CELEX: 32021M10503
Language: en
Date: 2021-12-09 00:00:00
Title: Commission Decision of 09/12/2021 declaring a concentration to be compatible with the common market (Case No COMP/M.10503 - SK CAPITAL / SEQENS) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 09.12.2021
                                                                 C(2021) 9280 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                                                                  information omitted has been replaced by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.
                                                                 SK Capital Partners
                                                                 430, Park Ave
                                                                 New York, NY 10022
                                                                 United States of America
Subject:             Case M.10503 – SK CAPITAL PARTNERS / SEQENS
                     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 8 November 2021, the European Commission received notification of a proposed
           concentration, pursuant to Article 4 of the Merger Regulation, by which SK Capital
           Partners, LP (“SKCP”, US) acquires control of the whole of Seqens Group Holding
           SAS (“Seqens”, France) by way of purchase of shares (the “Transaction”), 3 within
           the meaning of Article 3(1)(b) of the Merger Regulation. SKCP is designated
           hereinafter as the “Notifying Party” and together with Seqens as the “Parties”.
1     OJ L 24, 29.1.2004, p. 1 (the ’Merger Regulation’). With effect from 1 December 2009, the Treaty on the
      Functioning of the European Union (the ‘TFEU’) has introduced certain changes, such as the replacement
      of ‘Community’ by ‘Union’ and ‘common market’ by ‘internal market’. The terminology of the TFEU
      will be used throughout this decision.
2     OJ L 1, 3.1.1994, p. 3 (the ‘EEA Agreement’).
3     Publication in the Official Journal of the European Union No C 463, 16.11.2021, p. 22.
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--- 1.      THE PARTIES
(2)     SKCP is a private investment firm focused on the specialty materials, chemicals and
        pharmaceutical sectors. SKCP is active globally, through its portfolio companies,
        with a specific focus on North America, the EEA, the Middle East and Australia.
(3)     Seqens engages, through its subsidiaries, in the business of the international
        manufacturing and sales of diversified essential chemicals, pharmaceutical solutions
        and specialty ingredients that are used in everyday products. Seqens is mainly active
        in the EEA, Asia Pacific and North America.
2.      THE CONCENTRATION
(4)     Pursuant to a put option agreement dated 25 August 2021, to which an agreed share
        and purchase agreement is attached, SKCP is acquiring indirect sole control over the
        Target. SKCP has committed to acquire […] of the shares of Seqens. The acquisition
        will be carried out through one of SKCP’s affiliates, […],4 and through the special
        purpose vehicles indirectly controlled by […], notably […], which are ultimately
        controlled by funds managed by SKCP (the “SK Funds”). At present, […] controls
        […], which is the indirect purchaser of the entire share capital of the Target through
        the abovementioned special purpose vehicles.5
(5)     At closing of the Transaction, the SK Funds will hold […] of the shares of Seqens
        among which […] (holding approximately […] of the shares of […]), which is
        ultimately controlled by […]. The remaining shares in Seqens will be held by BPI
        France ([…]), Seqens Rolling Shareholders (incl. affiliates of Eurazeo Nov Santé
        ([…]), LH Seqens ([…])), Ardian ([…]) Mérieux Participations 2 ([…]), Mérieux
        Développement ([…]), MxCA ([…]) and Crusader/Eximium ([…]), Wavelength
        management ([…]) and Seqens management (up to […] depending on the final
        amount of each manager’s reinvestment). None of those indirect shareholders will
        hold any veto rights or other rights enabling them to exercise control over Seqens. 6
(6)     Pursuant to clause 4.1 of the share purchase agreement, SKCP will acquire the entire
        issued share capital and voting rights of Seqens for an aggregate consideration of
        EUR […] subject to certain adjustments mechanisms. […].
(7)     SKCP will therefore solely control Seqens within the meaning of Article 3(1)(b) of
        the Merger Regulation.
3.      UNION DIMENSION
(8)     The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 5 000 million (SKCP: EUR 8,194 million, Seqens: EUR 794
        million)7 . Each of them has a Union-wide turnover in excess of EUR 250 million
        (SKCP: EUR […], Seqens: EUR […]), but they do not achieve more than two-thirds
4   […].
5   […].
