Summary of Commission Decision

of 11 June 2019

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

(Case M.8713 – Tata Steel/ThyssenKrupp/JV)

(notified under document number C(2019) 4228)

(Only the English text is authentic)

(Text with EEA relevance)

(2021/C 24/12)

On 11 June 2019 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(3) of that Regulation. A non-confidential version of the full Decision, as the case may be in the form of a provisional version, 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/elojade/isef/index.cfm?clear=1&policy_area_id=2

1. THE PARTIES

(1) Tata Steel Limited (‘Tata’), incorporated in India, is a diversified company active in the mining of coal and iron ore, manufacturing of steel products, and selling those steel products globally. Tata further produces ferroalloys and related minerals and manufactures certain other products such as agricultural equipment and bearings.

(2) ThyssenKrupp AG (‘ThyssenKrupp’), incorporated in Germany, is a diversified industrial group active in the production of flat carbon steel products, material services, elevator technology, industrial solution and components technology.

2. THE OPERATION

(3) On 25 September 2018, the Commission received a formal notification pursuant to Article 4 of the Merger Regulation by which Tata and ThyssenKrupp would acquire within the meaning of Article 3(1)(b) and 3(4) of the Merger Regulation joint control of a newly created joint venture (the ‘JV’) ( 2 ) . Tata and ThyssenKrupp are designated hereinafter as the ‘Notifying Parties’ or the ‘Parties’, and each separately as a ‘Party’. The notified operation is hereinafter referred to as the ‘Transaction’.

3. THE PROCEDURE

(4) Following a Phase I investigation, the Commission found that the Transaction raised serious doubts as to its compatibility with the internal market and adopted a decision to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation on 30 October 2018.

(5) On 13 February 2019, the Commission adopted a Statement of Objections (‘SO’) where it raised preliminary concerns. The Notifying Parties submitted their Reply to the SO on 27 February 2019.

(6) On 1 April 2019, the Notifying Parties submitted commitments pursuant to Article 8(2) of the Merger Regulation in order to address the competition concerns identified in the SO (the ‘Commitments of 1 April 2019’).

(7) On 2 April 2019, the Commission launched a market test of the Commitments of 1 April 2019.

(8) On 23 April 2019, the Notifying Parties submitted revised commitments (the ‘Revised Commitments of 23 April 2019’).

(9) On 25 April 2019, the Commission launched a market test of the Revised Commitments of 23 April 2019.

4. SUMMARY

(10) The Commission’s investigation revealed that the Transaction would significantly impede effective competition in the internal market with regard to the markets for the production and supply of (i) automotive hot-dip galvanised steel products (‘Automotive HDG’); and (ii) metallic coated and laminated steel products for packaging.

(11) While the Notifying Party proposed commitments to address the competition concerns, the proposed commitments were not adequate or suitable to address the competition concerns in their entirety on a lasting basis.

(12) Therefore, the Commission declared the Transaction incompatible with the internal market and with the functioning of the EEA Agreement, pursuant to Articles 2(3) and 8(3) of the Merger Regulation, and Article 57 of the EEA Agreement.

5. EXPLANATORY MEMORANDUM

5.1. The relevant product markets

(13) The Article 8(3) decision concerns the production and supply of (i) automotive hot-dip galvanised steel products (‘Automotive HDG’); and (ii) metallic coated and laminated steel products for packaging.

(14) Automotive HDG is hot-dip galvanised flat carbon steel that is supplied for automotive applications. From a demand perspective, the investigation confirmed that Automotive HDG is different from more basic hot-dip galvanised steel (‘Non-auto HDG’), in particular due to the specific and often more demanding requirements of the automotive customers compared to many other steel users. In practice, Automotive HDG typically has smaller tolerances, better surface quality, stricter requirements on the zinc coating and has more variety of grades than Non-auto HDG. Its production also requires the use of high quality hot rolled and cold rolled steel. From a supply perspective, the investigation confirmed that not all galvanising lines can produce Automotive HDG and that special production capabilities are needed to supply automotive customers. This also includes the control of the entire value chain from liquid and hot rolled steel to galvanisation – provided by a limited number of (integrated) suppliers. The definition of a separate product market for Automotive HDG steel is thus warranted.

