CELEX: 32019M9406
Language: en
Date: 2019-09-05 00:00:00
Title: Commission Decision of 05/09/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9406 - LONE STAR - STARK GROUP / SAINT-GOBAIN BDD) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                              Brussels, 05.09.2019
                                                              C(2019) 6476 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                                                                possible the information omitted has been
                                                                replaced by ranges of figures or a general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.
                                                              To the notifying party
Subject:            Case M.9406 – Lone Star – Stark Group/Saint-Gobain BDD
                    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 14 June 2019, the European Commission received a notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which Lone Star
          (USA), through its subsidiary Stark Group A/S (Denmark, the “Notifying Party”),
          and ultimately through the Notifying Party’s subsidiary Stark Group Holding
          Germany GmbH (Germany) intends to acquire sole control over Saint-Gobain
          Building Distribution Deutschland GmbH (Germany; “SGBDD” or the “Target”)
          (the “Transaction”). Stark Group A/S and Stark Group Holding Germany GmbH are
          collectively referred to as “Stark”. Lone Star, Stark and SGBDD are collectively
          referred to as “the Parties”.
1    OJ L 24, 29.1.2004, p. 1 (the “Merger Regulation”). With effect from 1 December 2009, the Treaty of
     Lisbon has introduced certain changes of use of terminology in the Treaty on the Functioning of the
     European Union (TFEU), such as the replacement of the term “Community” by “Union” and the term
     “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”).
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--- (2)     On 27 June 2019, the notification was declared incomplete within the meaning of
        Article 5(2) of the Commission Regulation No 802/2004.3
(3)     In subsequent submissions, 4 the Notifying Party provided further information
        necessary for the assessment of the concentration under the Merger Regulation and
        on 31 July 2019 filed a revised Form CO (“Form CO”). Therefore, based on this
        additional information and the Form CO, the notification became complete within
        the meaning of Article 10(1) of the Merger Regulation on 31 July 2019.5
1.      THE PARTIES
(4)     Lone Star is a private equity firm that invests globally in real estate, equity, credit
        and other financial assets. Among others, Lone Star controls Stark, a retailer of
        building and insulation materials active predominantly in the Nordic countries.
(5)     SGBDD is a retailer of building materials that operates a network of physical retail
        outlets in Germany and sells mostly third-party products to small and medium-sized
        enterprises and larger construction companies and, to a smaller extent, private and
        “do-it-yourself” (“DIY”) consumers.
2.      THE OPERATION AND CONCENTRATION
(6)     On 20 May 2019, Compagnie de Saint-Gobain S.A. as the seller and Stark Group
        Holding Germany GmbH as the purchaser signed a share purchase agreement
        (“SPA”) according to which Stark would acquire all of the shares in SGBDD for a
        purchase price calculated on the basis of the assumed enterprise value of
        EUR 335 million, subject to various deductions and additions. Upon closing, Stark
        will be the sole owner of the shares in SGBDD. The completion of the proposed
        Transaction would thus result in Lone Star indirectly acquiring sole control over
        SGBDD within the meaning of Article 3(1)(b) of the Merger Regulation.
(7)     The notified Transaction therefore constitutes a concentration pursuant to
        Article 3(1)(b) of the Merger Regulation.
3.      EU DIMENSION
(8)     The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 5 000 million6 in 2018 (Lone Star: EUR […] million; SGBDD: EUR
        […] million). Each of them has an EU-wide turnover in excess of EUR 250 million
        (Lone Star: EUR […] million; SGBDD: EUR […] million), but they do not each
        achieve more than two-thirds of their aggregate EU-wide turnover within one and
3   OJ L 133, 30.4.2004, p. 1.
4   Submissions of 8, 14, 22, 23, 24, 26 and 29 July 2019.
5   Publication in the Official Journal of the European Union No C 266, 8.8.2019, p. 5.
6   Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                          2
 ---pagebreak---         the same Member State. 7 The notified operation therefore has an EU dimension
        pursuant to Article 1(2) of the Merger Regulation.
4.      MARKET DEFINITION
4.1.    Introduction to the Transaction and the building materials markets
4.1.1. The Parties’ activities
(9)     The proposed Transaction concerns the markets for the production and distribution
        of building and insulation materials in Germany.
(10)    Lone Star’s portfolio company Stark is a distributor of building and insulation
        materials active in the Nordic countries.
(11)    Lone Star’s portfolio company Xella International GmbH (Germany, “Xella”)
        manufactures and markets building and insulation materials. In particular, Xella sells
        the following products in Germany.
        (a)     Autoclaved aerated concrete (“AAC”) blocks, which are a lightweight,
                precast, foam concrete building material made of autoclaved aerated
                concrete. AAC blocks can be lifted by hand and do not require equipment for
                handling. Xella markets AAC blocks under the Ytong brand.8
        (b)     AAC large format prefabricated compound units (“AAC large format units”),
                which are made of the same material as AAC blocks, but require equipment
                such as cranes for handling. Xella markets AAC large format units under the
                Ytong and Hebel brands. The AAC large format units include aerated
                concrete ceiling and roofing panels, firewalls and outer walls and can roughly
                be divided into AAC large format units for residential construction (Ytong
                brand) and industrial/commercial construction (Hebel brand).9
        (c)     Calcium silicate units (“CSUs”), which are masonry products made from a
                mixture of lime and natural siliceous materials (sand, siliceous gravel or rock
                or mixtures thereof) that can typically be lifted by hand and which are used
                for the construction of walls. As a material, calcium silicate has a higher
                density, and is therefore heavier than AAC. Xella markets CSUs under the
                Silka brand.10
        (d)     Mineral insulation boards, which are niche insulation products suitable for
                special types of applications. Xella markets these products under the brand
                Multipor. 11 As regards the Multipor insulation products, the Commission
                notes that Xella’s market share does not exceed, under any plausible
7   Only SGBDD achieves more than two-thirds of its EU-wide turnover within one Member State, namely in
    Germany.
8   Form CO, paragraph 98.
9   Form CO, paragraphs 110-111.
10 Form CO, paragraph 154.
11 Form CO, paragraph 144.
                                                      3
 ---pagebreak---                  alternative product market definition, [0-5]%12. Additionally, SGBDD’s sales
                 of mineral insulation boards accounted for EUR [less than 5] million in 2018,
                 thus accounting for a mere fraction of SGBDD’s overall sales turnover in
                 Germany 13 . Therefore, the Commission abstained from investigating the
                 Multipor insulation products.
(12)    Moreover, URSA Insulation, S.A. (Spain, “URSA”), an insulation material
        producer, is a subsidiary of Xella. URSA’s main products include glass mineral wool
        and extruded polystyrene (“XPS”), which are used for the insulation of residential
        and non-residential buildings.14 The Commission considered in precedent cases that
        the relevant geographic market on the wholesale sale to retailers market for building
        insulation products15 is at least national16, albeit leaving the exact geographic market
        definition open. In view of this, URSA’s market shares on the upstream market for
        the two building insulation products are below 30% under any plausible relevant
        product and geographic market definition17. With respect to the relevant geographic
        market for building insulation products on the market of retail sales to professional
        customers, the Commission considered this market national in scope, although it left
        the exact market definition open 18 . Against this background, SGBDD’s market
        shares for the two products of glass mineral wool and XPS downstream are
        below 30% under any plausible relevant product and geographic market definition.19
        Therefore, the Commission refrained from further investigation of the products of
        glass mineral wool and XPS for the purpose of the assessment of the proposed
        Transaction.
(13)    Furthermore, Lone Star owns Balta Finance S.à.r.l, the holding company of the
        Balta Group (Belgium, “Balta”), a producer of textile floor coverings in Europe.
        Balta has no sales to SGBDD. Moreover, SGBDD is not active in the distribution of
        carpets at all because carpets are not within its portfolio. Since SGBDD is not active
        downstream in the distribution of carpets at all, and Balta’s market share upstream in
        a potential overall market for floor coverings would be below 30% in Germany,
        there are no horizontal or vertical relationships between Balta and SGBDD. 20
        Therefore, these products are not discussed further in this decision.
(14)    Finally, Lone Star owns Edilians, a French producer of roofing products including
        clay-roofing products, i.e., clay tiles, clay roof accessories, non-clay pitched roof
12 Form CO, paragraph 151.
13 Form CO, Annex 6: SGBDD’s turnover in Germany was EUR [1-2 billion] in 2018.
14 Form CO, paragraph 176.
15 The Commission considered in previous decisions that insulation products constitute a separate product
   market from other building materials and that insulation products can be segmented into building
   insulation products and technical insulation products; M.8733 – Lone Star/Stark, paragraph 18 with
   references to earlier decisions.
16 M.7457 – CVC/PAROC, paragraph 19, with references to earlier decisions.
17 Form CO, paragraph 183. URSA’s German-wide market shares both for glass mineral wool and for XPS
   are below 20%.
18 M.7457 – CVC/PAROC, paragraphs 26 et seq., with references to earlier decisions.
19 RFI 12 dated 2 August 2019, response to question 3 dated 5 August 2019. SGBDD’s market shares with
   the scope of Germany are [5-10]% for glass mineral wool and [5-10]% for XPS. In a plausible market
   limited to XPS, the market share of SGBDD is well below 30% both at national level and at regional
   level, except in East Germany, where it is below [30-40]%.
20 Form CO, paragraphs 169-173.
                                                         4
 ---pagebreak---          accessories and solar roofing solutions.21 Edilians’ total sales to Germany are very
         limited and in 2018 amounted to EUR [less than 200,000]. SGBDD’s market shares
         are below 15% under any plausible product and geographic market definition.
         Therefore, the potential relationship between Edilians upstream and SGBDD
         downstream does not give rise to any vertically affected markets nor horizontal
         overlaps.22 Therefore, these products are not discussed further in this decision.
(15)     The Target is active in the          field of retail distribution of building materials to
         professional customers, also          called business-to-business (“B2B”), in Germany,
         operating via own branches            and direct delivery. SGBDD has 216 branches in
         Germany and one branch in             Luxembourg. SGBDD is present across the whole
         territory of Germany.23
(16)     SGBDD operates through three business units: (i) “Generalists”, which includes
         products such as heavy building materials, dry walling and joinery, and also includes
         SGBDD’s leading brand Raab Karcher (120 branches out of a total of 150 branches
         for this business unit); (ii) “Tiles”, which includes tiles for all applications; and
         (iii) “Civil Engineering”, which includes materials used for wastewater, fresh water
         supply and surface.24
(17)     The Notifying Party estimates that more than 90% of SGBDD’s customers are
         buying from it in a predominantly professional capacity.25
(18)     As SGBDD’s activities are geographically in essence 26 limited to Germany, the
         assessment focusses on impact of the proposed Transaction in Germany, at national
         as well as sub-national/local level.
4.1.2. Characteristics of the building materials markets
(19)     In its precedents 27 , while leaving the question ultimately open, the Commission
         considered that the relevant product markets for the distribution of building materials
         in general can be divided into:
         (a)      wholesale sales to retailers;
         (b)      retail sales to professional customers (B2B); and
         (c)      retail sale to non-professional customers (B2C – primarily through do-it-
                  yourself stores).
21  Form CO, paragraph 174.
22  Form CO, paragraph 175 and footnote 61.
23  Form CO, paragraphs 192, 195.
24  Form CO, paragraph 193.
25  Form CO, paragraph 194.
26  SGBDD operates one branch in Luxembourg, which is specialised for civil engineering and not a
    generalist branch for building distribution. As such, SGBDD Luxembourg does not have any sales of the
    products concerned by the transaction. SGBDD’s generalist distribution business in Germany has very
    limited sales to customers in Luxembourg. Xella has limited sales in Luxembourg, supplied from
    neighbouring countries such as Belgium and Germany. (RFI 12 dated 2 August 2019, response to
    question 1 dated 5 August 2019).
