CELEX: 32021M10006
Language: en
Date: 2021-02-05 00:00:00
Title: Commission Decision of 05/02/2021 declaring a concentration to be compatible with the common market (Case No COMP/M.10006 - COVESTRO / KONINKLIJKE DSM (RESINS & FUNCTIONAL MATERIALS BUSINESS AND OTHER ASSETS)) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                               Brussels, 05.02.2021
                                                               C(2021) 890 final
                                                                                 PUBLIC VERSION
                                                                 In the published version of this decision,
                                                                 some information has been omitted
                                                                 pursuant to Article 17(2) of Council
                                                                 Regulation (EC) No 139/2004 concerning
                                                                 non-disclosure of business secrets and other
                                                                 confidential information. The omissions are
                                                                 shown thus […]. Where possible the
                                                                 information omitted has been replaced by
                                                                 ranges of figures or a general description.
                                                               Covestro AG
                                                               Kaiser-Wilhelm-Allee 60
                                                               51373 Leverkusen
                                                               Germany
Subject:             Case M.10006 – COVESTRO / KONINKLIJKE DSM (RESINS &
                     FUNCTIONAL MATERIALS BUSINESS AND OTHER ASSETS)
                     Commission decision pursuant to Article 6(1)(b) of Council Regulation
                     No 139/20041 2 and Article 57 of the Agreement on the European
                     Economic Area3
Dear Sir or Madam,
(1)       On 23 December 2020, the European Commission received notification of a
          proposed concentration pursuant to Article 4 of the Merger Regulation by which
1    OJ L 24, 29.1.2004, p. 1 (the ’Merger Regulation’). With effect from 1 December 2009, the Treaty on the
     Functioning of the European Union (‘TFEU’) has introduced certain changes, such as the replacement of
     ‘Community’ by ‘Union’ and ‘common market’ by ‘internal market’. The terminology of the TFEU will
     be used throughout this decision.
2    For the purposes of this Decision, although the United Kingdom withdrew from the European Union as of
     1 February 2020, according to Article 92 of the Agreement on the withdrawal of the United Kingdom of
     Great Britain and Northern Ireland from the European Union and the European Atomic Energy
     Community (OJ L 29, 31.1.2020, p. 7), the Commission continues to be competent to apply Union law as
     regards the United Kingdom for administrative procedures which were initiated before the end of the
     transition period.
3    OJ L 1, 3.1.1994, p. 3 (the ‘EEA Agreement’).
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak---          Covestro AG (“Covestro”, Germany) acquires within the meaning of Article 3(1)(b)
         of the Merger Regulation control of the Resins & Functional Materials businesses (“
         the Target”) of Koninklijke DSM N.V (“DSM”, Netherlands) (“the proposed
         Transaction”)4. The concentration is to be accomplished by way of purchase of shares
         and assets5. Covestro (“the Notifying Party”) and the Target are designated
         hereinafter as the “Parties” or “Parties to the proposed transaction”.
1.       THE PARTIES
(2)      Covestro focuses on the supply of high-performance polymers and components for
         such polymers. Covestro operates three segments: Polyurethanes (“[…]”*),
         Polycarbonates, and Coatings, Adhesives, Specialties.
(3)      The Target is primarily active in the supply of resins for the use in coatings, the
         supply of glass fibre coatings. The Target is also active in anti-reflective coatings
         used in particular for solar glass panels, 3D-printing materials and adhesives,
         although these products only constitute a minor part of the Target’s activities
         compared to the supply of resins for the use in coatings and the supply of glass fibre
         coatings. Covestro is not present in these last three areas.
2.       THE OPERATION AND THE CONCERTATION
(4)      Pursuant to a sale and purchase agreement, Covestro will acquire through its wholly-
         owned subsidiary Covestro Deutschland AG, and MS Holding B.V., a wholly-owned
         subsidiary of Covestro Deutschland AG, all the shares in several companies (and,
         indirectly, their respective subsidiaries) which carry out the Target’s activities,
         including DSM Niaga®6, DSM Additive Manufacturing7 and the coatings activities
         of DSM Advanced Solar 8.
(5)      After the completion of the concentration, the Target will thus be (indirectly)
         wholly-owned and solely controlled by Covestro. As Covestro will (indirectly)
         acquire and, post-transaction, hold 100% of the shares of the Target9, the latter will
         be solely controlled by Covestro.
4   Publication in the Official Journal of the European Union No C 5, 07.01.2021, p. 20.
5   See Form CO paragraphs 36 – 38
*   Should read: “PUR”.
6   DSM Niaga is active in the manufacture of carpets, matresses and panels, see : https://www.dsm-
    niaga.com
7   DSM Additive Manufacturing is a line of business of the Target, active in 3D printing, see
    https://www.dsm.com/additive-manufacturing/en_US/home.html
8   Covestro AG will in particular acquire all the shares in DSM Resins Holding (Nederland) B.V., DSM
    Neoresins Holdings B.V., DSM Coating Resins INC., DSM Desotech Inc., Healthy Nest Inc., DSM
    Coating Resins Spain, S.L.U., DSM Kunstharze GMBH, DSM Coating Resins International Holding B.V.
    and DSM Material Science & Technology (Shangai) CO. LTD.
9   Including a limited number of assets relating to the Target’s sales agency activities, see Form CO,
    paragraph 38.
                                                          2
 ---pagebreak--- 3.       UNION DIMENSION
(6)      Covestro and the Target have a combined aggregate worldwide turnover of more
         than EUR 5 000 million (Combined: EUR […], Covestro: EUR 12 412 million,
         Target: EUR […]). Each of the Parties has an EU-wide turnover in excess of EUR
         250 million (Covestro: EUR […], Target: EUR […]).
(7)      Covestro and the Target do not achieve more than two-thirds of their aggregate EU-
         wide turnover within one and the same Member State.
(8)      The notified operation therefore has a Union dimension.
4.       COMPETITIVE ASSESSMENT
4.1.     Analytical framework
(9)      Under Articles 2(2) and 2(3) of the Merger Regulation, the Commission must assess
         whether a proposed concentration would significantly impede effective competition
         in the internal market or in a substantial part of it, in particular through the creation
         or strengthening of a dominant position.
(10)     A concentration can entail horizontal effects. In this respect, in addition to the
         creation or strengthening of a dominant position, the Commission Guidelines on the
         assessment of horizontal mergers under the Merger Regulation 10 (“the Horizontal
         Merger Guidelines”) distinguish between two main ways in which mergers between
         actual or potential competitors on the same relevant market may significantly impede
         effective competition,11 namely (a) by eliminating important competitive constraints
         on one or more firms, which consequently would have increased market power,
         without resorting to coordinated behaviour (non- coordinated effects); and (b) by
         changing the nature of competition in such a way that firms that previously were not
         coordinating their behaviour are now significantly more likely to coordinate and
         raise prices or otherwise harm effective competition. A merger may also make
         coordination easier, more stable or more effective for firms, which were coordinating
         prior to the merger (coordinated effects). Concentrations which, by reason of the
         limited market share of the undertakings concerned are not liable to impede effective
         competition may be presumed to be compatible with the internal market. An
         indication to this effect exists, in particular, where the market share of the
         undertakings concerned does not exceed 25 % either in the internal market or in a
         substantial part of it.12
(11)     Furthermore, a concentration can entail vertical effects. The Commission Guidelines
         on the assessment of non-horizontal mergers under the Merger Regulation13 (the
         “Non- Horizontal Merger Guidelines”) also distinguish between two main ways in
         which non-horizontal mergers may significantly impede effective competition: (a)
10  Commission Guidelines on the assessment of horizontal mergers under the Merger Regulation, OJ C 31, 5
    February 2004, paragraph 5–18.
11 ibid, paragraph 22.
12 ibid, paragraph 18.
13 Commission Guidelines on the assessment of non-horizontal mergers under the Merger Regulation, OJ C
  265, 18 October 2008, paragraphs 6–25.
                                                       3
 ---pagebreak---          when they give rise to input and/or customer foreclosure (non-coordinated effects);
         and (b) when the merger changes the nature of competition in such a way that firms
         that previously were not coordinating their behaviour, are now more likely to
         coordinate to raise prices or otherwise harm effective competition (coordinated
         effects).14 The Non-Horizontal Merger Guidelines distinguish two types of
         foreclosure: (a) where the merger is likely to raise the costs of downstream rivals by
         restricting their access to an important input (input foreclosure) and (b) where the
         merger is likely to foreclose upstream rivals by restricting their access to a sufficient
         customer base (customer foreclosure)15. According to the Non-Horizontal Merger
         Guidelines, the Commission is unlikely to find concern in non-horizontal mergers,
         where the market share post-merger of the new entity in each of the markets
         concerned is below 30%.16
4.2.     Relevant markets
4.2.1. Coating resins
(12)     A coating can be any preparation which is used to provide a film with decorative,
         protective or other functional effect on a surface. Resins are essential elements of
         the coating formulation. They bind the various components of a coating together into
         a film and bond the film to the substrate e.g., a car door, a piece of wooden furniture
         or the exterior of a fridge. Also, they determine the performance characteristics of
         the coatings, such as gloss, durability, smoothness, flexibility, weatherability and
         resistance. Both Covestro and the Target produce coating resins.
