Competition merger brief. Issue 4/2016.
Date: 2017-02-22
Institutions: Directorate-General for Competition
Subjects: competition policy, merger, merger control, serial publication

Competition merger brief  

Issue 4/2016 - December 

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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 
Commission in any way. 

© European Union, 2016  
Reproduction is authorised 
provided the source is 
acknowledged. 

KD-AL-16-004-EN-N 
doi 10.2763/218104 
ISBN 978-92-79-58820-4 
ISSN 2363-2534 

In this issue: 

Page 1:  M. 7630 FedEx/TNT: Signed, sealed, delivered - clearance without remedies 

of 4-to-3 merger in the small package delivery services sector 

Being the second major merger review in the small package delivery services markets, 
following the prohibition by the Commission of the proposed UPS/TNT deal in 2013, the 
acquisition of TNT by FedEx will reduce the number of integrators from 4 to 3 in the 
small package delivery markets for express cross-border deliveries.  

Page 6:  M. 7881 ABI/SAB: The emergence of a global beer giant  

and its challenges for merger review 

In its phase I investigation regarding the acquisition of SABMiller by Anheuser-Busch 
InBev the Commission found that the transaction would have likely led to non-
coordinated effects in many countries where both parties are present, and that the 
merger as originally designed would increase the risk of price coordination among 
brewers in Europe. 

Page 9:   M. 7744 HeidelbergCement/Italcementi: Let's get concrete… 

Two global cement players merged and although their footprint in Europe is rather 
complementary, their activities overlapped to a great extent in Belgium in a number of 
markets. In order to remedy the serious doubts in first phase, the entire overlap caused 
by the merger in Belgium and its surrounding regions was divested. 

Page 13:  M. 7893 Plastic Omnium/Faurecia Exterior Business: The use of delivery 

distances in defining the geographic market and how supply-side 
concentration cancels out buyer power  

In this case, an in-depth assessment of the customers' sourcing behaviour and of the 
Parties delivery distance allowed the Commission to understand that competition takes 
place within a certain distance from the customers' plants rather than EEA-wide. 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Competition Merger Brief 4/2016 – Article 1 

Competition merger brief 

FedEx/TNT: Signed, sealed, delivered: Clearance without remedies of  
4-to-3 merger in the small package delivery services sector 

Kassiani Christodoulou, Zetta Dellidou, Romana Hajnovicova,  
Norbert Maier and Anisia Popescu

In  January  2016,  following  an  in-depth  investigation  opened  in 
July  2015,  the  Commission  concluded  that  the  acquisition  of 
Dutch-based  TNT  by  US-based  FedEx  would  not  give  rise  to 
competition  concerns  and  issued  an  unconditional  clearance 
decision.  

Three years earlier, in January 2013,  the Commission prohibited 
the  proposed  acquisition  of  TNT  by  UPS  (UPS/TNT).  This  article 
highlights  the  main  reasons  for  clearing  FedEx/TNT  and  what 
made this case different from UPS/TNT.  

1.  Small packages matter a great deal 

Many  businesses  and  consumers  rely  heavily  on  affordable  and 
reliable  small  package  delivery  services,  in  particular  with  the 
growth of e-commerce. 

Small  package  deliveries  are  a  growing  network  industry,  with 
high barriers to entry, in particular for international services. The 
services offered by the various suppliers are highly differentiated 
in terms of delivery speed, quality (track & trace and other add-
on  features)  and  coverage  (origin  and  destination).  Some 
suppliers  only  operate  nationally  and  are  road-based;  others 
operate international networks including air transportation.  

Some  features  are  common  to  all  small  package  delivery 
networks.  A  van/feeder  picks  up  the  small  package  at  the 
customer's location and drives it to a  local sorting centre. At the 
local  sorting  centre,  the  packages  are  sorted  depending  on  their 
destination.  Packages  destined  for  more  distant  European  or 
extra-EEA  countries  are  sent  to  an  air  hub,  from  which  they  are 
flown to their destination hub - overnight in the case of intra-EEA 
express  services.  At  the  destination  hub,  they  are  sorted  again 
and  dispatched  for  delivery  to  their  final  destination  by  another 
van.  Conversely,  packages  with  a  destination  in  a  neighbouring 
country, for example, would most probably reach the destination 
hub  by  road.  Throughout  the  journey  the  small  package  is 
scanned  to  varying  degrees  (depending,  for  instance,  on  the 
frequency of scanning) at all major junctions to allow for track & 
trace by both sender and recipient.  

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. 

over 

Both  FedEx  and  TNT 
small 
provide 
such 
package 
delivery 
services  on  a  global 
basis.  They  are  two  out 
of  four  of  the  so-called 
integrators 
currently 
operating  in  the  small 
package  delivery  sector 
in  Europe. 
Integrators 
full  operational 
have 
all 
control 
transportation 
assets, 
geographic 
sufficient 
coverage  on  a  global 
level,  a  hub-and-spoke 
operating  model, 
a 
proprietary  IT  network, 
and  the  reputation  of 
reliably  delivering  small 
packages  on  time  (so-
‘end-to-end’ 
called 
credibility).  The  other 
are 
two 
integrators 
German-based 
DHL, 
owned by Deutsche Post, 
and US-based UPS. 

In a nutshell 

is 

following 

This 
the  second  major 
merger  review  in  the  small 
services 
package 
delivery 
markets, 
the 
prohibition  by  the  Commission 
of  the  proposed  UPS/TNT  deal 
in  2013.  The  acquisition  of 
TNT  by  FedEx  will  reduce  the 
number  of  integrators  from  4 
to  3  in  the  small  package 
delivery  markets  for  express 
cross-border  EEA  deliveries 
(intra-EEA)  and  for  extra-EEA 
(express 
deferred) 
and 
deliveries. In all these markets 
the  merged  entity's  market 
position  will  be  moderate  and 
amongst 
integrators,  FedEx 
and  TNT  are  not  particularly 
close 
The 
competitors. 
Commission  also  conducted  a 
price  concentration  analysis 
and  found  efficiencies  arising 
from the Transaction. 

2.  Express and deferred: Defining the  

relevant market 

In  line  with  the  previous  decisional  practice  in  UPS/TNT,  the 
relevant  market  for  small  package  delivery  services  includes 
consignments  under  31.5  kg,  the  weight  a  person  can  carry 
without the aid of machinery. The Commission made a distinction 
as  to  whether  the  packages  picked  up  in  an  EEA  country  are 
delivered  within  the  same  country  (domestic  markets),  to  a 
different  EEA  country  (international  intra-EEA  markets)  or  to  a 
country outside the EEA (extra-EEA services markets).   

 
 
  
 
 
 
 
 
 
 
 
 
       
 
 
 
M.7630 FedEx/TNT | Competition Merger Brief No 4/2016 

Furthermore, for international intra-EEA markets, the Commission 
identified a market for express delivery services (with a next day 
delivery  commitment)  as  separate  from 
the  market  of 
deferred/standard  delivery  services  (with  a  longer  time  frame 
commitment). These findings were based on the fact that the two 
types  of  services  require  different 
infrastructures,  that  a 
significant  number  of  customers  depend  on  express  deliveries, 
and  that  express  delivery  services  are  also  considerably  more 
expensive.  

On  the  other  hand,  for  extra-EEA  markets,  the  Commission 
considered the express and deferred services to be sub-segments 
of  the  same  market,  given  that  integrators  essentially  use  the 
same  network  with  the  same  supply  chain  (including  sorting  in 
air-hubs,  long  haul  flights  and  customs  clearance).  Furthermore, 
all  integrators  compete  directly  for  both  types  of  services,  and 
there were indications that prices for express and deferred extra-
EEA services move together, thereby not contradicting the finding 
that express and deferred belong to the same market..    

From a destination perspective, while leaving the product market 
definition  open,  the  Commission  assessed  the  impact  of  the 
transaction  on  both  a  worldwide  and  major  trade  lane  basis 
(North  America,  Middle  East,  South  and  Central  America,  Asia, 
Africa and the rest of Europe).  

As  for  the  geographic  market  definition,  i.e.  the  origin  of  the 
delivery,  the  Commission  carried  out  the  assessment  of  the 
impact  of the  transaction  on  a  national  level  for  both  the  intra-
EEA and the extra-EEA small package delivery services markets. 

3.   Key elements of the competitive analysis 

International intra-EEA express and extra-EEA deliveries of small 
packages are a network industry, which requires a presence in all 
EEA countries and all major world trade lanes.  Such presence in 
turn necessitates investment in infrastructure all along the value 
chain  (from  pick-up  to  sorting,  line-hauls,  hubs,  air  networks, 
planes  and  delivery).  A  number  of  operators  provide  intra-EEA 
services, including the four integrators, national postal operators, 
freight  forwarders  and  other  courier  companies.  Some  of  these 
are also active in the provision of extra-EEA services.  

Nevertheless,  out  of  the  companies  offering  small  package 
delivery  services,  the  integrators  have  the  tightest  control  over 
their  network  and  are  the  only  ones  with  a  seamless  express 
network covering all EEA countries. This enables them to offer the 
fastest and most reliable express service of all suppliers, whereas 
the  non-integrated  players  only  exert  a  limited  competitive 
constraint on the integrators for express intra-EEA and even less 
for  the  extra-EEA  small  package  deliveries.  Therefore,  assessing 
the impact of the transaction was done on the most conservative 
basis, taking into account only the competitive constraint arising 
from the other integrators on the various possible markets.  

FedEx  and  TNT  have  moderate  market  shares  in  
most relevant markets  
In  order  to  establish  clearly  the  market  positions  of  FedEx  and 
TNT  and  to  assess  their  relative  market  power,  the  Commission 
undertook  a  market  reconstruction  exercise,  as  in  UPS/TNT.  The 
Commission  collected  revenue  data  for  each  of  the  four 
integrators  for  (i)  international  intra-EEA  express  small  package 
shipments  from  30  national  markets  (that  is  to  say  all  EEA 
countries  except  Liechtenstein)  to  destinations  within  the  EEA, 
and  for  (ii)  extra-EEA  small  package  shipments  from  these  30 
national  markets  to  the  world  and  to  the  six  main  world  trade 
lanes,  namely  North  America,  South  America,  the  Middle  East, 
Asia/Pacific, Africa and the rest of Europe. 