6   Notifying Party’s response to RFI 3, question 8.
7   Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                          2
 ---pagebreak---           of their aggregate Union-wide turnover within one and the same Member State. The
          Transaction therefore has a Union dimension.
4.        OVERVIEW OF AFFECTED MARKETS
(9)       The Transaction relates to the following markets: (i) the supply of Active
          Pharmaceutical Ingredient (API) Contract Development and Manufacturing
          Organisation (CDMO)8 services; (ii) API manufacturing on a proprietary basis; (iii)
          the supply of phenol; (iv) the supply of acetone; (v) the supply of lubricant additives;
          (vi) the supply of cosmetic ingredients; and (vii) the supply of alkylphenols.
(10)      Of those markets, the Transaction leads to the following vertically affected markets:
           Supply of phenol (upstream) and the following alkylphenol markets downstream:
                        a. Paranonylphenol (“PNP”)
                        b. Para-ter-butylphenol (“PTBP”)
                        c. 2,4-di-tert-Butylphenol (“2,4-DTBP”)
                        d. 2,6-di-tert-Butylphenol (“2,6-DTBP”)
                        e. Di-sec-butylphenol (“DSBP”)
                        f. Ortho-sec-Butylphenol (“OSBP”)
(11)      The activities of the Parties have so far not been horizontally overlapping. Hence, the
          Transaction does not relate to markets that are currently horizontally affected. 9
5.        M ARKET DEFINITIONS
    5.1.      Phenol
(12)      In terms of product market, phenol is a white, crystalline solid that is often
          transported in a molten state. Phenol is a commodity raw material which is used to
          produce bisphenol-A (BPA, which accounts for ca. 50% of phenol demand in the EU
          in 2020), phenolic resin, caprolactam (which is used to make 6-nylon fibres,
8    API CDMO services consist in the outsourcing of the manufacturing process of a given drug to a third
     party or parties.
9    SKCP is active as a supplier of propofol through its portfolio company SI Group. Seqens is currently not
     active in supplying propofol, but has plans to enter the market. As a result, there is a potential future
     horizontal overlap due to pipeline competition. However, SI Group currently has market shares in the
     narrowest plausible market (propofol in the EEA) of at most [20-30]% (by volume), i.e. below the 35%
     threshold that the Commission has applied in previous cases of pipeline -to-marketed competition (e.g.
     COMP/M.7975 – Mylan/Meda, paragraph 581), and Seqens’ market entry is currently foreseen in 2024,
     i.e. more than two years away (two years being the threshold applied in previous cases). In any case, the
     following competitors of propofol will remain active post-Transaction in the EEA: Bachem with a market
     share of 50-60% and AMRI Euticals with a market share of 20-30%. Apart from that, Porton is currently
     not active in the EEA but has a market share of 0-10% globally.
                                                          3
 ---pagebreak---          engineering resins and film) and as a slimicide, disinfectant and an anastaethic in
         medicinal preparations.10
(13)     The Commission has considered different product market definitions comprising
         phenol in the past: i) a wider product market consisting of phenol, acetone,
         alphamethylstyrol and acetophenol11 and ii) a narrower product market consisting
         only of phenol.12
(14)     The Commission notes that acetone is a by-product of producing phenol using the
         cumene-phenol method, which would point to a broader market from a supply side
         perspective. However, acetone can also be produced from isopropyl alcohol, and
         from a demand side perspective, there is only very limited substitutability between
         some of the above-mentioned chemicals. In particular for phenol, there is no
         substitute, except in the production of nylon.13 This would therefore rather point to a
         distinct market for phenol.
(15)     For the present case, the definition of the exact product market can be left open, as
         even under the narrower product market definition (i.e. phenol), no competition
         concerns would arise.
(16)     In terms of geographic market, the Commission has left the geographic market
         definition for phenol open, but considered in past decisions that the scope could be
         wider than Western Europe.14 Responses to the market investigation suggested that
         the market is at most EEA-wide and could potentially be more limited while no
         respondent indicates that the phenol market may be national.15
(17)     For the present case, the definition of the exact geographic market can be left open,
         as even under the narrower market definition (i.e. Western Europe), no competition
         concerns would arise.
