and the fact that no competition concerns were raised during the market investigation, the Commission has concluded that the transaction does not raise serious doubts as regards the markets for the supply of AFH products in Belgium and Luxembourg.

IV.2.3.3 Czech Republic

(67) The merged entity would have a market share of [30-40]% (with [0-5]% increment due to GPE) in hand wiping and [30-40]% (with [5-10]% increment due to GPE) in object wiping. The main competitors of the Parties in these markets are Metsä ([10-20]% in hand wiping and [10-20]% in object wiping) and Sofidel ([10-20]% in hand wiping and [5-10]% in object wiping).

(68) In napkins, the Parties will obtain [20-30]% market share (with [5-10]% increment due to SCA), but they will face significant constraints from competitors such as Duni ([20-30]%), Wimex ([10-20]%), Sofidel ([10-20]%) or Moracell ([5-10]%) The market is characterised by a diversity of suppliers, with Metsä, Sofidel and Kimberly-Clark among the strongest ones.

(69) Based on the above, the only significant overlap of the Parties would occur is in object wiping. However, no competition concerns were raised during the market investigation with respect to any market in the Czech Republic. As a result it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of AFH products in the Czech Republic.

IV.2.3.4 Denmark

(70) The most significant overlaps between the Parties' activities arise in hand wiping ([40-50]% with [10-20]% increment due to GPE), object wiping ([20-30]% with [5-10]% increment due to GPE) and toilet paper ([20-30]% with [10-20]% increment due to GPE). The Parties do not consider that the transaction will have a significant impact on these markets since Metsä will remain a significant supplier of hand wiping ([30-40]%), object wiping ([40-50]%) and toilet paper ([40-50]%), followed by other strong competitors such as Abena ([10-20]% hand wiping; [10-20]% object wiping and [10-20]% toilet paper) and Kimberly-Clark. In addition, the Parties submit that strong distributors such as Bunzl and Lyreco, which are currently sourcing from a number of AFH suppliers, could easily switch to alternative suppliers and therefore lessen their dependency on the merged entity if it were to increase prices.

(71) The Parties also overlap, but to a more limited extent, in other AFH products where the merged entity would obtain market shares of [20-30]% ([5-10]% increment due to GPE) and [10-20]% in napkins ([5-10]% increment due to SCA).

(72) The market investigation revealed that post-transaction there will be sufficient suppliers on the market that can offer a whole range of products and that in fact, prices might decrease due to economies of scale. [38] Indeed, important distributors such as Bunzl have negotiating power and any price increase must be transparent and based on verifiable criteria such as energy costs. [39] Therefore it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of AFH products in Denmark.

IV.2.3.5 Finland

(73) In Finland the Parties overlap in a number of AFH categories with the highest market share being in hand wiping ([30-40]% with [5-10]% increment due to SCA). The competitors of the Parties on this market are Metsä ([60-70]%) and a number of small players such as Wepa ([0-5]%), Ranikon ([0-5]%) and others. The Parties also overlap in the napkins segment ([20-30]%) though the increment from SCA is limited at [0-5]%. However, Duni ([30-40]%), Fiblon ([20-30]%) and Metsä ([5-10]%) represent a significant competitive constraint on the merged entity. In addition the Parties overlap, but to a more limited extent, in toilet paper, where the merged entity would obtain market shares of [10-20]% ([5-10]% increment due to SCA) with main competitor Metsä ([70-80]%) and Wepa ([0-5]%).

(74) The Parties argue that the transaction will not significantly impede competition as the market shares are moderate and the market exhibits some unique features within the EEA with end customers buying tissue products from local suppliers for a variety of historical and geographical reasons. Metsä is a local Finnish based supplier and by far the largest supplier on the market with shares of [70-80]% and [60-70]% in toilet paper and hand wiping respectively. It will continue to be the market leader in Finland following SCA's proposed acquisition of GPE.

(75) During the market investigation, one customer expressed concerns that the proposed acquisition might lead to fewer alternatives and less competition which might translate into higher prices. In contrast, the majority of respondents believe that SCA will actively challenge and compete with Metsä in such a way that prices will decrease. [40] In addition, distributors perceive Metsä as a strong competitor since it is a Finnish company with good knowledge of the local market which is offering a whole range of products of quality comparable to the one of SCA. [41]

(76) Based on the above arguments it is concluded that the proposed transaction will not raise serious doubts as regards the markets for the supply of AFH products in Finland.

IV.2.3.6 France

(77) In France the Parties overlap in toilet paper, hand wiping, object wiping and napkins. Post transaction the merged entity would obtain the most significant market shares in object wiping [40-50]% ([10-20]% increment due to SCA) and hand wiping [40-50]% ([10-20]% increment due to SCA). It will however continue to face a number of competitors such as Panadayle ([10-20]% in object wiping and [20-30]% in hand wiping), Kimberly-Clark ([5-10]% in object wiping, [5-10]% in hand wiping) as well as MP Hygiene ([5-10]% in object wiping, [5-10]% in hand wiping). [42] The merged entity's position in toilet paper and napkins would be more moderate, with the combined market shares of [30-40]% (increment of SCA [5-10]%) and [20-30]% (increment of SCA [0-5]%) respectively.

(78) The vast majority of respondents did not raise concerns with regards to the French market. However a limited number of customers expressed the view that as the transaction is a merger of two of the largest players on the French AFH market, it might lead to a reduction of competition and price increases in the mid-term.

(79) Upon further investigation, however, these respondents admitted that in case the Parties were to decrease the availability of products at satisfactory prices, they could still switch to other competitors active in France and in other Member States, including Kimberly-Clark and Sofidel. In addition, some competitors expressed the opinion that the transaction would provide them with new opportunities since customers will search for new alternatives in the AFH market. [43]

(80) Based on the above arguments it is concluded that the proposed transaction does not raise serious doubts as regards the supply of AFH products in France.

IV.2.3.7 Germany and Austria

(81) In Germany and Austria the Parties overlap in toilet paper, hand wiping, object wiping and napkins. The Parties would have a combined market share of [30-40]% in napkins ([10-20]% increment due to GPE) and [30-40]% in hand wiping ([0-5]% increment due to GPE). The merged entity would face Duni as the main competitor for napkins ([30-40]%). The main competitors of the merged entity for hand wiping would be Wepa ([10-20]%), Kimberly-Clark ([10-20]%), and Sofidel ([10-20]%).

(82) The Parties position in the remaining AFH segments would be moderate. More particularly they would have a [20-30]% combined market share in toilet paper (with [0-5]% increment due to GPE) and [10-20]% in object wiping (with [0-5]% increment due to GPE). [44]

(83) Similar market shares would be obtained if Germany were to be considered as a separate geographic market. Under this scenario, the Parties would obtain market shares of [30-40]% in napkins (increment [10-20]% due to GPE) and [30-40]% in hand wiping (increment [0-5]% due to GPE). The Parties would also overlap in toilet paper ([10-20]%) and object wiping ([10-20]%).

(84) The Parties' main competitors in Germany are Kimberly-Clark with market shares of [20-30]% in toilet paper, [10-20]% in hand wiping and [30-40]% in object wiping as well as Metsä with market shares of [5-10]% in toilet paper, [5-10]% in hand wiping and [30-40]% in object wiping. As regards the napkins market, the Parties would compete with Duni ([30-40]%) and Metsä ([10-20]%).

(85) More significant market shares would be obtained by the merged entity in Austria where the Parties would have a combined market share of [50-60]% in hand wiping ([0-5]% increment due to GPE) and [40-50]% in napkins ([10-20]% increment due to GPE). The Parties would also have a relatively high market share of [40-50]% in object wiping ([0-5]% increment due to GPE).