4.2.1.1.     Product market definition
                            (A)      Past decisions of the Commission
(13)     The Commission has previously considered a segmentation of the relevant product
         market for the supply of coating resins by (i) delivery technology, (ii) chemistry and
         (iii) industrial application.17
(14)     A segmentation by delivery technology distinguishes between the following
         categories of coating resins: (i) liquid resins that can be further segmented into
         solventborne (“SB”) and waterborne (“WB”) resins, (ii) radiation curable resins
         (“UV”) and (iii) powder resins. The Commission considered that liquid (WB and
         SB), radiation curable and powder resins differ from one another in terms of
         production process, the way they are applied to the substrate, the curing time, the
         residue they leave behind and their environmental friendliness and are not
         substitutable with one another and constitute separate markets. 18
(15)     A segmentation by chemistry distinguishes coating resins by reference to the base
         chemical compound of the resin. Common chemistries of coating resins include
14  ibid, paragraphs 17-19.
15  ibid, paragraph 30.
16 ibid, paragraph 25.
17 M.8019 – Advent International / Nuplex Industries, paragraphs 12 et seq.; M.9353 – Advent International
    Corporation / Evonik Methacrylates Business Division, paragraphs 42 - 51.
18 M.8019 – Advent International / Nuplex Industries, paragraph 15; M.9353 – Advent International
    Corporation / Evonik Methacrylates Business Division, paragraphs 51.
                                                        4
 ---pagebreak---        acrylics, alkyds, epoxies, polyurethanes and polyesters – or hybrids thereof,
       comprising two or more such chemistries. Different base chemicals impart different
       performance characteristics to the coating, and the chemistry that a resin
       manufacturer and its customers choose is generally driven by the requirements of the
       coating’s intended industrial application. The Commission has therefore considered
       that resins based on different chemistries are not substitutable with one another and
       constitute separate markets. 19 In addition, the Commission has examined separate
       product markets for hybrid resins, which are obtained where two resins are reacted
       together through a chemical process (referred to as “hot blend” process), meaning
       these are not simple blends of different products (simple blending is also referred to
       as “cold blend” process), but has left the market open. 20
(16)   By reference to the industrial application21, the Commission has previously
       considered segmenting coating resins into: (i) Automotive OEM (including car and
       light commercial vehicle and SUV, automotive OEM plastic and metal parts); (ii)
       Automotive refinish; (iii) Industrial Wood; (iv) Coil and pre-coated metals (“PCM”),
       including coil, pre-coated sheet (including powder for appliances) - strips and
       aluminium extrusions; (v) Other Industrial (including agriculture, construction,
       aerospace, heavy duty trucks, buses, other land transportation, electrical, plastic,
       general metal and other non-wood and non-coil products); (vi) Marine; (vii) Special
       Purpose (including protective, industrial maintenance, traffic paint, and other
       performance air-drying applications); (viii) Packaging; (ix) Architectural (including
       decorative and protective paint coatings); and (x) Adjacent coating and non-coating
       applications (including resins not assigned to specific coating applications (such as
       textile or inks), and/or resins used for non-coating applications such as rubber and
       tires or adhesives). While considering it appropriate to segment the market for
       coating applications by industrial applications as well, the Commission left the
       market open.
                           (B)       The view of the Notifying Party
(17)    In line with the Commission’s decisional practice, the Notifying Party suggests to
       analyse coating resins by distinguishing between different delivery technologies and
       chemistries, and, in addition, by potentially distinguishing between industrial
       applications.22
                           (C)       Results of the market investigation
(18)   The market investigation strongly indicated the respondents’ support for the
       Commission’s precedents regarding the product market definition for coating
       resins.23
19 M.8019 – Advent International / Nuplex Industries, paragraph 30; M.9353 – Advent International
   Corporation / Evonik Methacrylates Business Division, paragraph 51.
20 M.4071 – Apollo / Akzo Nobel LAR, paragraph 34.
21 M.8019 – Advent International / Nuplex Industries, paragraphs 30-31; M.9353 – Advent International
   Corporation / Evonik Methacrylates Business Division, paragraph 51.
22 See Paragraph 101 Form CO.
23 See replies to questions 3 – 5, Q3 - Questionnaire to Downstream Customers and questions 7 – 9 Q2 –
   Questionnaire to Downstream Competitors (Coating components manufacturers).
                                                        5
 ---pagebreak---                             (D)        Commission’s conclusions
(19)     In the present case and taking into account the results of the market investigation, the
         Commission will analyse coating resins on the basis of a segmentation by chemistry
         as well as a segmentation by delivery technology and then by potentially
         distinguishing between industrial applications, since a distinction by industrial
         application does in any event not impact the outcome of the competitive assessment
         of the transaction.
4.2.1.2.    Geographic market definition
                            (A)        Past decisions of the Commission
(20)     In past decisions, the Commission considered that the geographic market for the
         supply of coating resins is likely EEA-wide in scope24, but has also examined a
         worldwide market25.
                            (B)        The view of the Notifying Party
(21)     The Notifying Party submits that the geographic scope of each of the coating resins’
         markets/segments is at least EEA-wide, but also submits data for worldwide
         markets.26
                            (C)        Results of the market investigation
(22)     The market investigation results indicated that the majority of the respondents
         support an EEA-wide geographic market definition for the supply of coating resins.
         There were however some respondents who indicated that the geographic market
         definition is worldwide.27
                            (D)        Commission’s conclusions
(23)     In the present case, taking into account the results of the market investigation, the
         Commission does not find any reason to depart from the approach adopted in past
         cases28, since the exact geographic market definition for coating resins (EEA-wide
         or worldwide) does not impact on the outcome of the competitive assessment of the
         transaction.
4.2.1.3. Overall conclusion on the market definition for coating resins
(24)     For the purposes of this Decision, the Commission will discuss coating resins on the
         basis of chemistry and delivery technology and then potentially distinguish between
         industrial applications for either an EEA-wide or worldwide geographic market
         definition.
24  M.9353 – Advent International Corporation / Evonik Methacrylates Business Division, paragraph 58;
25  M.8019 – Advent International / Nuplex Industries, paragraph 38.
26 See Paragraphs 103 & 104 Form CO
27 See replies to questions 6.1 – 6.4, Q3 - Questionnaire to Downstream Customers and question 13 Q2 –
    Questionnaire to Downstream Competitors (Coating components manufacturers).
28 M.9353 – Advent International Corporation / Evonik Methacrylates Business Division; M.8019 – Advent
    International / Nuplex Industries.
                                                         6
 ---pagebreak--- 4.2.2. Crosslinkers
4.2.2.1.   Product market definition
(25)    Crosslinkers are hardeners that are frequently used in coating formulations to create
        bonds between the resin molecule chains to solidify a coating and enhance its
        performance. Crosslinkers are mixed with coating resins and other coating
        components in a coating formulation. After application of the coating and
        evaporation of the solvent, the cross-linking reaction takes place at ambient or
        increased temperature. Both Covestro and the Parties produce crosslinkers.
                          (A)        Past decisions of the Commission
(26)    The Commission has on the basis of chemistry, previously identified two types of
        crosslinkers: (i) crosslinkers-amino resins, and (ii) crosslinkers-phenolic resins.29
        Regarding crosslinkers-phenolic resins, a further distinction has been made between
        liquid phenolics (resols) and solid phenolics (novolacs).30 The Commission also
        examined a separate product market specifically for oligomers produced on the basis
        of hexamethylene diisocyanate (“HDI” oligomers).31 The Commission found that
        HDI oligomers belong to the chemical class of polyisocyanates, which can be used
        as crosslinkers in coating formulations (polyisocyanate crosslinkers).32
(27)    For crosslinkers-amino resins and crosslinkers-phenolic resins, the Commission has
        previously considered a further possible segmentation distinguishing between the
        same industrial applications as for coating resins (see paragraph (16) above).33
(28)    For polyisocyanate crosslinkers, the Commission found that it would not be
        appropriate to further segment HDI oligomers into industrial applications because
        the same HDI oligomers can be used in any coating application without any quality
        or functional differences.34
                          (B)        The view of the Notifying Party
(29)    The Notifying Party does not contest35 the Commission precedents and further
        submits36 that there exist two additional distinct chemical classes on which
        crosslinkers can be based, namely aziridines (where only the Target is active) and
        carbodiimides (where both Parties have some limited activities). The Notifying Party
        submits that crosslinkers-amino resins, crosslinkers-phenolic resins, aziridines
        crosslinkers and carbodiimide crosslinkers should also be potentially analysed on the
        basis of industrial application, while polyisocyanate crosslinkers should not.