    5.2.     Alkylphenols
(18)     In terms of product market, alkylphenols are phenol derivatives that are mainly used
         as raw materials in the production of several industrial products such as surfactants,
         detergents, emulsifiers, solubilizers and polymer additives. The category of
         alkylphenols comprises 30 different products.
(19)     The Commission has previously considered the broad market of alkylphenols as
         potentially a distinct market.16 The Notifying Party submits that on a conservative
         basis, the market can be defined at the product level for each of SI Group’s products
         belonging to the category of alkylphenols (further defined in sections 5.3 – 5.7),
         where SI Group has a market share of above 30%.
10   See e.g. COMP/M.6171 IPIC/CEPSA, paragraph 10.
11   COMP/M.439 - Hüls/Phenolchemie, paragraph 8.
12   COMP/M.3024 – BAIN Capital/Rhodia, paragraph 12.
13   COMP/M.3024 – BAIN Capital/Rhodia, paragraph 12.
14 ` COMP/M.6171 IPIC/CEPSA, paragraph 18.
15   Responses to question 5 from phenol suppliers received on 12 November 2021.
16   COMP/M.9017 - SK Capital Partners/Schenectady International Group, paragraph 47.
                                                          4
 ---pagebreak--- (20)    Given that in this case the Commission assesses the relationship between
        alkylphenol markets and the phenol market upstream, and that phenol is a
        commodity which is supplied in the same quality for all applications (including
        alkylphenols)17 , it does not seem to be relevant to conclude on whether the market of
        alkylphenols is broad comprising all alkylphenols or narrow, consisting of distinct
        products.
(21)    For the present case, the definition of the exact product market can be left open, as
        even under the narrower product market definition (i.e. individual alkylphenols), no
        competition concerns would arise.
(22)    In terms of geographic market, the Commission has not previously considered a
        geographic market for all alkylphenols. However, the Commission has considered
        geographic markets for several individual alkylphenols (see references in sections
        5.3-5.7 below).
(23)    The Notifying Party submits that in line with the geographic market being at least
        EEA-wide for individual alkylphenols (see sections 5.3-5.7 below), the geographic
        market for the broader category of all alkylphenols should be considered at least
        EEA-wide too.
(24)    The Commission notes that individual alkylphenols further defined below are used
        as input in the production of different end-products or intermediate products and it is
        unclear to what extent different alkylphenols are substitutable for different use cases.
        However, for the purpose of assessing the affected markets of phenol as an input
        upstream and several alkylphenols downstream, the exact market definition of i) all
        alkylphenols or ii) individual alkylphenols has no impact on the Commission’s
        assessment and can therefore be left open.
   5.3.    Paranonylphenol (“PNP”)
(25)    In terms of product market, PNP is a chemical intermediate for the production of
        antioxidants, additives and other downstream chemical products. All commercially
        used PNP is produced from nonene based on the trimerization of propylene. The
        Commission has not previously explicitly considered a market for PNP, but the
        Notifying Party submits that, in previous decisions involving chemical intermediate
        products, the Commission found separate markets for chemical intermediates that
        exhibit distinct chemical compositions or product characteristics. 18 In addition,
        according to the Notifying Party there is no plausible distinction by use cases for
        PNP on the basis of which there could be different markets. Indeed, although PNP is
        sold into several applications (namely (i) oilfields resins, (ii) mining, (iii) ink resins
        and (iv) surfactants) and the same quality of PNP is used in all applications. 19 The
        Commission received no feedback from the market contradicting this view and
        therefore considers that for the purpose of this case the market of PNP is a separate
        market without further distinctions.
17  Responses to questions 3 and 4 from phenol suppliers received on 12 November 2021.
18  COMP/M.7858, Ineos/Celanese Assets, paragraph 30.
19 Notifying Party’s response to RFI 3, question 2.
                                                         5
 ---pagebreak--- (26)     In terms of geographic market, the Commission has not considered the market for
         PNP specifically in previous decisions. However, the Notifying Party submits that,
         in previous decisions involving chemical intermediates, the Commission concluded
         that the market was not broader than the EEA due to transport costs.20 In that
         particular case, the majority of competitors and customers agreed on the geographic
         market being EEA-wide in scope. The Notifying Party submits that PNP is easily
         transportable.21 The Commission received no feedback from the market
         contradicting this view and therefore considers that, for the purpose of this case, the
         scope of the geographic market for PNP is EEA-wide, but considers that the
         definition can be left open, as no competition concerns would arise regardless of the
         geographic market definition (EEA-wide or narrower).22
   5.4.      Para-ter-butylphenol (“PTBP”)
(27)     In terms of product market, PTBP is a chemical intermediate belonging to the group
         of alkylphenols, which is created by reacting phenol with high purity isobutylene.
