Décision de la Commission du 15/03/2004 déclarant la compatibilité avec le marché commun d'une concentration (Affaire N IV/M.3314 - AIR LIQUIDE / MESSER TARGETS) sur base du Règlement (CEE) N 4064/89 du Conseil. (Le texte en langue française est le seul faisant foi.)

To the notifying party

Dear Sir/Madam,

Subject: Case No COMP/M.3314 - Air Liquide/Messer Targets Notification of 30 of January 2004 pursuant to Article 4 of Council Regulation No 4064/89 [1]

[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).

1. On 30.01.2004, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 [2], as last amended by Regulation (EC) No 1310/97 [3], by which the undertaking L'Air Liquide S.A., France ("Air Liquide") acquires within the meaning of Article 3(1)(b) of the Council Regulation sole control of the activities of Messer KGaA ("the Messer group") in Germany, the U.K. and the U.S. (together "Messer Targets" or "Messer") by way of purchase of shares.

[2] OJ L 395, 30.12.1989 p. 1; corrigendum: OJ L 257, 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).

[3] OJ L 180, 9. 7. 1997, p. 1; corrigendum OJ L 40, 13.2.1998, p. 17.

2. In the course of the proceedings, the parties to the concentration submitted undertakings as a result of which the deadline of the first phase was extended to 15 March 2004. The proposed modifications were designed to eliminate competition concerns identified by the Commission, in accordance with Article 6(2) of the Merger Regulation. After examination of the notification and in the light of these modifications, the Commission has concluded that the operation falls within the scope of the Merger Regulation and does not raise serious doubts as to its compatibility with the common market and the EEA agreement.

I. THE PARTIES

3. Air Liquide and the Messer group are both active worldwide in the production and distribution of industrial and medical gases and the services connected to these products. They supply industrial gases to various industries including iron, steel, refining, chemicals, glass electronics, paper pulp, metallurgy, food processing, health care and aerospace industries. Air Liquide is the world leader in the production and distribution of industrial gases.

4. Air Liquide is a publicly listed company. The Messer group is currently owned by the Messer family (32,1%), Goldman Sachs Private Equity (33,08%), Allianz Capital Partners (33,08%) and Messer's staff and management (1,73%). The Group is solely controlled by Goldman Sachs (cf. Case no. COMP/M.2227-Goldman Sachs/Messer Griesheim).

II. THE OPERATION

5. The notified acquisition will be made by means of a cash offer by Air Liquide for all the shares in Messer Targets. On 19 January 2004 a sale and purchase agreement was signed by the parties to the concentration. The operation will be carried out by Air Liquide acquiring all shares in the Messer group company Messer Griesheim GmbH ("MGG"). According to the agreement a restructuring of MGG will take place between signing date and completion date [...]. The latter acquisition is not of community dimension.

III. CONCENTRATION

6. The notified operation is part of a series of transactions as a result of which Air Liquide will acquire sole control of Messer Targets. The notified transaction therefore constitutes a concentration within the meaning of Art. 3(1)(b) of the Merger Regulation.

IV. COMMUNITY DIMENSION

7. The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 billion [4] (EUR 7 900 million for Air Liquide in 2002 and EUR [...] for Messer Targets in 2002). The aggregate Community wide turnover of each party exceeds EUR 250 million (EUR [...] for Air Liquide in 2002 and EUR [...] for Messer Targets in 2002). They do not achieve more than two-thirds of their turnover in one and the same Member State. The notified operation therefore has a Community dimension.

[4] Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C66, 2.3.1998, p25). To the extent that figures include turnover for the period before 1.1.1999, they are calculated on the basis of average ECU exchange rates and translated into EUR on a one-for-one basis.

V. COMPETITIVE ASSESSMENT

A. Relevant product markets

1. Description

8. Both Air Liquide and Messer Targets produce and distribute industrial, medical and specialty gases.

Industrial gases

9. "Industrial gases" comprise all the gases and mixtures of gases provided by gas suppliers for applications in industry and research applications. There is a very wide variety of such applications. The most commonly used industrial gases are oxygen, nitrogen, argon, carbon dioxide, acetylene, helium and hydrogen, and mixtures including them. Strictly speaking industrial gases do not include medical gases and gases which possess a purity above the standard degree or which are mixed to a precision greater than that of industrial gases.

10. Industrial gases can be obtained from the air, from synthetic processes, or from natural sources. Atmospheric gases are extracted from the air mainly by using cryogenic air separation technology, which involves relatively complex process, during which air is liquefied and separated into its component parts. Air is composed of 20.95% oxygen, 78.09% nitrogen, 0.93% argon and 0.03% other noble gases such as neon, krypton, xenon or helium. Acetylene and hydrogen are produced by chemical processes. Carbon dioxide comes from natural sources or occurs as a by-product of other chemical processes. Helium is extracted from natural sources. Carbon Monoxide is produced in combination with hydrogen, by reforming hydrocarbons, generally natural gas.

11. The following table summarises the main uses of oxygen, nitrogen, argon, hydrogen, carbon dioxide, acetylene, helium, carbon monoxide and syngas.

Gas // Main industries where used

Oxygen // Metallurgy (steel production), chemicals, metalworking (cutting and welding), paper (bleaching), glass (melting), electronics, waste water purification, fish farming

Nitrogen // Electronics, chemicals, food (improving shelf life by protecting from oxygen and cryogenic freezing), metalworking (pressing of aluminium parts), building (soil freezing, cooling for the setting of concrete, shielding of prestressing steels against oxidation)

Argon // Metallurgy (steel production), metalworking (shielding of weld seams against oxidation), electronics (shielding of semiconductors against impurities), inflation of air bags

Hydrogen // Chemicals (purification), food (edible oil production), glass (grinding)

Carbon dioxide // Metalworking (shielding of weld seams against oxidation), steel production, chemicals, drinks manufacturing, food (cryogenic freezing), dry ice, waste water purification (neutralisation of alkaline wastes)

Acetylene // Metalworking (cutting and welding), glass (lubrication of moulds)

Helium // Aerospace, lifting gas for balloons, health care

Carbon Monoxide // Environmental monitoring systems, industrial hygiene gas mixtures, semiconductor fabrication, manufacturing of metal carbonyls, polycarbonate, polyurethane and oxy-alcohol.

Syngas // Synthetic gas used in chemical reactions

Medical gases

12. The medical gases comprise mainly oxygen, and nitrous oxide (N2O). The market investigation tends to show that the demand-side substitutability with so-called industrial gases is very limited since the concerned customers, for instance the hospitals, can use only the gases that have the label "medical", which ensures the quality and traceability of the gases used. On the other hand, there appears to be a high supply-side substitutability since the medical gases, be they in bulk or in cylinders are produced by the same plants, from the same source as the industrial gases. They just undergo analyses proving that they comply with the regulatory level of quality. The question as to whether the medical gases constitute a distinct market can be left open for the purpose of the present decision since the competitive assessment does not differ depending on the definition retained and the remedies remove the serious doubts arising under either definitions.

Specialty gases

13. The parties to the concentration also sell so-called specialty gases, which comprise mainly refrigeration, electronic and lighting gases. Speciality gases contain various chemical molecules required by the electronics industry to manufacture semiconductors to be used in the different steps of the manufacturing process (so-called electronic speciality gases "ESGs"), including Silane (SiH4), Arsine (ASH3), Phosphine (PH3), Nitrogentrifluoride (NF3), Hexafluoroethane (C2F6), Carbontetrafluoride (CF4), Tungstenhexafluoride (WF6), Hexafluoroethane, and Nitrogentrifluoride.

2. Distinct relevant markets per gas

14. In line with its decisions in Case No M.1641 - Linde/AGA and in Case No M.1630 - Air Liquide/BOC and on the basis of its investigations in the present case, the Commission takes the view that because of the different chemical and physical properties of the individual industrial gases they are not generally interchangeable. The industry generally shares the view that each gas constitutes a separate product market. It may be that in a particular application there are several gases which possess the properties fundamentally required; thus nitrogen and argon may both be used for protection with an inert gas, and nitrogen and carbon dioxide can both be used for the deep freezing of foodstuffs. However, customers generally do not consider substitution to be a realistic option because in practice, price differences and the degree of integration of a particular gas with the customers' specific application processes largely exclude substitution between gases.

15. In line with its decisions in Case No M.1641 - Linde/AGA and in Case No M.1630 - Air Liquide/BOC and on the basis of its investigations in the present case, the Commission further takes the view that there is no general interchangeability between industrial gases and non-gas-based processes.

16. Therefore, for the purpose of this case, the individual gases constitute separate product markets.

3. Distinct relevant markets according to the forms of supply

17. Industrial gases are supplied in different forms (gaseous or liquid) and via different distribution channels (tonnage, bulk and cylinders).

3.1 Tonnage

18. Tonnage means the delivery of large quantities of gases (mainly oxygen and nitrogen) in gaseous form either by pipeline or dedicated air separation units ("ASUs") installed on or close to the customer's site. Customers are mainly industrial users (for instance in the petrochemical/chemical, steel, refining and glass industries). For such customers, the gases are an essential element of their production process and they value foremost the reliability of the supply.

19. The supplier owns the on-site plants and operates them on the basis of a long-term contract (up to 15 years). It provides on-going maintenance and support. In geographical areas where the density of customers makes it economically viable to link air separation units to each other, a pipeline network may be built (e.g. Northern France, Benelux, Rhein/Ruhr area, Saar). Each gas (oxygen or nitrogen) is delivered through a specific pipe. In such a case, gases delivered by an incumbent pipeline may benefit from a cost and reliability advantage when compared to on-site plants.

20. According to the Commission's findings in its decisions in Case No M.1641 - Linde/AGA and in Case No M.1630 - Air Liquide/BOC and the submissions of the notifying party, these two methods of supply compete with each other and are without alternative for volumes greater than 100 tons per day (tpd).

