CELEX: 32018M8733
Language: en
Date: 2018-03-14 00:00:00
Title: Commission Decision of 14/03/2018 declaring a concentration to be compatible with the common market (Case No COMP/M.8733 - Lone Star / Stark) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 14.03.2018
                                                                 C(2018) 1648 final
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                            PUBLIC VERSION
other confidential information. The omissions are
shown thus […]. Where possible the information
omitted has been replaced by ranges of figures or a
general description.
                                                                 To the notifying party
 Subject:            Case M.8733 - Lone Star/Stark
                     Commission decision pursuant to Article 6(1)(b) of Council
                     Regulation No 139/20041 and Article 57 of the Agreement on
                     the European Economic Area2
 Dear Sir or Madam,
 (1)       On 7 February 2018, the Commission received notification of a proposed
           concentration pursuant to Article 4 of the Merger Regulation by which Lone Star
           (US), through its indirect subsidiary LSF10 Wolverine Investments S.C.A.,
           intends to acquire within the meaning of Article 3(1)(b) of the Merger Regulation
           sole control of the whole of Stark Group A/S ('Stark', Denmark) by way of
           purchase of shares ('the Transaction').3 Lone Star and Stark are designated
           hereinafter as the 'Parties', whilst the undertaking resulting from the Transaction is
           referred to as 'the merged entity'.
 1.        THE PARTIES
 (2)       Lone Star is a private equity firm that invests globally in real estate, equity, credit
           and other financial assets. Lone Star controls the building material supplier Xella
           International S.A. ('Xella')4 which produces and distributes mainly masonry
 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
       OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
 3
       Publication in the Official Journal of the European Union No C 57, 15.02.2018, p. 7.
 4
       The acquisition of Xella by Lone Star was approved by the European Commission in 2017 (Case
       COMP/M.8341 – Lone Star Fund / Xella International)
                                                        1
 ---pagebreak---         products, in particular autoclaved aerated concrete blocks. Xella also owns the
        insulation material manufacturer Ursa Insulation S.A. ('Ursa')5. Furthermore, Lone
        Star controls the gypsum fibre board manufacturer Fermacell GmbH ('Fermacell')6
        and the carpet producer LSF9 Balta Issuer S.A. ('Balta')7.
(3)     Stark is a retailer and distributor of building materials in the Nordic region. It
        serves its customers - professionals and DIY builders - through four business
        units: Stark Denmark (72 branches), Stark Finland (27 branches), Beijer in
        Sweden (66 branches) and Neumann in Norway (15 branches). The current
        ultimate owner of Stark is Ferguson plc.8
2.      THE OPERATION AND THE CONCENTRATION
(4)     Pursuant to a Share Purchase Agreement entered into on 10 November 2017, Lone
        Star will indirectly acquire sole control over Stark through its subsidiary LSF10
        Wolverine Investments S.C.A. by way of a share acquisition. Hence, the
        Transaction qualifies as a concentration within the meaning of Article 3(1)(b) of
        the Merger Regulation.
3.      UNION DIMENSION
(5)     The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 5 000 million9 [Lone Star: EUR […] million, Stark: EUR […]
        million]. Each of them has a Union-wide turnover in excess of EUR 250 million
        [Lone Star: EUR […] million, Stark: EUR […] million], but they do not achieve
        more than two-thirds of their aggregate Union-wide turnover within one and the
        same Member State. The notified operation therefore has a Union dimension
        under Article 1(2) of the Merger Regulation.
5
    The acquisition of Ursa by Xella was approved by the European Commission in 2017 (Case
    COMP/M.8604 – Xella / Ursa).
6
    Xella has recently sold Fermacell to James Hardie Industries Plc. This transaction does not meet the
    turnover thresholds for an EU merger review filing. Closing is currently expected to take place before
    the end of […] 2018. Pending the closing of that Transaction, the Commission’s assessment will
    include the activities of Fermacell.
7
    The acquisition of Balta by Lone Star was approved by the European Commission in 2015 (Case
    COMP/M.7696 – Lone Star / Balta).
8
    The acquisition of Stark by Wolseley plc (now Ferguson plc) was approved by the European
    Commission in 2006 (Case COMP/M.4351 - Wolseley / DT Group).
