CELEX: 32014M6974
Language: en
Date: 2014-02-05 00:00:00
Title: Commission Decision of 05/02/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.6974 - METINVEST / LANEBROOK / SOUTHERN GOK) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

                                        Brussels, 5.2.2014
                                        C(2014) 740 final

                                        |In the published version of this decision, some information |           |Public version                                                 |
|has been omitted pursuant to Article 17(2) of Council       |           |                                                               |
|Regulation (EC) No 139/2004 concerning non-disclosure of    |           |                                                               |
|business secrets and other confidential information. The    |           |                                                               |
|omissions are shown thus […]. Where possible the information|           |                                                               |
|omitted has been replaced by ranges of figures or a general |           |                                                               |
|description.                                                |           |                                                               |
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|                                                            |           |MERGER PROCEDURE                                               |
|                                                            |           |ARTICLE 6(1)(b) DECISION                                       |

|                                                                       |To the notifying parties                                               |

Dear Sir/Madam,

Subject:    Case No COMP/M.6974 – Metinvest / Lanebrook / Southern GOK
         Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

    1) On 20 December 2013, the European Commission received notification of a proposed  concentration  pursuant  to  Article  4  of  the  Merger
       Regulation by which the undertaking Metinvest B.V. ("Metinvest", Netherlands) acquires within the meaning of Article 3(1)(b) of the Merger
       Regulation joint control together with Lanebrook Limited ("Lanebrook", Cyprus) of open  joint  stock  company  Pivdennyi  Ore  Mining  and
       Processing Plant ("Southern GOK", Ukraine), by way of purchase of shares (the "Transaction").

2) Metinvest, Lanebrook and Southern GOK are hereinafter referred to as “the Parties”.

       THE PARTIES

    3) Metinvest is the holding company of a vertically integrated mining and metals group, with assets in Ukraine, Bulgaria, the United  Kingdom
       and the United States. The Metinvest Group is active in all stages of the steel production and trading chain, from iron ore mining, coking
       coal mining, fluxes and coke production, through to semi-finished and finished steel production and international trading.  The  Metinvest
       group is jointly controlled by System Capital Management Limited ("SCM"), owned by the Ukrainian individual Rinat  Akhmetov,  and  by  the
       Smart Group, owned by the Ukrainian individual […] and the Russian individual […].[2]

    4) Lanebrook is the holding company of the Evraz Group ("Evraz"), a multinational, vertically integrated, steel, mining and vanadium company.
       Evraz is headquartered in London and has operations in the Russian Federation, Ukraine, the European Union, the United States, Canada  and
       South America. Lanebrook is owned by three Russian individuals, Roman Abramovich, Alexander Abramov and Alexander Frolov.

    5) Southern GOK is a Ukrainian iron ore mining open joint stock company.[3] Southern GOK produces iron ore concentrate used to make  sintered
       products, such as sinter and pellets, which are processed further at steel plants. Southern GOK does not produce iron ore  fines.  Sothern
       GOK sells its iron ore products mainly in Asia and eastern Europe, with [50-60]% of sales  going  to  China  and  a  further  [30-40]%  to
       Ukraine. The remaining [10-20]% is sold in the European Union, primarily in eastern Europe. Approximately [90-100]% of the  share  capital
       in Southern GOK is held by four companies,[4] each of which is jointly controlled by Lanebrook and Trosilia Holdings Limited  ("Trosilia")
       on the basis of 50/50 shareholdings. Southern GOK is therefore currently jointly controlled by Lanebrook and Trosilia.

    6) Trosilia is a holding company not engaged in any business activity, except for holding  and  managing  the  shares  of  its  subsidiaries,
       primarily Southern GOK. Trosilia is currently part of the Smart Group.

       THE CONCENTRATION

    7) Pursuant to a Letter of Intent of April 2013 and a Share Subscription Agreement of 25 October 2013, Metinvest will  acquire  100%  of  the
       shares in Trosilia.[5] Through the acquisition Metinvest will replace Trosilia  in  its  role  as  controlling  shareholder  in  the  four
       companies holding shares in, and controlling, Southern GOK.

    8) Metinvest will therefore acquire joint control over Southern GOK together with Lanebrook which constitutes  a  concentration  pursuant  to
       Article 3(1)(b) of the Merger Regulation.