(86) The Parties' main competitors in Austria are Kimberly-Clark with market shares of [0-5]% in toilet paper, [5-10]% in hand wiping and [10-20]% in object wiping as well as Sofidel with market shares of [0-5]% in toilet paper, [5-10]% in hand wiping. As regards the napkins market, the Parties would continue to face competition from other suppliers including Duni ([20-30]%) and Paloma ([5-10]%).

(87) During the market investigations a number of concerns were raised by customers with respect to the German market. [45] These concerns related mainly to lack of remaining competitors' capacity to increase their production in case the merged entity were to limit its supply to the German market.

(88) In response to these concerns, the Parties provided evidence [46] of spare capacity on the German market. They provided information with regards to 120 mills having spare capacity and operated by 70 potential competing suppliers, all of which are within viable delivery distance to supply Germany.

(89) In addition the Parties underlined that GPE is a minor AFH products supplier on the German market. They also name a number of credible suppliers which post-merger could effectively compete with the Parties, such as Kimberly-Clark, Wepa, Metsä, Sofidel or Duni.

(90) Indeed, further market investigation revealed that some of the Parties' competitors have spare capacity in their plants located in Germany as well as near the German border. What is more, the vast majority of the respondents did not raise concerns with regards the German market.

(91) Based on the above arguments it is concluded that the proposed transaction does not raise serious doubts as regards the markets for the supply of AFH products in Germany and/or Austria.

IV.2.3.8 Hungary

(92) The increment arising from the concentration is low or de minimis in most segments, with the most significant overlaps in hand wiping and object wiping where the combined market shares are [40-50]% ([0-5]% due to GPE) and [40-50]% ([0-5]% due to GPE) respectively. The Parties' main competitors are Merida ([10-20]% and [5-10]% in hand and object wiping respectively) and Forrest ([10-20]% in each of hand and object wiping).

(93) The toilet paper segment will witness only a small increment of [0-5]% in market share due to GPE, leading to a market share of [20-30]%, while the napkins segment will be subject to [5-10]% increment resulting in a combined market share of only [10-20]%.

(94) Given the variety of suppliers present in the market, such as Forrest, Merrida, Kimberly-Clark and Bokk Net that are able to provide a whole range of products and the fact that no concerns were raised during the market investigation, it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of AFH products in Hungary.

IV.2.3.9 The Netherlands

(95) Post transaction the merged entity will have relatively high market shares in napkins (combined [40-50]% with [5-10]% increment due to SCA), object wiping (combined [30-40]% with [5-10]% increment due to GPE) and hand wiping ([30-40]% with [5-10]% increment due to GPE). The main competitors of the merged entity will be Duni in the napkins market ([40-50]%) and Kimberly-Clark in object wiping ([20-30]%) and hand wiping ([30-40]%). Other AFH players on the Dutch market are MTS ([0-5] % in napkins, [10-20]% in object wiping and [10-20]% in hand wiping) and Van Houtum ([5-10]% in object wiping and [10-20]% in hand wiping). [47] The Parties will also overlap in toilet paper but with more limited market shares (combined [20-30]% with [5-10]% increment due to GPE).

(96) The market investigation revealed some concerns in particular with regards to the fact that the transaction would reduce competition in the so-called "high end" or "branded" part of the market where only three players (SCA, GPE and Kimberly-Clark) were said to be present. [48] Some concerns were also raised with regards to the Parties' (hand wiping) locked – in dispenser systems where the Parties seem to closely compete. [49]

(97) The Parties responded to the above concerns by submitting a paper [50] in which they argued that there would remain other credible AFH suppliers competing on the Dutch market post transaction and that all of them provide a wide range of tissue products in order to satisfy different customer specifications and needs. In addition, the Parties argued that based on the bidding data SCA and GPE rarely won contracts against each other.

(98) The Parties also put forward that in practice suppliers are not able to avoid that competitors' AFH tissue products are used in their dispensers. In order to support this argument they provided a copy of one of their Dutch competitors' catalogues [51] in which this competitor demonstrates that its products fit into SCA, Metsä and GPE dispensers.

(99) What is more, the Parties state that even if they had the possibility to lock in their input into the dispensers, this possibility would not be changed by the transaction. This is because GPE's products do not suit SCA's dispensers and vice – versa. In addition, the Parties explain that were they able to lock in some of their customers by means of the dispensers, they would already be extracting maximum payment thereof. Therefore the transaction would not change anything in this respect.

(100) The market investigation to a large extent confirms the above argumentation. Indeed the majority of respondents in the Netherlands did not raise competition concerns with regards to the transaction. Some of the respondents even expect prices to decrease and better product availability due to synergies resulting from the operation.

(101) Moreover the market investigation confirmed that a large number of third parties' AFH products (branded and non-branded) could be used with the Parties' dispensers. Also, the majority of the market respondents were of the opinion that in case of a price increase of high-end/branded products, ultimate customers would switch to "non-branded" AFH products and hence the "low–end" part of the market would put competitive constraint on the "high – end." [52]

(102) Based on the above arguments it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of AFH products in the Netherlands.

IV.2.3.10 Norway

(103) The most significant overlaps are in the object wiping sector ([40-50]%), hand wiping ([40-50]%) and toilet paper ([30-40]%), although the increments are relatively modest ([0-5]% in object wiping, [5-10]% in hand wiping and [5-10]% in toilet paper due to GPE). The Parties submit that Metsä will continue to have by far the largest share on the market. In addition, one of the largest distributors confirmed that it could easily switch suppliers in case of a price increase. [53]

(104) According to Norgesgruppen, one of […] major distributors, any price increase is strongly negotiated with the supplier and it is allowed […] if it is firmly justified. Other respondents indicated that the proposed acquisition could have positive effects with a larger range of products being offered at competitive prices. [54]

(105) Based on the above it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of AFH products in Norway.

IV.2.3.11 Slovakia

(106) The Parties' main overlap is in object wiping with a combined market share of [30-40]% (increment of [5-10]% due to GPE). The Parties argue that Metsä will remain the largest supplier of object wiping products ([30-40]%), followed by other active suppliers such as Kimberly-Clark ([5-10]%) and Sofidel ([5-10]%).

(107) In addition, the merged entity will benefit from a [0-5]% increment from SCA in the napkins sector leading to a combined market share of [20-30]%, but this will be counter-balanced by other competitors such as Duni ([20-30]%), Wilmex ([10-20]%) or Sofidel ([10-20]%). The increments in toilet paper and hand wiping are de minimis ([0-5]% and [0-5]% respectively) and therefore do not lead to substantially increased market shares in these segments.

(108) The market investigation did not raise any competition concerns. Given the low market shares and lack of concerns from the market players it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of AFH products in Slovakia.

IV.2.3.12 Slovenia

(109) The merged entity will have a [30-40]% market share in hand wiping with a small increment of [0-5]% due to GPE. In all other AFH segments, the merged entity's market shares will be lower: [10-20]% in object wiping ([5-10]% increment due to GPE), [10-20] % in toilet paper and [5-10]% in napkins ([0-5]% increments due to GPE for both segments). The Parties submit that the overlap in hand wiping should not raise competition concerns as GPE's sales are not significant and the market is very competitive with Celtex ([10-20]%), Paloma ([10-20]%), Lucart ([10-20]%), Kimberly-Clark ([5-10]%) and Metsä ([5-10]%) as the alternative major suppliers.

(110) The Commission's investigation showed that the market for AFH products in Slovenia is characterised by a diverse and large number of suppliers and that the proposed transaction will not affect product availability. [55] Given the lack of concerns in the market investigation, it is concluded that the proposed transaction does not raise serious doubts as regards the markets for the supply of AFH products in Slovenia.

