CELEX: 32014M7395
Language: en
Date: 2014-11-13 00:00:00
Title: Commission Decision of 13/11/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7395 - MEXICHEM / VESTOLIT) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

Brussels, 13.11.2014

C(2014) 8618 final

[pic][pic]

|To the notifying party:                                                |                                                                       |
|                                                                       |                                                                       |

Dear Sir/Madam,

Subject:    Case M.7395 - MEXICHEM/ VESTOLIT
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1] and Article 57 of the Agreement  on  the  European  Economic
Area[2]

    1) On 10 October 2014, the European Commission received notification of a  proposed  concentration  pursuant  to  Article  4  of  the  Merger
       Regulation by which Mexichem S.A.B. de C.V. ("Mexichem", Mexico) will acquire sole control within the meaning of Article  3(1)(b)  of  the
       Merger Regulation of Vesto PVC Holding GmbH ("Vestolit", Germany), by way of purchase  of  shares.[3]  Mexichem  is  referred  to  as  the
       "Notifying Party," whilst Mexichem and Vestolit are collectively referred to as the “Parties.”

       The Parties

    2) Mexichem is active in the production and supply of PVC resins and intermediates, such as caustic soda, ethyl  chloride,  methyl  chloride,
       hydrochloric acid and sodium sulphate. Mexichem also produces PVC compounds through its wholly owned  subsidiary  AlphaGary  ("AlphaGary",
       USA). Its production facilities are located in Mexico, Colombia and the USA. In the EEA, Mexichem produces joints, plastic accessories and
       PVC piping systems through its subsidiary Wavin NV ("Wavin", the Netherlands).

    3) Vestolit is active in the production and supply of PVC resins and intermediates as well as PVC compounds. Its  production  facilities  are
       located in Marl, Germany.

       The Concentration

    4) Under the terms of a Sale and Purchase Agreement, signed on 4/5 August 2014 Mexichem will acquire all the shares in Vestolit  through  its
       subsidiary AlphaGary (the “Transaction”). As a result, Mexichem will acquire sole control over Vestolit.

    5) Therefore, the Transaction constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

       Union Dimension

    6) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR  5  000  million[4]  [Mexichem  :  […]  million,
       Vestolit: EUR […] million]. Each of them has an EU-wide turnover in excess of EUR 250 million [Mexichem : EUR […] million,  Vestolit:  EUR
       […] million], but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member  State.  The
       Transaction therefore has a Union dimension.

       Market Definitions

    7) Both Mexichem and Vestolit are active in the production and supply of PVC resins and PVC compounds. Therefore, the Transaction gives  rise
       to horizontal overlaps. In addition, Mexichem is also active on the market for piping systems. Therefore, a vertical  relationship  exists
       between Mexichem's activities on the market for piping systems and Vestolit’s upstream production and supply of PVC resins and compounds.

1 Horizontally related markets

1 PVC Resins

1 Product market definition

    8) In previous decisions,[5] the Commission has concluded that S-PVC and E-PVC belong in separate  product  markets.  The  market  for  S-PVC
       resins was further segmented into three separate product markets: extender, speciality and commodity S-PVC. This segmentation was  due  to
       the products having different properties, production  processes,  pricing,  ranges  of  possible  applications  and  supply  structure.[6]
       Recently, the Commission reiterated that the market for commodity SPVC constitutes a separate product market from specialty and extender S-
       PVC.[7] The market for E-PVC resin was also further segmented into two separate product markets, that is to say paste  and  speciality  E-
       PVC, due to limited demand and supply-side substitutability.[8]

    9) The Notifying Party does not contest the validity of the above considerations for the competitive assessment in this case.

   10) Vestolit's production is currently focused on High Impact S-PVC ("HIS-PVC"), a co-polymer of vinyl chloride and polybutyl acrylate with  a
       certain percentage of impact modifiers. This PVC resin has higher margins compared to commodity S-PVC  and  it  is  mainly  used  for  the
       production of light and weather resistant window sections.

   11) In INEOS / Solvay / JV, the Commission considered that, in view of  the  poor  demand  side  substitutability  and  the  limited  economic
       incentives for its producers to switch from HIS-PVC to commodity S-PVC, those two products are not part of the same product market.[9]

   12) The Notifying Party does not contest the validity of this consideration for the competitive assessment in this case.  Indeed,  it  submits
       that HIS-PVC should be considered as part of the product market for speciality S-PVC, and not as separate market segment.