       EU DIMENSION

    9) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million[6] (Metinvest: EUR […], Lanebrook:
       EUR […], Southern GOK: EUR […]).  Two of them have an EU-wide turnover in excess of  EUR  250  million  (Metinvest:  EUR  […],  Lanebrook:
       EUR […]), and each of the undertakings concerned does 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 within the meaning of Article 1(2) of the Merger Regulation.

       ASSESSMENT

1 Relevant Market

1 Iron ore

   10) The Parties’ activities in the iron ore sector overlap in the production and sale of iron ore fines, iron  ore  concentrate  and  to  some
       extent iron ore pellets.

1 Relevant product markets

   11) Iron ore is mainly used in steel production. Iron ore products are generally classified into five categories:  fines,  concentrate,  lump,
       pellets and sinter. Fines, concentrate and lump are produced by crushing  and  grinding  larger  pieces  of  iron  ore  through  different
       processes. Due to their larger size, lumps can be used directly in blast furnaces for pig iron[7] production. In contrast,  due  to  their
       small size, fines and concentrates have to be agglomerated and processed into sinter or pellets before being used in pig iron  production.
       Both fines and, to a more limited extent, concentrate are used for the production of sinter  whilst  only  concentrate  is  used  for  the
       production of pellets.[8] An alternative to pig iron production in the steel production value chain is the use of direct reduction  plants
       which require specific direct reduction iron ores (“DR iron ores”) which can also take different forms such as fines, lump and pellets.[9]

   12) The Commission has previously considered that iron ore (i) fines, (ii) lump, and (iii) pellets each constitute a separate  product  market
       on the basis of the differences in their production, their uses and their prices.[10] The Commission has also previously  observed  strong
       indications that DR iron ores formed separate product markets.[11]

   13) The Parties submit that there is a single market for iron ore, without further segmentation into fines,  concentrate,  pellets,  lump  and
       sinter. The Parties argue that various forms of iron ore have a certain degree of substitutability and that customers can switch from  one
       product to another.

   14) As regards fines and concentrates in particular, the  Parties  submit  that  both  products  have  similar  parameters  and  can  be  used
       interchangeably by steel companies that have their own in-house sintering machines. According to the  Parties,  steel  companies  can  use
       fines and concentrate in the proportion that they consider the best for the preparation of  their  sinter/pellets  charge  for  the  blast
       furnace without additional costs or changes to the technological process (e.g. 100% fines, 100% concentrate or a mixture  of  the  two  in
       various proportions).

   15) As regards sinter, pellets and lump in particular, the Parties submit that steel  companies  that  use  blast  furnaces  can  use  sinter,
       pellets, or a mixture of the two in any proportion as well as lump as feed for the blast furnace.

   16) Moreover, the Parties consider that since most large steel plants  in  Europe  have  their  own  sintering/pelletising  facilities,  these
       customers have a choice of buying the unprocessed fines and concentrates or the processed sinter/pellets  (or  lumps).  According  to  the
       Parties, steel mills generally switch the proportions of what they buy depending on factors such  as  changes  of  market  prices  of  the
       various iron ore products, introduction of a new quality of iron ore/depletion of an existing mine or even technology development.

   17) During the market investigation, customers indicated that iron ore fines and concentrate are substitutable within  a  certain  proportion,
       but not entirely since this can have a negative impact on productivity.[12] Customers were divided as to whether they would  switch  their
       purchases to concentrate in case of a 5-10% permanent price increase in iron ore fines.[13] Most  customers,  however,  stated  that  they
       would switch their purchases to iron ore fines in case of a 5-10% permanent price increase in concentrate.[14]

   18) In any event, for the purpose of the present case, the exact product market definition regarding iron ore can be left open given  that  no
       competition concerns arise under any plausible market definition.

2 Relevant geographic markets

   19) In previous decisions, the Commission defined a separate geographic market for global customers of iron ore products  that  are  fully  or
       partly dependent on seaborne supplies. That geographic market principally included customers from western Europe and eastern Asia, such as
       for example Japan, with almost no indigenous iron ore production.[15] The Commission concluded  that  the  conditions  of  competition  in
       seaborne areas were specific to them, and that accordingly the supply  of  the  different  types  of  iron  ore  to  such  seaborne  areas
       constituted a geographic market distinct from the supply of ores to non-seaborne areas.