         PTBP is used in the production of surfactants, tackifier resins, ink resins and as
         polycarbonate chain terminator. In a previous case, the Commission’s market
         investigation provided evidence that neither supply nor demand side substitutability
         exists regarding PTBP, as it cannot be easily replaced by other products and
         suppliers use dedicated equipment for the manufacturing of this chemical.23
         However, the Commission did not conclude on the product market definition of
         PTBP in that case. According to the Notifying Party there are two grades of PTBP
         (polymer grade and resin grade) which are however both produced and marketed by
         all competitors, and would hence not lead to a plausible narrower market
         definition.24 The Commission received no market feedback that would contradict
         this claim. For the purpose of the present case, the Commission therefore considers
         the market to consist of PTBP without further distinctions, but the product market
         definition can be left open, as no concerns arise regardless of the exact product
         market ((i) PTBP or (ii) PTBP polymer grade and PTBP resin grade).
(28)     In terms of geographic market, the market investigation in a previous case provided
         evidence that the geographic scope of the market for PTBP is at least EEA-wide and
         possibly global.25
(29)     However, the Commission did not conclude on geographic market definition in that
         case. The Commission considered in that case that PTBP is easily transportable and
         transport costs and import duties are low. 26 The Commission received no feedback
         from the market contradicting this view in this case and, therefore, for the purpose of
         this case, it considers that the geographic scope for the plausible markets of PTBP,
         PTBP polymer grade and PTBP resin grade could be EEA-wide. However, the
         definition can be left open, as no competition concerns would arise regardless of the
20  COMP/M.7858, Ineos/Celanese Assets, paragraph 42.
21  Notifying Party’s response to RFI 3, question 2.
22  Notifying Party’s response to RFI 5, question 1. Specifically, the Notifying Party confirmed that the
    Parties’ market shares would not significantly change should the market for PNP be considered as national
    in scope.
23  COMP/M.9017 - SK Capital Partners/Schenectady International Group, paragraph 168.
24  Notifying Party’s response to RFI 3, question 3.
25  COMP/M.9017 - SK Capital Partners/Schenectady International Group, paragraph 170.
26  COMP/M.9017 - SK Capital Partners/Schenectady International Group, paragraph 171.
                                                         6
 ---pagebreak---          exact product (PTBP or narrower) or geographic market definitions (EEA-wide or
         global).27
   5.5.      2,4-di-tert-Butylphenol      (“2,4-DTBP”)          and    2,6-di-tert-Butylphenol         (“2,6-
             DTBP”)
(30)     In terms of product market, 2,4-DTBP and 2,6-DTBP are organic compounds that
         belong to the group of alkylphenols. 2,6 DTBP is used in different concentrations
         either as intermediate raw material (with 99% 2,6 DTBP content) in the production
         of antioxidants or as a standalone antioxidant (with 75% 2,6-DTBP content). 2,4
         DTBP is used in the synthesis of a range of different secondary antioxidants or other
         chemical products.
(31)     The Commission previously considered whether 2,4 and 2,6 DTBP belong to the
         same or different product markets, finding some evidence for limited substitutability
         both on the supply and demand side, but left the definition open.28 The Commission
         received no market feedback indicating that the markets for 2,4 and 2,6 DTBP are
         separate or belong to the same market, or an even wider market of alkylphenols.
         Conservatively, the Commission considers the market in the present case at the level
         of the individual alkylphenols separately, i.e. i) 2,4 DTBP and ii) 2,6 DTBP.
         However, a conclusion on the exact product market definition of i) 2,4-DTBP, ii)
         2,6-DTBP or iii) 2,4 DTBP and 2,6 DTBP is not necessary as no concerns arise
         regardless of the definition.
