CELEX: 31992M0239
Language: en
Date: 1992-09-04 00:00:00
Title: COMMISSION DECISION of 04.09.1992 declaring a concentration to be compatible with the common market (Case No IV/M.239 - AVESTA / BRITISH STEEL / NCC / AGA / AXEL JOHNSON) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31992M0239

COMMISSION DECISION of 04.09.1992 declaring a concentration to be compatible with the common market (Case No IV/M.239 - AVESTA / BRITISH STEEL / NCC / AGA / AXEL JOHNSON) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 258 , 07/10/1992 P. 0000

 COMMISSION DECISION of 04.09.1992 declaring a concentration to  be compatible with the common market (Case No IV/M.239 -   AVESTA / BRITISH STEEL / NCC / AGA / AXEL JOHNSON) 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 parties Dear Sirs, Subject: <ind> Case No. IV/M.239 - Avesta / British Steel / NCC  / AGA / Axel / Johnson <ind> Your notification pursuant to Article 4 of Council  Regulation (EEC) No. 4064/89  1.<ind> The proposed concentration concerns a joint venture in  the stainless steel sector, to be known as Avesta Sheffield AB  (ASAB), between British Steel and three Swedish companies, NCC,  AGA and Axel Johnson. The operation was notified to the  Commission on the 4th August 1992 pursuant to Article 66 of the  Treaty of Paris (the ECSC Treaty) and Article 4 of Council  Regulation (EEC) No. 4064/89. This decision is only concerned  with those products which fall within the jurisdiction of the  EEC Treaty (and representing approximately 20% of the  transaction) [The products under the ECSC Treaty will be dealt  with in a separate Commission decision pursuant to Article 66  of that Treaty.].  2.<ind> After examination of the notification, the Commission  has concluded that the notified operation falls within the  scope of the Merger Regulation, and that it does not raise  serious doubts as to its compatibility with the common market.  <tab> THE PARTIES AND THE OPERATION  3.<ind> British Steel plc (BS) was created in 1988 by the  privatisation of the British Steel Corporation whose business  was vested in BS. BS is divided into four main business  groupings:  British Steel General Steels, British Steel Strip  Products and British Steel  Stainless which manufactures steel  products and sells both directly to customers and through  British Steel Distribution, which also processes and  distributes worldwide steel produced outside BS.  4.<ind> NCC B (NCC) is the holding company for the NCC group  which is principally involved in the contracting and real  estate sector in Sweden. NCC is controlled by the Johnson  family mainly through a family foundation.  5.<ind> Axel Johnson HAB (Axel Johnson) is a wholly owned  subsidiary of Axel Johnson AB and acts as a holding company for  the Group's shareholding in Avesta. Axel Johnson is principally  involved in the supply of fast-moving consumer goods. It is in  turn a wholly owned subsidiary of Axiom International AB the  entire share capital of which is owned by Antonia Axson Johnson  and her family.  6.<ind> AGA AB (AGA) is a Swedish company and parent company of  the AGA Group whose core business is the supply of industrial  and medical gases and related equipment and services. AGA is  also a supplier of cold storage services.  7.<ind> Avesta AB (Avesta) is a Swedish company which is the  operating parent of the Avesta Group. The business of Avesta is  the manufacture and sale of stainless steel products. Avesta is  currently under the control of NCC and Axel Johnson who  together hold 54.7% of its shares. The other shareholders of  the Avesta Group are AGA and the public with, respectively,  12.1% and 33.2% of the outstanding shares.  8.<ind> Prior to completion of the proposed operation, BS has  concentrated the assets to be contributed to ASAB in British  Steel Stainless Limited (the "hive down"). The actual  transaction will be effected by the issue by Avesta to BS of  such number of new shares as would result in BS holding 40% of  the equity of the joint venture. Avesta will also issue loan  stock to BS in exchange for substantially all of BS's stainless  steel production and distribution activities.  9.<ind> After implementation of the proposed operation, the  principal shareholders of ASAB will be BS (40%), NCC (25.1%),  Axel Johnson (7.54%) and AGA (7.23%). They will conclude a  Shareholders' Agreement which will regulate the relationship,  rights and obligations between themselves.  I.<tab> COMMUNITY DIMENSION  10.<ind> The operation has a Community dimension. The worldwide  turnover of all undertakings concerned amounts, in their  respective last financial year, to more than ECU 5,000 million.  The Community-wide turnover of each of BS, Avesta and AGA  exceeds ECU 250 million. The undertakings involved do not  achieve more than two-thirds of their aggregate Community-wide  turnover within one and the same Member State.  II.<tab> CONCENTRATION  <tab> Joint Control  11.<ind> BS will enter into a Shareholders' Agreement with NCC,  Axel Johnson and AGA, who will between them have 39.9% of the  shares in ASAB. The Shareholders Agreement provides for joint  control of ASAB within the meaning of the Merger Regulation.  12.