(15) Packaging steels are used in a broad range of packaging solutions, such as food cans, paint cans, aerosol and crown corks. The substrate is cold rolled flat carbon steel that is further coated with tin (tin plate or ‘TP’) or chromium (electrolytic chromium coated steel or ‘ECCS’). Laminated steel for packaging is the product of further processing of TP or ECCS and is produced by applying a laminate coating on the substrate TP or ECCS. The Commission has in previous cases considered (but not defined) a separate market for TP and ECCS, and the investigation has confirmed that these can be defined as separate product markets. Furthermore, the investigation has confirmed that laminated steel for packaging constitutes a distinct market. The Commission concludes in the current case that TP, ECCS and laminated steel for packaging constitute distinct product markets.

5.2. The relevant geographic markets

(16) In the most recent precedent (ArcelorMittal/Ilva), the Commission defined flat carbon steel markets as EEA wide but recognised there is geographic differentiation within them.

(17) The investigation confirmed that conditions of competition are not homogeneous globally and that suppliers’ presence varies significantly across different world regions.

(18) Moreover, in line with precedent, the in-depth investigation revealed that most European customers source predominantly from suppliers located in the EEA, or even in a narrower area closer to their manufacturing facilities. This is due not only to transport costs, but also to non-price factors such as lead times and integration into seamless ‘just-in-time’ supply chains, security of supply and technical support.

(19) As regards global trade, steel markets are increasingly characterised by trade measures creating additional barriers. Several states have adopted measures (such as the tariffs imposed by the US on most steel exporting nations), or initiated procedures to limit import flows as a response to such measures. In the EU, the Commission has adopted anti-dumping duties on a number of products, and has adopted safeguard measures in consequence of the US measures. These measures cover all relevant flat carbon steel products. These measures, as well as measures adopted or initiated by other jurisdictions such as for instance Canada, Turkey and the Eurasian Economic Union are hardly evidence for global markets. On the contrary, their aim is to neutralise abnormal level of imports resulting from market distortions. The investigation confirmed that the increasing number of trade barriers increase the costs and the risks associated with import of steel particularly for customers, such as in the automotive and packaging industries, for which security of supply, lead times and just-in-time supply chains are essential.

(20) In conclusion, the in-depth investigation indicated that it is not appropriate to depart from established precedent, and markets should be defined as EEA-wide. Evidence of geographic differentiation in the market for the production and supply for Automotive HDG and the specific role of imports for each product market is however assessed as part of the competitive analysis.

5.3. Competitive assessment

5.3.1. Horizontal non-coordinated effects in the market for the production and supply of Automotive HDG

(21) The Parties have a sales share in the Automotive HDG steel market of [20-30] %, behind the market leader ArcelorMittal. The other competitors are much smaller, with Voestalpine and Salzgitter at around [10-20] % market share each and SSAB and USSK being even smaller. Imports and non-integrated re-rollers play a negligible role, and customers consider vertical integration important.

(22) There are few companies capable of supplying Automotive HDG due to the higher quality requirements throughout the manufacturing process, and even fewer companies with a broad portfolio including specialised sub-segments such as high- strength steel or steel of a large width and high surface quality for exposed car parts. The capability to manage optimised supply chains with short lead times and on-time delivery is also required. Moreover, market participants consistently report high capacity utilisation rates and very limited spare capacity across the industry.

(23) Market shares likely underestimate Tata’s importance as it has significant capacities and is a growing player with significant investments to expand and gain share in the market, thus imposing a growing competitive constraint on ThyssenKrupp. The Phase II investigation also confirms that the Parties closely compete in a number of Automotive HDG segments, and due to their geographic footprint.

