Summary of Commission Decision of 12 December 2006 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.4187 — Metso/Aker Kvaerner) (notified under document number C(2006) 6513) (Text with EEA relevance)
Date: 2007-12-11
Institutions: European Commission
Subjects: application of EU law, competition law, economic concentration, electrical energy, machine-tool industry, merger control, pulp and paper industry

11.1.2008

EN

Official Journal of the European Union

C 6/11

Summary of Commission Decision

of 12 December 2006

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

(Case COMP/M.4187 — Metso/Aker Kvaerner)

(notified under document number C(2006) 6513)

(Only the English version is authentic)

(Text with EEA relevance)

(2008/C 6/07)

On 29 March 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 (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 on the website of the Directorate-General for Competition, at the following address:
http://ec.europa.eu/comm/competiton/index_en.html

I. SUMMARY

II. THE PARTIES AND THE OPERATION

1. This case concerns the acquisition by Metso of Aker

Kvaerner's Pulping and Power business.

6. Metso Corporation Oy (‘Metso’, Finland) is a publicly listed
company, active in process engineering, development and
manufacture of machinery.

2. On 23 June 2006, the Commission received a notification
of a proposed concentration by which Metso Corporation
Oy (‘Metso’, Finland) acquires
sole control within the
meaning of Article 3(1)(b) of Regulation (EC) No 139/2004
on the control of concentrations between undertakings
(‘the EC Merger Regulation’) of parts of the undertaking
Aker Kvaerner ASA (‘Aker Kvaerner’, Norway), namely Aker
Kvaerner's pulping and power business (‘Kvaerner’), by way
of purchase of shares and assets.

3. After

its

initial

examination of

the notification,

the
Commission concluded that the operation falls within the
scope of
the Merger Regulation and, even taking into
account commitments entered into by Metso on 24 July
2006 and modified on 27 July 2006, raised serious doubts
as to its compatibility with the common market and with
the EEA Agreement.
It therefore decided on 11 August
2006 to initiate proceedings pursuant to Article 6(1)(c) of
the EC Merger Regulation.

4. On 6 October 2006, Metso offered new commitments with
a view to rendering the concentration compatible with the
common market. These commitments were subsequently
modified on 8 November 2006.

5. The Commission concludes that the commitments entered
into by Metso remove the serious doubts as to the compat-
ibility of the notified operation with the common market
and declares the operation compatible with the common
market and the functioning of the EEA Agreement pursuant
to Articles 8(2) and 10(2) of the EC Merger Regulation and
Article 57 of the EEA Agreement.

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

7. Aker Kvaerner ASA (‘Kvaerner’, Norway) designs and deli-
vers machinery and equipment for chemical pulp mills. It is
also a supplier of other specialized process technology
ancillary to chemical
recovery and power generation,
including the production of power boilers used in pulp
mills.

8. The proposed transaction consists in the acquisition of
100 % of the shares in Kvaerner Pulping AB (Sweden),
Aker Kvaerner Power Oy (Finland) and all assets related to
Aker Kvaerner's pulping and power business, currently held
by various subsidiaries of Aker Kvearner.

9. The transaction will confer sole control of Kvaerner to
Metso and therefore constitutes a concentration within the
meaning of Article 3(1)(b) and Article 1(3) of the EC Merger
Regulation. Although the transaction did not have a Com-
munity dimension within the meaning of Article 1 of the
EC Merger Regulation, the Commission became competent
to review the operation after a referral request of 4 April
2006 pursuant to Article 4(5) of the EC Merger Regulation.

III. RELEVANT PRODUCT MARKETS

10. The transaction concerns the markets for pulp mill equip-
ment. The Commission has already dealt with pulp mill
equipment markets in previous cases (2).

(2) See e.g. Cases COMP/M.4092 — Andritz/Küsters; COMP/M.1930 —

Ahlström/Andritz; IV/M.1431 — Ahlström/Kvaerner.

C 6/12

EN

Official Journal of the European Union

11.1.2008

1. Separate markets for different process islands

11. In line with its practice in previous cases, the decision defines separate product markets for so-called
‘process islands’. Indeed, different process stages can be distinguished in a pulp mill for which different
equipment is used.

12. The following table shows which process islands the three leading players in the pulp mill equipment

market (Andritz, Metso and Kvaerner) offer:

13. The merging parties' activities overlap only in four process
islands, namely in the field of digesters (‘cooking’ stage,
where wood is mixed with chemicals and heated with
steam in order to dissolve the lignin), equipment for brown
stock washing (washing and cleaning of chemical residues),
for oxygen delignification (further delignification with
oxygen) and for bleaching (bleaching of the pulp which is
still brown after the delignification stage).

has not bought a full mill but chosen to buy separate
process islands. Only some of the customers indicated that
they planned to buy a full new mill from one supplier in
the future (post-merger) when there will be two suppliers
able to offer products for an entire mill. Most customers
stated that they will continue to buy also new mills in
‘packages’
It appears that these
customers believe that this enables them to choose the best
product for every island.

from different suppliers.

