95/421/EC: Commission Decision of 21 December 1994 declaring a concentration to be compatible with the common market (Case No IV/M.484 - Krupp/Thyssen/Riva/Falck/Tadfin/AST) (Only the German text is authentic) (Text with EEA relevance)
Date: 1994-12-21
Institutions: European Commission
Subjects: European Economic Area, competition, economic concentration, iron and steel industry, merger control













EUR-Lex - 31995D0421 - EN






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31995D0421

95/421/EC: Commission Decision of 21 December 1994 declaring a concentration to be compatible with the common market (Case No IV/M.484 - Krupp/Thyssen/Riva/Falck/Tadfin/AST) (Only the German text is authentic) (Text with EEA relevance)  


Official Journal L 251 , 19/10/1995 P. 0018 - 0030 





COMMISSION DECISION of 21  December 1994 declaring a concentration to be compatible with the common market (Case No IV/M.484 -  Krupp/Thyssen/Riva/Falck/Tadfin/AST) (Only the German text is authentic) (Text with EEA relevance)  (95/421/EC)THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, Having regard to Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of  concentrations between undertakings, and in particular Article 8 (2) thereof  (1), Having regard to the Commission's decision of 21 October 1994 to initiate proceedings in this  case, After consultation of the Advisory Committee on Concentrations  (2), Whereas: (1)  On 22 July 1994 the proposed acquisition of the Italian steel producer Acciai Speciali Terni  SpA (AST) by a German/Italian consortium, involving Fried. Krupp AG Hoesch-Krupp (Krupp) and  Thyssen Stahl AG (Thyssen) on the German side and AFL Falck (Falck), Tadfin SpA (Tadfin) and FI.RE.  Finanziaria SpA (Riva) on the Italian side, was notified under Regulation (EEC) No 4064/89  (hereinafter referred to as 'the Merger Regulation`). Since the notification was at first  incomplete, the periods referred to in Article 10 of the Merger Regulation began to run from 21  September 1994, the day following the day of receipt of the complete information. I.  THE PARTIES (2)  Krupp comprises a group of companies, the principal activities of which  include steelmaking, mechanical engineering, process plant engineering, automotive parts and  components manufacture, and trading and services. The main activities of Thyssen are the manufacture and distribution of steel products, including  crude steel production and flat and long products. Riva is the holding company of the Riva Group, the companies within which are engaged in the  manufacture and distribution of steel products. Falck is the holding company of the Falck Group, the companies within which are engaged in the  manufacture and distribution of steel products, the generation and sale of electricity, real estate  administration and environmental technology. Tadfin is a holding company which holds shares in companies which are active in the distribution of  steel products and in real estate. AST was created on 1 January 1994 when the steelmaking activities of Ilva were separated into three  companies in preparation for their subsequent sale. The main activity of AST is the production of  special steel. II.  THE OPERATION (3)  The sale of AST forms part of the programme for the privatization of the  Ilva Group, endorsed by IRI in September 1993, in the context of which the Commission approved  State subsidies to Ilva by a decision adopted on 12 April 1994, subject to the condition that the  privatization be completed by the end of 1994. Following this decision, the stainless steel flat  products business was transferred from Ilva to AST and sold by competitive tender. The successful  tender was submitted by the abovementioned German-Italian consortium. Thyssen was not a direct  party to the consortium, but cooperated closely in the negotiations. (4)  For the purpose of acquiring AST and in order to take over the industrial management of that  company, Krupp on the one hand and the Italian partners on the other (Riva, Tadfin and Falck) have  founded a joint venture, KAI Acciai srl (KAI). The shares in KAI are divided equally betweeen Krupp  (50  %) and the Italian partners (50  %). (5)  The interests of the Italian partners in KAI will be exercised through a vehicle company,  F.A.R. Acciai srl (FAR), created expressly for that purpose. In FAR, Riva and Tadfin will each hold  an interest of 42  % and Falck an interest of 16  %. FAR is to exercise the voting rights resulting  from the 50  % interest in KAI. Within FAR, all major decisions are taken by the board of directors  comprising five members, of whom Riva and Tadfin will each nominate two and Falck one. The  decisions need the approval of the majority of the members. (6)  Krupp and Thyssen have agreed the transfer from Krupp of its 50  % share in KAI to Krupp  Thyssen Rostfrei GmbH (KTR, also called RSH), a joint venture between Krupp and Thyssen, in which  both partners have concentrated their flat stainless steel production. According to the provisions  of the shareholders' agreement, Thyssen will have a veto right on fundamental decisions (such as  product and market strategy, principles of financing, appointment of managers and large-scale  investments) and will therefore have joint control with Krupp over KTR. The creation of KTR was  authorized by the Commission under Article 66 of the ECSC Treaty on 26 July 1994. (7)  AST's production consists primarily of stainless steel flag products, both cold rolled and hot  rolled, cold-rolled electrical sheet and welded tubes manufactured by a subsidiary of AST. More  than (.  .  .)  (1) of the total turnover of the AST group is achieved with stainless steel flat  products and electrical sheet. Of these products, cold-rolled stainless steel flat products,  electrical sheet (both less than 500 mm wide) and welded tubes fall within the EC Treaty, and hence  are covered by the Merger Regulation and this Decision. In addition, titanium products, hammer  forgings and drop forgings manufactured by subsidiaries of AST fall within the EC Treaty. By contrast, cold-rolled stainless steel flat products, electrical sheet (500 mm or more) and  hot-rolled stainless steel flat products are covered by the ECSC Treaty and will be the subject of  a separate Commission decision. III.  