CELEX: 31995M0599
Language: en
Date: 1995-09-08 00:00:00
Title: COMMISSION DECISION of 08/09/1995 declaring a concentration to be compatible with the common market (Case No IV/M.599 - Noranda Forest / Glunz) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0599

COMMISSION DECISION of 08/09/1995 declaring a concentration to be compatible with the common market (Case No IV/M.599 - Noranda Forest / Glunz) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 298 , 11/11/1995 P. 0006

  COMMISSION DECISION of 08/09/1995 declaring a concentration  to be compatible with the common market (Case No IV/M.599 -  Noranda Forest / Glunz) 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.599  Noranda Forest/Glunz  <ind> <ind> Notification of 4 August 1995 pursuant to  Article 4 of Council Regulation No 4064/89 (Merger  Regulation)  1.<ind> On 4 August 1995 Noranda Forest Inc. (NFI) and Glunz  AG (Glunz) notified the Commission of their intention to  combine the European wood based panel board operations of  NFI with the United Kingdom wood based panel board  operations of Glunz in a joint venture.  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 with the  functioning of the EEA Agreement.  I.<ind> THE PARTIES  3.<ind> NFI is a Canadian forest products company whose  principal interests are in lumber, panel boards, pulp and  paper. Noranda Inc, a Canadian conglomerate, controls 75% of  the shares of NFI and is according to the parties controlled  by Brascan Limited Inc, a Canadian holding company, which  owns 42% of Noranda Inc's shares. None of these companies  have any interest in panel board products outside their  interest in NFI.  4.<ind> Glunz, a German company, is quoted on the Frankfurt  and Duesseldorf Stock Exchange. It is engaged in the  manufacture, distribution and sale of timber derived  products, particularly for use in the furniture,  construction and automobile industries, for interior  decoration and for DoItYourself.  II.<ind> THE OPERATION  5.<ind> Following the signature of a letter of intent on 5  July 1995, NFI and Glunz signed agreements on 24 July 1995  for the merger of NFI's European wood based panel board  operations and Glunz's United Kingdom wood based panel board  operations into Norbord Holdings limited (NHL) which is  currently a wholly owned subsidiary of NFI.  6.<ind> NHL is engaged in the production and sale of OSB  (oriented strand board) and the distribution and sale of OSB  and other panel board products for third parties. The Glunz  subsidiaries involved, Glunz (UK) plc and Glunz (UK)  Holdings Limited are holding companies for a number of  operating companies in the United Kingdom whose principal  activities are the production and sale of particle board,  MDF and components for flat pack furniture. The assets,  goodwill and technical know how related to the manufacture  and distribution of these products will be transferred to  the joint venture.  7.<ind> In the joint venture company, whose name will be  changed from NHL to CSC Forest Products Limited on  completion, Glunz will hold one more share than NFI. The  interests of Glunz and NFI will be held through newly  incorporated wholly owned subsidiary companies.  III.<ind> CONCENTRATION  <ind> Joint Control  8.<ind> Although Glunz will hold one more share in NHL than  NFI, both parties will have equal representation on NHL's  board and all matters of strategic importance to the company  will require the approval of both shareholders. These  matters include, inter alia :  <ind> <ind>  the business plan,  <ind> <ind>  the annual budget,  <ind> <ind>  major capital expenditure and   <ind> <ind>  the hiring and firing of key personnel.  9.<ind> The joint venture agreement provides that the key  issues must be approved either at general meetings by the  holders of at least 75% of the shares in the company  carrying the right to attend general meetings or at duly  convened meetings of the board at which majorities of the  directors representing NFI and Glunz respectively have each  voted in favour of resolutions signed by all the directors  representing NFI and Glunz.  10.<ind> As each of the parties will effectively have the  right of veto at least over the principal decisions  concerning the joint venture (see point 8) they will  exercise joint control over the company.  <ind> Full Function Entity  11.