2002/365/EC: Commission Decision of 11 July 2001 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.2314 — BASF/Eurodiol/Pantochim) (Text with EEA relevance) (notified under document number C(2001) 1856)
Date: 2001-07-11
Institutions: European Commission
Subjects: Belgium, European Economic Area, agreement (EU), chemical product, common market, competition, economic concentration

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 11 July 2001

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

(Case COMP/M.2314 — BASF/Eurodiol/Pantochim)

(notified under document number C(2001) 1856)

(Only the English text is authentic)

(Text with EEA relevance)

(2002/365/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

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), as last amended by Regulation (EC) No 1310/
97 (2), and in particular Article 8(2) thereof,

Having regard to the Commission decision of 27 March 2001
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 12 February 2001, the Commission received noti-
fication pursuant to Article 4 of Regulation (EEC) 4064/
89 (‘the Merger Regulation’) of a proposed concentration
by which the German undertaking BASF AG (BASF)
acquires control of the whole of the Belgian undertak-
ings Pantochim SA (Pantochim) and Eurodiol SA (Euro-
diol) by way of a binding purchase agreement dated 29
December 2000.

(2)

After examination of the notification, the Commission
concluded that the notified operation fell within the
the Merger Regulation. Commitments were
scope of

(1) OJ L 395, 30.12.1989, p. 1; corrected version in 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 116, 17.5.2002.

(3)

(4)

(5)

to Article 6(2) of

offered during the initial phase of the Commission's
investigation pursuant
the Merger
Regulation for the purposes of a first phase clearance
decision. These commitments were not sufficient
to
remove the competitive concerns raised by the merger.
The Commission considered therefore that the operation
raised serious doubts as to its compatibility with the
common market. Therefore, on 27 March 2001, the
Commission decided to initiate proceedings pursuant to
Article 6(1)(c) of the Merger Regulation.

I. THE PARTIES

BASF is a company with world-wide activities in the
production and distribution of speciality chemicals and
other chemical products, health and nutrition products,
oil and gas.

Eurodiol and Pantochim are Belgian companies. Both are
subsidiaries of
the SISAS group, based in Italy and
Luxembourg. Pantochim is active in the production of a
number of chemicals, mainly phthalic anhydride (PA)
and phthalates. Eurodiol is active in the production of
chemicals
1,4-butanediol
gamma-butyrolacton (GBL), N-methylpyrrolidon (NMP)
and tetrahydrofuran (THF).

and BDO-related

(BDO)

On 18 September 2000, Eurodiol and Pantochim were
placed under a pre-bankruptcy regime (concordat judi-
ciaire) by the Court of Charleroi, Court of Commerce
(Tribunal de commerce) Belgium. In the same judgment,
the Court nominated four Court Commissioners
(Commissaires au sursis) to supervise the management of

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(6)

(7)

(8)

Eurodiol and Pantochim during the period of pre-bank-
ruptcy proceedings.
the Italian parent
In addition,
company SISAS SPA, Milano, is in bankruptcy proceed-
ings as well.

II. THE OPERATION AND THE CONCENTRATION

The operation consists in the acquisition of Eurodiol and
Pantochim by BASF by way of a binding purchase agree-
ment concluded on 29 December 2000 between BASF
Antwerpen NV (a wholly owned affiliate of BASF) and
the Commissioners acting for Pantochim and Eurodiol.

The notified operation constitutes an acquisition of sole
control by BASF over Eurodiol and Pantochim and,
therefore, a concentration within the meaning of Article
3(1)(b) of the Merger Regulation.

III. COMMUNITY DIMENSION

The undertakings concerned have a combined aggregate
worldwide turnover of more than EUR 5 billion (4). In
1999, BASF
turnover of
achieved a world-wide
EUR 29,5 billion, whereas Eurodiol and Pantochim had
a combined turnover of EUR 202 million. BASF, Euro-
diol and Pantochim achieved an aggregate turnover in
excess of EUR 100 million in 12 Member States. In
addition, BASF, as well as Pantochim and Eurodiol,
achieved turnover in excess of EUR 25 million in three
Member States (Belgium, Germany and Italy). None of
the undertakings concerned achieves more than two
thirds of its aggregate Community-wide turnover within
one and the same Member State. The notified operation
therefore has a Community dimension within the
meaning of Article 1(3) of the Merger Regulation (see
Table 1).

Table 1

Turnover of BASF and of Pantochim and Eurodiol

in 1999

Country

BASF

(in million EUR)

Pantochim
and Eurodiol

Belgium

Germany

Italy

[...] * (*)

[...] *

[...] *

[...] *

[...] *

[...] *

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

(4) Turnover calculated in accordance with Article 5(1) of the Merger
Regulation and the Commission notice on the calculation of turn-
over (OJ C 66, 2.3.1998, p. 25). To the extent that figures include
turnover for the period before 1 January 1999, they are calculated
on the basis of average ECU exchange rates and translated into EUR
on a one-for-one basis.

(9)

(10)

(11)

(12)

IV. COMPETITIVE ASSESSMENT

A. RELEVANT PRODUCT MARKETS

1. PHTHALIC ANHYDRIDE (PA)

PA is a raw material mainly used for the production of
phthalates as well as alkyd resins and unsaturated poly-
ester (UP) resins. PA is sold in flakes or in molten form.

The parties submit that PA forms a relevant product
market and they have provided data on this basis. This
market definition has been broadly confirmed by the
market investigation of the Commission.

2. PHTHALATES

Phthalates are diesters from the respective alcohol and
PA. Because of their different characteristics phthalates
can be further subdivided into standard phthalates and
short-chain phthalates. However, the notifying parties
submit, that there would be only one relevant product
market, since it would be possible at least for a certain
part of the European producers to switch the production
process from standard to short-chain phthalates.

In particular the parties argue that the extent of the
necessary adjustments would depend on the respective
plant design. An esterification unit designed and used for
the production of standard phthalates would have to be
only adapted regarding the alcohol removal and purifica-
tion section. The purification section would only require
some minor modifications of the piping. The parties
adjustments have been
submit
performed,
the esterfication unit would be able to
produce the various types of phthalates with a shut
down period of two to three days. The costs of such
adjustments would amount to about 5 % of the costs of
a new plant.

these

after

that,

(13) Most replies to the market investigation carried out by
that a market definition
the Commission suggest
including standard and short chain phthalates would be
too wide. Competitors of BASF have submitted that the
ability to switch production between standard and short-
chain phthalates is very limited due to the investments
required to produce short-chain phthalates in their
plants. In addition, standard phthalates and short chain
phthalates are used in totally different applications. The
parties
that, depending on the
balance of polarisable/polar segments of the molecules
and the length of the alkyl chain of the respective phtha-
lates, the solubility and the compatibility with certain
polymers are different. They conclude that
therefore
only phthalates with a short-chain length (i.e. C1 up to
C4) are suitable for applications such as the production
of nitrocellulose or the phlegmatising of peroxides.

themselves

submit

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(14) Due to their different chemical structures, standard and
short-chain phthalates are used in different applications.
Standard phthalates (defined as phthalates on the basis
of C4- or longer alcohol) are often referred to as plasti-
cisers, since about 95 % of the total consumption is used
the
as plasticisers for PVC. The remaining 5 % of
standard phthalates is used as plasticisers in glues, coat-
ings and colours, as inhibitors for peroxides as well as
for the production of nitrocellulosis. The short-chain
phthalates DMP and DEP (phthalates on the basis of C1-
respectively C2-alcohol) are used as plasticisers in the
production of cellulose esters, as inhibitor/stabiliser for
peroxides, as fixing agent in cosmetic articles and as
diluent for fragrances.

(15)

For the purpose of the present case it can be left open
whether standard phthalates and short-chain phthalates
form two separate product markets or a single product
market, because competition concerns do not arise in
either case.

3. 1,4-BUTANEDIOL (BDO)

(16)

BASF submits that BDO is used as a raw material for the
production of BDO-based chemicals, namely
the
solvents gamma-butyrolacton (GBL), N-methylpyrro-
lidon (NMP) and tetrahydrofuran (THF) as well as N-
vinylpyrrolidon (NVP), poly-vinylpyrrolidon (PVP), poly-
tetramethylen-etherglycol
(PTMEG), polybutylentereph-
thalat
(PBT) and polyurethanes (PUR). According to
BASF, at present, BDO is commercially produced by
four different processes, on the basis of acetylene, buta-
diene, propylene oxide as well as butane. However, in
the opinion of BASF BDO forms one single product
market.

(17)

Third parties have confirmed the market definition
suggested by BASF. According to them BDO is, by its
chemical properties and characteristics, a product of its
own and cannot be substituted by other products. The
alternative processes which can be used to produce BDO
do not influence the basic properties of the product —
the final product stays the same.

(18) On the basis of the foregoing the Commission considers

BDO to be a relevant product market.

(PC),
dimethylacetamid (DMAC), propylenecarbonate
dimethyl sulphoxide (DMSO)) as well as methylene-
chloride.

(20)

Special solvents represented only a small part of the
total organic solvents market in the European Union
(1999). The market for special solvents, BASF states, is
broadly split. There are more than 20 different compa-
nies on the market, none of which can offer
the
the respective products. However
complete range of
these products are said, by BASF,
to constitute one
market, as significant competition arises from different
solvents depending on their various applications.

(21)

The applications of special solvents, as listed by BASF,
are: electronic and paint stripping, process chemicals,
purification/cleaning, agrochemical and pharmaceutical
industry.

(22)

BASF provides a list of substitution possibilities within
each of these major applications identified. In the elec-
tronic sector NMP-based photo-resist
for
example, compete heavily against alternative strippers
based on DMSO, hydroxylamine, ethyllactate, PGMEA,
etc. In addition, BASF also argues that new technologies,
which are under development, may lead to a future
substitution of GBL, NMP and THF.

strippers,

(23)

For coatings and paint-stripping applications, BASF
explains that NMP is for paint-stripping purposes, for
example, competing against […]*.

