2004/124/EC: Commission Decision of 30 October 2001 declaring a concentration to be incompatible with the common market and the EEA Agreement (Case No COMP/M. 2416 — Tetra Laval/Sidel) (Text with EEA relevance.) (notified under document number C(2001) 3345)
Date: 2001-10-30
Institutions: European Commission
Subjects: dominant position, economic concentration, infringement of EU law, merger control, packaging product, preparation for market, restriction on competition

13.2.2004

EN

Official Journal of the European Union

L 43/13

COMMISSION DECISION

of 30 October 2001

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

(Case No COMP/M. 2416 — Tetra Laval/Sidel)

(notified under document number C(2001) 3345)

(Only the English text is authentic)

(Text with EEA relevance)

(2004/124/EC)

L 43/14

EN

Official Journal of the European Union

13.2.2004

CONTENTS

I. THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II. THE OPERATION AND THE CONCENTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

III. COMMUNITY DIMENSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IV. COMPATIBILITY WITH THE COMMON MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. GENERAL DESCRIPTION OF THE LIQUID-FOOD PACKAGING INDUSTRY . . . . . . . . . . . . . . . . . . . . . . .

1.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.

In-house packaging and packaging by converters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. PET packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. HDPE packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Carton packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B. RELEVANT PRODUCT MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Substitution between packaging systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.1.

End-use product segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.2. Aseptic and non-aseptic packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.3.

Packaging systems using PET and packaging systems using other materials . . . . . . . . . . . . . . .

3. PET and carton interplay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.

End-product segments overlap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2. Current use of PET in the common product segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3. Growth of PET in the common product segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.1.

Technological considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.1.1.

Light barrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.1.2. Aseptic technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.1.3. Oxygen barrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2. Cost considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.1. HDPE cost comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.2.

Investment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.3. Marketing considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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3.3.4. Growth forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.4.1. Canadean study for Tetra . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.4.2. Canadean’s independent studies prior to the merger . . . . . . . . . . . . . . . . . .

3.3.4.3.

PCI study on ‘The Potential for PET in the Packaging of Liquid Dairy
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Products’ (2001) (PCI study)

3.3.4.4. Warrick Research Report Packaging Markets (2000) (Warrick Report)

. .

3.3.4.5. Analysts’ reports — Pictet ‘European Packaging Machinery’ (Septem-
ber 2000) (Picket Report) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.4.6.

Parties’ forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.4.7. Market investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.5. Conclusion on the current use and growth of PET in common product segments . .

3.4. Rivalry between PET and carton in overlap products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.4.1. Rivalry in the retail market

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.4.2.

Elasticity of demand between PET and carton packaging systems . . . . . . . . . . . . . . . .

3.4.3.

Switching costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.4.4.

Supply-side substitutability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.4.5. Conclusion on whether packaging systems using PET compete with other packaging
systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. PET packaging systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1.

SBM machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1.1.

Low and high-capacity SBM machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1.2.

Single-stage and two-stage SBM machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1.3. Hot-fill SBM machines, wide-mouth machines and preferential heating machines . .

4.1.4. Combi machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1.5.

End-use distinctions in the SBM machine market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1.6.

SBM machine speed in end-use segmentations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1.7. Conclusion on the market definition for SBM machines . . . . . . . . . . . . . . . . . . . . . . . .

4.2.

Barrier technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.3.

PET filling machines (aseptic/non-aseptic) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.4.

PET preforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Carton packaging systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C. RELEVANT GEOGRAPHIC MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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D. COMPETITIVE ASSESSMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Tetra’s current dominant position in aseptic carton and leading position in non-aseptic
carton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Sidel’s leading position in PET packaging equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.1.

Sidel has a leading market position in SBM machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.2.

Sidel’s strong experience in aseptic and non-aseptic PET filling and the innovative Combi
machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.3.

Sidel’s other PET activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Creation of dominance in the market for PET packaging systems, in particular SBM
machines, and strengthening of dominant position in the market for carton packaging
systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1. Horizontal effects in the PET equipment market

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.1.

SBM machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.1.1. High-capacity SBM machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.1.2.

Low-capacity SBM machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.1.3. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.2.

Barrier technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1.3. Aseptic filling machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2. Vertical effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2.1. Vertical integration of the merged entity in carton, PET and HDPE . . . . . . . . . . . . . . .

3.2.1.1. Carton packages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2.1.2. HDPE bottles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2.1.3.

PET preforms, bottles and plastic closures . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2.2. Channel conflict — possible foreclosure of converters . . . . . . . . . . . . . . . . . . . . . . . . .

3.2.2.1. Converters’ dependency on Sidel

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2.2.2.

Possible effects of the channel conflict

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2.2.3. Tetra’s decision to exit the preforms market

. . . . . . . . . . . . . . . . . . . . . . . . .

3.2.2.4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.

Leveraging of existing dominance and elimination of potential competition . . . . . . . . . . . . . .

3.3.1.

Parallel use of PET and carton by beverage companies (product and customer
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
overlap)

3.3.2.

Effects on the PET equipment sector: creation of a dominant position in PET
packaging equipment, and in particular SBM machines, by leveraging of dominance
in aseptic carton packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.1.

Strategic move . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.2. Tetra claims leveraging not possible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.3. Ability to discriminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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3.3.2.4. Ability and incentive to leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.5.

Leveraging practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.6.

Effects of leveraging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.7. Weak position of competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.7.1. Market shares of competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.7.2. Technological lead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.7.3. Aseptic know-how . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.7.4. Service and sales force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.7.5. R & D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.7.6.

Financial strength and size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.8.

Lack of buyer power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.2.9. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.3.

Effects on carton: strengthening of a dominant position . . . . . . . . . . . . . . . . . . . . . . . .

3.3.3.1.

PET as a competitive constraint: loss of competitive pressure from a
closely neighbouring market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.3.2. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.4.

The merged entity’s dominant position in carton and PET packaging equipment as
well as its presence in HDPE would reinforce dominance and raise barriers to entry

V. THE COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. SUMMARY OF THE COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Divestiture of Tetra’s SBM business (low-capacity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Divestiture of Tetra’s preform business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Separation of Sidel from Tetra and Article 82 commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Licence of Sidel’s sensitive products and converter SBM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B. ASSESSMENT OF THE COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Divestiture of Tetra’s SBM business (low-capacity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Divestiture of Tetra’s preform business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Separation of Sidel from Tetra and Article 82 commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Licence for Sidel’s SBM machines for sensitive product consumers and converters . . . . . . . .

4.1. No elimination of competition concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.2. Commitment entails severe limitations and may be unworkable . . . . . . . . . . . . . . . . . . . . . . . .

5. Conclusion on the commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

VI. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Having regard to the Agreement on the European Economic
Area, and in particular Article 57(2)(a) 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(3) thereof,

Having regard to the Commission’s decision of 5 July 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,

(4)

The Advisory Committee discussed the draft of this
Decision on 19 October 2001.

I. THE PARTIES

(5)

Tetra, the notifying party, is a privately held group of
companies, which is active in the design and manufac-
ture of equipment, consumables and ancillary services
for the processing, packaging and distribution of liquid-
food (known as the Tetra Pak packaging business).
Tetra’s business includes traditional carton packaging,
where it is the worldwide market leader, and more
limited activities in the plastic packaging sector. Tetra is
also engaged in the supply of equipment, systems,
accessories and consumables to dairy farm production
and animal husbandry (known as DeLaval).

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

(6)

Having regard to the final report of the Hearing Officer (4) in
this case,

Whereas:

(1) On 18 May 2001, the Commission received a notifi-
cation pursuant
to Article 4 of Regulation (EEC)
No 4064/89 (the Merger Regulation) of a proposed
concentration whereby Tetra Laval SA, France, belonging
to the group Tetra Laval BV (Tetra), the Netherlands,
intends to acquire within the meaning of Article 3(1)(b)
of the Merger Regulation control of the French company
Sidel SA (Sidel) by way of a public bid announced on
27 March 2001.

(2)

After examination of the notification, the Commission
concluded that the notified operation fell within the
scope of Regulation (EEC) No 4064/89 and that it raised
serious doubts as to its compatibility with the common
market and the EEA Agreement. On 5 July 2001, the
Commission decided in accordance with Article 6(1)(c)
of the Merger Regulation to initiate proceedings in this
case.

(3) On 10 September 2001, the Commission adopted a
decision pursuant to Article 11(5) of the Merger Regu-
lation requiring Tetra to reply to a request for infor-
mation relating to its competitive position on the
markets for extrusion blow-moulding machines (EBM),
high-density
filling
machines, HDPE non-aseptic filling machines, aseptic
HDPE bottles and non-aseptic HDPE bottles. Tetra
supplied the requested information on 11 September
2001.

polyethylene

(HDPE)

aseptic

(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.
(3) OJ C 39, 13.2.2004.
(4) OJ C 39, 13.2.2004.

Sidel is a company involved in the design and production
of packaging equipment and systems, in particular, blow
moulding machinery, barrier technology and filling
machines for PET (polyethylene terephthalate) plastic
bottles. Sidel is the worldwide leader for the production
and supply of blow-moulding machines. The company
also has activities in engineering, conveying, overwrap-
ping and palletising, health and beauty.

II. THE OPERATION AND THE CONCENTRATION

(7) On 27 March 2001, Tetra Laval SA announced a public
bid for all outstanding shares in Sidel. Tetra Laval SA is
a privately held company established under French law
for the purpose of holding Sidel’s shares acquired
through the public bid. It is a wholly owned subsidiary
of Tetra.

(8)

(9)

Tetra Laval SA’s bid for Sidel was for cash at a price of
EUR 50 per share. This represented a 32 % premium to
the three-month average share price and a 52 %
premium on the 21 March 2001 share price but was
significantly lower than the average Sidel share price
over a period of three years. The bid valued Sidel at
approximately EUR 1,9 billion and was financed through
the existing credit lines and internal resources of Tetra.
The board of directors of Sidel unanimously rec-
ommended the acceptance of the bid.

In accordance with French law, the bid was uncon-
ditional. Pursuant to the bid, approximately 27,1 million
shares, approximately 81,3 % of outstanding Sidel shares
were tendered to Tetra Laval SA. In addition to those
shares, Tetra Laval SA has also acquired approximately
3,5 million shares in Sidel either on the open market or
in individual purchases from major shareholders. As a
result Tetra currently holds 92 % of Sidel’s shares.

(10) The proposed acquisition, whereby Tetra acquires sole
control over Sidel, constitutes a concentration within
the meaning of Article 3(1)(b) of the Merger Regulation.

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III. COMMUNITY DIMENSION

(11) The undertakings concerned have a combined aggregate
worldwide turnover of more than EUR 5 billion (5) (Tetra
EUR [...]* (*) and Sidel EUR [...]* in 2000). Both Tetra
and Sidel have a Community-wide turnover in excess of
EUR 250 million (Tetra EUR [...]* and Sidel EUR [...]* in
2000), and they do not achieve more than two thirds of
their aggregate Community-wide turnover within one
and the same Member State. The notified operation
therefore has a Community dimension within the mean-
ing of Article 1(2) of the Merger Regulation.

IV. COMPATIBILITY WITH THE COMMON MARKET

A. GENERAL DESCRIPTION OF THE LIQUID-FOOD PACKAGING
INDUSTRY

1.

INTRODUCTION

(12) The competitive impact of this operation will be primar-
ily in the liquid-food packaging industry. This is the

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

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

(13)

(14)

industry sector where the parties focus their activities.
The parties are mainly active in two segments of the
liquid-food packaging sector: plastic, in particular PET
packaging, and carton packaging. The discussion of the
industry will therefore focus on these two sectors. A
detailed analysis of the relevant product markets is set
out in Section IV.B.

Liquid-food packaging is a complex industry which
includes a number of different technologies and equip-
ment. Liquid foods (water, dairy products, juices, carbon-
ated soft drinks, etc.) can be packaged in different
packages. There are four major packaging materials used
for liquid-food packaging: carton, plastic (including PET
and HDPE), cans and glass.

Increasingly, beverage companies use a mix of different
materials to package their products, for example, Coca
Cola can be found in glass, PET and aluminium cans. To
a large extent, the technology and kind of package that
can be used for the packaging of a given liquid is
determined by the liquid’s characteristics. In addition, in
some cases consumer preferences and tradition dictate
the choice of material, for example almost exclusively
glass for wine and champagne. Price is also a relevant
factor. The graph set out below shows the diversity of
packages used by beverage companies across the world
to package the same liquid, iced tea.

Source: Canadean Iced tea Report 2000

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2.

IN-HOUSE PACKAGING AND PACKAGING BY CON-
VERTERS

3.

PET PACKAGING

(15)

Liquids are packaged in two main ways: in-house by the
liquid producers themselves and by ‘bottle converters’.
In-house packaging requires the purchase of packaging
equipment and installation of packaging lines at the
premises of the beverage company. By contrast, con-
verters produce empty packages, which are then either
filled by filling companies or sold to beverage companies
for filling in-house. A mid-way system is the ‘hole-
through-the-wall’ arrangement whereby a converter will
install machinery next to the premises of the beverage
company and will produce bottles, which are literally
conveyed through a hole in the wall to the beverage
company for filling. Converters include companies like
Schmalbach-Lubeca, Pechiney and Crown Cork & Seal.

(16) There are differences in the mix of in-house or converter
activity across the four major packaging materials.
Carton packaging mainly takes place in-house in a single
stage, which combines creation of the package and
filling. PET is mainly blown and filled in-house in two
different steps but PET bottles are also produced in large
numbers by converters. Virtually all glass and cans are
manufactured by converters.

(17)

In order to package a liquid there is a need for a number
of specific pieces of equipment and inputs, from the raw
material (plastic resin preform, aluminium, carton, glass)
to the machine which creates the empty package to a
filling machine that fills and seals the liquid including
conveying machines, closure applicators and other sec-
ondary equipment. Equipment
their
machinery to beverage companies for in-house pro-
duction and to independent converters.

suppliers

sell

(18)

Sales of equipment are usually in the form of individual
bids. This may be on invitation for tender or following a
direct approach for a quotation. The final price will be
determined in negotiations with customers and will
depend on factors such as type of machine, capacity,
customer specifications, servicing and consumables and
negotiating power.

(20)

PET is a resin material. PET bottles are transparent
bottles familiar to consumers mainly as bottles used
for mineral water and carbonated soft drinks (CSDs).
Packaging of
liquid-food in PET bottles requires a
combination of distinct machinery and, if required, a
barrier technology. There are three distinct stages in the
packaging process: (a) production of plastic preforms,
the preproduction tubes used to make PET bottles;
(b) production of empty PET bottles using the plastic
preforms in specialised stretch blow-moulding machines
and (c) filling of the finished PET bottles with the liquid
using a dedicated filling machine. Beverage companies
usually produce and fill PET bottles in-house. Beverage
companies also buy empty PET bottles from converters.

(21) A typical PET packaging line includes the following

machinery:

Injection machines: Preforms are produced from resin
in injection machines (6). Special machines are used
to make preforms with enhanced barrier properties.
Preforms are usually produced by converters and are
sold as a commodity to beverage companies. The price
of standard (non-barrier) preforms depends heavily on
the price of resin on the open market. Preforms with
barrier properties are not commodity products.

Stretch blow-moulding machines (SBM machines): SBM
machines are complex pieces of equipment that produce
finished PET bottles by stretching and blowing the PET
preforms in a mould which gives the bottle its shape
(stretch blow-moulding).

Filling machines: The PET bottle is filled either asepti-
cally (7) or non-aseptically by dedicated filling machines.
Non-aseptic PET filling machines are generally used for
carbonated drinks, mineral water, edible oils and fresh
milk. Aseptic PET filling machines are used for ambient
juices, fruit or flavoured still drinks, ready-to-drink tea
and coffee drinks and liquid dairy products. In case of
aseptic filling, the bottles are sterilised and closed with
pre-sterilised caps.

(19) The parties have activities in the carton packaging sector
and the plastic (PET and HDPE) packaging sector. It is
therefore useful
to present the different stages and
equipment necessary for carton and plastic packaging of
liquids.

(6) The polyester resin that is required to make preforms is sourced
from large chemical companies such as DuPont, Dow Chemical,
Eastman Chemical, ICI Chemicals & Polymers and Shell Chemical.
(7) Aseptic bottle filling is a process whereby pre-sterilised treated
products are filled into bottles that are sterile on the inside and
are then sealed with closures that have also been sterilised. The
filling process takes place in a sterile chamber within the filling
machine.

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Secondary line equipment: After being filled, PET bottles
are capped, labelled and packaged onto pallets with the
appropriate overwrapping. Cap applicator:
In direct
connection to the filling machine, the closure applicator
applies the closure to the bottle. Depending on closures
and models of filling machines, this can also be done
within the filling machine. Labeller: After filling and
capping, the bottles are labelled with the individual
product label (paper or plastic). Shrinkwrapper: For the
purposes of facilitating further transport, storage and
display of the bottles, they are in some cases wrapped
together (for example,
in
plastic film. These machines are called shrinkwrappers,
sometimes also film wrappers or film applicators. Card-
board packer: Again, for the purpose of facilitating
further transport and storage, the bottles are then, in
some lines, packed into cardboard or plastic trays in a
cardboard packer. These machines are sometimes called
case packers or wrap-around packers. Palletiser: Finally,
the end of the line is the palletising, by which the bottles
in multipacks, cases, trays or crates are loaded for
transport. The pallet is wrapped with a stretchable plastic
film that binds the pallet together for protection during
transportation.

in packs of six bottles)

Between the SBM machine and the filling machine the
bottles are transported on air conveyors, i.e. transport
chains gripping the bottles by their neck ring and
transporting them by air blown under the neck. Between
the other machinery the bottles are transported on slat-
chain or standard belt conveyors.

preforms or applied on the finished bottle once the SBM
machine process has finished. In all cases, standard SBM
machines are used. However, in cases where the barrier
is not contained in the preforms themselves but is
simply added onto the finished PET bottle, a separate
dedicated barrier coating machine is required.

(24)

For light-sensitive products such as UHT white milk a
light barrier needs to be added. Light barrier technology
involves using pigmented PET or a sleeve covering the
PET bottle.

4. HDPE PACKAGING

(25) HDPE is a high-density polyethylene plastic material.
Unlike PET, HDPE does not have a completely trans-
parent glass-like appearance but is rather ‘cloudy’. HDPE
is familiar to consumers as a packaging material for
mainly UHT milk, especially in the United Kingdom.

(26) HDPE is produced in a similar way to PET but using
different machinery. HDPE bottles are produced by EBM
machines. HDPE bottles are filled by dedicated aseptic
and non-aseptic HDPE filling machines.

Barrier

5. CARTON PACKAGING

(22)

For oxygen sensitive products (such as juices or beer),
the gas barrier properties of a PET bottle need to be
enhanced. One of the basic technical differences between
PET and other materials used for liquid-food and bever-
age packaging is the fact that PET is gas-permeable (8).

(27) Carton packaging consists of introducing pre-manufac-
tured but not yet folded (flat) carton material into a
single carton filling machine in which it is both folded
and filled.

(23) To enhance the barrier properties of PET, a barrier
technology is applied onto the standard PET bottle.
Different barrier technologies have been developed.
Barrier technology is not specific to any particular kind
of SBM machine. Barrier technology is either embedded
in the material used for the preform, added to the

(8) In particular, gas permeability concerns are magnified with respect
to beer, the taste of which is rapidly affected by the loss of CO2
and the intrusion of oxygen. Until very recently, these problems
have thus prevented PET bottles from penetrating the beer market
at all.

(28)

It is important to note that carton packaging follows a
supply route, which is different to that for PET packag-
ing. Unlike PET with its distinct stages of production
(preforms, empty bottles, filling), the liquid-food carton
business is one of integrated pack construction, filling
and sealing often referred to as form-fill-seal. All these
operations are done on one carton packaging machine
within the beverage company’s factory. The carton
machine supplier, for example, Tetra, in general provides
the machinery as well as the blank cartons (flat carton
or carton reels that will be shaped by the machine in the
form of the final package). There are distinct aseptic and
non-aseptic carton machines and the distinction between
aseptic and non-aseptic carton packaging runs through-
out the packaging process from the creation of the flat
carton to its folding and filling.

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(29) A typical carton packaging line includes the following

major pieces of machinery:

package liquid foods: carton, PET, HDPE, glass and cans.
Tetra argued that each of these packaging materials
forms a distinct product market.

Carton filling machine: The filling machine both folds
and fills the cartons, which are either pre-manufactured
flat, ‘blanks’, or, for Tetra’s aseptic machines, are supplied
in reels. When carton packages are designed to have
plastic caps, these are in some cases entirely or partly
applied in the filling machine but in most cases are
applied by a cap applicator.

Cap applicator: The cap applicator applies plastic open-
ings to cartons that are designed to have such caps
(mainly the ‘gable-top’ cartons). Shrinkwrapper: For the
purposes of facilitating transport, storage and display of
the cartons, they are in some cases packed together in
plastic film by a shrinkwrapper, are also called a film
wrapper or film applicator. Tray packer: For the purpose
of facilitating further transport and storage, the cartons
are then packed into cardboard or plastic trays in a tray
packer. These machines are sometimes called case
packers or cardboard packers. Palletiser: The end of the
line is often the palletising stage, where the cartons are
loaded on pallets for the final distribution.

Each machine is linked to the next by a conveyor.
In carton packaging lines these are mainly flat-type
conveyors, where the cartons ‘stand’ on a moving belt.

B. RELEVANT PRODUCT MARKETS

1.

INTRODUCTION

equipment

(30) Tetra took the view in the notification that the present
transaction concerns the sector of manufacture and
supply of equipment used for packaging liquid-food in
PET bottles because this is the sector in which there are
horizontal overlaps in the parties’ activities with regard
to specific pieces of equipment. Tetra has thus identified
three horizontally affected markets within the PET
packaging
SBM
machines, barrier technologies and aseptic PET filling
machines. Tetra considers that the relevant product
markets for analysing the transaction are no wider than
those three markets. Tetra maintained this view in the
reply to the Commission’s statement of objections dated
21 September 2001 (the reply) and at the oral hearing
on 26 September 2001 (the oral hearing). Tetra further
argued that PET packaging systems and equipment and
carton systems are not closely related markets and that
a variety of packaging materials are used to market and

low-capacity

sector:

(31) The Commission notes that the activities of Tetra and
Sidel cover a very wide area of the liquid-food packaging
equipment sector and both parties describe themselves
in terms of their overall presence in the liquid-food
packaging sector. Both parties are active in SBM machin-
ery, barrier technologies, aseptic PET filling machines
and secondary PET equipment (conveyors, etc.).

(32)

In addition, Sidel also manufactures moulds (a shaped
piece of equipment in the blow moulder in which the
hot preform is stretched and blown to form the final
PET container), non-aseptic PET filling machines, PET
hot-filling machines, EBM machines (which produce
HDPE bottles), aseptic and non-aseptic HDPE filling
machines (9), secondary line equipment and distribution
packaging equipment.

(33) Tetra’s main business focuses on carton packaging where
it is by far the biggest player in aseptic carton packaging
machines and aseptic cartons as well as non-aseptic
carton packaging machines and non-aseptic cartons.
Tetra is also active in the processing of liquid-food. In
the plastic packaging sector, Tetra also produces PET
preforms, HDPE bottles and plastic beverage bottle
closures. Tetra is also active in the market for EBM
machines through an [...]* agreement with Graham
Engineering Corporation (Graham), USA [...]*. Graham
machines are fully adaptable for customised HDPE
bottles for pasteurised, extended shelf-life and aseptic
products. Tetra has also developed a linear aseptic EBM
filling LFA-20, designed to package UHT milk and juice.
The machine does not require a ‘clean room’ but
incorporates a very small
internal aseptic chamber
reducing the customer’s investment and operational
costs.

(34) The Commission considers that, whilst the direct hori-
zontal overlaps of the parties’ specific pieces of equip-
ment may be a meaningful starting point in the analysis
of the relevant market,
it is important to place the
analysis in the context of ‘the general market in systems
for packaging liquid-food products’ (10). This becomes

(9) [...]*.
(10) Case C-333/94 TetraPak v Commission [1996] ECR I-5951 (Tetra
Pak II (ECJ)), paragraph 11. Tetra Pak II (ECJ) was an appeal of the
Judgment of the Court of First Instance in Case T-83/91 Tetra
Pak v Commission [1994] ECR II 755 (Tetra Pak II (CFI)), an action
for annulment of Commission Decision 92/163/EEC in Case IV/
31.043 (OJ L 72, 18.3.1992, p. 1) (Tetra Pak II (Commission)).

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even more pertinent in this particular case given the
parties’ many and varied activities in the liquid-food
packaging sector as a whole.

necessary to start the analysis of the relevant market by
examining whether PET and other packaging systems
compete with each other to the extent necessary for
them to be placed in the same relevant product market.

(35) The Commission has considered the market for packag-
ing of food and beverages in a number of previous
decisions (11). In many of the previous decisions (12) the
Commission did not come to a definitive conclusion
on the definition of the relevant product market but
proceeded on the basis that the market should be divided
according to packaging material and hence packaging
equipment (separate market for glass packaging, for
carton, etc.). However, in several decisions (13) the Com-
mission has also indicated that the liquid-food packaging
market is complex and that end-use and other criteria
may be relevant for market definition.

(37)

(36) The Commission is bound to consider how the market
is functioning and the appropriate definition of the
relevant market based upon the past, current and likely
future situation of the packaging industry. It is therefore

(11) See, inter alia, Commission decision of 6 June 1991 in Case IV/
M.81 VIAG/Continental Can, paragraphs 10-14; Commission
decision of 19 July 1991 in Case IV/M.68 Tetra Pak/Alfa-Laval,
OJ L 290, 22.10.1991, p. 35 (Tetra Pak/Alfa Laval); Commission
decision of 14 April 1993 in Case IV/M.322 Alcan/Inespal/Palco,
paragraph 15; Commission decision of 14 November 1995 in
Case IV/M.603 Crown Cork & Seal/CarnaudMetalbox, OJ L 75,
23.3.1996, p. 38; Commission decision of 21 April 1998 in
Case IV/M.1109 Owens-Illinois/BTR Packaging, paragraphs 8-22;
Commission decision of 1 February 1999 in Case IV/M.1400
Rexam/PLM, paragraphs 8-19; Commission decision of 5 July
1999 in Case IV/M.1539 CVC/Danone/ Gerresheimer, para-
graphs 6-14; Commission decision of 23 September 1999 in
Case IV/M.1656 Huhtamäki Oyj/Packaging Industries Van Leer,
paragraphs 7-20; Commission decision of 12 July 2000 in Case
COMP/M.1813 Industri Kapital-Nordkem/Dyno, paragraphs 50-
52; Commission decision of 30 May 2000 in Case COMP/
M.1948 Techpak International/Valois, paragraphs 17-20; Com-
mission decision of 11 June 2001 in Case COMP/M.2441 Amcor/
Danisco/Ahlstrom, paragraphs 8-13.

(12) See Commission decisions, inter alia, in Cases IV/M.81 VIAG/
Continental Can, IV/M.322 Alcan/Inespal/Palco, IV/M.1400 Rexam/
PLM, IV/M.1539 CVC/Danone/Gerresheimer, IV/M.1656 Huhta-
mäki Oyj/Packaging Industries Van Leer, COMP/M.1948 Techpak
International/Valois, COMP/M.2441 Amcor/Danisco/Ahlstrom.
(13) See Commission decisions, inter alia, in Cases IV/M.81 VIAG/
Continental Can, IV/M.68 Tetra Pak/Alfa-Laval, IV/M.603 Crown
Cork & Seal/CarnaudMetalbox, IV/M.1109 Owens-Illinois/BTR Pack-
aging, IV/M.1400 Rexam/PLM, IV/M.1539 CVC/Danone/Gerres-
heimer, IV/M.1656 Huhtamäki Oyj/Packaging Industries Van Leer,
COMP/M.1813 Industri Kapital-Nordkem/Dyno, COMP/M.1948
Techpak International/Valois, COMP/M.2441 Amcor/Danisco/Ahl-
strom.

In order to assess whether or not different packaging
systems are substitutable, it is also relevant to examine
the downstream market for the final packaged product
at consumer level, that is to verify whether consumers
regard the different packages as substitutable. Tetra has
submitted that the lack of a clear distinction between
the downstream packaged product market and upstream
equipment market confuses the competitive assessment.
The Commission agrees with the notifying party that the
two markets are distinct. However, the Commission
considers that demand for the equipment can only be
derived from the demand for the final products which
the equipment will pack. It is therefore necessary to
examine the downstream market. The notifying party’s
economic consultants agree with this, stating ‘the
demand for carton machines is derived from the demand
for products in cartons. Similarly, the demand for SBM
machines is derived from the demand for products in
PET bottles.’ (14) It is important to note, however, that a
finding of demand substitution in the downstream
market does not necessarily result
in a finding of
substitution in the upstream market as there may be a
number of factors, for example, heavy switching costs,
preventing intermediate customers, the beverage com-
panies, from switching from one packaging system to
another despite consumers’ willingness to switch.

(38) Given the complexity of

(a)

this Decision:

the liquid-food packaging
sector, it is useful to define the terminology to be used
throughout
‘packaging system or
packaging material’ refers to the packaging system or
packaging material used by a beverage company for
its products (carton, PET, glass, etc.);
‘packaging
equipment’ refers to SBM machines, carton packaging
machines, glass packaging machines, etc.; (c) ‘packages’
refer to the flat cartons, empty PET bottles or preforms,
etc.; (d) ‘the packaged product’ refers to orange juice in
PET, UHT milk in carton, etc.; (e) ‘end-use product’
refers to the type of liquid-food to be packaged. This
terminology will be used throughout the remainder of
the text when analysing the relevant market and
assessing dominance.

(b)

(14) Memorandum to the Commission dated 30 August 2001.

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2.

SUBSTITUTION BETWEEN PACKAGING SYSTEMS

(39) The Commission considers that

its analysis of

the
relevant market should focus on assessing whether
alternative packaging materials and hence alternative
packaging systems compete with each other to the
extent necessary for them to be placed in the same
relevant product market (15). If this is the case, it is then
necessary to consider whether customers could easily
switch from one piece of alternative packaging equip-
ment to another; for example, a carton filling machine
and the equivalent PET equipment, either a PET SBM
machine together with a PET filling machine or a PET
‘Combi’ machine so that the two pieces of equipment
ought to be placed in the same relevant product market.

2.1. End-use product segments

(40) The Commission’s investigation has shown that the use
of a given packaging material for a given liquid-food is
mainly driven by the liquid’s characteristics. The first
question,
therefore, when considering whether two
packaging materials and hence two packaging systems
may be potential substitutes is to look at whether they
are capable of packaging the same liquids.

(41)

Each end product has very particular characteristics,
which dictate the choice of packaging. For example,
CSDs require packaging that can withstand the pressure
of carbonation; for these drinks, for example, carton is
simply not an option. Milk requires a light barrier. Beer
requires both a light barrier and an oxygen barrier. In
some cases, consumer preferences and tradition dictate
the choice of material, like glass almost exclusively for
wine and champagne. As a result, a dairy, for example,
wishing to package its product does not necessarily have
a choice between all the packaging materials. There are
products that can, however, be packaged in different
materials.

(42) Tetra has argued that end-use distinctions are not
meaningful in the packaging equipment sector. Tetra
focused its argumentation on SBM machinery, which
according to Tetra is generic; that is to say, an SBM

machine produces an empty bottle that can be used for
different types of end products. The notifying party’s
arguments in relation to SBM machines are assessed
below in recitals 176-182.

(43) The Commission’s analysis shows that even for an
allegedly ‘generic’ piece of equipment such as an SBM
machine it is justified to examine the equipment market
with reference to the end-use segments. An analysis
based on end-use segments is even more relevant when
comparing whole packaging systems in order to assess
whether or not they may belong in the same product
market. Given that each liquid has very particular
characteristics which dictate the availability of a given
form of packaging, it is necessary to look at end products
in order to assess whether
the various packaging
materials are ‘regarded as interchangeable or substitut-
able by the consumer, by reason of
the products’
characteristics, their prices and their intended use’ (16). It
is evident that the customer will only be faced with a
choice of those packaging materials that are capable of
packaging the given liquid-food and, as a result, packag-
ing materials unsuitable for a given product will never
be able to exercise any competitive constraint in that
product segment. Conditions of competition may there-
fore differ within each end-use product segment (17).

(44)

In the light of the foregoing, the Commission has reached
the conclusion that end-use segmentation constitutes a
meaningful analytical tool for assessing the liquid-food
packaging equipment market (18).

(45) The analysis in this Decision focuses on those products
that can be packaged both in carton and in PET: liquid
dairy products (LPDs), juices and nectars (juices), fruit-
flavoured still drinks (FFDs) and ready-to-drink tea and
coffee drinks (tea/coffee drinks). The common product
segments, LDPs, juices, FFDs and tea/coffee drinks, form
they
a large part of
represented about 40 % of all non-alcoholic beverages
in 2000. These products have been traditionally pack-
aged in carton because of their specific characteristics,

the whole liquid-food sector;

(15) The Commission has followed the same approach in Tetra Pak/
(cited in footnote 11). This approach was also
Alfa Laval
confirmed by the Court in Tetra Pak II (ECJ) (cited in footnote 10).
In these cases, the Commission and the Court found that carton
packaging systems did not compete with packaging systems
using other materials such as glass or plastic bottles. These
decisions were based on an assessment of market conditions in
the 1980s and early 1990s. In the current merger review, the
Commission will of course consider how the market is func-
tioning and the appropriate definition of the relevant market
based upon the current and likely future situation.

(16) Commission notice on the definition of relevant market for
purposes of Community competition law (OJ C 372, 9.12.1997,
p. 3) paragraph 7.

(17) The notifying party seems to agree with this analysis (albeit
concluding that the two materials do not compete) when it
argues that ‘no beverage company will ever see the two types of
packaging equipment as direct substitutes for an identified
packaging need’. Submission of the notifying party of 21 June
2001.

(18) End-use segmentation for the review of the aseptic and non-
aseptic carton packaging equipment markets was used by the
Court of First Instance in Tetra Pak II (CFI) (cited in footnote 10).

