Competition merger brief. Issue 2/2016 - July.
Date: 2016-10-12
Institutions: Directorate-General for Competition
Subjects: competition law, competition policy, merger, merger control, serial publication

Competition merger brief  

Issue 2/2016 - July 

More briefs: 
http://ec.europa.eu/ 
competition/publications/ 
cpn/ 

In this issue: 

Page 1:  Ball/Rexam: The beverage can merger – Keeping an eye on the Ball 

A key feature of this phase 2 investigation is the adoption of customer-centric catch-
ment areas as the basis for the geographic market definition and the competitive 
assessment. This article also explains the considerations in accepting a very large and 
significant remedies package. 

Page 5:  Staples/Office Depot: House of Paper 

The already eu-approved acquisition of Office Depot by Staples was blocked by a 
preliminary injunction to block the acquisition by a District Court in the US and the deal 
was subsequently abandoned. The case illustrates the challenges of defining product 
markets which concern a multitude of different products and provides insight into 
assessing competitive constraints in the absence of reliable market shares.  

Page 10:   Liberty Global/Base Belgium: Fixing it first in the Belgian mobile market 

Liberty Global/BASE entailed the acquisition of a mobile network operator by a mobile 
virtual network operator. The transaction prompted an in-depth investigation and was 
ultimately cleared with a fix-it-first remedy to preserve competition in the Belgian 
mobile market. 

Page 13:  Teva/Allergan Generics: an unprecedented generics merger  

While the Commission has had significant experience dealing with mergers in the 
generic medicines industry, the sheer scale of Teva/Allergan Generics, combining two of 
the top four players globally, posed a number of interesting challenges. Finally, the 
remedy design and monitoring also brought their share of complexity, requiring 
innovative ad hoc approaches. 

More publications: 
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Competition merger briefs are 
written by the staff of the 
Competition Directorate-
General and provide 
background to policy 
discussions. They represent the 
authors’ view on the matter 
and do not bind the 
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© European Union, 2016  
Reproduction is authorised 
provided the source is 
acknowledged. 

KD-AL-16-002-EN-N 
doi 10.2763/69039 
ISBN 978-92-79-57015-5 
ISSN 2363-2534 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Competition Merger Brief 2/2016 – Article 1 

Competition merger brief 

Ball/Rexam: 
The beverage can merger – keeping an 
eye on the Ball  

Hélène Juramy, Gabor Koltay and Marco Ramondino 

1.  

Introduction  

In  January  2016,  the  Commission  cleared  the  acquisition  of 
Rexam  PLC  (Rexam,  the  United  Kingdom)  by  Ball  Corporation 
(Ball, the United States), subject to conditions. 

Ball is a worldwide producer and supplier of metal packaging for 
beverage, food and household products, with annual sales above 
EUR  6  billion  in  2015.  Ball  is  the  leading  beverage  can 
manufacturer  worldwide  and  #2  in  the  EEA.  Rexam's  worldwide 
activities  are  focused  mainly  on  beverage  can  manufacturing, 
with  sales  of  over  EUR  4  billion  in  2015.  Rexam  is  the  #2 
beverage can manufacturer worldwide and the largest in the EEA.  

The  transaction  was  initially  announced  in  February  2015  when 
Ball made public its offer for all of Rexam's share capital against 
a  consideration  of  approximately  GBP  4.3  billion.  It  was  notified 
to the Commission on 15 June 2015. After an initial investigation, 
on  20  July  2015  the  Commission  decided  to  open  an  in-depth 
investigation. 

The  transaction  was  set  to  take  place  in  a  highly  concentrated 
European  industry  with  only  four  main  suppliers  of  beverage 
cans: Ball, Rexam, Crown, and Can-Pack. Moreover, it would have 
combined the activities of the two main suppliers and resulted in 
a new #1 supplier in Europe, producing approximately 2/3 of total 
beverage can supply in Europe.  

In order to address the concerns raised by the Commission, Ball 
committed to divest 12 production facilities located in Germany, 
the  UK,  the  Netherlands,  Poland,  France,  Austria  and  Spain. 
Accordingly,  the  divestment  business  has  a  European-wide 
production  network  with  a  capacity  that  nearly  matches  the 
overlap created by the transaction. 

and 

Ball 

conditional 

A 
clearance 
decision  was  adopted  on  15 
January  20161.  On  25  April 
Ardagh 
2016, 
announced that Ardagh  would 
be  purchasing  the  assets  that 
Ball  committed  to  divest  in 
regulatory 
order 
approval  for  its  acquisition  of 
Rexam, 
in 
including  plants 
Europe, the US and Brazil.  

to  obtain 

June  2016, 
approved 

the 
On  17 
Commission 
(i) 
Ardagh  as  the  purchaser  of 
the  divestment  business  and 
(ii) Ardagh's acquisition of the 
divestment business2. 

2.  

Understanding 
the beverage 
can industry 

a 

is 

The  beverage  can  industry  in 
highly 
Europe 
concentrated  one.  Effectively, 
there  are  only  four  suppliers 
that have sizeable businesses: 
Ball,  Rexam,  Crown,  and  Can-
Pack.  Can-Pack  and  Crown 
each  have  fewer  production 
facilities  and  a  more  limited 
of 
geographic 
Europe 
the  parties. 
Moreover,  the  suppliers  active 
in  Europe  have  different 
abilities  to  compete  in  the 
market  due  to  their  differing 
scales and geographic footprints.  

coverage 

than 

In a nutshell 

January 

2016, 
cleared 

the 
In 
Commission 
the 
acquisition  of  the  global  #2 
beverage  can  manufacturer 
Rexam by the global #1 Ball, 
subject  to  the  divestiture  of 
nearly  the  whole  overlap  in 
Europe. 

A key feature of the phase 2 
investigation  is  the  adoption 
of  customer-centric  catch-
ment  areas  as  the  basis  for 
geographic  market 
the 
definition 
the 
and 
competitive assessment.  

When  relevant  for  assessing 
the  case  and  where  the 
available  data  so  permits, 
the  Commission's  analysis 
can  encompass  catchment 
areas  and  isochrones  in  a 
cross-border  assessment  of 
markets  which  may  not 
national 
with 
coincide 
boundaries. 

This  article  also  explains  the 
considerations in accepting a 
very 
large  and  significant 
remedies package. 

Barriers to entry and to expansion in the industry are high. Very 
high utilization rates are key to profits. Due to high plant set-up 

1   The public version of the decision and commitments is published on the 

Commission's website: M.7567. 

2   See case M.8048. 

The content of this article does not necessarily reflect the 
official position of the European Commission. Responsibility 
for the information and views expressed lies entirely with 
the authors. 

The authors would like to thank Hanna Anttilainen, Giulio Federico 
Ulrich Von Koppenfels and João Azevedo for their valuable 
contribution to this article. 

 
 
  
 
 
 
 
 
 
       
 
 
 
                                                             
Ball/Rexam | Competition Merger Brief No 2/2016 

catchment area and yield 50% market share for Red and 25% for 
Yellow  and  Blue.  Capacity-based  market  shares  are  especially 
suitable  for  a  capacity-constrained  industry,  where  the  level  of 
capacity  controlled  by  each  market  player  is  an  important 
determinant  of  the  competitive  conditions  faced  by  customers. 
Moreover, capacity shares are forward-looking:  they can capture 
plant openings and closures, and are robust to any changes in the 
sales patterns after the merger. 

Volume-based  market  shares  change 
the  market  share 
calculation in two ways. First, this method subtracts volumes that 
are sold outside the catchment area from the capacity within the 
catchment  area.  Second,  it  adds  the  volumes  outside  the 
catchment  area  that  are  sold  into  the  catchment  area  of  C. 
Consequently, volume-based market shares provide an additional 
sensitivity  analysis  for  the  capacity-based  shares  by  reflecting 
the actual geographical distribution of sales made by each plant. 
However,  volume  market  shares  have  certain  disadvantages. 
First,  sales  by  distant  plants  may  represent  a  less  effective 
competitor compared to sales by plants located closer to a given 
customer.  Second,  volume  shares  take  the  actual  sales  patterns 
as  given  and  cannot  take  into  account  the  impact  of  plant 
closures/opening or the effect of the merger. 

Figure 1 - Customer-centric catchment areas 

For the purposes of the case, the radius was defined in terms of 
transport  distance  for  cans  sold  by  Ball,  Rexam  and  their  two 
main  competitors  in  the  EEA.  80%  of  all  can  sales  take  place 
within  a  maximum  distance  of  approximately  700  km  from  a 
customer's  filling  location.  The  80%  cut  was  taken  based  on 
several elements such as replies of competitors and customers in 
the  market  investigation,  and  margin  analysis.  Moreover,  the 
Commission  conducted  robustness  checks  based  on  a  radius  of 
900 km and 500km.  

can 

they 

costs,  suppliers  are  unlikely  to  implement  material  increases  in 
capacity  unless 
customer 
commitments.  Indeed,  the  introduction  of  new  capacity  in  the 
past  few  years  has  been 
limited  and  has  often  been 
accompanied  by  the  closure  of  existing  plants  so  that  demand 
and supply in the market remain roughly in balance. 

significant 

secure 

Moreover, in order for a beverage can manufacturer to be able to 
win significant business with high demand customers, it must be 
able  to  rely  on  a  network  of  plants.  A  broad  network  of  plants 
allows  suppliers  to  (i)  optimize  their  production  by  shifting 
volume across plants when needed to achieve optimal utilization; 
and (ii) offer customers guaranteed service in case of issues with 
the plant they are usually supplied from. 

Finally, although some customers are large global soft drink, beer 
and  energy  drink  manufacturers  such  as  Coca-Cola,  Heineken, 
Carlsberg,  InBev,  SABMiller,  and  Red  Bull,  countervailing  buyer 
power  is  limited.  Tight  capacity  and  customer  inability  to  obtain 
transparency on costs, as well as the fact that the parties benefit 
from  scale  and  geographic  footprint  larger  than  those  of  their 
competitors and closely matching those of their main customers, 
are  key  indicators  of  the  degree  of  market  power  they  can 
exercise over large customers.    

3. 

Assessing concentration in  
a geographically differentiated market 

Customer-centric catchment areas 
The  investigation  highlighted  relevant  features  of  the  beverage 
can  industry  in  Europe:  (i)  supply  and  demand  conditions  differ 
from one location to the next; (ii) customers tend to make most 
of  their  purchases  within  a  maximum  distance  from  their  filling 
location  plants;  (iii)  suppliers  normally  deliver  the  cans  to 
customers’  locations;  and  (iv)  prices  are  generally  negotiated  at 
the level of filling plants.  

These  features  of  a  geographically  differentiated  market 
suggested  that  catchment  areas  around  customer  locations  are 
the  most  appropriate  way  to  assess  competition  in  the  can 
industry, as they most closely reflect reality. More specifically, the 
Commission calculated concentration figures within a radius of a 
customer based both on competitors' capacities within the radius 
and sales by competitors to customers within that radius.  

Figure 1 shows a mock-up example for defining catchment areas. 
There  are  four  can  suppliers  in  this  area:  Red,  Yellow,  Blue  and 
White.  Within  the  700km  radius  of  customer  C  there  are  three 
can suppliers: Red with two plants, Yellow and Blue with one plant 
each. Outside the radius there are two additional plants: one Red 
plant  and  one  White  plant.  For  simplicity,  all  plants  have  the 
same capacity and operate at full capacity. 

