Summary of Commission Decision

of 5 February 2019

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

(Case M.8900 – Wieland/Aurubis Rolled Products/Schwermetall)

(notified under document C(2019) 922)

(Only the English version is authentic)

(Text with EEA relevance)

(2020/C 325/12)

On 5 February 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: https://ec.europa.eu/competition/elojade/isef/index.cfm?clear=1&policy_area_id=2

(1) On 13 June 2018, the Commission received a notification of a proposed concentration pursuant to Article 4 of Regulation (EC) No 139/2004 (the ‘Merger Regulation’) which would result from a proposed transaction by which Wieland Werke AG (‘Wieland’, Germany) intends to acquire within the meaning of Article 3(1)(b) of the Merger Regulation control of the whole of Aurubis Flat Rolled Products business (‘ARP’, Germany), and of the whole of Schwermetall Halbzeugwerk GmbH & Co. KG (‘Schwermetall’, Germany), by way of purchase of shares and assets (the ‘Transaction’). In this summary, Wieland, ARP and Schwermetall are also referred to as the ‘Parties’, Wieland is also designated as the ‘Notifying Party’. The undertaking that would result from the Transaction is referred to as ‘the merged entity’.

I. THE PARTIES

(2) Wieland, incorporated in Germany, manufactures and supplies semi-finished products made of copper and copper alloys. Wieland covers the production chain for copper products from casting shapes to selling semi-finished products. It operates twelve plants with approximately 7 000 employees. Six of these plants produce rolled products and are located in Germany, the United Kingdom, the United States and Singapore.

(3) ARP is controlled by Aurubis AG (‘Aurubis’, Germany) and is active in manufacturing and supplying semi-finished copper and copper alloy products. Aurubis is a worldwide provider of non-ferrous metals (including copper) and is the largest integrated European copper producer to serve the full vertical spectrum from the production of copper anodes, cathodes and shapes to the production of rolled and drawn products.

(4) Schwermetall is a 50/50 joint venture between Wieland and Aurubis and is active in manufacturing pre-rolled strip and rolled copper alloy products. Schwermetall also supplies third parties with pre-rolled strip. Moreover, Schwermetall sells coin strip – rolled strip used for the production of coins – which can be regarded as a semi-finished rolled product.

(5) Wieland intends to acquire sole control of ARP and Schwermetall by way of purchase of shares and assets and through two different agreements (the Master Purchase Agreement between Wieland and Aurubis for the acquisition of ARP and the Schwermetall Share and Purchase Agreement for the acquisition of the 50 % shareholding of Aurubis in Schwermetall), both signed on 29 March 2018 and which are conditional upon each other and form one single concentration.

II. UNION DIMENSION

(6) The Parties have a combined aggregate worldwide turnover above EUR 2 500 million and an EEA-wide turnover above EUR 100 million. In each of Germany, France, and Italy, the combined aggregate turnover of Wieland and ARP is more than EUR 100 million and the aggregate turnover of each of Wieland and ARP is more than EUR 25 million. None of the Parties achieves more than two thirds of its aggregate Union-wide turnover within one and the same Member State. The concentration has therefore a Union dimension.

III. PROCEDURE

(7) On 1 August 2018, based on the results of the phase I market investigation, the Commission raised serious doubts as to the compatibility of the Transaction with the internal market and adopted a decision to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation.

(8) On 3 August 2018, the Notifying Party requested a first extension of 10 working days pursuant to Article 10(3) second subparagraph, first sentence of the Merger Regulation. On 8 October 2018, at the request of the Notifying Party, the Commission adopted a decision extending the procedure by 10 additional days pursuant to Article 10(3) second subparagraph, third sentence of the Merger Regulation.

(9) On 17 October 2018, Wieland submitted commitments, which the Commission did not market test.

(10) On 24 October 2018, the Commission issued a Statement of Objections (the ‘SO’). In the SO, the Commission reached the preliminary conclusion that the Transaction would significantly impede effective competition in a substantial part of the internal market and that competition concerns would not be addressed in their entirety by the remedies proposed by Wieland on 17 October 2018. The Commission considered that the proposed remedies were not comprehensive and effective from all points of view.

