COMMISSION DECISION of 11/02/1999 declaring a concentration to be compatible with the common market (Case No IV/M.1418 - SCA PACKAGING/REXAM) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Brussels, 11.02.1999

To the notifying party

Dear Sirs,

Subject: Case No IV/M.1418 - SCA Packaging / Rexam

Notification of 23/12/1998 pursuant to Article 4 of Council Regulation No 4064/89

Date of notification : 23/12/1998Notification declared incomplete on : 06/01/1999Notification declared complete on : 08/01/1999Legal Deadline : 11/02/1999

I. THE PARTIES AND THE OPERATION

1. SCA Packaging International BV is a wholly owned subsidiary of Svenska Cellulosa Aktiebolaget SCA ("SCA") which specialises in the manufacture of hygiene products, transport packaging and graphic papers.

2. Rexam Plc is a UK-based holding company active in the following sectors: (i) packaging for speciality food, healthcare, beauty and industrial products, (ii) printing, (iii) coated films and papers and (iv) building and engineering. The object of this operation is Rexam's corrugated packaging business excluding bulk (1) ("Rexam Packaging") whose activities are corrugated cases, carton and print.

(1) The bulk division comprises plastic drums, fibre drums and flexible intermediate bulk containers.

3. On 19/12/1998 SCA and Rexam Plc signed an agreement whereby SCA will acquire 100% of the shares in Rexam Packaging Ltd. (UK), Rexam Packaging Heavy Duty SA (B), Rexam Packaging Emballage Technique SA (F) and 70% of the shares in Tecnicarton SA (Spain) (2).

(2) This will give SCA sole control to this entity. The remaining 30% shares are held by individual shareholders and [ ].

II. CONCENTRATION

4. The transaction, involving SCA's acquisition of sole control of Rexam Packaging by way of an acquisition of shares is a concentration within the meaning of article 3(1) (b) of the Merger Regulation.

III. COMMUNITY DIMENSION

5. The combined aggregate world-wide turnover of the undertakings concerned exceeds EUR 5 000 million (3). (SCA 6773 Mio, Rexam Packaging [ ] Mio). The aggregate Community wide turnover of each party exceeds EUR 250 million (SCA [ ] Mio, Rexam Packaging [ ] Mio). They do not achieve more than two-thirds of their turnover in one and the same Member State. The operation has therefore a Community dimension.

(3) Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C66, 2.3.1998, p25). To the extent that figures include turnover for the period before 1.1.1999, they are calculated on the basis of average ECU exchange rates and translated into EUR on a one-for-one basis.

IV. THE RELEVANT MARKETS

A. Relevant product markets

6. SCA claims that the main overlap between the parties is the manufacture and supply of corrugated cases in the UK. Corrugated cases are finished packaging products manufactured from sheets of corrugated board. Corrugated board consists of liner board with a corrugated fluting (or multiples thereof in case of double and triple wall board). Corrugated case producers range from those which are fully integrated supplying their own corrugated case materials (as SCA does) and/or corrugated board (as Rexam Packaging does) to those who purchase corrugated board from third parties and convert the board into cases (converters). The market investigation has shown that there is also an overlap with regard to the supply of corrugated board.

7. SCA is also a manufacturer of corrugated case materials (CCM), the paper products used to create corrugated board, but Rexam Packaging is not. Given the fact that SCA's EEA-wide (4) market share is estimated to be less than 15%, the CCM market does not constitute an affected market.

(4) In previous decisions it has been concluded that the CCM market was at least EEA wide.

Corrugated cases

8. In previous decisions (5) the Commission has considered the market for corrugated cases and the extent to which they compete with other forms of transport packaging, such as wood and plastic, but the Commission has not reached a definitive view on this matter.

(5) Cases Nos IV/M. 499 - Jefferson Smurfit/St. Gobain, IV/M.549 - SCA/PWA, IV/M. 613 - Jefferson Smurfit/Munskjo and IV/M. 1208 - Jefferson Smurfit/Stone Container.

9. SCA considers that the relevant market is the market for the provision of transport packaging materials, but also considers that there may be a relevant product market for corrugated cases. SCA estimates that corrugated cases account for just over 60% of all transport packaging. SCA does not consider it appropriate or meaningful to further segment the market for corrugated cases and to distinguish between heavy duty corrugated cases and the other corrugated cases. According to SCA a heavy duty case has thick walls (two or more layers of corrugated board), tends to be heavier than other corrugated cases and allows more limited printability. SCA considers heavy duty cases to form part of a seamless range of corrugated cases available to customers and therefore not part of a separate relevant product market. Moreover, there is not a uniform definition of heavy duty corrugated cases in the industry and heavy duty cases represent less than [5%] of the overall market for corrugated cases.

