CELEX: 32019M9353
Language: en
Date: 2019-07-02 00:00:00
Title: Commission Decision of 02/07/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9353 - Advent International Corporation / Evonik Industries AG) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 2.7.2019
                                                                 C(2019) 5153 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                                                                  information omitted has been replaced by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.9353 – ADVENT INTERNATIONAL CORPORATION /
                    EVONIK METHACRYLATES BUSINESS DIVISION
                    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 23 May 2019, the European Commission received notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which Advent
          International Corporation (“Advent” or “Notifying Party”) intends to acquire sole
          control over the methacrylates business division of Evonik Industries AG (“Evonik
          Methacrylates” or the “Target”).3 Advent and the Target are collectively referred to as
          the “Parties”.
1.        THE PARTIES
(2)       Advent is a private equity investor based in the United States. Advent controls a
          portfolio company, Allnex, active worldwide in the production of resins for coatings
1         OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty on
          the Functioning of the European Union ('TFEU') has introduced certain changes, such as the
          replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The terminology of
          the TFEU will be used throughout this decision.
2         OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
3         Publication in the Official Journal of the European Union No C 186, 3.6.2019, p. 20.
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---      (“coating resins”). Coating resins are in turn used in a variety of products, including
     coatings and paints, where these resins determine the performance characteristics of
     these products (including, e.g. durability, flexibility and resistance).4
(3)  The Target is a business division of Evonik Industries AG (“Evonik”, Germany)
     with assets in Germany, the United States, and China. It is active worldwide in the
     manufacture and supply of methyl methacrylate (“MMA”) and other methacrylate
     monomers derived from MMA (“MMA derivatives”), which are chemicals used for
     a variety of applications, including plastics, acrylics, adhesives, varnishes, polishes,
     textile binders, coatings and resins. The Target manufactures and supplies certain
     types of methacrylate resins, some of which are also produced by Allnex. Finally,
     the Target is active in the manufacture and supply of polymethyl methacrylate
     (“PMMA”, manufactured using MMA) molding compounds and acrylic products,
     and cyanides.
2.   THE OPERATION AND CONCENTRATION
(4)  Pursuant to a master sale and purchase agreement entered into on 4 March 2019
     between an acquisition vehicle ultimately owned by funds advised by Advent (as
     buyer) and Evonik (as seller), Advent will acquire 100% of – and sole control over –
     the assets and shares constituting the Target (the “Transaction”).
(5)  Therefore, the Transaction constitutes a concentration within the meaning of Article
     3(1)(b) of the Merger Regulation.
3.   EU DIMENSION
(6)  The undertakings concerned have a combined aggregate world-wide turnover of
     more than EUR 5 000 million5 ([Advent’s worldwide turnover], [Target: approx.
     EUR 2 billion]). Each of them has an EU-wide turnover in excess of EUR 250
     million ([Advent’s EU-wide turnover], [Target’s EU-wide turnover]), but they do
     not achieve more than two-thirds of their aggregate EU-wide turnover within one
     and the same Member State. The notified operation therefore has an EU dimension.
4.   RELEVANT MARKETS
4.1. Activities of the Parties
     (1)     Advent’s portfolio company Allnex
(7)  In 2013, Advent acquired the coating resins business of Cytec Industries Inc, which
     was renamed Allnex (and which Advent currently controls). In 2016, Advent
     acquired Nuplex Industries, which it subsequently merged with Allnex.6 As a result,
4    Form CO, paragraph 93. See also paragraphs (8)-(9) below.
5    Turnover calculated in accordance with Article 5 of the Merger Regulation.
6    The acquisition of Nuplex Industries by Advent was reviewed and authorised by the European
     Commission in Case M.8019 – Advent International/Nuplex Industries.
                                                      2
 ---pagebreak---      Allnex is currently active in the manufacture of coating resins, some of which use
     MMA and MMA derivatives as inputs.7
(8)  Coatings are chemical formulations that can be applied in a thin layer (or film) onto
     a particular substrate (e.g. metal, wood) to provide decorative, protective or other
     functional effects on a surface.8 Resins are intermediate ingredients that act as
     binders in the production of coatings, paints and inks. Resins bind the various
     components of a coating or paint together into a film, and bond the film to the
     substrate. The film protects the substrate and improves its decorative appeal.9
(9)  Resins are essential elements of the coatings formulation as resins determine the
     performance characteristics of the coatings, such as gloss, durability, smoothness,
     flexibility, weatherability and resistance.10 Common chemistries of coating resins
     based on the base chemical component of the resin include acrylics, alkyds, epoxies.
     Coating resins of some chemistries may be used in more than one type of delivery
     technology for end products, e.g. liquid or powder. The most common delivery
     technologies for coating resins include water-borne (commonly used in coatings and
     paints), solvent-borne (also commonly used in paints and allows for higher metal
     adhesion and corrosion resistance), powder-based (particularly suitable for metal
     coatings and other applications where durability and performance are important) and
     radiation-curable (especially suited for use in graphic arts and coatings or industrial
     applications).11
(10) Allnex is active in the EU, the USA, China and Australia, where it also has
     manufacturing facilities.12
     (2)      The Target
(11) The Target manufactures MMA, a colourless organic compound used in the
     manufacture of PMMA molding compounds, acrylic products, impact modifiers,
     acrylic latexes, lacquers, enamels, and resins for use in specialty chemicals and
     coatings.13 Other important applications for MMA include emulsion polymers
     principally for paper, textiles, leather and floor polishes, mineral-filled sheet,
     polyesters, polymer concrete, and adhesives.14 The Target sells part of its MMA
     production on the merchant market and uses part for the captive manufacture of
     PMMA molding compounds and acrylic products.15
7    Form CO, paragraphs 41, 43, 52; Case M.6778 – Advent International Corporation/Cytec’s Resin
     Business; Case M.8019 – Advent International/Nuplex Industries.
8    Form CO, paragraph 91.
9    Form CO, paragraph 92.
10   Form CO, paragraph 93.
11   Form CO, paragraph 94; Commission decision in Case M.9019 – Advent International/Nuplex
     Industries, paragraph 30; Form CO, paragraph 9 and footnote 62.
12   Form CO, paragraph 52.
13   Form CO, paragraph 2.
14   IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), provided as
     Annex 8 to the Form CO, p.5.
15   Form CO, paragraph 2.
                                                     3
 ---pagebreak--- (12) The Target also manufactures MMA derivatives that are used downstream in inter
     alia surface coatings either as inputs for coating resins or as direct inputs in coating
     formulations,16 namely:
     a.      Glacial methacrylic acid (“GMAA”), whose crude form is methacrylic acid
             (“MAA”), a clear, colourless liquid, completely soluble in water and soluble in
             most organic solvents. MAA exhibits specific properties, such as good
             chemical resistance, improved freeze-thaw resistance, enhanced surface
             adhesion, toughness, and colloidal stability in emulsions.17 In addition to its
             use in coating resins, MAA is used in a variety of applications, including in the
             production of other methacrylates (by direct esterification), in construction
             chemicals, adhesives and sealants, paints and coatings, emulsion polymers,
             composites, paper and textile applications.18
     b.      Butyl methacrylate (“BUMA”) is a methacrylate monomer that is used mainly
             in the manufacture of coating resins and acrylic polymers for surface coatings,
             where it imparts desirable properties, such as weatherability, UV resistance
             and flexibility, to acrylic lacquers and acrylic emulsion polymers for interior
             and exterior water-based paints.19 The Target manufactures both n-butyl
             methacrylate and i-butyl methacrylate.20
     c.      Hydroxyesters or hydroxy methacrylates (“HYMA”) is a methacrylate
             monomer that can be used in coatings, resins (including coating resins),
             polymers, and paints, are recommended for heat or room temperature cured
             coatings with permanent marring and solvent resistance, high gloss retention
             and weatherability and can also serve as adhesion promoters in reactive resins
             for bonding to metal surfaces.21 The Target manufactures 2-hydroxyethyl
             methacrylate, which is a clear, colourless liquid that can be used as an
             adhesion promoter for polymers, in thermosetting paints, hydrophilic polymers
             and light-curing polymer systems,22 and hydroxypropyl methacrylate, which is
             a functional monomer that can copolymerize with other monomers to produce
             copolymers with a hydroxy group in the side chain, and whose main
             applications are coatings and reactive resins.23
     d.      Methacrylamide is a monomer whose amino functional variety manufactured
             by the Target can be used to improve pigment wetting and substrate adhesion
             to polymers and that can be used in coating resins, paints and coatings, paper,
16   Form CO, paragraph 2.
17   IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), provided as
     Annex 8 to the Form CO, p.71.
18   IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), provided as
     Annex 8 to the Form CO, p.74.
19   IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), provided as
     Annex 8 to the Form CO, p.74.
20   Form CO, Table 24.
21   Information on hydroxyesters on the Target’s website: https://methyl-methacrylate-
     monomers.evonik.com/product/visiomer/en/products/CHEMICAL-FUNCTIONALITIES/.
22   Form CO, Table 24; Product information for the Target’s 2-hydroxyethyl methacrylate:
     http://www.neochemical.ru/File/TDS Visiomer HEMA 98.pdf                                  and
     http://www13.evonik.com/bk2/product finder/evonik productDetail.asp?padding=on&aktProdID=32
     62.
23   Form CO, Table 24; Product information for the Target’s hydroxypropyl methacrylate:
     http://www13.evonik.com/bk2/product finder/evonik productDetail.asp?padding=on&aktProdID=32
     64.
                                                  4
 ---pagebreak---                 water, cosmetic and oil and gas applications.24 The Target also manufactures a
                bifunctional monomer that possesses both vinyl and hydroxymethyl groups,
                suitable for a range of applications from adhesives and binders in
                papermaking, textiles and non-wovens, to a variety of surface coatings and
                resins for varnishes, films and sizing.25
(13)    The Target also manufactures a small range of coatings using MMA and MMA
        derivatives for sale on the merchant market. 26
(14)    Other activities of the Target include the manufacture of: (i) PMMA molding
        compounds, which it sells on the merchant market and uses in a captive manner to
        manufacture acrylic products (such as sheets, blocks and pipes), also sold on the
        merchant market;27 and (ii) sodium cyanide and potassium cyanide, which are
        produced from hydrogen cyanide, a raw material in MMA production. 28
(15)    The Target has MMA and MMA derivatives production plants in Germany (at
        Worms and Wesseling), the USA (in Fortier, Louisiana) and China (in Shanghai).29
4.2.    The upstream markets – manufacture and supply of MMA and MMA
        derivatives
4.2.1. Relevant product market definition
4.2.1.1. The Notifying Party’s views
(16)    The Notifying Party submits that the exact market definition can be left open, as no
        competition concerns arise even on narrowly defined markets for MMA and each of
        the MMA derivatives separately.30
(17)    With regard to MMA in particular, the Notifying Party submits that a hypothetically
        distinct market for MMA should not be sub-segmented further given the highly
        homogenous nature of these products.31
(18)    With regard to MMA derivatives, notwithstanding the Notifying Party’s view that
        the relevant market can be defined for each MMA product separately, 32 the
        Notifying Party submits that there is a degree of supply-side substitutability given
        that their manufacture results from modifications to the MMA production process.