(11) On 12 November 2018, the Notifying Party replied to the SO (‘response to the SO’). On 19 November 2018, the oral hearing was held.

(12) On 3 December 2018 (day 65 of the phase II procedure), the Notifying Party submitted new commitments pursuant to Article 8(2) of the Merger Regulation aimed at remedying the identified competition concerns. On 7 December 2018, the Commission launched a market test of the Commitments of 3 December 2018.

(13) On 19 December 2018, the Commission informed the Notifying Party of the negative results of the market test of the Commitments of 3 December 2018.

(14) On 29 January 2019, the Advisory Committee discussed a preliminary draft of the Decision and delivered a favourable opinion.

IV. ASSESSMENT

(15) The Transaction mainly concerns the production and supply of rolled copper and copper alloys products (‘rolled products’). In addition, Schwermetall is active upstream on the merchant market for the supply of pre-rolled strip, which is an input for rolled products. ARP also supplies billets to third parties for the production of copper tubes, the downstream market where Wieland is active. The relevant product and geographic markets are defined below.

1. The relevant product markets

1.1. Copper shapes (cakes and billets)

(16) Copper shapes are used as an input for the production of semi-finished copper products. There are two kinds of shapes: billets (circular) and cakes (rectangular). While it is unlikely that billets and cakes belong to the same product market because there is no demand side substitution and supply side substitution may not be immediate, the Commission left the question of the precise scope of the relevant market open. The Commission considered that the markets for billets or cakes are EEA-wide.

1.2. Pre-rolled strip

(17) Pre-rolled strip is a thin strand of copper or copper alloy, which is a key input for manufacturing rolled products. The Commission considered that the market for pre‐rolled strip is separate from the market for rolled products because there is no demand side substitution and only limited supply side substitution between pre-rolled strip and rolled products. The Commission considered that the market for pre-rolled strip is EEA-wide.

1.3. Rolled products

(18) There is an overall rolled products market, which is highly differentiated in terms of product performance, know-how and technology, specifications of customers, intensity of competition and pricing. Therefore different segments can be defined within the overall market that exhibit different intensity of competition, in particular as regards competition between commoditised products located at the lower end of the market and more specialised products situated at a higher end of the market. In line with the precedents and on the basis of the market investigation, the Commission considered that the geographic market for rolled products is EEA-wide.

2. Competitive assessment

2.1. Framework of the Competitive Assessment in this case

Two transactions in the same industry

(19) Wieland notified the concentration to the Commission on 13 June 2018. On 4 June 2018, that is before the notification of the Transaction, KME AG (‘KME’) notified to the Commission its intention to acquire within the meaning of Article 3(1)(b) of the Merger Regulation sole control of MKM Mansfelder Kupfer and Messing GmbH (‘MKM’). The KME/MKM transaction partly affects the same markets as the Transaction assessed in the present case.

(20) In case of parallel investigations into concentrations affecting the same relevant markets, the Commission, in line with its constant practice, assesses the first notified transaction on its own merits and based on the market structure prevailing at the time of that notification. Conversely, the Commission assesses the subsequently notified transaction based on the market structure resulting from the likely implementation of the first transaction. Therefore, in the present case, the starting point for the Commission to assess the Transaction is a likely market structure where KME and MKM are treated as a single entity.

The parallel acquisitions of ARP and Schwermetall need to be assessed together

(21) The Commission considered that Wieland’s acquisition of ARP and its acquisition of sole control over Schwermetall and the corresponding effects of each these acquisitions are closely linked, and therefore cannot be assessed in isolation.

(22) As such, in a first step the Commission assessed the horizontal effects of combining the rolled product businesses of Wieland, ARP and Schwermetall on the rolled products market under the principles set out in the Horizontal Merger Guidelines. In a second step, the Commission assessed whether and how Wieland’s acquisition of sole control over Schwermetall further reinforces those effects through raising of rivals’ costs.

2.2. Assessment of horizontal non-coordinated effects in the rolled products market

(23) The Transaction would lead to large combined market shares in terms of volume ([40-50] %) and very large in terms of value ([50-60] %) on the rolled products market. The combined market shares of the Parties are significantly larger than the number 2 competitor’s KME/MKM.