IV.2.3.13 Sweden

(111) In Sweden, the transaction will lead to the merged entity having relatively high market shares in all AFH categories though the increment in most instances is limited. The merged entity would obtain the most significant market shares in object wiping ([50-60]% with [0-5]% increment by GPE) and hand wiping ([50-60] % with [5-10]% increment due to GPE) leaving Metsä as the only competitor of comparable size ([30-40]% in object wiping and [40-50]% in hand wiping). The other competitors in Sweden are Papper & Plast ([0-5]% and [0-5]% in object and hand wiping respectively), Abena ([0-5]% and [0-5]% in object and hand wiping respectively), Kimberly-Clark ([0-5]% and [0-5]% in object and hand wiping respectively). [56]

(112) The Parties would also obtain significant market shares in toilet paper ([40-50]% combined with [0-5]% increment due to GPE) and napkins ([40-50]% combined with [10-20]% increment due to SCA). Their main competitors for these markets would be Metsä ([50-60]% in toilet paper and [0-5]% in napkins), Abena ([5-10]% in toilet paper), Duni ([40-50]% in napkins) and Celeste ([10-20]% in napkins).

(113) The Parties submitted that the transaction would not raise competition concerns on the Swedish market since the increment is low for all the markets concerned with the exception of napkins [57] The latter, however, are transported over significant distances and therefore they could be imported from neighbouring Member States.

(114) In addition the Parties submit that there are a number of competitors for each type of AFH product, which would exercise competitive constraint on the merged entity.

(115) During the course of the market investigation a limited number of customers raised concerns linked to the fact that the merger in their view would eliminate a cost effective competitor in Sweden in the form of GPE. In particular, one large AFH distributor explained that GPE had a disciplinary role on the two main AFH suppliers in Sweden, namely SCA and Metsä. This customer also stressed that barriers to entry to the Swedish AFH market are particularly high because of the strong position of SCA, Metsä and GPE. [58]

(116) A number of other AFH distributors pointed to the possibility that the transaction could lead to higher prices. These distributors however considered that any eventual price increases would depend on the strategy of the merged entity since at the same time the merged entity could benefit from efficiencies and as a result, the prices of AFH products could decrease. [59]

(117) The Parties responded to the above arguments in a paper submitted to the Commission. [60] They claimed that post–merger the competitive dynamic would not be altered significantly as GPE's share of AFH supply in Sweden is small and dependent on small value contracts with large distributors and that the merged entity will still face credible competitors.

(118) Moreover, the Parties demonstrated, based on the limited bidding data available, [61] that they were not particularly close competitors in Sweden since the tenders lost by SCA and GPE were primarily won by Metsä. In addition the Parties are of the opinion that GPE is not a maverick on the Swedish market.

(119) The argumentation of the Parties has been confirmed by the majority of respondents to the market investigation in Sweden (competitors and customers, including the largest AFH distributors [62] ). These respondents acknowledged that the increment due to transaction is low and they see Metsä and (to a more limited extent) Kimberly-Clark as possible suppliers to the Swedish AFH market.

(120) In addition, some respondents explained that the merger could lead to more efficient logistic chains and that overall they would expect to benefit from these efficiencies in the form of lower prices post transaction.

(121) Taking the above into account it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of AFH products in Sweden.

IV.2.3.14 The United Kingdom/Ireland

(122) As a result of the transaction the Parties will gain relatively high market shares in the United Kingdom/Ireland cluster with regards to hand wiping ([30-40]% with [10-20]% increment due to GPE) and napkins ([20-30]% with [0-5]% increment due to SCA). However in each of these segments the merged entity would continue to face important competitors such as Kimberly-Clark ([20-30]%) and Sofidel ([5-10]%) for hand wiping and Swan Mill ([60-70]%) and Duni ([5-10]%) for napkins.

(123) The transaction will also give rise to overlaps in toilet paper (combined [20-30]% with [10-20]% increment due to SCA), object wiping (combined [20-30]% with [10-20]% increment), health care (combined [20-30]% with [5-10]% increment due to SCA) and other AFH (combined [10-20]% with [0-5]% increment due to SCA).

(124) If national market shares were to be taken into account, the transaction would give rise to relatively high market shares in hand wiping and object wiping in Ireland where the merged entity would be the market leader with market shares of [50-60]% in object wiping ([10-20]% increment due to SCA) and [50-60]% in hand wiping ([10-20]% increment due to SCA).

(125) The main competitors of the merged entity in Ireland would be Kimberly-Clark ([10-20]% and [20-30]% in object and hand wiping respectively) and Accrol ([0-5]% and [0-5]% respectively).

(126) Notwithstanding these market shares, the market investigation did not raise major concerns with regards to any of the AFH markets within the United Kingdom and/or Ireland. The respondents to the Commission's requests for information underlined that the transaction will give rise to efficiencies and there are a number of remaining competitors on the market. [63]

(127) Limited concerns have been raised by one of the Parties' customers in napkins active in UK/Ireland. This customer is of the opinion that post acquisition there could be restriction on napkin competition not only within UK/Ireland but in the whole EEA However, at the same time this customer does not expect significant price changes post transaction in the EEA. [64]

(128) In addition, the market investigation confirmed that napkins (as folded rather than rolled products) travel longer distances than other AFH products and therefore, they could be supplied from a number of locations across different Member States.

(129) Based on the above arguments it is concluded that the proposed transaction does not raise serious doubts as regards the markets for the supply of AFH products in the United Kingdom and/or Ireland.

IV.3. CONSUMER TISSUE ("CT")

IV.3.1 Relevant product market

(130) The Commission has previously defined separate products markets within the consumer tissue sector for toilet paper ("TP"), household towels ("HHT"), handkerchief/facials ("Ha/Fa") and napkins. [65]

(131) For all tissue products, paper producers sell consumer tissue products to retailers which, in turn, sell these products to consumers. Therefore, there are two stages in the supply chain: the upstream procurement level (production and supply of tissue products to retailers) and the downstream retail level (sale of products to consumers). Within the CT category, the Parties are only active at the upstream production and supply level.

(132) There are two "categories" of consumer tissue products: "branded CT products" (also referred to as "manufacturer brands") and "private labels" (also called "retailer brands"). The two categories of products are sourced by retailers via different procurement procedures, though they are displayed next to each other on the shelves at the retail level. [66] The Parties produce both branded CT products and private labels.

(133) The market investigation broadly confirmed that at the retail level, branded CT products and private labels compete on the shelves and are part of one single market. However, for the purposes of this case it is not necessary to define this market as the Parties are not active at the retail level. Nevertheless, as explained further below in this decision, the competitive interaction between branded CT products and private labels at the retail level (on retailers' shelves) is crucial for the competitive assessment of the notified transaction.

(134) The market investigation carried out by the Commission, has broadly confirmed that at the upstream production and supply level branded products and private labels belong to separate markets.

(135) Although there is high supply-side substitutability between the production of branded products and private labels, the market investigation confirmed that only some consumer tissue producers supply both private labels and branded products, in particular, private label producers do not always supply branded products. [67] In SCA/P&G the Commission found that the reason for this is that there is a relatively high entry cost into the branded segment of the market, with considerable investment and time needed to build a brand and raise consumers' awareness thereof. [68] The outcome of the market investigation in the present case does not contradict the Commission's earlier findings in the SCA/P&G decision.