Overall, the combined revenues of the parties correspond to less 
than 30% of the total revenues generated through express intra-
EEA  small  package  deliveries.  Each  of  the  two  other  integrators 
that  offer  such  services,  namely  DHL  and  UPS,  generate  more 
revenues on that segment. The combined entity would not be the 
market leader in any of the 30 national markets, and its market 
share would not exceed 40%.  

The  Commission  also  analysed  the  markets  for  extra-EEA 
deliveries  to  the  rest  of  the  world  and  to  each  of  the  six  major 
world lanes. 52 markets were reviewed in more detail, as in some 
of  them  the  parties  would  have  a  combined  market  share  over 
40%,  whereas  in  others  one  of  the  remaining  integrators  would 
have  a  market  share  of  less  than  20%.  As  further  explained 
below,  this  detailed  analysis  confirmed  that  the  parties  are  not 
particularly  close  competitors.  TNT 
important 
competitive  force  that  would  be  eliminated  by  the  transaction, 
and DHL and UPS would be able to  constrain the merged entity. 
Moreover, the majority of customers did not express concerns as 
to  the  possible  negative  impact  of  the  acquisition  of  TNT  by 
FedEx. Last, a large proportion of FedEx's market share on these 
lanes actually derives from a few big customers who could easily 
switch  suppliers,  resulting  in  the  market  shares  of  the  merged 
entity remaining highly contestable.  

is  not  an 

FedEx and TNT are not close competitors  

Even  though  both  FedEx  and  TNT  are  integrators  and  therefore 
competitors  in  intra-EEA  express  and  extra-EEA  small  package 
delivery  services  in  the  30  national  markets  in  the  EEA,  the 
Commission found a number of elements  showing that they are 
not close competitors. 

stand-alone 

First, FedEx and TNT focus on different customer groups. FedEx's 
business focus is on customers with significant extra-EEA delivery 
needs. This is due to its limited ability to compete successfully for 
small 
customers  of 
package  delivery  services,  due  to  its  weaker  EEA-wide  network 
resulting in a higher cost base compared to the other integrators. 
This  in  turn  translates  into  a  weaker  market  position  vis-à-vis 
TNT and the other two integrators. TNT, on the other hand, does 
not  suffer  from  these  limitations  intra-EEA  and  focuses  on 

intra-European/domestic 

2 

 
 
M.7630 FedEx/TNT | Competition Merger Brief No 4/2016 

standalone 

international 

intra-EEA  and 
customers  with 
domestic/deferred  delivery  needs  (forming  the  vast  majority  of 
its revenues). However, as concerns extra-EEA deliveries, TNT is a 
weaker  competitor  since  it  owns  a  very  limited  air  network  in 
comparison to the other integrators and purchases capacity from 
commercial or cargo airlines.  

Second,  analysing  the  Parties'  bidding  data,  the  Commission 
identified  UPS  and  DHL  as  FedEx'  closest  competitors  for  intra-
EEA  express  and  extra-EEA  deliveries  on  a  significantly  larger 
percentage of the opportunities, as compared to TNT.  

Third, the Commission's  market investigation confirmed that the 
Parties  are  not  close  competitors  in  either  intra-EEA  express  or 
extra-EEA  deliveries,  as  indicated  in  particular  by  the  Parties' 
customers (e.g. in terms of pricing, range and quality of services, 
reliability, geographical reach, track & trace, etc.).  

TNT is not a maverick 

As  regards  both  intra-EEA  express  and  extra-EEA  deliveries,  TNT 
does  not  have  specific  qualities  that  would  make  it  stand  out 
among  competitors  and  exert  more  of  a  competitive  influence 
than  its  market  shares  or  similar  measures  would  suggest  (the 
so-called "important competitive force").  

TNT's  cost  position  is  not  more  advantageous  than  the  cost 
positions of DHL and UPS in either intra-EEA express or extra-EEA 
deliveries.  In  addition,  the  evidence  showed  TNT  has  not  been 
able  to  expand  its  market  position  at  the  expense  of  the  other 
integrators  in  the  recent  years.  Moreover,  the  Commission  could 
verify that TNT cannot be considered an aggressive price setter in 
these  markets.  Finally,  TNT  is  clearly  the  weakest  of  the  four 
integrators as regards extra-EEA deliveries.  

DHL  and  UPS  will  compete  effectively  with  the 
merged entity after the transaction 

Post-transaction,  the  merged  entity  will  face  two  strong  and 
capable  competitors  in  both  intra-EEA  express  and  extra-EEA 
small  package  deliveries.  Based  on 
the 
Commission's market reconstruction, DHL will remain the market 
investigation 
leader.  Also,  the  respondents  to  the  market 
considered  that  post-transaction  sufficient  viable  alternatives 
would  remain  (in  particular  DHL  and  UPS  were  named)  for 
customers' international delivery needs. 

results  of 

the 

Therefore,  in  case  of  a  price  increase  by  the  merged  entity, 
customers could switch to another provider, in particular since the 
majority of customers are multi-sourcing and consider switching 
easy.  Equally,  DHL  and  UPS  could  easily  increase  their  service 
supply and thereby cater for additional demand without incurring 
significant additional cost. DHL  and UPS  also have the ability to 
organise  the  pick-up  and  delivery  of  small  packages  in/to  all 
countries. Therefore, even if either of the two has a lower share 
on a specific market for extra-EEA deliveries, this is not indicative 

3 

of  an  inherent  weakness  in  its  service  on  that  market.  Equally, 
they do not suffer from capacity restrictions. 

Last,  non-integrators  also  exert  some  competitive  pressure,  in 
particular in relation to extra-EEA deferred services. 

Positive feedback from the market investigation  

The  vast  majority  of  customers  who  responded  to  the 
Commission's  first  and  second  phase  market  investigation 
expressed neutral or even positive views about the overall effects 
of  the  proposed  transaction  on  the  various  markets  concerned. 
The  vast  majority  of  the  respondents  were  of  the  view  that  the 
transaction would bring together the complementary strengths of 
FedEx,  notably  on  the  markets  for  extra-EEA  small  package 
delivery services, and of TNT on the markets for intra-EEA small 
package delivery services. In particular, on the extra-EEA delivery 
markets, the relative majority of respondents considered that the 
impact  of  the  transaction  would  be  positive,  followed  by  those 
who considered it to be neutral.  

Price concentration analysis  

Following  the  competitive  assessment  in  the  UPS/TNT  decision, 
the  Commission  undertook  a  price  concentration  analysis  linking 
the transaction prices for international intra-EEA express delivery 
services on a given lane (an origin-destination country pair) to the 
number of competitors on the same lane, where the presence of 
competitors  was  weighted  by  their  coverage  of  business 
addresses in the origin and destination country. At the same time, 
the Commission noted the limitations of such an analysis for the 
current  case,  mostly  due  to  the  fact  that  such  an  analysis  does 
not take into account the weaknesses of market players, e.g. high 
pick-up  and  delivery  costs  that  are  not  captured  by  the 
geographical coverage (less of an issue for the UPS/TNT case). 

The  relationship  between  the  price  and  the  number  of 
competitors  was  estimated  using  a  regression  model.  The 
regression  model  also  controlled  for  other  explanatory  factors 
that  may  potentially  affect  prices,  such  as  costs,  distance 
between  origin  and  destination  countries,  size  of  customer  (as 
measured  by  the  total  number  of  consignments  from  the  client 
across all lanes) and fixed effects for each origin and destination 
country.  Furthermore,  the  post-merger  response  also  depended 
on the pre-merger number of competitors on a given lane. 

The Commission also allowed for similarities among transactions 
on  the  same  lane  that  were  not  captured  by  the  explanatory 
variables  of  the  regression  model  (lane-level  clustering).  Using 
this approach, the Commission estimated a 0-5% expected price 
increase  for  FedEx's  services,  which  it  found  not  differing 
statistically  significantly  from  zero.  However,  in  the  absence  of 
the lane-level clustering assumption the same price increase was 
found  to  be  statistically  significantly  different  from  zero.  This 
indicates  that  the  statistical  significance  of  the  expected  price 
increase  is  unstable.  Similar  insights  were  derived  for  TNT  but 
the 
with  a  smaller  expected  price 

increase.  Therefore, 

 
 
M.7630 FedEx/TNT | Competition Merger Brief No 4/2016 

Commission concluded that the results of the price concentration 
analysis cannot be used as reliable evidence in the context of the 
competitive assessment of the transaction. 

Efficiencies matter: network cost savings   

The  notifying  party  submitted  a  comprehensive  efficiency 
assessment  indicating  that  the  transaction  is  expected  to  give 
rise  to  significant  efficiencies,  in  particular  from  the  integration 
of  FedEx's  relatively  inefficient  small  intra-EEA  operations  into 
TNT’s 
these 
efficiencies is that the larger the scale and density of the small 
package delivery network, the lower the unit costs of the service 
provision for the provider. 

intra-EEA  network.  The 

logic  behind 

larger 

The  main  categories  of  efficiencies  affecting  express  intra-EEA 
services  were  pick-up  and  delivery  (PUD)  cost  savings  and  air 
network  cost  savings.  In  particular,  the  merger  is  expected  to 
substantially reduce FedEx's large PUD costs, and also to have a 
strong  impact  on  the  type  of  aircraft  used  to  transport  express 
packages (which also affected a significant portion of the cost of 
express packages). 

