CELEX: 32014M7230
Language: en
Date: 2014-07-30 00:00:00
Title: Commission Decision of 30/07/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7230 - BEKAERT / PIRELLI STEEL TYRE CORD BUSINESS) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

                                        Brussels, 30.7.2014
                                        C(2014) 5553 final

                                        |In the published version of this decision, some information |           |Public version                                                 |
|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|omitted has been replaced by ranges of figures or a general |           |                                                               |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.                                                |           |                                                               |
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|                                                            |           |MERGER PROCEDURE                                               |

                                        |                                                                       |To the notifying party:                                                |

Dear Sirs,

Subject:    Case M.7230 - BEKAERT / PIRELLI STEEL TYRE CORD BUSINESS
         Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

    1) On 24 June 2014, the European Commission received notification of a proposed concentration pursuant to Article 4 and following a  referral
       pursuant to Article 4(5) of the Merger Regulation by which the undertaking NV Bekaert SA ("Bekaert", Belgium) acquires within the  meaning
       of Article 3(1)(b) of the Merger Regulation sole control of the steel tyre cord business of Pirelli Tyre SpA ("Target", Italy) by  way  of
       purchase of shares.[2]

       THE PARTIES

    2) Bekaert is a global company active in the manufacturing and sale of a wide range of products in the areas of drawn  steel  wire  products,
       advanced metal transformation as well as advanced materials and  coatings.  Bekaert's  customers  include  companies  in  the  automotive,
       construction, energy, agricultural, equipment, basic materials and consumer goods sectors.

    3) Pirelli Tyre SpA ("Pirelli") is a fully-owned subsidiary of Pirelli & C. SpA, a leading tyre manufacturer. The Target  is  a  supplier  of
       steel tyre cord, a critical component in the reinforcement of tyres. It production facilities  are  located  in  Italy,  Romania,  Turkey,
       Brazil, and China.

    4) Bekaert is hereinafter referred to as the "Notifying Party" and jointly with the Target as the "Parties".

       THE TRANSACTION AND THE CONCENTRATION

    5) The proposed transaction concerns the acquisition by Bekaert of the Target[3] by means of a share purchase agreement signed on 27 February
       2014 (the "SPA"). Following the completion of the proposed transaction, Bekaert will have  sole  control[4]  over  the  various  companies
       constituting the Target.

    6) Therefore, the proposed transaction constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

       EU DIMENSION

    7) The operation does not have an EU dimension within the meaning of Article 1 of the Merger Regulation as it does not meet the thresholds of
       Article 1(2) or Article 1(3).

    8) However, on 8 April 2014, the Notifying Party informed the Commission by means of a reasoned submission that the concentration was capable
       of being reviewed under the national competition laws of four Member States[5] and requested the Commission to examine  it.  None  of  the
       Member States that were competent to examine the concentration indicated its disagreement with the request for referral within the  period
       laid down by the Merger Regulation. The notified operation is therefore deemed to have an EU dimension according to Article  4(5)  of  the
       Merger Regulation.

       COMPETITIVE ASSESSMENT

    9) The proposed transaction concerns advanced wire products, namely steel tyre cord, bead wire, hose wire and saw wire.

1 Relevant Market

1 Product market definition

1 Steel tyre cord

   10) Steel tyre cord is used for the reinforcement of various radial tyre parts (such as the belt area and the carcass area) and  has  a  major
       influence on the tyre's safety and performance. Different types of steel tyre cord may vary in particular with respect to  their  diameter
       and number of filaments.[6] Customers (tyre manufacturers) decide on their  required  characteristics  of  steel  tyre  cord  and  provide
       specifications on the basis of which it is produced, through elongating; drawing, coating and bundling of steel wire rod.

   11) The Notifying Party argues that there is an overall market for steel tyre cord, regardless of its application (passenger cars  as  opposed
       to trucks), mainly due to supply-side substitutability as a producer of steel tyre cord will typically have a range of machines  to  serve
       the full spectrum of end applications and there is no specialisation as to particular end application among the producers.  The  Notifying
       Party further submits that steel tyre cord is produced both by manufacturers which are both vertically integrated (namely producers of car
       tyres) and non-vertically integrated (namely independent manufacturers of various wire products) and that the former act as a  competitive
       constraint on the latter.

