CELEX: 32014M7319
Language: en
Date: 2014-11-14 00:00:00
Title: Commission Decision of 14/11/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7319 - KKR / ALLIANZ / SELECTA) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

Brussels, 14.11.2014
C(2014) 8628 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|           |                                                               |
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|                                                            |           |MERGER PROCEDURE                                               |

|                                                                       |To the notifying parties:                                              |

Dear Sir/Madam,

Subject:    Case M.7319 - KKR / Allianz / Selecta
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

   1) On 13 October 2014, the European Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation
      (EC) No 139/2004 by which the undertakings KKR & Co. L.P. ('KKR', USA) and Allianz SE ('Allianz', Germany) acquire within  the  meaning  of
      Article 3(1)(b) of the Merger Regulation joint control of Selecta AG and affiliated companies ('Selecta').

   2) Selecta is currently solely controlled by ACP Vermögensverwaltung GmbH & Co. KG Nr.4 d ('ACP'), a subsidiary of  Allianz.  The  acquisition
      will occur by means of an investment agreement conferring certain veto rights to KKR.

   3) Hereinafter, KKR and Allianz together will be referred to as the 'Notifying Parties', while KKR,  Allianz  and  Selecta  together  will  be
      referred to as 'the Parties'.

THE PARTIES

   4) KKR is a global investment firm that provides a broad range of alternative asset management services to public and private market investors
      and capital markets solutions for the firm, its portfolio companies and other clients.

   5) Allianz is a multinational financial services provider, active in the insurance and asset management business.

   6) Selecta is a private company currently solely controlled by Allianz that provides vending services in both  public  and  private  settings,
      such as the sale of consumables used to stock vending machines and other related supplies, as well as stocking and maintenance  of  vending
      machines, for both food and beverage vending.

THE CONCENTRATION

   7) The operation amounting to a concentration is based on a PIK[2] loan  facility  agreement  dated  30  May  2014  by  which  KKR  and  other
      unaffiliated third parties provided Selecta with EUR 220 000 000 of debt financing in return for a warrant  instrument  and  an  investment
      agreement entered into on 20 June 2014.

   8) Allianz will remain the sole shareholder of Selecta and will also be able to nominate the majority  of  its  decision-making  bodies  post-
      transaction. However, section 2 and schedule 2 of the investment  agreement  provides  for  certain  veto  rights  in  favour  of  KKR.  In
      particular, KKR's consent is required for [detail of KKR’s veto rights].

   9) Pursuant to paragraph 67 of the Jurisdictional Notice,[3] veto rights which confer joint control typically include decisions on issues such
      as the budget, the business plan, major investments or the appointment of senior management. Accordingly, KKR and Allianz will  have  joint
      control of Selecta as a result of the investment agreement.

  10) The transaction therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

       UNION DIMENSION

  11) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million[4] (KKR: EUR […] million,  Allianz:
      EUR 113 932 million, Selecta: EUR 740 million). The aggregate  EU-wide  turnover  of  two  of  the  undertakings  concerned  is  more  than
      EUR 250 million (KKR: EUR […] million, Allianz: EUR 77 160 million, Selecta:  EUR […] million)  and  none  of  the  undertakings  concerned
      achieves more than two-thirds of its aggregate Union-wide turnover within one and the same Member State. The notified  operation  therefore
      has a Union dimension pursuant to Article 1(2) of the Merger Regulation.

       COMPETITIVE ASSESSMENT

  12) The proposed transaction gives rise to no horizontally affected markets. However, there is an affected  vertical  relationship  insofar  as
      KKR's portfolio company Württembergische Metallfabriken AG ('WMF', Germany), a manufacturer  of  table  and  kitchenware,  supplies  fully-
      automatic table-top hot beverage machines[5] used in the kind of vending services in which Selecta is also active.