The  customer-centric  capacity-based  market  shares  focus  on  a 
customer  and  its  potential  suppliers.  Potential  suppliers  are 
determined based on an assumption as to the feasible transport 
distance.  They  take  into  account  all  the  capacity  within  the 

 2 

 
 
Ball/Rexam | Competition Merger Brief No 2/2016 

4. 

Geographic market definition 

In phase  1,  the  investigation suggested that,  in addition to local 
elements, the size and geographic spread of a supplier's network 
had  some  relevance.  For  that  reason  the  Commission  initially 
considered whether the market for beverage cans could be EEA-
wide.  Following  the  phase  2 
investigation,  however,  the 
Commission  concluded  that  an  EEA-wide  market  definition  was 
not appropriate, and built the geographic market definition on the 
basis of the customer-centric catchment areas. Nevertheless, the 
network  elements  still  needed  to  be  taken  into  account  in  the 
competitive assessment and in remedy formulation.   

In  order  to  define  geographic  markets,  the  Commission  took  a 
catchment  area with a radius of 700 km around each customer 
filling  location  as  a  starting  point.  The  Commission  then 
concluded  that  the  catchment  areas  around  individual  customer 
filling locations could be clustered together in broader geographic 
areas  (regions)  where  these  catchment  areas  are  subject  to 
sufficiently homogeneous competitive conditions.  

Eventually nine regions were defined: Central Europe (Austria and 
Germany),  Benelux,  France,  Italy,  Iberia  (Spain  and  Portugal), 
North  East  Europe  (Poland,  Czech  Republic,  Slovakia,  Lithuania, 
Estonia  and  Latvia),  South  East  Europe  (Hungary,  Slovenia, 
Croatia,  Romania,  Bulgaria,  Greece  and  Cyprus),  the  Nordics 
(Denmark, Norway, Sweden, Finland, and Iceland) and the UK and 
Ireland3. 

In order to assess the concentration in a region, the Commission 
calculated  average  concentration  figures  by  averaging  the 
concentration  levels  in  the  individual  catchment  areas.  These 
were  based  on  the  weighted  average  capacity/volume  shares  of 
suppliers  in  each  of  the  catchment  areas  located  in  that  region, 
where the weights are given by the total sales made to the filling 
location  at  the  centre  of  each  catchment  area.  Moreover,  the 
Commission  also  considered  that  geographic  differentiation 
might  well  exist  within  a  given  region.  Such  differentiation  was 
taken  into  account  in  the  competitive  assessment  by  using  not 
only the average concentration figures for a region as described 
above, but  also  concentration  figures  for  a  subset  of  customers 
with  particularly  significant  concentration  effects,  within  the 
region. The latter were defined as customers of catchment areas 
where  both  the  combined  market  share  and  the  market  share 
increment of the parties are above certain thresholds 4.  

3   These  regions  were  based  on  the  parties'  own  understanding  of  local 
market  conditions,  the  parties'  sales  patterns  and  other  more 
qualitative elements from the market investigation.  

4   A similar within-geographic-market assessment was carried out as part 
of  the  US  Federal  Injunction:  FTC  v.  Sysco,  USF  Holding  Corp.,  and  US 
Foods,  Inc.  See  the  "Memorandum  Opinion  of  United  States  District 
Judge  Amit  P.  Mehta  Concluding  That  the  Commission  Is  Likely  To 
Prove That the  Proposed Acquisition Violates Section 7 of the Clayton 
Act", 
https://www.ftc.gov/system/files/documents/cases/150623syscomemo.
pdf. 

Competition concerns 
When using the catchment-areas based clusters, the transaction 
would  have  led  to  high  market  shares  and  HHIs 5 (calculated 
based both on volumes and on capacity) in all clusters, as can be 
seen in Figure 2 below. The effect on customers with particularly 
significant concentration effects are shown in Figure 3. 

Figure 2 - Weighted average capacity market shares in each 
regional cluster (capacity-based, 700 km catchment areas) 

Catchment areas around 
customer filling plants 
located in the region 
Benelux 
Central Europe 
France 
Iberia 
Italy 
North-East Europe 
Nordics 
South-East Europe 
UK and Ireland 

Ball 

Rexam 

Combined 

[50-60] % 
[30-40] % 
[40-50] % 
[20-30] % 
[10-20] % 
[20-30] % 
[5-10] % 
[20-30] % 
[40-50] % 

[20-30] % 
[40-50] % 
[30-40] % 
[30-40] % 
[70-80] % 
[20-30] % 
[70-80] % 
[20-30] % 
[20-30] % 

[80-90] % 
[80-90] % 
[80-90] % 
[60-70] % 
[90-100] % 
[40-50] % 
[80-90] % 
[40-50] % 
[60-70] % 

Figure 3 - Weighted average capacity shares for customer filling 
locations with particularly significant concentration effects in 
2014 (700 km catchment areas) 

Location of customer  % affected 
volumes in 
region 

Benelux 
Central Europe 
France 
Iberia 
Italy 
North-East Europe 
Nordics 
South-East Europe 
UK and Ireland 
Total (EEA) 

[90-100] % 
[90-100] % 
[90-100] % 
[90-100] % 
[60-70] % 
[60-70] % 
[40-50] % 
[50-60] % 
[90-100] % 
[80-90] % 

Average 
combined 
market 
share 
[80-90] % 
[80-90] % 
[80-90] % 
[60-70] % 
[90-100] % 
[50-60] % 
[90-100] % 
[60-70] % 
[60-70] % 
[70-80] % 

Average 
increment 

[20-30] % 
[30-40] % 
[30-40] % 
[20-30] % 
[20-30] % 
[20-30] % 
[20-30] % 
[20-30] % 
[20-30] % 
[20-30] % 

Can-Pack and Crown, the only remaining main players in Europe, 
would not have placed a sufficient competitive constraint on the 
merged  entity  after  the  transaction.  Moreover,  the  industry  is 
characterised by high barriers to entry and expansion (importance 
of having a network of plants, sunk costs of building a new plant) 
and customers have limited abilities to switch supplier. Therefore, 
absent  remedies,  the  merger  would  have  significantly  impeded 
competition in all the clusters of catchment areas concerned. 

5. 

Designing the remedies package  
in Europe 

In  order  to  render  the  transaction  compatible  with  the  internal 
market,  Ball  submitted  commitments  on  18  November  2015, 
which were however deemed insufficient. 

5   Herfindahl-Hirschman  Index.  The  HHI  is  calculated  by  summing  the 
squares of the individual market shares of all the firms in the market. 

3 

 
 
                                                             
 
 
                                                             
Ball/Rexam | Competition Merger Brief No 2/2016 

This  initial  proposal  was  to  divest  Ball's  entire  Metal  Beverage 
Packaging,  Europe  segment  save  for  certain  excluded  entities, 
assets  and  personnel  (the  exclusions  mainly  related  to  certain 
holding  companies,  three  Ball  can  body  plants,  some  key 
personnel and IP in pipeline products). In addition, it proposed to 
divest  two  Rexam  can  body  plants.  Together,  the  proposed 
divestiture package resulted in re-creating a new #2 player in the 
European beverage can market. 

In  spite  of  this,  the  initial  remedy  proposals  had  two  significant 
shortcomings. 

The North-East Europe issue 
First,  the  Commission  found  that  the  commitments  of  18 
November  2015  failed  to  address  the  elimination  of  increased 
competition  in  the  North-East  Europe  cluster.  The  investigation 
indicated  that,  absent  the  transaction,  it  was  likely  that  Rexam 
would  have  increased  capacity  in  the  region  and  consequently 
reduced  market  concentration.  Significant  concentration  effects 
for  a  sub-set  of  customers  in  the  Central  Europe  cluster  also 
remained.  

To  address  these  concerns,  Ball  added  its  Polish  plant  in  the 
improved package submitted two weeks later. 

A reverse carve-out 
Second,  ensuring  the  viability  and  competitiveness  of  the 
divestment  business  was  key  to  successfully  creating  a  new 
player in Europe. In that respect, the Commission noted that Ball 
had excluded a large number of key personnel from the scope of 
the  18  November  2015  commitments.  Since  the  divestment 
business would have consisted of a very large network of plants 
across  the  EEA,  resulting  in  a  combination  of  assets  of  both 
parties,  and  operating  in  a  highly  concentrated  and  capacity-
constrained  industry,  the  Commission  considered  that  a  high 
degree  of  continuity  of  key  staff  would  be  crucial  for  the 
divestment business’s ability to serve its customers and compete 
effectively  in  the  market  immediately  after  the  divestiture. 
Moreover, from the beginning emphasis was put on the need for 
the package to be a "reverse carve-out", instead of a collection of 
assets,  to  ensure  that  the  various  legal  entities,  assets,  and 
contracts  (when  applicable  subject  to  customer  consent)  would 
transfer  to  the  buyer  as  a  going  concern  and  be  immediately 
operative. 

To  address  these  concerns,  Ball  added  to  the  package  further 
personnel,  including  management,  R&D  and  sales  staff.  These 
proved  to  be  important  additions  in  turning  the  remedy  into  an 
attractive  and  self-standing  package.  In  essence,  the  improved 
package  consists  of  a  full  divestiture  of  Ball’s  current  European 
business  as  a  going  concern  (with  the  exclusion  of  two  plants 
that  Ball  could  retain,  as  well  as  the  addition  of  three  Rexam 
plants). 

The need for an upfront buyer 
Ball  and  Rexam  were  not  allowed  to  close  their  deal  until  the 
Commission  approved  the  buyer  of  the  assets.  This  was 
necessary because of the complexity and size of the package, as 
well as due to the strong concerns expressed by customers as to 
the identity of the buyer. 

A global package 
Throughout  the  investigation,  the  Commission  cooperated  with 
the US and Brazil. This cooperation was key also in designing the 
remedies package, and continued during the process of approving 
the proposed buyer. The buyer is purchasing plants and assets in 
Europe, the US and Brazil, making it the new #3 player globally. 
However,  one  challenge  was  the  fact  that  the  global  package 
includes plants from both Ball and Rexam. 

6. 

Conclusion  

The  Ball/Rexam  transaction  materially  impacted  competitive 
dynamics in the European beverage can industry, as it created a 
new  market  leader,  the  combined  Ball/Rexam,  as  well  as  its 
closest competitor, the divestment business (Ardagh). Structuring 
effective  remedies  for  transactions  that  transform  entire 
industries is not easy, in particular when competition takes place 
at both catchment area and regional levels. 

By  tackling  the  geographic  aspects  of  competition  with  the 
customer-centric  approach  while  also  assessing  broader 
competition  dynamics,  the  Commission  has  been  able  to  assess 
the  effects  of  the  transaction  and  of  the  remedies  proposed  by 
Ball on the overall European beverage can industry as well as on 
local markets. 

This shows that, when it is relevant for case assessment and the 
nature  of  the  investigation  and  data  collection  permits  it,  the 
Commission's  analysis  of  markets  can  rely  on  catchment  areas 
and  isochrones6 in  a  cross-border  assessment  of  markets  which 
may not coincide with national boundaries. 

The  substantial  remedies  offered,  consisting  essentially  of  a 
reverse carve-out of Ball’s existing European business rather than 
a  mix  and  match  of  different  plants  and  assets,  combined  with 
the  requirement  of  an  upfront  buyer,  ensure  that  effective 
competition  is  maintained  in  the  already  concentrated  drink  can 
industry  in  Europe.  Strong  cooperation  with  the  Federal  Trade 
Commission  in  the  US  and  CADE,  the  Brazilian  competition 
authority,  also  ensured  coherence  in  a  remedies  package  that 
goes beyond Europe. 