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oxygen and light sensitivity, and are increasingly being
packaged in PET as a result of recent improvements in
PET technology and changes in consumer demand. The
beverage industry refers to these beverages as ‘sensitive’
liquids. The Commission has therefore assessed the
impact of the transaction with particular regard to these
end-use segmentations.

2.2. Aseptic and non-aseptic packaging

(46) A major distinction for the packaging of liquid beverages
is whether they are filled aseptically or non-aseptically.
Aseptic packaging is generally defined as the bringing
together of pre-sterilised products with packaging
rendered sterile and filling the product into the pack in
a sterile environment designed to prevent recontami-
nation. Sterilisation involves the elimination of micro-
organisms, which might later cause the product to
deteriorate (19). By ensuring sterility, aseptic filling of
liquids extends the shelf-life of the product significantly.
Aseptic filling can be done with a number of different
packages: glass, carton, PET and HDPE. Carton is the
main packaging material used for aseptic filling with a
predominant share of the market.

(47) Aseptic filling is mainly used for ‘sensitive’ products,
namely juices (or juice-based drinks) and liquid dairy
products. Juices and dairy products can also be packaged
non-aseptically in which case they require refrigerated
distribution. Most other products are packaged non-
aseptically without requiring chilled distribution.

(48)

Juices and liquid dairy products differ in one significant
juices are high-acid products whereas liquid
respect:
dairy products have low-acid content. Low-acid products
require more stringent aseptic conditions. Unlike high-
acid products,
low-acid liquid dairy
products, any non-sterility leads to the presence of
to consumer health.
pathogens, which are harmful
Therefore the use of a viable aseptic process is para-
mount for liquid dairy products.

in the case of

(49) The Commission has considered the possibility of substi-
tution between aseptic and non-aseptic packaging in

previous decisions (20) and has concluded that aseptic
packaging constitutes a separate product market. This
distinction has been confirmed by the Court of First
Instance and the Court of Justice (21).

(50) The Commission’s previous assessment remains valid
and was confirmed by the market investigation in this
case. Aseptically packaged products have a much longer
shelf life than products packaged non-aseptically and
satisfy different needs. Typically, aseptic milk will last
six months while non-aseptic milk will last less than a
month. The distribution is different (ambient/chilled
distribution), taste is affected to a significant extent
which makes the products hardly interchangeable from
the consumer’s perspective and demand elasticity is very
low. In addition, there is no supply-side substitutability
(aseptic and non-aseptic filling machines use very differ-
ent technology) and not all suppliers are capable of
producing both machines, aseptic technology being
much more complicated.

(51) On the level of equipment (carton machines or PET
filling machines), the distinction between aseptic and
non-aseptic packaging has also been confirmed by the
market investigation. All market participants responded
that there is no substitution between aseptic and non-
aseptic filling. This view is not contested by the parties.
It is therefore concluded that it is reasonable to segment
the market
into aseptic and non-aseptic packaging
systems.

2.3. Packaging systems using PET and packaging

systems using other materials

(52) The notifying party argues that packaging systems
using different materials, in particular carton packaging
systems and PET packaging systems,
form distinct
product markets for the purposes of competition law
analysis. Tetra argues that no PET equipment supplier
has any power to influence a beverage company’s choice
between carton and PET packaging. Tetra submits in this
respect the following justification which is based on two
main arguments: (i) minimal overlap: PET and carton are
used for different end products with minimal common
products and PET use in the common products is limited
and will not grow in the future; (ii) no pricing constraints:
even with common product overlap and future growth,

(19) See Warrick Research, ‘Aseptic Packaging Markets’ (2000), p. 1.

(21) See TetraPak II (ECJ) and Tetra Pak II (CFI) (cited in footnote 10).

(20) See Commission decision in Tetra Pak/AlfaLaval (cited in foot-

note 11).

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PET and carton packaging systems form distinct product
markets and pricing of one does not constrain the
pricing of the other. This is due to the fact that the main
driver for the choice of packaging systems is marketing
differentiation of the final product, shape, positioning,
consumer group that is targeted, etc.

(56) This is apparent from Tables 1 and 2 below (23) which
show the main beverages packaged in carton and PET
respectively. Common PET and carton products appear
in bold italics.

(53) The Commission agrees that packaging systems using
different materials, for example glass and cans, form
distinct relevant product markets for competition law
analysis and that, therefore, PET packaging systems
belong to a distinct product market as the choice of each
is driven primarily by marketing
packaging material
considerations. However,
the Commission does not
agree that carton and PET do not share common product
segments and that there can be no interaction between
the two. As will be explained below in Section IV.3.3 on
PET growth, the Commission believes that PET will grow
rapidly in the same end-use segments as carton. Given
that the parties have major activities in the carton and
PET sectors (Tetra being a dominant player in carton
packaging and Sidel a leading player in PET packaging
equipment), the Commission has decided to look more
closely at the interplay between carton and PET and the
future growth of PET in the traditional carton end-use
segments.

3.

PET AND CARTON INTERPLAY

(54) The Commission’s investigation showed that the notify-
ing party’s contention that there are minimal overlaps
between the customer base of PET and carton is not
accurate.

3.1. End-product segments overlap

(55)

PET and carton have traditionally been used for packag-
ing different beverages. This is mainly due to different
physical characteristics of these packaging solutions.
Carton is non-transparent and hence suitable for oxygen
and light-sensitive products but cannot withstand car-
bonation. PET is transparent and can withstand carbona-
tion but has been traditionally less suitable for oxygen
and light-sensitive products. As a result, carton has been
used mainly for LDPs (primarily white milk) and juices
whereas PET has been principally used for water (still
and carbonated) and CSDs (22).

(22) The fastest growing PET segment has been water and CSDs
mainly due to a switch from glass packaging. PET is popular with
consumers and producers due to its transparency, malleability
(many different shapes of bottle), ‘unbreakability’, re-closeability,
good recycling properties, ability to include brand logos on
plastic etiquettes, etc.

Table 1

Carton products in the EEA in 1999

Product packaged

Million
litres

%

Liquid dairy products

21 537

71,05

Juice and nectars

5 665

18,69

Fruit-flavoured still drinks

1 176

3,88

Tea and coffee-based drinks

860

2,84

Wine

Water

765

2,53

305

1,01

Sports and energy drinks

1

0,00

Table 2

PET products in the EEA in 1999

Product packaged

Million
litres

%

Water

19 947

54,70

Carbonated soft drinks

15 164

41,58

Fruit-flavoured still drinks

425

1,17

Tea and coffee-based drinks

396

1,09

Wine

241

0,66

Sports and energy drinks

148

0,40

Liquid dairy products

97

0,26

Juice and nectars

28

0,08

(23) Figures provided for 1999. Source: Research company Canadean

and the notifying party.

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(57)

From Tables 1 and 2 it is clear that PET is a suitable
material for the packaging of all the products that have
been traditionally packaged in carton. Seen from the
perspective of the carton sector, therefore, PET may
potentially provide an alternative competing material
for the entire spectrum of carton-packaged products.

(58) The main common end-use product segments for which
both carton and PET are suitable packaging materials are
LDPs, juices, FFDs and tea/coffee drinks, the ‘sensitive’
beverages (24). This standard categorisation is widely
used in industry analyses, independent studies and Sidel’s
own materials (25). These products cover almost the
entirety of carton-packaged products and represent
currently roughly 40 % of volume of all non-alcoholic
beverages (water, CSD, LDPs, juice, FFDs and tea/coffee
drinks (including sports drinks)). All of them can and
are currently packaged also in PET. Furthermore, these
four categories are similar in that they are all ‘sensitive’
products packaged both aseptically and non-aseptically
but they are also distinct from one another in that for
each category the specific characteristics of the product
dictate slightly different packaging solutions (juices are
high-acid, whereas LDPs are low-acid, FFDs and iced tea
do not require the same extent of oxygen barrier as
juices).

their competitors and third parties including major
chemical companies are making significant investments
in researching for a barrier technology which will enable
aseptic milk and juice to be packed in PET technically
and economically. According to market participants,
recent and forthcoming improvements in barrier tech-
nology as well as in PET aseptic technologies will
therefore change the current situation.

(61)

In addition, it has to be noted that already today it is
possible to package and sell commercially fresh milk,
flavoured milk, iced tea, fresh juice, long-life (hot-fill)
juices, fruit-flavoured drinks and sports drinks in PET.
The two segments presenting technical problems for the
use of PET today are aseptic juices and aseptic white
(UHT) milk.

(62)

For example,
the following branded products with
which many consumers are familiar have started being
packaged in PET, having switched partially from more
traditional carton packaging.

Liquid dairy products

Campina — Stassano (Netherlands, Belgium), Parmalat
(Italy), Granarolo (Italy)

3.2. Current use of PET in the common product

segments

Juice and nectars

(59) The notifying party submits that, even in those product
segments that are common to carton and PET, PET’s use
is very limited and will not grow significantly in the
future. The reason is mainly due to the technical
difficulties of developing a light barrier for low-acid
aseptic milk which will be sufficient to protect the milk
from light and at the same time offer a cost-effective
packaging solution. Thus, according to Tetra, PET’s
presence in the common product segments can be
ignored.

(60) The Commission’s analysis has not supported the view
of the notifying party. It is true that PET has not yet
made significant inroads into the main carton products
(LDPs and juices), mainly due to PET’s historical technical
limitations, which, so far, have made it an imperfect
material especially for aseptic filling. However,
the
Commission’s investigation has shown that the parties,

Del Monte juices (United Kingdom), Pepsi Cola —
Tropicana juices (United Kingdom), Coca Cola — Minute
Maid (Belgium), Gerber — Ocean Spray (United
Kingdom), Conserve Italia — Carioga/Derby/Jolly (Italy),
Parmalat — Santal (Italy)

Fruit-flavoured drinks (FFDs)

Schweppes — Oasis (France, Italy), Sunkist (Belgium),
Parmalat — Santa (Italy), Glaxo — Ribena (United
Kingdom)

Iced tea

Liptons — Ice tea (Belgium), Liptonice (Germany, Italy)

(63) During the investigation, Tetra asked Canadean, a con-
sulting company in the beverage industry, to prepare a
study on past and future use of PET in the common
product segments, i.e. the ‘sensitive’ products, in western
Europe.

(24) The Commission excludes from its analysis of the common
products the water segment for which carton is considered as a
‘losing’ technology, even though it is used in some EEA countries,
and wine for which both PET and carton have very little prospects
of use in the future.

(25) Sidel 1999 annual report, page 20.

(64) The study confirms that PET is already used in all the
common product segments, to a limited extent in the
segments of LDPs and juices and to a greater extent in
the segments of FFDs and teas.

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(65) According to the Canadean figures provided by Tetra (26),
in the year 2000, for the main carton-packaged products,
PET represented only 0,5 % of packaging for liquid dairy
products (carton 70 %, HDPE 17 %, glass 7 %, cans 1 %,
other packaging materials 5 %). In the same year, PET
represented only 0,5 % of packaging for juices (carton
65 %, glass approximately 31 %, HDPE 2 %, cans 1 %).

(67) According to Tetra, 30,7 billion litres of LDPs were
produced in the Community in 2000, of which nearly
50 % were non-aseptic and just over 50 % were aseptic.
Flavoured milk represented 2,7 billion litres. PET use
was mainly non-aseptic and accounted for more than
60 % by volume.

(66) Canadean concluded that for the period 1993 to 2000
the market for LDPs was static, that HDPE growth had
eaten into carton sales and that PET only had a marginal
effect and mostly on glass. For juice and nectars, carton
sales increased in spite of PET and HDPE gains apparently
at the expense of glass. Market growth during the period
1993 to 2000 was almost all in cartons.

Table 3

Pack mix for LDPs and juice and nectars 2000 (27)

(68)

For juice, Tetra has estimated that 9 billion litres were
produced in the Community in 2000, of which less than
10 % were chilled (non-aseptic). For juices, more than
80 % of PET use was in the ambient segment.

(69) The picture provided by Canadean is already today very
different for the segments of FFDs and tea/coffee drinks
which do not require the same barrier properties as
LDPs and juices. PET has already made more significant
inroads into these segments.

LDPs

Juice and nectars

Carton

Glass

HDPE

PET

Cans

Carton

Glass

HDPE

PET

Cans

In %

(70)

2000

70,6

6,7

17,3

0,5

1,0

2000

64,7

31,8

2,0

0,5

0,9

In 2000, in the FFDs segment, PET represented 20 %
(carton 42 %). It is expected to grow to approximately
22 % by 2005 (carton 37 %). In the tea/coffee drinks
segment PET represented 25 % in 2000 (carton 53 %)
and is expected by Canadean to grow to more than 30 %
by 2005 (carton 46 %). Canadean concludes that for the
period 1993 to 2000 market growth was mainly in
plastics, although glass has fared well. PET and HDPE
have eaten into carton sales. For tea/coffee drinks carton
has captured most of the growth but PET has displaced
existing demand for carton. For the period 2001 to
2005 the impact of PET is expected to threaten cartons
for both product groups.

Table 4

Pack mix for fruit-flavoured still drinks and iced tea and
coffee 2000 (28)

Fruit-flavoured still drinks

Carton

Glass

HDPE

PET

Cans

In %

2000

41,6

19,8

9

2

2,4

(26) Figures provided by the notifying party have been prepared by
the notifying party’s consultant Canadean, an expert in the field
of the beverage and liquid-food packaging industry. The study
prepared by Canadean was submitted to the Commission on
24 August 2001.

(27) Canadean study submitted to the Commission on 24 August

2001.

2001.

(28) Canadean study submitted to the Commission on 24 August

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Tea/coffee drinks

Carton

Glass

HDPE

PET

Cans

2000

53

5,7

0

25,4

13,6

(71) According to Tetra, 2,7 billion litres of FFDs were
produced in the Community in 2000, of which over
95 % were ambient. PET use was mainly in ambient
supply and accounted for more than 95 % by volume.
For tea/coffee drinks 2,3 billion (including sports drinks)
were produced in the Community in 2000.

3.3. Growth of PET in the common product segments

(72) According to Tetra, PET use for LDPs and juices will not
increase to any significant extent in the next five years.
Tetra acknowledges that PET can and is currently
successfully used for the packaging of FFDs and tea/
coffee drinks.

3.3.1. Technological considerations

(73) The notifying party claims that PET will not grow due

to technical limitations.

(74) As regards LDPs, Tetra submits (29) that a light barrier is
very important. Light exposure leads to deterioration of
vitamins and formation of light-induced off-flavours.
The degree of deterioration of milk quality depends on
time and intensity of light exposure. These limitations
apply only to UHT white milk. Tetra accepts that
technical solutions to provide a light barrier for PET
exist. This can be achieved with a dark intermediate
layer or by covering bottles with a sleeve containing a
dark layer. All those solutions are currently technically
possible. However, according to the notifying party,
they involve high costs and complex manufacturing
technology, raise recycling issues and eliminate trans-
parency of
the major
the bottle which is one of
advantages of a PET bottle. In addition, aseptic filling

(29) Response of the notifying party dated 26 July 2001 (page 6) to

the Article 11 questionnaire.

PET technology for low-acid products (LDPs are low-
acid products)
is insufficiently developed. Tetra has
submitted that no aseptic PET filling machines have
proven viable for the packaging of low-acid products
and received FDA (US Federal Drug Agency) approval.
However, Tetra
filling
machine producers, including Sidel, have aseptic filling
platforms that it believes are in principle capable of
filling LDPs.

acknowledges

several

that

(75) As regards juices, Tetra submits that an oxygen barrier
is required. Juice is sensitive to oxygen, which can result
in loss of vitamin C and changes in the colour and
flavour of the product. The sensitivity of juice to oxygen
varies with fruit type. The most sensitive are orange
juice and red juice (blackcurrant, cranberry, strawberry).
According to Tetra, viable barrier technologies exist but
are not sufficiently developed and remain costly. In
addition, Tetra maintains that aseptic technology for
juices still has some limitations.

(76) The Commission’s investigation has only partially con-
firmed Tetra’s contentions. It is true that aseptic tech-
nology for the filling of low-acid products is still at a
developmental stage. It is also correct that UHT white
milk requires a light barrier and that juices require an
oxygen barrier.

(77) However, the Commission’s investigation has shown
that these limitations do not apply to large segments of
the relevant ‘sensitive’ product segments. In particular,
fresh milk (which constitutes 40 to 50 % of the total
milk market in the EEA) distributed in a chilled chain
does not pose the same problems. Fresh milk can and is
already successfully packaged in standard PET without
any barrier properties. Flavoured aseptic milk does
not pose particular problems either and is currently
packaged in PET.

(78) The Commission’s investigation has also shown that the
technical limitations put forward by Tetra (light barrier,
aseptic filling problems and oxygen barrier) have already
been addressed and that
rapidly
improve in the future.

technologies will

3.3.1.1.

Light barrier

(79) As regards the light barrier, the Commission found that
it is already technically possible to package aseptic milk
using multi-layer barriers. The bottle has a white coating
on the outside, and usually has a black layer on the
inside, so that it protects the milk from light. This type
of packaging provides adequate protection but has two
main drawbacks. Firstly it is more expensive, which is

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the reason why it is mainly used only for premium
products (such as buttermilk) and secondly it still has
some limitations for recycling. Despite these limitations,
a major European dairy has already introduced a PET
bottle with a light barrier for churned milk under the
Stassano brand which appears in Dutch supermarkets.

mission found (and Tetra acknowledged) that Tetra’s
own filling machine, the RFA-40, has been used success-
fully in Asia to fill low-acid products such as low-acid
milky teas. These products are easier to fill aseptically
than LDPs. Tetra (32) is continuously researching the field
to come up with a viable aseptic PET filling solution for
LDPs.

(80) An independent study by the Virginia Polytechnic Insti-
tute and State University (2001) (30) compared flavour
retention in extended-shelf-life milk packaged in HDPE
(an established material for the packaging of UHT milk)
and PET. The study noted that ‘PETE (31) has many
advantages over HDPE in which milk is usually packaged.
It has considerable mechanical resistance and is light-
weight, transparent, and relatively gas tight. Another
benefit is that consumers can see the product, which is
not the case with pigmented HDPE. The objective of this
study was to determine if development of certain off-
flavors and associated flavor compounds in milk was
related to packaging material).’ The study concluded that
‘PETE materials with amber pigmenting are very effective
in protecting milk flavor against oxidation. Incorpor-
ation of a UV light-blocking agent also yielded improved
flavor protection compared with the commonly used
HDPE material but was less effective than amber PETE.
Higher gas barrier properties of PETE in combination
with protection against light oxidation suggests that
amber PETE or PETE-UV would be effective materials for
extended shelf-life milk’.

(83)

Indeed, many companies are actively trying to promote
use of PET for liquid dairy products including coming
up with solutions for the packaging of UHT milk. An
independent study states: ‘There’s little doubt that aseptic
packaging into plastic bottles is one of the most dynamic
areas of food packaging today. Not only will the number
of installations continue to rapidly escalate but also the
scope of products will continue to increase.... Look for
companies like Sidel/Remy, Stork, Serac, Shibuya and
TetraPak to aggressively make the necessary technical
changes to afford the eventual packaging of shelf stable,
low-acid foods on their fillers. This explosion in market
activity is driven by the consumers’ love for the plastic
bottle and the economic advantages the aseptic packag-
ing has over comparable hot fill...’ (33).

3.3.1.2. Aseptic technology

(84)

(81) The Commission has found that aseptic PET filling
technology already exists for both low-acid and high-
acid products. Sidel has confirmed that, whilst at the
present time there is no solution to allow PET to be used
at affordable cost for packaging UHT milk, there are no
overwhelming technical reasons why PET should not be
used for UHT milk, and it is already used for flavoured
milk.

(82) The parties are active in this field and can offer aseptic
PET filling machines for low and high-acid products. As
regards low-acid products, Tetra claims that no filling
machine has proven viable for the filling of low-acid
products. However, Tetra has acknowledged that several
filling machine producers have aseptic filling platforms
capable of filling low-acid products. Indeed, the Com-

(30) American Dairy Science Association, ‘Effectiveness of Poly and
HDPE in protection of milk flavor’, M. van Aard, S. Duncan and
J. Marcy, 2001.

(31) The study uses the term PETE instead of the more common PET

for polyethelene tephthalate.

In addition, extended-shelf-life (ESL) milk is increasingly
packaged in PET. ESL milk is a non-aseptic non-ambient
product which is packaged under ultra-clean conditions
which provide it with an extended shelf life (around
30 days). ESL is therefore a midway solution between
aseptic and fresh milk. Sidel has sold [...]* Combi SRU
machines [...]* to package ESL flavoured milk (Nesquick
chocolate and banana-flavoured milk). Lehman Brothers
reported that:
‘The impact was twice the production
speed over the previously used paperboard cartons,
flexibility in package designed, improved profitability,
and an extended shelf life for wider product line’ (34).
The Commission has been informed by third parties that
ESL milk is at present packaged in PET in a number of
European countries. In the Netherlands, for example,
ESL milk with a one-month shelf life is packaged in clear
PET.

(32) Tetra has one filling machine under development, the LFA-20
ON, which will be capable of filling aseptically both HDPE and
PET bottles.

(33) PET strategies 2000, ‘Aseptic packaging into plastic bottles’ by
Thomas Szemplenski. It is not clear whether the study refers to
HDPE or PET bottles or both. The reference to hot-fill suggests
that the study takes into account the filling of PET bottles; HDPE
bottles are not filled with the hot-fill method.
(34) Lehman Brothers France, ‘Sidel’, 24 February 2000.

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(85) With respect to juice, PET can be used for packaging of
long-life juice that is aseptically filled. Such products are
already on the market (Minute Maid 1 litre in France,
Tropicana in the United Kingdom and Sinaasappelsap in
Belgium). The barrier technology is available. Indeed the
Combi SRA developed by Sidel is for long shelf life
aseptically filled products (tea, flavoured water, isotonics,
juices and possibly dairy products with UV barrier
package). Sidel has already sold [...]* Combi SRA
machine [...]* for the packaging of aseptic tea and orange
juice.

3.3.1.3. Oxygen barrier

(86) As regards oxygen-barrier technologies, Tetra does not
claim that
these do not exist. Market respondents
confirmed that with existing barrier technology PET can
be and is currently used for many types of ‘sensitive’
products such as FFDs, tea and coffee drinks and some
juices and LDPs. The most problematic fields of use are
pure juices.

(87) The Commission’s investigation has shown that there
will be continuing improvements in PET barrier tech-
nology. This will make PET an even more suitable
material for the packaging of LDPs and juices. The
investigation showed that most companies active in
PET packaging are already providing barrier-technology
solutions. Indeed, both Tetra and Sidel have developed
successful barrier technologies using plasma coatings.
The Commission found that there are over 20 companies
active in this field with different barrier solutions. The
most promising future technology is a monolayer PET
resin which will include the requisite barrier properties.
These technologies are likely to be commercialised
shortly and will radically change the PET barrier land-
scape.

(88)

In the light of the foregoing, the Commission has reached
the conclusion that both aseptic filling technology and
barrier technology currently enables PET to be used for
the packaging of LDPs, juices, FFDs and tea/coffee drinks
and that both these technologies will continue to
improve rapidly and continually improving in the near
future.

3.3.2. Cost considerations

a PET bottle is significantly higher than that of a carton
package. For a one-litre aseptic juice, for example, the
costs were up to 50 % higher for PET, the additional
costs arising from consumables because of the need for
the label and a screw-cap, and from higher equipment
costs. A large proportion of the cost difference was
attributed to the filling/SBM process. Similar results were
found on smaller packages and non-aseptic processes
for both juice and milk.

(90) The Warrick Report (35) found that, for aseptic packag-
ing,
‘PET is 30 to 40 % more expensive than carton
currently’ and stated that to be competitive on total cost,
pack price would need to be 5 to 10 % lower than
aseptic carton cost, to compensate for the lower distri-
bution cost of carton systems. The report states that
even with a reduction in the price of barrier bottles
because of higher volume production, the cost will
remain approximately 20 % higher than cartons. On this
basis the report concludes that ‘any use [of PET bottles]
will be restricted to niche markets...’ (36) The main
opportunities for aseptic milk packaging include ‘poss-
ible opportunity for an ambient ESL product — asepti-
cally filled in a non-barrier bottle’ (37).

(91) The Commission considered the extent to which it
would be possible at present and in the future to offer
PET at a competitive price to carton.

(92) The Commission’s market investigation did not produce
a clear picture of the relative costs of PET and carton
packaging systems. Some market participants stated that
for most applications and in particular for products
requiring a barrier, PET is more expensive. The majority
of respondents, however, were not able to identify the
precise cost differences; for many, this was because they
did not have experience in both materials. However,
some third parties (notably those with greater experience
in PET) informed the Commission that for them PET
was actually cheaper than carton. One iced tea producer
reported costs per package price for 1,5 litre PET
standard to be around 25 % cheaper than one litre
carton. Another iced tea producer reported for the same
products that the PET price was 33 % cheaper than

(89) The notifying party has argued that one of the reasons
why PET will not grow rapidly in the future at the
expense of carton is its higher cost. Tetra undertook a
cost study, which concluded that the cost of producing

(35) Warrick Research Report Packaging Markets (2000)

‘Aseptic

Packaging Markets World & Western Europe’.

(36) Ibid., page 25.
(37) Ibid., page 18.

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carton. One milk producer had undertaken a study
comparing carton and PET costs for one-litre aseptic
milk packaging on various technologies and design
which clearly showed PET to be cheaper in some
instances and highly competitive in others. This study
did not confirm the large differences between PET and
carton reported by the notifying party.

barrier treated PET, aseptic filling machines for HDPE
already exist, PET cannot have off-the-centre necks or
handles like HDPE, the sterilisation process for HDPE is
simpler and less sensitive than for PET and, finally,
coloured PET is difficult to recycle.

(93) Tetra has also argued that packaging costs represent
only a small proportion (approximately 10 %) of the
cost of the final product. Therefore, there appears to be
no reason why small cost differentials between PET and
carton packaging systems should result in significant
price differences of the retail product sold in supermar-
kets. The reason why PET packaged products are more
expensive than carton packaged products is because
beverage companies initially position them as premium
products to extract higher profits from these lines. As
PET becomes established in the market place it
is
expected that it could also target non-premium product
segments. In Italy and Australia where PET for fresh
milk is established there is almost no price differential
between fresh milk packaged in carton and fresh milk
packaged in PET.

(94) An example of a recent PET introduction is the OLMA
dairy in the Czech Republic. OLMA has recently begun
to fill its fresh milk and drinking yoghurt in PET. It
stated that ‘the cost of the new PET bottle in comparison
to a market standard carton is about 30 to 40 %
[higher], but this fact is completely irrelevant in our new
production concept. If we are successful in increasing
our fresh milk market share from 3 to 11 %, then all the
cost involved in the project will become relative’ (38).
The introduction by OLMA of fresh milk in PET bottles
has already been far more successful than expected, ‘the
huge demand from the retailers and consumers for the
attractive, transparent and lightweight bottle’ soon led
to a need for greater capacity. OLMA has placed an
order for an additional PET line with Elopak Plastic
Systems (39).

3.3.2.1. HDPE cost comparison

(95) Tetra also uses cost arguments to claim that PET will not
grow in the milk segment because of its higher cost
compared to HDPE. Tetra also suggests that PET is over
10 % more expensive than HDPE. In its reply, Tetra lists
the advantages of HDPE for the aseptic packaging of
dairy products. HDPE has significantly lower costs than

(96) The PCI study (40) has also examined how PET compares
with HDPE and found that PET offers the same func-
tionality as HDPE, but with a better overall appearance.
Clear bottles emphasise the freshness of the product and
offer a distinct on-shelf appeal. The cost differential is
reported to be about 10 % on the pack as a whole. This
array of qualities has so far focused PET on certain parts
of the dairy product market where is particular qualities
offers a clear advantage over the alternatives. These
segments include premium qualities fresh milk in sizes
of less than one litre, dairy beverages both for household
pack sizes and single-serve sizes, and children’s single-
serve dairy drinks (41).

(97) The Commission’s market investigation confirmed PCI’s
suggestion that PET has marketing advantages over
HDPE, in particular, where visibility can be achieved. To
the extent that marketing advantages exist there is no
reason why this slightly higher cost of PET over HDPE
should hinder PET’s growth prospects. Indeed HDPE’s
higher cost by comparison to carton did not stop HDPE’s
rapid growth at the expense of carton in France. In its
submission of 3 October 2001 Tetra provided an
example from the French milk aseptic market showing
that HDPE has now gained a market share of nearly
30 %. HDPE for one litre aseptic milk was over 20 %
more expensive than perforated carton. Despite this cost
difference, aseptic milk packaged in HDPE successfully
penetrated the French milk market to the detriment of
carton.

3.3.2.2.

Investment costs

(98) Tetra has considered the level of investment that would
be required to achieve the kind of PET growth envisioned
by the Commission and considers it unrealistic. Tetra
uses the EEA milk market as an example for the
investments needed. Tetra argues that, at present, there
are about 4 000 carton filling machines installed at
dairies throughout the EEA. If PET were to represent
50 % of all milk packaging by 2005, that would mean
that 2 000 carton filling lines would have to be replaced
within the next three years (nine to 12 months’ lead
time for the line to be running). As PET filling lines on

(38) See www.elopak.com/innovation/pet/break.shtml.
(39) See www.elopak.com/newsroom.

(40) PCI (PET Packaging, Resin & Recycling) Limited, ‘The Potential
For PET in the Packaging of Liquid Dairy Products’, 2001,
page 12.
(41) Ibid., page 12.

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average run somewhat faster than carton filling lines,
this would mean about 1 500 PET filling lines would
have to be installed. The average cost for a low-acid PET
filling line is about EUR 10 million. This means that
total investment required for EEA dairies for the replace-
ment of packaging lines alone would be EUR 15 billion.
There would be many additional costs resulting from
such a switch, such as costs resulting from a change in
the logistics chain and the marketing strategy.

standard aseptic filling line (Alto) and an aseptic Combi
line are both expected by Sidel to cost just over EUR
[4 to 7 million]* and not EUR 10 million as stated by
Tetra. The OLMA project in the Czech Republic was
worth EUR 2,7 million and includes SBM machines,
bottle storage facilities and the filling machines, all of
which were installed in five months (47).

(99) The Commission believes this analysis is flawed on
several accounts. Firstly, the Commission did not predict
50 % growth in its statement of objections (42). Secondly,
PET filling lines will not only replace carton but also
glass, cans and HDPE. Thirdly, whilst consumption of
plain white milk in larger sizes is not expected to grow
significantly, consumption of milk in single-serve bottles
and flavoured milk, for example, is expected to grow
fast according to the PCI study. Therefore, the capacity
for such products does not necessarily need to replace
existing capacity. Fourthly, investment in new lines did
not seem to prevent the rapid growth of PET in Italy
where it took a 10,5 % market share of the fresh milk
market in just two years (43). Even Canadean (44) expects
this rapid growth in Italy to continue and estimates that
‘within the chilled sector PET bottles could reach almost
23 % in Italy by 2005’. Similarly, in France, where HDPE
has been taking market share from carton, the rapid
investment in HDPE filling lines for aseptic milk enabled
HDPE to capture around 10 % of this market in just six
years (45). Fifthly, the lifetime of a carton machine is
around 10 years which suggests that on average one
would expect 10 % of existing capacity to be renewed
each year. On the basis of information supplied by Tetra,
this suggests that 400 carton machines will be replaced
each year. It is clear that, if only a proportion of such
machine sales are captured by PET sales,
it can still
represent a significant increase in PET capacity.

(100) The Commission also notes that the cost quoted by
Tetra in its calculation for an average low-acid PET filling
line is significantly higher than that quoted by Sidel (46)
in its cost comparisons of different PET filling lines. A

3.3.3. Marketing considerations

(101) Marketing is one of the major advantages of PET which
will drive its growth in the relevant product segments.
The main advantages of PET are its strength (compared
to carton, HDPE and glass), light weight (particularly
compared to glass); transparency and glass-like appear-
ance (unlike carton, HDPE and cans). PET is reclosable/
resealable and ideal
for consumption on the move
(unlike carton, cans and to some extent glass and HDPE).
Finally, PET has shape flexibility in design (unlike carton,
cans and glass). The main disadvantages of PET are its
costs for barrier applications and its low light barrier.

(102) The Commission’s investigation showed that beverage
companies, supermarkets and consumers endorse PET
enthusiastically because of those advantages. Tetra does
not contest that PET is a very attractive packaging
material. However, Tetra claims that PET loses its major
advantage, transparency, when a light barrier is required
in particularly with respect to UHT milk which requires
an opaque bottle. In this case, Tetra claims that PET has
no marketing advantage as compared to HDPE. The
Commission has, however,
found that opaque PET
bottles exist in the EEA market and are successful with
consumers.
transparency
In some instances, partial
can be achieved by covering the bottle with a semi-
transparent film. An independent research company,
PCI (48), explains that long-life flavoured milk has already
been packaged very successfully in PET using this
method: ‘The PET bottle for Nesquick is in many respects
It achieves a
a state-of-the-art bottle at
60-90 day shelf life by combining: direct fed from a
blowing machine into an aseptic filler; the bottle has a
foil seal to improve barrier; UV light damage is controlled
by the use of a PETG shrink sleeve; and the pack is
distributed in the chill chain’.

this time.

(42) Such a level was however predicted by some market participants.
(43) Parmalat introduced the PET bottle for milk in the Italian market

in 1998.

(44) Canadean study submitted to the Commission on 24 August

2001.

(45) The market grew from around 10 % to just over 21 % during the

period 1994 to 2000.

(46) Sidel response dated 4 September 2001.

(47) See www.elopak.com/innovation/pet/break.shtml.
(48) PCI (PET Packaging, Resin & Recycling) Limited, ‘The Potential
For PET in the Packaging of Liquid Dairy Products’, 2001,
page 26.

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3.3.4. Growth forecasts

Juice and nectars

2000

2005

(103) In the light of recent and forthcoming technological
developments, cost and marketing considerations, the
Commission has concluded that PET use in the common
product segments will grow significantly in the next five
years.