<ind> NHL will have its own production, distribution and  sales operations for a wide range of panel board products  independent of its parents. It will not be dependent on  either of its parents for supplies of raw materials nor will  it sell the products of either parent in any quantity. NHL  will distribute as principal, in the European Union, panel  board products manufactured in North America by NFI and  Northwood Pulp and Timber a Canadian joint venture in which  NFI has a 50% interest [Business secret]. That is, NHL will  be completely free to decide the volumes, prices and  customers of such products it will sell. The existing agency  agreement between NHL and NFI will end upon the completion  of the notified operation. In 1994 NHL sold only plywood as  agent for NFI and its joint venture, Northwood Pulp and  Timber Company. Its total agency sales were []m3, including  []m3 on behalf of third parties. NHL agency sales accounted  for about [05%] of EU plywood consumption.   12.<ind> NHL will accordingly perform on a lasting basis all  the functions of an autonomous economic entity.  <ind> Absence of Coordination  13.<ind> NFI will effectively transfer all its European  panel boardoperations, including the distribution of the  small volumes imported from its North American operations,  to the joint venture, NHL. NFI undertakes that for as long  as it remains a shareholder in NHL, that all its sales in  the EEA of its panelboard products manufactured outside the  European Union [] will be made through NHL as distributor.  In 1994 these sales, which were only of plywood, amounted to  about [] m³ or less than [less than 5%] of Community  consumption, in no member state did these sales exceed [less  than 15%] of consumption. NFI's presence EU market through  exports channelled through the joint venture will therefore  be only of minor economic importance relative to the  operation as a whole (de minimis).  14.<ind> In view of the serious investment it has made in  the joint venture and in particular because it has  transferred its sales force it is not to be expected that  NFI would reenter the market in view of the small sales  involved. Although NFI is a large producer of OSB in North  America it would be unable to supply the European Union with  material from this source, first because the North American  OSB is generally of a lower quality and does not meet  European requirements and secondly, and more importantly,  because transport costs and tariffs add [significantly] to  the factory cost of the material. Production costs in Europe  and North America are similar. NFI has therefore  definitively left the European panel board market and cannot  be considered as a realistic potential competitor to the  joint venture.     15.<ind> Therefore only Glunz will remain significantly  active as an independent producer and distributor in same  product markets as the joint venture. Furthermore the nature  of the noncompetition agreements between the parties (see  discussion below) particularly the fact that NFI would have  to dispose of its interests in NHL before it could restart  production (in the United Kingdom NFI would have to wait an  additional [] before starting production or soliciting  sales) confirm the concentrative nature of the operation. As  NFI will transfer its assets, goodwill and expertise in the  products concerned to the joint venture, it would be costly  and commercially unreasonable for NFI to attempt to reenter  the production and distribution markets in the European  Union.  16.<ind> The operation does not therefore give rise to  coordination of competition.  <ind> Conclusion  17.<ind> The operation constitutes a concentration within  the meaning of Article 3.1.b of the Regulation.  IV.<ind> COMMUNITY DIMENSION  18.<ind> The combined aggregate turnover of the parties  exceeded 5,000 million ECU in the last financial year  (Noranda Inc 4,158 million ECU and Glunz 978 million ECU).  As the threshold is exceeded by the combined turnovers of  Glunz and Noranda Inc the question of whether Noranda Inc is  controlled by Brascan may be left open. The European Union  turnover of the parties was [over 250] million ECU and [over  250] million ECU respectively. The parties do not generate  more than twothirds of their aggregate communitywide  turnover in one and the same Member State. The operation  therefore has a Community dimension.   V.<ind> COMPATIBILITY WITH THE COMMON MARKET  <tab> Relevant product markets  19.<ind> The proposed transaction concerns the manufacture,  distribution and sale of wood based panel board products.  The principal products are :  <ind> <ind>  Plywood, softwood, temperate hardwood and  tropical  <ind> <ind>  Oriented strand board (OSB)  <ind> <ind>  Particleboard  <ind> <ind>  Medium density fibreboard (MDF)  <ind> <ind>  Fibreboard <ind>   20.