CONCENTRATION JOINT CONTROL OF AST (8)  The notified operation comprises several steps to acquire control of AST by the members of the  German/Italian consortium: -  foundation of FAR by the Italian partners in the consortium in order to hold a 50  % stake in  KAI, -  creation of KAI for the purpose of acquiring all shares in AST and in order to take over the  industrial management of AST, -  assignment of Krupp's 50  % interest in KAI to KTR. (9)  The three Italian partners in the consortium - Riva, Falck and Tadfin - have founded FAR  exclusively as a vehicle to act with one voice in KAI's decision-making. Although none of the  Italian companies is able to block any decision in FAR, this fact is immaterial owing to the  instrument character of FAR. In the basic agreement between the Italian partners to the consortium  and Krupp of 29 April 1994, the Italians committed themselves to set up FAR solely for the purposes  of the operation in question. This reflects the intention of both contracting partners, the Italian  partners and Krupp, to enable the Italian side to act within KAI - the management company of AST -  with one voice. The Italian partners thereby ensure that, together, they can exercise a decisive  influence over KAI and hence over AST. They will therefore exercise a decisive influence with the  German side and there can never be a situation where KTR exercises sole control through the  inability of the Italian partners to reach a common position in any decision. Thus it can be  concluded that the three Italian partners exercise joint control over KAI and thereby over AST. (10)  KTR and FAR will each hold 50  % of the shares in KAI, whose exclusive purpose is to acquire  the shares of AST and to take over the industrial management of AST. Within KAI, decisions are  taken by the board of directors comprising six members, of which KTR and FAR will each appoint  three. Decisions need the approval of five members. This means that in KAI each shareholder is able  to block a decision. Since KAI, just like FAR, is only of instrument character as regards control  of AST, it may be seen that KTR, Riva, Tadfin and Falck will have joint control of AST. (11)  KTR is a joint venture between Krupp and Thyssen in which both partners have combined their  stainless steel flat products (but no other products such as electrical sheet) with effect from 1  October 1994. Since KTR is jointly controlled by Krupp and Thyssen, Krupp's holding in KAI comes  under the joint control of Krupp and Thyssen once it is assigned to KTR. Consequently, Thyssen will  also have a decisive influence over the decisions taken by KAI with regard to AST, with the result  that Krupp, Thyssen, Riva, Tadfin and Falck will jointly control AST. FULL-FUNCTION JOINT VENTURE (12)  AST has all the assets and resources necessary to enable it to perform all the functions of  an autonomous economic entity. It will continue to perform activities in the area of stainless  steel and other steel production markets. It supplies (  .  .  .  ) of its stainless steel flat  products and (  .  .  .  ) of its electrical sheet products direct to customers. The remainder is  sold by distributors, including own-group trading companies, and by external agencies. (13)  AST supplies, partially on the basis of existing contracts, stainless steel flat products to  two distribution companies belonging to some of the parties. The deliveries are not of significance  when set against all AST's deliveries. Its deliveries to the parties account for (  .  .  .  ) in  the case of cold-rolled stainless steel flat products and (  .  .  .  ) in the case of electrical  sheet. Consequently, the fact that AST will supply a relatively small part of its production to its  parent companies does not disqualify AST as a full-function joint venture. ABSENCE OF COORDINATION OF COMPETITIVE BEHAVIOUR (14)  AST is mainly active as a producer of stainless steel flat products. The Italian side of the  consortium (Riva, Falck and Tadfin) does not produce such products, whereas Kurpp and Thyssen have  transferred their entire flat stainless steel production to KTR. Consequently, of the parent  companies of AST only one is active in that market, together with AST. There is therefore no  relevant coordination. (15)  AST also produces electrical sheet. Subsidiaries of Krupp (Hoesch Hohenlimburg GmbH) and of  Thyssen (EBG) likewise manufacture electrical sheet. The parties have informed the Commission that  Krupp will withdraw from electric sheet production. Workers in that area will be transferred to the  Thyssen subsidiary (EBG). At the same time Krupp will acquire a minority shareholding of less than  25  % in EBG. In addition, on the Italian side of the consortium only Falck produces relatively  small quantities of electrical sheet. Therefore, in the market of for electrical sheet Thyssen and  Falck will remain active. However, since, according to the parties, the market share of Falck in  the west European market (EC and EFTA) is very low (  .  .  .  ) the risk of coordination between  Thyssen and Falck is negligible in the context of considering the operation as cooperative. (16)  According to the parties a substantial part of their own production of stainless steel flat  products is sold direct by mills to final consumers (more than (  .  .  .  ) for each party),  whereas the remainder is distributed by trading companies (stockholders) and service centres. Steel  stockholders perform the wholesale function of buying material in bulk from manufacturers, stocking  it and reselling it in smaller quantities. Stockholders have developed in house-processing  facilities such as machines to slit steel strips in order to improve their service to customers.  Service centres mainly perfrom materials processing and transformation activities (slitting,  flattening, surface finishing and cutting to a shape) on their own account and for third parties,  and subsequently they either return the processed products to the commissioning company or resell  the materials in smaller quantities to customers who need only such quantities. For stockholding  and most of the related service activities, a quick delivery and a short distance from the palace  to be supplied or serviced is essential. Thus the effect of the operation with regard to the  distribution markets for stainless steel products has to be assessed at a regional level. As  regards distribution, AST is active mainly in Italy. Of the parent companies, only Tadfin is also  active in the Italian stockholder market for stainless steel. Consequently, there is no risk of  relevant coordination. (17)  A subsidiary of AST, Tubificio di Terni, produces small quantities of welded tubes both made  from stainless steel (chrome content of more than 13  %) and from alloyed steel (chrome content of  less than 13  %). None of the parent companies is a manufacturer of welded tubes, whether made from  stainless steel or from alloyed steel. MHP, a joint venture between Krupp and Mannesmann Roehren, is  active as a producer in the market for precision tubes made from carbon steel with a market share  of about (  .  .  .  ) and Falck is a producer of non-precision tubes made from carbon steel  (market share of about (  .  .  .  )). However, welded tubes made from stainless or alloyed steel  on the one hand and tubes made from carbon steel on the other hand belong to separate markets. The  first group of products is used mainly in exhaust systems for passenger cars owing to their heat  resistance and durability. By contrast, tubes made from carbon steel are used mainly in the  furniture industry and in mechanical engineering. Moreover, there are substantial price differences  between the different kinds of tube: non-precision tubes cost about ECU 480/tonne and stainless  steel tubes ECU 2  120/tonne. It may be added that the Tadfin group as a trading company  distributes small quantities of welded stainless steel tubes (value: ECU (  .  .  .  ) million).  