EUROPEAN COMMISSION C(2017) 2186 final PUBLIC VERSION To the notifying party Subject:Case M.8341 – LONE STAR FUND / XELLA INTERNATIONAL 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 Dear Sir or Madam, (1)On 22.02.2017, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which the undertaking LSF10 XL Bidco SCA (Luxembourg), an affiliate of Lone Star Fund X (U.S.), L.P. and Lone Star Fund X (Bermuda), L.P. (both of which are private equity funds organised by Lone Star) acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of the whole of the undertaking Xella International S.A. (Luxembourg), parent company of the Xella Group. (Lone Star is designated hereinafter as "the Notifying Party", while Lone Star and Xella together as "the Parties"). 1.The Parties (2)Lone Star is a private equity firm that invests globally in real estate, equity (including the equity of operating companies), credit and other financial assets. Lone Star has organized 17 private equity funds. The Lone Star Funds are structured as closed-end, private-equity limited partnerships, the limited partners of which include corporate and public pension funds, sovereign wealth funds, university endowments, foundations, funds of funds and high net worth individuals. (3)Forterra is a UK building materials company producing bricks, blocks, walling & cladding systems (made of, or resembling, bricks), chimneys, roofing and flue systems, floors and precast products, and paving and suds systems predominantely for the UK market. (4)Xella is a diversified building materials group. Headquarted in Duisburg, Germany, Xella operates 96 production plants in 20 countries. 2.The operation and the concentration (5)Xella's sellers and Lone Star entered into a sale and purchase agreement (the "SPA") on 1 December 2016. According to the SPA, Lone Star will acquire (i) the entire share capital in, as well as (ii) all preferred equity certificates issued by Xella. Upon closing of the Transaction Lone Star will thus have sole control over Xella. (6)The Transaction therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation. 3.EU DIMENSION (7)The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (Lone Star: EUR […] million; Xella: EUR 1 272 million). Each of them has an EU-wide turnover in excess of EUR 250 million (Lone Star: EUR […] million; Xella: EUR […] million), but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. (8)The notified operation therefore has an EU dimension within the meaning of Article 1(2) of the Merger Regulation.

4.Assessment 4.1.Activities of the Parties (9)Xella is organized around three business units: (i) Building Materials, which include, inter alia, wall-building products, aerated concrete wall units and insulation materials; (ii) Dry Lining, which includes the manufacture and supply of, mainly, gypsum fibreboards and, to a more limited extent, cement bonded boards; and (iii) Lime, which includes the production of burnt lime and limestone. (10)The Lone Star Funds have investments in a broad portfolio of companies and assets but their only European presence in the building materials sector is through Forterra. Forterra produces bricks, blocks, walling & cladding systems, chimneys, roofing and flue systems, floors and precast products, and paving and subs systems. (11)The only overlap between the Parties' activities is in so-called aerated concrete products in the UK. (12)Aerated concrete blocks are a lightweight, precast, foam concrete building material, being produced using no aggregate larger than sand. (13)Xella has no production facilities for aerated concrete products in the UK, but supplies aerated concrete products (autoclaved aerated concrete or "AAC" blocks under its Ytong brand) to the UK from Germany, Belgium and Netherlands using a dedicated sales team in the UK. Figure 1: Ytong brand Source: https://www.xella.com/en/ytong.php (14)Forterra produces and markets aerated concrete or "aircrete" blocks in the UK under its Thermalite® brand. Forterra has production facilities in Hams Hall and Newbury (UK). Figure 2: Thermalite brand Source: Forterra prospectus – Annex 13 4.2.Relevant product market (15)Aerated concrete (aircrete) blocks form part of building materials. In its practice, the Commission considered the following segmentations of building materials. (16)The Commission has previously considered the possibility of a market for all materials that can be used to build walls by the 'brick on brick' method (masonry), including clay bricks, sand-lime bricks, aerated concrete blocks and pumice blocks. Its investigations suggested that, at least at the building planning stage, these products were interchangeable. However, the Commission did not take a definitive position on the relevant product market definition. (17)In subsequent decisions, the Commission has drawn a distinction between a market for building materials for load-bearing walls and a market for building materials for non-load-bearing walls. (18)In a past decision, the Commission has also considered that there is a separate sub-market for concrete building blocks. (19)Under a narrower definition, the relevant product market could be confined to aerated concrete blocks. This market segmentation was used by the UK's Competition Commission ("CC") in a report considering the proposed acquisition of Marley Building Materials Limited by H+H Celcon Limited. The CC took into account evidence that from the demand-side, a majority of house builders would not switch to aggregate blocks in response to a 5% increase in the prices for aerated concrete blocks, and also that there was no practical ability for supply-side substitution as the manufacturing process, capital requirements and associated know-how of the two types of blocks differ. The same segmentation has been used by the German Federal Cartel Office in the decision concerning the acquisition of H+H by Xella.

