2007/403/EC: Commission Decision of 20 December 2006 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.4215 — Glatfelter/Crompton Assets) (notified under document number C(2006) 6764)   (Text with EEA relevance)
Date: 2006-12-20
Institutions: European Commission
Subjects: European Economic Area, common market, economic concentration, merger control, pulp and paper industry

13.6.2007

EN

Official Journal of the European Union

L 151/41

COMMISSION DECISION

of 20 December 2006

declaring a concentration compatible with the common market and the functioning of the EEA
Agreement
(Case COMP/M.4215 — Glatfelter/Crompton Assets)

(notified under document number C(2006) 6764)

(Only the English text is authentic)

(Text with EEA relevance)

(2007/403/EC)

On 20 December 2006 the Commission adopted a Decision in a merger case under Council Regulation
(EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the
EC Merger Regulation) (1), and in particular Article 8(1) of that Regulation. A non-confidential version
of the full Decision can be found in the authentic language of the case and in the working languages of
the Commission on the website of the Directorate-General for Competition, at the following address:
http://ec.europa.eu/comm/competition/index_en.html

(1)

(2)

(3)

I. SUMMARY

On 16 August 2006, the Commission received a notifi-
to Article 4 of Regulation (EC)
cation pursuant
No 139/2004 of a concentration whereby PH Glatfelter
Company (Glatfelter, USA) acquired sole control of the
Lydney Business of JR Crompton Ltd in Administration
(Lydney Business, UK) by way of purchase of assets.

laid fibre material

Both Glatfelter and the Lydney business are active in the
production of wet laid fibre material for tea and coffee
filtration. The Commission’s market
investigation has
revealed that despite high market shares on the global
market for wet
for tea and coffee
filtration, the notifying party will be constrained by a
number of competitors,
in particular by the British
company Purico that has recently significantly increased
production capacity in China. Furthermore, competition
from alternative materials to wet laid fibre material for
tea and coffee filtration will constrain the notifying
party's ability to increase prices. The decision therefore
concludes that no significant
to effective
competition will result from the merger.

impediment

II. THE PARTIES

Glatfelter is a New York stock market listed manufacturer
in the specialty papers and composite fibres business
areas. Specialty papers include wall covering papers,
subsidiaries’
special printing paper, etc. Through its
factories Glatfelter manufactures wet laid fibre for the
production of tea-bags, coffee filters and coffee pads, as
well as other specialty papers.

(4)

The Lydney Business is a part of the assets of former
Crompton Ltd in Administration (hereinafter Crompton,

(1) OJ L 24, 29.1.2004, p. 1.

tea-bag

to the

supplier

and coffee

United Kingdom). Crompton was a manufacturer of
specialty papers and wet laid fibre materials, and the
filter
leading
industry. Crompton comprised three production facilities
with a total of six inclined wire paper machines in the
UK: the Lydney mill with three inclined wire machines
and a polypropylene fibre operation, the Simpson Clough
Mill with two inclined wire machines and the Devon
Valley Mill with one inclined wire machine and one
flat wire machine.

(5)

(6)

III. THE OPERATION

the appointed administrators

After Crompton was placed in court ordered adminis-
tration (a United Kingdom insolvency procedure) on
7 February 2006,
(the
Administrators) decided, to sell off Crompton's assets.
Hence the Administrators held a public sales process.
After evaluation of the several initial indicative bids, the
Administrators decided, according to the notifying party,
to invite Glatfelter and other companies to submit a final
offer.

through its
Glatfelter acquired on 9 March 2006,
subsidiary Glatfelter UK,
the majority of assets of
Crompton's production facility at Lydney, Glouces-
tershire, UK including all tangible and intangible assets
necessary to carry on the Lydney Business as a going
concern. However, certain contracts and the back office
functions formerly provided by Crompton's head office
were excluded. The assets subject to the transaction are
collectively referred to as the ‘Lydney Business’. The
transaction concerning the acquisition of
the Lydney
Business by Glatfelter is referred to as ‘the Lydney Trans-
action’.

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Official Journal of the European Union

13.6.2007

(7)

(8)

After referral pursuant to Article 22 of the Merger Regu-
lation to the Commission, the Administrators terminated
the conditional contract with Glatfelter that related to the
Simpson Clough Business. Subsequently the Adminis-
trators sold the Simpson Clough Business to Purico in
June 2006. Besides the Simpson Clough Mill and the
Devon Valley Mill, the Simpson Clough Business also
includes Crompton's head office, business name rights,
certain contracts and Crompton's US sales subsidiary.

IV. THE RELEVANT PRODUCT MARKETS

The present case concerns wet laid fibre material. Wet
laid fibre material are thin sheets of porous tissue made
from a mixture of natural and/or synthetic fibres and are
produced on inclined wire machines. Wet
laid fibre
material is paper-like or fabric-like webs of non-woven
fibre, manufactured in a modified papermaking process.