(24)

For process chemical applications, BASF considers NMP
substitutable with a wide range of alternative systems
and products, e.g. […]*. For cleaning applications, BASF
states that, based on the nature of the material, which
has to be cleaned, a wide range of products is used such
as […]* and so forth. For life science applications, there
is competition from different technologies and ongoing
reformulation. BASF highlights an example where THF
was substituted […]*.

4. BDO-RELATED PRODUCTS (GBL, NMP AND THF)

(19)

BASF submits in the notification that the products GBL,
NMP and THF belong to a wider market of special
solvents. This market definition also includes certain
(propylene glycol monomethyl
oxygenated solvents
(DMF),
acetate
ether

(PGMEA), dimethylformamide

(25) According to BASF these examples indicate that solvents
of all the categories mentioned (special solvents, other
oxygenated solvents, other organic solvents as well as
non-organic solvents) are interchangeable to a certain
degree and therefore could be regarded as one relevant
product market. BASF, however, has assumed that the
subsection termed ‘special solvents’
forms a separate
relevant product market for the purpose of the noti-
fication.

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(26)

The notification, however, concerns BDO-related solvents (GBL, NMP and THF) in particular, which
are the products produced by Eurodiol and BASF. There are only a handful of companies active in
the production of BDO-related solvents and most of these produce all the products. For BASF,
Eurodiol and most other companies active in the production of BDO-related products, the produc-
tion process allows the production of all three products, as well as BDO, in a joint production
process. Chart 1 and chart 2 below represent a simplified outline of how the production processes
operate with different technologies. Some other producers use different technologies from those
shown here. BASF identified four different
technologies in the notification, but generally the
technologies are able to produce the full range of products.

Figure 1

The BASF-process

Figure 2

The Eurodiol-process

(27)

(28)

(29)

The BASF process is the ‘Reppe’ process, which is a
relatively mature technology, based on acetylene and
formaldehyde. The Eurodiol process is on the basis of a
recently invented technology, using butane and MA as a
raw material. Third parties have stated that this produc-
tion process has to be considered as a ‘low cost’ tech-
nology. It can be seen from the Figures 1 and 2 that, in
the BASF process, GBL and THF are derived from BDO
whereas, in the Eurodiol process, BDO is derived from
GBL. The term ‘BDO-related products’ will therefore be
used in this decision when referring to GBL, NMP and
THF.

The Commission has examined whether BDO-related
products should be considered together with other
non-BDO-related special solvents, as suggested by BASF,
separately from other non-BDO-related special solvents
or individually as separate product markets.

The market investigation carried out by the Commission
did not confirm the market definition suggested by
BASF. According to third parties the product-groups of
BDO-related products are distinct from other special
solvents and form separate product markets. The vast
majority of customers did not support the claim that

there is substitutability with regard to GBL, NMP and
THF, either among the products concerned or by any
other solvents. The specific technical properties and
different applications do not, in practice, permit replace-
ment of one of the products involved by other chemi-
cals.

(30)

Third parties highlight that substitution possibilities are
very restricted, in particular for the pharmaceutical and
the
agrochemical business. A large proportion of
merchant market for BDO-related products is used in
the pharmaceutical and agrochemical businesses.
In
Europe, production for the merchant market in these
business sectors accounts for approximately [50 to
70 %]* of GBL, about [40 to 60 %]* of THF and around
[10 to 30 %]* of NMP.

(31) GBL is primarily […]* used to manufacture NMP. In this
process there are no substitutes for GBL. It is also used
in the manufacture of pharmaceuticals and agrochemi-
cals and as a solvent. In these applications, according to
third parties, GBL is the obvious choice because it has
superior performance compared to other solvents and/or
lower cost.

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(32) NMP is a powerful solvent for most commercial resins.
Due to its high boiling point and excellence solvent
power NMP exceeds and improves the properties of high
temperature bake coatings. NMP is also used in electro-
nics markets for stripping and cleaning. Furthermore, it
is used as a reaction solvent in a wide variety of chemis-
tries, for agrochemicals, electronics and petrochemical
processing.

sive than THF. By 1999, however, price differences had
narrowed to just under 5 %. Furthermore, during the
period between 1997 and 2000 when the prices of
BDO-related products declined quite substantially in the
EEA, the prices did not decline to the same extent for all
for
products. The price charged by BASF for THF,
example, fell by just over 25 % whereas the NMP price
fell by nearly 40 %.

(33) One of the principal applications of NMP is the produc-
tion of wire enamel, and [20 to 30 %]* of NMP
produced worldwide is used as a wire enamel solvent. A
potential substitute for NMP in this application has been
identified, by third parties, as cresols. However, the use
of cresols in wire enamel applications is anticipated to
decrease considerably in the near future as a result of
environmental pressure. Generally, NMP is more expen-
sive than its substitutes and is therefore only used where
its performance is much better than the substitutes or
health and safety issues are important.

(34) Most [> 70 %]* of the THF production is used in the
production of PTMEG, which is used in elastomers and
elasthan stretch fibres. For this application THF cannot,
according to third parties, be substituted for by other
products. The remaining THF [< 25 %]* is used as
solvent in PVC cements and coatings and as a reaction
applications,
solvent
according
superior
performance to other solvents and a lower cost, and will
therefore be the obvious choice for consumers.

third party, THF has

in pharmaceuticals.

In these

to a

(35) Demand-side factors therefore suggest few, if any, substi-
tution possibilities between GBL, NMP and THF. Third
parties have said that even if substitution was generally
possible from a chemical point of view, it would be very
time consuming and cost intensive. Any substitution in
this field would require expensive research to find and
test other suitable products, it would involve industrial
trial of the modified process to be undertaken and it
would take a long time to obtain the necessary author-
isation from administrative bodies. Furthermore, BDO-
related products are generally ordered individually, and
for each product are quite
the demand structures
different. The majority of customers consulted in the
market investigation did not consume all three BDO-
related products. The prices charged by BASF for the
BDO-related products are also different. In 1997, for
example, GBL and NMP were up to 30 % more expen-

(36)

Besides different specific properties and performances of
the individual substances, third parties have pointed to
the regulatory requirements imposed by national or
Community health authorities (5), which make reformu-
lation and substitution cumbersome.

(37) No third party consulted in the market investigation was
aware of any ongoing development of technologies for
future substitution of GBL, THF and NMP.

(38)

It is therefore concluded that GBL, NMP and THF form
separate and distinct product markets.

B. RELEVANT GEOGRAPHIC MARKETS

(39)

(40)

(41)

1. PA

the adjacent east European countries

The notifying parties submit that the relevant geographic
market for PA is at least EEA wide. They further believe
that
(Poland,
Hungary, Slovenia,
the Czech and Slovak Republics)
form part of this relevant geographic market. For these
countries there are no barriers to trade with the EEA,
and the prices tend to follow EEA prices. This definition
has been largely confirmed by the Commission's invest-
igation.

is not necessary to further delineate the relevant
It
geographic markets because, in all alternative geographic
market definitions considered, effective competition
would not be significantly impeded in the EEA or any
substantial part thereof.

2. PHTHALATES

The notifying parties submit that the relevant geographic
market for all phthalates is at least EEA wide. They
further believe that the adjacent east European countries
(Poland, Hungary, Slovenia,
the Czech and Slovak
Republics) form part of this relevant geographic market.
For these countries there are no barriers to trade with
the EEA, and the prices tend to follow EEA prices. This
definition has been largely confirmed by the Commis-
sion's investigation.

(42)

It
is not necessary to further delineate the relevant
geographic markets because, in all alternative geographic
market definitions considered, effective competition
would not be significantly impeded in the EEA or any
substantial part thereof.

(5) See for example Council Directive 75/319/EEC of 20 May 1975 on
the approximation of provisions laid down by law, regulation or
administrative action relating to proprietary medicinal products (OJ
L 147, 9.6.1975, p. 13). Directive as last amended by Directive
2000/38/EC (OJ L 139, 10.6.2000, p. 28).

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3. BDO AND BDO-RELATED PRODUCTS (GBL, NMP AND

THF)

(43)

BASF considers that the relevant geographic markets for
the manufacture and sale of BDO and special solvents
include at least western Europe (EEA plus Switzerland).
This is because customers purchase BDO and special
solvents from suppliers which are located in different
Member States. In addition, transportation costs are not
considered to represent a material barrier to trade. BASF
therefore believes that the relevant geographical markets
are broader than western Europe, and include eastern
Europe, owing to the absence of trade barriers with
and limited transportation costs.
western Europe
Furthermore, storage of BDO and special solvents does
not, due to its unlimited durability, represent an obstacle
to trade within the European market. Finally, BASF states
that prices for comparable quantities within the relevant
market are comparable with only small differences.

(44)

Third parties confirmed the submission of BASF in so
far that there are no special customer preferences as to
the products. Quality is
the geographic origin of
comparable for all suppliers, except for the east Euro-
pean suppliers, and durability seems not to be a partic-
ular problem of the concerned markets.

(a) The main producers and trade flows

(45)

(46)

four products

SISAS produces BDO, GBL, NMP and THF in Belgium at
Eurodiol, and BASF produces all
in
Germany and in the United States, but also produces
BDO in Japan and Korea and THF in Japan. The compet-
itors are located either in Europe or in the United States.
International Speciality Products Inc. (‘ISP’) produces all
four products in the United States, and also produces
BDO and THF in Germany. Lyondell Chemical Company
(‘Lyondell’) produces all
four products in the United
States. In addition, DuPont de Nemours International SA
(‘DuPont’) has facilities in Spain for THF and GBL (only
for captive use) and in the United States for BDO and
THF.

