CELEX: 31993M0354
Language: en
Date: 1993-10-01 00:00:00
Title: COMMISSION DECISION of 01.10.1993 declaring a concentration to be compatible with the common market (Case No IV/M.354 - AMERICAN CYNAMID / SHELL) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31993M0354

COMMISSION DECISION of 01.10.1993 declaring a concentration to be compatible with the common market (Case No IV/M.354 - AMERICAN CYNAMID / SHELL) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 273 , 09/10/1993 P. 0000

 COMMISSION DECISION of 01.10.1993 declaring a concentration to  be compatible with the common market (Case No IV/M.354 -  AMERICAN CYNAMID / SHELL) according to Council Regulation (EEC)  No 4064/89  (Only the English text is authentic)  The paper version of the decision is available through the  sales offices of the Office of Official Publications of the  European Communities. PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(b) DECISION Registered with advice of delivery To the notifying party Dear Sirs, Subject: <ind> Case No. IV/M.354 - American Cyanamid/Shell  <ind>  <ind> Notification of 31 August 1993 pursuant to  Article 4 of Council Regulation No. 4064/89  1. <ind> This operation concerns the acquisition by American  Cyanamid Company (Cyanamid) of the shares and assets of the  worldwide crop protection, animal health and public health  products businesses of The Shell Petroleum Company Limited  (Shell).  2. <ind> After examination of the notification the Commission  has concluded that the proposed operation falls within the  scope of Council Regulation No. 4064/89 and does not raise  serious doubts as to its compatibility with the common market.  I. <ind>  THE PARTIES AND THE TRANSACTION  3. <ind> Cyanamid is a US biotechnology and chemicals company,  whose principal activities include the development and  production of medical, chemical, agricultural and consumer  products, which it markets in 135 countries. [Deleted for  publication.]  4. <ind> Shell is a company within The Royal Dutch/Shell Group  of Companies and is incorporated in the United Kingdom. Shell  is primarily engaged in the oil, natural gas, chemicals, coal  and metals businesses.   <ind> The Shell crop protection businesses (SCPB) to be  acquired by Cyanamid are assets that are currently held by  several Shell companies.  The EC assets to be transferred are  those of SCPB in Belgium, France, Germany, Italy, the  Netherlands, Denmark, Spain,  the UK, Ireland and Portugal.   These assets include the research and development, manufacture,  formulation, licensing and marketing of crop protection, animal  health and public health products.  5. <ind> The products concerned by the concentration are  primarily crop protection products, or agrochemicals, whose  function it is to protect crops from harmful agents such as  weeds, insects and fungi.  In addition, the SCPB operations  sells small quantities of animal health and public health  products (such as rodenticides and insect sprays).  II. <ind> CONCENTRATION  6. <ind> The acquisition of Shell's SCPB operations by Cyanamid  is a concentration within the meaning of Article 3(1)(b) of the  Merger Regulation.  III. <ind> COMMUNITY DIMENSION  7. <ind> The proposed operation has a Community dimension.  The  combined aggregate worldwide turnover of Cyanamid and SCPB in  the last financial year exceeded 5000 million ECU [Deleted for  publication.]; the aggregate Community turnover of each  exceeded 250 million; and the parties did not achieve more than  two-thirds in one and the same Member State.  IV. <ind> COMPATIBILITY WITH THE COMMON MARKET  8. <ind> Of the businesses to be sold to Cyanamid, the  principal horizontal product overlaps occur in the manufacture  and sale of certain herbicides (chemicals used to control  weeds).   <ind> In addition, an insignificant level of aggregation would  occur within the manufacture and sale of insecticides  (chemicals used to control insects), nematicides (used to  control eel worms), plant growth regulators and fungicides.   However, the acquisition would not have any appreciable effect  on competition within these latter segments.  Finally, no  aggregation would occur within the animal health and public  health product businesses.  9. <ind> Within the category of herbicides, there are two  markets in which Cyanamid and SCPB compete:  cereal  graminicides and maize broad spectrum herbicides.   As a  result, for purposes of analysing this operation, this decision  deals with cereal graminicides and maize broad spectrum  herbicides.  10. <ind> Nevertheless, the precise delineation of the relevant  product markets need not be determined in the present case  because even on the basis of these narrower markets, the  operation does not raise serious doubts as to its compatibility  with the common market.  A. <ind> Relevant Product Markets  11. <ind> Herbicides may be differentiated from other crop  protection products by virtue of their common function of  controlling weeds.  These products may be further categorised  based on several factors,  including (a) the type of crops that  they protect and (b) the type of weeds that they attack. From  the viewpoint of the end-use customer,  the farmer, the type of  crop with which a herbicide is used is one of the most  important factors in determining product substitutability.  