Summary of Commission Decision

of 4 July 2018

declaring a concentration compatible with the internal market and the functioning of the EEA Agreement

(Case M.8451 — Tronox/Cristal)

(notified under document number C(2018)4120)

(only the English version is authentic)

(Text with EEA relevance)

(2018/C 441/07)

On 4 July 2018 the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1) , and in particular Article 8(2) of that Regulation. A non-confidential version of the full Decision can be found in the authentic language of the case on the website of the Directorate-General for Competition, at the following address: http://ec.europa.eu/competition/index_en.html

I. THE PARTIES

(1) On 15 November 2017, following a referral under Article 4(5) of Regulation (EC) No 139/2004 (‘the Merger Regulation’), the Commission received notification of an intended concentration pursuant to Article 4 of that Regulation as a result of an agreement by which Tronox Limited (‘Tronox’, Australia) would acquire sole control, within the meaning of Article 3(1)(b) of the Merger Regulation, of the whole of the titanium dioxide business of The National Titanium Dioxide Company Ltd (‘Cristal’, Saudi Arabia) by way of a purchase of shares (‘the Transaction’) ( 2 ) . Tronox is also referred to in this Summary as ‘the Notifying Party’ and Tronox and Cristal are together referred to as ‘the Parties’. The undertaking that would result from the Transaction is referred to as ‘the merged entity’.

(2) Tronox is active in the mining of inorganic minerals, including titanium feedstocks and zircon, and in the production of titanium dioxide pigment. It has two main business divisions: (i) titanium dioxide pigment, and (ii) electrolytic and specialty chemicals, of which only the former is of relevance to the Transaction. Until 1 September 2017, Tronox was also active in alkali chemicals but has now sold this business to Genesis Energy LP. Tronox is publicly listed on the New York Stock Exchange. Its largest shareholder, Exxaro, does not have control over the company.

(3) Cristal is also active in the mining of titanium feedstocks and zircon and in the production of titanium dioxide pigment. Cristal is a privately owned company, in which Tasnee (a listed Saudi Arabian joint stock company), Gulf Investment Corporation (a company owned by the six States of the Gulf Cooperation Council) and a private individual hold shares.

(4) Tronox and Cristal are two of the five major global titanium dioxide pigment producers. They both also own mineral sand mines, from which they source the titanium feedstocks for use in titanium dioxide pigment production. They are therefore vertically integrated and also sell titanium feedstocks both to other titanium dioxide pigment producers and to other industries in which titanium feedstocks are used.

II. THE OPERATION

(5) The Transaction would be implemented as a share transfer, following an internal reorganisation within Cristal. As a result of the Transaction, Tronox would acquire sole control of Cristal's titanium dioxide business. The Transaction would therefore give rise to a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

(6) The Transaction does not have a Union dimension within the meaning of Article 1 of the Merger Regulation. However, in accordance with Article 4(5) of the Merger Regulation, the Notifying Party requested a referral to the Commission on the grounds that the case would be capable of being reviewed under the national competition laws of at least three Member States. The Notifying Party filed a reasoned submission on 29 March 2017 that was transmitted to all Member States by the Commission on the same day. No Member State expressed disagreement with this request within 15 working days and the concentration is therefore deemed to have a Union dimension and to be notifiable in accordance with Article 4(5) of the Merger Regulation.

III. THE PROCEDURE

(7) On 20 December 2017, in view of the results of the Phase I market investigation ( 3 ) , the Commission found that the Transaction raised serious doubts as to its compatibility with the internal market and the Agreement on the European Economic Area (‘EEA Agreement’) in relation to various markets for titanium dioxide pigment and adopted a decision initiating proceedings pursuant to Article 6(1)(c) of the Merger Regulation ( 4 )

(8) In its in-depth (Phase II) market investigation, the Commission sent a second round of more targeted questionnaires to the Parties' competitors in titanium dioxide pigment production and to customers purchasing titanium dioxide pigment active in the manufacture of coatings, plastics and paper laminate. In addition, the Commission held conference calls with the Parties' largest competitors and with a number of major customers in each of the three broad areas of end-use.

(9) On 16 March 2018, the Commission addressed a Statement of Objections (‘SO’) to the Notifying Party, in which it set out its concerns.

IV. SUMMARY OF ASSESSMENT

(10) The Parties' activities overlap in the production of titanium dioxide pigment, the mining of titanium dioxide feedstocks and the production of zircon. The conclusion of the Commission for all three areas are summarised in the following.