(136) As a result, the competitive interaction at the procurement level between producers of branded products and producers of private labels is asymmetric and very partial: the former can exert competitive pressure on the latter, but not vice-versa. Moreover, if one also considers that producers' margins are typically higher for branded CT products than for private label products, it appears that manufacturers producing both branded and private labels would therefore normally prefer to use their capacity for production of branded products. As a result, the owners of strongly positioned tissue brands have a clear focus on branded CT production and mostly produce private labels to the extent necessary to utilise spare production capacity and gain economies of scale. [69]

(137) Finally, the market investigation has also confirmed the findings in SCA/P&G as regards the different procurement processes for branded tissue and private labels. [70]

(138) Accordingly, for the purpose of this decision, the markets for the supply of consumer tissue products should be divided into (i) the production and supply of manufacturer brands/CT branded products and (ii) the production and supply of private labels/retailer brands. All of the above is applicable separately to the four categories of tissue products (TP, HHT, Ha/Fa and napkins).

(139) However, it must be reiterated and highlighted that, although the focus of the competitive assessment is on the upstream separate markets as defined above and in which the Parties are directly active, the competitive interaction at the downstream retail level (i.e. on supermarkets' shelves) between manufacturer/branded products and retailer/private labels is crucial for the assessment of the case. [71]

IV.3.2 Relevant geographic market

(140) As regards the geographic scope of these markets, the Commission has typically found the relevant CT markets for the production and supply of branded products to be national in scope or to encompass several countries or "country clusters" which present similar features (language, retail chains, consumer preferences, brands, etc.). [72] As regards the production and supply of retailer brands, the Commission has considered it as being broader than national but narrower than the EEA. [73]

(141) The Parties endorse this approach and argue that the Baltic States, Belgium/Luxembourg, Greece/Cyprus and the UK/Ireland should be considered as country clusters. [74]

(142) The Commission has therefore assessed the present case on the basis of the market definition proposed by the Parties i.e. national or based on a number of "country clusters". The market investigation has not contradicted the Parties' proposals except for the Baltic States. As regards the Baltic States the market investigation has pointed to some elements that could indicate a separate assessment based on national markets, such as the fact that the leading retailers are partly different and the language is not the same for the countries. [75]

(143) However, the precise scope of the geographic market for the Baltic States can be left open since it will not change the outcome of the competitive assessment of the proposed concentration.

IV.3.3 Competitive assessment

Markets without serious doubts

IV.3.3.1 The Baltic States

IV.3.3.1.1 Production and supply of branded CT products

(144) In the Baltic States the Parties overlap in branded TP, HHT and Ha/Fa.

(145) In both TP and HHT, the Parties have combined market shares of [20-30]%. In addition, Grigiskes in TP and Metsä in HHT will remain strong suppliers with a share of [20-30]% and [20-30]%.

(146) Post transaction the Parties would have relatively high combined market share of [50-60]% in Ha/Fa in the Baltic States. However, the overlap due to GPE is limited at [0-5]%. The Parties' main competitors on this market would be Kimberly-Clark ([20-30]%) and Metsä ([5-10]%).

(147) Should separate countries constituting the Baltic States be considered, the transaction gives rise to more significant market shares in Estonia in Ha/Fa of [70-80]% with an [5-10]% increment due to GPE and [40-50]% in HHT with an [10-20]% increment due to SCA.

(148) The Parties submit that no competition concerns will arise in the Baltic States for the following reasons: (i) a number of strong alternative consumer tissue manufacturers currently and will continue to supply products to retailers; (ii) the existing overcapacity in Europe means that there is no shortage of suppliers able to supply retailers with sufficient quantities of product and (iii) Kimberly-Clark and others will remain as strong branded CT products suppliers, including Metsä, ES Horizon and Sofidel.

(149) The market investigation has confirmed that the supply of branded CT products is and will remain competitive in the Baltics States since there are many alternative suppliers [76] even for Ha/Fa. [77]

(150) On the basis of the foregoing and given that the market investigation has not raised concerns, the Commission has concluded that the transaction does not raise serious doubts as regards the markets for the supply of branded CT products in the Baltic States considered as a whole or individually.

IV.3.3.2 Belgium/Luxembourg

IV.3.3.2.1 Production and supply of branded and private label CT products

(151) In Belgium/Luxembourg, the Parties overlap in the supply of branded TP, HHT and Ha/Fa. They also overlap in the supply of private label TP and HHT.

(152) In the supply of branded TP, the market investigation has not raised any concerns. Even if the merged entity would have a market share of [60-70]% (SCA: [5-10]%, GPE: [50-60]%), the increment from the merger is relatively small and it seems that the market will remain competitive with sufficient constraint from the brands of Kimberly-Clark ([30-40]%) and other small competitors (Renova: [0-5]%, Sofidel: [0-5]%, Wepa: [0-5]%). As regards branded HHT, the same conclusion applies: the high combined market share of the Parties ([70-80]%) is counterbalanced by a marginal market share increment ([0-5]% by SCA) and the presence of Kimberly-Clark ([10-20]%), Renova ([0-5]%) and Sofidel ([0-5]%). Moreover, respondents to the market investigation have not raised any issues in this regard. Finally, the combination of the Parties in the supply of branded Ha/Fa did not raise any concerns mainly due to the low combined market share of [20-30]% (SCA: [10-20]% and GPE: [10-20]%), far behind Kimberly-Clark, the market leader ([70-80]%).

(153) As regard the supply of private label TP, the Parties would hold [50-60]%. However, the increment in market share is marginal ([0-5]% by GPE), and a significant number of other players continue to be present in the market, namely Metsä ([10-20]%), Sofidel ([5-10]%), Wepa ([0-5]%), Kimberly-Clark ([0-5]%) along with other small suppliers representing [10-20]% of the market. Also in this regard, the market investigation has confirmed the absence of concerns.

(154) Finally, the same conclusion would apply to the supply of private labels HHT where the merged entity would have a market share of [30-40]%. The market share increment is marginal ([0-5]% by GPE) and the market will remain sufficiently fragmented with the market leader, Metsä ([40-50]%) as well as Sofidel ([10-20]%) and "others" ([5-10]%).

Table 1: Market shares in CT branded products (Belgium/Luxembourg)

Belgium/luxembourg 2010 value |Supplier |Supply of branded ct products (%) |

TP |SCA |[5-10] |

|GPE |[50-60] |

|Combined |[60-70] |

|Kimberly-Clark |[30-40] |

|Renova |[0-5] |

|Sofidel |[0-5] |

|Wepa |[0-5] |

HHT |SCA |[0-5] |

|GPE |[70-80] |

|Combined |[70-80] |

|Kimberly-Clark |[10-20] |

|Renova |[0-5] |

|Sofidel |[0-5] |

Source: Form CO

Table 2: Market shares in private label CT products (Belgium/Luxembourg)

Belgium/luxembourg 2010 value |Supplier |Supply of private labels (%) |

TP |SCA |[50-60] |

|GPE |[0-5] |

|Combined |[50-60] |

|Others |[10-20] |

|Metsä |[10-20] |

|Sofidel |[5-10] |

|Wepa |[0-5] |

|Kimberly-Clark |[0-5] |

HHT |SCA |[30-40] |

|GPE |[0-5] |

|Combined |[30-40] |

|Metsä |[40-50] |

|Sofidel |[10-20] |

|Others |[5-10] |

Source: Form CO

Concerns with regards to possible portfolio effects

(155) During the course of the market investigation, however, some concerns were raised as regards possible portfolio effects covering TP and HHT. [78]

(156) One of Belgium's major retailers expressed concerns stemming from the combination of SCA's strong position in the supply of TP and HHT private labels and GPE's strong position in the supply branded TP and HHT (with its Lotus brand). According to this retailer the high share of GPE brand ([70-80]% in HHT and [50-60]% in TP) in Belgium might give the merged entity incentives to raise its prices. This is because such price increase could (at least in part) be passed on by the retailers to consumers. Consequently, these consumers would partly switch their purchases to CT private labels. As a result, the merged entity would gain from the additional volumes sold, since SCA has high share of CT private labels in Belgium ([50-60]% in TP and [30-40]% in HHT). In other words, incentives might change post-merger, as SCA could "recapture" some sales of private labels to customers that pre-merger would have been lost for GPE.

