2002/244/EC: Commission Decision of 14 March 2000 declaring a concentration to be compatible with the common market and the EEA Agreement Case COMP/M.1663 — Alcan/Alusuisse (Text with EEA relevance.)(notified under document number C(2000) 694)
Date: 2000-03-14
Institutions: European Commission
Subjects: Canada, European Commission, Switzerland, aluminium, application of EU law, economic concentration, merger control, metallurgical industry

5.4.2002

EN

Official Journal of the European Communities

L 90/1

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 14 March 2000

declaring a concentration to be compatible with the common market and the EEA Agreement

Case COMP/M.1663 — Alcan/Alusuisse

(notified under document number C(2000) 694)

(Only the English text is authentic)

(Text with EEA relevance)

(2000/244/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Com-
munity,

Having regard to the Agreement on the European Economic
Area, and in particular Article 57 thereof,

Having regard to Council Regulation (EEC) No 4064/89 of
21 December 1989 on the control of concentrations between
undertakings (1),
amended by Regulation (EC)
No 1310/97 (2), and in particular Article 8(2) thereof,

last

as

Having regard to the Commission decision of 10 November
1999 to initiate proceedings in this case,

Having given the undertakings concerned the opportunity to
make known their views on the objections raised by the
Commission,

Having regard to the opinion of the Advisory Committee on
Concentrations (3),

Whereas:

(1) On 20 September 1999,

the Commission received
notification of a proposed concentration by which Alcan
Aluminium Limited (hereinafter ‘Alcan’) would acquire
sole control of the undertaking Alusuisse Lonza Group
AG (hereinafter ‘Alusuisse’).

(1) OJ L 395, 30.12.1989, p. 1; corrigendum OJ L 257, 21.9.1990,

p. 13.

(2) OJ L 180, 9.7.1997, p. 1; corrigendum OJ L 40, 13.2.1998, p. 17.
(3) OJ C 82, 5.4.2000.

(2) On 24 September 1999, the notification was declared
incomplete. The parties submitted the missing infor-
mation on 6 October 1999. The notification became
complete on 7 October 1999.

(3)

(4)

(5)

By decision dated 10 November 1999, the Commission
found that the notified operation raised serious doubts
as to its compatibility with the common market and the
functioning of the EEA. The Commission accordingly
initiated proceedings
to
in this
Article 6(1)(c) of Regulation (EEC) No 4064/89 (herein-
after ‘the Merger Regulation’).

case pursuant

1. THE PARTIES AND THE OPERATION

Alcan is a Canadian corporation involved in all aspects
of the aluminium industry. Its activities include bauxite
mining, alumina refining, power generation, aluminium
smelting, manufacturing and recycling, and research and
development.

Alusuisse is a Swiss corporation involved in all aspects
of the aluminium industry. Its activities comprise bauxite
mining, alumina refining, aluminium smelting, manufac-
turing and recycling, research and development, and
packaging.

L 90/2

EN

Official Journal of the European Communities

5.4.2002

(6) On 11 August 1999 Alcan, Alusuisse and the French
integrated aluminium producer Pechiney entered into a
Memorandum of Understanding (‘MoU’) concerning
the combination of their respective aluminium and
packaging businesses. According to the MoU and to the
combination agreements signed by the three companies,
Alcan will make two separate and independent share
exchange offers, one for the shares of Alusuisse and the
other for the shares of Pechiney. Each of the two offers
are stand-alone transactions; they are not conditional
upon each other and it is possible for one transaction to
happen without the other. On the basis of the infor-
mation given by the parties, Alcan’s offer for Alusuisse
will be made prior to the launch of Alcan’s offer
for Pechiney. Each offer could thus be regarded as
constituting a separate concentration. This decision
concerns Alcan’s acquisition of sole control over Alu-
suisse.

There is a large number of aluminium transformers/man-
ufacturers, which means non-integrated aluminium
companies using primary aluminium of flat-rolled alu-
minium as a raw material in order to produce finished
aluminium products. The merging parties may be both
supplying and competing against smaller, downstream,
non-integrated aluminium transformers or manufac-
turers on the various final applications markets.

(10) The Commission concluded that the proposed concen-
tration will lead to the creation of dominant positions in
the following markets: alumina trihydrate, lithographic
sheet, and semi-rigid containers.

3.1.1. ALUMINA TRIHYDRATE

2. COMMUNITY DIMENSION

Product market definition

(7)

(8)

The undertakings concerned have a combined aggregate
worldwide turnover of more than EUR 5 billion (4).
Alcan and Alusuisse each have a Community-wide
turnover in excess of EUR 250 million, but they do
not achieve more than two-thirds of their aggregate
Community-wide turnover within one and the same
Member State. The notified operation therefore has a
Community dimension.

3. COMPETITIVE ASSESSMENT

The merging parties are vertically integrated companies,
with activities at all stages of the aluminium supply
chain. They mine bauxite, refine it into alumina and
smelt alumina into primary aluminium. Primary alu-
minium (5) is transformed into semi-finished products
(flat-rolled products or extrusions). Semi-finished prod-
ucts may be further processed into finished products.
Semi-finished and finished aluminium products are used
in a wide range of end-use applications such as the
transportation industry, building and construction
industry, the container and packaging industry, the
electrical industry, and so on.

(9)

There are various types of intervening operators in
the aluminium markets. The merging parties are both
vertically integrated producers. Other integrated pro-
include
ducers that are active in the EEA market
Pechiney, VAW, Alcoa, Norsk Hydro and Hoogovens.

(4) Turnover calculated in accordance with Article 5(1) of the Merger
Regulation and the Commission Notice on the calculation of
turnover (OJ C 66, 2.3.1998, p. 25). To the extent that figures
include turnover for the period before 1.1.1999, they are calcu-
lated on the basis of average ECU exchange rates and translated
into EUR on a one-for-one basis.

(5) Primary aluminium is a commodity which is traded at the London
Metal Exchange (LME). A daily quotation, the LME price, is fixed
there reflecting the supply and demand for primary aluminium.

(11) Alumina is produced by refining bauxite. The vast bulk
of alumina is used in the smelting of primary aluminium
metal (smelter-grade alumina or SGA). Alumina trihyd-
rate (‘ATH’) is an intermediate product from the SGA
production process. Its most notable use is as a flame
retardant. A special type of fine precipitated densified
ATH is used in this application because it contains a
large amount of moisture (normally about 35 %). Its
flame-retardant properties stem from its water content.
Another type of specially de-watered ATH is used as
paper pigment or in the production of detergents. In
these applications ATH has a larger particle diameter
and is used because of its whitening qualities or to
improve gloss and smoothness of high quality papers.
Finally, a different type of specialty, activated ATH, is
used in the ceramics, refractory and surface treatment
industries.

(12) The investigation carried out by the Commission has
led it to conclude that ATH used as flame retardant
constitutes a distinct product market from other grades
and types of aluminas.

Supply-side considerations

(13) The supply-side substitutability of flame-retardant ATH
is very low. Only a few alumina refiners are currently
supplying it in the EEA. Owing to their focus on
metallurgical alumina, most refineries do not have
the mechanical installation necessary to intercept ATH
between filter and calciner, or they may produce ATH
containing a high level of residues from bauxite organic
compounds, which makes it unsuitable for use as a
flame-retardant. The major suppliers of flame-retardant
ATH in the EEA are Alcan, Alusuisse, Nabaltec and
Alcoa.

5.4.2002

EN

Official Journal of the European Communities

L 90/3

(14) The market investigation has shown that a 5 % to 10 %
increase in the price of flame-retardant ATH would not
induce immediate new entry, as it would not justify the
opportunity cost and the necessary capital investment.
Nor could any increase in capacity by incumbent
suppliers be only the result of a small, albeit non-
transitory, price increase, as capacity increments in
alumina production are heavy and costly. In the short to
medium term, a price increase in flame-retardant ATH
would be profitable.

Demand-side considerations

(15) ATH used as a flame retardant is a distinct product
market from other types of ATH and other types of
flame retardants. Flame retardants are additives that can
be mixed or applied as a treatment to organic materials
such as plastics, textiles or timber. They reduce the
likelihood of a fire starting by providing
statistical
improved resistance to ignition in a wide range of
potential
flame
retardants in flammable materials, mainly plastic com-
pounds such as cables and wiring, is driven by govern-
ment regulation and consumers’ awareness of fire safety
standards.

fire sources. The increasing use of

(16) As was mentioned in recital 11, other types of speciality
ATH are used as fillers in the paper industry and
as oxides in the production of detergents, ceramics,
refractories, etc. The different types of ATH correspond
to differences in particle size, morphology, Æ-alumina
content (6) and impurities. Depending on the end-use
requirements, only a given alumina type can match any
one intended use. Thus, the fine precipitated densified
type of ATH, used as a flame retardant, could not be
replaced by ATH used in any of the abovementioned
applications, and vice versa.

(17) The effectiveness of a flame retardant is specific for each
flammable product. As growing concerns come from
the fire-safety requirements for buildings and other
indoor public areas, plastic compounds used in such
areas need to match specific flame-retardance character-
istics.

(18) ATH is low in toxicity and functions as a smoke
suppressant. Its largest application is polyethylene and
its copolymers,
followed by unsaturated polyesters,
rubber and epoxies. End-use markets are carpet backings,
electrical applications, as well as cables and wires,
conveyor belts and extruded plastic products. The grow-
ing use of ATH in the EEA is mainly due to the growth
of various types of polyolefins, particularly polyethylene.

(6) Refers to thermodynamic stability.

Certain copolymers
such as ethylene/vinyl acetate
copolymers in mixtures with polyethylene and polypro-
pylene are used increasingly in sheathing and coating
for cables and wires and for telecommunication cables
placed in underground locations. A trend toward replac-
ing PVC floors with synthetic rubber floors in public
buildings is further increasing the use of ATH.

(19) There is another category of alternative flame-retardant
substances for the above applications, namely, halogen-
ated flame retardants. Halogenated substances may be
efficient flame retardants; however, they are toxic and
generate more smoke than inorganic flame retardants.
Because of growing environmental concerns — which
are expected to lead to the phasing-out of those substanc-
es — halogenated phosphorous substances are being
replaced by inorganic flame retardants,
in particular
ATH. As plastic compounds are manufactured under the
LSOH label
(low smoke, zero halogen), halogenated
flame retardants are not substitutable for ATH. There is
a separate demand for LSOH compounds, stemming
from producers specialising in cables and other plastic
products used in the construction industry. Such pro-
ducers are identifiable by suppliers and suppliers can, in
setting prices, discriminate for or against them. There-
fore, a price increase charged to manufacturers of LSOH
plastic compounds would be profitable for the merged
firm.

