Summary of Commission Decision declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.4513 — Arjowiggins/Zanders Reflex) (Text with EEA relevance)
Date: 2009-04-25
Institutions: European Commission
Subjects: EU trade mark, industrial concentration, product safety, pulp and paper industry, restriction on competition








C_2009096EN.01001001.xml










25.4.2009   


EN


Official Journal of the European Union


C 96/10





Summary of Commission Decision
declaring a concentration compatible with the common market and the functioning of the EEA Agreement
(Case COMP/M.4513 — Arjowiggins/Zanders Reflex)
(Only the English version is authentic)
(Text with EEA relevance)
2009/C 96/05

On 4 of June 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 undertakings1, 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.   INTRODUCTION







1.


On 31 of October 2008, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation No 139/2004 (‘EC Merger Regulation’) by which the undertaking Arjowiggins SAS (‘Arjowiggins’, France) acquires within the meaning of Article 3(1) (b) of the EC Merger Regulation control of the whole of the undertaking M-Real Zanders’ Reflex paper mill (‘Reflex’, Germany) by way of purchase of assets.










2.



Arjowiggins is a 100 subsidiary of Sequana Capital (formerly known as Worms & Cie). Arjowiggins is one of the world's largest manufacturers of specialty paper, mainly graphic or creative paper, communication paper, including carbonless copy paper, and security and technology paper (used to print banknotes e.g.).










3.



Reflex is a paper production plant located in Düren, Germany. The plant in Düren produces carbonless paper and various specialty papers including premium uncoated wood-free papers used for image and office uses as well as coated wood-free papers for digital applications (inkjet paper).










4.


The notification also foresaw the acquisition by Arjowiggins of a 25 %-shareholding in the joint venture Zhejiang Minfeng Zanders Paper Company Ltd (‘ZMZ’) — a company which is active in the production of tracing paper. However, following a modification of the transaction, the 25 %-shareholding in ZMZ will not be acquired by Arjowiggins and therefore no longer forms part of the proposed concentration.










5.


Reflex is currently owned by M-real Zanders GmbH, Germany, which, in turn, is controlled by the Finnish Metsäliitto group. After the transaction, M-real Zanders GmbH will retain another paper mill, Gohrsmühle, which is located in Bergisch Gladbach, Germany.










6.


The proposed transaction consists of the purchase of the ‘Reflex’ assets by Arjowiggins. The Reflex assets comprise the paper production plant in Düren, Germany, as well as other assets, including trademarks and licenses.










7.


The acquisition by Arjowiggins of Reflex is a concentration pursuant to Article 3(1)(b) of the Merger Regulation.










8.


The proposed concentration does not have a Community dimension within the meaning of Article 1 of the Merger Regulation. In view of the filing requirements in seven Member States and the cross-border nature of the proposed transaction, the notifying party, on 21 May 2007, submitted a reasoned submission for a referral to the Commission pursuant to Article 4(5) of the Merger Regulation. Subsequently, the Commission transmitted that submission to all Member States. None of the Member States expressed their disagreement with the request for referral within the period laid down by the Merger Regulation. The concentration is therefore deemed to have a Community dimension pursuant to Article 4(5) of the Merger Regulation.




II.   RELEVANT MARKETS

1.   Carbonless Paper







9.


Both parties to the concentration are active in the production of carbonless paper. Carbonless paper (also called self-copying paper) is used to make duplicate copies without a carbon layer, e.g. for invoicing forms (one third of total consumption), internal forms (expenses, stock keeping), transport documents (freight orders), purchase orders, and contracts. It is a specific grade of coated wood-free paper made from a paper base to which layers of chemical products are applied. The image is generated by the chemical reaction between a colour former and a developer.










10.


Arjowiggins considers as relevant product market the market for carbonless paper comprising both carbonless paper in reels and carbonless paper in sheets.










11.


In its investigation, the Commission found indications that reels and sheets form separate product markets. However, the Commission assessed the competitive effect of the transaction both on the basis of separate product markets for reels and sheets and on the basis of an overall carbonless paper market. The exact market definition can be left open as the notified transaction leads to a significant impediment to effective competition under either market definition.