   13) For the purpose of this decision, the market definition can ultimately be left open, as the Transaction does not raise serious  doubts  as
       to its compatibility with the internal market irrespective of the precise market delineation.

2 Geographic market definition

   14) The Commission has recently concluded that the geographic market for commodity S-PVC is as wide as North Western Europe  (“NWE”),  and  in
       any event not wider than North Western Europe+ (“NWE+”).[10] Conversely, the market for extender and speciality S-PVC is regarded as  NWE,
       Western Europe (“WE”) or EEA-wide in scope. With regard to E-PVC, the Commission considered that the geographic market could  be  EEA-wide
       or even global.[11]

   15) The Notifying Party do not contest the validity of the above considerations for the competitive assessment in this case.

   16) For the purpose of this decision, the exact geographic scope of the market for PVC resins can ultimately be left open, as the  Transaction
       does not raise serious doubts as to its compatibility with the internal market irrespective of the precise market definition.

2 PVC Compounds

1 Product market definition

   17) S-PVC needs to be compounded (blended with other ingredients such as pigments  and  other  substances  in  order  to  confer  the  desired
       characteristics on the final product) before it can be directly used in any end application.  Depending  on  the  additives  used  in  the
       compounding process, S-PVC compounds can be used in a wide range of end applications such as plumbing  and  drainage,  window  frames  and
       sills, door frames, fascia siding, flooring, cables, etc.

   18) In past decisions,[12] the Commission considered PVC compounds to constitute a distinct product market separate from commodity  S-PVC.  It
       also considered whether the market may be further divided into two distinct segments, that is to say dry blend and gelled  compounds,  but
       ultimately left the issue open.

19) The Notifying Party does not propose a different approach.

   20) For the purpose of this decision, the question of whether dry blend and gelled compounds belong in the same product market can  ultimately
       be left open, as the Transaction does not raise serious doubts as to its compatibility  with  the  internal  market  irrespective  of  the
       precise product market definition.

2 Geographic market definition

   21) In previous decisions,[13] the Commission has previously found that the geographic scope of the market for S-PVC compounds is  wider  than
       national, while leaving open the question of whether the market encompasses NWE, WE or the entire EEA.

22) The Notifying Party does not propose a different approach.

   23) For the purpose of this decision, the exact geographic scope of the market  for  PVC  compounds  can  ultimately  be  left  open,  as  the
       Transaction does not raise serious doubts as to its compatibility with the internal market irrespective of the precise market definition.

2 Vertically related markets

1 Piping systems

1 Product market definition

   24) In previous decisions,[14] the Commission left open the question of whether pipes and fittings constitute a single product market. It  has
       also considered further segmentations, for example, by (i) application (water pressure, gas pressure, sewage, drainage, cable ducting  and
       irrigation) and (ii) material (plastic vs non plastic).[15]

   25) The Notifying Party argues that pipes and fittings belong to the same product market because competitive conditions are similar across the
       two segments. Moreover, there would be no substantial differences  in  terms  of  production  processes  and  costs  and  no  supplier  is
       specialised in either of the two segments. By the same token, the Notifying Party also considers that  any  further  segmentation  is  not
       appropriate. This is because in general there is supply-side substitutability inside the different segments  as  far  as  application  and
       material used are concerned.

   26) For the purpose of this decision, the market definition can ultimately be left open, as the Transaction does not raise serious  doubts  as
       to its compatibility with the internal market irrespective of the precise market delineation.

2 Geographic market definition

   27) In previous decisions,[16] the Commission has considered that the relevant geographic market for pipes could be national or even regional,
       while the market for fittings - if they were to be viewed as a distinct product market - would likely have an EEA-wide dimension.

   28) The Notifying Party submitted that the geographic market definitions should be wider than national.

   29) For the purpose of this decision, the exact geographic scope of the market for  piping  systems  can  ultimately  be  left  open,  as  the
       Transaction does not raise serious doubts as to its compatibility with the internal market irrespective of the precise market definition.