1 Market Definition

1 Downstream market – vending services

  13) The Notifying Parties submit that the relevant downstream product market is either the overall vending services market or, if narrower, the
      vending of hot beverages that excludes cold drinks and food vending. The Notifying Parties  note  that  Selecta  and  its  competitors  are
      typically active in all kinds of vending and that vending customers also require the full spectrum of vending services.

  14) The Commission has previously defined vending as the sale of products and services at an unattended  point  of  sale  using  some  form  of
      payment system.[6] The vending services provider is typically paid from the cash proceeds from end-product sales via the  vending  machines
      but the Commission has also acknowledged that beverage machines used in hotels, restaurants, catering and offices may be subsidised by  the
      employer or host and therefore may not be equipped with a payment system.[7]

  15) In its previous decisions, the Commission has left it open whether the vending market should  be  further  segmented.  In  particular,  the
      Commission has left open whether the vending services market should be defined by reference to  the  product  sold,  that  is  by  hot/cold
      beverages and/or snacks/food.[8] Moreover, when considering whether the market should be delineated depending on the  type  and  extent  of
      vending services such as supply and installation of vending machines as compared to stocking and maintenance services, the Commission noted
      that such a distinction was not supported by the market investigation.[9]

  16) The present case only gives rise to an affected vertical relationship with respect to vending of hot beverages, a potential sub-segment  of
      vending services. Within this category, the Notifying Parties have indentified a potential  further  narrower  segment  for  office  coffee
      services ('OCS') that results in affected markets.

  17) As regards the geographic scope of the markets, the Notifying Parties suggest that the relevant geographic market for vending  services  is
      national. This is in line with the Commission's previous decisions.[10]

  18) Nonetheless, it is not necessary to conclude on the precise scope of the relevant product or geographic market as the proposed  transaction
      does not give rise to competition concerns even under the narrowest possible market definition.

2 Upstream market –fully-automatic table-top hot beverage machines

  19) The Notifying Parties submit that the relevant upstream market is the manufacture  and  sale  of  fully-automatic  table-top  hot  beverage
      machines.

  20) The Commission has previously distinguished, while leaving the exact market definition open, three types of  food  and  drink  distribution
      machines: (i) vending machines, (ii) beverage machines used in hotels, restaurants  and  cafeterias  ('HoReCa')  and  (iii)  office  coffee
      machines. The Commission has also previously considered that the product market  for  vending  machines  could  potentially  be  subdivided
      according to the products they dispense into (a) hot and cold beverages, (b) snacks and food and (c) cans  and  bottles  vending  machines.
      However, the Commission has left the market definition previously open in this respect as well.[11]

  21) According to the Notifying Parties, the narrowest potential upstream product market that  results  in  an  affected  vertical  relationship
      between the activities of WMF and Selecta, is that of fully-automatic table-top hot  beverage  machines,  a  sub-segment  of  hot  beverage
      vending machines that can be used both in HoReCa and office coffee situations.

  22) As regards the geographic scope of the markets, the Notifying Parties submit that for fully-automatic table-top hot beverage  machines  the
      relevant geographic market should be EEA-wide, noting that WMF sells the same fully-automatic table-top hot  beverage  machines  throughout
      the EEA with only minor adjustments.[12]

  23) The Commission has previously left open the question whether the relevant geographic market for food and drinks distribution  machines  was
      EEA-wide or national.[13]

  24) Nonetheless, it is not necessary to conclude on the precise scope of the relevant product or geographic markets as the proposed transaction
      does not give rise to competition concerns even under the narrowest possible market definition.

2 Competitive Assessment

  25) The proposed transaction gives rise to no horizontally affected markets.

  26) As to vertical relationships, the proposed transaction gives rise to affected vertical relationships between WMF's upstream  activities  in
      the production and sale of fully-automatic table-top coffee machines and Selecta's downstream activities in hot beverages  vending  and  in
      particular OCS in nine EEA countries: Belgium, the Czech Republic, Estonia, Finland, Latvia, Lithuania, Germany, Sweden and Norway.