        Therefore, in the Notifying Party’s view, the same production process and assets can
        be used to manufacture MMA and MMA derivatives and most suppliers of MMA
        are also capable of producing most MMA derivatives (and often do). The Notifying
        Party admits, however, that some adjustments to the MMA production process or the
24      Product         information      for       the       Target’s        methacrylamide  products:
        http://www13.evonik.com/bk2/product finder/evonik productDetail.asp?padding=on&aktProdID=32
        92
25      Product      information     for    the     Target’s     N-MMA        methacrylamide monomer:
        https://corporate.evonik.com/en/products/search-products/pages/product-
        details.aspx?productId=76118&searchText=methacrylamide.
26      Form CO, paragraph 2.
27      Form CO, paragraph 2.
28      Form CO, paragraph 2.
29      Form CO, paragraph 51 and footnote 17.
30      Form CO, paragraphs 69 and 80.
31      Form CO, paragraph 68.
32      Email from the Notifying Party’s legal counsel received at 20:37 on 17 April 2019.
                                                         5
 ---pagebreak---      addition of specific production assets may be required to carry out the final reactions
     necessary to manufacture certain MMA derivatives (e.g. ethoxylation capacity in
     order to manufacture BUMA, and transesterification assets to convert MMA to
     HYMA).33
(19) With regard to methacrylamide, which is derived from an intermediary step of the
     Target’s MMA manufacturing process (and not from MMA, as is the case with the
     other MMA derivatives), the Notifying Party submits that the same market definition
     considerations apply as for other MMA derivatives, and that the market for the
     supply of methacrylamide may accordingly be viewed as a distinct product market.34
     4.2.1.2. The Commission’s assessment
(20) In previous decisions, the Commission considered that:
     a.     the supply of MMA constitutes a separate product market, as it cannot be
            replaced by other products in the manufacture of follow-on products;35
     b.     the supply of MAA (the crude form of GMAA)36 constitutes a separate
            product market, distinct from MMA, since MAA and MMA confer different
            properties on the products into which they are processed and are not
            interchangeable from the user’s point of view;37
     c.     the exact market definition for the supply of butyl methacrylate (BUMA) and
            its potential segmentation into n-butyl methacrylate and i-butyl methacrylate
            can be left open;38 and
     d.     it cannot be excluded that hydroxy methacrylate (HYMA) and hydroxy
            acrylates belong to a single product market in view of the fact that, at the
            formulation stage, they appear to be substitutable for several applications
            (though the exact market definition was ultimately left open).39
(21) The relevant product market for methacrylamide has not been previously defined by
     the Commission.
(22) The results of the market investigation carried out in the present case indicate that
     each of the markets for the manufacture and supply of MMA, GMAA, BUMA,
     HYMA and methacrylamide are likely to constitute a distinct relevant product
     market.
(23) From a demand-side perspective, the majority of coating resin manufacturers that
     responded to the Commission’s market investigation consider each of MMA,
     GMAA, BUMA and HYMA to be an essential and irreplaceable component in their
33   Form CO, paragraphs 72-75 and 80.
34   Form CO, footnote 53.
35   Case No IV/M.942 - Veba/Degussa, paragraph 14.
36   GMAA is a refined grade of MAA. There have been no indications in this case that the market for
     methacrylic acid should be segmented by grade, nor have previous cases considered such a
     segmentation. Taking into account the products manufactured by the Target, for the purposes of this
     decision, MAA will be referred to as GMAA (i.e. its more refined form).
37   Case No IV/M.942 - Veba/Degussa, paragraph 15.
38   Case M.5712 – Mitsubishi Chemical Holdings/Mitsubishi Rayon Co, paragraphs 51-52.
39   Case M.5927 – BASF/Cognis, paragraphs 88-92.
                                                     6
 ---pagebreak---      manufacturing processes for a significant number of coating chemistries.40 As one
     customer explained: “Methacrylate monomers are a major raw material critical for
     the production of many products in [that customer’s] coatings resin portfolio”.41 A
     key reason for this is that each of these monomers imparts particular characteristics
     to the final product and, therefore, cannot be easily replaced by any other
     component.42 As another customer explained: “Replacing methacrylates by other
     monomers changes the performance in the final application.”43 Hence, there seems
     to be very limited, if any, demand-side substitutability between MMA and the
     various MMA derivatives.
(24) The results of the Commission’s market investigation also do not fully support the
     Notifying Party’s views on supply-side substitutability. In particular, suppliers of
     MMA and MMA derivatives typically do not manufacture and supply the full range
     of monomers. While all those suppliers manufacture and sell MAA on the merchant
     market, a much more limited number of suppliers also supply GMAA, BUMA, and
     even less so, HYMA and methacrylamide. According to the results of the market
     investigation, the Target may be the only supplier on the merchant market to supply
     all of MMA, GMAA, BUMA, HYMA and methacrylamide. Other suppliers sell
     predominantly MMA or GMAA, and only a few sell BUMA or HYMA.44
(25) Different suppliers of MMA and MMA derivatives also appear to have different
     strengths in the monomers they supply. For example, whilst the majority of
     respondents to the Commission’s market investigation have ranked the Target as the
     top supplier of GMAA, BUMA and methacrylamide in the EEA, another supplier
     was generally ranked higher than the Target for the supply of MMA and yet another
     supplier was ranked number one (tied with the Target) for the supply of HYMA.45
(26) It is worthwhile to note, also, that different suppliers use different processes and
     even different variations of the same process for the manufacture of MMA, though
     the final product is generally considered to be identical and chemically
     indistinguishable.46
(27) There are three different processes for the manufacture of MMA that are currently
     commercialised: (1) the acetone cyanohydrin (“ACH”) process (the “ACH
     process”), (2) the oxidation/esterification of isobutylene or tertiary-butyl alcohol
     (“TBA”) (the “TBA process”), and (3) the hydroformylation of ethylene to
     propionaldehyde, propionic acid, or methyl propionate (the “ethylene process”).47
     Each of these processes (and their variants) involve a different number of steps, use
     different feedstocks and produce different by-products, as well as entailing different
40   Responses to Q1 – Questionnaire to Competitors and Customers, question 30.
41   Responses to Q1 – Questionnaire to Competitors and Customers, question 30.1.
42   See also Form CO, Table 4, where the Notifying Party explains the properties that are imparted by
     MMA and MMA derivatives, noting in particular that MMA can contribute to better UV resistance,
     exterior durability and hardness, BUMA can contribute to better scratch resistance, hardness and early
     hardness development, chemical resistance and temperature resistance, GMAA increases dry speed
     and helps provide adhesion and HYMA can contribute to hardness development, chemical resistance
     and exterior durability.
43   Response to Q1 – Questionnaire to Competitors and Customers, question 30.1.
44   Responses to Q1 – Questionnaire to Competitors and Customers, question 5; Minutes of a call with an
     upstream competitor, 12 April 2019 at 4pm.
45   Responses to Q1 – Questionnaire to Competitors and Customers, question 11.
46   Minutes of a call with an upstream competitor, 12 April 2019 at 4pm.
47   IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), p.13
                                                      7
 ---pagebreak---    steps for the manufacture of MMA derivatives, which may to a certain extent
   explain the differences in the supply by the different suppliers:
       a. The ACH process typically involves three steps, namely (i) the production of
            ACH from acetone and hydrogen cyanide, (ii) treating ACH with sulphuric
            acid to produce methacrylamide sulphate (iii) reacting methacrylamide
            sulphate with methyl alcohol to produce MMA (with sulphuric acid and
            ammonium bisulphate as by-products). The crude MMA is then purified by
            distillation.48 Different variants of the ACH process exist. For example, the
            Mitsubishi Gas Chemical Company uses a different type of the ACH process
            that does not use sulphuric acid or generate by-product ammonium
            bisulphate.49 The Target’s own process is also a variant of the ACH process,
            one that employs an inorganic catalyst instead of sulphuric acid and does not
            generate the by-product ammonium bisulphate.50 To manufacture different
            methacrylates using the ACH process, different alcohols are typically added
            to the MMA solution. For example, to manufacture BUMA, MMA is reacted
            with butyl alcohol (butanol).51 However, with respect to some of the other
            MMA derivatives at issue in this case specifically, their manufacture requires
            more modifications than simply substituting one type of alcohol for another
            in the same step of the manufacturing process. Thus, to manufacture GMAA,
            water is used instead of methanol in the third step of the reaction, resulting in
            MAA, which is then purified to produce GMAA.52 HYMA is produced from
            the esterification of GMAA.53 Methacrylamide is produced by stopping the
            second step of the ACH process and converting the resulting product,
            methacrylamide sulphate, to methacrylamide.54
       b. Some suppliers in Asia use the TBA process, which in the first step, oxidises
            TBA to methacrolein, which is then in turn oxidised to MAA in the second
            step, followed by the esterification of MAA with methanol to produce MMA
            in the third step.55 Compared to the ACH process, the TBA process uses a
            different feedstock,56 does not require hydrogen cyanide or sulphuric acid,
            does not generate acidic waste, but has higher capital costs per ton of
            capacity.57 In the TBA process, MAA (the crude form of GMAA) is actually
            an intermediate product for the production of MMA, instead of an alternative
            manufactured using a different alcohol, as is the case in the ACH process. A
            supplier based in Asia, Asahi, has developed a variant of the TBA process
48 IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), p.13
49 IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), p.14.
50 IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), p.14.
51 Form CO, paragraph 73.
52 Form CO, paragraph 73; IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15
   August 2016), p.13
53 Form CO, paragraph 73.
54 Form CO, paragraph 73.
55 IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), p.15.
56 The TBA process use isobutylene, the prime sources for which are hydrocarbons by-product streams
   from catalytic cracking in refineries, ethylene production by steam cracking, cracking of heavy
   feedstocks e.g. naphtha or gas oil, isobutene, and n-butenes (IHS Chemical “Methyl Methacrylate
   Chemical Economics Handbook” (15 August 2016), p.15).