27  M.7910 – Kesko/Onninen, paragraph 16; M.7703 – PontMeyer/DBS, paragraphs 11-12; M.3407 – Saint
    Gobain/Dahl, paragraphs 12 and 16; and M.3142 – CVC/Danske Traelast, paragraphs 11-13.
                                                           5
 ---pagebreak---         The ‘wholesale sales to retailers’ market is upstream of the ‘retail sales to
        professional customers’ market and the ‘retail sale to non-professional customers’
        market.
(20)    Furthermore, according to the Notifying Party, one characteristic of building
        material markets as regards products of the type sold by Xella is the distinction
        between “project sales”28 and “stock sales”29.
(21)    Stock sales, on the one hand, are sales from a manufacturer, who acts as a wholesaler
        in this regard, to retailers. The manufacturer delivers, or the retailer picks up, the
        products and stores them on the retailer’s premises. The retailer sells these products
        on to end-customers.
(22)    According to the Notifying Party, in project sales, on the other hand, the two-step
        process of sale and delivery, which is characteristic for stock sales, is merged into
        one step. Manufacturers, retailers and end customer are involved in the sale/purchase
        of the products, which are shipped directly from the manufacturer to the end
        customer. Typically, project sales relate to a specific construction project. However,
        the retailer is always involved in project sales, even though the level of involvement
        varies from project to project. Regularly, the retailer is the contractual counterparty
        for the supply of these products, takes on the insolvency risk of the end-customers,
        provides certain logistic services and is responsible for the invoicing. The main
        reasons for the setup of project sales are the retailer’s local presence and hence his
        local industry contacts, his willingness to vet the end customers' financial strength
        and to take on the end customers' insolvency risks, the end-customer’s need for a
        variety of products and/or little volumes of products, which manufacturers are not
        able to provide, as well as the retailer’s logistic and other services.
(23)    In addition to stock sales and project sales, the Notifying Party submits that
        manufacturers sell and deliver certain products directly to end-customers, without
        any involvement of a retailer (“direct sales”). In the case of direct sales, there are no
        vertical links between manufacturers and retailers.
(24)    The Notifying Party submits that in the event that any of the manufacturers
        concerned by this Transaction, namely Xella, URSA, Balta and Edilians, distribute
        their products by way of direct sales, they distribute these products exclusively
        through this sales channel and not, in addition, through project sales or stock sales30.
        Therefore, for the purpose of the proposed Transaction, the Commission considers
        that direct sales do not lead to horizontal overlaps for the products sold through this
        sales channel. Market participants commonly do not distinguish between project
        sales and direct sales.31 This distinction is, however, relevant for an assessment of
        the proposed Transaction under the Merger Regulation, because of the role of the
        Target who is not involved in direct sales.
28 In German: “Streckengeschäft” or “Objektgeschäft”.
29 In German: “Lagergeschäft“.; Form CO, paragraphs 56 et seq.
30 RFI 12 dated 2 August 2019, response to question 4 dated 5 August 2019.
31 The Notifying Party also does not make this distinction but uses “direct sales” as a synonym for project
   sales, Form CO, paragraph 210.
                                                        6
 ---pagebreak--- (25)   Xella as manufacturer/wholesaler engages in project sales, direct sales and stock
       sales. Xella’s project sales and stock sales are to be allocated to the ‘wholesale sales
       to retailers’ market. In view of the established Commission’s precedents32 relating to
       markets for distribution of building materials, for the purpose of the proposed
       Transaction, direct sales are not part of the markets analysed for the purposes of the
       Transaction.
(26)   SGBDD as a retailer engages in project sales and stock sales. SGBDD’s downstream
       activities are to be allocated to the ‘retail sales to professional customers’ market, as
       SGBDD does not operate DIY stores typically targeting DIY customers on the ‘retail
       sale to non-professional customers’ market. SGBDD’s sales to DIY customers are
       minor and a consequence of DIY customers occasionally purchasing products
       directly from SGBDD. SGBDD does not track the occasional purchases from DIY
       customers separately from its professional customers.33
4.2.   Relevant product markets
4.2.1. Autoclaved aerated concrete (AAC) blocks on the market for wholesale sales to
       retailers
(27)   AAC blocks are lightweight masonry products made of foam concrete that can
       typically be lifted by hand and are used for the construction of walls.
(28)   In its previous decisions, the Commission noted that the relevant product market
       may comprise not only AAC blocks but also other products such as aggregate
       concrete blocks, but ultimately left the precise scope of the relevant product market
       open.34 However, in one decision, by which the Commission partially referred a case
       for assessment to the German Bundeskartellamt, the Commission found that wall-
       building materials such as AAC blocks, CSUs, clay bricks and others are not fully
       substitutable in view of their characteristics, intended use and price35, even though
       the Commission has not finally concluded on the relevant product market.
(29)   The Notifying Party submits that there may be more than one plausible alternative
       for the definition of the relevant product markets including AAC blocks. The
       Notifying Party submits that the narrowest possible – although by no means most
       plausible – definition would consider AAC blocks as constituting a single relevant
       product market. However, the Notifying Party contends that the more plausible
       product market definition comprises AAC blocks, aggregate blocks and potentially
       also other wall-building materials, in particular bricks, sand-lime bricks/calcium
       silicate units and pumice blocks.36
(30)   The Commission’s market investigation indicated that the relevant product market is
       not likely to comprise other products than AAC blocks, such as clay bricks, CSUs
       and pumice blocks. Even if different wall-building materials may be partially
32  M.7910 – Kesko/Onninen, paragraph 16; M.7703 – PontMeyer/DBS, paragraphs 11-12; M.3407 – Saint
    Gobain/Dahl, paragraphs 12 and 16; and M.3142 – CVC/Danske Traelast, paragraphs 11-13.
33  Form CO, paragraph 198.
34  M.8341 – Lone Star Fund/Xella International, paragraph 27; M.8733 – Lone Star/Stark, paragraph 13.
35  M.2568 – Haniel/Ytong, paragraph 15.
36  Form CO, paragraph 98.
                                                        7
 ---pagebreak---         substitutable during the design stage of a construction project37, this does not apply
        to a later stage of such project. Once a project is designed, the various materials are
        selected to work together and replacement by alternatives becomes more difficult.
        Some respondents explained that the architect determines the use of a particular
        building material. 38 Furthermore, market participants stressed the different
        characteristics of the materials, maintaining, for example that “AAC has entirely
        different physical characteristics than calcium silicate”39, or that “calcium silicate
        has a very high bulk density and can hardly be substituted for certain areas of use.
        In the local market, there is no comparable product.”40
(31)    Internal documents of the Notifying Party support these findings. When comparing
        different wall-building materials, Xella’s comparison between AAC blocks, CSUs,
        clay bricks and concrete blocks demonstrates the partially significant differences in
        characteristics, as shown in Figure 1 below.41
                        Figure 1: Extract from Xella’s internal document
37 One respondent considered that „often, building companies submit alternative materials and should the
   alternative offer a better price, often the plans are changed, e.g. one uses clay instead of AAC products.”;
   reply to Q2 – Questionnaire to Producers, q. 8.1 (convenience translation from German: “Häufig legen
   Bauunternehmen im Zuge von Vergabeverhandlungen Alternativvorschläge mit Alternativprodukten vor,
   dabei kommt es bei preisgünstigeren Varianten häufig zu Umplanungen und z. B. Ziegel kommen statt
   Porenbeton-Produkten zum Einsatz.”).
38 E.g. replies to Q1 – Questionnaire to Retailers, q. 7.1; Q3 – Questionnaire to End customers, q. 11.1.
39 Reply to Q2 – Questionnaire to Producers, q. 8.1 (convenience translation from German: “Porenbeton hat
   ganz andere Physikalische Eigenschaften als KS.”).
40 Reply to Q3 – Questionnaire to End customers, q. 13.1 (convenience translation from German:
   “Kalksandstein hat eine hohe Rohdichte und kann daher für gewisse Einsatzgebiete schlecht ausgetauscht
   werden. In dem hiesigen Markt gibt es kein vergleichbares Produkt.“).
41 Form CO, Annex 24 J, page 9.
                                                            8
 ---pagebreak--- (32)   Moreover, Xella’s statements in its internal documents point to product markets,
       which do not comprise several wall-building materials. When considering potential
       acquisitions, Xella commented as regards masonry bricks that such “market would
       probably not be considered competitive to Xella’s current business making potential
       acquisitions easy to get approval for by the authorities.”42
(33)   However, for the purpose of this decision, the exact product market definition with
       respect to AAC blocks can be left open as the outcome of the competitive
       assessment would be the same under any plausible alternative product market
       definition.
4.2.2. AAC large format units on the market for wholesale sales to retailers
(34)   AAC large format units are building materials made of foam concrete that cannot be
       lifted by hand and require equipment such as a crane for handling, and are used for
       the construction of walls, ceilings, floors and roofs. Xella offers such products both
       for industrial and residential construction. The products for the construction of
       industrial buildings, such as logistics centres, warehouses and manufacturing
       facilities, are sold under the Hebel brand. Xella’s large format units for the
       residential sector, together with floors, slabs or roofs are sold under the Ytong brand
       as a complete system.
(35)   There are no relevant Commission precedents, which specifically concern AAC
       large format units.
(36)   The Notifying Party submits that the AAC large format wall and roof panels sold
       under the Hebel brand for industrial buildings on the one hand, and the Ytong
       complete systems, which include ceiling and roof large format units for single-
       family houses on the other, are part of two separate product markets.43
(37)   In addition, the Notifying Party submits that from a demand side perspective, AAC
       large format units for industrial construction are part of a broader market, which
       includes concrete panels and steel elements, 44 while AAC large format units for
       residential construction belong to a broader market including concrete floor elements
       and full assembly floors.45 However, the Notifying Party submits that from a supply
       side perspective, the product market definition is narrower, as producers cannot
       easily switch from one product to the other.46
(38)   As regards the substitutability between AAC large format units for industrial and
       residential construction, the Commission’s market investigation indicated relevant
       differences between these products.
(39)   Firstly, industrial buildings and residential buildings differ partially with respect to
       their relevant technical requirements. For example, on the one hand, a market
       participant explained that while for residential buildings the focus is on thermal
       insulation, this is less the case for industrial buildings. On the other hand,
42  Form CO, Annex 24 J, page 8.
43  Form CO, paragraph 113.
44 Form CO, paragraph 122.
45 Form CO, paragraph 115.
46 Form CO, paragraphs 116 and 123.
                                                   9
 ---pagebreak---         components for industrial buildings have to meet structural requirements for, among
        others, wind forces and snow loads.47
(40)    Secondly, around half of the respondents active at the retail level considered AAC
        large format units for industrial and residential construction not to be substitutable
        products. However, roughly the same amount of respondents expressed the view that
        these two types of AAC large format units are substitutable.48
(41)    With respect to substitutability of AAC large format units with other materials,
        whether for the residential or industrial sector, the majority of retailers responding to
        the Commission’s investigation did not consider AAC large format units to be
        substitutable with other materials. 49 One market participant expressed doubts
        whether AAC large format units could be substituted with other materials such as
        steel, mainly due to the different characteristics of the materials.50
(42)    The Commission considers that the information obtained during its market
        investigation indicates that AAC large format units for industrial construction are not
        substitutable with those for residential construction, in particular due to the different
        technical requirements for residential and industrial constructions. As regards
        substitutability of AAC large format units with other materials, similar
        considerations apply.
(43)    However, for the purpose of this decision, the exact product market definition with
        respect to AAC large format units whether for residential or industrial construction
        can be left open as the outcome of the competitive assessment would be the same
        under any plausible alternative product market definition.