9
    Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                    2
 ---pagebreak--- 4.     COMPETITIVE ASSESSMENT
4.1. Introduction
(6)      The operation concerns the markets for the production and distribution of building
         materials and gives potentially rise to horizontal and vertical overlaps.
(7)      First, the activities of Lone Star's portfolio companies and Stark overlap in the
         (potential) supply of the following products:
                 –        autoclaved aerated concrete products ('AAC') supplied by Xella,
                 –        gypsum fibre board products ('GFB'), supplied by Fermacell,
                 –        insulation products supplied by Ursa, and
                 –        carpet products potentially supplied by Balta.
(8)      Lone Star's portfolio companies sell their products not only through retailers but
         also directly to end consumers. These are potentially the same end customers
         supplied by Stark.
(9)      Second, there are four (potential) vertical links, namely as regards the (potential)
         supply by Lone Star’s portfolio companies of AAC blocks, GFB products,
         insulation products and carpet products to Stark and its retail competitors.
4.2. Market definitions
4.2.1. Autoclaved aerated concrete (AAC)
(10)     AAC blocks are a lightweight, precast, foam concrete building material. The
         Parties argue that there may be more than one plausible alternative for the
         definition of the relevant product markets for AAC blocks. The Parties further
         maintain that the narrowest possible – although by no means most plausible –
         definition would consider aerated concrete blocks as constituting a single relevant
         product market. Other plausible market definitions may include aggregate blocks
         and potentially also other wall-building materials, in particular bricks, sand-lime
         bricks/calcium silicate units and pumice blocks.
(11)    In a previous decision, the Commission considered that – even though the precise
        scope of the relevant product market was ultimately left open – the relevant
        product market may comprise not only AAC blocks but also other products such
        as aggregate concrete blocks.10 This is supported by the view of the majority of
        market participants responding to the Commission’s market investigation in the
        present case.11 A number of respondents noted that "AAC products can be
        replaced with – concrete elements, concrete blocks, calcium silicate blocks"12 and
        that "[s]and-lime bricks are a substitute in some situation, as per Xella's own
10
     Case COMP/M.8341 – Lone Star Fund / Xella International, paragraph 27.
11
     Replies to question 7 of Q1 – Questionnaire to retailers, and to question 7 of Q2 – Questionnaire to
     building material competitors.
12
     Replies to question 7 of Q1 – Questionnaire to retailers
                                                     3
 ---pagebreak---          explanation".13 Other market participants also referred to LECA14 products and
         clay blocks as potential substitutes.15
(12)     With regard to the relevant geographic market, the Commission considered in a
         previous decision that the geographical market for the distribution of building
         products in general is either national or potentially smaller than national.16 With
         respect to AAC blocks, the Commission has not adopted any diverging view.17
         Market respondents indicated predominantly that the relevant geographic market
         is national in geographic scope.18
(13)     In any event, the Commission considers that, for the purposes of this Decision, the
         precise scope of the relevant product and the relevant geographic market for AAC
         blocks can be left open in the current case, since the Transaction does not give rise
         to serious doubts about its compatibility with the interal market under any
         plausible market definition.
4.2.2. Gypsum fibre board (GFB)
(14)     Fermacell’s GFB products are dry lining building materials, suitable for general
         construction, fire protection and rooms with variable humidity (for instance
         domestic or hotel bathrooms). The Parties maintain that a broad market definition
         would be appropriate, encompassing interchangeable solutions, with various
         alternative possibilities, such as dry construction; dry construction limited to
         value-added boards; dry construction broken down depending on type of
         application (exterior walls, interior walls, flooring, ceiling); dry lining including at
         least some types of plaster board; and others. According to the Parties it could be
         claimed that GFB products are a substitute of gypsum drywall products.
(15)     There are no precedents in the Commission's previous decisional practice as
         regards the relevant product and geographic market definition for GFB. In this
         respect, the market investigation in this case indicates that the relevant product
         market is likely to be broader than only GFB products. On the one hand, a
         majority of market participants indicate that GFB is substitutable by other
         products: respondents stated that "GFB products are dominated by Fermacell and
         the competition comes from other substitute products as standard gypsum
         boards19" and that as regards GFB boards "Fermacell / Hunton, Knauf /Norgips
         and BPB Gyproc are all alternatives suppliers."20 One respondent noted that
         "GFB products can be replaced with standard gypcum plasterboards in some
13
     Ibid.