(32)     In terms of geographic market, the Commission has not previously concluded on the
         scope for the market of 2,4-DTBP or 2,6-DTBP. However, the Commission found
         evidence supporting an at least EEA-wide market, and potentially a global market.29
         For the purpose of the present case, the Commission considers the market to be
         EEA-wide in scope. However, there is no need to conclude on the geographic market
         definition for the plausible markets of i)2,4-DTBP, ii) 2,6-DTBP or iii) 2,4 and 2,6
         DTBP, as no concerns arise regardless of a wider (global) or narrower (EEA-wide)
         market definition.
   5.6.      Di-sec-butylphenol (“DSBP”)
(33)     In terms of product market, DSBP also belongs to the group of alkylphenols and is
         manufactured by reacting Butene-1 with phenol. DSBP is mainly used as a bespoke
         wetting agent for various herbicides. In a previous case, the Commission left the
         product market definition for DSBP open. The Notifying Party submits that no
         segmentation based on grade or other criteria is relevant in the case of DSBP. The
         Commission received no market feedback indicating the contrary.
(34)     Given that SI Group is the only supplier globally of DSBP and no concerns arise
         with respect to the specific relationship in this case regardless of this market
         position, the Commission considers for the purpose of this decision the market of
         DSBP.
27  Notifying Party’s response to RFI 5, question 2. Specifically, the Notifying Party confirmed that the
    Parties’ market shares for the plausible markets of PTBP, PTBP polymer grade and PTBP resin grade
    would not significantly change considering either an EEA -wide or global-wide scope of the market.
28 COMP/M.9017 - SK Capital Partners/Schenectady International Group, paragraph 46f.
29 COMP/M.9017 - SK Capital Partners/Schenectady International Group, paragraph 49f.
                                                          7
 ---pagebreak--- (35)    In terms of geographic market, the Commission has not previously concluded on a
        geographic market for DSBP.30 The Notifying Party submits that the market for
        DSBP is likely global, as DSBP is easily transportable and transport costs are low. 31
        The Notifying Party submits that in any case the market definition can be left open,
        as no concerns arise in any case. SI Group is the only supplier of DSBP globally, and
        supplies the vast majority of its volumes in the EEA to […] for the production of a
        pesticide product.
(36)    Given that no concerns arise regardless of the geographic market definition, the
        Commission considers it conservatively as EEA-wide for the purpose of this case,
        but considers that it can be left open.
   5.7.     Ortho-sec-Butylphenol (“OSBP”)
(37)    In terms of product market, OSBP is an industrial chemical raw material belonging
        to the group of alkyphenols, which is created by reacting Butene-1 with phenol.
        OSBP is used in dying and as a chemical intermediate for the production of polymer
        inhibitors (such as DNBP32 ), pesticides, fuel additives and stabiliser intermediates.
        In a past decision, the Commission found evidence that OSBP cannot be replaced by
        other chemicals in the production of downstream applications, and inconclusive
        evidence on whether a further segmentation could be relevant. 33
(38)    The Notifying Party submits that OSBP cannot be further sub-segmented based on
        grade or other criteria. The Commission did not receive any market feedback
        contradicting this view. Given that the Transaction does not raise any concerns
        regardless of whether the market of OSBP is considered to be limited to OSBP or
        broader (all alkylphenols), the exact product market definition can be left open. For
        the purpose of the assessment, the Commission considers the market for OSBP.
(39)    In terms of geographic market, the Commission considered in a past decision that the
        scope of the geographic market for OSBP was likely EEA-wide,34 due to the need
        for a REACH35 -registration for this chemical, but ultimately left the market
        definition open. For the purpose of the present case, the Commission considers the
        market for OSBP to be EEA-wide in scope due to the regulatory constraints for
        marketing OSBP in the EEA. However, there is no need to conclude on the
        geographic market definition for OSBP, as no concerns arise regardless of a wider
        (global) or narrower (EEA-wide) market definition.