The  Commission  checked  the  verifiability  of  these  efficiencies 
and  their  merger  specificity,  i.e.  that  the  expected  PUD  cost 
savings and air network cost savings could not be achieved to a 
similar  extent  by  less  anti-competitive  alternatives  such  as  an 
outsourcing  agreement.  Furthermore,  the  estimated  impact  of 
costs  on  prices  from  the  regression  analysis  used  in  the  price 
concentration  analysis  also  indicated  that  achieved  efficiencies 
would  be  passed  through  to  a  large  extent  to  consumers,  more 
than  offsetting  the  impact  of  any  estimated  price  increase. 
Finally,  the  time  window  for  the  realisation  of  the  identified 
efficiencies was estimated to be three years.  

TNT is not the provider of choice for SMEs 

Certain  participants  in  the  market  investigation  suggested  that 
the  transaction  was  likely  to  have  a  greater  impact  on  SMEs,  in 
particular  in  the  form  of  price  increases.  Allegedly,  TNT  was 
offering lower prices than all other integrators and was therefore 
the  provider  of  choice  for  SMEs  engaging  in  e-commerce 
activities. According to these market participants, SMEs generally 
single  source,  rely  on  integrators  due  to  their  need  for  different 
types  of  services,  and  lack  bargaining  power  so  they  'pay  the 
most',  as  they  pay  list  prices.  It  was  suggested  that  post-
transaction,  the  merged  entity  would  be  unlikely  to  have  an 
incentive anymore to be the "maverick integrator" for SMEs, since 
two close competitors would merge. 

in-depth 

The  Commission  investigated  the  issue  of  SMEs  in  great  detail 
investigation  and  concluded  that  the 
during  the 
transaction  would  not  impact  SMEs  more  than  other  customers. 
First,  similarly  to  other  customers,  the  majority  of  SMEs  had  a 
positive  or  neutral  view  of  the  transaction  overall,  as  well  as  of 
its  impact  on  service offer  and  quality.  Furthermore,  the  market 
investigation did not confirm  that SMEs single source or pay list 

prices.  SMEs  responding  to  the  market  investigation,  including 
those active in e-commerce, indicated that they generally multi-
source their intra-EEA and extra-EEA express deliveries and they 
negotiate volume discounts in advance.  Second, TNT could not be 
said  to  be a  'maverick'  or  a  market leader  in  the  SME  sector,  in 
particular  since  it  was  not  a  price  setter  in  the  market.  Third, 
while  TNT  had  had  occasional  campaigns  targeting  SMEs,  this 
was part of ordinary competitive behaviour to attract customers 
and did not reflect a structurally different market position. In any 
case,  TNT  had  not  expanded  its  market  position  with  regard  to 
SMEs over the past years; on the contrary there was a decrease 
in  its SME  customer  base  between  2013 and  2015.  Fourth,  TNT 
(as  well  as  FedEx)  did  not  appear  to  provide  any  differentiated 
products  specifically  aimed at  SMEs that other integrators could 
not  also  provide,  or  to  have  a  focus  on  these  customers.  The 
Commission  considered  that  both  DHL  and  UPS  are  already 
providing  tailored  service  offerings  on  their  websites  for  SMEs 
and were likely to continue to do so. In addition, the vast majority 
of responding competitors confirmed that services to SMEs would 
not  require  any  extra  assets  and  resources  and  that  the 
requirements of SMEs in relation to small package deliveries are 
no different from other businesses.    

5.  Comparison with UPS/TNT 

The  Commission's  first  merger  case  on  the  small  package 
delivery  sector,  UPS/TNT  in  2013,  resulted  in  a  prohibition 
decision.  The  circumstances  of  that  case,  however,  were 
significantly  different 
the 
those 
Commission  unconditionally  cleared,  while  applying  the  same 
framework of analysis.  

in  FedEx/TNT,  which 

to 

First,  in  the  UPS/TNT  case,  the  Commission  found  that,  on  a 
number  of  intra-EEA  express  markets,  not  only  were  the 
combined  market  shares  much  higher  than  in  FedEx/TNT, 
sometimes  in  excess  of  50%,  but  the  merger  would  also 
effectively reduce the number of competitors from three to two. 
On such markets, FedEx was considered as a significantly smaller 
competitor  that  would  not  have  been  able  to  constrain  the 
combined  entity.  On  those  markets  the  combined  entity  would 
therefore only face competition from DHL. Conversely, FedEx/TNT 
is  a  much  more  complementary  transaction,  as  FedEx  and  TNT 
are  strong  in  different  markets.  The  merged  entity  would  thus 
face competition on both intra-EEA and extra-EEA markets from 
two other strong integrators,  DHL and UPS, which, based on  the 
facts  of  this  case,  would  prevent  any  negative  effects  from 
materialising.  

Second, UPS was arguing at the time of its proposed acquisition 
of  TNT  that  even  though  much  smaller,  FedEx  was  undergoing 
significant expansion on intra-EEA markets that would allow it to 
effectively constrain the combined entity. The evidence available 
to  the  Commission  at  the  time  did  not  suffice  to  establish  that 
FedEx  would  indeed  grow  sufficiently  to  compete  with  the 
combined  entity  and  with  DHL  in  the  short  term.  During  the 
FedEx/TNT  investigation,  it  was  indeed  confirmed  that  such 
expansion had not occurred, as FedEx's market position had only 

4 

 
 
M.7630 FedEx/TNT | Competition Merger Brief No 4/2016 

marginally increased in intra-EEA markets during the three years 
between the two proposed concentrations.   

Third,  the  economic  analysis  showed  that  the  two  proposed 
concentrations  would  have  different  impacts  on  prices.  The 
application  of  the  same  economic  model  credibly  showed  the 
likelihood  of  particularly  significant  price  increases  in  the 
UPS/TNT  case,  notably  in  Eastern  Europe  and  Scandinavia. 
However,  as  described  above,  in  FedEx/TNT  it  was  not  possible 
credibly to demonstrate price increases.  

Fourth, even though UPS had submitted that the UPS/TNT merger 
would  bring  about  significant  efficiencies,  this  claim  was  only 
partially  substantiated.  The  substantiated  efficiencies  were 
weighed  against  the  projected  price  increases  in  the  various 
national  intra-EEA  markets.  As  a  result  of  this  exercise,  the 
Commission concluded that in a number of markets, efficiencies 
would  not  suffice  to  outweigh  the  expected  price  increases. 
Conversely,  by  applying  the  same,  if  not  a  stricter,  test  to  the 
verifiability of the efficiencies claimed by FedEx, the Commission 
identified  higher  efficiencies.  Although  price  increases  were  not 
credibly established in the FedEx/TNT case, if the statistically not 
robust  0-5%  price  increase  identified  in  the  price/concentration 
analysis  was  considered,  the  verified  efficiencies  of  the 
combination of FedEx and TNT would significantly surpass it.  

6.  Conclusion 

This decision proves that even after an in-depth analysis and its 
previous  prohibition  decision  concerning  the  same  market  and 
target,  the  Commission  can  unconditionally  approve  a  4-to-3 
merger  if,  based  on  the  facts  of  the  case,  it  does  not  have  a 
significant negative effect on competition.  

To  that  end  the  Commission  rigorously  analysed  the  potentially 
negative  effects  of  the  takeover  of  TNT  by  FedEx.  It  could  be 
shown  based  on  a  market  reconstruction  that  the  combined 
market  position  of  the  parties  was  rather  moderate  in  most 
markets. The parties were furthermore not close competitors and 
no important competitive force would be removed by the merger. 
This was mirrored in the reaction of customers, the vast majority 
of  whom  adopted  a  neutral  or  even  positive  stance  on  the 
merger. 

The Commission applied the same rigorous assessment standard 
as  in  the earlier  UPS/TNT case  also  with regard  to economics. It 
carried  out  a  price  concentration  analysis  which  did  not  show  a 
price  increase  statistically  different  from  zero.  The  Commission 
also  found  that  the  transaction  would  give  rise  to  verifiable, 
merger-specific  efficiencies  due  to  network  cost  savings  that 
would benefit customers.  

For  all  these  reasons,  the  Commission  cleared  the  takeover  of 
TNT by FedEx. 

5 

 
 
Competition Merger Brief 4/2016 – Article 2 

Competition merger brief 

ABI/SAB:  The  emergence  of  a  global 
its  challenges  for 
beer  giant  and 
merger review 

Jean-Christophe Mauger, Julia Fischer 

1. Introduction 

On  24  May  2016,  the  Commission  cleared  the  acquisition  of 
SABMiller  plc  (SAB,  United  Kingdom)  by  Anheuser-Busch    InBev 
SA/NV (ABI, Belgium), subject to conditions.  

ABI  and  SAB  are  global  producers  and  distributers  of  beer  and 
other  beverage  products.  The  transaction  brought  together  the 
two  biggest  global  brewers  and  number  three  and  four  in  the 
EEA. ABI's annual sales amount to approximately USD 47 billion 
in  2014,  which  makes  it  the  largest  brewer  globally  with  a 
number  three  position  in  the  EEA.  SAB,  with  sales of  about  USD 
27 billion in 2014, is the second largest brewer globally, holding 
the number four position in the beer market in the EEA. 

The  €90.1  billion  transaction  was  announced  on  11  November 
2016 when ABI declared its intention to make an offer to acquire 
the entire share capital of SAB. It was notified to the Commission 
on  30  March  2016.    The  Commission  declared  the  transaction 
compatible  with  the  internal  market  subject  to  conditions  after 
the initial phase I investigation on 24 May 2016.  

This  truly  global  merger  was  reviewed  by  more  than  23 
competition  authorities  worldwide,  including  the  US  Department 
of  Justice  and  the  Chinese  Ministry  of  Commerce  (MOFCOM) 
which  both  made  their  approval  of  the  merger  subject  to 
remedies.   