But these activities belong to the separate distribution market for stainless steel products and  are negligible. Consequently, as regard tubes, AST is active in tube markets other than those where  parent companies are active, so there is no relevant coordination. (18)  AST produces through a subsidiary (Titania SpA) titanium semi-finished products. These are  also manufactured by Deutsche Titan GmbH, a company within the Vereinigte Schmiedegesellschaft  (VSG) group jointly controlled by Krupp, Thyssen and Kloeckner, who each hold an interest of 33 >NUM>1 >DEN>3   %. The other parent companies of AST are not active in the field of titanium semi-finish  products. The risk of coordination can therefore be ruled out for this market. (19)  Another subsidiary of AST, Soc. delle Fucine srl, produces hammer forgings (large,  individually manufactured steel parts weighing anything from 0,5 tonnes to several hundred tonnes).  VSG is also active in this market. Since there are no other parent companies of AST in this market,  there is no relevant coordination. (20)  Fils SpA, yet another subsidiary of AST, makes drop forgings, a product which unlike hammer  forgings is not manufactured individually but is produced by shaping in a die. Drop forgings are  also produced by a subsidiary of Krupp, Gerlach Werke GmbH, by a subsidiary of Thyssen, Thyssen  Umformtechnik, and by Falck. Nevertheless, the risk of coordination is negligible because Falck and AST have insignificant  market shares and Krupp and Thyssen have market shares of less than (  .  .  .  ). IV.  COMMUNITY DIMENSION (21)  The operation has a Community dimension. The aggregate worldwide  turnover of all the undertakings concerned amounts to more than ECU 5  000 million. Turnover for  1993 was as follows: Krupp ECU 10  600 million, Thyssen ECU 17  305 million, Riva ECU 1  247  million, Falck ECU 369 million, Tadfin ECU 58 million and AST ECU 758 million. (22)  The Community-wide turnover of Krupp, Thyssen, Riva, Falck and AST is more than ECU 250  million each. The five companies do not achieve more than two thirds of their aggregate  Community-wide turnover within any one Member State. V.  RELEVANT MARKETS RELEVANT PRODUCT MARKETS (23)  AST will continue producing stainless steel flat products, both cold rolled and hot rolled,  and cold-rolled electrical sheet. The two types of product account for about (  .  .  .  ) of AST's  total production. Cold-rolled stainless steel flat products and electrical sheet (both less than  500 mm wide) fall within the EC treaty and are thus covered by the merger Regulation. Welded tubes,  titanium products hammer forgings and drop forgings also fall within the EC Treaty. (24)  Stainless steel production differs from ordinary steel production in that chromium, nickel  and other elements are added during the melting process in order to achieve metallurgically  different properties in the end product. Chromium and nickel are quoted on the international metal  exchanges and their price fluctuations closely follow one another. The once of nickel has a strong  influence on stainless steel prices as it accounts for between 30 and 35  % of the cost price. The  next stages in production are hot and cold rolling. Hot-rolled material is produced on hot-rolling  mills but does not have surface qualities comparable to those of cold-rolled products. Hot-rolled  flat stainless steel is also sold to end users. The subsequent cold-rolling process is aimed at  improving the quality of the material and at further reducing its thickness to the required  dimensions. PRODUCTION OF COLD-ROLLED STAINLESS STEEL FLAT PRODUCTS (25)  Cold-rolled stainless steel flat products are used in a wide range of industries with the  following requirements: -  resistance to heat, rust and acids, -  a high-quality surface finish combining smoothness and a pleasing appearance. The individual requirements depend on the use to which the end product is to be put. The main  applications of cold-rolled stainless steel flat products for which there are internationally  recognized standards are in the household equipment ('white goods`) field, the food and drinks  industry, the chemical industry, the automotive industry (exhaust systems) and the capital goods  industry. (26)  According to the parties, there is a high degree of substitutability between cold-rolled  stainless steel and other materials such as carbon steel, coated steels (enamelled steel and  zinc-coated steel), aluminium, plastics and glass. Some competitors contacted by the Commission  confirmed that it is technically feasible to replace cold-rolled stainless steel with such  materials. Other competitors said that, owing to its corrosion ressistance, its hygienic,  mechanical and physical properties and its advantageous life-cycle cost, cold-rolled stainless  steel will generally hardly be replaceable. On the contrary, owing to its relative price advantage  over other materials, cold-rolled stainless steel has replaced them, its cheapness apparently being  the main factor in the substitution process. Other factors which have played a part in the growth  of cold-rolled stainless steel are the increasing importance of life-cycle costs, tighter  environmental regulations governing industrial processess and stricter hygien standards. For many  applications customers' investment in specific processing equipment will preclude any changeover in  the short term from cold-rolled stainlesss steel to other materials. (27)  Consequently, cold-rolled stainless steel flat products are to be regarded as a relevant  product market. (28)  All cold-rolled stainless steel flat products together can be seen as one product market  because of the high degree of supply-side substitution. A splitting of the market between material  under 500 mm and material over 500 mm in order to classify it either as an EC or as an ECSC product  is not practicable, primarily because this is an artificial division based on the production  technology at the time of the ECSC Treaty (1951) which has since been largely replaced by rolling  wide and slitting to narrower widths, but also because a significant amount of slitting of wide  coil to narrow is carried out at service centres as well as at the producing mill  (1). All big  manufacturers of stainless steel flat products themselves today slit wide strip to widths of less  than 500 mm. In addition, service centres slit wide coil to make narrower sizes. (29)  The market for cold-rolled stainless steel flat products is not to be divided into two  separate markets for austenitic steel and ferritic steel. These two kinds of stainless steel differ  in their chemical composition, which gives them different properties. Austenitic steel is more  expensive than ferritic steel, owing mainly to the addition of nickel. However, since both types of  steel can be produced by the same plant, which in the space of one or two weeks can switch from one  type to the other, it can be concluded that there is supply-side substitutability; hence both types  are to be considered included in the same relevant product market. PRODUCTION OF ELECTRICAL SHEET (30)  Electrical sheet is characterized by specific electromagnetic properties (conductivity and  electrical resistance). It is used mainly for the construction of large transformers, electric  motors, power supply and switching units, and power plant generators. It can be regarded as a  separate product market. Electrical sheet being a type of cold-rolled sheet, the