14
     Lightweight expanded clay aggregate: a light-weight aggregate made by heating clay. Its common uses
     are in concrete blocks or concrete slabs.
15
     Replies to question 7 of Q2 – Questionnaire to building material competitors.
16
     Case COMP/M.7910 - Kesko/Onninen, paragraph 16 with references to previous decisions.
17
     Case COMP/M.8341 – Lone Star Fund / Xella International, paragraph 30 et seq.
18
     Replies to question 11 of Q1 – Questionnaire to retailers, and to question 10 of Q2 – Questionnaire to
     building material competitors.
19
     Reply to question 13 of Q1 – Questionnaire to retailers.
20
     Reply to question 13 of Q1 – Questionnaire to retailers.
                                                     4
 ---pagebreak---          constructions, fiber cement boards in [other] constructions.21" On the other hand,
         the Commission also received diverging statements such as that it "is difficult to
         find an exact alternative.”22
(16)     As regards the relevant geographic market, the results of the market investigation
         indicate that similarly to AAC the market is national.23
(17)     In any event, the Commission considers that, for the purposes of this Decision, the
         precise scope of the relevant product and the relevant geographic market for GFB
         products can be ultimately left open in the current case, since the Transaction does
         not give rise to serious doubts about its compatibility with the interal market under
         any plausible market definition.
4.2.3. Insulation products
(18)     Insulation products reduce the thermal and acoustic exchange through a wall, roof
         or a duct on which they are placed. In previous decisions, the Commission
         previously found that insulation products constitute a separate market from other
         building products24. Furthermore, the Commission considered in previous cases a
         possible sub-segmentation of insulation products by insulation material, namely
         between (a) mineral wools (stone or glass wools); and (b) foams (expanded
         polystyrene (EPS), extruded polystyrene or polyurethane)25. Moreover, the
         Commission considered in the past segmenting the relevant market into building
         and technical insulation.26
(19)     As regards the relevant geographic market, the Commission has left open whether
         the market should be defined as national, regional or EEA-wide.27
(20)     The Parties endorse the Commission's view both as regards the relevant product
         market as well as the relevant geographic market.
(21)     In any event, the Commission considers that, for the purposes of this Decision, the
         precise scope of the relevant product and the relevant geographic market for
         insulation products can be ultimately left open in the current case, since the
         Transaction does not give rise to serious doubts about its compatibility with the
         interal market under any plausible market definition.
21
     Reply to question 8 of Q1 – Questionnaire to retailers.
22
     Reply to question 8 of Q1 – Questionnaire to retailers.
23
     Replies to question 11 of Q1 – Questionnaire to retailers, and to question 10 of Q2 – Questionnaire to
     building material competitors.
24
     Case COMP/M.8721 – Owens Corning/Paroc, paragraph 7 (not yet published); Case COMP/M.7457 –
     CVC/Paroc, para. 17-18; Case COMP/M.3407 – Saint Gobain/Dahl, paragraphs 8 and 9; Case
     COMP/M.1974 – Compagnie de Saint-Gobain/Raab Karcher, paragraph 9; and Case COMP/M.1873
     – Compagnie de Saint-Gobain/Meyer International, paragraphs 9 and 10. See also Case
     COMP/M.6871 – Mohawk Industries/Spano Invest, paragraphs 28 and 29.
25
     Case COMP/M.8721 – Owens Corning/Paroc, paragraph 8, Case COMP/M.3407 – Saint
     Gobain/Dahl, para 10; Case COMP/M.3943 – Saint Gobain/BPB, para. 29.
26
     Case COMP/M.8721 – Owens Corning/Paroc, paragraphs 9 and 13; Case COMP/M.7457 –
     CVC/Paroc, para. 18.
27
     Case COMP/M.8721 – Owens Corning/Paroc, paragraphs 15-16.
                                                     5
 ---pagebreak--- 4.2.4. Carpet products
(22)    The Parties submit that the relevant product market should comprise all carpets,
        which would include all types of carpets produced by Balta, in particular covering
        both carpet tiles and broadloom carpets.
