CELEX: 31996M0832
Language: en
Date: 1996-10-25 00:00:00
Title: COMMISSION DECISION of 25/10/1996 declaring a concentration to be compatible with the common market (Case No IV/M.832 - Norsk Hydro / Enichem Agricoltura - Terni (II)) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31996M0832

COMMISSION DECISION of 25/10/1996 declaring a concentration to be compatible with the common market (Case No IV/M.832 - Norsk Hydro / Enichem Agricoltura - Terni (II)) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 366 , 05/12/1996 P. 0012

 COMMISSION DECISION of 25/10/1996 declaring a concentration to be  compatible with the common market (Case No IV/M.832 - Norsk Hydro /  Enichem Agricoltura - Terni (II)) 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: <ind> Case No IV\M.832   Norsk Hydro/Enichem Agricoltura  Terni  (II) <tab> <ind> Notification of 24.09.1996 pursuant to Article 4 of Council  Regulation No 4064\89 1.<ind> On 24.09.1996 Hydro Agri Nederland BV (HYDRO) notified the  acquisition of Nuova Terni Industrie Chimiche  S.r.l. ("NUOVA TIC"), which  is being contributed the business of Terni Industrie Chimiche S.p.A. ("the  TIC business"), previously belonging to Enichem Agricoltura.  2.<ind> After examination of the notification the Commission has concluded  that the notified operation falls within the scope of application of  Council Regulation N  4064/89 and does not raise serious doubts as to its  compatibility with the common market or with the functioning of the EEA  Agreement. I<tab> THE PARTIES 3.<ind> HYDRO belongs to the Norwegian group Norsk Hydro ASA (NORSK  HYDRO), which is engaged in the production of chemical and mineral  fertilizers, oil and gas, petrochemical and light metals industries. Hydro  is a holding company which carries no business of its own. 4.<ind> NUOVA TIC is a wholly owned subsidiary of Enichem S.p.A.  (ENICHEM), to which the TIC business is being transferred. NUOVA TIC will  produce and market nitrogencontaining fertilizers, namely calcium nitrate  (CN) and urea, as well as urea for technical use in prill form (technical  urea, TU) and ammonium bicarbonate (ABC). II<tab> THE OPERATION 5.<ind> This acquisition follows a previous acquisition by NORSK HYDRO of  the major part of the fertilizer business of ENICHEM  which prior to the  operation was transferred to the company ARNYCA  which was granted an  Article 6.1.b) decision on 29.6.1996 (case M.769, from now on "the  previous decision"). The present acquisition takes place between the same  undertakings within a two year period. For this reason, Article 5(2) of  the Merger Regulation applies. 6.<ind> The acquisition is the result of the restructuring and liquidation  of Enichem Agricoltura S.p.A. The Commission examined and approved the  State aid granted to the company in connection with the restructuring plan  in its decision of 21 June 1995. III<ind> THE CONCENTRATION 7.<ind> HYDRO's acquisition of sole control of NUOVA TIC constitutes a  concentration within the meaning of the Article 3(1)(b) of the Merger  Regulation. IV<tab> COMMUNITY DIMENSION 8.<ind> The worldwide turnover of  NORSK HYDRO and of the TIC business was  respectively of ECU 9,623 million and ECU 56 million in 1995. The turnover  of ARNYCA, the previously acquired company, was of ECU 347 million. The  combined turnovers exceed therefore 5,000 million ECU. The 1995 combined  Community wide turnover of each of the undertaking concerned also exceeds  250 million ECU, as NORSK HYDRO's turnover was of 6,144 million ECU, the  TIC business had a turnover of 55 million ECU and ARNYCA had a turnover   of  336 million ECU. Only the TIC business and ARNYCA achieved more than  two thirds of their turnovers in one and the same Member State, Italy.  NORSK HYDRO did not achieve more than two thirds of its turnover in one  and the same Member State.  Therefore, the operation has a Community  dimension. V<ind> THE RELEVANT MARKETS A.<tab> Relevant product market 9.<ind> The acquisition by NORSK HYDRO of NUOVA TIC follows theprevious  acquisition of the major part of Enichem fertilizer business. The TIC  business is part of Enichem Agricoltura and it also mainly relates to the  production and sale of nitrogen containing fertilizers.  <ind> Calcium Nitrate 10.<ind> Nitrogen containing fertilizers include straight nitrogen and  nitrogencontaining compound fertilizers. The TIC business does not include  compound fertilizers. 11.