CELEX: 31991M0113
Language: en
Date: 1991-12-19 00:00:00
Title: COMMISSION DECISION of 19.12.1991 declaring a concentration to be compatible with the common market (Case No IV/M.113 - COURTAULDS / SNIA) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31991M0113

COMMISSION DECISION of 19.12.1991 declaring a concentration to be compatible with the common market (Case No IV/M.113 - COURTAULDS / SNIA) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 333 , 24/12/1991 P. 0000

 COMMISSION DECISION of 19.12.1991 declaring a concentration to be compatible with the common market  (Case No IV/M.113 - COURTAULDS / SNIA) 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 Registered with advice of delivery To the notifying party Dear Sirs, Subject:<tab> Case No. IV/M113 - Courtaulds/SNIA <tab> Notification of 19.11.1991 pursuant to Art. 4 of <tab> Council Regulation No. 4064/89  THE AGREEMENT  1.<tab> The Commission has received a notification of a proposed concentration by which the undertakings  Courtaulds plc ("Courtaulds") and SNIA Fibre S.p.A. ("SNIA") create a joint venture in the acetate filament yarn  sector by way of the transfer of their existing activities to a newly created company (Novaceta Limited).  THE PARTIES  2.<tab> SNIA is a publicly quoted company, its majority shareholder being SNIA BPD S.p.A. (77.68%).  SNIA  BPD S.p.A. shareholders, with in excess of 2% of the voting rights, are Sicind S.p.A. (45.48%) and Mediobanca  (11.35%).  Sicind S.p.A. has the power to appoint more than half of the members of the board of directors of  SNIA BPD S.p.A.  Sicind S.p.A. is a wholly owned subsidiary of Fiat S.p.A.  SNIA's principal activities include  the manufacture and sale of fibres in the form of filament and staple.  3.<tab> Courtaulds is a publicly quoted company.  Its two largest shareholders are insurance companies:  Provident Mutual (5.6%) and Prudential Corporation (3.9%).  No other holding exceeds 3%.  Courtaulds'  principal activities include the manufacture and sale of coatings, packaging, chemicals, fibres and film.  COMMUNITY DIMENSION  4.<tab> The Fiat group (whose turnover must be taken into account when calculating SNIA's turnover under  Article 5(4) of the Merger Regulation) on its own has a worldwide turnover well in excess of 5,000 million  ECU.  5.<tab> Courtaulds' and SNIA's Community-wide turnover each exceeds 250 million ECU.  The parties do not  achieve more than two-thirds of their turnover in one and the same Member State.  Thus, the operation has a  Community dimension.  CONCENTRATION  6.<tab> Courtaulds and SNIA will transfer to a newly created company "Novaceta Limited", in which each will  hold a 50% participation, all their existing acetate filament yarn interests, namely:  -<ind> their existing joint venture (also called "Novaceta") which produces filament yarn in Magenta in Italy  and was formed in 1953; -<ind> Courtaulds' own acetate yarn operations in the UK ("CFY"); -<ind> SNIA's own acetate yarn operations in Vercelli in Italy ("ITV").  The respective turnover of these three enterprises is as follows:   1990, Mio. ECU <tab> EC <tab> Worldwide Novaceta <tab> 65 <tab> 95 CFY <tab> 66 <tab> 85 ITV <tab> 35 <tab> 35 TOTAL <tab> 166 <tab> 215  Novaceta Limited will be jointly controlled by Courtaulds and SNIA (each appointing equal numbers of directors  to Novaceta Limited's board).  Courtaulds has previously sold or closed its other activities in the continuous  filament yarn sector, and retains no interests in this sector other than a minority interest (12% of the shares and  the appointment of one director) in INACSA S.A., a Spanish manufacturer of acetate yarn which has 9% of the  Western European market (see below under "Assessment").  Furthermore, Courtaulds is in the process of  terminating even this interest in INACSA.  SNIA will retain a non-controlling interest in Nuova Rayon S.p.A,  which manufactures viscose filament yarns with a market share in Western Europe of 0.4%; SNIA will also  retain its own polyamide production operation with a market share in Western Europe of 4.1% .  Given that  viscose and polyamide yarns, despite a certain degree of product substitutability, are not part of the same product  market as acetate yarns (see below under "relevant product market"), there is no room for co-ordination of  market  behaviour between SNIA and Novaceta Limited.    7.<tab> Courtaulds and the joint venture will enter into a supply agreement (the "Flake Agreement").   Courtaulds will supply around [deleted for publication] of the joint venture's requirement; [deleted for  publication].  