In 2000 there were, according to BASF, significant
exports of BDO to the United States [20 kt to 40 kt]*
and only limited imports [1 kt to 5 kt]*. There were
significant imports of GBL [1 kt to 10 kt]* and NMP
[5 kt to 20 kt]* to Europe from the United States, but
exports were negligible from Europe to the United
States. For THF there was a trade flow of about [1 kt to
5 kt]* in both directions. Not all of the imported goods,
however, were sold on the merchant market; some were
used captively in intra-company transfers.

(47)

Exports from Europe to Asia during 2000 were esti-
mated by BASF as follows: [1 kt to 5 kt]* for BDO,
[1 kt to 5 kt]* for GBL, [1 kt to 10 kt]* for NMP and
[1 kt to 10 kt]* for THF. During the same period […]*.
In addition, third parties have said that products from

Asia are not competitive on price, which further
suggests
these producers do not constitute a
competitive restraint. Asian producers were therefore
not considered further in the analysis.

that

(48) Despite the absence of any obvious import barriers
between eastern Europe and the EEA only limited
imports have been identified either by BASF or in the
market investigation carried out by the Commission. In
eastern Europe there are three producers, namely […]*.
Several customers stated in the market investigation that
the products produced in eastern Europe are of inferior
quality and that manufacturers are not able to supply on
a reliable basis. Furthermore, most of the customers did
not know of any eastern European suppliers or said that
they had not been approached by any such suppliers. Up
to now there have only been minimal imports of GBL
and NMP […]*. BASF claims that there are […]* some
quantities of THF from eastern Europe sold on the EEA
market, but the market investigation did not reveal a
single THF customer using THF from eastern Europe.

(49) Whilst there may technically be few barriers to trade, the
Commission has little evidence to suggest that eastern
European producers have any restraining influence on
the EEA markets for BDO, GBL, NMP and THF. The
Commission therefore does not consider eastern Europe
as part of the relevant market. Instead, owing to the high
level of trade flow from the United States to the EEA the
Commission has considered whether the market may be
wider than the EEA. The extent to which the conditions
of competition are appreciably different in the United
States as compared to the EEA has therefore been
considered in detail.

(50)

In 1999 and 2000 the EEA markets for BDO, GBL, NMP
and THF were characterised by four players BASF, Sisas,
ISP and Lyondell. The same four players were present on
the United States markets. For GBL and NMP, a substan-
tial proportion of the EEA market [> 30 %]* is produced
in the United States whereas for BDO and THF only [1
to 10 %]* originate from the United States.

(51) During 1999, when the Eurodiol plant in Feluy became
fully operational for producing all four products (BDO,
GBL, NMP and THF), prices in the EEA fell sharply.
Importers were unable to meet this sharp decline in
prices, their products became less competitive and sales
of United States producers fell during 1999. In 2000,
GBL importers' prices were between [1 % and 30 %]*
higher than BASF,
for THF the prices were [5 % to
15 %]* higher and for NMP they were [1 % to 10 %]*
higher. For BDO no significant price differences between
European producers and importers could be found.

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(52)

There are also substantial freight costs and duties for
import from the United States and Asia which limit
imports into the Community. At present the duty on
BDO is 7,8 % while it is 6,5 % for GBL, NMP and THF.
The market investigation has shown that the additional
costs as a result of both transport and duties can reach
up to 20 % of
the final product price (clearly this
proportion has increased when prices declined). In addi-
tion, the EUR–USD exchange rate also moved to make
imports into Europe more expensive in recent years.

(53) Despite the price differences of imported goods, the level
of imports recovered in 2000. Customers have indicated
that they prefer to have dual sources of supply as this
allows them greater flexibility and secures supply in the
event that one producer is unable to supply on a regular
basis. The present shortage of BDO and all BDO-related
products in addition to some stickiness in switching
suppliers caused by long-term contracts and supply rela-
tionships in other product markets, may have prevented
the sharp decrease in imports which one would other-
wise have expected.

(b) Prices

(54)

The decline in the price level
in the EEA was not
mirrored to the same extent as in the United States.
Table 2 highlights in percentage terms the price changes
for BDO, GBL, NMP and THF in the different locations
from 1998 to 2000.

Table 2

The relative change in prices in the EEA and in the United States
between 1998 and 2000

Price fall in the EEA

Price fall in United States

BDO

[30 %-50 %] *

Changed between
[–30 % and +20 %] *

GBL

NMP

THF

[40 %-60 %] *

Unaffected

[30 %-50 %] *

[10 %-30 %] *

(60)

[20 %-50 %] *

[< 20 %] *

(57)

The Commission considers the evidence that the sharp
price decline in the EEA was not mirrored in the United
States, to a substantial degree, in any of the four markets
indicates that the geographical scope of these markets
are not subject to conditions of competition which are
sufficiently homogenous in the United States and in the
EEA. Therefore, the United States markets should be
distinguished from the EEA markets and should not be
considered further in this analysis. This conclusion is
supported by the widening price differentials for all four
products and the barriers to importing between the
United States and the EEA-markets.

(c) Conclusion

(58)

It may therefore be concluded that the EEA is the rele-
vant geographic market for BDO, GBL, NMP and THF.

C. ASSESSMENT

(59)

For the purpose of this decision the data used for the
assessment of the competitive situation is mainly from
1999. This is because Pantochim and Eurodiol experi-
enced financial difficulties in the second half of 2000,
which severely limited their output as shown in Table 3.

Table 3

Eurodiol production 2000 in tonnes

January-June
2000

July-December
2000

% decline

BDO

GBL

NMP

THF

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

The decline in output from the first half of 2000 to the
second half was most extreme for NMP but the produc-
tion of GBL and THF also decreased significantly. There-
fore, it would be misleading to use the year 2000 sales
figures, given that it would not fully reflect the market
position Eurodiol had.

(55) As shown in Table 2, the price changes in the United
States were only to a limited extent, if at all, influenced
by prices in the EEA. This provides a strong indication
that prices in the EEA for BDO and related products are
not restrained by prices charged in the United States.

(56)

Furthermore, before the prices for BDO and related
products began to fall in the EEA there were negligible
price differentials between the EEA and the United States
in the product markets for NMP and GBL, while for THF
the price difference was in the range of 10 % to 20 %. By
2000 the price differentials became wider with the
largest price differential
[…]* observed in the GBL
market whereas the smallest price differentials were in
the BDO […]* and THF […]* markets.

1. PA

(61)

The activities of the parties overlap in the production of
PA, which is mainly used for the production of phtha-
lates as well as for saturated and unsaturated polyester
resins. Some of the big producers of PA are vertically
integrated in the downstream markets. Thus, approxi-
mately 50 % of the overall production in the EEA goes
into captive use. In 1999 BASF used about 87 % of its
PA production as a raw material for other products,
whereas Sisas used 36 % of its output for the production
of downstream products.

L 132/52

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(62) On the free market for PA, the parties would hold a
post-merger market share of 14 % (BASF 4 %, Panto-
chim 10 %). The notifying parties face competition from
Atofina (15 %), Atmosa (11 %) and Lonza (11 %).

(63)

In view of the relatively low market share of BASF
following the operation and the existence of substantial
competition by a number of major manufacturers,
it
may be concluded that
the operation does not rise
competition concerns as to its compatibility with the
Common Market in the market for PA.

2. PHTHALATES

(a) Market for phthalates

(64)

BASF produces both short-chain phthalates as well as
standard phthalates, while Pantochim only produces
standard phthalates. Therefore, the only overlap of the
activities of the parties is in the area of standard phtha-
lates.

(65) On an overall market comprising both standard and
short-chain phthalates BASF will have an EEA-wide
market share of 26 % (BASF 19 %/Pantochim 7 %) after
It faces competition mainly from Exxon
the merger.
(28 %) and Oxeno/Degussa (10 %), while a number of
other manufacturers (Atofina, BP, Lonza and Neste) have
market shares between 5 % and 7 %.

(66) After the merger, BASF will have a market share roughly
equal to Exxon on a market for all phthalates. Addition-
ally, there is a number of large international companies
like Atofina, Degussa, Lonza and Neste active in the
market to ensure competition after the merger.

(67)

Therefore, in view of the foregoing, it may be concluded
that competition concerns are unlikely to arise on a
market of all phthalates.

(b) Market for standard phthalates

(c) Market for short-chain phthalates

(71) On the narrower market

for short-chain phthalates,
BASF has a market share of 18 %.
the
parties submitted that their activities do not overlap
since in Feluy only standard phthalates are produced.

In addition,

(72) On the basis of the foregoing it may be concluded that
competition concerns do not exist on a narrower market
for short-chain phthalates.

3. BDO

(73)

(74)

Following the operation the parties will attain a market
share of [35 % to 45 %]* in the EEA (BASF [20 % to
30 %]*; SISAS [15 to 25 %]*). The market leader with
the highest market share ([45 % to 55 %]*) remains ISP.
Lyondell ([5 % to 15 %]*) and Du Pont ([< 5 %]*) are
also active in the market. Given the strength of ISP, the
operation would be unlikely to lead to single dominance
of BASF.

The operation is also unlikely to lead to the creation of a
collectively dominant position, although BASF and ISP
will have an aggregated market share of > 80 % after the
merger and the takeover of SISAS will reduce the
number of key players on the market from four to three.
Several features of the BDO market militate against the
likelihood of collective dominance of BASF and ISP.

(75) Market prices have come down significantly within the
last three years due to strong price competition and the
market entry of SISAS in 1998. The market shares of
BASF and ISP have changed continuously, showing
declining shares for ISP ([…]*) and high volatility for
BASF ([…]*). Following price competition the margins in
the BDO market have been depressed significantly and
SISAS had to exit the market facing heavy losses.

(68)

The activities of
the parties overlap in the area of
standard phthalates. Since some 98 % of all phthalates
are standard phthalates the market situation is very
similar to the situation of the broader market for all
phthalates.