   20) The Parties submit that the relevant geographical market for all iron ore products is worldwide, characterised by  extensive  trade  flows
       between the European Union (“EU”) and other jurisdictions. According to the Parties, transport by rail and ship both require substantially
       the same effort and capacity to deliver products from supplier to customer, with similar cost of transport. The Parties consider that  the
       global character of the iron ore markets derives from the global dimension of the downstream steel markets; prices are  based  on  general
       market conditions in the global market and not determined by local factors. They submit that EU customers are capable of  procuring  their
       iron ore from a plurality of suppliers all over the world. The Parties acknowledge that traditionally,  western  European  countries  have
       relied more on seaborne supplies  whereas  eastern  European  countries  have  largely  relied  on  non-seaborne  supplies  from  the  CIS
       ("Commonwealth of Independent States") countries. At the same time, the Parties note that this line  has  become  blurred  across  the  EU
       countries, in that seaborne and non-seaborne suppliers pose a growing competitive constraint on each other.

   21) Furthermore, the Parties submit that iron ore fines and concentrate can be freely imported into the European  Economic  Area  (“EEA”)  and
       there is no specific import duty or quota for these products from Ukraine or Russia. Iron ore fines and concentrate are  transported  into
       the EEA via sea and land and the Parties claim that both seaborne and non-seaborne iron ore suppliers have  well-developed  facilities  to
       transport iron ore to the EEA region over long distances. According to the  Parties,  competitors  from  Brazil,  Australia  and  the  CIS
       countries (former Soviet Republics) can easily compete with them and the costs of transport do not act as a barrier to imports of iron ore
       fines/concentrate to the EEA. The Parties also note that their price levels for iron ore fines and concentrate are in line  with  relevant
       price indicators in the global industry.

   22) The Commission considers that given that most iron ore products imported into  eastern  Europe  come  from  Russia  and  Ukraine,  if  the
       transaction were to have any effect, those effects would most likely arise in respect of the steel producers located  in  eastern  Europe.
       Therefore, the narrowest plausible market definition would encompass the cluster of  eastern  European  non-seaborne  countries  including
       Poland, Czech Republic, Slovakia, Slovenia, Bulgaria, Hungary, Romania, Austria and Croatia ("Eastern EU  Countries"),  which  rely  to  a
       significant extent on non-seaborne supplies, mainly from Russia and Ukraine.

   23) The market investigation indicated that the majority of customers in Eastern EU Countries currently purchase some iron ore  from  seaborne
       origins.[16] Most customers in Eastern EU Countries also stated that they can purchase iron ore fines and concentrate from many  different
       origins.[17] Customers also noted, however, that there are differences in the properties and  qualities  of  iron  ore  depending  on  its
       origin.[18]

   24) In any event, for the purpose of the present case the exact geographic market definition regarding iron ore can be left open given that no
       competition concerns arise under any plausible market definition.

2 Steel

   25) Metinvest and Lanebrook are also active in the steel sector in the EEA and worldwide. In contrast, Southern GOK is  not  active  in  steel
       production.

1 Relevant product markets

   26) As regards the production and direct sale of steel, in previous decisions, the Commission distinguished four broad categories of  finished
       steel products due to differences in terms of chemical composition, price and end applications: (i) carbon steel;  (ii)  stainless  steel;
       (iii) highly alloyed steel; and (iv) electrical steel.[19] Metinvest's and Lanebrook's activities overlap only in carbon steel products.

   27) In previous decisions, the Commission also found that semi-finished carbon steel products and finished carbon  steel  products  constitute
       two separate product markets.[20] Furthermore, the Commission considered the following possible sub-segments of the markets:[21]

         – semi-finished carbon steel products:

              i. blooms;

             ii. billets; and

            iii. slabs.

         – finished carbon steel products:

              i. flat carbon steel products, which may be sub-divided into hot rolled,  cold  rolled  and  coated  carbon  steel  products  (with
                 potential further segmentation of the latter) plus other flat steel products; and

             ii. long steel products, which may be sub-divided into wire rod, merchant bars, sections, drawn wire products, etc.

   28) The Parties did not make any submission regarding possible product market definitions in the steel  sector.  They  did,  however,  provide
       market information on the basis of the Commission’s product market findings in past decisions (see paragraph (27) above).

   29) In any event, for the purpose of the present case the exact product market definition regarding steel can  be  left  open  given  that  no
       competition concerns arise under any plausible market definition.

