Summary of Commission Decision of 23 January 2008 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.4781 — Norddeutsche Affinerie/Cumerio) (Text with EEA relevance )
Date: 2008-06-23
Institutions: European Commission
Subjects: common market, competition law, copper, economic concentration, merger control, metallurgical industry

25.6.2008

EN

Official Journal of the European Union

C 161/7

Summary of Commission Decision

of 23 January 2008

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

(Case COMP/M.4781 — Norddeutsche Affinerie/Cumerio)

(Only the English version is authentic)

(Text with EEA relevance)

(2008/C 161/08)

On 23 January 2008,
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 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

I. SUMMARY

1. On 30 July 2007, the Commission received a notification
of a proposed concentration pursuant to Article 4 of Regu-
lation (EC) No 139/2004 (‘EC Merger Regulation’) by which
the undertaking Norddeutsche Affinerie (‘NA’, Germany)
acquires within the meaning of Article 3(1)(b) of the EC
Merger Regulation control of the whole of the undertaking
Cumerio SA (‘Cumerio’, Belgium) by way of a public bid
announced on 27 June 2007.

the copper

2. NA is a German public limited company with production
facilities in Hamburg, Emmerich and Lünen (Germany). NA
produces copper cathodes (in Hamburg and Lünen). These
copper cathodes are then processed into copper
rod
(Hamburg and Emmerich) and copper shapes (both cakes
and billets in Hamburg). Downstream of the shapes produc-
tion, through its subsidiary Prymetall GmbH & Co. KG
(‘Prymetall’) in Stolberg (Germany), NA is also active in the
production and sale of semi-finished copper products.
rod production Prymetall
Downstream of
produces shaped wires. Moreover, NA holds (indirectly,
through Prymetall) 50 % in Schwermetall Halbzeugwerk
GmbH & Co. KG (‘Schwermetall’, Germany), which
produces copper shapes and pre-rolled strips. The other
is Wieland Werke AG
partner in the JV Schwermetall
(‘Wieland’, Germany),
itself a producer of copper shapes
(only for own internal processing), as well as a producer of
semi-finished copper products and final copper products.
Both Wieland and Prymetall purchase copper shapes and
pre-rolled strips from Schwermetall. Finally, NA holds a
60 % share in Deutsche Giessdraht GmbH (‘Deutsche
Giessdraht’, Germany), a producer of copper rod jointly
controlled with Corporacion Nacional del Cobre de Chile
(‘Codelco’, Chile), which holds the remaining 40 %.

the production of copper cathodes
(Olen, Pirdop), of
copper rod (Olen, Avellino) and of copper shapes (both
cakes and billets in Olen), and further downstream of the
copper rod production, to a lesser extent, of copper wires
(Yverdon-les-Bains). Unlike NA,
(Avellino) and profiles
further downstream of
the shapes and pre-rolled strips
production, Cumerio is not active in the production of
semi-finished copper products.

4. The Austrian holding A-TEC Industries AG (‘A-TEC’), an
international
industrial group with operations in drive
systems, plant engineering, machine tools and metallurgy,
has a share of 13,75 % in NA and a share of 25 % plus
1 share in Cumerio. A-TEC holds 100 % of the shares in
Montanwerke Brixlegg AG (‘Brixlegg’) which is the main
competitor of NA and Cumerio for copper shapes.

5. The proposed transaction consists of the acquisition of sole
control over Cumerio by NA via a public takeover offer for
all outstanding shares, options and warrants.

6. In order for the Commission to be able to dismiss any
possible serious doubts in Phase I, the parties submitted on
28 August 2007 a remedy proposal offering for sale the
entire copper shapes business line of Cumerio.

7. The market test of the remedy proposal was fairly negative.
The Commission concluded, given the information available
in Phase I, that the doubts as to potential unilateral effects
in the market(s) for copper shapes could not be dismissed.
The Commission therefore decided on 18 September 2007
to open a Phase II investigation.

3. Cumerio is a Belgian public limited company with produc-
tion facilities in Olen (Belgium), Pirdop (Bulgaria), Avellino
(Italy) and, through its subsidiary Swiss Advanced Materials
AG, in Yverdon-les-Bains (Switzerland). Cumerio is active in

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

8. The market investigation in Phase II revealed that the posi-
tion of the new entity on the EEA merchant market for
copper shapes will remain under the competitive pressure
of both in-house producers of copper shapes and purcha-
sers of copper shapes that may integrate upstream. Further-
more, on the basis of the characteristics of the market for

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Official Journal of the European Union

25.6.2008

copper shapes, its structure, the constraints exercised by the
overcapacity and the competitive pressure exercised by the
downstream markets of semi-finished copper products, it is
concluded that the transaction does not threaten to signifi-
cantly impede effective competition on the market
for
copper shapes in the EEA. In view of this, the new entity
will not have the ability to undertake any successful strategy
of input foreclosure on the downstream markets for semi-
finished copper products.