30  COMP/M.9017 - SK Capital Partners/Schenectady International Group, paragraph 151.
31  Notifying Party’s response to RFI 3, question 4.
32  DNBP stands for 2,4-dinitro-6-sec butyl phenol, see Notifying Party’s response to RFI 3, question 6.
33  COMP/M.9017 - SK Capital Partners/Schenectady International Group, paragraph 96.
34  COMP/M.9017 - SK Capital Partners/Schenectady International Group, paragraph 100.
35  See Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006
    concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH),
    establishing a European Chemicals Agency, amending Directive 1999/45/EC and repealing Council
    Regulation (EEC) No 793/93 and Commission Regulation (EC) No 1488/94 as well as Council Directive
    76/769/EEC and Commission Directives 91/155/EEC, 93/67/EEC, 93/105/EC and 2000/21/EC (OJ L 396,
    30.12.2006, p. 1).
                                                         8
 ---pagebreak--- 6.      COMPETITIVE ASSESSMENT
   6.1.     Phenol (upstream) – Alkylphenols (downstream)
(40)    Both Parties are active upstream in the supply of phenol. Two of SKCP’s portfolio
        companies (SI Group and Tilley Chemical) are active in phenol markets. However,
        both companies’ supply of phenol is marginal: SI Group only supplies phenol in
        India and Tilley Chemical sold […] of phenol in 2020 with a revenue of USD […] to
        very few clients based in the US. Any market shares of SI Group and Tilley would
        be below [0-5]% in the EEA or worldwide, according to the Notifying Party.
(41)    Seqens produces phenol, a small part ([…]) of which is targeted at captive use for
        the production of salicylic acid and parts of which it sells on the merchant market.
        Under the narrowest market definition (phenol sold in Western Europe (EU-14 and
        the UK), Seqens would have a market share of [5-10]% in terms of volume and
        value in 2020.
(42)    Downstream, SKCP’s portfolio company SI Group purchased […] of phenol from
        Seqens in the EEA in 2020.36 SI Group used the phenol to produce PNP, PTBP, 2,4
        DTBP, 2,6 DTBP, DSBP and OSBP. SKCP’s market shares in those downstream
        markets are presented below in Table 1.
Table 1: SKCP’s market shares in six alkylphenol markets in the EEA, 2020
Product                            Market share in the EEA in 2020
Alkylphenols overall               [40-50]%
PNP                                [50-60]%37
PTBP                               [50-60]%38
2,4-DTBP                           [60-70]%
2,6-DTBP                           [60-70]%
DSBP                               [90-100]%
OSBP                               [90-100]%
Source: Form CO, paragraphs 225, 230, 234, 237, 241.
36  SI Group’s total demand of phenol in the EEA in 2020 was […] and globally […].
37  The Notifying Party confirmed that their market share in the market for PNP at EEA-wide level is not
    substantially different from their market shares at a plausible narrower geographic market level (e.g.
    national).
38 The Notifying Party confirms that the market share of SI Group for each unique application /grade of
    PTBP does not deviate significantly from the market share for PTBP overall, see Notifying Party’s
    response to RFI 3, question 3.
                                                        9
 ---pagebreak---    6.2.    The Notifying Party’s view
(43)    The Notifying Party submits that the Transaction will not raise any concerns
        regarding the vertical relationship between the Parties with respect to phenol
        (upstream) and the six alkylphenols downstream markets. Seqens has no market
        power upstream with a market share of at most [5-10]% and a number of phenol
        suppliers remaining active, such as Ineos, CEPSA Quimica, Versalis and Borealis.
        The Notifying Party therefore considers that the merged entity would have no ability
        to foreclose downstream rivals, and, as a result, also no incentives, since a
        foreclosure would only backfire and lead customers to doubt on its reliability as a
        supplier, resulting in customers changing supplier away from Seqens. Furthermore,
        the Notifying Party highlights that Seqens’ phenol production capacity is […],
        whereas the total demand for phenol in the EEA amounted to ca. 2 million tons in
        2020. If the merged entity were to foreclose rivals downstream, that demand could
        be easily satisfied by Seqens’ rivals.
(44)    In terms of customer foreclosure, the Notifying Party submits that no concerns arise
        because phenol is used in the production of a very large number of chemical
        products and therefore, SI Group’s purchases for six alkylphenols are not an
        important route to market for phenol suppliers. SI Group’s purchases represent [0-
        5]% of the total EEA volume and value of demand in the upstream market. In terms
        of incentives, according to the Notifying Party, customer foreclosure would not be
        profitable, as foreclosure would not have any impact on costs and prices of
        competitors given the significant share of demand from different companies
        downstream (not only alkyphenol suppliers) that would still be available post-
        Transaction.