(23)    The Commission previously took the stance that the relevant product market, at
        least at the retailing level, comprises carpets and other floor coverings, wallpaper
        and curtains.28 With regard to the relevant geographic market, while leaving the
        market definition open, the Commission did not object in previous decisions to
        claims that the markets are national, particularly in view of differing national
        consumer preferences.29
(24)    In any event, the Commission considers that, for the purposes of this Decision, the
        precise scope of the relevant product and the relevant geographic market for carpet
        products can be ultimately left open in the current case, since the Transaction does
        not give rise to serious doubts about its compatibility with the interal market under
        any plausible market definition.
4.2.5. Sales channels: wholesale/retail sales and direct sales
(25)    In a previous decision, the Commission considered that the markets for the
        distribution of building products in general can be divided into (i) wholesale to
        retailers, (ii) retail sale to professional customers and (iii) retail sale to
        nonprofessional customers (primarily through do-it-yourself stores) but left the
        precise product market definitions ultimately open.30 This will be the relevant
        framework for the assessment of the vertical links between Lone Star’s upstream
        activities in wholesale (Xella, Ursa, Fermacell, Balta) and Stark’s downstream
        activities in retail.
(26)    With particular regard to the retail level, the Commission considered in a previous
        decision a sub-segmentation by product groups, including the specific product
        group of building materials.31 As regards the geographic market, the Commission
        considered the geographic markets to be national or potentially local in scope.32
(27)    Xella also sells its AAC blocks directly to end customers. The Commission has
        not, however, discussed direct sales of manufacturers to end customers in its
        previous decisional practice concerning the distribution of building products. The
        alternative sales channels are shown below in Figure 1.
28
     Case COMP/M.1708 – Tapis Saint-Maclou/Allied Carpets Group, paragraphs 8 and 9.
29
     Case COMP/M.1708 – Tapis Saint-Maclou/Allied Carpets Group, paragraph 10.
30
     Case COMP/M.7910 – Kesko / Onninen, paragraph 16.
31
     Case COMP/M.7283 – Kingfisher / Mr Bricolage, paragraph 13.
32
     Case COMP/M.7283 – Kingfisher / Mr Bricolage, paragraph 17.
                                                6
 ---pagebreak---                            Figure 1 Illustration of the sales channels
(28)     As regards AAC blocks, the Parties generally claim that the market where Xella
         and Stark (potentially) compete has the following characteristics:
                 (a) The market is confined to such products that are distributed by both
                      Parties;
                 (b) These products are suitable for sale to end customers both from Xella
                      as manufacturer and Stark as retailer in view of the products' size,
                      weight and other characteristics, and
                 (c) The orders for such products have a volume for which end customers
                      consider both the manufacturer and the retailer as potential supplier.
(29)     For AAC blocks33, the Parties maintain that, as a rule of thumb, end customers
         consider both the manufacturer and the retailer as potential supplier when the
         order exceeds [20-100] m3.
(30)     In light of the results of the market investigation and the information available to
         it, the Commission concludes that in terms of the relevant product market, the
         retail market for the sale of AAC blocks could be segmented into (i) a retail
         market on which only retailers compete for sales to end customers, as at least one
         of the three criteria outlined above is not met, and (ii) a market for sales to end
         customers with competition taking place between retailers and wholesalers, if the
         three criteria are met.
(31)     In any event, the Commission considers that, for the purposes of this Decision, the
         precise scope of the relevant product and the relevant geographic market for the
         distribution of building materials can be ultimately left open in the current case,
         since the Transaction does not give rise to serious doubts about its compatibility
         with the interal market under any plausible market definition.
33
     The Parties submit that the only masonry product where Xella competes with Stark in sales to end
     customers are AAC blocks. Accordingly, the distribution of AAC panels, calcium silicate units and the
     Multipor product would not lead to any horizontal overlap between the activities of Xella and Stark.
                                                    7
 ---pagebreak--- 4.3.    Competitive assessment
(32)    None of Lone Star's portfolio companies have a direct presence in the operation
        of retail stores selling building or insulation materials, or carpet products in the
        EEA.
(33)    Except for some limited competition in Denmark and Finland, discussed in
        Section 4.3.1, the Parties' relationship is predominantly vertical, through Lone
        Star’s ownership interest in Xella (including Fermacell), Ursa and Balta, discussed
        in section 4.3.2.