The total amount of flake produced worldwide is about 836,000 tonnes, of which the great majority, some  698,000 tonnes, is used by the flake producers for their in-house activity and only 138,000 tonnes are sold as a  commodity to external customers.  Since the JV's total flake requirements are expected to be about [deleted for publication] tonnes per annum, since  unlike the other principal suppliers of acetate yarns in the world, the joint venture will not be vertically  integrated back into flake and since in purchasing flake on the open market the joint venture will be in  competition with other non-vertically integrated yarn, plastic and cigarette tow producers, the parties consider it  necessary to assure [deleted for publication] a source of supply for the joint venture.  This is the context in which  the agreement was conceived, and because of its non-exclusive nature [deleted for publication], this agreement is  not expected to limit the autonomy of the joint venture.  8.<tab> In addition, the following agreements are foreseen:  -<ind> Four lease agreements in respect of the three UK sites (owned by Courtaulds) and the Italian site  (currently owned by ITV and to be transferred to SNIA). -<ind> An agreement providing for certain services (including safety, fire, security, environment, electricity,  steam, gas, water and effluent treatment) to be made available on arm's length terms by Courtaulds to the joint  venture at two of its sites in the UK (Spondon and Little Heath) which will be shared with Courtaulds' retained  operations in other sectors (cigarette tow, films, tool handles, etc.). -<ind> An Administrative Services Agreement whereunder SNIA will provide certain administrative support  services (tax, legal, etc) to the joint venture in Italy on arm's length terms for five years (terminable on 12  months' notice). -<ind> A Know-How and Technical Services Agreement for a period of five years (terminable on 12 months'  notice).  The know-how covered by this agreement relates to technical assistance of the type which a supplier  would generally provide a customer to help it to run machines using the products supplied.  None of these agreements jeopardise the joint venture's capacity to perform on a lasting basis all the functions of  an autonomous economic entity since by their very nature they  do not enable the parent to exercise any  significant influence on the joint venture.  Regarding the lease agreements, it has to be stressed that they concern  only the premises; the joint venture will acquire ownership of all business  assets (including plant, machinery,  equipment, stock, intellectual property and the right to use assets held under leasing arrangements with third  parties).  In view of these facts, the joint venture will perform on a lasting basis all the functions of an autonomous  economic entity and the proposed operation is to be considered as a concentrative joint venture within the  meaning of Article 3(2) of the Merger Regulation.  APPRAISAL  The relevant product market  9.<tab> The product to be manufactured and supplied by the joint venture is acetate yarn.  This is one of the  man-made continuous filament yarns.   Continuous filament yarns are a category of fibre material among the  wide range used by the textile industry.  They consist of continuous threads which can be extremely fine and can  be as long as is required.  Man-made yarns are to be distinguished from natural fibres such as cotton and silk.   Man-made yarns are themselves sub-divided into so-called "cellulosic" yarns (cupro, viscose and acetate) which  are extracted from wood-pulp, and "synthetic" yarns (polyester and polyamide) which are oil-based products.   Man-made filament yarns are used mainly in the following sectors: knitting, carpets, and woven products  (apparel, furnishings,  industrial fabrics and linings).  Over the last ten years the total worldwide production of  man-made continuous filament yarns has increased by about 35%; over this period the production of synthetic  yarns has increased by about 50% whilst that of "cellulosic" yarns has declined by about 18%.   10.<tab> The current annual West European consumption of acetate filament yarn amounts to about 45,000  tonnes, which represents only about 3.7% of total West European continuous filament yarn consumption (all  categories) and can be broken down approximately as follows:   End use <tab> % total acetate yarn production Knitting and other products <tab>  <tab> 24 Carpets <tab>   <tab> 0 Woven Products <tab> Linings <tab> 55 <tab> Apparel <tab> 16 <tab> Furnishings <tab>  5 <tab> <tab> 76 Total <tab>  <tab> 100  11.