The  Commission  concluded  that  the  improved  commitments 
removed its competition concerns in their entirety. 

6 Measures of distance or travel time. 

 4 

 
 
                                                             
Competition Merger Brief 2/2016 – Article 2 

Competition merger brief 

Staples/Office Depot: 
House of Paper  

Marta Andres Vaquero, Daniele Calisti, Christos Tsoumanis 

1. 

Introduction  

the  European  Commission 

(the 
On  10  February  2016, 
Commission)  conditionally  approved  the  acquisition  of  Office 
Depot  by  its  rival  Staples.  Both  companies  are  US-based  global 
suppliers  of  stationery  and  other  office  products  to  private 
the 
consumers  and  businesses.  The  Commission  cleared 
transaction  after  an 
investigation  subject  to  the 
divestment  of  Office  Depot's  contract  distribution  business 
(framework  agreements  for  the  supply  of  office  products, 
large  business  customers  after 
generally  entered  with 
competitive tenders) in Europe and its entire business in Sweden.1 
On  10  May  2016,  the  US  federal  courts  granted  the  Federal 
Trade  Commission  (FTC)'s  request  for  a  preliminary  injunction 
and the deal was subsequently abandoned.  

in-depth 

Staples had previously attempted to acquire Office Depot almost 
twenty  years  ago,  in  1997.  At  that  time,  the  transaction  was 
successfully challenged and blocked by the US FTC. Over the last 
few  years,  both  companies  had  engaged  in  a  number  of 
acquisitions  of  other  competitors  active  in  the  office  supplies 
industry. These culminated in Staples’ acquisition of Dutch based 
rival Corporate Express (2008), and Office Depot’s acquisition of 
US rival Office Max (2013). 

(CCB)  and 

The  deal  was  reviewed  by  the  Commission,  the  US  FTC,  the 
Canadian  Competition  Bureau 
the  Australian 
Competition  &  Consumer  Commission  (ACCC).  While  the  ACCC 
approved  the  deal  unconditionally,  the  US  FTC  and  the  CCB 
decided  to  go  to  court  to  block  the  deal  and  the  Commission 
cleared the case conditionally. The different outcomes are due to 
the  different  market  structure  and  the  diverging  remedies 
offered in the respective territories. 

1   See  press 
278_en.htm. 

release  at  http://europa.eu/rapid/press-release_IP-16-

The content of this article does not necessarily reflect the 
official position of the European Commission. Responsibility 
for the information and views expressed lies entirely with 
the authors. 

In a nutshell 

In February this year, the European Commission approved 
the  acquisition  of  Office  Depot  by  Staples.  Three  months 
later,  the  US  District  Court  for  the  District  of  Columbia 
granted  the  FTC's  request  for  a  preliminary  injunction  to 
block  the  acquisition  and  the  deal  was  subsequently 
abandoned. 

The  case  illustrates  the  challenges  of  defining  product 
markets  which  concern  a  multitude  of  different  products 
and  provides 
competitive 
constraints in the absence of reliable market shares. The 
Commission  examined  other  sources  of  evidence  such  as 
survey and bidding data. 

into  assessing 

insight 

The  assessment  carried  out  by  the  four  competition 
agencies  of  North  America,  Europe  and  Australia  was 
aligned  in  terms  of  market  definitions  and  approach  to 
the  assessment.  The  different  final  outcomes  are  due  to 
the different market structure and the diverging remedies 
offered.  

that 

in-depth 

significantly 

investigation  found 

the 
The  Commission’s 
transaction  would  have 
impeded  effective 
competition in different markets, most notably in the market for 
the supply of office products through international contracts with 
large  business  customers 
In  order  to  remove 
competition  concerns  and  obtain  clearance,  the  companies 
undertook to divest Office Depot’s relevant European assets in all 
the problematic markets.  

in  Europe. 

In  defining  the  relevant  product  markets,  the  Commission  faced 
several  challenges.  The  notifying  parties  ("the  Parties")  sell  a 
multitude  of  products  to  different  categories  of  customers 
through multiple sales channels.  

The authors would like to thank Birthe Panhans for her valuable 
contribution to this article 

 
 
  
 
 
 
 
 
 
 
       
 
 
 
                                                             
 
Staples/Office Depot | Competition Merger Brief No 2/2016 

in  particular,  the 
The  nature  of  the  markets  concerned, 
fragmented  product  base  and  the  customer  and  channel 
differentiation,  also  raised  challenges  for  the  competitive 
assessment.  The  lack  of  reliable  market  share  data  led  the 
Commission  to  look  for  alternative  qualitative  and  quantitative 
ways to assess the impact of the transaction.  

Finally,  as  regards  commitments,  designing  a  suitable  remedy 
depended on the viability of a business divestiture mostly based 
on a single sales channel.  

2. 

Paperclips to toner:  
defining the relevant markets 

Staples and Office Depot are active in several EU Member States 
in the supply and distribution of a wide range of office supplies. 
Several different consumable products fall under this broad label, 
including  traditional  office  supplies  such  as  stationery  (pens, 
binders, staplers, paperclips etc.), cut sheet paper and ink & toner 
used in printers and copiers, but also other types of products that 
are used in an office context, such as office furniture, break-room 
supplies (coffee and snacks), cleaning products and others. 

All  these  products  are  sold  to  a  varied  customer  base  which 
ranges  from  individual  private  consumers  to  large  businesses. 
Furthermore,  Staples,  Office  Depot  and  their  competitors  sell 
these  products  through  a  number  of  different  distribution 
channels,  such  as  retail  sales  through  bricks  and  mortar  shops, 
online  sales,  catalogue  sales,  contract-based  distribution  and 
wholesale distribution.  

Because  of  the  variety  of  products,  customers  and  distribution 
relevant  market  definition  was  particularly 
channels, 
the 
challenging  and  a  fundamental  element 
competitive constraints faced by the Parties.  

to  assess 

the 

Distribution channels 
The  Commission  first  assessed  whether  the  different  channels 
through  which  office  products  are  distributed  should  be 
considered  as  distinct  relevant  product  markets.  In  a  previous 
case,  the  Commission  had  already  examined  a  possible  sub-
segmentation of the market based on distribution channels.2 The 
Commission had recognised that different channels correspond to 
the  needs  of  different  customers,  although  certain  customer 
groups can be served through different channels. 

With regard to the contract channel in particular, the Commission 
had also previously assessed this channel as a separate product 
market. 3   In  this  case,  the  Commission  looked  in  more  detail  at 
the  specific  features  of  contract  sales 
in-depth 
investigation.  Without  doubt,  several  channels  are  available  to 
business customers for the purchase of office supplies. However, 
when  their  office  supplies  expenditure  is  significant,  business 
customers  generally  run  a  competitive  tender  process  to  select 

its 

in 

2   See in particular case M.2965 – Staples / Guilbert.   
3   Case M.2286 Buhrmann / Samas Office Supplies.  

 6 

into 
their  contract  stationer,  with  which  they  then  enter 
framework agreements. In order to fulfil the tender requirements, 
suppliers  need  to  be  able  to  offer  a  specific  pricing  model,  to 
have  sufficient  logistic  capabilities  and  to  provide  a  range  of 
services. Not all the companies active in the distribution of office 
supplies  through  other  channels  are  able  to  meet  those 
requirements. 

Because  of  these  findings  on  the  demand  and  supply  side,  the 
Commission  ultimately  retained  its  previous  distinction  of  the 
contract  distribution  of  office  supplies  as  a  separate  product 
market.  Similarly,  the  Commission  defined  distinct  product 
markets for the wholesale channel and for the direct distribution 
channel, which includes retail and online sales.  

Product categories 
large  and 
The  Commission  also  examined  whether 
differentiated  range  of  products  supplied  by  Staples  and  Office 
Depot has to be assessed as one market, or distinguished based 
on different product categories.  

the 

line  with  precedents,  the  Commission  drew  a  general 
In 
distinction between traditional office supplies and other products. 
Traditional office supplies are all consumable products frequently 
sourced  and  used  in  offices  and  include  stationery,  ink  &  toner 
and  cut  sheet  paper.  The  evidence  on  the  Parties'  commercial 
strategy and the customers' purchasing and switching behaviour 
enabled  the  Commission  to  differentiate  the  distribution  of 
traditional office supplies from the distribution of office furniture 
or  larger  business  machines  and  associated  services,  as  well  as 
from  the  distribution  of  cleaning  products,  food, 
IT  and 
telecommunication  equipment,  although  some  of  these  are 
sometimes sold together with traditional office supplies.  

Within  traditional  office  supplies,  the  Commission  explored 
whether  the  three  different  categories  of  stationery,  cut  sheet 
paper and ink & toner had to be assessed as a single market, or 
distinguished  into  different  product  markets.  The  Commission 
found that there are  specialist  suppliers  that distribute only  one 
category of these products under contract. Paper manufacturers, 
for instance, sometimes distribute cut sheet paper directly, while 
original equipment manufacturers of copy machines and printers 
offer Managed Print Services contracts (‘MPS’), under which they 
provide a machine to the customer, service it and replenish ink & 
toner in exchange for a payment-per-page. 

However,  the  Commission  found  evidence  that  customers  in  the 
contract  channel  have  a  strong  preference  for  one-stop-shop 
purchases  of  all  their  traditional  office  supplies,  pointing  at  the 
distribution  of  the  full  range  of  these  products  as  an  overall 
relevant  product  market.  The  question  was  ultimately  left  open, 
however,  because  the  same  competition  concerns  would  have 
arisen  irrespective  of  whether  the  Commission  assessed  the 
different  categories  together  or  whether  separate  markets  by 
product  categories  were  distinguished,  in  which  case  concerns 
would have arisen for contracts covering stationery.  

                                                             
Staples/Office Depot | Competition Merger Brief No 2/2016 

International and non-international contracts 
Both  Staples  and  Office  Depot  are  suppliers  with  activities  in  a 
number of EU Member States. A key question for the purposes of 
market  definition  was  whether  international  contracts  should  be 
considered as a separate product market from national contracts. 

Staples and Office Depot insisted that customers currently under 
international  contracts  have  the  choice  to  revert  to  separate 
contracts  in  different  countries  instead,  and  that  therefore 
separate  national  contracts  exert  a  competitive  constraint  on 
international  contracts,  thus  belonging  to  the  same  relevant 
market.  

The  Commission  found  evidence  of  a  broad  trend  among 
customers with offices in different Member States to source their 
office supplies under a single international contract with Staples, 
Office Depot or the competing international supplier Lyreco. The 
market 
investigation  showed  that  sourcing  office  supplies 
centrally  for  different  Member  States  generated  a  number  of 
benefits  for  the  customers,  such  as  product  and  service 
homogeneity,  substantive  cost  savings  –  including  through 
volume rebates for all purchases made across different Member 
States  -  as  well  as  internal  cost  savings  due  to  the  use  of 
homogeneous ordering platforms and the need to manage only a 
single contract and a single procurement strategy. Overall, there 
was  a  considerable  customer  base  of  companies  that,  when 
choosing  their  contract  stationer,  requested  quotes  for  different 
Member  States  under  a  single  tender  and  awarded  the  contract 
to  a  company  that  could  service  their  needs  in  most  or  all 
locations.  

That trend among customers to source under centrally managed 
international  contracts  matched  the  strategy  of  the  merging 
companies:  the  Commission  found  evidence  that  the  companies 
were actively targeting international customers with a proposition 
based  on  the  consolidation  of  their  spending  in  different 
countries.  