(34)    As a result, the Transaction gives rise to affected markets due to a horizontal
        overlap in the sale of AAC blocks to end consumers in Denmark and Finland, and
        due to vertical links between Xella's supply of AAC blocks and Stark's retail
        activities in Denmark and Finland, and between Xella's supply of GFB panels and
        Stark's retail activities in Denmark, Sweden, Norway and Finland.
4.3.1. Horizontal overlaps
4.3.1.1. Assessment of horizontal overlap – sale of AAC blocks to end consumers
(35)    The activities of Xella and Stark overlap in the supply of AAC blocks to end
        consumers in the context of the sale channel described in Section 4.2.5. As Xella’s
        products are sold to end consumers both directly and indirectly through retailers,
        this Decision will distinguish between Xella’s wholesale sales made to third party
        retailers, and those made directly to end consumers. This approach is borne out by
        the results of the market investigation, which indicates that the same end
        consumers may purchase directly from manufacturers or indirectly from
        retailers.34
(36)    In any case, this potential overlap is limited to that share of Stark's sales over
        which it has control. The market investigation has confirmed that it is common
        for large-volume orders from customers such as building companies, to be
        invoiced by a retailer even though the sale is ultimately controlled by the
        manufacturer.35 Therefore, it is justified to allocate to Stark those sales over
        which it has control and to allocate to the manufacturers those sales over which
        they have control (be it through direct commercial relationships with the end
        customers or through the involvement of a retailer in an agent-like relationship).
34
     Replies to questions 4 and 5 – Questionnaire to end consumers.
35
     Replies to question 7 – Questionnaire to customers.
                                                     8
 ---pagebreak--- (37)     AAC blocks are the only product for which Xella has significant sales both
         through retailers and directly to end customers in the Nordic countries.36 In
         contrast to Xella's other masonry products such as AAC panels and CSU blocks,
         which Xella sells mostly directly to project customers, AAC blocks are more of a
         commodity product that can also be bought for small constructions. The
         Commission's assessment will therefore focus on the overlap in sales of AAC
         blocks to end consumers.
(38)     Xella’s AAC blocks are not sold through retailers in Sweden and Norway because
         of historically different customer preferences, while sales through retailers are
         increasingly minimal in Finland. The horizontal overlap between the Parties’
         activities is therefore limited to Denmark and, to a lesser extent, Finland.
(39)     With regard to the Danish market for sales of AAC blocks to end consumers
         where retailers and wholesalers compete,37 the combined market share of the
         Parties would be [30-40]% (Xella [20-30]% and Stark [10-20]%). In light of the
         results of the market investigation, the Commission considers that the Transaction
         does not give rise to serious doubts in that market for the following reasons:
         (a)       The Parties' combined market share is not in itself an indication of likely
                   competition concerns.
         (b)       The market investigation has confirmed the availability of alternatives
                   sources of supply, namely H+H with a market share of [20-30]%, and
                   retailers Bygma and XL Byg with each a market share of [10-20]%.
         (c)       In particular, the Commission's investigation has indicated that the AAC
                   product range offered by competitor H+H is very comparable to that
                   offered by Xella. A retailer stated: "The AAC products sourced from Xella
                   and H+H are very similar. Competition between those two suppliers has
                   been effective, which has kept prices down."38 An overwhelming majority
                   of Danish retailers responding to the market investigation said that they
                   considered H+H's AAC blocks to be a close substitute for Xella's Ytong
                   blocks in terms of the relevant product specifications, including price.39
36
     In the Nordic countries, Fermacell's sales of GFB panels are predominantly stock sales to retailers,
     over which it has no control: [90-100]% in Norway and Finland, and [90-100]% in Sweden (Fermacell
     controlling EUR [less than 1 m] of sales). In Denmark [80-90]% are stock sales and [10-20]% project
     sales through retailers where prices are set by the retailer, which leaves just [0-5]% of sales controlled
     by Fermacell (EUR [less than 1 m]). Ursa has only minimal direct sales of insulation materials to end
     consumers in the Nordic countries, which are limited to isolated sales to individual customers. Lone
     Star company Balta sells carpet products directly and indirectly through dealers in the Nordic countries
     but its direct sales do not exceed [5-10]%, while Stark’s market shares in the retail of carpet products
     are below [0-5]% in each of those countries.