(24) The merged entity would face limited constraints in its ability to raise prices as all smaller European competitors operate at near full capacity. While ArcelorMittal (incl. Ilva) has spare capacities, it would itself benefit from an increase in price levels, and have little incentive to increase volumes. Consistent with this, despite the tight market for galvanised steel, ArcelorMittal has announced shift reductions and possible plant closures.

(25) Multiple automotive companies, including major manufacturers expressed concerns about the impact of the transaction on prices, and some also on innovation. Qualitative and quantitative evidence appears to support these claims.

5.3.2. Horizontal non-coordinated effects in the market for the production and supply of metallic coated and laminated steel for packaging

(26) The markets for packaging steels (TP, ECCS and laminated steel, which constitute distinct product markets) in the EEA are already very concentrated pre-Transaction. ArcelorMittal, ThyssenKrupp, Tata Steel and to a more limited extent USSK are the only producers in the EEA. USSK is much smaller than the other suppliers, is only active in TP, and does not offer the full range of products. The Transaction would thus result in a duopoly in packaging steel in the EEA for full-portfolio suppliers (and monopoly in one product, that is laminated steel).

(27) While there are imports from non-EEA countries, these are not considered a viable alternative by customers, due to the lack of quality and lead-time that customers require for instance require for food cans. In addition, the recent trade developments have made purchasing from outside the EEA more difficult in terms of security of supply.

(28) Post-Transaction, in TP the merged entity would have a combined sales share of [40-50] %, followed by ArcelorMittal. In terms of capacity share, the combined entity would have [60-70] %. In addition to ArcelorMittal, USSK in Slovakia remains in the market but has only limited capabilities and is considered as a weaker competitive force and at best regional player by customers.

(29) In ECCS, the merger is a three-to-two merger among European suppliers. The combined entity would be second with [30-40] % sales share, following ArcelorMittal. The Commission’s market reconstruction indicates that in terms of capacity, the merged entity would be market leader with [40-50] %.

(30) In laminated steel for packaging, the Parties are the only two producers in the EEA. The merger would effectively result in a monopoly.

(31) The Parties and ArcelorMittal are full-portfolio suppliers with good possibilities to address the needs of EEA customers. In comparison, USSK and non-EEA suppliers are more distant competitors and only exert limited competitive pressure, and USSK with limited spare capacities. Post-transaction, customers would have limited switching options (that is the merged entity and ArcelorMittal). The vast majority of customers expect price increases and some customers have been actively complaining and making submissions in the matter.

5.3.3. Conclusion

(32) The decision therefore concludes that the notified concentration would significantly impede effective competition in the internal market with regard to the markets for the production and supply of Automotive HDG, and metallic coated and laminated steels for packaging.

5.3.4. Undertakings submitted by the Parties

(33) In order to address the aforementioned competition concerns in the markets for Automotive HDG and metallic coated and laminated steels for packaging, the Parties submitted the undertakings described below.

(34) The Notifying Parties undertook to divest several downstream finishing plants for both metallic coated and laminated steels for packaging and Automotive HDG to an independent purchaser or purchasers subject to approval by the Commission. An upfront buyer requirement for each obliged the Parties not to complete the proposed Transaction before they or the Divestiture Trustee had entered into a binding agreement for the sale of both of the Divestment Businesses and the Commission had approved the purchaser(s) and the terms of sale.

(35) As regards packaging steels, the proposed commitments comprised Tata’s packaging steel assets in Trostre (UK, the ‘Trostre Plant’) and Duffel (Belgium, ‘the Duffel Plant’, together the ‘Packaging Steel Business’). The Packaging Steel Business included operational capacity to produce TP, ECCS and laminated steel for packaging. The Trostre Plant has capacities for pickling input hot-rolled steel and cold rolling it. At the finishing stages it included one ECCS line, two TP lines and one lamination line. The Duffel Plant has one lamination line.