29  M.8019 – Advent International / Nuplex Industries paragraph 16 .
30  M.8019 – Advent International / Nuplex Industries paragraph 16.
31  M.8674 – BASF / Solvay’s Polyamide Business, paragraphs 362 et seq.
32  M.8674 – BASF / Solvay’s Polyamide Business, paragraphs 362 et seq.
33  M.8019 – Advent International / Nuplex Industries, paragraphs 16 - 30.
34  M.8674 – BASF / Solvay’s Polyamide Business, paragraphs 365-367.
35  See Form CO, paragraph 114.
36  See Form CO, paragraph 109.
                                                         7
 ---pagebreak---                           (C)        Results of the market investigation
(30)    Responses in the market investigation supported the Parties’ suggestion regarding
        the product market definition for crosslinkers. 37
                          (D)        Commission’s conclusions
(31)    In the present case, the Commission will discuss crosslinkers on the basis of
        chemistry. For crosslinkers-amino resins, crosslinkers-phenolic resins, aziridines
        crosslinkers and carbodiimide crosslinkers, the Commission will also potentially
        distinguish between industrial applications, while for polyisocyanate crosslinkers
        not.
4.2.2.2.   Geographic market definition
                          (A)        Past decisions of the Commission
(32)    The Commission has previously left open the question of whether the relevant
        geographic market is worldwide or EEA-wide in scope, and examined the potential
        effects of the proposed concentration both on a worldwide and on an EEA-wide
        level.38
                          (B)        The view of the Notifying Party
(33)    The Notifying Party submits that the geographic scope for crosslinkers is at least
        EEA-wide, but also submits data for worldwide markets.39
                          (C)        Results of the market investigation
(34)    Responses in the market investigation do not provide a clear picture as to whether
        the geographic market definition for crosslinkers should be EEA-wide, or
        worldwide. 40
                          (D)        Commission’s conclusions
(35)    In the present case, taking into account the results of the market investigation, the
        Commission does not find any reason to depart from the approach adopted in past
        cases41 since the exact geographic market definition (EEA-wide or worldwide) for
        crosslinkers does not impact on the outcome of the competitive assessment of the
        transaction.
4.2.2.3. Overall conclusion on the market definition for crosslinkers
(36)    For the purposes of this Decision, the Commission will discuss crosslinkers on the
        basis of chemistry. For crosslinkers-amino resins, crosslinkers-phenolic resins,
37  See replies to Q3 - Questionnaire to Downstream Customers and Q2 – Questionnaire to Downstream
    Competitors (Coating components manufacturers).
38  M.8019 – Advent International / Nuplex Industries, paragraphs 32-38.
39  See Paragraphs 103 & 104 Form CO.
40  See replies to Q3 - Questionnaire to Downstream Customers and Q2 – Questionnaire to Downstream
    Competitors (Coating components manufacturers).
41  M.8019 – Advent International / Nuplex Industries, paragraphs 32-38.
                                                         8
 ---pagebreak---         aziridines crosslinkers and carbodiimide crosslinkers, the Commission will also
        potentially distinguish between industrial applications, while for polyisocyanate
        crosslinkers not. The Commission will discuss these markets for either an EEA-wide
        or worldwide geographic market definition.
4.2.3. Diisocyanates
4.2.3.1. Product market definition
(37)    Diisocyanates are used in the production of coating components, more specifically,
        in the production of polyurethane resins (“PU Resins”) and in the production of
        polyisocyanates (also referred to as polyisocyanate crosslinkers). Only Covestro
        produces diisocyanates. Different compounds of diisocyanates include:
        (a)     toluene diisocyanate (“TDI”)
        (b)     methylene diphenyl diisocyanate MDI and monomeric MDI (“mMDI”)
        (c)     hexamethylene diisocyanate (“HDI”)
        (d)     isophorone diisocyanate (“IPDI”)
        (e)     4,4′-Dicyclohexylmethane diisocyanate (“H12MDI”)
                         (A)       Past decisions of the Commission
(38)    The Commission has previously considered a segmentation of diisocyanates by
        compound, and has found that TDI and MDI constituted distinct product markets.42
        The Commission has also considered that HDI is a distinct product market without
        further segmentations.43 Finally, the Commission has previously considered a
        segmentation of isocyanate compounds between diisocyanates and polyisocyanates
        and has assessed HDI                separately from HDI Oligomers (or HDI
        polyisocyanates).44The Commission concluded that HDI is an aliphatic
        diisocyanate,45 as opposed to aromatic diisocyanate.
                         (B)       The view of the Notifying Party
(39)    The Notifying Party does not contest the Commission precedents and further
        explains that diisocyanates overall can be segmented into aromatic diisocyanates,
        which are used predominantly for the production of foams, and aliphatic
        diisocyanates, which are used predominantly for coatings applications, due to their
        superior light stability. Each category includes a number of different diisocyanate
        compounds. Aromatic diisocyanates include TDI, MDI and mMDI, whereas
        aliphatic diisocynates include HDI, IPDI, and H12MDI. The Notifying Party submits
        that the possible sub-segmentation by compound (i.e. MDI, TDI) can be left open, as
        the Transaction does not raise competitive concerns under any plausible market
        definition.
42  M.2355 – The Dow Chemical Company / EniChem S.p.A.
43  M.8674 – BASF SE / Solvay S.A.
44 M.8674 – BASF SE / Solvay S.A.
45 M.8674 – BASF SE / Solvay S.A., paragraph 362.
                                                   9
 ---pagebreak---                             (C)      Results of the market investigation
(40)    The majority of the respondents to the market investigation took the view that each
        of HDI, IPDI, H12MDI, TDI, MDI and mMDI could be viewed as separate
        markets.46
                            (D)      Commission’s conclusion
(41)    In the present case and on the basis of paragraph (39) above, the Commission will
        separately assess in line with the Commission precedents each of HDI, IPDI,
        H12MDI, TDI, MDI and mMDI.
4.2.3.2. Geographic market definition
                            (A)      Past decisions of the Commission
(42)    In previous decisions in the sector, the Commission has considered the geographic
        markets for the supply of diisocyanates to be at least EEA-wide in scope.47
                            (B)      The view of the Notifying Party
(43)    The Notifying Party does not contest the Commission precedent.
                            (C)      Results of the market investigation
(44)    The market investigation confirmed that the geographic market for diisocyanates and
        the sub-segments thereof is at least EEA-wide in scope and possibly worldwide.48
                            (D)      Commission’s conclusion
(45)    In the present case and taking into account the results of the market investigation, the
        Commission considers the exact geographic market definition for diisocyanate
        compounds can be left open, since the exact geographic market definition (EEA-
        wide or worldwide) for crosslinkers does not impact on the outcome of the
        competitive assessment of the transaction.
4.2.3.3. Overall conclusion on the market definition for diisocyanates
(46)    For the purposes of this Decision, the Commission concludes that the market for
        diisocyanates can be segmented by compound (i.e. HDI, IPDI, H12MDI, TDI, MDI
        and mMDI) without further segmentation and without a need to decide whether the
        geographic market is EEA-wide or worldwide in scope as it would not impact the
        competitive assessement.
46  See replies to questions 3 – 20 Q1 - Questionnaire to Upstream Competitors and questions 4 - 6.3 Q2 –
    Questionnaire to Downstream Competitors (Coating components manufacturers).
47 M.8674 – BASF SE / Solvay S.A., paragraph 376; M.2355 – The Dow Chemical Company / EniChem
    S.p.A, paragraph 17; M.4177 – BASF Aktiengesellschaft / Degussa AG, paragraph 33, M.3125 –
    Huntsman Holdings LLC / Vantico Group S.A., paragraph 15.
48 See replies to questions 34 – 36 Q1 - Questionnaire to Upstream Competitors and questions 10 - 12 Q2 –
    Questionnaire to Downstream Competitors (Coating components manufacturers).
                                                        10
 ---pagebreak--- 4.2.4. Linear polyols
4.2.4.1. Product market definition
(47)    Linear polyols are versatile intermediate chemicals with a wide range of uses such as
        components in the production of polyurethanes. Linear polyols can be used as inputs
        in the production of thermoplastic urethanes (“TPUs”), elastomers and PU Resins.
        The principal use of linear polyols is the fabrication of polyurethane foam. In the
        production of PU Resins, the linear polyols that are most commonly used are
        polyether and polyester diols. Polycarbonate diols, another linear polyol, are also
        used for the production of PU Resins, but in much smaller volumes. Only Covestro
        produces linear polyols.
                           (A)       Past decisions of the Commission
(48)    The Commission has previously distinguished between polyether and polyester
        polyols (or diols) as a result of their different physical properties and applications,
        finding that these constitute two distinct product markets.49. The Commission has
        not previously defined a relevant product market for polycarbonate diols.
                           (B)       The view of the Notifying Party
(49)    The Notifying Party does not contest the Commission precedent.
                           (C)       Results of the market investigation
(50)    The majority of the respondents to the market investigation took the view that
        separate product markets should be considered for polyester, polyether and
        polycarbonate diols.50
                           (D)       Commission’s conclusion
(51)    In the present case and on the basis of paragraph (48) above, the Commission in line
        with the Commission precedents, will assess separately each of polyester, polyether
        and polycarbonate diols.
4.2.4.2. Geographic market definition
                           (A)       Past Decisions of the Commission
(52)    In previous decisions, the Commission has considered the geographic markets for
        the supply of polyols to be at least EEA-wide in scope.51
                           (B)       The view of the Notifying Party
(53)    The Notifying Party does not contest the Commission precedents.