(20) As regards the demand for LSOH flame retardants, the
notifying parties have pointed to another alternative
flame retardant, with properties similar to ATH, namely,
magnesium di-hydroxide (MDH). The Commission does
not consider that MDH is part of the same market as
ATH. There are technical and economic differences that
severely limit the demand-side substitutability between
ATH and MDH. The cost of using MDH may be twice as
high as that of ATH (or three to four times higher
according to some users). This is partly due to its relative
price, and also to the fact that larger volumes of MDH
have to be used in order to achieve high-performance
flame retardance. The large amounts of MDH required
may in turn affect negatively some key mechanical
properties of the compound, such as malleability and
impact strength. It is also claimed that it is difficult to
achieve uniform particle distribution of MDH within the
plastics. MDH is more expensive because it can be used
at higher processing temperatures than ATH. While
ATH begins to decompose at 230 °C, releasing one third
of its original mass as water vapour, MDH decomposes
at 340 °C. The difference in the temperature of its
thermal decomposition may make MDH more suitable
for use in certain polymeric materials such as thermo-
plastic resins (for example, polypropylene), exceeding
processing temperatures of 200 °C. Below such pro-
cessing temperatures, ATH is the most advantageous
filler, in terms of cost and technical properties.

L 90/4

EN

Official Journal of the European Communities

5.4.2002

(21) ATH is therefore the preferred filler, to the exclusion of
other flame retardants, in LSOH copolymer compounds
used in several applications such as cables, wires and
floors. Manufacturers of such products replied to the
Commission’s market investigation that in the event of
a 5 % to 10 % increase in the price of ATH, they would
not switch to other flame retardants. Some stated that if
they were to switch, this would entail high costs, as ATH
would have to be replaced by combination of various
other retardants that would require the development of
new formulations and the approval of the relevant final
products by the customer.

Conclusion on the product market definition

(22) On the basis of the preceding points, the Commission
reached the conclusion that
there exists a distinct
product market for fine precipitated densified ATH used
as a flame retardant
in the manufacture of LSOH
copolymer compounds.

Geographic market definition

(23) The geographic scope for ATH is not larger than the
EEA. The handling and logistics as well as the relative
transport costs of ATH appear to be the main reasons
for this determination. Customers of ATH in the chemi-
cal and plastics industry require just-in-time deliveries of
small consignments which cannot be delivered economi-
cally over long distances. The high water content of
flame retardant ATH makes transportation over long
distances even more costly. Finally, bulk long-distance
the
transportation always involves the danger that
products will deteriorate and become useless. At present,
only minor imports into the EEA have been recorded,
corresponding to 4 % of EEA consumption.

(24) The parties argued that the ATH market is global and
that buyers of ATH would find alternative suppliers
outside Europe. These would be Alcoa, which could ship
more ATH from Australia and mill it at its milling plant
in Moerdijk, Rotterdam; Reynolds, which could ship
moist ATH from the USA; Alunorte, which could ship
high-quality moist ATH from Brazil; Huber (Solem),
which already ships high quality milled ATH from the
USA; Sumitomo and Showa Denko, which can sell
flame-retardant grade ATH from Japan to Europe; and
Hungalu, which is actively promoting itself within the
EU and has recently established additional capacity of
10 kt of precipitated ATH per annum.

(25) The Commission market-tested the above alternatives
and came to the conclusion that buyers would not
consider them as substitutable for local supplies. Some
of the major customers said that suppliers of moist ATH
from the USA and Brazil are not viable alternatives
because they sell only moist ATH, which cannot be used
as a flame retardant. As to the suppliers located in
Hungary and the Far East, they said that sourcing ATH
from these countries would increase their operating and
those suppliers were not
final costs and, as such,

substitutable for the EEA-based ones. Other customers
reiterated their initial views, given during the market
investigation, that additional costs related to imports of
ATH would increase their final price, which would, in
turn, decrease the competitiveness of their products
(namely, cables) in markets outside the EEA. They would
not consider it worthwhile to import ATH in the event
of a 5 % to 10 % price increase.

(26)

For those reasons, the Commission considers that the
market for flame-retardant grade ATH is not wider than
the EEA.

Competitive assessment

(27)

In the European market, there are a few major ATH
suppliers: Alcan, Martinswerk-Alusuisse, Nabaltec, and
Alcoa. They represent more than 95 % of EEA pro-
duction, the remainder being held by some traders
(Eurallumina SpA, Giulini Chemie GmbH, Incemin AG,
Superfos Biosector a/s).

(28) The following table shows the production capacities of

EEA suppliers of flameretardant grade ATH:

Producer

Capacity (in t) Share of capacity

Alusuisse Martinswerk

Alcan Burntisland

Alcan/Alusuisse

Nabaltec

Alcoa

Others

Source: Commission’s inquiry.

[kt]* (*)

[kt]*

[kt]*

30 000

5 000

5 000

[%]*

[%]*

[65 %-75 %]*

[%]*

[%]*

[%]*

(29) The combined market share of the merging parties is
[65 % to 75 %]*, the other main competitor being
Nabaltec. Alcan and Alusuisse are the world’s largest
producers of fine precipitated densified ATH. Alusuisse
is Europe’s largest supplier. Its strongest market position
is in Germany, the largest consumer of halogen-free
flame retardants in Europe. Alusuisse is also a large
producer of MDH, through its 50 % Magnifin Mag-
nesiaprodukte subsidiary located in Austria. Alcan is the
second largest European producer, supplying ATH from
its Burntisland alumina refinery on the Scottish coast.
Nabaltec is an independent producer of specialty alumin-
as. Since it closed its Bayer process facility in 1994,
Nabaltec has been buying raw chemical alumina from
third parties for further processing into ATH.

(*) Parts of this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

5.4.2002

EN

Official Journal of the European Communities

L 90/5

(30) The high market share of the merging parties is already
indicative of market power in the relevant flame retard-
ant markets. In addition, there are relevant factors other
than the high combined market share that confirm that
the proposed operation will lead to the creation of a
dominant position held by the merging parties in the
market for fine precipitated densified ATH used as a
flame retardant.

(31)

In the foregoing product-market analysis, the question
was considered whether a price increase in ATH would
be defeated by either the reaction of other suppliers of
various alumina grades or the replacement of ATH by
other types of flame retardants. It was concluded that
neither supply nor demand-side substitutability could
occur in the medium to long term.

(32) The in-depth market investigation considered whether,
in the event of a sustained price increase in ATH,
customers would take measures enabling them, in the
long run, to replace ATH with other flame retardants
that came into play only recently.

(33)

In response to the statement of objections, the parties
argued that flame retardant materials other than ATH
would constrain the price of ATH. These can be:
phosphorous; magnesium di-hydroxide; naturally occur-
ring MDH (brucite) or MDH derived from seawater;
new materials such as ‘MagShield’ or ‘Ultracarb’; other
inorganic products such as zinc borate, zinc stannate,
zinc hydroxystannate, tin oxide, molybdenum trioxide
and melamine.

(34) The Commission market-tested

these

alternative
materials with manufacturers of LSOH plastic com-
pounds that use fine densified precipitated ATH as a
flame retardant. Their answers suggested that no switch
to such materials would occur in the long run, even in
the event of a sustained price increase.

(35) One of the major buyers of ATH stated that all of the
materials referred to in recital 33 are known and that
several are used, generally as the lesser constituent when
their synergistic properties are exploited. However, none
could totally replace ATH, particularly on an equal
cost basis. Certain phosphorus-based compounds are
effective flame retardants, but are currently over five
times the cost of precipitated ATH. In addition, during a
fire, acid gases are created with phosphorus systems, this
being unacceptable and not the case with ATH. In
addition, materials containing phosphorus are prohibit-
ed by most client requirements. Moreover, all precipi-
tated MDH is three to four times more expensive than
ATH. One customer uses a modest quantity of this
material for high temperature, specialist compounds,
its
but price precludes its use in the majority of

applications. As to ‘Magshield’ and ‘Ultracarb’ users said
that both materials have significant technical drawbacks
and that they may be satisfactory in small amounts only
to supplement predominantly ATH-based formulations.
As to the inorganic systems, customers said that they
may be useful, again as minor components within
synergistic ATH-based formulations, but in general do
not offer high levels of flame retardance. In any case
their cost is much higher than that of ATH. Melamine is
an organic compound, which is mainly used in syner-
gistic combinations. However, an important drawback
of this material is its release of toxic gases in a fire. This
prevents it from qualifying as a perfect demand-side
substitute. In the view of another customer, ‘none of
the above materials can directly replace ATH and
consequently, they have a limited value in constraining
ATH prices. Because of what is in general their very
high cost premium, ATH price could rise significantly
(perhaps to double its existing level) before [a user]*
could consider them as possible replacement materials.
Even then a number of
technical problems would
these probably being
have to be tackled, some of
insurmountable’. The Commission therefore concludes
that,
in the long run, the abovementioned materials
could not offer sufficient potential competition in the
event of a sustained price increase in ATH. They cannot
be viewed as alternatives but rather as complementary
materials to ATH.

(36) The parties also argued that ground ATH can be used
fine precipitated densified ATH. A price
instead of
increase in ATH would induce customers to switch to
lower grades of precipitated ATH or to fine ground
ATH. In this respect, there are many grinders in Europe
which could start grinding and selling ATH as a flame
retardant.

(37) The Commission market-tested

these

alternative
materials with users of fine densified precipitated ATH.
In summary, their reactions were negative to the above
alternatives. More particularly, they considered the state-
ment that ‘ground ATH can be used instead of fine
precipitated densified ATH’ to be incorrect. In general,
ground materials, for example ATH, MDH, and calcium
carbonate, have flame retardance properties similar to
precipitated grades, but because of their much larger
particle size, they cannot match their physical properties.
An example is tensile strength and surface finish. If, in
fact, this were not the case there would be no market for
precipitated products, which are always several times
more expensive than ground products. Recently a num-
ber of technically modified precipitated grades, such as
the Alcan ESD range, have been introduced to give
improved processing characteristics. These features are
unavailable from conventional precipitated,
let alone
ground grades.

L 90/6

EN

Official Journal of the European Communities

5.4.2002

(38) As to the statement that ‘many grinders in Europe could
start grinding and selling ATH as a flame retardant’, the
reaction of customers was also negative. Customers
pointed to the fact that grinding ATH is not a low-
tech operation that any ‘grinder’ could easily start
up. Moreover,
from a technical point of view, the
shortcomings of ground products preclude their use for
sophisticated applications.

additional capacity could be made available for sale in
the EEA. Finally, the parties argue that companies with
grinding facilities, not currently active in the sale of
ATH, could start selling milled ATH within a few months
of a price increase.

(39) The parties also argued that, in the long run, a supra-
competitive pricing of ATH would induce entry of new
ATH capacity in the market. The Commission considers,
however, that only limited entry might be prompted and
that, as such, it would not be sufficient to curtail the
market power of the parties. The possible entry scenarios
and their consequences on competition in the ATH
market are discussed in the recitals 40 to 44.

