EUROPEAN COMMISSION C(2016) 1659 final

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To the notifying party Dear Sirs, Subject:Case M.7911 – CNCE / KM GROUP

Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004 and Article 57 of the Agreement on the European Economic Area (1)On 9 February 2016, the European Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 by which the undertaking China National Chemical Equipment Co., Ltd. ("CNCE", China) wholly owned by China National Chemical Corporation ("ChemChina"), a state-owned enterprise, acquires, within the meaning of Article 3(1)(b) of the Merger Regulation, control of the whole of KraussMaffei Group GmbH ("KM", Germany), by way of purchase of shares (the "Transaction"). CNCE is referred to as the "Notifying Party". CNCE and KM are collectively referred to as "Parties". 1.THE PARTIES (2)CNCE is a wholly-owned subsidiary of ChemChina. CNCE's major lines of business include rubber machinery, chemical machinery, auto parts manufacturing, vehicles and vessels construction and maintenance, and engineering trade services. ChemChina is the largest chemical enterprise in China and a chemical conglomerate under the supervision of the Central Government, with an annual turnover of over USD 40 billion. ChemChina is active, notably through Pirelli which it acquired in 2015, in the production and distribution of OEM (Original Equipment Manufacturer) tyres and replacement tyres. Apart from Pirelli (held by ChemChina's subsidiary CNRC), relevant subsidiaries within ChemChina for the purposes of assessing the Transaction include notably Guilin Rubber Machinery, Yiyang Yishen Rubber Machinery, Fujian Sino-Rubber Machinery and China Chemical Guilin Engineering. (3)KM is a global market leader in the plastics and rubber processing machinery industry. KM’s current major shareholder is Onex Corporation ("Onex"), a Canadian listed private equity fund, while its management holds a minority stake in the company. Onex acquired KM in December 2012. Figure 1 – KM's activities Source: Internal document of ChemChina 2.THE OPERATION AND THE CONCENTRATION (4)On 9 January 2016, the Parties entered into a share purchase agreement. CNCE will, through various special corporate vehicles, acquire [50-60]% of KM's share capital. CRH (a Chinese state-owned asset management company) and AGIC (a private equity investment fund) will be passive financial shareholders holding respectively [20-30]% and [10-20]% of KM's share capital, without the possibility of (jointly) exercising decisive influence over KM. CNCE will acquire sole control of KM. (5)Therefore, the Transaction constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation. 3.INDEPENDENCE OF CNCE / CHEMCHINA (6)The Chinese government exercises its rights on ChemChina through the Central State Owned Assets and Supervision and Administration Commission of the State Council ("Central SASAC"), an agency of the Chinese government which owns about 125 State-owned enterprises ("Central SOEs"). (7)The Notifying Party submits that ChemChina and its subsidiaries (including CNCE) do not act as a single economic unit with other Central SOEs and that ChemChina has its own independent power of decision. It submits that Central SASAC is required to observe the fundamental principles of the separation between the ownership and operational rights of Central SOEs.