(157) The Parties provided additional evidence [79] to dismiss the possibility of the transaction raising such portfolio effects.

(158) First, the large majority of SCA's private label sales in Belgium are to retailers (hard discounters) that do not sell manufacturers' brands, namely […] and […], which account for at least […]% of SCA's HHT sales and at least […]% of SCA's TP sales. [80] It would therefore be inappropriate to view SCA's share of private labels TP and HHT as indicative of the ability to recapture diverted TP and HHT volumes.

(159) Second, even where the in-store increment is large (i.e. high purchases of private labels from SCA in addition to high purchases of a branded product from GPE), this does not mean that a retailer would allow a higher manufacturer brand price post-merger, as it could simply switch (or credibly threaten to switch) private label procurement to a supplier other than SCA, thereby impeding the merged entity from recouping losses through this channel. This is possible because the private label sector in Belgium is very competitive. [81] There are a number of private label manufacturers that supply, or could supply, the Belgium market. As it is shown by the Table above, Metsä, Sofidel, Wepa and others already supply the Belgium market. There are at least 10 other tissue manufacturers that are well placed to enter or expand the supply of private labels HHT and TP in Belgium as they have spare capacity and are located within a 500 km radius of Brussels, a distance over which private label products can be efficiently transported.

(160) In addition, switching costs are negligible in the case of private labels because retailers own and control the specifications of the products and suppliers with spare rolled conversion capacity are able to meet these requirements without difficulty. The evidence of such switching has just occurred since […].

(161) Finally, retailers contacted during market investigation indicated that high wholesale prices are generally not accepted unless objectively justified (e.g. raw material costs). This is because retailers are (at least partly) constrained in their ability to "pass on" price increases to final consumers (due to competition from other retailers). [82]

Conclusion

(162) In view of the above, and in particular of the high level of competition in the market for the supply of private label TP and HHT in Belgium, it is considered that the proposed transaction does not raise serious doubts in Belgium/Luxembourg for the supply of manufacturer brands and retailer brands whether considered individually or in combination.

IV.3.3.3 Denmark

IV.3.3.3.1 Production and supply of branded TP and HHT

(163) In Denmark, the Parties' combined market share in TP is [30-40]% with [0-5]% increment due to SCA. The Parties' main competitors on this market are Metsä ([30-40]%) and Kimberly-Clark ([20-30]%).

(164) As regards HHT the transaction would not lead to an affected market as the Parties' combined market share is only [10-20] % with a negligible overlap of [0-5] %.

(165) The Parties submit that no competition concerns will arise on this market for the following reasons: (i) retailers will continue to have a significant choice of suppliers for the supply of their branded CT products from suppliers including Kimberly-Clark, Metsä, Wepa and Sofidel; (ii) SCA supplies only small volumes of branded CT products; (iii) products supplied are currently manufactured in numerous countries (Sweden, Norway, Germany, Austria and Hungary) and (iii) the existing overcapacity and proximity to other EEA countries means that there is no shortage of suppliers able to supply retailers with sufficient quantities of product as demonstrated by new entrants Vajda and Grigiskes.

(166) The market investigation has confirmed that the supply of branded CT products is and will remain competitive in Denmark based on the fact that a number of strong alternative suppliers supply products to retailers, [83] namely Metsä or Kimberly-Clark.

(167) On the basis of the foregoing and, in particular, that the market investigation has not raised concerns, it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of branded CT products in Denmark.

IV.3.3.4 Finland

IV.3.3.4.1 Production and supply of private label CT products

(168) In Finland, the Parties' combined market share in TP is [30-40]% (increment of [20-30]% due to GPE). Metsä will remain the largest supplier with a share of [30-40]%. Wepa has entered the market and has a share of [20-30]%. In HHT, the Parties' combined market share is [30-40]% (increment of [20-30]% due to GPE). Wepa will remain the largest supplier with a share of [40-50]% and Metsä has a share of [20-30]%. In Ha/Fa, the Parties' combined market share is [20-30]% (increment of [20-30]% due to GPE). Metsä will remain the largest supplier with a share of [30-40]%

(169) The Parties submit that private labels account for [10-20]-[20-30]% of total volumes in the relevant product markets and that no competition concerns will arise on this market for the following reasons: (i) the market is characterised by very significant retailer concentration and significant retailer buying power; (ii) branded CT products predominate and private labels represent only a small portion of the consumer tissue market and (iii) the market has two major suppliers (Metsä and GPE) both of which have local production facilities.

(170) The market investigation has confirmed that the supply of private labels is and will remain competitive in Finland due to the fact that there is another strong competitor, namely Metsä with the same capacity as GPE and SCA [84] and the transaction will not increase SCA and GPE's negotiating power. [85]

(171) In view of all of the above and of the fact that no competition concerns were raised with regard to this market, it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of private label CT products in Finland.

IV.3.3.5 France

IV.3.3.5.1 Production and supply of private label CT products

(172) The Parties overlap in the supply of private labels to retailers in France. In TP, the Parties' combined market share is [40-50]% with [10-20]% increment due to GPE. The main competitors are Wepa ([10-20]%), followed by Lucart and Sofidel each with [10-20]%. In HHT, the Parties' combined market share is [40-50]% (increment [10-20]% due to GPE), with competitors such as Sofidel ([20-30]%) and Lucart ([10-20]%). In Ha/Fa, the Parties' combined market share is [30-40]% (increment [5-10]% due to GPE) and the main competitors are Sofidel ([20-30]%), and Wepa ([10-20]%). In napkins, the Parties' combined market share is [50-60]%, (increment of [0-5]% due to SCA) with Metsä ([5-10]%), Wepa ([0-5]%) and others ([30-40]%).

Table 3: Market shares in private label CT products (France)

France 2010 value |Supplier |Supply of private labels (%) |

TP |SCA |[30-40] |

|GPE |[10-20] |

|Combined |[40-50] |

|Wepa |[10-20] |

|Sofidel |[10-20] |

|Lucart |[10-20] |

|ICT |[5-10] |

|Metsä |[5-10] |

|Systemhandel |[0-5] |

HHT |SCA |[20-30] |

|GPE |[10-20] |

|Combined |[40-50] |

|Sofidel |[20-30] |

|Lucart |[10-20] |

|Wepa |[5-10] |

|Metsä |[5-10] |

|ICT |[0-5] |

Ha/Fa |SCA |[30-40] |

|GPE |[5-10] |

|Combined |[30-40] |

|Kimberly-Clark |[5-10] |

|Sofidel |[20-30] |

|Wepa |[10-20] |

|ICT |[5-10] |

|Systemhandel |[0-5] |

|Lucart |[0-5] |

|Metsä |[0-5] |

Napkins |SCA |[0-5] |

|GPE |[50-60] |

|Combined |[50-60] |

|Metsä |[5-10] |

|Wepa |[0-5] |

|Others |[30-40] |

Source: Form CO

(173) The Parties submit that no competition concerns will arise in France for the following reasons: (i) the retail environment is highly competitive and have large powerful retailers; (ii) the merged entity will continue to face competition from Kimberly-Clark, Sofidel and Renova, in addition to private labels and (iii) the existing capacity of all players (including ICT, Lucart, Sofidel and Wepa) together with upcoming additional capacity from ICT and Sofidel puts pressure on the market and ensures no shortage of suppliers able to supply retailers with private labels.