<ind> The Shareholders' Agreement provides that major  decisions such as, inter alia, increases in share capital, the  appointment and dismissal of the Managing Director, changes in  the Articles/Statutes, acquisitions or disposals above a  certain size, and the approval of annual operating budgets and  business plans require the prior written consent of (a) BS and  (b) NCC and at least one of Axel Johnson and AGA.  <tab> Full function JV  13.<ind> Avesta will continue its existing activities in the  area of stainless steel and will take over those of BS. The  company will, therefore, be a joint venture that will perform  on a lasting basis all the functions of an autonomous entity.  All the necessary tangible and intangible assets for it to act  autonomously will be vested in ASAB for an indefinite period.  Moreover, ASAB will be listed on the stock exchanges in  Stockholm and London.  <tab> Absence of coordination of competitive behaviour  14.<ind> The Swedish Shareholders have no steel production or  distribution business other than their holdings in Avesta. They  will covenant not to compete with ASAB in the manufacture or  sale of stainless steel in the EC, EFTA, USA, Canada  and  Mexico for a period of five years. There is, therefore, no  possibility of coordination of competitive behaviour between  ASAB and the Swedish shareholders nor between BS and the  Swedish shareholders in the production of EC products.  15.<ind> BS will contribute almost all its stainless steel  activities to ASAB. Only negligible stainless steel  distribution and processing activities in the EC will remain  with BS, where it is not feasible to separate out those  activities of a wider business (see next paragraph).  16.<ind> BS gives the same non-compete covenant as the Swedish  shareholders with certain exceptions concerning some of its  subsidiaries. Three of them have minor sales within the EC.  These subsidiaries, however, will only be entitled to sell  stainless steel manufactured by third parties either in "de  minimis" quantities as part of a package or where customers  make a specific request as part of an order. "De minimus"  activities of this kind do not give rise to any likelihood of  coordination that could substantially alter the concentrative  nature of a given notified operation. Furthermore, it would be  commercially unreasonable for BS to re-enter the stainless  steel production market later given the capital investment  necessary to do so.  17.<ind> BS will remain active in other steel markets but this  will not give rise to coordination of competitive behaviour  under the Merger Regulation and in respect of EC products  between BS and ASAB. Stainless steel is a different market from  those in which BS will remain active, and  the production  process of stainless steel is different from that for other  steels. There is only some degree of supply-side  substitutability in limited circumstances, relating to certain  intermediate processes. On the demand side, the product  characteristics and end uses of stainless steel are  substantially different from other types of steel.  18.<ind> The stainless steel manufacture by ASAB will not rely  on BS's upstream activities. The main raw material is stainless  steel scrap which is traded internationally as a commodity.  There is no dependence on the carbon steel manufacturing  activities of BS. So far as downstream activities are  concerned, BS is placing its stainless stockholding activities  in ASAB (except for the de minimis exceptions given above) so  ASAB will rely upon its own distribution network of service  centres and warehouses to supply the European stainless steel  market.  19.<ind> In view of the above, there are no grounds to believe  that the establishment of ASAB will result in coordination of  competitive behaviour between the parents and the joint venture  or between the parents themselves. Thus, the notified operation  constitutes a concentration within the meaning of Article 3 of  the Merger Regulation.  III.<tab> COMPATIBILITY WITH THE COMMON MARKET  <tab> Relevant Product Market  20.<ind> The joint venture company will be producing stainless  steel which is an alloy containing 10.5% or more of chromium,  with or without other alloy elements, and less than 1.2% of  carbon. Its production will principally consist of flat  products, both cold rolled and hot rolled, long products, semi- finished products and welded tubes. Only some of these products  fall under the EC treaty and are thus covered by the Merger  Regulation and the products with which this decision is  concerned are restricted to cold rolled flat products (less  than 500mm wide) and welded tubes.  21.<ind> All cold rolled flat products (sheet and coil)  together can be considered as a separate product market because  of the high degree of supply side substitution. Mills can roll  widths of below 500mm (EC products) and above (ECSC products)  and material of less than 500mm can be slit from wider coils.  22.