(76)

(69) On a narrower market of standard phthalates BASF will
have an EEA-wide market share of 26 % (BASF 19 %/
Pantochim 7 %) after the merger. They face competition
mainly from Exxon (28 %) and Oxeno/Degussa (10 %),
while a number of other manufacturers (Atofina, BP,
Lonza and Neste) have market shares between 5 % and
7 %. Given the particular strength of Exxon and Oxeno/
Degussa BASF will face strong competition after the
merger.

(70)

In view of the foregoing,
it may be concluded that
competition concerns are unlikely to arise on a market
for standard phthalates.

in case of an accident,

Third parties have submitted to the Commission that
prices depend strongly on the quantities available for the
market. Although the market
is expected to grow
considerably it is difficult for the producers to adapt to
short term changes in demand for BDO. The minimum
size of a (new) plant is considerable. Given that the
production capacities are concentrated in a few produc-
tion plants any intermediate shut down of capacity, for
induces enormous
example,
effects on prices. On the other hand, third parties expect
that the creation of new capacity in the market would
lead to strong price competition. Third parties have
confirmed the partys' submission that a new production
plant, built up by Lyondell in the Netherlands with a
capacity of about 125 kt, will be operational in the first
half of 2002. The market investigation has shown that
customers expect continuous price competition induced
by the increase of capacity following the investment of
Lyondell.

17.5.2002

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Official Journal of the European Communities

L 132/53

(77)

commercially produced by four different
BDO is
processes: ISP and BASF (in Ludwigshafen) both apply
the condensation of acetylene with formaldehyde and
following hydrogenation.
In Feluy BDO is produced
[…]* (in a different way).

(81) GBL and NMP are both solvents, they are relatively
non-toxic and almost 100 % recoverable and recyclable.
Both solvents offer broad solubility for resins with good
chemical and thermal stability combined with complete
water solubility. THF is a solvent with a high solvency
for PVC and polyurethanes. It is, like GBL and NMP, also
almost 100 % recoverable and recyclable.

(78) On the basis of the foregoing, it may be concluded that
lead to competition

the notified merger would not
concerns for the market of BDO.

4. BDO-RELATED PRODUCTS (GBL, NMP AND THF)

(79)

(80)

BASF and Eurodiol are both active in the production of
GBL, NMP and THF and have significant sales on the
merchant markets. Prior to the proposed concentration
BASF was the strongest player in the EEA markets for
GBL, NMP and THF.

The BDO market is in short supply owing to growing
demand coinciding with lower levels of production than
expected by Eurodiol […]*. This shortage, however, does
not appear to have influenced the production of GBL,
NMP or THF to any significant extent. Although GBL is
derived from BDO,
in most processes, there is little
indication that BDO intended for GBL or THF produc-
tion has been diverted onto the BDO merchant market.

(a) GBL

(82)

BASF estimates that the main GBL applications on a
worldwide basis in 1999 were in agrochemicals and
pharmaceuticals ([…]*) and electronics ([…]*). In Europe
the importance of GBL for
specific segments was
different with pharmaceuticals accounting for the main
application ([…]*). This is because the electronics market
is heavily concentrated in Asia and the United States and
the production of specific pharmaceuticals and agro-
chemicals is mainly done in Europe.

(83) GBL is primarily used ([…]*)

in the manufacturer of
pyrrolidones (VP, PVP and particularly NMP). […]*. (6) (7)

(84)

In the notification BASF estimates that the merchant
market in the EEA for GBL was worth EUR [10 to 20
million]* in 1999, accounting for [5 kt
to 10 kt]*.
According to BASF,
the worldwide GBL capacity,
merchant sales in the EEA and market shares (volume
based) in 1999 were as shown in Table 4.

Table 4

World GBL (capacity, EEA sales and market shares on the merchant market (BASF estimates for 1999)

GBL

BASF (Germany)

BASF (United States)

Eurodiol (Belgium)

Combined

ISP (United States)

Lyondell (United States)

DuPont (Spain)

Mitsubishi (Japan)

[...] * [others]

[...] * [others]

Capacity
kt/year

EEA merchant
sales in kt

EEA market
share

[...] *

[...] *

[...] *

[...] *

[...] *

30

30

40

100

41

20

45

10

5

5

Total

226

[...] *

(6) […]*.
(7) […]*.

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

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(85)

(86)

(87)

BASF estimates its market share in 1999 to be [35 % to
45 %]* (in terms of volume) and [35 % to 45 %]* (in
terms of value). Eurodiol's market share accounted for
[25 % to 35 %]* (in terms of volume) and [20 % to
30 %]* (in terms of value). Based on these estimates the
merger would combine the two leading companies in
the market for GBL achieving [60 % to 70 %]* of the
market shares (in terms of volume and value).

The market investigation carried out by the Commission
has broadly confirmed the GBL capacity figures outlined
in Table 4. Furthermore, capacity has been stable and
has not increased in the past three years. With respect to
market shares, however, BASF have slightly overstated
the sales of Eurodiol, the combined market share, esti-
mated by the Commission, was therefore around [50 %
to 60 %]* (in volume terms) in 1999. Figures for 2000
indicate a slight
in market share bringing the
combined share closer to [50 % to 60 %]*. The next
largest competitor sells less than half the amount in the
GBL merchant market. Information on sales over time
(1997 to 2000) has according to BASF seen Eurodiol
gaining market share at the expense of BASF's competi-
tors, and the market investigation has broadly confirmed
this trend.

fall

Following the proposed merger the new entity would be
the only producer in the EEA selling GBL on the
merchant market. BASF would control [40 % to 50 %]*
of world GBL capacity with its main competitors
producing for the merchant markets located in the
United States. Whilst there are some small capacities in
eastern Europe […]* the Commission has not received
any evidence that GBL has been imported into the EEA.
BASF has not identified any sales from eastern Europe
into the EEA nor has it been able to indicate the extent
to which the GBL produced is used captively for NMP
production. None of the customers consulted in the
market investigation have claimed to be buying GBL
Furthermore,
from eastern
customers have stated that east European products are of
inferior quality and the producers are not able to
provide a timely and reliable supply.

producers.

European

(88)

investigation has also indicated that all
The market
producers, except for Eurodiol, are producing at or near
full capacity. In addition, there is no indication of new
capacity being built in Europe for GBL in the foreseeable
future. […]*, which is due to start BDO production in
the beginning of 2002. However, it has been publicly
stated that Lyondell has postponed its plans to extend
this plant for the production of the BDO-related prod-
ucts. Furthermore, Lyondell estimates that once the
decision to enter has been taken it would take a signifi-
time to enter into real commercial production.
cant

(89)

(90)

(91)

(92)

Lyondell's potential entry can therefore not be relied on
to represent a competitive restraint on the merged
entity.

BASF also expects the Mitsubishi plant
in Japan to
undertake a de-bottleneck of its GBL capacity in the
beginning of 2002. This, according to BASF, would
increase capacity at the Mitsubishi plant from […]*.
There were, however, in 2000 no imports from Asia,
and during this period Europe and America were net
exporters to Asia. Furthermore, it is not known to what
extent this capacity is captive or intended for sale in the
Asian merchant market. Finally, BASF has also suggested
that DuPont could enter the GBL market. However,
DuPont is not producing GBL for the merchant market.
There is no evidence to support that DuPont is likely to
enter the GBL merchant market in the near future.

In the market investigation, producers have stated that
they are not able to quickly raise production without
incurring substantial additional capital cost. The extent
to which producers are willing to switch their captive
production to the merchant market has therefore been
examined. None of the producers stated that they would
switch from captive production to sale on the merchant
market in response to a 10 % increase in permanent
relative prices, nor would they change their production
mixes (the extent to which this is possible would also be
limited by the lack of excess capacity). It seems reason-
able to conclude therefore that products, which are at
present used in captive production, are unlikely to be
placed for sale on the merchant market. Captive produc-
tion does therefore not represent a competitive restraint
on the prices of GBL in the merchant market.

In February and March 2001 Eurodiol was using just
over [50 % to 70 %]* of capacity available for GBL
production. BASF predicts that by 2003 it will produce
[35 kt to 50 kt per annum]* at the Feluy plant which is
equivalent to full capacity. Of this production [20 kt to
30 kt per annum]* will be for captive use for NMP and
the remainder will be used at Ludwigshafen for captive
use for Pyrrolidone, which indicates that all production
is expected to be for captive use.

The Commission has during the investigation explored
the extent to which BASF may change its production
mix at its plants post merger. The production process at
if operated efficiently, should be able to
Eurodiol,
produce GBL more cheaply than at BASFs other plants.
[…]*. Similarly, BDO production would be more expen-
sive using the Eurodiol process than at Ludwigshafen. It
is therefore possible that, after the merger, BASF would
concentrate on the BDO-related products at the Feluy

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L 132/55

plant and BDO production at Ludwigshafen. […]*, irres-
pective of its future plans BASF would by acquiring a
different technology become more flexible to respond to
changes in demand of BDO and BDO-related products.

These have national activities, one production site and
require bulk and/or drum deliveries.

(93)

(94)

(95)

(96)

(97)

(98)

(99)

The market investigation carried out by the Commission
has shown that, with the exception of eastern European
producers, there are no consumer preferences regarding
the origin of GBL. Moreover,
is
currently said to be very short of GBL. BASF estimates
that imports into Europe arose only from America, and
to 10 kt]* in 2000. BASF was
amounted to [1 kt
responsible for [1 kt to 5 kt]* of these imports which
was used for captive production of NMP and Pyrrolidone
at the Ludwigshafen plant. BASF's own sales on the
merchant market were [1 kt to 5 kt]* in 2000.

the EEA market

Imports from the United States and Asia are, however,
subject to significant duties for importing and according
to third parties, transportation and duties account for up
to 20 % of the actual product price. Nevertheless, price
data provided by importers indicated that their products
were at most 15 % more expensive in 1999 than BASF's
prices for GBL. This price difference was virtually elimi-
nated by 2000.