4.2.1.The Notifying Party's views (20) The Notifying Party submits that a market definition covering all masonry building materials is consistent with its commercial perception of the markets it operates in. (21)However, as regards a possible distinction between a market in building materials for load-bearing walls and a market in building materials for non-load-bearing walls, the Notifying Party submits that it is no longer appropriate, particularly in light of more recent technical and market evolutions in the construction industry. In particular, the Notifying Party argues that it makes no such distinction when it markets and sells its products and that in any case aerated concrete blocks can be used in both load-bearing and non-load-bearing walls. Further, the Notifying Party indicates that recent evolutions in markets and consumer choices blur the distinction and that other features of building materials not limited to their load-bearing capacity such as thermal conductivity are affecting demand-side substitutability. (22)The Notifying Party submits further that there may be a degree of demand-side substitutability between aerated concrete blocks and aggregate blocks (a market in which only Forterra is active in the UK) and thus they could be seen as belonging to one market. According to the Notifying Party, aerated blocks are lighter than aggregate blocks and can be used for relatively low buildings, whereas aggregate blocks are stronger but have less insulating capacity. Both aerated and aggregate blocks are widely used in residential construction and there are indications that they are used interchangeably in Great Britain, especially at the planning stage of building construction. (23)Moreover, the Notifying Party indicates that in some cases other building materials such as bricks, sand-lime bricks and calcium silicate units can be used as substitutes for aerated and aggregate concrete blocks. (24)According to the Notifying Party, the narrowest plausible definition of the product market is the market for aerated concrete blocks. (25)Finally, the Notifying Party takes the view that there is no basis for a narrower market definition, i.e. one that would distinguish between different types of aerated concrete blocks. Such a distinction could be made between aerated concrete blocks made of pulverised fuel ash "PFA" (such as Forterra's aerated concrete blocks) and aerated concrete blocks made of sand (such as Xella's AAC blocks). However, the Notifying Party argues that the technical differences between these two types of aerated concrete blocks remain relatively insignificant and thus insufficient to justify a product market segmentation. 4.2.2.Commission's assessment (26)Regarding a possible distinction between building materials for load-bearing walls and building materials for non-load-bearing walls, competitors who replied to the market investigation indicated that this distinction might not be appropriate for aerated concrete blocks, as they can be used for the construction of both types of walls. (27)Regarding a product market definition including both aerated and aggregate concrete blocks, a majority of respondents to the market investigation indicated that the two types of concrete blocks are substitutable. However, it was mentioned that aerated and aggregate concrete blocks differ in terms of thermal efficiency and thus require a change in the insulation process. Timber frame was also considered by participants to the market investigation as a substitute to aerated concrete blocks. (28)Finally, as regards a possible segmentation by different types of aerated concrete blocks, i.e. aerated concrete blocks made of PFA and those made of sand, a majority of respondents to the market investigation confirmed that the two different types of aerated concrete blocks are substitutable. A competitor noted that " both types of aircrete blocks are sold in direct competition with each other and they constitute one overall market of aircrete blocks". Similarly, for a customer, aerated concrete blocks made of PFA and sand are "100% substitutable". (29)The precise scope of the relevant product market can be ultimately left open in the current case, since no competition issues arise under any plausible market definition. 4.3.Relevant geographic market (30)The Commission has considered the geographic markets for building materials as national in scope, by virtue of the high transportation costs and in some cases different national rules on building and industrial safety regulations. In past decisions, the Commission also considered that the potential geographic market for different concrete products and concrete building blocks was national in scope, leaving open the possibility of a narrower definition (i.e., local). The CC in the report mentioned above concluded that the relevant geographic market was Great Britain, i.e. the UK without Northern Ireland, given the transportation cost and the absence of aerated supplies by the three main British-based manufacturers from Britain to Northern Ireland. (31)The Notifying Party contends that the relevant geographic market for any plausible product market is at most national in scope and potentially limited to Great Britain. (32)Competitors based in Great Britain who responded to the market investigation indicated that the geographic market for aerated concrete blocks is national in scope. Further, they mentioned that they do not supply customers in Northern Ireland. A majority of customers who participated to the market investigation indicated the main geographic scope of their supplies was at most national. (33)The precise scope of the relevant geographic market can be ultimately left open, since no competition issues arise under any plausible market definition. 4.4.Competitive assessment (34)The Transaction gives rise to a horizontally affected market under the narrow product market definition of aerated concrete blocks in Great Britain. (35)Under any other broader product market definition, either no affected markets would arise or the Parties' combined market share would be diluted with further competitors added. Moreover, should the market be split between PFA and sand-based aerated concrete blocks, no overlap would occur between the Parties' activities, as Forterra produces PFA aerated concrete blocks while Xella's products are made from sand.