49  M.1796 – Bayer Aktiengesellschaft / Lyondell Chemical Company, paragraph 9; M.2355 – The Dow
    Chemical Company / EniChem S.p.A, paragraph 9; M.3125 Huntsman Holdings LLC / Vantico Group
    S.A.
50 See replies to questions 22 - 32 Q1 - Questionnaire to Upstream Competitors and Q2 – Questionnaire to
    Downstream Competitors (Coating components manufacturers).
51 M.1796 – Bayer Aktiengesellschaft / Lyondell Chemical Company, paragraph 13; M.3125 – Huntsman
    Holdings LLC / Vantico Group S.A. paragraph 15.
                                                        11
 ---pagebreak---                             (C)       Results of the market investigation
(54)    The market investigation indicated that the geographic market for polyols and the
        sub-segments thereof is possibly worldwide in scope.52
                            (D)       Commission’s conclusion
(55)    In the present case, the Commission considers the exact geographic market
        definition can be left open as it does not impact the outcome of the competitive
        assessment regardless of whether it is EEA-wide or worldwide in scope.
4.2.4.3. Overall conclusion on the market definition for linear polyols
(56)    For the purposes of this Decision, the Commission considers that in line with the
        Commission precedents, each of polyester, polyether and polycarbonate diols
        constitute separate markets, without a need to define whether the geographic market
        is EEA-wide or worldwide in scope as it would not impact the competitive
        assessment.
4.2.5. Solar coatings
4.2.5.1. Product market definition
(57)    Solar coatings are the coatings used for solar panels and photovoltaic applications,
        and belong to the broader group of industrial coatings. The term industrial coating
        refers to products that are applied to industrial products in order to improve their
        surface properties, such as appearance, adhesion, wettability, corrosion resistance,
        wear resistance and scratch resistance. Only the Target is active in the production of
        solar coatings. Covestro does not have any waterborne acrylic resins in its offering
        corresponding to the resins the Target uses as an input for its solar coatings, nor does
        Covestro supply any other coating resins for solar coating applications.
                            (A)       Past Decisions of the Commission
(58)    The Commission previously53 distinguished various industrial coatings categories
        which were typically defined by reference to specific applications, such as coil
        coatings, wood finishes, protective and marine coatings, powder coatings, metal
        coating, packaging coatings, automotive refinish coatings, and other industrial
        coatings. Solar coatings have not been separately assessed by the Commission.
                            (B)       The view of the Notifying Party
(59)    In light of the fact that Covestro does not have any waterborne acrylic resins in its
        offering corresponding to the resins the Target uses as an input for its solar coatings,
        nor does Covestro supply any other coating resins for solar coating applications, the
        Notifying Party submits that whether the Target’s solar coatings form part of a
        separate market for solar coatings or belong to a broader market including also other
        glass coatings or even industrial coatings for non-glass applications can remain open
52  See replies to questions 37 - 39 Q1 - Questionnaire to Upstream Competitors and Q2 – Questionnaire to
    Downstream Competitors (Coating components manufacturers).
53 M.4853 – PPG / SigmaKalon, paragraphs 7 et seq.; M.1182 – Akzo / Nobel Courtaulds, paragraph 9.
                                                         12
 ---pagebreak---          for the purpose of this Transaction, given that no issues arise whatever approach is
         taken.
                             (C)        Results of the market investigation
(60)     The market investigation did not point to a need to define a separate market for solar
         coatings.
                             (D)        Commission’s conclusion
(61)     In the present case, the Commission considers that the exact product market
         definition regarding solar coatings does not impact the competitive assessment given
         the lack of any actual vertical relationships.
4.2.5.2. Geographic Market Definition
                             (A)        Past Decisions of the Commission
(62)     For the coatings mentioned above in paragraph (58) the Commission left the
         geographic market open.
                             (B)        The view of the Notifying Party
(63)     The Notifying Party submits that the geographic market comprising the Target’s
         solar coating activities is global or at least EEA-wide. The transportation costs
         represent a small proportion of the average sales value ([0-5]% for overseas sales).
         Customers, typically glass companies without in-house coating production
         capabilities, tend to source coatings on a global basis. By way of example, […]. As
         far as the Target is concerned, […]. Among others, DSM exports solar coatings to
         […].
                             (C)        Results of the market investigation
(64)     The market investigation was not conclusive as to whether the possible market for
         solar coatings is EEA-wide or worldwide in scope.
                             (D)        Commission’s conclusion
(65)     In the present case, the Commission considers that the exact geographic market
         definition regarding solar coatings does not impact the competitive assessment give
         the lack of actual vertical relationships.
4.2.5.3. Overall conclusion on the market definition for solar coatings
(66)     For the purposes of this Decision, the Commission considers that the exact market
         definition regarding solar coatings does not impact the competitive assessment given
         the lack of any actual vertical relationships.54
54  This theoretic only vertical relationship arises between Covestro’s coating resins activities (upstream) and
    the Target’s solar coating activities (downstream), if a broader market for waterborne acrylic resins across
    all applications is considered. However, Covestro does not have any waterborne acrylic resins in its
    offering corresponding to the resins the Target uses as an input for its solar coatings, nor does Covestro
                                                           13
 ---pagebreak--- 4.3.    Assessment
4.3.1. Horizontally affected markets
(67)    The Transaction gives rise to a very large number of horizontal links between
        Covestro and the Target with regard to coating resins and crosslinkers (“coating
        components”). The Commission has examined all these links under all the possible
        market definitions, as set out in Section 4.2 above and has identified a number of
        affected markets.
(68)    For coating resins, the following horizontally affected markets arise: :
a.      Horizontally affected markets with an EEA-wide scope: (i) waterborne acrylics for
        industrial wood uses, (ii) waterborne acrylics for special purpose uses, (iii)
        waterborne polyurethanes overall, (iv) waterborne polyurethanes for adjacent coating
        and non-coating applications, (iv) waterborne polyurethanes for architectural uses,
        (v) waterborne polyurethanes for automotive OEM uses, (vi) waterborne
        polyurethanes for other industrial uses, (vii) solventborne saturated polyesters for
        adjacent coating and non-coating applications, (viii) solventborne saturated
        polyesters for automotive refinish uses, (ix) solventborne saturated polyesters for
        coil and PCM uses, (x) radiation curable polyurethanes overall, (xi) radiation curable
        polyurethanes for architectural uses, (xii) radiation curable polyurethanes for
        industrial wood uses and (xiii) radiation curable polyurethanes for other industrial
        uses.
   b.   Horizontally affected markets with a worldwide-scope: (i) waterborne polyurethanes
        for industrial wood uses, (ii) waterborne acrylics for special purpose uses, (iii)
        waterborne polyurethanes overall, (iv) waterborne polyurethanes for adjacent
        coating and non-coating applications, (v) waterborne polyurethanes for architectural
        uses, (vi) waterborne polyurethanes for automotive OEM uses, (vii) waterborne
        polyurethanes for special purposes, (viii) radiation curable polyurethanes overall,
        (ix) radiation curable polyurethanes for architectural uses, (x) radiation curable
        polyurethanes for industrial wood uses and (xi) radiation curable polyurethanes for
        other uses.
(69)    For crosslinkers, the following horizontally affected markets arise:
     a. Horizontally affected markets with an EEA-wide scope: (i) polyisocyanate
        crosslinkers overall and (ii) polyisocyanate crosslinkers for HDI oligomers;
     b. Horizontally affected markets with a worldwide-wide scope: (i) polyisocyanate
        crosslinkers overall and (ii) polyisocyanate crosslinkers for HDI oligomers.
(70)    The horizontal overlaps do not lead to any other affected markets under any of the
        possible market definitions set out in section 4.2 above, either at an EEA-wide or
    supply any other coating resins for solar coating applications. Thus, any input and customer foreclosure
    post-Transaction is unlikely. In light of this, this vertical relationship will not be further discussed in this
    Decision.
                                                             14
 ---pagebreak---          world-wide level, and these non-affected markets will not be further discussed in the
         present decision.55.
(71)     The Parties have provided market shares both on volume and value terms. The
         present assessment is conducted on a volume basis since no substantial differences
         arise for an assessment on a value basis, since on a value basis there are less affected
         markets and combined market shares do not vary much.
4.3.1.1. Market shares
(72)     The tables below provide the Parties’ combined market shares, as well as the post-
         merger concentration levels and the HHI deltas for all affected markets for (a)
         coating resins, and (b) crosslinkers.