3.2 Bulk

21. The quantities of gas that may be supplied in bulk are not as large as in the tonnage business. Bulk mainly covers the supply of gases in liquid form to customers, whose demand is between 20 to 100 tpd. [5] Liquefaction plants can be stand-alone or can be combined with tonnage plants (so-called "piggy-back plants"). The liquefied gases are transported by road or rail tanker from the supplier's plant to the site of the customer (air gases, in particular, require transport in low temperature cryogenic trailers). On the customer's premises, the gases are stored, before being used in liquid form or transformed into gaseous form. Each gas is transported and stored separately in specific dedicated equipment.

[5] Hydrogen constitutes an exception as it is mainly produced and transported in gaseous form.

22. The notifying party has suggested that small on-site air separation plants, which are used to satisfy the customer's demand for oxygen or nitrogen in a range that could also be supplied in bulk, should be regarded as being part of the bulk market. According to the notifying party, small on-site plants compete with the delivery in liquid form for most applications. This definition had been retained by the Commission in its decision M.1630-Air Liquide/BOC and has been confirmed by the market investigation in the present case.

3.3 Cylinders

23. Industrial gases as well as mixtures of gases for industrial and scientific purposes, high-purity gases, noble gases and reactive gases for the semiconductor industry can also be supplied in cylinders. Helium is only marketed in cylinders. CO2, on the other hand, is only delivered in liquid form.

24. Cylinders are used when the quantities requested by the customers are small, ranging from 1 m3/month to 1 000 m3/month. Cylinders may be filled at, and distributed from, the suppliers' production plant or, alternatively, liquid gases may be transported in tankers to cylinder filling centres in order to be transformed into compressed gas. From there, they are transported either directly to the customer or to depots (also called "hubs"), from which the supply to retail customers is carried out.

4. Conclusion

25. The Commission considers that the tonnage supply for CO, the tonnage, bulk and cylinder supply of oxygen and nitrogen, the bulk and cylinder supply of argon (including argon mixtures), hydrogen, carbon dioxide, acetylene, the cylinder supply of helium and of electronic speciality gases constitute the relevant product markets. However, on the basis of its enquiries and in line with its decision in Case No M.1630 - Air Liquide/BOC the Commission notes that those markets may be inter-related since a large part of bulk is produced from tonnage plants (via so-called piggy-back) and the gases filled in the cylinders are derived from bulk.

B. Relevant geographic markets

1. Tonnage

26. As regards tonnage supply of industrial gases, the Commission found in its decisions in Case No M.1641 - Linde/AGA and in Case No M.1630 - Air Liquide/BOC that the geographic reference market was EEA-wide. All the main suppliers of industrial gases clearly had the know-how and resources necessary to build and operate such units anywhere in the EEA and to tender throughout the EEA for contracts to build and operate on-site plants.

27. In the present case, the notifying party submits that the relevant geographic market for tonnage has expanded during the last years and is now quasi-world-wide. "Quasi world-wide" refers to a worldwide market excluding Japan, China, the Middle East and the CIS where the markets show national particularities. The notifying party argues that the big gas manufacturers who operate in the EEA also supply gases in tonnage form quasi world-wide, although their market shares vary. If the Commission should not adopt the quasi-world-wide approach, the notifying party argues that the geographic market should be defined as comprising the whole of Europe ("wider EEA").

28. However, the Commission's investigation has not revealed any decisive element showing that the relevant geographic market should be defined as quasi-worldwide. Market shares, prices for industrial gases, and the risks incurred by the gas companies vary greatly between different markets. Furthermore, customers in Europe do not generally consider a supplier for the supply of tonnage industrial gases who has no local European presence.

29. The Commission even found elements that pointed towards the existence of national markets. The market structure in the market for tonnage differs significantly between the Member States, and some major players, such as Air Products and BOC are only present in some Member States but not in others. Several aspects might explain this absence, in particular the fact that any supplier needs to have a certain critical mass in the tonnage market, must maintain local maintenance staff, and, because of reliability requirements, must in particular ensure that its tonnage business is backed up by a sufficiently big bulk production for the case of unexpected downtimes of a tonnage facility.

30. In view of the enlargement process and the converging market conditions in the accessing countries, the question may also be raised as to whether the relevant geographic market should already be defined as EEA-wide including the ten accessing countries. However, for the purpose of the present decision and in absence of decisive evidence, this question can be left open since the assessment of the present case does not differ depending on the definition adopted.

2. Bulk

31. In its decisions in the Cases No M.1641 - Linde/AGA and No M.1630 - Air Liquide/BOC the Commission found that the market for bulk supplies should be defined as being national in scope.

32. According to the Commission's investigations in this case, this remains unchanged, even though the bulk markets show some local aspects. The high cost involved in bulk transport means that delivery will be economical only within a radius of about 200 km from the filling plant, at least in the case of the atmospheric gases oxygen and nitrogen.

33. The notifying party also supports the fact that the bulk markets should be defined as national but for Argon and CO2. For these two gases, it has suggested that the markets should now be defined as being EEA-wide, mainly because these gases can more profitably be transported over distances of up to 1 000 km and are therefore subject to various supply flows across Europe.

34. As regards CO2, the Commission found in its previous decisions relating to industrial gases [6] that the market is national, although there may be to a limited extent some imports into Germany. No sufficient evidence in the present case was found by the Commission that would clearly point toward a broader market than Germany. Therefore, the market for bulk carbon dioxide still remains national in scope.

[6] M.1641 - Linde/AGA and M.1630 - Air Liquide/BOC

35. As regards Argon, the Commission found in its previous decisions relating to industrial gases [7] that the market is national. Although there may be to a limited extent some exports outside Germany, no sufficient evidence in the present case was found by the Commission that would clearly point toward a broader market than Germany. Therefore, the market for bulk argon still remains national in scope.

[7] M.1641 - Linde/AGA and M.1630 - Air Liquide/BOC

3. Cylinders

36. As far as the distribution of cylinders is concerned, in its decisions in the Cases No M.1641 - Linde/AGA and No M.1630 - Air Liquide/BOC the Commission found that the relevant geographic markets for cylinder gas were to be defined as being national in scope with important local aspects. The parties submitted the same definition in the Form CO.

37. The Commission's investigation in the present case showed no results that would justify another market definition. Generally, the delivery radius from one filling station or a hub is in the range of 100-150 km. The Commission asked Air Liquide to provide, for each filling centre in Germany, the average distance between the supplied customers and the filling centre as well as the narrower radius within which 80% of the customers are located. These figures range between [50-60] km and [110-120] km, for the average, and between [80-90] km and [160-170] km [8], for the 80%-of-customer radius, according to the filling centre. However, the catchment areas of the various filling centres overlap to a material extent to cover the whole of Germany. Competition on these markets includes therefore both a local element and also extends over the whole of Germany, at least for the large suppliers.

[8] Air Liquide's submission on 01/03/2004

38. The geographic market for Helium has in previous decisions been defined as being EEA-wide for wholesale Helium, but according to the notifying party and the Commission's investigations, the geographic market for helium cylinders (retail helium) covers Germany.

39. As regards electronic speciality gases (ESGs), on the basis of the notifying party's submission and in line with its decision in the Case No M.1630 - Air Liquide/BOC, the Commission finds that the market is EEA-wide.

C. Competitive assessment

1. Tonnage markets

1.1 Tonnage markets for standard air gases (oxygen/nitrogen)

(a) Market shares

Air Liquide/Messer would have by far the highest market shares in the European markets for air gases

40. The market shares of the parties and competitors in the EEA tonnage market are set out in the Table below, based on the revenues generated by their on-site or pipeline supply contracts:

>TABLE POSITION>

Source: The notifying party [9]

[9] During the investigation, the Commission reconstructed the market shares on the basis of the sales of each market player. The Commission's estimates are in line with these figures.

41. If the relevant geographic market were to be considered as EEA extended [10], the market shares would be as follows:

[10] The EEA + the 10 Accessing countries.

>TABLE POSITION>

Source: The notifying party [11]

[11] During the investigation, the Commission reconstructed the market shares on the basis of the sales of each market player. The Commission's estimates for Messer Targets and Air Liquide are slightly above those provided by the parties, with a combined market share of [45%-50%].

42. The market shares of the various players, in particular those of the merging parties, have remained stable over time despite a slight increase of the market size (10-15% over the last five years).

43. The proposed concentration would strengthen the largest tonnage supplier of oxygen and nitrogen. The combined entity would hold [40-50]% of the market shares on each of these markets. The next largest supplier - Linde - would reach half of the combined entity's sales in both markets. The remaining suppliers are more dispersed.

The existing award procedures (RFQs) do not undermine the informative value of market shares

44. In its notification, Air Liquide submits that the tonnage markets are bidding markets in which market shares do not constitute an appropriate factor to assess the competitive conditions prevailing on the markets. However, the Commission's investigation, in line with its findings when reviewing previous transactions, shows that the possibility for customers to launch informal tendering processes for large tonnage projects does not undermine the informative value of market shares on the tonnage markets.

45. First, unless there is specific evidence that the past trend no longer reflects the present situation, it is reasonable to consider that a supplier's market share that remains at a stable level is indicative of its effective position on the market. In the present case, the parties' respective market shares have not been subject to wide variations but, on the contrary, have been very stable.

46. Secondly, the assertion that the tonnage markets for air gases are bidding markets must be nuanced to a significant extent. As already underlined by the Commission in its decision Air Liquide/BOC [12], the tendering procedures used by tonnage customers are not similar to a formal bidding process. When confronted with new tonnage needs, tonnage customers usually launch Requests for Quotations (RFQs) to various potential suppliers. These calls for tenders are not normally published, although for large projects most major players present locally may be solicited. Those tendering procedures are not standardised with common objective and clearly laid down criteria to award a contract, but simply negotiation procedures which are conducted, to a varying degree, with different suppliers. Once offers have been received, additional negotiations will take place with the incumbent supplier (if a contract already exists) and with the other respondents. As Air Liquide itself acknowledges, each project corresponds to specific requirements which also implies case-by-case negotiations about the price, industrial and other non-price dimensions of each contract (e.g. the contractual commitments to a given level of reliability). In the course of the negotiations, suppliers have also the possibility to modify their offers and to propose different conditions in order to win the contract.