       Competitive Assessment

1 Framework of the assessment

   30) The Commission has recently examined another concentration affecting related markets, namely the establishment of the  PVC  Joint  Venture
       between INEOS and Solvay.[17] The PVC Joint Venture was approved by the Commission decision of 8 May 2014 subject to commitments. However,
       that concentration has not yet been implemented as the completion  of  that  concentration  is  conditional  upon  divestment  of  certain
       production assets. The divestment of those production assets is still on-going.

   31) In line with the Commission decisional practice,[18] in the present case the  Notifying  Party  based  its  notification  on  the  working
       assumption that the PVC Joint Venture has already been implemented.[19]

2 Horizontally affected markets

   32) Both Vestolit and Mexichem supply PVC resins and PVC compounds in the EEA. Therefore, the  Transaction  leads  to  a  horizontal  overlap.
       However, horizontally affected markets would arise only in PVC resins.

   33) Indeed, the merged entity’s market share would exceed 20% only in the market for speciality S-PVC in NWE ([20-30]%) and in WE  ([20-30]%).
       Under both geographical market definitions, the market share increment brought about by the Transaction would be below 1%and in any  event
       below the 25% threshold set out in the Horizontal Merger Guidelines.[20]

   34) In this light, the Commission considers that, as far as PVC resins are concerned, the Transaction does not give rise to any serious doubts
       as to its compatibility with the internal market.

3 Vertically affected markets

   35) Mexichem, through its subsidiary Wavin, produces and supplies piping systems. To  produce  piping  systems  Wavin  does  not  produce  but
       purchases and uses commodity S-PVC as an input. Vestolit supplies commodity S-PVC in NWE. Therefore,  the  Transaction  gives  rise  to  a
       vertical relationship. The Notifying Party argues that such a vertical relationship is only  “hypothetical”,  because  Vestolit  does  not
       focus its production on the S-PVC grades that Wavin uses in its production processes.[21]

   36) Nevertheless, should the relevant markets for piping systems be defined as national and narrower product  segmentations  applied,  Wavin's
       market share could exceed 30% in certain markets.[22] Therefore, the Transaction would lead to several vertically  affected  markets.  For
       this reason, the Commission assessed whether the merged entity would have the ability and  incentives  to  engage  in  input  or  customer
       foreclosure strategies.

   37) The Commission considers that input foreclosure to the detriment of Wavin's competitors is unlikely to arise.  This  is  because  (i)  the
       merged entity’s market share in commodity S-PVC would not exceed 5% under all plausible market definitions;  (ii)  the  increment  brought
       about by the Transaction is very small, approximately 0.5%; and (iii) several other players  with  much  higher  market  positions  supply
       commodity S-PVC (in particular, INEOS and Solvay separately or jointly in the PVC Joint Venture). Therefore, it is highly  unlikely  that,
       post-merger, Mexichem would have the ability and incentives to foreclose Wavin’s rivals from inputs.

   38) The Commission also considers that customer foreclosure is unlikely to arise. Wavin's demand  for  commodity  S-PVC  under  all  plausible
       market definitions (that is to say, EEA, WE, NWE+ and NWE) does not exceed 4% of the relevant market demand. Moreover,  Wavin  is  already
       vertically integrated into a non-European supplier of commodity S-PVC, and has chosen to source its needs from third parties in particular
       geographical locations.

   39) The addition of Vestolit's European capacity is not likely  to  change  this  strategy.  This  is  because  (i)  Wavin  has  [confidential
       information with regard to sourcing strategy]; and (ii) Vestolit's capacity is currently focused on HIS-PVC -  which  has  higher  margins
       than commodity S-PVC - and therefore it is unlikely that Vestolit, post-merger, would forego sales in  this  segment  to  the  benefit  of
       Wavin. The combination of these factors, that is to say, [confidential information  with  regard  to  sourcing  strategy]  and  Vestolit’s
       production strategy, would likely translate in higher costs and lower margins.

   40) Moreover, according to the Notifying Party, the ultimate impact of such a hypothetical foreclosure strategy would  be  limited.  If  Wavin
       were to source its needs exclusively from Vestolit in certain countries, S-PVC suppliers would still have a wide variety of outlets in NWE
       or NWE+.

   41) Finally, no concerns were raised in this regard by S-PVC suppliers (that is to say, Vestolit’s competitors) in the context of  the  market
       investigation.