12.


Concerning the geographic market definition, in the notification Arjowiggins considers that the market is at least EEA-wide. In the reply to the Statement of Objections Arjowiggins argues that the geographic market is worldwide.










13.


The Commission found strong indications that competitive conditions in the carbonless paper market vary significantly between Member States. On balance, the evidence points towards national markets rather than an EEA-wide market. However, as the transaction would significantly impede effective competition in the common market, regardless of whether it is assessed on an EEA-wide basis or on the basis of national markets, the exact market definition can be left open.




2.   Tracing Paper







14.


Tracing paper is translucent paper which is manufactured by strongly refining pulp in order to obtain transparency. There are two types of tracing paper having different applications:






1.



industrial tracing paper which is a basic white tracing paper mainly used for technical and manual drawings by architects, reprographers and engineering designer and










2.



graphic tracing paper which is white or coloured tracing paper of a higher quality and eventually special effects (e.g. metallic). It is used by designers and printers for a number of graphic and printing applications such as calendars, invitations, envelopes, brochures, creative leisure applications.














15.


Arjowiggins considers that industrial tracing paper forms a separate product market. Graphic tracing paper would belong to a wider product market. Initially, Arjowiggins considered graphic tracing paper to belong to the market for premium fine paper. In response to the Statement of Objections Arjowiggins argued that graphic tracing paper forms part of the market of fine paper for graphic use.










16.


The Commission has come to the conclusion that industrial tracing paper represents a separate product market. Concerning graphic tracing paper, the Commission considers that it represents a separate product market. The Commission's market investigation clearly indicated that customers of graphic tracing paper would not switch to alternative products in case of a price increase of 5-10 %. The information provided by Arjowiggins does not rebut this. Based on the information obtained in the market investigation, and the information provided by the parties, the Commission has come to the conclusions that (i) industrial tracing paper constitutes a separate product market and that (ii) graphic tracing paper is a separate product market.










17.


Concerning the geographic market definition, the notifying party submitted that the market for both types of tracing paper would be at least EEA-wide, if not world-wide in scope due to the European/global purchasing system, the European/world-wide brands and similar prices around the world.










18.


The Commission has concluded that the geographic market definitions for industrial and for graphic tracing paper could be left open since the transaction will not significantly impede effective competition under either market definition.




3.   Premium Fine Paper







19.


The parties to the concentration are active in the production of premium fine paper. The notifying party submits that premium fine paper is high quality wood-free paper such as letterhead, business cards, complimentary slips, menus, corporate or advertising brochures, leaflets and invitations, premium packaging and translucent papers. The notifying party considers that all types of premium fine paper, including letterhead and tracing paper, belong to the larger product market of fine paper which comprises standard fine paper and premium fine paper. Standard uncoated fine paper is DIN A4 printing paper, basic letterhead paper and basic envelopes.










20.


The Commission considers that there are strong indications for a premium fine paper market - which does not include tracing paper. Some of the respondents to the market investigation pointed to the existence of a sub-segment of the market of premium fine paper, consisting of premium letterhead paper. The premium letterhead market can be defined as including either i) all premium fine paper grades between 80 and 130 g , ii) premium fine paper used for letterhead applications only, or iii) standard and premium fine paper used for letterhead applications.










21.


The Commission has investigated all these potential product markets. As no competition concerns arise on any of these potential markets i.e. premium fine paper or its sub-division premium letterhead paper (regardless of the definition of the latter), the precise market definition can be left open.










22.


Concerning the geographic market definition the notifying party submitted that the market for premium fine paper as well as of premium letterhead paper is EEA-wide. The market investigation broadly confirms the definition of the notifying party. The Commission therefore concludes that the market for premium fine paper or for premium letterhead paper is EEA-wide.




4.   Paper Distribution







23.