[12] Commission Decision COMP/M.1630 - Air Liquide/BOC.

47. In addition, as confirmed by most customers, the incumbent enjoys a significant advantage when presenting an offer for a supply contract, not only when extensions have to be made to an existing supply contract, but also when the call for tender relates to the renewal of an existing contract. This is due to several factors amongst which the fact that the incumbent's plant has already been depreciated over the length of the past contract (generally 15 years). Customers also value the proven reliability of the existing plant. The incumbent's advantage may even be more significant when the customer has a pipeline supply contract with the incumbent supplier. In such situations, competitors might not even find it attractive to present an offer, because of the cost of preparing such a bid. Customers have also confirmed this concern.

48. In such a market, where some form of "bidding" may occur for new projects concerning large tonnage contracts, market shares thus reflect real purchasing decisions by customers in a given year. The fact that purchases may mostly go through a tendering procedure does not fundamentally affect the value of market shares as an indication of the merged entity's market power.

49. The combined market shares of Air Liquide and Messer Targets are at levels indicative of a dominant position. The following paragraphs will examine to what extent the elimination of Messer's competitive constraint on Air Liquide and the addition of the Messer Targets assets to Air Liquide's may significantly alter competitive conditions and further enhance Air Liquide's position on these tonnage markets.

(b) Actual competition and impact of the proposed concentration on the oxygen and nitrogen tonnage markets

50. The Commission's market investigation indicates that, although Messer does not exert a strong competitive constraint on Air Liquide in the EEA as a whole, it holds a strong position in Germany around its pipeline networks where a significant part of EEA customers are located. In other words, Messer derives its competitive strength in the tonnage markets from its pipeline networks.

Messer does not exert a strong competitive constraint in the overall EEA outside its entrenched position in Germany

51. The market investigation has confirmed the Commission's previous findings [13] that Messer remains a second-tier player in terms of market share on the EEA tonnage markets for air gases, far behind the first-tier players, i.e Air Liquide, Linde, Air Products, Praxair, and to some extent BOC. This is partly due to the fact that Messer is not present, or to a very limited extent, in EEA countries other than Germany. Moreover, Messer lacks the engineering capabilities and the state-of-the-art technology that the main players have. As an example, Messer has sold only [...] air separation units (ASUs) to third parties between 1996 and 2003 out of a total of about 150 ASUs.

[13] Commission Decision COMP/M.1630 - Air Liquide/BOC at para. 114.

52. The Commission requested that all the major competitors, i.e. Air Products, BOC, Linde and Praxair provide information relating to their past tonnage offers. These data corroborate the above-described analysis. All mentioned companies provided information on the RFQ which, according to their knowledge, have taken place within the past five years. They also depicted their own and the competitors' participation in the tender as well as the winner and in some instances also the second best bidder to it. The different individual data sets give an indication of the merging parties' market strength as perceived by themselves and their competitors. The analysis shows that Messer is not seen as a major constraint on Air Liquide. [14] Air Liquide submits that it participated in [...] of the last rounds of RFQs in the EEA. Messer made a competitive offer in [0-10]% of these cases. According to this data set, the highest competitive pressure resulted from Linde and Air Products which presented parallel offers in, respectively, [30-40]% and [30-40]% of Air Liquide's bids. Praxair bid against Air Liquide in [0-10]% ([...] bids) of Air Liquide's bids and BOC did so in [0-10]%.

[14] Not included are: tenders which have been cancelled, not yet been decided or tenders which led to the result of self-production by the customer. In all of these RFQs only little information was submitted concerning participation. Moreover, these categories of RFQ have been obviously treated differently by the submitting companies which in most cases chose not to report about these tenders at all. The gathered data is therefore not complete in this respect and was for this reason excluded from the analysis.

53. This view derived from the merging parties' data-set is also reflected by information submitted by other companies'. [15] According to these data sets Messer bid against Air Liquide in [0-10]% to [10-20]% of the number of Air Liquide-bids as reported by the different competitors, whereas for example Linde and Praxair reached up to [90-100]%. BOC and Air Products were also seen as strong competitors to Air Liquide since they were present in up to [80-90]% of the Air Liquide bids.

[15] Since Praxair did not submit any data on second best bidders the focus of this paragraph is on the other competitors' data-sets.

54. For some of the reported calls for tender the companies also indicated the second best bidder. Air Liquide was the successful bidder in [20-30]% to [40-50]% of the tenders as reported by the different gas producers. In these cases, Messer was perceived as a second best only by the notifying parties themselves and only in [0-10]% of the bids where Air Liquide won, whereas Linde was perceived as the major second best bidder ([10-20]% of successful Air Liquide bids). Respondents unanimously did not see Messer as the closest competitor to Air Liquide in any reported tender but either Air Products or Linde, which were seen as the runner-up in up to [60-70]% (Air Products) and [20-30]% (Linde) of the respective number of successful Air Liquide bids for tonnage contracts.

The change brought about by the transaction is centred around Messer's pipeline networks in Germany

Messer holds a structural and incumbency advantage around its pipelines

55. Messer's activities in the tonnage business are concentrated in Germany where it is the only industrial gas company to own pipeline networks delivering oxygen and nitrogen to tonnage customers. This strategy was used in industrial basins where clusters of volume users of air gases are located such as steel producers, chemical companies, and paper or glass manufacturers. Messer thus owns a [500-600] km pipeline network in the Rhine-Ruhr area and a smaller network in the Saar area (about [0-100] km) [16]. As a result, despite being a second-tier competitor in the overall EEA market, Messer was able to retain the same market share over the years thanks to this entrenched position in Germany.

[16] Linde also owns a pipeline in the Eastern side of Germany (Leuna) of a size similar as that of Messer's Saar pipeline.

56. The market investigation has confirmed that these infrastructures indeed give a decisive advantage and specific strength to Messer when competing for contracts awarded by tonnage customers located in the catchment area (about 30 km) of these pipelines. First, economies of scale can be achieved by constructing larger ASUs than would be possible if individual units had to be built for each customer. The additional investment required in order to connect an industrial customer located in the area of the pipeline is limited compared with the construction of a dedicated plant on the customer site, which is the only alternative open to competitors. Secondly, such interconnected pipelines present important advantages for customers in terms of reliability. The control of interconnecting pipelines allows to meet demand peaks as well as to provide back-up when maintenance work is made on a particular tonnage plant, or more importantly, in the event of plant breakdown. In view of the higher cost of liquid back-up, this advantage plays a significant role when industrial customers ultimately decide to award a contract. Pipeline coverage of an industrial basin such as the Rhine-Ruhr area, or the Saar region is therefore a significant advantage when competing for potential customers.

57. The specific strength held by Messer around its pipeline network has also been confirmed by the data provided by the parties in the course of the investigation. Out of the reported [...] contracts awarded to Messer in the last five years, [...] of them related to projects located in the catchment area of Messer's pipelines.

58. The structural advantage held by Messer in Germany thanks to its pipelines is further reinforced by the fact that, in the EEA tonnage markets, an incumbent supplier typically holds a significant advantage over its competitors.

59. By virtue of its on-going working relationship with the customer, the incumbent is the first to learn of the customer's intention to extend or modify an existing supply agreement. Incumbent suppliers are almost always included amongst the industrial gases companies from which an offer is requested and, because of their on-going relationship with the customer, may often be involved in the project planning stage. Since they have detailed knowledge of the customer, they have an advantage in responding to such a request and in the subsequent negotiations. Because of the tested reliability of the incumbent supplier, a customer will not change its supplier unless a competitor submits an offer which is materially advantageous, rather than merely equivalent.

60. Customers have also confirmed that the incumbent supplier is usually able to offer more advantageous financial terms for the follow-up contract because its initial investment has been fully depreciated. The incumbent is also best placed to make the most economical offer if the customer's demand evolves in such a way as to necessitate a change to the contract before expiry of the contractual term. For instance, if additional capacity is required, the incumbent can offer either to extend the capacity of the existing plant or, alternatively, to build a single new plant for the aggregate capacity. Any competitor could only offer to build a second additional plant on the same site, which is an obviously less economical solution. Even where a customer's demand is so high that it requires a second plant on the same site, it will normally prefer to use the same supplier to build this second plant in order to reduce its administrative costs and operate the two plants in a coordinated, and therefore more economical, way. This is all the more true when the incumbent supplier operates through pipelines rather than with on-site plants.

Air Liquide exerts an effective competitive constraint on Messer Targets that would be eliminated post-merger

61. The Commission's market investigation has shown that, in the recent years, Air Liquide has overall exercised a significant competitive constraint on Messer in RFQs for new tonnage contracts. Although Linde has been Messer's closest competitor insofar as it was considered as the second best supplier in most instances where Messer was awarded a tonnage contract, Air Liquide was nevertheless a close competitor to Messer. According to the data provided by the parties, Air Liquide was even the most frequent winner in all tenders where Messer presented an offer in the past five years.

62. When considering more specifically the areas where the merger would bring about significant changes on the market, the Commission is of the view that the operation would raise even more serious doubts as to its compatibility with the common market.

63. In the Rhine-Ruhr region, Air Liquide was able to win a large tonnage contract with an on-site plant (Rheinberg), located within a 15 km range from Messer's pipeline despite the structural advantage held by the latter in this area. In several other tendering procedures, Air Liquide presented competing offers by proposing on-site plants against Messer's pipeline, thereby adding important uncertainty in the outcome of the tendering process. By contrast, competitors such as Praxair, Air Products or BOC were not present or to a much more limited extent in those tendering procedures.