<tab> From this it is clear that the linings end-use is by far the most important as far as consumption of  acetate filament yarn is concerned.  Moreover, this is the only end-use in which acetate yarn has a significant  share:  Filament yarn<tab> % share of linings end-use Cupro <tab>  [Very small percentage] Acetate <tab> 30.6 Polyester <tab> 28.9 Viscose <tab> 28.1 Polyamide <tab> 12.4 Total <tab> 100  For other end-uses, the share of acetate yarn is below 5%.  12.<tab> For the woven products end-use category market values are as follows (West Europe 1989):  Woven Product Type <tab> (a) Total market Value (MEcu) <tab> (b) Acetate yarn % market share <tab>  Acetate yarn market value (MEcu) (a) x (b) Linings <tab> 490 <tab> 30.6% <tab> 150 Apparel <tab> 720 <tab> 5% <tab> 36 Furnishings <tab> 370 <tab> 2.8% <tab> 10  In view of this demand structure for acetate filament yarn, the present assessment pays particular attention to the  linings sector.  13.<tab> The various man-made continuous filament yarns are demand-substitutable to a degree, but their  different market positions are relatively well established, with acetate's main distinctiveness being its mid-range  price and its aesthetic qualities:-  a)<ind> Difference in price <ind> If the acetate yarn price is made equal to 100, the cupro price would be around 200, viscose at least 135,  polyester 65 and polyamide 90.  These differences are reflected in the price of finished linings fabric, where  acetate costs at least 20% more than polyester, but around 33% less than viscose.  b)<ind> Differences in Physical characteristics <ind> cupro is a cellulosic product of very high quality with regard to absorption, resistance and aesthetic  characteristics <ind> viscose is a cellulosic product with good moisture absorption and abrasion resistance, which has good  strength and produces solid colours in dyed form <ind> acetate is also a cellulosic product which is gentler to the touch than viscose, with good moisture  absorption but poorer abrasion resistance than viscose <ind> polyamide and polyester are synthetic products with poor moisture absorption. <ind> To some extent these differences in physical characteristics are due to the fact that "cellulosic" fibres are  extracted from wood pulp, whereas "synthetics" are oil-based products.  c)<ind> Market practice <ind> Acetate yarn is generally perceived by the fabric manufacturers who purchase it as a distinct product both  because of traditional ingrained buying habits and because of acetate's intrinsic technical characteristics within  the fabric manufacturing process.  14.<tab> In view of different price, performance and aesthetic characteristics, and because of market practice,  acetate yarn may be considered as constituting a distinct and separate relevant product market. Nevertheless,  despite the fact that it is appropriate to identify a distinct product market, there is still a certain degree of  substitutability with the other cellulosic and synthetic filament yarns, especially in the main end - use of acetate  (woven linings where acetate, viscose and polyester each account for around 30% - see above); this is to be taken  into account when assessing the competitive situation (see below).  The relevant geographic market  15.<tab> Within the Community and more generally within Western Europe (including EFTA countries) there  are no legal or technical barriers to trade in acetate filament yarn, and transport costs are below 5% .  In the  parties' view, as well as in that of some competitors [For example, Hoechst Celanese, AKZO, INACSA and  Montefibre.], the market for acetate yarn is a worldwide one.  However, in fact there exists an EC import tariff of  about 10%; imports into Western Europe of acetate yarn currently represent around 16% [This figure includes  4% of acetate yarn imports which, though of lower than average quality, is nevertheless usable.] of Western  European consumption and furthermore producers' differing market shares in different parts of the world  indicate separate geographical markets, of which the Western European market is one.    16.<tab> Nevertheless, the acetate yarn market includes elements of international trade of some significant  elements.  