COMMISSION DECISION of 29/06/2000 declaring a concentration to be compatible with the common market (Case No IV/M.1966 - PHILLIPS/CHEVRON/JV) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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To the notifying parties

Dear Sirs,

Subject: Case No COMP/M. 1966 - PhillIps/Chevron Chemicals Joint Venture Notification of 23.03.2000 pursuant to Article 4 of Council Regulation No 4064/89

1. On the 24.05.2000, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No. 4064/89, whereby Phillips Petroleum Company (Phillips) and Chevron Corporation (Chevron) will pool their chemicals operations in a joint venture, Chevron Phillips Chemical Company (CPCC).

2. After examining the notification, the Commission has concluded that the notified operation falls within the scope of Council Regulation (EEC) No 4064/89 [1] and that it does not raise serious doubts as to its compatibility with the common market and with the EEA Agreement.

[1] OJ L 395, 30.12.1989 p. 1; corrigendum OJ L 257 of 21.9.1990, p. 13; Regulation as last amended by Regulation (EC) No 1310/97 (OJ L 180, 9. 7. 1997, p. 1, corrigendum OJ L 40, 13.2.1998, p. 17).

I. THE PARTIES

3. Phillips is an integrated petroleum company engaged in oil and gas production world-wide, chemicals and plastics manufacturing on a global basis and in technology development.

4. Chevron is a leading energy and chemical company. Its operations include oil and gas exploration and production, refining, chemicals and e-business.

II. THE OPERATION

5. The transaction was notified on 24.05.2000. The proposed operation consists of the creation of a joint venture to which Phillips and Chevron will contribute, with certain minor exceptions set out below, their chemicals interests.

6. Phillips will retain ownership of two of its three cyclohexane plants as these are integrated into refinery sites and cannot be easily separated. The joint venture will purchase, in the one case, or exclusively market, in the other, the cyclohexane output of the two plants. In addition various natural gas liquid processing plants and associated facilities are not included as the larger proportion of their output is used in Phillips' refinery business (which is not included in the operation) or sold.

7. Chevron will retain its Oronite additives business. Neither Phillips nor the joint venture will be active in this area. In addition Chevron will not contribute its 50% interest in the Caltex joint venture (the other partner is Texaco) which is involved in refining crude oil and marketing petroleum and convenience products in the Asia-Pacific, African and Middle Eastern regions. Caltex has a South Korean affiliate active in the petrochemical sector. The affiliate's output of polypropylene, benzene and paraxylene is marketed by the affiliate in competition with Chevron. Finally Chevron will not contribute its 50% share in the Alberta Envirofuels oxygenate plant in Alberta, Canada which produces methyl tert-butyl ether, an octane enhancer.

III. CONCENTRATION

8. Phillips and Chevron will contribute their chemicals businesses, with the exceptions set out above, to CPCC in exchange for 50% of the shares in the new company. The company will be financially independent of its parents and will in fact make a substantial cash distribution to its parents on completion or shortly afterwards. CPCC will take over the businesses as going concerns and will have all the requirements including production plants, staff, research and development facilities etc, necessary for independent operation.

9. Each of the parents will appoint two voting directors to the board of CPCC. All actions of the board will require the unanimous consent of all voting members present. The Board's approval will be required for all significant company matters including the approval of the annual strategic and business plans (and amendments thereto) and the company-wide financing plans and risk management programmes. The joint venture is therefore jointly controlled by Phillips and Chevron and the proposed operation a concentration in the sense of Article 3(2) of the Merger Regulation.

IV. COMMUNITY DIMENSION

10. The operation has a Community dimension pursuant to Article 1(2) of the Merger Regulation as the combined aggregated world wide turnover of the undertakings concerned exceeds EUR 5 000 million (Phillips: EUR 13.001 million; Chevron: EUR 34.340 million). The aggregate Community wide turnover of each of the undertakings exceeds EUR 250 million (Phillips: [...] million; Chevron: [...] million). Furthermore, the parties do not achieve more than two-thirds of their turnover in one and the same Member State.

11. The operation does not qualify for co-operation with the EFTA Surveillance Authority pursuant to the EEA Agreement.

V. COMPETITIVE ASSESSMENT

12. The parties' operations overlap in polyethylenes, particularly HDPE, LDPE/LLDPE, and in hexene. In addition there may be an overlap in the future in cyclo-hexane when deliveries into Europe from Chevron's Saudi Arabian joint venture commence. Chevron will contribute its 50% share in this operation to CPCC.

13. In an earlier decision [2] the Commission determined that the relevant geographic market for polyethylenes was Western Europe. In the same decision it identified separate relevant product markets for HDPE and for C8 LLDPE. As far as the remaining PEs, C4 LLDPE and C6LLDPE and LDPE were concerned it was not necessary for the Commission to define the relevant product market as no competition problems arose in relation to those products whichever product market definition was used.

[2] Case N° COMP/M.1671 - Dow/UCC, 3 May 2000.

14. The parties' combined Western European market share for HDPE is [<5%]. As Phillips only produces C6 LLDPE and Chevron only produces LDPE the only markets on which there would be an aggregation of market shares are the market for C4 LLDPE, C6 LLDPE and LDPE where their market share is [<5%] or alternatively the market for C6 LLDPE and LDPE where again the market share in Western Europe would be [<5%].

15. The parties both sell hexene in Western Europe where their market share is [5<15%].

16. Phillips sells a number of products, notably mercaptans, K-resin and polyphenylene sulphide for which it has substantial market shares in Western Europe and elsewhere. However Chevron does not produce any of these products nor are there any vertical effects arising from the proposed operation that could strengthen the position of Phillips in relation to these products.

17. Phillips currently sells cyclohexane in Western Europe where it has a market share of [5-15%]. In individual Member States this market share may be to up[20-30%]. Chevron has made no sales of cyclo-hexane in the period 1997 to 1999. It commenced sales from its Saudi Arabian plant in [...]. This is unlikely to create a dominant position for the parties for two main reasons. Imports from Chevron's Saudi Arabian joint venture are likely to displace other imports and Phillips is responsible for [55-65%] of the imports into Western Europe. Secondly almost all (99%) of the cyclohexane consumed in Europe is used in the manufacture of adipic acid and caprolactam which are intermediaries in the production of nylon. These intermediate products can and are made from other raw materials including, butadiene, cumene/phenol, and toluene/phenol.

18. The proposed operation will not therefore have any significant effect and will not create or strengthen a dominant position.

VI. ANCILLARY RESTRAINTS

19. The parties have notified several agreements which they consider to be ancillary restraints in the sense of Council Regulation (EEC) No. 4064/89 and the Commission's Notice regarding restrictions ancillary to concentrations.

20. Clause 11 of the Limited Liability Company Agreement provides that the parties "expect that the joint venture shall be the primary vehicle by which each of the parties and their affiliates engage in the chemicals business" and also provides mechanisms for resolving disputes should one of the partners conclude that the other is not complying with this obligation. This is not a restriction because there is no prohibition on the parties engaging in the chemicals business outside the joint venture.

21. The parents will enter into a number of supply and purchase agreements for raw materials with the joint venture. These agreements may be terminated by either of the parties or the joint venture after periods varying between eighteen months and five years and in general they ensure that for a transitional period the normal flows of raw materials and refined products flow between the joint venture and those parts of its parents' operations that are interdependent.

VII. CONCLUSION

22. For the above reasons the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) Council Regulation (EEC) No 4064/89 and Article 57 of the EEA Agreement.

For the Commission,

Mario Monti,

Member of the Commission