15. The parties' activities overlap in the production of copper
scrap, copper cathodes, by-products stemming from copper
smelting and electrolysis, copper
shapes.
Although Cumerio is not active as a producer of down-
stream copper products made out of copper shapes, these
markets will be analysed with respect to both unilateral and
vertical effects on the market for copper shapes.

rod, copper

9. Therefore, a clearance decision pursuant to Article 8(1) of

the Merger Regulation is proposed for adoption.

2. Copper scrap

Product market definition

II. EXPLANATORY MEMORANDUM

A. THE RELEVANT PRODUCT MARKETS

10. The sector of activity affected by the proposed transaction

is the copper industry.

1. Copper industry

11. Copper is a natural product that is gained from copper ore.
After extraction from the copper mine, copper ore is
enriched in processing facilities into copper concentrate.
Both copper concentrate and copper scrap are used to
produce copper cathodes. To comply with the London
Metal Exchange (LME) standard of ‘grade A’ copper cath-
odes, the most widely used standard in international trade,
the cathodes must have a copper content of at
least
99,9935 % and a defined maximum level of the various
lead, phosphorous and others
impurities such as silver,
which make up the remaining 0,0065 % or less. Non-LME
certified cathodes are called off-grade. The LME is the
world's leading trading market for copper. The ‘LME price’
is thus considered as the ‘world copper price’.

12. Copper cathodes, are the main inputs to produce both

copper rod and copper shapes.

16. The Commission has in previous decisions indicated that
there is a distinct product market for copper scrap. The
existence of a distinct product market for copper scrap has
been confirmed by the market investigation.

17. It has been claimed by one respondent to the market inves-
tigation that the refining of copper scrap under a so-called
tolling arrangement might constitute a product market
which is distinct from the market of copper scrap.

18. The market investigation has shown that not only copper
shapes producers, but all copper
refiners, within and
outside the EEA, use copper scrap as an input. There is
significant trade in copper scrap. The market investigation
confirmed that scrap tolling is one among several ways to
dispose of copper scrap in a profitable way. The Commis-
sion therefore concludes that from a demand-side perspec-
tive scrap tolling is substitutable with selling scrap to refi-
ners and possibly scrap traders.

Geographic market definition

19. The market investigation has confirmed that suppliers and
traders of copper scrap offer their scrap on a world-wide
basis, and that many EEA-based buyers of scrap also
purchase from sources outside the EEA.

3. Copper cathodes

Product market definition

13. Copper rod is a thin, long, round piece of copper, mostly
produced in diameters of 8 mm. Copper rod is the main
feedstock for power cables, installation cables and commu-
nication cables and wires. Copper rod can also be further
processed into for example drawn and shaped wires,
profiles and nuggets.

20. As the present transaction does not raise any competition
concerns on the product market for cathodes, the question
whether LME-grade and off-grade cathodes constitute a
single product market or are rather to be distinguished, can,
in line with previous Commission decisions, be left open.

14. There are two different kinds of copper shapes: billets and
cakes. Billets are copper shapes with a circular section, with
a diameter varying from 100-800 mm and a length of
around 600 mm. Cakes are copper shapes with a rectan-
gular section and weight up to 25 ton per cake. Copper
billets are further transformed into tubes, bars and profiles,
whereas copper cakes are the feedstock for pre-rolled strips
and other rolled copper materials.

Geographic market definition

21. With respect

to the geographic market definition,

the
respondents to the Commission's market investigation in
in line with previous
the present transaction confirmed,
Commission decisions,
that copper cathodes are traded
world-wide.

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4. Copper rod

Product market definition

22. The production of copper rod can be achieved by two
different processes: (i) by continuous casting and rolling; or
(ii) by direct casting. While copper rod is being produced in
various diameters ranging from 8 to 25 mm, 95 % of the
overall European copper rod production relate to only one
diameter, i.e. 8 mm, which serves as a standard product.