(174) During the market investigation, Agenor, a buying group for Intermarché, Edeka and Eroski, has expressed concerns that all private label products will be impacted by the transaction as there would be a reduction in the number of suppliers of CT products manufactured with the Through-Air Drying ("TAD") technology. [86]

(175) The market investigation has confirmed that, in Europe, there are few suppliers that have the TAD technology and these are SCA, GPE, Sofidel and Kimberly-Clark. [87]

(176) However, the TAD technology does not appear to be a proprietary technology. According to the Parties, as well as the market respondents, the use of this technology is limited because it uses more energy (as compared to traditional technology) which, given the ever increasing energy costs, has a repercussion on the production costs. Therefore, investment in TAD technology is less attractive to producers.

(177) Further, retailers seeking alternative suppliers of private labels could turn to Sofidel, Wepa or Metsä tissue. Sofidel also supplies CT products with TAD technology. Finally the market investigation has not confirmed the concerns expressed by Agenor. The Commission therefore concludes that no serious doubts are likely to arise in the private label HHT market.

(178) Further on the basis of the de minimis overlap in napkins and the lack of concerns expressed during the market investigation with regards to TP, Ha/Fa and napkins, it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of private label CT products in France.

IV.3.3.6 Greece/Cyprus

IV.3.3.6.1 Production and supply of branded CT products

(179) In Greece, the Parties' activities overlap in the supply of branded CT products to retailers with the following combined market shares; TP ([20-30]%, with [10-20]% increment due to GPE), HHT ([40-50]%, with [20-30]% increment due to GPE), Ha/Fa ([30-40]%, with [10-20]% increment due to GPE) and napkins ([20-30]%, with [10-20]% increment due to GPE).

(180) The Parties submit that no competition concerns will arise on this market for the following reasons: (i) many suppliers will continue to be present on the market and (ii) there is a potential for other suppliers to develop branded CT products if demand exists.

(181) The market investigation has confirmed that the supply of branded CT products is and will remain competitive in Greece based on the number of strong alternative suppliers [88] , namely Kimberly-Clark, Renova or Vassilopoulos and that the trend is for a greater role for private labels which constitute a competitive alternative to private labels in terms of quality and price compared to branded product. [89]

(182) In view of the above and in the absence of competition concerns during the market investigation, it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of branded CT products in Greece.

IV.3.3.6.2 Production and supply of private label CT products

(183) In Greece, the combined market shares of the Parties are low in TP ([10-20]%) and HHT ([0-5]%). The combined entity would have only a [0-5]% market share in napkins and there would be no increment in market share. Consequently, these market shares do not result in any affected markets.

(184) As a result, it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of private label CT products in Greece/Cyprus.

IV.3.3.7 Spain

IV.3.3.7.1 Production and supply of branded Ha/Fa

(185) The Parties’ activities overlap in relation to the production and supply of branded Ha/Fa. The combined market share of the Parties for Ha/Fa would amount to [30-40] % as SCA has a market share of [10-20]% and GPE a market share of [20-30]%. Kimberly-Clark will remain the largest supplier with a share of [40-50]% in Ha/Fa.

(186) The Parties submit that no competition concerns will arise on this market for the following reasons: (i) a number of strong alternative suppliers supply products to retailers, namely Kimberly-Clark, Gomà-Camps, Renova, Sofidel, ICT and others; (ii) there is an existing over-capacity which means that there are suppliers, including from neighbouring regions, able to supply retailers in Spain with sufficient quantities of products and (iii) retailers will continue to have a choice of suppliers for the supply of their branded CT product and private labels.

(187) The market investigation has confirmed that the supply of branded products is and will remain competitive in Spain since there will remain a number of strong alternative suppliers, [90] and the transaction will not increase SCA and GPE's negotiating power [91] .

(188) On the basis of the foregoing and, in particular, on the lack of concerns, it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of branded CT products in Spain.

IV.3.3.7.2 Production and supply of private label TP

(189) SCA has a strong position in the supply of private label CT in Spain due to one contract with a major supermarket group. However, the Parties' activities overlap only in the supply of private labels to retailers in TP ([50-60]% combined market share with [0-5]% increment).

Table 4: Market shares in private label CT products (Spain)

Spain 2010 value |Supplier |Supply of private labels (%) |

TP |SCA |[50-60] |

|GPE |[0-5] |

|Combined |[50-60] |

|Sofidel |[0-5] |

|ICT |[10-20] |

|Kartogroup Espana |[10-20] |

|Gomà-Camps |[5-10] |

|Wepa |[5-10] |

|Cartiera Lucchese |[0-5] |

|Others |[0-5] |

Source: Form CO

(190) During the market investigation, one customer expressed concerns that all private label products will be impacted by the transaction due to the fact that there are already very few suppliers in the CT sector and that the transaction will lead to a reduction in the number of suppliers. [92]

(191) However, as seen from the Table above, there is only a de minimis overlap as GPE’s market share is [0-5]% and that the market investigation has not raised further major concerns. In addition, there remain a number of private label suppliers with important market shares on the Spanish TP market, such as ICT ([10-20]%), Kartogroup Espana ([10-20]%) and Gomà-Camps ([5-10]%).

(192) In light of the above, it is concluded that the transaction does not raise serious doubts as regards the markets for the supply of private label CT products in Spain.

Markets with serious doubts

IV.3.3.8 The Netherlands

(193) In the Netherlands, the Parties' activities overlap in the supply of branded TP, HHT and Ha/Fa. They also overlap in the supply of private label HHT.

(194) The market investigation did not raise concerns as regards branded TP. The Parties would have a combined market share of [30-40]%, with a relatively low increment ([5-10]% by GPE). The market leader is Kimberly-Clark with a [60-70]% market share. Kimberly-Clark is a strong competitor, whose market share has steadily increased over the last few years (from [40-50]% in 2008 to [60-70]% in 2010). The same conclusion applies to the supply of branded Ha/Fa where the combined market share of the Parties is [40-50]%, the increment by GPE ([0-5]%) is de minimis and Kimberly-Clark remains the market leader with [50-60]% of the Dutch market.

(195) However, a number of market respondents raised concerns in the supply of branded HHT and the supply of private label HHT in particular that produced with the TAD technology. These markets are assessed below.

IV.3.3.8.1 Production and supply of branded HHT

(196) The Table below shows the parties' and their main competitors' market shares based on value in the Netherlands.

Table 5: Market shares in branded HHT products (Netherlands)

The Netherlands |Supplier |Supply of branded products |

2010 | |(%) |

value | | |

HHT |SCA |[10-20] |

|GPE |[50-60] |

|Combined |[70-80] |

|Kimberly-Clark |[20-30] |

Source: Form CO

(197) The new entity would have a relatively high market share on the market for the supply of branded HHT. The Parties' combined market share (in value, 2010) is [70-80]%, with the next competitor Kimberly-Clark, representing [20-30]%. Therefore, on this market, the transaction would bring together the market leader and one of its main competitors with a very sizeable market share increment. Kimberly-Clark would account for a (comparatively) lower market share and left as the only alternative.

(198) The flagship HHT brand owned by GPE is Lotus. SCA supplies HHT under the Plenty brand (formerly Edet). Kimberly-Clark's brand is Page.

(199) The Parties advanced a number of arguments to demonstrate that their high and long-lasting market shares could be mitigated by the following factors: (i) the Dutch market is characterised by a high level of penetration of private labels that constraint the manufacturers of branded products; (ii) the market is characterised by very significant retailer concentration and buyer power: the top 5 retailers account for [60-90] % of all consumer tissue sales [93] ; and (iii) a number of different consumer tissue manufacturers currently, and will continue to, supply branded products to retailers.

(200) However, during the market investigation, [94] a number of customers have expressed concerns with respect to branded HHT in the Netherlands. The analysis of the data and of the qualitative information provided by the Parties and/or gathered by the Commission corroborates the result of the market investigation.