2 Relevant geographic markets

   30) In its previous decisions the Commission has generally considered that the relevant geographical market for carbon steel products is  EEA-
       wide or at least EEA-wide.[22]

   31) The Parties submit that the relevant geographic markets for steel products (as defined in past Commission decisions) should be  viewed  as
       worldwide. According to the Parties: (i) these markets are characterised by extensive trade flows between the EU and other  jurisdictions;
       (ii) at least the largest customers and suppliers operate on an international/global level; (iii) products are largely  commoditised;  and
       (iv) price levels are relatively comparable across jurisdictions and dependent on the conditions of competition at a global level.

   32) In any event, for the purpose of the present case the exact geographic market definition regarding steel can be left open  given  that  no
       competition concerns arise under any plausible market definition.

2 Competitive Assessment

   33) The proposed transaction will lead to horizontal overlaps between the Parties' activities in the area of iron  ore  production  and  steel
       production as well as vertical links between iron ore products and steel production.[23]

1 Horizontal overlaps in iron ore

   34) The Parties have only limited sales of iron ore pellets and sinter, and there is no overlap as regards iron ore lump.[24] The key overlaps
       therefore arise in iron ore concentrate (between Metinvest and Southern GOK)  and  fines  (between  the  parent  companies  Metinvest  and
       Lanebrook, through its subsidiary Evraz).

   35) If the relevant geographical markets were global, the transaction would not  lead  to  any  affected  markets  under  any  product  market
       definition.

   36) On the narrowest plausible geographic and product market basis, affected markets would arise in the following segments:

              i. iron ore fines in non-seaborne Eastern EU Countries, with a combined market share of approximately [30-40]% and an increment  of
                 approximately [5-10]%; and

             ii. iron ore concentrate in non-seaborne Eastern EU Countries, with a  combined  market  share  of  approximately  [30-40]%  and  an
                 increment of approximately [10-20]%.

Table 1. Estimated market shares in sales of iron ore products in 2012:
|                 |Worldwide/EEA                                                   |Non-seaborne Eastern EU Countries                               |
|                                           |Metinvest        |Evraz           |S. GOK            |
|Semi-finished steel products                                                                     |
|Billets                                    |[0-5]%           |[10-20]%        |[10-20]%          |
|Slabs                                      |[10-20]%         |[0-5]%          |[10-20]%          |
|Finished flat steel products                                                                     |
|Hot-rolled flat steel products             |[0-5]%           |[0-5]%          |[0-5]%            |
|Finished long steel products                                                                     |
|Reinforcing bars                           |[0-5]%           |[0-5]%          |[0-5]%            |

        Source: Parties’ submissions in Annex 23 to the Form CO based on various industry reports.

   37) In view of the above, in particular given the limited increment of the Transaction, the fact that the horizontal overlap in steel concerns
       solely the parent companies of Southern GOK, and the existence of significant competitors, the Commission considers that  the  Transaction
       will not lead to a significant impediment of effective competition regarding steel under any plausible market definition.

2 Vertically affected markets

   38) The transaction will also lead to vertically affected markets for the production of iron ore fines and concentrate on the one hand and the
       production of the various steel products on the other.

   39) The Parties' combined market shares are, however, limited in the downstream steel product markets and the Parties' market share  is  above
       [30-40]% only on a hypothetical market for concentrates in Eastern EU Countries. Thus, the Transaction will not give rise  to  foreclosure
       effects. Moreover, both Metinvest and Evraz are already vertically integrated companies and the acquisition of joint control over Southern
       GOK will not significantly increase this vertical integration.

   40) In view of the above, the Commission considers that under any plausible market definition, the Transaction will not lead to a  significant
       impediment of effective competition regarding vertically affected markets for the production of iron ore fines and concentrate on the  one
       hand and the production of steel products on the other.

       CONCLUSION

   41) For the above reasons, the European Commission has decided not to oppose the notified operation and to  declare  it  compatible  with  the
       internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation.

                                        For the Commission

                                        (signed)
                                        Joaquín ALMUNIA
                                        Vice-President
-----------------------
[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]   The acquisition of joint control over Metinvest by SCM and the Smart Group was the subject of Case COMP/M.5251 - System Capital Management-
       Energees/Metinvest.

[3]   An open joint stock company is a type of company in many successor states of the Soviet Union, in particular in  Russia  and  Ukraine.  Its
       distinguishing feature is the right of stockholders to trade in stocks without the permission of  other  stockholders.  Open  joint  stock
       societies are somewhat comparable to limited liability partnerships or corporations under US law.

[4]   These four companies are [three Cypriot companies and a Ukrainian company].The remaining [5-10]% is held by a  large  number  of  dispersed
       shareholders.