                Table 1. Parties’ market shares in the EEA (2019) in volume (kt)
                                                  Coatings
                                                                               Post-
                                                                                        HHI
   Delivery      Chemistry       Segment     Covestro     Target   Combined merger               Category
                                                                                        delta
                                                                               HHI
                                Industrial                                     […]      […]          B
  waterborne       acrylics                  <[0-5]%   [30-40]%    [30-40]%
                                  Wood
                                 Special                                       […]      […]          B
  waterborne       acrylics                  <[0-5]%   [20-30]%    [20-30]%
                                 Purpose
                polyurethane                                                   […]      […]          C
  waterborne                     Overall    [20-30]%     [5-10]%   [20-30]%
                      s
                                Adjacent                                       […]      […]          B
                polyurethane   coating and
  waterborne                                [30-40]%      [0-5]%   [30-40]%
                      s       non-coating
                              applications
                polyurethane                                                   […]      […]          A
  waterborne                  Architectural  [0-5]%    [20-30]%    [20-30]%
                      s
                polyurethane  Automotive                                       […]      […]          B
  waterborne                                [30-40]%    <[0-5]%    [30-40]%
                      s           OEM
                polyurethane      Other                                        […]      […]          C
  waterborne                                [10-20]%   [10-20]%    [20-30]%
                      s         Industrial
                                Adjacent                                       […]      […]          A
                  saturated    coating and
 solventborne                               [10-20]%   [10-20]%    [20-30]%
                 polyesters   non-coating
                              applications
                  saturated   Automotive                                       […]      […]          A
 solventborne                               [10-20]%   [10-20]%    [20-30]%
                 polyesters      Refinish
55   See Table 4 Form CO and Annex 3 to the Supplementary Letter to the Form CO (updated Annex 7 to the
     Form CO), submitted on 11/01/2021.
                                                      15
 ---pagebreak---                                                       Coatings
                   saturated       Coil and                                          […]     […]         A
solventborne                                    <[0-5]%     [20-30]%     [20-30]%
                  polyesters         PCM
  radiation     polyurethane                                                         […]     […]         C
                                   Overall      [5-10]%     [10-20]%     [20-30]%
   curable             s
  radiation     polyurethane                                                         […]     […]         A
                                 Architectural [10-20]%      [5-10]%     [20-30]%
   curable             s
  radiation     polyurethane      Industrial                                         […]     […]         C
                                                [5-10]%     [20-30]%     [30-40]%
   curable             s            Wood
  radiation     polyurethane        Other                                            […]     […]         C
                                                [5-10]%     [20-30]%     [30-40]%
   curable             s          Industrial
                                                   Crosslinkers
                                                                                    Post-
                                                                                             HHI
  Delivery2       Chemistry        Segment      Covestro      Target     Combined merger              Category
                                                                                             delta
                                                                                     HHI
                polyisocyanat      Overall                                           […]     […]         B
                                               [20-30]%      <[0-5]%     [20-30]%
                e crosslinkers    Oligomers
                polyisocyanat        HDI                                             […]     […]         B
                                               [20-30]%      <[0-5]%     [20-30]%
                e crosslinkers    oligomers
Source: Form CO
            Table 2. Parties’ market shares in the worldwide (2019) in volume (kt)
                                                      Coatings
                                                                                        Post
                                                                                                HHI
 Delivery    Chemistry            Segment           Covestro      Target    Combined   Merge           Category
                                                                                                delta
                                                                                       r HHI
waterbor                                                                                […]     […]       A
              acrylics        Industrial Wood       <[0-5]%     [10-20]%    [20-30]%
   ne
waterbor                                                                                […]     […]       A
              acrylics        Special Purpose       <[0-5]%     [20-30]%    [20-30]%
   ne
waterbor    polyurethan                                                                 […]     […]       A
                                  Overall          [10-20]%      [5-10]%    [20-30]%
   ne            es
                            Adjacent coating and                                        […]     […]       A
waterbor    polyurethan
                                non-coating        [20-30]%      <[0-5]%    [20-30]%
   ne            es
                                applications
waterbor    polyurethan                                                                 […]     […]       B
                                Architectural        [0-5]%     [20-30]%    [20-30]%
   ne            es
waterbor    polyurethan                                                                 […]     […]       B
                             Automotive OEM        [20-30]%       [0-5]%    [20-30]%
   ne            es
                                                          16
 ---pagebreak---                                                     Coatings
waterbor   polyurethan                                                                […]   […]     A
                            Special Purpose        [5-10]%    [10-20]%    [20-30]%
   ne           es
radiation  polyurethan                                                                […]   […]     A
                                 Overall           [5-10]%    [10-20]%    [20-30]%
 curable        es
radiation  polyurethan                                                                […]   […]     A
                              Architectural       [10-20]%     [5-10]%    [20-30]%
 curable        es
radiation  polyurethan                                                                […]   […]      C
                            Industrial Wood       [10-20]%    [20-30]%    [30-40]%
 curable        es
radiation  polyurethan                                                                […]   […]      C
                            Other Industrial      [10-20]%    [10-20]%    [20-30]%
 curable        es
                                                 Crosslinkers
                                                                                Post Merger HHI   Category
              Chemistry        Segment        Covestro     Target    Combined
                                                                                    HHI     delta
            polyisocyanate     Overall                                              […]      […]
                                             [20-30]%     <[0-5]%    [20-30]%                        B
             crosslinkers     oligomers
            polyisocyanate       HDI                                                […]      […]
                                             [30-40]%     <[0-5]%    [30-40]%                        B
             crosslinkers     oligomers
Source: Form CO
(73)     For the purposes of assessing this case, the Commission grouped the affected
         markets in three large categories:
                The first category is composed of markets which fall under the conditions
                 discussed in paragraph (10) above and outlined in paragraph 18 of the
                 Horizontal Merger Guidelines, that is, the combined market share of the
                 undertakings concerned does not exceed 25% either in the Internal Market or
                 in a substantial part of it , (“Category A” markets);
                The second category is composed of markets which fall under the under the
                 conditions outlined in Paragraph 20 of the Horizontal Mergers Guidelines
                 that is, either the post-merger HHI is between 1 000 and 2 000 and the delta
                 is below 250, or the post-merger HHI is above 2 000 and the delta is below
                 150 (“category B” markets);
                The third category is composed of affected markets that do not fall under
                 either of the two above categories (the “Other Affected Markets”).
(74)     The Category A markets are:
     a.    in the EEA: (i) waterborne polyurethanes for architectural uses, (ii) solventborne
           saturated polyesters for adjacent coating and non-coating applications; (iii)
           solventborne saturated polyesters for automotive refinish uses, (iv) solventborne
           saturated polyesters for coil and PCM uses and (v) radiation curable
           polyurethanes for architectural uses;
                                                         17
 ---pagebreak---      b.    Worldwide: (i) waterborne acrylics for industrial wood uses, (ii) waterborne
           acrylics for special purpose uses, (iii) waterborne polyurethanes overall, (iv)
           waterborne polyurethanes for adjacent coating and non-coating applications, (v)
           waterborne polyurethanes for special purpose uses, (vi) radiation curable
           polyurethanes overall and (vii) radiation curable polyurethanes for architectural
           uses.
(75)    The Category B markets are:
     a.    In the EEA: (i) waterborne acrylics for industrial wood uses, (ii) waterborne
           acrylics for special purpose uses, (iii) waterborne polyurethanes for adjacent
           coating and non-coating applications, (iv) waterborne polyurethanes for
           automotive OEM uses, (v) polyisocyanate crosslinkers overall, and (vi)
           polyisocyanate crosslinkers for HDI oligomers;
     b.    Worldwide : (i) waterborne polyurethanes for architectural uses, (ii) waterborne
           polyurethanes for automotive OEM uses (iii) polyisocyanate crosslinkers overall,
           and (iv) polyisocyanate crosslinkers for HDI oligomers.
(76)    The Category C markets are:
    a. For the EEA: (i), waterborne polyurethanes overall, (ii) waterborne polyurethanes
        for other industrial uses, (iii) radiation curable polyurethanes overall; (iv) radiation
        curable polyurethanes for industrial wood and (v) radiation curable polyurethanes
        for other industrial uses;
    b. Worldwide: (i) radiation curable polyurethanes for industrial wood and (ii) radiation
        curable polyurethanes for other industrial uses.
4.3.1.2. The Notifying Party’s view
(77)    The Notifying Party firstly submits that the combined shares resulting from the
        transaction are moderate; increments are small and numerous alternative suppliers
        are present and will continue to constrain the merged entity post transaction, in all
        instances where horizontally affected markets / segments arise. 56
(78)    According to the Notifying Party, these competitors often have a supply share that is
        larger than (or at least comparable to) the increment brought over by the transaction
        in several markets / segments. Competitors will generally have spare capacity and
        would be able to increase their capacity at relatively short notice without incurring
        prohibitive costs. These competitors could increase their production and easily
        absorb any increase of demand created from customers switching.
(79)    Secondly57, the Notifying Party submits that the Parties are not close competitors as
        they have different product and application focus.
(80)    Thirdly, the Notifying Party submits that merged entity will continue to be
        constrained by rivals’ entry and expansion58 and it will face significant buyer power.
56  See Form CO paragraphs 196-203.
57  See Form CO paragraphs 204 – 209.
                                                    18
 ---pagebreak--- 4.3.1.3. Results of the market investigation and Commission’s assessment
                            (A)        Category A and Category B markets
(81)     Category A markets, both at the EEA and worldwide levels, do not give rise to
         competition concerns as they satisfy the criteria set out in paragraph 18 of the
         Horizontal Mergers Guidelines. Additionally, the Commission notes that the
         majority of the responses of customers59 and of competitors60 of the Parties for each
         of the products of Category A markets did not indicate any concern.