(24) Moreover, prior to the Transaction Wieland is the clear market leader in the rolled products market, with high market share, significant growth and an extensive product portfolio, and it is particularly strong in the high-end part of this market. Already prior to the Transaction, Wieland possesses and exercises a significant degree of market power, which allows it to behave to some degree independently of its competitors and customers in the rolled products market and in particular in the high-end part of the market.

(25) ARP is an important competitor of Wieland in the rolled products market and a significant and close rival in key segments of the rolled products market in which Wieland is particularly active (for example, connectors). Furthermore, ARP purchases pre-rolled strip from Schwermetall. ARP is strong in power electronics where Wieland is trying to expand. Evidence on file shows that ARP’s competitive significance is growing and ARP would thus likely be able to exert even stronger competitive pressure on Wieland in the future. The Transaction therefore would eliminate important competitive constraint that ARP exerts on Wieland within the meaning of paragraph 25 of the Horizontal Merger Guidelines.

(26) The other competitors, in particular in the high-end part of the rolled products market (for example connectors for the automotive industry), do not have the ability and incentives to increase output so significantly that it would be sufficient to defeat any likely negative effects of the Transaction. The high-end part of the rolled products market is characterised by few competitors, high barriers to entry and capacity constraints. As a result, it would be difficult for competitors active on the lower end part of the market to reposition their products into the high-end part of the market to defeat any price increase by the merged entity.

(27) After the Transaction, customers would have limited possibilities to switch suppliers in particular in the high-end part of the market where Wieland and ARP’s activities mainly overlap. There are fewer alternative suppliers in the high-end part of the market and qualification process of suppliers make it unlikely or extremely difficult for customers to switch to producers active in the lower end part of the market. Moreover, switching suppliers is also difficult because of multi-sourcing strategies, applied by customers for the reasons of security of supply.

(28) The internal documents of Wieland and in particular the results of the market investigation provide a strong indication of the likely negative effects of the Transaction. Wieland’s internal documents suggest that Wieland expects the Transaction to further strengthen its market position and lead to increased prices. The results of the market investigation in Phase I and Phase II show that the large majority of customers and several competitors are concerned about price increases on the rolled products market after the Transaction.

(29) The Transaction would also likely lead to the creation of a dominant position for Wieland on the rolled products market. In this regard, the Commission took into account, first, the very large combined market shares. Second, the fact that the Transaction would remove an important competitor in an already concentrated market, where the next closest competitor would be KME/MKM with a market share of [20-30 %] and which, according to the Parties’ own assessment, is to a certain extent experiencing difficulties in serving the market. Third, the fact that several other competitors depend on Schwermetall for the supplies of a key input, which, after the Transaction would be controlled by Wieland. Fourth, the negative reactions of customers regarding the effects of the Transaction.

(30) In light of the above, the Commission concluded that the Transaction is likely to result in a significant impediment of effective competition through the removal of an important competitor on the rolled products market, with the likely result of price increase. Moreover, the Commission concluded that the Transaction is likely to result in a significant impediment of effective competition through the creation of a dominant position for Wieland on the rolled products market in the EEA.

2.3. The parallel acquisition of sole control over Schwermetall aggravates the negative effects of the Transaction

(31) The parallel acquisition of sole control over Schwermetall would aggravate the horizontal effects identified above in the sense that it would strengthen Wieland’s ability to raise the costs of its competitors in the rolled products market.

(32) First, Schwermetall is the leading supplier of pre-rolled strip on the merchant market. Moreover, Schwermetall sets prices and sells pre-rolled strip to Wieland and ARP’s competitors on the downstream rolled products market, independently from its parents. The customers of Schwermetall are particularly active in the high-end part of the market.

(33) Second, the change from joint to sole control over Schwermetall would give Wieland access to commercially sensitive information of its competitors and the right to decide alone on prices and product portfolio offered on the merchant market. It would therefore increase Wieland’s ability to restrict the expansion of its important downstream competitors that depend on Schwermetall’s supplies of pre-rolled strip.

(34) Third, the customers of Schwermetall, and in particular those competing with Wieland and ARP downstream, could not efficiently and in due time replace the supplies of Schwermetall with alternative suppliers or by expanding their in-house capabilities.