64. The Commission also sought to examine whether, in the absence of the merger, Air Liquide would have been able to place competing offers to industrial customers located in the Rhine-Ruhr region through a possible extension of the Belgian section of its pipeline network going from Northern France to the Netherlands ("pipeline-to-pipeline competition"). In [...] cases, Air Liquide had indeed studied pipeline solutions to answer specific customer needs near Messer's pipelines, in view of the gap in electricity cost [17] then existing between Belgium and Germany. However, because of the cost of such extensions, these projects have never been able to be competitive either with Air Liquide own on-site solutions (Rheinberg), Linde's on-site plants (Stolberg) or with Messer's pipeline. In view of the fact that this gap in electricity costs no longer exists and is not expected to reappear following deregulation of the electricity market, the ability of Air Liquide to be competitive through these means now seems even more unlikely.

[17] The notifying party submitted a comparison of the past prices between Belgium and Germany showing that electricity was 30% more expensive in Germany than in Belgium at that time.

65. Some competitors have also suggested that, post-merger, Air Liquide would enjoy a larger customer base that would provide the economic incentive for connecting its current pipeline with Messer's Rhine-Ruhr pipeline. However, if such a connection were to take place, foreclosure would occur in the catchment area of the pipeline only if Air Liquide were to undercut its competitors' offers for on-site plants for the benefit of customers. If Air Liquide's prices were to be raised, other industrial gas companies would nevertheless still have the ability to bid successfully for new projects through on-site plants as it has been the case until now. In any case, such risk of foreclosure is now removed following the remedies presented by the notifying party.

66. Finally, a third party considered that, thanks to its established Hydrogen (H2) pipeline network - formerly owned by BOC - which is close to Messer's O2/N2 network, Air Liquide/Messer Targets would have the ability to bundle its products and deter competitors in these markets to the detriment of customers in this region. However, the Commission's investigation does not confirm such concern. First, it appears that a vast majority of oxygen or nitrogen customers in that area do not source their hydrogen from Air Liquide. Secondly, as shown by the data relating to the tonnage contracts awarded in the last five years, the fact that Air Liquide has owned this H2 pipeline since 1999 has not allowed it to gain air gas businesses in this region. As a result, it is far from established that a significant part of customers would need oxygen or nitrogen together with hydrogen and that such a bundling strategy could be effective. In addition, if bundling between products were to take place, foreclosure would be highly unlikely since it would occur in the catchment area of both pipelines only if Air Liquide/Messer Targets were to undercut its prices. This strategy would not be to the detriment of customers but rather to their benefit. If, in the longer term, prices were to be raised, the proportion of customers that would need both oxygen/nitrogen and hydrogen would still have the alternative to be supplied through on-site plants by other industrial gas companies.

67. In the Saar region, by contrast with the competitive situation prevailing in the Rhine-Ruhr region, the likelihood that "pipeline-to-pipeline competition" would become effective in a near future is far from excluded. Indeed, Messer's Saar pipeline being next to Air Liquide's Lorraine pipeline (and indeed already connected to it), it is not disputed that it would have been economically feasible for the latter to compete on comparable terms with Messer for new tonnage contracts in this area by proposing to extend the existing pipeline. Air Liquide's incentives to present highly competitive offers towards customers located in Saar would have even been significantly increased in the coming years following the recent announcement of plant closures in Lorraine by one of Air Liquide's major customers.

68. It follows from the above-mentioned elements that, as a result of the proposed concentration, the increasing competitive constraint that Air Liquide exerted on Messer (Rhine-Ruhr) or was likely to exert in the near future (Saar) would have been definitely removed, thereby allowing Air Liquide/Messer Targets to hold an even stronger position in the EEA market.

The merged entity's entrenched position in key regions of the EEA would prevent any effective competition by the remaining competitors

69. According to the data provided by the notifying party, Air Liquide was providing by far the largest proportion of tonnage contracts for standard air gases in France ([85-95]% of oxygen and [85-95]% of nitrogen in 2003) or Belgium ([60-70]% and [70-80]% respectively in 2003), where, thanks to its unrivalled pipeline network, it now holds an entrenched position that is hardly contestable for competitors such as Linde.

70. The merged entity would thus combine Air Liquide's strong market position and technological capabilities with Messer's existing entrenched position in the Rhine-Ruhr and Saar regions, where significant multi-national customers are located. Added to the global presence of Air Liquide and to its incentive to secure a similar market position in those areas, Messer Targets's already strong position there would constitute an additional obstacle and disincentive for other market players to effectively compete. As shown by the market investigation, given the cost of preparing a serious offer in response to an RFQ (up to EUR 500 000), some market players may even find it unattractive to bid against the odds.

71. Although, until now, Linde has been able to maintain some uncertainty in the tendering process for RFQs launched in those areas, the combined entity would nevertheless hold, as an incumbent and the operator of these industrial gas pipelines, a strong competitive advantage that would render even more unlikely the reduction of the anti-competitive effects of the proposed concentration. In addition, its extended entrenched market position would provide the merged entity with increased ability to retaliate against Linde (be it for some tonnage contracts or on adjacent bulk markets) in case it would contest its position. As to other competitors, their current market position in Germany and their very limited presence in tendering procedures launched by German industrial customers show that they would obviously be even more unlikely to compete effectively with the new entity.

The existing award procedures would be insufficient to constrain the merged entity's strength

72. The existing award procedures do not seem to be sufficient to constrain the merged entity's strength on the market. As already explained and confirmed by most customers during the market investigation, an incumbent enjoys a significant advantage in bidding for new tonnage contracts. This is all the more true when a supplier operates a pipeline network. Since Messer was able, despite its technological drawbacks, to retain the same market position over time, there is no reason to believe that, combined with Air Liquide's position, this situation could be constrained by tonnage customers in a more effective way.

73. On the contrary, given the depreciation of its existing plants, it is far from excluded that Air Liquide/Messer Targets would virtually be in a position to secure any new significant tonnage contract to be awarded in the area of Messer's current pipelines.

Conclusion

74. In view of the all these factors, the elimination of one effective alternative to Messer in the Rhine-Ruhr and the Saar regions and the combination of Air Liquide's already strong position in the EEA market with Messer's entrenched position in those areas would, absent the proposed remedies, raise serious doubts as to the compatibility of the proposed concentration with the common market. Without appropriate remedies allowing for effective competition in areas where Messer is present through its pipeline network, there is the risk that the merger would create a dominant position in the overall EEA tonnage market for oxygen and nitrogen.

75. This conclusion holds true even when considering an EEA extended market for tonnage because of the very similar market structure and the very low volume of sales in the 10 Accessing countries in tonnage as compared with the EEA [18].

[18] The sales in the 10 Accessing countries only represent about [10-20]% of the sales of the EEA extended market.

1.2 Tonnage markets for other gases (Hydrogen/Carbon Monoxide/Syngas)

76. Messer is not active in the tonnage business for Hydrogen and Syngas. Therefore, if Hydrogen and Syngas were considered as separate markets, the operation does not raise serious doubts as to its compatibility with the common market in these markets.

77. The market shares of the parties and competitors on the tonnage market for carbon monoxide in the EEA are set out in the Table below:

Player // CO

Air Liquide // [50-60]%

Messer Targets // [10-20]%

Combined // [70-80]%

Linde // [20-30]%

Air Products // [0-10]%

Praxair // [0-10]%

BOC // [0-10]%

Messer Remain Co // [0-10]%

Others // [0-10]%

Market size (MEUR) // [...]

Source: The notifying party. 2002 [19]

[19] During the investigation, the Commission reconstructed the market shares on the basis of the sales of each market player. The Commission's estimates are in line with these figures. The market shares on a hypothetical EEA extended market would be almost identical to these figures.

78. As Messer holds a [10-20]% market share in the tonnage market for carbon monoxide, the merged entity would hold a [70-80]% market share. Although the CO tonnage market can be considered as an emerging market, such a level of combined market shares is a strong indication of the creation of a dominant position, and therefore raises serious doubts as to the compatibility of the proposed concentration with the common market.

79. However, these serious doubts are removed since the notifying party has committed to divest Messer's existing on-site plant for CO tonnage.

2. Bulk markets

2.1 UK, France and Belgium

80. The proposed operation would not give rise to overlaps in the UK where only Messer is active and, in the absence of vertical issues, would thus not raise serious doubts as to its compatibility with the common market

81. As to France and Belgium [20], Messer's activities on those markets are not acquired by Air Liquide and therefore not directly concerned by the proposed operation.

[20] [...]

82. Nevertheless, the Commission sought to verify whether, despite the fact that the Messer Group would still be active as an independent entity in these countries, the operation would enable Air Liquide to further reinforce its already strong market position there and result in the creation or the strengthening of a dominant position on those markets. In that respect, one competitor suggested that the Messer Group would become dependent upon supplies of the merged entity because, prior to the merger, it sourced the liquid gases necessary for its bulk activities in France and Belgium from its plants in Germany (either from Oberhausen for its Belgian activities, or from Dillingen for its bulk business in France).

83. However, the information gathered by the Commission establishes that the Messer group will not be dependent on supplies from Air Liquide/Messer Targets. As to Belgium, long-term supply agreements or swap agreements have been concluded for the various gas concerned with other companies. In France, the Messer Group will be sourced, depending on the gas concerned, either from [...] and on the basis of sourcing rights or swap agreements or from independent sources from third parties. Accordingly, the Messer Group will not be dependent upon supplies from Air Liquide/ Messer Targets

84. Consequently, the operation does not raise serious doubts on these bulk markets.

2.2 Germany

85. By contrast, the proposed operation would lead to further concentration of the German bulk markets. The market shares of the parties and competitors are set out in the Table below.