10. The market investigation has shown that corrugated cases can be manufactured using a wide range of different grades of board. These different grades form a spectrum with miccroflute at one end and heavy duty at the other end. The grades in between microflute and heavy duty are the conventional grades. The market investigation has shown a strong indication that heavy duty corrugated cases are to be distinguished from the other corrugated cases (6). Heavy duty corrugated cases are supplied to meet particular customer needs, they are generally not interchangeable with other types of corrugated cases and do not compete with them (but with products such as wood and bulk bags). Heavy duty cases are used to transport heavy goods such as chemicals, automotive parts, office equipment, etc Heavy duty corrugated cases require separate production facilities as the machines converting the board must be able to handle heavier board. According to the market investigation, the most common definition of heavy duty cases includes cases made of triple wall and double wall board insofar as the board contains at least one A flute (i. e. AA, CA and BA board) and weights more than 800g/sqm, although some would only categorise triple wall cases as heavy duty.

(6) For the purpose of the present decision it is not necessary to examine whether conventional cases and microflute cases are to be considered as separate product segments.

11. With regard to a further segmentation within the heavy duty cases, the market investigation has shown that there is a trend to substitute triple wall cases by heavy duty double wall cases and that triple wall corrugated cases face competition from other grades of corrugated cases (heavy double wall cases and laminated double-double wall cases as those produced by AssiDomän) and from other forms of transport packaging (plastic, wood, ). Most customers have a number of transport packaging options and can and do switch between these. The demand for triple wall cases and heavy duty double wall cases is entirely due to substitution of those products for other materials, especially for wooden crates. Faced with an attempt to increase prices, customers are likely to consider alternative forms of transport packaging. Customers might also seek a lower (and cheaper) grade of corrugated which would meet their specifications. There is also a trend towards customers requiring lower weights of cases. This trend reflects the fact that lighter products have, as a general rule, a lower price, and are preferred due to environmental considerations (lower recycling costs for lighter cases).

12. However, for the purpose of the present case, the definition of the relevant product market can be left open given that the operation does not lead to any problem of dominance in any of the alternative markets considered above.

Corrugated board

13. The market investigation has shown a strong indication that with regard to corrugated board a distinction has to be made between heavy duty corrugated board and the other grades of board just as with corrugated cases and for the same reasons. Within the heavy duty board range a further segmentation between triple wall board and heavy duty double wall board (i.e. double wall board containing at least one A flute and weighing more than 800g/sqm) could be envisaged, as from the supply-side, different equipment is needed to manufacture triple wall board.

14. However, for the purpose of the present case, the definition of the relevant product market can be left open given that the operation does not lead to any problem of dominance in any of the alternative markets considered above.

B. Relevant geographic market

Corrugated cases

15. The Commission has not yet taken a definitive view on the definition of the geographic market in previous decisions. It was stated that corrugated cases are characterised by low density and relatively high transport costs which results in largely regional markets (radius of 200 to 300 km between the corrugator plant and its customers) crossing national borders. These regional markets do not operate in isolation as a number of multinational customers seek to have their packaging problems solved by a single supplier. The parties support this view.

16. The market investigation has confirmed that the markets are largely regional for non heavy duty cases.

17. Heavy duty cases can be economically transported over longer distances than the other corrugated cases because they are higher value products. For instance, Rexam Packaging exports heavy duty cases from the UK to France, Germany, the Netherlands and Spain. There are also imports in the UK from the continent (e. g. from Europa Carton (Germany), Kaysersberg (France) and Seyfert (Germany).

18. It can thus be concluded that the geographic market is broader than national. It is not necessary to define the geographic market precisely since on any market definition broader than national the operation does not lead to any problem of dominance.

Corrugated board

19. In the KNP/BT/VRG decision it was suggested that the geographic market is regional and crosses national borders (e.g. with the Benelux countries, northern France and central Germany forming a separate geographic market from southern Germany, eastern France, Austria and Switzerland). As with corrugated cases, the geographic market for non heavy duty corrugated board will consist of largely regional markets, whereas heavy duty board can be economically transported over longer distances than the non heavy duty corrugated board and the heavy duty corrugated cases. Manufacturers in the UK have been buying heavy duty corrugated board from the continent on a regular basis without encountering any disadvantage relative to supply within the UK. It can thus be concluded that the geographic market is broader than national.

20. However, for the purpose of the present case, the precise definition of the relevant geographic market can be left open since on any market definition broader than national the operation does not lead to any problem of dominance.

V. ASSESSMENT

CASES

Corrugated cases

21. After the operation the parties will have a combined share of sales in the EU of [10-15%] (in value) on the overall market for corrugated cases (SCA [10-15] and Rexam Packaging [