CELEX: 31996M0556
Language: en
Date: 1996-04-09 00:00:00
Title: Commission Decision of 09/04/1996 declaring a concentration to be compatible with the common market (Case No IV/M.556 - Zeneca / Vanderhave) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31996M0556

Commission Decision of 09/04/1996 declaring a concentration to be compatible with the common market (Case No IV/M.556 - Zeneca / Vanderhave) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 188 , 28/06/1996 P. 0010

 COMMISSION DECISION of 09/04/1996 declaring a concentration to be  compatible with the common market (Case No IV/M.556 - Zeneca / Vanderhave)  according to Council Regulation (EEC) No 4064/89  (Only the English text is authentic). The paper version of the decision is available through the sales offices  of the Office of Official Publications of the European Communities. PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(b) DECISION To the notifying parties Dear Sirs, Subject :<tab> Case No IV/M.556  ZENECA /VANDERHAVE <ind> <ind> Notification of 1 March 1996 pursuant to Article 4 of Council  Regulation No. 4064/89 1.<ind> On 1 March 1996 the Commission received a notification of an  operation whereby Zeneca Limited and Cooperative Suiker Unie U.A. plan to  establish a joint venture, to be named Zeneca VanderHave BV (Newco), in  which they will merge their respective seeds businesses.  This includes  the seeds businesses of Zeneca Limited and the whole of Koninklijke  VanderHave Groep BV (VDH), a subsidiary of Suiker Unie. 2.<ind> After examination of the notification, the Commission has  concluded that the notified operation falls within the scope of  application of Council Regulation No. 4064/89 and does not raise serious  doubts as to its compatibility with the common market and the functioning  of the EEA Agreement. I.<ind> THE PARTIES 3.<ind> Zeneca Limited (Zeneca), a whollyowned subsidiary of Zeneca Group  PLC, has three main businesses: agrochemicals and seeds; specialities; and  pharmaceuticals.  Through its agrochemicals and seeds activities it  carries on the business of developing, manufacturing and marketing  herbicides, insecticides and fungicides, and of breeding, producing,  processing and marketing seeds and plant material for agricultural and  horticultural purposes. 4.<ind> Cooperative Suiker Unie U.A. (Suiker Unie) owns four businesses  each of which functions as a separate unit: sugar; seeds; fruit and  vegetables; and spices. Through its subsidiary, VDH, it is involved in the  same range of seeds activities as Zeneca, specifically, breeding,  producing, processing and marketing seeds and plant material. II.<tab> CONCENTRATION 5.<ind> Newco is to be established as a 50/50 joint venture, with the  rights of Zeneca and Suiker Unie to participate in the share capital,  voting rights and profits of Newco being shared equally.  The principle of  equality between the parties is maintained in the composition of the  Supervisory Board and the Management Board. The right to appoint the  Chairman will rotate, and all members will have an equal number of votes  with decisions being taken by a simple majority, subject to a quorum of a  minimum and equal number of members of each party.  A casting vote is  offered to the President of the Management Board, but such a casting vote  will not be made without prior consultation with the Supervisory Board,  which will ultimately decide. 6.<ind> Newco will perform, on a lasting basis, all the functions of an  autonomous economic entity.  The parents will transfer to Newco the assets  and intellectual property rights necessary to carry on its operations;  further, Newco will be responsible for its own ongoing financing.   Although the possibility of secondment from Zeneca and Suiker Unie exists,  the joint venture will employ its own staff.  7.<ind> Newco will take over the entire seeds businesses of both parties.   Zeneca will not keep any substantial vertical link with Newco; however, it  is retaining Zeneca Plant Science (ZPS), which is Zeneca's food  biotechnology business.  ZPS does not breed or produce seed but cooperates  with seed companies, which provide the germplasm (genetic material) for  its genetic modifications.  ZPS seeks to exploit the downstream value  added from geneticallymodified crops.  Article [Deleted business secret.].   This provision in no way affects the fullyfunctional autonomous role of  Newco inrelation to the business transferred to it as a result of the  transaction. 8.<ind> Suiker Unie operates downstream of Newco in the sugar business,  and is expected to continue being an important customer in The  Netherlands.  