Third parties have also stated, however, that market
entry is difficult and risky, and that the construction of a
new production facility requires considerable investment
and is subject to proven technology that is cost effective.
Moreover, to make a production facility profitable high
capacity utilisation is needed. Since most key customers
suppliers, building a
their
require
customer base is a time consuming process. In the last
five years Eurodiol has been the only market entrant in
the EEA. According to third parties, Eurodiol's troubles
were caused by its failure to gain market share to enable
it to cover its costs.

certification of

in the market

sales. Customers,

The GBL customer structure on its own appears similar
with only a few very large customers (type A and B)
which together represented around [40 % to 60 %]* of
total
investigation,
considered that they do not have buyer power because
GBL has been in short supply for some time and there is
little choice of whom to buy from. Should supply
become more abundant, however, some key customers
do believe that
they would have bargaining power.
These customers in particular purchase other non-
related products from BASF and their GBL expenditure
is likely to be small in relation to these expenditures on
other products.

[…]*. The Commission's market investigation has fore-
casted a market growth of between 3 % and 5 % per
year. With most manufacturers producing at or near full
capacity and not having an economic incentive to sell
capacities used captively on the merchant market, it is
unlikely that the growth in demand can be satisfied by
BASF's competitors (see recitals 90 and 95).

It would therefore appear that the new entity would be
in a better position than its competitors to meet the
demand growth. Although BASF indicates that it intends
to use the […]*. BASF would therefore be able to divert
volume onto the merchant market once production
increased at the Eurodiol plant. In addition, given that
the GBL merchant market is very small compared to the
capacity available, only a small proportion (less than
1 %) of capacity would need to be diverted onto the
merchant market to meet demand growth. Despite this
it would be very difficult for competitors to increase
their sales further given their present captive demand,
since they have no economic incentive to switch from
captive production to sales on the merchant market.
This is not the case for BASF, which will have the
flexibility, obtained by acquiring new capacity and a
different technology.

BASF states that customers for special solvents are
broadly split with some important customers being large
international players. It segments its customers into A/
B/C-type customers. Type A customers are active on a
global basis, have various production sites in Europe/
worldwide and require large bulk deliveries. For special
solvents type A customers consume more than […]*. In
1999 type A customers represented only […]* of BASF's
customer base. Type B customers have regional activities
and require bulk deliveries and most have more than
one production site. For special solvents this type of
customer consumes […]* and in 1999 represented […]*
of BASF's customer structure. The remaining […]* of
customers were type C which purchase less than […]*.

Conclusion for GBL

(100) The proposed operation would, therefore, combine the
only two EEA-wide producers, selling GBL on the
merchant market, resulting in a strong market position.
Customers will have little choice of where to buy their
future increasing GBL requirements. It may therefore be
concluded that the proposed operation is likely to result
in the creation of a dominant position of the parties in
the market GBL in the EEA.

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(b) NMP

States and the wire coatings market is dominated by
European producers.

(101) On a worldwide basis BASF estimates that NMP was
used in 1999 mainly for electronics [10 % to 30 %]*,
coatings [10 % to 30 %]*, and process chemicals [10 to
30 %]*, cleaning [10 % to 30 %]* and agrochemicals
[10 % to 30 %]*. Within Europe the main areas of
application were
different with coatings
accounting for [10 % to 30 %]* and process chemicals
and agrochemicals accounting for just below [10 % to
30 %]* each. The difference arose because the electronics
market is heavily concentrated in Asia and the United

slightly

(102) NMP is produced from GBL and in all processes, BASF
estimates that one tonne of GBL can produce approxi-
mately [0,5 t to 2 t]* of NMP.

(103) BASF estimates, in the notification, that the merchant
market for NMP was worth [EUR 40 million to EUR 60
million]* in 1999 in the EEA, accounting for [20 kt to
40 kt]*. According to BASF,
the worldwide NMP
capacity, merchant sales in the EEA and market shares
(volume based) in 1999 were as shown in Table 5.

Table 5

World NMP capacity, EEA sales and market shares on the merchant market (BASF estimates for 1999)

NMP

BASF (Germany)

BASF (United States)

Eurodiol (Belgium)

Combined

ISP (United States)

Lyondell (United States)

Mitsubishi (Japan)

[...] * ([...] *) [others]

[...] * ([...] *) [others]

Others

Capacity
kt/year

EEA merchant
sales in kt

EEA market
share

15

25

25

65

23

18

8

3

5

Total

122

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

(104) BASF estimates its market share in 1999 to be [35 % to 45 %]* (in terms of volume) and [35 % to
45 %]* (in terms of value). Eurodiol's market share was estimated to account for [10 % to 20 %]* (in
terms of volume) and [10 % to 20 %]* (in terms of value). Based on these estimates the operation
would result in a combined market share in the market for NMP of [50 % to 60 %]* (in terms of
volume and value). The figure for ‘other’ includes NMP recyclers which purchase used NMP from
customers and recycle the material by a running and distillation step. Afterwards the recycled NMP is
according to BASF sold into the NMP merchant market.

(105) The market investigation carried out by the Commission has broadly confirmed the capacity figures
outlined above. Furthermore, capacity has been stable and has not increased in the past three years.
With respect to market shares, however, BASF has slightly overstated the size of the market and the
sales of Eurodiol. In addition, the Commission believes that the significance of recyclers may also
have been overstated. The market investigation has shown that there are no relevant sales of recycled
NMP on the merchant market in Europe. Most recycle firms will treat the used NMP for companies
and return it back to them and as such it is not available on the merchant market. The Commission
therefore considers, based on 1999 figures that the market share of BASF is [35 % to 45 %]* and the
combined market share is [50 % to 60 %]* (in volume terms). The latest figures for 2000 show a
slight decline in the market share although the combined share is still [50 % to 60 %]*. The next
largest competitor has less than half the sales on the merchant market. Information of sales over
time (1997 to 2000) has according to BASF seen Eurodiol gaining market share […]*. The market
investigation has broadly confirmed this trend.

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Official Journal of the European Communities

L 132/57

(106) Following the proposed merger the new entity would be
the only EEA-wide producer selling on the merchant
market. BASF would control over 50 % of world NMP
capacity with its main competitors producing for the
merchant markets located in the United States. Whilst
there are some small capacities in eastern Europe […]*
there is no evidence that significant amounts of NMP
have been imported into the EEA. Although BASF esti-
mates that approximately [< 2 kt]* have been imported
into the EEA from Eastern Europe in 2000, no
customers have claimed to be buying NMP from eastern
European producers. Furthermore, many stated that
Eastern European products are of inferior quality, more
expensive that alternative supplies and that the produ-
cers are not able to provide a timely and reliable supply.

(107) The market

investigation has also indicated that all
producers except for Eurodiol are producing at or near
full capacity. In addition, there is no indication of new
capacity being built in Europe for NMP in the foresee-
able future. […]*, which is due to start BDO production
in the beginning of 2002. However, it has been publicly
stated that Lyondell has postponed its plans to extend
this plant for the production of the BDO-related prod-
ucts. Furthermore, Lyondell estimates that once the
decision to enter has been taken it would take a signifi-
cant
time to enter into real commercial production.
Lyondell's potential entry can therefore not be relied on
to represent a competitive constraint on the merged
entity.

operated efficiently, BASF should be able to produce
NMP more cheaply at Eurodiol after the merger than at
its other plant. […]*. It is therefore possible that BASF
would concentrate on the BDO-related products at the
Feluy plant and BDO production at Ludwigshafen. […]*.
However, irrespective of its future plans BASF would by
acquiring a different technology become more flexible to
respond to changes in demand of BDO and BDO-related
products.

(111) The market investigation carried out by the Commission
has shown that, with the exception of east European
producers, there are no consumer preferences regarding
the origin of NMP. Moreover, the EEA market is very
short of NMP. BASF estimates that imports into Europe
amounted to [5 kt to 15 kt]* in 2000 from the United
States and nothing from elsewhere. BASF was respon-
sible for only [< 2 kt]* of this, which was sold on the
merchant market.

(112)

Imports from the United States and Asia are however
subject to significant duties. According to third parties,
transportation and duties account for up to 20 % of the
actual product price. Nevertheless, price data provided
by importers indicated that their products were at most
10 % more expensive than NMP sold by BASF.

(108) BASF also states that the Mitsubishi plant in Japan is
building new NMP capacity to come on stream in the
beginning of 2002. This, according to BASF, would
increase capacity at the Mitsubishi plant […]*. However,
there were no imports from Asia in 2000, and Europe
and the United States were net exporters to Asia.
Furthermore,
this
capacity is captive or intended for sale on the Asian
merchant market.

is not known to what extent

it

(109) Producers have, in the market investigation, stated that
they are not able to quickly raise production without
incurring substantial additional capital cost. The extent
to which producers are willing to change the production
mix has therefore been examined. Most producers stated
that they would not change their production mix in
response to a 10 % increase in permanent relative prices
for NMP in the EEA. Furthermore, the extent to which a
change in production mix would be possible is also
limited by the lack of excess capacity. Moreover, it is
unlikely that products intended for the United States
market would be switched to the EEA market given that
the price differential was around 50 % in 2000.