57 IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), p.15.
                                                    8
 ---pagebreak---                  that uses two steps instead of three and has lower capital and production
                 costs than the three-step process.58
             c. There are three variants of the ethylene process: the variant using
                 propionaldehyde produces MMA in a series of four steps (with MAA
                 produced as an intermediary product), whereas the propionic acid variant and
                 the methyl propionate variant consist of three and two reaction steps,
                 respectively (the second of which does not entail the production of MAA as
                 an intermediary step). Lucite International has a plant in Singapore that uses
                 a proprietary variant of the ethylene process, the Alpha process, which
                 consists of only two reaction steps and manufactures only small volumes of
                 MAA as a by-product.59
(28)    A competitor active in the supply of several MMA monomers explained that, while
        there are no technical barriers to switching to the production of MMA derivatives, it
        does demand a long-term recoup plan on investment costs, as the markets for MMA
        derivatives are smaller than that for MMA.60 Nevertheless, entry into MMA
        derivatives by suppliers that already own MMA production assets is still feasible as
        “the incremental capital to produce these is significantly lower than the capital
        required for MMA or MAA”.61 Nevertheless, with regard to e.g. BUMA, a
        competitor estimates that “once a producer has an MMA asset, it would cost tens of
        millions of euros to install an asset to manufacture BUMA”.62
(29)    On the basis of the above considerations supported by evidence collected over the
        course of the market investigation, the Commission considers that each of the
        markets for the supply of MMA, GMAA, BUMA, HYMA and methacrylamide
        likely constitutes a distinct product market. For the purposes of this decision,
        however, the exact product market definition can be left open, as no serious doubts
        arise under any plausible market definition.
4.2.2. Geographic market definition
4.2.2.1. The Notifying Party’s views
(30)    The Notifying Party submits that the geographic scope of the supply of each of
        MMA, GMAA, BUMA, HYMA and methacrylamide is global in scope (and at least
        EEA-wide in the case of methacrylamide).63
(31)    The Notifying Party argues that the supply of MMA (and therefore also of the MMA
        derivatives) exhibits features of a market that is wider than EEA in geographic
        scope, namely because of: (i) the significant trade flows across world regions (with
        imports of c.20% on the merchant market in the EU in 2017), (ii) expected increased
        imports into Europe from two new plants coming into production in Saudi Arabia,
        (iii) the low cost of transport of MMA and MMA derivatives (with the exception of
        GMAA, the transport costs of which are higher because temperature control is
        required), and (iv) the fact that supply can be, and has on previous occasions been,
58      IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), p.15.
59      IHS Chemical “Methyl Methacrylate Chemical Economics Handbook” (15 August 2016), p.17.
60      Minutes of a call with an upstream competitor, 12 April 2019 at 4 pm.
61      Response to Q1 – Questionnaire to Competitors and customers, question 7.
62      Minutes of a call with an upstream competitor, 12 April 2019 at 4pm.
63      Form CO, paragraphs 84-85 and footnote 53.
                                                         9
 ---pagebreak---         diverted to other world regions (e.g. Europe or Asia) when market fluctuations
        meant that prices in those regions increased.64
(32)    In the Notifying Party’s view, the market definition can ultimately be left open as no
        competition concerns arise irrespective of whether these markets are defined as
        global or EEA-wide in scope.65
4.2.2.2. The Commission’s assessment
(33)    The Commission has previously defined the geographic markets for the supply of
        MMA and of MAA (the crude form of GMAA) as at least EEA-wide in scope and
        for the supply of hydroxy monomers (including HYMA) as EEA-wide in scope,
        whereas it left open the geographic scope of the markets for the supply of butyl
        methacrylate (including BUMA).66
(34)    The results of the market investigation indicate that the markets for the supply of
        MMA and each of the MMA derivatives are likely to be EEA in geographic scope.
(35)    Whilst some of the competitors have indicated that they supply, and some of the
        customers indicated that they purchase, MMA and MMA derivatives on a global
        level, a significant number of customers that responded to the Commission’s market
        investigation indicated that they tend to purchase MMA and MMA derivatives from
        EEA-based suppliers for use in the EEA.67 As one customer explained, “[w]e are a
        global company but we buy methacrylates in Europe for the European plants (like
        we buy in China for our plant in China, in the US for the US plants, …)”.68
(36)    The reasons for choosing to source mainly from regional suppliers relate to a large
        extent to the limited shelf-life of MMA monomers and the related storage
        requirements. As another EEA-based customer explained, “[d]ue to large volume
        requirements and only limited storage capabilities, short lead times are required to
        source monomers”, which is why its “[v]olumes are typically sourced from the main
        EEA countries in which monomers are produced”.69 An MMA manufacturer
        explained that the typical shelf life of MMA and MMA derivatives is six months.70
(37)    Moreover, importing from outside the EEA may be difficult, if not impossible, for
        certain EEA-based customers due to a variety of economic, technical or regulatory
        factors. For example, certain technical specifications of EEA customers require the
        use of specific stabilisers or inhibitors to make MMA and the relevant MMA
        derivatives safe for transport and subsequent handling and use in follow-on
        manufacturing processes. Products from outside the EEA (e.g. Asia) often utilise
        Topanol-A, an inhibitor that is not suitable for use for certain applications in the
64      Form CO, paragraphs 81-83.
65      Form CO, paragraph 86.
66      Commission decisions in Case No IV/M.942 - Veba/Degussa, paragraph 36; Case M.5927 –
        BASF/Cognis, paragraphs 95-96; Case M.5712 – Mitsubishi Chemical Holdings/Mitsubishi Rayon
        Co, paragraph 58.
67      Responses to Q1 – Questionnaire to Competitors and Customers, question 6 and question 19.
68      Response to Q1 – Questionnaire to Competitors and Customers, question 19.1.
69      Response to Q1 – Questionnaire to Competitors and Customers, question 19.1.
70      Minutes of a call with an upstream competitor, 12 April 2019 at 4 pm.
                                                        10
 ---pagebreak---      EEA (where MEHQ is typically used).71 The water content or necessary temperature
     controls also entail additional costs,72 as do customs duties73 and additional risks and
     logistics considerations related to transportation of these chemicals over long
     distances.74
(38) In addition, customers procuring volumes of MMA and MMA derivatives
     originating from outside the EEA do so via EEA-based traders precisely because
     they value geographic proximity. For example, one customer explained that it
     procures volumes of MMA and MMA derivatives from overseas but only via traders
     based in the Netherlands, Germany and the UK.75 Another customer explained that
     whilst they have approved non-EU sources in order to improve their security of
     supply and leverage global market dynamics, they do not import from any of their
     approved non-EEA suppliers themselves, relying instead on EEA-based importers.76
(39) Furthermore, the reliability of imports of MMA and MMA derivatives from outside
     the EEA as competitive constraints in the EEA appears relative and unstable. First,
     according to the views expressed by MMA and MMA derivatives customers
     responding to the Commission’s market investigation, imports are not always
     competitively priced as compared to monomers manufactured in the EEA. As one
     customer explained: “If the market is tight with a strong demand in both regions,
     Asian imports can be at a premium to EU prices.”77 Another customer explained
     that the “[c]ompetitiveness of imports of methacrylate monomers from outside the
     EEA is highly dependent on market circumstances”, noting that “[u]nder normal
     circumstances EEA produced material is more competitive.”78 This suggests that
     imports from outside the EEA remain opportunistic,79 becoming more significant at
     times markets in the EEA are disrupted and prices increase as a result of e.g.
     capacity restrictions at EEA-based manufacturing facilities.80
(40) For these reasons, the Commission finds that each of the geographic markets for the
     manufacture and supply of MMA, GMAA, BUMA, HYMA and methacrylamide is
     likely to be EEA-wide in scope. For the purposes of this decision, however, the exact
     geographic market definition can be left open, as no serious doubts arise under any
     plausible market delineations.
71   E.g. the standard inhibitor in Europe is MEHQ, whereas many Asian and North American suppliers
     typically use Topanol A, which market participants say may cause problems in specific areas of
     application. Responses to Q1 – Questionnaire to Competitors and Customers, question 19.4.
72   For example, GMAA (or MAA) polymerises easily, which makes it more difficult to ship over long
     distances. Responses to Q1 – Questionnaire to Competitors and Customers, question 19.4.
73   Minutes of a call with an upstream competitor, 12 April 2019 at 4pm.
74   Responses to Q1 – Questionnaire to Competitors and Customers, question 19.4
75   Response to Q1 – Questionnaire to Competitors and Customers, question 19.1.
76   Response to Q1 – Questionnaire to Competitors and Customers, question 19.1.
77   Response to Q1 – Questionnaire to Competitors and Customers, question 19.3.
78   Response to Q1 – Questionnaire to Competitors and Customers, question 19.3.
79   Minutes of a call with an upstream competitor, 12 April 2019 at 4pm.
80   This view is supported by various market participants, including competitors, who do not generally
     seem to consider imports from outside the EEA as a significant competitive constraint on their
     activities in the EEA; see for example, responses to Q1- Questionnaire to Competitors and Customers,
     questions 19.3 and 19.4.
                                                       11
 ---pagebreak--- 4.2.3. Conclusion on the relevant markets for the manufacture and supply of MMA and
        MMA derivatives
(41)    On the basis of the above considerations supported by evidence collected over the
        course of the market investigation, the Commission concludes that each of the
        markets for the supply of MMA, GMAA, BUMA, HYMA and methacrylamide
        likely constitutes a distinct product market, which is likely to be EEA-wide in
        geographic scope. For the purposes of this decision, however, both the exact product
        and geographic market definition can be left open, as no serious doubts arise on any
        plausible market definition.