   12) In the course of market investigation both customers[7] and competitors[8] alike acknowledged that there are certain  differences  between
       steel tyre cord for passenger cars and for trucks, in particular in terms of design, number of filaments, properties  etc.  On  the  other
       hand the raw material for both types of steel tyre cord is the same,[9] the production process is similar and the  same  machines  can  be
       used up to a certain point in the production process.[10] The market investigation has also shown that for the majority of competitors the
       cost of switching between steel tyre cord for passenger cars and trucks are either minor or at most acceptable.[11]  As  regards  in-house
       production of steel tyre cord by tyre manufacturers, the majority of  the  respondents  to  the  market  investigation  do  maintain  such
       production (in particular to satisfy some specific or strategic needs).[12]

2 Other wire products

   13) Another wire product also manufactured from wire rod is bead wire. It is used to reinforce tyres and to keep the tyre on the  rim  and  it
       offers resistance against fatigue, impact, corrosion, and fretting.

   14) Hose wire enables high-pressure hydraulic hose manufacturers to produce braided and spiral wrapped hoses. Such hoses are  mainly  used  in
       construction equipment, industrial machines (and in particular for motion control hydraulics),  mining  equipment,  agriculture,  and  oil
       fields.

   15) Saw wire is used as a cutting tool. Bekaert produces saw wire that is used predominantly in the photovoltaic industry,  while  the  Target
       produces saw wire that is used for cutting silicon ingots in the semi-conductor industry.

   16) The Notifying Party submits that there is a certain degree of supply-side substitution between steel tyre cord and the other wire products
       described above. Most of the steel tyre cord production capacity can be used for making hose wire, bead wire and saw wire and  steel  tyre
       cord producers shift between the production of these products depending on changes in demand. The Notifying Party further argues that many
       steel tyre cord producers will use spare capacity to produce hose wire, and switch back to producing steel tyre cord if there is increased
       demand for steel tyre cord.

   17) The market investigation has shown that suppliers of steel tyre cord do switch to the production of hose wire to fill spare  capacity.[13]
       However, a supply-side substitutability for steel tyre cord and bead wire does not appear to be that strong, since producers of steel tyre
       cord manufacture bead wire on special, dedicated production lines.[14]

   18) Furthermore the market investigation revealed that while there are various levels of tensile strengths for hose wire, standard  hose  wire
       is used for all the various final applications (such as mining  equipment,  agriculture  etc.).[15]  Also  both  saw  wire  used  for  (i)
       photovoltaic industry and for (ii) semiconductor industry is produced on the basis of the same  drawing  process  with  only  the  coating
       process being different.[16]

       3 Conclusion on the product market definition

   19) For the purpose of this decision, the exact product market definition can be left open as the proposed transaction does not give  rise  to
       serious doubts as to is compatibility with the internal market notwithstanding whether steel tyre cord and the other wire  products  (bead
       wire, hose wire and saw wire) are considered as part of the same or separate product markets and  notwithstanding  whether  the  potential
       market for steel tyre cord is subsegmented further according to the type of tyre (passenger car tyres as opposed to truck tyres).

2 Geographic market

   20) The Notifying Party submits that the relevant geographic scope of the market for all the products concerned is worldwide or  at  least  an
       area encompassing the EEA, Belarus and Turkey.

   21) To support this claim the Notifying Party puts forward the following arguments: (i) significant volume of imports into the EEA;  (ii)  low
       transport costs; (iii) similar product specifications and global customer base; and (iv) significant imports from Turkey and Belarus.

   22) Respondents to the market investigation indicated that contracts for most of the wire products are indeed  concluded  globally,  with  the
       exception of bead wire for which agreements are signed rather on an EEA and regional level.[17] On the other hand some customers value the
       possibility to source wire products from a plant  that  is  geographically  close,[18]  Furthermore  customers  pointed  to  larger  price
       differences between the EEA and the rest of the world than within the EEA[19] Finally transport  costs,  in  particular  within  the  EEA,
       appear rather low.[20]

   23) The Commission considers that the relevant geographic markets for the products concerned by the proposed transaction  are  at  least  EEA-
       wide. The exact geographic market definition can, however, be left open since the proposed transaction does not raise competition concerns
       irrespective of the geographic market definition adopted.

3 Competitive Assessment

   24) The proposed transaction gives rise to horizontal overlaps in the following potential markets for: (i) steel tyre cord;  (ii)  bead  wire;
       (iii) hose wire; and (iv) saw wire. There are no vertical relationships between the activities of Bekaert and the Target.