(104) When considering the potential growth of PET, the
Commission consulted various data from research
studies done for Tetra (Canadean), independent studies
‘The
(PCI — PET Packaging, Resin and Recycling,
potential
liquid dairy
for PET in the packaging of
products’, 2001 Limited, Warrick Research Report Pack-
aging Markets (2000) and the Pictet ‘European Packaging
Machinery’, September 2000) in addition to the market
investigation. The result of each of those studies are
assessed below.

3.3.4.1. Canadean study for Tetra (49)

(105) The Canadean study commissioned by Tetra does not
foresee significant growth for PET in LDPs and juices.
For milk, PET now represents 0,5 % and is expected to
increase to 1,2 % by 2005, and for juice PET now
represents 0,5 % and is expected to increase to 1,1 % by
2005. Canadean’s results are set out in the following
tables:

Carton

Glass

HDPE

PET

Cans

64,7

69,3

31,8

26,4

2,0

2,2

0,5

1,1

0,9

0,8

(106) The LDP market is, according to Tetra, not expected to
grow over all, remaining around 30,5 billion litres in
size; the split between aseptic and non-aseptic is also
expected to remain fairly constant. The juice market is
expected to reach 10 billion litres by 2004; the split
between chilled and ambient is expected to remain the
same.

(107) Canadean predicts faster growth for FFDs and teas and
in these segments, PET will threaten

concludes that,
carton and will take market share away from carton.

Table 5

Pack mix for LDPs and juice 2000 (actual) and forecast for
2005 (50)

In %

Table 6

Pack mix for fruit-flavoured still drinks and iced tea and
coffee 2000 (actual) and forecast for 2005 (51)

LDPs

2000

2005

In %

Fruit-flavoured still drinks

2000

2005

Carton

Glass

HDPE

PET

Cans

70,6

70,0

6,7

4,5

17,3

19,5

0,5

1,2

1,0

0,7

Carton

Glass

HDPE

PET

Cans

41,6

36,9

19,8

20,0

9

12,2

20

21,5

2,4

2,0

(49) Canadean, ‘The Growth of PET Bottles for Selected Beverages in
Western Europe’, a special study for Tetra, submitted to the
Commission on 24 August 2001.

(50) Canadean study submitted to the Commission on 24 August

(51) Canadean study submitted to the Commission on 24 August

2001.

2001.

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L 43/35

Tea/coffee-based drinks

2000

2005

Carton

Glass

HDPE

PET

Cans

53

46,4

5,7

6,6

0

0

25,4

30,5

13,6

14,4

accelerate the rate at which PET bottles becomes more
widely used this is not a necessary condition for
substantial growth of PET. The Commission also con-
siders that Parmalat, the Italian dairy which was the
main driver of the fast growth of PET experienced in
Italy, as a pan-European champion could drive the PET
penetration in Europe further. Although its activities in
PET in Europe have mainly focused on Italy, Parmalat is
also present in more than 20 countries including France,
Spain, Germany, Portugal and the United Kingdom and
has major activities throughout the world. Parmalat
could also develop its successful Italian model in other
countries. In addition, the Commission has found that
other multinational companies such as [...]* are actively
promoting liquid dairy products in PET.

(108) According to Tetra, the FFD market is expected to grow
overall to 3,5 billion litres, the split between ambient
and chilled is expected to remain fairly constant although
a slight increase in the chilled sector may occur. The tea/
coffee drinks market is expected to reach 2,7 billion
litres by 2004.

(109) The Canadean study provides some arguments as to why
the balance between carton and PET is unlikely to be
seriously upset across Europe in the future. Canadean
provides a list of events, which will need to occur
for the PET share to increase dramatically. First, a
multinational drinks company will need to emerge as a
pan-European champion of PET packaging. Canadean
believes this is unlikely to happen in the case of liquid
dairy products. Secondly, PET packaged products will
need to be priced significantly below prices charged for
the carton packaged equivalent for a sustained period.
PET packaged products will also need to be offered at
prices considerably below those of HDPE packaged
equivalents. Thirdly, a pack size or size range will
need to be developed which meets hitherto unsatisfied
consumer demand. Fourthly, distributors’ own brands
and those of smaller drinks companies will also adopt
the use of PET packs following the lead of a multi-
national. Finally, the Italian example is unique and
unlikely to be replicated across the EEA.

(110) The Commission cannot accept Canadean’s arguments
and believes that Canadean’s forecasts are overly pessi-
mistic.

(i)

L e a d i n g m u l t i n a t i o n a l c o m p a n y

(111) Canadean believes that PET needs to be introduced by a
leading multinational drinks company that can force
change through its own system, with the agreement of
retailers and consumers, and oblige its competitors to
follow suit. Whilst the Commission agrees that the
introduction of PET by such a company could perhaps

(112) Irrespective of such a driving force, the Commission’s
market investigation has overwhelmingly indicated that
PET is the preferred packaging material for marketing
and for consumer convenience. Therefore, it will not be
necessary to force PET on the market as both producers
and consumers appear to prefer this packaging solution.
Likewise retailers did not seem to be against the introduc-
tion of PET in a wide range of product areas. Indeed for
milk,
juice, iced tea and sports drinks most retailers
selected PET as their first or second preferred packaging
material. Third parties also expressed little doubt that
the future would see greater PET penetration, although
the enthusiasm for PET as a packaging material was
clearly country-related (the exposure of PET is for
example greater in France and Italy than in Sweden and
Finland) and product related (iced tea producers are
more used to PET than most of the German LDP
producers).

(113) In this context the presence of the leading multinational
PET machine supplier (Sidel) may have greater influence
on the rate at which liquid-food producers are willing to
package some of their production in PET. By having
experience in a wide range of countries such a company
should be expected to draw on its experience developed
with downstream producers, most importantly con-
verters, and to cooperate with them to enable a success-
ful launch of PET. The Commission is of the view that a
large international supplier of SBM machines together
with large independent converters will have the incentive
and power to develop the introduction of PET with as

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wide a range of companies as possible. The Com-
mission’s investigation has confirmed that converters in
cooperation with Sidel have been very active in promot-
ing the use of PET for the packaging of branded products.

(ii)

P r i c e s

(114) Canadean argues that the retail price at which PET
packaged products are introduced should be below the
price of the equivalent carton and HDPE packaged
products. There is no obvious reason why this should be
the case and Canadean provides little guidance on why
this should be a condition for significant growth. In Italy
for example, as Canadean shows, PET in fresh milk has
been successfully launched, gaining significant market
shares although it was offered at the same price as
carton.

(115) Given the many advantages of PET as compared to
carton and consumers’ willingness to accept products
offered in PET packaging it is not immediately clear why
it is necessary to offer this advantageous packaging at a
discount compared to the other packaging options.

(iii)

P a c k s i z e

(116) Canadean argues that pack sizes and size range will need
to be developed to meet unsatisfied consumer demand.
This argument relies on PET being complementary to
carton and achieving penetration by creating new market
Initially as seen in the iced tea segment,
growth.
the introduction of PET will
target markets where
penetration is possible through market growth to achie-
ve higher margins rather than facing tougher compe-
tition in slow growing markets. There is no reason
however why PET should not grow significantly in
markets were market growth is limited. Moreover it is
already possible for PET to be produced in a wide range
of sizes with PET being more flexible in design and sizes
than carton. The Commission therefore views this
condition as being fulfilled at the present time.

(iv) R e t a i l e r s a n d s m a l l p r o d u c e r s

switch to PET. Indeed, in Italy a significant number of
small dairies replying to the market investigation were
already packaging in PET and the overwhelming majority
of the remainder were interested in or planning to
introduce PET packaging for their products. Tetra itself
in a press release dated November 2000 stated that
‘there are still numerous small to mid-size independent
operators located across the nation [Italy] serving the
needs of people living in the local villages and country-
side. Some of them are following a recent international
trend that began developing in the late 90s when more
and more dairies started packing premium-positioned
pasteurised milk into one-litre PET bottles.’

(v)

I t a l i a n e x a m p l e i s u n i q u e

(118) Canadean data shows that, in 2000, PET had already
reached 4,5 % of the Italian LDP market as a whole
(fresh/non-aseptic and UHT/aseptic milk) and that more
than 10 % of the Italian fresh milk market used PET in
2000. PET was used to package 150 million litres of
milk in Italy and only 26 million litres in the rest of the
EEA. This shows the potential for increase in other
regions if the Italian example is followed. Similarly in
the juice segment, total volume of PET across western
Europe was 45 million litres.
three countries,
Switzerland (18 million litres), the United Kingdom
(9 million litres) and Belgium (8,5 million litres),
accounted for three quarters of total volume.

Just

(119) In its reply, Tetra argues that the Italian example provides
no guidance for developments in the rest of the EEA.
This is because the relative success of PET packaging for
fresh milk in Italy occurred in very special circumstances
that are unlikely to be present elsewhere in the EEA.
Parmalat introduced PET as a means of boosting sales
and profitability and its rival Granarolo followed with
its own PET packaging and an advertising campaign.
This, Tetra believes, eroded any profitability which may
have resulted from the introduction of PET and could
well deter entry from other dairies.

(117) Finally, Canadean suggests that distributors’ own brands
and those of smaller drinks companies will also have to
adopt PET. There is however no reason why retailers or
smaller drinks companies could not adopt PET. The
Commission’s market investigation showed no unwill-
ingness on the part of retailers to accept PET as a
packaging for ‘sensitive’ products. Likewise, there is no
reason why smaller companies should be unwilling to

(120) It would appear however that, on the contrary, small
and medium-sized independent dairies in Italy have
started packing in PET bottles following the example of
the two major dairies. Tetra has recently sold [...]* Tetra
Plast LX-2 to [...]*, a converter [...]*, which allows these
smaller dairies to supply milk in PET without having to
carry the full investment cost.

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(121) The Italian market may have been the first to develop
PET for milk but the Commission does not believe that
it is unique. PET use has already penetrated the fresh-
milk markets in Belgium, the Netherlands and Austria.
in the large United
Despite Tetra’s argument
Kingdom fresh-milk market dairies have already made
considerable investment in switching from carton to
HDPE bottles and are therefore unlikely to swing again
towards PET in the short to medium term, Canadean has
reported that LDPs in PET will be launched in the United
Kingdom during 2001 through two major supermarket
chains ([...]*). Milk in PET is also expected to be launched
in Spain from 2003.

that

which considers previous growth as an indicator of
future growth and ignores the future technological
developments particular to barrier technology. Secondly,
the forecasts are not based on any evidence from
customers or supermarkets, whereas the Commission’s
market investigation took the views of these participants
into account. Given that the decision to package prod-
ucts in PET is said to be customer driven, a study
excluding customer views is not particularly robust.

(vi) C o n c l u s i o n o n C a n a d e a n s t u d y o n

P E T g r o w t h

improvements,

(124) For the reasons set out above, Canadean’s forecasts for
In addition to
PET’s growth seem over-pessimistic.
technological
the Commission has
looked closely at the expected growth of the PET market
in the new segments of ‘sensitive’ products (LDPs, juices,
FFDs, tea/coffee drinks) from the perspective of the
parties, third-party respondents and independent ana-
lysts.

(122) The Commission therefore has concluded that

the
necessary factors outlined by Canadean for significant
growth have to a large extent already occurred or will
occur in the near future. In addition, Canadean already
acknowledges that there will be significant success for
PET in certain segments in specific national markets and
across the EEA notably in the tea and coffee-based
products sector.

3.3.4.2. Canadean’s independent studies prior to the merger

(123) It

to note that

is also important

the forecasts by
Canadean were put into question at the oral hearing.
Firstly, it was established that the sophisticated fore-
casting model for the beverage industry, which Canadean
has developed in conjunction with City University of
London, was not employed when carrying out the
predictions for Tetra. Instead Canadean used a model (52)

(125) Canadean produces annual reports with analyses of
various beverage segments. The Commission has obtai-
ned from third parties reports on three of the four
relevant segments: juices, FFDs and teas. There is no
independent Canadean report on LDPs (an independent
study by another company PCI is analysed below).

(52) A univariate forecasting was used, applying a standard
exponential smoothing technique. Several assumptions were
made including that the price/filled cost relationships between
different pack types will remain constant, current trends in pack
substitution will either continue or that certain pack types will
hit a given ‘ceiling’ and that adequate production capacity exists
in or near the counties concerned to produce the different pack
in the volumes predicted.

(126) Canadean’s calculations for PET penetration in 2000 in
the juice segment are set out in Table 7. These are a
snapshot of the year 2000 and do not include growth
forecasts. It is important to note that PET in Europe was
non-existent in the juice segment in 2000 (it has now
appeared) and that if the example of other regions is
followed Europe represents enormous growth potential.

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Table 7

Share of consumption by pack mix

% Share

PET

Carton

Glass

Other plastic
(HDPE)

Cans

W. Europe

N. America

Asia

Australasia

Middle East/N. Africa

Source: Canadean Global Juice and Nectar Report 2000.

0

19

30

38

7

68

44

37

31

61

29

5

7

4

11

2

18

2

25

16

1

5

23

3

5

(127) In its submission of 3 October 2001, the notifying party
claimed that developments in other regions such as
North America and Australasia were not relevant for an
analysis of the European market. Tetra claimed that the
US experience in PET in juice was not informative
because of the widespread use of hot-filling, which is
not accepted by European consumers due to taste issues.
The Commission has, however, found that hot-fill is
used to a large extent in some European markets such as
Germany. In any event, the recent developments in
aseptic PET filling for high-acid drinks (which Tetra
accepts is possible in contrast to low-acid drinks) mean
that aseptic rather than hot-fill can be used to cater for
Europeans’ preference for aseptic-filled liquids.

3.3.4.3.

PCI study on ‘The Potential
for PET in the
Packaging of Liquid Dairy Products’ (2001) (‘PCI
study’)

be used (such as cartons with a layer, or plastic bottles
with a barrier layer). Alternatively, PET’s UV barrier can
be improved by the addition of proprietary UV barrier
compounds or amber colouring.

(129) Long-life packaging allows brand owners to fill PET
from high volume centralised locations and ship to sales
outlets over a wide area. The packaging therefore meets
the requirements of the modern dairy industry. PCI does
not, however, expect PET to make inroads in the low-
end commodity part of the white milk market. ‘We do
in
not anticipate that PET will be very successful
replacing existing packaging — mainly cartons and
HDPE — in the commodity fresh milk sector mainly
because this is by and large a price-sensitive segment.
There are exceptions, however, most notably in Italy
where the premium Alta Qualita segment has already
converted to PET to a large extent. The Italian example
may suggest opportunities to other dairy companies
seeking to differentiate plain milk varieties’ (54).

(128) PCI states that developments in aseptic filling of PET are
enabling it to offer an alternative to the aseptic carton
and so increase significantly its potential in the dairy
products market, enabling it to move out from the
simple market application of short-shelf-life fresh milk
sold through chilled distribution systems (53). According
to PCI, standard PET provides some protection and is an
adequate barrier for short-shelf-life products. Where a
longer shelf life is required, other packaging types must

(130) The PCI study states that PET is not likely to make any
inroads in aseptic milk, a segment that accounts for at
least 45 % of the milk market. In making this prediction
PCI may have failed to take into account developments
in light barrier technologies for UHT white milk. PCI
also shows that dairy products in PET bottles have
already been introduced in the following Member States:
Belgium, Netherlands, Italy and the United Kingdom.
PCI predicts that PET will reach 9,2 % for plain fresh
milk in Europe by 2005 and 25 % for other dairy

(53) PCI study, page 8.

(54) PCI study, page 12, emphasis added.

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beverages. According to PCI the ‘other dairy bever-
ages’ (55) segment is ‘one sector of the liquid milk market
that is experiencing rapid growth in Europe (...). One of
the most successful to have emerged recently has been
flavoured dairy drinks, based on milk and yoghurt’ (56).
Total PET consumption for dairy products is predicted
to rise from 4 000 to 43 000 tons in Europe by 2005.
According to PCI ‘this is a realistic projection’ (57).

(134) For example, in France, aseptically filled plastic bottles
(PET and HDPE) now have a significant share of the
premium pure juice market. However, plastic bottles
have made little impact in any other country in the
premium long-life sector (63). In the tea segment,
‘in
most markets, aseptic PET is likely to be the main
pack type, with cartons continuing to predominate in
Germany’ (64).

3.3.4.4. Warrick Research Report Packaging Markets

(2000) (58) (‘Warrick Report’)

(131) According to the Warrick Report, another independent
study of the liquid-food packaging sector, milk and
juices account for some 80 % of aseptically packed
product volume in Western Europe.

(135) The Warrick Report provides some conclusions for
overall PET penetration in the aseptic market for ‘sensi-
tive’ products. Warrick states that ‘plastic bottles have
shown the most rapid growth in liquid-food packaging,
and are expected to be the fastest growing type of pack
in the next three years. Most of the growth will be for
PET bottles, in particular for ready-to-drink tea. HDPE
bottles currently account for about half of bottle use’ (65).
The fastest-growing sector in recent years has been ready
to serve tea, and new beverages such as flavoured water
and sports drinks. These are also expected to be the
fastest-growing sectors over the next few years (66).

(132) The aseptic milk markets in Western Europe are ‘mature
— in many cases in slight decline. Aseptic PET systems
will therefore tend to replace other types of pack rather
than grow with additional demand (59). The use of a
wider range of packs means that companies are more
likely to use aseptic filling, because they are not limited
to the use of “brik” cartons which tend to be associated
with economy products’ (60).

(136) The Warrick Report forecasts use of aseptic filling to
increase by about 50 % by 2003. Most of the increase
will be for PET, the use of which will approximately
double to some 2 billion packs (67). The value of the
whole aseptic market in Europe was EUR 4,5 billion in
that, aseptic carton packaging was over
1999. Of
EUR 3,5 billion in 1999.

(133) In the juice market ‘cartons are under long-term threat
from plastic bottles. Increasing importance of premium
and branded products will put more emphasis on pack
design, which will enable carton designs to be promoted
for use with quality products. Continuing improvements
to shape, pouring facility, closure, etc. will be important
in this market. Carton systems will need to ensure
that their cost advantage in high-volume markets is
maintained through increased line speeds, pack cost
reduction and improved efficiency’ (61). ‘The success of
juice drinks with preservatives in plastic bottles may
affect demand for aseptic carton systems’ ‘Opportunities
in the juice sector will depend on companies exploring
the use of different types and designs of pack’ (62).

3.3.4.5. Analysts’ reports — Pictet ‘European Packaging

Machinery’ (September 2000) (Pictet Report)

(137) The Pictet Report predicts strong growth for PET.
According to the Report, ‘demand for PET is expected to
grow by 10 % p.a’ (68). ‘Future growth will be strongly
underpinned by the use of PET bottles with improved
barrier qualities which can be filled with oxygen-sensitive
products’ (69). ‘As consumers are increasingly insisting
on PET packaging for milk, juices and sauces, it is of the
utmost importance to have an aseptic-filling solution for
PET bottles’ (70).

(55) Non-white milk including flavoured milk, milky drinks, yoghurt

drinks, etc.

(56) PCI study, page 33.
(57) PCI study, page 13.
(58) Warrick Research Report Packaging Markets, ‘Aseptic Packaging

Markets World & Western Europe’, 2000.

(59) Warrick Report, pp. 16, 25.
(60) Warrick Report, page 20.
(61) Warrick Report, page 21.
(62) Warrick Report, page 18.

(63) Warrick Report, page 11.
(64) Warrick Report, page 12.
(65) Warrick Report, page 16.
(66) Warrick Report, page 6.
(67) Warrick Report, page 32.
(68) Pictet Report, page 5.
(69) Pictet Report, page 5, emphasis added.
(70) Pictet Report, page 5.

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(138) According to Pictet, thanks to recent improved barrier
properties,
‘PET is now also becoming an attractive
packaging option for other oxygen-sensitive products,
like milk and fruit juice which offer appreciable market
potential.’ (71) Pictet continues:
‘the attractive market
outlook for PET containers should, in our opinion, not
be adversely influenced by aseptic cartons which are
currently also used for oxygen-sensitive products. We
see clear comparative advantages for PET containers
over aseptic cartons (see table below) and we expect
plastic to gain ground rapidly on cartons’ (72). ‘We are
expecting sales growth for juice cartons to decelerate as
juices will be increasingly filled in PET bottles. [page 15]
With aseptic filling becoming a standard for PET bottlers,
the matter of filling the bottles with oxygen-sensitive
liquids, like fruit juices, is no longer an obstacle’ (73) As
for milk, Pictet expects to see a ‘shift towards cartons
being substituted by PET bottles’ (74).

3.3.4.6.

Parties’ forecasts

(139) Sidel has made some estimations of how it foresees the
PET markets developing.
In its Dossier de Presen-
tation (75) Sidel predicts an annual growth of [...]* for
fruit juices, teas and isotonic drinks. By 2005, Sidel
forecasts that PET sales in these product areas will
increase by [...]*. At its annual meeting (76) Sidel stated
that the segment of juices, teas and isotonic drinks were
‘increasingly shifting to PET,...at the expense of carton
and glass containers’. Furthermore in an interview with
PET Planet (77) Francis Oliver said ‘I predict that the PET
market will double in a short time...New application will
include beer, milk, fruit juices...’. From this it is clear that
Sidel views the common product segments as being
produced increasingly in PET in the future.

(140) Tetra predicts rapid growth for the aseptic PET filling
market (sold only to customers in the common product
segments). Within the last three years the number of
installed machines in the EEA has increased by [70 to
80 %]*, with the highest increase in 2000. This market
growth is expected to continue over the next years at a
rate of [20 to 30 %]* annually (78).

(71) Pictet Report, page 11.
(72) Pictet Report, page 11.
(73) Pictet Report, page 15.
(74) Pictet Report, page 15.
(75) Dossier de Presentation Sidel, Communication Sidel, 2000.
(76) Presentation Sidel, Group Annual Meeting, May 2000.
(77) PET Planet Insider Volume 2 N04+5/01 Francis Oliver, President

of Sidel France ‘Innovation is my added value to the company’.

(78) Notification, paragraph 68.

3.3.4.7. Market investigation

(141) The Commission’s market

investigation showed the
extent to which market participants expected PET to
grow in the future. Third-party views on this differ
widely across type of third party, country of origin and
experience of PET. German milk producers for example
saw little prospect for growth in the near future, whereas
Italian and Belgian producers were far more optimistic.
Furthermore, iced tea producers were very optimistic,
expecting fast growth for PET at the expense of carton.

(142) Generally, market participants suggested significant
growth in PET use in the short term in the ‘sensitive’
products. For those participants who felt able to quote
the proportion of the ‘sensitive’ products that would be
packaged in PET in the 2005, the Commission found
that on average PET would represent around 40 % in
milk, 30 % in juice, 40 % in FFDs and over 50 % in iced
tea. Respondents who were unable to predict the exact
proportion of PET use in the future provided the
Commission with some insight as regards their opinion
on future growth. One major company active in the
‘sensitive’ products market stated: ‘If it was cost effective
and acceptable to consumers then there would probably
be an incentive to move from carton to PET because of
the considerations that currently differentiate carton
and PET including image to consumers and consumer
acceptance, pack differentiation, robustness and effective
resealability’. Another company stated: ‘We believe that
technology already exists to provide good oxygen and
light barrier properties and that PET will grow rapidly in
the four sectors mentioned.’

(143) The Commission’s investigation showed that third par-
ties were very enthusiastic about PET’s future growth
when improvements in barrier technology become
established. An SBM machine supplier stated that ‘we
are strongly convinced that thanks to the barrier tech-
nology PET will be able to gain market share for juices
versus carton’. Most respondents projected rapid PET
growth to the detriment of carton in both milk and juice
in the near future in such an eventuality. PET, due to its
inherent advantages — transparency, malleability, ease
of use,
low cost and recyclability — is seen as a
technology
competitive material. Provided barrier
becomes established, a significant number of market
participants expect PET to reach more than 50 % of milk
and juices to the detriment of carton in the next 4 to
5 years. A major company active in barrier technology

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forecasted that with a further cost reduction in their
technology and improvements in PET manufacturing
economics (i.e. blowing), PET will compete effectively
with carton bricks and will lead to a substantial pen-
etration of this material in this segment.

premium segments of aseptic milk such as single-serve
packages. With PET reaching at least 15 % of fresh milk,
25 % of other dairy beverages and only 1 % of UHT milk
by 2005, PET will package approximately 3 billion litres
per annum (this represents approximately 9 % of the
total European market for liquid dairy products).

3.3.5. Conclusion on the current use and growth
of PET in common product segments

(144) In the light of the above, the Commission has come to
the conclusion that there is already significant overlap
between PET and carton in the FFDs and tea/coffee
drinks segments where PET already represents 20 % and
25 % respectively. PET will continue to make inroads
into these segments at the expense of carton (79). Under
a conservative estimate, with PET reaching 30 % in each
of these segments by 2005, PET would pack 800 million
litres of tea/coffee drinks (including sports drinks) and
1 billion litres of FFDs.

(145) Despite the current overall limited presence of PET in
LDPs and juices on an EEA-wide basis, there is significant
PET presence in LDPs and juices in certain Member
States such as Italy, Belgium, Netherlands, France and
the United Kingdom.

(146) The improvements in barrier technology and aseptic
PET filling are expected to enhance PET’s position in all
four relevant product segments. The Commission has
made a careful assessment of the parties’ submissions
and forecast estimates, third-party studies, responses to
the market investigation and a review of the technologi-
cal improvements. It is concluded that in the LDP and
juice segment, PET will grow significantly in the next
five years.

(147) The Commission considers that it is realistic to expect
that PET will reach at least 10 to 15 % in fresh milk and
25 % in flavoured and other dairy beverages by 2005.
PET’s use for UHT milk (which represents approximately
50 % of the total milk market in the EEA) is uncertain
even though the relevant light-barrier technology exists.
Growth will depend on developments in low-acid aseptic
filling and cost reductions. The Commission considers
that PET has significant potential at least in smaller,

(79) This is accepted by Canadean in its study for Tetra submitted to
the Commission on 24 August 2001. Canadean concludes: ‘Yes,
PET (and HDPE) will eat into carton and glass share’ in the FFD
segment. Canadean concludes: ‘PET will threaten cartons’ in the
tea/coffee segment.

(148) As regards juice, in the light of the market investigation,
the Commission expects substantial switching from
glass to PET and a more limited switching from carton
to PET to occur. Major beverage companies have already
introduced juice in PET; these include the Minute Maid
and Tropicana brands. The Commission believes that it
is realistic to expect PET to reach at least 20 % of the
overall juice market in the EEA by 2005; this would
represent approximately 2 billion litres of juice filled in
PET. This is still significantly lower than the level that
PET has reached in North America and Australasia.

3.4. Rivalry between PET and carton in overlap

products

(149) The Commission also investigated whether, given that
carton and PET are technically substitutable, i.e. both
materials can package the same products, and given the
growth of PET in the common product segments, carton
and PET packaging systems substitute each other to such
an extent that they should be placed in the same product
market for competition law analysis.

(150) Tetra has argued that even if the two materials can be
used for packaging the same products, PET and carton
packaging systems form distinct product markets and
the pricing of one does not constrain the pricing of the
other. This is due to the fact that the main driver for the
choice of packaging systems is marketing differentiation
of the final product, shape, positioning, and consumer
group that is targeted.

3.4.1. Rivalry in the retail market

(151) Tetra has argued that beverage companies tend to use
PET for premium products whilst reserving carton for
bulk,
low-margin products for price-conscious con-
sumers. As a result, according to Tetra, PET and carton
target different consumer groups and do not compete in
the retail market. Tetra has supported its argument by
producing examples showing that the same product
(orange juice or apple juice) in the same supermarket
own-brand was consistently more expensive when pack-
aged in PET than in carton containers.

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(152) The market investigation has only confirmed the notify-
ing party’s view partially. The Commission found that
PET has been used as a marketing tool for the introduc-
tion of premium and branded products. However, the
Commission found that PET is also used for low-margin
products such as white milk; for fresh milk, which
represents close to 50 % of the total dairy market in the
EEA and, to a more limited extent, aseptic milk. PET has
already captured 10 % of the fresh milk market in Italy
where it is sold at the same retail price as carton
packaged milk. There is nothing to prevent beverage
companies from using PET in different simpler shapes
for non-premium products as PET becomes established
in the market and packaging costs continue to fall.
Indeed, an analyst concludes, ‘our analysis of the PET
market clearly shows that PET has both marketing and
economic advantages
for mass consumption mar-
kets’ (80).

(153) In addition, the investigation revealed that carton is
used for premium and branded products and in these
segments PET would presumably constitute a direct
rival. Moreover, new technological developments in
carton have resulted and will continue to result in more
differentiated carton shapes, which could provide a
direct marketing alternative for premium and branded
goods. Iced tea products by Twinings, for example, are
at present sold in round ‘can-like’ carton containers.

(154) It is therefore concluded that, whilst not being perfect
substitutes at consumer level, both carton and PET can
target the same consumer groups and offer a choice in
all the common end-use product segments and that, in
any event, PET will be well placed to target premium
products that have in the past been packaged in carton.

3.4.2. Elasticity of demand between PET and car-

ton packaging systems

(155) Tetra has stated that the choice of packaging is driven
by numerous factors, including the physical properties
of the liquid and the packages, packaging sizing and
the
shape, consumer perceptions of

the nature of

(80) Pictet Report, page 5. The analysis speaks about mass consump-
tion markets in CSDs and water but also makes clear that future
PET growth will be underpinned by the use of PET bottles with
improved barrier qualities for oxygen-sensitive products.

beverage and the package and branding concepts. This
diversity of factors means that beverages are usually
marketed in multiple types of packaging to satisfy
varying consumer needs, and also that different bever-
ages are packaged in a different mix of packaging
materials.

(156) This has been confirmed by the market investigation to
a certain extent. The submissions and data collected by
the Commission show that an assessment of the level of
substitution between different packaging materials is a
complex exercise and that many parameters need to
be taken into account. For example, packaging cost
comparisons differ drastically depending on the size of
the package used.

(157) The relative cost of PET has already been discussed in
Section IV.3.3.2. Tetra submitted that, regardless of
relative cost, the main driver of a beverage company’s
choice for a packaging material and hence packaging
system is market differentiation and consumer prefer-
ence. The market investigation only partially confirmed
the view of the notifying party. Market respondents were
asked, for example, whether they would switch from a
carton packaging system to a PET packaging system and
vice versa if the cost of one packaging system rose
permanently by a small percentage (5 to 10 %). The
majority of market respondents confirmed that such
small price increases would not have a significant
influence on their choice of packaging system. This
argument is naturally stronger when comparing specific
pieces of equipment which form only a part of the
overall packaging system (e.g. it is estimated that the
cost of the SBM machine accounts for 20 to 40 % of the
cost of a whole PET filling line).

(158) However, the market investigation also revealed that,
whilst cost is not the primary factor in the choice of
packaging system,
in particular, given that the two
packages are not seen as perfect substitutes by con-
sumers, it nevertheless remains a significant factor. Many
respondents indicated that a price increase of 20 %
would be sufficient to make them switch to the alterna-
tive packaging system. The investigation also showed
that switches would mainly be one-way from carton to
PET packaging systems and not vice versa. This is not
surprising given that PET is seen as a more modern
material which is, over all, preferred by consumers, all
other factors (including price) remaining equal.

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3.4.3. Switching costs

3.4.5. Conclusion on whether packaging systems
using PET compete with other packaging
systems

(159) The market investigation has shown that customers
would be unwilling to abandon installed carton lines in
favour of new PET lines unless there were significant
price differences (much more than 5 to 10 %) or
compelling consumer demand. This argument does not
apply in cases of new installations either as additions of
capacity or when old lines come to the end of their life
(normally PET and carton lines have a life-span of
approximately 7 to 10 years). In addition, switching
costs are not prohibitive although they are relatively
high. The establishment of a new PET line costs approxi-
mately EUR 1,5 million for a standard line to around
EUR 7 million for a high-capacity aseptic line.

3.4.4. Supply-side substitutability

(160) The Commission agrees with the view of the notifying
party that the mechanical concepts of carton packaging
machines and SBM machines are very different and that
the technology is not transferable. It is not possible to
modify a carton packaging machine in order to produce
PET bottles and vice versa. Both Tetra and its smaller
rival carton supplier, SIG, have been able to obtain a
foothold in the PET market through acquisitions rather
than through capitalising on their own existing carton
packaging technology.

(161) Whilst the Commission agrees that there is not sufficient
supply-side substitutability indicating in itself a single
product market, it cannot accept Tetra’s contention that
the two sectors are so different that know-how in one
cannot have any use in the other. This is particularly so
with regard to aseptic technology. Tetra contends that
whilst aseptic technology has been an important driver
of success in carton packaging (the majority of cartons
being used are aseptic) this has not played any role in
PET (where less than 0,5 % is aseptic). The reason for
PET’s limited aseptic role is that it has been used for
products where aseptic filling is not required (e.g. CSDs).
However, if PET is to increase its presence in the new
product segments, aseptic filling will be a key driver of
its success. Aseptic know-how is therefore an important
driver, which may be transferable from the carton sector
to the PET sector.

(162) PET and carton materials are both capable of packaging
and do package the four relevant product segments
(LDPs, juices, FFDs, tea/coffee drinks) which form almost
the entirety of carton-packaged products. PET’s use is
therefore likely to increase in the future with PET taking
market share away from carton to a certain extent.
However, for the reasons set out in this Section 3.4 and
in particular because the cross-price elasticity of demand
between the two systems is currently not sufficiently
high, it is concluded that they do not form part of the
same product market for the purposes of competition
law analysis even though some price restraining effects
at the margin appear to exist.

(163) It is therefore concluded that for the purposes of market
definition, carton packaging systems and PET packaging
systems (and hence carton packaging equipment and PET
packaging equipment) form distinct relevant product
markets. It is also concluded that although substitution
between the two systems does not currently have the
necessary effectiveness and immediacy required for
the purposes of market definition (i.e. they are weak
substitutes), this may change in the future as PET’s barrier
technology improves and PET/carton costs converge.
Therefore, the possibility cannot be ruled out that, in the
future, these markets could converge to the extent that
they would belong to the same relevant product market
for competition law purposes. In addition, given their
presence in the same sector of liquid-food packaging,
their common product segments, customer base and
increasing use of aseptic technology, the two packaging
systems belong to two very closely neighbouring mar-
kets. The interaction between the two systems will need
to be analysed further at the stage of assessment of
dominance in Section V.