>TABLE POSITION>

Source: The notifying party [21]

[21] During the investigation, the Commission reconstructed the market shares on the basis of the sales of each market player. The Commission's estimates are in line with these figures.

86. The HHI below also illustrate the high degree of concentration of the markets that would result from the merger:

>TABLE POSITION>

Source: The Commission's investigation

2.2.1 Bulk markets for oxygen and nitrogen

87. The operation would give rise to substantial overlaps in the German market, where, pre-merger, Messer and Linde already held together around [70-80] % of each market with significant market positions. The remainder of the market is spread amongst a few players, with Air Liquide holding a market share between [5-15]% depending on the product concerned, therefore higher than those of Praxair and Air Products.

The concentration would lead to the elimination of the most aggressive player on the markets

88. Despite the incumbency advantage that Messer and Linde hold on the markets thanks to their privileged customer relationship and their existing tonnage infrastructure (piggy-back plants), Air Liquide has been able to gain market shares in a relatively short period of time. Internal documents indeed confirm that Germany has been a strategic market for Air Liquide because of inter alia [...]. Although Air Liquide enjoys the same technological abilities as other competitors such as Air Products and Praxair, it was also able to gain a more important market share thanks to its more aggressive policy towards bulk customers.

89. In the course of the market investigation, a large proportion of respondents also confirmed that Air Liquide had been aggressive nationally with significant lower price offers. Air Liquide was thus considered to be a strong competitive constraint on these two players because of its readiness to undercut competitors if need be.

90. As a result of the operation, it is likely that Air Liquide's strategic positioning and incentives on the German bulk markets for standard air gases would be substantially changed as it would then combine its forces with Messer's more traditional and entrenched position. Through the concentration, it would indeed reach its strategic goal of [...]. Therefore, Air Liquide/Messer Targets's incentives would no longer be the same as Air Liquide's pre-merger incentive to gain a larger customer base. In particular, it would no longer need to play a potentially disruptive role on the markets and to lower its margins when trying to get new bulk contracts.

The creation of a joint dominant position would become likely post- merger

91. The issue of the existence of a joint dominance pre-merger between Messer Targets and Linde had been considered but rejected in a previous Commission decision [22], in particular because of the growing position of Air Liquide. The substitution of Air Liquide as an aggressive player by the combined entity's incumbent positioning is likely to lead to the creation of a collective dominant position.

[22] Commission Decision M. 1641 - Linde/AGA.

92. Firstly, both companies would have relatively symmetric positions in terms of market shares and capacity levels, and would thus be likely to have a common incentive not to compete effectively, in particular through customer sharing (each market player abstaining from challenging the other on its customer base). Evidence of past collusion between these firms in the same product markets provides an important indication in this respect [23].

[23] See Commission Decision of 24 July 2002 relating to a proceeding pursuant to Article 81 of the EC Treaty, Case COMP/E-3/36.700 - Industrial and medical gases, OJ 1.4.2003, L84, p. 1.

93. Secondly, the notifying party argues that an increasing product differentiation lowers market transparency, which would render effective monitoring unlikely. However, most respondents to the Commission's market investigation confirmed that bulk products still remain very homogeneous.

94. In any case, although the pricing of bulk gases to final customers is not necessarily highly transparent, market transparency first exists when considering the production costs of the main players. This is due to the fact that the cost structure of a bulk supplier is essentially determined by its energetic efficiency, which can be derived from the size and the age (and thus the technology used) of its plant. Such a transparency is highly increased by the existence of frequent swap agreements between suppliers, through which bulk producers seek to secure a (back-up) source in order to guarantee supplies to their customers.

95. More importantly, the Commission's market investigation showed that bulk markets are also transparent insofar as it is fairly easy for suppliers to know the identity of each other's main customers, and the duration of the contracts (which are generally concluded for a standard duration of 3 years). Indeed, gas suppliers can be very well informed about each other's clients because gas tanks usually belong to the gas supplier and bear the company's markings. A salesman visiting a customer or a potential customer can easily see who the current supplier is.

96. This is even more so when the number of main competitors is reduced to two: it is then highly likely that these two competitors will be asked by customers to propose a price when their contracts come to an end. That transparency will be greatly increased with the notified transaction because of the reduced uncertainty on the main competitor's identity when trying to get a contract from a customer.

97. Thirdly, the Commission is of the view that coordination between Air Liquide/Messer Targets and Linde would be sustainable because of the possibility for each of these players to present an effective threat of future retaliation in case of deviation. Retaliation on the German bulk markets would be likely and effective, more particularly through a possible selective undercutting of the other member of the duopoly when one or several important customers would award new supply contracts. Because of customer transparency, a supplier is immediately informed and can react immediately if a customer with which it has a contract starts buying from a competitor. Besides, retaliation would not necessarily take place in the same geographic or product market(s) as the one where deviation would occur. Air Liquide holding a dominant position in France ([50-60]% market share in 2003) as well as a strong position in Italy ([35-45]% in 2003) and, conversely, Linde being by far the market leader in Northern countries (e.g [50-60]% in the Netherlands and [70-80]% in Sweden in 2003), each of them would have additional means of retaliating in a short period of time to any deviation disrupting the coordination [24].

[24] See also Commission Decision of 24 July 2002 relating to a proceeding pursuant to Article 81 of the EC Treaty, Case COMP/E-3/36.700 - Industrial and medical gases, OJ 1.4.2003, L84, p. 1, paragraphs 83-84.

98. Finally, competitors already active on the German market, such as Air Products or Praxair, would not have the same ability and incentive to disrupt significantly the stability of the coordinated oligopoly. As to Air Products, although it has a market position similar to Air Liquide's current position, it must be observed that it has no similar national coverage. It is mainly present in the Northern and Western parts of Germany whereas the combined entity, as well as Linde, would cover all four regions. Praxair would even be in a weaker position, not only because of its more limited market strength, but also because of the absence of any bulk infrastructure in the Southern and Eastern parts of Germany. In view of this more limited national coverage, both Air Products and Praxair would thus remain dependent, to an appreciable extent, from both members of the duopoly since, when contracting with new customers in those regions where they are not present, they would also need to conclude swap agreements either with Air Liquide/Messer Targets and/or Linde in order to secure back-up for those new supplies. In addition, as explained above Air Liquide/Messer Targets and Linde would have the ability and incentive to retaliate selectively against smaller competitors.

99. It is not expected either that bulk customers would be in a position to jeopardise the competitive outcome of coordination. As shown by the market investigation, customers are highly reluctant to switch supplier at the end of the contract, although they will often seek competitive offers before renewal. Incumbency most frequently confers an advantage through the relationship with the customer and an understanding of his process and related gas equipment. In most cases where a bulk customer switches to another supplier, the bulk storage tank and any associated equipment will be removed at the expense of the customer. Moreover, the dominant oligopoly would face a much less concentrated demand, thus further reducing customer choice and bargaining power.

100. In the absence of remedies, aimed at removing the substantial change brought about by the merger on the German bulk markets for oxygen and nitrogen, the operation would therefore raise serious doubts as to its compatibility with the common market.

2.2.2 Bulk market for CO2

101. The operation would give rise to a substantial overlap on the German bulk market for carbon dioxide and would combine the second (Air Liquide) and the third (Messer) best suppliers in terms of market shares. As a result, the combined entity would become the market leader in terms of market shares with an overall position around [40-50]% substantially higher than that of Linde (around [30-40]%). Together, Air Liquide/Messer Targets and Linde would represent almost [70-80]% of the German sales with only Hydrogas, and to a more limited extent ACP, holding an appreciable presence on the market.

102. By contrast to the bulk markets for standard air gases, the positions of the two leading players would not be perfectly symmetric in terms of market shares. However, the Commission is of the view that this would not be sufficient to exclude the likelihood that a joint dominant position would be created on this market as well, following the proposed concentration.

103. Indeed, by contrast with Air Liquide and Linde, Messer does not own its own sources of CO2 but secures its supplies of gas through supply agreements with third parties, in particular with chemical industries (e.g [...]) or with competing producers (such as Linde). Competitive and reliable sourcing constitutes a key factor influencing market positioning. This may explain why, although being a national player, Messer remains far behind Air Liquide in terms of sales. Thanks to its large customer base, Messer was still able to develop and retain a substantial market position. However, this position does not reflect the specific strength that other suppliers such as Air Liquide and Linde will hold in the medium to long term. The absence of symmetry of the two members of the duopoly in terms of market shares must therefore be nuanced as long as such symmetry would exist to a much larger extent in terms of assets and resources.

104. Other factors conducive to collective dominance, that were mentioned in the context of the bulk market for standard air gases, would also hold true in the context of the CO2 bulk market. In particular, the reduction from three to two of the number of main players active on the German market, as well as market transparency and the possibility to retaliate in case of deviation would constitute significant market features. Market transparency appears to be present in several respects (existence of many supply arrangements, cost transparency, and above all, knowledge by each major player of each other's customer base). Retaliation would also be effective either through undercutting on this market or through other retaliation means on neighbouring bulk markets. Evidence of past collusion between these firms in the same product markets and of retaliation means also provide an important indication in this respect [25].

[25] See Commission Decision of 24 July 2002 relating to a proceeding pursuant to Article 81 of the EC Treaty, Case COMP/E-3/36.700 - Industrial and medical gases, OJ 1.4.2003, L84, p. 1.

105. As to other competitors such as Hydrogas and ACP, the both of which have been able to gain an appreciable market position in Germany, it is far from established that they would be able to react effectively and jeopardise the creation of such collective dominant position.

106. Consequently, the Commission is of the view that the operation raises serious doubts on this market to the extent that Air Liquide/Messer Targets and Linde would together form, post-merger, a dominant oligopoly on the CO2 bulk market in Germany.