  27) The Notifying Parties have not been able to submit exact market share figures for WMF for all of the EEA countries where Selecta is  active
      downstream. In particular, they have not been able to submit market shares concerning Estonia, Finland, Latvia, Lithuania and Norway  where
      WMF's sales are minimal.[14] The Notifying Parties have nonetheless noted that the market shares in those countries will not be higher, and
      are likely to be singificantly lower, than the market share in Germany ([30-40]%) where WMF is based and that is its core market.  This  is
      supported by the fact that the market shares remain below the German market share in the other affected markets where  market  shares  were
      available: Belgium ([30-40]%), the Czech Republic ([30-40]%)  and  Sweden  ([5-10]%).  For  the  purposes  of  this  decision,  on  a  very
      conservative basis, all of the mentioned markets will be considered as affected markets.

  28) In the EEA countries where both WMF and Selecta are active, Selecta's market shares on the downstream markets for hot beverages vending and
      OCS ranges from [0-5]% to [30-40]%. It reaches [30-40]% in Lithuania ([20-30]% in hot beverages vending and [30-40]% in OCS)  and  [30-40]%
      in Sweden ([30-40]% in each of hot beverages vending and OCS). In the rest of the  affected  countries,   Selecta's  market  shares  remain
      lower. In fact, it is worth noting that in those countries where WMF has its highest market shares, Selecta's market shares are  relatively
      low and vice versa. For example, in Germany, where the Parties' market share is the highest in the upstream market ([30-40]%), their market
      shares in the downstream markets are very low ([0-5]%), and in Sweden, where the Parties' market shares are the  highest  downstream  ([30-
      40]%), their market share upstream is low ([5-10]%).

  29) Therefore, the Commission notes that there is no EEA country where the Parties' market shares  would  be  particularly  high  both  in  the
      upstream and the downstream markets.

1 Input Foreclosure

  30) Input foreclosure arises where, post-transaction, the new entity would be likely to restrict access to the products  or  services  that  it
      would have otherwise supplied, thereby raising its downstream rivals' costs by making it harder for them to optain supplies  of  the  input
      under similar prices and conditions as absent the merger. For an input foreclosure to be a concern, the merged entity would  need  to  have
      the ability and the incentive to engage in such behaviour.[15]

  31) In the course of the market investigation, a limited number of Selecta’s competitors have expressed concerns that WMF might supply  Selecta
      in the future on more favourable terms not available to other downstream operators, thereby providing Selecta a cost advantage, or it might
      even attempt to make Selecta the exclusive distributor of WMF machines.[16] Those concerns were  mentioned  particularly  with  respect  to
      Germany and Finland.

  32) However, the Commission notes first that the majority of Selecta's competitors in the downstream market did not raise concerns with  regard
      to input foreclosure.

  33) Second, the market investigation has also confirmed that downstream operators in all of the countries concerned could still  purchase  from
      several other suppliers, such as Thermoplan, Carimali, Melitta or Franke.[17] Selecta's competitors in both Finland and Germany,  including
      some of those who raised concerns, were also generally already sourcing from WMF's  competitors  as  well.  Several  WMF  competitors  also
      confirmed that they are active in those markets.[18]

  34) Third, the Commission considers that the fact that rivals may be harmed because a merger creates efficiencies (for example, the  fact  that
      Selecta might potentially be able to source WMF machines at a cost advantage to other vending operators) cannot  in  itself  give  rise  to
      competition concerns.[19]

  35) Fourth, WMF's upstream market share of [30-40]% or less is not a clear indicator of significant market power.

  36) Fifth, Selecta's market share downstream is less than [30-40]% in all of the markets concerned, with the exception of Sweden.  Particularly
      in Germany, where the upstream market share is likely to be the highest, Selecta's downstream market share is notably low. Therefore, it is
      unlikely that the Parties could significantly benefit from input foreclosure.

  37) In light of the above, the Commission concludes that the proposed transaction does not give rise to competition concerns related  to  input
      foreclosure.