<ind> There are various types of straight nitrogen fertilizers, which  vary in their chemical composition, and in particular in their content of  nitrogen. Both the TIC business and NORSK HYDRO produce CN as straight  nitrogen fertilizer. In the previous decision the Commission concluded  that it was not necessary to conclude whether all nitrogen containing  fertilizers constitute the same product market or whether the different  types of straight nitrogen fertilizers constitute separate product  markets. 12.<ind> CN may be obtained as a by product of the creation of compound  nitrogen fertilizer, as in the case of NORSK HYDRO. Thus other major NPK  producers, such as BASF and Kemira are theoretically in a position to  obtain CN from their NPK production facilities, although the existing  variants between different NPK production processes may entail higher  investments or operating costs when adjusted to produce CN. CN may also be  produced as an endproduct, as in the case of the TIC business, by  combining limestone with nitric acid. This relatively simple process,  although on a costbasis less competitive than the first one, is normally  easily available even to retailers and has indeed occurred in several  countries such as the Netherlands, Belgium, Austria and Spain. 13.<ind> CN is described as a specialty product. It is used in limited  quantities, if compared with others nitrogen containing fertilizers. CN  contains 15.5% of nitrogen in nitrate form, immediately available to  plants, and 19% watersoluble calcium. It can assume various forms  according to its grade of solubility, and therefore be employed for  various uses, ranging from field applications (less watersoluble CN  primarily for agricultural use) to fertigation systems and to nonsoil  substrate cultivations (higher specification's CN for sophisticated  horticulture).  14.<ind> CN is normally employed because of its content of nitrogen in  nitrate form. For this purpose, it can be substituted by other straight  nitrogen fertilizers, primarily by ammonium nitrate (AN) and also, though  to a limited extent, by calcium ammonium nitrate (CAN). Both AN and CAN  provide nitrogen in nitrate form to plants. CAN also provides calcium,  however not in soluble form. 15.<ind> In certain cases CN's choice as fertilizer is driven primarily by  the need to supply calcium in soluble form. This applies especially for  nonsoil growing systems in horticulture, whereby the water used does not  contain calcium to the extent required. In fact, these cases account for a  small fraction of total CN usage (less than 10%). CN can for these  purposes not be substituted with other nitrogen fertilizers, none of which  contains soluble calcium. However, soluble calcium can be made available  from other sources, by employing other products containing soluble calcium  (calcium chloride, calcium sulphate and calcium formate) or simply by  producing liquid CN inhouse, by reacting lime with nitric acid. 16.<ind> In conclusion, different grades of CN are generally substitutable  as regards demand, and are produced through the same production processes  described above. Moreover they present a high degree of substitutability  with certain other nitrates, namely AN and, to a lesser extent CAN. The  relevant product market includes therefore at least CN and AN, but could  be extended further to include CAN or even other straight nitrogen  fertilizers. 17.<ind> However, for the purpose of the present case it is not necessary  to decide whether  all straight nitrogen fertilizers constitute the same  product market, or whether CN+AN or CN+AN+CAN constitute separate markets.   In fact, as it is demonstrated in the assessment below, a dominant  position would not be created or reinforced even on the narrowest product  market definition. <ind> Urea for fertilizer use and technical urea 18.<ind> Both parties to the transaction produce urea. Urea is a basic  chemical compound which is produced by reacting ammonia with carbon  dioxide (a byproduct of ammonia, the basic intermediate for the production  of straight nitrogen fertilizers). Urea can be used as a fertilizer or in  certain technical application ("technicalurea"). Whilst urea for  agricultural use can be either in prilled or in granular form, technical  urea  (TU) is only used in prilled form, whereas the terms "granules" and  "prills" relate solely to the physical characteristics of the same basic  chemical product. Both NORSK HYDRO and the TIC business produce granular  urea and prilled urea. 19.