Lack of significant competition constraints on SCA and GPE by private labels

(201) Although according to the Parties, private labels account for around [80-90]% of sales of HHT by volume and [70-80]% by value, [95] this level of penetration has remained relatively steady, implying that brands have managed to maintain their strength during the last few years. The graph below shows that the HHT Dutch market is relatively mature and steady, with no important developments during the last few years..

Graph 1: Analysis of private level penetration compared to top 3 brands in the Netherlands

[…]

Source: Commission analysis based on Nielsen data

(202) The respective market shares of branded HHT fluctuate only over the short term due to the significant level of promotions.

(203) The Parties have put forward the importance of promotion in driving short term share in the Netherlands where [50-80]% of branded HHT were sold on promotions in 2011. [96] End-customers would tend to buy on promotions and stock that brand. The Parties therefore stressed that promotions are key for branded products to gain volumes in the face of competition towards lower priced retailer brands. Failure to gain promotional slots would have a significant adverse impact on volume share within a given retailer [97] and could even trigger de-listing due to insufficient rotation and use of shelf space for the retailer. [98]

(204) The graphs below, based on Nielsen data for 2011 for two of the largest supermarket chains in the Netherlands support the views that the vast majority of volumes of the branded goods are sold during promotions and that generally supermarkets set a fix and non-overlapping number of promotional slots within one year and manufacturers of the brands compete for those slots.

Graph 2: Analysis of interactions between sales and promotions in two biggest supermarkets in the Netherlands

[…]

Source: Commission analysis based on Nielsen data

(205) The high peaks of branded products sales at certain moments and the relatively much lower and flatter sales in periods without promotions is indicative of consumers' stocking behaviour. These trends are not indicative however of demand substitution between the various brands on the market as it is not clear whether final consumers buy and stock any brand that is promoted or whether they wait until their most preferred brand is promoted before replenishing their stocks. In that respect, all brands behave similarly and the promotions on HHT branded products do not normally coincide. In any event, the level of sales of branded HHT remains stable on a long term basis.

(206) The Parties have attempted to analyse short-term switching patterns between manufacturer branded HHT and private labels. They found that in promotion periods, when only one brand is promoted, other brands do increase their sales to any significant degree, but to the extent that there is a switch to the promoted brand it comes mainly from private labels. However Nielsen data seem to indicate that HHT products are vertically differentiated on a scale from very low priced retailer brands to very expensive variants of the manufacturer brands. In this setting, switching from private labels to manufacturer brands during promotions is not indicative for demand substitution as the vertical differentiation intuitively induces migration to higher quality products when the price gap is reduced. On the contrary, if indeed private labels were to constrain significantly the manufacturer brands, one should observe a certain percentage of consumers switching to private labels when the relative price of manufacturer brands increases (during private labels promotions for example). However, evidence in this direction is extremely limited. It is not surprising though that short term switching patterns are not conclusive for either substitution among manufacturer brands or substitution between brands and private labels, as the sales of the brands are very low during non-promotion periods. Competition in this market seems to be concentrated on fighting for promotional slots against the rival brands rather than fighting for customers from other brands during promotions.

(207) The market investigation has confirmed that brand manufacturers compete against each other for promotions slots. Moreover, it also indicated that a certain percentage of end-consumers only purchase branded HHT, independently of promotions. Hence retailers cannot do without the brands and, in order to maintain competition on the branded segment, they need to multi-source.

(208) In a multi-sourcing environment, in order to benefit from competitive wholesale prices retailers generally confirm that they need to have three suppliers of manufacturer HHT brands.

(209) Furthermore, an additional argument put forward in the market investigation by some important retailers is the fact that they use the price in the branded segment as a benchmark for pricing their private labels. This shows the key role of the branded segment competition in maintaining the overall competitiveness in the HHT market.

(210) Given the above, it cannot be concluded that the Dutch market is characterised by strong competitive constraints exerted by private labels on branded products that could dispel the serious doubts raised by the market investigation as regards the impact of the proposed transaction on branded HHT.

Lack of sufficient countervailing buyer power

(211) The Parties argued that retailers have strong buyer power. In the Netherlands [60-70]% [99] of overall HHT sales are made through only three retailers groups/purchasing organizations: (i) AMS for the Albert Heijn (ICA/Ahold) retail chains; (ii) Superunie for, inter alia, Boni, Coop, Hoogvliet, Spar and (iii) Bijeen, for, inter alia, CT 1000, Jumbo. Retailers can and do actually delist. They can reduce the available promotional slots that are a key factor for driving sales and can easily switch to increasing their private labels' offers at the expense of branded products as consumers' choice is largely dependent upon price.

(212) However, major retailers in the Netherlands have indicated [100] that a three to two merger in the market for the supply for branded HHT would trigger limited competition and fewer alternatives to the detriment of final customers. Most of the retailers negotiate with all three main suppliers (GPE, Kimberly-Clark and SCA) for the procurement of HHT branded products and most of them have a multi-sourcing strategy, with a significant number of retailers displaying the three brands on their shelves. [101] The leverage given by the existence of a third alternative supplier would therefore disappear as a result of the transaction. The loss of negotiation power would increase the risk that the wholesale price would go up.

(213) It is not sufficient that buyer power exists prior to the merger; it must also exist and remain effective following the merger. This is because a merger between two suppliers may reduce buyer power if it thereby removes a credible alternative. [102] In the Commission's view, a significant supply alternative will be removed and the choice will be limited as the Parties would have […] of current sales in the market for branded HHT with no other rival than Kimberly-Clark.

(214) In conclusion post-merger countervailing buyer power does not seem sufficiently strong to offset the potential adverse effects resulting from this transaction.

Lack of market entry

(215) The Parties have argued that manufacturers in neighbouring countries (such as Belgium) could easily supply Dutch retailers if demand exists. In addition, the existing over capacity in the regions means that there is no shortage of suppliers able to supply retailers with sufficient quantities of products.

(216) However, most of the market respondents indicated that they would not have any other alternatives as they do not expect any entry in the near future. Furthermore, Nielsen data indicates that the HHT market in the Netherlands is a mature market, with no significant entry or development during the last few years.

(217) The lack of successful entry in the market and the confirmation from the market investigation that no entry has been and would be successful in the near future in the Netherlands therefore leads to the conclusion that market entry would not be likely to offset the potential adverse effects resulting from this transaction.

Conclusion

(218) In view of the above, the Commission considers that the transaction as originally notified raises serious doubts as to its compatibility with the internal market with respect to the market for the supply of branded HHT in the Netherlands.

IV.3.3.8.2 Production and supply of private label HHT

(219) The Table below shows the Parties' and their main competitors' market shares based on value in the Netherlands.

Table 6: Market shares in private label CT products (Netherlands)

The Netherlands 2010 value |Supplier |Supply of private labels (%) |

HHT |SCA |[10-20] |

|GPE |[20-30] |

|Combined |[30-40] |

|Wepa |[50-60] |

|Sofidel |[0-5] |

|Metsä |[0-5] |

Source: Form CO

(220) As can be seen from the above Table, the new entity would have a market share just below [40-50]% on the market for the supply of private labels HHT. The market leader is Wepa with [50-60]%. Sofidel has [0-5]% and Metsä only [0-5]%.

(221) The Parties did not consider that the present concentration would have a significant impact on competition on the supply of private label HHT in the Netherlands for a number of reasons. First, there is a significant retailer concentration and buyer power (the top 5 retailers account for [60-90] % of all consumer tissue sales [103] ). In 2011, more than [90-100]% of each of SCA and GPE's private label HHT sales was made through one customer ([…] in the case of SCA and […] in the case of GPE). [104] Secondly, Wepa is very successful as demonstrated by its market shares that have increased substantially since 2008 [105] from [20-30]% to [50-60]% in 2010 (in value). Thirdly, there is an abundance of private labels' manufacturers that currently, and will continue to, supply retailers. Fourthly, the existing over capacity in the region means that there is no shortage of suppliers able to supply retailers with sufficient quantities of products. Fifthly, manufacturers in neighbouring countries (such as Belgium) can easily supply Dutch retailers if demand exists.