37
     This segment covers sales above [20-100] m3 and represents [20-30]% of the total market for sales to
     end consumers.
38
     Non-confidential minutes of a call with a retailer, 6 February 2018
39
     Replies to question 18 – Questionnaire to retailers.
                                                       9
 ---pagebreak---          (d)      The results of the investigation have shown that customers in Denmark can
                  easily switch suppliers and turn to various substitutes to AAC. All Danish
                  retailers responding to the market investigation said that they consider
                  autoclaved aerated concrete (AAC) blocks to be substitutable by other
                  products such as sand-lime bricks, calcium silicate units or pumice
                  blocks,40 and that they could purchase all their requirements for
                  masonryproducts, in particular AAC blocks, in the EEA from alternative
                  suppliers.41
         (e)      None of the customers or competitors who replied to the Commission's
                  investigation expected any impact from the Transaction on their business
                  due to the overlap of the Parties' activities in the sale of AAC blocks to end
                  consumers, and no competition concerns were raised in this regard for the
                  Danish market.
(40)     In Finland, AAC products were originally mainly sold through retailers but
         have increasingly been sold directly to end customers over the last 10 years.
         Xella's sales of AAC products [confidential sales strategy] 42 to end customers.
         Currently [80-90]% of Xella's AAC sales (in volume) in Finland are invoiced
         directly by Xella to the end consumer, the remaining [10-20]% being business
         controlled by retailers. Overall stock sales 43 of AAC blocks in Finland
         currently range between 1,000 and less than 4,000 m3, compared with about
         15,700 m3 for direct sales or project sales controlled by producers. Therefore,
         if there is still a market in Finland for sales of AAC blocks to end consumers
         where retailers and manufacturers compete, this must represent a minimal
         volume of less than [500-2000] m3, considering that the market for volumes
         above [20-100] m3 represents [10-30]% of the total market. In addition, the
         Commission considers that the Transaction does not give rise to serious doubts
         in that market for the following reasons:
         (a)      The results of the investigation have indicated that customers in Finland
                  can easily switch suppliers and turn to various substitutes to AAC and that
                  they could purchase all their requirements for masonry products, in
                  particular AAC blocks, in the EEA from alternative suppliers.44
         (b)      The market investigation has also indicated that Finnish retailers consider
                  H+H's AAC blocks to be a close substitute for Xella's Ytong blocks in
                  terms of the relevant product specifications, including price.45
40
     Replies to question 7 – Questionnaire to retailers.
41
     Replies to question 16 – Questionnaire to retailers.
42
     Project sales are sales of larger volumes, such as [20-100] m3 or more of AAC blocks, that are
     important enough to require drawings and technical advice, and justify customer requests to several
     alternative sources of supply in order to obtain the best deal.
43
     Stock sales are sales made by a producer to a retailer, who stocks them for resale to its retail customers
44
     Replies to question 16 – Questionnaire to retailers.
45
     Replies to question 18 – Questionnaire to retailers.
                                                       10
 ---pagebreak---          (c)     None of the customers or competitors who replied to the Commission's
                 investigation expected any impact from the Transaction on their business
                 due to the overlap of the Parties' activities in the sale of AAC blocks to end
                 consumers, and no competition concerns were raised in this regard for the
                 Finnish market.
4.3.1.2. Conclusion on horizontal overlaps
(41)      In light of the considerations set out in recitals (35) to (40) and in view of the
         results of the market investigation and the information available to it, the
         Commission concludes that the Transaction does not give rise to serious doubts
         about its compatibility with the internal market due to horizontal effects in the sale
         of AAC blocks to end consumers.
4.3.2. Vertical relationships
4.3.2.1. Assessment of vertical relationships – AAC blocks and GFB panels
(42)     The Transaction gives rise to vertically affected markets with respect to two
         vertical links.46 They relate in particular to:
             a. the supply by Xella of autoclaved aerated concrete (AAC) blocks and
                 Stark's retail activities,
             b. the supply by Xella (Fermacell) of gypsum fibre board (GFB) panels and
                 Stark's retail activities.