However, this relationship is not considered materially  important (accounting for less than 4% of Newco's sales) for the overall  joint venture operations.  It presently operates on an arm's length basis  visàvis the seed business which is the subject of the concentration. 9.<ind> Zeneca and Newco intend to establish a technical cooperation  committee with the aim of exchanging technical information, pursuant to  Article 9 of Newco's Intellectual Property Rights Agreement.  The  establishment of this committee is not a vehicle for cooperation between  the parents of Newco, as only Zeneca (and not Suiker Unie) will sit on the  committee.  Thus, no coordination of the competitive behaviour between  Zeneca and Suiker Unie will result from the operation.  The operation is  therefore a concentration within the meaning of Article 3 of the Merger  Regulation. III.<ind> COMMUNITY DIMENSION 10.<ind> The undertakings concerned have a combined aggregate worldwide  turnover in excess of 5,000 million ECU (Zeneca 5,773.9 million ECU,  Suiker Unie 925.6 million ECU). Both Zeneca and Suiker Unie have a  Communitywide turnover in excess of 250 million ECU, but do not achieve  more than twothirds of their aggregate Community turnover within one and  the same Member State. The notified operation therefore has a Community  dimension. IV.<ind> COMPATIBILITY WITH THE COMMON MARKET <ind> Relevant product markets 11.<ind> The joint venture will be active in several seeds businesses:  sugar beet, maize, wheat, barley, sunflower, oilseed rape, and grasses,  each of which constitute separate relevant product markets.  It appears  that the operation will only have an appreciable impact on sugar beet  seeds and a relatively small impact on maize seeds.  No material product  overlaps exist between the parties in other seeds. 12.<ind> The seed industry can be described as a twostage industry:  breeding and commercial production of seeds. The first stage comprises the  breeding and biotechnology programmes leading to the development of seed  varieties that are produced as "parent seeds."  Breeders attempt to  develop new varieties with desirable characteristics  low production cost,  high yield, low impurities, and resistance to disease.  Breeding  activities are highly specialised and the minimum efficient scale (MES) is  large relative to total demand. 13.<ind> The second stage comprises production of commercial quantities of  the seed, including cleaning and processing, chemical treatment and  pelleting, marketing and distribution.  These activities are less  specialised and can be successfully carried out on a smaller scale by  producer firms under licence agreements or contracts with breeders.  In  some instances, parent seed is licensed by breeders to other seed  companies which may reproduce the original seed or produce their own  hybrids.  There is a considerable degree of vertical integration by all  seed breeders  including Zeneca and VDH  who are both also active as  producers.  In addition, some sugar refiners have their own production  facilities. Thus, seed production is carried on by various categories of  producers  breeders; standalone producers; and, in the case of sugar beet  seed, sugar refiners. <ind> Relevant geographic market 14.<ind> Prices and supply conditions of both sugar beet seed and maize  seed to final consumers differ in various Member States.  Commercial seed  is, to a substantial degree, customised (eg, disease resistance, chemical  treatments, size of seeds, etc.) to suit the conditions of each country or  regional area.  In the case of sugar beet seed, the seeds chosen are those  designed to meet the specifications of the national refiners who  effectively guide farmers in their choice of seed variety.  Furthermore,  pricing reflects the applicable terms of sale  the payment terms under  which seed is sold and the extent to which customers may return unused  seed  both of which vary from country to country. 15.<ind> In addition, the ministries of agriculture in the respective  Member States conduct official trials according to EU regulations to  assure quality control.  Before seeds can be sold, they must pass two  series of tests: <ind> <ind> (i)<tab> DUS:<tab> distinctness, uniformity and stability;  and <ind> <tab> (ii)<tab> VCU:<ind> value for cultivation and use. <ind> The statistical results of these trials are made available to  national industry associations which will (on behalf of farmers) carry out  further trials from which they produce "Recommended Lists" indicating  preferred varieties based on their performance characteristics.  Sugar  refiners and growers' associations (for both sugar beets and maize) in  virtually all Member States rely on these Recommended Lists.  