(164) Having concluded that

the two packaging systems
belong in distinct but closely neighbouring product
markets, it is necessary to analyse whether there are
distinct relevant product markets for specific equipment
within each packaging system. The market is analysed
with particular regard to the common end-use products
(LDPs, juices, FFDs and tea/coffee drinks) and also to the
aseptic and non-aseptic distinction.

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4.

PET PACKAGING SYSTEMS

4.1. SBM machines

(165) SBM machines are used to convert PET preforms or PET
resin into the finished PET bottle. SBM machines are
available in a wide range of different models. SBM
machine output is measured in bottles per hour (bph)
running from 1 000 to 50 000 bph. Most SBM machines
on the market are standard SBM machines producing
empty standard PET bottles from preforms. However,
there are speciality SBM machines that produce preforms
and then blow the preforms in a single step (single-stage
machines); SBM machines that produce PET bottles that
can be filled with the hot-fill method (these bottles need
to be thicker to withstand the heat of the filled liquid);
wide-mouth SBM machines producing bottles for mar-
malade and sauces; preferential heating machines to
make containers for detergent and shampoo and, finally,
‘Combi’ SBM machines which combine bottle-blowing
and filling in one machine.

4.1.1. Low and high-capacity SBM machines

(166) The notifying party argues that the SBM machine market
can be divided into low and high-capacity machines
based upon the number of bottles per hour (bph). Low-
capacity SBM machines are defined as output of less
than 8 000 bph whereas high capacity SBM machines
have an output of more than 8 000 bph. Both parties
are active in the low-capacity segments whilst only Sidel
is present in the high-capacity segment. Tetra believes
that further distinctions between the two categories,
high and low-capacity machines, are not appropriate or
necessary for the purposes of analysing the competitive
conditions in the EEA.

(167) There are significant differences between low and high-
capacity SBM machines, which have led the Commission
to the conclusion that they belong in distinct product
markets. From the demand side, low and high-capacity
machines are clearly not interchangeable for a customer
with a particular need. High-capacity machines can only
use a specific technology (the rotary technology) whereas
low-capacity machines can use both rotary and the
less complex linear technology (81). The entire output

(81) In particular, low-capacity SBM machines can use linear tech-
nology which convey through the SBM machine a line of PET
preforms in sequential batched movements. Rotary technology
involves a continuous cam-driven movement around a complex
carousel-wheel mechanism enabling a rapid and fluid flow of
bottle conversion.

spectrum cannot be satisfied by all SBM machine
suppliers. Indeed, due to the fact that high-capacity
machines require much more sophisticated technology,
there is no supply-side substitutability. A low-capacity
SBM supplier cannot produce high-capacity SBM
machines. Barriers to entry in the high-capacity sector
are much higher than in the low-capacity sector due to
the technological requirements and fewer suppliers are
capable of producing high-capacity machines.

(168) The Commission’s investigation has confirmed the dis-
tinction between low and high-capacity machines with
the overwhelming majority of respondents confirming
the notifying party’s contention that high and low-
capacity SBM machines form distinct product markets.

4.1.2. Single-stage and two-stage SBM machines

(169) The notifying party argues that there is no distinction
between single-stage and two-stage machines. In the
single-stage process, the entire PET bottle production,
from resin input to final PET bottle output, occurs in
one integrated machine. The two-stage process splits the
production process into, first, production of the PET
preforms in an injection moulding machines and,
second, conversion of the preforms into the finished
PET bottle in an SBM machine. Single-stage machines
are only used for the low-capacity segment. Tetra is of
the view that the single-stage and two-stage machines
do compete at least for some applications in the low-
capacity segment. The Commission takes the view that
that for the purpose of analysing the present transaction,
this distinction has no significant impact.

4.1.3. Hot-fill

SBM machines, wide-mouth
machines and preferential heating machines

(170) The notifying party further argues that there are no
separate markets for SBM machines making bottles for
hot-filling or pasteurisation. There is a very small market
for such machines in the EEA as the processes are rarely
used. Sidel, but not Tetra, offers such a machine
commercially but has in the past three years [...]* sold
[...]* in the EEA out of a total of [...]* SBM machines.
Therefore, the notifying party does not consider that
SBM machines for hot-filling bottles should be con-
sidered a separate product market. The same applies to
wide-mouth machines
heating
machines.

preferential

and

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(171) These distinctions have no significant impact on the
analysis of this transaction, since Tetra is not present in
hot-fill, wide-mouth machines and preferential heating
machines and those machines are of limited use in the
EEA. For the purposes of the analysis of this transaction
it is therefore not necessary to define a separate market
for hot-fill SBM machines, wide-mouth machines and
preferential heating machines.

4.1.4. Combi machines

(172) The notifying party argues that there is no separate
market for Combi machines as they are equivalent to a
combination of SBM machine and filling machine that
is available as a ‘turnkey’ solution from other suppliers
or can be assembled by the customer itself.

hygiene, reduced risk of contamination (no risk of
contamination between blowing and filling). In its reply,
Tetra claims that the machines of Krones and Procomac/
Sipa have substantially the same advantages. Tetra argues
that a Combi machine has a standard speed based on
the SBM component compared to a standard filler which
can run faster when filling small bottles. According to
Tetra, a Combi machine can also have a greater risk of
downtime for the whole system should one component
fail. It appears, however, that a Combi machine is less
expensive than a combination of a separate SBM and
filling machine. Therefore, for example, small increases
in the price of the Combi would not lead customers to
switch to traditional PET lines.

(175) In the light of the above, it is concluded, however, that
for the purposes of analysing the present transaction, it
is not necessary to define a separate market for Combi
machines.

4.1.5. End-use distinctions in the SBM machine

market

(173) Combi machines combine blowing, filling and capping
in a single machine. No conveying, storage or rinsing of
the bottles is required. A Combi machine takes less space
and requires fewer personnel than a traditional PET line,
which would include a separate SBM machine, conveyor,
filling and capping machine. Sidel has the following
types of Combi machine: the Combi SRS for still water,
the Combi SRG for CSDs, the Combi SRU (ultra clean)
for ‘sensitive’ products (juices and LDPs), and the Combi
SRA for aseptic filling of ‘sensitive’ products.

(176) The notifying party objects strongly to an analysis of the
SBM machine market, which takes into account end-use
products. Tetra argues that, firstly, SBM machines are
not end-use specific, secondly, they are sold to all
beverage companies regardless of end-use application
and thirdly, that the SBM machine supplier will not even
know the intended or present use or even whether the
bottles produced by the SBM machine are going to be
filled aseptically or not (82).

(174) The Combi machine is an innovation by Sidel introduced
in 1999. So far Sidel has sold [...]* Combi machines and
[...]* aseptic Combi machines [...]*. In its reply, Tetra
points out that Sidel’s competitors Krones and Procom-
ac/Sipa have also developed similar machines, BLOC and
SYNCRO and that the Procomac/Sipa machine is also
available in an aseptic version. Given that the Combi
machine is a relatively recent innovation, it is difficult to
assess whether customers find it substitutable to stan-
dard PET lines to the extent that the Combi should be
treated as part of the SBM machine market and/or the
PET filling machine market. There are some indications
that the Combi may form a distinct product market.
From the demand side, the Combi offers certain charac-
teristics and advantages which make it ideal for certain
customers. According to Sidel’s promotional literature
the Combi has the following advantages: savings on
floor space (up to 50 % smaller footprint compared to a
traditional PET line), significant sterilising and rinsing
solution savings, reduced labour costs (one operator can
operate the entire line), significantly improved filling

(177) The Commission does not agree with Tetra’s contention.
It is true that the majority of SBM machines are ‘generic’.
Nevertheless, a PET packaging line, of which the SBM
machine is only one component, is usually tailored to
the specific products filled by the customer. This is even
more significant in the case of the ‘sensitive’ products
requiring barrier properties and sterilised or ultra-clean
conditions. There are also specific end-use SBM
machines for products that will be hot-filled or filled
aseptically in a Combi machine. Thus, the requirements
of ‘sensitive’ products in particular dictate very specific
characteristics of a PET line which make a standard PET
line an insufficient substitute for the needs of ‘sensitive’
beverage producers. For example, a Sidel SRS G Combi
machine which is designed for carbonated drinks cannot
be a substitute for a beverage producer wanting to fill
juices. For this application, an aseptic SRA Combi
machine would need to be used.

(82) Reply, paragraph 45.

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(178) In any event, a distinct group of customers for the
relevant product may constitute a narrower, distinct
product market when such a group could be subject to
price discrimination. This will usually be the case when
two conditions are met: (a) it is possible to identify
clearly the group to which an individual customer
belongs at the moment it purchases the relevant products
and (b) trade among customers or arbitrage by third
parties should not be feasible (83).

End-use identification will in particular be possible in
the end-use markets where carton is also present as
the packaging material. Customers of SBM machines
wanting to package liquid dairy products or juice, for
example, are easily identifiable and the Commission
found few such customers packaging both end-use
products. Tetra could also identify SBM customer by
end-use and provided details to the Commission (87).

(179) These requirements are met here. For example,

in
the notification, Tetra states that SBM suppliers ‘often
customise machines according to the wishes of individ-
ual customers’ (84). Indeed, SBM suppliers and in particu-
lar Sidel, which takes pride in its customer-oriented
approach work closely with their clients to tailor PET
packaging lines to their specific needs. Sidel works
closely with the customer to design the requisite moulds
(which will give the bottle its finished shape) and tests
the bottle under real-life conditions in its testing centre
in Le Havre. Sidel’s marketing brochure, ‘The World of
PET’ explains to its potential customers that ‘when
looking for a partner to collaborate on your entire PET
production line, Sidel is your best choice. We rely on a
concept called production line intelligence, based on
flow control. This means that based on your product, its
package and output rate desired Sidel offers you a tailor-
made turnkey solution’ (85).

(180) Furthermore, all SBM machines orders are made on the
basis of tenders. Each machine is sold as a result of
individual negotiation where substantial discounts are
sometimes granted off the price list. The Commission’s
investigation showed that Sidel has occasionally granted
discounts of up to [...]* on the list price to individual
customers. In the notification, Tetra states that ‘price is
often negotiated on the basis of the specific needs
individual customer for the transaction’ (86). The
of
Commission therefore believes that a SBM supplier will
at the point of selling have very specific knowledge of
how the machine will be used and for which end
product. The moulds supplied with the SBM machine
and designed specifically for each individual client are
also not generic.

(181) Indeed, Sidel was able to identify end-use for the majority
of its unsuccessful bids for SBM machines during 2001.
In its submissions to the Commission Tetra has also
been able to identify in precise terms the end-use for
which its customers use the procured SBM machine.

(83) Paragraph 43 of the Commission’s notice on the definition of
relevant market for the purposes of Community competition law
(OJ C 372, 9.12.1997, p. 3).

(84) Paragraph 47, page 18 of the notification.
(85) The World of PET, Sidel publication, page 8, emphasis added.
(86) See paragraph 69, page 28, of the notification.

(182) Finally, arbitrage for SBM machines is virtually imposs-
ible. The notifying party argues that there is a second-
hand market for SBM machines where arbitrage could
take place. However the Commission’s market investi-
gation suggested that the second-hand SBM machine
market generally involves the sale of obsolete tech-
nology, is very small and will thus not prevent price
discrimination. The second-hand market consists mainly
of machines that are 10 to 15 years old and are sold in
eastern/south-eastern Europe. Demand-side consider-
ations suggest therefore that it is possible for a SBM
producer to price discriminate between different types
of end-use.

economic

(183) In the light of the foregoing, the Commission considers
that end-use price discrimination is possible for SBM
manufacturers. Tetra’s
consultants have
attempted to refute these arguments by examining Sidel’s
ability to price-discriminate based on the end-use of an
SBM machine. Tetra’s economic consultants examined
whether in the past there was any evidence of price
discrimination based on end-use and it was concluded
that there was no evidence that Sidel’s margins on high-
capacity machines have varied based on end-use (88).
the Commission examined the regression
However,
analysis employed and found that the estimation was
not robust (89). When carrying out its own estimation
based on the data supplied by the parties introducing
further explanatory variables (90), [information concern-

(87) In addition, in its agreement with Graham Machinery Group for
the sale of EBM machines to produce HDPE bottles Tetra and
Graham have been able to define in precise terms the permitted
end-uses of the EBM machines. [...]*.

(88) Memorandum by the notifying party’s economists to the Com-

mission dated 30 August 2001.

(89) The overall goodness-of-fit of the model was poor because
important variables like capacity were not used in the regression.
The regression was indicating that margins follow a pure random
walk which is clearly unrealistic. Given the omission of variables,
the error term could be correlated with included explanatory
variables, a potential cause of a lack of robustness.

(90) Capacity, time trend, dummy variables for oil, CSD, beer, water;

firms based in Germany, France and United Kingdom.

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ing Sidel’s pricing policy]*. Following the oral hearing,
the parties provided further arguments. The Commission
considers, however, that its conclusion remains valid.

when a beverage producer foresees a consumer need for
PET packaging. It is therefore concluded that both high
and low-capacity machines can be used for ‘sensitive’
beverages depending on the volume of the product that
a beverage company intends to fill.

4.1.6. SBM machine speed in end-use segmen-

tations

4.1.7. Conclusion on the market definition for

SBM machines

(184) In its reply, Tetra maintained that, if end-use distinctions
were appropriate they should be limited to the low and
medium-capacity segment of the market. According to
Tetra,
the Commission should make an important
distinction as regards SBM machine use in the ‘sensitive’
beverages segments. According to Tetra, SBM machines
used to make bottles for filling ‘sensitive’ beverages are
for the most part low-capacity machines (8 000 bph) or
at best machines that run at medium speeds (8 to
15 000 bph). Tetra explains this fact by arguing that
‘sensitive’ beverages are at present niche beverages and
hence beverage companies need to use low-capacity
machines to satisfy low-volume demand.

the fact

In addition,

(185) The Commission cannot agree with Tetra’s contention.
The data provided by the notifying party in its reply (91)
shows that, in fact, the average speed of SBM machines
used in the EEA for ‘sensitive’ beverages (juices) in the
period 1995 to 2000 was more than 8 000 bph reaching
maximum speeds of 19 600 bph. As a result, all these
SBM machines should be classified as high-capacity
machines.
lower-capacity
machines are used by producers of ‘sensitive’ products
when they initially introduce a PET packaging line does
not mean that higher capacities cannot be used as PET
use becomes more established and the demand for PET
products increases.
Indeed, Sidel’s innovative Combi
system SRA which is designed for long-shelf-life asepti-
isotonics,
cally filled products (tea, flavoured water,
juices and possibly dairy products with UV barrier
package) has a nominal output of 25 200 bph for a
1 litre bottle which suggests that Sidel expects these
beverages to be filled at high-capacity outputs.

that

(186) In the light of the above it is not correct to maintain that
only low-capacity machines are used for the ‘sensitive’
beverages. The Commission considers that the decision
to invest in a PET filling line will be demand-driven

(91) Reply, page 27.

(187) In the light of the foregoing, it is concluded that high-
capacity SBM machines form a separate market from
low-capacity SBM machines.
is not
necessary to define separate markets for single-stage
SBM machines (which are excluded from market analysis
and, in any case, are not present in the high-capacity
segment), hot-filling SBM machines and SBM machines
for wide-mouth applications, SBM preferential heating
machines and Combi machines.

In addition,

it

(188) In the light of the specific characteristics of the ‘sensitive’
products and the ability for price discrimination, it is
further concluded that separate relevant markets exist
for each distinct group of customers on the basis of end-
use in particular in the four ‘sensitive’ beverage segments,
LDPs, juice, FFDs and tea/coffee drinks. Customers filling
these products can be easily identified and targeted with
specific practices by a supplier.

4.2. Barrier technology

(189) PET is a gas-permeable material. In order for PET to be
used effectively for the packaging of ‘sensitive’ products
which need protection from oxygen and CO2 (CSDs in
small packs, beer, juices, tea/coffee drinks and, to a more
limited extent, LDPs)
the barrier properties of PET
need to be enhanced through the addition of barrier
technology materials. The barriers are aimed at pre-
venting oxygen and aldehydes (found in the plastic)
from entering into the packaging and degrading its
contents and carbon dioxide from leaking out of the
package and degrading the carbonation of beers, spark-
ling mineral water and CSDs. When PET bottles are
treated with barrier technologies the shelf life of the
packaged product increases significantly.

(190) The notifying party submits that barrier technology is a
distinct relevant product market, which includes all
products and processes capable of enhancing the barrier
properties of PET.

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(191) Barrier technologies can be divided into four principal
categories: (i) multilayer technology (applied by combin-
ing a standard PET plastic material with a barrier material
sometimes in combination with oxygen scavengers);
(ii) spray coatings (barriers sprayed on the outside of the
bottle in a separate step after blowing; (iii) plasma coatings
(internal as well as external plasma coatings); and
(iv) monolayer enhanced PET (enhanced PET resin which
contains the requisite barrier properties).

(192) Multilayer technologies have been on the market longest
and are therefore considered more established. Multilay-
er involves combining a standard PET plastic material
with a barrier material sometimes in combination with
oxygen scavengers (92). The manufacturer uses this
material to either create a multilayer preform from
scratch (co-injection) or to cover a standard preform
(over injection). Multilayer preforms are blown in a
standard SBM machine.

(193) Barrier-coating involves applying the barrier by spraying
the outside of a finished PET bottle in a separate step
after blowing. Dedicated machinery is needed to coat
the bottles but standard SBM machines are still used to
create them.

(194) Plasma coatings are the most recent barrier technologies.
They involve the application of a thin layer of either
amorphous carbon (Sidel’s Actis) or silicon oxide SiOX
(Tetra’s Glaskin) to the inside or outside of the bottle in
a separate step after the bottle has been blown on a
standard SBM machine. Dedicated proprietary machines
are needed to apply the plasma coatings onto the
finished bottle. Plasma coatings have still not become
widespread in the marketplace.

the required barrier properties. Monolayer PET has
not been commercialised yet but is expected to be
commercialised in the near future (93).

(196) The parties are active in plasma coatings through their
Actis (Sidel) and Glaskin (Tetra) barrier technologies as
well as multilayer through the Sealica technology (94)
(Tetra). While each of these categories constitutes a
the
slightly different approach to the barrier issue,
notifying party considers that there is no basis for
defining separate markets.

(197) The Commission conducted a wide-ranging inquiry in
order to assess whether or not barrier technologies form
distinct product markets and, in particular, whether or
not plasma coatings (where the parties’ activities overlap)
may form a distinct product market. Most market
respondents,
including companies with significant
expertise in barrier technology, as well as independent
studies, supported Tetra’s contention that, for the time
being, all barrier technologies are substitutable from the
demand side as they produce identical or at least similar
results (95). For example, [...]* has marketed beer in
multilayer bottles as well as testing plasma-coated
bottles. [...]* uses both multilayer technology in some
countries whilst using its own plasma coating tech-
nology in other countries. The end product is indis-
tinguishable to consumers.

(198) Moreover, barrier technology is an emerging market.
The market investigation further showed that no single
barrier technology has emerged as the clear winner even
though there are indications that the parties’ plasma
technologies, which are well developed, have some cost
advantages. The Commission’s investigation revealed
that
third parties are actively
researching the barrier-technology field and are close
to the stage of commercialisation of new monolayer
technologies that may offer greater cost advantages than
plasma coatings whilst also having the advantage that
the material could be used as standard PET on standard
SBM machines (that is, the technology is not machine-
specific) without additional capital costs.

some independent

(195) Finally, monolayer barrier PET is an enhanced resin,
which includes the barrier properties already and does
not have to be treated further. This material can be used
to produce standard preforms which are then blown on
standard SBM machines producing bottles which contain

(93) The parties have argued that non-PET materials such as PEN
(polyethyene naphtalate) or Barex (a modified co-polymer)
should be included in the monolayer category. These materials
are much more expensive than PET and also in the case of Barex
cannot be used on PET SBM machines. The Commission therefore
concludes that they should be excluded from the relevant product
market.

(92) Oxygen scavengers as active chemical compounds used in PET
bottles in conjunction with barrier materials. While barrier
materials act as a passive defence to keep gas out of the bottle,
oxygen scavengers actively consume oxygen that is already in
the bottle.

(94) Tetra has recently discontinued the use of Sealica technology.
(95) Nonetheless,

the parties’ view that

technologies for plastic
material other than PET (i.e. the HDPE multilayer applications
and the enhanced materials technologies such as the Barex and
the Pen technologies) belong to the same market is questionable
and the Commission has decided to exclude them from the
relevant product market. Excluding such materials enhances the
parties’ market share but does not change the competitive
assessment.

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(199) In the light of the foregoing it is concluded that barrier
technologies for PET form part of the same product
market, which includes multilayer and plasma barrier
coatings and monolayer solutions. The Commission
does not, however, exclude the possibility that any one
of the technologies (most likely monolayer or plasma)
might, in the future, acquire such technical features and
cost advantages that it should be placed in a distinct
product market.

generally consider aseptically filled products to have a
fresher taste. Hot-filling is less popular in the EEA
whereas it is widely used in North America. Hot-fill
machines also use different technology, which is closer
to the simpler non-aseptic filling technology. The bottles
must be thicker than standard PET bottles to withstand
the heat. There is therefore little demand or supply-side
substitutability.

4.3. PET filling machines (aseptic/non-aseptic)

(204) In the light of the foregoing, it is concluded that there
are two distinct product markets for aseptic PET filling
machines and non-aseptic PET filling machines.

(200) The notifying party has argued that PET filling machines
should be split into two distinct product markets: aseptic
and non-aseptic filling machines.

4.4. PET preforms

(201) The Commission has reached the conclusion that aseptic
and non-aseptic packaging belong to distinct relevant
product markets. As regards PET filling machines in
particular, the Commission’s market investigation con-
firmed that aseptic and non-aseptic PET filling machines
are not substitutable either from the demand side or the
supply side. Aseptic filling machines fill a product under
sterilised conditions ensuring a longer shelf-life. They
employ much more complex technology than non-
aseptic filling machines and are usually used for different
categories of products, the ‘sensitive’ products, LDPs,
juices and tea/coffee drinks. It has therefore been con-
cluded that aseptic PET filling machines and non-aseptic
PET filling machines belong to different product markets.

(202) The notifying party has argued that aseptic PET filling
machines are not interchangeable with other aseptic
filling machines and, in particular HDPE aseptic filling
machines and hot-fill PET machines. HDPE filling
machines are used almost exclusively for packaging UHT
milk. HDPE filling machines have significant technical
differences distinguishing them from aseptic PET filling
machines. Not all suppliers can offer both types of
machines. However, these distinctions may blur in the
future as some market participants,
including Tetra
(LFA-20 ON) are developing machines that can switch
between HDPE and PET aseptic filling.

(205) The notifying party has submitted that there is a separate
market for preforms. PET preforms are pre-production
tubes made from PET resin that are used in an SBM
machine to produce the final bottle. There are two kinds
of preforms: standard resin preforms and preforms
with enhanced barrier properties. Preforms are usually
produced by converters and are sold to beverage com-
panies for the production of bottles or are used by
converters
the production of bottles. Barrier-
enhanced preforms are used for oxygen and light-
sensitive products. Standard and barrier enhanced pre-
forms are not substitutable either from a demand-side
perspective (for example, a standard preform cannot be
used for the filling of an oxygen-sensitive product) and
from a supply-side perspective (standard preforms are
commoditised whereas barrier-enhanced preforms need
specific technologies which not all suppliers of standard
preforms have).

for

(206) In the light of

it

the foregoing,

is concluded that
preforms are a distinct product market as there appears
to be no substitute from a demand or a supply-side
perspective. Users of SBM machines can only use PET
preforms to produce PET bottles. Producers of other
kinds of plastic cannot switch their supply to production
of preforms. In addition, standard and barrier-enhanced
preforms form two distinct submarkets.

5. CARTON PACKAGING SYSTEMS

(203) Hot-filling is a non-aseptic method for high-acid drinks
in which sterilisation is achieved by
(mainly juices)
heating the drink to approximately 80 degrees Celsius
and filling into the PET bottle at that temperature. Hot-
filling achieves similar shelf life to aseptic PET filling.
it affects taste of the product. Consumers
However,

(207) The notifying party has submitted that there are four
relevant distinct product markets within the carton
packaging sector: aseptic carton packaging machines,
aseptic cartons, non-aseptic carton packaging machines
and non-aseptic cartons.

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(208) Carton packaging consists of the introduction of pre-
manufactured but not yet folded (flat) carton material
into a single carton filling machine in which it is both
folded and filled. The aseptic and non-aseptic production
processes are split into parts: creation and supply of
carton material and manufacture and supply of carton
filling machines. The basic carton material is printed,
creased, laminated and cut into reels or blanks. Aseptic
carton needs an additional process whereby a layer
of aluminium is laminated between two layers of
polyethylene in the aseptic carton which serves as a
barrier for oxygen, flavour and light penetration. The
carton is then inserted in the filling machine where it is
sealed at the bottom, filled with the liquid and sealed at
the top. Aseptic machines first pass the carton through
a sterile bath and then dry it with sterile air.

(209) The Commission has defined the relevant market in
carton packaging in previous decisions involving Tetra
and its findings have been confirmed by the Court of
First Instance (96). The notifying party does not contest
these definitions and the market investigation has revea-
led that there have not been any significant changes in
the carton packaging market to justify different equip-
ment definitions. It is therefore concluded that there are
four distinct product markets: aseptic carton packaging
machines, aseptic cartons, non-aseptic carton packaging
machines and non-aseptic cartons.

(212) In the light of the foregoing, it is concluded that the
relevant geographic market for all the above relevant
product markets is the EEA.

D. COMPETITIVE ASSESSMENT

(213) The Commission’s market investigation and analysis has
shown that
the operation could strengthen Tetra’s
dominant position in the market for aseptic carton
packaging machines and aseptic cartons and create a
dominant position in the market for PET packaging
equipment and, in particular SBM machines (low and
high-capacity) in the ‘sensitive’ product end-use seg-
ments, LDPs, juices, FFDs and tea/coffee drinks.

(214) The merged entity’s future dominant position in two
closely neighbouring markets as well as a notable
position in a third market (EBM machines and HDPE
filling machines) are likely to reinforce its position in
both markets, raise barriers to entry, minimise the
importance of existing competitors and lead to a monop-
olistic structure of the whole market for aseptic and
non-aseptic packaging of ‘sensitive’ products in the EEA.

C. RELEVANT GEOGRAPHIC MARKETS

1. TETRA’S CURRENT DOMINANT POSITION IN ASEPTIC
CARTON AND LEADING POSITION IN NON-ASEPTIC
CARTON

(210) The notifying party submits that the relevant geographic
market for PET packaging equipment (including SBM
machines, barrier technology and filling machines) and
preforms is at least EEA-wide, as all suppliers are active
throughout
the EEA, are capable of providing and
provide their equipment on a cross-border basis.

(211) The Commission’s investigation and analysis broadly
supported the view that the relevant geographic market
for PET packaging equipment and preforms is the EEA.
Non-EEA suppliers have a very limited presence in the
EEA market. The same applies with regard to the market
for liquid packaging equipment
in
particular, carton packaging equipment (97).

in general and,

(96) See Tetra Pak/Alfa-Laval (cited in footnote 11).
(97) The Court of First Instance has held that the market for carton
packaging machines covers the whole of the Community (see
Tetra Pak II (CFI) (cited in footnote 11), paragraphs 86-99. The
Commission’s market investigation has confirmed that there
have not been any significant changes in the market and that
therefore the Court’s assessment remains relevant.

(215) Tetra, through its industry group Tetra Pak, focuses on
the development, manufacture and sale of systems for
the processing, packaging and distribution of liquid-
food products. Tetra’s business includes carton packag-
ing, where it is the worldwide market leader and, since
the 1990s, plastic packaging and processing equipment.
In particular, Tetra produces carton packaging material,
the filling machinery and related secondary line and
distribution packaging equipment for both non-aseptic
(Tetra Brik, Tetra Rex and Tetra Top cartons) and aseptic
(Tetra Brik Aseptic carton) carton packaging. Tetra is the
only company of its kind in the world capable of
supplying its customers with comprehensive systems
that
integrate processing lines with packaging and
distribution systems. The focus of the company includes
liquid dairy, cheese, beverages and prepared foods (98).
Tetra’s 1999 annual accounts show the following split
for products packaged in TetraPak packages in that year:
UHT milk [...]*, juices and still drinks [...]*, pasteurised
(fresh) milk [...]* and other products [...]*.

(98) Annual Report of Tetra Laval Group (2000), pp. 6, 14 and 15.

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(216) In its decision of 24 July 1991 (99) the Commission
found that Tetra held a dominant position on the market
for aseptic carton packaging machines and the market
for aseptic cartons. That finding was upheld by both the
Court of First Instance (100) and the Court of Justice (101).
The Commission also found that Tetra held a dominant
position in a decision under the Merger Regulation (Case
No IV/M.68 — Tetra Pak/Alfa-Laval (102)). The factors
which led the Commission and the Court to reach that
conclusion are set out here.

(217) In relation to the aseptic carton packaging machines and
the market for aseptic cartons, the Court found that
Tetra Pak held approximately 90 % of these aseptic
markets. The Court considered it to be clear that holding
such market shares meant that Tetra Pak’s position on
the market made it an inevitable partner for packers and
guaranteed it the freedom of conduct characteristic of a
dominant position. The Commission was therefore
correct in taking the view that such market shares
were in themselves and in the absence of exceptional
circumstances evidence of the existence of a dominant
position. The Court also took account of the existence
of only one competitor (PKL, which has subsequently
merged with SIG) holding approximately 10 % of those
markets. The Court further found that the existence
of technological barriers and patents prevented new
in aseptic
from entering the market
competitors
machines. All these factors contributed in the Court’s
view to the maintenance and strengthening of Tetra
Pak’s dominant position both on the market for aseptic
machines and aseptic cartons.

(218) The Commission’s market investigation has confirmed
almost unanimously the absence of any significant
changes to the market situation during the past five
years (until 2001) in the carton packaging sector which
should alter the Commission’s assessment of Tetra’s
market position in the aseptic carton market. Briefly,
Tetra continues to be dominant
in aseptic cartons
because of the following factors: very high market shares
(in the region of 80 % over a long period of time); weak
position of competitors (SIG with [10 to 20 %]* and
two smaller players, Elopak, International Paper and
VarioPak, with no more than [0 to 10 %]*); technological

complexity and barriers especially the aseptic know-how
and superiority of Tetra’s technology (SIG cannot match
Tetra’s system of continuous reel of aseptic carton);
patents (many expiring but new added every year); and
finally, paramount importance of proven track record
in aseptic packaging (customers require guarantees of
product sterility) which results in very high barriers to
entry. These factors and Tetra’s size, R & D capabilities,
financial strength and international presence (service
and sales forces around the globe) make it an inevitable
business partner for liquid-food beverage companies
wishing to package their liquids in carton, especially
aseptic carton.

(219) In particular, as regards the parties’ market shares,
according to the figures obtained from the notifying
party, Tetra holds approximately 80 % of the aseptic
carton packaging market for liquid-foods in the EEA (in
value), whilst the competitors (International Paper, SIG,
Elopak and Variopak) held around 20 % of the market
collectively in 2000. Tetra appears to capture an equiva-
lent share of the market even when its position on the
market is assessed on the basis of total packs (in millions)
produced or litres (in millions) packaged. According to
Tetra, in terms of aseptic filling machine installations, its
share of all aseptic installations in 2000 amounted to
[70 to 80 %]* ([...]* installations) in the EEA and its
competitors to some [20 to 30 %]* ([...]* installations)
collectively. Tetra’s market share in particular aseptic
end-use segments in the year 2000 was the following:
aseptic juices (including teas and FFDs) [60 to 70 %]*;
aseptic LDPs [80 to 90 %]*.

(220) Although its share of the aseptic carton market is
currently slightly lower than that found in an earlier
Commission decision (103), Tetra has continued to hold
a high market share during the past 10 years which in
terms of stability of market share is a considerable
period of time.

(221) Some market participants have indicated in their replies
to the Commission’s inquiry the emergence of competi-
tors (Elopak and International Paper) on the market in
the last 10 years. Some of the replies point out that
Tetra’s strong position is due to its commercial strength
and that some competitors can match the superiority of
some of Tetra’s systems (quality of cartons, innovations,
printing technology but not sealing technology) but they
cannot match the extensive product
line of Tetra.
Moreover, most of the market participants asked con-
tinue to regard the proven past experience in aseptic
packaging guaranteeing the sterility of the end product
important for customers, which makes it difficult for
new suppliers to enter the market.

(99) Tetra Pak II (Commisision) (cited in footnote 10).
(100) Tetra Pak II (CFI) (cited in footnote 10).
(101) Tetra Pak II (ECJ) (cited in footnote 10).
(102) Tetra Pak/Alfa-Laval (cited in footnote 11).

(103) Tetra Pak/Alfa-Laval (cited in footnote 11).

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(222) In its response to the Commission’s statement of objec-
tions, Tetra stated that ‘Tetra Laval accepts, for the
purposes of this proceeding, the Commission’s assess-
ment that Tetra Laval presently enjoys a leading and
arguably dominant position in aseptic carton packaging
and packaging equipment’.

(223) In view of the foregoing,

it is concluded that Tetra
continues to hold a dominant position on the market
for aseptic carton packaging machines and the market
for aseptic cartons, which means that it can act to an
appreciable extent independently of
its competitors,
customers and ultimately of its consumers.

(224) Secondly, as to the relation between holding a dominant
position in the market for aseptic carton and a leading
position in the non-aseptic carton market, the Court has
considered, in the context of the application of Article 82
of the Treaty, the associative links between the non-
aseptic markets and the aseptic markets (104). In that
case,
it was not necessary to establish whether the
market power which gives Tetra Pak its position of
leader on the non-aseptic markets should be considered
equivalent to its directly occupying a dominant position
within the meaning of Article 82. Given that Tetra Pak
held 78 % of the overall market in packaging in both
aseptic and non-aseptic cartons, the Commission was
found to have acted correctly in assuming that Tetra
would still hold a dominant position on that wider
overall market.