Indeed, in 1989 almost one quarter of the total acetate production of the three companies which will  form the proposed joint venture was exported to extra-EEC countries (especially to North Africa, and to Central  and Eastern Europe, but also to several other areas of the world). Furthermore, there has been a very significant  trend for imports of acetate yarn into Western Europe to increase over recent years (as indeed for imports of  other man-made filament yarns (see below)). Thus, significant potential import penetration from outside the  Community, whilst not indicating a geographical reference market wider than Western Europe, is to be taken  into account when considering possible  dominance resulting in significant impediment to effective  competition.  Assessment  17.<tab> After the establishment of the proposed joint venture, the Western European and worldwide acetate  yarn market shares of the most important competitors would be:   Western Europe [including EC & EFTA countries] %<tab> Worldwide  % Courtaulds <tab> <tab> <tab> <tab>  <tab> 32 SNIA Group <tab> <tab> <tab> <tab>  <tab> 10 Novaceta <tab> <tab> <tab> <tab>  <tab> 23 <tab> JV <tab> <tab> <tab> <tab>  <tab> 65 <tab> 14 Hoechst Celanese <tab> W.European production <tab>  <tab> 14 <tab> Imports<tab> <tab> <tab>  <tab> 6 <tab> <tab> <tab> <tab> <tab>  <tab> 20 <tab> 42 Inacsa<tab>  <tab> <tab> 9 <tab> 2 Eastman Kodak <tab> <tab> <tab> <tab> 5<tab> 6 Mitsubishi <tab> <tab> <tab> <tab>  <tab> -<tab> 6 Others <tab> <tab> <tab> <tab>  <tab> 1<tab> 30 Total <tab> <tab> <tab> <tab> <tab>  <tab> 100<tab> 100  18.<tab> In spite of the fact that the joint venture will hold a high West European market share, which could in  other circumstances suggest dominance, the operation will not be able to create a dominant position as a result of  which effective competition would be significantly impeded in the relevant markets. The strength of actual  competitors and the potential impact of imports and product substitutability leads the Commission to the  conclusion that this operation will not result in an appreciable freedom of action uncontrolled by market forces:  A.<ind> Actual competition  a)<ind> Effect on the parties  19.<tab> An important element to be taken into account in the assessment of the competitive significance of this  concentration is the fact that there already exists a joint venture ("Novaceta") which comprises around 45% of  the worldwide activities (in terms of turnover) of the parties in the acetate yarn market. This 50/50 joint venture  was established by the parties in 1953. This means that the proposed concentration has only a limited effect on  the relative competitive advantage of the parties in this market.  b)<ind> Strength of actual competitors  20.<tab> By far the strongest competitor of the proposed joint venture is Hoechst Celanese which is the largest  supplier of acetate yarn worldwide, with 42% of the worldwide market (as against 14% for the new  Joint  Venture) and total capacity of some 93,000 tonnes, of which around 6,000 tonnes are located in the EC and the  rest in the US, Canada and Mexico.  With both American and European production facilities, Hoechst Celanese  is ideally placed to undertake a global strategy for its acetate yarn business.  Its current strategy is to keep its EC  production capacity fully utilised to service the West European market, whilst sourcing the balance of its West  European sales (currently about 30%, or six percentage points out of a 20 percent market share - see above) from  its American operations, in which it enjoys considerable production cost advantages (see below under "imports").  Indeed, in America, Hoechst Celanese has the particular advantage of being vertically integrated back to flake,  and indeed right back to acetic anhydride which, after wood pulp, is the principal raw material for flake.  Thus,  if the proposed joint venture were to impose significant price increases or other unfavourable sales conditions,  Hoechst Celanese could quickly provide significant amounts of acetate yarn, particularly by increasing its  imports into the EC from its American operations.   21.<tab> In the context of this concentration, Courtaulds is disposing of its minority interest in INACSA, the  third ranking competitor on the market, [deleted for publication].  This will ensure the existence of three  independent producers in the West European market.  B.<ind> Potential competition  a)<tab> Potential competition from imports  22.<tab> Although at present imports into Western Europe of acetate yarn represent only about 16% of Western  European consumption (see above) the trend in recent years has been for imports to increase very significantly.   