(36) While the commitments did not include assets for the production steps upstream of cold rolling (such as hot-rolling or liquid steelmaking), they included the option of a 10-year supply agreement for hot-rolled coils at cost-plus terms, at the request of the purchaser. The Trostre Plant is currently sourcing its steel substrate from Tata’s plant in Port Talbot, and the Duffel plant from the Trostre Plant.

(37) Moreover, the Parties committed to an escrow account for the purchaser to drawdown in order to fund capacity expansions, the addition of a R&D facility, and further enhancements to the Packaging Steel Business.

(38) For the period before the Packaging Steel Business has completed the investments to increase capacity (by drawing down from the available escrow), the Parties offered an agreement with the purchaser whereby the Parties would either toll manufacture or supply (or both) finished packaging steel products for the Packaging Steel Business up to a certain volume per year. The Packaging Steel Business would be granted this contract for a maximum of 3 years, on a cost-plus basis.

(39) The Parties committed to use commercially reasonable efforts to encourage their existing customers to switch to the Packaging Steel Business.

(40) In addition, the Parties committed to offer several transitional supply arrangements, including (i) a three-year supply agreement for hot-rolled coil (in the event that the 10-year supply agreement is not taken); (ii) a three-year supply agreement for polymer film (for the manufacturing of laminated packaging steel); and (iii) for a transitional period of up to 18 months, the supply of various other services, including the supply of services for the use of testing facilities at Tata’s IJmuiden plant.

(41) Shared personnel and shared testing and research facilities located in Tata’s IJmuiden plant were to be excluded from the Packaging Steel Business.

(42) As regards Automotive HDG, the proposed commitments comprised ThyssenKrupp’s plant in Sagunto (Spain, the ‘Sagunto Plant’) and Tata’s plant in Ivôz-Ramet (Belgium, the ‘Segal Plant’, together the ‘Automotive HDG Business’). Both the Sagunto Plant and the Segal Plant are comprised of one galvanising line for the production of zinc and zinc-magnesium coated HDG as well as one finishing/inspection line.

(43) The Automotive HDG Business did not include assets for the production of cold-rolled coils and inputs further upstream. Instead, it included an option for a 10-year supply agreement for the required cold-rolled substrate at cost-plus terms, at the request of the purchaser.

(44) Moreover, the Parties committed an escrow account for the purchaser to drawdown to fund enhancements and upgrades to the Sagunto Plant.

(45) In addition, the Parties committed to offering several transitional supply arrangements, including (i) a three-year supply agreement for cold-rolled coil (in the event that the 10-year supply agreement is not taken); and (ii) for a transitional period of up to 18 months, the supply of any necessary services for all current arrangements under which the Parties or their affiliated undertakings supply products or services to the Automotive HDG Business.

(46) Shared personnel and shared testing and research facilities located at ThyssenKrupp’s Duisburg North plant and at Tata’s IJmuiden Plant were to be excluded from the Automotive HDG Business.

5.3.5. Assessment of the undertakings submitted

Automotive HDG

(47) As regards automotive HDG, the Commission considers that the remedy proposal of 23 April 2019 did not eliminate the significant impediment to effective competition brought about by the Transaction. This is due to the size, scope and geographic location of the assets as well as the lack of upstream integration.

(48) The Automotive HDG Business would only account for approximately 40 % of the incremental nominal capacity brought about by the Transaction with regard to the Parties’ overlap in Automotive HDG in the EEA, and only two automotive HDG production lines out of the more than 10 the Parties have in the EEA.

(49) Further, both lines proposed for divestment have technical limitations (such as limited ability to produce HDG with large strip widths and very high tensile strengths) and particularly Sagunto currently delivers a substantial part of its output to locations outside the centre where the majority of EEA Automotive HDG demand is.