1 Steel tyre cord

   25) According to the Notifying Party, despite the Parties’ combined shares in the  market  for  steel  tyre  cord  in  the  EEA  the  proposed
       transaction will not significantly impede effective competition for the following reasons: (i) it will lead to the release into the market
       of current captive sales of the Target, (ii) Bekaert will not be in the position to materially reduce output […], (iii) the  Parties  will
       continue to face effective competition from suppliers located both within and outside the EEA,  (iv)  the  Parties  will  continue  to  be
       subject to the countervailing buying power of their customers and (v) there are no significant barrier to entry or expansion.

   26) In the overall market encompassing all wire products (that is to say steel tyre cord, bead wire, hose wire  and  saw  wire)  the  combined
       market share of the Parties would amount to [20-30]% on a worldwide basis and to almost [30-40]% on an EEA-wide basis.

   27) Following the proposed transaction Bekaert will strengthen its leading position in the merchant market for the supply of steel  tyre  cord
       and achieve a market share in the region of [50-60]%. As shown in Table 1 below, the second largest player – the Belarussian  company  BMZ
       has a market share of almost [10-20]%, while the third player– the Korean company Kiswire has  a  share  of  almost  [10-20]%.  However  a
       significant part of the needs for steel tyre cord in the EEA is satisfied by the in-house production of large tyre manufacturers, such  as
       Michelin ([10-20]% of the total market) and Continental ([5-10]% of the total market). Also if the market for steel tyre  cord  is  viewed
       from worldwide perspective, the combined market share of the Parties in the merchant market would amount to almost [30-40]%[21], with  the
       second player Chinese company Xingda International having [10-20]%.

    Table 1: 2013[22] EEA market shares for steel tyre cord

|Company            |Total supplies (captive and merchant market      |Merchant market                                    |
|                   |supplies)                                        |                                                   |
|                   |Volume (kT)                                         |Share (%)                                          |

    |Volume (kT) |Share (%) |Value (€ M) |Share (%) |Volume (kT) |Share (%) |Value (€ M) |Share (%) | |Bekaert |[…] |[20-30] |[…] |[20-30] |[…]
 |[20-30] |[…] |[20-30] | |Pirelli |[…] |[0-5] |[…] |[0-5] |[…] |[10-20] |[…] |[10-20] | |Combined |[…] |[20-30] |[…] |[20-30] |[…] |[30-40] |[…]
|[30-40] | |Best |[…] |[10-20] |[…] |[10-20] |[…] |[5-10] |[…] |[5-10] | |BMZ |[…] |[10-20] |[…] |[10-20] |[…] |[40-50] |[…] |[40-50]  |  |Yongli
|[…] |[5-10] |[…] |[5-10] |- |- |- |- | |Audlon |[…] |[5-10] |[…] |[5-10] |- |- |- |- | |ArcelorMittal |[…] |[5-10] |[…] |[5-10] |- |-  |-  |-  |
 |Kiswire |[…] |[5-10] |[…] |[5-10] |- |- |- |- | |Sumin |[...] |[0-5] |[…] |[0-5] |- |- |- |- | |Others |[…] |[10-20] |[…] |[10-20] |[…] |[5-10]
|[…] |[5-10] | |Total |[…] |100 |[…] |100 |[…] |100 |[…] |100 | |Source: Form CO

   28) The results of the market investigation suggest that despite the significant position of the merged entity in the market for hose wire  in
       the EEA, the proposed transaction is unlikely to give rise to competition concerns. In particular all of the customers  state  that  there
       are sufficient alternatives to the Parties[39] and an overwhelming majority of customers consider that suppliers located outside  the  EEA
       offer hose wire comparable to that of EEA players.[40] As a result the  overwhelming  majority  of  customers  do  not  see  the  proposed
       transaction as conferring a competitive advantage to Bekaert over other suppliers of hose wire[41] and state that there will be no  impact
       of the concentration on their companies.[42] Also competitors do not see any barriers for entering the hose wire  market[43]  and  confirm
       that competition in the market is intense in particular due to the pressure of the Asian suppliers.[44]

   29) As regards bead wire the impact of the proposed transaction is de minimis, since the Target is not active in the merchant market for  bead
       wire and only produces limited amounts of this product outside the EEA. As a result  the  combined  market  share  of  the  Parties  on  a
       worldwide level would amount to [10-20]% with an increment of [0-5]% meaning that this market  would  not  be  affected  by  the  proposed
       transaction.[45]

   30) Customers of bead wire have noted the lack of overlap between the Parties in the merchant market and as a result they do  not  expect  any
       impact as a result of the proposed transaction.[46] However one of the competitors of Bekaert noted that after  the  proposed  transaction
       the strong position of the Parties in steel tyre cord may be used to bundle this product with bead wire to the disadvantage  of  producers
       of the latter.[47] However Bekaert already had the ability to bundle bead wire with steel tyre cord and the addition of the  Target,  with
       its limited bead wire activities, will not modify this to an appreciable extent. Furthermore it appears  that  the  strong  countervailing
       position of customers for bead wire (which similarly as for steel tyre cord are the big, multinational tyre  manufacturers)  will  prevent
       this strategy from causing anti-competitive effects in the market for bead wire.