The notifying party claims that the market for paper distribution should include all distribution channels, the sale of paper by wholesalers but also direct sales by paper producers. The market definition can be left open as the merger will not significantly impede effective competition under either product market definition.










24.


As regards the geographic market definition, the parties state that the market for paper distribution may be considered wider than national in scope. In this case, there is no need to decide whether the relevant geographic market is national in scope or EEA-wide, as the merger will not significantly impede effective competition under either market definition.




III.   COMPETITIVE ASSESSMENT

1.   Carbonless Paper







25.


According to Arjowiggins, the combined entity would have a market share of [50-60] % of sales and [40-50] % of overall capacity within the EEA in 2006. Arjowiggins would become the clear market leader, with a market share exceeding half of the market. The combined entity's most important competitors are significantly smaller: Mitsubishi 16 %, Koehler 14 % and Torraspapel 11 %. There are a number of marginal players with market shares up to 2 %. Measured by HHI, the already high concentration level increases by [900-1600] points to [2500-3600]. (1)











26.


The Commission's analysis of the economic characteristics of the carbonless paper market, the survey of customers and competitors, the quantitative data collected from the main manufacturers and Arjowiggins’ internal documents and business plans together lead to the conclusion that the notified merger would significantly impede effective competition by giving Arjowiggins the ability and incentive to restrict output and thereby raise prices to consumers. This conclusion is valid whether the transaction is assessed on an overall EEA-wide carbonless paper market, EEA-wide markets for reels and sheets, national markets for carbonless paper, or national markets for reels and sheets.










27.


On a national basis, the Commission's conclusion is that the notified transaction would significantly impede effective competition in the following markets for carbonless paper overall (reels and sheets): Austria, Belgium and Luxembourg, Cyprus, France, Germany, Denmark, Italy, the Netherlands, Poland, Sweden, Slovakia and the United Kingdom.










28.


Based on separate market for reels and sheets, the Commission's conclusion is that a significant impediment to effective competition would arise in the following Member States: reels and sheets in Austria, reel and sheets in Belgium and Luxembourg, sheets in Bulgaria, reels and sheets in Cyprus, reels and sheets in Germany, reels and sheets in Denmark, reels and sheets in France, reels and sheets in Italy, reels and sheets in the Netherlands, reels in Poland, reels in Sweden, reels and sheets in Slovakia, and reels and sheets in the United Kingdom.




2.   Tracing Paper

2.1.   Industrial Tracing Paper







29.


Assuming a global market for industrial tracing paper the combined market share of Arjowiggins and Reflex is [40-50] % by volume and [50-60] % by value. In the EEA the combined market share is [50-60] % by volume and value.










30.


However, after the parties have decided to modify the proposed concentration in that Arjowiggins will no longer acquire the 25 % shareholding in the Chinese tracing paper producer ZMZ, the competitive overlap stemming from Reflex sales is minor in both absolute terms and in market shares: Reflex’ sales amount to around EUR [0-1] million and correspond to [0-5] % in terms of market share. Thus, the additional increment to Arjowiggins’ pre-merger market share will not lead to any significant changes in the competitive landscape in the EEA or worldwide.










31.


In consequence, the Commission concludes that the proposed concentration will not cause a significant impediment of effective competition in the market for industrial tracing paper




2.2.   Graphic Tracing Paper







32.


The combined market share of Arjowiggins and Reflex is [50-60] % by volume and [50-60] by value in a global market, and [60-70] % by volume and [70-80] % by value in the EEA. While the incremental market share may be considered small from the global perspective, as Reflex has about [5-10] % market share by both volume and value, the increment is more substantial at the EEA level with Reflex [10-20] % volume market share and [10-20] % value market share.










33.


The market for graphic tracing paper is however very small and accounts for ca. € 61 million worldwide and € 28 million in the EEA (in volume terms, it accounts for 15 900 tons worldwide and 6 600 tons EEA-wide).










34.