The  Commission's  phase  I  investigation  revealed  that  national 
beer markets are highly concentrated with oligopolistic features, 
favouring coordination. Against this background, the Commission 
found  that  the  merger  would  raise  concerns  in  a  number  of 
countries  in  Western,  Central  and  Eastern  Europe.  The  Parties 
submitted remedies to dispel the Commission's concerns.  

2. The beer industry – a mirage of diversity 

When looking at the beer shelf in the supermarket, one gets the 
impression that the beer market must be a highly diversified and 

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. 

to 

this 

In a nutshell 

the 
year, 
In  May 
European 
Commission 
approved  the  acquisition  of 
SABMiller by Anheuser-Busch 
InBev subject to conditions.  

competitive market due to the 
number  of  beer  brands  on 
offer.  However,  looking  below 
the  surface,  at  the  brand 
owners' level, we discover that 
in  reality  the  beer  market  is 
highly  concentrated  and  that 
the same big global brewers - 
the  biggest  being  ABI,  SAB, 
Heineken  and  Carlsberg  – 
reign  over  the  competitive 
landscape  in  most  countries. 
While  national  markets  and 
the presence of the respective 
brewers  differ  widely  from 
country  to  country,  at  least 
two  of 
four 
brewers  are  always  present 
and 
in  most  cases  hold 
leading  positions.  More  than 
that,  at  a  closer  look  the 
reveal 
national  markets 
as 
oligopolistic 
in 
outlined 
Section  IV.  Given  this  market 
structure  and  a  history  of 
cartel  cases 
the  beer 
industry,  it  is  not  surprising 
that 
the  proposed  merger 
confronted merger control authorities with a range of challenges.  

The  Commission  found  in  its 
phase I investigation that the 
transaction would have likely 
non-coordinated 
led 
effects 
in  many  countries 
where  both  parties  are 
present. 
the 
Commission  concluded  that 
the  merger  as  originally 
designed  would  increase  the 
risk  of  price  coordination 
among brewers in Europe.  

In 
these 
concerns, 
Parties 
the 
committed 
entire  SABMiller  European 
business. 

the 
to  divest 

in  more  detail 

the  biggest 

response 

features 

Further 

to 

in 

3. Market definitions 

Corresponding to the broad diversity of beer products, the market 
investigation  confirmed  that  the  beer  market  –  which  has  to  be 
distinguished  from  markets  for  other  alcoholic  beverages  –  can 
be sub-segmented by different criteria: beer type (e.g. lager, ale, 
stout), way of distribution (on-/ off-trade), and brand positioning. 
The latter qualifies a beer brand depending on its marketing and 
price  level  as  "discount",  "mainstream",  "premium"  or  "super 
premium"  beer.  However,  the  market  investigation  revealed  also 
that  these  concepts  vary  widely  in  different  regions  and 
countries. Furthermore, brands from different levels can interact 
with each other. Thus, the Commission concluded that the above 
criteria  for  sub-segmenting  the  beer  markets  should  not  be 
applied  rigidly  for  the  purpose  of  assessing  the  transaction's 

 
 
  
 
 
 
 
 
 
 
       
 
 
 
M. 7881 ABI/SAB | Competition Merger Brief No 4/2016 

effects on competition. Rather, they provide a framework for the 
Commission  to  take  account  of  all  the  particularities  of  the 
relevant markets. 

As  regards  the  geographic  scope,  the  Commission  found  that 
beer  markets  are  national.  Beer  markets  can  differ  widely  from 
country  to  country,  as  producers  adapt  their  business  model, 
marketing  and  distribution  according  to  the  customers 
in 
different markets whose taste, preferences, consumer behaviour, 
habits and economic background diverge across the EEA. 

4.  The  Commission's  assessment  of 
transaction 

the 

The  Commission's  investigation  confirmed  that  beer  markets  in 
Europe  are  in  general  highly  concentrated  with  oligopolistic 
features.  In  all  countries  (with  the  exception  of  Germany)  the 
number  of  players  is  limited  with  a  consistent  presence  of  at 
least  two  of  the  four  global  brewers  (ABI,  SAB,  Heineken  and 
Carlsberg) and the biggest three beer players per country account 
in the majority of countries for 70% or even more.  

In addition, the Commission found evidence that barriers to entry 
and expansion in the beer industry are generally high, due among 
other  things  to  substantial  brand  development  costs,  the 
relevance of distribution networks, and scale.  

In  its  investigation,  the  Commission  also  took  into  consideration 
the history of several past cartel cases, many of which resulted in 
the  Commission  and  national  competition  authorities  fining 
brewers and retailers participating in beer cartels.   

It is against this background that the Commission concluded that 
the merger between ABI and SAB would lead to anti-competitive 
effects. 

a) Non-coordinated effects 
France,  Belgium,  the  Netherlands,  Italy,  United  Kingdom,  Czech 
Republic, Slovakia, Hungary, Poland and Romania were identified 
as potentially affected markets. In contrast, direct overlaps in the 
Czech  Republic,  Poland,  and  Slovakia  were  very  limited  at  most. 
This  reflects  the  complementary  footprint  of  ABI  and  SAB  pre-
merger.  

As  regards  the  Netherlands,  the  United  Kingdom,  France,  Italy, 
Romania  and  Hungary,  the  market 
investigation  provided 
evidence  that,  in  view  of  the  existing  high  concentration  of  the 
beer markets as well as the high barriers to entry and expansion, 
the merger between ABI and SAB would have eliminated SAB as 
an  important  competitive  force  on  the  beer  market  and  thus 
raised competition concerns.  

b) Structural links between ABI's distributor and SAB 
From  the  investigation  it  also  became  apparent  that  even  in 
countries  where  there  were  only  very  limited  (if  any)  overlaps, 
namely  in  the  Czech  Republic,  Hungary,  Poland,  Romania  and 
Slovakia,  the  merger  was  likely  to  harm  competition.  In  these 

7 

countries (except Poland) ABI's brands are distributed by another 
major brewer that was one of SAB's closest competitors in those 
countries  pre-merger,  as  well  as  in  Poland.  The  investigation 
indicated  that  already  pre-merger  ABI  exercised  significant 
influence on this distributor/brewer, who depends to a substantial 
extent  on  the  ABI  products 
it  distributes.  Therefore,  the 
Commission  concluded  that  the  merger  would  have  created  a 
structural  link  between  the  SAB  business  and  its  competitor 
acting as ABI's distributor, reducing the competitor's incentives to 
compete.  

c). Coordinated effects – coordination on prices 
Finally, the phase I investigation also provided evidence that the 
merger  would  increase  the  risk  of  price  coordination  among 
brewers in Europe. 

In  this  context,  the  Commission  found  that  the  pre-merger 
situation  already  facilitated  coordination  due  to  high  market 
concentration,  consistent  presence  of  certain  big  brewers,  high 
price  transparency  due  to  highly  elaborated  price  monitoring 
systems used by brewers,  the availability of in-depth third party 
market intelligence, and the use of price letters in the industry. 

Considering  this  market  structure,  the  evidence  suggested  that 
brewers  find  it  often  more  profitable  to  benefit  from  higher 
prices  than  to  compete  aggressively.  In  other  words,  large 
brewers are value- rather than volume-driven players.   To finely 
calibrate 
industry  use 
sophisticated  revenue  management  tools  which  take  rivals'  past 
and  likely  future  strategy  into  account.  In  particular,  brewers 
monitor  closely  whether  price  increases  were  followed  by 
competitors in the past or not.  

their  prices,  players 

the  beer 

in 

The Commission concluded from the Parties' internal documents 
that within this framework of price modelling, often a price leader 
was  identified  as  one  who  defines  a  frequency  and  the  level  of 
price  increase  which  was  then  supposed  to  be  followed  by  its 
competitors  ("followers").  The  Commission  also  found  evidence 
that in the event of deviation from the pricing scheme set by the 
market  leader,  a  brewer  might  consider  low-market  share 
markets  as  fight-back  opportunities  where  fighting  would  have 
less economic impact. The Commission came to the conclusion - 
based on the evidence - that such fight-back opportunities could 
be  identified  not  only  in  another  market  segment  within  one 
country, but also across different countries in Europe. 

Finally, the investigation showed that outsiders would not be able 
sufficiently to defeat attempts to increase prices as retailers lack 
the  necessary  countervailing  buyer  power  and  smaller 
competitors are unable to disrupt coordinated outcome.  

The  Commission  concluded  that  through  the  merger:  (i)  the 
number  of  large  brewers  would  be  reduced  in  markets  that  are 
already  highly  concentrated,  (ii)  the  increased  multi-market 
increase  retaliation 
contacts  between  such  brewers  would 
potential, and (iii) swinging markets might be tipped into clearer 
leadership.  

 
 
M. 7881 ABI/SAB | Competition Merger Brief No 4/2016 

5. The successive remedies packages 

6. Conclusion 

From  the  very  beginning  of  the  merger  proceedings,  the  Parties 
pro-actively addressed potential horizontal effects of the merger 
in  the  United  Kingdom,  Italy,  France  and  the  Netherlands  by 
offering  to  divest  SAB's  brands  Peroni,  Meantime  and  Grolsch. 
During the merger proceedings Asahi was already identified and 
submitted by the Parties as the proposed buyer.  

Yet,  in  the  light  of  the  additional  concerns  identified  by  the 
Commission, a  second remedy  package ("the CEE package") was 
submitted by the Parties later in the proceedings. This package in 
essence  removed  the  entire  overlap  of  the  Parties'  activities  in 
the  EEA.  The  CEE  package  comprised  the  whole  of  SAB's  beer 
business  in  the  Czech  Republic,  Slovakia,  Hungary,  Romania  and 
Poland.  

The  CEE  package  thus  removed  the  full  overlap  between  the 
Parties'  activities  and  eliminated  the  creation  of  new  long  term 
contractual  links  between  SAB  and  ABI's  distributor  in  Hungary, 
Romania, the Czech Republic and Slovakia. Furthermore, with the 
divestment  of  SAB's  entire  European  business,  the  number  of 
markets where ABI would have had a significant market position 
and  would  compete  against  other  major  brewers  does  not 
increase.  