<ind> As with cold-rolled flat products, there is a high  degree of supply-side substitutability between different sizes  and types of tube. Indeed, the market may in fact be wider and  also include seamless stainless steel tubes (which neither BS  nor Avesta make) although it can be left open whether seamless  tubes are part of the market since to include them would not  change the competition assessment. British Steel and Avesta do  not manufacture stainless steel seamless tubes although they do  distribute small amounts. This market is distinguished from  that for ordinary carbon steel  welded tubes both by their  specific technical and aesthetic properties and by price:  welded stainless steel tubes cost 5-6 times more than welded  carbon steel tubes (£ 1800-1900 as opposed to £ 300-400 per  ton).  23.<ind> Only a third of EC production of stainless steel  products is sold directly by mills to end consumers, the  majority being distributed to end users through stockholders  and service centres which perform the traditional wholesaling  function of taking bulk orders from the manufacturer and  selling on in smaller quantities. In recent years stockholders  have developed their in-house processing facilities in order to  add value and improve their service to customers. Such  processing includes cutting to length, slitting, shearing and  polishing. Both Avesta's pre-existing business and BS's  stainless steel business have developed a distribution network  of service centres and warehouses. This downstream distribution  and service activity constitutes a separate market, the  relevant product market being the stockholding of all stainless  steel products rather than individual markets for each product.  Whilst there is a degree of specialisation in stockholding, the  majority of stainless steel stockholders carry most stainless  steel product groups and it is reasonable therefore to consider  the overall market for the distribution of stainless steel  products [See the decision of 29.04.1991 in case No. IV/M.073 -  Usinor/ASD]. For the purposes of this analysis under the Merger  Regulation, only the distribution of EC products is, however,  relevant.  <tab> Relevant geographic Market  24.<ind> From an economic point of view, the relevant  geographic market for stainless steel products appears to be  Western Europe (including both EC and EFTA Member States).  However, the competition analysis is not changed if the EC  market only is taken and the following assessment is based on  the EC market. The market for stainless steel products is said  to be substantially homogeneous, a condition which is assured  by the extensive trade in stainless steel between the countries  of Western Europe. For example, the share of imports from other  EC Member States in the UK's consumption of cold-rolled flat  products is 41%, and the equivalent figures for Germany and  France are 40% and 47% respectively. A similar degree of intra- EC trade exists in stainless steel welded tubes. Despite the  relatively high market share enjoyed by the major steel  producers in their own national market, the ability of  stainless steel producers to sell their products throughout the  Community leads to the conclusion that the relevant geographic  market is at least Community-wide.  25.<ind> The relevant geographic market for stainless steel  distribution and service activities must be considered on two  levels. BS and most of the stainless steel producers in the  Community have developed their own distribution networks both  within and beyond their national markets. In evaluating the  implications of this vertical integration for competition  between stockholders it is necessary to consider the supply of  stainless steel products to stockholders at a Community level.  However, stockholding is a local service and the geographic  area serviced by an individual depot will be determined by  transport costs and delivery times.  For stainless steel  transport costs are less important than for carbon steel  because of the higher value of the product. The geographical  market in which a depot operates will also be determined by the  location of competing stockholders' depots and in addition  stockholders compete to some extent with direct sales from the  producing mills. Hence the effect of the concentration in  relation to this activity needs also be assessed at a regional  level. BS suggested that it is national rather than regional  markets which are relevant for the distribution of stainless  steed products, but as is shown below the competition analysis  is unaltered if the stricter market definition is used.  <tab> Assessment  26.<ind> Cold rolled flat products account for approximately  53% of stainless steel consumption in Western Europe. A split  of the market between material under 500mm and over 500mm is  not practicable, primarily because it is an artificial division  relating to a production technology at the time of the Treaty  of Paris (1951) which has since been largely replaced by  rolling wide and slitting to narrower widths but also because a  significant amount of slitting of wide coil to narrow is  carried out at service centres as well as at the producing  mill. However, it is estimated that some 25% of all mill  deliveries to Europe in 1991 were narrower than 500mm. In the  case of Avesta some 20% of total deliveries to Europe were  ultimately sold in widths less than 500mm.  27.