As a result,  customers normally buy seeds that are adapted to local soil and climatic  conditions from producers operating in their own Member State.  16.<ind> Thus, there are indicators that the relevant geographic market  for sugar beet seed and maize seed production could be viewed as national.   However, for the purposes of assessment of the present case it is not  necessary to provide a definitive delimitation of the relevant geographic  market since, on the basis of the assessment set out below, a dominant  position would not be created or reinforced even under the narrowest  geographic market definition. <ind> Assessment <tab> Sugar Beet Seeds 17.<ind> In addition to the newly created joint venture, there are four  other major Europeanbased suppliers of sugar beet seeds. Together these  five firms are estimated to supply approximately 91% of the EEA sugar beet  seed market: <tab> Units * <tab> Share   Hilleshog <tab> [Deleted  business secret] <tab> [Over 25%] KWS <tab> [Deleted  business secret] <tab> [Less than 25%] S&D <tab> [Deleted  business secret] <tab> [Less than 25%] Zeneca + VDH <tab> [Deleted  business secret] <tab> [Less than 25%] Danisco <tab> [Deleted  business secret] <tab> [Less than 25%] Others combined <tab> [Deleted  business secret] <tab> 9.2% <ind> * A unit is 100,000 seeds. 18.<ind> In addition to the fact that there are six (going to five) firms  listed above, there are at least two significant commercial links among  these firms.  [Deleted business secret.]  As a result, the creation of the  joint venture would leave essentially three major entities funding  approximately 90% of sugar beet seed R&D programmes in Europe. 19.<ind> If we amalgamate the market shares of [Deleted  business secret]  and [Deleted  business secret] with their respective partners in these  association arrangements, the estimates of overall EEA market shares would  be: <tab> Units <tab> Share  Hilleshoeg plus <tab> [Deleted  business secret] <tab> [Over 35%] Zeneca + VDH plus <tab> [Deleted  business secret] <tab> [Over 25%] KWS <tab> [Deleted  business secret] <tab> [Over 15%] Others combined <tab> [Deleted  business secret] <tab> 9.2% 20.<ind> Consequently, on a European scale, the proposed operation would  combine the two firms ranking third and fourth in the industry and create  a new number two firm. <ind> However, current market shares in this business should be considered  as only one indicator of market power.  It appears that market shares for  any given crop seed are quite volatile within a mediumterm time frame  (three to five years).  New varieties can spring up to account for large  shares of sales in a relatively short period of time.  Firms compete  through their breeding programmes to develop a variety that will be the  sole choice of a set of farmers until another breeder develops a better  variety.  Brand loyalty does not appear to be important in this industry.   While the price of the seed represents less than 5% of, for example, the  sugar beet farmer's cost, the quality of that seed is absolutely critical  to the farmer's crop and his final return. 21.<ind> To a certain extent, market power derives from the size of a  firm's breeding and biotechnology programme.  This in turn is a direct  function of the total revenues accruing to the firm from sales all over  the world.  The parties estimate the combined breeding programme of  Hilleshoeg (a subsidiary of Sandoz) and [Over 35%.] generates [Over 40%] of  world sales of sugar beet seed, while KWS accounts for [Over 30%].  Thus,  the parties argue that in the sugar beet seed market, both Hilleshoeg and  KWS have stronger R&Dprogrammes than the new entity. 22.<ind> There appears to be a degree of countervailing power on the part  of sugar refiners and growers' associations.  In most Member States, the  degree of concentration among sugar refiners is very high, with a small  number of refiners accounting for virtually all seed purchases in some  countries.  For example, the parties state that in Austria, Denmark,  Sweden, and the United Kingdom, there is in each case a single national  sugar refiner that accounts for 100% of seed purchases. 23.<ind> It appears that sugar beet is grown on an allocated quota basis  in which refiners, in effect, appoint farmers to grow sugar beets for  their needs.  When allocating a quota, the refiner may dictate the  specific crop to be planted, while in other cases farmers may  choose  which seed variety to use from the Recommended List.  Sugar refiners are  often large companies, sourcing from several suppliers at the same time,  and they thus exercise a considerable influence over the industry. 24.