(110)

In February and March 2001 Eurodiol was using [20 %
to 40 %]* of capacity available of NMP production.
BASF predicts that by 2003 it will produce [20 kt to
35 kt/a]* at the Feluy plant, which is equivalent to full
capacity. Given the production processes at Eurodiol, if

(113) Third parties have also stated that market entry is diffi-
cult and risky. This is because the construction of a new
production facility requires considerable investment and
is subject to a proven technology that is cost effective.
Moreover, to make a production facility profitable high
capacity utilisation is needed. Since most key customers
require
suppliers building a
customer base is a time-consuming process. In the last
five years Eurodiol has been the only market entrant in
the EEA. According to third parties, Eurodiol troubles
were caused by its failure to gain market share to enable
it to cover its costs.

certification of

their

(114) BASF states that its customers for special solvents are
broadly split with some important customers being large
international players.
It segments its customers into
A/B/C-type customers. Type A customers are active on a
global basis, have various production sites in Europe/
worldwide and require large bulk deliveries. For special
solvents type A customers consume more than […]*. In
1999 type A customers represented only […]* of BASF's
customer base. Type B customers have regional activities
and require bulk deliveries and most have more than
one production site. For special solvents this type of
customer consumes […]* and in 1999 represented […]*
of BASF's customer structure. The remaining […]* of
customers were type C which purchase less than […]*.
These have national activities, one production site and
require bulk and/or drum deliveries.

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(115) The NMP customer

structure on its own appears
different from that of special solvents with customers
more widely dispersed, each representing only a small
proportion of BASF's sales. Given this, there is,
little
evidence of buyer power. Customers in the market
investigation consider that they have no buyer power,
because NMP is in short supply and there is little choice
of whom to buy from. Should supply become more
abundant, however, some key customers do believe that
they would have bargaining power. These customers in
particular purchase other non-related products from
BASF and their NMP expenditure is likely to be small in
relation to expenditure on these other products.

Conclusion for NMP

(118) The proposed operation would, therefore, combine the
only two producers in the EEA, selling NMP on the
merchant market, resulting in a strong market position.
Customers will have little choice of where to buy their
increasing NMP requirements. It is therefore concluded
that the proposed operation is likely to result in the
creation of a dominant position of the parties in the
market NMP on the EEA market.

(116)

[…]*. The Commission's market investigation has fore-
casted a market growth for NMP of 3 % to 4 % per year.
With most producers producing at or near full capacity,
it is unlikely that the growth in demand can be satisfied
by BASF's competitors.

(c) THF

(119) BASF estimates that the main uses for THF sold on the
merchant market are pharmaceuticals [40 % to 60 %]*,
industrial solvents, especially PVC and coatings [20 to
40 %]* and electronics [< 20 %]*. The vast majority of
the THF is however used captively by the producers,
mainly in the production of PTMEG.

(117) On the basis of this it would appear that the new entity
would be in a better position than its competitors to
meet the demand growth. […]*. It is expected that these
volumes are already sold on the merchant market and
that any future increasing capacity would also be
destined for the merchant market.

(120) BASF estimates in the notification that the merchant
market in the EEA for THF was worth [EUR 50 million
to 60 million]* in 1999, accounting for [25 kt
to
the worldwide THF
35 kt]*. According to BASF,
capacity, merchant sales in the EEA and market shares
(volume based) in 1999 were as shown in Table 6.

World THF capacity, EEA sales and market shares on the merchant market (BASF estimates for 1999)

Table 6

EEA merchant
sales in kt

[...] *

EEA market
share

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

[...] *

THF

Capacity
kt/year

BASF (Germany)

BASF (United States)

BASF (Japan)

Eurodiol (Belgium)

Combined

ISP (Germany)

Lyondell (United States)

DuPont (Spain)

DuPont (United States)

Others

Penn Chem (United States)

Mitsubishi (Japan)

PTG (Republic of Korea)

Tonen (Japan)

[...] * [others]

Quihar Qianjin (People's Republic of
China)

30

20

20

33

103

12

16

45

82

54

20

10

9

5

3

Total

359

[...] *

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Official Journal of the European Communities

L 132/59

(121) BASF estimates its market share in 1999 to be [25 % to
35 %]* (in terms of volume) and [25 % to 35 %]* (in
terms of value). Eurodiol's market share accounted for
[10 %-20 %]* (in terms of volume) and [10 % to 20 %]*
(in terms of value). Based on these estimates the opera-
tion would result in a combined market share in the
market for THF of [40 % to 50 %]* (in terms of volume
and value).

(122) The market investigation carried out by the Commission
has broadly confirmed the capacity figures outlined in
Table 6. Furthermore, capacity has been stable and has
not increased in the past three years. The market shares
have also been confirmed by the market investigation.
According to the Commission's investigation, the parties'
market shares in 1999 in the EEA accounted for around
[25 % to 35 %]* (BASF) and around [10 % to 20 %]*
(Eurodiol) resulting in a post-merger market share of
about [40 % to 50 %]*. BASF appears to have underesti-
mated the position of its strongest competitor in the
market, ISP, slightly but the market shares of DuPont
and Lyondell have been broadly confirmed at the levels
estimated by BASF. BASF did not identify the origin of
the remaining [1 kt
to 10 kt]* sold on the EEA
merchant market, nor did the market investigation iden-
tify the source of this volume. The concentration would
therefore result in the market leader merging with the
third largest producer, thereby increasing the gap to the
largest remaining competitor substantially.

tors would be ISP and Lyondell. DuPont, whilst active in
the merchant market, is using most of its production
captively and is only selling small quantities on the
merchant market (8). There are also some small capaci-
ties in eastern Europe (for example, the Russian Federa-
tion, with approximately 5 kt) although there is no
evidence that THF has been imported into the EEA.
BASF estimated that sales from eastern Europe into the
EEA accounted to [1 kt to 5 kt]*, about [< 3 kt]* of the
THF produced in eastern Europe being used captively.
None of the customers consulted in the market invest-
igation has claimed to be buying THF from east Euro-
pean producers. Furthermore, customers have stated that
eastern European products are of inferior quality and the
producers are not able to provide a timely and reliable
supply.

In addition,

for Eurodiol are producing at or near

(125) The market investigation has indicated that all producers
full
except
capacity.
there is no indication of new
capacity being built in Europe for THF in the foreseeable
future. […]*, which is due to start BDO production in
the beginning of 2002. However, it has been publicly
stated that Lyondell has postponed its plans to extend
this plant for the production of the BDO-related prod-
ucts. Furthermore, Lyondell estimates that once the
decision to enter has been taken it would take a signifi-
cant
time to enter into real commercial production
Lyondell's potential entry can therefore not be relied on
to represent a competitive constraint on the merged
entity.

(123)

In 2000 the situation significantly changed on the
market for THF. The parties' combined market share
increased to around [45 % to 55 %]* (BASF around
[25 % to 35 %]*, Eurodiol around [20 % to 30 %]*).
During this period there were significant sales from
Eurodiol to BASF totalling [1 kt to 5 kt]* which have
not been taken into account when calculating the
market shares, as this would result in an inflated post-
merger position. These sales, however, enabled BASF to
increase its sales on the merchant market by [30 % to
40 %]* from 1999 to 2000, an increase from [5 kt to
15 kt]* to [5 kt to 15 kt]*. By 2000 the market share
ISP, had also slightly
of the next largest competitor,
declined. Therefore, since 1999 BASF has improved its
market position considerably and its position after the
merger would be about twice that of its next largest
competitor.

(124) Following the proposed merger the number of produ-
cers in the EEA selling THF on the merchant market will
decline from four to three. BASF would own slightly less
than 50 % of the EEA-wide production capacities for
THF and 45 % of worldwide capacity. Its main competi-

construction by Mitsubishi

(126) BASF has also stated that new THF capacities are pres-
ently under
in Japan
(capacity […]*) coming online in 2002; TCC in Taiwan
(capacity […]*) with an expected start up in 2001;
Dairen in Taiwan (capacity […]*) expected to start in
2002, Nan Ya in Taiwan (capacity […]*) with the start
up in 2001 and finally Quihar Qianjin in China
(capacity […]*) with the start up in 2001. However,
there were no imports from Asia in 2000, and Europe
was a net exporter to Asia. Furthermore, it is not known
to what extent this capacity is captive or intended for
sale on the Asian merchant market.

(127) The market investigation carried out by the Commission
has shown that
there are few consumer preferences
regarding the origin of THF (9). Because of high produc-
tion volumes and low prices in Europe,
imports to
Europe were nevertheless limited. BASF estimates that
imports into Europe amounted to [1 kt
to 5 kt]*
(including [1 kt to 2 kt]* by BASF) in 2000 from the
United States. No imports were reported from other
regions of the world. With exports of [5 kt to 10 kt]*
([…]*) Europe is a net exporter of THF.

(8) DuPont is producing THF in its plant in Asturias (Spain).
(9) The sole exception is that THF produced by Russian manufacturers
is not generally accepted, because west European standards for
quality and supply reliability are currently not met.

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17.5.2002

capital

substantial

therefore, examined the extent

(128) Producers have stated in the market investigation that
they are not able to quickly raise production without
cost. The
incurring
additional
Commission has,
to
which producers are willing to switch their captive
production to the merchant market. None of the produ-
cers stated that they would switch from captive produc-
tion to sale on the merchant market in response to a
10 % increase in permanent relative prices, nor would
they change their production mixes (the extent to which
this is possible would also be limited by the lack of
excess capacity). It seems reasonable to assume therefore
that products, which are at present used in captive
production, are unlikely to be placed for sale on the
merchant market. Captive production does therefore not
represent a competitive restraint on the prices off THF in
the merchant market.

and require bulk deliveries and the majority have more
than one production site. For special solvents, this type
of customer consumes […]* and in 1999 represented
[…]* of BASF's customer
structure. The remaining
customers were type C which purchase less than […]*.
These have national activities, one production site and
require bulk and/or drum deliveries.

investigation consider that

(132) The THF customer structure appears different from that
of special solvents with no Type A customers, few type
B customers and many very small type C customers.
There is little evidence of buyer power. Customers, in
the market
they have no
buyer power because THF has been in short supply for
some time and there is little choice of whom to buy
from. Should supply become more abundant, however,
some key customs do believe that they would have
in particular
bargaining power. These
purchase other non-related products from BASF and
their THF expenditure is likely to be small in relation to
the expenditure on these other products.

customers

(129) Eurodiol was, in February and March 2001, using about
[70 % to 90 %]* of capacity available for THF produc-
tion. BASF predicts that by 2003 it will produce [35 kt-
45 kt/a]* at the Feluy plant, […]* (10) of the current
capacity. Given the production processes at Eurodiol, if
operated efficiently, BASF should be able to produce
THF more cheaply at Eurodiol after the merger than in
Ludwigshafen. […]*.