(40) According to the parties,

the incumbent producer,
Nabaltec, has available capacity of
fine precipitated
densified ATH of 4 kt to 5 kt. This producer would be
prompted to place it on the market in the event of
a supra-competitive price increase in ATH. Such an
additional tonnage would correspond up to a mere
2,7 % of the current ATH market and will not have any
meaningful effect on the price of ATH.

(41) The parties argue that Alcoa could also react to a price
increase. It would then need to produce the material at
low cost at its Australian refineries and ship it to Europe,
store it in large inventories, process it at its milling plant
in Moerdijk, the Netherlands, and start its distribution
from there.
In this way, Alcoa could bring some
additional 10 kt of ATH to the EEA, corresponding to
6,5 % of the current market. The ATH was defined as
being an EEA market, precisely because imports are not
economical. This also applied to Alcoa. The possible
cost advantage stemming from importing material from
Australia would fade away on account of the costs
involved in such imports (additional
investment and
time for imports to be logistically handled, customs
duties,
transportation costs, and so on). Therefore,
the competitiveness of Alcoa’s imports could not be
considered a threat to the exercise of market power by
the merged firm.

(42) The parties also argue that a sustainable price increase
might also prompt the entry of the Hungarian producer
Hungalu. It has recently developed an additional capacity
of 10 kt of fine precipitated ATH, corresponding to
6,5 % of the current market. The parties believe that this

(43) The Commission considers that such companies, whose
core business is not in the ATH market, could hardly
become established suppliers of ATH. They would not
have control of the production/supply chain, as they
would be dependent on producers of commodity ATH
for their supplies. They would then have to acquire
know-how and technology to convert the raw ATH
material into fine precipitated densified ATH that can be
used as a flame retardant. This is likely to increase their
cost basis, therefore removing any price advantage that
they could offer compared to a supra-competitive price
of the merged firm. This may also pose market entry
problems. Buyers of ATH are sensitive to the quality of
the material they buy. They are themselves accountable
to their customers, and each time that they change
supplier or their flame retardant mix, they need to
inform, and obtain approval from, their own customers.
It is highly unlikely that such entry prospects could
discourage an anti-competitive price increase by the
merged firm.

(44) However, even assuming that all of the above potential
suppliers entered the market at the same time and with
the maximum quantities projected above, this would
reduce the market share of the parties from [65 % to
75 %]* to approximately [55 % to 65 %]*. The merged
firm would still be by far the largest local producer and
supplier of ATH in the European flam retardant market.
As these quantities would be the maximal possible
competitive response to a price increase, the loss of [5 %
to 15 %]* market share would not be sufficient to make
an anticompetitive price increase unprofitable.

(45) The parties argued that excess capacity in ATH would
prevent any supra-competitive price increase. However,
buyers of ATH stated to the Commission that prices of
ATH in Europe have recently increased and thus that
these price increases run counter to the argument that
prices are constrained by excess capacity. In addition,
several customers stated that they had difficulties in
satisfying the whole of their demand for ATH. This had
not, however, induced them to seek alternative sources
outside the EEA.

5.4.2002

EN

Official Journal of the European Communities

L 90/7

(46) As ATH does not compete with magnesium hydroxide
or any other alternative filler in LSOH compounds
manufactured in lower processing temperatures, users
of ATH would be deprived of any countervailing power.
They would still depend on EEA-based ATH suppliers
for those applications where ATH is the most suitable
filler. In their replies to questionnaires, most users stated
that, as ATH could not be replaced for such uses, they
would have to accept the increase and, where possible,
pass it on to their customers. Their customers would
also accept
the increase in cost, as the fire safety
requirements they have to observe would prevail over
such a cost variation.

Conclusion

(47) On the basis of the foregoing, the Commission concludes
that the notified operation will result in the creation of
a dominant position in the EEA market by the parties
for ATH used as a flame retardant in the manufacture of
LSOH copolymer compounds.

3.1.2.

FLAT-ROLLED PRODUCT MARKETS

(48)

(49)

Flat-rolled products (FRPs) are semi-finished aluminium
products that are produced in aluminium rolling mills.
They constitute the raw material for the manufacture of
finished aluminium products (ranging from
several
industrial aluminium plate to household foil). FRPs are
produced in a number of steps, involving hot and cold
rolling in hot and cold rolling mills, respectively.

FRPs comprise over 15 categories of products, some of
which correspond to a specific end application, whereas
some others may be multipurpose products (a large part
of the latter is stockist material which cannot be allocated
to specific sectors). The categories of FRPs that mills can
produce include the following: common material alloy
(1xxx, 3xxx and 5xxx); building sheet; foil stock; bever-
age can body stock; can end stock; food can stock; bright
sheet; brazing sheet; plate and shate (sheet and plate);
lithographic sheet; fin stock; other thin gauge (3xxx and
5xxx); autobody; and heat treat.

that

these decisions

considered as one product market (7). The Commission
notes
concerned aluminium
producers with limited FRP activities in the EEA,
and accordingly the notified operations did not require
any thorough analysis of the FRP markets in the EEA
since no competition problems resulted from the
operations.

types of FRPs. First,

(51) The market investigation in this case has shown that
the conditions of competition are not the same across
all
the degree of supply-side
substitutability varies from one FRP type to another.
In general, aluminium rolling mills produce a range of
FRPs, the ‘product mix’. Different types of FRPs sell at
relative profitability is
different prices and their
reflected in the rolling margin (that
the profit
is,
margin resulting from rolling a particular type of FRP).
Each rolling margin ‘contributes’
to the overall
profitability of the mill. As the ultimate goal of a mill
is to maximise its profitability, aluminium producers
try to optimise the product mix of their mills, by
producing the highest-margin types of FRPs within the
availability of their rolling and finishing equipment.
However, not all the mills are equipped to produce all
types of FRPs. Thus, when it comes to several specific
types of FRPs — in this case lithographic sheet —
only a few mills in the EEA are capable of producing
them. Those types of FRPs are products relatively
difficult
they require a
high degree of management commitment, workforce
discipline and different operating practices. In addition,
the rolling margins achieved in producing these types
of FRPs may be lower than in other, more standardised
types. The high quality requirements and the relatively
small rolling margins have dissuaded several mills
from setting up production processes that would
enable them to include those products in their product
mix. This is particularly so because the buyers of such
types of FRPs require their suppliers to pass stringent
qualification tests that may last several years before a
long-term commercial relationship is set up. Therefore,
although the supply-side substitutability argument
standard FRPs
seems
categories (standard sheet, plates, foil stock, etc.),
it
was not supported by the market investigation with
respect to products such as those dealt with in the
present decision. Rolling mills not currently active
in the production of those types of FRPs could not
start competing in those markets in a timely and
immediate fashion, even in case of a non-transitory

to make and, as a result,

in respect

relevant

to the

(50) The parties have argued that FRPs constitute one single
relevant market as there is a high degree of supply-
side substitutability. In previous Commission decisions
concerning the aluminium sector, FRPs had been

(7) Alcoa/Alumix (Case IV/M.675, Decision of 21 December 1995;
OJ C 121, 25.4.1996, p. 14); Alcoa/Inespal (Case IV/M.1003,
Decision of 24 October 1997; OJ C 29, 27.1.1998, p. 7);
VAW/Reynolds Metals (Case IV/M.1110, Decision of 19 May
1998; OJ C 211, 7.7.1998, p. 17).

L 90/8

EN

Official Journal of the European Communities

5.4.2002

price increase of 5 % to 10 %. Therefore, on the
supply side, the presence of a large number of mills
cannot influence the competitive conditions prevailing
in those types of FRPs which can be defined as distinct
product markets.

(54) As a conclusion, the Commission does not accept the
argument that FRPs should constitute one single product
market nor that its geographic scope should include the
EEA, eastern Europe, Russia and Turkey. There is at least
one type of FRP, examined in detail in this Decision,
which constitutes a distinct product market of EEA
geographic dimension. This is lithographic sheet. The
proposed concentration will result in the creation of a
duopolistic dominant position held by the merging
parties and VAW in the market for lithographic sheet.

(52)

the conditions of competition in those
Secondly,
distinct markets are not influenced by the existence of
aluminium mills outside the EEA. The parties have
argued that the FRPs’ geographic market is not limited
to the EEA but comprises eastern European countries
and Turkey, as well as Russia and the CIS. In earlier
decisions in the aluminium sector, the Commission
had defined the markets for FRPs as being EEA-wide.
In this case, the investigation on this specific type of
FRP (lithographic sheet) showed that competition takes
place at the EEA level. Import duties vary from 7,5 %
to 12 %. Even if some non-European countries have
duty-free access to the EEA market, for the customers
for those types of FRPs is
the geographic market
determined more by the quality and technological
guarantees of the producers and by the need for just-
in-time deliveries and short lead times. Long distance
transportation requires a very good control of
the
supply chain management, stocks and logistics. As
non-EU producers, but also some smaller EU-based
producers, reportedly have a lower level of supply
reliability, customers are required to hold larger
inventories for their supplies from eastern European
countries and Turkey, relative to the average rate of
sales of their finished goods, than for their supplies by
incumbent EU-based suppliers,
including the parties.
The larger inventories increase the customers’ working-
capital related costs and therefore their unit costs. For
this reason, almost no imports whatsoever have been
recorded in the EEA from Russia, Turkey or the eastern
European countries, in particular for the two types of
products mentioned above. Moreover, for the same
reasons mentioned above, in case of a non-transitory
price increase of 5 % to 10 %, customers would not
shift
their purchases to these countries. Therefore,
mills located there could not be considered to be part
of the EEA market.

(53) As far as the remaining types of FRPs are concerned,
imports from Russia and the CIS in 1998 amounted to
0,7 % of EEA consumption, whilst those from eastern
European countries and Turkey came to less than 5 %.
The categories of FRPs that are produced at rolling mills
in those countries comprise the following: standard
1xxx, 3xxx and 5xxx sheet; building sheet; foil stock;
plate and heat treat — that is, seven out of at least
15 categories of FRPs.

(55) However, the merger will also bring about a high degree
of concentration at the overall FRP production level in
the EEA. The notifying parties’ rolling capacity in the
EEA will be [25 % to 35 %]*, whereas their combined
share in terms of actual production will be of [20 % to
30 %]*. Moreover, the merging parties will have the
largest overcapacity among all the FRP producers in the
EEA [(> 30 %)]*. Finally, the merging parties will have
the largest number of mills (13 out of 36) and therefore
the largest range of possible output, hence the best
opportunity to optimise their product mix across all the
FRP types. This is in sharp contrast with the position
of the remaining competitors. VAW, the immediate
competitor of the merging firms, will have a rolling
capacity of [< 20 %])*, that is, almost three times smaller
than that of the merging firms, and a capacity utilisation
of [> 80 %]*. Other competitors lag even further behind.
Their capacity and production figures are the following:
Alcoa (12 % — 12 %); Hoogovens (9 % — 9 %); Elval
(3 % — 3 %); Norsk Hydro (3 % — 3 %), Granges (2 %
— 2 %).