<ind> TU is used as a raw material in certain chemical products notably  resins and melamine and other nonagricultural products, eg. deicers.  Whilst urea in prilled form is often used as a fertilizer, granular urea  can normally not be used as technical urea. 20.<ind> Urea for fertilizer use is in competition with other nitrogen  containing fertilizers. In  the previous decision, the Commission did not  decide wether the relevant product market is limited to urea for  fertilizer use or whether it has a larger configuration. This position is  confirmed in the present case, since, as it is demonstrated in the  assessment below, a dominant position would not be created or reinforced  in any of the above configurations. 21.<ind> Also, for the purpose of the present decision, it is not  necessary to decide wether technical urea in prilled form constitutes a  separate market from urea for agriculture, since, as it is demonstrated in  the assessment below, a dominant position would not be created or  reinforced even  in the narrowest market definition. <ind> Ammonium Bicarbonate 22.<ind> Both parties to the transaction produce ABC. ABC is a basic  chemical product which is produced using ammonia and carbon dioxide. The  latter is the main by product in ammonia production. Therefore, ABC is  produced using the ammonia facilities dedicated to the production of  nitrogen fertilizers. The main use of ABC is as baking powder in the  biscuit industry (this accounts for 70% of the EEA consumption), followed  by convenience food industry (20%) and the leather industry (10%).  According to the inquiry carried out by the Commission, as regards its use  in the biscuit industry, ABC's can to a certain degree be substituted by  sodium bicarbonate. For other uses, its substitution by other products is  rather difficult if not impossible. Therefore, an extension of the ABC  relevant product market to include other products is not appropriate. B.<ind> Relevant geographic market 23.<ind> The relevant geographic market for nitrogen containing  fertilizers is at least the EEA. This conclusion was supported in the  previous decision. The inquiry carried out by the Commission has  demonstrated that CN's market is at least EEAwide and tends to be larger.  Some other producers are present in Eastern Europe, South Africa, Israel  and India, all of them exporting into the EEA. 24.<ind> The geographic market for urea for agricultural use tends to be  wider than Western European. This conclusion is substantiated in the  previous decision. 25.<ind> The geographic market for technical urea appears to the EEA, in  view of the important intraEEA trade flows. Its higher transport costs, if  compared with urea for agricultural use, tend to exclude the possibility  of a wider market configuration. This conclusion has been confirmed by the  inquiry carried out by the Commission. 26.<ind> ABC's is a commodity which is traded EEAwide. A limited number of  producers supply the whole of Western europe. Therefore, although freight  is a significant cost element for ABC, intraEEA trade patterns are  significant and point to an EEAwide market. On the other hands, sporadic  imports from China and Eastern Europe of lower quality's ABC are not  sufficient to extend the market further. VI<tab> ASSESSMENT <tab> Straight Nitrogen fertilizers 27.<ind> If straight nitrogen fertilizer are considered as the relevant  market, the acquisition of the TIC business implies a negligible increase  by [Business secret. Less than 5%.] of NORSK HYDRO's share up to [Between  25% and 35%.] of the EEA market (NORSK HYDRO with ARNYCA: [Between 25% and  35%.], NUOVA TIC: [Less than 5%.]). <ind> CN+Nitrates (AN, CAN) 28.<ind> There are no market statistics available for CN. In 1995, NORSK  HYDRO produced approximately [Less than 200.] ktN of CN whilst TIC's  production was approximately [Less than 50] ktN. The additional production  accounted to NORSK HYDRO by this acquisitionis therefore of limited  dimension, [ess than 15%.] in respect to NORSK HYDRO's existing CN's  production. A significant proportion of NORSK HYDRO's and TIC's production  was exported outside the EEA. 29.