(44)    Finally, the Commission notes that AAC large format units for industrial
        construction under the Hebel brand are only sold via direct sales to end customers
        without any involvement of retailers.51 Therefore, there are no horizontal overlaps or
        vertical links between the Notifying Party and SGBDD as regards AAC large format
        units for industrial construction. Therefore, these products are not discussed further
        in this decision.
4.2.3. Calcium silicate units (CSUs) on the market for wholesale sales to retailers
(45)    CSUs are masonry products made from a mixture of lime and natural siliceous
        materials (sand, siliceous gravel or rock or mixtures thereof) that can typically be
        lifted by hand and which are used for the construction of walls. As a material, CSU
        has a higher density, and is therefore heavier than AAC.
(46)    The Commission has not previously taken a definitive position on the relevant
        product market for CSUs, when it considered CSUs as being potentially part of the
        same market as AAC blocks52.
47  Minutes of a call with a market participant dated 31 July 2019.
48  Replies to Q1 – Questionnaire to Retailers, q. 9 and q. 10.
49  Replies to Q1 – Questionnaire to Retailers, q. 11 and q. 12.
50  Minutes of a call with a market participant dated 31 July 2019.
51  RFI 11 dated 1 August 2019, response to question 5 dated 5 August 2019.
52  In M.8733 – Lone Star / Stark, paragraphs 10 to 13.
                                                          10
 ---pagebreak--- (47)    The Notifying Party contends that the more plausible market definition for CSUs is a
        product market comprising CSUs, AAC blocks, clay bricks and pumice bricks.53
(48)    Feedback from the Commission’s market investigation as regards the substitutability
        of AAC blocks with other wall-building materials presented in section 4.2.1 of this
        decision applies also to the substitutability of CSUs with other wall-building
        materials. Therefore, there are credible indications that the relevant product market
        comprises only CSUs, and no other products such as AAC blocks, pumice blocks,
        and clay bricks.
(49)    However, for the purpose of this decision, the exact product market definition with
        respect to CSUs can be left open, as the outcome of the competitive assessment
        would be the same under any plausible alternative product market definition.
4.2.4. Distribution of building materials on the market for retail sales to professional
        customers, in particular as regards AAC blocks and CSUs
(50)    SGBDD’s operations are limited to distribution of building materials. More
        specifically, its activities in distribution of building materials are limited to the retail
        sales to professional customers (B2B). SGBDD is not active on the DIY market, or
        on the market for wholesale sales to retailers. As stated in paragraph (17), according
        to the Parties, more than 90% of SGBDD’s customers are estimated to be
        predominantly professional customers.
(51)    In its previous decisions, the Commission has considered that the markets for the
        distribution of building materials in general can be divided into: (i) wholesale sales
        to retailers; (ii) retail sales to professional customers (B2B); and (iii) retail sales to
        non-professional customers (primarily through DIY stores), but has left the precise
        product market definition ultimately open.54
(52)    As regards distribution on the retail level more specifically, in past decisions the
        Commission has also considered sub-segmentation by product groups, including the
        specific product group of building materials.55
(53)    The Notifying Party submits that while further segmentation of the distribution
        markets by product category may be conceivable, it is extremely difficult to provide
        any reliable market share estimates on such a narrow product market basis. The
        Notifying Party also claims that distributors of building materials do no
        systematically track various product segments as distinct markets, as they are more
        interested in increasing their overall sales and offering as comprehensive a range of
        products as possible.56
53  Form CO, paragraph 156.
54  M.7910 – Kesko/Onninen, paragraph 16; M.7703 – PontMeyer/DBS, paragraphs 11-12; M.3407 – Saint
    Gobain/Dahl, paragraphs 12 and 16; and M.3142 – CVC/Danske Traelast, paragraphs 11-13.
55 M.7283 – Kingfisher/Mr Bricolage, paragraph 13; M.7107 – Cordes & Graefe/Pompac/Comafranc,
    paragraph 15.
56 Form CO, paragraph 203.
                                                     11
 ---pagebreak--- (54)     The Commission’s investigation indicated that Xella’s products represent only a
         minor part of the retailers’ portfolio based on their overall purchasing volumes.57
         The business model of retailers is based on having a large portfolio of building
         materials products and even other types of products such as insulation materials that
         they can offer to end customers for various types of construction projects, rather than
         specialising in a few types of building materials, such as AAC blocks, CSUs or AAC
         large format units. 58 For instance, in 2018, SGBDD generated revenues of only
         EUR [less than 50] million and EUR [less than 100] million in AAC blocks and
         CSUs respectively (stock sales and project sales combined), while the overall
         turnover generated from the distribution of building materials was
         EUR [1-2 billion].59
(55)     However, for the purpose of this decision, the exact product market definition with
         respect to the retail sales of building materials to professional customers can be left
         open as the outcome of the competitive assessment would be the same under any
         plausible alternative product market definition.
4.3.     Relevant geographic markets
4.3.1. AAC blocks on the market for wholesale sales to retailers
(56)     With regard to the relevant geographic market, the Commission has previously
         considered the wholesale sales to retailers market for AAC blocks as at most national
         level, but left the exact market definition open.60 However, the Commission found in
         the referral decision Haniel/Fels (2001) and Haniel/Ytong (2001) that a local market
         appears to be appropriate, mainly because of the catchment areas of the production
         plants61 and acknowledged local aspects of the supply of AAC in Germany in the
         Xella/H+H (2011) referral decision 62 . Moreover, Bundeskartellamt precedents
         from 2002 (Haniel/Ytong) and 2012 (Xella/H+H), both dealing with the supply of
         AAC blocks in Germany on the wholesale sales to retailers market, considered the
         geographical market to be subnational in scope, based on 200-km catchment areas
         around production plants, and North, West, South and East German regions
         respectively.63
57  Replies to Q1 – Questionnaire to Retailers, q. 6.
58  Replies to Q1 – Questionnaire to Retailers, q. 1.
59  Form CO, paragraph 275.
60  Case M.8341 – Lone Star Fund/Xella International, paragraph 30 et seq.
61  Cases M.2495 – Haniel/Fels, paragraphs 18 and 19, M.2568 – Haniel/Ytong, paragraph 19.
62  M.6146 – XELLA/H+H, paragraphs 11 et seq.
63  Bundeskartellamt, 1. Beschlussabteilung, B 1 – 26401 – U - 263/01, section B.II.2; Bundeskartellamt, 1.
    Beschlussabteilung, B 1 - 30/11, paragraph 189. The Bundeskartellamt defined the four local market
    within Germany based on zip codes areas: North Germany is defined by zip codes 18xxx, 19xxx and
    2xxxx and therefore comprises Schleswig-Holstein, the north of Niedersachsen and the largest (northern)
    part of Mecklenburg-Vorpommern. West Germany is defined by zip codes 30xxx-38xxx, 4xxxx, 5xxxx,
    6xxxx and comprises Nordrhein-Westphalen, Rheinland-Pfalz, Saarland, the south of Niedersachsen and
    Hessen. South Germany is defined by zip codes 7xxxx, 8xxxx, 90xxx-97xxx and comprises Bayern and
    Baden-Württemberg. East Germany is defined by the zip codes 0xxxx-17xxx, 39xxx, 98xxx, 99xxx and
    comprises Sachsen, Sachsen-Anhalt, Thüringen, Brandenburg as well as the southern part of
    Mecklenburg-Vorpommern. The Commission understands that the federal state of Berlin is geographically
    comprised by Brandenburg and hence part of the East Germany market.
                                                       12
 ---pagebreak--- (57)    The Notifying Party submits that the geographic market for AAC products should be
        defined as (at least) national in scope.64
(58)    In contrast, however, feedback from the market unambiguously indicates that the
        geographic market for AAC blocks is subnational in scope. A clear majority of
        retailers indicated that they purchase buildings materials, in particular, AAC blocks
        and CSUs, on a local level, whilst only a minority indicated a national scope for their
        purchases.65 For the similar question, more than two-thirds of manufacturers stated
        that they sell their products on a local level66 One manufacturer commented, “we sell
        exclusively through regional builders merchants”67. As regards diverging wholesale
        prices, a clear majority of retailers confirmed that wholesale prices of building
        materials, in particular, AAC blocks and CSUs, differ significantly between different
        regions within Germany.68 Respondents also confirmed that transport costs matter
        and that, therefore, the catchment areas around productions sites are
        between 150 and 300 kilometres.69
(59)    The Commission notes that in particular because of the catchment areas around
        production facilities for AAC blocks, it is impossible to assume an economically
        reasonable national geographic market. Whereas this may be different for smaller
        countries, the size of Germany determines the local scope of the markets. This is
        even more so, as Xella appears to be the only AAC blocks manufacturer with
        production facilities across Germany, whilst in all German regions there are AAC
        blocks manufacturers that are active only locally, as can be seen from a map
        provided by the Notifying Party presented in Figure 2.70
64 Form CO, paragraphs 104 et seq.
65 Replies to Q1 – Questionnaire to Retailers, q. 14.
66 Replies to Q2 – Questionnaire to Producers, q. 19.
67 Replies to Q2 – Questionnaire to Producers, q. 19.1.
68 Replies to Q1 – Questionnaire to Retailers, q. 15.
69 “Up to 200 kilometres” according to the reply by one respondent to Q1 – Questionnaire to Retailers, q 14;
   “deliver radius of 150 – 200 kilometres” according to a market participant, Minutes of a call with a retailer
   dated 2 August 2019; according to a retailer, the transport cost would not be economically reasonable
   above a radius of 200-300 kilometres, Minutes of a call with a retailer dated 25 July 2019; “as transport
   costs are high, it is economically reasonable to transport (…) AAC blocks up to 300 kilometre”, Minutes
   of a call with a manufacturer dated 30 July 2019.
70 Form CO, Annex W, page 20.
                                                         13
 ---pagebreak---   Figure 2: Map of AAC, calcium silicate and clay bricks production sites in Germany
                                     [redacted version]
(60)   Furthermore, the Commission takes note of strongly diverging market shares of
       AAC blocks manufacturers in different German regions (section 5.3.2.1 of this
       decision). For example, Xella’s market shares for the sale of AAC blocks on the
       wholesale to retailer market are as high as [70-80]% in South Germany, [60-70]% in
       East Germany but only [30-40]% in North and West Germany. H+H, Xella’s
       strongest competitor in AAC blocks, faces a similar diverging spread with [30-40]%
       in North Germany, [20-30]% in West Germany but only [0-5]% in East Germany
       and [0-5]% in South Germany.
(61)   Therefore, the Commission considers that the relevant geographic markets for AAC
       blocks in Germany are local in scope and comprise certain areas within Germany.
       The Commission considers the delineation of four local markets established by the
       Bundeskartellamt to be the most suitable definition of the local markets. For this
       purpose, the Commission endorses this geographic market definition for AAC
       blocks within Germany.
                                                 14
 ---pagebreak--- 4.3.2. AAC large format units for residential construction on the market for wholesale
         sales to retailers
(62)     There are no precedents in the Commission's previous decisional practice as regards
         the relevant geographic market definition for AAC large format units for residential
         use.
(63)     The Notifying Party contends that the geographic market for large format
         prefabricated compound units for residential use are national in scope, which is in
         line with the usual delivery radius of up to 600 kilometres.71
(64)     In the market investigation, one market participant confirmed that manufacturers sell
         and deliver these products within the whole of Germany.72
(65)     The Commission considers that, for the purposes of this decision, the precise scope
         of the relevant geographic market for AAC large format units for residential use
         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 internal market under
         any plausible market definition.