(82)     For Category B markets, the Commission notes that for five out of six markets 61 at
         the EEA level and two out of four markets62 at the worldwide level, the increments
         brought by the transaction are below [0-5]% and the HHI deltas are low (below
         100),. For two63 of the remaining markets, the increment brought by the transaction
         is just [0-5]% and the HHI deltas are also below 100. For the remaining market 64 the
         combined market share is of only [20-30]%, the increment [0-5]%, the HHI delta is
         […] and there are seven competitors of the Parties with market shares higher than
         the increment brought by the transaction. Additionally, the Commission notes that,
         as was the case for Category A markets, the majority of the responses of customers
         and of competitors of the Parties for each of the products of the Category B markets
         did not indicate any concern.
(83)     On the basis of paragraphs (81) and (82) the Commission considers that the
         Transaction does not raise serious doubts as to its compatibility with the internal
         market as a result of horizontal non-coordinated effects on any of the Category A
         and Category B Markets.
                            (B)        Category C markets
(84)     On an EEA-wide market for waterborne polyurethanes overall, the combined market
         share of the Parties is [20-30]%. Covestro is already market leader pre-transaction.
         The increment brought over by the Target is relatively small ([5-10]%) and there are
         four competitors with market shares higher than this increment (Stahl [10-20]%,
         Allnex [10-20]%; BASF [5-10]%, A&B [5-10]%).
(85)     On an EEA-wide market for or waterborne polyurethanes for other industrial uses,
         the combined market share of the Parties is [20-30]%. Covestro is the second biggest
         supplier behind Allnex and the merged entity will remain so post-transaction. The
         increment brought over by the Target is [10-20]%. There are two competitors with
         higher or equal market shares (Allnex [30-40]%, Stahl [10-20]%).
58  See Form CO paragraphs 209 – 213.
59  See replies to Q3 - Questionnaire to Downstream Customers.
60  See replies to Q2 – Questionnaire to Downstream Competitors (Coating components manufacturers).
61  (i) waterborne acrylics for industrial wood uses, (ii) waterborne acrylics for special purpose uses, (iii)
    waterborne polyurethanes for automotive OEM uses, (iv) polyisocyanate crosslinkers overall, and (v)
    polyisocyanate crosslinkers for HDI oligomers.
62  (i) polyisocyanate crosslinkers overall, and (ii) polyisocyanate crosslinkers for HDI oligomers.
63  Waterborne polyurethanes for adjacent coating and non-coating applications in the EEA and waterborne
    polyurethanes for automotive OEM uses worldwide.
64  Waterborne polyurethanes for architectural uses worldwide.
                                                            19
 ---pagebreak--- (86) On an EEA-wide market for or radiation curable polyurethanes overall, the
     combined market share of the Parties is [20-30]%. The Target is the second biggest
     supplier, together with Arkema, behind Allnex. The merged entity will become
     market leader post-transaction and the merged entity will remain so. The increment
     brought over by Covestro is [5-10]%. There are four competitors with market shares
     higher than this increment (Allnex [20-30]%, Arkema [10-20]%, Alberdingk Boley
     (“A&B”) [10-20]%) and BASF [10-20]%).
(87) On an EEA-wide market for or radiation curable polyurethanes for industrial wood
     combined market share of the Parties is [30-40]%. The Target is the second bigger
     supplier behind Allnex. The merged entity will become market leader post-
     transaction. The increment brought over by Covestro is [5-10]%. There are three
     competitors with market shares higher than this increment (Allnex [20-30]%,
     Arkema [20-30]% and A&B [10-20]%).
(88) On a worldwide market definition for radiation curable polyurethanes for industrial
     wood, the combined market share of the Parties is [30-40]%. The Target is the
     second biggest supplier behind Allnex. The merged entity will become market leader
     post-transaction, but its market share will remain moderate. The second biggest
     player post-transaction has a market share close to the one of the merged entity.
     Moreover, the increment brought over by the Covestro is [10-20]% and there are
     three competitors with market shares higher than this increment (Allnex [20-30]%,
     Arkema [20-30]% and A&B [10-20]%).
(89) On an EEA-wide market for or radiation curable polyurethanes for other industrial
     uses, the combined market share of the Parties is [30-40]%. The Target is already
     market leader pre-transaction, but its market share remains moderate. The increment
     brought over by Covestro is [5-10]%. There are four competitors with higher or
     equal market shares than this increment (Allnex [10-20]%, Arkema [10-20]%, BASF
     [10-20]% and A&B [5-10]%).
(90) On a worldwide market definition for radiation curable polyurethanes for other
     industrial uses, the combined market share of the Parties is [20-30]%. The Target is
     already market leader pre-transaction, but its market share remains moderate. The
     increment brought over by Covestro is [10-20]%. There are two competitors with
     market shares higher than this increment (Allnex [10-20]% and Arkema [10-20]%).
(91) The Commission notes that the combined market shares of the Parties for the
     Category C markets are moderate and in any case never above [30-40]%. Post-
     merger HHIs and HHI deltas remain moderate as well. Furthermore, for each of
     these markets there are between two and four competitors with market shares equal
     or higher than the increment brought over by the transaction. The Commission notes
     that for all of these markets, either under an EEA, or a worldwide market definition
     the main competitors are the same well established multinational chemical
     companies such as A&B, Allnex, Arkema and BASF.
(92) On the demand side, the Commission notes that for each of the products of the
     Category C markets, the majority of the customers responding in the market
                                               20
 ---pagebreak---         investigation indicated that they did not foresee the transaction to result either in
        price increase, or reduction of choice of the products in question.65
(93)    In the same vein, for each of the products of the Category C markets, the majority of
        the customers responding in the market investigation and who are actually procuring
        these products from the Parties indicated that they have a good or very good
        negotiating power vis à vis the merged entity.66 Moreover, they expect that there will
        be a sufficient number of credible suppliers from which they will be able to procure
        the volumes they would need post-transaction.67 Overall, the majority of the
        customers having replied does not foresee any negative consequences stemming for
        the Transaction, for any of the products under consideration.68
(94)    On the supply side, the majority of competitors of the Parties believes that for most
        of the products of the Category C markets, the transaction will not have a negative
        impact either on the price, or on the availability of volumes, given also the generally
        available spare production capacities.69
(95)    The Commission notes that for two of these products, namely (i) the overall market
        for waterborne polyurethanes, and (ii) the market for waterborne polyurethanes for
        other industrial uses, the majority of responding competitors of the Parties indicated
        that an increase in prices and/or reduction of choice might result from the
        transaction. 70 Nevertheless, these negative views are not particularly substantiated.71
(96)    Moreover, the Commission recalls that customers of the Parties did not raise any
        concerns in this respect. Furthermore, the Commission notes that for the overall
        market for waterborne polyurethanes there are four competitors with market shares
        above the increment brought by the Transaction, while for the market for waterborne
        polyurethanes for other industrial uses there are two, one of which has a market
        share bigger than the merged entity.
(97)    On the basis of the paragraphs (84) to (96) above, the Commission considers that the
        Transaction does not raise serious doubts as to its compatibility with the internal
        market as a result of horizontal non-coordinated effects on any of the Category C
        Markets.
4.3.1.4. Overall conclusion on horizontally affected markets
(98)    In conclusion, for the reasons set out above, in paragraphs (81) to (97), the
        Commission considers that the Transaction does not raise serious doubts as to its
        compatibility with the internal market as a result of horizontal non-coordinated
        effects concerning (a) coating resins and (b) crosslinkers.
65  See replies to questions 12 - 16, Q3 - Questionnaire to Downstream Customers.
66  See replies to question 11, Q3 - Questionnaire to Downstream Customers.
67  See replies to question 11, Q3 - Questionnaire to Downstream Customers.
68  See replies to question 11, Q3 - Questionnaire to Downstream Customers.
69  See replies to questions 66, 68, 69, 75, 76 and 77, Q2 – Questionnaire to Downstream Competitors
    (Coating components manufacturers).
70  See replies to questions 66, 69 and 77, Q2 – Questionnaire to Downstream Competitors (Coating
    components manufacturers).
71  See replies to questions 66.1, 69.1 and 77.1, Q2 – Questionnaire to Downstream Competitors (Coating
    components manufacturers).
                                                           21
 ---pagebreak--- 4.3.2. Vertically affected markets
4.3.2.1. Introduction
   (99)     The Transaction gives rise to a large number of vertical relationships as a result of
            Covestro’s presence on the upstream markets concerning certain input products
            (e.g. polyols and isocyanates) that are used for the production of coating
            components (“input materials for coating components”).
   (100) Vertical relationships arise between, on the one hand, the upstream activities of
            Covestro relating to:
        (a)      the supply of several diisocyanate compounds, in particular:
                 –      the aromatic diisocyanate compounds: TDI and mMDI;
                 –      the aliphatic diisocyanate compounds: HDI, IPDI, H12MDI; and
        (b)      the supply of linear polyols for use in PU Resins, in particular:
                 –      polyether diols;
                 –      polyester diols; and
                 –      polycarbonate diols;
        and on the other hand, the combined downstream activities of Covestro and of the
        Target relating to the supply of PU Resins, namely
                 –      PUDs;
                 –      Radiation Curable PUDs;
                 –      polyurethane-acrylic hybrids (“PUD-PAC hybrids”);
                 –      polyurethane-acrylic-alkyd hybrids (“PUD-PAC-alkyd hybrids”);
                 –      SB poly-urethanes; and
                 –      Radiation curable urethane acrylates.