1. Titanium Dioxide Pigment

1.1. Market definitions

(11) Titanium dioxide is an inorganic chemical used to opacify, brighten and whiten various industrial and consumer products. It is used in a wide range of end applications. Titanium dioxide can have one of two different crystalline forms: rutile and anatase. Anatase titanium dioxide can only be produced via the sulphate-based process, while rutile titanium dioxide can be produced using either the sulphate- or the chloride-based process. Overlaps between the Parties' activities relate exclusively to rutile titanium dioxide as Tronox manufactures titanium dioxide pigment using only the chloride process, meaning that it cannot produce anatase titanium dioxide pigment.

(12) The Commission considers in general that it may be appropriate to segment the market for the production of titanium dioxide pigment according to: (i) crystalline form, (ii) production process, and/or (iii) the end-application in which the titanium dioxide pigment is used.

(13) The Commission concludes that a separate market for chloride-based titanium dioxide pigment for use in paper laminate exists because titanium dioxide pigment grades used in paper laminate are distinct from those used in other applications (both mass applications and other speciality applications). In addition, sulphate-based grades designed for use in paper laminate are not a satisfactory substitute for chloride-based grades, and there is no supply-side substitutability between chloride- and sulphate-based grades.

(14) The Commission further concludes that a separate market for titanium dioxide pigment for use in mass applications exists, comprising pigment for end usages in coatings and plastics. Considering all the evidence available, the Commission also concludes that chloride- and sulphate-based grades of titanium dioxide pigment in rutile form for use in mass applications belong to one and the same product market. However, the question whether separate narrower markets can be defined by end-application (within mass applications) can be left open as the outcome of the competitive assessment is the same either way.

(15) The Commission concludes that all relevant markets for titanium dioxide pigment as well as its potential sub-segments are EEA-wide in scope.

1.2. Competitive Assessment

(16) The Commission considers, on the basis of the results of its market investigation and the other information available to it, that the notified concentration would significantly impede effective competition in the EEA on the market for chloride-based titanium dioxide pigment for use in paper laminate as a result of the reduction in the number of competitors active on that market from four to three. The Transaction would eliminate an important competitive constraint and bring together two close competitors on an already highly concentrated market which is characterised by customers' need to multi-source and by the fact that suppliers' power to increase prices is protected by the difficulty that customers face in switching suppliers and by the high barriers to entry and expansion. The Commission further considers the lack of countervailing buyer power, the lack of competitive pressure from neighbouring markets for sulphate-based pigments, and the probable negative effects of the concentration as regards potential portfolio rationalisation.

(17) The Commission further concludes that the notified concentration would not significantly impede effective competition in any market or sub-market for titanium dioxide pigment for use in mass applications. The merged entity will not become the largest player in these markets and customers' responses to the Commission's market investigation confirm that there are a number of strong suppliers offering alternatives to the Parties' products.

(18) The Commission has also assessed whether the Transaction is likely to result in coordinated effects on one or more of the plausible EEA markets for titanium dioxide pigment because the markets affected by the Transaction present certain characteristics which can make coordination likely to emerge. The Commission has not, however, found sufficient evidence to conclude that the Transaction would be likely to lead to coordination among the remaining major suppliers of titanium dioxide pigment. In particular, it cannot be established that there exists a clear focal point that suppliers could use to coordinate their behaviour.

1.3. Efficiencies

(19) The Notifying Party claims that the concentration would result in significant efficiencies which would outweigh any potential negative effect.

(20) The Commission has thoroughly assessed all arguments presented by the Notifying Party and has not been able to reach a conclusion that the notified concentration would create efficiencies of significant benefit to EEA customers on the market for chloride-based titanium dioxide pigment for use in paper laminate. In addition, the efficiencies claimed by the Notifying Party in relation to effective capacity expansion, increased production of titanium feedstocks and reduction in variable costs are also not sufficiently verifiable and/or merger specific.

2. Titanium Feedstocks

2.1. Market definition

(21) Titanium feedstocks are titanium rich minerals extracted from mineral sands. The three main types of naturally occurring titanium feedstocks are ilmenite, leucoxene and rutile. The relevant market could be one single product market for all titanium feedstocks or separated by their suitability for the different titanium dioxide pigment production processes (differentiating between chloride and sulphate titanium feedstocks) or by individual titanium feedstock type. For the purposes of this case, the exact product market definition for titanium feedstocks can however be left open as the notified concentration does not create competition concerns on markets for titanium feedstocks under any of these plausible delineations.

(22) For the purposes of this case, the exact geographic market definition for titanium feedstocks can also be left open because the Transaction does not create competition concerns, regardless if the relevant titanium feedstock markets were to be limited to the EEA or wider than that.

2.2. Competitive Assessment

(23) Both Tronox and Cristal are active in the mining of titanium feedstocks, which they largely use internally for the production of titanium dioxide pigment but which they also sell on the merchant market.