4.3.3. CSUs on the market for wholesale sales to retailers
(66)     As for the geographic scope, the Commission acknowledged the local aspect of the
         supply of CSUs in Germany in several referral decision.73
(67)     The Notifying Party considers that CSUs are not different from other building
         materials in that respect and that the geographic market for the distribution of CSUs
         is therefore in all likelihood national.74
(68)     However, as for AAC blocks, the market investigation demonstrated that the relevant
         geographic market is subnational in scope. 75 The arguments and considerations
         brought forward for AAC blocks apply in the same manner to CSUs: the production
         facilities for CSUs are spread over Germany in a similar manner as those of AAC
         blocks. Xella’s market shares are also strongly diverging with [70-80]% in North
         Germany, [40-50]% in East Germany, [20-30]% in West Germany and [5-10]% in
         South Germany, and so do they for H+H with [20-30]% in South Germany,
         [20-30]% in East Germany, [0-5]% in North Germany and [0-5]% in West Germany.
         One difference between AAC blocks and CSUs is that the catchment areas around
         production sites are smaller for CSUs due to the lower monetary value of these
         products76, which even more supports the view that the relevant geographic markets
         are local in scope.
71  Form CO, paragraph 128.
72  Minutes of a call with a market participant dated 31 July 2019.
73  Cases COMP/M.2495 – Haniel/Fels, paragraphs 18 and 19, COMP/M.2568 – Haniel/Ytong,
    paragraph 19, COMP/M.6146 – XELLA/ H+H, paragraphs 11 et seq.
74  Form CO, paragraph 155.
75  Paragraph (58) of this decision.
76  A market participant indicated that the catchment areas for CSUs are 100 to 150 kilometre, Minutes of a
    call with a retailer dated 2 August 2019.
                                                          15
 ---pagebreak--- (69)     Therefore, the Commission considers that the relevant geographic markets for CSUs
         in Germany are local in scope and comprise certain areas within Germany. The
         Commission considers the delineation of four local markets established by the
         Bundeskartellamt to be the most suitable definition of the local markets. For this
         purpose, the Commission endorses this geographic market definition for CSUs
         within Germany.
4.3.4. Distribution of building materials, in particular AAC and CSU products, on the
         market for retail sales to professional customers
(70)     With regard to the relevant geographic market, the Commission has previously
         considered that the scope of the market of retail sales to professional customers for
         the distribution of building products is either national or potentially smaller than
         national.77
(71)     The Notifying Party contends that the relevant geographic market for retail sales to
         professional customers is national.78
(72)     The market investigation and the information submitted by the Notifying Party,
         however, point towards a local market of retail sales to professional customers for
         building materials. Firstly, some end-customers enter into supply contracts directly
         with manufacturers such as Xella. The delivery of the products and the invoicing,
         however, are carried out through a local retailer. 79 One respondent described the
         typical constellation as follows: “The planning and the technical agreements are
         done directly with the manufacturer. The purchase of the products is carried out
         through several retailers.” 80 Other end-customers source exclusively through
         retailers. Secondly, the geographic presence of the most of SGBDD’s competitors is
         limited to certain areas in Germany81, with SGBDD’s competitors putting forward
         that they compete with SGBDD only locally.82
(73)     In any event, the Commission considers that, for the purposes of this decision, the
         precise scope of the relevant geographic market for building materials distributed on
         the market of retail sales to professional customers can be left open in the current
         case, since the Transaction does not give rise to serious doubts about its
         compatibility with the internal market under any plausible market definition.
77  Case COMP/M.7910 - Kesko/Onninen, paragraph 23 with references to previous decisions.
78  Form CO, paragraphs 204 et seq.
79  Replies to Q3 – Questionnaire to End customers, q. 4 and q. 8.
80  Replies to Q3 – Questionnaire to End customers, q. 3 (the quote is a convenience translation from
    German, which reads: “Die Planungen und technischen Absprachen werden direkt mit dem Hersteller
    getroffen. Der Einkauf dieser Produkte erfolgt über diverse Einzelhändler.“)
81  Form CO, Annex 15, with maps of SGBDD’s strongest competitors, displaying the local presence of the
    vast majority of these competitors.
82  Minutes of a call with a retailer dated 26 June 2019.
                                                          16
 ---pagebreak--- 5.      COMPETITIVE ASSESSMENT
5.1.    Introduction
(74)    Under Article 2(2) and (3) of the Merger Regulation and Annex XIV to the EEA
        Agreement, the Commission is required to examine whether notified concentrations
        are compatible with the internal market and the functioning of the EEA Agreement,
        by assessing whether they 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.
(75)    In addition, Article 57(1) of the EEA Agreement requires the Commission to
        examine whether notified concentrations are compatible with the functioning of the
        EEA Agreement, by assessing whether they would create or strengthen a dominant
        position as a result of which effective competition would be significantly impeded
        within the EEA territory or a substantial part of it.
(76)    In this respect, a proposed concentration may entail horizontal and/or non-horizontal
        effects.
5.2.    Horizontal effects
5.2.1. Analytical framework
(77)    As regards horizontal effects, the Horizontal Merger Guidelines 83 distinguish
        between two main ways in which concentrations concerning undertakings that are
        actual or potential competitors on the same relevant market (“horizontal mergers”)
        may significantly impede effective competition, namely non-coordinated and
        coordinated effects.
(78)    Non-coordinated effects may significantly impede competition by eliminating
        important competitive constraints on one or more firms, which consequently would
        have increased market power, without resorting to coordinated behaviour. In that
        regard, the Horizontal Merger Guidelines consider not only the direct loss of
        competition between the undertakings involved in the horizontal merger, but also the
        reduction in competitive pressure on undertakings not involved in the horizontal
        merger in the same market that could be brought about by the horizontal merger.
(79)    The Horizontal Merger Guidelines list a number of factors which may influence
        whether significant non-coordinated effects are likely to result from a horizontal
        merger, such as the large market shares of the undertakings involved in the
        horizontal merger, the fact that the undertakings involved in the horizontal merger
        are close competitors, the limited possibilities for customers to switch suppliers, or
        the fact that a horizontal merger would eliminate an important competitive force.
        That list of factors applies equally if a horizontal merger would create or strengthen
        a dominant position, or would otherwise significantly impede effective competition
        due to non-coordinated effects.
83  Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
    concentrations between undertakings, OJ C 31, 5.2.2004, p. 5.
                                                        17
 ---pagebreak--- (80)     Section 5.2.2 of this decision will analyse whether the proposed Transaction is likely
         to raise doubts as to its compatibility with the internal market due to non-coordinated
         effects.
5.2.2. The Commission’s assessment
(81)     The Notifying Party contends that the proposed Transaction does not give rise to
         horizontal overlaps both between Stark and SGBDD on the one hand84 and Xella and
         SGBDD on the other hand.85
(82)     Horizontal overlaps on the markets of retail sales to professional customers and retail
         sale to non-professional customers between Stark and SGBDD, if any, are minimal.
         Stark has no operations in Germany and only very limited cross-border sales into
         Germany. SGBDD’s exports to Denmark (and its total exports to all Nordic
         countries in which Stark is present) represent [less than 1]% of its overall sales; and
         Stark’s exports to Germany are about [less than 1]% of its sales in Denmark.86
(83)     As regards Xella’s production and sale of AAC blocks and CSUs, the Commission’s
         market investigation confirmed that Xella does not sell these products directly to end
         customers, but only through retailers such as SGBDD.87
(84)     Xella distributes AAC large format units under the Ytong brand for residential
         construction by way of project sales through retailers, but not directly to end-
         customers.88
(85)     Therefore, in light of the results of the market investigation and the evidence
         provided by the Notifying Party, the Commission considers that the proposed
         Transaction does not give rise to any, or only minimal, horizontal overlaps.
         Therefore, the Commission considers that the proposed Transaction does not raise
         any concerns as to its compatibility with internal market or the functioning of the
         EEA Agreement with respect to horizontal non-coordinated effects.
5.3.     Vertical effects
5.3.1. Analytical framework
(86)     As regards non-horizontal effects, the Non-Horizontal Merger Guidelines 89
         distinguish between two broad types of concentrations that concern undertakings
         which are active on different relevant markets (“non-horizontal mergers”), namely
         vertical mergers and conglomerate mergers.
84  Form CO, paragraphs 260 et seq.
85  Form CO, paragraphs 263 et seq.
86  Form CO, paragraph 46.
87  Replies to Q3 – Questionnaire to End customers, q. 10: An overwhelming majority of respondents stated
    that Xella and SGBDD do not compete in the distribution of building materials, in particular of AAC
    blocks, CSUs and AAC large format units.
88  Form CO, paragraph 111; RFI 11 dated 1 August 2019, response to question 5 dated 5 August 2019.
89  Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of
    concentrations between undertakings, OJ C 265, 18.10.2008, p. 6.
                                                       18
 ---pagebreak--- (87)    A vertical merger may result in anti-competitive effects due to foreclosure.
        Foreclosure concerns a situation where actual or potential rivals’ access to supplies
        or markets is hampered or eliminated as a result of the vertical merger, thereby
        reducing these companies’ ability and/or incentive to compete.90
(88)    Two forms of foreclosure can be distinguished in a vertical relationship: input and
        customer foreclosure. The first is where the vertical merger is likely to raise the costs
        of downstream rivals by restricting their access to an important input (input
        foreclosure). The second is where the vertical merger is likely to foreclose upstream
        rivals by restricting their access to a sufficient customer base (customer
        foreclosure).91
(89)    Input foreclosure arises where, post-Transaction, the new entity would be likely to
        restrict access to the products or services that it would have otherwise supplied
        absent the vertical merger, thereby raising its downstream rivals' costs by making it
        harder for them to obtain supplies of the input under similar prices and conditions as
        absent the vertical merger.92
(90)    Customer foreclosure may occur when a supplier integrates with an important
        customer in the downstream market. Because of this downstream presence, the
        merged entity may foreclose access to a sufficient customer base to its actual or
        potential rivals in the upstream market (the input market) and reduce their ability or
        incentive to compete. In turn, this may raise downstream rivals' costs by making it
        harder for them to obtain supplies of the input under similar prices and conditions as
        absent the vertical merger.93
(91)    For an input or customer foreclosure scenario to raise competition concerns, three
        cumulative factors need to be taken into account: (i) the ability of the merged entity
        to engage in foreclosure; (ii) the incentives of the merged entity to do so; and
        (iii) whether a foreclosure strategy would have a significant detrimental effect on
        competition in the downstream market.94
5.3.2. Market structure of the upstream markets: wholesale sales of AAC blocks, CSUs and
        AAC large format unit for residential construction
5.3.2.1. AAC blocks
(92)    According to the Notifying Party, Xella’s and its relevant competitors’ market shares
        in the sale of AAC blocks on the market for wholesale sales to retailers on the
        German national market as well as on four local markets within Germany are as
        follows:
90  Non-Horizontal Merger Guidelines, paragraphs 29-30.
91  Non-Horizontal Merger Guidelines, paragraphs 29-30.
92 Non-Horizontal Merger Guidelines, paragraph 31.
93 Non-Horizontal Merger Guidelines, paragraph 58.
94 Non-Horizontal Merger Guidelines, paragraphs 32, 59.
                                                      19
 ---pagebreak--- Table 1: Upstream wholesale of AAC blocks Germany-wide in 2018
                                                                       Market
                       Total sales     Market share     Total sales
                                                                      shares in
 Company             values in '000      in value in   volume (m3)
                                                                      volume in
                      EUR in 2018            2018        in 2018
                                                                         2018
 All manufacturers
                     [200-300,000]          100%         [2-3 m]         100%
 in Germany
 Xella                     […]            [50-60]%         […]        [40-50]%
 H+H                       […]            [10-20]%         […]        [10-20]%
 Porit                     […]            [10-20]%         […]        [10-20]%
 Others                    […]            [10-20]%         […]        [20-30]%
Table 2: Upstream wholesale of AAC blocks in North Germany in 2018
                                                                        Market
                        Total sales     Market share    Total sales
                                                                       shares in
 Company              values in '000     in value in  volume (m3) in
                                                                      volume in
                       EUR in 2018           2018           2018
                                                                          2018
 All manufacturers        [less than                      [less than
                                              100%                         100%
 in North Germany          50,000]                        500,000]
 Xella                        […]          [30-40]%          […]        [30-40]%
 H+H                          […]          [30-40]%          […]        [30-40]%
 Porit                        […]           [5-10]%          […]         [5-10]%
 Others                       […]          [20-30]%          […]        [20-30]%
Table 3: Upstream wholesale of AAC blocks in West Germany in 2018
                                             Market                     Market
                    Total sales values                  Total sales
                                             share in                  shares in
 Company              in '000 EUR in                   volume (m3)
                                             value in                  volume in
                            2018                          in 2018
                                               2018                       2018
 All
 manufacturers in   [less than 100,000]        100%   [less than 1 m]     100%
 West Germany
 Xella                       […]            [30-40]%        […]        [30-40]%
 H+H                         […]            [20-30]%        […]        [20-30]%
 Porit                       […]            [20-30]%        […]        [20-30]%
 Others                      […]            [20-30]%        […]        [20-30]%
                                              20
 ---pagebreak--- Table 4: Upstream wholesale of AAC blocks in South Germany in 2018
                                             Market                    Market
                       Total sales values               Total sales
                                             share in                 shares in
 Company                 in '000 EUR in                volume (m3)
                                             value in                 volume in
                               2018                       in 2018
                                               2018                     2018
 All manufacturers
                       [less than 100,000]     100%   [less than 1 m]   100%
 in South Germany
 Xella                         […]          [70-80]%        […]       [70-80]%
 H+H                           […]            [0-5]%        […]        [0-5]%
 Porit                         […]          [10-20]%        […]       [10-20]%
 Others                        […]          [10-20]%        […]       [10-20]%
Table 5: Upstream wholesale of AAC blocks in East Germany in 2018
                                            Market                     Market
                      Total sales values                Total sales
                                            share in                  shares in
 Company                in '000 EUR in                 volume (m3)
                                            value in                  volume in
                              2018                        in 2018
                                              2018                      2018
 All manufacturers
                      [less than 100,000]  100.00%    [less than 1 m]   100%
 in East Germany
 Xella                        […]          [60-70]%         […]       [60-70]%
 H+H                          […]            [0-5]%         […]        [0-5]%
 Porit                        […]          [10-20]%         […]       [10-20]%
 Others                       […]          [10-20]%         […]       [10-20]%
                                           21
 ---pagebreak--- 5.3.2.2. CSUs
(93)    According to the Notifying Party, Xella’s and its relevant competitors’ market shares
        in the sale of CSUs on the market for wholesale sales to retailers on the German
        national market as well as on four local markets within Germany are as follows:
Table 6: Upstream wholesale of CSUs Germany-wide in 2018
                                                                                  Market
                           Total sales      Market share       Total sales
                                                                                 shares in
  Company                values in '000      in value in      volume (m3)
                                                                                 volume in
                         EUR in 2018             2018            in 2018
                                                                                    2018
  All manufacturers
                         [400-500,000]          100%            [3.5-4 m]           100%
  in Germany
  Xella                        […]            [30-40]%              […]          [30-40]%
  H+H                          […]            [10-20]%              […]          [10-20]%
  Unika                        […]            [10-20]%              […]          [10-20]%
  BMO                          […]             [5-10]%              […]           [5-10]%
  Others                       […]            [30-40]%              […]          [40-50]%
Table 7: Upstream wholesale of CSUs in North Germany in 2018
                                                                                  Market
                            Total sales      Market share       Total sales
                                                                                 shares in
 Company                  values in '000      in value in      volume (m3)
                                                                                 volume in
                           EUR in 2018            2018            in 2018
                                                                                    2018
 All manufacturers           [less than                          [less than
                                                  100%                              100%
 in North Germany            100,000]                            750,000]
 Xella                          […]            [70-80]%              […]         [70-80]%
 H+H                            […]              [0-5]%              […]           [0-5]%
 Unika                          […]              [0-5]%              […]           [0-5]%
 Others                         […]            [20-30]%              […]         [20-30]%
                                                   22
 ---pagebreak--- Table 8: Upstream wholesale of CSUs in West Germany in 2018
                                                                      Market
                       Total sales    Market share     Total sales
                                                                     shares in
 Company              values in '000    in value in   volume (m3)
                                                                     volume in
                      EUR in 2018           2018         in 2018
                                                                        2018
 All manufacturers      [less than
                                            100%     [less than 2 m]    100%
 in West Germany        250,000]
 Xella                      […]           [20-30]%          […]      [20-30]%
 H+H                        […]            [0-5]%           […]        [0-5]%
 Unika                      […]           [10-20]%          […]      [10-20]%
 BMO                        […]           [10-20]%          […]      [10-20]%
 Others                     […]           [40-50]%          […]      [40-50]%
Table 9: Upstream wholesale of CSUs in South Germany in 2018
                                                                      Market
                        Total sales    Market share    Total sales
                                                                     shares in
 Company              values in '000     in value in  volume (m3)
                                                                     volume in
                       EUR in 2018           2018         in 2018
                                                                        2018
 All manufacturers       [less than                     [less than
                                            100%                        100%
 in South Germany        100,000]                        750,000]
 Xella                       […]           [5-10]%          […]       [5-10]%
 H+H                         […]          [20-30]%          […]      [20-30]%
 Unika                       […]          [10-20]%          […]      [10-20]%
 Others                      […]          [50-60]%          […]      [50-60]%
Table 10: Upstream wholesale of CSUs in East Germany in 2018
                                                                      Market
                       Total sales    Market share     Total sales
                                                                     shares in
 Company              values in '000    in value in   volume (m3)
                                                                     volume in
                      EUR in 2018           2018         in 2018
                                                                        2018
 All manufacturers      [less than                      [less than
                                            100%                        100%
 in East Germany         150,000]                          1 m]
 Xella                      […]           [40-50]%          […]      [40-50]%
 H+H                        […]           [20-30]%          […]      [20-30]%
 Unika                      […]           [10-20]%          […]      [10-20]%
 Others                     […]           [20-30]%          […]      [20-30]%
                                             23
 ---pagebreak--- 5.3.2.3. AAC large format units for residential construction
(94)    With respect to AAC large format units for the residential construction, the
        Notifying Party submits that it would have a market share of 100% on a plausible
        market, which only comprises this product, as it is the only manufacturer selling this
        product in Germany.95
5.3.3. Market structure of the downstream markets: retail sales of building materials to
        professional customers
(95)    For the downstream market, according to estimates of the Notifying Party,
        SGBDD’s market shares and the market shares of its competitors in distribution of
        building materials on the market for retail sales to professional customers are as
        follows:
Table 11: Retail sales of building materials to professional customers Germany-wide
in 201796
                                                 Value of retail
                                                                         Estimated market shares,
   Company                                         sales (EUR
                                                                              nation-wide, 2017
                                                million) (2018)97
   SGBDD                                             [1-2 bn]                        [5-10]%
   BayWa AG                                                                          [5-10]%
   Bauking AG                                                                         [0-5]%
   WeGo Systembaustoffe GmbH                                                          [0-5]%
   team AG                                                                            [0-5]%
   Kemmler SE                                                                         [0-5]%
   mobau Wirtz & Classen                                                              [0-5]%
   Hornbach Baustoff Union                                                            [0-5]%
   Wertheimer Gruppe                                                                  [0-5]%
   BAUEN + LEBEN                                                                      [0-5]%
   Bauzentrum Mayer                                                                   [0-5]%
   Theodor Wölpert                                                                    [0-5]%
(96)    SGBDD’s market shares differ in different subnational regions of Germany.
        According to the Notifying Party, SGBDD’s market shares are between [0-5]% in
        North Germany and [20-30]% in the area of Berlin-Brandenburg, which roughly
        corresponds to the East German region. According to this data, SGBDD is market
        leader in the area of Berlin-Brandenburg followed by Bauking and Holz Possling
95  Form CO, paragraph 118.
96  The Notifying Party confirmed that these data would differ only marginally, if at all, if they were based on
    data for 2018; RFI 13 dated 27 August 2019, response to question 1 dated 28 August 2019.
97 The Notifying Party submits that the Target does not have any reliable information on its competitors’
    market shares by category of products, not least because the German market for the distribution of
    construction products is fragmented. To the best of the Target’s knowledge, there are no third party
    sources it has access to that track market shares by product category reliably. (Form CO, Annex 13).
                                                           24
 ---pagebreak---        with each [5-10]% market share, and in the area of Middle Germany with a market
       share of [10-20]%, followed by WeGO with [0-5]%. In other German regions,
       SGBDD does not command the highest market shares amongst its competitors.98 In
       any case, the competitive assessment relates to narrowest plausible product markets
       on a subnational level, where the highest market shares exceed those on the national
       level.
(97)   As regards the Germany-wide and regional sale of AAC blocks and CSUs, the
       Notifying Party estimates the following market shares for SGBDD99:
Table 12: SGBDD’s market shares on the market for retail sales of AAC blocks to
professional customers in Germany and in German regions
                                                 Market share                               Market
                        Total sales values                             Total sales
                                                  SGBDD in                                 shares in
                          all retailers in                            volume (m3)
                                                 value (EUR)                               volume in
                           EUR in 2018                                    in 2018
                                                    in 2018                                   2018
  Germany                  [200-300 m]             [10-20]%             [2.5-3 m]           [5-10]%
  North Germany              [30-40 m]              [5-10]%          [400-500,000]          [5-10]%
  West Germany               [70-80 m]               [0-5]%          [900,000-1 m]           [0-5]%
  South Germany              [50-60 m]              [5-10]%          [600-700,000]          [5-10]%
  East Germany               [50-60 m]             [20-30]%          [600-700,000]         [20-30]%
Table 13: SGBDD’s market shares on the market for retail sales of CSUs to
professional customers in Germany and in German regions
                                                   Market
                                                                                            Market
                        Total sales values           share            Total sales
                                                                                           shares in
                          all retailers in       SGBDD in          volume (m3) in
                                                                                           volume in
                           EUR in 2018          value (EUR)                2018
                                                                                              2018
                                                   in 2018
  Germany                  [400-500 m]            [10-20]%               [3-4 m]           [10-20]%
  North Germany              [60-70 m]            [10-20]%          [500-600,000]          [10-20]%
  West Germany             [200-300 m]             [5-10]%               [1-2 m]             [0-5]%
  South Germany              [60-70 m]            [10-20]%          [600-700,000]           [5-10]%
  East Germany             [100-200 m]            [20-30]%          [900,000-1 m]          [20-30]%
(98)   With regard to SGBDD’s competitors in the sales of AAC blocks and CSUs on the
       Germany-wide and local level, the Notifying Party submitted only approximations of
       market shares, maintaining that no other data is available or known to the Notifying
       Party. 100 According to the Notifying Party, these approximations are based on
98  Form CO, Annex 13-D.
99  Form CO, Annex 13; RFI 15 dated 2 September 2019, response to question 1 dated 3 September 2019.
100 Form CO, paragraphs 242 et seq.; Form CO, Annex 13-E.
                                                     25
 ---pagebreak---          several assumptions in relation to purchase and sales volumes of SGBDD’s
         competitors and therefore may deviate from market reality101.