(56) The combined market shares of the merging parties in
flat-rolled products will be, in themselves, indicative of
market power,
in particular taking into account the
significantly lower market positions of the immediate
competitors.
If one adds to that the effects of the
concentration on the merging firm’s immediate competi-
tor, VAW, then the overall competitive situation on
FRPs applications will be seriously distorted. As will be
seen in recitals 58 to 84, this is so because the merged
firm and VAW will share the largest aluminium rolling
mill worldwide, Alunorf in Germany, which is currently
a 50:50 production joint venture between Alcan and
VAW.

(57)

In order to explain better the competitive assessment in
those markets a number of preliminary considerations
are necessary concerning the links between Alcan and
one of its main competitors, VAW.

5.4.2002

EN

Official Journal of the European Communities

L 90/9

3.1.2.1. THE NORF JOINT VENTURE BETWEEN ALCAN

AND VAW

(58) Aluminium Norf GmbH (‘Norf’)

is a joint venture
company owned 50:50 by Alcan and VAW. It was
established in 1965 to build and operate the aluminium
rolling plant at Norf, Germany. It is a production joint
venture operating on a tolling basis for both its parents.

(59) As far as the corporate structure of Norf is concerned,
the GmbH acts as a joint venture vehicle. Its capital
share is owned 50:50 by Alcan and VAW. The GmbH
owns legal title to the property and the equipment at the
rolling plant and employs its own work force. The
GmbH is run by two chief operating officers (Geschäfts-
führer) who are employees of the GmbH. Each parent
company is entitled to propose one of the Geschäftsführer;
however, the selection of each requires the approval of
both parent companies. The Geschäftsführer are respon-
sible for the day-to-day management of Norf.

(60) The GmbH has a board of directors, composed of two
directors appointed by Alcan, two appointed by VAW
and two employee representatives. A shareholder meet-
ing is convened twice a year.

(61) A partnership company (Aluminium Gemeinschaft Norf
— ‘BGB’) is set up to act as a steering committee. It is
composed of three Alcan representatives, three VAW
representatives and the Geschäftsführer. Certain important
decisions require approval of the BGB ([...]*).

(64) The production operations of Norf are conducted
according to the following principles. Each parent
company is entitled to 50 % of the available capacity or
‘time of the mill’. This time of the mill corresponds to
the time required to produce a tonne of standard FRP.
When the parent companies want to produce other
types of FRP (i.e., beverage can stock, lithographic sheet,
etc.), usually more time is required, as the number of
passes from the mills increases. An ‘equivalency factor’
corresponds to the extratime needed for the production
of every other type of FRP compared to the standard
FRP. The Norf management sends each parent company
the equivalency factors by product or type of FRP that
could be produced at Norf. Each parent company then
sends to the management of Norf its forecast in standard
tonnes. If the forecast of the parent companies does not
meet the 50 % capacity entitlement in the month, the
parent companies must both accept the deviation. Fixed
costs are shared equally by the parent companies.
Variable costs are attributed by means of a ‘tolling fee’
and are charged according to the utilisation of the mill.

(65) The Norf management informs the parent companies
of the capacity utilisation of each parent companies,
aggregated across all FRP types and the aggregate
weighted ‘equivalency factor’ applicable to each parent
company’s production. The parent companies are also
informed of their share of the fixed costs as well as of
the total amount of variable costs to be borne by each
parent company, aggregated across all FRP types and
calculated on the basis of standard tonnes.

(62) The legal framework for the cooperation of the parent
companies of Norf relies on a certain number of
agreements. Those agreements show that the parents
have agreed on a consensus basis for everything that has
been carried out at Norf.

(66) As for the production process, each parent company
informs the Norf management of the production process
to be used (such as the number of passes). The Norf
management is not supposed to disclose this infor-
mation to the other parent company.

(63)

[This paragraph describes the provisions of the constitu-
ent acts of the joint venture, such as the partnership
agreement and other covenants. In summary, the two
parent companies have joint control over Norf; business
is jointly run by both shareholders and management is
exercised by representatives of the parent companies;
day-to-day business by two representatives,
each
appointed by one parent company; representatives
decide unanimously and follow instructions of parent
companies, otherwise the matter is referred to share-
holders’ partnership; important decisions need the con-
sent of the parent companies; parent companies grant
Norf access to their know-how; parent companies may
for additional
use each other’s patents at no cost;
investments, the parent companies have to decide on
unanimously]*.

(67) The parties argue that the Norf joint venture is not a
classical production joint venture but a time-sharing
facility. Consequently, they claim that Norf will not
restrict competition between the parent companies, as a
result of the merger. It has been structured in such a
way, the argument goes, as to minimise the information
flow between the parent companies and not to allow
information to be passed
competitively sensitive
between the parent companies. Thus, according to the
parties, on parent company could not anticipate the
competitive actions of the other. Moreover, the parent
companies do not share competitively sensitive infor-
mation, whereas information on the parent companies’
own customer bases, selling prices, quantities of finished

L 90/10

EN

Official Journal of the European Communities

5.4.2002

product delivered, and such like is beyond the scope of
the joint venture, and therefore remains out of the
parent companies’ reach. As the final product differen-
tiation may take place at a later stage for certain products
and even performed at other mills, outside Norf (as in
the case of lithographic sheet), ultimately one parent
company could not know the exact product mix nor the
differing cost basis of the other parent company. Finally,
the parties argue that since the Norf arrangements do
not involve profit-sharing between Alcan and VAW, it
is not rational for the parent companies to engage in
collusive behavior.

its

the cooperative aspects of

(68) The Commission considers that the degree of interde-
pendence stemming from the joint operation of Norf
prevents it from qualifying as a simple time-sharing
facility. In substance, Norf operates as a production
joint venture and any examination of it should take
into account
joint
operation. These include the governing principle of
consensus between the parent companies, resulting
from the various agreements concerning the operation
of Norf. The large amount of industrial cooperation to
be achieved between the parent companies is an
indication that the degree of integration of the parent
in Norf goes beyond what could be
companies
described as a time-sharing facility. Norf is the only
rolling mill joint venture world-wide (8). When it was
set up, it was considered to be a rather risky project
as it was already generally accepted that it could only
be operated at a sufficient level of efficiency if both
parent companies were to pool resources. At Norf,
there are joint production facilities and a single labour
force serving the needs of both parent companies in
the same way. In terms of the costs pertaining to the
operation of Norf, [...]*. At Norf, there is one common
department responsible for determining the production
sequences for both parent companies, which makes its
technical findings available to both parent companies.
According to one of the parent companies, VAW, it
would not have made economic sense to jointly build
and operate Norf if any given FRP type produced by
one of the parent companies were to be produced
differently by the other parent company.

(8) There is another rolling mill joint venture between Alcan and
ARCO in Logan, USA. However, this is not comparable to Norf
in many respects. First, ARCO has divested its aluminium activities
and the Logan mill is only managed by Alcan; secondly, the Logan
mill is much smaller in scale and therefore less complicated to
operate than Norf (Norf is the largest aluminium mill in the
world); and thirdly, Logan can only produce can body and end
stock and, therefore, even if it were jointly run, it would not entail
such a complex management of two different competitive product
mixes.

(69) At Norf, there are several dedicated production lines
(including both the hot- and cold-milling process and
the finishing machines, such as the slitters) for the
various types of FRPs that Norf can produce. The
dedication of lines stems from the common interest of
both parent companies in reducing their common costs.
Consequently, [...]*.

(70)

Investments in Norf have, so far, been jointly agreed by
both parent companies. For instance, the determination
of the proper technology has been decided on jointly.
Technical specifications of investments are jointly dis-
cussed and agreed upon at the BGB.

(71)

(72)

For the foregoing reasons,
it can be concluded that
the Norf joint venture is not a time-sharing facility.
Consequently, the Commission considers that the pres-
ence of the two largest EEA producers of FRPs in a joint
structure which manufactures products in which the
merged firm will acquire important market positions,
may pose competition problems. These will stem from
the legal structure of Norf and the resulting de facto
cooperation between the parent companies; from the
strong dependence of VAW on Norf and its capacity
constraints in its other rolling mills; from the right of
Alcan to veto investments proposed by VAW; and from
the ability of the merged firm to raise VAW’s costs and
the
hence decrease its ability to compete. Overall,
asymmetrical capacity constraints,
the
in favour of
merged firm, and the credible threat of retaliation against
VAW will create a situation where collusion among the
parent companies of Norf will be sustainable in the long
run. This situation is analysed in recitals 72 to 81.

First, the legal structure at Norf requires a constant
consensus-based cooperation between the parent com-
panies. For Norf to be able to continue its operations
effectively after the merger, the parent companies will
have to agree on several aspects of the production
process. This will increase the transparency and predicta-
bility in the competitive strategies of the parent com-
panies. For instance, technical and financial cooperation
between the parent companies will be necessary in order
to [...]*. Not only will major investments require the
consent of both parent companies, but also routine
operations will create opportunities for cooperation
(such as [...]*). The argument of the parties on the
arrangements concerning the management and oper-
ation of Norf, in particular those related to the exchange
of information, disregards the difference between a pre-
merger situation and a post-merger one. The question

5.4.2002

EN

Official Journal of the European Communities

L 90/11

is whether the competitive situation would change
following the proposed merger. In that respect, the
parties may argue on an ex post basis, that in the pre-
merger situation, the exchange of information did not
prevent the two parent companies, Alcan and VAW,
from competing effectively with each other. By contrast,
the post-merger relation between the merged firm and
VAW is a matter of the future, to be assessed in the
context of the market structure likely to prevail following
the notified acquisition. After the merger, for Norf to be
able to effectively continue its operations, Alcan and
VAW will have to agree on several aspects concerning
the production process.

(73)

Secondly, the merger will alter VAW’s incentives to
compete. Ultimately, VAW would have more incentives
to align its competitive behaviour on that of the merged
firm rather than compete aggressively against it. This
stems from the combination of two factors: VAW’s
strong dependence on the output of Norf and its capacity
constraints, and the right of Alcan to veto expansion or
other investments (the latter in conjunction with the
overcapacity of the merged firm, which will have the
largest underutilised rolling capacity in the EEA).

(74) VAW is totally dependent on Norf for a number of FRPs
(beverage can body stock and end stock, lithographic
sheet, brazing sheet, etc.). Before the merger, Alcan was
also dependent on Norf; however, after completion of
the merger, the combined entity will no longer depend
on Norf, as additional hot-rolling capacity will be
brought along by the other merging partner. If VAW
decides to compete fiercely against the merged firm in
view of capturing additional market share, it will need
to increase its rolling capacity. Thus, VAW will need to
reach an agreement with the merged firm. The latter
may block such an investment if it perceives that this
will enable VAW to compete against it.