23. The notifying party considers that

the
production and supply of copper rod constitutes a single
relevant product market and that no distinction between
the two production processes or between the various
in line with previous
diameters
Commission decisions.

is necessary. This

the market

for

is

24. The market

investigation shows that

the substitutability
between copper rod (i) by continuous casting and rolling or
(ii) by direct casting from a demand-side perspective is mainly
one-sided.

25. With regard to a potential further subdivision according to
the different diameters of copper rod ranging from 8 to
25 mm the market
the
different diameters are being used for different applications
and most customers purchase copper
several
different diameters. The market investigation confirmed the
high degree of supply-side substitutability.

investigation has shown that

rod of

suppliers can easily switch from the production of billets to
the production of cakes and vice versa within a short period
of time and without any significant investment. The same
has been stated on the possibility of switching the produc-
tion between the various copper qualities of the shapes.

30. Although it may not be possible

every copper
producer/processor to switch easily between the production
of cakes and billets on the same production line,
the
market investigation has confirmed that from the point of
view of supply-side substitutability, billets and cakes are
interchangeable.

for

31. With respect to the various copper qualities, the market
investigation has shown that
these can in general be
produced on the same production lines, with none or only
minor additional costs. It has been confirmed that from the
supply-side substitutability point of view, shapes of different
copper qualities do not constitute distinct product markets,
with the possible exception of OF-Cu shapes.

32. However, since Cumerio does not produce OF-Cu shapes, it
can be left open whether OF-Cu shapes constitute a distinct
relevant product market, as it does not affect the competi-
tive assessment of the transaction.

Geographic market definition

Geographic market definition

26. In line with previous decisions of the Commission and in
view of the dispersion of suppliers of copper rod in Europe,
the market investigation has shown that there are overlap-
ping geographical circles around production sites which
influence each other's competitive situation. Therefore, the
geographic market is to be defined as EEA-wide.

33. The notifying party submits that the relevant geographic
market for shapes is at least EEA-wide. The market investi-
gation confirms that
transport costs are relatively low
compared to the value of copper shapes. More importantly,
the market
the EEA-based
suppliers of the merchant market for copper shapes sell all
over the EEA and to some extent outside the EEA, in Asia
and North-America.

investigation confirmed that

5. Copper shapes

Product market definition

6. Markets downstream of copper shapes

Product and geographic market definition

27. Copper shapes are copper products cast in a semi-contin-
uous or a continuous process
into billets or cakes
Depending on the copper content and the content of impu-
the notifying party distinguish copper shapes of
rities,
different qualities such as e.g. oxygen-free (OF-Cu), special-
electrolytic (SE-Cu), electrolytic (E-Cu) and phosphorus-
bearing (Ph-bearing Cu).

28. With respect to demand-side substitutability between billets
and cakes, the market investigation indicated that billets
and cakes are not interchangeable, and constitute distinct
product markets from their point of view.

29. With respect to the supply-side substitutability of copper
shape

the notifying party has

submitted that

shapes,

34. Copper shapes are further processed into semi-finished
copper products. The market investigation confirms that
there are different applications for copper products down-
stream of shapes, the most important of which are electrical
engineering and the electronic industry; the construction
industry;
industry;
machine construction.

telecommunications;

automotive

35. In view of the fact that Cumerio is not active in the produc-
tion of downstream semi-finished copper products, it is not
necessary for the assessment to precisely define the bound-
aries between the different markets for the various semi-
finished copper products, and to decide
exact
geographic extension, either EEA or worldwide.

their

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B. COMPETITIVE ASSESSMENT

1. Unilateral effects

Non-coordinated effects on the market for copper scrap

36. During the market

investigation, a few customers have
expressed concerns that the transaction might lead to the
creation of buyer power, whereby the new entity could seek
to take advantage of its position as one of the reduced
number of buyers of copper scrap to lower the price
thereof.

37. As stipulated in the Guidelines on the assessment of horizontal
mergers under the Council Regulation on the control of concentra-
tions between undertakings (‘Horizontal Merger Guidelines’),
increased buyer power, if established, is not in itself suffi-
cient to conclude that competition may be significantly
impeded.

38. It appears to be very unlikely that significant buyer power
would be created through the transaction. The aggregate
share of demand for copper scrap of the new entity would
be around [10-15] %. The new entity will face competitive
pressure from many rivals, and will not be in a position to
enter into anti-competitive behaviour on this market.

39. In view of the above, it can be concluded that the proposed
transaction will not lead to unilateral effects as a result of
which effective competition will be significantly impeded in
the world-wide market for copper scrap.