(225) In its reply, the notifying party stated that it did not
agree with the extension of the associative links theory
in Tetra Pak II to the merger control context but did not
provide substantive arguments as to why this theory,
which has been confirmed by the Court of Justice in
Tetra Pak II, should be discarded. Tetra claimed that, in
any event, this theory had no bearing on the present
procedure as the acquisition of Sidel had no effects on
the carton packaging market (105) and decided not to
provide further arguments.

(226) The Commission does not accept Tetra’s claim and
considers that Tetra remains dominant in the carton
packaging market as a whole. There is no reason why
the Commission should discard a theory upheld by the
Court of Justice when faced with almost identical market
the associative links
conditions. The importance of
between the aseptic and non-aseptic carton markets

(104) Tetra Pak II

(CFI)

(cited in footnote 10), paragraph 118,
confirmed by the Court of Justice in Tetra Pak II (ECJ) (cited in
footnote 10), paragraphs 28 to 29.

(105) Reply, paragraph 41.

mentioned in Tetra Pak II arose from the fact that
the key products packaged in aseptic and non-aseptic
cartons are the same and from the conduct of manufac-
turers and users. Both the aseptic and the non-aseptic
machines and cartons at issue in that case were used for
packaging the same liquid products intended for human
consumption, principally dairy products and fruit juice.
Moreover,
it was established that a substantial pro-
portion (35 %) of Tetra’s customers operated both in the
aseptic and the non-aseptic sectors (106). Finally, the
Court of Justice considered that the Commission had
correctly noted that the conduct of the principal manu-
facturers of carton-packaging systems confirmed the
link between the aseptic and the non-aseptic markets.
Tetra and PKL already operated on all four markets and
the third competitor, Elopak, well-established in the
non-aseptic sector, had attempted to gain access to the
aseptic markets. The Court considered that the fact that
Tetra Pak held nearly 90 % of the markets in the aseptic
sector indicated that, for undertakings producing both
fresh and long-life liquid-food products, Tetra was not
only an inevitable supplier of aseptic systems but also a
favoured supplier of non-aseptic systems.

(227) Moreover, by virtue of its technological lead and its
quasi-monopoly in the aseptic sector, Tetra was able to
focus its competitive efforts on the neighbouring non-
aseptic markets, where it was already well-established,
without fear of retaliation in the aseptic sector, which
meant that it also enjoyed freedom of conduct compared
with the other economic operators on the non-aseptic
markets as well. Consequently, the Court of Justice
found that these circumstances, taken together and not
separately, justified the Court of First Instance, without
any need to show that the undertaking was dominant
on the non-aseptic markets, in finding that Tetra Pak
enjoyed freedom of conduct compared with the other
economic operators on those markets. The Court of
Justice found that ‘the quasi-monopoly enjoyed by Tetra
Pak on the aseptic markets and its leading position
on the distinct, though closely associated, non-aseptic
markets placed it in a situation comparable to that of
holding a dominant position on the markets in question
as a whole’ (107).

(106) See paragraph 120 of Tetra Pak II (CFI) and paragraph 29 of

Tetra Pak II (ECJ) (both cited in footnote 10).

(107) See paragraph 31 of Tetra Pak II (ECJ) (cited in footnote 10).

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(228) In this respect, the Commission’s investigation in the
present case does not appear to disclose any fundamental
change in the market situation for non-aseptic carton
packaging machines and carton. On the basis of the
information in the Commission’s possession, Tetra
appears to continue to hold a leading position in the
markets for non-aseptic carton.

(229) According to its own figures, Tetra held [50 to 60 %]*
of the non-aseptic carton packaging market for liquid-
foods in the EEA (in value) in 2000. The next player in
this market, Elopak held a much smaller share followed
by SIG, International Paper, and Variopak. Tetra seems
if its
to capture an equivalent share of the market,
position on the market is assessed on the basis of litres
(in millions) packaged. Based on total packs (in millions)
produced, its market share accounted for [50 to 60 %]*
of the market in the EEA. Tetra’s market share in
particular non-aseptic
in the
year 2000 was the following: non-aseptic juices [30 to
40 %]*, overall juices [60 to 70 %]*; non-aseptic LDPs
[50 to 60 %]*; overall LDPs [70 to 80 %]*.

segments

end-use

(230) Already in 1987, Tetra was reported as having a market
share of approximately 55 % (108) in the non-aseptic
machine market. Consequently, Tetra has managed to
hold a high market share during the past 10 years,
which in terms of stability of high market shares is a
considerable period of time.

(231) The Commission therefore has reached the conclusion
that Tetra continues to hold a dominant position on the
market for aseptic packaging machines and cartons
and a leading position in the market for non-aseptic
packaging machines and cartons. Given that in the
overall market for packaging in both aseptic and non-
aseptic cartons Tetra holds some [60 to 70 %]* of the
overall market, Tetra also has a dominant position in
the carton packaging market as a whole.

2.

SIDEL’S LEADING POSITION IN PET PACKAGING
EQUIPMENT

2.1. Sidel has a leading market position in SBM

machines

(232) Sidel is active in the design and manufacture of packag-
ing systems with a core focus on the development of
plastic packaging. The markets on which Sidel operates
are mass-consumption markets, comprising of drinks
(water,
food
products such as milk, cooking oils and sauces and
cosmetics or pharmaceutical products (shampoo, cos-
metic creams and toothpaste) (109).

isotonic drinks and beer),

juices,

fruit

(233) Sidel is active in both low and high-capacity machines. In
low-capacity SBM machines, according to the notifying
party, Sidel had a market share of [30 to 40 %]* both in
terms of capacity and by unit sales in the EEA in 2000.
The second largest player was Tetra with a market share
of [20 to 30 %]* but with machines of lower quality
using the linear rather than the more complex rotary
technology used by Sidel’s machines. Other competitors
are much smaller and include ADS with an approximate
market share of [10 to 20 %]*, Urola with [0 to 10 %]*,
Sipa with [0 to 10 %]* and SIG with [0 to 10 %]*,
respectively. It is also important to note that Sidel’s low-
capacity machines are higher-quality rotary machines.
Sidel’s share of low-capacity rotary machines is, accord-
ing to Sidel, in the region of [greater than 70 %]*.

(234) In high-capacity SBM machines, Sidel enjoys an even
stronger position. Sidel has been the pioneer and world
leader in producing SBM machines for over 10 years
with a particular focus on top-end high-capacity SBM
machines. This has led independent analyst BNP Paribas
to state that ‘Sidel machines have become the industry
standard’ and that ‘Sidel virtually monopolizes the high-
margin top end’ (110). In the annexes to the notification,
Tetra states that ‘Sidel enjoys a very strong position in
the high margin top end of
the market which is
maintained by its R & D spending, by its global service
network and by having set the industry standard’.

(235) According to data provided by Sidel, Sidel’s market share
in particular end-use segments in terms of capacity
installed in the period 1995 to 2000 was the following:
fresh milk [30 to 40 %]*; UHT milk (flavoured) [60 to
70 %]*; overall LDPs [60 to 70 %]*; non-aseptic juice
(including hot-fill) [70 to 80]* %; aseptic juices 50 to
60 %; overall juices [60 to 70 %]*.

(236) In 1999, Sidel’s SBM machines (both low and high
capacity) accounted for [60 to 70 %]* of global installed
base and [60 to 70 %]* of installed base in Europe. More
than one in two PET bottles in the world are produced
using Sidel machines. In the market for high-capacity
SBM machines, where the capacity of the machine
exceeds 8 000 bph, Sidel is also the clear market leader,
a position which is illustrated not only by its high
market share but also by some specific strengths the
company has which will be set out below.

(108) See paragraph 119 of Tetra Pak II (CFI) (cited in footnote 10).
(109) Annual Report of Sidel (1999), p. 19.

(110) Equity research of BNP Paribas on Sidel of 9 October 2000.

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(237) In the market for high capacity SBM machines, in 2000,
Sidel had a market share of [60 to 70 %]* (based on
capacity) and [60 to 70 %]* (based on units sales) in the
EEA. In comparison to the market for low-capacity SBM
machines, where less complex technology is used, the
number of competitors is very limited: there are only
three competitors active in this market. In terms of
market share, all its competitors hold a much weaker
position. Krones has a market share of approximately
[10 to 20 %]*, SIG [10 to 20 %]* and Sipa [0 to 10 %]*,
respectively. Tetra maintains that since all SBM machine
orders are made on the basis of tenders, historic market
shares are not a reliable indicator as to future market
success. However, unless there is specific evidence that
the past pattern no longer reflects the present situation,
it is reasonable to assume that a manufacturer’s market
share gives at least an indication of its strength.

(241) The Commission’s market investigation also confirmed
that the SBM machinery segment generates high profit
margins. On the basis of figures provided by Sidel and
its economic consultants, Sidel has enjoyed margins of
approximately [...]* for its high capacity SBM machines
over the last three years. In its reply, Tetra maintains,
firstly, that Sidel’s margins have decreased by [...]* points
in the last four years and, secondly, that gross margins
of this magnitude are not at all unusual, but are necessary
to recover risky R & D expenditure and cover personnel
and other costs. The Commission’s analysis indicates
that Sidel’s margins are relatively high for the industry
in question. The difference between Sidel’s lower margins
in the more competitive low-capacity market and the
higher margins in the more concentrated high-capacity
market are indicative of some degree of market power
on the part of Sidel in the high-capacity market.

(238) It appears that since 1998 Sidel has lost some [10 to
20 %]* of its share in the high capacity market but only
[0 to 10 %]* in the low-capacity market. This loss of
market share has been attributed to competitive pressure
from SIG, Krones and Sipa with no single competitor
gaining share consistently.

(242) Sidel continues to be widely perceived by customers as
the company supplying the best SBM machines in terms
of quality and technical assistance, reliability, flexibility,
durability and time delivery. This has led some major
customers to have a policy of buying almost exclusively
Sidel machines. Sidel is also the only company which
produces some specific types of machines such as
extremely high-capacity machines (50 000 bph).

(239) During the period 1998 to 2000, the company did
experience certain losses in some regions but it invested
strongly in research and development, which led to the
introduction to the market, for example, of the Actis-
barrier technology and aseptic Combi technologies in
1999. With these technologies Sidel aimed at targeting
‘sensitive’ products (beer, milk and fruit juice) and adding
some [...]* packaging units to the existing potential
market of 300 billion units for still and carbonated
liquids. This focus is further reflected in the expenditure
in that same year of some EUR 39,3 million on research
and development representing some 4,5 % of its sales.
These investments allowed Sidel to gain market share in
complete packaging lines and open up new markets in
dairy products, fruit juice and beer (111).

(243) Furthermore, a significant proportion of Sidel’s SBM
machine sales (approximately [...]*) are integrated in
complete bottling lines. To meet customers’ growing
demand for integrated services, Sidel can offer its
customers wide-ranging services providing extensive
expertise in designing primary packaging (Shapes Design
Department, Moulds Design Department, Blowing Test
Center), automated systems to manage the mixing of
ingredients (Guérin) adding to food safety,
product
leading blow-moulding equipment,
innovative filling
methods (Combi), product-flow management solutions
(Gebo) ranging from designing the line to delivering a
turnkey system as well as control of overwrapping and
palletisation.

(240) Tetra has argued that the Commission has overstated
Sidel’s market shares. This does not appear to be justified.
The Commission’s market investigation and analysis
confirmed that Sidel holds market shares in the region
of [greater than 50 %]*. According to Sidel’s most recent
estimates, its market share continues to be very strong,
in the region of [60 to 70 %]* on the basis of sales in
the first three quarters of 2001 and [50 to 60 %]* on the
basis of installed base.

(244) Sidel has a network of 25 service organisations world-
wide. Annually, Sidel provides some 12 000 hours of
training to its customers in seven training centres around
the world.
In 1999, services accounted for 19 %,
machines for 63 % and for complete lines 18 % of Sidel’s
total sales (112).

(111) Annual Report of Sidel (1999), p. 3.

p. 32.

(112) Annual Report of Sidel (1999), pp. 8, 27; ‘The World of PET’,

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(245) In its reply (113) and at the oral hearing Tetra strongly
argued that Sidel faces fierce competition from its three
high-capacity competitors and that Sidel’s strengths are
not sufficient for the Commission to conclude that Sidel
can act independently of its competitors and customers
and that, as a result, Sidel does not have a dominant
position in high-capacity SBM machines. In particular,
Tetra argued that the high-capacity SBM machine market
is characterised by cycles of innovation and imitation.
There are no significant patents in the industry and
competitors have managed to copy Sidel’s machinery in
the past. Many of Sidel’s innovations have been copied
within two to three years once they became commer-
cially accepted. Sidel’s three high-capacity competitors
can compete with Sidel as they can offer similar
machinery at all speeds of capacity except perhaps the
very high-capacity machines of 50 000 bottles per hour.
In particular, Tetra provided a comparison between
Sidel’s machinery and services and those of its competi-
tors and concluded that Sidel’s three major rivals, SIG,
Krones and SIPA, can compete with Sidel
in every
respect including machine capacity and service. The
notifying party’s contentions were not supported by the
market investigation. For example, at the oral hearing
Tetra claimed that SIPA can offer hot-fill and wide-
mouth machines; this is not correct. Tetra also played
down Sidel’s R & D expenditure. However, the Com-
mission found that Sidel spent [...]* in 1998 for R & D
which according to Sidel’s President, Mr. Olivier, ‘places
us far ahead of our principal competitors’ (114).

(246) The Commission agrees with Tetra that Sidel’s position
in high-capacity SBM machines is not one of dominance.
However, the Commission has concluded that Sidel’s
position in high-capacity SBM machines is a very strong
one and that Sidel is the leading company in this field in
the EEA and worldwide. In particular, it is still clear,
and this was confirmed by the Commission’s market
investigation, that Sidel’s machines use leading tech-
nology and enjoy an excellent reputation in the market
place. Customers of Sidel responding to the Com-
mission’s enquiry confirmed that Sidel was ahead of its
competitors in terms of quality of its machines, scale
‘debugging’, bottle design, and
and scope of testing,
depth of experience.

(247) Technological barriers to entry in the high-capacity
market are still insurmountable for the smaller com-
panies active in the low-capacity SBM machine segment.
Sidel is still the only supplier of certain types of machine
such as 50 000 bph machines. Finally, Sidel’s market
position in terms of market share as regards its competi-

(113) Reply, paragraph 43.
(114) French original: ‘nous placent loin devant nos principaux concurrents’,

interview of 13 April 1999.

tors is indicative of its leadership in the SBM machine
market (Sidel [60 to 70 %]*, largest competitor [10 to
20 %]* in the high-capacity market, largest player in the
low-capacity market with a market share in the region
of [greater than 30 %]*, [greater than 70 %]* for rotary
low-capacity machines, and a market share of [60 to
70 %]* in a combined market of high and low-capacity
SBM machines in terms of capacity). The combination
of those factors is also indicative of Sidel’s leading
position in SBM machinery.

(248) It is therefore concluded that Sidel has a leading, but not
dominant, position in SBM machines of high and low
capacity. Sidel is the only company capable of providing
the full range of SBM machines from very low capacity
to the highest capacity always using leading rotary
technology.

2.2. Sidel’s strong experience in aseptic and non-
aseptic PET filling and the innovative Combi
machines

(249) The importance of effectively managing filling oper-
ations in combination with blow moulding is particu-
larly apparent with regard to ‘sensitive’ products such as
milk and fruit
juice to ensure clean or ultra-clean
packaging processes.

(250) Sidel manufactures both aseptic (Rémy) and non-aseptic
(Alsim, Girondine) filling machines. Aseptic PET filling
is a relatively recent technology, which currently faces
rapid growth. According to the information submitted
by Tetra, demand for aseptic PET filling machines first
originated in Italy and France but has, during the past
three years, grown in other EEA countries. The total
market volume of installed aseptic PET filling machines
has increased by [70 to 80 %]* (from [...]* machines to
[...]* machines) during 1998 to 2000 with a [30 to
40 %]* increase of the installed base in the year 2000
alone. For the next few years the market is expected to
continue to grow by [20 to 30 %]* annually with the
countries currently having a low installed base of aseptic
filling machines experiencing a particularly strong
growth.

(251) Rémy, acquired by Sidel in 1999, was one of the first
manufacturers of aseptic PET filling machines and a
leader in PET aseptic technology. Before 1998, only four
main suppliers were active in the market: Procomac ([30
to 40 %]*), Serac ([20 to 30 %]*), Sidel/Rémy ([30 to
40 %]*) and Tetra ([0 to 10 %]*). Five new entrants have
successfully entered the market between 1998 and
2000 (Krones, SIG, KHS-Kloeckner, Stork and GEA) by
together capturing [40 to 50 %]* of the aseptic PET
filling market.

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(252) In 2000, Sidel’s market share in aseptic PET filling
machines based on the installed base was [20 to 30 %]*
(number of machines) or [10 to 20 %]* (bottles per
hour) in the EEA. The market share is lower, [0 to
10 %]*, if one refers to Sidel’s sales of aseptic PET filling
machines during 1998 to 2000 (one machine). In the
same year, Procomac had a market share of approximate
[30 to 40 %]*, Krones [20 to 30 %]*, Tetra [10 to
20 %]*, SIG [10 to 20 %]* and KHS-Kloeckner, Stork
and GEA each [0 to 10 %]* respectively.

(255) Tetra has maintained and the Commission’s investi-
gation has confirmed that other competitors of Sidel
have also just
started offering their own Combi
machines. At the moment, three other suppliers have
the capability of offering a Combi machine. However,
only one other supplier, Sipa in conjunction with a
filling company Procomac, can offer an aseptic Combi
machine. Sidel’s Combi is the first one to be commercial-
ised in the EEA.

(253) Tetra estimates that the average filling speed of the
machines sold by KHS-Kloeckner, Stork and GE, and
recently Sidel, are in the same range of 12 000-
13 000 bph. The machines sold by Procomac (12 000 to
20 000 bph) and Krones (20 000 bph) are faster; only
SIG is believed to be slower (6 000 bph). Information
from Sidel, shows, however, that its ultra-clean and
aseptic PET filling technology using flowmeter feed-
ing (115) allows for speeds up to [...]* (fermented milk,
100 ml), [...]* (pasteurised whole milk, 1 l) and [...]*
(orange juice with pulp, 1 l). Flowmeter feeding includes
filling with no nozzle/package contact which reduces
the contamination risk.

aseptic

(254) Sidel’s technology in aseptic filling was further strength-
ened in 1999 by the breakthrough of its innovative
Combi technology, which allows the integration of
blowing, filling and capping of a PET bottle in a single
machine. This innovative technology represents a similar
approach to the manufacture of PET bottles to that
achieved by traditional
carton packaging
machines. In comparison to a line of a SBM machine
and a filling machine, the Combi has many advantages
for customers in terms of floor space and cost savings.
In particular, the Combi SRU (non-aseptic ultra-clean)
and SRA (aseptic) developed for ‘sensitive’ products,
such as juices and liquid dairy products, enables beverage
companies to produce and fill ‘sensitive’ products in PET
bottles in an integrated machine reducing the risk of
contamination. The Combi SRU, a Combi machine
operating in an ultra-clean but not aseptic environment,
has a capacity of [...]* ([...]* moulds), [...]* ([...]* moulds)
to [...]* ([...]* moulds). Sales of Combi machines have
grown from [...]* in 1998 to [...]* in 1999. Sidel has
sold [...]* Combi machines in the EEA. Sidel has also
developed a fully aseptic Combi machine, the Combi
SRA, which has already been commercialised in the EEA
and will be used for the aseptic filling of long-life juices
and dairy products.

(115) In particular, Sidel’s 8100 series, 8200 series and 8300 series.

See ‘The World of PET’, p. 21.

2.3. Sidel’s other PET activities

(256) In addition to SBM machines, barrier technology and
filling machines, Sidel is, according to Tetra, active on a
worldwide level in the supply of secondary line equip-
ment (mainly conveyor belts), distribution packaging
equipment (various machines that package single prod-
uct units together for distribution) and related services
to various industries. Such equipment comprises,
in
particular: conveyors (air and mechanical) that transport
single-unit containers between the various packaging
stages of a packaging line; machines that prepare the
filled containers for shipment (such as tray packers, film-
overwrapping machines; palletisers, boxing robots and
gluers); de-palletisers that handle pallets of empty con-
tainers for subsequent
filling; and control systems
necessary for the operation of various parts of a
production line.

(257) Sidel supplies this equipment to customers in various
industries,
in particular the liquid-food industry, the
non-liquid-food industry, the health and beauty industry
and the cleaning agent industry. Sidel’s significant pos-
ition in these markets is reflected in its market share
which, according to Tetra, does not generally exceed
[20 to 30 %]* but may do so,
if a narrow market
definition were to be adopted.

(258) The Commission notes that Sidel has strong capabilities
in offering tailor-made solutions for product lines such
as conveying, alignment, degrouping, accumulation,
transfer, distribution and elevations operations including
line audit services for locating any malfunctions and
proposing corrective actions and the service of Sidel’s
Test and Simulation Centers. It faces competition mainly
from Krones and several smaller more local competitors.

2.4. Conclusion

(259) On the basis of the foregoing, it is concluded that Sidel
has a leading position in the high and low-capacity SBM
machine market across all end-use segmentations and a
strong position in other PET packaging equipment, in
particular aseptic filling machines, secondary equipment
and associated services.

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3. CREATION OF DOMINANCE IN THE MARKET FOR PET
PACKAGING SYSTEMS,
SBM
MACHINES, AND STRENGTHENING OF DOMINANT
POSITION IN THE MARKET FOR CARTON PACKAGING
SYSTEMS

IN PARTICULAR

through the
immediately be strengthened further
merger. This position would reach the level of domi-
nance through the leveraging of the merged entity’s
dominant position in aseptic carton packaging equip-
ment and aseptic cartons.

(260) Despite Tetra’s contention in the notification and sub-
the operation affects solely the PET
sequently that
packaging equipment sector (and, in particular, SBM
machines, barrier
technologies and aseptic filling
machines) it is clear that, in the light of the foregoing,
the operation should be seen primarily as the merger
between the dominant company in carton packaging
equipment and the leading company in PET packaging
equipment,
two closely neighbouring markets, with
significant repercussions in the liquid-food packaging
sector. A significant number of respondents (including
competitors and, more significantly, customers) in the
Commission’s market investigation viewed the concen-
tration in those terms and raised concerns about the
merged entity’s future market power.

(261) The concentration would strengthen the merged entity’s
dominant position in carton packaging equipment and
cartons and enable the merged entity to acquire a
dominant position in PET packaging equipment,
in
particular, SBM machines of high and low-capacity. The
combination of those two dominant positions in two
closely neighbouring markets would enable the merged
entity to enhance its position in the sector for liquid
packaging equipment, in particular for ‘sensitive’ prod-
tea/coffee drinks) and to
ucts (LDPs,
reinforce its dominant positions.

juices, FFDs,

(262) The strengthening and creation of dominance would
take place through a number of
including
horizontal and vertical effects, and, in particular, through
leveraging of existing dominance and elimination of
actual and potential competition from a neighbouring
market.

factors,

3.1. Horizontal effects in the PET equipment market

3.1.1. SBM machines

(264) The Commission has concluded that the market for SBM
machines can be broadly divided into high-capacity SBM
machines (capacity > 8 000 bph) and low-capacity SBM
machines (capacity < 8 000 bph).

3.1.1.1. High-capacity SBM machines

(265) The transaction would not directly enhance Sidel’s
leading position in the high-capacity SBM machine
market through horizontal effects since Tetra is not
active in this segment of the market. However, the
merger would eliminate Tetra as a potential competitor
in the high-capacity SBM machine market. Tetra cur-
rently does not offer high-capacity machines. By buying
Sidel, Tetra would disappear as a potential entrant in the
high-capacity SBM market and a competitor in other
areas of PET equipment. Indeed, Tetra would acquire the
leading company in SBM machinery with the most
advanced technology and most extensive product range.
Thus, Tetra would ensure that its potential need to
develop its PET technology was eliminated.

3.1.1.2.

Low-capacity SBM machines

(266) In the low-capacity SBM machine market there are
significant horizontal overlaps. The operation would
result in a combined market share of [50 to 60 %]* ([30
to 40 %]* for Sidel (116) and [20 to 30 %]* for Tetra) in
terms of capacity of machines sold during the period
1998-2000. The main competitors in this market are
ADS with an approximate market share of [10 to 20 %]*,
Urola with [0 to 10 %]*, Sipa with [0 to 10 %]* and SIG
with [0 to 10 %]*, respectively.

(263) The proposed transaction produces direct horizontal
effects as both parties are active in three distinct
product markets: SBM machines (low capacity); barrier
technology and aseptic PET filling machines. The hori-
zontal effects set out below would enhance the merged
entity’s position in these three markets. It is therefore
important to analyse them at the outset in order to
show that the already strong position of Sidel would

(116) According to Sidel’s most recent estimates (August 2001), its
market share in the low-capacity SBM machine market was
higher: [40 to 50 %]* on the basis of sales in 2001. According
to Tetra’s estimates and the Commission’s own analysis, Tetra’s
market share remains [at 20 to 30 %]* on the basis of sales in
the year 2001.

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(267) Tetra submits that this horizontal overlap in the low-
capacity market would not cause any competition
problems: Sidel’s and Tetra’s SBM machines are not the
closest substitutes within the low-capacity segment as
there are great differences in technology, price and
customer perception; the parties do not have a single
common customer in the EEA and the parties do
not meet
is
characterised by the presence of many competitors,
which could respond to a price rise by Tetra/Sidel and
could capture market share; and there do not appear to
be any capacity constraints or significant barriers to
entry in this market.

in tenders. The low-capacity segment

impact

(268) The market investigation and the Commission’s analysis
confirmed Tetra’s contention only to a limited extent.
It appears that Sidel’s and Tetra’s low-capacity SBM
machines are not the closest substitutes, at least accord-
ing to customers’ perception, reputation and technologi-
cal quality. The market investigation showed that Sidel’s
machinery is seen as more complex (using rotary
technology in contrast to Tetra’s machines which use
linear technology), of better quality and generally more
expensive than Tetra’s (117) which is seen as an entry-
level SBM machine offering for simpler applications
with marginal
in the overall SBM machine
market. Despite the repeated contentions of Tetra that
the parties do not meet in tenders, Sidel has identified
Tetra as the winning company in [...]* occasions out of
[...]* of its unsuccessful bids in the EEA since 1998.
Whilst these [...]* bids may include bids where Sidel was
not even asked by the customer to participate, the
precise listing of the bids suggests that, on at least some
of these occasions, Sidel and Tetra were bidding for
common customers. It is therefore not right to say that
Tetra’s and Sidel’s low-capacity SBM machines do not
compete at all for the same customers in the EEA. In
addition, the parties have acknowledged that they have
common customers for their low-capacity machines
outside the EEA.

3.1.1.3. Conclusion

(269) In the light of the foregoing, it is concluded that the low-
capacity market would become more concentrated as a
result of the operation. Whereas there is currently no
single supplier holding more than [30 to 40 %]* of the
market, after the merger, the merged entity would be by
far the biggest player with market shares in the region
of 60 %. Several competitors would remain in the
market but with small market shares of no more than
[10 to 20 %]*.

(270) Post merger, in both the low and high-capacity segments,
Tetra/Sidel would have market shares of [60 to 70 %]*
or more. Tetra/Sidel would be by far the leading
company throughout
the entire spectrum of SBM
machinery from the simplest low-capacity machines to
the highest-capacity and most technologically advanced
machines.

3.1.2. Barrier technology

(271) As explained in the section on market definition, there
are currently a number of different barrier technologies
providing solutions to the oxygen-barrier limitations of
PET. Multilayer technology is already on the market
with a significant number of multilayer bottles being
produced both in-house and by converters in particular
for juice, LDPs and to a limited extent beer. Plasma
technology has also been commercialised but is still
in the early stages of commercialisation. Monolayer
technologies (enhanced PET resins) have not yet been
commercialised but are expected to reach the market
within the next year.

(272) The parties are both active in plasma technology. Plasma
technology is applied onto PET bottles using dedicated
proprietary machines in a separate step after the bottles
have been blown.

(273) Sidel has recently commercialised its Actis range. Actis
is a carbon-based technology, which uses a layer with a
brownish tint on the inside of the bottle. Actis uses
rotary technology and can reach speeds of up to
10 000 bottles per hour. The process has received FDA
approval in the United States. Actis has already reached
the stage of commercialisation but contrary to Sidel’s
optimistic expectations for sales of hundreds of Actis
machines, Sidel has [...]* sold [...]* machines to date.
Sidel has also developed a version of its Actis technology,
Actis Lite. Actis Lite has a lighter, almost invisible,
yellow tint, and is, thus, more suitable for juices.

(117) According to figures provided by the parties, Sidel machines are
indeed consistently more expensive than Tetra’s. However, the
price differential is not so high as to justify in itself that the two
machines be placed at opposite ends of the low-capacity market.

(274) Tetra is active in plasma through its Glaskin technology
and in multi-layer technology through its Sealica multi-
layer barrier-enhanced preforms. Tetra’s Glaskin is a
clear SiOX compound coated onto the inside of the
bottle. The machines can reach speeds of up to
12 000 bottles per hour. The technology is in the early

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stages of commercialisation. Sealica is a multilayer
technology using the over-injection method to produce
barrier-enhanced preforms. Preforms are then blown on
standard SBM machines. Sealica is also in the early
stages of commercialisation. Tetra has recently taken a
commercial decision to abandon Sealica (118).

successful it should create a base of installed machines
which would generate a stream of steady and profitable
income through the royalties. The model for this might
be... the aseptic paperboard packaging industry... where
a machine is sold to the customer for modest margin (or
even no margin). The profits and then made on the long-
term servicing or material supply contracts generated by
the initial machine sale’ (120).

(275) In the overall barrier-technology market, the combi-
nation of the parties’ technologies would give the merged
entity a market share of approximately [10 to 20 %]* on
the basis of barrier-enhanced bottles produced in 2000.

(276) Some market participants responding to the Com-
mission’s enquiry expressed concerns about the combi-
nation of the parties’ plasma technologies. These con-
cerns were repeated at the oral hearing. These market
participants see plasma as the most advanced and cost-
effective existing barrier technology. For example, a
respondent to the Commission’s market investigation
stated that plasma would be the only cost-effective
technology in the long run and the only technology
suitable for high-speed lines under attractive financial
conditions. A company active in barrier technology
stated that ‘technically PET barrier technology will allow
for the packaging of liquid dairy products and juices in
the next two to three years. Costs are expected to drop
as volumes increase and thus the carton packaging will
likely lose to PET containers. In addition to economics
and product performance, recycling of PET containers
will likely influence the degree to which PET packaging
penetrates the single-serve market for milk and juices.
Both barrier technologies offered by Sidel and Tetra
Laval are the only technologies that have demonstrated
recyclability in existing PET streams. If the cost perform-
ance is demonstrated for juices/milk, these technical
platforms will offer the lowest cost and most recycle of
friendly options to the PET packaging industry’.

(277) The economics of plasma, especially Sidel’s Actis, which
is already commercialised, are attractive. The cost of an
Actis machine is EUR [...]*. It is not considered a large
investment for the customer. Sidel will charge users a
royalty on the use of the machine. The royalty charge is
important, since ‘it will provide a long-term, stable
income for Sidel, which is independent of the cyclical
machine delivery revenue stream’ (119)‘...
If Actis is

(278) However, some market participants confirmed the par-
ties’ view that plasma also has significant disadvantages
as it is still in a developmental stage and continues to
face significant technological problems such as flaking
under heat pressure. Sidel’s Actis technology also has a
technical disadvantage in that it is pigmented (amber)
which makes it suitable for beer bottles but less suitable
for other applications.

(279) The parties have repeatedly stressed that a combination
of Sidel’s Actis machine with Tetra’s Glaskin plasma
(which is clear) would not be possible and that, as a
result,
technologies
in an enhanced ‘winning’ plasma
would not result
barrier. Due to the technical complexities of this market,
it has not been possible to confirm or rebut
this
allegation.

the combination of

the parties’

(280) In a distinct plasma market, the parties are the two main
players but still face competition from Krones/Coca Cola
(with an already established technology, Bestpet) and
other competitors that are about to enter this market
from outside the EEA.
in its reply to the
statement of objections, Tetra provided evidence show-
ing that [...]* has a plasma-barrier process in trial phase
and another company, [...]*, has a patented plasma-
based technology.

Indeed,

(281) Finally, there is also a widely-held view in the industry
that the establishment of an enhanced monolayer PET
would ultimately be the winning technology. Such an
enhanced resin would not need special equipment but
would be used to produce standard preforms containing
the requisite barrier properties, which could then be
blown in standard SBM machines. The Commission’s
investigation has confirmed that monolayer
market
technologies would be particularly attractive from both
a technical and an economic point of view. The investi-
gation has revealed that such technologies are likely to
be commercialised in the near future.

(118) Reply, paragraph 59.
(119) See JP Morgan, London, 20 February 2001, company update

Sidel, page 12.

(120) Ibid, page 13.

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Conclusion

(282) In the light of the foregoing, it is concluded that the
the parties’ plasma and multilayer
combination of
technologies would enhance the merged entity’s position
in the barrier technology market significantly (the
merged entity would have two advanced and viable
that a
plasma technologies) but not
dominant position in barrier technology would be
created.

to the extent

3.1.3. Aseptic filling machines

(283) Both Tetra and Sidel are active in aseptic PET filling
machines; there is therefore a direct horizontal overlap
between the parties’ activities in this market.

(284) Tetra established its PET filing machines in 1999 through
acquiring the relevant technology from an Italian engin-
eering company. Machines are produced in Italy and
sales of the machines are made by the general Tetra
marketing units in each country, some of which have
specialists focusing on plastic bottle filling machines.
Tetra’s aseptic PET filling machine, the RFA-40, can be
used for bottles of 0,2 to 1,5 litres and has a capacity of
12 000 bph. The RFA-40 is more suitable for high-acid
drinks (juices) but has also been used successfully in Asia
for low-acid tea drinks. Tetra submits that the RFA-40 is
not suitable for LDPs. Tetra has sold [...]* machines in
the EEA generating a turnover of approximately EUR
[...]* in 2000 within the EEA. Worldwide, Tetra has an
installed base of [...]* machines.