ECSC Treaty differentiates between strips  less than 500 mm wide and strips over 500 mm wide. However, there is a high degree of supply-side  substitution between both kinds. As already stated for stainless steel flat products, mills can  roll widths of below 500 mm (EC product) and above (ECSC product), and material of less than 500 mm  can be slit from wider coils. (31)  Electrical sheet must be further differentiated as between oriented material and non-oriented  material. On the demand side, there are differences between the application areas of both types of  product. Oriented material has good conductivity, low core loss and lesser heat development,  whereas non-oriented material is characterized by higher resistance and higher heat development. Oriented and non-oriented material must also be distinguished according to the method of  production. Both kinds of material are pickled and cold rolled, but they undergo a different  annealing process, this being the process by which material acquires the required electromagnetic  properties. Since the necessary production facilities differ considerably, there is no supply-side  substitutability. There are therefore two separate markets for oriented and non-oriented electrical  sheet. TRADE IN STAINLESS STEEL (32)  As already indicated, distribution has to be considered a separate market as far as stainless  steel is concerned. Of West European stainless steel production, an estimated 30 P40  % (the  figures vary slightly between the various competitors) is sold through stockholders or service  centres. Electrical sheet is mainly sold direct to the customer and virtually none is dealt in by  stockholders or service centres. Eletrical sheet is mainly sold direct to the customer and  virtually none is dealt in by stockholders or service centres. (33)  To sum up, the following relevant product markets can be singled out for the purposes of the  present analysis: 1.  cold rolled stainless steel flat products; 2.  oriented electrical sheet; 3.  non-oriented electrical sheet; 4.  distribution of stainless steel products. With regard to the other products covered by the merger which fall under the EC Treaty and the  Merger Regulation and for which the relevant geographic market is Western Europe, there are no  competition problems since: -  only AST is present in the welded tube market, of which it has a negligible share; -  for hammer forgings and drop forgings, the new entity will have a market share of only about (   .  .  .  ) and for titanium products a share of only about (  .  .  .  ) (see point 78). THE RELEVANT GEOGRAPHIC MARKET Production of cold-rolled stainless steel (34)  The relevant geographic market for cold-rolled stainless steel is Western Europe (EC and EFTA  countries). There are no tariffs in trade between the EC and EFTA. Although all major producers  have large market shares in their respective countries, there is intensive trade among Community  Member States and between the Community and EFTA. Transport costs are low compared with the value  of the product in question (2 P3  %). There are no legislative or technical barriers to market  entry between EC Member States and the EFTA countries. (35)  The relevant geographic market does not extend beyond Western Europe. According to estimates  provided by the parties and by other producers, Western Europe is, compared with other parts of the  world, the biggest market (consumption of 1,9 million tonnes), followed by America (1,3 million  tonnes), the Far East including China (1,2 million tonnes), and Japan (0,9 million tonnes). The  main production areas are Western Europe, Japan and America. Both in Western Europe and in Japan,  capacity is larger than consumption. A substantial proportion of West European and Japanese  production is exported to other parts of the world. In 1993 Western Europe exported almost 30  % of  its production in this way. West European exports to the Far East (including China) and to America  each accounted for about 9  % of total West European production. Exports from Western Europe to  Japan are negligible (700 tonnes in 1993). (36)  The volume of imports into Western Europe from the rest of the world is very low. Imports  account for only 3  % of total West European consumption and come mainly from Japan, South Korea  and South Africa. (37)  The transport costs faced by producers located outside Western Europe represent about 4 P6  %  of the sales price. Imports from countries outside the EEA are subject to a 6  % import duty.  However, within the framework of GATT a lowering of import duties on steel products is currently  being negotiated with a view to a linear reduction over a 10-year period starting from 1995. (38)  The investigation showed that price levels for cold-rolled stainless steel flat products  differ substantially in the different parts of the world. Prices in America have been described for  the first quarter of 1994 as being 20 P29  % higher, in Japan 30 P48  % higher and in the Far East  (including China) about 10  % lower. (39)  Even if the price level in the West European market were to increase by a significant amount,  say 5  %, this is not likely to result in a substantial increase in imports from Japan, America or  the Far East, bearing in mind the higher price level in Japan and America and import duties and  transport costs. Nor are there likely to be substantial imports from the Far East, despite the  lower price level, because producers there have to take into account not only transport costs and  import duties but also demands from customers for discounts to compensate for a lack of supply  reliability - compared with West European producers - and after-sales service. Similarly, there  will not be any substantial imports from East European countries. (40)  The parties have argued that overcapacity in South Africa will result in increased imports  from that region into Western Europe. Although the South African producer Columbus, which was  contacted by the Commission, will increase its production capacity until 1998, the resulting  overcapacity in South Africa will be relatively low (about 100  000 tonnes). Exports from South  Africa will focus not only on Western Europe but also on America and the Far East. Moreover, South  African suppliers will have the same problems as Far East manufacturers with regard to supply  reliability and service in Western Europe. Consequently, it is extremely unlikely that imports from  South Africa into Western Europe will increase the import rate in Western Europe substantially. (41)  Under these circumstances, the relevant geographic market for cold-rolled stainless steel  flat products in Western Europe. Electrical sheet production (42)  The Commission has already stated in a previous decision adopted under the ECSC Treaty that  the relevant geographic market for oriented electrical sheet is the world market  (1). The main  reasons for this were the importance of the American and Japanese producers, which control the  technology through patent rights, and worldwide import and export activity. Imports into the  Community from third countries accounted for 21  % of EEA consumption. These reasons still hold  good today. The market for oriented electrical sheet is