COMMISSION DECISION of 02/06/1999 declaring a concentration to be compatible with the common market (Case No IV/M.1469 - ** SOLVAY/BASF) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Brussels,

To the notifying party

Dear Sirs,

Subject: Case No IV/M.1469 - SOLVAY/BASF

Notification of 27/04/1999 pursuant to Article 4 of Council Regulation No 4064/89

1. On 27/04/1999, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 by which SOLVAY SA ("Solvay") acquires within the meaning of Article 3(1)(b) of the Council Regulation control of the polyvinyl chloride ("PVC") and polyvinylidene ("PVDC") businesses of BASF Aktiengesellschaft ("BASF") by way of purchase of shares and assets.

2. After examination of the notification, the Commission has concluded that the notified operation falls within the scope of Council Regulation (EEC) No 4064/89 and does not raise serious doubts as to its compatibility with the common market and with the EEA Agreement.

I. THE PARTIES

3. Solvay is the ultimate industrial parent company of an international group, active in four main sectors : chemicals, plastic, processing of plastic products and pharmaceuticals.

4. BASF is a worldwide company involved in the chemical sector. Its products range from natural gas, oil and basic chemical products through speciality chemicals, high value added chemicals, crop protection products and pharmaceuticals.

III. THE OPERATION

5. The transaction consists in the acquisition by Solvay of control of BASF's PVC and PVDC businesses, together with certain related assets such as the electrolysis units mainly used by the parties for the purpose of manufacturing row materials (all these businesses and assets will be mentioned below as "the Acquired Business"). For the purpose of the operation, a new company, named Solvin, will be created. Solvay will own shares in Solvin representing 75% of the capital less one share. The remaining of the shares being owned by BASF. Solvin will immediately take control over all the PVC and PVDC businesses of Solvay and BASF concerned by the transaction that is to say BASF's worldwide activities in the PVC and PVDC (1) sector, the European businesses of Solvay in the PVC sector (2) and the worldwide PVDC activities of Solvay.

(1) With the exception of BASF's stake in a PVDC producing joint venture in Japan with Mitsubishi.

(2) With the exception of its PVC activities in Spain.

6. The parties state that Solvay will exercise sole control over Solvin as Solvay will be, by far, the largest shareholder, BASF holding a stake of only 25% plus one share in Solvin. The Board of Solvin will be composed so as to reflect the respective importance of Solvay's and BASF's shares. Solvay will thus always hold a majority on Solvin's Board. Solvay will be responsible for the budget, business plan and investments and Solvin's Board of Directors will decide on such issues by simple majority. Although the Shareholders agreement grants a right of veto to BASF on certain issues (such as increase/decrease of share capital, merger, liquidation, termination or major investments), such rights granted to BASF merely protect the investment of BASF and can not be considered as giving BASF decisive influence over Solvin.

7. This transaction constitutes a concentration within the meaning of Article 3(1)(b) of the Regulation.

IV. COMMUNITY DIMENSION

8. The notified concentration does not meet the thresholds laid down in Article 1(2) of Council Regulation (EC) n 4064/89, as the Community-wide turnover of the Acquired Business concerned is less than EUR 250 million (i.e. EUR 206.6 billion). However, the notified concentration has Community dimension pursuant to Article 1(3) of the Council Regulation. The combined aggregate world-wide turnover of the undertakings concerned is more than EUR 2,500 million (Solvay, EUR 7,401 billion; and the Acquired Business EUR 226.6 million ). The combined aggregate turnover of the undertakings concerned exceeds EUR 100 million in at least three Member States (i.e., Germany, Belgium and Italy). Moreover, in each of these Member States the aggregate turnover of each of the undertakings concerned is more than EUR 25 million. The aggregate Community-wide turnover of each of the undertakings concerned is more than EUR 100 million. Finally, neither Solvay nor the Acquired Business achieved more than two-thirds of their aggregate 1998 Community-wide turnover in any one Member State. Consequently, the concentration has a Community dimension within the meaning of Article 1(3) of Council Regulation n 4064/89. It does not constitute a co-operation case under the EEA Agreement, pursuant to Article 57 of that Agreement.

V. assessment

A. Relevant product markets

9. PVC was one of the first bulk thermoplastic products to be developed. It is produced from vinyl chloride monomer (VCM), itself obtained from ethylene and chlorine or high hydrogen chloride feedstock. PVC has many important uses in heavy industry and construction as well as varied consumer applications. It can be converted into hard material or - compounded with plasticizers - made into flexible articles, including film. PVC is converted into the various end products by a variety of processes including extrusion, continuous coating, blow moulding and injection.

10. A distinction is generally made between "standard" PVC, mainly used in construction, packaging and pipes and fitting industries and "special" PVC, used in the automotive and flooring industries. In any event, the exact definition of the product market(s) can be left aside, because even on the basis of the narrower market definitions, the operation does not raise competitive concerns.

11. PVDC production is closely integrated in the production process of PVC. PVDC belongs to the High Barrier Polymers category that is essentially used in the packaging industry to resist gases and water vapour transmission. This product is mainly used in the packaging of food products or pharmaceuticals. PVDC can also be used for the coating of cellophane, and has some other applications such as coating of X-rays plates or paints. The Commission's investigation showed that there are a number of High Barrier Polymers products that alone or in combination can offer good barriers against both gases or water (e.g. EVOH, PVOH, COC or PCTFE).

12. In any event, the exact definition of the product market(s) can be left aside, because even on the basis of the narrower market definitions, the operation does not raise competitive concerns.

B. Relevant geographic market

13. In its decision IV/M.284 Hoechst/Wacker, the Commission considered that the relevant geographic market for PVC is Western European as, besides the technical homogeneity of the relevant products, all large European PVC producers are active in all countries. There is considerable inter-State trade in PVC, partly as a result of substantial variations in domestic supply and demand in the various Member States.

14. The relevant geographic market could thus be considered as at least EEA wide. The competitors and the customers consulted during the Commission's investigation largely confirmed this conclusion. However, it is not necessary to decide upon the exact geographical dimension of the markets, as in any case the concentrations will not give raise to serious concerns for competition in the PVC sector.

15. For all types of High Barrier Polymers, the Commission's investigation showed that there are substantial mutual inter-penetration between the EEA and other areas such as North America and the Far East. In particular, there have been in the last three years significant imports of these products by, at least, the US company DOW and the Japanese group Kureha. Certain High Barrier Polymers (e.g. EVOH or COC) are not currently produced in the Community and therefore all supplies of these products are imported. Furthermore, it does not seem that there are significant variations of prices between the different areas and transports costs appears to be relatively low. The relevant geographic market could thus be considered as world-wide. However, the question of the exact geographic scope of the market can be left aside as, even on the basis of the EEA market, the operation does not raise competitive concerns.

C. Competitive assessment

16. On the overall EEA market for PVC, the new entity will have a market share of around [15-25%] (Solvay [10-20%] and BASF [