(101) The above listed vertical relationships give rise to several vertically affected markets
        at EEA and worldwide level, which are summarised in a schematic format in Tables
        3 and 4 below.
                                                    22
 ---pagebreak---  ---pagebreak---  ---pagebreak---             Table 5. EEA supply share on coating resins markets (volume in mt 2019)
                                                            Covestro     Target   Combined
           Resin chemistry                Application
                                                                                 Market share
                                        Adjacent coating
              Waterborne
                                        and non-coating     [30-40]%      [0-5]%   [30-40]%
             Polyurethanes
                                          applications
                                        Automotive OEM      [30-40]%     <[0-5]%   [30-40]%
                                        Industrial Wood      [5-10]%    [20-30]%   [30-40]%
          Radiation Curable
             Polyurethanes                 Packaging                               [30-40]%
                                        Other industrial     [5-10]%    [20-30]%   [30-40]%
                 Waterborne
                 polyurethane-
                                          Architectural       [0-5]%    [30-40]%   [30-40]%
                 alkyd acrylic
                 hybrids74
                 Waterborne
                 polyurethane
                                           Packaging          [0-5]%    [30-40]%   [30-40]%
                 acrylic
                 hybrids75
        Source: Form CO
            Table 6. Worldwide supply share on coating resins markets (volume in mt
            2019)
              Resin                                     Covestro      Target      Combined
                                    Application
           chemistry                                                             Market share
           Radiation
                                 Industrial Wood        [10-20]%     [20-30]%     [30-40]%
        Curable PUDs
            Source: Form CO
   (105) Therefore, for the EEA three categories of vertically affected markets can be
            distinguished:
             a. Those where the merged entity’s market shares will be above 30% both
                 upstream (because of Covestro’s market share in HDI (at EEA level [30-
                 40]%), H12MDI (at worldwide level [30-40]%), and IPDI (at worldwide level
                 [30-40]%)) and downstream because of the Parties’ combined EEA-wide
74  Only the Target is active in this segment.
75  Only the Target is active in this segment.
                                                        25
 ---pagebreak---                  supply share in certain PU Resin markets/segments76. As regards this
                 category of vertically affected markets, the Commission assesses the risk of
                 input and customer foreclosure;
             b. Those where the merged entity’s market shares downstream are below 30%
                 (all remaining PU Resins segments) but which are affected because of
                 Covestro’s market share in HDI (at EEA level [30-40]%), H12MDI (at
                 worldwide level [30-40]%), and IPDI (at worldwide level [30-40]%) at the
                 upstream level. As regards this category of markets, the Commission’s
                 assessment focusses on possible input foreclosure; and
             c. Those where the merged entity’s upstream market shares would remain
                 below 30%77, but which are affected because the Parties’ combined
                 downstream shares in certain PU Resin markets/segments are above 30% or
                 more as shown above in Tables 5 and 6. As regards this category of markets,
                 the Commission’s assessment will focus on possible customer foreclosure.
4.3.2.3. The Notifying Party’s view
(106) The Notifying Party submits that there are no foreclosure risks.
(107) With regard to input foreclosure,78 the merged entity would not have the ability to
        engage in an input foreclosure strategy with respect to the supply of any
        diisocyanates or linear polyols vis-à-vis the downstream PU Resin markets in light
        of Covestro’s limited position in the merchant market supply. In particular, with
        regard to HDI, the Notifying Party submits that HDI is not an important input for PU
        Resins. In addition, the merged entity would not have the ability to pursue an input
        foreclosure strategy because it could not affect the overall availability of HDI for
        downstream suppliers of PU Resins. The supply of HDI in the EEA is currently
        “long”, with capacity materially outstripping demand. The merged entity would also
        lack the incentive to foreclose downstream competitors as (i) it would not be
        profitable to engage in an input foreclosure strategy and (ii) given that the Parties’
        combined supply share in each of the downstream PU Resin markets is limited, the
        merged entity would, if at all, only capture a small portion of any diverted demand.
(108) With regard to customer foreclosure on any of the vertically affected markets for PU
        Resins,79 the Notifying Party submits that the merged entity will not have the ability
        to foreclose upstream suppliers of each of the input products, given that PU Resins
        represent only one of a range of downstream uses for the relevant products, and thus
        PU Resins customers are generally not a critical or even a particularly important
        customer base for upstream suppliers. In addition, there are numerous downstream
        competitors and thus alternative customers for upstream suppliers. The Target’s
76  Radiation curable PUD for industrial wood and other industrial applications; waterborne polyurethanes for
    for adjacent coating and non-coating applications, architectural, and automotive OEM applications; and
    waterborne urethane acrylic hybrids for packaging applications.
77 EEA: H12MDI ([20-30]%), IPDI ([20-30]%), Polycarbonate diols ([10-20]%), Polyester diols ([5-10]%),
    Polyether diols ([20-30]%), TDI ([20-30]%), and mMDI ([10-20]%); worldwide: HDI ([20-30]%),
    Polycarbonate diols ([5-10]%), Polyester diols ([0-5]%), Polyether diols ([10-20]%), TDI ([20-30]%), and
    mMDI ([10-20]%).
78 See Form CO, paragraphs 416 – 431.
79 See Form CO, paragraphs 432 – 436.
                                                         26
 ---pagebreak---         demand for the relevant input products does not represent a material proportion of
        either EEA or global demand for the relevant products, and indeed in many cases
        represents only a negligible share.
4.3.2.4. Results of the market investigation and Commission’s assessment
                           (A)        Results of the market investigation
(109) As regards input foreclosure, the majority of the responding downstream competitors
        in resins who purchase HDI, IPDI and H12MDI from the Parties as inputs confirmed
        that the merged entity will not have the ability to foreclose them of the supply with
        HDI, IPDI and H12MDI as inputs for PU resins.80 The majority of the upstream
        competitors that is to say other producers of HDI, IPDI and H12MDI confirmed that
        they would be in a position to increase their sales should the demand increase.81
        Similarly, the majority of both the inputs’ customers and of the input’s producers
        took the view that there will remain alternative suppliers of HDI, IPDI, and H12MDI
        in case the merged entity ceased the supply that the merger entity will lack the
        incentive to stop supplying inputs for PU resins.82
(110) With regard to customer foreclosure and the ability of the merged entity to stop
        sourcing inputs from third parties, the vast majority of upstream competitors
        confirmed there will remain sufficient alternative customers to purchase inputs for
        resins. Furthermore, the vast majority of upstream competitors considered that the
        merged entity would lack the incentive to engage in customer foreclosure. However,
        a couple of respondents explained that the Target could start post-transaction
        sourcing internally its needs for PU Resins inputs.
                           (B)        Commission’s assessment of input foreclosure
(111) The Commission considers that the Transaction will not lead to input foreclosure
        with regard to (i) the upstream activities of Covestro relating to the supply of the
        aliphatic diisocyanate compounds: HDI, IPDI, H12MDI; and (ii) the combined
        downstream activities of Covestro and of the Target relating to the supply of PU
        Resins (categories of affected markets listed under (a) and (b) in paragraph (105)
        above).
(112) As regards the ability of the merged entity to engage in input foreclosure, the
        Commission first notes that Covestro does not hold a very significant position
        (below 40%) in the merchant market for:
               HDI: [30-40]% in the EEA
               IPDI: [30-40]% worldwide
               H12MDI: [30-40]% worldwide
80  See Replies to questions 55, 58, and 61 of Q2 Questionnaire to Downstream Competitors (Coating
    components manufacturers).
81 See Replies to questions 41, 48, and 56 of Q1 - Questionnaire to Upstream Competitors.
82 See Replies to questions 42, 49 and 57 of Q1 - Questionnaire to Upstream Competitors, and Replies to
    questions 54, 57, and 60 of Q2 Questionnaire to Downstream Competitors (Coating components
    manufacturers).
                                                        27
 ---pagebreak--- (113) Second, there are several alternative suppliers of each of the inputs from which non-
        vertically integrated coating resin suppliers could source, in the event that the
        merged entity were to deteriorate supply conditions to competing suppliers of PU
        Resins. The merged entity would therefore not be able to engage in an input
        foreclosure strategy as it could not affect the overall availability of these inputs on
        the market.
        (a)     HDI - in the EEA : Vencorex [20-30]%,             Wanhua [10-20]%,       BASF
                 [10-20]%, Evonik       <[0-5]%
        (b)     IPDI - worldwide: Evonik ([50-60]%), Vencorex ([5-10]%), BASF ([5-
                10]%).
        (c)     H12MDI - worldwide: Wanhua ([30-40]%), Evonik ([20-30]%).