(133)

[…]*. The Commission's market investigation has fore-
casted a market growth of THF of 3 % to 7 % per year.
With most manufacturers producing at or near full
capacity, it is unlikely that the growth in demand can be
satisfied by BASF's competitors.

(130) Third parties have stated that market entry is difficult
and risky. This is because the construction of a new
production facility requires considerable investment and
is subject to a proven technology that is cost effective.
Moreover to make a production facility profitable, high
capacity utilisation is needed. Since most key customers
require
suppliers building a
customer base is a time consuming process. In the last
five years Eurodiol has been the only market entrant in
the EEA and according to third parties, Eurodiol troubles
were caused by its failure to gain market share to enable
it to cover its costs.

certification of

their

Conclusion for THF

(134) The proposed operation will, therefore, combine two of
the three THF producers in the EEA, selling significant
quantities on the merchant market (11) resulting in a
strong market position. Customers will have little choice
of where to buy their increasing THF requirements. It
may therefore be concluded that the proposed merger is
likely to result in the creation of a dominant position by
the parties in the EEA market for THF.

D. APPLICATION OF THE CONCEPT OF THE ‘RESCUE

MERGER’

(131) BASF states that its customers for special solvents are
broadly split with some important customers being large
international players.
It segments its customers into
A/B/C type customers. Type A customers are active on a
global basis, have various production sites in Europe/
worldwide and require large bulk deliveries. For special
solvents type A customers consume more than […]*. In
1999 type A customers represented only […]* of BASF's
customer base. Type B customers have regional activities

(10) […]*.

(135)

In its reply to the Commissions Statement of Objections,
BASF argued that the conditions for a failing company
defence were met in this case, namely that BASF would
gain a comparable position even in the absence of the
merger and that in any event the assets of the business
in question would exit definitively the market.

(11) DuPont is producing THF in their plant in Asturias (Spain) mostly
for captive use, and sales to the merchant market have been
limited.

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L 132/61

1. THE COMMISSION'S DECISION IN CASE KALI + SALZ

(b) there is no less anti-competitive alternative purchase.

the

concept of

(136) So far, the Commission has only once based a merger
decision on the
rescue merger,
commonly referred to as ‘failing company defence’.
Indeed, in its decision in Case Kali + Salz/MDK/Treuhand
(hereinafter: ‘Kali+Salz’) (12), the Commission stated that
the creation of a dominant position was not the conse-
quence of the merger since the acquiring undertaking
would gain a dominant position even in the absence of
the merger. The lack of causality between the merger
and the creation of a dominant position means that the
latter would result from the disappearance of the failing
company, which would be unavoidable even in the
event of the concentration being prohibited and not
from the
concentration itself which creates or
strengthens the dominant position as a result of which
competition would be significantly impeded.

(137)

In that decision, the Commission applied the concept of
the rescue merger on the basis of the following three
criteria (13):

(a) the acquired undertaking would in the near future
have been forced out of the market if not taken over
by another undertaking;

(b) there was no less

anti-competitive

alternative

purchase; and

(c) the acquiring undertaking would have taken over the
market share of the acquired undertaking, if it had
been forced out of the market.

(138) The Court of

Justice confirmed the Commission's
approach regarding the rescue merger concept in its
judgment of 31 March 1998 (14), (‘the Kali+ Salz judg-
ment’).

2. THE GENERAL FRAMEWORK OF THE CONCEPT OF THE

‘RESCUE MERGER’

(139) The approach taken by the Court of Justice (15) is wider
than the criteria set out in the Commission's decision in
Kali + Salz. According to the Court of Justice, a merger
can be regarded as a rescue merger if the competitive
structure resulting from the concentration would deteri-
orate in similar fashion even if the concentration did not
proceed (16), that is to say, even if the concentration was
prohibited.

(140)

In general terms, the concept of the ‘rescue merger’
requires that the undertakings to be acquired can be
regarded as ‘failing firms’ and that the merger is not the
cause of the deterioration of the competitive structure.
Thus,
for the application of the rescue merger, two
conditions must be satisfied:

(a) the acquired undertaking would in the near future be
taken over by

the market

if not

forced out of
another undertaking; and

(12) Commission Decision

94/449/EC

in

Case

IV/M.308 —

Kali+Salz/MDK/Treuhand (OJ L 186, 21.7.1994, p. 38).

(13) Recital 71.
(14) Joined Cases C-68/94 and C-30/95 — French Republic/Commission

and SCPA/Commission, [1998] ECR I-1375.

(15) Kali+Salz judgment, recitals 112 to 116.
(16) Kali+Salz judgment, recitals 112 to 116,

(141) However, the application of these two criteria does not
completely rule out the possibility of a takeover by third
parties of the assets of the undertakings concerned in the
event of their bankruptcy. If such assets were taken over
by competitors in the course of bankruptcy proceedings,
the economic effects would be similar to a takeover of
the failing firms themselves by an alternative purchaser.

Thus it needs to be established in addition to the first
two criteria,
the assets to be purchased would
inevitably disappear from the market in the absence of
the merger.

that

(142) Given this general framework, the Commission regards
the following criteria as relevant for the application of
the concept of the ‘rescue merger’:

(a) the acquired undertaking would in the near future be
taken over by

the market

if not

forced out of
another undertaking;

(b) there is no less anti-competitive alternative purchase;

and

(c) the assets to be acquired would inevitably exit the
market if not taken over by another undertaking.

(143)

In any event, the application of the concept of the
‘rescue merger’ requires that the deterioration of the
competitive structure through the merger is at least no
worse than in the absence of the merger.

3. THE CONCEPT OF THE ‘RESCUE MERGER’ APPLIED TO

THE PRESENT CASE

(a) Eurodiol and Pantochim would have been forced
out of the market if not taken over by another
undertaking

(144) As BASF argues, Eurodiol and Pantochim would be
forced out of the market if they were not acquired by it.
These companies are heavily indebted as is their Italian
parent company SISAS SPA, Milano, which is also in
bankruptcy proceedings. Both Eurodiol and Pantochim
were subject to a pre-bankruptcy regime under Belgian
law (17) and placed under the administration of
four
Court Commissioners (Commissaires au sursis). The obser-
vation period (période d'observation) under this pre-bank-
ruptcy regime (concordat
judiciaire), during which the
Court of Commerce (Tribunal de commerce) ordered the
provisional postponement of debts (sursis provisoire), that
is to say, a preliminary suspension of the rights of the
creditors, ended on 16 June 2001 (18). Due to the lack of
liquidity and the significant amount of the companies'
debts, a restructuring plan (plan de redressement) which
would theoretically have allowed the Charleroi Tribunal

(17) Loi relative au concordat judiciaire/Wet betreffende het gerechtelijk akkoord
of 17 July 1997, Moniteur Belge/Belgisch Staatsblad, 28.10.1997, p.
28550.
(18) Judgment of

the Charleroi Tribunal de Commerce — Case B/00/

in particular recital 115.

00079, of 21 February 2001.

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clear-cut.

de commerce to prolong the concordat judiciaire and the
suspension of the rights of the creditors by means of a
sursis définitif (19), was not proposed in this case. There-
fore, the danger of bankruptcy of both Eurodiol and
Pantochim was
de
commerce of Charleroi, responsible for the pre-bank-
ruptcy proceedings, has confirmed to the Commission
that both undertakings would have to be declared bank-
rupt if a buyer for Eurodiol and Pantochim were not
approved before the expiry of the deadline on 16 June
2001. Once BASF had terminated financial support they
would have inevitably been forced out of the market.

the Tribunal

Indeed,

(145) Thus the first of the three conditions identified in the

Kali + Salz Decision is met.

(b) No

less

anti-competitive
option for Eurodiol and Pantochim

alternative purchase

(146) BASF also argues that there is no alternative buyer of
these companies. Since a restructuring plan could be
excluded as a realistic option in the present case, the
Tribunal de commerce of Charleroi authorised the Commis-
saires au sursis in charge of the administration of the
plants to find a suitable buyer for the assets of Eurodiol
and Pantochim immediately after the decision to open
pre-bankruptcy proceedings (20). Subsequently, a number
of competitors were contacted. However, whilst some
companies took a close look at the businesses, including
due diligence, apart
from BASF, no other company
approached by the Court Commissioners was ready to
submit a viable offer for these companies. Already on
this basis, it could have been concluded that there was
no alternative purchaser.

(147) Nevertheless, to exclude any doubt as to the existence of
an alternative purchaser, the Commission decided to
further inquire as to the possibility of an acquisition by
the South African
an alternative purchaser.
company Sasol Chemical Industries, which belongs to
the Sasol Limited Group (‘Sasol’), had initially shown
interest in acquiring Eurodiol and Pantochim. However,
after having carried out a full due diligence procedure,
informed the Commission by letter of 25 May
Sasol
2001 that they had decided not to pursue their plans
mainly because the financial investment to be raised was

In fact,

relative au concordat

judiciaire/Wet

(19) Articles 29 and 34 of

the Loi
betreffende het gerechtelijk akkoord.
(20) The observation period under

the

can be
extended to a maximum of six months. It can be prolonged once
for another three months. After that date the court does not have
any alternative but to transform the concordat judiciaire into bank-
ruptcy. In this case the observation period started on 16 September
2000 and ended on 16 June 2001.

concordat

judiciaire

considered to go beyond the limits of the international
strategy of the company.