(8)Furthermore, separately from Central SOEs and Central SASAC, there are also SOEs supervised by provincial and regional/municipal authorities ("Regional SASACs"). The Notifying Party notes that there are 32 Regional SASACs supervising SOEs at provincial level, and there are many more Regional SASACs at lower levels such as the municipal level. (9)The Notifying Party submits that Regional SASACs operate completely independently from Central SASAC and as a result, SOEs supervised by regional/municipal governments ("Regional SOEs") are independent from Central SOEs and should therefore also not (and even less so) be treated as a single economic unit with ChemChina. It states that regional governments own the Regional SOEs, have managerial appointment authority and have their own interests. Moreover, it submits that there is no direct command-relationship between Central SASAC and Regional SASACs as Central SASAC can only establish general procedures and principles, and that Regional SASACs and Central SASAC are driven by different overarching strategies and objectives. (10)Nonetheless, the Notifying Party has provided, to its best knowledge, information on companies controlled by the Central SASAC and by the Regional SASACs. (11)In line with the Commission's past cases, activities of Chinese SOEs have been taken into consideration. However, given that the possible links between the Parties and the Chinese SOEs are unlikely to give rise to serious doubts as to the Transaction's compatibility with the internal market, it is not necessary to reach a definitive conclusion on the ultimate control and the functional independence of ChemChina. 4.UNION DIMENSION (12)The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (ChemChina*: EUR [>37 000] million; KM: EUR 1 112 million). Each of them has a EU-wide turnover in excess of EUR 250 million (CNCE: EUR […]; KM: EUR […]), 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. 5.RELEVANT MARKETS (13)Both Parties are active in the supply of plastics and rubber processing machinery. In addition, CNCE also has business activities in the downstream market(s) for various rubber products, including 'premium' tyres through Pirelli. (14)The relevant markets for the assessment of the Transaction are: 1) the manufacture and sale of plastics and rubber processing machinery, and 2) the manufacture and sales of tyres. 5.1.Manufacture and sale of plastics and rubber processing machinery 5.1.1.Product market definition (15)In a previous decision in the plastics and rubber processing machines sector, the Commission has identified certain possible segmentations based on 1) the processing technology (injection moulding machinery; extrusion machinery; reaction processing machinery), 2) the end-use application for which the extrusion machinery is used (rubber; film/sheet; foam; pipe; profile; compounding; wire; fibres; yarns; and fabrics), and 3) the specification of the machinery (high-end; low-end), due to differences in terms of performance, output technical standards and runtime. The ultimate product market definition was left open. (16)The Notifying Party submits that all plastics and rubber processing machines are ultimately used for converting plastic and rubber materials into semi-finished or finished rubber or plastic parts for various industries. On this basis, the Notifying Party considers that the relevant product market is that for the manufacturing and supply of all plastics and rubber processing machinery. (17)For the purposes of assessing this Transaction, the Commission has looked at the various segmentations within the plastics and rubber processing machinery. The most relevant market in assessing this Transaction is the high-end rubber extrusion machinery. More specifically, the Commission has also considered whether it is relevant to identify a specific market for high-end rubber extrusion machinery for tyres. (18)The extruders used for the production of tyres tend to differ from those used in the production of other rubber products, such as hoses for the automotive sector. According to the market investigation, the production of tyres requires extruders with a dimension ranging from 90 mm to 250 mm, whereas smaller extruders are used (up to 90 mm) for the production of other rubber products. These (smaller) are typically not used in the production of tyres. (19)The extruders used to produce tyres are in principle suitable for the production of different types of tyres. Indeed, the majority of respondents to the market investigation noted that the same rubber extrusion machinery can be used to produce most types of tyres. Furthermore, KM’s competitors manufacture rubber extrusion machinery suitable for the vast majority of tyre types. (20)The Commission considers that, for the purpose of this decision, the exact scope of the product market can be left open since the Transaction does not give rise to serious doubts about its compatibility with the internal market under any plausible definition of the product market. 5.1.2.Geographic market definition (21)In its past decision, the Commission has considered the geographic scope of the market(s) for plastics and rubber extrusion machines to be at least EEA-wide, if not worldwide. (22)The Notifying Party submits that in the present case the exact market definition can be left open, because no competitive concerns arise under any plausible definition.

(23)For the rubber extrusion machinery, the market investigation provided strong indications that the geographic scope of the market is worldwide. The majority of tyre manufacturers that responded to the market investigation confirmed that all the key suppliers of rubber extrusion machinery are active at worldwide level. One customer mentioned that "All of them are international companies selling equipment all over the world". Another observed "All of the above mentioned sell globally". (24)In conclusion, the Commission considers that there are strong indications that the geographic scope of the market is worldwide but, for the purpose of this decision, the precise dimension of the geographic market can be left open, as the Transaction does not give rise to serious doubts about its compatibility with the internal market under any plausible alternative geographic market definition. 5.2.Market for the manufacture and sale of tyres 5.2.1.Product market definition (25)In previous decisions, the Commission has segmented the tyres market in different categories according to the consumer targeted by the manufacturer, and distinguishing OEM and new replacement tyres. (26)The Notifying Party submits that such segmentation of the downstream market for rubber tyres is less relevant for the analysis of the vertical competition issues raised by the Transaction. The market investigation has confirmed that the machinery sold by KM is not specifically targeted at niche segments within the manufacture of rubber tyres and downstream customers require the same machinery regardless of the product segment (e.g. passenger car tyres or truck tyres) of the overall tyre market on which they operate. (27)Therefore, the Commission will conduct its assessment focussing on the overall tyres market. 5.2.2.Geographic market definition (28)In its past decision, the Commission has considered the geographic scope of the market for OEM tyres to be at least EEA-wide, but left it open. For new replacement tyres, the exact geographic scope was also left open between EEA-wide and national level. (29)The Notifying Party submits that the exact scope of the geographic market is of limited relevance to the assessment of any potential competition issues resulting from the vertical links created through the proposed Transaction. This has been confirmed by the market investigation as customers in the downstream market typically source their supplies of processing machinery and operate their manufacturing facilities on, at least, an EEA-wide basis, if not on a worldwide basis, irrespective of the type of tyres produced. (30)Based on the above the Commission will conduct its assessment on the worldwide and EEA-wide global tyres market. 6.COMPETITIVE ASSESSMENT (31)Although KM's and CNCE have activities in a number of different markets, the Transaction will only give rise to vertically affected markets between: 1) upstream, the manufacture of high-end rubber extrusion machinery, in which KM is active (CNCE has no activities in high-end rubber extrusion machinery); and 2) ChemChina’s downstream activities in the rubber tyre market. 6.1.The legal framework (32)Foreclosure concerns a situation where actual or potential rivals' access to supplies or markets is hampered or eliminated as a result of a merger and those companies' ability and/or incentive to compete is reduced. Such foreclosure can take two forms: input and customer foreclosure. (33)Input foreclosure is a situation where, post-merger, the new entity would be likely to restrict access to products or services that it would have otherwise supplied absent the merger, thereby raising its downstream rivals' costs by making it harder for them to obtain supplies of the input under similar process and conditions as absent the merger. (34)Customer foreclosure is a situation where the merged entity may foreclose access to sufficient customer base to its actual or potential rivals in the upstream market and reduce their ability or incentive to compete. In turn, that may raise downstream rivals' costs by making it harder for them to obtain supplies of the input under similar prices and conditions as absent the merger. (35)For an input or customer foreclosure scenario to raise competition issues, three factors need to be taken into account: 1) the ability of the merged entity to engage in foreclosure, 2) the incentives of the merged entity to do so and 3) whether a foreclosure strategy would have a significant detrimental effect on competition on the downstream market. 6.2.Market Structure Upstream positioning