therefore the world market. (43)  As for as non-oriented electrical sheet is concerned, the parties argue that the relevant  geographic market is at least the West European market, as the sector is becoming more and more  internationalized and is developing into a world market. In the light of the facts, however, it  cannot be contended that the market is wider than Western Europe. Conditions of competition vary  between the three main markets, i.e. Western Europe, North America and Japan. The transport costs  faced by producers outside Europe represent 8 P12  % of the sales price. Most imports into Western  Europe are subject to a 6  % duty, and the remainder to a 10  % duty. A reduction of import duties  is currently being negotiated within the framework of GATT. There is a low rate of interpretation  between Western Europe and the rest of the world. The volume of exports from Western Europe to  other parts of the world is not high (5  % of West European consumption). Imports from third  countries account for only 4  % of West European consumption. Consequently, the relevant geographic  market for non-oriented electrical sheet is Western Europe. Trade in stainless steel products (44)  Steel stockholders perform the wholesale function of buying material in bulk from the  manufacturer, stocking it and then reselling it in smaller quantities to customers who need only  such quantities. Since steel distribution by stockholders and service centres takes place at a  regional level, the relevant geographic market is a regional market. Since AST is active in the  distribution market for stainless steel mainly in Italy, the impact of the merger would be felt  mostly in that Member State. VI.  COMPATIBILITY WITH THE COMMON MARKET COLD-ROLLED STAINLESS STEEL FLAT PRODUCTS (a)  Features of the market Overview (45)  Unlike ordinary carbon steel, which is considered a mature product, stainless steel,  including cold-rolled stainless steel, is still in the expansion phase of its product life cycle.  Owing to its intrinsic qualities and a favourable price/performance ratio, stainless steel is a  natural choice for a large number of applications. Increased environmental pressure, often backed  by legislation, has resulted in new applications by the energy industry (waste treatment plants)  and by the car industry (exhaust systems). The expansion of the fast food industry has stimulated  stainless demand as stainless steel products satisfy the industry's requirement for a hygienic,  maintenance-free surface. While production of steel in general has increased by 2,4  % per year  since 1950, stainless steel production has increased at an average annual rate of 5,8  % during the  same period. The pace of growth has slowed down with the passage of time, reflecting the process of  maturation: between 1970 and 1993, the annual growth rate for stainless steel was about 3,8  %. At  the same time, the leading consuming and producing regions have changed over time: until the  mid-1960s, North America was the main region, then Western Europe and Japan took over. Today's  growth areas are the newly industrializing countries (NICs), where the annual aggregate growth rate  is approximately 16  %. Following this trend, apart from exporting from Europe some European  producers are investing in the net importing areas (America and East Asia). (46)  As for the next four years, it can be assumed in line with some current long-term forecasts  that cold-rolled stainless steel consumption growth rates in the Western world will be about 5 P6   %, although according to the parties West European consumption of cold-rolled stainless steel  products will increase only by approximately 3,8  % over that period. However, due to the higher  growth rates in the NICs, total Western-world consumption of cold-rolled stainless steel will  increase at the abovementioned rate. (47)  Like the steel market in general, the market for cold-rolled stainless steel is also  characterized by severe instability in the supply/demand relationship. Changing demand tends to  lead from time to time to a degree of idle capacity and lower capacity utilization. The slowdown in  world economic growth during the last three to four years resulted in Western Europe in a slower  increase in consumption of stainless steel (with a substantial slowdown in 1993) and left the  industry in general with more production capacity than is needed. European apparent consumption of cold-rolled stainless steel flat products suffered a severe  decline of 6,7  % in 1993 compared with the previous year. The steepest falls took place in Germany  (13,4  %) and Spain (11,7  %). This overall situation, as well as the drop in prices for raw  materials (in particular nickel), has led to falling prices in recent years. Prospects in the last  months of 1994 have obviously changed and an increase in demand has taken place. There are signs  that prices are starting to rise once more. Overcapacity (48)  According to official Commission figures, in 1993 total cold-rolled stainless steel capacity   (1) in Western Europe amounted to about 3 million tonnes  (2), whereas consumption was about 1,6  million tonnes and production about 2,3 million tonnes. The consumption figures for 1990 (about 1,7  million tonnes), 1991 (about 1,8 million tonnes) and 1992 (about 1,9 million tonnes) show that in  1993 consumption slowed down substantially. Nearly all consumption in Western Europe is covered by  deliveries by West European producers. A substantial part of their production - approximately 700   000 tonnes (about 30  %) - in 1993 was exported to other parts of the world. Given the gap between  capacity and production, there is currently substantial surplus capacity in Western Europe. (49)  According to estimates by cold-rolled stainless steel producers, overcapacity in the West  European market will continue until 1998, owing both to existing overcapacity and to the  construction by West European producers of new cold-rolled stainless steel mills in Western Europe  with an additional capacity of about 200  000 tonnes. According to estimates by the competitors  contacted, the gap between West European capacity and consumption in 1998 will amount to at least  700  000 tonnes. Suppliers and customers in the relevant geographic market (50)  Besides KTR and AST, Ugine, Outokumpu, Avesta Sheffield, Acerinox and ALZ are currently  active in the relevant geographic market. After the merger, besides KTR and AST, five competitors  with integrated steelworks would remain, as well as some undertakings engaged in cold-rolling only.  