Despite these  trends, the Parties argued that there would be  no 
separate  market  for  international  contracts.  The  argument  was 
based  on  the  results  of  telephone  surveys  of  international 
customers  which  Staples  commissioned  in  2013  and  2015  and 
which,  according  to  the  Parties,  indicated  that  the  vast  majority 
of 
international  customers  would  switch  back  to  national 
contracts  in  the  event  of  a  small  but  significant  non-transitory 
increase in price (the so-called SSNIP test).  

The Commission considered the surveys submitted by the Parties 
as  relevant  information,  given  that  they  were  conducted  by  an 
independent  third  party  and  without  the  Parties'  interference. 
However, when assessing Staples' surveys in conjunction with its 
own market investigation, the Commission found that customers 
in  this  market  had  a  tendency  to  overestimate  their  switching 
behaviour when asked about their reaction to a hypothetical price 
increase. 

Against  this  background,  the  Commission  contacted  the  persons 
responsible  for  procurement  for  a 
large  number  of  the 
respondents of Staples' surveys. When asked to discuss switching 
behaviour  in  an  open  reply  instead  of  selecting  among  pre-
large  majority  of 
determined  multiple  answer  choices,  a 
customers  provided  more  circumstantiated  qualitative  and 
quantitative  evidence  that  switching  to  national  contracts  was 
not  a  suitable  alternative  in  reaction  to  a  small  but  significant 
international 
non-transitory 
contracts. 

in  the  price  of  their 

increase 

The responses to these more detailed interviews provided strong 
evidence that international customers were likely to absorb such 
an  increase  in  prices  rather  than  switch  to  separate  country  by 
country  procurement  under  national  contracts.  Therefore,  the 
Commission defined for  the  first  time  two separate markets for 
international  office  supply  contracts  in  the  EEA  and  for  non-
international contracts at the national level.  

The experience in this case shows that the analysis of customer 
feedback  on  switching  conduct  in  reaction  to  price  increases 
needs to be considered with great care and in conjunction with all 
other quantitative and qualitative evidence available. 

Size of the business customers 
The last  segmentation considered  by the Commission concerned 
specifically  non-international  contracts.  These  are  typically 
concluded  with  customers  of  different  sizes  and  with  different 
levels of spending on office supplies. 

The  market  reality  as  captured  by  the  investigation  suggested 
that larger customers need a different range and higher level of 
services  than  smaller  customers.  Therefore,  in  line  with  a 
previous  case, 4 the  Commission  defined  a  separate  market  for 
large  business  customers.  In  its  previous  case,  the  Commission 
had  established  a  threshold  for  large  business  customers  as 
those  having  at  least  100-200  office  workers.  In  view  of  the 
Parties’  internal  estimates  and  data  availability  in  this  case,  the 
Commission  finally  included  all  customers  with  more  than  250 
total employees in the same market.   

3. 

Competitive Assessment 

The  lack  of  reliable  market  shares  was  the  main  challenge  the 
Commission faced when conducting the competitive assessment.  
In  the  absence  of  independent  data  on  the  total  size  of  each 
product  market,  the  Parties  provided  market  shares  using  four 
different  methodologies,  each  of  which  was  subject  to  a  large 
degree  of  uncertainty  and  sensitive  to  underlying  assumptions. 
This was because the office supplies industry is characterised by 
the  absence  of 
a 
contemporaneous  independent  third  party  estimates  of  the  size 
of  the  different  markets,  as  well  as  large  ranges  of  individual 
products in each product category. The market investigation could 

large  and  varied  customer  base, 

4   Case M.2286 Buhrmann / Samas Office Supplies. 

7 

 
 
 
                                                             
Staples/Office Depot | Competition Merger Brief No 2/2016 

not  confirm  the  correctness  of  the  Parties'  assumptions  and 
indicated  that  their  estimates  were  not  sufficiently  reliable  and 
likely to understate the combined market shares of the Parties.  

offered  to  divest  Office  Depot's  entire  business  operations  in 
Sweden  to  address  the  competition  concerns  which  the 
Commission had identified in the Swedish wholesale market. 

As a result, the Commission examined alternative ways to assess 
the  competitive  positions  of  the  Parties  and  the  credibility  of 
alternative  suppliers  in  its  market  assessment,  including  bidding 
data and qualitative evidence. 

The  evidence  gathered  during  the  market  investigation,  and  in 
particular,  the  Commission's  analysis  of  bidding  data  submitted 
by  the  Parties  confirmed  that  the  market  for  international 
contracts is very concentrated as only the Parties and Lyreco are 
capable  of  supplying  customers  through  international  contracts. 
Moreover, there are high barriers to enter this market as setting 
up  new  contract  distribution  operations  in  EEA  countries  or 
entering  into  an  international  business  alliance  are  options  that 
are  not  readily  available  to  national  suppliers  without  incurring 
significant  costs  or  risks.  Finally,  the  Commission  discarded 
Amazon  and  other  online  suppliers  as  credible  potential 
competition  for  international  contracts  in  Europe  as  they  are 
currently not active in the contract channel.  

As  a  result,  the  Commission  found  that  the  transaction  would 
have  significantly  impeded  effective  competition  in  the  market 
for the supply of office products through international contracts.  

The  Commission  also  found  that  the  transaction  would  have 
reduced  competition 
in  the  markets  for  non-international 
contracts  with  large  business  customers  in  the  Netherlands  and 
Sweden, as well as in the wholesale supply of office products in 
Sweden. .As regards non-international contracts, the Commission 
took  into  account  the  limited  number  of  suppliers  active  in  the 
contract market in these countries, their limited size compared to 
the Parties and Lyreco, their limited presence in tenders and the 
existence  of  barriers  to  entry  in  Sweden  and  the  Netherlands. 
Moreover,  the  Commission  used  a  list  of  the  top  100  largest 
employers  to  whom  the  Parties  and  their  competitors  supply 
through  contracts  in  all  the  overlapping  countries.  Out  of  these 
top 100 largest employers, the Commission selected those which 
are  purely  national  entities  and  therefore  only  have  non-
international contracts in place for office supplies (in order not to 
overestimate  the  Parties'  market  power  for  non-international 
contracts  at  national  level).  The  Commission  found  that  the 
Parties and Lyreco have contracts in place with the vast majority 
of these entities, whereas other competitors served only a few. 

4. 

Remedies 

The concerns identified in the international contract market in the 
EEA as well as the non-international contract markets in Sweden 
and  the  Netherlands  and  wholesale  market  in  Sweden  required 
remedies  which  were  crucially  dependent  on  the  viability  of  a 
business  divestiture  mostly  based  on  a  single  sales  channel.  In 
order to address these concerns, the Parties offered to divest the 
whole  of  Office  Depot's  contract  distribution  business  in  the 
European  Economic  Area  (EEA)  and  Switzerland.  They  also 

 8 

The market test confirmed the viability of the divested business 
which  was  essentially  a  business  consisting  of  a  single 
distribution  channel:  the  contract  channel.  The  Commission 
observed  that  this  business  model  was  adopted  by  other 
suppliers  active  in  the  same  market,  including  most  notably  by 
the international competitor Lyreco. 

The  Commission  concluded  that  the  commitments  removed  the 
entire overlap between the Parties in all markets where concerns 
were raised, thus ensuring that an important alternative supplier 
will remain available on these highly concentrated markets. 

Given the size of the divestment business compared with the size 
of existing suppliers other than the Parties and Lyreco and given 
the  need  to  ensure  the  viability  of  the  package  composed  of  a 
single sales channel, an upfront buyer clause was included in the 
commitments. 

5. 

International Cooperation 

The  merger  control  processes  of  the  four  competition  agencies 
assessing the transaction across the globe were aligned in terms 
of  market  definitions  and  approach 
the  competitive 
assessment.  The  agencies  focused  on  the  market  for  office 
supply contracts with large business customers and assessed the 
respective  strengths  of  the  Parties  against  their  actual  and 
potential competitors.  

to 

Throughout the process, the Commission cooperated closely with 
the  three  other  agencies  (in  Australia,  Canada  and  the  US)  and 
exchanged  information  on  the  basis  of  waivers  provided  by  the 
parties.  The  teams  held  regular  update  calls  on  process  and 
substance and discussed in particular the factual similarities and 
differences  in  the  respective  jurisdictions.  The  Commission  and 
FTC case teams also discussed the remedies that the Parties had 
submitted  in  their  respective  jurisdictions  as  well  as  economic 
analysis. 

II 
Timing  was  aligned  between  the  Commission's  phase 
proceedings  and  the  FTC's  decision  whether  or  not  to  seek  a 
preliminary injunction in court. 

While  the  Commission  approved  the  transaction  subject  to 
remedies,  the  ACCC  approved  the  deal  unconditionally  and  the 
FTC  and  CCCB  decided  to  go  to  court  to  block  the  deal.  These 
different  outcomes  are  explained  by  the  different  market 
structure  in  the  four  jurisdictions  and  the  different  remedies 
offered  by  the  parties  in  the  jurisdictions  where  concerns  were 
raised.   

The  relevant  markets  were  defined  as  at  most  EEA-wide, 
Australia-wide, Canada-wide and US-wide in scope and different 
competitors with different strengths were active in those regional 
markets. The situation in Europe differed from the situation in the 

Staples/Office Depot | Competition Merger Brief No 2/2016 

other regions in that the merger would have at most reduced the 
number  of  suppliers  from  three  to  two,  in  particular  in  the 
international  supply  of  office  products  to 
large  business 
customers.  This  contrasted  with  the  situation  in  the  US  and 
Canada,  where  the  parties  were  the  only  players  in  this  market 
and the transaction would have led to a monopoly. Moreover, the 
Parties  offered  the  Commission  a  wide-ranging  remedy  by 
undertaking to divest all of Office Depot's activities in all of the 
problematic markets in Europe.  

This  case 
international 
is  therefore  an  example  of  how 
cooperation  among  competition  authorities  fosters  coherent 
assessment  of  competitive  constraints  and  efficient  review 
processes. 

6. 

Conclusion  

The  Staples/Office  Depot  case  illustrates  the  challenges  faced 
when defining markets which involve a number of products sold 
through  several  different  distribution  channels  to  a  varied 
customer  base  which  ranges  from  individual  private  consumers 
the  Commission's 
to 
commitment  to  finding  alternative  evidence  and  information  to 
assess the competitive positions of the Parties and the credibility 
of  alternative  suppliers  when  reliable  market  share  data  is  not 
available.  

It  further  shows 

large  businesses. 

In  addition,  this  case  is  an  example  of  seamless  cooperation 
between  four  competition  authorities  on  a  world-wide  basis 
which  adopted  similar  approaches  towards  the  definition  of  the 
relevant product markets and the competitive analysis. Different 
market  dynamics  and  remedies  offered  gave  rise  to  different 
outcomes. Ultimately, the two companies decided to call off their 
plan to merge. 

9 

 
 
 
Competition Merger Brief 2/2016 – Article 3 

Competition merger brief 

Liberty Global/BASE:  
Fixing it first in the Belgian mobile 
market 

Fanny Dumont, Luca Manigrassi, Staffan Martinsson,  
Simon Vande Walle 

1. 

Introduction  

On  4  February  2016  the  Commission  approved  Liberty  Global's 
acquisition of the Belgian mobile operator BASE, a subsidiary of the 
Dutch  telecoms  group  KPN,  subject  to  remedies.  The  acquisition 
was one in a string of deals in the European telecoms sector, which 
has seen a wave of consolidation in the past three years. 