As mentioned above, due to the small market size, market shares are not necessarily indicative of market power since even single shipments can significantly change market shares. For example, Reflex [5-10] % worldwide market share amounts to sales of € [2-5] million, and Reflex’s [10-20] % EEA market share amounts to sales of € [2-5] million. In addition, Arjowiggins and the seller decided to modify the transaction. As a result, ZMZ will become an additional competitor on the market. This is true for the worldwide market but also has to be taken into account concerning the EEA, also in view of its link with Zanders, which has extensive distribution capabilities in the EEA. Moreover, even though Arjowiggins did not provide sufficient evidence that other types of paper for graphic use belong to the same product market as graphic tracing paper, the Commission acknowledges that other types of graphic paper may exercise constraints on the market for graphic tracing paper.










35.


In consequence, the Commission has come to the conclusion that the transaction will not cause competition concerns in the market for graphic tracing paper.




3.   Premium Fine Paper







36.


Assuming an EEA-wide market for premium fine paper in general (tracing paper excluded), Arjowiggins’ market share in 2007 was [20-30] % by volume. Reflex’ market share was [0-5] %. Thus, the combined market share of both Arjowiggins and Reflex would amount to [20-30] %. Furthermore, there are a considerable number of competitors remaining post transaction. If the relevant market were defined to exclude letterhead paper the combined market share would be even lower and would amount to [20-30] %. In a potential market for premium letterhead the combined market share would in any event be below 30 % with a number of viable competitors active in these segments.










37.


In view of this, the Commission's decision concludes that the proposed concentration will not lead to a significant impediment of effective competition in the market for premium fine paper or premium letterhead.




4.   Paper Distribution







38.


The target Reflex is active in Paper Distribution only through relatively small direct sales. Arjowiggins is a 100 % subsidiary of Sequana Capital, of which Antalis, a paper distributor, is also a 100 % subsidiary. The downstream market for paper distribution is vertically affected by this merger.










39.


The Commission's decision concludes that there is no risk of foreclosure caused by the proposed transaction due to a lack of market power of Arjowiggins and/or Antalis in the respective markets and the fact that there remain sufficient distribution alternatives for paper producers.





Conclusion







40.


The decision concludes that the notified concentration will lead to a significant impediment of effective competition in the Common Market with regard to the market for carbonless paper. This conclusion is valid whether the transaction is assessed on an overall EEA-wide carbonless paper market, EEA-wide markets for reels and sheets, national markets for carbonless paper, or national markets for reels and sheets.




5.   Undertakings submitted by the notifying party







41.


In order to address the aforementioned competition concerns in the market for carbonless paper, Arjowiggins submitted undertakings in which it commits itself to divest the carbonless and digital paper business of the Reflex mill (‘the Divestment Business’) to a viable purchaser. Arjowiggins proposes to close the proposed concentration only once an agreement has been concluded with a viable purchaser of the Divestment Business (‘upfront buyer’).





Assessment of the undertakings submitted







42.


The divestiture removes the competitive overlap between Arjowiggins and Reflex in carbonless paper. The Commission has market tested the commitments submitted by Arjowiggins with customers and competitors in order to evaluate their ability to restore effective competition in the markets for carbonless paper. The vast majority confirmed that the proposed remedy removes the competitive overlap and therefore is capable of removing the competition concerns. In view of the fact that an upfront buyer has to be found before Arjowiggins can acquire Reflex, the Commission considers that the proposed remedy will remove the competition concerns.










43.


In its decision, the Commission therefore concludes that the commitments submitted are sufficient to remove the competition concerns raised by the concentration.




IV.   CONCLUSION







44.


For the reasons mentioned above and subject to the fulfilment of the commitments the decision concludes that the proposed concentration will not significantly impede effective competition in the Common Market or in a substantial part of it.










45.


Consequently the concentration was declared compatible with the Common Market and the functioning of the EEA Agreement, in accordance with Article 2(2) and Article 8(2) of the EC Merger Regulation and Article 57 of the EEA Agreement.






(1)  ‘HHI’ means the Herfindahl-Hirschman Index, a commonly accepted measure of market concentration. See para. 16 of the Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings (OJ C 31, 5.2.2004, p. 5).