         (a)    Downstream markets: retail of building materials, in particular AAC blocks
                 and GFB panels
(43)     Xella does not sell its AAC products through retailers in Sweden and Norway
         because of historically different customer preferences, as Xella’s sales in those
         countries are driven by direct relationships with end consumers. Vertical links
         between the Parties' upstream AAC and downstream retail activities are therefore
         limited to Denmark and Finland.
(44)     With regard to GFB panels, in the Nordic countries Xella sells the bulk of its
         Fermacell products to retailers: [80-90]% of its sales in Denmark, [90-100]% in
         Sweden, [90-100]% in Norway and [90-100]% in Finland.
         (b)    Upstream markets: wholesale of masonry products, in particular AAC, and
                 dry lining panels, in particular GFB
46
     With regard to insulation and carpet products, the vertical links do not lead to affected markets, as the
     market shares achieved by Ursa and Balta do not exceed 10% in any of the Nordic countries, and
     Stark’s market share is lower than 30% in each of those countries.
                                                     11
 ---pagebreak--- Masonry products, in particular AAC
(45)    When considering a masonry product market comprising AAC, CSU47, claybricks
        and Leca, Xella's market share equals [50-60]% in Denmark and [5-10]% in
        Finland. Xella's main competitor in Denmark is H+H with [40-50]%, and Aeroc in
        Finland with [20-30]%.
(46)    In a market for AAC products only, Xella's market share amounts to [40-50]%, in
        Denmark, and [10-20]% in Finland. The largest competitor is H+H with
        respectively [50-60]% and [20-30]% in those countries.
Dry lining panels, in particular GFB
(47)    When considering a market comprising gypsum fibre board and glass fibre board
        panels, Xella's market share amounts to [80-90]% in Denmark, [40-50]% in
        Sweden, [40-50]% in Norway and [40-50]% in Finland. Xella's main competitor is
        Knauf with [10-20]% in Denmark, [20-30]% in Sweden, [30-40]% in Norway and
        [20-30]% in Finland. If GFB is considered to be a substitute for gypsum drywall
        products, Fermacell's share of this particular market would appear to be
        considerably smaller.
        (c)      Foreclosure assessment
Input foreclosure
(48)    The risk of input foreclosure through the notified concentration appears limited. It
        seems unlikely that, post-merger, Lone Star would restrict access to its products
        by other retailers competing against Stark in any of the Nordic countries. The
        results of the investigation showed that customers have few concerns about
        possible input foreclosure. A clear majority of retailers replying to the market
        investigation do not consider it likely that Xella could stop supplying building
        materials in any of the Nordic countries in which they are active. A Danish
        retailer replied: "They all need access to the total market, and that is not possible
        through Stark".48
(49)    With regard to AAC and GFB products, in light of the result of the market
        investigation and of the information available to it, the Commission considers
        that:
             a. Despite Xella's relatively high market shares in several Nordic countries,
                  its AAC and GFB products represent a small share of retailers' overall
                  sales and product range. Xella’s share in Stark’s overall sourcing
                  expenditure does not exceed [0-5%] in Denmark, while a large proportion
                  of this expenditure relates to sales that are effectively controlled by Xella.
                  Xella’s sales to the Stark business units in Sweden, Norway and Finland
                  are insignificant in volume, as they do not exceed EUR […] in any of these
                  three countries.
47
     Calcium silicate units: building materials with high sound-absorbent qualities, fire safety standards and
     pressure resistance
48
     Replies to question 21 – Questionnaire to retailers.
                                                      12
 ---pagebreak---              b. AAC blocks can be replaced by the same or similar types of products from
                  competitors, such as sand-lime bricks, calcium silicate units or pumice
                  blocks,49 with varying degrees of substitutability.
             c. There are alternative suppliers from which they could purchase similar
                  volumes of building materials with a similar quality at a competitive
                  price.50
             d. Customers would switch to such alternative suppliers if Xella stopped its
                  supplies or offered worse conditions. In particular, one Danish retailer
                  stated: "Xella - switch to H+H or importing; Fermacell - switch to Knauf
                  or importing".51
             e. H+H offers a very similar AAC product range compared to Xella.52
             f. In Denmark Xella currently relies more on retailers other than Stark. It
                  achieves [30-40]% of its sales through Bygma and [10-20]% through
                  Davidsen, compared with [10-20%] for Stark. If it were to stop its sales to
                  those retailers and sell exclusively through Stark post-merger, this would
                  lead to reduced sales of its products as it seems unlikely that Stark could
                  take over all or a large part of the retail sales of its competitors.