14. For each of these stages, suppliers typically offer process
islands, that is a ‘bundle’ of equipment which is assembled
by the supplier (e.g. washers plus tanks, pipes and mixers
for the washing stage). When it comes to replacing major
parts of the mill with a view to upgrading the mill's capa-
city, most customers buy such integrated process island for
the respective stage. The Commission found that also custo-
mers of new mills, although often combining several
process islands, invite tenders for separate process islands.

2. Process islands for new mills v process islands for

rebuild projects

15. Nevertheless, the Commission's tender analysis showed that
separate markets should be defined for equipment for the
process islands used in new mills on the one hand and for
rebuild projects on the other hand. Indeed, the size of a
‘package’ of different process islands is larger for
typical
new mills than for rebuild projects, where in most cases
only one island is bought. Know how involved in new mill
projects is also different from rebuild projects, not the least
since it involves more planning and engineering activities
than process
and more know how on ‘plant building’
islands for rebuild projects.

16. It should be noted that the Commission's market investiga-
tion has not supported the definition of a market for ‘entire
new pulp mills’. The large majority of new mill customers

3. Separate markets for ‘batch’ and ‘continuous’ new

mill digesters

i.e.

17. The Commission also concluded that the two main types of
digesters used in the cooking process,
‘batch’ and
‘continuous’ digesters (1), are in competition with each
least as concerns digesters for new mills (2).
other, at
Indeed, a significant part of customers invite tenders that
do not specify the digester type when tendering for a
digester for a new mill. Although some ‘new mill’ custo-
mers have a preference for continuous digesters and
although there is another customer group that always
chooses batch digesters, many customers consider both
types of digesters without a pre-defined preference for
either type. For this customer group, both digester types
exert directly competitive pressure on each other (3).

(1) In batch digesters, pulp is cooked in ‘batches’ by putting wood chips
into a batch digester, together with the necessary chemicals and
cooking it over a period of one or more hours. When the process is
complete, the entire pulp is then pumped to the next stage, and the
batch digester has to be filled again. Unlike in the ‘sequential’ process of
a batch digester, in a continuous digester there is a steady flow of wood
chips and chemicals into the continuous digester where it is cooked and
continuously discharged from the outlet end of the digester.

(2) The investigation showed that for rebuild projects, customers choose in
most of the cases the same digester type as before and have never
replaced a continuous digester by a batch digester.

(3) Although theoretically three different markets for the three customer
groups could be defined, it is more appropriate not to further subdivide
the digester market, because boundaries between the different customer
groups are blurred. In the competitive assessment of the decision, the
effects on all three customer segments are considered.

11.1.2008

EN

Official Journal of the European Union

C 6/13

4. No separate markets for service and maintenance

V. COMPETITIVE ASSESSMENT

18. As regards service and maintenance work,

the decision
concludes that there is no or only negligible competition in
the field of the competitors' service & maintenance busi-
ness. While pulp mill equipment is also sold to customers
who want to replace minor parts of a broken machine or a
investigation
process
showed that for this part of the business (also referred to as
‘stay-in-business’ replacement), suppliers do not compete with
each other, since in most of these cases customers usually
turn to the original supplier of the product.

the Commission's market

island,

5. Conclusion on product markets

19. The decision therefore defines

the

following relevant

product markets (1):

I. Digesters:

1. Digesters for new mills

2. Batch digesters for rebuilds

3. Continuous digesters for rebuilds.

II. WOB equipment:

4. Equipment for the brown stock washing stage for

new mills

5. Equipment for the delignification stage for new mills

6. Equipment for the bleaching stage for new mills

1. Digesters for new mills

21. In the market for digesters for new mills, Kvaerner and
Metso would hold around [60-70] % of the market, with
Kvaerner's continuous cooking technology accounting for
approximately
[50-60] % and Metso's batch digester
accounting for around 14 % of the sales value between
2001 and 2005. Andritz has around [30-40] % of
the
market. The Canadian company GL&V is also present in the
market and takes part in tenders for batch digesters.

22. The merger would therefore reduce the number of eligible
suppliers for digesters for new mills from three to two, with
a market share of the parties of more than [60-70] %. Such
a high market position in a very concentrated market is in
itself indicative for a dominant position on the digester
market. The merger is therefore likely to reduce competi-
tion in the new mill digester market.