(114) Third, the merged entity would not have the ability to pursue an input foreclosure
        strategy because it could not affect the overall availability of HDI for downstream
        suppliers of PU Resins. The supply of HDI in the EEA is currently “long”, with
        capacity materially outstripping demand. In the last five years, Vencorex ([20-30]%
        market share by volume) has expanded HDI capacity significantly through the
        conversion of its TDI production plant in Pont-de-Claix (France) into an HDI
        production plant and would immediately seize the opportunity to increase supply in
        response to any deterioration of supply by the Merged Entity. As less than [0-5]% of
        the production of HDI is used for PU Resins, any attempt by the merged entity to
        reduce the availability of HDI for use in PU Resins would only require a limited
        supply response from Vencorex relative to its overall HDI capacity.
(115) Fourth, the above is also confirmed by the market investigation as explained in
        paragraph (109).
(116) As regards the incentive of the merged entity to engage in input foreclosure, the
        Commission first notes that the overall demand that potentially could be diverted
        from downstream competitors to the merged entity is small. The proportion of
        PUDs/PU Resins supplied in the EEA that are produced using HDI as an input is
        very small. Therefore, any hypothetical input foreclosure strategy could only affect a
        very low percentage of the downstream PU Resin activities of competitors.
(117) Second, given that the Parties’ combined supply share in each of the downstream PU
        Resin markets is limited, the merged entity would only capture a small portion of
        any diverted demand. The overall downstream gain in market share would thus be
        negligible. On an overall resin chemistry level, the Parties’ combined market shares
        never exceed 30%83
                either in the EEA: [20-30]% in waterborne polyurethanes, [10-20]% in
                 waterborne polyurethane acrylic hybrids, [20-30]% in waterborne
                 polyurethane alkyd acrylic hybrids, [10-20]% in solventborne polyurethanes
                 and [0-5]% in radiation curable urethane acrylates,
83 See revised Table 25 of the Form CO, Vertically affected markets / segments – EEA (2019 – volume)
   submitted on 11 January 2021.
                                                     28
 ---pagebreak---              or worldwide, [20-30]% in waterborne polyurethanes, [5-10]% in waterborne
              polyurethane acrylic hybrids, [10-20]% in waterborne polyurethane alkyd
              acrylic hybrids, below [0-5]% in solventborne polyurethanes and [0-5]% in
              radiation curable urethane acrylates,
(118) Third, the lack of incentive to engage in an input foreclosure strategy is also
      demonstrated by the fact that Covestro currently supplies […] in PU Resins and that
      there has never been any attempt by Covestro to foreclose competing resin
      producers.
(119) Fourth, the above is also confirmed by the market investigation as explained in
      paragraph (109).
      (B.i)     No impact on effective competition between downstream competitors
(120) Regardless of whether the merged entity would have the ability or the incentive to
      engage in an input foreclosure strategy, such strategy would have no impact on
      effective competition given the number of available suppliers who are in a position
      to increase supply if necessary.
                       (C)      Customer foreclosure
(121) With regard to the merged entity’s ability to engage in customer foreclosure
      (affected markets listed under (a) and (c) of paragraph (105)), the Commission first
      notes that PU Resins represent only one of a range of downstream uses for the
      relevant input products, and thus PU Resins customers are generally not a critical
      customer base for upstream suppliers. In particular:
      (a)     TDI: the predominant use of TDI is the production of flexible polyurethane
              foams. This accounts for more than [80-90]% of TDI production in the EEA
              and worldwide. In contrast, the use of TDI in coatings accounts for an
              estimated [5-10]% of TDI production.
      (b)     MDI: the predominant use of MDI is the production of rigid polyurethane
              foams. This accounts for more than [60-70]% of global MDI demand. The
              use of MDI in coatings accounts for only approximately [0-5]% of global
              MDI demand.
      (c)     HDI: the predominant use of HDI is the production of polyisocyanate
              crosslinkers. Covestro estimates that polyisocyanates account for more than
              [90-100]% of HDI production in the EEA and worldwide with less than [0-
              5]% of HDI going into the production of PU Resins.
      (d)     IPDI: In addition to the production of PU Resins, IPDI is also used in the
              production of polyisocyanate crosslinkers. Covestro estimates that
              polyisocyanate crosslinkers account for between 20-30% of IPDI production
              in the EEA and worldwide.
      (e)     H12MDI: In addition to the production of PU Resins, H12MDI is also used in
              the production of TPUs/elastomers. Covestro estimates that TPUs/elastomers
              account for between 20-30% of H12MDI production in the EEA and
              worldwide.
                                                29
 ---pagebreak---         (f)     Polyether diols: polyether polyols are used predominantly for the production
                of foams. This accounts for approximately [80-90]% of global polyether
                polyol demand. The use of linear polyether polyols in coatings accounts for
                only approximately [5-10]% of global polyether polyol demand.
        (g)     Polyester diols: polyester polyols are used predominantly for the production
                of foams and to a lesser extent, elastomers. The use of polyester diols in
                coatings accounts for only approximately [10-20]% of global polyester
                demand.
        (h)     Polycarbonate diols: Polycarbonate diols are used for the production of TPUs
                and elastomers (an estimated [20-30]% of global demand), as well as
                coatings and adhesives (an estimated [80-90]% of global demand).
(122) Second, post-transaction there will remain sufficient downstream competitors and
        thus alternative customers for upstream suppliers. The Target’s demand for the
        relevant input products does not represent a material proportion of either EEA or
        global demand for the relevant product. Therefore, any switch of the Target’s
        merchant demand to internal supply represents a small part of the overall demand
        that would not foreclose upstream competitors.84 In particular:
        (a)     TDI: The Target’s demand for TDI accounts for less than [0-5]% of the
                merchant market for TDI both on an EEA and a global basis.
        (b)     mMDI: The Target’s demand for MDI accounts for less than [0-5]% of the
                merchant market for mMDI on both an EEA and a global basis.
        (c)     HDI: The Target’s demand for HDI accounts for less than [0-5]% of the
                merchant market for HDI on both an EEA and a global basis.
        (d)     IPDI: The Target’s demand for IPDI accounts for less than [5-10]% of the
                merchant market for IPDI on both an EEA and global basis. Already today,
                the Target sources […] of its global demand for IPDI from Covestro and […]
                on an EEA basis.
        (e)     H12MDI: The Target’s demand for H12MDI accounts for roughly [10-20]% of
                the merchant market for H12MDI on an EEA and roughly [5-10]% on a
                global basis. Already today, the Target sources […] of its global demand for
                H12MDI from Covestro and […] on an EEA basis.
        (f)     Polyether diols: The Target’s demand for polyether diols accounts for less
                than [0-5]% of the merchant market for polyether diols on both an EEA and
                global basis.
        (g)     Polyester diols: in the EEA, the Target relies on its own captive production
                for more than […] of its polyester diol requirements. The Target’s merchant
                market demand for polyester diols accounts for less than [0-5]% of the
                merchant market for polyester diols on both an EEA and a global basis.
84 As Covestro produces and sources internally inputs for PU resins, the customer foreclosure analysis is
   relevant only for the volumes of the Target post-transaction that are not already supplied by Covestro.
                                                         30
 ---pagebreak---          (h)      Polycarbonate diols: The Target’s demand for polycarbonate diols accounts
                  for less than [0-5]% of the merchant market for polycarbonate diols on both
                  an EEA and a global basis.
(123) Third, the above is also confirmed by the market investigation as explained in
         paragraph (110).
(124) As regards the incentive of the merged entity to foreclose upstream competitors, the
         Commission first considers that such as strategy would have a negligible effect on
         upstream markets because there will remain a sufficient number of customers on the
         market that would keep acquiring inputs for PU Resins (indicatively, Axalta, BAsf,
         Dow, Evonik, Lubrizol, Vencorex and more).85
(125) Second, as mentioned above these inputs also serve for a number of other production
         streams. Therefore, upstream competitors supplying these inputs are not exclusively
         dependent to coating resins producers.
(126) Third, the above is also confirmed by the market investigation as explained in
         paragraph (110).
         (C.i)      No impact on effective competition between upstream competitors
(127) Regardless of whether the merged entity would have the ability or the incentive to
         engage in a customer foreclosure strategy, such strategy would have no impact on
         effective competition given the number of available alternative customers that will
         continue purchasing inputs for PU resins.
4.3.2.5. Overall conclusion on vertically affected markets
(128) In conclusion, for the reasons set out above, in paragraphs (99) to 4.3.2.4(C.i) the
         Commission considers that the Transaction does not raise serious doubts as to its
         compatibility with the internal market as a result of non-horizontal effects
         concerning (i) the upstream markets for diisocyanates (i.e. the markets for HDI,
         H12MDI and IPDI) and linear polyols (i.e. polyether, polyester, and polycarbonate
         diols) and (ii) the downstream market for PU resins.
85  As explained above, the customer foreclosure analysis is focused on the volumes of the Target not already
    purchased from Covestro. Covestro was already fully vertically integrated pre-transaction, which means
    the transaction does not create any foreclosure concerns vis-à-vis Covestro’s volumes.
                                                          31
 ---pagebreak--- 5.    CONCLUSION
(129) For the above reasons, the European Commission has decided not to oppose the
      notified operation and to declare it compatible with the internal market and with the
      EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the
      Merger Regulation and Article 57 of the EEA Agreement.
                                                    For the Commission
                                                    (Signed)
                                                    Margrethe VESTAGER
                                                    Executive Vice-President
                                               32