2.2.3 Bulk Argon market

107. The operation would give rise to a limited overlap on the German bulk market for Argon since Air Liquide represented less than [0-10]% of the sales in 2003. However, the operation would lead to further concentration of the market with Air Liquide/Messer Targets and Linde holding together almost [80-90]% of the sales. In view of the stability of Messer and Linde positions pre-merger, the removal of this competitive constraint, although small, raises serious doubts to the creation of a dominant oligopoly on the basis of a German-wide market.

108. However, the proposed divestitures go beyond the change brought about by the notified operation and thus clearly remove the serious doubts raised by the notified operation on the German market for Argon.

2.2.4 Hydrogen bulk

109. Following the proposed operation, the combined entity would hold a market share of almost [40-50]% with Linde and Air Products having market shares around [30-40]% and [20-30]% respectively. Although Air Liquide only accounts for about [0-10]% of the overall German sales in this market, far behind Messer, Linde and Air Products, the combined entity would become by far the market leader before its two main competitors. In view of Air Liquide's proven capabilities in this business, in particular in France where it held a [70-80] % market share over the past five years, the risk exists that the combined entity would become dominant post merger by holding almost [40-50%] of the German customer base.

110. However, the proposed divestitures go beyond the overlap between Air Liquide and Messer Targets in Germany, and thus clearly eliminate any serious doubts as to the compatibility of the common market.

3. Cylinder markets

3.1 Electronic Specialty Gases (ESGs)

111. On the markets for ESGs, the operation raises serious doubts as to its compatibility with the common market. On the market for WF6 gases, Air Liquide/Messer Targets would hold [50-60]% of European sales (2002), thereby combining Air Liquide's already strong market position ([40-50]%) with Messer's important activity ([10-20]%). The merged entity would become a clear market leader as the gap with the other competitors would further widen (Air Products: [30-40]%; BOC: [0-10]%).

112. However, the notifying party has committed to divest all Messer's activities in the ESG markets, thereby removing the change brought about by the operation and the serious doubts that it raises.

3.2 Other cylinder markets

113. The proposed operation would not give rise to overlaps in the UK where only Messer is active and therefore, in the absence of vertical issues, does not raise serious doubts as to its compatibility with the common market. As to France and Belgium [26], Messer's activities on those markets are not acquired by Air Liquide and are not therefore directly concerned by the proposed operation. To the extent that the Messer Group would not be dependent on Air Liquide for its supplies of liquid gases and could thus conduct its cylinder business independently, the operation would not reinforce Air Liquide's already strong position in these countries.

[26] Messer was not active in the Netherlands prior to the merger.

The operation would lead to further concentration on the German cylinder gas markets

114. By contrast with the situation in the UK, the proposed operation would lead to a substantial overlap between Air Liquide and Messer Targets in Germany and to a high degree of concentration for each of the gases concerned.

115. The market shares of the parties and competitors are set out in the table below.

>TABLE POSITION>

Source: the notifying party [27].

[27] During the investigation, the Commission reconstructed the market shares on the basis of the data requested from each market player. The Commission's estimates are in line with these figures.

116. As a result of the merger, Air Liquide/Messer Targets and Linde would hold together between [60-70% and 80-90%] of the market. Except in the acetylene cylinder market where Linde would still remain a clear market leader, both players would have very symmetric market positions on the overall national market.

The removal of Air Liquide as an independent competitive force would also lead to symmetric positions on a regional basis

117. In view of the fact that competition on the cylinder market has a regional dimension because of the maximum size of the delivery radius (150-200 km) in which suppliers have an economic incentive to supply customers, the Commission also examined the positions of the various suppliers in each of the four German regions before and after the transaction.

118. The table below shows, on the basis of all cylinder sales, the respective positions of the main market players in 2002.

>TABLE POSITION>

Source: The notifying party [28]

[28] During the investigation, the Commission reconstructed the market shares on the basis of the data requested from each market player. The Commission's estimates are in line with these figures.

119. Although Linde and Messer have national distribution networks (much denser than those of their competitors), Messer has been traditionally stronger in the West whereas Linde remained the market leader in the South. However, until the proposed concentration, such symmetry did not exist in the Eastern and Northern regions: whereas Linde was a clear market leader in the North, Messer was at the same level as Linde in the East because of Air Liquide's disruptive position there ([20-30]%).

120. Following the merger, the regional positioning of the two main suppliers of cylinders will be almost perfectly symmetric. Air Liquide/Messer Targets will indeed hold a [50-60]% market share in the East whereas Linde would have an almost identical market share in the South ([50-60]%). Similarly, Air Liquide/Messer Targets's position in the West ([40-50]%) would be comparable to that of Linde in the Northern region of Germany ([40-50]%). In all instances, the gap between these two companies and other competitors such as Air Products and Praxair would be further widened.

The creation of a joint dominant position would become likely post-merger

121. The question of the existence of a joint dominant position between Messer and Linde on the cylinder gas markets in Germany was raised but rejected in a previous Commission decision, in particular because of the firm foothold that Air Liquide had been able to establish in this country [29].

[29] Commission Decision M.1641 - Linde/AGA, at paragraph 50.

122. The Commission is of the view that the presence of Air Liquide on the German cylinder gas markets before the merger was indeed the main factor for disrupting the potential creation of a dominant oligopoly on these markets. First, Air Liquide was able in the recent years to gain a critical position on the German market thanks to its pricing policy and its service capabilities. In that respect, most respondents confirmed that Air Liquide was the most aggressive player on the market. Secondly, because of its important positioning in the East and its presence in the Western and Southern regions, Air Liquide prevented Messer and Linde from having symmetric positions in Germany, thereby disrupting the likelihood that those firms would have common incentives and would dispose of an efficient disciplining mechanism to secure the sustainability of a collective dominant position.

123. As a result of the merger, it is likely that Air Liquide/Messer Targets and Linde would hold a collective dominant position. Air Liquide's pre-merger incentive to gain a larger customer base through all possible means would not be similar to Air Liquide/Messer Targets's post-merger incentives as it would no longer need to play a potentially disruptive role on the markets and to lower its margins when trying to get new contracts. In addition, both companies would have relatively symmetric positions and would thus be likely to have a common incentive not to compete effectively, for example through customer sharing or market partitioning. Evidence of past collusion between these firms in an other EEA country but on the same product markets constitutes an important indication in this respect [30].

[30] See Commission Decision of 24 July 2002 relating to a proceeding pursuant to Article 81 of the EC Treaty, Case COMP/E-3/36.700 - Industrial and medical gases, OJ 1.4.2003, L84, p. 1.

124. In addition, for reasons similar to those already indicated with respect to bulk markets for air gases, a monitoring of each other's conduct on the market would be effective. In particular, by contrast to the bulk markets, price transparency appears to be more significant on the cylinder gas markets because of the price lists that suppliers provide to their agents as well as to their customers. Also, each member of the duopoly could present an effective threat of retaliation in case of deviation, for example on the same market through a possible undercutting of its prices in a region where the other member of the duopoly is the main player.

125. Finally, it is far from established that customers or competitors would be in a position to jeopardise the actions of this dominant oligopoly. Neither cylinder customers, who are typically small firms with little bargaining power, nor competitors active on the German market would have the ability and/or the incentives to disrupt significantly such coordination. The main remaining competitors - Air Products and Praxair - would still hold significantly lower market shares and would be almost absent from some regions. Air Products is thus mainly present in the Northern and the Western regions of Germany whereas the combined entity, as well as Linde, has a national coverage. Praxair would even be in a weaker position, being absent from the Northern and Eastern parts of Germany.

126. In the absence of remedies aimed at removing the substantial change brought about by the merger on the cylinder gas markets in Germany, the operation would therefore raise serious doubts as to its compatibility with the common market.

4. Conclusion

127. In light of the above, the notified transaction raises serious doubts as to :

(i) the creation of a dominant position in the European [31] markets for oxygen, nitrogen and carbon monoxide tonnage;

[31] Both EEA and EEA-extended, i.e. including the 10 accessing countries.

(ii) the creation of a dominant position in the German market for bulk hydrogen,

(iii) the creation of a joint dominant position in the German markets for bulk (oxygen, nitrogen, argon, carbon dioxide);

(iv) the creation of a joint dominant position in the German markets for cylinders (all main industrial and medical gases supplied in cylinders);

(v) the creation of a dominant position in the EEA-wide market for electronic speciality gases (ESGs).

VI PROPOSED REMEDIES

A. Initial set of remedies

128. In order to remove the serious doubts resulting from the proposed transaction, the parties have offered to the Commission a number of undertakings and divestments.

129. The first package of undertakings was filed with the Commission on February 4, 2004. It foresaw the divestiture of several Air Liquide and Messer tonnage, bulk and cylinders assets and related activities in Germany.

130. As regards tonnage activities relating to gaseous oxygen and nitrogen, Air Liquide proposed to divest the southern tip of Messer's Rhein/Ruhr pipeline network (between Köln Porz and Knapsack) as well as Messer's complete pipeline network in the Saar area. Furthermore, Air Liquide proposed to divest several tonnage plants (including related activities and equipment) located in Karlsruhe, Rheinberg, Riesa, Hürth, Mainz, Unterwellenborn, and Dillingen, as well as a second Air Separation Unit, which was under construction in Dillingen.

131. The bulk assets proposed for divestiture included production sites (piggy back plants and small on-site Air Separation Units, including related activities and equipment) at the following locations: Karlsruhe, Düsseldorf, Hürth, Dillingen and some further, unspecified small on-site Air Separation Units to be selected amongst Messer's customers.

132. Furthermore, Air Liquide proposed to divest its sourcing contracts relating to a BASF Carbon Dioxide source in Ludwigshafen, as well as to the Klara CO2 source in Linz (Austria).

133. The proposed divestments of cylinder assets and businesses covered the filling centres in Berlin (including a sales office in Magdeburg, and a hub in Loitz), Erfurt, Völklingen and Hürth.