(75) The parties have argued that VAW has announced
investments aiming at the expansion of its capacity in
other rolling mills (Cisterna and Hamburg) and that such
expansions would reduce VAW’s dependence on Norf
and would provide it with the needed capacity in order
to compete against the merged firm. The Commission
the parties.
does not agree with the argument of
The planned capacity expansions concern VAW’s cold-
rolling mills in these plants. These are, and will continue
to be, supplied with hot re-roll band (input) coming
from Norf. Those mills could not be supplied by other
hot mills of VAW as there are technological differences
between the hot-rolling processes between Norf and
those other mills (different product dimensions make the
Norf system incompatible with other mills). Therefore,
contrary to the argument of the parties, the planned
expansions will increase VAW’s dependence on the hot
mills of Norf.

(76) Thirdly, economic theory suggests that the firms’ asym-
metrical capacity constraints affect the degree of col-
lusion in the short run as well as in the long run. This is
further enhanced by the possibility of a credible threat
of retaliation. In this case, the existence of asymmetric
capacity in favor of the merging entity and the existence
of de facto punishment mechanisms, stemming from
the functioning of Norf, will affect VAW’s incentive for
engaging in a price war.

(77) The condition relating to the asymmetry of capacity
constraints is illustrated by the merged firm’s capacity
utilisation of [< 70 %]* compared to that of VAW which
is [> 85 %]*. The condition relating to the credible threat
of retaliation is illustrated by the asymmetry in the degree
to which VAW and the merged firm are dependent on
Norf. The merger will enable the merged firm to raise its
rival’s costs, should the merged firm and VAW remain
the parent companies of the Norf joint venture. Because
of the additional rolling mills it will acquire from its
merging partners, the merged firm will be more flexible
on the supply side to shift production to and from Norf
than is currently the case for Alcan. Consequently, the
merged firm could increase VAW’s costs at Norf while
reorganising its production around the merged firm’s
new rolling system (it was announced that such a post-
merger reorganisation would result in cost savings of
several hundred million dollars). Ultimately, the benefit
of raising VAW’s costs is that VAW would be forced to
charge higher prices to customers, and this would
increase the demand for the merged firm’s output, thus
enabling it to raise the prices. Alternatively, if VAW
it would suffer a
decided not to increase its prices,
decrease in its profitability.

(78) The way in which the merged firm may increase VAW’s
costs whilst reorganising its product mix at Norf is
described as follows. As was mentioned in recitals 58 to
77, the functioning of Norf is based on the common
optimisation of the parent companies’ product mix. Any
change in the product mix is likely to alter the cost
situation at Norf. Under certain circumstances,
the
change in the cost structure may be more harmful for
one parent company than for the other. For instance, as
the costs to be borne by each partner are based on the
factual level of utilisation of the facilities, should the
merged firm decide to redistribute some FRPs away from
Norf or to replace certain FRPs with others, VAW would
have to bear a disproportionate share of the costs arising
out of the unused capacity. Any change in the product
mix of Norf will have repercussions on the operation

L 90/12

EN

Official Journal of the European Communities

5.4.2002

of the production process and of the accompanying
equipment (cast house, types of alloys, scrap chain,
number of passes, finishing equipment and so on). This
will disturb the cost-sharing equilibrium on the basis of
which Norf has been able to function optimally to date.
Additionally, in the day-to-day operation of Norf, the
parent companies will have to collaborate to work
efficiently. The diminution of the relative commitment
by one parent company will have negative repercussions
on the profitability of the other. Given VAW’s strong
dependence on Norf, it is more likely that a relaxation
of the merged firm’s commitment to Norf will raise
VAW’s costs and affect its ability to compete.

paragraph, under both reallocation scenarios analysed
by the parties, VAW’s cost penalty is bigger that the
merged firm’s. Nor can the Commission accept that
VAW’s cost variation is too small to prevent it from
competing aggressively. As has been stated several times
by the parties, the margins achieved in the rolling
business are minimal. Accordingly, a small scale vari-
ation in the cost basis may have significant consequences
on the competitiveness of a producer. As a result, VAW
will not be keen to engage in a price war. It will, on the
contrary, align its behaviour on that of the merged firm,
in the expectation of maximising its profits at a given
output through higher prices rather than higher market
share.

(79)

[...]*, owing to the way in which the cast house costs are
shared at Norf and to the way in which the costs of the
rolling mills are allocated, it is technically feasible for
the merged firm to raise VAW’s production costs at
Norf, either by reducing the amount of activity at Norf
or by changing its product mix at Norf. [...]*. The parties
consider that a strategy consisting in raising rivals’ costs
would be sound if the deterioration of VAW’s cost basis
were greater than that of the merged firm. In this case, a
reallocation of the product mix of Norf would not make
economic sense if it had the result of leaving the merged
firm’s share of Norf unutilised. According to the parties,
this would amount to a severe opportunity cost. Thus, a
change in the product mix of Norf, or the redistribution
of certain products away from Norf, would have to be
offset by keeping Norf reloaded. [...]* the impact on
VAW’s and the parties’ marginal cost as a result of the
reallocation of lithographic sheet and beverage can body
stock away from Norf and the reloading of Norf with
other types of FRPs. In the case of lithographic sheet, the
parties have estimated that both parent companies’
marginal costs will increase and that VAW’s costs will
increase by [%]* more than those of the merged firm. In
the case of other FRP types, and in particular beverage
can body stock, the increase will be sharper for VAW, as
the reallocation of that product away from Norf will
result in cost savings for the merged firm ([- %]*) and a
cost increase for VAW ([+ %]*). Overall, the resulting
cost difference to the detriment of VAW will be close to
[> 5 %]*.

(80) The Commission cannot agree with the parties that a
cost penalty borne by VAW will inflict a dissuasive cost
increase on the merged entity. As seen in the preceding

(81)

In addition to that, and quite apart from the current
dependency of VAW on Norf, the fact remains that any
attempt on the part of either the new entity or VAW to
gain market share at the expense of the other will
necessarily have an immediate effect on the rate of
capacity utilisation/product mix at Norf and conse-
quently on the cost structure of both parties. The very
existence of Norf thus modifies the parties’ incentive to
compete. Furthermore, the very fact that the cost basis
of all FRP types manufactured at Norf will be the same
or at the very least very similar for both parties, will in
itself diminish the amount of price competition that the
parties can realistically practice against each other.

(82)

Furthermore, the merged firm and VAW compete with
each other in a multitude of other markets. The prospects
for retaliation in such other markets, stemming from
multi-market contacts, can provide a further rational
reason for the alignment of strategies between the
merged firm and VAW.

(83) VAW explained in public, at the oral hearing held on
January 31 and February 1 2000, how it views its future
competitive position as a result of the merger. VAW
believes it will be under a permanent threat of retaliation
through measures which will fundamentally affect its
supplies from Norf and therefore its competitiveness.
For each activity, VAW will have to anticipate the
possible reaction of its joint venture partners and will
tend to refrain from activities which could trigger a
reaction by the merged firm. This will reduce VAW’s
willingness to engage in fierce competition.

5.4.2002

EN

Official Journal of the European Communities

L 90/13

(84) As a consequence of the foregoing, it is the opinion of
the Commission that the existence of Norf will reduce
competition between the merged entity and VAW. In
accordance with the approach which must be followed
in the context of the merger control review, the Com-
mission is to assume the most rational course of action
which, in the markets analysed in recitals 85 to 105,
would be the alignment of the competitive strategies of
the merged firm and VAW.

are high, only a limited number of aluminium producers
are active (Alcan, Alusuisse, VAW and Alcoa; Elval is at
the stage of entering the market). A price increase of 5 %
to 10 % would not result in any timely successful entry
by non-existent suppliers, as the degree of commitment,
the capital cost and the time lag would make prospects
of the entry uncertain. Overall, a supra-competitive price
increase of that magnitude would remain unchallenged.
For these reasons, the Commission considers that litho-
graphic sheet is a distinct relevant product market.

3.1.2.2.

LITHOGRAPHIC SHEET

Product market definition

Geographic market definition

(85)

Lithographic sheet is a type of bright and well-surfaced
flat-rolled product used in the manufacture of photo-
graphic and printing plates. Aluminium rolling mills
produce this special type of product and sell
it to
photographic companies that have facilities to surface-
to end users, such as
treat
their subsidiaries or third parties (other photographic
companies and printers of newspapers, magazines, etc.).

it, and resell

it, slit

it

(86) There is no demand-side substitutability between alu-
minium lithographic sheet and any other material,
whether made of metal or not. The parties claim,
however, that from the supply side there exists a high
degree of substitutability.

(87) The market investigation has indicated that this is not
true. The crucial technical requirement for lithographic
sheet is that it shall have a very flat surface which must
be carefully de-greased. Given the specific know-how
and special machine capabilities involved in producing
flat surface, customers would not consider all
that
established aluminium mills as their potential suppliers,
in the event of an increase in the price of lithographic
sheet.

(89) The geographic market

for

lithographic sheet

is
restrained to the EEA. All of the EEA-based customers
purchase lithographic sheet from local suppliers. One of
the reasons limiting imports into the EEA is the custom
duty of 7,5 %. Another is the long lead times for
imported material. Transport times for locally purchased
material may be of one to two days, as opposed to two
to three weeks for imported material. Imports compel
customers to buy large quantities and set up and follow
large inventories. Another reason is the uncertainty
associated with imports. Remote suppliers cannot pro-
vide the same quality of after-sales technical assistance
to EEA-based customers; moreover, the quality of the
sheet may differ substantially for lithographic sheet
imported into the EU. This is in particular so for the
thickness and the width of the sheet. Customers have
given examples of differing sizes of sheet in every
different delivery. This entails an extra cost or a loss of
product for the customer. When the material is larger in
size, it has to be trimmed off to fit in the customer’s
machinery, which results in losses of output. When it is
narrower, nothing can be done and the product needs
to be returned or spoiled (that is to say, resold at a lower
price to be used as a standard flat-rolled product).

(88) Customers require their suppliers to pass a stringent
qualification process before they will start puchasing
from them. Such a process can take up to two years
before qualification and generally includes a multi-phase
testing programme aimed at determining the final
product specification required by the customer. For a
full entry,
in addition to the certification procedure,
producers have to undertake investments of between
EUR 10 million and EUR 20 million, and must con-
stantly keep up with improvements in quality. The
example of Elval, referred to in the following paragraphs,
illustrates how long it can take an aluminium mill to
establish itself in the market place as a qualified supplier
of lithographic sheet. As barriers to entry in this market

(90) One customer has imported some limited quantities
from a Japanese supplier. This customer is the European
subsidiary of a Japanese photographic company, and
owing to the existing supply agreements between the
parent company and its local Japanese supplier, it was
made possible to divert to Europe part of the volume
purchased in Japan. These imports accounted, at the
maximum, for 20 % of that customer’s supply require-
ments. They were made under an outward-processing
customs system. This consists in importing a limited
quantity of a product in order to process it within the
Community with a view of re-exporting it as an added-
value product — that is, under a different customs
product number. Thus the amount of duties paid on
importation is refunded when the product is re-exported.