   6.3.    The Commission’s assessment
   6.3.1. Input foreclosure
(45)    Input foreclosure arises where, post-merger, the new entity would be likely to restrict
        access to the products or services that it would have otherwise supplied, absent the
        merger, thereby raising its 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 lead the merged entity to profitably increase the price charged to
        consumers, resulting in a significant impediment to effective competition. 39 In
        assessing the likelihood of an anticompetitive input foreclosure scenario, the
        Commission examines, first, whether the merged entity would have, post-merger, the
        ability to substantially foreclose access to inputs, second, whether it would have the
        incentive to do so, and third, whether a foreclosure strategy would have a significant
        detrimental effect on competition downstream. 40
(46)    Firstly, for input foreclosure to be a concern, the vertically integrated firm resulting
        from the Transaction must have a significant degree of market power in the upstream
        market. In this respect, the Commission notes that Seqens’ market share upstream is
        below 10%, which would normally suggest the absence of market power 41 , and
        hence no ability to foreclose access to phenol as an input. The Commission has no
39  Non-Horizontal Merger Guidelines, recital 31.
40  Non-Horizontal Merger Guidelines, recital 32.
41 Non-Horizontal Merger Guidelines, recital 35.
                                                    10
 ---pagebreak---         indication that the market share in this case does not reflect the competitive strength
        of Seqens in the market of phenol. None of the respondents to the market
        investigation questioned the fact that Seqens does not hold a significant degree of
        market power in the upstream market for phenol. The market investigation,
        additionally, confirmed the Notifying Party’s view with respect to phenol not
        representing a significant source of product differentiation for the downstream
        market, since there is no specific phenol quality required as input for alkylphenols or
        other applications42 , with the exception of when the intended end-use is for contact
        with food.
(47)    Secondly, given that the merged entity would have no ability to foreclose, the
        Commission considers it unnecessary to assess whether the merged entity would
        have incentives to foreclose. Nevertheless, the Commission notes that the incentive
        to foreclose would depend on the degree to which the trade-off between the profit
        lost in the upstream market due to a reduction of input sales to rivals and the profit
        gain from expanding sales downstream would be profitable.43 In this respect, the
        Commission observes that there are several suppliers of phenol in the market and
        phenol is a commoditized product, which does not require a specific level of quality
        or purity; phenol sold by Seqens in the downstream market does not differentiate
        itself from phenol sold by its competitors. The Commission considers that, should
        the Parties restrict access to phenol, it is highly likely that the downstream demand
        for phenol would be diverted to competitors. Moreover, none of the responding
        competitors raised any concerns in this regard.
(48)    Thirdly, in terms of impact, the competitors responding to the market investigation
        unanimously confirmed that they expect no impact on the market for phenol in the
        EEA44 and expect the market for the supply of phenol to remain competitive post-
        Transaction.45
(49)    Based on the above considerations, the Commission concludes that the Transaction
        does not raise serious doubts as to its compatibility with the internal market in
        relation to the vertical relationship between the supply of phenol (upstream) and the
        supply of alkylphenols (or even plausible individual alkylphenol markets, namely
        PNP, PTBP, PTBP polymer grade, PTBP resin grade, 2,4 DTBP, 2,6 DTBP, DSBP
        and OSBP) (downstream) as a result of input foreclosure.
   6.3.2. Customer foreclosure
(50)    Customer foreclosure may occur when a supplier integrates with an important
        customer in the downstream market. 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. In turn, this 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