(148) On the basis of the foregoing,

it is concluded that,
within the time framework set by the Belgian pre-bank-
ruptcy-regime, no less anti-competitive solution was
available. Thus, the second condition identified in the
Kali+Salz Decision is met.

(c) Inevitable exit from the market of the assets to be

acquired

(149) BASF argues that the third condition of the Kali+Salz
Decision, namely the accrual to the acquiring company
of the entire market share of the acquired undertaking,
has not been recognised by the Court of Justice as a
necessary prerequisite for the application of the failing
company defence theory. It argues that it is sufficient
that only a part of the market share is accrued to the
acquiring company.

(150) The Commission recalls

that under

the particular
circumstances of the Kali + Salz case, the Commission's
approach to establish whether the acquiring undertaking
would take over the market share of the acquired under-
taking if it were forced out of the market seemed the
most obvious method to prove that the concept of the
‘rescue merger’ could be applied to that case. Indeed, it
should be noted that the Kali + Salz case had specific
the
economic features,
acquiring and the failing firm, had been active on the
market. Given this situation of a duopoly it was clear
that the acquirer would have absorbed the market share
independent from whether the
of the acquired firm,
merger was to take place or not.

since only two companies,

(151)

In the present case, such a monopoly situation would
not be created after Eurodiol's exit from the market. Nor
can it be expected that BASF would absorb merely all of
Eurodiol's (21) market share since their main competitors
are likely to gain significant parts of this share as well.
However, the Commission recognises that the assets of
the failing firm would definitely exit from the market in
this case. This exit would most probably lead to a
considerable deterioration of market conditions, to the
customers. The Commission
disadvantage of
considers that these elements are equally relevant for the
application of the rescue merger concept.

the

(21) Pantochim does not manufacture GBL, NMP and THF (see recital

4).

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Official Journal of the European Communities

L 132/63

(152) Consequently, the Commission has examined whether
there would be any likelihood that Eurodiol's capacity
for the relevant products might be kept on the market
after bankruptcy. The Commissions investigation has
established some particular economic conditions linked
with special features of chemical plants of this type as
well as some features of the Belgian bankruptcy proceed-
ings.

tion process (24) which does not make it possible to
purchase isolated assets.

(156) On the basis of the foregoing, it is concluded that it is
very likely that the assets of Eurodiol, as well as those of
Pantochim, including the capacities for the BDO-related
products GBL, NMP and THF would definitely exit from
the market.

Indeed,

(153) Firstly, an immediate takeover of Eurodiol and Panto-
chim, after bankruptcy, by a third party seems to be
unlikely.
the two plants
the operation of
involves not only high costs but also considerable envir-
onmental risks, resulting from the sensitive production
process used at Eurodiol and Pantochim. Another
obstacle to an immediate restart of the plants is the fact
that any company taking over the business within six
months after bankruptcy would be legally obliged to
take over the entire workforce.

(154) Secondly, a restart of the plants at a later stage, after the
expiry of six months, would be relatively expensive
compared with an immediate takeover. The necessary
maintenance work over the last years has been, due to
the dense economic situation of Sisas, largely neglected.
A shutdown of production would cause additional costs
for new catalysts when the plant
is restarted. BASF
reports
toll-manufacturing agree-
that, during their
ment (22), Pantochim and Eurodiol had not been able to
meet the agreed quantities due to frequent shutdowns
caused by technical problems. […]*. The operation of
the two plants involves not only high costs but also
considerable environmental risks (23), resulting from the
the avail-
sensitive production process. Furthermore,
ability of a qualified workforce is also crucial for the
operation of a chemical plant of this type. As parts of
the qualified workforce have already left and others will
certainly do so after bankruptcy is declared, the incen-
tives for any investor to take up business after bank-
ruptcy of Eurodiol are fairly low.

(155) Finally,

it is not likely that a third party would buy
specific assets of the two companies after their shut-
down following a bankruptcy judgment. The plants of
Eurodiol and Pantochim can only be economically oper-
ated as a whole as they use a highly integrated produc-

(22) During the pre-bankruptcy period Eurodiol entered into a toll-
manufacturing agreement with BASF in which BASF agreed to buy
the part of
the production which could not be sold to third
parties.
(23) Note that

the plants involved fall within the scope of Council
Directive 96/82/EC of 9 December 1996 on the control of major-
accident hazards
L 10,
14.1.1997, p. 13).

involving dangerous

substances

(OJ

(d) Assessment of the competitive structure resulting

from the concentration

(157) The Commission notes that the exit of the assets and
production capacities of Eurodiol and Pantochim would
cause a significant capacity shortage for products which
are already offered on the market under very tight
capacity constraints. At least for a considerable period of
time, compensation for this capacity reduction would be
impossible. BASF and Lyondell have both indicated to
the Commission that they are considering building new
plants in Europe for the manufacturing of BDO-related
products. However, whereas
Lyondell has never
committed itself in detail to proceed with an extension
of its BDO project in the Netherlands to BDO-related
products, BASF has already stated that it will
imme-
diately expand its plants in Ludwigshafen (Germany) and
Geismar (USA), should it not succeed in acquiring Euro-
diol and Pantochim (25). In any event, additional capaci-
ties would probably not be operational before [2002 to
2005]*.

(158) Given this reduction in capacity, at least for a consider-
able transitional period of
time, market conditions
would be adversely affected as a direct consequence of
the exit of Eurodiol's capacity. The quantities available
on the merchant market would be immediately reduced
by [10 % to 15 %]* for NMP, by [25 % to 35 %]* for
GBL and by [20 % to 30 %]* for THF. Both BASF and its
competitors (ISP, Lyondell and DuPont) already today
face serious capacity constraints. None of them would
therefore be in a position to satisfy the increasing
demand in these markets, at least in the medium term.
Furthermore, the Commission's market investigation has
shown that a price increase of 10 % would not create an
incentive for the current market players to place addi-
tional quantities of the products concerned on the EEA
merchant market, either by selling quantities which are
today in captive use on the merchant market, or by an
increase of imports from third countries, since the price
levels for these products is in general considerably
higher outside the EEA.

(24) Including a common energy system (central boiler, steam system),

waste-water treatment plant,

logistic units.

(25) It should be noted that BASF will not expand their capacities in

Ludwigshafen if they acquire the Feluy plant.

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EN

Official Journal of the European Communities

17.5.2002

(159) During the significant price decrease between 1998 and
2000 there was no evidence that the demand of either
GBL, NMP or THF significantly increased except for the
long-term market growth of approximately [2,5 % to
10 %]*. This leads to the conclusion that the demand for
these products can be considered inelastic. Given the
inelastic demand and the capacity constraints described,
a very considerable price increase has to be assumed as
an immediate consequence of a loss of Eurodiols
production capacity for the BDO-related products.

(160) By contrast, the Commission considers that the market
conditions would be more favourable for the customers
after the merger.

(161) The non-appearance of a sharp shortfall of capacity will
be beneficial for the availability of the products in ques-
tion.
In their responses to the Commissions market
investigation, third parties have made it very clear that
the worst case scenario for customers would be the exit
from the market of Eurodiol's (26) capacities which
would inevitably be followed by supply problems and
price increases. In such a situation it is likely that price
competition would cease and be replaced by a massive
increase of prices.

(162) On the other hand, the economics of the case do not
suggest
that BASF is likely to enforce major price
increases after the merger. Eurodiol's key economic
problem, which led to its financial difficulties, has been
its underused capacity for BDO and BDO-related prod-
ucts. According to BASF's business plans for the time
after the take over of Eurodiol and Pantochim, these
plants have to be operated at almost full capacity in
order to achieve profitability and to make use of the full
cost reduction potential of the technology. It can there-
fore be assumed that BASF will attempt to decrease costs
after the merger by increased efforts to market THF, GBL
and NMP. Given these circumstances the customer may
expect better supply conditions and prices from the
than under a bankruptcy
market after
scenario where the assets of Eurodiol are taken off the
market. Thus, the Commission considers that the deteri-
oration of the competitive structure through the merger
in the specific circumstances is less significant than in
the absence of the merger.

the merger

the deterioration of

proceedings, and the inevitable exit from the market of
the assets to be acquired, combined with tight capacity
constraints in the industry and demand inelasticity, the
Commission concludes that
the
competitive structure resulting from the notified opera-
tion will be less significant than in the absence of the
merger. Under these conditions, considered cumulatively
under the particular circumstances of this specific case,
the market conditions can be expected to be more
favourable than in case of the market exit of the assets
to be acquired.

V. OVERALL CONCLUSION

concentration does neither

(164) For the reasons set out above it is concluded that the
proposed
create nor
strengthen a dominant position as a result of which
effective competition would be significantly impeded in
the common market or in a substantial part of it. The
concentration is therefore to be declared compatible
with the common market and the functioning of the
EEA Agreement, pursuant to Article 2(2) and Article
8(2) of the Merger Regulation and Article 57 of the EEA
Agreement,

HAS ADOPTED THIS DECISION:

Article 1

The notified operation whereby BASF Aktiengesellschaft will
acquire sole control of
the undertakings Eurodiol SA and
Pantochim SA is declared compatible with the common market
and with the EEA Agreement.

Article 2

This Decision is addressed to:

BASF Aktiengesellschaft
Carl-Bosch-Straße 38
D-67056 Ludwigshafen.

4. CONCLUSION

Done at Brussels, 11 July 2001.

(163) Under the particular and exceptional circumstances of
the case at this specific moment in time, which is char-
acterised by the imminent bankruptcy of
the failing
companies in the absence of the merger, the absence of
a timely alternative offer under the Belgian bankruptcy

For the Commission

Mario MONTI

Member of the Commission

(26) Pantochim does not manufacture GBL, NMP and THF (see recital

4).