4.3.    The downstream markets – manufacture and supply of coating resins
4.3.1. Relevant product market definition
4.3.1.1. The Notifying Party’s views
(42)    The Notifying Party submits that for the purposes of a vertical assessment, the
        coating resins market should be viewed as one single market without further
        segmentation.81 In the Notifying Party’s view, a further sub-segmentation is not
        appropriate because: (i) coating resin manufacturers operate multi-purpose reactors
        in which they can easily switch between coating resin chemistries (and Allnex does
        so often, at very limited cost of between EUR 1 500 and EUR 3 000 and only a few
        hours of cleaning on average), (ii) customers can switch between different resin
        chemistries to achieve the desired effects in a coating for a particular end-use; (iii)
        coating resin manufacturers do not tend to be aware of their customers’ intended use
        of a given resin chemistry or, if they are, they are not willing to share this
        information with other third parties, meaning that any market estimates on narrower
        sub-segments are often only very high-level.82
(43)    The Notifying Party further submits that in any event, the exact market definition
        can be left open as no competition concerns arise on any plausible market
        definition.83
4.3.1.2. The Commission’s assessment
(44)    The Commission has previously considered84 a possible segmentation of the market
        for the supply of coating resins by chemistry and delivery technology as well as by
        industrial application:
        a.    A segmentation by chemistry and delivery technology distinguishes
              between the following categories of coating resins: (i) solvent-borne acrylics,
              (ii) solvent-borne alkyds, (iii) water-borne acrylics, (iv) water-borne alkyds,
              (v) water-borne epoxies, (vi) water-borne polyurethane dispersions, (vii)
              cathodic           electro-deposition             resins,        (viii)        radiation-
              curablemonomers/oligomers/acrylates, (ix) radiation-curable UV-curable
              polyurethane dispersions, (x) radiation-curable glass laminates, and (xi)
              polyester powders.
81      Form CO, paragraph 107.
82      Form CO, paragraph 95.
83      Form CO, paragraph 107.
84      Case M.8019 – Advent International/Nuplex Industries, paragraphs 14-15 and 22-30; Case M.6778 –
        Advent International Corporation/Cytec's Resin Business, paragraph 71.
                                                       12
 ---pagebreak---      b.    A segmentation by industrial application distinguishes between the
           following end-use applications for coating resins (within each chemistry): (i)
           automotive OEM, (ii) automotive refinish, (iii) industrial wood, (iv) coil and
           PCM, (v) other industrial, (vi) marine, (vii) special purpose, (viii) packaging,
           (ix) architectural, and (x) adjacent coating and non-coating.
(45) In Advent International/Nuplex Industries, the Commission concluded that, based on
     the results of the market investigation in that case, a segmentation of the market
     based on (i) the delivery technology (e.g. liquid or powder) and the resin chemistry
     (e.g. acrlyics or alkyds) and (ii) industrial application (e.g. automotive OEM or
     architectural) was likely to be the most suitable (e.g. solvent-borne acrylics for
     automotive OEM), though ultimately leaving the exact relevant product market
     definition open.85
(46) The results of the market investigation carried out in the present case confirm the
     segmentation of the coating resins market by chemistry and delivery technology and
     by industrial application.
(47) The vast majority of coating resins manufacturers that responded to the
     Commission’s market investigation agree with the segmentation by chemistry and
     delivery technology and by industrial application outlined in paragraphs (44)a) and
     (44)b) above.86 As competitors explained with regard to the segmentation by
     chemistry and delivery technology, “[t]hese categories provide a good coverage for
     different market segments based on technology/chemistry platforms”87 and “[f]rom a
     chemical classification point of view, this segmentation is generally followed and
     corresponds to the main types of product categories”88 and with regard to the
     segmentation by end-use: “It reflects standard industry segmentation practice”.89
     One competitor explained in particular that markets “are determined by a) chemistry
     an[d] b) application. Within each application there are possibly separate
     chemistries. Each chemistry can be used in different applications.”90
(48) The vast majority of coating resin customers that responded to the Commission’s
     market investigation also agreed with this segmentation by chemistry and delivery
     technology and by industrial application,91 noting that these different chemistries
     reflected the “different performance” of the coating resins92 and that this
     segmentation by industrial application is “commonly used” within the industry and is
     based on linking the product specificities to their application, “as the technical
     requirements are different” for different uses.93
(49) From the demand-side perspective, therefore, coating resins do not appear to be
     substitutable between different chemistries and end-applications. As one customer
     stated: “Different types of resins are not substitutable because of their different
     properties.”94 Another customer explained in more detail that: “The types of
85   Case M.8019 – Advent International/Nuplex Industries, paragraphs 22 and 30.
86   Responses to Q1 – Questionnaire to Competitors and Customers, question 26 and question 26.2.
87   Response to Q 1 – Questionnaire to Competitors and Customers, question 26.1.
88   Response to Q 1 – Questionnaire to Competitors and Customers, question 26.1.
89   Response to Q 1 – Questionnaire to Competitors and Customers, question 26.3.
90   Response to Q 1 – Questionnaire to Competitors and Customers, question 26.1.
91   Responses to Q2 – Questionnaire to Customers, question 4 and question 4.2.
92   Response to Q2 – Questionnaire to Customers, question 4.1.
93   Responses to Q2 – Questionnaire to Customers, question 4.3.
94   Response to Q2 – Questionnaire to Customers, question 4.1.
                                                    13
 ---pagebreak---         (specialty) resins used in one end-use application are generally not substitutable
        with the types of (specialty) resins used in another end-use application. Indeed,
        depending on the end-use application, the market needs and end requirements are
        different. Different types of resins are therefore used because of the properties they
        provide, such as chemical resistance, hardness, durability, curing time etc. as well
        as because of the application and curing method, and the substrate coated (metal or
        plastic). Their chemical composition and properties would differ, as well as the
        prices.”95
(50)    As regards supply-side substitutability, the results of the market investigation did not
        confirm the Notifying Party’s view that it is generally easy to switch production
        lines across the different coating resin chemistries and applications. Whilst some
        coating resins manufacturers that focus on specific chemistries report being able to
        switch their production lines between their targeted resin chemistries, others say it
        would be very difficult for them to do so or that it “is not possible in general”.96 The
        reasons for this are numerous: the costs of reformulating recipes to use different raw
        materials may be very high, as are the costs of testing the reformulated coating resins
        for their intended end-applications by producers and customers alike.97
(51)    On the basis of the above considerations supported by evidence collected during the
        market investigation, the Commission considers that it is appropriate to maintain the
        Commission’s practice of segmenting the supply of coating resins by chemistry and
        delivery technology and by industrial application, as outlined in paragraphs (44)a)
        and (44)b) above. For the purposes of the present decision, however, the exact
        product market definition can be left open, as no serious doubts arise under any
        plausible market delineations.
4.3.2. Geographic market definition
4.3.2.1. The Notifying Party’s views
(52)    The Notifying Party submits that the supply of coating resins exhibits several
        features of a global or at least EEA-wide market, including: (i) low transportation
        costs, (ii) no regulatory barriers to trade across jurisdictions, and (iii) converging
        global pricing (with the exception of Asia, where prices are lower).98 However,
        according to the Notifying Party, the exact geographic market definition can be left
        open as no competition concerns arise under any plausible geographic market
        definition.99
4.3.2.2. The Commission’s assessment
(53)    The Commission has previously considered the geographic market for the supply of
        coating resins (including water-based resins) to be EEA-wide in scope.100
(54)    In the present case, the results of the market investigation suggest that the markets
        for coating resins are likely to be EEA-wide in geographic scope.
95      Response to Q2 – Questionnaire to Customers, question 4.3.
96      Response to Q1 – Questionnaire to Competitors and Customers, question 29.
97      Responses to Q1 – Questionnaire to Competitors and Customers, question 29.
98      Form CO, paragraphs 108-109.
99      Form CO, paragraph 110.
100     Case M.6178 – Arkema/Total’s Resin Division, paragraphs 24-25; Case M.5355 - BASF/CIBA,
        paragraphs 173-174.
                                                       14
 ---pagebreak--- (55)   Whilst some of the coating resins manufacturers that responded to the Commission’s
       market investigation indicated that they can sell coating resins on a global level, it is
       apparent that a number of these same suppliers typically serve customers at the EEA
       level. For example, one competitor stated: “We can supply globally, but typically we
       manufacture in the region which we serve”.101 Another explained that “[m]ain
       supplies are going into EEA, and only small volumes outside EEA”.102
(56)   From the demand-side, the customers of coating resins tend to procure at the EEA
       level, typically from different EEA countries to diversify their supplier base.
       Regulatory requirements may render coating resins manufactured by non-EEA
       manufacturers unsuitable for EEA-based customers. Those responding customers
       that stated that they procure coating resins on a global level explain that they have
       “global manufacturing sites” or “factories in different regions” and that “[s]ome
       grades/types of [coating resins] are not available locally hence [they] need to import
       them”.103
(57)   For these reasons, the Commission finds that the geographic markets for the supply
       of coating resins, including their possible segmentation by chemistry and delivery
       technology and by industrial application, are likely to be EEA-wide in scope. For the
       purposes of this decision, however, the exact geographic market definition can be
       left open, as no serious doubts arise under any plausible market definition.
4.3.3. Conclusion on the relevant markets for the manufacture and supply of coating resins
(58)   On the basis of the above considerations supported by evidence collected during the
       market investigation, the Commission considers it appropriate to segment the market
       for the supply of coating resins by chemistry and delivery technology and by
       industrial application, as outlined in paragraphs (44)a) and (44)b) above, and to
       consider these markets to be EEA-wide in scope. However, the exact market
       definitions can be left open, as no serious doubts arise on any plausible market
       definition.
5.     COMPETITIVE ASSESSMENT
5.1.   Horizontal non-coordinated effects
5.1.1. Legal framework for the competitive assessment
(59)   A merger giving rise to significant impediment of effective competition may do so
       as a result of the creation or strengthening of a dominant position in the relevant
       market(s). Moreover, mergers in oligopolistic markets involving the elimination of
       important constraints that the parties previously exerted on each other, together with
       a reduction of competitive pressure on the remaining competitors, may also result in
       a significant impediment to effective competition, even in the absence of
       dominance.104
101    Response to Q1 – Questionnaire to Competitors and Customers, question 27.1.
102    Response to Q1 – Questionnaire to Competitors and Customers, question 27.1.
103    Response to Q2 – Questionnaire to Customers, question 6.2.
104    Horizontal Merger Guidelines, paragraph 25.
                                                      15
 ---pagebreak--- (60)   In fact, the Commission Guidelines on the assessment of horizontal mergers under
       the Merger Regulation (the “Horizontal Merger Guidelines”)105 describe horizontal
       non-coordinated effects as follows: “A merger may significantly impede effective
       competition in a market by removing important competitive constraints on one or
       more sellers who consequently have increased market power. The most direct effect
       of the merger will be the loss of competition between the merging firms. For
       example, if prior to the merger one of the merging firms had raised its price, it
       would have lost some sales to the other merging firm. The merger removes this
       particular constraint. Non-merging firms in the same market can also benefit from
       the reduction of competitive pressure that results from the merger, since the merging
       firms’ price increase may switch some demand to the rival firms, which, in turn, may
       find it profitable to increase their prices. The reduction in these competitive
       constraints could lead to significant price increases in the relevant market.”106
(61)   The Horizontal Merger Guidelines list a number of factors which may influence
       whether or not significant horizontal non-coordinated effects are likely to result from
       a merger, such as the large market shares of the merging firms, the fact that the
       merging firms are close competitors, the limited possibilities for customers to switch
       suppliers, or the fact that the merger would eliminate an important competitive
       force.107 That list of factors applies equally regardless of whether a merger would
       create or strengthen a dominant position, or would otherwise significantly impede
       effective competition due to non-coordinated effects. Furthermore, not all of these
       factors need to be present to make significant non-coordinated effects likely and it is
       not an exhaustive list.108
(62)   Finally, the Horizontal Merger Guidelines describe a number of factors, which could
       counteract the harmful effects of the merger on competition, including the likelihood
       of buyer power, the entry of new competitors on the market, and efficiencies.