<ind> For the above reasons it is unlikely that the operation will  create or strengthen any dominant position in the sugar beet seed market  in a Europeanwide context. Given the characteristics and complexity of the  product and the structure of the market, it is also likely that the risk  of oligopolistic dominance can be ruled out. 25.<ind> If market shares are examined at the national level, the affected  markets under assessment would be: Austria [Between 25% and 50%], Belgium  [More than 50%], Finland [More than 50%], France [Between 25% and 50%],  Germany [Between 25% and 50%], Italy [Between 25% and 50%], The  Netherlands [Between 25% and 50%], and Spain [Between 25% and 50%].   However, market shares at the Member State level do not give a fully  accurate picture of the 5competitive situation in the market, because, as  noted earlier, shares may fluctuate materially from year to year (due to a  low degree of brand loyalty).  If any breeder were to become the sole  supplier of a niche variety, or a geographical area (such as a country),  and tried to exploit its position by raising prices, the other breeders  would observe a profitable opportunity and would direct efforts towards  developing the next generation of seed to undercut the market.  This  phenomenon appears to have been borne out by past industry behaviour. 26.<ind> Thus, the parties' combined high market shares in Finland and  Belgium should be considered in the context of the above discussion.   While the parties' postmerger market share in Finland is high, it is a  result of VDH's prior strong position there, with a very small increment  (approximately 2%) being added by Zeneca's presence.  In Belgium, the  experience of the parties is an example of the volatility of market shares  in seed markets.  The combined market shares of the parties in Belgium  have dropped from [More than 50%] in 1992 to [More than 50%] in 1994, as a  result of the introduction of improved varieties by competitors. Finally,  sugar refiners in each of the abovenoted Member States were surveyed and  none expressed any concerns with the operation under assessment.  Thus, it  may be concluded that the operation will not create or reinforce any  dominant position at Member State level. <tab> Maize Seeds 27.<ind> In addition to Newco, there are seven other major Europeanbased  suppliers of maize seed. On a European scale, the proposed joint venture  represents a concentration of two firms ranked eighth and ninth in the  industry accounting for a total of [Deleted business secret] of the  European supply of maize seed.  The parties have a combined market share  of over 15% at Member State level only in Belgium [Between 25% and 50%].   In addition, Newco will face competition in Belgium from other strong  players, such as Pioneer [Deleted  business secret], Limagrain [Deleted   business secret],  Pau/Rustica [Deleted  business secret], KWS [Deleted   business secret], and CibaGeigy [Deleted  business secret].  Thus, the  operation will not create or strengthen a dominant position either at the  European or national level for maize seed. IV.<tab> ANCILLARY RESTRAINTS 28.<ind> Article 2.1 of the Noncompete Agreement, pursuant to Article 10  of the Foundation Agreement, contains standard covenants on the part of  the parties not to compete with Newco in relation to any commercial  breeding programme in any crop or to produce, sell or license seed or  propagating material; not to solicit or entice away from Newco any  employee, officer or manager; and not to do or sayanything harmful to the  reputation of Newco.  These provisions reflect the lasting withdrawal of  the parents from the market assigned to Newco and may be considered as  directly related and necessary to the implementation of the  concentration. 29.<ind> As discussed earlier at paragraph 7, Article 2.3 of the  Noncompete Agreement deals with a commitment of cooperation between Newco  and Zeneca.  The Commission considers that these provisions are not  directly related or necessary to the implementation of the concentration,  and accordingly they are not covered by this decision. V.<tab> CONCLUSION 30.<ind> In light of the above assessment, it is concluded that the  proposed concentration would not create or strengthen a dominant position  as a result of which competition would be significantly impeded in the  common market or in a substantial part of it. 31.<ind> For the above reasons, the Commission has decided not to oppose  the notified operation and to declare it compatible with the common market  and with the functioning of the EEA Agreement. This decision is adopted in  application of Article 6(1)(b) of Council Regulation No 4064/89. <tab> For the Commission,