(36)Based on the Notifying Party's estimates, as illustrated by the table below, KM would have about [20-30]% of the worldwide market and about [20-30]% of the EEA market for the manufacture and sale of rubber extrusion machinery. Table 1: Sales and market shares for the total rubber extrusion machinery market, 2014 Worldwide EEA Val. (€m) Share of supply Val. (€m) Share of supply KM […] [20-30]% […] [10-20]% Troester […] [20-30]% […] [20-30]% HF […] [10-20]% […] [10-20]% Konstrukta […] [5-10]% […] [10-20]% Others […] [30-40]% […] [20-30]% Total […] 100% […] 100% Source: Form CO (37)If, however, only the high-end segment of the rubber extrusion machinery in which KM is active is considered, according to the Notifying Party, KM's market share would be around [20-30]% at worldwide level and around [20-30]% at EEA level for 2014. This market share has been higher in some of the previous years (2011, 2012, and 2013 at EEA level). Table 2: Sales and market shares for the high-end rubber extrusion machinery market, 2014 Worldwide EEA Val. (€m) Share of supply Val. (€m) Share of supply KM […] [20-30]% […] [20-30]% Troester […] [20-30]% […] [20-30]% HF […] [10-20]% […] [10-20]% Konstrukta […] [0-5]% […] [5-10]% Colmec […] [0-5]% […] [5-10]% Nakata […] [5-10]% […] [0-5]% Davis-Standard […] [5-10]% […] [0-5]% Others […] [5-10]% […] [10-20]% Total […] 100% […] 100% Source: Form CO (38)The Commission's investigation undertaken in the present case has only partially confirmed the evolution and size of the market as described by the Notifying Party. Moreover, the market investigation has highlighted that, looking at high-end rubber extrusion machinery for the production of rubber tyres, Rubicon, Colmec and Davis-Standard are not active in this area. (39)The Commission's findings are more in line with the Commission's precedents, where the high-end segment of rubber extrusion machinery was estimated at 70% of the total worldwide market and at 90% of the EEA market. If these proportions were applied to the present case, the worldwide market would be estimated at […] and the EEA market at […]. Accordingly, KM's market share would be [30-40]% at worldwide level and [20-30]% at EEA level. Downstream positioning (40)ChemChina, through Pirelli, has downstream activities in relation to the manufacture and sale of 'premium' rubber tyres.The production of this category of tyres typically requires the use of high-end extruders as those supplied by KM. In 2014, Pirelli ranked […] as a producer of tyres at worldwide level and […] at EEA level (see Table 3 and Figure 3). The main competitors of Pirelli in this area are Bridgestone, Michelin, Goodyear, and Continental.

Table 3: Sales and market shares for the tyre market, 2014 Worldwide EEA Val. (€m) Share of supply Val. (€m) Share of supply ChemChina/Pirelli […] [5-10]% […] [5-10]% Bridgestone […] [10-20]% […] [10-20]% Michelin […] [10-20]% […] [20-30]% Goodyear […] [5-10]% […] [10-20]% Continental […] [5-10]% […] [10-20]% Hankook […] [0-5]% […] [5-10]% Others […] [40-50]% […] [30-40]% Total […] 100% […] 100% Source: Form CO Figure 2 – Pirelli's position in the global tyre market in 2013 […] Source: Internal document of ChemChina (41)The Notifying Party further submits that a certain degree of correlation can be expected between a player's share in the supply of 'premium' tyres and its share of demand as a customer on the upstream high-end extruder market. On this basis, the Notifying Party estimates that ChemChina/Pirelli's share of the global demand for high-end rubber extruders is less than [5-10]% (2014 data).