   31) With respect to saw wire the Notifying Party states that the increment resulting from the proposed transaction  is  small  and  that  this
       particular market is experiencing a significant decline in demand, which puts pressure on the prices.

   32) On a worldwide basis the merged entity would be the market leader for saw wire with share  of  [30-40]%  (with  an  increment  of  [0-5]%)
       followed by the Chinese companies Naisi & Sunnywell ([10-20]%) and Fundant ([10-20]%). On an EEA-wide basis the combined market  share  of
       the Parties would amount to [60-70]% (with an increment of [5-10]%), while ArcelorMittal would have almost [10-20]% and JFS [10-20]%.

   33) The market for saw wire decreased significantly since 2011[48] with most of the suppliers relocating to Asia and the over-capacity of  the
       European suppliers increasing.[49] This has had a strong impact on prices  in  the  market  by  driving  them  downwards.[50]  Furthermore
       customers and competitors confirmed that the Target’s position in the saw wire market is not significant[51] and that in fact the  Parties
       do not offer competing products in that segment.[52] As a result it can be concluded that the proposed transaction will not  lead  to  any
       competition concerns in the market for saw wire.

       CONCLUSION

   34) 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.

                                        For the Commission
                                        (signed)
                                        Ferdinando NELLI FEROCI
                                        Member of the Commission

-----------------------
[1]   OJ L 24, 29.1.2004, p. 1 ("the Merger Regulation"). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
      ("TFEU") has introduced certain changes, such as the replacement of "Community" by "Union" and "common market" by  "internal  market".  The
      terminology of the TFEU will be used throughout this decision.

[2]   Publication in the Official Journal of the European Union No C 207, 3.7.2014, p. 46.

[3]   Currently the Target consists of shareholdings in the following entities: […].

[4]   According to the Notifying Party [Reference to the current ownership of an entity of the Target].

[5]   Germany, Portugal, Romania and the United Kingdom.

[6]   Minutes of a conference call with competitor dated 5 June 2014.

[7]   Replies to question 8 of the Questionnaire “Q1 Customers – Steel Tyre Cord and Bead Wire”.

[8]   Replies to question 7 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[9]   Reply of a competitor to question 7.1 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[10]  Replies to questions 9 and 10 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[11]  Replies to question 12 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[12]  Replies to question 6 of the Questionnaire “Q1 Customers – Steel Tyre Cord and Bead Wire”.

[13]  Replies to questions 8, 9 of the Questionnaire “Q4 Competitors – Hose Wire”.

[14]  Replies to question 16 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[15]  Replies to question 6 of the Questionnaire “Q4 Competitors – Hose Wire”.

[16]  Replies to questions 7, 8 of the Questionnaire “Q6 Competitors – Saw Wire.”

[17]  Replies to question 12 of the Questionnaire “Q1 Customers - Steel Tyre Cord and Bead  Wire”;  to  question  17  of  the  Questionnaire  “Q2
      Competitors - Steel Tyre Cord and Bead Wire”; to question 9 of the Questionnaire “Q3  Customers  -  Hose  Wire”;  to  question  10  of  the
      Questionnaire “Q4 Competitors - Hose Wire”, to question 9 of the Questionnaire “Q5 Customers  -  Saw  Wire”  and  to  question  10  of  the
      Questionnaire “Q6 Competitors - Hose Wire”.

[18]  Replies to question 10 of the Questionnaire “Q3 Customers - Hose Wire”, minutes of a conference all with customer of 5 June 2014.

[19]  Replies to questions 13 and 14 of the Questionnaire “Q1 Customers - Steel Tyre Cord and Bead Wire”.