These successive remedies allowed  the Commission  to clear the 
merger in phase I.  

The main difficulty of this case was to gain sufficient knowledge 
about  the  highly  differentiated  and  segmented  national  beer 
markets  and  their  dynamics,  and  in  particular  the  interactions 
between  different  beer  brands,  also  across  segments.  A  further 
challenge was to investigate and assess the effects of the future 
structural link between ABI's distributor in the CEE countries and 
the  SAB  business,  as  well  as  to  examine  possible  coordinated 
effects  of  the  merger  within  the  limited  timespan  of  a  phase  I 
investigation.  

During  the  entire  investigation,  the  Commission  cooperated 
closely with national competition authorities in other jurisdictions, 
including  the  U.S.  Department  of  Justice  and  the  Australian 
National  Competition  and  Consumer  Commission. 
This 
investigation  and 
cooperation  enriched 
deepened the mutual understanding of market dynamics that are 
typical for the beer markets.  

the  Commission's 

As  a  result  of  its  investigation  the  Commission  identified  likely 
anti-competitive  effects  concerning  different  countries  which,  in 
the end, were all dispelled by the additional remedies offered by 
the Parties.   

8 

 
  
 
Competition Merger Brief 4/2016 – Article 3 

Competition merger brief 

HeidelbergCement/Italcementi: 
Let's get concrete… 

Silvia Modet, Mauro Sibilia 

Overview 

On  26  May  2016,  the  Commission  cleared  the  acquisition  of 
building  materials  company  Italcementi  S.p.A.  (Italy)  by  its 
competitor  HeidelbergCement  AG  (Germany)  subject  to  the 
divestment of Italcementi's activities in Belgium. 

Both  HeidelbergCement  and  Italcementi  are  global  companies 
integrated along the cement value chain, active in the production 
of  grey  and  white  cement,  ready-mix  concrete,  aggregates  (i.e. 
sand,  gravel,  etc.),  and  other  related  products.  The  European 
activities of the two companies were mainly complementary from 
a  geographical  perspective.  HeidelbergCement 
in 
northern,  western,  and  central  Europe,  whereas  Italcementi's 
focus was mainly in southern Europe, operating cement facilities 
in Italy, France, Spain, Greece, and Bulgaria but also in Belgium. 

is  active 

Other  than  the  Belgian  markets,  the  transaction  brought  some 
overlaps  along  the  French-German  border,  which  were  cleared 
unconditionally  after  a  detailed  analysis  investigating  potential 
coordination using the border as a coordination focal point. 

The  Commission’s  investigation  pointed  to  serious  doubts  as  to 
the  compatibility  of  the  transaction  with  the  internal  market  in 
Belgium  and  its  surroundings,  in  relation  to  grey  cement  and 
ready-mix concrete. HeidelbergCement addressed these concerns 
by  committing  to  divest  the  entire  Italcementi  business  in 
Belgium centred on its subsidiary Compagnie des Ciments Belges 
S.A.  (CCB).  The  commitments  also  addressed  certain  viability 
concerns  in  relation  to  the  limestone  supply  of  CCB's  cement 
plant in Belgium. 

On  25  July  2016,  HeidelbergCement  announced  that  Cementir 
Holding  would  be  purchasing  the  divestment  business.  On  4 
October 2016, the Commission approved Cementir Holding as the 
purchaser,  and  the  divestment  to  Cementir  was  closed  on  25 
October. 

Over  the  last  few  years,  the  cement  industry  has  undergone  a 
wave  of  transformations  which  include  the  Lafarge/Holcim 
merger,  cleared  with  substantial  divestments  in  numerous 
countries to Irish rival CRH  in 2014, as well as the restructuring 
of  Cemex  with  asset  swaps  in  Spain,  Czech  Republic  and 

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. 

Germany,  and  more  recently, 
the  proposed  sale  of 
its 
business operations in Austria, 
Hungary and Croatia.  

The 
French/German 
border  as  a  potential 
coordination focal point 
Italcementi  is  producing  grey 
in  France  whereas 
cement 
runs 
HeidelbergCement 
several 
in 
Germany. 
catchment 
The 
areas  of their plants primarily 
overlapped 
Rhineland-
in 
Saarland, 
and 
Palatinate 
northern Alsace and Lorraine.  

cement  plants 

were 

Combined  sales  shares  of  the 
estimated 
parties 
between  20%  and  30%  in 
some 
the 
French/German  border  region, 
and between 30% and 40% in 
others.

areas 

of 

In a nutshell 

Two  global  cement  players 
merged  and  although  their 
footprint  in  Europe  is  rather 
complementary, 
their 
activities  overlapped  to  a 
great  extent  in  Belgium  in  a 
number  of  markets.  In  order 
to remedy the serious doubts 
in  first  phase,  the  entire 
overlap 
the 
caused 
merger  in  Belgium  and  its 
surrounding 
regions  was 
divested.  

by 

As the supply of limestone is 
essential 
producing 
for 
cement,  the  divestment  was 
structured  so  as  to  ensure 
the long term viability of the 
business. 

Overlaps in the French-German border region 

Certain market characteristics, including among others the rather 
low  levels  of  imports/exports  across  the  border  and  certain 
differences between French and German prices, the former being 

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

 
 
  
 
 
 
 
 
 
       
 
 
 
 
 
 
M.7744 HeidelbergCement/Italcementi | Competition Merger Brief No 4/2016 

generally  higher  than  the  latter,  prompted  the  Commission  to 
investigate  potential  coordinated  behaviour  and  the  effects  the 
merger would bring about in facilitating it. 

The  Commission's  Chief  Economist  Team  (CET)  conducted  a 
series  of  quantitative  analyses  to  assess  whether  the  prices  for 
grey  cement  in  the  French/German  border  region  showed    a 
pattern  of  current  or  past  coordination  which  would  have  to  be 
taken  into  account  in  assessing  whether  the  acquisition  would 
increase  the  likelihood  of  future  coordination  or  facilitate  pre-
existing coordination. 

First, the CET examined whether the observed price pattern in the 
overlap  area  differed  from  the  corresponding  price  patterns 
outside  the  overlap  area,  and  in  particular  whether  observed 
border region prices may be driven by coordination and not only 
by volume, distance, customer type, cement type and Incoterms1, 
for which the Commission was able to control in its analysis2.  

In  this  regard,  significant  price  differences  –  not  explained  by 
other factors – showing that the price level in the French/German 
border  region  is  higher  than  the  price  level  outside  the  border 
region  could  serve  as  an  indication  of  coordination  between  the 
Parties.  In  other  words,  in  the  absence  of  coordination  any 
substantial  price  differences  would  likely  have  been  competed 
away.  

The  CET's  analysis  confirmed  that  prices  in  the  French/German 
border region did not differ substantially from prices outside this 
area.  This  finding  remained  the  same  when  controlling  for 
differences  in  market  concentration  or  the  number  of  suppliers 
between the border region and the non-border region (in addition 
to differences in cement types, customer types, volume, distance 
and Incoterms across the regions).  

The  CET  also  ran  a  regression  analysis  on  cement  supplies 
outside the French/German border region to find the main factors 
explaining prices. Using the results of this regression analysis, the 
CET  predicted  how  prices  in  the  French/German  border  region 
should look in application to the factors identified. The result was 
that  the  predicted  prices  in  the  French/German  border  were 
similar  to  the  actual  prices,  suggesting  that  prices  in  the 
French/German border were not "artificially" high because of tacit 
coordination. 

Second, 
the  CET  also  analysed  HeidelbergCement  and 
Italcementi's  incentives  to  reallocate  some  supplies  from  inner-
Germany or inner-France to the French/German border region, so 
as  to  "steal" its  rival's customers in  the border  region (where,  in 
case of coordination, prices would be supra-competitive).  

1   Note that, for the sake of simplicity, the Commission only distinguished 
sales  delivered  by  the  respective  supplier  from  those  picked  up  by 
customers. 

2   The Commission notes that such an approach inherently assumes that 
outside the overlap area, where customers are located such that one of 
the Parties is not considered as an alternative, there is no coordination 
between the grey cement suppliers.  

This  approach  tests  whether  in  case  of  collusion  firms  could 
deviate from a collusive agreement and capture substantial short 
term  profits.  Conversely,  if  firms  could  not  deviate  and  capture 
substantial  short  term  profits,  there  would  be  collusion.  These 
benefits  are  higher  the  more  successful  the  coordination,  and 
illustrate  the  trade-off  between  short-run  deviation  profits  and 
long-run  collusive  profits  which  would  be  sacrificed  in  case  of 
deviation  from  the  collusive  agreement.  That  is,  reallocation 
incentives  and  deviation  incentives,  respectively,  are  interlinked 
with the existence and success of coordination.  

In  this  case,  the  Parties'  scope  and  incentives  optimally  to 
reallocate  output  from  the  surrounding  areas  in  France  and 
Germany  to  the  French/German  border  region  were  found  to  be 
not substantial.  

The results of these analyses, together with the outcome of the 
market  investigation  and  a  review  of  the  Parties'  internal 
documents,  enabled  the  Commission  to  discard  potential 
coordination along the border as a result of the merger.    

Competition concerns in Belgium and 
surroundings  

In  Belgium,  HeidelbergCement  operates  an  integrated  cement 
plant in Lixhe and a "quasi-integrated" plant in Antoing-Ghent. It 
also runs an integrated plant (Maastricht) and two grinding plants 
(IJmuiden, Rotterdam) in the Netherlands. HeidelbergCement had 
no facilities in France but supplies certain quantities of cement to 
France from its Belgian plants. 

Italcementi  operated  one  integrated  cement  plant  in  Gaurain, 
Belgium.  The  plant  is  close  to  the  border  with  France  and  has 
significant  sales  to  French  customers  as  well  as  to  Dutch 
customers.  In  France,  Italcementi  was  an  important  player  with 
four cement plants.  