Imports account only for 3  % of West European cold-rolled stainless steel consumption and derive  mainly from some Japanese producers (Nippon Steel, Daiclo Steel, Hitachi Metals), the South Korean  producer Posco and the South African producer Columbus. (51)  There are two categories of customer: end users who belong to a variety of economic sectors  (see point 25) on the one hand, and stockholders and service centres on the other. The end users  purchase either large quantities ex-mill, that is, direct from the producer, or smaller quantities  from stockholders. Stockholders perform the traditional wholesale function of buying in bulk from  the manufacturer and reselling in mostly smaller quantities. In addition, steel stockholders have  developed their in-house processing facilities in order to add value and improve their services to  customers. Such processing includes cutting to length, slitting, shearing and polishing. Those  activities are also traditionally carried out by service centres. Market shares (52)  Consumption of cold-rolled stainless steel flat products in Western Europe (EC and EFTA) in  1993 amounted to about 1,6 million tonnes. KTR, in which Krupp and Thyssen have merged their  stainless steel businesses, accounted for (20 P30  %) and AST for (10 P20  %)  (1). Following the  merger the combined market share of the parties would amount to (35 P45  %). The deliveries of the  next largest competitor, Ugine, accounted for (15 P25  %) of West European consumption. The other  five competitors have market shares of (10 P20  %) (under 10  %) (two of them) and (more than 5   %). Imports represent 3  % of the market. (53)  Of total West European capacity for cold-rolled stainless steel flat products in 1993, Krupp  and Thyssen together accounted for (20 P30  %) and AST for (10 P20  %). Following the merger the  combined capacity of the parties would amount to (35 P45  %) of total capacity in Western Europe.  As far as production is concerned, Krupp and Thyssen together accounted for (20 P30  %) of total  West European production while AST accounted for (10 P20  %). The production of the parties to the  merger would represent (35 P45  %) of total West European production (and (below 20  %) at world  level). (b)  Assessment of dominance (aa)  Sole dominance (54)  Following the merger, the parties would together hold a market share of (35 P45  %). The  total turnover of all the undertakings involved in the merger would amount to about ECU 30 billion  and their global steel production to 17,6 million tonnes. In addition, Thyssen holds a 33,3  %  stake in the Mexican stainless steel producer Mexinox. Nevertheless, it cannot be considered that  the proposed operation would lead to a sole dominant position as a result of which effective  competition would be significantly impeded in the common market. Although the market share of the  new entity AST would be more than double that of its next largest competitor, Ugine, the new entity  would be faced with powerful, financially strong competitors such as Usinor, British Steel and  Acerinox with substantial market shares, large production capacities and R& D activities. Effective competition (55)  Ugine, the next largest competitor (market share (15 P25  %)), belongs to the Usinor Sacilor  group, which in turn is the leading European steel producer and the second largest in the world  (total steel production 21 million tonnes). Its worldwide turnover amounts to ECU 12,7 billion,  earned almost entirely from steel. Ugine accounts for about (15 P25  %) of total West European  cold-rolled stainless steel production capacity and it has significant spare capacity which would  deter any attempt by the new group to restrict output in order to increase prices. Because of its  total size and the fact that its stainless steel production is not confined to Europe, Ugine holds  a very strong position as far as financing of investments, research and development (which in the  stainless steel sector is of particular importance  (2)) and sales organization are concerned.  Finally, the internationalization of Usinor reinforces its position: Usinor controls J& L Special  Steels, the largest cold-rolled stainless steel sheet producer in the United States, and has a 21   % shareholding in the leading cold-rolled stainless steel producer in Thailand, Thainox. (56)  Avesta Sheffield, the third largest competitor in Western Europe with a market share of (10  P20  %), is controlled by British Steel plc, the second-largest steel producer in Europe (total  steel production 12 million tonnes). The worldwide turnover of British Steel Group amounts to ECU  6,4 billion, of which steel accounts for ECU 5,5 billion. Avesta Sheffield is the result of a  merger between British and Swedish stainless steel producers. It plans to increase its production  capacity in Western Europe. (57)  The next largest competitor, Acerinox (market share (below 10  %)), is a relative newcomer to  the steel business. Created in 1974 and equipped with modern plant, it is known for its low costs  and excellent profitability. Acerinox achieved a worldwide turnover of ECU 600 million, mainly in  stainless steel. It recently gained sole control over the US stainless steel producer, North  American Stainless, which had originally been a joint venture with the American producer Armco.  Acerinox's two main individual shareholders, Nisshin Steel with 9,66  % and Nissho Iwai with 7,7   %, are Japanese, and one of them, Nisshin Steel, is the second largest Japanese stainless steel  producer. Four out of nine members of Acerinox's board of directors are Japanese. Acerinox recently  decided to increase its capacity in Europe (and another increase in capacity is under way in the  United States). It holds a 33  % shareholding in Mexinox, the Mexican producer of cold-rolled sheet  in which Thyssen has a similar stake. Acerinox exports an above-average amount of its production of  cold-rolled stainless steel outside Europe and also has considerable spare capacity. (58)  The Finnish competitor Outokumpu Polarit (having a market share (below 10  %)) has, like  Acerinox, very modern production plant which is devoted exclusively to making cold-rolled stainless  steel flat products. It is the only West European producer that can produce raw materials  (ferrochromium and nickel) in-house, and is therefore not affected by fluctuating world market  prices for these raw materials (see point 24). Its worldwide turnover amounts to ECU 2,6 billion.  Outokumpu plans to increase its cold-rolled stainless steel production capacity in Western Europe. (59)  ALZ (market share (more than 5  %)) has invested heavily in recent years and is a competitive  producer. ALZ belongs to the Arbed group, which is one of the leading European steel producers with  a turnover of about ECU 5 billion. After the acquisition by Arbed of Kloeckner (the total steel  production of the new group being 10 million tonnes), ALZ will benefit from Kloeckner's modern  hot-rolling capacity. (60)  Acerinox, Outokumpu and ALZ have expanded their share of the West European market in recent  years from about 15  % in 1980 to about 25  % in 1993 at the expense of established European  producers. (61)  Prices for cold-rolled stainless steel products declined substantially between 1990 and the  first two quarters of 1994. According to the answers received from cold-rolled stainless steel  producers, their prices for the most-sold product, cold-rolled sheet AISI 304 (DIN 4301), declined  during the abovementioned period on average by approximately 19  %. Between 1990 and 1992 West  European consumption increased from 1  758  000 tonnes to 1  907  000 tonnes but in 1993 it fell  back to 1  600  000 tonnes. However, even when consumption was increasing, prices for the  abovementioned key product declined on average by 9  %. This is a clear indication of existing  price competition in the market. (62)  It can be expected that even after the merger price competition will continue to work. As  indicated above, in the medium term the West European market will be characterized by overcapacity.  