(63)   For the purposes of the competitive assessment of this case, in this Section, the
       Commission will assess whether the Transaction gives rise to horizontal non-
       coordinated effects. 109
5.1.2. Market shares
(64)   The Transaction gives rise to horizontal overlaps in the supply of solvent-borne
       (“SB”) acrylic coating resins. On the narrowest market segmentation for the supply
       of coating resins (by chemistry and technology and by industrial application) in the
       EEA, three affected markets arise as a result of horizontal overlaps: solvent-borne
105    OJ C 31, 5.2.2004, p. 5.
106    Horizontal Merger Guidelines, paragraph 24.
107    Horizontal Merger Guidelines, paragraphs 27 and following.
108    Horizontal Merger Guidelines, paragraph 26.
109    The competitive assessment of the horizontal overlaps arising from the Transaction focuses on non-
       coordinated effects. Conversely, the results of the market investigation and documents obtained from
       the Parties did not reveal specific evidence pointing to a risk of coordinated effects in the present
       case. In particular, a large number of heterogeneous actors active across different combinations of
       resin chemistries and end-use applications will continue to compete in the relevant coating resins
       markets post-Transaction. Moreover, some of the products developed by competitors in these markets
       are tailor-made for each customer to fit their needs (e.g. for automotive applications); other customers
       of coating resins tend to procure off-the-shelf products for use in more standard applications (e.g. wall
       paints). In view of these structural and circumstantial features, the present decision does not inquire
       further into potential coordinated effects in the supply of solvent-borne acrylic coating resins or in
       each of the marine, other industrial, or adjacent coating and non-coating applications, in which the
       Parties’ activities overlap.
                                                          16
 ---pagebreak---  ---pagebreak--- 5.1.4.1.        Supply of SB acrylic resins (all applications combined)
(67)    Competition concerns are unlikely to arise as a consequence of the Parties’
        horizontal overlap in the market for the supply of SB acrylic resins for all
        applications (where the Parties have an estimated combined market share of 16-20%
        and an increment of [5-10]%) for the following reasons.
(68)    The results of the Commission’s market investigation reveal that for the plausible
        market encompassing the supply of all SB acrylic resins regardless of the end-use
        application, the combined market share of the Parties would remain relatively
        modest and multiple competitors appear to be able to constrain the merged entity
        post-Transaction, including Arkema, Synres, Dow or BASF, among others.112
(69)    Moreover, while some coating resins manufacturers have long-term relationships
        with customers, supply contracts are generally of a short duration in this industry
        (typically ranging between several months and 1 or 2 years 113).114 Likewise,
        customers of SB acrylic resins agree that multi-sourcing is a common practice and
        that switching is possible in the industry,115 even though it may require finding a
        supplier that meets specific formulations or characteristics required by the
        customer.116
(70)    In addition, as regards the Parties’ horizontal overlaps in SB acrylic resins, the
        results of the market investigation suggest that the large majority of customers and
        competitors do not expect the Transaction to have a material impact on their
        business.117 More importantly, the majority of customers expects that there will
        remain a sufficient number of suppliers in the market, and that there will be no
        increase in price or decrease in the quality of the product available in the market.118
(71)    The Commission accordingly considers that the Transaction does not raise serious
        doubts as to its compatibility with the internal market as a result of horizontal
        overlaps in the Parties’ activities in the possible EEA market for the supply of SB
        acrylic resins.
5.1.4.2.        Supply of SB acrylic resins for marine applications
(72)    Competition concerns are unlikely to arise as a consequence of the Parties’
        horizontal overlap in the market for the supply of SB acrylic resins for marine
        applications for the following reasons.
(73)    First, the Parties’ combined market share is relatively modest, estimated by the
        Notifying Party to be [20-25]%, and the increment brought about by the Transaction
        is limited ([0-5]%).
112     Responses to Q2 – Questionnaire to Customers, question 10.
113     Responses to Q1 – Questionnaire to Competitors and Customers, question 14.1 and question 23.1.
114     Responses to Q1 – Questionnaire to Competitors and Customers, question 33.
115     Responses to Q2 – Questionnaire to Customers, questions 14 and 14.1.
116     Responses to Q1 – Questionnaire to Competitors and Customers, questions 29 and 33. Responses to
        Q2 – Questionnaire to Customers, question 14.1.
117     Responses to Q1 – Questionnaire to Competitors and Customers, question 40; Responses to Q2 –
        Questionnaire to Customers, question 17.
118     Responses to Q2 - Questionnaire to customers, question 16.
                                                        18
 ---pagebreak--- (74)    Second, the market is fragmented, with many competitors remaining available as
        alternative suppliers post-Transaction, including Arkema (with an estimated market
        share of 10-15%), BASF (5-10%), Dow (5-10%), Synres (10-15%), and a number of
        other competitors representing about a third of the market (28-48%).119
(75)    Third, the majority of customers of SB acrylic resins for marine applications that
        responded to the Commission’s market investigation do not expect the Transaction
        to result in any price increases, reductions in quality or choice. 120 The majority of
        these SB acrylic resins customers, and specifically the majority of customers of SB
        acrylic resins for marine applications, have indicated that a number of strategies
        would be available to them to respond to any increases of prices or decreases in
        volumes post-Transaction, including procuring adequate volumes of comparable
        quality and at comparable prices from alternative suppliers in the EEA.121
(76)    The majority of competing suppliers of SB acrylic resins that responded to the
        Commission’s market investigation similarly do not expect the Transaction to result
        in any price increases, reductions in quality or choice in any of the SB acrylic resins
        for any end-applications.122 These conclusions did not significantly change for
        suppliers of SB acrylic resins for marine applications.
(77)    The Commission accordingly considers that the Transaction does not raise serious
        doubts as to its compatibility with the internal market as a result of horizontal
        overlaps in the Parties’ activities in the possible EEA market for the supply of SB
        acrylic resins for marine applications.
5.1.4.3.         Supply of SB acrylic resin for adjacent coating and non-coating applications
(78)    As regards the market for the supply of SB acrylic resins for adjacent coating and
        non-coating applications (which includes resins not assigned to specific coating
        applications, such as textile or inks, and resins used for non-coatings applications
        such as rubber, tires and adhesives123), the Transaction is unlikely to raise any
        competition concerns for the following reasons.
(79)    First, the Parties’ combined market share is relatively modest, estimated to be [25-
        30]%. In addition, the increment brought about by the Transaction is limited ([5-
        10]%).
(80)    Second, the market is fragmented, with many competitors remaining available as
        alternative suppliers post-Transaction, including Arkema (with an estimated market
        share of 10-15%), BASF (5-10%), Dow (5-10%), Synres (10-15%), and a number of
        other competitors representing about a third of the market (25-45%).124
(81)    Third, all customers of SB acrylic resins for adjacent coating and non-coating
        applications that responded to the Commission’s market investigation125 do not
        expect the Transaction to result in any price increases, reductions in quality or
119     Based on the Notifying Party’s estimates.
120     Responses to Q2 – Questionnaire to Customers, questions 16.1, 16.2, 16.3, and 18.
121     Responses to Q2 – Questionnaire to Customers, question 19.
122     Responses to Q1 – Questionnaire to Competitors and Customers, questions 38.1, 38.2, 38.3 and 38.4.
123     Case M.8019 – Advent International/Nuplex Industries, paragraph 13.
124     Based on the Notifying Party’s market estimates.
125     See responses to Q2 – Questionnaire to Customers, question 9.
                                                         19
 ---pagebreak---         choice.126 The majority of these SB acrylic resins customers have indicated that a
        number of strategies would be available to them to respond to any increases of prices
        or decreases in volumes post-Transaction, including procuring adequate volumes of
        comparable quality and at comparable prices from alternatives suppliers in the
        EEA.127
(82)    The majority of competing manufacturers of SB acrylic resins active in adjacent
        coating and non-coating applications that responded to the Commission’s market
        investigation128 similarly do not expect the Transaction to result in any price
        increases, reductions in quality or choice in any of the SB acrylic resins for any end-
        applications, including adjacent coating and non-coating applications.129
(83)    The Commission accordingly considers that the Transaction does not raise serious
        doubts as to its compatibility with the internal market as a result of horizontal
        overlaps in the Parties’ activities in the possible EEA market for the supply of SB
        acrylic resins for adjacent coating and non-coating applications.
5.1.4.4.          Supply of SB acrylic resin for other industrial applications
(84)    As regards the market for the supply of SB acrylic resins for other industrial
        applications, the Transaction is unlikely to raise any competition concerns for the
        following reasons.