(222) The majority of respondents to the market investigation has confirmed the Parties' views as to the competitive assessment of the transaction and have not raised any concerns as regard the supply of private labels HHT.

Through-Air Drying technology

(223) In the market investigation, a large retail chain in the Netherlands, has raised concerns [106] regarding the transaction, as it would decrease the numbers of suppliers that have TAD technology. TAD is a technology, which due to a specific and dedicated paper machine allows for the wet tissue sheet to be dried by blowing hot air through it instead of being dried on a hot cylinder. As a consequence of this drying, HHT is much stronger and absorbent.

(224) In the Netherlands, this customer is supplied almost exclusively by SCA with private labels HHT. That customer claims that it would hardly have any leverage in its negotiations with SCA, should the merged entity, post-transaction, raise its price in TAD HHT. The only alternative suppliers would be GPE and Sofidel, but none of them are credible suppliers.

(225) The market investigation [107] has confirmed that, in Europe, there are relatively few suppliers that have the TAD technology and these are SCA, GPE, Sofidel and Kimberly-Clark. Most importantly, it has supported the Parties' claims [108] that the Parties are not important competitors as regards the supply of private label TAD HHT and that the TAD technology does not lead to the production of clearly consumer preferred products in the Netherlands for a number of reasons. First, TAD technology has a low level of penetration in the Netherlands. Second, the Parties do not overlap as GPE does not, and has not over the past three years, supplied private labels TAD HHT in the Netherlands. [109] Third, the production technology used to generate HHT is not reported on the packaging. Dutch consumers therefore do not distinguish between HHT based on the technology used. [110] Fourth, the TAD technology does not appear to be a proprietary technology. According to the Parties as well as to the market respondents, the use of this technology is limited because it uses more energy (as compared to traditional technology) which, given the ever increasing energy costs, has a repercussion on production costs. Therefore, investment in TAD technology is less attractive to producers.

Conclusion

(226) In view of the above, the Commission considers that the proposed transaction does not raise serious doubts as regards the market for the supply of private label HHT in the Netherlands.

IV.3.3.9 Sweden

(227) In Sweden, the Parties overlap in the supply of branded TP and HHT. They also overlap in the supply of private label TP and HHT.

(228) For branded TP and HHT, the Parties would have a combined market share of [30-40]% for TP and [20-30]% for HHT with only a marginal market share increment ([0-5]% by GPE for each of TP and HHT).

(229) On the basis of the de minimis overlap and the lack of concerns expressed during the market investigation with regards to these markets, the Commission has concluded that the transaction does not raise serious doubts in the markets for branded TP and HHT in Sweden.

(230) However, the transaction raised concerns in the supply of private label TP and HHT. These markets are assessed below.

IV.3.3.9.1 Production and supply of private label TP and HHT

(231) The Parties’ activities in relation to the production and supply of private label overlap in relation to TP and HHT. The Table below shows the Parties' and their main competitors' market shares based on value in 2010. In the market for TP, the Parties' combined market shares would be high ([60-70]%) with Metsä a distant second ([10-20]%) and Wepa in third position with [10-20]%. In the market for HHT, the Parties' combined market shares would be even higher ([60-70]%) with Metsä a distant second ([10-20]%) and Wepa in third position with [10-20]%.

Table 7: Market shares in private label CT products (Sweden)

Sweden |Supplier |Supply of private label |

2010 | |(%) |

value | | |

TP |SCA |[40-50] |

|GPE |[20-30] |

|Combined |[60-70] |

|Metsä |[10-20] |

|Wepa |[10-20] |

|Sofidel |[0-5] |

HHT |SCA |[40-50] |

|GPE |[20-30] |

|Combined |[60-70] |

|Metsä |[10-20] |

|Wepa |[10-20] |

Source: Form CO

(232) The Parties submit that no competition concerns will arise on these markets for the following reasons: (i) high retail concentration and buyer power; (ii) the existence of alternative suppliers that will continue to be present on the market (namely Metsä, Sofidel and Wepa) and (iii) the existing overcapacity in Europe means that there is no shortage of suppliers able to supply retailers with sufficient quantities of product. [111]

(233) However, a number of customers and competitors have expressed concerns with respect to the production and supply of private label TP and HHT in Sweden. In fact, customers considered that it is hard to find suppliers and stressed the importance of having a conversion plant (i.e. the capability of converting parent reels into final tissue products) in the region. [112] The market investigation also indicated that unlike many other European countries, the capacity utilization is high in the Nordic region. [113] It was further confirmed that besides the Parties, only Metsä has conversion plants for TP and HHT in the Nordic countries. [114]

(234) The following sections assess the markets for production and supply of private label TP and HHT in Sweden. As the situation is the same for both markets concerned they will be discussed jointly.

Transport costs

(235) The Parties argue that both Sofidel and Wepa will continue to be present on the market for the supply of private label TP and HHT. However, neither Sofidel nor Wepa has conversion plants for TP and HHT in the Nordic countries. [115] Sofidel's tissue mill, used for the supply of private label TP and HHT to Sweden is located in Arneburg in Germany, [116] 832 km [117] from Stockholm. The supply from Wepa also comes from their mills in Germany. [118]

(236) Transport costs constitute a significant obstacle to supplying converted products over large distances due to the fact that tissue products are characterised by a high volume-to-value ratio. Consumer tissue products (especially rolled ones like TP and HHT that are more voluminous due to the air contained in the rolls) cannot efficiently be transported too far away from their place of production.

(237) The market investigation has confirmed that transport costs are an important proportion of the total cost. [119] The Scandinavian region and Sweden in particular are different from most the other markets in mainland Europe due to their remote position. As can been seen from the graphs below, the vast majority of SCA's own production is transported and sold within a radius of less than approximately […] km from the plant where it is produced. [120] Furthermore, amongst the competitors active in Sweden, the maximum transport distance for private label TP and HHT was said to be […] km. [121]

Picture 1: Analysis of transport cost of private label CT products in Sweden

[…]

Source: Commission analysis based on 2011 raw data (provided by SCA) on the distribution of SCA sales from various plants in Europe.

(238) The market investigation and the transport data from SCA clearly indicate that, in order to sell in Sweden at competitive prices, a manufacturer needs to have a plant either in the country or in a country neighbouring Sweden (such as Norway or Finland). [122]

Lack of sufficient countervailing buyer power

(239) The Parties argue [123] that retailers have buyer power since they own and control the specification of the retailer brand, such that any manufacturer who can supply such specifications and has sufficient spare capacity can compete for the supply of the products in question. They further argue that sponsoring entry and growth is relatively easy for retailers given the concentrated nature of retail supply in Sweden.

(240) Countervailing buyer power cannot be found to sufficiently offset potential adverse effect of a merger if it only ensures that particular segment of customers, with particular barging strength, is shielded from significantly higher prices or deteriorated conditions after the merger. It is furthermore not sufficient that buyer power exists prior to the merger; it must also exist and remain effective following the merger. This is because a merger between two suppliers may reduce buyer power if it thereby removes a credible alternative. [124] In the Commission's view, a significant supply alternative will be removed and the choice will be limited as the Parties would have around two thirds of current sales in the markets for TP and HHT and no other producer but Metsä would have a plant in the Nordic region.

(241) Furthermore, it is easy to price discriminate between different customers as tissue products are delivered according to customers' specifications and thus are customized products. Hence, even if the largest customers would be able to exercise some countervailing buyer power this would not protect smaller customers and the Parties would still be able