Non-coordinated effects on the market for copper rod

40. Following the transaction the new entity would become the
largest supplier of copper rod in the EEA. While [80-90] %
of the production were sold to third parties, the rest of this
volume was used by copper rod suppliers internally for
their own production of wires, cables and profiles. On the
merchant market for copper rod, the new entity would
have a combined market share of around [30-40] %. In
relation to the total production of copper rod,
including
production which is used internally,
the new entity's
combined market share would be around [20-30] %.

41. Although some respondents to the market investigation
who purchase copper rod raised concerns that the increased
market share of the combined entity might lead to higher
prices and less choice, such concerns can be dispelled. First,
the new entity will face a number of major competitors
active all over the EEA. Secondly, most customers source
copper
rod from two to three different suppliers and
consider several other suppliers as an alternative option.
Thirdly, most suppliers of copper rod have spare capacity
and could increase sales on the merchant market or expand
their overall production in case of a price increase for
copper rod.

42. The existence of other strong competitors together with the
current situation of overcapacity for copper rod within the

EEA as well as the potential expansion of
the current
production by competitors will continue to act as a compe-
titive constraint and limit the ability and incentive for the
new entity to raise prices after the transaction.

Non-coordinated effects on the market for copper shapes

43. The main characteristic of

the consumption of copper
in-house
in-house consumption of copper shapes is

shapes in the EEA is the high proportion of
consumption:
nearly five times higher than merchant sales.

44. On the merchant market, the parties are the main supplier
of copper shapes in the EEA. The combined market share
of the parties on the merchant market for copper shapes in
the EEA is around [50-60] %.
for copper
shapes excluding OF-Cu qualities,
the combined market
share of the parties in the EEA would be around [50-60] %.
Montanwerke Brixlegg, which belongs to A-TEC,
is the
main competitor with a market share of around [20-30] %.

In a market

45. Overall,

the market

investigation has

the
production and use of copper shapes in the EEA, either in-
house or
is driven by
dynamics situated both upstream and downstream of the
copper shapes production.

through the merchant market,

shown that

46. First, the copper price affects the whole value chain of the
copper industry since it represents around 95 % of the
value (in-house consumption) or sales price (purchases on
the merchant market) of copper shapes. Only less than 5 %
of the value or sales price of copper shapes constitute the
value added by the producers of copper shapes (the ‘trans-
formation fee’).

integration of

47. Secondly, the competitive dynamics are strongly influenced
by the different degrees of vertical
the
various actors and/or their location in the value chain. As
the largest customers of
the notifying party on the
merchant market for copper shapes have at the same time
an important in-house production of their own, they limit
their dependence on the notifying party. Other important
in-house producers of copper shapes use their entire copper
shapes production to produce
copper
products.

semi-finished

48. The Commission has investigated to what extent an increase
of prices on the EEA merchant market for copper shapes
could be
investigation has
confirmed that the availability of a considerable amount of
spare capacity for the production of shapes will continue to
exert a competitive constraint on the new entity and
prevent it from increasing prices of copper shapes.

sustainable. The market

49. In addition, should prices on the merchant market

for
copper shapes increase, there is a possibility that non-inte-
grated users of copper shapes would integrate upstream and
thus become active as producers of copper shapes.

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50. Furthermore, the market investigation confirmed that the
downstream markets for semi-finished copper products
exercise competitive pressure on the upstream market for
copper shapes. This is the case first because there are more
sellers (participants in the merchant market) on the down-
stream markets for semi-finished copper products than on
the upstream market for shapes; secondly because the inte-
grated sellers have excess capacity, as the new entity would
have; thirdly because the sellers on the downstream markets
for semi-finished copper products face competition from
non-copper products; and fourthly because they face strong
competition from rivals outside Europe for
the semi-
finished copper products that serve for electric and elec-
tronic applications.

51. On the basis of the characteristics of the market for copper
shapes, its structure, the constraints exercised by the overca-
pacity and the competitive pressure exercised by the down-
stream markets of semi-finished copper products,
is
concluded that the transaction does not threaten to signifi-
for
cantly impede effective competition on the market
copper shapes in the EEA.

it

2. Vertical effects

52. It has been submitted to the Commission that the new
entity would have the ability and the incentive to follow a
foreclosure strategy on the markets
semi-finished
copper products produced on the basis of its position on
the market for copper shapes. These concerns pointed to a
possible discrimination in favour of the new entity's subsi-
diaries (i.e. Schwermetall and Prymetall) who are present on
the downstream markets for semi-finished copper products.

for

53. As stipulated in the Non-Horizontal Merger Guidelines,
non-horizontal mergers ‘pose no threat to effective competition
unless the merged entity has a significant degree of market power
(which does not necessarily amount to dominance) in at least one
of the markets concerned’.