The  customer chooses a product by evaluating the relative  effectiveness of its selectivity and spectrum of activity in  protecting a given crop.  12. <ind> Farmers also consider the particular weed types  against which the crop needs protection at a given time.  In  some cases, a herbicide may only be effective against weeds  within one of the two principal categories of weeds: (1)  broadleaf weeds and (2) grass (gramineous) weeds.  Thus, a  broadleaf weed herbicide may not be a substitute for a grass  weed herbicide (called a graminicide), when a crop has specific  protection needs.     <ind> However, for certain crop types (eg, maize), broader  spectrum herbicides may be adequate to deal with the range of  weeds involved.  Consequently, weed type is not necessarily a  reliable indicator of substitutability in all situations.   13. <ind> In addition, herbicidal products differ to the extent  that they are based on different chemical active ingredients;  and they are marketed by the manufacturer and distributor based  on the particular protective characteristics and uses of the  chemicals contained.  14. <ind> Other important selection criteria include the time  of application of the product (relative to emergence of the  crop or weeds) and procedures for treatment, including the  number of applications and the feasibility of using combination  products to achieve a broader range of protection.  Thus,  herbicides for different categories of crops are generally not  substitutable.  15. <ind> Cereals and maize may be said to constitute separate  crop categories  for the use of herbicides for reasons of  product selectivity and efficacy.  In the case of cereals, a  number of graminicidal herbicides are used almost exclusively  with cereal crops (which comprise primarily wheat, barley and  oats), due to the specialised protection needs of these crops.   In addition, some combination products are available, such as  winter residual herbicides, which provide protection primarily  against broadleaf weeds but also offer limited protection  against some grasses.    16. <ind> In the case of maize, farmers often use only one  product and this is frequently a combination product which  gives protection against both broadleaf and grass weeds.  The  fact that a combination product is not necessarily as effective  as separate applications of two specialised herbicidal products  appears to be balanced against time and cost considerations.  B. <ind> The relevant geographic market  17. <ind> The parties submit that the relevant geographic  market in which to assess the competitive impact of this  acquisition is the EC as a whole, citing a number of factors to  support their position, including the following:  (a)  centralised production facilities for manufacturing active  chemical ingredients (and a trend towards  centralised  formulating facilities to produce the finished product); (b)  the presence of a large number of major multinational producers  throughout the EC; (c) the use of international brand names  rather than national names (whenever trademark rights permit);  and (d) low transport costs relative to the high value of  products (generally less than 1% of manufacturers' selling  prices).  18. <ind> While such indicia may often  be support for the  finding of a Community-wide market, certain countervailing  factors in this case point to the possible existence of  national relevant geographic markets for competition analysis  of the proposed transaction.  19. <ind> Although manufacturing is centralised, marketing and  distribution operations in this industry are generally  organised at the national level.  In addition, based on  different crop patterns throughout the Community, the range of  products sold, and their individual chemical formulations, may  vary accordingly.  20. <ind> Furthermore, the industry regulatory scheme that was  in effect until July 1993 tended to encourage national  marketing of products, because separate authorisation was  required in each Member State in which a particular product was  to be sold.  Each Member State retained its own certifying  standards in granting a national marketing authorisation for a  particular product; and as a result, chemical formulations of a  product frequently varied from Member State to State.  While  manufacturers generally obtained such authorisations in each  Member State in which demand for a product existed, such  authorisation procedures were nonetheless costly and time- consuming.  21. <ind> Since 25 July 1993, the marketing of crop protection  products has been subject to a combination of national and  Community rules through implementation of Council Directive  91/414/EEC concerning the placing of plant protection products  on the market (O.J. (1991) L 230/1) and Commission Regulation  No 3600/92 (O.J. (1992) L 366/10), as well as directives  regarding product classification, labelling and packaging.    22. <ind> While the new regulatory system, when fully  operational, will facilitate Community-wide trade in crop  protection products pursuant to the principle of mutual  recognition of national product marketing authorisations, this  is not likely to occur in the short term.   <ind> The Directive provides that all active ingredients  currently sold in the EC (approximately 600) must be re- evaluated (subject to the same standards as those to be used in  evaluating new active ingredients) before they will be subject  to the principle of mutual recognition.  Until such time, the  current system of national product authorisation continues to  operate.  23. <ind> As discussed below in the assessment of this  transaction, it is not necessary to decide in the present case  whether the geographic reference market is national or  Community-wide since even on the narrower market definition no  dominant position is created or reinforced.   C. <ind> Assessment of the Transaction  24. <ind> Whether measured at the level of the Community as a  whole or within each Member State, the crop protection industry  is characterised by a large number of strong multinational  producers.  Indeed, one large distributor, who sells products  for over 20 major manufacturers, compared the structure of the  crop protection market to that for pharmaceuticals, noting the  presence of numerous strong, intensely research-driven  international chemical companies who aggressively compete for  market share.  25. <ind> Industry participants interviewed indicated that the  combination of Cyanamid and SCPB would likely create a more  viable competitor, enabling the combined entity to offer a  fuller product line and to increase market penetration through  the utilisation of Shell's distribution network.  Cyanamid has  been described as a committed research-oriented competitor in  this business, while Shell is seeking to exit from a market  that is not part of its core energy businesses.  26. <ind> If the markets are analysed on a Community-wide  basis, Cyanamid would hold approximately the following market  shares after the proposed transaction: in cereal graminicides,  [Less than 25%.]; and in maize herbicides, [Less than 25%.].   Cyanamid is not the market leader in either of these segments:  in cereal graminicides, Hoechst holds a commanding position  with [More than 50%.]; and in maize herbicides, Cyanamid is in  second place behind Ciba-Geigy, which has [More than 25%.] of  that market.  27. <ind> In individual Member States, the combined firm would  have a market share in excess of 25% in the following markets  with approximately the following market shares:  (a) in cereal  graminicides, in Greece [Between 45% and 55%.], in Italy  [Between 45% and 55%.], and Spain [Between 45% and 55%.]; and  (b) in maize herbicides, in Germany [Less than 35%.].  28. <ind> Because of the age and technological level of certain  cereal graminicide products that would be sold by Cyanamid  after the transaction, it appears that the company's market  shares in this market may overstate the competitive strength of  the combined firm.  29. <ind> Within the Greek and Italian markets for cereal  graminicides, it appears that Cyanamid and Hoechst would be the  only major competitors present in the market after the  transaction.  While the two firms currently have approximately  equal shares of these markets, the competitive situation is not  accurately reflected by those data. Two of the three products  that would be sold by Cyanamid after the transaction [Deleted  for publication;  read: "have sales that are steadily  diminishing."].  In constrast, Hoechst's product, Puma, is a  new generation cereal graminicide and its market share has  grown dramatically in every Member State in which this product  has been introduced since its launch in 1989-90.    30. <ind> Historically, Cyanamid has sold two brands of cereal  graminicides in these markets - Assert and Avenge - and SCPB  has offered one product, Suffix.  [Deleted for publication.]   The portion of market share accounted for by this product will  gradually be lost; [Deleted for publication;  read: "market  shares for Suffix in Greece and Italy have been steadily  declining in recent years."].   <ind> [Deleted for publication.] Only one of Cyanamid's three  products, Assert, appears to have a stable market position in  these affected markets.  31. <ind> In the Spanish market for cereal graminicides,  Hoechst and Cyanamid again hold equal shares of the market,  with each company offering the same products as those sold in  Greece and Italy.  The competitive picture is slightly  different in Spain, where Monsanto has a small presence; in  addition, it is believed that Ciba-Geigy is positioned to enter  the Spanish market with its new product, Topik, possibly as  early as this autumn.  Topik is a product compared to Hoechst's  product Puma in terms of its superior range and flexibility.    <ind> [Deleted for publication;  read: "In addition, ICI is  expected to introduce another new graminicide product (Grasp)  into Spain."].  Based on scientific papers published after  completion of testing, ICI's product is believed to be superior  for certain grass weeds that are common in the southern  Mediterranean region, weeds for which both Cyanamid's Assert  product and Hoechst's product have  limited effectiveness.   [Deleted for publication.].  