This is true for both yarns and woven fabrics:   Imports - increase 1985-90 <tab> All products <tab> Acetate products Continuous filament yarn <tab> + 100% <tab> + 33% Fabrics <tab> + 90% <tab> + 63%  Furthermore, a comparison of the ratio between extra-EEC exports and extra-EEC imports of man-made fibres  (all products) over the same period gives the following results:  <tab> 1985: 1.41 (exports greater than imports) <tab> 1988: 1.0 (that is, imports equalled exports) <tab> 1990: 0.69 (imports greater than exports).  23.<tab> The increasing trend in imports of acetate yarn is taking place despite the existence of additional costs,  amounting in total to around 15%, inherent in the importation procedure (that is, an EC tariff of 9-10% and  transport costs of about 5%).  These tariff and transport costs are largely offset by the fact that extra-EC prices of  acetate filament yarn are up to 20% cheaper than EC-sourced yarn.  These prices are the  result of inherently  lower production costs in extra-EC locations, due in turn to:  -<ind> lower energy costs: for example a comparison of 1990 electricity costs for industrial users reveals the  following statistics (in ECU per kilowatt):-  <tab> Italy : 0.077 <tab> UK    : 0.055 <tab> US    : 0.037 <tab> Canada: 0.028  -<ind> lower labour costs: for example, 1990 costs per operator hour were:-  <tab>                ECU <tab> Italy      :  12.6 <tab> US         :   7.6 <tab> S. Korea [South Korea is a very substantial producer of cellulosic fabrics.]:   2.4  -<ind> economies of scale, which the proposed joint venture could not easily achieve given its physical  dispersion over several different sites in the UK and Italy.  The approximate equivalence of additional import costs and lower extra-EC production costs is strongly  indicated by recent surveys which shows that current average prices of Community-sourced acetate yarn are  similar to those of landed prices from the US and Far East.  Furthermore, it should be noted that there are no quota restrictions on the importation of acetate yarn from the  major extra-EEC producing countries (United States, South Korea, Japan) within the context of the 1974 Multi- Fibre Agreement.  Again, within the context of the current 'Uruguay Round' of GATT negotiations, any changes  in the current tariff of 9-10% could only be downwards.  24.<tab> It therefore appears that despite its high share of the West European acetate yarn market, the proposed  joint venture would be subject to strong potential competition from imports from non-European producers.   Several clients of the proposed joint venture have confirmed their preparedness to switch to imported acetate  yarn if appropriate.   25.<tab> Furthermore, an increase in filament yarn price by the joint venture would tend to pull in imports not  only of acetate yarn but also of acetate fabrics (especially since acetate yarn constitutes about 50% of the total  manufacturing cost of acetate fabric); this would in turn depress demand from the joint ventre's main clients for  the yarn produced by the joint venture itself.  This means that any attempt by the Joint Venture to increase prices  or otherwise influence detrimentally market conditions would incur the risk that its own clients, such as linings  producers, would be put out of business by imports of ready-made fabric; thus any such attempt would not  constitute rational economic behaviour.   b)<ind> Potential competition from other products  26.<tab> Although the acetate yarn market is a distinct one, it nevertheless remains true that acetate yarn  supplies only about 30% of the principal end-use, that is linings, with viscose and polyester also supplying  around 30% each, the remaining 10% of requirements being met by polyamide.  In the event that the joint  venture were to impose significant price increases for acetate yarn, it could be expected that purchasers would at  least to some extent switch to the other yarns, despite their different performance and aesthetic characteristics.   Some competitors consider that their viscose and polyester yarns compete with acetate in the linings end-use.  Amongst these is AKZO which is the market leader on the closest filament yarn market, that is viscose with 62%  of the West European Market.  There exist throughout the world financially strong producers of these other filament yarns, such as Hoechst  Celanese, AKZO, Eastman Kodak, Mitsubishi, Dupont, ICI, and Rhône-Poulenc. Most of these companies each  individually cover all, or the greater part of, the whole man-made filament yarn product range.  In fact acetate  filament yarn capacity represents only about 4% of total worldwide filament yarn capacity.    c)<ind> Possible new market entrants  27.