An  integrated cement  plant covers  the  entire  cement  production 
process,  whilst    a  grinding  mill  does  not  include  the  mining  and 
the  thermal  process  of  producing  clinker,  but  only  the  final 
grinding, blending and handling steps, with clinker and other raw 
materials  being  delivered  from  a  separate  plant  or  sourced 
elsewhere. 

The number of competitors with production assets in Belgium is 
limited.  LafargeHolcim  is  the  only  domestic  competitor  of  the 
parties  operating  an  integrated  cement  plant,  whereas  CRH 
operates two grinding stations.  

The  transaction  therefore  led  to  substantial  overlaps  in  grey 
cement in Belgium and its surroundings, namely the south of the 
Netherlands  and  the  north  of  France.  Market  shares  both  at 
national  level  in  Belgium  and  at  the  level  of  several  circular 
catchment  areas  drawn  with  radii  of  150km  or  250km  around 
the HeidelbergCement and Italcementi cement production  plants 
were above 50%.  

The  Commission's  market  investigation  showed  that  pressure 
from imports was limited. Furthermore, some customers consider 
imports  and  supply  from  grinding  stations  less  suitable  for 

10 

 
 
                                                             
M.7744 HeidelbergCement/Italcementi | Competition Merger Brief No 4/2016 

applications  requiring  a  constant  quality  of  clinker/cement  (for 
instance for the production of pre-cast cement or of adhesives). 
This  limits  the  pressure  exercised  by  grinding  stations  or 
terminals relying on imports as compared to integrated plants.  

Italcementi,  along  with  LafargeHolcim,  has  been  an  important 
source  of  rivalry  to  HeidelbergCement,  which  was  found  to 
benchmark 
that  of 
its  performance 
Italcementi and LafargeHolcim. 

in  Belgium  against 

investigation  confirmed  that  even  before  the 
The  market 
concentration,  HeidelbergCement's  conduct 
in  the  markets 
concerned was restrained by competitors only to a limited extent. 
The  acquisition  of  Italcementi  and  its  state-of-the-art  cement 
plant  in  Gaurain  would  thus  have  been  likely  to  further 
strengthen HeidelbergCement's market power. 

investigation,  who  generally  expected 

This  was corroborated by numerous customers  contacted  during 
the  market 
less 
competition  and  further  price  increases  in  grey  cement  in 
Belgium.  The  acquisition  would  have  eliminated  competition 
between  two  close  competitors  in  already  concentrated  markets 
in Belgium and its surroundings.  

As  to  ready-mix  concrete,  HeidelbergCement  operates  34  sites 
spread  across  the  entire  territory  of  Belgium.  Italcementi's 
operations were smaller, with 10 sites concentrated mainly in the 
centre  and  the  west  of  Belgium.  The  transaction  would  have 
resulted  in  a  number  of  significant  overlaps  in  the  local  ready-
mix  concrete  markets  based  on  25km  catchment  areas 
(combined  market  shares  exceeding  40-50%  with  a  sizeable 
increment 
in  several  catchment  areas).  Certain  ready-mix 
concrete  customers  expressed  concerns  that  the  concentration 
would  limit  their  choice  of  suppliers,  and  possibly  lead  to  price 
increases,  and  similar  views  were  expressed  by  some 
competitors. 

Taking  all  these  elements  into  account,  the  Commission  raised 
serious  doubts  in  relation  to  the  markets  for  grey  cement  and 
ready-mix concrete in several catchment areas in Belgium and its 
surrounding regions. 

11 

Designing the remedy package for Belgium 

these  competition  concerns 

To  address 
in  Belgium  and 
surroundings,  the  parties  proposed  to  divest  the  entirety  of 
Italcementi's business in Belgium, organised around CCB.  

That divestment intended to eliminate the entire overlap between 
the  Parties'  activities  at  national  level  in  Belgium  and  the 
Netherlands,  since  Italcementi  had  previously  made  all  of  its 
sales  in  the  two  countries  from  its  plant  in  Belgium.    Also,  as  a 
result of the remedy, HeidelbergCement's existing capacity would 
not be increased. 

Post-divestment,  some  catchment  areas  would  show  market 
share  increments  where  there  are  overlaps  with  Italcementi's 
plants  in  France,  albeit  leading  to  limited  combined  market 
shares. The proposal therefore appeared sufficient to remove the 
competition concerns raised and presented a clear-cut solution in 
phase I.  

The main asset to be divested was CCB's integrated cement plant 
in Gaurain, including a yet-to-be opened limestone quarry (Barry 
quarry) located a short distance south-east of the plant. 

The  divestment  package  also  included  Italcementi's  network  of 
ten  ready-mix  plants  as  well  as  aggregate  quarries  in  Belgium. 
Moreover,  some  of  Italcementi's  sales  staff  in  France  would  be 
transferred in view of Gaurain's large sales presence in France.  

When  analysing  the  remedy  package,  however,  access  to 
limestone  became  a  main  consideration  for  the  viability  of  the 
divested business.  

Ensuring  the  limestone  supply  of  the  divested 
business 

The  Gaurain  cement  plant  was  served  by  limestone  extracted 
from  its  adjacent  Gaurain  quarry  for  nearly  100  years.  This 
quarry  was  depleted  and  closed  in  2012.  The  plant  is  now 
supplied  by  the  Milieu  quarry,  which  is  located  a  short  distance 
away  and  is  operated  by  the  Société  des  Carrières  de  Tournai 
(SCT).  

SCT is a joint venture between CCB (Italcementi; 65% stake) and 
LafargeHolcim (35% stake). This partnership was entered into to 
exploit jointly (i) LafargeHolcim's Milieu quarry and (ii) at a later 
stage Italcementi's Barry quarry, and allows Italcementi to bridge 
the  transitional  period  between  the  end  of  exploitation  of  its 
Gaurain  quarry  and  the  development  of  its  Barry  quarry.  This 
arrangement  is  of  key  relevance,  given  that  the  extraction  of 
limestone  from  the  Barry  quarry  will  require  very  lengthy  and 
costly  preparatory  work.  Nonetheless,  supplies  of  limestone 
quarried  under  that  JV  arrangement  are  expected  to  be 
exhausted relatively quickly. 

The  Commission  considered  that  this  situation  would  lead  to 
considerable uncertainty as to whether a suitable purchaser, with 
sufficient  financial  resources  and  expertise  to  carry  out  the 
required investment in the Barry quarry, would be found, as well 
as  raising  questions  about  the  purchaser's  incentive  to  follow 
through on such significant investment plans in the long run.  

 
 
M.7744 HeidelbergCement/Italcementi | Competition Merger Brief No 4/2016 

This is why the Parties proposed additional quarrying capacity to 
complement  CCB's  existing  reserves.  In  order  to  prevent  the 
purchaser  facing  a  shortage  of  limestone,  HeidelbergCement 
committed  to  divest  CCB's  stake  in  the  limestone  joint  venture 
with  LafargeHolcim,  STC,  as  well  as  a  portion  of  its  own 
limestone  quarry  in  Antoing  (already  being  exploited).  In  return, 
HeidelbergCement  would  retain  a  portion  of  the  Barry  quarry 
equivalent  in  reserves  to  the  divested  portion  of  the  Antoing 
quarry.  

The  inclusion  of  the  portion  of  the  Antoing  quarry  ensures  that 
CCB's divested business will have access to limestone. Indeed, the 
portion of the Antoing quarry provides enough additional reserves 
so that limestone extraction in Barry can be significantly delayed. 
This would enable the potential purchaser to exploit the Gaurain 
plant  without  incurring  the  investment  necessary  to  develop  the 
Barry quarry. 

However,  this  solution  required  cooperation  from  LafargeHolcim 
and  was  therefore  contingent  on  third  party  rights.  According  to 
the  Commission's  assessment,  the  selection  of  the  quarry  to  be 
jointly  exploited  -  Antoing  rather  than  Barry  -  constituted  an 
amendment  to  the  JV  agreement  which  required  prior  approval 
by LafargeHolcim.  

To  avoid  a  delay  in  the  divestment  due  to  lack  of  consent  from 
LafargeHolcim  or  other  potential  obstacles  in  that  respect, 
HeidelbergCement  committed  to  not  closing  its  acquisition  of 
Italcementi  until  an  agreement  with  LafargeHolcim  had  been 
reached  on  that  matter.  Also,  any  amendment  of  the  JV 
agreement  would  need  the  Commission's  approval  prior  to 
closing the divestment. 

Whilst  providing  an  additional  safeguard,  these  provisions  could 
not  guarantee  that  an  agreement  with  LafargeHolcim  would  be 
found. An alternative was therefore included in the commitments 
to provide for a solution in the event the Barry quarry needed to 
be opened in the short term, upon depletion of the Milieu quarry 
and  in  the  absence  of  an  agreement  with  LafargeHolcim  for 
exploitation of the divested portion of Antoing quarry.  

To  address  this  scenario,  HeidelbergCement  committed  to 
ensuring  that  the  acquirer  would  open  the  Barry  quarry  by 
providing  adequate  incentives  in  the  final  binding  sale  and 
purchase  agreement  with  the  purchaser.  Alternative  incentives 
could be negotiated between HeidelbergCement and the acquirer, 
but would require prior approval by the Commission. 

These incentives aim at ensuring that the purchaser would make 
the  required  investments  in  opening  the  Barry  quarry,  which  in 
turn  would  ensure  the  medium-  to  long-term  competitiveness 
and  viability  of  the  divested  business.  The  inclusion  of  the 
incentives would increase the valuation of the  divested business 
and therefore presumably increase the purchase price. To re-coup 
part of the purchase price, the purchaser would have to start and 
follow through with the opening of the Barry quarry. In this case, 

the  purchaser  would  be  able  to  exploit  its  own  quarry  without 
having to rely on third parties' limestone supplies. 