   42) Therefore, it is unlikely that, post-merger, Mexichem would have the ability and incentives to engage in customer foreclosure.

   43) In light of the above, the Commission considers that the Transaction does not give rise to serious doubts as to its compatibility with the
       internal market with regard to vertical effects.

       CONCLUSION

   44) 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

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[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
    (the “TFEU”) has introduced certain changes, such as the replacement of “Community” by “Union” and “common market” by “internal market”. The
    terminology of the TFEU will be used throughout this decision.
[2]   OJ L 1, 3.1.1994, p.3 (the "EEA Agreement").
[3]   Publication in the Official Journal of the European Union No C 368, 17.10.2014, p. 15.
[4]   Turnover calculated in accordance with Article 5 of the Merger Regulation.
[5]   Case M.6905 INEOS / Solvay / JV, para. 190; Case M.6681 SVP / Kloeckner Holdings, para. 37; Case M.6563 Mexichem  SIH  /  Wavin,  para  14;
    M.6218 INEOS/Tessenderlo Group S-PVC, para 15; and Case M.4734 INEOS / Kerling, para 19.
[6]   Case M.6563 Mexichem SIH / Wavin, para. 21; Case M.6218 INEOS / Tessenderlo Group S-PVC Assets, paras.  16-19;  and  Case  M.4734  INEOS  /
    Kerling, para. 20.
[7]   Case M.6905 INEOS / Solvay / JV, para. 196 and ff.
[8]   Case M.6905 INEOS / Solvay / JV, paras. 526-531; and Case M.4734 INEOS / Kerling, para. 19.
[9]   Nonetheless Vestolit's capacity used to produce HIS-PVC was taken into account in the calculation of capacity shares for the  commodity  S-
    PVC market, in order to reflect the technical capability to redeploy capacity. Case M.6905 INEOS / Solvay / JV, para. 250.
[10]  Case M.6905 - INEOS / Solvay / JV; Case M.7132 - INEOS / Doeflex.
[11]  Case M.6905 INEOS / Solvay / JV, paras. 540-544; Case M.6681 SVP / Kloeckner Holdings, para 33.
[12]  Case M.6218 INEOS / Tessenderlo Group S-PVC Assets, para. 73; and Case M.4734 INEOS / Kerling para. 41.
[13]  Case M.6218 INEOS / Tessenderlo Group S-PVC Assets, para. 73; and Case M.4734 INEOS / Kerling, paras. 163-165.
[14]  Case M.565 Solvay / Wienerberger; and Case M.2294 Etexgroup / Glynwed Pipe Systems.
[15]  Case M.565 Solvay / Wienerberger; and Case M.2294 Etexgroup / Glynwed Pipe Systems.
[16]  Case M.565 - Solvay / Wienerberger; Case M.2294 - Etexgroup / Glynwed Pipe Systems.
[17]  Case M.6905 INEOS / Solvay / JV.
[18]  Case M.6203 Western Digital Ireland / Viviti Technologies, paras. 18 and ff.
[19]  Therefore, where relevant, market conditions are those that are expected to exist post-implementation of the  proposed  PVC  Joint  Venture
    (including the related divestments) rather than those that currently exist.
[20]  Guidelines on the assessment of horizontal mergers under the Council Regulation on  the  control  of  concentrations  between  undertakings
    ("Horizontal Merger Guidelines"), OJ C 31, 5.2.2004, p. 5–18, paragraph 18.
[21]  In Case M.6905 - INEOS / Solvay / JV the Commission has in any event excluded the appropriateness of a segmentation  by  grades  given  the
    high degree of supply side substitutability.
[22]  In particular, Wavin would have market shares above 30%: (i) in Denmark for the market for plastic water pressure  pipes  (40%),  (ii)  the
    Netherlands for plastic drainage pipes (65%), Norway, for (iii) plastic drainage pipes (51%), (iv) cable ducting pipes (39%)  and  (v)  soil
    and waste pipes (31%) and (vi) Sweden for plastic water pressure pipes (33%). The Notifying Party does not exclude  that  Wavin  would  have
    market shares above 30% also in certain national markets for fittings.

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 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.

                                                                  PUBLIC VERSION

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