54. As demonstrated above, the position of the new entity on
the EEA merchant market for copper shapes will remain
under the competitive pressure of both in-house producers
of copper shapes and purchasers of copper shapes that may
integrate upstream. In view of this, the new entity will not
have the ability to undertake any successful strategy of
input foreclosure on the downstream markets for semi-
finished copper products.

55. Furthermore, even if the new entity decided to implement
such a strategy, and some purchasers of copper shapes face,
as a result, transitional difficulties in sourcing the copper
shapes they need as an input, the markets for semi-finished
copper products are, as demonstrated above, competitive
and at least EEA-wide. Consequently, any concern of a
reduction of consumer welfare can be dispelled.

56. As a consequence, the transaction does not threaten to
significantly impede effective competition on the markets
for semi-finished copper products.

3. Coordinated effects

57. The Commission has further investigated whether the fact
that A-TEC, the main competitor of the parties on the EEA
for copper shapes, who is also an important
market
minority shareholder in both NA and Cumerio, could give
rise to coordinated effects on this market. The new entity
and A-TEC's subsidiary Brixlegg would have a combined
share of around [70-80] % on the EEA-wide
market
merchant market
shapes. When excluding
OF-Cu shapes, the new entity and Brixlegg would have a
combined market share of around [70-80] %.

for copper

58. The Commission currently has no indications that A-TEC
and the new entity have the intention to coordinate their
market behaviour on the market for copper shapes.

59. For coordination to be sustainable, three conditions as set
out in the Airtours judgment and incorporated in the Hori-
zontal Merger Guidelines would have to be fulfilled.

60. First, only the credible threat of timely and sufficient retalia-
tion keeps companies away from deviating from terms of
coordination. This requires in general that markets are suffi-
ciently transparent
to allow coordinating companies to
monitor
to a sufficient degree whether companies are
deviating. The result of the market investigation with regard
to the transparency of price conditions in this market is
mixed. Should the new entity and A-TEC try to coordinate
their competitive behaviour,
it can indeed not be fully
excluded that A-TEC's position as a minority shareholder
might provide A-TEC with access to information on NA
which it would not have if such a shareholder relationship
did not exist.

61. Secondly, coordination is not sustainable unless the conse-
quences of deviation are sufficiently severe to convince
coordinating companies that it is in their best interest to
adhere to the terms of the coordination. In case of detected
deviations of a potential coordination by the new entity or
A-TEC, their ability and means of retaliation would seem to
be quite different in view of their different capacity and
market position. The fact that the new entity will have
more spare capacity and a market share almost three times
as high as A-TEC is likely to give the new entity a higher
the
ability to retaliate than A-TEC. At
minority shareholding might provide A-TEC with the possi-
bility to take advantage of its shareholding to retaliate by
either using information it would not have as a simple
competitor or by opposing the new entity's business policy
this it cannot be
as a major shareholder.
excluded that the A-TEC and the new entity might consider
each other as able to react to deviations of a potential
agreement.

the same time,

In view of

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62. Thirdly, for coordination to be successful, the actions of
non-coordinating companies and potential competitors, as
well as customers, should not be able to jeopardise the
outcome expected from coordination. If coordination were
aimed at reducing overall capacity for copper shapes in the
market, this would only hurt consumers if non-coordi-
nating companies are unable or have no incentive to
respond to this decrease by increasing their own capacity
sufficiently to prevent a net decrease in capacity, or at least
to render the coordinated capacity decrease unprofitable.

63. Even if the new entity together with A-TEC managed to
implement a coordination strategy which would not be
fully jeopardised by competitors, the competitive conditions
on the downstream markets for copper products would
prevent these attempts from having any anti-competitive
effects on the downstream markets by raising prices for
copper products to consumers.

64. As a consequence, it can be concluded that the proposed
transaction will not lead to coordinated effects as a result of
which effective competition would be significantly impeded
on the EEA-wide market for copper shapes.

III. CONCLUSION

65. For the reasons mentioned above, the decision concludes
that
significantly
impede effective competition in the Common Market or in
a substantial part of it.

the proposed concentration will not

66. Consequently the concentration should be declared compa-
tible with the Common Market and the functioning of the
EEA Agreement,
in accordance with Article 2(2) and
Article 8(1) of the EC Merger Regulation and Article 57 of
the EEA Agreement.