The  final  commitments  also  clarified  that  should  no  agreement 
with  LafargeHolcim  be  found,  the  Commission  may  approve  the 
sale  of  the  divestment  package  without  including  the  portion  of 
the Antoing quarry. This addresses the potential situation where, 
without  an  agreement  with  LafargeHolcim,  the  portion  of  the 
Antoing quarry is of limited use to the divested business.  

After  receiving  agreement  by  Holcim  (Belgique),  now  part  of 
LafargeHolcim group, confirming that the operations of SCT could 
be extended to the exploitation of the portion of Antoing's quarry 
to  be  divested  together  with  CCB's  business,  the  JV  agreement 
was modified to reflect the inclusion of the Antoing quarry in the 
contractual  arrangements  between  CCB  and  Holcim  (Belgique). 
The  amendments  included  postponing  the  opening  of  the  Barry 
quarry  with  the  corresponding  changes  to  the  mining  plan  and 
additional  practical  arrangements.  In  a  decision  adopted  on  4 
October 2016, the Commission approved the amendments to the 
JV,  and  approved  Aalborg,  a  subsidiary  of  Cementir,  as  the 
purchaser of the divested business.  

Conclusion  

In order to ensure that a suitable purchaser will acquire business 
assets  divested  in  the  context  of  merger  review  processes,  the 
Commission requires the proposal of an up-front buyer in certain 
cases.  This  is  particularly  justified  when  there  are  considerable 
rights, 
obstacles  for  a  divestiture,  such  as 
uncertainties  as  to  finding  a  suitable  purchaser,  or  considerable 
risks  of  preserving  the  competitiveness  and  saleability  of  the 
divestment business in the interim period before divestiture. 

third  party 

Similarly,  specific  circumstances  may  require  the  adoption  of 
other  conditions  precedent  in  order  to  guarantee  the  viability  of 
the  divested  business.  This  case  illustrates  that  such  conditions 
may need to be adapted to the facts at hand.  

12 

 
 
 
Competition Merger Brief 3/2016 – Article 4 

Competition merger brief 

Plastic Omnium/Faurecia Exterior Business: The use of delivery 
distances in defining the geographic market and how supply-
side concentration cancels out buyer power  

In a nutshell 

customers' 

An  in-depth  assessment  of 
the 
sourcing 
behaviour  and  of  the  Parties 
delivery distance allowed the 
Commission  to  understand 
that  competition  takes  place 
within  a  certain  distance 
from  the  customers'  plants 
rather than EEA-wide.  

markets, 

Also,  the  specificities  of  the 
affected 
the 
competitive  landscape,  and 
specificities  of 
the 
the 
production 
products 
and 
processes 
the 
Commission  to  understand 
that  customers  –  although 
concentrated 
and 
sophisticated – will not have 
countervailing 
sufficient 
buyer power in this case. 

allowed 

manufacturer  and  –  due  to 
the  different  materials 
to 
which  it  is  applied  –  with 
different  paints.  The  technical 
difficulties  related  to  painting 
make  the  painting  process  a 
the 
element 
crucial 
production process. 

of 

that 

FEMs  are  a  pre-assembled 
combination  of  components 
such  as  lamps,  fans,  bumper 
systems, 
are 
etc. 
fastened  to  the  front  of  the 
vehicle chassis. FEMs are used 
only  in  vehicles  that  have  an 
"open 
frame".  FEMs  may 
include  different  components 
depending  on 
the  specific 
vehicle. 

2. 

Plastic  front  and  rear  bumpers:  defining 
the relevant geographic market. 

This automotive component case required a different geographic 
market definition than the usual Europe-wide scope. In this case, 
the Commission considered that only a much more local market 
definition,  based  on  catchment  areas  around  each  of  the  car 
manufacturers' plants, would effectively capture the competitive 
market conditions. 

The starting point of the analysis was the information submitted 
by  the  notifying  parties  (the  Parties)  as  regards  their  average 
delivery  distance  for  bumpers.  What  emerged  from  the  analysis 
was that the vast majority of bumpers manufactured by each of 
the  Parties  is  delivered  within  a  short  distance  from  the 
production  facility,  with  only  a  minor  percentage  of  deliveries 
being transported over long distances. 

Daniel Coublucq, Niccolò Namari, Pablo Serrano, Anna Székely  

1. 

Introduction  

In  July  2016,  the  Commission  cleared  in  first  phase  the 
acquisition  by  Plastic  Omnium  (France)  of  the  plastic  exterior 
business of Faurecia, subject to conditions. 

The  Commission's  market  investigation  identified  competition 
concerns  in  the  markets  for  the  supply  of  plastic  front  and  rear 
bumpers in several geographic markets, as well as the supply of 
front  end  modules  (FEM)  in  the  EEA.  With  regard  to  the  various 
markets for plastic front and rear bumpers, the transaction would 
have  reduced  the  number  of  competitors  from  three  to  two  in 
some geographic areas and created a  monopoly  for supply to  a 
number of car assembly plants in France. As for the FEM market, 
the transaction would have resulted in the largest market player 
acquiring  its  closest  competitor,  resulting  in  a  market  share  in 
excess  of  50%  and  significantly  larger  than  that  of  the  second 
largest competitor.  

The proposed remedy completely removed the overlap in all the 
problematic areas. 

Overview of the products subject to the investigation 
Bumpers are the main part of the external front and rear parts of 
a vehicle which, together with other components integrated in it, 
contribute  to  the  "look"  of  a  car.  Apart  from  the  bumpers' 
aesthetic  function,  they  are  originally  designed  to  sustain  an 
impact without damage to the frame and the safety systems.  

Bumpers are made of plastic and are, for the most part, delivered 
to car manufacturers already painted in the colour of the vehicle 
on  which  they  will  be  installed.  There  are  two  key  steps  in  the 
bumper production process:  injection moulding and painting, the 
latter being the technically more complicated and crucial step in 
the process. The bumper is a large and prominent component and 
it  is  of  paramount  importance  that  the  colour  tone  perfectly 
matches that of the vehicle body, which is painted by the car  

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. 

 
 
  
 
 
 
 
 
 
 
       
 
 
 
 
 
 
M. 7893 Plastic Omnium / Faurecia Exterior Business | Competition Merger Brief No 4/2016 

Following  this  observation,  the  investigation  then  turned  to 
understanding  (i)  whether  this  was  specific  to  the  Parties  and 
their  business  model,  and  (ii)  the  underlying  reasons  for  the 
Parties' supply areas covering predominantly short distances. 

To  address  the  first  point,  the  tender  information  submitted  by 
customers was analysed to determine the exact delivery distance 
for  each  of  the  supply  contracts  entered  into  in  the  last  five 
years.  This  analysis  identified  the  geographic  zones  where  the 
transaction  proved  to  be  more  problematic.  Once  these  areas 
were  singled  out,  bidding  information  for  each  of  the  car 
manufacturers' plants present in those areas was collected.   

The  Commission's  analysis  confirmed  that  deliveries  over  short 
distances  are  standard  practice  for  the  supply  of  bumpers.  The 
majority  of  manufacturers  send  requests  for  quotations  (RFQ) 
only  to  those  suppliers  having  a  manufacturing  plant  located 
within  a  certain  geographic  radius.  Suppliers  that  submit  a  firm 
offer  or  are  shortlisted  in  tenders  are  located  within  an  even 
smaller geographical area. Winners are generally located within a 
100km  radius  from  the  plant  to  which  they  will  deliver.  The 
declining  distance  at  the  different  stages  of  the  tender  process 
and  the  significant  difference  in  the  average  distance  between 
the  suppliers  invited  to  tenders  and  those  who  submit  a  firm 
offer  suggested  that  being  close  to  the  OEMs  is  an  important 
competitive  advantage  for  the  suppliers  and  sometimes  a 
prerequisite for the customer. 

These  observations  provided  a  clear  indication  that  competition 
takes place on a more local level than EEA-wide. In fact plants of 
manufacturers  located  outside  the  catchment  area  of  a  specific 
OEM  plant  generally  do  not  compete  for  tenders  with  those 
located within that area.  

the 

The  Commission  also  analysed 
reasons  why  car 
manufacturers  source  bumpers  only  from  producers  located 
relatively  close  to  their  plants.  Firstly,  the  degree  to  which 
delivery costs have an appreciable impact on the overall cost of 
the finished product was investigated. The information submitted 
by the Parties indicated that these costs are not significant. The 
investigation also confirmed that car manufacturers are generally 
not  concerned  about  transport  and  logistic  costs  linked  to  the 
delivery  of  these  components.  Rather,  car  manufacturers  are 
concerned about non-cost elements connected to the transport of 
the  finished  bumpers,  and  in  particular  (i)  the  risk  of  quality 
issues such as paint scratches and (ii) the need to ensure timely 
delivery of each bumper to the car assembly logistical chain. 

With regard to the quality issue, OEMs feared that transport over 
longer  distances  could  materially  increase  the  frequency  of 
bumpers being scratched, which would render them unusable on 
the  production  line.  As  the  majority  of  bumpers  are  delivered 
painted  and  since  –  as  explained  above  –  painting  is  generally 
performed  at  the  supplier's  premises,  OEMs  choose  to  limit  this 
logistic risk by sourcing painted bumpers near the manufacturing 
plant where they will be installed on the vehicle.  

With  regard  to  the  importance  of  timely  delivery  to  the 
production site, the investigation indicated that timely delivery is 
linked to the model commonly used in the automotive industry to 
organise  the  production  process:  the  Just  in  Sequence  (JIS) 
model.  