134. As regards CO2, Air Liquide proposed to divest its supply contracts relating to BASF's source in Ludwigshafen and to the Klara source in Austria.

135. To address potential problems in the market for ESGs, Air Liquide proposed to divest parts of the sales of Messer/Nippon Sanso in WFG6 and SiH4, if this should become necessary.

136. The Commission market tested the proposal and found out that the market regarded the proposed divestments as insufficient. The main reason for this outcome was that Air Liquide was generally seen as the only competitor in Germany playing at the national level apart from Linde and Messer. The market pronounced concerns that the transaction would lead to a concentration in the gas markets from 3 to 2 players and that as a result of this, competition would diminish and prices would increase. The proposed remedies did not enable a new entity to substitute Air Liquide as the third player in those markets.

137. As regards the tonnage market, even after the proposed divestitures the combined entity would still have a very high market share. Furthermore, the market players were doubtful as to whether the divested tonnage business would be viable and independent.

138. With regard to the pipelines it was argued that the control of a pipeline network constituted a decisive advantage making on-site tonnage solutions hardly competitive in its catchment area. The divestment of only the southern tip of the Rhein/Ruhr pipeline was not regarded as being sufficient to address all competition concerns, mainly because of a lack of expansion possibilities due to alleged restrictions in the capacity of the connected tonnage plant (Hürth) and the already very high pressure in the pipeline.

139. The other tonnage plants that were proposed for divestiture raised concerns as the viability of the businesses connected to some of the divested sites seemed threatened. For instance, concerns were expressed relating to the viability of the Karlsruhe piggy-back plant. Market participants expected the main customer, Thermoselect, to close down shortly, leaving the Karlsruhe piggy-back plant without customer for the gaseous gases. The conversion of the plant into a pure liquefier for the production of bulk was generally regarded as economically uninteresting and not viable.

140. Air Liquide's proposal to divest several small on-site plants was, according to the market test, not suitable to solve the competition concerns in the bulk market. The transfer of several small plants, each of which were dedicated to a certain customer, would not provide the acquirer with an ability to compete in the overall bulk market.

141. As regards the cylinder business, market participants were concerned that the business proposed for divestiture did not contain sufficient filling centres and only covered parts of Eastern and Western Germany without addressing the merged entities position in Southern Germany. According to the market test, the proposed divestitures would not create a national player and not break the symmetry of positions between Air Liquide/Messer Targets (strong in West and East) and Linde (strong in the South and North).

142. Another issue in the market test was that the divested facilities proposed for divestiture did not have the new 300bar technique introduced by Messer and used by approximately 50% of its customers. Furthermore, the allocation of customers to the divested businesses remained unclear.

143. On the CO2 market, Air Liquide offered to transfer only supply contracts, not owned sources, which, according to the market test, would reduce the number of competitors in Germany to two. These two competitors would have no incentive to compete against each other given their current swap agreements and the absence of credible potential rivals.

144. As regards ESGs, the proposed remedies were not generally viewed as solving the competition issues in a structural way.

B. Remedies as modified on 27 February, 2004

145. Air Liquide submitted on 27 February, 2004, a modified package of undertakings, which had been designed to address the outcome of the Commission's investigation.

146. As regards tonnage activities relating to gaseous oxygen and nitrogen, Air Liquide now proposed to divest a bigger part of Messer's Rhein/Ruhr pipeline network, divesting the entire southern half of it (between Köln Porz and Dormagen/Krefeld). It also added further tonnage plants to the first package: one air separation unit and one CO plant, both located in Dormagen, the former attached to the Rhein/Ruhr pipeline. Air Liquide also continued to propose to divest the tonnage plants in Karlsruhe, Rheinberg, Riesa, Hürth, Mainz, and Unterwellenborn. However, Air Liquide withdrew its proposal to divest Messer's complete pipeline network in the Saar area and the Air Separation Units (of which one was under construction) in Dillingen.

147. The bulk assets proposed for divestiture were also revised. They now included production sites (piggy back plants and small on-site ASUs, and related activities and equipment) in Karlsruhe, Hürth, and Dormagen and a supply contract with Linde in Buna. The proposal to divest the Düsseldorf and Dillingen liquefiers as well as further, unspecified small on-site ASUs to be selected amongst Messer's customers was withdrawn.

148. As regards the proposed divestments of cylinder assets and businesses, a service centre in Dresden (relating to the filling centre in Berlin) was added to the set of divestitures proposed in the first package of undertakings.

149. In order to address concerns relating to CO2, Air Liquide now proposed to divest its own Burgbrohl CO2 source and relating cylinder activities in addition to the sourcing contract relating to the BASF Carbon Dioxide source in Ludwigshafen. The proposal relating to the Klara CO2 source in Linz (Austria) was withdrawn.

150. As regards ESGs, Air Liquide now proposed to divest Messer's participation in the joint-venture with Messer/Nippon Sanso relating to Electronic Specialty Gases (ESGs).

151. The Commission also market tested the second set of commitments. The outcome of the market test was that some of the problems outlined above remained and should be further addressed in order to remove serious doubts.

152. In the tonnage market, not divesting the Saar-pipeline meant that any pipeline to pipeline competition between the Saar-pipeline and Air Liquide's pipeline in Lorraine would be eliminated.

153. The market players also expressed doubts as to whether the capacity of the divested southern part of the Rhein/Ruhr pipeline would be sufficient to serve all customers located in that region. The reason for this was that the divestments only included 2 out of 8 ASUs in total connected to the pipeline. In the view of many market players, this might not be sufficient to fulfil the gas requirements of the customers. The market test furthermore raised reliability and backup issues regarding the southern part of the pipeline. Market players expressed their doubts as to whether the acquirer would be in a position to ensure continuous gas supplies in case of maintenance or unforeseen production downtime in one of the divested ASUs. A more practical issue was if the acquirer of the southern part of the pipeline would be independent from Air Liquide for feeding its gases into the pipeline.

154. As regards the bulk market, the market test clearly stated that not divesting the Dillingen plant meant that competition in the Saar/Northern France area would be limited.

155. In addition, the Karlsruhe piggy-back plant remained an issue of concern, as EnBW had publicly announced that the Thermoselect plant connected to it would be closed down as soon as possible.

156. The market test also stated that the proposed concentration might create a problematic situation in Southern Germany, leaving many customers with only one or two companies (the merged entity and Linde) from which they could source their bulk supplies.

157. According to the market test, the new proposal did not solve the problems outlined above as regards the cylinder markets.

158. As regards the CO2 market, the market players expressed remaining doubts as to whether the proposed divestments (BASF sourcing contract and Burgbrohl source) were sufficient to address Air Liquide's high market share and would provide any potential acquirer with the necessary critical mass. It also remained unclear on which basis Air Liquide would choose the customers to be divested together with the BASF source in Ludwigshafen and to which extent it would be possible to expand the divested customer base.

C. Final version of the remedies

159. On 9 March 2004, the notifying party submitted another version of remedies, which was designed to address the outcome of both market tests and the Commission's remaining doubts resulting therefrom. Air Liquide proposes to divest the following assets as one package to one acquirer, except Messer's share in Messer/Nippon Sanso.

160. As regards tonnage activities relating to gaseous oxygen and nitrogen, Air Liquide proposes to divest the following assets and businesses (including all plant facilities, all related customer contracts - with their consent - and the operating, maintenance and support personnel related to such facilities):

-The southern half of Messer's Rhein/Ruhr pipeline network for gaseous oxygen and nitrogen (between Köln Porz and Dormagen/Krefeld), and connected Air Separation Units producing oxygen and nitrogen tonnage in Hürth and Dormagen. Furthermore, Air Liquide offers to divest one CO plant located in Dormagen.

-Messer's complete pipeline network for gaseous oxygen and nitrogen in the Saar area (between Dillingen and Völklingen), and the connected ASU producing oxygen and nitrogen tonnage in Dillingen, as well as a second ASU in Dillingen, which is under construction and shall be finished in 2005.

-An Air separation unit producing gaseous oxygen and nitrogen in Rheinberg.

161. The bulk assets and businesses (including all bulk production and storage facilities, associated bulk distribution equipment - road tankers, the bulk tanks located at customers' premises, the relevant personnel for sales, technical support, distribution and customer service, and the relevant customer bulk contracts - with their consent if necessary) proposed for divestiture include:

-The bulk production in Hürth (piggy-back tonnage plant producing LOX, LIN, LAR, H2)

-The bulk production in Dillingen (piggy-back tonnage plant producing LIN, LOX, LAR)

-An Argon production facility connected to the divested Dormagen ASU

-A long-term delivery contract for LIN, LOX. LAR sourced from Linde in Buna

162. As regards cylinder assets and businesses (including cylinder filling plant facilities, associated cylinders, distribution network and equipment -trucks- as well as the production and distribution personnel, in addition to contracts with customers in certain ZIP-code areas - with their consent if necessary), Air Liquide proposes to divest:

-A filling centre in Berlin for all cylinders, including helium (including a service centre in Magdeburg, a service centre in Dresden and the use of a hub in Loitz, which is owned by a third party).

-A filling centre in Erfurt, for all cylinders, including helium.

-A production and filling centre in Bopfingen for air gases, medical gases, specific ALTOP ranges and CO2, 300-bar cylinders.

-A filling centre in Nürnberg, dedicated to CO2.

-A filling centre in Hürth for all cylinders. The part of the station dedicated to atmospheric gases was idled in 2003, but the space is still available.

-A filling centre in Völklingen for all cylinders.

163. In the field of CO2, Air Liquide proposes to divest (including associated cylinders, distribution network and equipment -trucks- as well as the production and distribution personnel, in addition to contracts with customers in certain ZIP-code areas - with their consent if necessary)

-A sourcing contract relating to the BASF CO2 in Ludwigshafen.