(50)    Therefore, in light of the results of the market investigation and the evidence
        available to it, the Commission considers that even if the merged entity had the
        ability to engage in input foreclosure, it is unlikely that it would have sufficient
        incentives to do so. Thus, the Commission concludes that the Transaction would
        not give rise to competition concerns related to input foreclosure as regards the
        markets for AAC blocks and GFB panels in Denmark, Sweden, Norway and
        Finland.
Customer foreclosure
(51)    The risk of customer foreclosure appears to be limited, as Stark's market share in
        the retail of building materials is less than 30% in the countries where it operates.
        Only a minority of competitors replying to the market investigation consider it
        likely that following the transaction Stark would stop sourcing products that
        compete with Xella or Fermacell or only source those products at worse
        conditions.53 Competitors indicated that they would be able to find alternative
        ways to the market if Stark were to stop purchasing from them or offer worse
        commercial conditions. A competitor replied: "We would try to find solution how
        to keep selling our products to Stark but not at any cost. Most likely we would try
        to compete with Xella by selling our products through competitors of Stark."54
49
     Replies to questions 7 and 16 – Questionnaire to retailers.
50
     Replies to question 22 – Questionnaire to retailers.
51
     Replies to question 22.1 – Questionnaire to retailers.
52
     Non-confidential minutes of a call with a retailer, 6 February 2018
53
     Replies to question 18 – Questionnaire to building material competitors.
54
     Replies to question 19 – Questionnaire to building material competitors.
                                                      13
 ---pagebreak--- AAC blocks
(52)    In Denmark, Stark has a market share of [20-30]% in the overall retail supply of
        building materials ([20-30]% professional customers, [10-20]% DIY), and [20-
        30]% in the overall retail supply of masonry products. It sources its AAC blocks
        mainly from H+H. However, the Commission's investigation has indicated that
        Stark's importance for reaching final customers in Denmark is considerably lower
        than its market share in retail sales suggests. In the overall sale of AAC products
        to end customers, allocating to Stark those sales over which it has control, Stark
        has a share of only [5-10]%, while its purchasing share of AAC blocks comes to
        [10-20]%. This suggests that if a customer foreclosure strategy was implemented,
        the volume of the potential lost business for H+H would be limited. Furthermore,
        it is doubtful whether losing potential sales to Stark in Denmark would impact
        H+H’s competitiveness, given that it would retain its sales to all alternative
        retailers in Denmark as well as its sales in other Nordic countries.
(53)    In Finland, Stark has a market share of [10-20]% in the overall retail supply of
        building materials ([20-30]% professional customers, [5-10]% DIY), while its
        purchasing share of AAC blocks is less than [0-5]%. This means that the vast
        majority of retail sales would remain available to Xella’s competitors.
GFB panels
(54)    In the overall retail supply of building materials Stark has a market share of [20-
        30]% in Denmark, [5-10]% in Sweden, [0-5]% in Norway and [10-20]% in
        Finland. However, Stark's purchasing share of GFB panels does not exceed [0-5]%
        in any of the Nordic countries. This indicates that Stark's importance for reaching
        final customers is considerably lower than its market share in retail sales suggests
        and that the vast majority of retail sales would remain available to Xella’s
        competitors.
(55)    Therefore, in light of the results of the market investigation and the evidence
        available to it, the Commission considers that the merged entity is unlikely to have
        the ability to engage in customer foreclosure. Thus, the Commission concludes
        that the Transaction would not give rise to competition concerns related to
        customer foreclosure as regards the markets for AAC blocks and GFB panels in
        Denmark, Sweden, Norway and Finland.
4.3.2.2. Conclusion on vertical effects
(56)    In light of the considerations set out in recitals (42) to (55), the Commission
        concludes that the Transaction does not give rise to serious doubts about its
        compatibility with the internal market due to input or customer foreclosure
        concerns as regards AAC blocks and GFB panels.
                                               14
 ---pagebreak--- 5.   CONCLUSION
(57) For the above reasons, the 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
                                                  Member of the Commission
                                         15