2 Customer Foreclosure

  38) 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 sufficient customer base to its actual or potential rivals in the upstream  market  and
      reduce their ability or incentive to compete. For customer foreclosure to be a concern, the merged entity would need to  have  the  ability
      and the incentive to engage in such behaviour.[20]

  39) In this regard, only one WMF competitor expressed some limited concerns in relation to the Lithuanian market, where Selecta  has  a  market
      share of [20-30]%. Nonetheless, WMF's competitors would still have access to a notable customer base of [70-80]%, and other competitors  of
      WMF active in Lithuania did not express customer foreclosure concerns.[21]

  40) The highest market share Selecta achieves is in Sweden ([30-40]%). Even on this market, WMF's competitors would continue to have access  to
      a notable customer base of [60-70]% of  the  market.  In  addition,  no  customer  foreclosure  concerns  were  raised  during  the  market
      investigation with respect to Sweden.

  41) In light of the above, the Commission concludes that the proposed transaction does  not  give  rise  to  competition  concerns  related  to
      customer foreclosure.

CONCLUSION

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

For the Commission
(signed)
Margrethe VESTAGER
Member of the Commission

-----------------------
[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]   Payment-in-kind.

[3]   Commission Consolidated Jurisdictional Notice under  Council  Regulation  (EC)  No  139/2004  on  the  control  of  concentrations  between
undertakings, OJ C95, 16.4.2008, p. 1, ('Jurisdictional Notice').

[4]   Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Jurisdictional Notice.

[5]   Under the brands WMF and Schaerer.

[6]   M.2373 – Compass/Selecta, paragraphs 13–17.

[7]   M.5338 – Barclays/Investcorp/N&V Global Vending, paragraph 10.

[8]   M.5973 – CVC/Charden International, paragraphs 12–13.

[9]   M.2373 – Compass/Selecta, paragraphs 16–17, M.4202 – Charterhouse/Elior, paragraph 16; M.5973 – CVC/Charden International, paragraph 12.

[10]  M.2373 – Compass/Selecta, paragraphs 26–27; M.5973 – CVC/Charden International, paragraph 16.

[11]  M.5338 – Barclays/Investcorp/N & V Global Vending, paragraphs 10–12; M.6857 – Crane Co / MEI Group, paragraph 95.

[12]  This is in line with the argumentation of the Parties to M.5338 – Barclays/Investcorp/N & V Global Vending, paragraph 20. See  also  M.6857
– Crane Co / MEI Group, paragraph 97.

[13]  M.5338 – Barclayes / Investcorp / N&W Global Vending, paragraph 22; M.6857 – Crane Co / MEI Group, paragraph 100.

[14]  Including Estonia (EUR […] / […] units), Finland (EUR […] / […] units), Latvia (EUR […] / […] units), Lithuania (EUR […] / […]  units)  and
Norway (EUR […] / […] units).

[15]  See, e.g. Guidelines on the assessment of non-horizontal mergers under the Council Regulation on  the  control  of  concentrations  between
undertakings, OJ C265, 18.10.2008, p. 7 ('Non-horizontal guidelines'), paragraphs 31–57.

[16]  See replies to the market investigation, Questionnaire sent to downstream competitors.

[17]  In addition, other numerous suppliers for the German fully-automatic table-top hot beverage machines were  named:  Coffema,  Sielaff,  Rhea
Vendors, Servomat-Steigler, Saeco, Jura, Krups, Miele, Philips, DeLonghi. As to Finland, the following alternative suppliers were  mentioned:  La
Cimbali, Crem International, Bravilor, Necta and Rhea Vendors. See  replies  to  the  market  investigation,  Questionnaire  sent  to  downstream
competitors.

[18]  See replies to the market investigation, Questionnaire sent to upstream competitors.

[19]  Non-horizontal guidelines, paragraph 16.

[20]  Non-horizontal guidelines, paragraph 58–77.

[21]  See replies to the market investigation, Questionnaire sent to upstream competitors, question 4.