(99)     The approximations indicate that in respect of AAC blocks, SGBDD commands the
         highest market shares on a Germany-wide level with [10-20]% 102 , followed by
         BayWa with [5-10]% and Bauking, Union Bauzentrum Hornbach and Raiffeisen
         Waren each with [0-5]%. SGBDD is also market leader in East Germany, with
         [20-30]% 103 , followed by Raiffeisen Waren with [5-10]% and BayWa holding
         [0-5]%. SGBDD is not, however, market leader in the sale of AAC blocks in North
         Germany, where, according to the market share approximation, it is the fifth largest
         retailer with [0-5]%104, in West Germany as the third largest retailer with [5-10]%105
         and South Germany as the third largest retailer with [5-10]%106.
(100) The same applies to SGBDD’s approximations of market shares of CSUs’ sales. On
         the national level it would hold the highest market share with [10-20]%107, followed
         by Bauking with [5-10]% and Team baucenter, Henri Benthack and
         Krüger+Scharnberg each with [0-5]%. In East Germany, SGBDD would hold the
         highest market shares with [30-40]% 108 , with Bauking holding [5-10]% and
         Rothkelgel with [0-5]% being the second and third strongest competitor. SGBDD is
         fifths largest retailer with [5-10]%109in North Germany. In West Germany, it would
         hold [5-10]%110 and be the third strongest retailer and in South Germany on fourth
         position with [5-10]%111.
101 Form CO, paragraphs 243 to 255.
102 The Notifying Party’s estimate for SGBDD’s market share Germany-wide is [10-20]%; Table 12 of this
    decision.
103 The Notifying Party’s estimate for SGBDD’s market share in East Germany is [20-30]%; Table 12 of this
    decision.
104 The Notifying Party’s estimate for SGBDD’s market share in North Germany is [5-10]%; Table 12 of this
    decision.
105 The Notifying Party’s estimate for SGBDD’s market share in West Germany is [0-5]%; Table 12 of this
    decision.
106 The Notifying Party’s estimate for SGBDD’s market share in South Germany is [5-10]%; Table 12 of this
    decision.
107 The Notifying Party’s estimate for SGBDD’s market share Germany-wide is [10-20]%; Table 13 of this
    decision.
108 The Notifying Party’s estimate for SGBDD’s market share in East Germany is [20-30]%; Table 13 of this
    decision.
109 The Notifying Party’s estimate for SGBDD’s market share in North Germany is [10-20]%; Table 13 of this
    decision.
110 The Notifying Party’s estimate for SGBDD’s market share in West Germany is [5-10]%; Table 13 of this
    decision.
111 The Notifying Party’s estimate for SGBDD’s market share in South Germany is [10-20]%; Table 13 of
    this decision.
                                                       26
 ---pagebreak--- (101) With respect to AAC large format units for residential construction, according to the
        Notifying Party, proxy estimates of SGBDD’s market shares are presented in Table
        14.
Table 14: Proxy estimates of SGBDD’s market shares for AAC large format units for
residential construction (2018)112
                                                SGBDD’s
                                                                  SGBDD’s total     SGBDD’s share
                     SGBDD’s value of             share of
                                                                      volume of       of purchases
                       purchases from           purchases
                                                                  purchases from     from Xella by
                       Xella in EUR in        from Xella by
                                                                    Xella (m3) in   volume in 2018,
                              2018             value (EUR)
                                                                        2018               in %
                                              in 2018, in %
 Germany                    [1-2 m]              [10-20]%        [less than 10,000]     [10-20]%
 North
                      [less than 50,000]           [0-5]%          [less than 200]        [0-5]%
 Germany
 West Germany         [less than 50,000]           [0-5]%          [less than 100]        [0-5]%
 South
                     [less than 200,000]          [5-10]%          [less than 500]       [5-10]%
 Germany
 East Germany           [less than 2 m]          [30-40]%        [less than 10,000]     [30-40]%
5.3.4. Vertically affected markets
(102) Based on the market shares submitted by the Notifying Party, as presented in
        sections 5.3.2 and 5.3.3 of this decision, and based on the methodology proposed and
        applied by the Notifying Party for the purpose of calculating the market shares, the
        Transaction gives rise to the following vertically affected markets.
(103) As regards AAC blocks:
        (a)     Upstream wholesale supply of AAC blocks by Xella and downstream retail
                distribution of AAC blocks to professional customers by SGBDD in
                Germany (upstream [50-60]% by value, [40-50]% by volume; downstream
                [10-20]% by value, [5-10]% by volume);
        (b)     Upstream wholesale supply of AAC blocks by Xella and downstream retail
                distribution of AAC blocks to professional customers by SGBDD in North
                Germany (upstream [30-40]% by volume, [30-40]% by value; downstream
                [5-10]% by value, [5-10]% by volume);
        (c)     Upstream wholesale supply of AAC blocks by Xella and downstream retail
                distribution of AAC blocks to professional customers by SGBDD in West
                Germany (upstream [30-40]% by volume, [30-40]% by value; downstream
                [0-5]% by value, [0-5]% by volume);
        (d)     Upstream wholesale supply of AAC blocks by Xella and downstream retail
                distribution of AAC blocks to professional customers by SGBDD in South
112 RFI 14 dated 28 August 2019, response to question 1(d) dated 29 August 2019.
                                                        27
 ---pagebreak---               Germany (upstream [70-80]% by volume, [70-80]% by value; downstream
              [5-10]% by value, [5-10]% by volume);
      (e)     Upstream wholesale supply of AAC blocks by Xella and downstream retail
              distribution of AAC blocks to professional customers by SGBDD in East
              Germany (upstream [60-70]% by volume, [60-70]% by value; downstream
              [20-30]% by value, [20-30]% by volume).
(104) As regards CSUs:
      (a)     Upstream wholesale supply of CSUs by Xella and downstream retail
              distribution of CSUs to professional customers by SGBDD in Germany
              (upstream [30-40]% by value, [30-40]% by volume; downstream [10-20]%
              by value, [10-20]% by volume);
      (b)     Upstream wholesale supply of CSUs by Xella and downstream retail
              distribution of CSUs to professional customers by SGBDD in North
              Germany (upstream [70-80]% by volume and value; downstream [10-20]%
              by value, [10-20]% by volume);
      (c)     Upstream wholesale supply of CSUs by Xella and downstream retail
              distribution of CSUs to professional customers by SGBDD in East Germany
              (upstream [40-50]% by volume and value; downstream [20-30]% by value,
              [20-30]% by volume).
(105) As regards AAC large format units for residential construction, upstream wholesale
      supply of AAC large format units for residential construction by Xella and
      downstream retail distribution of AAC large format units for residential construction
      to professional customers by SGBDD in:
      (a)     Germany (upstream [90-100]% by volume and value; downstream
              [10-20]% by volume, [10-20]% by value);
      (b)     North Germany (upstream [90-100]% by volume and value; downstream
              [0-5]% by volume and value);
      (c)     West Germany (upstream [90-100]% by volume and value; downstream
              [0-5]% by volume, [0-5]% by value);
      (d)     South Germany (upstream [90-100]% by volume and value; downstream
              [5-10]% by volume, [5-10]% by value);
      (e)     East Germany (upstream [90-100]% by volume and value; downstream
              [30-40]% by volume, [30-40]% by value).
(106) The Notifying Party submits that even if there were affected markets brought about
      by the proposed Transaction, it would not give rise to any significant impediment to
      effective competition by restricting downstream rivals’ access to an important input
                                               28
 ---pagebreak---         (input foreclosure) or by restricting upstream rivals’ access to a sufficient customer
        base (customer foreclosure).113
5.3.5. Input foreclosure
5.3.5.1. The Notifying Party’s arguments
(107) The Notifying Party submits that there is no risk that the proposed Transaction
        would lead to input foreclosure. Post-Transaction, Xella would have neither the
        ability nor the incentive to restrict access to its products vis-à-vis other distributors
        competing with SGBDD on the downstream level.114
(108) As regards ability, the Notifying Party submits that Xella would not have the ability
        to foreclose SGBDD’s downstream competitors from access to AAC blocks and
        CSUs as Xella’s products, and in particular AAC blocks, are not a ‘must have’ input
        for distributors of building materials. Moreover, any such attempt would be
        unsuccessful given that AAC blocks account for a very small share of both
        downstream costs as well as downstream revenues. More specifically, AAC blocks
        represented only [0-5]% and CSUs only [0-5]% of SGBDD’s overall procurement
        costs in 2018. At the same time, SGBDD only generated EUR [less than 50] million
        and EUR [less than 100] million worth of revenue with AAC and CSU blocks
        overall (stock sales and project sales combined), while the overall turnover of
        SGBDD’s activities in distribution of building materials amounted to
        EUR [1-2 billion].115 Therefore, the Notifying Party submits that AAC blocks and
        CSUs do not constitute an important input downstream.
(109) As regards incentive, the Notifying Party submits that an attempt to foreclose
        competitors of SGBDD would not be profitable against the background of SGBDD’s
        limited downstream market shares, because SGBDD is not an important wholesale
        customer for producers like Xella. Moreover, any potential benefits for SGBDD on
        the downstream market would be outweighed by the loss of profits for Xella on the
        upstream market, not only because SGBDD is one of Xella’s less important
        customers, but also because upstream margins are considerably larger than
        downstream margins. Therefore, the merged entity would not have any economic
        incentive to carry out input foreclosure.
(110) As regards AAC large format units for residential construction, the Notifying Party
        submits that Xella does not sell such products separately but only as part of a
        “complete Ytong system”, which includes other materials such as AAC blocks.116
        Therefore, the Notifying Party contends that Xella would have neither the ability nor
        the incentive to restrict access to its AAC large format units for residential
        construction vis-à-vis other distributors competing with SGBDD on a downstream
        level. Not only are the AAC large format units no “must have” inputs for the
        retailers, but also account for very limited sales volumes. With only [10-20]% of the
        sales of this product to SGBDD, the Notifying Party maintains that any attempt to
        rely only on SGBDD for the distribution of the AAC large format units would be
113 Form CO, paragraphs 267 - 270.
114 Form CO, paragraph 271 et seq.
115 Form CO, paragraph 275.
116 Form CO, paragraph 111.
                                                   29
 ---pagebreak---         unprofitable and hence without any incentive for Xella. Finally, Xella would face
        repercussions if such strategy alienates other retailers.117
5.3.5.2. The Commission’s assessment
(111) The Commission notes that certain retailers responding to the Commission’s market
        investigation raised concerns as regards the impact of the Transaction on their
        business, and in particular the impact if Xella were to stop supplying or raise prices
        for building materials for their company post-Transaction.118 However, the majority
        of retailers responding to the Commission’s market investigation found it unlikely
        that Xella would stop supplying building materials to their company or raise prices
        of building materials for their company. 119 The Commission considers that the
        Transaction does not give rise to competition concerns related to input foreclosure
        with respect to AAC blocks, CSUs or AAC large format units for residential
        construction due to the following reasons.
        (A)        AAC blocks
(112) The Commission notes that the assessment presented in this section is applicable to
        all affected markets listed in paragraph (103) as the competitively relevant
        conditions are similar for all these geographic markets.
(113) The Commission notes that while Xella’s market shares in Germany nationwide and
        in several German regions are high on the upstream market of wholesale sale of
        AAC blocks to retailers, the shares of SGBDD downstream on the retail sale to
        professional customers are considerably lower.
(114) As shown in Table 1, Xella’s market share upstream in Germany is [40-50]% by
        volume and [50-60]% by value for AAC blocks. On a local level, Xella’s market
        share is higher in South Germany ([70-80]% by volume) and in East
        Germany ([60-70]% by volume), while Xella’s position is weaker in the North and
        West ([30-40]% by volume in both regions).
(115) As shown in Table 12, SGBDD’s market share downstream is significantly lower,
        accounting for [10-20]% (by value) of the distribution of AAC blocks to professional
        customers in Germany. On a local level SGBDD’s market shares are even lower
        (below 10% by value) in all regions except for East Germany, where its market share
        is higher ([20-30]% by value).