The  acquisition  brought  together  two  providers  of  retail  mobile 
services  operating  in  Belgium.  The  Commission  has  recently 
reviewed  mergers  between  mobile  operators  in  Austria 1,  Ireland2, 
Germany3, Denmark4 and the UK 5, and, at the time of writing, it is 
reviewing  one  in  Italy6.  However,  unlike  those  mergers,  Liberty 
Global's  acquisition  of  BASE  did  not  combine  two  full-fledged 
mobile network operators, meaning operators that own the physical 
infrastructure used for mobile communications, such as masts and 
antennas, which together make up a radio access network. Instead, 
the transaction brought together a mobile network operator – BASE 
–  and  a  virtual  operator,  namely  Liberty  Global's  majority-owned 
subsidiary  Telenet.  Virtual  operators  do  not  own  a  radio  access 
network 7 but  rent  space  on  the  network  of  a  mobile  network 
operator.  This  was  the  first  case  in  which  the  Commission  looked 
in-depth at such a tie-up 8. The horizontal effects resulting from this 

1   Case M.6497, Hutchison 3G Austria/Orange Austria, 12 December 2012. 
2   Case M.6992, Hutchison 3G UK/Telefónica Ireland, 28 May 2014. 
3   Case M.7018, Telefónica Deutschland/E-Plus, 2 July 2014. 
4   Case  M.7419,  TeliaSonera/Telenor/JV,  withdrawn  by  the  parties  on  11 

September 2015. 

5   Case M. 7612, Hutchison 3G UK/Telefónica UK, 11 May 2016. Prior to that 
case, in 2010, the Commission had also reviewed a merger between two 
mobile  network  operators  in  the  UK:  Case  M.5650,  T-Mobile/Orange,  1 
March 2010. 

6   Case M.7758, Hutchison 3G Italy/Wind/JV, pending. 
7   Some  virtual  operators  own  a  core  network,  but  the  core  network  is 

distinct from the radio access network.   

8   Case  M.7421,  Orange/Jazztel  also  involved  a  combination  of  a  mobile 
network  operator  (Orange)  and  a  virtual  operator  (Jazztel)  but  the  in-
depth investigation in that case was not focused on concerns in the retail 
mobile market, given, among others, Jazztel's small market share (1.7% 
by  revenue).  See  European  Commission,  Press  release  of  4  December 

The content of this article does not necessarily reflect the 
official position of the European Commission. Responsibility 
for the information and views expressed lies entirely with 
the authors. 

combination  are  discussed  in 
section 2 of this article, and the 
remedies 
those 
effects are explained in section 
3.  

remove 

to 

In a nutshell 

Global/BASE 
Liberty 
entailed the acquisition of 
a 
network 
operator  by  a  mobile 
virtual network operator.  

mobile 

a 

was 

of 
that 

The transaction prompted 
an  in-depth  investigation 
and 
ultimately 
cleared  with  a  fix-it-first 
remedy 
preserve 
to 
competition 
the 
in 
Belgian mobile market.  

the 
Another 
feature 
it 
transaction  was 
combined  the  activities  of  an 
owning 
operator 
fixed 
Global’s 
network 
(Liberty 
those  of  an 
Telenet)  with 
operator  owning  a  mobile 
network  (BASE).  Such  "fixed-
mobile"  transactions 9 are  said 
to be driven by the prospect of 
term 
convergence. 
convergence  has  no 
clear 
definition,  but  it  is  often  used  to  describe  the  fact  that  telecom 
companies increasingly offer fixed and mobile services in a bundle 
to  their  customers.  At  a  more  profound  level,  it  refers  to  the 
expectation that the boundaries between fixed and mobile networks 
will  disappear  and  that  consumers  will  be  able  to  access  content 
seamlessly using both networks, wherever they go. 

The 

Since  fixed-mobile  transactions  combine  operators  in  related 
markets, they can give rise to conglomerate effects. In the Liberty 
Global/BASE case, the Commission also investigated  these effects. 
This is discussed in section 4. 

2014,  Mergers:  Commission  opens  in-depth  investigation  into  Orange's 
proposed  acquisition  of  Jazztel;  Case  M.7421,  Orange/Jazztel,  19  May 
2015, paras. 776-778. 

in  Spain 

in  Germany  and  ONO 

9   The  Commission  has  dealt  with  several  fixed-mobile  transactions  in 
recent years. In 2013 and 2014, it unconditionally approved acquisitions 
by  the  mobile  operator  Vodafone  of  the  fixed  operators  Kabel 
Deutschland 
(Case  M.6990, 
Vodafone/Kabel  Deutschland,  20  September  2013;  Case  M.7231, 
Vodafone/ONO, 2  July 2014). National competition authorities have also 
reviewed  several  major  fixed-mobile  transactions.  In  2014,  France's 
Autorité de la concurrence cleared the acquisition of mobile operator SFR 
by fixed operator Altice subject to remedies (Decision No 14-DCC-160 of 
30  October  2014  on  the  acquisition  of  sole  control  of  SFR  by  the  Altice 
group). 
the  UK  Competition  and  Markets  Authority 
unconditionally  cleared  the  acquisition  of  mobile  operator  EE  by  BT,  the 
UK's largest fixed operator (Final report on the anticipated acquisition by 
BT Group plc of EE Limited, 15 January 2016). 

In  2016, 

 
 
  
 
 
 
 
 
 
 
 
 
       
 
 
 
 
                                                             
 
                                                                                                          
Liberty Global/BASE |  Competition Merger Brief No 2/2016 

2. 

Horizontal  effects  on  the  retail  mobile 
market 

BASE  and  Telenet  both  offered  mobile  services  (voice,  SMS  and 
data)  to  consumers  and  businesses  in  Belgium.  The  transaction 
combined these two players and created an entity which, in number 
of subscribers, was a close second to market leader Proximus and, 
in  revenue,  a  close  third  to  Mobistar.  The  transaction  removed 
competition  between  two  dynamic  players  and  the  Commission 
found  that  it  would  therefore  harm  competition  in  the  Belgian 
mobile retail market.  

BASE  was  one  of  Belgium’s  three  mobile  network  operators,  the 
other two being Mobistar and Proximus. As the most recent network 
operator to enter the market, BASE was the third largest player by 
revenue in the Belgian mobile market, after market leader Proximus 
and  the  number  two  Mobistar.  By  subscribers,  BASE  had  become 
the second largest player, behind Proximus but ahead of Mobistar.   

The Commission found that BASE was considered by the market as 
the  most  aggressive  mobile  network  operator,  offering  the  lowest 
prices and the best "value for money".  

Telenet  entered  the  Belgian  mobile  market  in  2006  as  a  virtual 
mobile  operator  hosted  on  the  network  of  Mobistar.  In  2011,  it 
became  a  "full"  virtual  operator,  meaning  it  started  operating  its 
own  core  infrastructure 10.  After  that,  Telenet  grew  rapidly  and 
became  the  largest  virtual  mobile  player  by  revenue  and  by 
subscribers, after the three mobile network operators. Its customer 
base  was  almost  exclusively  in  the  footprint  of  its  cable  network, 
which  covers  Belgium's  Flemish  Region  and  parts  of  the  Brussels 
Capital Region.  

In  previous  cases,  the  Commission  found  that  virtual  operators 
exert  a  weaker  competitive  constraint  than  full-fledged  mobile 
network  operators11.  In  this  case,  the  Commission  found  that, 
although its competitive constraint was not as strong as that of a 
mobile  network  operator,  Telenet  had  nonetheless  contributed  to 
competition  in  the  mobile  market.  Indeed,  Telenet  had  contributed 
to bringing down retail mobile prices in Belgium, after it introduced 
its popular "King" and "Kong" tariffs in 2012. Telenet had tripled its 
market share in a short time and reached a market share between 
5% and 10%.  

Telenet’s  remarkable  success  as  a  virtual  operator,  ostensibly 
unique  in  Europe,  was  due  to  a  combination  of  several  factors. 
Telenet was a  well-established cable operator, with a high market 
share  in  the  market  for  TV  and  internet.  It  therefore  had  a  loyal 
customer  base,  distribution  channels  and  a  well-recognized  brand, 
all  of  which  contributed  to  its  competitiveness.  Moreover,  Telenet 
benefitted  from  access  to  the  network  of  a  mobile  network 
operator under favourable conditions. Together, these factors made 

Telenet an exceptionally competitive virtual operator and allowed it 
to obtain a sizeable market share in a short span of time.  

3. 

fix-it-first 

A 
horizontal anti-competitive effects  

remedy 

to 

remove 

the 

The  Commission  cleared  the  acquisition  after  Liberty  Global 
submitted  remedies  to  remove  the  anti-competitive  horizontal 
effects  generated  by  the  acquisition.  The  remedies  will  create  a 
new virtual operator to replace the competitive pressure exerted by 
Telenet. To achieve this, the remedies contain three elements. 

First, BASE divested Mobile Vikings, a virtual operator partly owned 
by  BASE,  to  a  new  entrant  in  the  retail  mobile  market.  Mobile 
Vikings  had  operated  in  the  Belgian  retail  market  as  a  so-called 
"light" virtual operator, meaning an operator that does not own its 
own  core  infrastructure.  It  had  seen  steady  growth  but  was  much 
smaller  than  Telenet.  BASE  had  a  50%  stake  in  the  operator  and 
the remaining shares were held by the founders of the company.  

Second, BASE committed to transferring part of its customer base, 
namely the Jim Mobile customers, to the new entrant that acquires 
Mobile Vikings. The Jim Mobile customers are BASE customers that 
purchase their services under the Jim Mobile brand, which is owned 
by the Belgian media company Medialaan.   

Finally,  BASE  committed  to  providing  the  new  entrant  with  access 
to  its  mobile  network,  under  a  wholesale  agreement  that  obliges 
the new entrant to transition from a light virtual operator to a full 
virtual operator. The new entrant has to pay for access to the BASE 
network based on its usage but it also has the option to purchase a 
sizeable part of the network's capacity in return for a fixed annual 
fee.  

The  divestiture  of  an  existing  virtual  operator  and  customers  to  a 
new  entrant  is  a  novelty  in  the  Commission’s  telecoms  merger 
practice. By acquiring an existing entity, the new entrant can more 
quickly  replace  the  virtual  operator  that  is  removed  from  the 
market.  The  divestiture  of  a  legal  entity  also  ensures  that  the 
entity's  customers  will  be  transferred  to  the  new  entrant,  which 
contributes to its viability.  

Another noteworthy feature of the remedy was the fact that it was 
a fix-it-first remedy. At the Commission12, that term is used when 
the  notifying  party  not  only  offers  to  divest  a  business  but  also 
finds a purchaser for it and signs a divestiture deal, all during the 
Commission's  merger  review  process 13.  If  the  purchaser  and  the 
agreement are suitable, this allows the Commission to approve the 
purchaser and the agreement in the decision clearing the merger. A 
fix-it-first remedy gives the Commission certainty about the buyer 
of the divestiture and may be the only solution in cases where few 

10 Although a "full" virtual operator owns its own core infrastructure, it still 
relies on the radio access network of a mobile network operator, which is 
why it is still a virtual operator. The core infrastructure is distinct from the 
radio access network (masts, antennas). 

11  See,  e.g.  Case  M.7018,  Telefonica  Deutschland/E-Plus,  Commission 

decision of 2 July 2014, paras. 567-676. 