According to the capacity and production figures, in 1993 the five competitors of the new entity  together had spare capacity of more than 270  000 tonnes, of which the three largest competitors  had more than 200  000 tonnes. If the new entity were to raise its prices, the competitors could  easily react by increasing their production in order to obtain higher market shares. Moreover, West  European cold-rolled stainless steel manufacturers export a substantial part of their production to  other parts of the world. The five competitors together export nearly 100  000 tonnes to South-East  Asia, an area where prices are 10  % lower than the current West European price level. If the new  entity were to raise prices in particular at times of growing demand, the competitors would take  the opportunity to switch supplies from South-East Asia to Western Europe with a view to improving  earning. (63)  In the medium term the competitors of the new entity will continue to have spare capacity at  their disposal. As mentioned above, it is very likely that in Western Europe overcapacity will  continue to exist during the next four years. There are grounds for believing that the West  European competitors of the new entity will not close down capacity in the medium term. As in the  past, European manufacturers will try to export to third countries the part of their production  that is not sold in Western Europe. The fact that in the next four years at least three West  European competitors will increase their capacity by approximately 200  000 tonnes indicates that  there is a policy to increase capacity rather than to close it down. Potential competition (64)  The parties have also argued that West European manufacturers will have to face substantial  competition in Western Europe in the next few years from Far Eastern and East European producers.  In particular, low-cost manufacturers in Taiwan, South Korea, the People's Republic of China and  Thailand will increase their production capacity substantially and - although consumption in that  region will also grow - there will in 1997 be excess capacity of 500  000 tonnes. As Far Eastern  manufacturers produce steel more cheaply than West European mills, the parties take the view that  there is a threat of potential entry into the West European market of 500  000 tonnes of  cold-rolled stainless steel. (65)  The Commission's investigations have not confirmed the likelihood of such a development. In  line with the long-term forecasts of independent experts, competitors contacted by the Commission  stated that in the next four years there will be no overcapacity in the Far East. Thus there is an  incentive for Far Eastern producers to export cold-rolled stainless steel to Western Europe only if  they can achieve better earnings there than in their home market. That is not the case. Although  the price level in the Far East is lower than in Western Europe, Far Eastern producers have to take  transport costs and import duties into account and have in practice to grant substantial discounts  to offset the lack of supply reliability and service. (66)  Customers and competitors questioned by the Commission hold the view that there are currently  no East European producers of cold-rolled stainless steel which would meet West European customers'  requirements in terms of quality, reliability of supply and service. Although some increases in  imports from these countries have been noted, the volume is still very limited. It is estimated by  those customers and competitors that the time frame within which they might become able to match  West European standards is five to 10 years. Whether these estimates are correct depends mainly on  the time in which the necessary investment in the East European plants is carried out. In any case,  it is not necessary to decide when and to what extent competition from East European producers of  cold-rolled stainless steel will become effective, given what has been said at points 55 to 63  above. General conclusion (67)  The proposed merger will increase the degree of concentration in an already concentrated  market. The new entity will hold a sizeable market share in Western Europe (35 P45  %) as well as  in the Member State with the highest consumption of stainless steel (Germany). Although the proposed merger will increase substantially the degree of concentration, it will not  create or strengthen a dominant position on the West European market for cold-rolled stainless  steel flat products as a result of which effective competition would be significantly impeded in  the common market or in a substantial part of it. Despite its market share, the new entity will be  confronted with powerful competitors, mostly active in all sectors of the steel business, such as  Usinor, British Steel, Acerinox, Outokumpu and Arbed with considerable market shares and  substantial financial resources which should enable them to carry out the necessary investment in  the market in order to compete with the new entity. More importantly, the competitors will have a  substantial amount of spare production capacity for cold-rolled stainless steel flat products. In  view of the strong price competition in recent years, it can be assumed that even after the merger  the remaining competitors will be in a position to restrict any unjustified price increases by the  new entity. In that event, the competitors have the power to use their spare capacity to increase  production and offer lower prices with a view to gaining market share at the expense of the new  entity. (bb)  Oligopolistic dominance (68)  Although the new entity together with the next largest competitor, Ugine, will have a market  share of (55 P70  %) in Western Europe (and the market share of the five leading competitors -  including the new entity - will be about 90  %), the Commission does not consider that these two -  or five - companies would be able to exercise joint dominance. In the case of collective dominance  by the small group composed of the new entity and Ugine, this group would be subject to effective  competition from Avesta, Acerinox, Outokumpu and ALZ, which are financially strong and possess  significant excess capacity for the production of cold-rolled stainless steel flat products. In the  case of collective dominance by the wider group composed of the new entity, Ugine, Acerinox and  Outokumpu, market shares at European level are quite different, and this renders anti-competitive  parallel behaviour difficult. Moreover, the cold-rolled stainless steel market is a growing market  with a growth rate of approximately 4  % a year. In such a market, it is more likely that  competitors will use their existing spare capacity if the new entity raises prices. In this context  it should be noted that, according to official ECSC figures for 1993, the new entity's competitors  have more than twice as much spare capacity as it would have. The proportion will remain the same  in the near future. In addition, there is insufficient market transparency to allow such behaviour  because of the large number of customers and their diversity in terms of size and requirements (see  point 51). Finally, it must be borne in mind that the leading firms pursue different corporate  strategies at international level, as can be seen from the fact that their presence outside Europe  differs considerably from one company to another. Consequently, there is no reliable basis for any  anti-competitive parallel behaviour. PRODUCTION OF ORIENTED ELECTRICAL SHEET (69)  The proposed merger will reduce the number of European competitors from four to three.  