(9) With regard to wet laid fibre material, the activities of
Glatfelter and the Lydney Business overlap in the
segment for the manufacture and sale of wet laid fibre
material
for tea and coffee filtration (tea-bags, coffee
filters, coffee pods/pads). There also is an overlap with
regard to wet laid fibre for battery applications.

(10)

tea

(e.g.

and coffee

The notifying party acknowledged that due to different
applications
filtration, battery
pastings, sausage casings, overlay) demand-side substitut-
ability between different types of wet laid fibre material is
limited. However, based on a high degree of supply-side
the notifying party has identified the
substitutability,
market
the relevant
for wet
product market.

laid fibre material as

a

significant

This was

investment.

not
require
confirmed in the Commission’s market
investigation.
Some inclined wire paper machines are to a certain
extent
inclined
flexible in their use. However, most
wire paper machines are designed with a particular use
in mind. Therefore those machines are optimized for the
production of a particular type of wet laid fibre material.
As a consequence hereof generally only those inclined
wire paper machines are capable of producing wet laid
fibre materials for tea and coffee production, which have
been designed for this purpose.

(13)

Even on inclined wire machines that are capable of
producing wet
laid fibre materials for tea and coffee
filtration but are currently not producing it, significant
investments need to be made in order to be able to
produce wet
tea and coffee
laid fibre materials for
filtration. Modifying an inclined wire machine would
also take a considerable time.

(14) Greenfield entry would need an even bigger investment
from the
lead time. Apart
and considerably longer
considerable
a new inclined wire
for
investment
machine, it would require the setup of a sales, technical
support and distribution network. The market investi-
gation also shows that wet laid fibre material for tea
and coffee filtration needs
to be certified in most
countries before it is marketed and customers need to
qualify the material on their machines.

(15)

The decision therefore
product market comprises wet
tea and coffee filtration.

concludes

that

the

laid fibre material

relevant
for

Wet laid fibre material for tea and coffee filtration

(11) On the market of wet laid fibre material for tea and
the Commission’s
coffee filtration,
investigation has
shown that, due to product specifications, customers
do not source wet laid fibre material designed for other
applications to package tea and/or coffee. Demand-side
substitutability therefore is limited, since the grades of
wet
laid fibre materials need to match very strict
requirements in order to ensure compatibility with the
converting machines and specific product requirements
of the end application (e.g. porosity, thickness, flexibility,
compliance with regulatory standards).

(12)

Concerning supply-side substitutability,
the notifying
party submits that switching production from wet laid
fibre material
laid fibre
application does not usually
for
material

for one application to wet
another

Wet laid fibre material for battery pasting paper

(16) On the market segment of wet laid fibre material for
the Commission’s
investigation has
battery pastings,
shown that there is a certain degree of supply-side substi-
tutability. As wet laid fibre material for battery pasting
paper does not require the food contact standard, the
number of
inclined wire paper machines capable of
producing wet laid fibre material for battery pastings is
not limited to the machines that are used for, e.g. tea and
coffee filtration or sausage casings. Most of the machines
capable of producing tea and coffee filtration types of
wet laid fibre material are, however, able to produce
battery pasting paper. The market investigation shows
that wet
is
furthermore produced on machines which, amongst
other uses, produce wet laid fibre material for vacuum
cleaner bags, adhesive tapes and sausage casings.

for battery pastings

laid fibre material

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Official Journal of the European Union

L 151/43

(17)

the exact product market definition
The decision left
open as even on the basis of the narrowest delineation
of a relevant product market, namely, wet
laid fibre
materials for battery pasting paper the transaction will
not lead to a significant impediment of competition.

V. THE RELEVANT GEOGRAPHIC MARKETS

(18)

The notifying parties
geographic markets are global.

submitted that

the

relevant

(19)

(20)

(21)

(22)

Wet laid fibre material for tea and coffee filtration

The Commission's market investigation confirmed that
the geographic market for wet laid fibre materials for
tea and coffee filtration is global. This is due to world-
wide trading patterns and the absence of prohibitive
transport
costs. Moreover, new capacity (the ZPM
machine) has emerged in China, which could constrain
the incumbents, who are mostly producing in the EEA.
Suppliers of wet laid fibre materials for tea and coffee
filtration and most of the customers who have world-
wide activities also corroborate these findings.

The decision therefore
geographic market
and coffee filtration is global.

for wet

concludes

the
that
laid fibre material

relevant
for tea

Wet laid fibre material for battery pasting paper

Even though customers indicated to procure and process
wetlaid fibre material for battery pasting paper within the
EEA, the market investigation confirmed that regulatory
requirements are not perceived as a barrier to trading on
a global level. Producers of battery pasting typically ship
their product around the world. Furthermore, low trans-
portation costs point in the direction of a world-wide
fear
technical
market. The
expressed
their
customers
by
reluctance to imports, could be overcome by a local
sales and technical support network.

assistance,
a
to motivate

lack of
some

The decision therefore
geographic market
for wet
battery pasting paper is global.