<ind> On the basis of the parties' market shares in 1991 the  joint venture would have a combined market share of 12% of the  cold rolled flat products market in the Community. The  remainder of the market is supplied by about seven major  competitors.  28.<ind> Welded and seamless tubes account for 6% of stainless  steel consumption in Western Europe. ASAB's combined market  share for welded tubes in the Community would be 15% (Avesta  12% and BS 3%) on the basis of 1991's figures. Approximately  half of the market is estimated to be accounted for by the four  largest competitors (including ASAB).  29.<ind> The parties estimate that 69% of total EC demand for  stainless steel products in 1991 was met by stockholders. Of  this demand, 13% was supplied by stockholders owned by BS or  Avesta. The parties' stockholding operations overlap in only  three areas of the EC: the West Midlands in the UK (Avesta has  a service centre in Birmingham and there are British Steel- owned service centres at Wednesfield and West Bromwich), the  Ruhr (Avesta has a service centre at Willich and BS has a  service centre at Hilden and a warehouse at Ratingen) and  possibly the Parisian region (Avesta has a warehouse at Arras  and BS one at Senlis). Warehouses provide a simple distribution  service ex-stock whilst service centres process  (cutting/slitting/ polishing) material as  well as selling from  stock. In all three areas there are numerous competing  stockholders, even if the area of operation is considered to be  regional rather than national (in the West Midlands of the UK  there are nearly 70 competitors, at least 11 in the Paris  region and over two dozen in the Ruhr). Barriers to entry to  stockholding are, in any case, low requiring only warehouse  space, working  capital and materials handling equipment  (although certain specific types of value-added processing may  require greater investment).  30.<ind> Despite ASAB's vertical integration downstream into  stockholding there is little incentive for it to refuse to  stock other steel producers' products because most producers  have their own distribution network and secondly because of the  large number of independent stockholders. Such exclusive supply  arrangements would be more likely to reduce Avesta's share of  the stockholding market than harm its competitors. It is in any  case questionable whether the concentration would result in any  change in the competitive situation of the market in this  respect. Should ASAB refuse to supply other stockholders, these  stockholders would have little difficulty in finding  alternative sources of supply in the EC.  31.<ind> In view of the market shares of the proposed joint  venture company and the structure of the stainless steel  stockholding market, the concentration will not create or  strengthen a dominant position such as to significantly impede  effective competition with regard to the products which come  within the jurisdiction of the Merger Regulation.  IV. ANCILLARY RESTRAINTS  32.<ind> The Master Agreement provides for certain supply and  services agreements between British Steel and ASAB post- completion which are authorised on completion for a maximum of  two years since they are interim arrangements intended to  ensure continuity of supply for ASAB (and BS) until longer-term  arrangements can be made for new in-house or external  provision:  <tab> -<ind> BS will continue to provide to the joint venture  certain management and corporate services including  international affairs, energy and general supplies purchasing,  research and development and hire rolling and processing. The  joint venture's UK operation will continue to provide to BS  alloy and mineral purchasing services. The services agreements  are to be to a maximum of 2 years.  <tab> -<ind> BS has further agreed to act as an agent for the  UK-based operations of ASAB, selling all goods manufactured, or  procured for export, to British Steel Export Ltd. and also to  forward, as a UK agent for ASAB, certain goods sold by British  Steel Export Ltd. These agreements equally are to be limited to  two years.  33.<ind> BS is to grant to ASAB a non-exclusive, royalty-free  licence to use existing and future patents and know-how related  to improvements in the production and processing of stainless  steel. ASAB will agree to keep the know-how confidential for  the duration of the agreement plus five years. BS will allow  ASAB non-exclusive use of certain of its registered trademarks  provided the requisite quality levels are met. These  restrictions are necessary to allow the transfer of the full  value of BS's assets to ASAB.  34.<ind> As mentioned earlier, BS and the main shareholders of  Avesta will enter into a five-year non-competition agreement.  This restriction expresses the parties' intention to  concentrate their future activities in ASAB.  35.<ind> These agreements are directly related and necessary to  the implementation of the concentration and are, therefore,  ancillary within the meaning of the Regulation.  V.<tab> FINAL ASSESSMENT  36.<ind> Based on 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 the Council Regulation No. 4064/89.  For the Commission,