(85)    First, the Parties’ combined market share is estimated to be [30-35]%, with an
        increment of [5-10]%.130
(86)    Second, the market is fragmented, with many competitors remaining available as
        alternative suppliers post-Transaction, including Arkema (with an estimated market
        share of 20-25%), Dow (10-15%), Synres (5-10%), and a number of other
        competitors (e.g. Synthopol, Mitsubishi, DSM) representing about a quarter of the
        market (17-32%).131 Indeed, the vast majority of SB acrylic resins customers that
        responded to the Commission’s market investigation, including specifically those
        active in the other industrial applications segment, have stated that a sufficient
        number of suppliers of SB acrylic coating resins will remain in the EEA post-
        Transaction.132
(87)    Third, the vast majority of customers for SB acrylic resins for other industrial
        applications that responded to the Commission’s market investigation do not expect
        the Transaction to result in any price increases, reductions in quality or choice. 133
        The majority of these SB acrylic resins customers for other industrial applications
        have indicated that a number of strategies would be available to them to respond to
        any increases of prices or decreases in volumes post-Transaction, including
126     Responses to Q2 – Questionnaire to Customers, questions 16.1, 16.2 and 16.3.
127     Responses to Q2 – Questionnaire to Customers, question 19.
128     See responses to Q1 – Questionnaire to Competitors and Customers, questions 1 and 31.
129     Responses to Q1 – Questionnaire to Competitors and Customers, questions 38.1, 38.2, 38.3 and 38.4.
130     Such a market share is well below the threshold at which dominance is likely to exist: see judgment
        of 3 July 1991, AKZO, C-62/86, EU:C:1991:286, paragraph 60.
131     Based on the Notifying Party’s market estimates.
132     Responses to Q2 – Questionnaire to Customers, question 18.
133     Responses to Q2 – Questionnaire to Customers, questions 16.1, 16.2 and 16.3.
                                                         20
 ---pagebreak---        procuring adequate volumes of comparable quality and at comparable prices from
       alternatives suppliers in the EEA.134
(88)   All competing manufacturers active in SB acrylic resins for other industrial
       applications that responded to the Commission’s market investigation similarly do
       not expect the Transaction to result in any price increases, reductions in quality or
       choice in any of the SB acrylic resins for any end-applications, including other
       industrial applications.135
(89)   The Commission accordingly considers that the Transaction does not raise serious
       doubts as to its compatibility with the internal market as a result of horizontal
       overlaps in the Parties’ activities in the possible EEA market for the supply of SB
       acrylic resins for other industrial applications.
5.1.5. Conclusion
(90)   On the basis of the above considerations and the evidence collected during the
       market investigation, the Commission concludes that the Transaction does not raise
       serious doubts as to its compatibility with the internal market, because it is unlikely
       to give rise to horizontal non-coordinated effects in the markets for the supply of
       solvent-borne acrylic resins, both taken as a whole and for each of (i) marine, (ii)
       adjacent coating and non-coating, and (iii) other industrial applications.
       5.2.    Non-horizontal non-coordinated effects
5.2.1. Legal framework for the competitive assessment
(91)   Mergers may involve vertical effects when concerning companies operating at
       different levels of the same supply chain. Pursuant to the Commission Guidelines on
       the assessment of non-horizontal mergers under the Council Regulation on the
       control of concentrations between undertakings (the “Non-Horizontal Merger
       Guidelines”),136 the analysis of the vertical effects of mergers does not entail the loss
       of direct competition between merging firms in the same relevant market and
       provide scope for efficiencies. However, there are circumstances in which vertical
       mergers may significantly impede effective competition. This is in particular the
       case if they give rise to foreclosure. 137
(92)   The Non-Horizontal Merger Guidelines distinguish between two forms of
       foreclosure: input foreclosure, where the merger is likely to raise costs of
       downstream rivals by restricting their access to an important input, and customer
       foreclosure, where the merger is likely to foreclose upstream rivals by restricting
       their access to a sufficient customer base. 138
(93)   Pursuant to the Non-Horizontal Merger Guidelines, input foreclosure arises where,
       post-merger, the merged entity would be likely to restrict its actual or potential rivals
       in the downstream market from having access to the products or services that the
       Parties would have otherwise supplied absent the merger, thereby raising its
134    Responses to Q2 – Questionnaire to Customers, question 19.
135    Responses to Q1 – Questionnaire to Competitors and Customers, questions 38.1, 38.2, 38.3 and 38.4.
136    OJ C 265, 18.10.2008, p. 6.
137    Non-Horizontal Merger Guidelines, paragraph 18.
138    Non-Horizontal Merger Guidelines, paragraph 30.
                                                      21
 ---pagebreak---        downstream rivals' costs by making it harder for them to obtain supplies of the input
       under similar prices and conditions as absent the merger. 139
(94)   For input foreclosure to be a concern, the merged entity should have a significant
       degree of market power in the upstream market. Only when the merged entity has
       such a significant degree of market power, can it be expected that it will be able to
       significantly influence the conditions of competition in the upstream market and
       thus, possibly, the prices and supply conditions in the downstream market.140
(95)   Pursuant to the Non-Horizontal Merger Guidelines, customer foreclosure may occur
       when a supplier integrates with an important customer in the downstream market
       and, 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 which in turn, 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 merger. This may allow the
       merged entity profitably to establish higher prices on the downstream market. 141
(96)   For customer foreclosure to be a concern, a vertical merger must involve a company
       that is an important customer with a significant degree of market power in the
       downstream market. If, on the contrary, there is a sufficiently large customer base, at
       present or in the future, that is likely to turn to independent suppliers, the
       Commission is unlikely to raise competition concerns on that ground.142
(97)   In its assessment, the Commission considers whether it is likely that the merged
       entity would engage in input or customer foreclosure strategies. In doing so, the
       Commission in principle analyses the merged entity's ability and incentives to
       engage in such foreclosure strategies, as well as the possible effects they may have
       on the relevant markets. Since these factors are intrinsically linked, they are often
       examined together.143
5.2.2. Market shares and overview of vertical relationships
(98)   Table 2 displays the market shares of the Target and its main competitors (based on
       the merchant market, excluding captive supplies) in the upstream supply of MMA
       and MMA derivatives.
139    Non-Horizontal Merger Guidelines, paragraph 31.
140    Non-Horizontal Merger Guidelines, paragraph 35.
141    Non-Horizontal Merger Guidelines, paragraph 58.
142    Non-Horizontal Merger Guidelines, paragraph 61.
143    Non-Horizontal Merger Guidelines, paragraphs 32 and 59.
                                                     22
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---         38% of Western European demand for MMA),150 molding compounds, impact
        modifiers, and others. Indeed, the percentage of all MMA destined to the coating
        resins market in Western Europe is well below <25%,151 indicating that alternative
        customers remain available to MMA manufacturers. Thus, a theoretical customer
        foreclosure strategy would at most have a limited effect on the market. Given the
        lack of ability and the limited impact that such strategy would have on the market,
        the merged entity is unlikely to also have the incentive to do so as it is unlikely that
        any foreclosure strategy could be successfully implemented.
(104) In view of the above considerations supported by evidence collected during the
        market investigation, the merged entity appears unlikely to have the ability and
        incentive to implement a customer foreclosure strategy in the present case.
5.2.4. Potential input foreclosure
5.2.4.1.        The Notifying Party’s views
(105) The Notifying Party submits that the merged entity would lack the ability and/or the
        incentive to foreclose its downstream rivals post-Transaction, and that even if it were
        to do so, such foreclosure would have very little effect on competition. First, in the
        Notifying Party’s view, MMA and MMA derivatives are simply an additive and not
        an essential input in the manufacture of most coating resins, such as SB/WB
        acrylics, SB/WB alkyds, polyurethanes and epoxy resins. Moreover, certain other
        coating resins do not generally make use of MMA or MMA derivatives at all, such
        as e.g. polyester powders or the majority of radiation-curable monomers. The
        Notifying Party highlights that even within coating resins of a certain chemistry
        category, MMA derivatives are not used for all end-use applications. The Notifying
        Party further argues that, in any event, when MMA and MMA derivatives are added
        to a resin, they represent a limited share of the total raw material cost for resin
        production, e.g. from 5-10% in WB PUDs up to 45-50% in polyester powders.
(106) Second, the Notifying Party submits that despite the Target’s EEA market shares
        being slightly above the 30% threshold for most MMA derivatives (with the
        exception of methacrylamide), the Target does not have a position of dominance in
        these markets. There are several other producers available, such as Lucite (all MMA
        derivatives, with the exception of methacrylamide), GEO and Nippon (HYMA), as
        well as other manufacturers with occasional spot sales of MMA derivatives in the
        market such as BASF or Dow. The Notifying Party also anticipates an expansion in
        the availability of MMA and MMA derivatives in the EEA with the increase of
        imports from China and Saudi Arabia.
(107) Third, in the opinion of the Notifying Party, given that the majority of coating resin
        manufacturers are active across a variety of coating resin chemistries and end-use
        applications, the merged entity could not successfully implement a foreclosure
        strategy targeted on the demand for certain resin chemistries and end-use
        applications (i.e., those produced by Allnex). This is because the merged entity
        would not have the ability to price differentiate for all the different uses for which a
        purchaser would be acquiring MMA derivatives. Thus, the merged entity would
        have to raise prices for its MMA derivatives regardless of the use by the purchaser,
150     IHS Chemical Methyl Methacrylate – Chemical Economics Handbook, 15 August 2016, pg.46.
151     IHS Chemical Methyl Methacrylate – Chemical Economics Handbook, 15 August 2016, pg.46.
                                                    26
 ---pagebreak---         potentially leading to an irrecoverable decrease in upstream sales, and hence
        discouraging the recourse to such strategy in the first place.
(108) Fourth, the Notifying Party argues that even if the merged entity had the incentive to
        completely stop all sales to Allnex’s main competitors, the market would still have
        sufficient spare capacity to supply the vast majority of demand. This is true for
        MMA (Target sales to Allnex competitors: [Target’s volume of sales to Allnex’s
        competitors]; estimated EEA spare capacity [35-40]kt), GMAA (Target sales to
        Allnex competitors: [Target’s volume of sales to Allnex’s competitors]; estimated
        EEA spare capacity [5-10]kt), and HYMA (Target sales to Allnex competitors:
        [Target’s volume of sales to Allnex’s competitors]; estimated EEA spare capacity
        [5-10]kt).152 For BUMA, estimated EEA spare capacity would be slightly smaller
        than the Target’s current sales to Allnex’s competitors ([Target’s volume of sales to
        Allnex’s competitors]; spare capacity [5-10]kt), but the remaining [0-5]kt could be
        purchased from other regions, including through traders.
(109) Fifth, as concerns methacrylamide, the Notifying Party argues that it represents a
        very minor input to coating resins, representing a very small fraction of the total raw
        material costs for development of SB acrylic resins (i.e. <0.0001%), and that
        products using methacrylamide can be reformulated without incurring significant
        costs.
(110) Lastly, the Notifying Party submits that if the merged entity were to attempt an input
        foreclosure strategy, their customers (i.e. coating resin manufacturers) would be able
        to adjust and retaliate in order to make this option unattractive to the merged entity.