Nevertheless, the market being worldwide, the new group will not hold a dominant position at world  level, where Nippon Steel from Japan is the leader. Even at European level the new group, with a  market share of (25 P35  %), will be confronted with Ugine (with a slightly higher market share). PRODUCTION OF NON-ORIENTED ELECTRICAL SHEET Effective competition (70)  Although the new entity would have a significant market share (30 P40  %), there are other  major competitors in the West European market. The two next largest competitors, EES and Ugine,  have market shares of (15 P25  %) and (10 P20  %) while the other six competitors have market  shares below 10  %. (71)  EES is controlled by British Steel, the second biggest European steel producer. It is the  result of the merger in 1991 of the Swedish and British electric steel producers. The post-merger  rationalization process has been completed and has made possible focused, rationalized low-cost  production, a comprehensive product range and a strong product development division. (72)  The second largest competitor, Ugine, belongs to the Usinor Sacilor group. In the electrical  sheet sector in particular, the strength of Ugine consists in the fact that it offers the full  range of electrical sheet and is able to cover all the different production stages of the product. (73)  Among the smaller competitors, Voest Alpine (Austria) is a particularly active competitor  which has steadily increased its market share in recent years. (74)  Since most sales of electrical steel to the European market are made direct from the producer  to the end user, competitors are not dependent on wholesalers and any distribution network  dominated by the parties. Actual and potential competitors can with relative ease enter the market  by selling their product direct to end users. Transport costs in Western Europe amount, according  to estimates of the parties and their competitors, only to 2 P5  % of the overall cost of the  product and do not constitute a significant barrier to competition on the European market. (75)  Purchasers of non-oriented electrical sheet have considerable bargaining power. According to  competitors, between 40 and 80  % of their sales are accounted for by only five big customers.  Customers are mostly big international producers of motors, generators, transformers and household  appliances. A large part of the demand side is made up of a number of slitting companies which slit  the steel into smaller widths in order to sell it to the end user. These companies also have  considerable bargaining power because of the large quantities they buy from the producers. (76)  Under these circumstances, the proposed merger will not create or strengthen a dominant  position in the market for non-oriented electrical sheet. DISTRIBUTION OF STAINLESS STEEL PRODUCTS (77)  Since AST is mainly active in the distribution market for stainless steel through its  subsidiaries in Italy, the main impact in the area of stainless steel distribution will be in  Italy. The Commission's investigations have shown that there is a sufficient number of competing  and independent stockholders and service centres in the different Italian regional areas which can  efficiently supply stainless steel coming from production facilities belonging to different  competitors. In addition, the vast majority of Italian stockholders and service centres questioned  by the Commission stated that they did not believe they would be affected by the operation in  question. Moreover, most of the parties' competitors have their own stockholding and service  centres in Italy, and in any case could easily increase their number, as the capital investment  required is not significant. Not only the competitors but also other independent operators could  enter the market as it does not present high barriers to entry. Therefore, the merger will not lead  to a dominant position in the Italian regional markets for distribution of stainless steel products  in Italy. TITANIUM PRODUCTS (78)  Within the West European market for titanium products AST's deliveries account for about  (below 10  %) and the deliveries of Krupp for about (below 10  %). Thus the combined market share  would be about (10 P20  %). The largest competitor (IMI) has about (15 P25  %) and Krupp and AST  together would be in second place. Under these circumstances the merger will not lead to a dominant  position in the market for titanium products. VII.  OVERALL ASSESSMENT (79)  The Commission has therefore come to the conclusion that the  proposed merger does not create or strengthen a dominant position as a result of which effective  competition would be significantly impeded in the common market or in a substantial part of it, HAS ADOPTED THIS DECISION: Article 1 The proposed joint acquisition of Acciai Speciali Terni SpA by Fried.  Krupp AG Hoesch-Krupp, Thyssen Stahl AG, AFL Falck, Tadfin SpA and FI.RE. Finanziaria SpA is  declared compatible with the common market and the functioning of the EEA Agreement. Article 2 This Decision is addressed to: Acciai Speciali Terni SpA (AST) Viale B. Brin, 218 I-05100 Terni Attn. Mr Enrico Rossi Fax: (39-744)  401  938 FI.RE. Finanziaria SpA Viale Certosa, 249 I-20157 Milano Attn. Mr Giuliano Carugati Fax: (39-2)  380  031  47 Fried. Krupp AG Hoesch-Krupp Altendorfer Str. 103 D-45143 Essen Attn. Dr Ringleb Fax: (49)  201  188  22  33 F.A.R. Acciai srl Via Privata Maria Teresa 8 I-20121 Milano Attn. Dr Gianpaolo Pozzi Fax: (39-2)  865  836 Acciaierie e Ferriere Lombarde Falck via Giorgio Enrico Falck, 63 I-20099 Sesto San Giovanni (Mi) Attn. Mr Mario Castellaneta Fax: (39-2)  24  903  803 Tadfin SpA Corso di Porta Nuova, 13/15 I-20121 Milano Attn. Mr Giovanni Lombardo Fax: (39-2)  654  884 Thyssen Stahl AG Kaiser-Wilhelm-Strasse 100 D-47166 Duisburg Attn. Dr Alexander Reuter Fax: (49)  203  522  86  75 K.A.I. Italia srl Via Milanese 20 I-20099 Sesto San Giovanni (Mi) Attn. Dr Luigi Agarini Fax: (39-2)  654  884 Done at Brussels, 21 December 1994. For the Commission Karel VAN MIERT Member of the Commission (1)  See the Decision of 4 September 1992 in Case No IV/M.239 - Avesta/British  Steel/NCC/AGA/Axel Johnson.  (1)  Decision of 19 December 1988, Ugine/Cockerill Sambre.  (1)  Capacity means the maximum possible annual production that can be attained during the year in  question under ordinary working conditions.  (2)  The competitors in the market who were contacted estimate that there is current capacity of  2,8 million tonnes.  (1)  Market shares according to ECSC survey.  (2)  Ugine's annual R& D expenditure as a percentage of total sales revenue is by far the highest  among all the players contacted by the Commission.