<ind> These panel board products are substitutable among  themselves to a greater or lesser extent. For example  substantial quantities of particle board, plywood and OSB  are used for flooring and the furniture industry uses  particle board, plywood and MDF.  21.<ind> However the substitutability is only partial and  there are significant differences in price, with hardwood  plywood prices being over three times the price of particle  board and the premium for MDF over particle board being over  40% in France, Germany and the United Kingdom.  22.<ind> To ensure that the joint venture's position is  adequatelyanalyzed the market for each type of wood based  particle board will be examined individually, ie the  narrowest definitions of the product market will be used. If  the transaction does not give rise to competition questions  at these narrowly defined levels it will not give rise to  difficulties at the Community or EEA level.  <tab> Relevant geographic market  23.<ind> The joint venture will be based in the United  Kingdom, in addition Glunz has substantial operations in  Germany and in France. In 1993 [1993 has been chosen because  statistics are available for EEA and Community production  and consumption. These figures are not yet available for  1994.The pattern of sales of both NFI and Glunz did not  change significantly between 1993 and 1994.] sales in United  Kingdom, France and Germany accounted respectively for  [6075]% and [85100]% of NFI's and Glunz's sales in the EEA.  24.<ind> There are considerable flows of panel board  products both within the EEA and between the EEA and third  countries. For example Germany imports about 20% of its  consumption of particle board and exports a volume  equivalent to 12%. These trade flows would suggest that the  markets for panel board products are Community or EEA wide.  25.<ind> Against this must be set the fact that prices vary  significantly (by up to 40%) between Member States for the  same product which indicates separate national markets.  26.<ind> The proposed operation will be examined on the  narrowest possible definitions, specifically, the individual  wood based panel board products and at the national level  for the three countries most affected by the operation,  France, Germany and the United Kingdom. If the transaction  does not give rise to competition questions at these  narrowly defined levels it will not give rise to  difficulties at the Community or EEA level.  <ind> Assessment  27.<ind> The three tables below show, for each wood based  panel board product the sales of NHL and Glunz in France,  Germany and the United Kingdom :    Sales of Panel Board Products  France, 1000s of m³, 1993  <tab> NFI [Includes agency sales of both NFI and third party  products] <tab> Glunz <tab> Total <ind> Market Share %  Particleboard <tab> [] <tab> [] <tab> [ ] <tab> [1025]  Plywood <tab> [ ] <tab> [ ] <tab> [ ] <tab> [1025]  MDF <tab> [ ] <tab> [ ] <tab> [ ] <tab> [3550]  NonMDF fibreboard <tab> [ ] <tab> [ ] <tab> [ ] <tab>  [5065]  OSB <tab> [ ] <tab> [ ] <tab> [ ] <tab> [4560]  TOTAL <tab> [ ] <tab> [ ] <tab> [ ] <tab> [2540]    Sales of Panel Board Products  Germany, 1000s of m³, 1993  <tab> NFI [Includes agency sales of both NFI and third party  products] <tab> Glunz <tab> Total <tab> Market Share %  28.  Particleboard <tab> [ ] <tab> [ ] <tab> [ ] <tab> [015]  Plywood <tab> [ ] <tab> [ ] <tab> [ ] <tab> [015]  MDF <tab> [ ] <tab> [ ] <tab> [ ] <tab> [015]  NonMDF fibreboard <tab> [ ] <tab> [ ] <tab> [ ] <tab> [015]  OSB <tab> [ ] <tab> [ ] <tab> [ ] <tab> [4055]  TOTAL <tab> [ ] <tab> [ ] <tab> [ ] <tab> [520]    Sales of Panel Board Products  United Kingdom, 1000s of m³,  1993   <tab> NFI <tab> Glunz <tab> Total <tab> Market Share %  Particleboard <tab> [ ] <tab> [ ] <tab> [ ] <tab> [2540]  Plywood <tab> [ ] <tab> [ ] <tab> [ ] <tab> [015]  MDF <tab> [ ] <tab> [ ] <tab> [ ] <tab> [015]  NonMDF fibreboard <tab> [ ] <tab> [ ] <tab> [ ] <tab> [015]  OSB <tab> [ ] <tab> [ ] <tab> [ ] <tab> [7590]  TOTAL <tab> [ ] <tab> [ ] <tab> [ ] <tab> [1530]    29. NFI does not sell particle board or nonMDF fibreboard in  any of the three member states. The proposed operation will  not therefore result in an increase in market power as there  is no addition of market shares for these products.  30. With regard to MDF, NFI has no sales in France and  Germany and in the United Kingdom its sales are  [insignificant in relation to] Glunz's sales. The proposed  transaction will not therefore result in any significant  change in market position.  