L 90/14

EN

Official Journal of the European Communities

5.4.2002

(91)

For the rest, imports accounted in 1998 for 2 % of EEA
consumption. The parties argue that imports accounted
for approximately 5 % in 1994/95 and that the reduction
in imports was due to lost volumes from the USA, which
was in turn due to the strong appreciation of the US
dollar. However, even assuming that the US dollar
depreciates against the euro zone, and that imports from
the USA will rise, this would not be sufficient to point
to the conclusion that the market is consistently broader
than the EEA. Such imports would depend on business
cycles and currency fluctuations. They would not rep-
resent a structural feature of the market, as they would
not constitute a stable and reliable source of supply.
Therefore, for the present analysis, it can be concluded
that the market for lithographic sheet is EEA-wide.

Competitive assessment

(92) The EEA production for lithographic sheet was of 189 kt
in 1998. The merged firm accounted for [kt]* or [45 %
to 55 %]* of the EEA production (Alcan: [kt]* or [%]*;
Alusuisse: [kt]* or [%]*). Only a few other competitors
produce and supply litho in the EEA. These include
VAW ([35 % to 45 %]*), Alcoa ([5 % to 15 %]*) and
Elval ([< 5 %]*).

(93) The degree of concentration in the litho market is
significant. The merger will reduce the number of
present suppliers from five to four. Of those, VAW is
the most likely to constitute a serious competitive threat
to the possible exercise of market power by the merged
firm. Before the merger, VAW was the biggest producer
and supplier of litho in the EEA. However, after the
merger, the Commission can no longer consider VAW
as a genuine competitive threat to the merged firm.
VAW finishes its lithographic sheet production at the
plants of Grevenbroich and Cisterna, which account
respectively for 90 % and 10 % of VAW’s lithographic
sheet production. These plants are entirely dependent
on Norf for the supply of hot re-roll band of lithographic
sheet (see above, chapter on the Norf joint venture).
There are no alternative sources of supply of hot re-roll
bands with the necessary lithographic quality, as the
only producers of such bands, Alusuisse, Alcan and
Alcoa (Inespal), are competitors and therefore unlikely
to supply VAW. Norf is a 50:50 joint venture between
Alcan and VAW. In the foregoing analysis of the Norf
joint venture, it was explained why the merger will alter
the incentives of VAW to compete with the new entity,
should they remain as the parent companies of Norf.
The individual market characteristics of the merged firm
and VAW, as well as the general
the
lithographic sheet market, suggest that as a result of the
merger the economic interests of the two competitors
might be aligned.

features of

(94) The market positions of the merged firm and VAW are
almost symmetrical
([...]*). The same goes for the
production costs, since, on the one hand, the initial steps
of production (hot rolling) take place at Norf, whereas,
on the other hand, the individual processes followed at
separate plants involve the same technology and thus
production costs. There is a degree of transparency
prevailing in the joint production unit, and as a result
the two partners could, with no difficulty, track each
other’s actions. This adds to the predictability required
for a competitor to detect in time what action competi-
tors are going to take and therefore to align his behaviour
on that of competitors. This similarity in the production
process and the functioning of the joint venture streng-
thens the relation of interdependence between the parent
companies, whose ultimate goal would be the optimal
functioning of their venture. A breach of this optimum
would act on both parents as a sufficient disincentive
against competing head-on.

(95)

Lithographic sheet is a fairly homogeneous product.
Once the know-how and technology is acquired, a
producer cannot much differentiate his lithographic
products from those produced by competitors. Price is
therefore the relevant factor in competition in this
market. The lithographic market is relatively transparent.
The prices are negotiated on a yearly basis. There are a
few customers only and both the merged firm and VAW
are supplying them. When negotiating with buyers, the
suppliers get to know the price, or at least the price
range offered by their competitors. In that way, buyers
try to bring different suppliers to competition with one
another in the expectation of achieving a fair market
price. As a result, bidding suppliers tend to know what
the market price is, at any given moment.

(96) The lithographic sheet market is stagnant. This is due to
the fact that the demand from the offset industry is
declining, due to the development of new forms of
paper-free media, such as electronic and Internet media.
Stagnant markets are more conducive to parallel behav-
iour than high-growth markets, as in the latter there are
more incentives for entry and higher incentives for
existing players to compete for an increase in market
share. In contrast, in the lithographic sheet market, the
incentives to compete are different, as a competitor can
only increase his customer base at the expense of another
competitor. Price is again the relevant competitive factor.

(97)

Finally, the above market characteristics are corrobor-
ated by the existence of a substantial structural
link
between the two main competitors, that is, the Norf
joint venture. The existence of Norf will change signifi-
cantly the incentives of both parent companies to

5.4.2002

EN

Official Journal of the European Communities

L 90/15

compete. In particular, VAW might consider it more
profitable to follow a price increase in lithographic
sheet initiated by the merged firm. In the absence of
sufficient competitive response from existing local
suppliers or from imported material, a parallel price
increase would lead to joint profit maximisation. As
was explained in recitals 58 to 84 on the Norf joint
venture, the need for the two parents to optimise the
product mix of Norf and keep the cost basis at the
lowest possible level makes cooperation between the
parent companies inevitable. Any future investment or
change in the product mix will have to be decided
In sum, decisions concerning the output of
jointly.
Norf will
involve both parent companies. Moreover,
VAW would have no incentive to compete in order to
steal customers
from the other partner. As was
explained in the relevant paragraphs on Norf, if VAW
is to compete it will be necessary to increase its
capacity at Norf. The merged firm may block such an
investment. Additionally,
the merged firm could
dissuade VAW from competing aggressively through
the credible threat of retaliation. This can be achieved
through raising VAW’s
therefore
rendering it non-competitive. The parties have calcu-
lated that even a simple reorganisation of the merged
in VAW’s
firm’s product mix at Norf may result
having costs
than the merged firm.
[%]* higher
Therefore, should the merged firm and VAW continue
to jointly control Norf, VAW could not be regarded
as an effective actual competitor that would be keen
in
supra-competitive price
to defeat
lithographic sheet.

at Norf,

increase

costs

a

(98) Alcoa is the only real competitive force in the market.
However, its lithographic production capacities in the
EEA are limited. Given that it only accounts for 9 % of
the market, in order to defeat a price increase it will have
to either convert a large part of its current product
mix into lithographic sheet
(assuming the relevant
opportunity costs), or to increase its capacity. Capacity
increases do not take place just to satisfy demand for
one product. They entail a big investment, they are
managed as a system and are motivated by more global
considerations than a snapshot price increase in one
product market, such as lithographic sheet. If Alcoa
wished not incur an expansion cost, it would then have
to import material from its US mills. However, the
transportation costs and the import duties would erode
any price competitiveness of imported material. Under
these circumstances, Alcoa might consider it more
profitable to follow the price increase, thus maximising
its profits per given quantity sold.

(99)

Finally, Elval is the smallest of the existing suppliers.
Elval has attempted to enter the lithographic market
since 1990. Even today, it does not consider itself able
to produce and supply quality material in a consistent
way. Elval has produced material on an experimental
basis. Its first test shipments of 500 tonnes were made
in 1993 — that is, three years after the decision to enter
this market was taken. The qualification process with
EEA customers is not yet terminated and Elval believes
that further investment and time will be required until
full acceptance by customers is achieved. Elval cannot,
therefore, be considered a competitive threat in the EEA
lithographic market.

(100) The example of Elval also illustrates the significant
barriers that prevent entry in the lithographic market.
On top of the EUR 10 million to EUR 20 million
investment in setting up a finishing line, aluminium
mills not active in lithographic sheet will have to
undertake a significant investment in time and resources
in order to qualify with customers. The time lag is such
that any competitive threat from their side would not be
meaningful before a long period of time, which could
amount to more than five years.

(101) Hoogovens, one of the largest aluminium producers and
currently part of the Corus group (British Steel and
Hoogovens), was active in the production of lithographic
sheet but quit the market recently. Hoogovens stated
that when it was still active, it was not able to keep
up with the increasing quality requirements set by
customers, nor could it envisage the necessary invest-
ments of EUR 20 million, in order to catch up with the
fact that its main competitors set up finishing lines
specifically geared to the manufacture of this product.

(102) That being so,

it can be concluded that actual or
potential competition is not likely to alleviate the market
power that the merged entity will acquire as a result of
the concentration.

(103) The parties have argued that customers have consider-
able buying power, as they are large corporations in the
photographic industry, which is as concentrated as the
aluminium industry.

(104) Nevertheless, the market investigation has indicated that
customers do not necessarily have countervailing power.
The lithographic sheet market is highly concentrated, as
is the photographic industry. Before the merger, there
are no indications that customers have buying power.
After the merger, the concentration on the part of the
lithographic sheet producers will increase substantially.
Considering the effects of Norf on the competitive
the merged firm and VAW, and the
behaviour of
low competitive prospects of Elval, the available EEA
suppliers of lithographic sheet will change from four

L 90/16

EN

Official Journal of the European Communities

5.4.2002

to two, of which Alcoa is substantially smaller. The
rapprochement of the largest and most efficient pre-
merger suppliers is expected to adversely affect the
existing equilibrium in terms of countervailing power.
The loss of countervailing power will be accentuated
by the impossibility of switching to other alternative
materials and the long time period necessary for poten-
tial new entrants to establish operations and acquire
know-how and recognition. Imports from Japan or the
USA will increase the operating costs of customers and
will affect their profitability. As a result, imports could
not constitute a credible threat to local suppliers. Overall,
customers will not be able to exercise any countervailing
power after the merger.

Conclusion

(105) For the reasons outlined in the preceding paragraphs,
the Commission considers that the concentration will
result in the creation of a duopolistic dominant position,
held by the merging parties and VAW,
in the EEA
market for lithographic sheet.

3.1.3.

PACKAGING MARKETS

3.1.3.1.

SEMI-RIGID CONTAINERS

Relevant product market

(106) Semi-rigid aluminium containers are put to a number
of end-uses such as petfood containers, frozen food
containers, take-away food trays, airline food containers
and the like. Semi-rigid aluminium containers are either
coated (smoothwall container) or uncoated (wrinklewall
container). The parties are of the opinion that the
relevant market comprises both types of aluminium
containers, as well as containers made of other materials
such as multilayer plastic, steel, or pouches. The market
investigation, however, has not supported that view.