(50) These findings were corroborated by the results of the market tests. A large majority of responding customers that took a position did not consider the remedies to be suitable and adequate to effectively remove the Commission’s competition concerns with respect to Automotive HDG in the EEA.

(51) The lack of upstream capacity in the Automotive HDG remedy proposal was also highlighted as problematic in a great number of automotive customer responses (in particular by OEMs).

Metallic coated and laminated steels for packaging

(52) As regards metallic coated and laminated steels for packaging, the Commission considers that the remedy proposal of 23 April 2019 did not eliminate the significant impediment to effective competition brought about by the Transaction. This is due to the size, scope, geographic location of the assets as well as the uncertainties around the proposed investments and the lack of upstream integration.

(53) The Transaction would bring about a significant increment in an already concentrated market, both in terms of capacity and EEA sales. For TP, the merged entity would hold a sales share of [30-40] % and capacity share of [50-60] %, the Packaging Steel Business would hold only a sales share of [5-10] % and capacity share of [5-10] %. With ArcelorMittal as the only other large remaining competitors, the market structure would effectively still move from three players to a duopoly, despite the remedy.

(54) Respondents to the Commission’s market tests further indicated that the quality of products produced by the proposed divestment plants is in certain cases lower than of products produced by plants to be retained by the Parties. In that regard, they submitted that the Trostre plant often requires assistance from Tata’s IJmuiden plant to deal with quality issues.

(55) Even when considering that the proposed investments to increase capacity and enhance other aspects of the Packaging Steel Business would be successful, this would still not address the incremental overlap brought about by the Transaction. Similarly, a majority of customers taking a position did not consider the scale and scope of the Commitments, including the investment commitment envisaged to expand capacity, to be sufficient to ensure its viability and competitiveness.

(56) The proposed capacity expansion of the Packaging Steel Business would likely take a considerable amount of time. For this reason, the Parties committed to produce packaging steel for the Packaging Steel Business under a toll-manufacturing agreement at cost (plus) terms on an interim basis. In this regard, the market test revealed great uncertainty among customers whether the Packaging Steel Business would be able to compete effectively on prices with the Parties under the proposed tolling agreement.

(57) In addition, the location of the Trostre Plant makes it problematic to reach customers where the Parties overlap in continental Europe. This is for instance illustrated by its sales that are heavily skewed towards the UK. By comparison, the sales of ThyssenKrupp’s Rasselstein plant are much less skewed and more evenly distributed between different countries. While this is already the case today, this would even further be aggravated by a potential departure of the UK out of the EEA.

(58) Furthermore, the lack of upstream integration introduced a significant amount of uncertainty as to whether the Packaging Steel Business would operate as a viable business independently from the Parties or from other suppliers in the oligopolistic market structure of TP, ECCS and laminated steel for packaging. The importance for a supplier of metallic coated and laminated steels for packaging to be vertically integrated in order to have control over the required high-quality upstream input was also underlined by customers. This input is specific for packaging steel, and is shown by the market test not to be manufactured by steel suppliers that are not active in packaging steels. The market test also revealed that no merchant market for the required substrate currently exists in Europe, thereby most likely rendering the Packaging Steel Business dependent on the incumbent EEA producers of packaging steel.

(59) In its decision, the Commission has, therefore, reached the conclusion that the undertakings submitted by the Notifying Parties were not effective and comprehensive as they did not eliminate the significant impediments to effective competition.

6. CONCLUSION

(60) For the reasons mentioned above, the decision concludes that the proposed concentration would significantly impede effective competition in the Internal Market or in a substantial part of it.

(61) Consequently, the concentration is declared incompatible with the Internal Market and the functioning of the EEA Agreement, in accordance with Article 2(3) and Article 8(3) of the Merger Regulation and Article 57 of the EEA Agreement.

(1) OJ L 24, 29.1.2004, p. 1, the ‘Merger Regulation’.

(2) OJ C 354, 3.10.2018, p. 4.