(24) The Parties' activities in titanium feedstocks do not give rise to affected markets in the EEA under any plausible product market definition. On the alternative assumption of a global geographic market, the Commission has identified as affected markets ( 5 ) the potential global market for chloride titanium feedstocks and three potential sub-markets thereof, namely (i) the global market for chloride ilmenite, (ii) the global market for natural rutile and (iii) the global market for leucoxene.

(25) Although the merged entity would be the largest producer of chloride titanium feedstocks, there would still be a number of other strong actors on the production market. In addition, the market investigation confirmed that the Parties are not particularly close competitors. Whilst the Transaction would inevitably lead to the removal of one supplier of chloride titanium feedstocks, neither Cristal nor Tronox would appear to be regarded as a critical supplier.

(26) The Commission therefore concludes that the Transaction is unlikely to significantly impede effective competition on the market for titanium feedstocks as a result of horizontal effects, irrespective of the precise market definition.

(27) The concentration also leads to several vertical links as both Parties are active in the downstream market for titanium dioxide pigment and in the upstream market for titanium feedstocks. The Parties' combined market shares are above [30-40] % on the downstream EEA market for chloride-based titanium dioxide pigment for use in paper laminate and on the upstream global markets for chloride ilmenite and leucoxene. However, the Commission concludes that these links will not lead to a significant impediment of effective competition because of vertical effects.

3. Zircon

3.1. Market definition

(28) Zircon is an opaque, inert zirconium mineral frequently found in mineral sands deposits containing ilmenite and rutile and is therefore generally mined as a co-product of these titanium feedstocks. While market participants generally recognise the existence of a distinction between premium and standard grade zircon, the Commission concludes that the precise market definition can be left open for this case, because the Transaction does not create competition concerns on these markets under any plausible product market definition.

(29) For the purposes of this case, the exact geographic market definition for zircon can also be left open between either a global or an EEA-wide market, as the Transaction does not create competition concerns under either plausible geographic market definition.

3.2. Competitive Assessment

(30) The merged entity would have a roughly comparable size on the market for zircon with the current market leader, Iluka. In addition, Rio Tinto remains another large supplier as well as several smaller players.

(31) The results of the market investigation showed that the Parties are not perceived as particularly close competitors on this market, that there is at least some competitive constraint from neighbouring markets, and most importantly, that the remaining independent suppliers of zircon will continue to exert competitive pressure on the merged entity. The Commission further considers that entry barriers in the market for zircon are not particularly high. Therefore, the Commission concludes that the Transaction would not lead to a significant impediment to effective competition on the market for zircon, irrespective of the exact product or geographic market definition applied.

V. REMEDIES

(32) In order to address the competition concerns identified in the EEA market for chloride-based titanium dioxide pigment for use in paper laminate, the Notifying Party has proposed to divest Tronox's paper laminate grade (‘the Commitments’).

(33) The Commitments consist of the global divestment of the production technology and customer contracts for Tronox's titanium dioxide pigment grade for paper laminate applications. The transfer of production would take place over a transitional period during which Tronox would manufacture this grade on behalf of the purchaser under a transitional supply agreement. The Commitments also include an ‘upfront buyer provision’, meaning that the Transaction cannot close until the Commission has approved a suitable purchaser.

(34) The Commission considers, following a market test, that the scope of the divestment business and the terms of the transitional supply agreement are adequate to ensure that the divestment business could remain an effective competitive force, providing it is acquired by a suitable purchaser.

(35) The Commitments stipulate that the purchaser should have proven expertise in chloride-based titanium dioxide production, available capacity to produce the grade on the same scale as Tronox, and the incentive to develop the business in the EEA. The Commission still has to approve a suitable purchaser for the divestment business based on a proposal by the Notifying Party in a separate decision.

VI. CONCLUSION

(36) For the reasons mentioned above, the Commission concludes that the proposed concentration as modified by the Commitments and subject to specific conditions, including the Commission's acceptance of a suitable purchaser for the divestment business, will not significantly impede effective competition in the Internal Market or in a substantial part of it.

(37) Consequently the concentration is declared compatible with the Internal Market and the functioning of the EEA Agreement subject to conditions and obligations, in accordance with Article 2(2) and Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement.

(1) OJ L 24, 29.1.2004, p. 1.

(2) OJ C 438, 19.12.2017.

(3) In accordance with paragraph 5.1 of the Best Practices on the conduct of EU merger control proceedings, the Notifying Party was informed of the results of the phase I market investigation at a state of play meeting held on 6 December 2017.

(4) In accordance with paragraphs 45 and 46 of the Best Practices on the conduct of EU merger control proceedings, the Commission provided a number of key documents to the Notifying Party on 21 December 2017.

(5) On the basis of either sales and/or production volumes.