The JIS requires that components to be mounted on the vehicle in 
production  must  reach  the  production  line  at  a  specific  point  in 
time.  To  allow  suppliers  to  organise  their  production  and  deliver 
the  components  at  the  desired  moment,  OEMs  schedule  the 
production  order  in  advance  of  the  start  of  production  of  the 
individual vehicle. However, the advance period provided by OEMs 
is short and generally ranges from some hours to a few days. For 
standardised products, short delivery notices may not represent a 
major hurdle. Bumpers, however, are customised products in the 
sense  that  the  colour  has  to  match  the  colour  of  the  car  body, 
and  they  often  include  a  number  of  options  chosen  by  the  final 
customer.  The  OEM  will  only  be  informed  of  the  ordered  colour 
and the specific options required at the time the customer orders 
the  car,  which  makes  production  forecasting  very  difficult.  As  a 
consequence  the  suppliers’  capability  to  comply  with  the  JIS  is 
greatly  reduced  as  the  distance  of  the  production  facility  from 
the OEM assembly plant increases.  

Increased distance between the production facility and the OEM's 
assembly  facility  requires  additional  facilities  to  manage  the 
inventory  and  possible  (re)sequencing.  This  generates  additional 
costs likely to affect the competiveness of the supplier's plant. 

These findings explain the empirical observations of the delivery 
distances  extracted from  the  tender information and prove that, 
even  when  dealing  with  sophisticated  and  global  suppliers  and 
customers,  transport  costs  or  –  as  in  this  case  –  non-cost 
elements  can  significantly  narrow  the  geographic  scope  of  the 
markets.  Also,  this  case  demonstrates  that  tender  information 
can be a useful tool to understand the geographic market scope. 

3. 

front 
Plastic 
competitive assessment 

and 

rear 

bumpers: 

Given  that  competition  for  the  supply  of  plastic  front  and  rear 
bumpers  takes  place  at  a  limited  distance  from  the  assembly 
plants,  the  Commission  considered  market  shares  (in  terms  of 
capacity)  for  local  catchment  area  around  each  of  the  OEMs' 
assembly  plants1.  This  analysis  showed  that  the  concentration 
would give rise to high combined capacity shares in a significant 
number of markets. 

The  market  investigation  showed  that  both  Plastic  Omnium  and 
Faurecia  are  perceived  as  indispensable  suppliers  and  close 
competitors  to  each  other  by  OEMs,  within  the  local  catchment 
area.  

1   See  also  Case  M.7567  Ball/Rexam,  for  the  use  of  customer-centric 
catchment areas as the basis for the geographic market definition and 
the competitive assessment.   

14 

 
 
                                                             
M. 7893 Plastic Omnium / Faurecia Exterior Business | Competition Merger Brief No 4/2016 

production.  First,  only  a  few  car  manufacturers  are  technically 
capable of manufacturing these components in-house. Indeed, in 
terms of total EEA production capacity, only 11% of all bumpers 
are  fully  produced  in-house  (injection,  painting,  assembly),  4% 
are  painted  and  assembled  in-house,  while  7%  are  only 
assembled  in-house.  Therefore,  only  22%  of  the  bumpers 
produced  in  the  EEA  have  at  least  one  step  of  their  production 
process carried out by the OEM.  

Second, even those car manufacturers that are – at least partially 
-  able  to  carry  out  the  manufacturing  process  do  not  usually 
possess 
their 
manufacturing  facilities.  Only  very  few  OEMs  have  fully 
internalised  production,  which  weakens  the  threat  of  in-house 
production towards the suppliers. 

technical  equipment 

the  necessary 

in  all 

Third,  bidding  data  also  confirmed  that  the  suppliers  did  not 
compete with in-house production in any of the analysed tenders, 
which underlined the limited nature of the disciplining effect that 
the threat of internalisation might have. 

Fourth,  the  fact  that  establishing  the  manufacturing  facility 
would entail significant investment and lead time has to be taken 
into  consideration.  The  market  investigation  supported  the 
notifying Party's claim that the indicative time-frame required to 
set up a new plant is two years and the investment required is in 
the  range  of  €50  million.  As  a  result,  it  can  be  concluded  that 
internalising  component  manufacture  does  not  only  require  a 
strong  business  case  to  support  such  investment,  but  would  in 
any  event  would  not  be  a  timely  response  to  the  supplier's 
decision to increase prices or otherwise deteriorate the quality or 
the conditions of delivery.  

Finally,  some  OEMs  indicated  in  the  market  investigation  that  a 
total or partial in-house supply of these components is not in line 
with their current and future business strategy. 

The  Commission  also  assessed  whether  OEMs  would  be  able  to 
sponsor  a  new  entry  or  an  established  player  to  expand  its 
activities  on  these  markets.  The  market  investigation  did  not 
confirm  this  claim.  First,  OEMs  indicated  that  they  refrain  from 
committing  to  binding  orders  for  a  specific  volume,  but  rather 
provide only indicative volumes. Second, the market investigation 
showed that car manufacturers prefer to multisource in order to 
lower logistic and quality risks. Accordingly, the volume that they 
would  be  able to  offer  to  a  new  entrant  is  rather  limited,  which 
would  in  turn  make  it  difficult  for  the  new  player  to  become 
competitive. Finally, the lead time of setting up a manufacturing 
facility,  hence  entering  the  market,  does  not  allow  OEMs  to 
counter  the  increase  of  market  power  that  the  merger  would 
bring about in the short term. 

The Commission analysed the tender information collected from 
customers,  as  well.  Given  the  local  scope  of  the  geographic 
market,  the  Commission  analysed  the  identity  of  the  competing 
bidders  within  each  catchment  area.  In  particular,  for  each 
catchment area, the Commission analysed the distances between 
the  OEMs'  production  plants  and  the  bumper  plants  of  the 
suppliers  located  within  the  catchment  area.  This  analysis 
provides a measure of the geographical closeness of the Parties, 
based  on  the  location  of  their  plants.  It  showed  that  for  a 
significant  number  of  (local)  markets,  the  Parties  were  closely 
competing  with  each  other,  with  their  plants  being  often  the 
closest to the OEMs. 

4. 

Buyer power 

In recent years, a clear trend of consolidation can be observed in 
the global and European automotive industry2 caused by several 
factors such as the effects of the financial crisis, the global auto 
manufacturing  expansion  or  new  technologies.  This  tendency 
results not only in the increasing number of mergers but also in 
the  fact  that  the  Commission  has  to  deal  with  markets  with  a 
high level of concentration on both the OEMs' and the suppliers' 
side. The question to what extent buyer power can be taken into 
consideration  as  a  counterbalance  to  the  eliminated  competitive 
constraint  therefore  arises  more and  more  often  in  combination 
with strong supply-side concentration. 

Countervailing  buyer  power  is  the  bargaining  strength  the  buyer 
has vis-à-vis the seller in commercial negotiations due to its size, 
its commercial significance and its ability to switch to alternative 
suppliers3. In the present case the notifying Party argued that the 
car  manufacturers  are  sophisticated  customers  that  are  able  to 
exert competitive pressure on the suppliers. However, the market 
investigation did not confirm this view for various reasons which 
equally applied to all affected product markets. 

The Commission found that OEMs could not credibly threaten to 
resort,  within  a  reasonable  timeframe,  to  alternative  sources  of 
supply.  First,  not  all  suppliers  were  regarded  as  credible  by  the 
car  manufacturers.  Second,  for  a  number  of  car  manufacturers 
any  possibility  of  switching  that  existed  pre-transaction  would 
have  been  eliminated  or  significantly  reduced  as  a  result  of  the 
merger in a number of geographic markets4. 

The  Commission  also  examined  whether  the  OEMs  could 
vertically integrate into the upstream markets, but found that for 
these products they cannot credibly threaten to turn to in-house 

2   On  the  consolidation  on  the  suppliers'  side  see  for  example    cases 
M.7174  Federal-Mogul  Corporation  /  Honeywell  Friction  Materials 
(2014); M.7420 ZF / TRW (2015); M.7564 Mahle Behr / Delphi Thermal 
Systems  Business  (2015),  M.7606  Grupo  Antolín  /  Magna  Interiors 
(2015), M.7748 Magna /Getrag (2015). 

3 Paragraph  64  of  the  Guidelines  on  the  assessment  of  non-horizontal 
mergers under the Council Regulation on the control of concentrations 
between undertakings (2004/C 31/03). 

4  On three geographic markets there would have been no alternative to 
the  merged  entity,  while  on  four  others  only  one  alternative  supplier 
would have remained. 

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M. 7893 Plastic Omnium / Faurecia Exterior Business | Competition Merger Brief No 4/2016 

The Commission also took the view that the upstream margins of 
the  suppliers  can  be  an  indication  of  the  effectiveness  of  the 
OEMs'  countervailing  buyer  power.  In  this  case,  the  fact  that 
Plastic  Omnium  was  able  to  achieve  a  relatively  high  margin 
suggested  that  OEMs  had  more  limited  countervailing  buyer 
power already pre-merger.  

For  the above reasons  the Commission considered that contrary 
to  the  notifying  Party's  claim,  and  despite  the  concentration  at 
the  level  of  car  manufacturing  market,  the  argument  of 
countervailing buyer power could not be accepted.  OEMs do not 
have the ability credibly to threaten suppliers to switch to another 
source  of  supply,  internalise  the  manufacturing  process  or 
sponsor new entry in a timely manner.  

5. 

Conclusion 

The case underlines the necessity of concentrating on the specific 
features  of  the  affected  markets  and  assessing  the  possible 
impact  of  the  transaction  accordingly.  Although  the  market  for 
supply of automotive components has generally been defined as 
EEA-wide,  the  risk  of  quality  issues  and  the  need  for  timely 
delivery  lead  to  local  markets  as  regards  the  supply  of  plastic 
bumpers.  Likewise,  although  the  argument  of  countervailing 
buyer  power  is  often  used  given  the  concentrated  nature  of  the 
automotive  industry,  the  market  investigation  did  not  confirm 
that  it  would  be  sufficient  for  OEMs  readily  to  counter  the 
increase  in  market  power  that  the  merger  in  the  present  case 
would have brought. 

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