        As most customers generally purchase multiple MMA derivatives from the same
        upstream producer, any attempt to foreclose access to any given input would result
        in retaliation from the customers, who could stop purchasing other inputs. In
        addition, customers could easily replace MMA and MMA derivatives in their
        formulas and continue competing in the coating resins market without them within a
        reasonable timeframe. Moreover, as some major customers are integrated upstream
        into MMA or MMA derivatives (e.g. BASF, Arkema, Dow)153, any foreclosure
        strategy would have no effect on them as they would continue having access to the
        MMA derivatives from their own captive production.
5.2.4.2.         The Commission’s assessment
        (a)          General results from the market investigation
(111) This section discusses the general results from the market investigation as regards
        the potential input foreclosure to downstream competitors. The competitive
        assessment of the vertical link between coating resins with each of MMA, GMAA,
        BUMA, HYMA and methacrylamide is presented in the subsequent sections.
(112) Contrary to what is claimed in the Parties’ submissions, the Commission finds that
        the results of the market investigation suggest that MMA and some MMA
        derivatives (and, in particular, GMAA and BUMA) are essential 154 for at least a
152     Form CO, Table 20.
153     Form CO, Table 23.
154     According to paragraph 34 of the Non-Horizontal Merger Guidelines, input foreclosure may raise
        competition problems only if it concerns an important input for the downstream products, which may
        be the case if the input is a "critical component without which the downstream product could not be
        manufactured or effectively sold on the market”.
                                                          27
 ---pagebreak---  ---pagebreak--- (113) The market investigation also confirmed that a significant number of competitors (7)
      are integrated upstream into the production of MMA and other methacrylate
      monomers, though some of them also resort to the merchant market for spot
      purchases of certain MMA derivatives.157 Nearly all downstream coating resins
      competitors engage in a multi-sourcing strategy, with many of them also making use
      of a wide array of traders to procure their requirements. 158 The large majority of
      downstream competitors also purchase a variety of methacrylate monomer types
      from the Target159, thus confirming the Notifying Party’s claim.
(114) The market investigation further indicates that a very large proportion of
      downstream competitors appear to manufacture multiple coating resin chemistries
      and for multiple end-uses.160 Only a single competitor reported producing only one
      type of resin chemistry (WB acrylics),161 which is one in which Allnex does not
      have any significant presence as a competitor.162 Contrary to the Parties’ claims, a
      majority of downstream competitors stated that switching production lines to
      different coating resin chemistries and applications entails significant costs given the
      long and rigorous testing processes and the know-how required.163
(115) In terms of entry, the only significant newcomers into the MMA derivative markets
      in the EEA over the past 5 years were a number of producers with new production
      facilities outside of the EEA in Saudi Arabia (SABIC, Saudi Aramco), China, and
      Brazil (Unigel).164 In addition, Asian producers from China, Japan (Sumitomo) and
      Korea (LG) are expected to expand into the EEA at some point in the future.165
(116) Lastly, a large majority of downstream competitors indicated that the Transaction
      would have no impact on their business.166 In the SB acrylics segment (regardless of
      end-use application), where Allnex has larger market shares, the majority of
      downstream competitors stated that they did not expect the Transaction to bring
      about an increase in price, a drop in quality, or a reduction in customer choice. 167
      Moreover, whereas a majority of coating resin manufacturers suggested that shifting
      sourcing volumes might prove excessively costly in the short-to-medium term,168
      these concerns related primarily to a hypothetical lack of availability in the EEA (i.e.
      due to temporary technical issues at the EEA-based suppliers’ manufacturing
      facilities) and not to the inability of a particular upstream manufacturer to supply
      their demand. In addition, the majority of downstream producers seems to expect
      that the market will remain long and that no major availability issues will arise in the
      medium term.169
157   Responses to Q1 – Questionnaire to Competitors and Customers, questions 1-3 and 20.
158   Responses to Q1 – Questionnaire to Competitors and Customers, question 18.
159   Responses to Q1 – Questionnaire to Competitors and Customers, question 20.
160   Responses to Q1 – Questionnaire to Competitors and Customers, question 28.
161   Responses to Q1 – Questionnaire to Competitors and Customers, question 28.
162   Responses to Q1 – Questionnaire to Competitors and Customers, question 34.
163   Responses to Q1 – Questionnaire to Competitors and Customers, question 29.
164   Responses to Q1 – Questionnaire to Competitors and Customers, questions 12 and 21.
165   Responses to Q1 – Questionnaire to Competitors and Customers, questions 13 and 22.
166   Responses to Q1 – Questionnaire to Competitors and Customers, question 40.
167   Responses to Q1 – Questionnaire to Competitors and Customers, question 38.
168   Responses to Q1 – Questionnaire to Competitors and Customers, question 25.
169   Responses to Q1 – Questionnaire to Competitors and Customers, question 25.
                                                     29
 ---pagebreak---       (b)         Input foreclosure MMA/coating resins
(117) According to the Notifying Party, the Target’s EEA market share in the MMA
      merchant market is [35-40]%, with the closest competitor Lucite having a slightly
      higher [35-40]%, and the remaining [20-25]% being held by a long tail of
      competitors (Arkema ([0-5]% - EU, US), Sumitomo ([0-5]% - Japan, Singapore,
      Saudi Arabia), Unigel (<5 – Brazil, Mexico), Asahi (<5% – Japan, Thailand), Jihua
      (<5% – China), Formosa Plastics (<5% – Taiwan), Sailboat (<5% – China),
      Shangdong Hongzu (<5% – China), Anda Longzing (<5% – China) and Kuraray
      (<5% – Japan)),170 many of whom supply EEA customers via traders. The market
      investigation confirmed these market positions, and indicated that there appears to
      be indeed a long tail of suppliers and traders available to customers in the coating
      resins market.171
(118) Moreover, the results of the market investigation reveal that MMA is considered to
      be an essential component for some but not all of the resin chemistries, namely:
      SB/WB          acrylics,       WB        polyurethane     dispersions,        radiation-curable
      monomers/oligomers/acrylates, and radiation-curable UV-curable polyurethane
      dispersions.172 Conversely, the results of the market investigation also show that
      nearly all downstream coating resins competitors are active across multiple resin
      chemistries and industrial applications (including at least one category where MMA
      is an essential component).173 Consequently,174 any foreclosure attempt on the part
      of the merged entity could turn into a profit-losing strategy as it would have to cover
      virtually the whole range of downstream competitors in order to have any effect on
      the merged entity’s own market position in the downstream markets for coating
      resins.
(119) In addition, the ability of the merged entity to foreclose access to key inputs with a
      view to improving its downstream position would be further constrained by the fact
      that a significant number of downstream competitors are integrated upstream as
      regards the manufacture of MMA. Additionally, even when excluding these
      competitors from the analysis, in the extreme situation where the merged entity
      would completely stop selling MMA to Allnex’s competitors downstream, a
      conservative analysis of the results of the market investigation reveals that there
      would be sufficient spare capacity in the upstream market to cover over 95% of the
      EEA demand previously supplied by the Target to Allnex’s competitors.175 In
      support of this view, a large majority of the surveyed competitors expect that a
      sufficient number of alternative MMA suppliers with the required capacities will
      remain available in the market post-Transaction.176 As a result, it appears unlikely
      that the merged entity would have the ability to foreclose its downstream rivals.
(120) Likewise, it appears unlikely that the combined entity would have the incentives to
      engage in an input foreclosure strategy. This is notably because the market
      investigation has revealed that, on average, gross margins per tonne appear to be
      equal or higher for MMA than for most coating resin chemistries for which MMA is
170   Based on the Notifying Party’s market share estimates.
171   Responses to Q1 – Questionnaire to Competitors and Customers, questions 11 and 20.
172   See Table for further details.
173   See section 5.2.4.2(a), paragraph (114).
174   Responses to Q1 – Questionnaire to Competitors and Customers, question 28.
175   Responses to Q1 – Questionnaire to Competitors and Customers, question 5.
176   Responses to Q1 – Questionnaire to Competitors and Customers, question 39.1.
                                                      30
 ---pagebreak---       considered to be an essential input,177 which would discourage the expansion of the
      merged entity’s position downstream at the expense of its upstream sales. Moreover,
      the market investigation has confirmed that most customers purchasing MMA from
      the Target also purchase other MMA derivatives,178 which supports the Notifying
      Party’s argument that customers could punish the merged entity by discontinuing
      purchases of other MMA derivatives in case of attempt to foreclose the supply of
      MMA.
(121) In view of the above considerations supported by evidence collected over the course
      of the market investigation, the Commission considers that, after the Transaction, the
      merged entity is not likely to have the ability and incentive to foreclose its
      downstream rivals’ access to MMA.
      (c)         Input foreclosure GMAA/coating resins
(122) The results of the market investigation reveal that GMAA is considered to be an
      essential component for some but not all of the resin chemistries: SB/WB acrylics,
      WB polyurethane dispersions, radiation-curable monomers/oligomers/acrylates, and
      radiation-curable glass laminates.179 Conversely, the results of the market
      investigation also show that nearly all downstream competitors are active across
      multiple resin chemistries and end-use applications (including at least one category
      where GMAA is an essential component).180 Consequently,181 any foreclosure
      attempt on the part of the merged entity could turn into a profit-losing strategy as it
      would have to cover virtually the whole range of downstream competitors in order to
      have any effect on the merged entity’s own market position in the downstream
      markets for coating resins.
(123) In addition, the ability of the merged entity to foreclose their access to key inputs
      with a view to improving its downstream position would be further constrained by
      the fact that a significant amount of downstream competitors are integrated upstream
      as regards the manufacture of GMAA. Even, if these competitors were excluded
      from the analysis, the merged entity would still be unlikely to have the ability to
      foreclose its downstream rivals. The Target’s EEA market share in the GMAA
      merchant market is [25-30]%, with the closest competitors being Lucite (UK, [35-
      40]%) and BASF (Germany, [20-25]%), and with a small market share held by Dow
      (USA, [5-10]%) and other manufacturers and traders both from within and outside
      the EEA (7%).182 Being one of three mid-to-large suppliers of GMAA in the EEA,
      the Target by itself is unlikely to have decisive influence over the availability of
      GMAA in the EEA. Moreover, the vast majority of downstream competitors using
      GMAA in their manufacturing process expect that a sufficient number of alternative
      GMAA suppliers with the required capacities will remain available in the market
      post-Transaction.183 As a result, it is unlikely that the merged entity would have the
      ability to foreclose its downstream rivals from access to necessary GMAA inputs.