2. Equipment for washing, oxygen delignification and

bleaching

7. Equipment for the brown stock washing stage for

Dominant position in the WOB markets

rebuild projects

8. Equipment for the delignification stage for rebuild

projects

9. Equipment
projects.

for

the bleaching stage

for

rebuild

IV. THE RELEVANT GEOGRAPHIC MARKETS

20. The decision defines all affected markets as world-wide in
scope. Market conditions are similar world wide and custo-
mers from all regions in the world invite for tenders and
actually buy pulp mill equipment on a world-wide basis.

(1) The Commission has also assessed whether a vertically affected market
for automation (e.g. process island automation systems, pulp mill
equipment automation or industrial process automation) should be
defined. This question could ultimately be left open for the purpose of
the present decision, since no competition concerns would arise under
either scenario.

23. The Commission's market investigation has also shown that
the transaction would lead to high market shares between
[40-50] % to [80-90] % in the markets for equipment for
washing, oxygen delignification and bleaching (‘WOB’),
both for new mills and for rebuild projects. Andritz, with
market shares between [40-50] % and [20-30] %, would
remain the main competitor, while the next largest compe-
titor, GL&V, would only hold market shares of [0-10] % to
[0-10] % in the rebuild market and less than [0-10] % in
the new mill market. The merger would therefore signifi-
cantly reduce the number of competitors in the field of
WOB equipment, bringing together the two market leaders
in this field, who are the only suppliers of a wash press
technology which is widely accepted by all main customers
world-wide. Not the least because GL&V's washing tech-
nology is perceived by many customers as ‘outdated’ and
too expensive, some respondents to the Commission's
market test considered the transaction as a ‘3 to 2’ merger,
possible allowing the parties to increase prices in this field
of equipment.

C 6/14

EN

Official Journal of the European Union

11.1.2008

24. It should, however, be noted,

that

for those customers
within the ‘new mill’ market who plan in the future to buy
an entire mill from one supplier, the effect of the merger is
rather positive. For those customers Andritz has currently a
monopoly, and the merger will enable Metso/Kvaerner to
compete with Andritz for the supply of such full mills. The
competition concerns brought about by the creation of a
dominant position in the field of WOB equipment therefore
relates only to those customers within the new mill
customer market who prefer buying in packages. For this
group of new mill customers and for rebuild customers, the
merger will create a dominant supplier with high market
shares for WOB equipment, with only two competitors left
(Andritz and GL&V), one of which (GL&V) has only
achieved limited sales over the last five years. In addition
the market has high entry barriers, due to the know-how
and patents needed to manufacture pulp mill equipment
and the importance of reputation and reference products.

No elimination by mitigating factors

25. The Commission has also verified to what extent

the merging parties'

the
anti-competitive effects of the merger could be mitigated by
other factors. Some large customers indeed claimed that
they had buyer power vis-à-vis their suppliers. Most custo-
mers stressed also that the merger was not only negative
for them, but entailed also positive effects for their business.
Customers mentioned that
larger
product portfolio would facilitate to buy packages of more
process islands from one single supplier. Buying packages
(e.g. digester and WOB equipment together) helps custo-
mers to save ‘interface costs’ which can result from the
adjustment of various process
from different
suppliers. Combining several process islands can also help
to avoid conflicts in liability cases. The majority of custo-
mers also expect that the merger will be beneficial for the
quality of the products supplied by the merging parties.
They argue that combining the complementary knowledge
of Metso and Kvaerner (e.g. Metso's and Kvaerner's different
cooking technologies or Metso's knowledge on the fibreline
with Kvaerner's knowledge on the recovery part) will stimu-
late innovation.

islands

the

impact of

transaction in the

26. While these factors might to some extent mitigate the nega-
tive
cooking and
WOB markets, the Commission takes the view that they are
not likely to entirely neutralise or eliminate the anti-compe-
titive effects from the merger on customers. Indeed, most
the positive effects do not
customers confirmed that
outweigh the possible harm through the merger and that
they would prefer a divestiture of the overlapping busi-
nesses.

27. The Commission's investigation therefore confirmed that
the merger will lead to a significant impediment of compe-
tition in the market for digesters for new mills and for
WOB equipment sold to new mill and rebuild customers.

VI. COMMITMENTS

1. The parties' commitment proposal

28. The parties offered commitments on 6 October 2006 in
order to remove the Commission's serious doubts as to the
compatibility of the transaction with the common market.
The commitments, which were modified on 9 November
2006, concern the WOB and the cooking markets:

Full divestiture of Kvaerner's WOB business

29. Metso proposes to divest Kvaerner's entire WOB business
to the Canadian competitor GL&V. The divestiture includes
all
tangible and intangible assets related to Kvaerner's
WOB business, including all know how, intellectual prop-
erty rights, machines, ongoing contracts and key personnel.
Metso has already entered into a binding Sale and Purchase
Agreement on the WOB business with the Canadian
competitor GL&V (‘fix-it-first’ solution).