Demand side substitutability

(107) In the view of all customers contacted, semi-rigid
smoothwall containers constitute a separate product
market from wrinklewall containers. Wrinklewall con-
tainers cannot be sealed but only closed with a lid of
aluminium or metallised carton. Wrinklewall containers
are used for frozen food and an extensive variety of
bakery and catering products which do not need a long

shelf life. Any food in a wet state, however, needs to be
packaged in a sterilised and sealed container in order to
guarantee a safe and hygienic long shelf life. Coated
aluminium provides the heat resistance (129 °C) needed
for sterilisation. Only the smoothwall container has the
sealing edge on to which a lid can be sealed and which
then provides a shelf life of more than two years. This
difference in properties is reflected in a considerably
higher price for the smoothwall container. The price
differential between coated and uncoated aluminium
containers is in the order of 25 % to 50 %.

a

viable

to the

(108) According to the parties the multilayer plastic container
provides
aluminium
alternative
smoothwall container. However, the shelf life of plastic
containers is only about six months — one quarter of
the sterilised smoothwall aluminium container. This fact
puts plastic containers at a considerable disadvantage
vis-à-vis the aluminium container. More than 60 % of
coated semi-rigid aluminium containers are used for the
packaging of petfood. Another 10 % to 15 % contain
sterilised food for human consumption. Therefore, for
more than 70 % of the smoothwall containers a long
shelf life is guaranteed which leads to a completely
different supply chain. It is therefore not uncommon
that sterilised food arrives on the shelves at the point of
sales weeks or even months after it has been produced.

(109) Plastic containers suffer also from a marketing point of
view. The parties claim that Mars uses multilayer plastic
containers for its products in the USA. However, Mars
does not use this container in Europe, despite the fact
that it is 20 % cheaper. The reason is that the appearance
of plastic does not square with the premium brands
packaged in the aluminium container. The parties pointed
to a Swiss company, Säntis, which sold such a container
for packaging pet food to the largest retailer in Switzer-
land, Migros, following allegations that aluminium con-
tainers are more harmful to the environment than such
the
a plastic container. However, as it
multilayer plastic container is more difficult to recycle
than the aluminium container. Accordingly, Migros
switched back to aluminium in 1997, and the multilayer
container is not in use any more.

turned out

(110) Another alternative proposed by the parties is the
steel container. Rigid steel is considerably heavier than
aluminium, which makes it unsuitable for the 100 g
single-serve container. It is therefore predominantly used
for the multiserve segment with a content of 400 g or
more. As a general marketing point, customers point to
the fact that aluminium has certain properties in terms
of marketing which are not achieved by steel. These
properties include greater convenience in opening and,
particularly important for premium brands, appearance.
There is also a semi-rigid steel container. However, the
price for this laminated semi-rigid steel container is,
according to the parties, 15 % to 20 % higher.

5.4.2002

EN

Official Journal of the European Communities

L 90/17

(111) Lastly, the parties point to the pouch as an alternative to
smoothwall aluminium containers. Pouches have a thin
inner aluminium layer of 6 to 9 (cid:236) and can be sealed.
Pouches guarantee a similar long shelf
life as the
smoothwall container. They are available in the 100 g
single-serve size. This product was able to gain market
share in recent
times. The Commission underlines,
however, that this gain in market share was not at the
expense of the smoothwall containers but rather at the
expense of the tinplate can. The growth forecast for the
pouch is, according to one market player, 20 % for the
coming years, whilst the aluminium container will grow
at a rate of 5 % but the tinplate can will be stagnant or
even decline. This reflects the fact that demand for the
single-serve size is growing fast, a size where tinplate
plays a very minor role.

(112) Moreover, pouches contain a product with a semi-
liquid consistency, namely chunks in gravy whereas
smoothwall containers contain a jellied or a paté-
like product. Jellied and paté-like products cannot be
packaged in pouches. Therefore, a switch to pouches
would require a reformulation of the product. Conse-
quently, pouches are not considered by all customers as
an alternative to the smoothwall container. Moreover,
switching to pouches would also require new filling lines
and an advertising campaign. It has been estimated by
one customer that these switching costs are as high as
EUR 10 million. Therefore, there is only limited demand-
side substitutability between semi-rigid coated alu-
minium containers and pouches.

(113) The parties claimed that many food products are packed
in both plastic and smoothwall semi-rigid containers.
These products include single-serve jams and marma-
lades, coffee creamers or cheese spreads. However, these
products are not sterilised when packed in aluminium
and do not have the same shelf life. Similarly, ready meals
for use on board airplanes are packed in smoothwall
aluminium containers but are not sterilised. Therefore,
for these products and applications demand-side substi-
tutability exists. However, as was mentioned above,
these applications account for less than one third of the
demand for smoothwall containers.

(114) For the above reasons, demand-side substitutability for
the packaging of sterilised food products, between
smoothwall aluminium containers, and multilayer plas-
tic containers, steel containers and pouches seems to be
very limited.

Supply-side substitution

(115) The parties claim that there is a high degree of supply-
side substitutability between producers of wrinklewall
and smoothwall containers. Smoothwall containers are
made of laminated aluminium foil, referred to as lami-
nated strip. This strip is the material which is pressed

into the shape of a container and to which the lid is
added to close the container. The strip is standard
container foil to which a polypropylene strip is added
on a laminating machine. The parties claim that there is
only limited know-how and no intellectual property
rights are required for producing the laminated strip.
The only equipment necessary is a laminator to glue the
polypropylene strip to an aluminium FRP. According to
the parties the costs of such a machine is around [EUR]*.

(116) A producer of wrinklewall containers can produce
smoothwall containers on the same container presses, if
capacity is available. A new container press with a
production capacity of 100 million containers (5 % of
the market) costs between EUR 160 000 and 350 000.
in order to actually produce smoothwall
However,
containers such a producer of wrinklewall containers
would have to change the tooling. Such a forming tool
for smoothwall containers costs, according to the market
investigation, up to EUR 125 000. Since customers
usually order several different shapes and sizes, various
tools are necessary to meet such demand. In addition,
presses for the lid are necessary, which cost around
EUR 150 000 including tools. Therefore, a producer of
wrinklewall containers would have to invest between
EUR 1 million and EUR 2 million in new machinery.
The total investment necessary to convert aluminium foil
into laminated strip and to start producing smoothwall
containers could amount to as much as EUR 12 million.
Accordingly, the Commission considers that smoothwall
and wrinklewall containers belong to separate markets.

Conclusion

(117) For the above reasons, the conclusion of the Commission
is that there is a separate market for semi-rigid coated
aluminium (smoothwall) containers for the packaging of
sterilised products, as was suggested in the Commission
Decision of 14 April 1993 in Case IV/M.322 —
Alcan/Inespal (9).

Relevant geographic market

low cost

(118) In the view of the parties, semi-rigid aluminium con-
tainers can be transported at
throughout
Europe and prices are similar throughout Europe. It
follows, according to the parties,
the relevant
geographic market is at least the EEA. The market
investigation revealed that
imports into Europe are
marginal and that logistical considerations, such as just-
in-time delivery, are very important. Consequently, the
relevant geographic market is, for the purposes of this
Decision, limited to the EEA.

that

(9) OJ C 114, 24.4.1993, p. 5.

L 90/18

EN

Official Journal of the European Communities

5.4.2002

Competitive assessment

(119) The market share of the parties concerning smoothwall
containers amounts to [50 % to 60 %]*. Alusuisse would
add [%]* to Alcan’s [%]*. Other competitors include
deSter ([10 % to 20 %]*), Alupack ([5 % to 15 %]*),
Pluspack ([< 10 %]*) and Teich ([< 10 %]*).

demand shifted towards container lids which were
coated by an extrusion process. Teich did not have this
extrusion capability in-house. The parties to the merger
refused to supply this type of lid to Teich, which led to
a very difficult situation for Teich.

1998

Kt

Share

[kt]*

[kt]*

[kt]*

3,0

1,5-2,0

1,0-2,0

1,4

0,3

1,4

[%]*

[%]*

[%]*

[%]*

[%]*

[%]*

[%]*

[%]*

[%]*

Alcan

Alusuisse

Parties

deSter

Alupack

Teich

Pluspack

Ekco

Others

Total

20,0

100 %

(120) Only one competitor is vertically integrated, namely
Teich. Teich is part of the Teich/Constantia group which
has a stake in AMAG, a hot- and cold-rolling mill in
Austria, and also produces the laminated strip. All other
competitors depend on the supply of the laminated strip
from third parties. According to market players, such
non-integrated producers as Pluspack in fact do nothing
more than die-cutting and pressing aluminium into
containers, whereas the technology is developed by the
supplier of the aluminium foil and the laminated strip.
According to the parties [> 70 %]* of the final price of a
smoothwall container is determined by the cost of the
aluminium foil and the lamination.

(121) The parties have a very strong position for this material,
but claim that there are many independent suppliers
of laminated strip. However, apart from VAW, these
companies like Feron or Omial are small firms with
small capacities. The parties claim that Feron could
easily increase its capacity by [between 2 000 and
8 000 tonnes]* by increasing its number of shifts or
changes in the product mix. However, this allegation
was rejected by Feron. In the case of Omial, customers
were of the opinion that Omial does not produce the
required high quality. In a letter submitted by the parties
Omial even asks the parties for technical cooperation.
Moreover, these companies are pure converters who
have to buy the aluminium foil from integrated com-
panies such as VAW, or the parties which are direct
competitors on the downstream market for the lami-
nated strip.

(122) However, in one instance even the integrated company
Teich was facing severe problems. Some years ago

(123) According to the parties, the demand side is highly
concentrated. However, even the largest customer for
smoothwall containers, Mars, accounts for 25 % of the
total market as opposed to the market shares of the
parties of [%]*. Moreover, no individual customer of
Alcan accounts for more than [%]* of its sales, whereas
the biggest customer of Alusuisse accounts for only [%]*
of its sales. In the case of the market leader Alcan, the
top three customers account for [> 50 %]* of its sales,
the figure for Alusuisse is [> 50 %]*.
In turn, top
customers such as Mars, Nestlé or Saturn source between
90 % and 100 % from the merging parties. Consequently,
there is an imbalance in bargaining power between the
merging parties and customers of coated semi-rigid
aluminium containers used for the packaging of petfood.

(124) The parties claim that prices for smoothwall containers
have decreased by 10 % to 20 % over recent years.
However, this reflects a market situation where the two
leading firms competed. The merger will unite the top
two suppliers of the smoothwall container, which will
be six times bigger than the nearest rival. While it seems
to be correct that customers could switch to another
supplier in a time frame of up to one year, it will be a
problem to find a supplier which has the spare capacity
to meet this demand. If in the event of a post-merger
price increase a company like Mars were to shift
considerable parts of its demand to the two smaller
suppliers of the petfood container, Teich and Alupack,
they would have to invest. However, any investment in
new capacity carries the risk that the parties will apply a
limit-pricing strategy so that it would be economically
more viable for small producers to follow an increase in
prices by the merging parties.

(125) Such a rise in prices could be passed on to the final
consumer by Mars which is the undisputed market
leader in petfood with a share of almost half the market
and no close second. Mars has the largest collection of
premium brands. There is only one other petfood
producer with similar brands albeit much smaller: Nestlé.
The price of the smoothwall container accounts for 30 %
of the final sales price of the petfood. An increase of 5 %
would result in an increase of 1,5 % of the final product
which Mars would not find difficult passing on to the
final consumer. The other petfood suppliers such as
Saturn and Arovit produce private labels. They would
most likely follow the lead, since the price gap between
branded products and the private labels would remain
the same.