(116) However, even under the narrowest plausible market definition, under which AAC
        blocks constitute a separate product market and under which the geographic market
        is local with four regions in Germany, the Commission considers that Xella’s ability
        and incentive to engage in input foreclosure post-Transaction would be very limited.
        Therefore, the Transaction is unlikely to result in a significant impediment to
        effective competition due to input foreclosure.
(117) First, the Commission considers that it is not likely that Xella would have the ability
        to engage in an input foreclosure strategy post-Transaction.
117 RFI 14 dated 28 August 2019, response to question 2 dated 29 August 2019.
118 Replies to Q1 – Questionnaire to Retailers, q. 22, q. 23, q. 24.
119 Replies to Q1 – Questionnaire to Retailers, q. 23.
                                                           30
 ---pagebreak--- (118) In the first place, the Commission’s market investigation indicated that Xella’s AAC
        blocks are not an important input for retailers of building materials. Retailers’
        purchases from Xella do not constitute a significant proportion of their overall
        purchases of building materials, indicating that the portfolio of products distributed
        by the retailers is much wider than products offered by Xella.120 AAC blocks are just
        one of Xella’s products, and therefore represent an even smaller proportion of the
        retailers’ overall purchases. This is also confirmed by SGBDD. For SGBDD, AAC
        blocks represented only [0-5]% of its overall procurement costs in 2018. At the same
        time, SGBDD only generated revenues of EUR [less than 50] million with AAC
        blocks overall (stock sales and project sales combined), while the overall turnover of
        its activities in distribution of building materials amounted to EUR [1-2 billion].121
(119) In the second place, the large majority of retailers responding to the Commission’s
        market investigation did not consider a specific brand, such as Xella’s Ytong brand, a
        very important product for their business.122
(120) In the third place, the Commission’s market investigation clearly indicated that for
        retailers, Xella’s AAC blocks are substitutable in terms of product specifications,
        price and customer preferences with the same or similar types of products offered by
        competitors of Xella.123 This was also confirmed by Xella’s competitors upstream124
        and a majority of end customers.125 The Commission’s investigation did not indicate
        that there would be differences in the quality of the AAC blocks from different
        producers.
(121) In the fourth place, even in the areas where Xella achieves high market shares for
        AAC blocks, such as in East and South Germany, the Commission’s investigation
        indicated that there are smaller regional players present who could supply retailers if
        there were foreclosed by Xella. Many retailers indicated that in such a scenario, they
        would for instance focus on finding alternatives, start buying AAC blocks from
        Xella’s competitors and stop their business relationship with Xella.126 Based on the
        Notifying Party’s submissions, Xella’s sales of AAC blocks in 2018 amounted to
        EUR [less than 200,000] out of its total sales of all products worth EUR [less
        than 500,000] (out of which EUR [less than 500,000] were sales made through
        retailers).127 As such, AAC blocks account for ca. [30-40]% of Xella’s overall sales
        in Germany. Therefore, an input foreclosure strategy by Xella could put at risk a
        larger part of its revenues if retailers would stop their business relationship with
        Xella.
(122) Second, the Commission considers that it is not likely that Xella would have the
        incentive to engage in an input foreclosure strategy post-Transaction.
120 Replies to Q1 – Questionnaire to Retailers, q. 6.
121 Form CO, paragraph 275.
122 Replies to Q1 – Questionnaire to Retailers, q. 18.
123 Replies to Q1 – Questionnaire to Retailers, q. 19.
124 Replies to Q2 – Questionnaire to Producers, q. 24.
125 Replies to Q3 – Questionnaire to End customers, q. 12.
126 Replies to Q1 – Questionnaire to Retailers, q. 25 and q. 26.
127 Form CO, Annex 9.
                                                          31
 ---pagebreak--- (123) In the first place, the Notifying Party’s submissions and feedback from the market
        indicated that the margins achieved by producers of AAC blocks are roughly twice
        that achieved by retailers, which would limit the incentive for input foreclosure
        practices. For instance, the screen margin of SGBDD for AAC blocks from projects
        sales in 2018 was [5-10]%, while Xella’s gross margin for AAC blocks from project
        sales in 2018 was [30-40]%. For stock sales of AAC blocks, Xella’s gross margin
        was [30-40]%, while SGBDD’s screen margin was [20-30]%. 128 Therefore,
        foreclosing competitors of SGBDD post-Transaction would not be profitable for
        Xella and thus the Notifying Party.
(124) In the second place, the Commission’s market investigation confirmed the
        fragmented nature of the distribution market on the level of retailers. Two large
        purchasing cooperatives that are present across Germany, namely Hagebau and
        Eurobaustoff, represent large number of smaller retailers in the procurement of
        building materials, including AAC blocks. Given that SGBDD accounts for
        only [10-20]% of the distribution of AAC blocks to professional customers in
        Germany, it is unlikely that Xella could rely only on SGBDD for the distribution of
        AAC blocks. As a result of such strategy, Xella would likely considerably reduce the
        sales of its AAC blocks, which given the higher margins upstream would be
        economically unprofitable. Moreover, half of the respondents to the Commission’s
        market investigation active on the upstream level indicated that they could expand
        capacity to satisfy additional demand for their products.129 Therefore, it would seem
        that in all plausible markets SGBDD’s competitors would still have a choice of
        suppliers that would be able to supply the required quantities of AAC blocks. In
        addition, the purchasing cooperatives seem to have strong purchasing power, which
        allows them to negotiate prices with producer like Xella. Given their large presence
        and commercial importance, it is unlikely that Xella would have the incentive to
        foreclose their access to AAC blocks.130
(125) Third, the Commission considers that it is unlikely that the downstream rivals’ costs
        would increase as a result of the Transaction. In fact, SGBDD’s downstream rivals
        include purchasing cooperatives whose purchasing power on the market would likely
        counterbalance any attempt by Xella to pursue an input foreclosure strategy. Thus,
        they would be able to continue procuring AAC blocks without increased costs.
        Moreover, as reported in paragraph (111), majority of retailers that responded to the
        Commission’s market investigation found it unlikely that Xella foreclose input for
        their company. Therefore, the Transaction is unlikely to result in a significant
        impediment to effective competition due to input foreclosure.
(126) Therefore, taking into account the results of the Commission’s market investigation
        and the evidence provided by the Notifying Party, the Commission considers that it
        is not likely that the “merged entity” would have the ability and/or incentive to
        engage post-Transaction in an input foreclosure strategy in any of the plausible
        markets.
128 Form CO, paragraph 72, Table 3; paragraph 76, Table 5; paragraph 81, Table 7.
129 Replies to Q1 – Questionnaire to Retailers, q. 32.
130 Minutes of a call with a market participant dated 1 July 2019: According to this market participant, Xella
    cannot afford to sell only to SGBDD as it would face retaliation from large purchasing cooperatives.
                                                         32
 ---pagebreak---         (B)        CSUs
(127) The Commission notes that the assessment presented in this section is applicable to
        all affected markets listed in paragraph (104) as the competitively relevant
        conditions are similar for all these geographic markets.
(128) The Commission notes that while Xella’s market shares in Germany nationwide and
        in several German regions are high on the upstream market of wholesale sale of
        CSUs to retailers, the shares of SGBDD downstream on the retail sale to
        professional customers are considerably lower.
(129) As shown in Table 6, Xella’s market share upstream for CSUs in Germany is
        [30-40]% by volume and [30-40]% by value, which is considerably lower than its
        nationwide market share for AAC blocks. On a local level, Xella’s market share is
        higher in North Germany ([70-80]% by volume) and in East Germany ([40-50]% by
        volume), while Xella’s position is weaker in the West and South ([20-30]%
        and [5-10]% by volume respectively).
(130) As shown in Table 13, SGBDD’s market share downstream is significantly lower,
        accounting for [10-20]% (by value) of the distribution of CSUs to professional
        customers in Germany. On a local level SGBDD’s market shares are even lower
        (below [10-20]% by value) in all regions except for East Germany, where its market
        share is higher ([20-30]% by value).
(131) However, even under the narrowest plausible market definition, under which CSUs
        constitute a separate product market and under which the geographic market is local
        with four regions in Germany, the Commission considers that Xella’s ability and/or
        incentive to engage in input foreclosure post-Transaction would be very limited.
        Therefore, the Transaction is unlikely to result in a significant impediment to
        effective competition due to input foreclosure.
(132) First, the Commission considers that it is not likely that Xella would have the ability
        to engage in an input foreclosure strategy post-Transaction.
(133) In the first place, similarly as with regard to the AAC blocks, the Commission’s
        market investigation indicated that Xella’s CSUs are not an important input for
        retailers of building materials. Retailers’ purchases from Xella do not constitute a
        significant proportion of their overall purchases of building materials, indicating that
        the portfolio of products distributed by the retailers is much wider than products
        offered by Xella.131 CSUs are just one of Xella’s products, and therefore represent an
        even smaller proportion of the retailers’ overall purchases. This is also confirmed by
        SGBDD. For SGBDD, CSUs represented only [0-5]% of SGBDD’s overall
        procurement costs in 2018. At the same time, SGBDD only generated
        EUR [less than 100] million worth of revenue with CSUs overall (stock sales and
        project sales combined), while the overall turnover of SGBDD’s activities in
        distribution of building materials amounted to EUR [1-2 billion].132
131 Replies to Q1 – Questionnaire to Retailers, q. 6.
132 Form CO, paragraph 275.
                                                      33
 ---pagebreak--- (134) In the second place, the Commission’s market investigation did not indicate that
        Xella’s brand for CSUs (Silka) would be a very important product for retailers.133
(135) In the third place, as in the case of AAC blocks, the Commission’s market
        investigation clearly indicated that for retailers, Xella’s CSUs are substitutable in
        terms of product specifications, price and customer preferences with the same or
        similar types of products offered by competitors of Xella.134 This was also confirmed
        by Xella’s competitors upstream 135 and a majority of end customers. 136 The
        Commission’s investigation did not indicate that there would be differences in the
        quality of the CSUs from different producers.
(136) In the fourth place, even in the areas where Xella achieves high market shares for
        CSUs, such as North and East Germany, the Commission’s investigation indicated
        that there are smaller regional players present who could supply retailers if there
        were foreclosed by Xella. As in the case of AAC blocks, many retailers indicated
        that in such scenario, they would for instance focus on finding alternatives, start
        buying CSUs from Xella’s competitors and stop their business relationship with
        Xella.137
(137) Second, the Commission considers that it is not likely that Xella would have the
        incentive to engage in an input foreclosure strategy post-Transaction.
(138) In the first place, the Notifying Party’s submissions and feedback from the market
        indicated that the margins achieved by producers of CSUs are roughly twice that
        achieved by retailers, which would limit the incentive for input foreclosure practices.
        For instance, the screen margin of SGBDD for CSUs from projects sales in 2018
        was [5-10]%, while Xella’s gross margin for CSUs from project sales in 2018 was
        [20-30]%. For stock sales of CSUs, Xella’s gross margin was [30-40]%, while
        SGBDD’s screen margin was [30-40]%. 138 Therefore, foreclosing competitors of
        SGBDD post-Transaction would not be profitable for Xella and thus the Notifying
        Party.
(139) In the second place, the fragmentation of the retailers market and the role of the
        purchasing cooperatives is similar with regard to CSUs as in the case of AAC
        blocks, assessed in paragraph (124).
(140) Third, the Commission considers that it is unlikely that the downstream rivals’ costs
        would increase as a result of the Transaction. In fact, SGBDD’s downstream rivals
        include purchasing cooperatives whose purchasing power on the market would likely
        counterbalance any attempt by Xella to pursue an input foreclosure strategy. Thus,
        they would be able to continue procuring CSUs without increased costs. Moreover,
        as reported in paragraph (111), majority of retailers that responded to the
        Commission’s market investigation found it unlikely that Xella foreclose input for
        their company. Therefore, the Transaction is unlikely to result in a significant
        impediment to effective competition due to input foreclosure.