(35) The acquisition of sole control over Schwermetall would increase Wieland’s incentives to raise its rivals’ costs, especially taking into account the increased concentration level on the downstream rolled products market because of the acquisition of ARP.

(36) Against this background, the Commission considered that after the Transaction Wieland would have the ability and incentive to reduce the competitive pressure stemming from companies relying on Schwermetall supplies by raising their costs (either by increasing input prices, reducing the portfolio range or the quality of the pre-rolled strip) and would have full insight into its competitors’ needs and their respective costs. Such a conduct would have a negative impact on the competitiveness of rivals. Raising rivals’ costs and the consequent weakening of competition would, in turn, further reinforce and deepen the significant impediment to effective competition identified with respect to Wieland’s acquisition of ARP.

(37) The Commission also assessed whether the acquisition of sole control in Schwermetall would create merger-specific efficiencies. However, the efficiencies claims of the Notifying Party were not considered merger specific. Furthermore, these claims could not affect the Commission’s finding that the acquisition of sole control in Schwermetall would likely deepen the negative effects of the Transaction.

2.4. The Transaction does not impede effective competition in relation to input foreclosure of billets

(38) Following the complaint of an ARP’s customer for billets, the Commission assessed whether the Transaction would likely lead to input foreclosure for billets. The ARP’s customer argued that after the Transaction Wieland, with whom it competes downstream on the copper tubes market, would acquire control of its sole billets supplier and would therefore have the incentive to leverage its market power upstream to increase its own sales of copper tubes downstream. However, the Commission found that there is no risk of input foreclosure in relation to billets because there are other alternative sources for billets in the EEA.

3. Commitments

3.1. Description of Commitments

(39) In order to render the Transaction compatible with the internal market the Notifying Party submitted commitments proposing to divest two ARP’s plants (Stolberg, Germany, and Zutphen, the Netherlands) as well as, at the option of the Purchaser, three slitting centres in Slovakia, Italy and the United Kingdom (‘Divestment Business’), but not the 50 % stake of ARP in Schwermetall. The Notifying Party also offered an optional temporary supply and service agreement for pre-rolled strip to the plants in Stolberg and Zutphen.

(40) The Commitments included purchaser criteria requiring the buyer to be able to ensure sufficient supply of pre-rolled strip necessary for the Divestment Business, and an upfront buyer clause.

(41) Although the Notifying Party had not concluded a sale and purchase agreement with a specific buyer during the review procedure, it identified several potential purchasers of the Divestment Business.

3.2. Assessment of the Commitments

Results of the market test

(42) A majority of customers expressing a view considered that without a stake in Schwermetall the proposed remedy is structurally inadequate to address the horizontal concerns. Furthermore, a clear majority of customers expressing a view considered that the Commitments do not address the concerns regarding raising rivals’ costs and access to confidential information.

The Commission’s assessment of the Commitments

(43) Due to the exclusion of a key asset of ARP, that is the 50 % stake in Schwermetall, the Commission considered that the Commitments are structurally inadequate to eliminate the significant impediment to effective competition. The Commission found in particular that prior to Transaction Schwermetall has been an integral and critical element of Stolberg plant’s viability and competitiveness and an important element for Zutphen plant’s viability and competitiveness.

(44) The Commitments would lead to a carve-out of a pre-existing business with no certainty for the Commission that, when the business is transferred to the buyer, it would be a viable business on a stand-alone basis and the risks for the viability and competitiveness due to the carve-out would be reduced to a minimum. The temporary supply agreement proposed by the Notifying Party would not be sufficient for the buyer to develop independent sources of supply and would hence risk creating long-term links between competitors.

(45) The Commission also considered that significant uncertainties remained whether the assets of identified potential buyers by the Notifying Party could compensate for the lack of access to pre-rolled strip from Schwermetall or whether the acquisition of the Divestment Business by the potential buyers would not create further competition concerns.

(46) Finally, the Commission considered that the competition concerns linked to the ability of Wieland to hinder the expansion of the important share of remaining competitors on the rolled products market, which depend on Schwermetall’s supplies, were not addressed by the Commitments.

V. CONCLUSION

(47) For the reasons mentioned above, the decision concludes that the proposed concentration will significantly impede effective competition in the internal market or in a substantial part of it. Consequently, the concentration should be 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.