177   Form CO, Annex 18, Tables 1 and 2, (“Margin Data”); the same question was posed in Q1 –
      Questionnaire to Competitors and Customers (questions 15 and 37) but the results were inconclusive.
178   Responses to Q1 – Questionnaire to Competitors and Customers, question 20.
179   See Table 5 for further details.
180   See section 5.2.4.2(a), paragraph (114).
181   Responses to Q1 – Questionnaire to Competitors and Customers, question 28.
182   Based on the Notifying Party’s market share estimates and confirmed with question 20.1 in Q1 -
      Questionnaire to Competitors and Customers.
183   Responses to Q1 – Questionnaire to Competitors and Customers, question 39.4.
                                                     31
 ---pagebreak--- (124) Likewise, it is unlikely that the merged entity would have the incentives to engage in
      an input foreclosure strategy. This is notably because the market investigation has
      revealed that, on average, gross margins per tonne appear to be higher for GMAA
      than for most coating resin chemistries for which GMAA is considered to be an
      essential input.184 This would discourage the expansion of the merged entity’s
      position downstream at the expense of its upstream sales. Moreover, the market
      investigation has confirmed that all customers purchasing GMAA from the Target
      surveyed also purchase other MMA derivatives from it,185 which supports the
      Notifying Party’s argument that customers could punish the merged entity by
      discontinuing purchases of other MMA derivatives in case of any attempt to
      foreclosure the supply of GMAA.
(125) In view of the above considerations supported by evidence collected during the
      market investigation, the Commission considers that, post Transaction, the merged
      entity is not likely to have the ability and incentive to foreclose its downstream
      rivals’ access to GMAA.
      (d)         Input foreclosure HYMA/coating resins
(126) The results of the market investigation reveal that HYMA is considered to be an
      essential component for two categories of resin chemistries, namely SB and WB
      acrylics. 186 Given that HYMA is only deemed essential for a small share of coating
      resin chemistries, the merged entity’s ability to foreclose its downstream rivals
      would be restricted to these two types of products and the overall impact of a
      hypothetical foreclosure strategy would accordingly be very limited.
(127) According to the Notifying Party, the Target’s EEA market share in the HYMA
      merchant market is [35-40]%, with the closest competitors being GEO (UK, [30-
      35]%) and Nippon Shokubai (Japan, [20-25]%), and with small market shares held
      by Lucite (UK, [0-5]%) and by other manufacturers and traders both from within
      and outside the EEA (4%).187 In contrast, the market investigation suggested that
      GEO might instead be the largest supplier in the EEA.188 Being one of three mid-to-
      large suppliers of HYMA in the EEA, the Target by itself is unlikely to have
      decisive influence over the availability of HYMA in the EEA. Moreover, the ability
      of the merged entity to foreclose access to key inputs with a view to improving its
      downstream position would be further constrained by the fact that a significant
      number of downstream competitors are integrated upstream in the manufacture of
      HYMA. In addition, the large majority of the surveyed downstream competitors
      using HYMA expect that a sufficient number of alternative HYMA suppliers with
      the required capacities will remain available in the market post-Transaction.189 As a
      result, it appears unlikely that the merged entity would have the ability to foreclose
      its downstream rivals.
(128) Likewise, it appears unlikely that the merged entity would have the incentive to
      engage in an input foreclosure strategy in relation to HYMA. This is notably
      because, on average, gross margins per tonne appear to be equal or higher for
184   Form CO, Annex 18, Tables 1 and 2, (“Margin Data”); the same question was posed in Q1 –
      Questionnaire to Competitors and Customers (questions 15 and 37) but the results were inconclusive.
185   Responses to Q1 – Questionnaire to Competitors and Customers, question 20.
186   See Table 5 for further details.
187   Based on the Notifying Party’s market share estimates.
188   Responses to Q1 – Questionnaire to Competitors and Customers, questions 11 and 20.
189   Responses to Q1 – Questionnaire to Competitors and Customers, question 39.2.
                                                      32
 ---pagebreak---       HYMA than for most coating resin chemistries for which HYMA is considered to be
      an essential input.190 This would discourage the expansion of the merged entity’s
      position downstream at the expense of its upstream sales. Additionally, the market
      investigation has confirmed that all customers purchasing HYMA from the Target
      also purchase other MMA derivatives from it (and generally in higher quantities),191
      which supports the Notifying Party’s argument that customers could punish the
      merged entity by discontinuing purchases of other MMA derivatives in case of any
      attempt to foreclose the supply of HYMA.
(129) In view of the above considerations supported by evidence collected during the
      market investigation, the Commission considers that, post Transaction, the merged
      entity is not likely to have the ability and the incentive to foreclose its downstream
      rivals’ access to HYMA.
      (e)         Input foreclosure BUMA/coating resins
(130) The results of the market investigation reveal that BUMA is considered to be an
      essential component for some but not all of the categories of resin chemistries:
      SB/WB          acrylics,         WB      polyurethane      dispersions,         radiation-curable
      monomers/oligomers/acrylates,             radiation-curable      UV-curable         polyurethane
      dispersions, radiation-curable glass laminates.        192   Conversely, the results of the
      market investigation also show that nearly all downstream competitors are active
      across multiple resin chemistries and end-use applications (including at least one
      category where BUMA is an essential component).193 Consequently,194 any
      foreclosure attempt on the part of the merged entity could turn into a profit-losing
      strategy as it would have to cover virtually the whole range of downstream
      competitors in order to have any effect on the merged entity’s own market position
      in the downstream markets for coating resins.
(131) The Target’s EEA market shares in the BUMA merchant market are [40-45]%, with
      the closest competitor being Lucite (UK, [35-40]%), and with small market shares
      held by Dow (USA, [5-10]%) and other manufacturers both from within and outside
      the EEA (16%).195 Despite this market share, the ability of the merged entity to
      foreclose access to key inputs would be constrained by the fact that a significant
      number of downstream competitors are integrated upstream as regards the
      manufacture of BUMA. Moreover, the large majority of the surveyed downstream
      competitors expect that a sufficient number of alternative suppliers for BUMA with
      the required capacities will remain available post-Transaction.196 As a result, it
      appears unlikely that the merged entity would have the ability to foreclose its
      downstream rivals.
(132) Likewise, it appears unlikely that the merged entity would have the incentive to
      engage in an input foreclosure strategy. This is notably because, on average, gross
      margins per tonne appear to be higher for BUMA than for the largest resin chemistry
190   Form CO, Annex 18, Tables 1 and 2, (“Margin Data”); the same question was posed in Q1 –
      Questionnaire to Competitors and Customers (questions 15 and 37) but the results were inconclusive.
191   Responses to Q1 – Questionnaire to Competitors and Customers, question 20.
192   See Table 5 for further details.
193   See section 5.2.4.2(a), paragraph (114).
194   Responses to Q1 – Questionnaire to Competitors and Customers, question 28.
195   Based on the Notifying Party’s market shares and confirmed by question 20.2 in Q1 – Questionnaire
      to Competitors and Customers.
196   Responses to Q1 – Questionnaire to Competitors and Customers, question 39.2.
                                                      33
 ---pagebreak---        markets for which BUMA is considered to be an essential input,197 which would
       discourage the expansion of the merged entity’s position downstream at the expense
       of its upstream sales. Additionally, the market investigation has confirmed that all
       customers purchasing BUMA from the Target also purchase other MMA derivatives
       from it (and generally in higher quantities),198 which supports the Notifying Party’s
       argument that customers could punish the merged entity by discontinuing purchases
       of other MMA derivatives in case of attempt to foreclose the supply of BUMA.
(133) In view of the above considerations supported by evidence collected over during the
       market investigation, the Commission concludes that, post Transaction, the merged
       entity is not likely to have the ability and incentive to foreclose its downstream
       rivals’ access to BUMA.
       (f)           Input foreclosure methacrylamide/coating resins
(134) The results of the market investigation reveal that methacrylamide is not considered
       to be an essential component for any of the categories of resin chemistries.199 In
       particular, the vast majority of downstream competitors indicated that they could
       replace methacrylamide without incurring significant costs.200 Hence, there appears
       to be very limited ability to engage into a foreclosure strategy in relation to
       methacrylamide. Moreover, the small minority of surveyed competitors who
       indicated that switching could entail significant costs are active in markets where
       Allnex does not have a strong presence (e.g. in WB acrylics, where Allnex has a 0-
       5% market share, or in WB PUDs, where Allnex has a 10-15% market share),201
       thereby casting doubt on the merged entity’s incentive to engage in any foreclosure
       strategy vis-à-vis these competitors.
(135) In addition, as a significant amount of downstream competitors are integrated
       upstream in the manufacture of MMA derivatives, including methacrylamide, the
       merged entity would in any event be deprived of the ability to foreclose their access
       to key inputs. Overall, only a small minority of downstream competitors consider
       that they could face a shortage of methacrylamide in the EEA post-Transaction,202
       and that shortage is unlikely to originate from the conduct of the merged entity.203
(136) In view of the above considerations supported by evidence collected during the
       market investigation, the Commission concludes that, after the Transaction, the
       merged entity is not likely to have the ability and incentive to foreclose its
       downstream rivals’ access to methacrylamide.
5.2.5. Conclusion
(137) Taking into consideration the assessments carried out in sections 5.2.2 to 5.2.4
       above, it appears unlikely that the merged entity would have the ability and the
197    Form CO, Annex 18, Tables 1 and 2, (“Margin Data”); the same question was posed in Q1 –
       Questionnaire to Competitors and Customers (questions 15 and 37) but the results were inconclusive.
198    Responses to Q1 – Questionnaire to Competitors and Customers, question 20.
199    See Table 5 – Essential and non-essential MMA and MMA derivatives for coating resins
.
200    Responses to Q1 – Questionnaire to Competitors and Customers, question 30.
201    Responses to Q1 – Questionnaire to Competitors and Customers, question 30.
202    Responses to Q1 – Questionnaire to Competitors and Customers, question 39.5.
203    Shortages of methacrylamide could instead theoretically arise due to non-merger-specific
       circumstances, for instance a widespread shortage in the inputs to MMA, resulting in a subsequent
       tightening of the MMA derivatives market.
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 ---pagebreak---       incentive to foreclose its competitors in the upstream markets for MMA and MMA
      derivatives from their access to an important customer or to foreclose its rivals in the
      downstream markets for coating resins from their access to key inputs (MMA and
      MMA derivatives).
6.    CONCLUSION
(138) 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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