(285) Sidel is active in aseptic PET filling machines through its
subsidiary Rémy, a leader in PET aseptic technology. Its
aseptic filling machine business is located in France
(Octeville-sur-Mer). Rémy was one of the early players
in the market
for aseptic PET filling and has an
established market position and benefits from excellent
reputation and aseptic ‘brand’ recognition. Rémy was
combined with Sidel’s centralised sales force for SBM
machine sales in 2000. In the last three years Sidel has
sold [...]* aseptic filling machines in the EEA. In addition,
Sidel has commercialised an aseptic Combi machine, the
Combi SRA which allows the integration of blowing,
filling and capping of a PET bottle in a single machine.
Sidel sold [...]* aseptic Combi machines in the EEA in
2001.

(286) Aseptic PET filling is a relatively recent technology that,
according to the parties, has now entered a rapid growth
phase in the EEA. In the notification, Tetra stated that
the total number of installed aseptic PET filling machines

in the EEA in 2000 was [40 to 50]* machines. According
to the notification, the number of machines installed
had increased dramatically, by [70 to 80 %]* in the
period 1997 to 2000, and growth was expected to be
[20 to 30 %]* annually. There are several companies
active in the aseptic PET filling market, the main ones
(apart from the parties) being Procomac, Serac and
Krones.

(287) Given the very small size of the market (only [40 to 50]*
machines installed in the EEA) calculation of market
shares on the basis of yearly sales may be misleading.
Tetra has proposed a calculation of market shares based
on installed base and average sales between 1998 and
2000.

(288) According to data provided in the notification, Tetra’s
EEA share of the installed base by capacity is [0 to
10 %]* and Sidel’s [10 to 20 %]*. The merger would
therefore result in a merged entity with [20 to 30 %]* of
the installed base (and [10 to 20 %]* of new sales
capacity between 1998 and 2000). Procomac has [30 to
40 %]* of the installed base, Serac [10 to 20 %]* and
Krones [10 to 20 %]*. Of sales between 1998 and 2000
the competitors have [30 to 40 %]*, [0 to 10 %]* and
[30 to 40 %]* respectively. Tetra argues that several new
entrants have penetrated the market since 1998 and
have captured almost [40 to 50 %]* of new sales between
1998 and 2000.

(289) Whilst the Commission acknowledges the fact that new
entrants have made inroads in terms of machines sold
after 1998, the number of all machines sold is so low
that it is difficult to attach any particular importance to
market shares figures on the basis of yearly sales (121). It
is also important to note that Sidel’s Combi machine,
which is a particularly innovative product, was intro-
duced very recently and has not yet made its full impact

(121) For example,

in its response to an Article 11 request for
information dated 17 August 2001, Sidel provided updated
figures for the aseptic filling market on a worldwide basis.
According to Sidel’s calculations, [20 to 30]* machines were
sold worldwide in 2001. Sidel sold [...]* of those machines,
whilst Serac sold [...]* and Procomac [...]*. On the basis of these
few sales in 2001, Procomac is clearly the market leader with
[20 to 30 %]* market share with Sidel having [10 to 20 %]* and
Tetra [0 to 10 %]* (Tetra did not sell any machines in the first
two quarters of 2001).

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in internal documents
on the market. Furthermore,
provided to the Commission with the notification Tetra
expresses the view that
the aseptic filling machine
market is still fragmented, with no clear established
leader. [...]* (122).

3.2.1. Vertical integration of the merged entity in

carton, PET and HDPE

(290) In the light of the foregoing, it is concluded that the
merged entity would have a strong position in aseptic
PET filling machines, being one of the three biggest
players in the aseptic PET filling machine market with
[30 to 40 %]* of the installed base, possession of leading
aseptic PET filling technology, high aseptic ‘brand’
recognition and an international sales force.

3.2. Vertical effects

(291) The merger would also have significant vertical effects.
It would result in the vertical integration of the merged
entity in three packaging systems (carton, PET and
HDPE) and could lead to vertical foreclosure of indepen-
dent converters.

(292) The merger would result in a market structure which
could foreclose independent converters in the following
way: (i) the merged entity would be the only vertically
integrated liquid food packaging company in carton
(carton packaging machines and carton reels), HDPE
(EBM machines and HDPE bottles) and PET packaging
(SBM machines, barrier technology, aseptic fillers, pre-
forms and bottles); (ii) the merged entity’s dual position
as supplier and competitor of converters would be likely
to create a channel conflict in the market. Using its
strong market position as supplier of SBM machines to
converters which are to a certain extent dependent on
Sidel, the merged entity may be able to raise converters’
costs and marginalise their market position as suppliers
of preforms and turnkey installations. Tetra/Sidel may
be able to offer combined packages of SBM machines
and preforms for instance by using Tetra’s successful
business strategy in carton, offering the SBM machines
at a low price and recouping the cost by tying the
customer with a long-term contract for the supply of
standard and barrier-enhanced preforms. The merged
entity may also have the ability to offer turnkey instal-
lations to its customers without the use of converters.

is not active in the market

(293) Sidel is not a vertically integrated company. It is currently
only an equipment manufacturer supplying specialised
equipment used by packaging companies to produce
empty PET bottles (SBM machines) and HDPE bottles
(EBM machines) and to fill the bottles with liquids
(aseptic and non-aseptic PET and HDPE filling machines).
for consumables
Sidel
(preforms) or the market for finished bottles. All PET
equipment suppliers (Sidel’s main competitors such as
Sipa, SIG and Krones) follow the same business model of
focusing on equipment rather than vertically integrated
offerings. That is not to say that equipment suppliers
do not provide full
lines as turnkey solutions; they
increasingly do so on request from their clients. The
parties estimate (and this has been confirmed by the
market investigation) that [20 to 30 %]* of sales take
place on the basis of turnkey full-line installations. Full
lines, however, include only equipment such as SBM
machines (and moulds), filling machines, conveyors,
labellers, etc. Consumables such as preforms are not
part of the offering. PET equipment suppliers are not
active in the downstream packaging market; that is, they
do not sell finished bottles.

(294) The market structure has enabled independent com-
panies (converters) to acquire a special position in the
market. Converters buy SBM machines and moulds from
equipment suppliers (mainly from Sidel) and use them
to produce and then sell empty PET and HDPE bottles
to their clients, beverage companies. Converters also
produce preforms, which they sell to beverage com-
panies that have in-house installations. The sale of
preforms is converters’ main business. This industry
structure has enabled beverage companies to source
their packaging needs through a variety of sources using
equipment
from a number of suppliers, sometimes
buying the ready bottles from converters.

(295) By contrast, Tetra is a vertically integrated packaging
company. Indeed, Tetra is the ‘only company in the
world that can offer the food industry a one-stop-shop
for processing and packaging equipment’ (123). Tetra can
supply processing equipment, packaging machines and

(122) Internal Tetra document provided as Annex 3 to the notification,

pursuant to paragraph 5.4 Form CO.

(123) Tetra Laval’s Annual Accounts 2000, page 15.

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in reels or PET
also packages (the carton material
preforms and finished bottles). Tetra’s upstream (pre-
forms) and downstream (packages or finished bottles)
activities are the following.

Tetra’s/Graham’s position would cause competition
problems as the merged entity would have a very strong
position in the market for EBM machines in the EEA (125).

3.2.1.1. Carton packages

(296) Tetra is the market leader with a market share in the
region of 80 % for aseptic and 50 % for non-aseptic
carton packages. Tetra follows a business model of
offering integrated solutions of machines and cartons
(reels or blanks) to its customers.

3.2.1.2. HDPE bottles

(297) Tetra supplies finished HDPE bottles mainly to dairies in
the United Kingdom that are used for non-aseptic filling
of pasteurised and ESL (124) milk. Sidel is active as a
supplier of EBM machines but not as a downstream
supplier of HDPE bottles. In this downstream market,
Tetra acts as a converter. Tetra’s bottles are supplied
through ‘Hole-through-the-wall’ arrangements. Tetra
produces the bottles using machinery from Graham
Engineering Corporation [...]*. Tetra’s market share in
this downstream market for the supply of non-aseptic
HDPE bottles in the United Kingdom is [20 to 30 %]*
(the leader being Nampack, a converter, with [60 to
70 %]*). Tetra recently also started supplying HDPE
bottles in Belgium. The Commission’s market investi-
gation revealed that Tetra has an [...]* agreement with
Graham Engineering for the use of its EBM machines in
the EEA. Third parties have expressed concerns that the
combination of Sidel’s EBM machine position with

(124) Extended-shelf-life (ESL) milk is fresh pasteurised milk which
has a shelf life of approximately 90 days. This places it between
UHT (aseptic) milk and short-life fresh milk.

3.2.1.3.

PET preforms, bottles and plastic closures

(298) Tetra is the third largest independent preform supplier
in the world with a market share of [10 to 20 %]* (126).
The main players in this market are converter companies
such as Schmalbach (leader with [30 to 40 %]*) and
Alpla. Moreover, Tetra has patented a proprietary barrier
technology (Sealica) which it uses to produce and sell
barrier-enhanced preforms. Tetra has announced that it
has abandoned the Sealica technology. Tetra also has
plans to produce a limited number of finished PET
bottles enhanced with its proprietary barrier technology
Glaskin, mainly through hole-through-the-wall arrange-
ments (127). In addition, Tetra is active in plastic beverage
bottle closures (128) through its subsidiary Novembal
(acquired in 1999). According to figures provided by
Tetra, Novembal had [10 to 20 %]* market share in
2000 in the EEA.

(299) The merged entity would have a full-line PET capability.

This is explained graphically in Table 8.

(125) During the Commission’s market investigation, a major dairy
suggested that the parties were the only source in the EEA of
EBM machines capable of producing aseptic HDPE bottles with
handles which are particularly used for large size packs of milk.
The Commission’s investigation revealed that
the Graham
machines for which Tetra is the sole source of supply in the
EEA [...]* and the new Sidel [...]* are indeed capable of producing
aseptic HDPE bottles with handles. However, the investigation
revealed that two other suppliers, Bekum and Techne, also
supply machines capable of producing aseptic HDPE bottles
with handles. The Commission decided to send the notifying
party a supplementary statement of objections concerning, inter
alia, EBM machines, on 24 September 2001. The statement
supplemented the original statement by including a more
accurate description of the parties’ activities in the HDPE field.
In the light of Tetra’s reply dated 1 October 2001 and the
Commission’s analysis, the Commission concluded that the
position of other players’ allayed concerns about dominance in
a potential market for machines producing aseptic HDPE bottles
with handles.

(126) In the reply, Tetra maintains that its market share is closer to
[0 to 10 %]* according to the Commission’s method of
calculation (open market) and closer to [0 to 10 %]* if in-house
production is taken into account.

(127) Notification, paragraph 172.
(128) Closures are air/watertight seals for packaged products which
offer the possibility of closing and re-closing the packaging and
are manufactured separately from the packaging.

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Table 8

PET full-line capability

Market

Tetra

Sidel

Tetra + Sidel

Preforms

[10-20 %]*

Not active

[10-20 %]*

SBM (low-capacity)

[20-30 %]*

[30-40 %]*

[50-60 %]*

SBM (high-capacity)

Barrier technologies

Aseptic PET fillers

Not active

[60-70 %]*

[60-70 %]*

Active

Active

[10-20 %]*

[0-10 %]*

[10-20 %]*

[20-30 %]*

Non-aseptic PET fillers

Not active

Active

< 10 %

Secondary line and distribution packaging equip-
ment (129)

Not active

Active

< 25 %

Plastic bottle closures

[10-20 %]*

Not active

[10-20 %]*

(300) The combination of the parties’ activities would result in
a merged entity which would be vertically integrated in
carton (Tetra), HDPE (Sidel’s EBM machines and Tetra’s
bottle production and [...]* agreement with Graham
Engineering for EBM machines) and PET (Tetra’s pre-
forms and bottle business and Sidel’s equipment). No
other company in the liquid-food packaging industry is
integrated in this way.

3.2.2. Channel conflict — possible foreclosure of

converters

(301) The merged entity’s vertical integration is likely to create
a channel conflict in the market as the merged entity
would be a supplier and competitor of converters. A
converter stated in its response to the Commission’s
market investigation that ‘the combination of Tetra
Laval’s preform capacity and aseptic expertise with
Sidel’s blow/fill/seal platform could and possibly will
dominate the in-house blowing and filling market for all

products for which PET bottles could be used (ranging
from milk to isotonic drinks to juices etc.) (...) all PET
converters will share these serious concerns’ (130).

(302) The ‘channel conflict’

that converters are likely to
face by being simultaneously customers (Sidel) and
competitors (Tetra) of the merged entity does not arise
simply as a result of Tetra’s activity in the preforms
market, even though Tetra’s preform activities make the
channel conflict particularly direct. Tetra’s activities as a
packaging company (as opposed to a packaging equip-
ment company) in carton and HDPE make it an indirect
competitor of converters in all
their activities. For
example, converters are currently working with Sidel to
produce innovative PET designs specifically aimed at the
LDP and juice markets where Tetra has major activities
in cartons and activities in HDPE. In bringing new
products to the market, converters have to work very
closely with Sidel as the final design will be blown on a
Sidel machine, and must achieve specification and
reach guaranteed production outputs. Converters have
expressed concerns that ‘any future project be it a new
customer, an enhanced tool or an improved design
would inevitably be disclosed to a competitor an imposs-
ible situation with a doomed business perspective’ (131).

(129) Secondary line equipment is principally conveyor belts and
distribution packaging equipment is various machines that
package single product units together for distribution.

(130) Response to the Commission’s market investigation submitted

on 8 June 2001.

(131) Third-party response dated 8 June 2001.

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3.2.2.1. Converters’ dependency on Sidel

(303) The business concept of a converter is twofold. On the
one hand, converters purchase SBM machines and
moulds from equipment suppliers for use in their own
production and sell the finished PET bottles to their
customers, beverage companies for filling. Secondly,
converters manufacture preforms, which they sell to
beverage companies that have in-house production of
PET bottles. This has allowed beverage companies to
source their packaging needs through a variety of
sources but it also requires converters to cooperate
closely with the SBM machine manufacturer to test their
preforms and moulds and to acquire equipment which
they provide to their customers.

(304) Given Sidel’s position as the pre-eminent high capacity
SBM machine supplier, its unique capabilities for many
specific applications and more importantly its focus on
a customer-oriented approach with dedicated design and
testing centres designed to customise PET solutions for
a customers’ production needs, Sidel has become the
major packaging partner for independent converters.

(305) Converters have stated that they have very specific needs
for their PET bottle production given their size of
activity. Converters are indeed Sidel’s largest customers.
[...]* out of the [...]* largest customers of Sidel are
converters. Converters claimed that they had invested
heavily in Sidel machinery and moulds (the shaped piece
of metal that is inserted in the machine to give the final
bottle its shape). This would make it economically
impossible for them to switch to other suppliers for
their needs even if these other suppliers could offer
machines in the range and quality of Sidel, which they
do not. For example, a major EEA converter stated that
it has more than [...]* Sidel machines in operation and
only [...]* SBM machines from other suppliers. This
converter also stated that it has generally been unhappy
with the performance of the non-Sidel SBM machines it
operates.

(306) Converters responding to the Commission’s market
investigation stated that they would be incapable of
switching to other SBM machine suppliers for the
majority of their production needs and stated the speed,
reliability and quality of Sidel machines as critical factors.
It is important to note that the barriers to entry into the
high capacity SBM machine segment are particularly
high given the technological complexity, know-how and
high levels of investment required. A converter explained
that machines of other suppliers did not reach the speed,
reliability and quality of Sidel machines. On one occasion

a converter returned another supplier’s SBM machine
due to poor quality and frequent breakdowns. In this
regard, it is important to note that servicing is extremely
important for the continuing operation of the SBM
machines. Converters’ business is a low-value, high-
volume business which depends on continuous and
efficient output. Converters stated that only Sidel had
the short response time required to satisfy their service
needs.

(307) Converters also stated that they depend on Sidel for the
testing and development of their preforms, mould design
and bottles. Converters cooperate closely with Sidel at
the R & D stage in order to achieve specifications
and reach guaranteed production outputs. They share
confidential and proprietary designs and projects with
Sidel. In this way, Sidel has acquired invaluable inside
knowledge of the downstream packaging markets and
has a vast library of confidential drawings, preform and
old designs. One market respondent for example stated
that ‘to be successful a PET converter has to work closely
together with the machine manufacturer like Sidel
sharing trade secrets and proprietary knowledge. This is
not only the case with regard to the servicing of
machines and equipment but also with regard to com-
mon developments of new designs or technologies’ (132).

(308) These factors led the Commission to conclude provision-
ally in the statement of objections that it would be
reasonable to define a distinct market for top-end high-
capacity machines and services to converters. In its
written response and at the oral hearing, Tetra submitted
further factual evidence which suggested that converters’
position as regards Sidel was not one of dependency.
Converters do not need top-end high-capacity machines.
Converters’ preference for Sidel was simply driven by
commercial reasons and not any particular, special
needs converters have which only Sidel was capable of
satisfying (133). Specific instances of bad performance of
competitors’ machines were isolated incidents which
should not be taken into account. Indeed, according to
Tetra converters ‘have procured many machines supplied
by Sidel’s competitors and seem to have no problem

(132) Market response dated 8 June 2001.
(133) For example, the notifying party produced evidence showing
that converters do not have specific needs for the top-end high-
capacity machines (e.g. above 40 000 bottles per hour) which
only Sidel could satisfy.

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with them’ (134). In addition, Tetra claimed that the fact
that converters have invested heavily in Sidel machinery
is not a relevant factor as there are no substantial barriers
for converters to switch to other suppliers’ machines;
three
for example, a large EEA converter bought
machines from Krones in 2000. Tetra also claimed that
converters do not depend on Sidel
for testing and
designing moulds and preforms. Investment in moulds
is not, according to the notifying party, a major barrier
for switching as moulds need to be replaced every three
years due to periodic changes in bottle forms.
In
addition, suppliers like SIG have designed their SBM
machines so that they can accommodate Sidel moulds;
this allows them to break more easily into Sidel’s
customer base.

(309) Converters have continued to express concerns that,
post merger, Sidel may be lost as an independent
supplier of machines and the merged entity may be able
to displace converters from their activities in the PET
packaging market: offering turnkey solutions, preforms
and finished PET bottles. Converters expressed concerns
that the merged entity would have no incentive to
provide them with equipment and efficient service when
it could simply bypass them and offer its customers
to filling
complete
machines). Converters are dependent on Sidel for pur-
chases of SBM equipment in order to be able to provide
turnkey offers.

(from preforms

installations

(310) The Commission considers that converters are to a
certain extent dependent on Sidel and would continue
to be dependent on the merged entity.
It appears
that converters could turn to other suppliers of SBM
machines for purchases of new machinery and design
and testing of preforms. However, switching costs and
the continued need to use the large number of Sidel
machines they have already acquired will prolong con-
verters’ current degree of dependency on Sidel.

3.2.2.2.

Possible effects of the channel conflict

(311) The market structure resulting from the merger is likely
to create a channel conflict. A merged Tetra/Sidel may
have the ability to refuse the supply of equipment or
adopt price and other discriminatory practices in order
to favour its own integrated business to the disadvantage
of converters. For example, the merged entity might

raise prices to converters for its equipment and offer
beverage companies more attractive prices coupled with
long-term finance deals or, more likely, long-term supply
of preforms.
In this way, the close cooperation of
converters with Sidel for the design and testing of
preforms in order to bring innovative new products to
beverage companies could be lost.

(312) Being vertically integrated and having a leading position
in SBM machinery, the merged entity may have the
ability to marginalise converters by offering customers
combined packages of SBM machines and preforms as
well as turnkey installations.

(313) Tetra follows the same business model of combined
packages in its carton business, supply of machine with
long-term finance paid off through the supply of carton
material. Tetra believes it can follow the same carton
business model in the plastics sector. In internal docu-
ments Tetra considers that there is a much weaker tie
between filling machine supply and packaging material
supply in the plastics industry compared to the carton
industry [...]* (135).

(314) Indeed, Tetra has made wide use of such practices in the
past (bundling carton equipment and carton packages
or SBM equipment with preforms) with great success.
The market investigation has revealed that a significant
number of bids won by Tetra for SBM machine sales
have been won on the basis of preform/SBM bundling
which competitors (including major companies such as
Sidel) could not match. Tetra usually offers the SBM at a
relatively low price (undercutting its competitors) and
ties customers with long-term contracts for the purchase
of preforms. Data provided to the Commission by Sidel
also shows that Tetra has managed to win a significant
number of bids by offering a combination of preforms
and SBM machines. This strategy has enabled Tetra to
get a high market share in the low-capacity SBM market
(second largest player in four years) despite the low
quality of its machines and the general insignificance of
its presence in the overall SBM machine market. With
Sidel’s leading SBM machines of high capacity Tetra
could have the ability to continue with its commercially
successful strategy of combining SBM machines and
preforms thus raising both the merged entity’s SBM
machine market share and its preform market share and
to marginalise converters.

(134) Reply, page 34.

cation.

(135) Internal Tetra document submitted as Annex 3 to the notifi-

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(315) As regards turnkey installations, customers (especially
unsophisticated customers) can turn to converters or
other independent consultants for their turnkey instal-
lations. The independent consultant
then can put
together a PET line including Sidel SBM machines, other
suppliers’ fillers or secondary equipment and its own
preform supplies. Sidel also offers turnkey installations
with the exception of preforms where it is not active.
Thus, at the moment a customer beverage company has
the choice of obtaining a Sidel SBM machine directly
from Sidel or from converters which also supply pre-
forms.

(316) Indeed, Tetra has succinctly described the current more
open structure of the PET packaging sector as follows:
‘... customers can turn to third-party PET consultants,
who specialise in putting together mix-and-match full
lines to meet their clients’ needs. Thus, even the most
unsophisticated customer can contract for the necessary
expertise and buying power to assemble its full line needs
from the most suitable individual components’ (136).

(317) A customer of the parties (137) stated that ‘Sidel was a
machine supplier. Tetra was a machine and package
material supplier. Following the merger, there is the risk
that the packaging production equipment may no longer
be free on the market but only the packaging produced
with such equipment. Such, our concerns are mainly
integration of equipment with a
the vertical
about
packaging material supplier’.

(318) There is therefore a concern that, post merger, the
merged entity may have the ability to marginalise
converters from these activities by refusing the supply
of SBM machines or raising their costs and favouring its
own integrated business. This could remove some
elements of intra-brand competition for the sale of Sidel
SBM machines.

3.2.2.3. Tetra’s decision to exit the preforms market

(319) Tetra has acknowledged channel conflict that would be
created as a result of the merger and considers the
channel conflict negative from a business perspective as
it would antagonise some of its customers. Tetra does
not, however, believe that such a channel conflict would
result in the creation or strengthening of a dominant

(136) Submission of the notifying party dated 8 June 2001.
(137) Third-party response by a major company to the Commission’s

market investigation.

position. Tetra has maintained that the merged entity
would not have the ability to foreclose converters as this
would not be feasible: first, converters are its biggest
customers and it does not want
to alienate them;
second, converters could turn to other suppliers both
for production and design of preforms as well as for
bottle blowing; third preforms are a commodity busi-
ness; fourth Tetra’s activities are currently so limited
([0 to 10 %]* market share in 2000) that it could not
possibly dominate the preforms market; fifth, competi-
tors could also acquire preforms businesses; and finally
competitors could also offer turnkey installations in
competition with the merged entity.

(320) The Commission’s market investigation and analysis of
the market produced results which partially support the
notifying party’s arguments.

(321) First, the fact that converters are the biggest customers
of the merged entity needs to be qualified. Lost sales to
converters could be replaced by direct sales to converters’
customers (the beverage companies) with the added
advantage of tied preform supplies; this would make up
for any possibility of lower margins achieved on the
SBM machine sales. Second, converters have stated that
they could turn to other suppliers for their SBM machine
needs and for design and testing of preforms. This
appears to be correct even though the Commission
considers that converters will continue to be dependent
on Sidel for their installed base of machines (138). Third,
standard preforms may be a commodity business but
barrier-enhanced preforms enjoy high margins (139).
However, Tetra has announced that it has recently
discontinued the use of Sealica technology. Fourth,
Tetra’s market share in the open (i.e. excluding in-house
competes with
production) market on which it

(138) The notifying party’s contention as to preform production is
correct. Neither Tetra nor Sidel supply machines that make
preforms. These are supplied by independent companies such
as the Canadian company Husky (the leading player). As a
result, converters do not depend on Sidel and will not depend
on Tetra/Sidel for their preform production. This is not part of
the ‘channel conflict’ created by the simultaneous presence of
the merged entity in the machinery market and packaging
market, i.e. as a supplier and competitor of converters.

(139) It is also worth noting that cardboard is a commodity product
but enhanced-multilayer cardboard which contains aluminium
foil as a barrier to oxygen is not. This is the type of carton that
Tetra sells to its customers on an on going basis.

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converters is in the region of [10 to 20 %]* not [0 to
10 %]*. The market investigation revealed that Tetra has
reached this position in three to four years and this
without having any advantage arising from superior
technology and leading position in SBM machines
(which it would have after the merger). Tetra would
have no difficulty increasing its capacity. The market
investigation showed that with a modest (for Tetra Laval)
investment of EUR [...]* (less than [...]* of the value Tetra
is willing to pay for Sidel’s shares) Tetra could double its
preform capacity. Fifth, competitors do not currently
have any preforms business and are pure equipment
suppliers. However, the preforms market has very low
barriers to entry and competitors could offer preforms
together with the full line of PET equipment. Competi-
tors also have the ability to team up with converters for
the supply of preforms if this is commercially attractive.
However, barriers to entry into the market for barrier-
enhanced preforms are considerably higher. Finally, as
regards turnkey installations the main high-capacity
competitors of the merged entity can offer full PET
equipment lines (with the exception of preforms).

(322) The Commission therefore considers that, to the extent
that Sidel is not dominant in SBM machines, inter-brand
competition would not be significantly affected.
If
however, Sidel became dominant in SBM machines in
particular in the ‘sensitive’ product segments, this could
allow the merged entity to dominate the preforms
market, in particular barrier-enhanced preforms used
for ‘sensitive’ products, by engaging in the practices
described above in particular by marginalising converters
and offering combined packages of SBM machines and
preforms.

(323) Given its acknowledgement of the negative effects of the
channel conflict from a business perspective, Tetra has
taken a commercial decision to exit the preforms market
thus eliminating any concerns that converters raised.
Tetra expects that this will improve its business relations
with converters. Indeed, in this way the elimination of
the channel conflict is likely to ensure the continuation
of Sidel’s strong position as regards sales of SBM
machines to converters. Tetra has announced this com-
mercial decision in public press releases and reiterated it
in its reply and again at the oral hearing. Tetra has
offered the divestiture of its preforms business as a
commitment
to the Commission. This is discussed
further in the section on commitments below.

3.2.2.4. Conclusion

(324) In the light of the foregoing, it is concluded that the
proposed transaction would result in Tetra/Sidel being
vertically integrated in three packaging systems: carton,
HDPE and PET. This may create a channel conflict with
independent converters with possible anti-competitive
effects, mainly a possible reduction in intra-brand com-
petition for Sidel machinery and,
in the event Sidel
becomes dominant in SBM machines for ‘sensitive’ end
products, the creation of a dominant position in the
barrier-enhanced preforms market. Therefore, the Com-
mission does not conclude that these vertical concerns
would, by themselves, result
in the creation of a
dominant position for PET equipment or preforms.

3.3. Leveraging of existing dominance and elimin-

ation of potential competition

(325) The notifying party has argued (140) that not only are
carton and PET packaging two separate markets for
purposes of competition law analysis but that they are
also so loosely connected that neither anti-competitive
effects nor efficiencies can arise from the combination
of the dominant carton packaging company with the
leading company in PET equipment (in particular SBM
machinery). As regards efficiencies, Tetra stated in its
reply that ‘Tetra Laval management did not anticipate
substantial synergies with Sidel, but rather assumed that
Sidel’s PET business, operating with solid management
could prosper and achieve solid returns on Tetra Laval’s
investment’ (141).

(ii)

(326) Tetra claims (142) that the absence of any possibility of
competitive effects across the two markets arises from
the following factors: (i) the two markets are separate
and distinct product markets;
the two markets
are not closely ‘associated’; (iii) the Commission has
neglected to analyse the competitive influence of other
packaging materials such as glass, cans and HDPE (143);
(iv)
the Commission’s arguments are based on the
assumption that Sidel is dominant in SBM machines and
will have a vertically integrated PET offering. Tetra also
claimed that, even if there was a possibility for leveraging
effects, leveraging would not have any anti-competitive
effects (144).

(140) Submission of the notifying party dated 21 June 2001 and
other submissions including the notifying party’s reply,
in
paragraphs 77 et seq.

(141) Reply, paragraph 5.
(142) Reply, paragraphs 77-81.
(143) Reply, paragraphs 38-39.
(144) Submission of the notifying party’s economists dated 26 Sep-

tember 2001.

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(327) The Commission’s leveraging concerns are set out in
detail in the following paragraphs and address Tetra’s
economic arguments as to the lack of anti-competitive
effects as well as the non-profitability of
tying or
bundling in this market. It is, however, important to
clarify at the outset that the above four arguments of the
notifying party suggesting that no anti-competitive
effects across the two markets can possibly arise in
this case are not relevant or sufficient to dispel the
Commission’s concerns.

use product segments and can be considered a ‘weak
substitute’ to carton in an economic sense. The three
main carton suppliers, Tetra, SIG and Elopak (146) are all
active in PET. There is already a significant number of
common carton and SBM machine customers which
will inevitably increase in the future with the anticipated
growth of PET in the common end-use product segments
which was discussed in the section on market definition.

(328) First, the Commission has indeed reached the conclusion
that the two markets (carton and PET packaging equip-
ment) are separate. Secondly, the Commission considers,
however, that these two markets are closely associated.
Thirdly, given this market separation by packaging
material (which Tetra does not contest) and Tetra’s lack
of dominance in non-carton markets, the Commission’s
analysis does not rest upon effects on other markets such
as glass, cans or HDPE, even though the Commission has
investigated and taken these markets into account (145).
Carton is currently and will remain the most important
is thus
packaging material
sufficient that the dominant company in carton packag-
ing would have the ability to leverage its position from
the carton into the PET equipment market and thus
dominate the PET equipment market for ‘sensitive’ end
products as well for the operation to be incompatible
with the common market. Finally, Tetra’s argument that
the Commission’s leveraging concerns arise from Sidel’s
dominance in SBM machines is wrong. The Commission
has not found Sidel to be currently dominant in the SBM
machine market. Sidel is, however, the leading company
in this market. The Commission’s concerns arise from
Tetra’s dominance in the carton market.

for LDPs and juices.

It

(329) The Commission cannot agree with the notifying party
that
the two distinct markets for carton and PET
equipment are so loosely connected that no competition
concerns can arise from the merger. Both markets belong
in the same industry sector, liquid-food packaging. PET
is a packaging material for the main carton-packaged
products, LDPs, juices, FFDs and tea/coffee drinks and is
in, a technical sense, a substitute for carton in these end-

(330) In the light of the above factors, the proposed transaction
would create a market structure providing considerable
scope for anti-competitive effects arising from the
merged entity’s simultaneous dominant and leading
position in carton and PET equipment respectively. By
acquiring Sidel, Tetra would ensure that its dominant
position in aseptic carton packaging was retained and
strengthened by eliminating Sidel as a source of competi-
tive constraint.
leveraging its dominant
position in carton, Tetra/Sidel would have the ability to
reach a level of dominance in PET equipment and in
particular SBM machines of high and low-capacity in
the relevant end-use segments.

In addition,

(331) This will be explained in four stages. First, the Com-
mission’s analysis shows that, even though it has con-
cluded that PET and carton packaging systems do not
currently form part of a single relevant product market
(see market definition section), they belong to closely
neighbouring product markets with a common pool of
customers. The Commission’s market investigation has
indeed revealed that both PET and carton will be used in
all the common PET-carton end-use product segments
(LDPs, juices, FFDs, tea/coffee drinks) as beverage com-
panies will increasingly want to have a mix of packaging
materials. PET is expected to take market share away
from carton and in some cases may even compete with
carton in some segments of the market. Secondly, the
Commission’s analysis shows that, given the future
growth of PET in the new ‘sensitive’ product segments,
the merger would enable the merged entity to acquire a
dominant position in PET by leveraging its dominant
position in carton packaging, having a first mover
advantage in the customer base coupled with strong
market shares, unparalleled range of products and
technology, and unassailable international presence.
Thirdly, the Commission analysis shows that, given

(145) It is noteworthy that Canadean in the study prepared for Tetra
submitted to the Commission on 24 August 2001 maintains
that in the market for LDPs ‘glass is the main loser, while cans
continue their downward drift’.

(146) Elopak does not manufacture PET equipment but, realising the
necessity of offering both carton and PET to its clients, has
entered into alliances with PET equipment manufacturers to
address its customers’ needs.

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this growth of PET, Tetra’s acquisition of Sidel would
strengthen Tetra’s dominant position in carton as well.
Without
the merger Tetra would have to compete
vigorously in order for carton not to lose market share
to PET by innovating (new carton shapes and solutions)
and lowering carton prices significantly in some cases.
The merger would eliminate this competition and enable
Tetra to monitor and anticipate any switch from carton
to PET. Fourthly, as a result, the combination of the
two dominant positions would consolidate the merged
entity’s position in the sector for liquid-food packaging
for ‘sensitive’ products, in particular aseptic packaging
thus reinforcing the two dominant positions.

3.3.1. Parallel use of PET and carton by beverage
companies (product and customer overlap)

(332) Contrary to Tetra’s contention (147), carton and PET
share common product segments which cover almost
the entirety of carton-packaged products. This makes
carton and PET technical substitutes in that both packag-
ing materials can package the relevant end-use product
segments. Furthermore, carton and PET may be con-
sidered ‘weak substitutes’ in an economic sense.

growth in liquid-food packaging. Plastics is more often
than not the container selection when customers convert
from glass, cans and carton packaging’ (149).

(335) In the light of the data collected during its investigation,
the Commission also considers that more products will
be placed in PET in the future, as explained above in the
market definition section on PET growth (Sec-
tion IV.3.3). However that is not to say that carton will
disappear. Rather, the two packaging types will be used
(maybe in the same retail location) to target specific
locations and occasions of consumption. The Canadean
study prepared for Tetra also expressed this view:

‘Because mass markets are fragmenting into many
different segments, the choice of pack for any given
brand is no longer a simple one between PET bottle
versus carton. Nor is the choice based solely on cost
comparisons between different pack types.