[20]  Replies to question 19 of the Questionnaire “Q1 Customers - Steel Tyre Cord and Bead Wire”; to question 21.1.2  of  the  Questionnaire  "Q2
      Competitors – Steel Tyre Cord and Bead Wire"; to question 12 of the Questionnaire “Q3 Customers - Hose Wire” and  to  question  12  of  the
      Questionnaire “Q5 Customers - Saw Wire”.

[21]  The worldwide combined market share of the Parties in the merchant market for steel tyre cord remained stable between  2012  and  2013.  In
      2011 it amounted to [30-40]%

[22]  The Parties' shares of the merchant market for steel tyre cord have been fluctuating somewhat over  the  past  three  years,  with  a  drop
      between 2011 and 2012 (from [40-50]% to [40-50]%) and an increase in 2013.

[23]  In the potential merchant market for steel tyre cod for passenger cars the combined market share of the Parties would  amount  to  [50-60]%
      in the EEA and [30-40]% worldwide and for trucks and buses to [40-50]% in the EEA and [30-40]% worldwide.

[24]  Minutes of conference calls with competitors of 5 June 2014 and of 13 June 2014.

[25]  For instance in 2005 Michelin sold its steel tyre cord plants plants in the USA, in 2010 Bridgestone sold its plants  in  China  and  Italy
      and in 2011 Goodyear sold its plants in Luxembourg and the USA.

[26]  Replies to question 26 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire” and to question 20 of  the  Questionnaire  “Q1
      Customers – Steel Tyre Cord and Bead Wire”.

[27]  Replies to question 27 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire” and to question 21 of  the  Questionnaire  “Q1
      Customers – Steel Tyre Cord and Bead Wire”.

[28]  Replies to question 4 of the Questionnaire “Q1 Customers – Steel Tyre Cord and Bead Wire”.

[29]  Response to question 32 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[30]  Replies to question 24 of the Questionnaire „Q1 Customers – Steel Tyre  Cord  and  Bead  Wire”,  also  minutes  of  conference  calls  with
      customers of 5 June 2014 and of 10 June 2014.

[31]  Replies to question 32 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[32]  Replies to question 38 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[33]  Replies to question 22 of the Questionnaire „Q1 Customers – Steel Tyre Cord and Bead Wire” and to question  28  of  the  Questionnaire  “Q2
      Competitors – Steel Tyre Cord and Bead Wire”.

[34]  Replies to question 16.1 of the Questionnaire “Q1 Customers – Steel Tyre Cord and Bead Wire”.

[35]  Replies to question 29 of the Questionnaire „Q1 Customers – Steel Tyre Cord and Bead Wire”.

[36]  Replies to question 30 of the Questionnaire „Q1 Customers – Steel Tyre Cord and Bead Wire”.

[37]  Replies to question 29 and 31 of the Questionnaire „Q1 Customers – Steel Tyre Cord and Bead Wire”.

[38]  Reply to question 41.1 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[39]  Replies to question 14 of the Questionnaire “Q3 Customers – Hose Wire”.

[40]  Replies to question 15 of the Questionnaire “Q3 Customers – Hose Wire”.

[41]  Replies to question 16 of the Questionnaire “Q3 Customers – Hose Wire”.

[42]  Replies to question 17 of the Questionnaire “Q3 Customers – Hose Wire”.

[43]  Replies to question 16 of the Questionnaire “Q4 Competitors – Hose Wire”.

[44]  Reply to question 17 of the Questionnaire “Q4 Competitors – Hose Wire”.

[45]  Affected market for bead wire arises only on the basis of its geographic scope including EEA, Belarus and Turkey, with the combined  market
      share of the Parties amounting to [20-30]% and an increment of [0-5]%.

[46]  Replies to question 28.2 of the Questionnaire „Q1 Customers – Steel Tyre Cord and Bead Wire”.

[47]  Reply to question 41 of the Questionnaire “Q2 Competitors – Steel Tyre Cord and Bead Wire”.

[48]  According to th[pic]!*+-123=>?ª   ¹    »     ¼     ½    e Notifying Party the total world market for saw wire amounted to […]  kT  in  2011
      and […] kT in 2013; while in the EEA it amounted to […] kT in 2011 and only […] kT in 2013.

[49]  Minutes of a conference call with a competitor of 13 June 2014 and with a customer of 20 June 2014.

[50]  Reply to question 17 of the Questionnaire „Q6 Competitors – Saw Wire”.

[51]  Reply to question 21 of the Questionnaire „Q6 Competitors – Saw Wire”.

[52]  Reply to question 18.1 of the Questionnaire „Q5 Customers – Saw Wire”.