31. In France the effect on market share for plywood arising  fromaddition of NFI's share of [insignificant] to Glunz's  existing [1025%] is minimal and will not create a dominant  position. In Germany and the United Kingdom the combined  market shares of NFI & Glunz are [020%] and [020%]  respectively. These market shares are very small and  certainly will not create a dominant position.  32. For OSB the joint venture and Glunz will have market  shares of [4560%], [4055%] and [7590%] in France, Germany  and the United Kingdom respectively. This is not surprising  as they own the only two production units in the EEA.  However, a new plant with a capacity exceeding the combined  capacity of NHL and Glunz, is being built by a joint venture  between the US forestry products group, Louisiana Pacific,  and the Irish Stateowned forestry company, Coillte. It will  be operational in 1996. This plant is being built in Ireland  which has a tiny home market so the majority of its output  will have to be exported, with the most likely destinations  being France, Germany and particularly the United Kingdom.  33. OSB is a new product (in the EEA) which is a substitute  for other more traditional wood based panel board products  such as particle board and plywood. The combined market  shares of Glunz and NHL in a market for particle board and  OSB in France, Germany and the United Kingdom are [1530%],  [015%] and [2540%] respectively. In a market for plywood and  OSB they are [1025%], [015%] and [520%]. None of these  market shares will result in NHL/Glunz acquiring a dominant  position.  34. Independent market research indicates that the  consumption of OSB in the EEA will increase by over 500% by  2004. In view of the new OSB capacity coming on stream next  year it is extremely unlikely that Glunz/NHL would be able  to maintain its market shares at current levels. Furthermore  its ability to raise prices is constrained by the fact that  its main uses are replacing existing bulk products, such as  particle board and plywood, for which the consumption is at  least ten times greater.  VI ANCILLARY RESTRAINTS  35. NFI covenants that, for as long as it remains a  shareholder in NHL, it will not engage in the manufacture or  sale of panel board products in Europe, and for an  additional [ ] after it ceases to be a shareholder it  covenants not to manufacture or solicit sales of any panel  board products in the UK. If NHL is engaged in the  manufacture of OSB in Europe (other than UK or Ireland), NFI  covenants not to manufacture OSB in Europe for a period of [  ] after it ceases to be a shareholder there are no  restrictions on the sale or marketing of OSB by NFI in this  period. Finally the Deed of Covenant allows NFI to appoint  NHL as distributor for its products manufactured outside the  European Union.  36. The noncompetition covenants are directly related to the  notified operation and necessary for its successful  operation. They express the continued withdrawal of NFI from  the European panel board sector otherwise than through the  joint venture and may, therefore, be regarded as ancillary  to the operation.  37. As to the distribution agreement for Europe it can be  considered as ancillary so far as it guarantees an outlet  for NFI's exports following its withdrawal from the  Community markets for the production and distribution of  panel board products.  38. Glunz covenants that while it remains a shareholder in  NHL and for [ ] thereafter it will not manufacture panel  board products in the UK and that it will not solicit sales  of panel board products in the United Kingdom during a  period of five years from the formation of the joint  venture.  39. This covenant prevents Glunz from undermining the  position of the joint venture by making capital investments  in close proximity to the joint venture or by seeking orders  that would otherwise be satisfied by the joint venture. The  covenant is of limited geographical coverage and offers a  degree of protection to the joint venture and consequently  to the interests of the withdrawing partner. It may also  therefore be regarded as ancillary to the establishment of  the joint venture. As it is objectively necessary at least  during the startup period to protect the transfer of assets,  goodwill, technical know how and sales expertise, a period  of five years is not unreasonable.  VII CONCLUSION  40. It follows from the above 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.  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.  For the Commission,