The drinks marketer ... is seldom making one choice
when it comes to selecting the pack for a brand. More
often the team is looking at a range of pack types and
sizes so as to hit the main segments, locations, occasions
that are out there in the market place’ (150).

(333) The Commission’s market investigation confirmed the
view that beverage companies will need and use both
PET and carton packaging for their products. The choice
of packaging used by the end-use producer is primarily
a marketing decision, although the costs of packaging
chosen cannot be ignored. Tetra has stated repeatedly,
that ‘marketing considerations are far more important
than relative differences in packaging costs in a beverage
company’s decision as to which packaging material to
use. Beverage companies are keenly aware that certain
types of containers are associated by consumers with
certain images or occasions’ (148).

(336) It would therefore appear that carton and PET are and
will in the future be used for the packaging of the same
products. In some cases PET and carton will be used as
complementary packages and in others PET and carton
may compete for the same end-user in the market place.
Consumers may see a greater choice of packaging of
products targeted at particular use, occasion and/or
consumer groups. For example PET may be better suited
for on-the-move consumption whereas carton is more
suited for consumption at home where it is not necessary
to have the added benefits of PET, namely consumption
direct from the bottle and re-closeability. For large-size
containers both carton and PET could be used to target
the same consumer groups.

(334) As explained in the section on market definition, many
third parties thought that over time the overriding
advantages of PET would result in PET being used more
frequently. Tetra believes that ‘it is apparent in the
market place the plastic packaging is either capturing or
will be in a position to capture a major portion of the

(337) It

is the Commission’s view therefore that PET is
already becoming an important alternative, as well as
complementary, packaging to carton in the ‘sensitive’
product markets and that it will continue to grow in
importance. This will particularly be the case with

(147) Reply, paragraphs 95 to 99.
(148) Submission of the notifying party dated 18 July 2001.

(149) Internal Tetra document provided as Annex 3 to the notification.
(150) Canadean study submitted to the Commission on 24 August
2001 ‘The Growth of Pet Bottles for Selected Beverages in
Western Europe’, pp. 66-67.

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technological progress which is causing the aseptic
filling techniques to become more economical and
the continued development of more efficient barrier
technology. Sidel itself sees the overlap in customer base
increasing significantly in the future as expressed by Mr
Olivier, Sidel’s CEO: ‘ I guess in 10 years from now it
will be something like 50 % cardboard and 50 %
PET’ (151).

(338) Given the common product overlaps and the expected
growth of PET in those product segments, there is
a common pool of customers which, primarily for
marketing reasons, will need and use both carton and
PET to satisfy the needs of their various customers. The
parties have identified a significant number of overlap
customers of their own brands of SBM and carton
machines. Almost [...]* of Sidel SBM machine sales (152)
have been made to Tetra’s carton customers (153). This
the parties’
overlap reflects common customers of
brands of carton and SBM machines, not all customers
that utilise a carton and SBM packaging machine in
parallel. In addition, apart from the Tetra-Sidel overlap
customers, Tetra has also identified [...]* overlap cus-
tomers which have purchased both carton and SBM
machines from Tetra. Tetra’s own calculations show that
in the period 1996 to 2000 (a period when PET use in
the EEA in the relevant product segments was minimal),
it sold a total of [...]* SBM machines. [...]* of these, or
[...]*, were sold to overlap customers.

(339) The Commission found that parallel use of PET and
carton is already an established practice for a significant
number of customers. For example, the Commission’s
investigation of Italian dairies showed that approxi-
mately half of the dairies responding to the Com-
mission’s investigation (including the two largest dairies
in Italy) already use both carton and PET for the
packaging of their milk and that the overwhelming
majority of the remainder (which currently use only
carton) are interested or are planning to use PET in the
future. Retailers have also stated that they stock PET and
carton-packaged products which they offer to the same
customer groups. There are several examples of branded
liquid-foods packaged in both carton and PET such as
Minute Maid orange juice, Stassano milk, Nesquick milk

(151) PET Planet Insider Vol. 2 N04+5/01 Francis Oliver, President of
Sidel France ‘Innovation is my added value to the company’.
(152) Around [...]* customers representing around [...]* of Sidel’s

customers across all end-use product segments.
(153) Submission of the notifying party dated 21 June 2001.

and others. Canadean, the notifying party’s expert, has
identified a large number of companies that currently
use both carton and PET lines in the EEA (154).

(340) In addition, it is clear that as regards some specific pieces
of PET equipment such as aseptic PET filling machines
or ultra-clean/aseptic Combi SBM machines the overlap
product and customer base may be 100 %. This is
because aseptic PET equipment is by its nature specific
to the relevant end-use product segments, LDPs, juices,
FFDs and tea/coffee drinks where carton is currently the
predominant packaging material. The same argument
applies when looking at whole PET packaging lines of
which the SBM machine is only a part. An aseptic PET
packaging line is optimised for the filling of ‘sensitive’
beverages. In such cases the customer overlap may again
be 100 %.

(341) Finally, it is also important to note that even with a
small penetration of PET in the overall market for LDPs
and juices the number of overlap customers will be
significant. This is because even if, as Tetra claims, a
customer uses PET only for niche or premium products
and reserves carton for the majority of its production, the
customer will still be an overlap PET-carton customer. It
is therefore expected that a growing number of pro-
ducers will have both carton lines and PET lines within
their premises and thus the Commission expects the
proportion of common customers to increase in the
future. The current developments in Italy are not unique
and the proportion of common customers is therefore
expected to reach at
least the level observed there
at present. This has led some respondents to the
Commission’s investigation to allege that
is not
unreasonable to conclude that ‘every carton client of
Tetra is a potential PET client ...’ (155).

it

3.3.2. Effects on the PET equipment sector: cre-
ation of a dominant position in PET packag-
ing equipment, and in particular SBM
machines, by leveraging of dominance in
aseptic carton packaging

(342) The bringing together of Tetra’s dominant position in
carton packaging and Sidel’s leading position in PET
packaging equipment,
in particular SBM machines
would create a market structure which would enable the

(154) According to Canadean the following companies use (already in
2000) both PET and carton. In the juice segment: Del Monte;
Pepsi; Joker; Eckes Granini; Coca Cola; Gerber; Emig; Conserve
Italia; Parmalat. In FFDs: Britvic; Schweppes; Garcia Carron;
Chaudfontaine; Glaxo (Ribena); Parmalat. In iced tea: Liptons;
San Benedetto; Nestle/Coca-Cola; Migros. In LDPs: Campina;
Parmalat; Granarolo; Cooperlat; Friesland; NOM; Bergland
Milch.

(155) Third-party response to Commission questionnaire dated 8 June

2001.

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the market

merged entity to leverage its dominant position in
aseptic carton packaging to acquire a dominant position
in the PET packaging equipment market and, in particu-
lar,
for SBM machines (low and high-
capacity) used for ‘sensitive’ products. In this way, the
PET equipment sector which is currently more open and
competitive than the carton equipment sector would
become increasingly concentrated.

3.3.2.1.

Strategic move

(343) Tetra’s acquisition of Sidel appears to be a strategic move
which Tetra expects to enable it to become and remain
‘the world’s leading liquid-food processing and packag-
ing company’ [...]* (156). Through the acquisition of Sidel,
Tetra would achieve these objectives by leveraging its
dominance in carton packaging equipment into PET
packaging equipment.

more than [...]* of sales. Thirdly, the Commission’s
market investigation revealed that, even at current levels
of PET use, some customers are already sourcing carton
and PET equipment at the same time and demand
common service and guarantees. In any event, nothing
would stop the merged entity from inducing customers
to source their equipment at the same time and from a
single source changing the structure of the business.
Fourthly, carton and PET do not need to be ‘comp-
lements’ in the economic sense of the term (i.e. products
which are consumed or produced together in a fixed
proportion (158)) for tying, full-line forcing or bundling
to take place. Most importantly, the fact that PET and
carton are not ‘complements’ in the economic sense of
the word but rather technical substitutes provides a
stronger economic incentive for leveraging. This is
explained further below in the section entitled ‘ability
and incentive to leverage’. Finally, SIG and other com-
petitors would not be in a position to match the merged
entity’s product range, customer contacts, financial and
market strength (its market share is no more than
[10 to 20 %]* and it currently lacks PET barrier
technologies).

3.3.2.2. Tetra claims leveraging not possible

3.3.2.3. Ability to discriminate

(344) Tetra has stated that ‘the separate markets for PET and
carton packaging equipment are not susceptible to
bundling’ (157). Tetra bases this argument on the follow-
ing alleged factors: (i) limited customer overlap; (ii) buyer
power of overlap customers; (iii) the fact that PET and
carton equipment is sourced separately; (iv) the fact that
carton and PET equipment are not complements; (v) the
fact that SIG can match the merged entity’s offerings
and thus neutralise any bundling strategy.

(346) Tetra claimed that leveraging would not be possible
because the merged entity would not have the ability to
price discriminate and thus target selectively specific
customer groups (159). Tetra bases its claim on three
arguments: SBM machines are generic; SBM machine
suppliers do not know the intended use of SBM
machines; there is no evidence of past price discrimi-
nation by Sidel.

(345) The Commission’s investigation has not corroborated
the notifying party’s assertions. First,
the customer
overlap of the parties is already significant and will grow
in the future to such an extent
that every carton
customer is likely to be a potential PET customer.
Secondly, the majority of dairy and juice companies in
the EEA are not large and powerful customers with
significant buyer power but small and medium-sized
enterprises which have been traditionally dependent on
Tetra for their carton packaging needs. In any event,
even the largest customers of the parties do not represent

(347) The Commission cannot accept Tetra’s arguments. The
Commission found that Tetra’s claim was not correct
and that, on the contrary, price discrimination is poss-
ible (160). The majority of SBM machines are indeed
generic in that they produce empty bottles. However,
PET lines, of which SBM machines form a part, are not
generic. They are modified in order to fill particular
liquids.

(156) Internal Tetra document provided as Annex 3 to the notification.
(157) Submission of the notifying party dated 21 June 2001 and

subsequent submissions.

(158) Complements in the economic sense of the term are products
which are consumed together like coffee and milk or sinks and
taps or produced together like petrol and diesel oil.

(159) Reply, paragraph 106.
(160) This has already been explained in the market definition section

discussing SBM machines, Section IV.4.1.5.

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(348) SBM suppliers have very good knowledge of the cus-
tomer’s intended end-use and work closely with the
customer in designing the specifications he requires.
SBM suppliers visit the customer’s site providing service
and spare parts on an ongoing basis. The parties
provided the Commission with all their past sales broken
down by end-use products showing that they had very
specific knowledge of end-use. In addition, sales for SBM
machines are largely on the basis of
tenders and
individual negotiations. This makes price discrimination
possible.

out its own estimation based on the data supplied by
Tetra introducing further explanatory variables (164). The
Commission’s regression used price of the machine sold,
rather than the margin earned on the sale as a dependent
variable. The explanatory variables used were the
capacity of the machine, a time trend, three country
dummies and three dummies for end-uses (oil, water and
CSDs). [information concerning Sidel’s pricing policy]*.

(349) Finally, the Commission found evidence of past price

discrimination using data provided by Sidel.

(350) The notifying party’s economic consultants provided
arguments to show that there is no evidence of price
discrimination based on the end-use of an SBM machine
by examining Sidel’s margins. It was concluded that
there was no evidence that Sidel’s margins on high-
capacity machines have varied based on end-use (161).

(352) At the oral hearing Tetra claimed that the Commission’s
analysis is fundamentally flawed because it does not test
for the presence of price discrimination. Tetra argues
that, in order to detect price discrimination, one has to
the transactions concern the same
make sure that
product. Tetra claimed that the Commission is not
controlling explicitly for cost. Although capacity does to
some extent control for differences in the characteristics
of the deals concerned, Tetra argues that capacity is a
very poor control variable for difference in specifi-
cations, given that deals vary in a number of dimensions
besides the capacity of machines. Tetra considers that
cost provides a much better control for the effects that
differences in the characteristics of the transactions
concerned have on prices.

(351) In the notifying party’s regression analysis the dependent
variable was the margin on sales by Sidel of high capacity
SBM machines. The explanatory variables used in this
‘year’ dummy (162),
regression were (a) as series of
(b) a ‘new generation’ dummy to control for possible
differences in margins on ‘Series 2 machines’ and (c) a
series of ‘end-use’ dummy variables that indicate the
type of liquid-food packaged by the customer. The
notifying party found that none of the end-use dummies
were statistically significant. The Commission examined
the regression analysis employed and found that the
estimation was not robust (163). The Commission carried

(161) Memorandum by the notifying party’s economists to the

Commission dated 30 August 2001.

(162) As explained in ‘A Guide to Econometrics’ (Peter Kennedy,
Blackwells, 1992), a dummy variable is an artificial variable
constructed such that it takes the value unity whenever the
qualitative phenomenon it represents occurs, and zero other-
wise. They are used just like any other explanatory variable.
(163) The overall goodness-of-fit of the model was poor because
important variables like capacity were not used in the regression.
The regression was indicating that margins follow a pure
random walk which is clearly unrealistic. Given the omission of
variables, the error term could be correlated with included
explanatory variables, a potential cause of a lack of robustness.

(353) Tetra therefore re-estimated the Commission’s regression
but included cost as an explanatory variable with the
result that, once cost was included in the price regression,
the end-use dummies were again not statistically signifi-
cant. Tetra concludes that there is no evidence that Sidel
has been able to discriminate across buyers according to
end-use.

(354) On the issue of whether capacity controls for cost, the
Commission found that using capacity as an explanatory
variable is justified as it is clearly a crucial factor of cost.
Regressing costs on capacity and end-use applications
and location give a goodness-of-fit of 64 % and all
variables are significant thus suggesting that cost is to a
large extent explained by capacity.

(164) Capacity, time trend, dummy variables for oil, CSD, beer, water;

firms based in Germany, France and United Kingdom.

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(355) Tetra’s latest regression uses both cost and capacity as
explanatory variables. This creates multicollinearity (165)
(which means that the coefficients may have very high
standard errors and low significance levels) (166) and the
results become statistically defective.

3.3.2.4. Ability and incentive to leverage

(359) The Commission’s analysis has confirmed that

the
market structure resulting from the merger would be
particularly conducive to leveraging effects.

(356) The Commission’s original equation is therefore statisti-
cally meaningful as it is explaining price by capacity and
variables linked to end-use and location. Given that the
margin is the difference between price and cost, these
variables (end-use and location) should also be useful in
explaining the margin. This was not found to be the case
in Tetra’s first equation. To explain this it is worthwhile
noting that the margin is the result of demand side and
supply side effects and therefore it is not possible to infer
the existence or non-existence of price discrimination
because the two effects cannot be separated without
additional information.

(357) This additional information can be found in the hetero-
scedasticity of residuals that can be detected in all the
equations (167) discussed so far. Heteroscedasticity arises
when the regression residuals have variances that are
not constant across observations.
In particular the
residuals in Tetra’s original regression are not purely
random. A regression on the squared residuals on to
capacity and other variables shows that capacity and
location have a significant effect on the variance of
residuals.

(358) Heteroscedasticity is therefore found to be evidence of
price discrimination and the customer specific effects
are found to drive the variance of Sidel margins.
Taking into account heteroscedasticity, Tetra’s original
regression and the Commission’s regression are both
correct in showing that price discrimination does take
place.

There would be a common pool of customers requiring
both carton and PET packaging systems to package
‘sensitive’ liquids.

Tetra has a particularly strong dominant position in
aseptic carton packaging with [80 to 90 %]* of the
market and a dependent customer base.

Tetra/Sidel would start from a strong, leading, position
in PET packaging systems and in particular SBM
machines with a market share in the region of [60 to
70 %]*.

Tetra/Sidel would have the ability to target selectively
specific customers or specific customer groups as the
structure of the market enables price discrimination.

Tetra/Sidel would have a strong economic incentive to
engage in leveraging practices. As carton and PET are
technical substitutes, when a customer switches to PET
he/she is a lost customer on the carton side of the
business either because he/she partially switched from
carton or because he/she did not switch some of the
production to carton from other packaging materials.
This creates an added incentive to capture the customer
on the PET side of the business to recover the loss.
Therefore, by leveraging its current market position in
carton, Tetra/Sidel would not only enhance its market
share on the PET side but defend or compensate its
possible loss on the carton side.

Competitors of Tetra/Sidel in both the carton and the
PET equipment markets would be much smaller, with
the largest competitor having no more than [10 to
20 %]* share in the market
for carton packaging
machines or SBM machines.

(360) In such exceptional circumstances, there is a need for
particular vigilance when analysing effects of concen-
trations on the market (168).

(165) Table 8, column 5 of the notifying party’s economic analysis

dated 26 September 2001.

(166) As explained in ‘A Guide to Econometrics’ (Peter Kennedy,
Blackwells, 1992), multicollinearity is an approximate linear
relationship amongst some of the regressors. The consequence
is that the variances of the collinear variables are quite large.
These arise because the estimation procedure is not given
enough independent variation to calculate with confidence the
effect it has on the dependent variable. As a result, the estimates
are not precise and do not provide reliable results.

(167) Table 8 of the party’s economic analysis dated 26 September

2001.

(168) See Commission decision in Tetra Pak/Alfa Laval

(cited in
footnote 11), where the Commission stated that ‘TetraPak holds
a position of great market power. ... When faced with such a
high degree of dominance, the Commission must be particularly
vigilant, because in such circumstances even a very small
increase in market power can have a disproportionately large
negative effect on the competitive conditions on the market
place.’ In the same case, which was cleared by the Commission,
the Advisory Committee expressed its view that ‘concentrations
involving market-dominating undertakings with very high mar-
ket shares should be judged particularly critically as regards
their potential effect of strengthening market domination’.

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3.3.2.5.

Leveraging practices

(361) Owing to its strong dominant position in aseptic carton
packaging, Tetra’s customer base covers almost the
entire dairy and juice beverage industry. The Com-
mission’s market investigation confirmed that Tetra is
an unavoidable business partner for dairies and juice
producers in the EEA.

(362) It is also important to note that Tetra’s relationship with
its customers is a very close one. The nature of Tetra’s
business and one of its major commercial advantages is
the strong ties it creates with its customers. Indeed,
Tetra is not a simple equipment supplier, which sells
machinery to its customers and severs its links with
them. On the contrary, Tetra supplies consumables (the
aseptic carton reels or non-aseptic carton blanks) to
many of its customers on a long-term basis (169).

(363) Through the merger, Tetra/Sidel would have a unique
advantage in entering these markets over PET equipment
competitors that lack this established customer base in
the traditional carton end-use segments. Tetra/Sidel
would be in a position to know exactly which customers
have plans to switch to PET and, knowing the clients’
needs through its carton side of the business, would be
able to impose on them timely and bespoke PET
solutions enabling them to make the switch from carton
to PET seamlessly with a single supplier.

(364) Leveraging its dominant position in aseptic carton in a
number of ways, Tetra/Sidel would be able to marginalise
competitors and dominate the PET equipment market,
in particular SBM machines. Tetra/Sidel would have
the ability to tie carton packaging equipment and
consumables with PET packaging equipment and, poss-
ibly, preforms (in particular barrier-enhanced preforms).
Tetra/Sidel would also have the ability to use pressure or
incentives (such as predatory pricing or price wars and
loyalty rebates) so that its carton customers buy PET
equipment and, possibly, preforms from the Tetra/Sidel
and not from its competitors or converters.

(365) Many customers who will continue to need carton
packaging for part of their production needs could be
forced or provided with incentives to source both their
carton and PET equipment from a single supplier of
carton and PET packaging equipment. Customers having
long-term agreements with Tetra for their carton packag-
ing needs will be particularly vulnerable. Tetra may offer
them renewed contract terms allowing them to switch

part of the production to PET provided they take PET
equipment and services from Sidel or customers may be
dependent on Tetra through long-term contracts (most
customers will not make a complete switch from carton
so will continue to need Tetra in the carton field). In this
way, Sidel’s position in PET equipment and in particular
SBM machines would be enhanced in all the new PET
product segments (LDPs,
juices, still drinks and tea/
coffee drinks).

3.3.2.6.

Effects of leveraging

(366) The notifying party argues that the above leveraging
practices will not have any anti-competitive or foreclos-
ure effects (170). Tetra’s claims focus only on two possible
practices, ‘mixed bundling’ and ‘forced bundling or tying’
and claims they will not have any effect in the packaging
market. As regards ‘mixed bundling’, Tetra claims that
this should not be a concern as ‘the amount of SBM
sales that a strategy of mixed bundling could divert away
from competitors is very small relative to the entire SBM
demand’ as competitors could continue to sell their SBM
machines to the majority of customers that only need
SBM machines such as CSD and water producers. As
regards ‘tying’, Tetra claims that such a strategy would
amount to a commitment to sell the two machines
(carton-SBM) only together. Such a strategy would be
unprofitable as many customers not interested in PET
would not want to buy the bundle and turn to competi-
tors. In addition, competitors could not be harmed as,
again, they could continue to sell their SBM machines in
other end-use segments (where carton is not used) such
as CSDs and water.

(367) The Commission cannot accept Tetra’s arguments. It is
not clear why the merged entity would need to choose
exclusively between ‘mixed bundling’ and the limited
type of ‘tying’ put forward by the notifying party’s
economic experts. Given its ability to price-discriminate,
it is indeed most unlikely that the merged entity would
decide to offer carton packaging machines and PET
packaging equipment exclusively as a bundle. Instead, it
would be more rational for the merged entity to continue
to offer its PET packaging equipment independently to
those customers not able to use carton (e.g. CSD or beer
producers) and vice versa.

(169) Tetra follows a similar approach in its PET preforms business.

dated 26 September 2001, pp. 14-17.

(170) Reply, paragraphs 93-107 and submission of the notifying party

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(368) The notifying party maintains that leveraging cannot
have anti-competitive effects because competitors can-
not be harmed or foreclosed. This contention, which is
based on the argument that competitors will continue
to have outlets for their SBM machines in end-use
product segments (water, CSDs) where carton is not a
main packaging material, ignores a key point. Quite
independently of whether or not competitors are fore-
closed in the water, CSDs or beer segments, the fact
if Tetra manages to exclude them or
remains that,
marginalise them from the juice and LDPs segment,
Tetra will be in a position to exploit customers in these
markets.

(369) In any event, competitors are likely to be foreclosed for
the following reasons:
(a) whether competitors can
continue to sell in the untied product segments (e.g.
water or CSDs) is not relevant. This is due to the ability
to price-discriminate and target specific customer groups
which results in a segmentation of the relevant markets
by end-use; (b) the ‘sensitive’ product segments consist
of very complex liquids which require very specific PET
lines including barrier technologies and aseptic filling
machines or aseptic Combi SBM machines. Competitors
would not have sufficient incentive to invest and com-
pete in these high technology areas of PET equipment.
Competitors, Sipa and SIG, explained at the oral hearing
that their ability and incentive to conduct R & D and
compete in the ‘new era’ PET markets (i.e.
‘sensitive’
beverages) would be curtailed as a result of the merger.
Competitors would thus be foreclosed from the ‘second
era’ (171) markets of PET.

(370) In addition to their foreclosure from these relevant
markets, competitors may be foreclosed from the rest of
the SBM machine market. Even under current more
competitive conditions, Sidel has a leading position with
[60 to 70 %]* of the SBM machine market (regardless of
end-use). This leaves a smaller part of
the market
available to competitors. In addition, the traditional non-
sensitive product markets are saturated and much less
growth is expected in these markets. This view is

espoused by Sidel in its annual 1999 accounts where it
states that PET is now entering its ‘second era’. BNP
Paribas states that given that the traditional non-sensitive
markets of PET are close to saturation, ‘... to keep selling
lots of blow-moulding machines, Sidel is now targeting
“sensitive” beverages’ (172) Competitors are therefore
likely to be foreclosed from the higher-growth, higher
margin part of the market.

3.3.2.7. Weak position of competitors

(371) In addition, competitors of the merged entity in both
the carton equipment market and SBM machine market
are already significantly smaller than the merged entity.
Just comparing the annual turnover of a merged Tetra/
Sidel and its largest competitor, the SIG group, shows
that Tetra/Sidel would be almost 10 times larger.

(372) Most importantly, Tetra’s contention that Sidel’s three
high capacity competitors can match Sidel’s offerings
disregards a crucial point: these competitors will lack
the merged entity’s dominant position in carton packag-
ing. The SIG group, the only one of the three competitors
which will have both carton and PET activities, will have
market shares of no more than [10 to 20 %]* in carton
packaging machines and SBM machines. SIG lacks the
full range of the merged entity in PET equipment as it
currently lacks an essential element, barrier technology,
for any future penetration in PET’s new product seg-
ments. No other supplier of packaging equipment
will be able to offer both carton and PET packaging
equipment.

3.3.2.7.1. M a r k e t s h a r e s o f c o m p e t i t o r s

(373) Tetra/Sidel would have by far the largest share of the
market in both low and high-capacity SBM machines
regardless of possible end-use segmentations. Tetra/Sidel
would have more than [60 to 70 %]* of the high-
capacity market and around 60 % of the low-capacity
market. Sidel estimates that its share of the high-capacity
SBM machine market by end-use segmentation gives it a
market share of [60 to 70 %]* in the milk sector and [60
to 70 %]* in the juice sector.

(171) Sidel explains in its annual accounts 1999 that, the traditional
markets for CSD and water having matured, PET is now entering
its second era which focuses on ‘sensitive’ products.

(172) Equity research of BNP Paribas on Sidel 9 October 2000, page 3.

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(374) The second largest competitor will be far smaller by
comparison with a market share of [10 to 20 %]* (SIG
and Krones in the high-capacity market and ADS in the
low-capacity market). It is also important to note that
the merged entity’s market share has remained relatively
stable and consistently very high (in the region of 60 %)
over a long period of time.

(375) The merged entity would also enjoy a dominant position
in aseptic carton packaging machines and aseptic cartons
(with consistently high market shares [of 80 to 90 %]*)
and a leading position in non-aseptic carton packaging
which confers on it a dominant position in the overall
market for carton packaging equipment and carton
consumables.

3.3.2.7.2. T e c h n o l o g i c a l l e a d

world (Sidel’s SBO 50 000 bph). The merged entity
would also be able to offer leading, innovative products
such as the Combi machine, hot-fill SBM machines, and
preferential heating machines. Independent analyst Pictet
concluded in its report of the industry in Septem-
ber 2000:
‘With this unmatched range, Sidel has a
machine for every manufacturing objective, with output
rates that correspond precisely to clients’ production
goals’ (174).

(379) The merged entity would also be at the forefront of new
technologies with the combination of the parties’ two
plasma-barrier technologies Actis (Sidel) and Glaskin.
There is no doubt that the combination of the two
leading plasma technologies together with unique asep-
tic filling technology (Combi) would provide the merged
entity with an extremely strong position in PET packag-
ing equipment for oxygen-sensitive products, one of the
areas for particular growth for PET to the possible
detriment of carton.

(376) Tetra/Sidel would also have a clear technological advan-
tage over their competitors. Sidel is a pioneer in the SBM
machine market. The Commission’s market investigation
has confirmed that the majority of customers rate Sidel
extremely highly for the technological quality of its
machines to the extent that some large customers have
a Sidel-exclusive policy for their PET bottle production
needs.

(380) The merged entity would also be the only wholly
integrated PET equipment manufacturer able to offer a
full range of PET products and equipment from preforms
to the finished bottle including plastic closures. This
together with Sidel’s unparalleled expertise in mould and
bottle design, preform and feasibility testing at
its
dedicated testing centres in France would place the
merged entity in a position that its competitors would
not be able to match.

(377) Sidel naturally takes great pride in its technological
prowess. In its 1999 accounts Sidel states: ‘Sidel derives
its leading edge from unique technological prowess in
high-output machines, in-depth knowledge of packaging
materials and consistently rapid service throughout the
world. Sidel’s complete command of PET blow-moulding
technology enables it
this rising demand.’
to meet
According to Sidel, ‘the technical advances brought by
the SBO series 2 have driven up machine productivity
by 25 %. It is precisely this ability to innovate ...together
with its comprehensive offerings and services that allow
Sidel
leadership: 65 % of
PET packaging produced worldwide comes from Sidel
machines’ (173).

to strengthen its global

3.3.2.7.3. A s e p t i c k n o w - h o w

(381) For a PET equipment company to profit from what Sidel
calls the ‘second era in PET packaging’ (175), that is
packaging of ‘sensitive’ products like juice, liquid dairy
products and isotonic drinks (all drinks traditionally
packaged in cartons), it is important to have a viable
barrier technology, but even more so a viable aseptic
filling solution. This is acknowledged widely in the
industry. An independent analyst concludes:
‘As con-
sumers are increasingly insisting on PET packaging for
milk, juices and sauces, it is of the utmost importance to
have an aseptic-filling solution for PET bottles’ (176).

(378) The merged entity would have a far greater range of
products in the PET packaging sector than any of
its competitors. The merged entity would have an
unparalleled SBM machine range covering the full
existing range from very low-capacity linear technology
machines (Dynaplast) or low-capacity rotary machines
(Sidel) to the highest-capacity machines available in the

(382) The merged entity would combine the two leading
names in aseptic filling with one third of the installed
aseptic PET filling machines in the EEA: TetraPak (Tetra)
and Remy (Sidel). Aseptic know-how and proven track
record is of paramount importance to customers because
of the grave consequences of any kind of unsterility in

(173) Sidel Annual Accounts 1999, page 38.

(174) Pictet Report, page 31.
(175) Sidel Annual Accounts 1999, page 5.
(176) Pictet Report, page 5.

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the final product. The majority of beverage companies
responding to the Commission’s market investigation
stressed the importance of guaranteed sterility through
proven track record and aseptic expertise.

(383) The merged entity would have activities in aseptic filling
in carton, PET and HDPE. It would benefit from Tetra’s
unique aseptic expertise and reputation which includes
a full range of processing equipment such as separators,
heat exchangers, homogenisers, evaporators, aseptic
processing systems and flow equipment. Major competi-
tors such as the SIG group lack the necessary PET or
HDPE aseptic presence and have much more limited
activities in aseptic carton packaging especially for the
most
‘sensitive’ LDP products. No other packaging
equipment company has aseptic processing expertise.
Thus, the merged entity’s reputation in aseptic packag-
ing, its proven track record and its ability to ‘guarantee’
sterility of the final product would constitute a high
barrier for existing competitor and new market entrants.

3.3.2.7.4.

S e r v i c e a n d s a l e s f o r c e

(384) The Commission’s market investigation confirmed that
the ability to offer quick and effective support anywhere
in the world requires local presence and is a key factor
for those clients which depend on the reliability of their
own in-house packaging operations. Already, Tetra and
Sidel have the most extensive worldwide network of
sales and service organisations many times larger than
their largest competitor in either the carton or PET
sector. After the merger, the lead of the merged entity
would be unassailable. Potential competition between
the two leading players would be lost.

3.3.2.7.5. R & D

(386) The massive, merged R & D capabilities of the merged
entity would ensure the continuation of its clear lead
over its competitors and result in a loss of future
competition between Tetra and Sidel in innovation and
R & D which would have taken place without the
merger. Tetra puts it succinctly in its 2000 annual
report: ‘Tetra Pak regards research that focuses on the
needs of customers and market, and the continued
development of systems for processing, packaging and
distribution, as the best way to ensure that it will retain
its leading position in the world market’ (178).

3.3.2.7.6.

F i n a n c i a l s t r e n g t h a n d s i z e

(387) The notifying party claims that it would not have any
significantly higher financial strength than its competi-
tors (179). The Commission’s data does not support
Tetra’s contention. The merged entity would be far larger
in terms of employees, employees active in R & D, sales
force, international presence, turnover and profitability
than its competitors. For example, the turnover of the
merged entity would be almost 10 times larger than that
of its next largest competitor.

3.3.2.8.

Lack of buyer power

(388) Customers of the merged entity in the common product
segments (LDPs, juices, FFDs, tea/coffee drinks) would
not have the ability to exercise significant countervailing
buyer power. The customer base in the LDP and juice
segment is fragmented with the majority of customers
being small and medium-size enterprises. In any event,
it is important to note that Sidel’s largest customer in
the EEA (a converter) accounts for approximately [...]*
of sales and the largest non-converter customer (a
multinational beverage company) accounts for less than
[...]* of Sidel’s sales. Tetra’s customer base is similarly
fragmented.

3.3.2.9. Conclusion

(385) The merged entity’s research and development (R & D)
capabilities would also be enhanced and would place the
merged entity in a position that no competitor could
match. The merged entity would have at least twice as
many employees and at least twice the available capital
dedicated to R & D activities as its closest competitor,
the SIG group. Tetra has [...]* R & D centres around the
world employing [...]* people engaged in numerous
R & D projects (177).

(389) In the light of the foregoing, it is concluded that, by
combining the dominant company in carton packaging,
Tetra, and the leading company in PET packaging
equipment, Sidel, the proposed transaction would create
a market structure which would provide the merged
entity with the incentives and tools to turn its leading
position in PET packaging equipment, in particular SBM

(177) Tetra’s Annual Accounts 2000, page 17.

(178) Tetra’s Annual Accounts 2000, page 17.
(179) Reply, paragraph 92.

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machines (low and high-capacity) used for the ‘sensitive’
product segments into a dominant position. This is also
likely to enhance the merged entity’s position and have
anti-competitive effects on the overall SBM machine
market.

3.3.3. Effects on carton: strengthening of a domi-

nant position

(390) The proposed transaction would create a market struc-
ture which would enable Tetra to strengthen its current
dominant position in carton packaging by eliminating a
source of significant competitive constraint.

(391) This could have serious negative consequences in the
carton packaging sector. As the Commission stated in
its 1991 decision concerning TetraPak’s merger with
Alfa Laval (180),
‘TetraPak holds a position of great
market power. ... When faced with such a high degree
of dominance, the Commission must be particularly
vigilant, because in such circumstances even a very small
increase in market power can have a disproportionately
large negative effect on the competitive conditions on
the market place.’

3.3.3.1.