<ind> Given its limited quantities, CN market statistics are included  in a general item called "other straight nitrogen fertilizers", of which  CN constitutes the major part. NORSK HYDRO's and TIC's 1995 combined  market share in this market in the EEA is [Between 25% and 35%.] (NORSK  HYDRO [Between 20% and 30%.] and TIC [Less than 5%.]). The market for  other straight nitrogen fertilizers is substantially smaller than those of  AN or of CAN (at the EEA level it corresponds to 15% of AN's market and to  11% of CAN's market). In the previous decision the Commission had  concluded that no dominant position was enhanced or strengthened by the  HYDRO/ARNYCA operation in any of the possible market configurations  affected, i.e. CAN, AN or CAN + AN. It is clear that, given the limited  dimension of CN's market, its addition to the markets for AN or for AN+CAN  can not lead to an appreciable difference in NORSK HYDRO's position on  these markets. <ind> Urea for agriculture 30.<ind> TIC's acquisition will provide an addition of approximately [Less  than 5%.] to NORSK HYDRO/ARNYCA's share on the EEA urea market, whereby  NORSK HYDRO will reach a total share of [Between 30% and 40%.]. This  slight increase can not change the Commission's assessment on this market  as contained in the previous decision. It has to be recalled that urea's  market tends to be wider than Western European. <ind> Technical urea 31.<ind> NORSK HYDRO's share of this market would be about [Between 15%  and 25%.]. TIC's market share is about [Less than 5%.]. The combined  market share of the parties will be less than 25%. The major competitors  in this market are Kemira and SKW Piesteritz with market shares of around  10%. A significant market share is covered by imports from non EEA  countries, in particular from Eastern Europe. <ind> ABC 32.<ind> Both NORSK HYDRO and the TIC business are active in this small  market (EEA consumption in 1995 has been estimated at approx. 19 kt).  Their combined market share is estimated at about [Between 35% and 45%.]  (NORSK HYDRO [Between 15% and 25%.], TIC [Between 15% and 25%.]). The  competitors are BASF [Between 20% and 30%.], Brotherton [Between 10% and  20%.] and Leuna [Between 10% and 20%.].  33.<ind> ABC is a mature market with relatively stable demand, though  demand for nonfood uses is shrinking. Prices are kept under pressure and  since capacity utilization is low (estimated at 65%) profitability is  rather depressed. Although under such conditions market entry is not  particularly attractive, all Ammonia producers are in the position to  start producing ABC relatively easily. Startup investments are relatively  low (estimated at 10 to 20 MECU), technology is freely available and the  chemical procedure to produce ABC is rather easy. 34.<ind> Demand substitution, in particular through sodium bicarbonate in  respect of ABC for fooduses, constitutes an important restraint to the  competitive behaviour of the producers. 35.<ind> In the light of the above consideration, the operation, though  leading to a significant concentration, does not create or strengthen a  dominant position on the ABC market. VII<ind> ANCILLARY RESTRAINTS 36.<ind> The parties have stipulated a noncompetition clause which imposes  on ENICHEM and its affiliates, including TIC, a global noncompetition  obligation for any activity of manufacturing and trading of fertilizers  and ammonia, for a period of [Not more than five years.], except for the  activity of the company Sariaf. This clause confirms the noncompetition  clause stipulated in the framework of the previous acquisition by HYDRO of  ARNYCA and extends it to cover the activities of the TIC business. 37.<ind> This noncompetition obligation on ENICHEM and TIC is designed to  assure the transfer of the full value of the fertiliser business, in  particular its goodwill and knowhow. It appears therefore necessary for  the acquisition to take place. In addition, its duration is limited to a  period of [Not more than five years.] from the transfer [See Commission  Notice regarding restrictions ancillary to concentrations, OJ C 1990  203/5, III.A.2]. Its geographic scope, however, must be limited to the  area where ENICHEMand TIC were active before the sale [See Commission  Notice regarding restrictions ancillary to concentrations, OJ C 1990  203/5, III.A.2]. VIII CONCLUSION 38.<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. 39.<ind> This decision is without prejudice of the position of the  Commission as regards the fulfilment by the Italian government of the  conditions set out in the above mentioned State aid decision. For the Commission,