133 Replies to Q1 – Questionnaire to Retailers, q. 18.
134 Replies to Q1 – Questionnaire to Retailers, q. 21.
135 Replies to Q2 – Questionnaire to Producers, q. 26.
136 Replies to Q3 – Questionnaire to End customers, q. 14.
137 Replies to Q1 – Questionnaire to Retailers, q. 25, q. 26.
138 Form CO, paragraph 72, Table 3; paragraph 76, Table 5; paragraph 81, Table 7.
                                                           34
 ---pagebreak--- (141) Therefore, taking into account the results of the Commission’s market investigation
        and the evidence provided by the Notifying Party, the Commission considers that it
        is unlikely that the “merged entity” would have the ability and/or incentive to engage
        in an input foreclosure strategy post-Transaction in any of the plausible markets.
        (C)        AAC large format units for residential construction
(142) The Commission notes that AAC large format units for residential construction are
        indirectly sold through retailers. However, as regards Xella’s AAC large format units
        for residential construction, the Notifying Party submits that those are only sold as
        part of a “complete Ytong solution” and not as a separate product. Given that Xella’s
        market share in this hypothetical narrow product market in Germany amounts to
        100% and the products are only sold as part of the “complete Ytong solution”, it
        follow that these products are not sold as a standalone products in general. The
        Commission’s market investigation indicated that Xella’s Ytong brand is indeed the
        only brand available for these products.139
(143) However, based on the submissions made by the Notifying Party and the
        Commission’s investigation, the Commission considers that these products
        constitute a niche product that can only be used for the construction of single-family
        houses and only if a customer chose to build a complete Ytong system single-family
        house. In 2018, such houses represented only [0-5]% of the total number of single-
        family houses built in that year in Germany.140
(144) In 2018, the value of Ytong AAC large format units represented only a market value
        of EUR [less than 20] million. In comparison, other elements that are available for a
        similar use such as concrete floor elements and full assembly floor made out of
        reinforced concrete, while arguably in different product markets, represented value
        of EUR 170 and 230 million respectively.141 Moreover, the revenues from the Ytong
        system do not represent a considerable part of the retailers’ revenues and are not a
        very important product for retailers in general. This is due to the fact that retailers’
        portfolio includes a large variety of building materials.142 Moreover, only [0-5]% of
        single-family houses in 2018 in Germany were built with a complete Ytong system,
        which further indicates the limited application of this system.143 As regards SGBDD,
        in 2018, Xella’s total sales to SGBDD of all products (that is including AAC blocks,
        CSUs, and large format units as well as any other ancillary products) amounted to
        EUR [less than 50] million.144 While the Target did not provide information as to the
        amount of revenues achieved from the Ytong system, the Ytong system is unlikely to
        be of any significance to SGBDD’s revenues given its overall turnover of
        EUR [1-2 billion] achieved in building materials sold to professional customers.145
        Therefore, the lack of access to an Ytong system would not have an effect on the
        retailers’ business.
139 Replies to Q1 – Questionnaire to Retailers, q. 18.
140 Form CO, paragraph 111 and 136.
141 Form CO, paragraph 135, Table 14.
142 Replies to Q1 – Questionnaire to Retailers, q. 1 and q.5.
143 Form CO, paragraphs 111 and 136.
144 Form CO, Annex 9.
145 Form CO, Annex 13.
                                                          35
 ---pagebreak--- (145) Moreover, sales of the Ytong system through SGBDD are likely to represent only a
        part of the overall Ytong system sales. As can be seen from Table 14, SGBDD’s
        shares with regards to AAC large format units for residential construction do not
        indicate that SGBDD would be the only retailer selling such products. Given that
        these products are only sold as part of the Ytong system, it should therefore follow
        that also other retailers are active in the distribution on the retail level of Ytong
        systems. Therefore, the Notifying Party is unlikely to limit the sales just to SGBDD.
(146) Given the limited application of the Ytong AAC large format units and the fact that
        they are sold only as part of an Ytong system together with other Ytong products,
        such as AAC blocks, it can be considered that Xella’s revenues and thus any market
        power would be derived from these main products, for which there are competing
        products for customers, and not the “complementary” AAC large format units.
(147) Moreover, given that Xella’s AAC large format units for residential construction are
        sold as part of project sales, which can also be initiated by retailers, Xella and thus
        the Notifying Party would not have the incentive to foreclose competing retailers of
        SGBDD as it would lose sales to those retailers without having the possibility to
        recoup the lost sales. This is also due to the niche nature of the product and the
        limited use.
(148) Therefore, the merged entity is unlikely to have the ability and incentive to engage in
        input foreclosure strategy with regard to AAC large format units post-Transaction
        and it is also unlikely that the Transaction would result in a significant impediment
        to effective competition due to input foreclosure.
5.3.6. Customer foreclosure
5.3.6.1. The Notifying Party’s arguments
(149) The Notifying Party submits that there is no risk that the proposed Transaction
        would lead to customer foreclosure with regard to AAC blocks and CSUs. Post-
        Transaction, the merged entity would have neither the ability nor the incentive to
        impede or restrict access to a sufficient customer base for Xella’s actual or potential
        rivals on the upstream market.146
(150) As regards ability, the Notifying Party submits that the merged entity would not have
        the ability to foreclose competing upstream suppliers from access to customers.
        According to the Notifying Party, Xella’s AAC large format units for residential
        construction are in competition with a variety of substitutes, which have been chosen
        as the preferred technical solution in [90-100]% of the new single-family houses in
        Germany. As such, these upstream rivals would have a choice between a large
        number of major or smaller retailers in every region of Germany. 147 SGBDD’s
        presence downstream is limited. Even where SGBDD is the largest player
        downstream, as in the Berlin-Brandenburg region, it is not the most important
        customer, as purchasing cooperative such as Eurobaustoff and Hagebau are larger.148
146 Form CO, paragraph 292 et seq.
147 RFI 14 dated 28 August 2019, response to question 2 dated 29 August 2019.
148 Form CO, paragraph 294.
                                                        36
 ---pagebreak--- (151) As regards incentive, the Notifying Party submits that Xella and SGBDD would
        have no incentive to engage in customer foreclosure. Excluding Xella’s competitors
        from its list of suppliers would not make economic sense for SGBDD as the
        downside of losing such alternative sources of supply would outweigh any potential
        benefits for SGBDD or Xella. AAC large format units for residential construction
        play an insignificant role in SGBDD’s portfolio.149 The costs of not procuring from
        Xella’s upstream competitors would be high because SGBDD would lose a large
        number of downstream sales that are necessarily tied to a specific competitor brand.
        Thus, it would not be profitable for SGBDD to adopt a single-brand business
        strategy.150
(152) Eventually, the Notifying Party maintains that there would be no impact on effective
        competition on the market, mainly because of SGBDD’s small presence on the
        downstream market and high upstream margins of Xella’s competitors, who could
        easily allow them to maintain their sales levels.151
5.3.6.2. The Commission’s assessment
(153) The Commission notes that certain market participants active on the upstream level
        raised concerns as regards potential customer foreclosure in respect of AAC blocks
        and CSUs and the impact of the Transaction on their business.152
(154) However, the Commission considers that the proposed Transaction does not give rise
        to competition concerns related to customer foreclosure with respect to AAC blocks,
        CSUs and AAC large format units for residential construction due to the following
        reasons.
(155) The Commission notes that the assessment presented in this section is applicable to
        all affected markets listed in paragraphs (103) and (104) as the competitively
        relevant conditions are similar for all these geographic markets. For the sake of
        completeness, an assessment for the affected market listed in paragraph (105) is not
        developed further due to the fact that if the hypothetical product market was limited
        to constitute only AAC large format units for residential construction, no customer
        foreclosure could be undertaken by Xella as Xella is the only producer of such
        products in Germany (105). On the other hand, if the product market was broader
        and included other substitutable products, customer foreclosure would be unlikely
        given that alternatives would be available.
(156) First, the Commission considers that SGBDD does not have the ability to foreclose
        access for upstream suppliers other than Xella to customers active on the
        downstream markets. SGBDD is not an important customer for Xella and Xella’s
        competitors upstream. According to statements from market participants, the
        strongest players on the downstream market are purchasing cooperatives that
        represent hundreds of smaller retailers for the procurement of building materials and
        are present across the whole of Germany.153
149 RFI 14 dated 28 August 2019, response to question 2 dated 29 August 2019.
150 Form CO, paragraph 295.
151 Form CO, paragraph 296.
152 Replies to Q2 – Questionnaire to Producers, q. 27 and q. 28.
153 Minutes of a call with a retailer dated 30 July 2019.
                                                          37
 ---pagebreak--- (157) Second, although SGBDD is the largest retailer for building materials Germany-
         wide, its market share on the market for retail sales of building materials to
         professional customers in Germany is modest with [5-10]%. In addition, as can be
         seen from Table 11, the market for retailers of building materials is largely
         fragmented. Therefore, competitors of Xella should be able to sell their AAC blocks
         and CSUs to a range of alternative retailers even if Xella were to foreclose their
         access to SGBDD post-Transaction.
(158) Third, even when considering the sales of AAC blocks and CSUs specifically in East
         Germany, where SGBDD holds the strongest position amongst several regions
         within Germany, its market shares do not exceed [30-40]%154. Therefore, SGBDD's
         importance for reaching end customers in Germany or in specific German regions is
         not significant and the Commission’s market investigation did not yield any
         indication to the contrary.155 Therefore, the Commission does not consider SGBDD
         to have significant market power in the downstream market. As such, it is unlikely
         that the merged entity would be able to increase the cost of its upstream competitors
         to access downstream customers or by restricting access to a significant customer
         base.
(159) Fourth, given that margins on the upstream market are considerable, as presented in
         paragraphs (122) and (137), the Commission finds that even in the event that
         competitors such as H+H, Porit and Unika would initially incur sales losses because
         of a customer foreclosure strategy, they would be in the position to implement price-
         related counterstrategies in order to recover and to maintain their sales levels. Such
         strategies could include decreasing the price of their products in order to regain sales
         volumes. Given that the upstream producers enjoy a margin buffer, they could afford
         to implement such strategy and thus a customer foreclosure strategy would likely be
         unprofitable for Xella. Therefore, Xella is unlikely to have an incentive to engage in
         customer foreclosure post-Transaction.
(160) Fifth, it is unlikely that SGBDD’s rivals downstream would be at competitive
         disadvantage given SGBDD’s limited power downstream and the position of Xella’s
         rivals upstream. Therefore, the Transaction is unlikely to result in a significant
         impediment to effective competition due to customer foreclosure.
(161) Therefore, taking into account the results of the Commission’s market investigation
         and the evidence provided by the Notifying Party, the Commission considers that it
         is unlikely that the “merged entity” would have the ability and/or incentive to engage
         in a customer foreclosure strategy post-Transaction in any of the plausible markets.
5.3.7. Conclusion on vertical effects
(162) In light of the considerations in sections 5.3.5 and 5.3.6, the Commission concludes
         that the proposed Transaction does not give rise to serious doubts about its
         compatibility with the internal market or the functioning of the EEA Agreement due
         to input or customer foreclosure as regards the markets of AAC blocks, CSUs and
         AAC large format units for residential construction.
154 This does not apply to the approximations provided by the Notifying Party for East Germany for CSUs, as
    explained in paragraph 100 of this decision. However, the limitations of accuracy of the approximations
    are explained in paragraph 98 of this decision.
155 Replies to Q3 – Questionnaire to End customers, q. 3.
                                                         38
 ---pagebreak--- 6.    CONCLUSION
(163) 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
                                                    Member of the Commission
                                               39