Divestiture with a back license for Metso's digester business

30. Metso also commits to divest

the whole of

its batch
cooking business to the GL&V. This divestiture will enable
the acquirer not only to use a license for Metso's
‘SuperBatch’ cooking technology, but
to dispose of all
tangible and intangible assets forming the batch cooking
business currently held by Metso, including all know how,
intellectual property rights, machines, ongoing contracts
and key personnel. Unlike for
the
commitments provide for a back-licence for the SuperBatch
technology to Metso, enabling Metso to offer its technology
in parallel to GL&V. Metso has also already entered into a
binding Sale and Purchase Agreement with GL&V for the
cooking business.

the WOB business,

11.1.2008

EN

Official Journal of the European Union

C 6/15

2. Assessment of the commitment proposal

WOB business

31. The Commission considers

that

offering

the divestment of
Kvaerner's WOB business can be regarded as the divestiture
of a viable business, since it comprises not only the divesti-
ture of some patents or machines but of all elements
including ongoing
forming Kvaerner's WOB business,
contracts and key personnel. The Commission has also
come to the conclusion that GL&V is a suitable purchaser
for the divested business, since it is already active in the
WOB business and since GL&V is the only remaining
competitor
different
equipment
process islands of a pulp mill apart from the merging
parties and Andritz. Although GL&V's sales of new equip-
ment in the WOB area were limited between 2000 and
2003 due to previous financial problems of the respective
business (which GL&V had taken over in 2000), GL&V has
fully re-entered the markets for pulping equipment
for
rebuilds and new mills in 2003 and increased its market
share significantly since then. GL&V therefore has both the
incentives and the ability to become a credible ‘third player’
in the markets for pulp mill equipment though the acquisi-
tion of Kvaerner's and Metso's divested businesses.

for many

Digester business

32. The Commission has found that a full divestiture of Metso's
batch digester business without any possibility for Metso to
stay in the business is not the most adequate solution for
the digester market. Indeed,
in the Commission's market
test of the remedies, customers almost unanimously voted
for a shared license for the SuperBatch technology. This is
because any remedy in the field of digesters effects different
customers differently. Customers fear that a complete dives-
titure of the SuperBatch technology to GL&V would create
a ‘monopoly’ for those customers who are bound to use
batch digesters. It should in this context be recalled that
GL&V, although its sales in the field of digesters are de
minimis today, currently already offers its own batch digester
technology and takes part in tenders for new mills. A full
divestiture would therefore effectively reduce the number of
digester suppliers from 2 to 1. Customers of
large new
mills who want to buy very large packages or even a full
mill from one supplier could also be negatively affected,
since GL&V does not offer full mills and does not have an

equally broad portfolio of pulp mill equipment as Andritz
or Mesto/Kvaerner. A complete divestiture would also
necessarily affect rebuild customers, which would be forced
to change their supplier. Accordingly, the present commit-
ments provide for a back-licence for the SuperBatch tech-
nology to Metso, enabling Metso to offer its technology in
parallel to GL&V.

No anticompetitive effects through coordination

33. The proposed divestiture remedy will also address any
potential increase of the risk of coordination in the pulp
mill equipment markets, since it will largely maintain the
market structure with three eligible suppliers. The divesti-
ture package will strengthen GL&V significantly and enable
GL&V to take over Kvaerner's role as a third player which
will exercise competitive pressure on the two other
suppliers in situations. Although GL&V's ability to exercise
competitive pressure on Andritz and Metso/Kvaerner in
projects in which require the supply of a full or almost full
pulp mill might be limited, the merger will not negatively
affect this situation. Today, Andritz has a monopoly for
such projects. The change brought about by the merger is
therefore rather positive, since there will be two suppliers
competing for ‘full mill’ projects in the future, which can be
regarded as a clear improvement of the competitive struc-
ture.

34. The commitments will therefore remove the entire competi-
tive overlap between the notifying parties, thereby creating
conditions of competition comparable to those prevailing
pre-merger.

VII. CONCLUSION

serious doubts of

35. The commitments as proposed by the Notifying Party
modify the notified concentration to such an extent that
the
to the
the Commission as
compatibility of
that concentration with the common
market are removed and that the transaction would not
significantly impede effective competition in the common
market or in a substantial part of it. Subject to full compli-
ance by Metso with the commitments offered, the concen-
tration is therefore declared compatible with the Common
Market and the EEA Agreement, in accordance Article 8(2)
of
the
the EC Merger Regulation and Article 57 of
EEA Agreement.