32. <ind> In the German market for maize herbicides, Cyanamid  will account for [Between 25% and 35%.] of the market, ranking  behind the market leader Ciba-Geigy with [Between 25% and  35%.].  Rhone-Poulenc and  BASF are also present in this  market, with each appearing to hold [Approximately] a 10%  market share in Germany.  In addition, the availability of  lower-priced generics appears to exert downward pricing  pressure.  33. <ind> Moreover, an analysis focusing on market shares alone  is not particularly probative in a dynamic and R&D-intensive  industry such as this, where market shares may be volatile  because new products and, indeed, new technologies are being  introduced by the large number of international competitors.   There are several companies with new products in the pipeline,  as well as the use of new combinations of products.   Manufacturers already active in the industry continue to  introduce new products as a result of ongoing product  development.   <ind> Furthermore, the structure of demand in this market  moves on a continuum.  As a particular weed problem becomes  controllable by the introduction of new active ingredients and  combinations, then the next most successful weed emerges as a  problem to be dealt  with.  Thus, competitive strength in a  given product is no guarantee of a company's future competitive  position in this industry.  34. <ind> Although barriers to entry into the development and  manufacture of these products are substantial, the market  structure of the industry appears to be competitive at this  time because of the substantial number of large competitors  already present with strong R&D capabilities and substantial  financial resources to meet the requirements of this type of  research-driven business.  Further, at least two manufacturers  have entered the EC crop protection business by acquisition  since 1988:  Atochem, a subsidiary of Elf-Aquitaine (through  its purchase of Pennwalt Corp.) and Tomen Corp. (through the  purchases of several products from Chevron Corp.).  35. <ind> In addition to the large number of competitors  already present, EC distributors and manufacturers are also  involved in distributing products for non-EC producers, such as  a number of Japanese chemical companies (eg, Sumitomo and  Nissan) who have begun to penetrate the EC market with crop  protection products already being sold in their home markets.  36. <ind> Finally, the current economic climate in the  agricultural industry may also put constraining pricing  pressure on crop protection products.  Partly as a result of  reforms in the Community's Common Agricultural Policy (CAP),  there is evidence that farmers are increasingly experimenting  with cost-saving techniques such as (a) the combined use of  lower-priced generic or off-patent products to dilute  dependence on higher-priced newer products and (b) combination  products to provide protection against a broader spectrum of  weeds with a somewhat less effective, but also less costly,  alternative.  Conclusion  37. <ind> In light of the factors discussed above, it appears  that the market share aggregations that will result from this  transaction are not likely to create or strengthen a dominant  position in any affected market.  V. <ind> ANCILLARY RESTRAINTS  38. <ind> A non-competition agreement has been concluded  whereby Shell agrees that its affiliates will abstain from  operating in any of the markets of the transferred businesses  for a period of [Not greater than 5 years].  Shell affiliates  would also not solicit any Cyanamid employee for a period of  [Not greater than 5 years].  The geographic scope of the non- competition clause covers all the Member States of the EC, in  each of which SCPB products are sold.  39. <ind> Under two supply agreements, the Nematrap agreement  and a general supply agreement, a Shell subsidiary will supply  certain necessary chemicals for a transitional period until  such time as Cyanamid has established its own arrangements for  the manufacture of these  products, with the aim that Cyanamid  can ensure continuity of supply of these products during the  transitional period.  The agreements are limited in duration,  [Deleted for publication].  40. <ind> Certain Shell intellectual property rights have not  been assigned to Cyanamid, but exclusively licensed for a  period of 10 years, at the end of which time Cyanamid has an  option to purchase these rights.  [Deleted for publication.].   <ind> In addition, the intellectual property agreements  include standard obligations as to the disclosure and use of  confidential information.  41. <ind> These agreements are directly related and necessary  to the implementation of the concentration and are, therefore,  ancillary within the meaning of the Regulation.  VI. <tab> CONCLUSION  42. <ind> Based on the above findings, it appears that the  proposed transaction does not raise serious doubts as to its  compatibility with the common market.   <ind> For the above reasons, the Commission has decided not to  oppose the notified concentration and to declare it compatible  with the common market.  This decision is adopted in  application of Article 6(1)(b) of Council Regulation 4064/89.  For the Commission