-A sourcing contract relating to the Klara CO2 source in Linz (Austria).

-The Air Liquide CO2 source in Burgbrohl and the connected CO2 cylinder filling plant.

164. As regards ESGs, Air Liquide proposes to divest Messer's share in Messer/Nippon Sanso separately from the rest of the package.

165. Apart from adjustments to the initial text, the proposed divestments were mostly a combination of what had been proposed in the commitments of 4 February and in the modified commitments of 27 February. The new additions included the Bopfingen, Nürnberg and Burgbrohl facilities which consisted of a mere addition of similar cylinder facilities to the ones that had been already submitted. The Commission therefore considers that on substance the proposal of 9 March consisted of a modification of the previous commitments.

166. On 12 March 2004, Air Liquide submitted a final version of its undertakings which included adjustments to the text of the 9 March proposal.

167. The detailed text of these undertakings is annexed to this decision. The full text of all the annexed undertakings forms an integral part to this decision.

VII ASSESSMENT OF THE PROPOSED REMEDIES

A. Tonnage

168. As a result of the remedies, the market shares of Air Liquide/Messer Targets and other competitors would be as follows on the tonnage markets in the EEA:

>TABLE POSITION>

Source: The notifying party [32]

[32] During the investigation, the Commission reconstructed the market shares on the basis of the sales of each market player. The Commission's estimates are in line with these figures.

The divested pipeline networks will eliminates serious doubts as to the effects of the transaction on the tonnage markets

169. As explained above, the competition between Air Liquide and Messer in the tonnage market has mainly occurred in the catchment area of Messer's pipeline networks in Germany, where Air Liquide placed offers. In this area, suppliers exercising a competitive pressure on Messer have been Linde and Air Liquide. By divesting the tonnage activity in the Rhine/Ruhr area to an industrial gases company, other than the two mentioned above, the remedies prevent Air Liquide from adding to its already strong position in the EEA Messer's entrenched position in this area, where a significant part of EEA industrial customers are located, and to restore the number of players effectively competing for tonnage contracts in this region.

170. The acquirer will have the ability not only to supply customers located in the catchment area of its pipeline but also to offer to supply customers located in the northern part of the Rhine/Ruhr valley by extending its pipeline. The Commission's investigation confirmed that this extension was possible since the northern end of the divested pipeline is only 25 km [33] away from Air Liquide/Messer's customers. According to information gathered from the market tests and the notifying party the construction of a new pipeline is much easier where another pipeline already exists. The remedies will therefore lead to "pipeline-to-pipeline competition" that did not exist prior to the merger and, given the advantage that such infrastructure confers to the supplier, the competitive constraint exerted on Air Liquide/Messer Targets (and Linde) is likely to be at least as effective as that exercised by Air Liquide pre-merger. Similarly, the divestiture of the Saar pipeline will ensure that the competition existing prior to the merger in this industrial basin will be maintained.

[33] 25 km have to be compared with the total length of the pipeline networks : [500-600] km. Several competitors also explained that the catchment area of a pipeline is about 30 km along it.

171. Further to the market test of the initial set of remedies, which included only a very small part of the Rhein/Ruhr pipeline network, a third party stated for instance that "unless sufficient competition is ensured in the supply of O2/N2 through an extension of the remedy proposal, Air Liquide would be in a very strong competitive position in both hydrogen and oxygen/nitrogen for such dual customers." As acknowledged by this third party, the extension of the part of the pipeline network to be divested significantly reduces the potential incentives for Air Liquide to bundle its pipeline sales of O2 and N2 and ensures that no negative impact on customers will materialise.

172. The following paragraphs will examine whether the Rhine Pipeline and the Saar Pipeline divestitures are viable and effective.

Rhine-Ruhr pipeline

173. The final remedies essentially consist in a substantial increase of the divested part of the Rhein-Ruhr pipeline, corresponding to [50-60] % of its length and [30-40] % of its sales [34], together with the divestiture of the additional ASU connected to it (Dormagen). The tonnage contracts of the [...] customers connected to the part of the pipeline to be divested will be transferred to the acquirer. With the exception of a few small supply contracts, accounting each for less than [...], the main supply contracts to be transferred will be running for many years to come, their end dates ranging from [...] to [...] [35]. The divested business is thus viable and will provide the acquirer with a significant customer base such as the petrochemical sites of BP, Shell (DEA), Bayer (two sites: Dormagen and Leverkusen), Degussa, Basell and the chemical park of Knapsack (Hürth). This contrasts with the Northern part of the pipeline network which is larger in terms of sales but composed of companies such steel mills and refineries the growth of which is less certain.

[34] The notifying party's reply on 08/03/2004 to the Commission's questionnaire of 07/03/2004. [...]% of GOX sales and [...]% of GAN sales

[35] List of Messer's customers connected to its pipeline networks and contract terms thereof, provided by Messer on 08/03/2004.

174. In addition, data provided by Air Liquide and Messer show that the pipeline and the ASUs connected to it match the contracted volumes. The purchaser will gain an ability to bid for customers located along the Ruhr pipeline and therefore will exercise a competitive constraint on the part of the pipeline kept by Air Liquide.

175. Two parts of the pipeline network to be divested are not fully owned by Messer. It is the case of the main O2/N2 pipelines between Hürth and Dormagen, controlled by Sauerstoff- und Stickstoffrohrleitungsgesellschaft mbH ("SRG"). SRG is a 50/50 joint venture of Messer and Bayer AG. SRG has [...]. The notifying party committed to transfer this contract along with the remainder of the divested business, even though this transfer would require the written consent of [...]. The Commission takes note of the arguments [36] put forward by Air Liquide as to why [...] has no reason not to accept it. A small section of the pipeline to be divested, which connects [...] to the main pipeline, is owned by [...] , which leases this part of the pipeline to Messer. The notifying party submitted that it would be possible to transfer this lease contract to the purchaser of the divestiture package without any consent from [...]. The Commission underlines that the above divestitures are conditions to the clearance of the proposed transaction.

[36] Air Liquide's submission of 05/03/2004.

176. The market test on the first set of proposals showed that a divestment of the Hürth facility alone with some related pipelines would not have permitted sufficient levels of reliability for the supply of customers. With the addition of the Dormagen ASU and the related pipelines, the acquirer of the divested business would be able to offer a sufficient level of flexibility and reliability to its customers. The reliability - which is crucial for the customers - is ensured by the fact that two ASUs are distributing gas via the pipeline (whilst only one was proposed in the first set of remedies). Moreover, the undertaking to sign a back-up contract with the purchaser that is included in the final remedies would also ensure that sufficient reliability would be achieved. This contract aims at setting a clear framework in order to allow the ASUs connected to one part of the pipeline network to act as a back-up in case of a lasting [37] shut-down of an ASU supplying the other part. Customers will therefore benefit from a similar level of reliability of their supplies to the one prevailing pre-merger, be their supply contracts transferred to the acquirer or not.

[37] For short stops, back-up is ensured by bulk storage. In particular, the Hürth plant has large liquid storages of LIN and LOX at its disposal, covering [...] days of consumption.

177. The two divested ASUs at Hürth and Dormagen, have been built respectively in 1977 and 1993. The Dormagen facility is thus recent and modern and exhibits efficient levels of operating costs. The Hürth plant is an integrated site encompassing both tonnage, bulk and cylinder activities, with an on-site fill plant and a hydrogen facility. While it is older, it has undergone material modifications to be modernised and become more efficient over the past years. Messer has invested around EUR [...] million in the plant since 1977 to modernise it. In particular, the liquefier was built in 1994 and is thus recent and modern, and most of the main equipment has been replaced. If the acquirer decided to change the parts that have not been replaced so far, such as the N2 compressor, this would imply an investment limited to EUR [< 5 million] [38].

[38] Air Liquide's submission of 27/02/2004.

178. As a result, the divested plants appear to be sufficiently modern and efficient, as compared with the other tonnage and/or liquid plants of Messer in Germany, to allow the acquirer to compete on a cost competitive basis with the merged entity. Dormagen and Hürth are among the most efficient plants to produce, respectively, gaseous Oxygen (GOX, [...] EUR/t) and gaseous nitrogen (GAN, [...] EUR/t). The same holds true for liquid oxygen (LOX, [...] EUR/t) and liquid Nitrogen (LIN, [...] EUR/t) for Hürth. Dormagen produces only Liquid Argon (LAR), again at a competitive cost ([...] EUR/t).

>TABLE POSITION>

Source: Messer, 05/02/2004. In bold and italic, the divested plants

Saar pipeline

179. With respect to the tonnage market, the other area where Messer and Air Liquide have exercised a constraint on each other is the Lorraine and Saar region where each of them operate a pipeline network. As these two pipelines are close to each other, the area enjoyed pipeline-to-pipeline competition. The remedies, by divesting the Messer Saar pipeline network and thus removing the change brought about by the proposed transaction, will ensure that the pipeline-to-pipeline competition is maintained.

180. Since the pipeline was already operated separately from Air Liquide's Lorraine pipeline, there is no doubt as to its independence and viability. The main supply contracts divested along with the pipeline run until [...] [39], such securing the customer base and the production of the divested plant over the coming years. In addition, Messer decided to build a second plant in Dillingen, of a similar size as the existing one. The acquirer will therefore be able to increase its production in the coming years. The planned ASU also shows that Messer expects a significant growth in the needs of the customers connected to the Saar pipeline network.

[39] Saarstahl in Vöklingen and Dillinger Hüttenwerke in Dilligen

On-site plants

181. Air Liquide initially proposed to divest some of Messer's or Air Liquide's on-site tonnage plants: Rheinberg, Riesa, Mainz, Karlsruhe and Unterwellenborn. During the market test, several customers and competitors raised strong doubts as to (i) the viability of some of these assets as well as (ii) whether such divestiture would confer any competit