42  Responses to questions 3 and 4 from phenol suppliers received on 12 November 2021.
43  Non-Horizontal Merger Guidelines, recitals 40-41.
44 Responses to question 9 from phenol suppliers received on 12 November 2021.
45 Responses to question 6 from phenol suppliers received on 12 November 2021.
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 ---pagebreak---         prices on the downstream market.46 In assessing the likelihood of an anticompetitive
        customer foreclosure scenario, the Commission examines, first, whether the merged
        entity would have the ability to foreclose access to downstream markets by reducing
        its purchases from its upstream rivals, second, whether it would have the incentive to
        reduce its purchases upstream, and third, whether a foreclosure strategy would have
        a significant detrimental effect on consumers in the downstream market. 47
(51)    Firstly, in relation to the merged entity’s ability to foreclose access to downstream
        market, a merger may affect upstream competitors by increasing their cost to access
        downstream customers or by restricting access to a significant customer base. 48
        Given that the market shares of SKCP in the narrower plausible markets of
        individual alkylphenols is between 50 and 100%, the Commission conducted a
        market investigation to verify the Notifying Party’s claims in respect of the absence
        of customer foreclosure from the perspective of Seqens’ rivals upstream.
(52)    The market investigation confirmed the Notifying Party’s views. First, all
        responding competitors replied that no specific quality or purity of phenol is required
        for the production of alkylphenols, or any other application for which phenol is used
        49 , confirming that the demand for phenol is indeed much broader than just limited to
        manufacturers and suppliers of alkylphenols. The Commission notes, in that respect,
        that the phenol demand attributable to alkylphenols (where SI Group is active in six
        specific alkylphenols downstream with high market shares between 50 and 100% in
        the EEA in 2020) is just 5.7% of overall phenol demand50 . Given this very limited
        share of phenol demand, it is apparent that there would remain sufficient economic
        alternatives in the downstream market for the upstream rivals to sell their phenol to.
        The customer base for phenol in the EEA does not comprise only customers who
        manufacture and supply alkylphenols but it encompasses different applications, such
        as phenolic resins (19.7% of demand of phenol), BPA (Bisphenol A, representing
        48.9% of demand of phenol), cyclohexane (23.2% of demand of phenol) and a
        number of other applications together representing 23% of demand of phenol.
        Therefore, the customer base is sufficiently large to exclude competition concerns on
        the ground of lack of ability to foreclose customers.
(53)    Secondly, given that the merged entity would have no ability to foreclose, the
        Commission considers it unnecessary to assess whether the merged entity would
        have incentives to foreclose. Nevertheless, the Commission notes that the incentive
        to foreclose access to downstream markets would depend on the degree to which the
        trade-off between the possible costs associated with not procuring products from
        upstream rivals and the possible gains from doing so is profitable. Given the
        significant share of demand for phenol that would still be available on the market,
        the Commission considers that it is very unlikely that a strategy of customer
        foreclosure could be profitable, as this strategy would not have any impact on costs
        and prices of competitors. Additionally, none of the market respondents to the
        market investigation raised any concerns in relation to a potential strategy of
46   Non-Horizontal Merger Guidelines, recital 58.
47   Non-Horizontal Merger Guidelines, recital 59.
48 Non-Horizontal Merger Guidelines, recital 60.
49 Responses to questions 3 and 4 from phenol suppliers received on 12 November 2021.
50 Form CO, paragraph 223.
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 ---pagebreak---        customer foreclosure, arguing that a sufficient level of demand for phenol would
       remain on the market.
(54)   Thirdly, in terms of impact, the competitors responding to the market investigation
       unanimously confirmed that post-Transaction there would still be sufficient demand
       for phenol in the EEA and that, should the merged entity stop sourcing phenol from
       rivals and source this product only from Seqens, this strategy would have no impact
       on competitors’ access to the market. 51 Competitors expect the Transaction will have
       no impact in the EEA.52
(55)   Based on the above considerations, the Commission concludes that the Transaction
       does not raise serious doubts as to its compatibility with the internal market in
       relation to the vertical relationship between the supply of phenol (upstream) and the
       supply of alkylphenols (or even plausible individual alkylphenol markets, namely
       PNP, PTBP, PTBP polymer grade, PTBP resin grade, 2,4 DTBP, 2,6 DTBP, DSBP
       and OSBP) (downstream) as a result of customer foreclosure.
7.     CONCLUSION
(56)   For the above reasons, the European Commission has decided not to oppose the
       notified concentration 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
                                                              Executive Vice-President
51  Responses to question 8 from phenol suppliers received on 12 November 2021.
52  Responses to question 9 from phenol suppliers received on 12 November 2021.
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