PET as a competitive constraint: loss of competitive
pressure from a closely neighbouring market

(392) The results of the Commission’s market investigation
appear to establish that as a packaging material carton
has traditionally dominated the milk and juice market,
in particular as regards aseptic packaging. More than
80 % of aseptically filled products were put in carton
packages in 1999. This is due to the risk of contami-
nation related to the packaging of
these products
requiring established aseptic technology and ultra-clean
or aseptic filling which is well established in carton
packaging.

(393) However, as explained in the market definition section,
PET has already challenged some smaller carton end-use
segments such as FFDs and tea/coffee drinks and is
expected to grow significantly in the larger end-use
product segments such as LDPs and juices which
traditionally have been packaged in carton. Growth of
PET in LDPs,
juices, FFDs and tea/coffee drinks will
inevitably be to some extent at the expense of carton.

(394) Companies active in PET packaging, especially Sidel and
converters, are clearly engaged in business strategies
aimed at increasing the use of PET in order to take
market share from carton. The Commission’s market
investigation has revealed a number of independent
studies as well as business analyses of the parties which
speak about this competitive growth of PET. The Paris

for plastic bottles

stock exchange, CDC Bourse, gave the following infor-
mation on Sidel:
‘Brick packaging is currently losing
market share to PET packaging’ (181) In its publication
‘The Sidel Saga 1961-1998+’, Sidel states ‘now that the
TetraPak brick package is losing steam, there are new
opportunities
to win market
share’ (182). Sidel’s new target markets would be ‘fruit
juices and new age drinks... plastic is taking some of the
market share away from the cardboard brick pack...’. In
fact, Sidel was planning to enter the markets for
‘sensitive’ products and take market share away from
carton. JP Morgan, in an analysis of Sidel, states that
Sidel made acquisitions to enter the milk and fruit juice
market. ‘Sidel wanted to gain greater expertise in the
aseptic packaging of milk and fruit juices... the packaging
choice for these products has historically been paper-
board cartons, supplied by TetraPak or SIG. In Remy
Sidel intends to develop equipment that can introduce
the use of PET to these markets ...’.

(395) Third parties maintained that, without the merger, the
major company in PET packaging equipment (Sidel) in
conjunction with converters would compete in a closely
neighbouring market which would exert some signifi-
cant competitive pressure on the carton packaging
market by bringing innovative solutions to the market
and forcing Tetra to innovate and lower prices in
carton packaging. Following the proposed merger, this
competitive pressure would be lost.

(396) In its reply, Tetra claimed that the merged entity would
not have the ability to control consumer demand in this
way. Tetra bases its argument on the fact that PET
packaging equipment, and SBM machines in particular,
constitute an extremely small part of the retail price of
the final end-use product. As a result, Tetra claims that
the merged entity would need to put SBM machine
prices up by 2 000 % to effect a 10 % increase in the
final retail price and hence to cause some consumers to
switch from PET to carton packaging. According to
Tetra this is clearly unrealistic.

(397) Tetra has failed to address the Commission’s concerns
which focused on the effect on carton prices, not SBM
machine prices. As Tetra points out the Commission has
concluded that carton and PET packaging systems form
distinct albeit closely neighbouring product markets that
exert some competitive constraint on one another.
Carton and PET are technical substitutes in the sense
that they can package the same end-use products and
can also be considered ‘weak substitutes’ in an economic
sense. The realities of the market dictate that any shift

(180) See Tetra Pak/Alfa-Laval (cited in footnote 11).

and 3.

(181) CDC Bourse on Sidel 30 November 2000, page 1.
(182) ‘The Sidel Saga 1961-1998+’, Sidel Communication, pp. 2

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between the two materials is likely to take place primarily
for marketing considerations and that it will be primarily
a one-way shift from carton (the old, traditional tech-
nology)
to PET (the new, modern technology). As
explained in the section on market definition, many
respondents clearly stated that
they have already
switched or would switch from carton to PET despite
PET being more expensive or despite no change at all in
carton prices. This shows that some customers would
switch from carton to PET even at 0 % carton price
increases. However, other more price-sensitive cus-
tomers indicated that they would only consider a switch
from carton to PET if carton prices rose by a significant
amount of 20 % or more. These same price-sensitive
customers would presumably be dissuaded from making
a switch from carton to PET if a carton price reduction
increased the price difference between a carton and PET
packaging line. In addition, Tetra’s argument that Sidel
is only able to influence the price of equipment (SBM
machines) which forms a very small proportion of the
total packaging cost does not apply to Tetra’s ability to
influence the cost of carton packaging. Tetra has the
ability to influence the price of both carton packaging
machines and cartons.

(398) Without the merger, PET companies would be expected
to compete vigorously to gain market share from carton.
Tetra would also be expected to defend its position
fiercely by seeking to improve its carton packaging
solutions by innovating, bringing better carton tech-
nology, new carton shapes and closures and, in some
cases,
lowering carton prices to defend its position.
Indeed, Tetra has been active in this field and has
produced new carton packages with more user-friendly
features such as the carton gable top package with
screw-top closure.

(399) Following the proposed transaction, Tetra would not
need to compete as vigorously. Tetra/Sidel would be
placed in a situation where it effectively has the ability
to control significantly the shift from carton to PET.
Tetra/Sidel could keep its carton package prices at the
current high levels for those customers or that part of
customers’ production unable or unlikely to switch
totally or partially to PET due to consumer preferences,
switching costs and long-term contracts. For those
customers keen to switch to PET, Tetra/Sidel would be
in a position to influence its customers’ choice of
packaging machines, for example, through the timing of
the shift, and to offer its timely and tailor-made solutions,
thus
share.
increasing its PET equipment market
[...]* (183). Thus, by eliminating Sidel as a growing

(183) Internal Tetra document provided as Annex 3 to the notification.

competitive constraint in a closely neighbouring market,
Tetra’s position in carton packaging would be strength-
ened.

(400) At the same time Tetra would pre-empt the major
advantage of its main competitor, the SIG group which
is the only other company in the world that manufac-
tures and sells both carton and PET packaging equip-
ment.

3.3.3.2. Conclusion

(401) On the basis of the foregoing, the Commission has
reached the conclusion that Tetra’s already quasi-mon-
opolistic aseptic carton position in the EEA could be
strengthened further by the proposed transaction.

3.3.4. The merged entity’s dominant position in
carton and PET packaging equipment as well
as its presence in HDPE would reinforce
dominance and raise barriers to entry

(402) It is important to emphasise the fact that Tetra currently
dominates liquid-food packaging, in particular the asep-
tic packaging sector due to its particularly strong
position in aseptic carton packaging. Tetra has almost
80 % of the aseptic carton market, which amounts to
approximately 60 % of the overall aseptic sector (that is
all aseptically filled liquids). This is because of carton’s
past and current strong position in the aseptic sector. In
the past carton has faced, and continues to face, very
limited competition from other materials in aseptic
filling.

(403) Tetra, up to very recently, was a one-product organis-
ation with just carton solutions (the Tetra Brik system).
In recent years, Tetra has looked to expand its packaging
solutions to become a more complete packaging organ-
isation. In its annual accounts 1999, Tetra presents itself
as leading food packaging company with a multi-
product solution. ‘Tetra Pak’s customers now enjoy the
advantage of being able to get everything they need from
a single source, with matching equipment at every stage.
Tetra Pak is the only supplier in the market to assume
overall responsibility for uninterrupted production ...
Tetra Pak can also offer no fewer than 11 packaging
systems [mainly different carton packages] for pasteur-
ised and aseptically packaged products.’ A good PET

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capability was the only element missing from Tetra’s
multi-product offering; Tetra’s activities in PET have
been limited due to the current limitations of its SBM
technology.

Sidel representing [0 to 10 %]* in all these end-use
sectors (187).

aseptic

and non-aseptic

(404) Following the merger, the merged entity’s equipment
would cover all the relevant machinery in carton, PET
and HDPE. Tetra/Sidel would be able to offer leading
technology in aseptic and non-aseptic carton packaging
machines,
cartons, SBM
machines of low and high-capacity including aseptic and
non-aseptic Combi machines, aseptic and non-aseptic
PET filling machines, aseptic and non-aseptic HDPE
filling machines, EBM machines and Combi HDPE
machines as well as the necessary secondary equipment
such as plastic closures. The fact that the merged entity
would hold dominant positions in two closely related
neighbouring markets (carton and PET packaging equip-
ment) and a notable presence in a third market (HDPE)
would enable the merged entity to have a particularly
strong presence in the sectors for the packaging of the
relevant end-use products (LDPs, juice, FFDs, tea/coffee
drinks).

(405) Carton, PET and HDPE constitute the most important
packaging materials for the following product segments:
LDPs, juice, FFDs, teas and for all aseptically filled liquids.
Approximately 96 % of all aseptically filled liquids were
packaged in carton, PET and HDPE in 1999 (184). The
Commission analysis confirmed that cans and glass have
serious limitations as packaging materials for those
products: cans are limited in shape and are in general
more expensive; glass as a packaging material is limited
to premium products and, according to Tetra aseptic
filling in glass is ‘an outlived technology uncommon in
the EEA’ (185). Independent analysts forecast that plastic
bottles (PET and HDPE) have shown the most rapid
growth and are expected to be the fastest-growing type
of pack in aseptic packaging in the next three years (186).

(406) Even when taking into account all packaging materials
used to package the relevant ‘sensitive’ products (LDPs,
juices, FFDs and tea/coffee drinks), Tetra/Sidel’s position
would be particularly strong in all end-use sectors. Tetra/
Sidel’s share in the overall juice sector would be in the
region of 50 % and in the overall LDPs sector [50 to
60 %]* and the overall aseptic sector around 60 % with

(184) Warrick Report.
(185) Notification, page 65.
(186) Warrick Report.

(407) The above figures show that, as a result of the merger,
Tetra’s already strong position in the sector of packaging
of the ‘sensitive’ products (in particular aseptically filled
liquids) would be strengthened. The relatively small
increases in the share in the main carton products are
due to Sidel’s current limited presence in the end-
use product segments, milk and juice. However, PET’s
presence in the common product segments is expected
to increase significantly in the future. The merged
entity’s position in those end-use product sectors would
therefore continue to be very strong.

(408) Given this overall strong presence in the relevant sectors,
barriers to entry would be likely to increase. Competitors
would have to be able to match the overall strength of
the merged entity in all relevant segments including the
merged entity’s wide product offering, superior position
in aseptic technology knowledge, barrier technology,
access to actual and potential customers and financial
strength to compete on equal terms. As a result, it is
likely that, through the merger, the merged entity’s
position in the end-use sectors of ‘sensitive’ products
would marginalise competitors and raise barriers to
entry thus reinforcing dominance in the relevant markets
for carton packaging equipment and PET packaging
equipment in particular SBM machines used for ‘sensi-
tive’ products.

V. THE COMMITMENTS

(409) On 25 September 2001, Tetra offered commitments
with the purpose of removing the competition concerns
identified by the Commission in its statement of objec-
to Tetra on 7 September 2001. These
tions sent
commitments included the divestiture of Tetra’s SBM

(187) All calculations are based on figures provided by the notifying
party which were supplied by Canadean. In each case, Tetra’s
share of the relevant market in carton is based on Tetra’s share
of the market for carton packaging equipment. Calculation of
shares in the PET and HDPE sectors is more complicated
because, unlike carton which includes a single process, the PET
packaging process is fragmented in different segments (blowing-
SBM machine; filling-PET filling machine). In the light of the
above and given that, when looking at specific equipment, the
transaction would be likely to cause concerns in the SBM sector
primarily, PET market shares have been based on a conservative
calculation of Sidel’s share of SBM machine sales which, in
terms of capacity, are in the region of 60 % for Sidel and [0 to
10 %]* for Tetra. Sidel’s HDPE share is assumed to be [10 to
20 %]* and Tetra’s [0 to 10 %]*.

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and preform businesses. On 9 October 2001, Tetra
submitted a new set of commitments replacing the
commitments dated 25 September 2001. These commit-
ments are offered with the understanding that
the
Commission can accept any or all of them.

(410) The commitments are set out in the Annex. They consist
of (i) divestiture of Tetra’s SBM business; (ii) divestiture
of Tetra’s PET preform business;
(iii) holding Sidel
separate from TetraPak companies and pre-existing
behavioural remedies under Article 82 of the Treaty; and
(iv) granting a licence of Sidel’s SBM business for sale to
customers filling ‘sensitive’ products and for sales to
converters.

date of the undertaking and that are concluded by the
date of the closing of the sale of the PET preform
business; (d) all intellectual property rights which are
currently used exclusively by the PET preform business;
and (e) for any intellectual property rights of Tetra Laval
which are currently commercially used in the PET
preform business and other Tetra Laval businesses, a
non-transferable, irrevocable, non-exclusive licence.

(414) [...]*

(415) [...]*.

A.

SUMMARY OF THE COMMITMENTS

(416) In addition, Tetra has discontinued the use of Sealica
barrier technology and has terminated its exclusive rights
under the licence agreement of 29 October 1999.

1. DIVESTITURE OF TETRA’S SBM BUSINESS

(411) Tetra undertakes to divest to an independent third party
its SBM machines business (SBM business). The SBM
business consists of the following items, unless their
divestiture is precluded by applicable law or not required
by the SBM purchaser: (a) assets and equipment which
are currently used by Tetra principally in the production
and development of its SBM business; (b) technical, sales,
production and administrative personnel belonging to
the SBM business; (c) all contracts for the sale or service
of the SBM products produced by the SBM business that
exist as of the date of the undertaking and that are
concluded by the date of the closing of the sale of the
SBM business; (d) all intellectual property rights which
are currently used exclusively by the SBM business; and
(e) for any intellectual property rights of Tetra which are
currently commercially used in the SBM business and
other Tetra Laval businesses, a non-transferable, irrevo-
cable, non-exclusive licence.

(412) [...]*.

2. DIVESTITURE OF TETRA’S PREFORM BUSINESS

(413) Tetra undertakes to divest to an independent third party
its PET preforms business (PET preform business),
consisting of the following: (a) assets and equipment
which are currently used by Tetra principally in the
production and development of its PET preform busi-
ness; (b) technical, sales, production and administrative
personnel belonging to the PET preform business; (c) all
contracts for the sale of the PET preforms produced by
the PET preform business that already exist as of the

3.

SEPARATION OF SIDEL FROM TETRA AND ARTICLE 82
COMMITMENT

(417) Tetra undertakes to hold Sidel structurally separate from
all Tetra Pak companies (Tetra Pak) for a period of [...]*
years [...]*. Sidel will be maintained as a separate legal
entity. Sidel’s shares will not be owned by Tetra Pak or
any Tetra Pak subsidiary, but by a separate company
belonging to the Tetra Laval Group. Tetra may, however,
change Sidel’s current corporate form.

(418) Sidel will be managed by its executive board subject
to certain approval requirements by and reporting
obligations to a Sidel supervisory board as well as the
Tetra Laval Group board. The chairman of the Tetra
Laval Group board will be the chairman of the Sidel
supervisory board. No member of the supervisory or
executive board or officer or employee of Sidel may
serve at the same time as a member of a supervisory or
executive board or as officer or be an employee of any
Tetra Pak company.

(419) Sidel will perform all marketing, sales, training services,
technical support and technical services by means of its
own departments or outsourcing agents, which will be
separated from the respective departments or outsourc-
ing agents of Tetra Pak companies by effective and
reasonable firewall measures. No joint offerings of any
of Tetra Pak’s carton products together with any of
Sidel’s SBM machines will be made. Sidel will accept that
the trustee appointed participates without any voting
rights in the meetings of its supervisory board. Accord-
ing to the undertaking, Tetra has, after [...]* years, the
right to request the Commission to review the necessity
of the continuation of this undertaking.

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(420) In addition, Tetra invites the Commission to take
note of Tetra’s pre-existing obligations vis-à-vis the
Commission resulting from the Tetra Pak II decision and,
in particular, the obligation set out in Article 3(3) of the
Decision which states:

ments to sensitive product customers. Sidel will be
able to sell to converters. During the [...]* year
period, Sidel will also be able to sell new (190)
SBM machines to sensitive product customers for
whatever purpose.

‘Tetra Pak shall not practice predatory or discriminatory
prices and shall not grant to any customer any form of
discount on its products or more favourable payment
terms not justified by an objective consideration.’

4.

LICENCE OF SIDEL’S SENSITIVE PRODUCTS AND CON-
VERTER SBM

(421) Tetra undertakes to grant a licence for an indefinite term
to an independent
third party for Sidel’s sensitive
products and converter SBM Business (the licence).
Under the licence, the licensee shall have the right to
manufacture and sell SBM machines to (i) converters for
any end-use whatsoever; and to (ii) all other customers
subject to the condition that they use these machines for
blowing PET bottles for filling ‘sensitive’ products in the
current EEA (sensitive product customers).

(422) The licensee will be able to sell under the following

conditions:

— The licence is limited to the ‘current’ EEA (188).

commitments

— The licensee will be able to sell only the existing
range of Sidel SBM machines as defined in Annex 3
to the
(existing range) which
excludes certain types of existing Sidel SBM
machines (189) or SBM machines of other suppliers
(e.g. Dynaplast). The licensee will not be able to
sell any new SBM machines Sidel produces. The
licensee will not be able to benefit
from any
improvements Sidel makes to its existing range of
SBM machines.

— The licensee will be able to sell only to customers
filling ‘sensitive’ products and to converters for any
use.

— For an initial [...]* year period, the licence will
be exclusive to sensitive product customers by
prohibiting Sidel to sell its existing range of SBM
machines as defined in Annex 3 to the commit-

(188) I.e. the current parties to the EEA Agreement.
(189) Annex 3 of the commitments provides a list of Sidel SBM
machines, which fall within the scope of the licence. [...]*.

— The licensee will have to ensure that its customers
(except converters) will use the SMB machines only
for ‘sensitive’ products and not for other products
and will seek such assurances from its customers.
Tetra/Sidel will have the right to determine whether
such assurances are satisfactory.

— The licence will not include any transfer of key
technical or service personnel or assets. Sidel will
provide the licensee with training for the first six
months of the licence.

— The licence will prohibit change of control of the
licensee (i.e. that another company acquires at least
50 % of the licensee).

— Pricing considerations are not yet clear but appear
to involve a licence with no up-front payment or
royalty fee but with a lump sum fee payable at a
later date, depending on the size of the market for
‘sensitive’ products.

B. ASSESSMENT OF THE COMMITMENTS

(423) The notifying party maintains that

the transaction
should be authorised without any commitments and
in any event the submitted commitments sufficiently
address the competition concerns identified by the
Commission. In the view of the notifying party, the
divestiture of Dynaplast eliminates any possible horizon-
tal concerns in the low-capacity SBM machines market.
The divestiture of Tetra’s preform business eliminates
any possible vertical concerns arising from the channel
conflict between the merged entity and converters. As
regards the concerns on leveraging and the strengthening
of Tetra’s dominant position in carton packaging, the
notifying party submits that the package of commit-
ments eliminates any possible competition concerns. In
the view of the notifying party, the two divestitures
(Dynaplast and preforms) weaken the merged entity’s
position in the PET equipment market by limiting the

(190) New machines are defined in the commitments as machines
‘manufactured on the basis of a new machine design being more than
an improvement of the current technology, by incorporating one or
more technologies leading to a fundamental change in a component
of, or any of the principal processes in, the machine that in turn leads
to improved performance beyond normal adjustments to the present
design’.

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merged entity’s market share in SBM machinery and
excluding preforms from its PET offering. By removing
Sidel for a period of [...]* years from the SBM market for
‘sensitive’ products, the licence would ensure that Tetra/
Sidel could not leverage its dominant position in carton
to gain dominance in PET packaging equipment,
in
particular SBM machines used for ‘sensitive’ products. In
addition, the behavioural undertakings would prevent
Tetra/Sidel from engaging in anti-competitive practices.
The licence would eliminate concerns regarding the
strengthening of Tetra’s dominant position in carton
packaging as the licensee (especially if it also bought the
Dynaplast business) would provide sufficient compe-
the above
tition to Tetra’s carton business. Finally,
reduction in the merged entity’s offerings would suf-
ficiently reduce the merged entity’s position in the
overall end-use sectors of ‘sensitive’ products.

(424) In the view of

the Commission the commitments
submitted by the notifying party are insufficient to
eliminate the major competition concerns identified on
the PET packaging equipment and carton packaging
markets. The two divestitures will have a minimal impact
on the position of the merged entity. The licence will
not only be insufficient to remove the Commission’s
competition concerns but does not appear to be a viable
option and may actually introduce complex mechanisms
in the market resulting in artificial regulation. Finally,
the two behavioural commitments are considered insuf-
ficient as such to resolve the concerns arising from the
structure of the market following the merger.

(425) Nevertheless,

following their submission,

the Com-
mission services proceeded with a market test of the
structural commitments and the licensing proposal to
assess whether these commitments would meet the
criteria with regard to the viability and the stand-alone
nature of the assets. The result of this verification shows
that, quite apart from the overall insufficiency to address
the competition concerns raised by the transaction, the
proposed structural undertakings do not meet the basic
criteria regarding the viability of the businesses to be
divested.

1. DIVESTITURE OF TETRA’S SBM BUSINESS (LOW-

CAPACITY)

(426) The

low-capacity market

SBM machines
(< 8 000 bph) would become more concentrated as a
result of the operation. Whereas before the merger there

for

would be no single supplier holding [30 to 40 %]* of
the market, after the merger, Tetra Sidel would be by far
the largest player with market shares in the region of
60 % ([30 to 40 %]* for Sidel (191) and [20 to 30 %]* for
Tetra). Several competitors would remain in the market
but with small market shares of no more than [10 to
20 %]*.

(427) The proposed divestiture of Tetra’s SBM machine busi-
ness (Dynaplast) will eliminate the horizontal overlap of
the parties in the market for low-capacity SBM machines.
However, it does not solve the main leveraging concerns
arising from the merger. Sidel will continue to be the
leader in both low and high-capacity SBM machines
with the most extensive range and best quality in the
industry. This conclusion was confirmed by the market
test which considered the position of Dynaplast in
the overall SBM machines market as commercially
insignificant. Finally, the divestiture obviously does not
affect the reinforcement of Tetra’s dominant position in
carton packaging.

2. DIVESTITURE OF TETRA’S PREFORM BUSINESS

(428) The divestiture of Tetra’s preform business and the
discontinuation of Sealica as announced by Tetra would
eliminate Tetra’s activities in the preforms market. The
divestiture may therefore solve concerns expressed by
converters regarding a possible channel conflict between
them and the merged entity. However, the divestiture
does not resolve the Commission’s concerns on leverag-
ing or strengthening of dominance in carton packaging
which do not rest on the ability of the merged entity to
provide preforms. The merged entity’s position will not
be reduced in either SBM machines or carton packaging.
Indeed, by eliminating the channel conflict, the divesti-
ture is likely to ensure the continuation of Sidel’s strong
position as regards sales of SBM machines to converters
as converters would have no longer the concerns that
might prevent them from purchasing machinery from
the merged entity. This conclusion was confirmed by
the market test.

(191) According to Sidel’s most recent estimates (August 2001), its
market share in the low-capacity SBM machine market was
higher: [40 to 50 %]* on the basis of sales in 2001. According
to Tetra’s estimates and the Commission’s own analysis, Tetra’s
market share remains [at 20 to 30 %]* (and could be [40 to
50 %]*) on the basis of sales in the year 2001.

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3.

SEPARATION OF SIDEL FROM TETRA AND ARTICLE 82
COMMITMENTS

(429) The behavioural commitment, namely the separation of
Sidel from Tetra Pak, together with the confirmation of
pre-existing Article 82 undertakings, are submitted in
particular with regard to the concerns on the ability of
the merged entity to leverage its dominant position in
carton packaging to gain a dominant position in PET
packaging equipment. This commitment and the pre-
existing Article 82 commitments are, however, purely
behavioural. As such, they are not suitable to restore
conditions of effective competition on a permanent
basis (192), since they do not address the permanent
change in the market structure created by the notified
operation that causes these concerns.

(430) The ‘separation’ of Sidel from Tetra Pak companies does
not alter the fact that, as expressly acknowledged in the
commitment itself, Sidel’s board will ‘be held responsible
directly by the Tetra Laval Group board’. It cannot be
expected that such separation will prevent Sidel from
implementing the commercial strategy of the Tetra Laval
Group. In addition Sidel’s legal status could be changed,
i.e. Sidel might be de-listed and turned into a private
company like Tetra Laval which would make monitoring
of ‘firewalls’ virtually impossible.

(431) The commitment not to ‘bundle’ as well as the confir-
mation of the pre-existing Article 82 commitments,
constitute pure promises not to act in a certain manner,
indeed not to act in contravention of Community law.
Such behavioural promises are in contrast with the
Commission’s stated policy on remedies and with the
purpose of the Merger Regulation itself (193) and are
extremely difficult if not impossible to monitor effec-
tively.

(432) Overall, in addition to being complex in their implemen-
tation and in their monitoring, these commitments
cannot be considered as capable of removing effectively
the competition problems identified.

4.

LICENCE FOR SIDEL’S SBM MACHINES FOR SENSITIVE
PRODUCT CUSTOMERS AND CONVERTERS

(433) The notifying party maintains that the proposed licence
would resolve the concerns identified by the Com-
mission by: (a) eliminating Tetra’s incentive and ability

(192) Commission Notice on remedies acceptable pursuant to Council
Regulation (EEC) No 4064/89 and pursuant to Commission
Regulation (EC) No 447/98 (OJ C 68, 2.3.2001, pp. 3-11),
paragraph 6.

(193) Court of First Instance, Judgment of 25 March 1999, in Case
T-102/96 Gencor v Commission [1999] ECR II-753, para-
graph 316; Commission notice on remedies, paragraph 9.

to leverage its dominant position in carton to gain
dominance in PET; (b) creating a new force to compete
with Tetra thus eliminating any strengthening of Tetra’s
dominant position in carton;
(c) by weakening the
merged entity’s overall position in packaging of ‘sensi-
tive’ products.

(434) It is the view of the Commission that the proposed
licence arrangement does not resolve the Commission’s
concerns either on its own or together with the divesti-
ture of the Dynaplast business and preforms business.
The Commission concludes that the proposed licensing
arrangement is not sufficient to resolve the competition
concerns identified and that it is not likely to be a viable,
workable arrangement.

4.1. No elimination of competition concerns

(435) In the view of the Commission the proposed commit-
ment is not sufficient to address the competition con-
in particular the concerns regarding
cerns identified,
leveraging and strengthening of Tetra’s existing domi-
nant position in carton packaging.

(436) The merged entity’s position in carton packaging and
SBM machines will not be sufficiently reduced by the
licence on its own or together with the Dynaplast and
preforms divestitures. Tetra will continue to be dominant
in carton packaging and Sidel leading in SBM machines
and the merged entity will continue to have the ability
and incentives to engage in leveraging practices.

(437) It is important to note that the licence will not ensure
the exit of the merged entity from the relevant market.
Even if the licensing arrangement were viable, the licence
will not preclude Sidel from selling its existing range of
SBM machines to sensitive product customers outside
the EEA or to converters within or outside the EEA. In
addition, Sidel will not be precluded from selling certain
types of SBM machines, which are not included in the
licence, [...]*.

(438) Moreover, the licence will not preclude Sidel from selling
a new range of SBM machines to any customers or from
entering into leasing or possibly hole-through-the-wall
arrangements. As regards the introduction of a new
range of machines, innovation is an essential element of
the business of manufacturing SBM machines and Sidel,
given its strength in R & D and successfulness in
innovation in the past, is expected at some point in the
near future to launch new or significantly improved
SBM machines. Such new or improved machines may
fall within the meaning of ‘new’ machines as defined in
the licence. The definition of ‘new’ machines in the
licence would make it difficult for the Commission or
the licensee to assess whether Sidel adheres to the terms
of the licence and would entail complex and constant
monitoring. This would undermine the effectiveness of
the licence arrangement.

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(439) Even if the commitment were viable, the licensee will
not be able to exert the same amount of competitive
pressure on Tetra’s carton business that Sidel could have
exerted without the merger. The licensee will be a
smaller entity without Sidel’s reputation, experience,
sales force and R & D capabilities.

traditional and new markets whereas the licensee will be
limited to the new markets only except when selling
other (non-Sidel) SBM machines, for example its own
pre-existing SBM machines or, if it also purchases the
Dynaplast business, the Dynaplast SBM machines.

(440) Even if the licence arrangement were workable, the
commitment would merely be a postponement of the
Commission’s concerns by [...]* years. In [...]* years’
time, the commitment will have done nothing to reduce
Tetra’s carton dominance and Tetra will then have the
ability and incentives to engage in leveraging practices.
In addition, by that time, the common pool of customers
will be even larger as more and more customers will be
converting to PET. Having remained active in this market
outside the EEA, the merged entity would find it easy to
re-enter the market in the EEA.

(441) Finally, the commitment focuses on SBM machines. The
commitment does not include a licence of other key PET
equipment such as aseptic filling machines and barrier
technology which the merged entity will be able to offer
to sensitive product customers following the merger.

4.2. Commitment entails severe limitations and is

likely to be unworkable

(442) It is the view of the Commission that the commitment
entails major limitations which, in all likelihood, would
not result in a viable new entity. This was largely
confirmed by the market test which included responses
from customers, converters and competitors.

(443) The licence is limited to the EEA. Thus, the licensee
could not exploit economies of scale by having a larger
available pool of customers. In addition, a few customers
operating on a global scale considered the geographic
scope of the licence a limitation as, in the event they
purchased SBM machines from the licensee they would
be restricted to the EEA. Exclusivity is for a period of
[...]* years and only as regards sensitive product cus-
tomers. This may not be sufficient for any licensee to
take the risk to develop the business. The imposed field
of use restriction, i.e. that the licensee will only be able
to sell to sensitive product customers together with the
fact that the market will be relatively limited immediately
following the transaction, may impact on the viability of
the licensee. Other businesses will be able to sell to

(444) The licence does not include a transfer of technical or
service personnel but merely a course of 54 man-weeks
during the first six months of the licence. Given that
customers maintained that service and personnel is a
critical feature of SBM machine sales, this would be a
great limitation. Market participants doubted in particu-
lar whether the licensee could even manufacture the
machines under such an arrangement and confirmed
that
its servicing
abilities. It was thought that Sidel’s long experience in
manufacturing such machines could not be replicated
by a licensee.

they would be reluctant

to trust

(445) Sidel is only prevented from selling its existing range of
machines to sensitive product customers. If Sidel pro-
duces a new range of SBM machines as explained above,
it can sell the new machines in competition with the
licensee. The licensee has no right to benefit from such
technological
In addition, given that
Sidel will be free to continue to sell to converters, the
licensee is unlikely to have any success with converters
given their need for service and design/testing services.

improvements.

(446) The licensee is obliged to seek assurances from its
customers that they will use the SBM machines only for
filling of ‘sensitive’ products in the EEA. The licensee will
also need to ensure that
the
licensed technology is not violated and will need to seek
appropriate guarantees to this respect. If any of these
conditions is breached the licensee faces penalties. Tetra/
Sidel will have the right to judge whether conditions
have been breached.

the confidentiality of

(447) The licence does not cover aseptic filling machines or
barrier technologies,
i.e. key offerings for ‘sensitive’
beverages. The licensee may be severely limited by this
inability to offer full lines (unless the licensee were a
company with both aseptic and barrier-technology
capability).

(448) A number of market participants also expressed con-
cerns as to the viability of the proposed pricing mechan-
ism with no up-front payment or royalty fee but a lump
sum fee payable depending on the size of the market for
‘sensitive’ products.

(449) Given the above limitations, most respondents to the
market test stated that they would not be interested in
entering into the proposed licence arrangement. One
respondent expressed a tentative interest in the proposed
licensing arrangement. However, its tentative interest
was contingent on further examination of the conditions
and limitations in the proposed arrangement.

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(450) Finally, the Commission is of the opinion that the
proposed commitment could result in artificial and
continuing market regulation. The licence may remove
Sidel from the market for ‘sensitive’ products for an
initial period of time causing difficulties to customers
wishing to purchase machinery from Sidel. Sale of SBM
machines under the licence would take place under
various artificial field of use restrictions and would entail
constant monitoring. Instead of creating a credible new
competitor in the market, the commitment, if successful,
could lead de facto to the temporal assignment of a
certain category of Sidel’s current or future customers
(namely those using Sidel
technology for ‘sensitive’
products within the EEA) and, thus, to an artificial
division of
the market. The implementation of the
merger with the proposed commitments could therefore
introduce a significant degree of artificial market regu-
lation in this already highly concentrated industry.

5. CONCLUSION ON THE COMMITMENTS

(451) In view of the above, the Commission concludes that,
given both the lack of viability of the proposed commit-
ments and their overall insufficiency in addressing the
competition concerns raised by the transaction, the
proposed commitments are not sufficient to remove the
identified competition concerns and thus cannot form
the basis for an authorisation decision.

VI. CONCLUSION

(452) For all the above reasons, the Commission concludes
that the notified concentration would create a dominant
position in the market for PET packaging equipment, in
particular SBM machines used for the ‘sensitive’ product
segments, and strengthen a dominant position in aseptic
carton packaging equipment and aseptic cartons in the
EEA, as a result of which effective competition would be

significantly impeded in the common market and in the
EEA. The proposed commitments are not sufficient to
render the concentration compatible with the common
market and the EEA Agreement and thus cannot form
the basis for an authorisation decision. The concen-
tration is therefore to be declared incompatible with the
common market pursuant to Article 8(3) of the Merger
Regulation, and with the EEA Agreement, pursuant to
Article 57 thereof,

HAS ADOPTED THIS DECISION:

Article 1

The concentration, notified to the Commission by Tetra Laval
BV (Tetra) on 18 May 2001, whereby Tetra would acquire sole
control of the undertaking Sidel SA is declared incompatible
with the common market and the functioning of the EEA
Agreement.

Article 2

This decision is addressed to:

Tetra Laval BV
Amsteldijk 166
1071 LH Amsterdam
The Netherlands

Done at Brussels, 30 October 2001.

For the Commission

Mario MONTI

Member of the Commission

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ANNEX

The full original text of the conditions and obligations may be consulted on the following Commission website:

http://europa.eu.int/comm/competition/index–en.html.