5.4.2002

EN

Official Journal of the European Communities

L 90/19

Conclusion

(126) On the basis of the foregoing, the Commission concludes
that the notified operation will result in the creation of
a dominant position in the EEA market for semi-rigid
coated aluminium containers.

4. COMMITMENTS PROPOSED BY THE NOTIFYING PARTY

(127) On 22 February 2000, the notifying party offered certain
commitments to remove the competition concerns
which the Commission had identified in its statement of
objections of 14 January 2000. The commitments will
be summarised and assessed in the following points,
following the order of the relevant markets on which
the Commission stated its objections as followed above
in the assessment part of this Decision.

(128) The full text of the commitments is attached to this

Decision and forms an integral part of it.

(132) Alcan is to be deemed to have complied with the
undertaking if by the ninth, the 12th or the 15th month,
as the case may be, it has entered into a binding contract
for the sale of the ATH Business with a purchaser to be
approved by the Commission.

Assessment

implementation of

(133) The proposed undertaking removes the overlap of the
merging parties’ activities. The market test carried out
by the Commission has indicated that the proposed ATH
plant may be considered a viable business. Moreover,
the modalities of
the proposed
undertaking, in particular the transfer of the business as
a going concern, the hold-separate provisions and the
divestiture period, will guarantee that the ATH Business
will not suffer any damage during the divestiture period
and that effective competition will be restored in the
ATH market after the divestiture. If these conditions are
fulfilled,
the status quo ante prevailing before the
concentration will be re-established so that the concen-
tration, subject to the fulfilment of the proposed under-
taking, will not lead to the creation of dominant position
in the EEA market for ATH.

4.1.1.1. ALUMINA TRI-HYDRATE

4.1.1.2.

LITHOGRAPHIC SHEET

(129) The ATH Business, according to the parties, means
the ATH plant operated by Algroup at Martinswerk,
Germany and all related human resources, tangible and
intangible assets.

(130) Alcan undertakes to divest itself of the ATH Business
within a period of nine months of the date of the
Commission decision declaring the concentration com-
patible with the common market (hereinafter ‘the date
of the Decision’). Should Alcan not be able to effect the
divestment by the end of the ninth month from the date
of the Decision,
it may request the Commission to
extend the nine months’ period by another three months.
Moreover, should Alcan not be able to effect
the
divestment by the end of the ninth or the 12th month
from the date of the Decision, as the case may be, Alcan
will give an irrevocable mandate to a trustee to effect the
sale of the ATH Business within a period of three
months, at no minimum price.

(134) The Litho Business, according to the parties, means the
lithographic operations currently carried out by Algroup
in the Star mill at Bridgenorth, United Kingdom, includ-
ing the cast house, the hot mill, all cold mills and the
litho finishing line.

(135) Alcan undertakes to divest itself of the Litho Business
within a period of nine months of the date of the
Decision. Should Alcan not be able to effect
the
divestment by the end of the ninth month from the date
of the Decision,
it may request the Commission to
extend the nine months period by another three months.
Moreover, should Alcan not be able to effect
the
divestment by the end of the ninth or the 12th month
from the date of the Decision, as the case may be, Alcan
will give an irrevocable mandate to a trustee to effect the
sale of the Litho Business within a period of three
months, at no minimum price.

(131) In order to enhance the commercial viability of the ATH
Business to prospective purchasers, the ATH Business
will
include the assignment to the purchaser of all
existing contracts, and all contracts entered into between
the date of these commitments (22 February 2000) and
the conclusion of the sale of the ATH Business, which
are related to, or associated with, the ATH Business, and
sufficient sales staff and production and administrative
personnel to operate the ATH Business as a going
concern.

(136) In order to enhance the commercial viability of the Litho
Business to prospective purchasers, the Litho Business
will
include the assignment to the purchaser of all
existing contracts, and all contracts entered into between
the date of the commitments (22 February 2000) and
the conclusion of the sale of the Litho Business, which
are related to, or associated with, the Litho Business; and
sufficient sales staff and production and administrative
personnel to operate the Litho Business as a going
concern.

L 90/20

EN

Official Journal of the European Communities

5.4.2002

(137) Alcan undertakes to offer to provide the purchaser of
the Litho Business with technical assistance to continue
to use the existing Algroup technology currently used
by the Litho Business, for three years from the date of
conclusion of the sale of the Litho Business.

fulfilled,
the status quo ante prevailing before the
concentration will be re-established so that the concen-
tration, subject to the fulfilment of the proposed under-
taking, will not lead to the creation of dominant position
in the EEA market for lithographic sheet.

(138) Alcan is to be deemed to have complied with the
undertaking if within the nine, the 12 or the 15 months’
period, as the case may be, it has entered into a binding
for the sale of the Litho Business with a
contract
purchaser to be approved by the Commission.

Assessment

(139) The proposed undertaking removes the competitive
overlap in the lithographic sheet market. The litho-
graphic production of the merged firm is organised, for
(hot coils) and in one of
Alcan in the Norf mill
Norf’s satellite mills (finishing), and for Alusuisse in the
Bridgenorth mill (hot coils and finishing). The parties
propose to divest themselves from the hot mill and the
related cast house, as well as all cold mills of Star. One
of these cold mills currently produces mainly foilstock
and the other litho stock. The Commission confirmed
with third party operators in the market that provided
the hot mills are offered to the purchaser, the latter
will become an autonomous producer and supplier of
lithographic sheet, to the extent that he will control the
quality of the metal throughout the whole supply chain.
Moreover, in order to make the divested package more
attractive to prospective purchasers, the notifying party
proposed to divest itself of a cold mill currently produc-
ing foilstock. This additional measure was proposed in
order to alleviate concerns raised during the market test,
namely that the divested hot mill would produce more
hot re-roll band than could be absorbed by the cold litho
mill. This could act as an economic obstacle in the
profitable operation of the hot mill, as the purchaser
would have to find outlets to dispose of this extra
capacity. By acquiring the foilstock cold mill in addition
to the litho mill, the purchaser of the divested assets will
be able to cold roll the surplus output of the hot mill
and sell foilstock, a commodity FRP, to the market, thus
making profitable the operation of the hot mill
in
particular, and of the Litho Business in general. Under
these circumstances, lasting and effective competition in
the lithographic sheet will be restored as a result of the
undertaking proposed by the notifying party. Further-
more, the implementation and accompanying measures,
in particular the transfer of the business as a going
concern, the hold-separate provisions, the divestiture
period and the offer of technical assistance to the
purchaser, will guarantee that the Litho Business will not
suffer any damage during the divestiture period and that
the purchaser will be able to compete effectively in the
Litho market after the divestiture. If these conditions are

4.1.1.3.

SEMI-RIGID ALUMINIUM CONTAINERS

smoothwall

(140) Alcan undertakes to sell to a third party, approved by
the Commission, punching machines with an aggregate
annual capacity of at least 3 200 tonnes for the manufac-
ture of
semi-rigid-containers and the
accompanying lids (hereinafter, the ‘transferred semi-
rigid aluminium containers business’). In addition,
if
requested by the third party purchaser, Alcan undertakes
to grant a licence on normal commercial terms in respect
of Alcan’s existing technology (and any know-how
associated with such technology) used in the lamination
of aluminium foil for the manufacture of smoothwall
semi-rigid-containers and the accompanying lids.

(141) Alcan undertakes to effect the transfer of the semi-rigid
aluminium containers business within nine months of
the date of the Decision to a third-party purchaser
approved by the Commission. Should Alcan not be able
to effect the transfer by the end of the ninth month of
the date of the Decision, it may request the Commission
to extend the nine months period by another three
the
months. Should Alcan not be able to effect
divestment by the end of the ninth or the 12th month
from the date of the Decision, as the case may be, Alcan
will give an irrevocable mandate to a trustee to effect the
transfer of the semi-rigid aluminium containers business
within a period of three months, at no minimum price.

(142) In order to enhance the commercial viability of the
transferred semi-rigid aluminium containers business to
the prospective purchaser, it will include the assignment
to the purchaser of all customer contracts which are
related to, or associated with, the transferred semi-rigid
the
aluminium containers business. The transfer of
customers’ contracts is to include the relevant customer-
specific moulds and other equipment related to these
contracts.

(143) Alcan will offer to the purchaser a non-competition and
a non-solicitation clause of a duration of three years
(which can be extended at the request of the purchaser
by another two years, such request being made to the
Commission), pursuant to which Alcan or the merged
entity will not seek or solicit customers of the transferred
semi-rigid aluminium containers business who have
accepted the assignment of their contracts to the pur-
chaser, unless the contracts have been terminated by the
purchaser.

5.4.2002

EN

Official Journal of the European Communities

L 90/21

Assessment

HAS ADOPTED THIS DECISION:

(144) The proposed undertaking intends to reinstate a new
producer and supplier of semi-rigid smoothwall alu-
minium containers. It concerns the divestment of an
annual capacity corresponding to the competitive over-
lap. According to the results of the market test, the
business would be divested as a going concern if the
new acquirer were to have access to the punching
machines, customer contracts and the relevant contract-
specific moulds and other equipment, as well as to
Alcan’s lamination technology. The transfer of
the
customer contracts will be effective provided that it is
accompanied by non-competition and non-solicitation
clauses. Alcan has complied with all of these require-
ments. If these conditions are fulfilled, a new competing
force will be re-established in that market so that the
concentration, subject to the fulfilment of the proposed
undertaking, will not lead to the creation of dominant
position in the EEA market for semi-rigid smoothwall
aluminium containers.

Conclusion on the proposed commitments

(145) Based on the foregoing assessment of the proposed
undertakings, the Commission concludes that they are
sufficient to eliminate the competition problems ident-
ified in the markets for ATH, lithographic sheet and
semi-rigid smoothwall aluminium containers,

Article 1

On condition that the undertakings summarised in recitals 127
to 145 and set out in detail in the Annex are fully complied
with, the concentration by which Alcan Aluminium Limited
(‘Alcan’) acquires, within the meaning of Article 3(1)(b) of
Regulation (EEC) No 4064/89, control of Alusuisse Lonza
Group AG (‘Alusuisse’) is declared compatible with the com-
mon market and the functioning of the EEA Agreement.

Article 2

This Decision is addressed to:

Alcan Aluminium Limited
1188 Sherbrooke Street West
Montreal, Quebec, Canada
Mr David Ausland
Executive Vice-President

Done at Brussels, 14 March 2000.

For the Commission

Mario MONTI

Member of the Commission

L 90/22

EN

Official Journal of the European Communities

5.4.2002

ANNEX

The full original text of the conditions and obligations referred to in Article 1 may be consulted on the following
Commission website: http://europa.eu.int/comm/competition/index–en.html