[5]   Due to Trosilia’s 50% shareholding in the four companies holding shares in Southern GOK, Metinvest will thus acquire an indirect  stake  of
       approximately 46.15% in Southern GOK.

[6]   Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the  Commission  Consolidated  Jurisdictional  Notice  (OJ
       C95, 16.04.2008, p1).

[7]   Pig iron is liquid iron typically containing 95% iron and serves as an input product in carbon steel making.

[8]   Form CO, section 6.

[9]   M.2420 – Mitsui/CVRD/Caemi, Commission decision of 30 October 2001, paragraph 27.

[10]  M.4137 – Mittal/Arcelor, Commission decision of 2 June 2006, paragraph 78; M.3161 –  CVRD/Caemi,  Commission  decision  of  18  July  2003,
       paragraph 12; M.2420 – Mitsui/CVRD/Caemi, Commission decision of 30 October 2001, paragraphs 97-132; this  question  was  previously  left
       open in case M.2062 – Rio Tinto/North, Commission decision of 1 August 2000, paragraphs 18-20.

[11]  M.4137 Mittal/Arcelor, Commission decision of 2 June 2006, paragraph 78;  M.3161  –  CVRD/Caemi,  Commission  decision  of  18  July  2003,
       paragraph 16; M.2420 – Mitsui/CVRD/Caemi, Commission decision of 30 October 2001, paragraphs 133-139.

[12]  Replies to Question 4 of Questionnaire Q1 sent by the Commission to customers of the Parties on 20 December 2013.

[13]  Replies to Question 6 of Questionnaire Q1 sent by the Commission to customers of the Parties on 20 December 2013.

[14]  Replies to Question 7 of Questionnaire Q1 sent by the Commission to customers of the Parties on 20 December 2013.

[15]  M.4137 – Mittal/Arcelor, Commission decision of 2 June 2006, paragraph 78; M.3161 –  CVRD/Caemi,  Commission  decision  of  18  July  2003,
       paragraph 17; M.2420 Mitsui/CVRD/Caemi, Commission decision of 30 October 2001, paragraphs 141-164.

[16]  Replies to Question 8 of Questionnaire Q1 sent by the Commission to customers of the Parties on 20 December 2013.

[17]  Replies to Question 9 of Questionnaire Q1 sent by the Commission to customers of the Parties on 20 December 2013.

[18]  Replies to Questions 10 and 13 of Questionnaire Q1 sent by the Commission to customers of the Parties on 20 December 2013.

[19]  See M.4137 – Mittal/Arcelor, Commission decision of 2 June 2006, paragraph 9, with further references

[20]  Ibid.

[21]  See M.5771 – CSN/Simpor, Commission decision of 15 February 2010, paragraphs 17-19; M.4137 – Mittal/Arcelor, Commission decision of 2  June
       2006, paragraphs 13-61; IV/ECSC 1351 – Usinor/Arbed/Aceralia, Commission decision of 21 November 2001, paragraphs 32-33; IV/M.925 – Krupp-
       Hoesch/Thyssen (IV/ECSC.1243), Commission decision of 11 August 1997, paragraphs 16-20.

[22]  See M.5771 – CSN/Simpor, Commission decision of 15 February 2010, paragraph 20; M.4137 – Mittal/Arcelor,  Commission  decision  of  2  June
       2006, paragraphs 62-70.

[23]  A vertical link will also be created between the parent companies Metinvest and Lanebrook in that Metinvest has  minor  activities  in  the
       distribution of steel, which can be seen to be downstream from the production of steel. Metinvest's market share in the steel distribution
       sector does not, however, exceed [0-5]% under any plausible market definition and therefore no affected  market  arises  with  respect  to
       these distribution activities.

[24]  Iron ore lump is sold only by Metinvest and not by either Lanebrook’s subsidiary Evraz, or by Southern GOK.

[25]  The Parties estimate there to be 31 billion tonnes of reserves of  the  overall  explored  projects/deposits  throughout  Ukraine,  and  65
       billion tonnes in the Kursk Magnetic Anomaly area of Russia (leaving aside further significant deposits in other Russian regions), not  to
       mention the deposits that are at the exploration stage (for which in Ukraine the Parties identified approximately 8 billion tonnes).

[26]  Replies to Question 16 of Questionnaire Q1 sent by the Commission to customers of the Parties on 20 December 2013.

[27]  Replies to Questions 14 and 15 of Questionnaire Q1 sent by the Commission to customers of the Parties on 20 December 2013.