12 The  term  has  a  different  meaning  in  jurisdictions  such  as  the  United 
States.  See  Patricia  Brink,  Daniel  Ducore,  Johannes  Luebking  and  Anne 
Newton  McFadden,  A  Visitor's  Guide  to  Navigating  US/EU  Merger 
Remedies, 12(1) COMPETITION LAW INTERNATIONAL 88 (April 2016). 

13 Commission notice on remedies acceptable under Council Regulation (EC) 
No 139/2004 and under Commission Regulation (EC) No 802/2004, para. 
56. 

11 

 
 
                                                             
                                                             
Liberty Global/BASE |  Competition Merger Brief No 2/2016 

Telenet's  cable  network  or  already  purchased  fixed  services  from 
Telenet. Another factor that made foreclosure unlikely was the fact 
that  a  large  majority  of  all  consumers  and  businesses  in  Belgium 
still  purchase  their  mobile  services  separately  from  their  fixed 
services. Although fixed-mobile bundles are likely to become more 
popular  in  the  coming  two  or  three  years,  a  large  number  of 
customers  who  purchase  mobile  services  separately  will  still 
remain.  

The  Commission  also  considered  that  the  merged  entity's  rivals 
would not have to sit by idly when faced with increased bundling by 
the merged entity. Proximus, Belgium's largest mobile operator and 
owner of a nationwide fixed network, already offered fixed-mobile 
bundles  and  effectively  started  the  trend  towards  convergence  in 
Belgium. Mobistar, the second-largest mobile operator by revenue, 
did  not  own  a  fixed  network  but  could  obtain  access  to  one,  for 
instance  by  relying  on  the  wholesale  access  regulation  which  the 
Belgian  regulators  have  imposed  on  the  Belgian  cable  operators. 
Shortly  after  the  transaction  was  closed,  Mobistar  effectively 
obtained  access  and  started  offering  bundles  of  mobile  and  fixed 
services. Finally, competitors could keep their  mobile prices low  to 
prevent consumers from choosing fixed-mobile packages. 

5. 

Conclusion  

The  Liberty  Global/BASE  transaction  was  the  latest  in  a  series  of 
fixed-mobile  transactions,  spurred  by  the  growing  popularity  of 
bundles  of  telecom  services  among  consumers.  The  Commission 
thoroughly  examined  that  trend  as  part  of  its  assessment  of  the 
conglomerate  effects.  Ultimately,  it  found  conglomerate  effects 
unlikely.  

However,  the  Commission  did  find  that  anti-competitive  effects 
would  result  from  the  horizontal  overlap  of  the  two  parties  in  the 
retail mobile market. The experience gained with telecoms mergers 
in  the  past  two  years  enabled  the  Commission  to  accept,  at  an 
early  stage  of  the  procedure,  a  remedy  package  that  included  the 
divestiture  of  an  existing  virtual  operator,  a  customer  base  and  a 
wholesale  agreement  allowing  for  access  to  the  merged  entity's 
mobile  network.  The  purchaser  and  the  agreements  entered  into 
between  BASE  and 
the  purchaser  were  approved  by  the 
Commission as part of its final decision, leading to the adoption of 
a fix-it-first solution. 

potential  purchasers  are  suitable  or  only  specific  purchasers  can 
make the remedy effective.  

In  this  case,  Liberty  Global  identified  Medialaan  as  fix-it-first 
purchaser  and  entered  into  legally  binding  agreements  with 
Medialaan,  transferring  the  ownership  over  the  divestiture  and 
giving  Medialaan  access  to  the  BASE  network  as  a  new  virtual 
operator. In the final decision, the Commission approved Medialaan 
as  purchaser  and  also  cleared  the  agreements  between  BASE  and 
Medialaan.  The  divestiture  transaction  itself  also  had  to  be 
reviewed  by  the  Belgian  competition  authority,  which  cleared  the 
transaction shortly before the Commission's final decision 14.    

A  fix-it-first  remedy  gives  the  Commission  certainty  about  the 
buyer but it also offers advantages to the parties. Since they obtain 
all  necessary  approvals  in  the  clearance  decision,  they  can  close 
their transaction and the divestiture shortly after the Commission's 
decision, which is what happened in this case15.  

4. 

Convergence and conglomerate effects  

The Commission also examined whether the transaction could lead 
to conglomerate effects. These could have stemmed from the fact 
that BASE and Telenet were active in closely related markets: BASE 
in the retail mobile market and Telenet  in the  markets for TV  and 
fixed internet.  

One  of  the  possible  theories  of  harm  was  that  the  transaction 
would allow the merged entity to foreclose competitors by offering 
more  fixed-mobile  bundles;  that  is,  bundles  combining  fixed 
services  such  as  TV  and  internet  with  mobile  services.  During  the 
investigation,  some  market  players  expressed  fears  that  such 
bundles  would  "lock  in"  customers,  since  customers  who  purchase 
several services from the same operator tend to switch less easily. 
As  a  result,  rivals  of  the  merged  entity  that  offer  only  mobile 
services would be foreclosed from an increasingly large part of the 
market and ultimately become unable to compete, or would exit the 
market. The resulting market structure would be a duopoly between 
Proximus and Telenet, the only two players with both a fixed and a 
mobile network. 

The Commission examined this theory, but found that the facts of 
the case and the specific circumstances of the markets involved did 
not support it. To begin with, the transaction changed little. Telenet 
was  already  active  in  the  retail  mobile  market  and  therefore 
already  offered  both  fixed  and  mobile  services  before  the 
acquisition. The transaction did combine the mobile customer bases 
of Telenet and BASE and, hence, would give Telenet a better chance 
at  cross-selling  its  fixed  services  to  the  merged  entity’s  mobile 
customers.  But  the  Commission  did  not  consider  it  plausible  that 
this would lead to foreclosure. Among other reasons, it found that 
this  increased  ability  to  cross-sell  was  rather  limited,  since  many 
mobile  subscribers  of  BASE  either  lived  outside  the  footprint  of 

14 Decision BMA-2016-C/C-03 of 28 January 2016, available at www.bma-

abc.be.    

15 Press  Release,  11  February  2016,  Telenet  completes  BASE  Company  NV 

acquisition. 

 12 

 
                                                             
Competition Merger Brief 2/2016 – Article 4 

Competition merger brief 

Teva/Allergan Generics:  
An unprecedented generics merger 

In a nutshell 

Marion Bailly, Ivan Gasperec, Arthur Stril and Noa Laguna-Goya  

1. 

Overview 

In  March  2016,  the  Commission  cleared  the  acquisition  of  the 
generic  medicines  business  of  Allergan  (Allergan  Generics)  of 
Ireland  by  Teva  Pharmaceutical  Industries  Ltd.  (Teva)  of  Israel 1. 
Prior  to  the  transaction,  Teva  was  already  the  largest  generic 
manufacturer  globally  and  Allergan  Generics  was  the  fourth 
generics  manufacturer  worldwide,  following  Sandoz  (a  Novartis 
subsidiary)  and  Mylan.  Allergan  Generics  comprised  in  particular 
its  global  generics  unit  (formerly  known  as  Actavis)  and  its 
generics outlicensing business 2 operated by its subsidiary Medis3. 

With  a  price  tag  of  USD  40.5  billion  and  hundreds  of  generic 
medicines  marketed  and  in  development  (pipeline  products)  by 
both  companies  across  Europe,  Teva/Allergan  Generics  was  an 
unprecedented  generics  merger  both  in  its  size  and  number  of 
overlaps. In addition, numerous vertical relationships arose due to 
Teva’s  Active  Pharmaceutical  Ingredients  subsidiary  (TAPI) 4,  and 
Allergan  Generics’  outlicensing  subsidiary  (Medis),  both  of  which 
were active upstream of the sale of generic pharmaceuticals. 

Over  the  last  few  years,  the  Commission  has  had  significant 
experience  in  dealing  with  generic  medicinal  product  mergers5, 
and  it  has  developed  a  robust  assessment  framework6 resulting 

1   Commission  Decision  in  case  M.7746  –  Teva/Allergan  Generics. 

See  http://europa.eu/rapid/press-release_IP-16-727_en.htm. 

2   Outlicensing means licensing rights to use a dossier (upstream market) 
to obtain a marketing authorisation to sell a medicinal product in one 
or more countries (downstream market). 

3   In November 2015, Pfizer announced that it would acquire the rest of 
Allergan,  i.e.  its  innovative  pharmaceuticals  unit.  This  transaction  was 
withdrawn in April 2016. 

4   An  Active  Pharmaceutical  Ingredient  is  the  active  substance  (such  as 

paracetamol) used in the manufacturing of medicinal products. 

5   See  for  example  M.7379  –  Mylan/Abbott  EPD-DM;  M.6613  – 

Watson/Actavis. 

6   The framework uses the Anatomical Therapeutic Classification (ATC) of 
drugs  developed  by  the  European  Pharmaceutical  Market  Research 
Association  (EphMRA)  and  the  World  Health  Organisation  (WHO)  as  a 
starting point for market definition. On a case-by-case basis and based 

The content of this article does not necessarily reflect the 
official position of the European Commission. Responsibility 
for the information and views expressed lies entirely with 
the authors. 

While  the  Commission  has  had  significant  experience 
dealing with mergers in the generic medicines industry, 
the  sheer  scale  of Teva/Allergan Generics,  combining 
two  of  the  top  four  players  globally,  posed  a  number 
of  interesting  challenges.  The  Commission  assessed 
competitive  dynamics  beyond  product-by-product 
overlaps at the level of the overall sale of generics in 
a  Member  State,  and  identified  serious  doubts  in  the 
UK,  Ireland  and  Iceland.  For  the  first  time,  it  deemed 
certain  vertical  aspects  of  a  generics  transaction 
problematic. Finally, the remedy design and monitoring 
also  brought  their  share  of  complexity,  requiring 
innovative ad hoc approaches. 

the 

in  all  cases  being  cleared  in  phase  I  (with  or  without  remedies). 
However,  because  of  its  sheer  scale,  Teva  Allergan  Generics 
presented  novel  issues,  of  which  three  are  described  here.  First, 
beyond 
traditional  assessment  of  product-by-product 
overlaps,  the  Commission  investigated  whether  country-wide 
concerns would arise in Member States where Teva and Allergan 
largest  generics  manufacturers. 
Generics  were  among  the 
Second,  the  Commission  thoroughly  analysed  the  vertical 
relationships between the parties and raised serious doubts on a 
number  of  these  for  the  first  time  in  a  generics  merger.  Finally, 
due  to  the  number  of  markets  for  which  competition  concerns 
were  found,  the  remedy  design  and  subsequent monitoring  (still 
ongoing at the time of writing) posed a number of challenges. 

2. 

Looking at the big picture 

In addition to analysing hundreds of product overlaps (typically at 
the  level  of  the  molecule)  in  the  31  EEA  countries,  the 
Commission investigated whether the consolidation of two major 
generics players could lead to country-wide competitive concerns, 

on  the  factual  evidence  collected  during  the  market  investigation,  the 
Commission  defines  the  relevant  product  market  at  the  level  of 
molecule or group of molecules that are considered interchangeable so 
as  to  exert  competitive  pressure  on  one  another,  in  particular  due  to 
overlap  in  therapeutic  use  and  economic  substitution  patterns.  The 
geographic  market  has  consistently  been  found  to  be  national  for 
marketed generics and at least EEA-wide for pipeline generics. 

 
 
  
 
 
 
 
 
 
 
       
 
 
 
                                                             
 
                                                                                                       
Teva/Allergan Generics  |  Competition Merger Brief No 2/2016 

entailing risks of higher prices and lesser quality of supply for the 
sale of generics overall.   