concludes

that

the

laid fibre material

relevant
for

VI. ASSESSMENT

Wet laid fibre material for tea and coffee filtration

(23) On the global market for wet laid fibre materials for tea
the merged entity’s
and coffee filtration applications,
share in sales amounted to approximately 60 to 70 %
(Glatfelter 30 to 40 %, Lydney Business 20 to 30 %) in
2005. Before Crompton went into administration, there
were three principal competitors active in the market
(Glatfelter, Crompton and Ahlstrom). After implemen-
tation of the notified operation, there will also be three
credible competitors (Glatfelter, Purico and Ahlstrom).
in addition to acquiring Crompton's Simpson
Purico,
(along with the
Clough and Devon Valley mills
Crompton trademark) is also putting on-stream its new
ZPM capacity in China, thus entering the market for wet
laid fibre material for tea and coffee filtration more or
less
transaction.
share of
Ahlstrom currently holds a global market
approximately [10 to 30 %] and Purico holds currently
a global market share of approximately [10 to 30 %].

concomitantly with

notified

the

(24)

increment

The high market share and significant
in
capacity of the post acquisition entity are indications of
market power. However, the party's ability to increase
prices will be constrained by a number of competitors,
in particular by Purico. By acquiring the Simpson Clough
and Devon Valley plants, Purico has gained the position
and advantages of an established supplier with respect to
customers, including those active on a global level. The
assets that Purico acquired from Crompton, together with
its state of the art ZPM in China will give Purico a
particularly good position to compete effectively with
its ZPM production of wet laid fibre material for tea
and coffee filtration. As confirmed in the market inves-
tigation, this machine constitutes a significant compe-
titive constraint on European manufacturers, as it is at
present capable of producing around 1-10 kt/per annum
of products for the same industries as Simpson Clough,
which is wet laid fibre material predominantly for tea
and coffee filtration.

(25)

Furthermore, in case the notifying party increased prices
or decreased output for wet laid fibre material for tea and
coffee filtration, Ahlstrom could increase output. If Glat-
felter increased the price significantly and profitability for
wet laid fibre materials for tea and coffee filtration thus
possibly increased for Ahlstrom, Ahlstrom could divert
capacity or could invest in adding capacity by converting
an existing machine or purchasing and converting a
second hand machine. Ahlstrom has the know-how
and technology in order to be able to convert and
operate such a machine. Ahlstrom also has the distri-
bution and sales network already in place.

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Official Journal of the European Union

13.6.2007

(26)

(27)

(28)

Finally, other suppliers of wet laid fibre material with the
capability of producing wet laid fibre material for tea and
coffee filtration are also constraining Glatfelter. They
currently do not all have the ability to produce double
layer wet laid fibre materials and also seem to target
smaller customers with lower quality standards than
most of
the bigger customers. However, when those
suppliers have developed their wet laid fibre materials
for coffee and tea filtration further they may also target
bigger customers. Moreover, even without targeting the
bigger customers they may be able to increase their sales
volume, thereby taking away sales of other producers in
tea and coffee filtration,
leaving Glatfelter unable to
increase its prices or restrict output.

The Commission has also found that some competitive
pressure is exerted by alternative materials to wet laid
fibre materials for tea and coffee filtration (e.g. spun
bond and nylon). While these alternative materials are
presently not expected to substitute wet
laid fibre
material to a significant extent, a portion of customer
demand is likely to be redirected towards alternative
freeing up additional capacity
materials in the future,
for wet laid fibre material for tea and coffee filtration
and thus to some extent constraining the notifying
party’s ability to exercise market power and raise prices.

The decision therefore concludes that unilateral effects
are unlikely because the party will be constrained in its
ability to increase prices by a number of strong compe-
titors and to a certain extent by alternative materials.
With regard to co-ordinated effects, the decision also
concludes that such effects are unlikely having carefully
examined the market structure, the reaction of customers
and the reaction of current and potential competitors.

(29)

Wet laid fibre material for battery pasting paper

The Commission’s investigation indicates that the market
segment for battery pasting paper is characterised by low
demand with high potential supply from other wet laid
fibre producers, a concentrated demand side and that the
projected market share of the combined entity would be
low. On that basis the Commission considers that this
market is unlikely to suffer an anti-competitive impact
from the proposed transaction.

(30) On 6 December 2006, the 146th Advisory Committee
on Concentrations gave a favourable opinion on the draft
decision and gave approval
the
decision.

to the adoption of

VII. CONCLUSION

(31)

it,

in a substantial part of

The decision concludes that the proposed concentration
will not significantly impede effective competition in the
common market or
in
particular as a result of the creation or strengthening
of a dominant position. It therefore declares the concen-
tration compatible with the common market and the
EEA Agreement,
in accordance with Articles 2(2) and
Article 8(1) of the Merger Regulation, and Article 57
of the EEA Agreement.
It is therefore concluded that
the Commission, by oral procedure has: taken note of
the opinion of the Advisory Committee of 6 December
2006;
the Hearing
Officer in this case; and adopted the attached decision
in English, which is the authentic language.

the final report of

taken note of