<tab> The fundamental technical know-how for the manufacture of acetate yarn is well known and available,  not only to those companies involved in yarn manufacture but also to those involved in other downstream acetate  businesses (such as tow, film and plastics).  28.<tab> Worldwide, there are several producers of acetate flake (such as Daicel and Rhône-Poulenc) with  significant operations in downstream acetate activities who could enter the West European continuous filament  yarn market (and the linings sub-market) through the manufacture of acetate yarns.  29.<tab> Furthermore, the current development of micro-fibres will enable synthetic yarns even more closely to  match the performance of acetate in certain key performance characteristics where acetate has historically  enjoyed an advantage.  This will significantly increase the competitive pressures on acetate yarn producers.  ANCILLARY AGREEMENTS  30.<tab> In connection with the concentration, the parties will enter into the above-mentioned ancillary  agreements with the joint venture (a supply agreement (the "Flake Agreement"), the lease agreements, the  service and know-how agreements). Furthermore, there is a non-competition clause in the Shareholders  Agreement whereunder each of SNIA and Courtaulds undertakes not to compete with the joint venture in the  manufacture or supply of acetate yarns for so long as it remains a shareholder in the joint venture and for two  years after it sells its shareholding.  31.<tab> The flake supply agreement, which does not stipulate exclusive purchase or supply obligations, has to  be considered as a restriction ancillary to the present concentration since its primary aim is that of ensuring the  continuity of supply to the joint venture of products necessary to the activities taken over. Furthermore, the  agreement will provide a certain continuity of outlets of flake for the parent  (Courtaulds), a continuity which has  hitherto been assured by Courtaulds' supplying its subsidiary CFY.  However, even though demand for flake  outstrips supply, the parties have not put forward specific arguments justifying the objective need for an  agreement of [deleted for publication] duration. It is therefore considered that the period necessary for the  replacement of the dependent relationship by autonomy in the market should be limited to [a period which does  not exceed five years].  32.<tab> Concerning the non-competition clause, it has to be considered as a restriction ancillary to the  concentration since it expresses the commitment of the parties to the Joint Venture, and ensures that the Joint  Venture acquires the parties' goodwill in this field. It aims at expressing the reality of the lasting withdrawal of  the parents from the market assigned to the joint venture.  33.<tab> The three service agreements have to be considered as restrictions ancillary to the concentration since  they aim to ensure to the joint venture some services which are either physically linked to the location of some of  the Joint Venture's sites, or are essential for start-up activities and in their absence the present concentration  could be implemented only under more uncertain conditions or at a substantially higher price.    34.<tab> Therefore, the above mentioned agreements including the supply agreement limited to a [a period  which does not exceed five years] duration, are qualified as ancillary restrictions, and are covered by the decision  on this concentration.  35.<tab> The four lease agreements concerning the premises are among the elements constituting the  concentration; therefore the question as to whether they have to be qualified as ancillary restrictions does not  arise.  CONCLUSION  36.<tab> It appears from the above factors that, even though the joint venture would have a high share of the  Western European acetate filament yarn market, it will be subject to the threat of significant potential  competitive pressure, particularly from imports, but also from product substitution and new market entrants.   Thus the joint venture would not be in a position to impose significant price rises or other sales conditions  unfavourable to the consumer.    37.<tab> Based upon the above findings the Commission has come to the conclusion that the proposed  concentration does not raise serious doubts as to its compatibility with the common market.  For the above reasons the Commission has decided not to oppose the notified concentration and to declare it  compatible with the common market.  This decision is adopted in application of Article 6(1)(b) of Council  Regulation No. 4064/89.  For the Commission,