The Commission identified a number of EEA countries where both 
companies  were  among  the  leading  players.  Teva  and  Allergan 
Generics were both active in all EEA countries, with a significant 
generics  business  in  the  Nordics  and  Eastern  Europe.  A  very 
limited  number  of  overlaps  arose  in  Western  Europe  since,  in 
2014,  Allergan  Generics  (then  known  as  Actavis)  had  sold  its 
commercial  operations  in  seven  Western  European  countries  to 
Aurobindo of India7.  

In  some  of  the  significant  overlap  countries,  namely  Sweden, 
Denmark  and  Finland 8,  the  Commission  concluded  that  no 
competitive  concerns  going  beyond 
individual  overlapping 
molecules  would  arise.  This  was  justified  first  by  the  market 
structure: one generic player larger than the merged entity would 
remain  (Sandoz  in  Denmark  and  Sweden  and  Orion  in  Finland). 
This  was  also  linked  to  specific  market  features:  in  these 
countries, the prices of generics are regulated though a complex 
tendering  process,  whereby  the  company  offering  the  cheapest 
product  wins  the  entire  market  for  a  limited  period  of  time 
(typically  half  a  month  to  a  month).  Given  that  pharmacies  are 
required  to  sell  the  product  from  the  winning  (cheapest) 
manufacturer,  the  ability  for  large  generics  companies  to 
leverage the scope of their product offering was rather limited. 

The  situation  was  different,  however,  in  other  countries,  namely 
the United Kingdom (UK), Ireland and Iceland. For these countries, 
the  Commission  raised  serious  doubts  in  relation  to  the  sale  of 
generics  overall,  i.e.  beyond  individual  overlapping  molecules. 
First,  in  these  three  countries,  Teva  and  Allergan  Generics  were 
the two largest generics manufacturers. The merged entity would 
have been far ahead of its competitors in terms of market share 
and  size  of  portfolio.  Second,  the  market  and  regulatory 
specificities  in  each  of  these  countries  were  such  that  the 
transaction  would  likely  have  an  adverse  impact  on  generics 
competition  overall,  for  the  country-specific  reasons  explained 
below.  

In  the  UK,  Teva  and  Allergan  Generics  were  the  only  generics 
manufacturers  selling  directly  to  pharmacies.  All  the  other 
generics manufacturers lack a sufficient product range for direct 
sales  to  be  commercially  profitable. 
Instead,  the  parties' 
competitors sell through wholesalers which act as aggregators of 
the  generics  manufacturers’  offerings.  To  promote  their  direct 
sales,  both  Teva  and  Allergan  Generics  were  incentivising 
pharmacies  to  purchase  as  much  as  possible  of  their  generics 
needs  from  their  portfolio  through  discount  schemes  (TevaOne 
for  Teva,  Accumulator  for  Allergan  Generics)  based  on  overall 
purchases. In addition, Teva and Allergan Generics had non-price 
competitive  advantages  over  wholesalers,  such  as  packaging 

consistency  (especially  important  for  elderly  patients,  whereas 
the packaging of wholesaler supplies changes regularly according 
to which generic they stock) and reliability of supply (pharmacists 
value the  direct relationship with the generics  manufacturer,  for 
the 
instance 
Commission concluded that the merger would eliminate a unique 
competitive constraint on Teva, different from the one exerted by 
wholesalers.  The  merger  would  likely  lead  to  lower  discounts, 
thus resulting in higher prices than prior to the merger. 

in  case  of  shortages).  For 

reasons, 

these 

In 
Ireland,  Teva  and  Allergan  Generics  both  successfully 
challenged  established  players  (such  as  Rowex,  Wockhardt  and 
Pinewood)  over  the  past  few  years  and  gained  market  share  to 
become market leaders. They both achieved leadership positions 
in  the  context  of  a  recent  Irish  legislative  change  that  has  put 
pressure  on  generics’  prices.  Numerous  market  participants 
confirmed  that  Teva  and  Allergan  Generics  were  each  other's 
closest  competitors,  driving  prices  down  in  Ireland  through 
attractive offers to pharmacies. Therefore, the merger would also 
lead  to  the  elimination  of  a  unique  competitive  constraint  on 
Teva for the sale of generics overall to pharmacies in Ireland. 

In  Iceland,  which  is  a  small  generics  market  of  around  EUR  20 
million per year, Allergan Generics has been the dominant player 
for  years.  It  benefits  from  a  historical  presence  with  its  Actavis 
brand  that  originated  in  the  country,  and  is  the  only  generic 
manufacturer selling its products directly to pharmacies (instead 
of  going  through  distributors).  Following  its  entry  in  2008 
sponsored by a wholesaler (Lyfís), Teva became a key challenger 
in the market, driving prices of generics down. In view of Teva’s 
wide generics offering and competitive prices, the merger would 
eliminate a key source of generics  supply for Iceland, putting at 
risk the price pressure exerted by Teva/Lyfís on Allergan Generics 
for the sale of generics.  

As evidenced by this case, consolidation in the generics space is 
closely scrutinized by the Commission, and possible “big picture” 
issues  regarding  the  transaction's  overall  impact  on  competition 
are  taken  into  account,  in  addition  to  the  traditional  analysis  of 
individual product overlaps. 

3. 

Foreclosure concerns in generics mergers 

Outlicensing   

in 

the  EEA 

Allergan  Generics’  Medis  is  active  throughout  the  EEA  and 
considered  to  be  one  of  the  most  important  outlicensors  of 
pharmaceuticals 
the  sale  of 
pharmaceuticals)9.  Teva  does  not  have  a  strong  position  as 
regards  outlicensing  in  general,  but  it  has  a  significant  market 
share  for  a  number  of  downstream  markets  for  which  Medis  is 
outlicensing  pharmaceuticals.  The  Commission  identified  103 
vertically  affected  markets  for  which  the  merged  entity  would 

(upstream 

to 

7   France, Italy, Spain, Portugal, Belgium, Germany and the Netherlands. 

8   Teva  had  decided  to  exit  Norway  independently  of  its  acquisition  of 

Allergan Generics. 

9   In  some  cases,  Allergan  Generics  is  also  active  in  the  corresponding 
downstream market, putting it in direct competition with the licensees 
of Medis. 

 14 

 
                                                             
                                                             
Teva/Allergan Generics | Competition Merger Brief No 2/2016 

have  the  ability  and 
outlicensees (input foreclosure). 

incentive  to  foreclose  the  parties' 

As  for  ability,  the  Commission  found  that  the  merged  entity 
would be in a position to terminate its supply relationship with its 
outlicensees  without  significant  difficulties  and  that  most 
outlicensees  consider  that  changing  their  outlicensor  would  be 
too  burdensome.  The  Commission  was  unable  to  identify  a 
suitable  alternative  outlicensor  for  the  given  pharmaceuticals 
that  would  guarantee  a  sufficient  level  of  competition  on  the 
relevant downstream markets. 

Regarding  incentive,  on  the  basis  of  the  trade-off  between  the 
profit  lost  in  the  upstream  market  due  to  a  reduction  of 
outlicensing sales to competitors downstream and the profit gain 
from expanding sales of pharmaceuticals downstream due to the 
loss  of  the  foreclosed  outlicensees,  the  Commission  concluded 
that  an  input  foreclosure  scenario  would  be  profitable  for  the 
given  pharmaceuticals.  Various  assumptions  for  the  profit  gain 
were  tested  (from  the  merged  entity  gaining  the  entire  market 
share  of  the  foreclosed  outlicensees  downstream  and  possibly 
increasing its profit margins, to the merged entity only gaining a 
fraction  of  such  market  share  corresponding  to  its  pre-merger 
position) 10.  

Lastly, it became apparent that foreclosure of the access to a key 
input to compete downstream (the outlicensing relationship, and 
in  particular  the  dossier)  could  have  a  detrimental  effect  on 
competition,  leading  to  a  risk  of  price  increases  on  the 
downstream markets.  

Active Pharmaceutical Ingredients (API) 

Teva’s  TAPI  is  an  important  supplier  of  APIs  with  a  portfolio  of 
hundreds  of  APIs  that  are  commercially  available  or  under 
development.  On  the  other  hand,  Allergan  Generics  was  a  very 
marginal API player.  

Contrary to the outlicensing situation, the Commission concluded 
that  an  input  foreclosure  strategy  by  TAPI  would  be  highly 
unlikely,  as  the  downstream  competitors  of  Allergan  Generics 
relying  on  TAPI  for  their  API  supply  represented  only  a  very 
limited  proportion  of  the  overall  demand,  and  could  easily  be 
covered by the remaining API competitors upstream. 

While the Commission carefully assessed all vertical relationships 
stemming  from  the  transaction,  the  distinctive  features  of  the 
outlicensing  and  API  markets  led  it  to  raise  serious  doubts  only 
for the former.  

10 According to the Commission’s findings, the fact that Allergan Generics 
was  already  active  pre-merger  on  the  same  market  both  directly 
(downstream) and indirectly (upstream, through its outlicensees), does 
not preclude the merged entity from having the incentive to terminate 
an outlicensing relationship post-transaction in view of Teva's position 
downstream. 

4. 

Crafting suitable remedies 

Given  the  significant  number  of  markets  on  which  the 
Commission  raised  serious  doubts,  the  remedy  design  and 
monitoring  (still  ongoing  at  the  time  of  writing)  presented  a 
number of interesting challenges. These included in particular (i) 
designing  a  remedy  to  address  not  only  problematic  molecule 
overlaps,  but  also  the  "big  picture"  impact  of  the  transaction  in 
particular on the British and Irish markets; (ii)  striking a  balance 
between  structural  and  behavioural  remedies  in  relation  to  the 
vertical  issue  of  outlicensing;  as  well  as  (iii)  monitoring  the 
viability  and  competitiveness  of  hundreds  of  individual  products 
scattered  across  the  EEA,  and  managing  the  corresponding 
regulatory  aspects  (in  particular  regarding  the  transfer  of 
marketing authorisations). 

A comprehensive package in the UK and Ireland 

The  competition  concerns  to  be  remedied  in  the  UK  and  Ireland 
extended  beyond  individual  molecules,  and  were  linked  in 
particular  to  each  party’s  scale  and  scope  in  these  countries,  as 
well as their ability to sell a wide offering of generics directly to 
pharmacies. This led to the need for a suitable remedy to include 
not  only  individual  molecules  where  competition  concerns  were 
found  using  the  traditional  analytical  framework,  but  the  vast 
majority of one party’s (Allergan Generics) marketed molecules in 
the  UK and Ireland,  in order  to replicate the product range each 
party could bring to clients, in particular pharmacists, pre-merger. 
The investigation also made clear that an important competitive 
advantage  of  the  parties  was  their  capacity  to  bring  pipeline 
generics to the market efficiently, typically at or close to the end 
of the exclusivity period (or possibly earlier in case of successful 
litigation).  Therefore,  to  ensure  that  competition  would  continue 
in  a  dynamic  setting,  the  remedy  package  also  included  a  large 
number  of  pipeline  generics  to  allow  the  purchaser  to  keep  a 
competitive offering over time (while setting up or ramping up its 
own  generics  R&D  activities).  It  should  be  noted  that  this 
approach  led  to  the  divestment  of  non-overlapping  molecules 
(both marketed and pipeline) which will allow a purchaser to have 
the  necessary  scale  and  scope  to  compete  effectively  with  the 
merged entity post-transaction. 

Furthermore,  given  the  sheer  number  of  molecules  to  be 
divested11,  it  was  necessary  for  the  remedy  to  cover  all  key 
components  of  the  value  chain  that  are  needed  to  run  the 
business.  This  is  unlike  previous  generics  remedies  where  fewer 
molecules  were  divested,  which  could  be  slotted  into  the 
purchaser’s existing infrastructure.  In this case, the key steps of 
the  value  chain  from  manufacture  to  supply  and  distribution  of 
the  products  were  covered  by  the  remedy.  Given  that  most  of 
Allergan  Generics’  British  and  Irish  products  were  manufactured 
at  its  facility  in  Barnstaple,  UK,  and  that  the  majority  of  the 
plant’s capacity was dedicated to the two countries, that factory 

11 355  marketed  and  104  pipeline,  corresponding  to  a  much  larger 
number  of  products  as  each  molecule  may  come  in  several  galenic 
forms (presentations) and dosages. 

15 

 
 
                                                             
                                                             
Teva/Allergan Generics  |  Competition Merger Brief No 2/2016 

was  included  in  the  remedy  package.  This  limits  the  number  of 
products  for  which  the  purchaser  would  need  to  rely  on  Teva’s 
transitional  supply  and  technology  transfer  to  those  that  were 
neither  produced  in  this  manufacturing  facility  nor  contract 
manufactured  by  a  third  party  (in  which  case  Allergan  Generics 
would  simply  assign  the  contract  to  the  purchaser).  Importantly, 
the  remedy  included  the  British  and  Irish  personnel  of  Allergan 
Generics  (encompassing  all  key  functions  such  as  sales  & 
marketing,  covering  the  necessary  know-how  for  direct-to-
pharmacy  sales,  regulatory  &  medical,  and  finance),  as  well  as 
the  direct-to-pharmacy  schemes  of  Allergan  Generics  and  its 
characteristic  pack  design  and  artwork  to  ensure  continued 
patient recognition. 

Finally,  in  spite  of  the  differences  in  regulatory  frameworks,  the 
UK  and  Ireland  were  closely  tied  in  the  commercial  and  supply 
organisation  of  Allergan  Generics  (in  part  due  to  geographic 
proximity  and  language  commonality,  in  part  through  the 
Barnstaple  manufacturing  plant).  The  remedy  in  the  UK  and 
Ireland  was  accordingly  designed  as  a  single  package  which 
would be sold to one buyer. 

Structural or behavioural? 

While  Commission  policy  favours  structural  over  behavioural 
remedies,  especially in phase I  where a clear-cut standard must 
be  met,  the  competition  concerns  related  to  outlicensing  were 
resolved  through  both  structural  and  behavioural  remedies 
depending  on  the  situation.  For  a  number  of  molecules,  the 
vertical  relationship  was  due  to  Medis  outlicensing  to  the 
company Aurobindo a molecule in a country (molecule which was 
sold  by  Allergan  Generics  to  Aurobindo  as  part  of  their  2014 
transaction)  and  Teva  being  itself  active  with  that  molecule  in 
that country. However, this outlicensing relationship was expected 
to be limited in time as Aurobindo’s intention was to take control 
of  the  manufacturing  of  the  molecules  it  purchased  from 
Allergan  Generics,  after  a  transitional  period  during  which  it 
would  rely  on  Medis.  Therefore,  for  these  molecules,  the 
(behavioural)  remedy  consisted  of  Teva  committing  to  keep  the 
outlicensing relationship with Aurobindo under the same terms as 
pre-merger, for a period of time which was deemed sufficient for 
Aurobindo  to  take  over  the  manufacturing  of  the  molecule.  This 
would  lead  to  a  structural  change  in  the  market  as  the  link 
between  Aurobindo  and  the  merged  entity  would  eventually  be 
severed, the former becoming an independent competitor against 
the merged entity for these molecules. 

For the vertical relationships in outlicensing that are unrelated to 
Aurobindo,  a  structural  remedy  was  offered,  corresponding  to 
either  the  upstream  market  (the  divestment  of  the  dossier  and 
corresponding licensing rights across the EEA) or the downstream 
market (the divestments of rights and assets to manufacture and 
sell  the  molecule  in  the  affected  country).  However,  for  the 
vertical relationships related to Aurobindo, the Commission could 
show  flexibility  based  on  the  specific  facts  of  the  case,  and 
accept  a  behavioural  remedy  that  would  eventually  lead  to  a 
structural change in the market. 

 16 

The case does not stop at the Decision 

While the key output of  the Commission’s  work in Teva/Allergan 
Generics  was  the  conditional  clearance  decision,  the  scale  and 
scope  of  the  remedies  led  to  the  need  to  set  up  a  number  of 
post-clearance  workstreams.  This  section  focuses  on  two 
examples:  monitoring  the  viability  and  competitiveness  of  the 
divested  molecules,  as  well  as  the  regulatory  aspects  of  the 
divestiture. 

Setting  aside  the  UK,  Ireland  and  Iceland,  the  remedy  package 
included  159  marketed  and  20  pipeline  molecules  in  26 
additional EEA countries12. Unlike the three countries for which all 
or the vast majority of the business of one party would be sold, 
in  the  other  26  EEA  countries  the  molecules  to  be  divested 
represented a small proportion of the parties’ offerings and were 
embedded  into  their  existing  portfolios.  Furthermore,  given  that 
Teva can elect, on a molecule by molecule basis, to divest either 
its  own  or  Allergan  Generics’  products,  the  two  businesses  need 
to  be  monitored  until  the  selling  party  is  selected.  To  assist  the 
Monitoring  Trustee  in  that  complex  task,  two  Hold  Separate 
Managers  were  appointed:  one  for  Allergan  Generics’  products 
and one for Teva’s products as well as the Icelandic business (the 
British  and  Irish  divestment  business  being  managed  by  a 
separate  dedicated  team).  With  adequate  reporting  tools  similar 
to  the  ones  used  by  the  parties  in  their  normal  course  of 
business,  the  Hold  Separate  Managers  are  able  to  alert  the 
Monitoring Trustee of any material deviations. 

Another  complexity  linked  to  the  number  of  products  to  be 
divested  comes  from  the  health  regulatory  requirements  for 
transferring  them.  In  pharmaceutical  mergers,  for  marketed 
drugs,  the  critical  element  to  be  transferred  to  the  purchaser  is 
the  marketing  authorisation,  which  amounts  to  the  right  to  sell 
the product in a given country or EEA-wide. In Europe, marketing 
authorisations  are  not  necessarily  granted  at  EU-level,  and  the 
procedure  can  take  one  of  three  major  forms:  (i)  the  national 
procedure 13  (ii) 
recognition 
procedure 14, or (iii)  the centralised procedure15. Application for  a 

the  decentralised  or  mutual 

12 They  correspond  to  a  much  larger  number  of  products  as  each 
molecule  may  come  in  several  galenic  forms  (presentations)  and 
dosages. 

13 Purely  national  authorisations  are  more  rarely  sought  today,  but 
exist  in  particular  for  products  that  were  approved  before  the  other 
procedures  were  put  in  place  (this  is  still  the  case  for  the  majority  of 
medicinal products marketed in Europe). They allow a given medicinal 
product to be marketed in one Member State only. 

14 Both  the  decentralised  and  the  mutual  recognition  procedures  are 
based  on  the  recognition  by  national  competent  authorities  of  an 
assessment performed by the authorities of one Member State (known 
as  Reference  Member  State).  In  1995,  the  mutual  recognition 
procedure  entered  into  force.  It  allows  use  of  a  national  marketing 
authorisation  granted  by  a  Member  State’s  national  authority  to 
support  an  application  for  its  mutual  recognition  by  other  Member 
States. The decentralised procedure, introduced in 2004, is similar to 
the  mutual  recognition  procedure  but  for  products  which  have  not 
received  a  marketing  authorisation  at  the  time  of  application.  It  is 
based on the recognition by national authorities of a first assessment 

 
                                                             
 
Teva/Allergan Generics | Competition Merger Brief No 2/2016 

the 

the  products, 

marketing authorisation is made through a dossier, which covers 
in  particular 
the 
characteristics  of 
(bio)equivalence  studies  (for  generics  to  show  their  equivalence 
to the originator) and the manufacturing process. If a product is 
divested  in  a  given  country,  while  it  is  fairly  straightforward  to 
transfer a national marketing authorisation, it is more challenging 
to  carve  out  that  country  from  a  marketing  authorisation 
obtained  for  multiple  Member  States  through  a  decentralised, 
mutual recognition or centralised procedure. The dossier may also 
need  to  be  updated  if  the  technology  is  transferred  to  the 
purchaser,  to  reflect  any  variation  in  the  manufacturing  process 
and site. An additional complexity lies in the different regulatory 
authorities  responsible  for  each  procedure:  the  Co-ordination 
Group  for  Mutual  Recognition  and  Decentralised  Procedures  – 
Human  (CMDh),  composed  of  the  national  Medicines  Agencies 
and  the  European  Medicines  Agency  (EMA)  for  the  centralised 
procedure. One of the difficulties in implementing the remedies in 
this  case  will  therefore  be  to  ensure  smooth  transfer  of  an 
unprecedented  number  of  marketing  authorisations  to  the 
purchaser(s), while respecting diverse regulatory frameworks.  

In  certain  remedy  cases,  significant  post-clearance  work  by  the 
Commission can be required. Teva/Allergan Generics is a case in 
point, since specific aspects of the case (the scale of the remedy 
package  and  the  complex  regulatory  framework  of  the  markets 
at stake in particular) require careful follow-up and monitoring by 
the case team and Monitoring Trustee. 

5. 

Conclusion 

The  Teva/Allergan  Generics  case  is  a  prime  example  of  the 
Commission’s ability  to clear  complex  transactions in phase  I,  in 
this  case  involving  thousands  of  different  pharmaceuticals 
marketed  in  the  31  EEA  countries  and  two  of  the  largest  four 
generics  companies.  This  is  only  possible  with  the  constructive 
cooperation  of  the  merging  parties  and  their  willingness  to 
submit  comprehensive  and  adequate  remedies  resolving  the 
Commission’s  serious  doubts.  This  case  also  required  the 
Commission  to  go  beyond  its  traditional  molecule-by-molecule 
assessment  of  generics  mergers  in  those  countries  where  the 
merger would greatly change the structure of the generics arena 
overall,  to  assess  on  its  merits  the  competitive  significance  and 
specificities  of  the  merging  parties.  It  finally  illustrates  that  the 
Commission’s  role  in  a  conditional  clearance  does  not  end  with 
the  decision,  but  can  require  a  significant  amount  of  post-
clearance work. In particular, the viability and competitiveness of 
all  divested  products  need  to  be  monitored  until  they  are 
transitioned to the purchaser(s), and the selection process of the 
purchaser(s) needs to be overseen to avoid any deadlocks at the 
time of the purchaser approval process. 

performed  by  one  Member  State.  Also  harmonisation  is  maintained 
through the procedures for the examination of variations (i.e. variation 
of  manufacturing  site)  and  the  use  of  the  decentralised  and  mutual 
recognition procedures for extensions. 

15 The  centralised  procedure  came  into  force  in  1995  and  was 
amended in 2004. Applications for the centralised procedure are made 
directly to the EMA and lead to the granting of a European marketing 
authorisation by the Commission which is binding in all Member States 
(a  Union  authorisation).  The  centralised  procedure  is  compulsory  for 
some products and optional for others. 

17