CELEX: 31995M0591
Language: en
Date: 1995-07-04 00:00:00
Title: COMMISSION DECISION of 04/07/1995 declaring a concentration to be compatible with the common market (Case No IV/M.591 - DOW / BUNA) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0591

COMMISSION DECISION of 04/07/1995 declaring a concentration to be compatible with the common market (Case No IV/M.591 - DOW / BUNA) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 181 , 15/07/1995 P. 0017

  COMMISSION DECISION of 04/07/1995 declaring a concentration  to be compatible with the common market (Case No IV/M.591 -  DOW / BUNA) according to Council Regulation (EEC) No 4064/89    (Only the English text is authentic).  The full text is  available through CEN, the English version of CELEX)  The paper version of the decision is available through the  sales offices of the Office of Official Publications of the  European Communities  PUBLIC VERSION  To the notifying parties  Dear Sirs,  Subject :<ind> Case No IV/M.591  Dow/Buna  <ind> <ind> Notification of 31.05.1995 pursuant to Article 4  of Council Regulation No 4064/89  1.<ind> On 31 May 1995 The Dow Chemical Company,  Horgen/Schweiz notified an operation by which it will  acquire a share of 80% in Buna SOW Leuna Olefinverbund GmbH  (BSL) from Bundesanstalt fuer vereinigungsbedingte  Sonderaufgaben (BvS)  the former Treuhandanstalt, Berlin.  I.<ind> The parties  2.<ind> Dow Europe is the European management company of the  Dow Chemical Company, Delaware/USA, the ultimate parent  company of the Dow Group (Dow), a worldwide producer of  petrochemicals, plastics, electrochemicals, agricultural  chemicals and pharmaceuticals. BSL constitutes the remaining  core of the publiclyowned Eastern German petrochemical  industry by merging Buna GmbH, Saechsische Olefinwerke GmbH  and Leuna Polyolefine GmbH. It is active mainly in Germany  in the production and sales of petrochemicals and  electrochemicals.  II.<ind> The operation  3.<ind> Under the Privatisation Agreement, the legal basis  of the notified operation, Dow will acquire a share of 80%  in BSL for a purchase price of 300 Mio DM. For a  transitional period BvS will own the remaining 20%. This  period consists of the Restructuring Period of 5 years  ending 31 May 2000 and a possible jointly decided extension  of 2 years. The Agreement contains putandcall options  allowing BvS to sell and Dow to acquire this 20% share at  any time after the latter of these dates.  4.<ind> The business plan which the parties agreed upon in  the privatisation agreement, covers an investment program of  about [Deleted; business secrets.] for the restructuring  period and is clearly intended to integrate BSL's business  activities totally with the purchaser's group of companies.  5.<ind> The parties have identified two ancillary  restrictions for which they request an assessment in  conjunction with the concentration. These concern mining  rights for the brine fields in Teutschenthal, and the  operation of the new LLDPE/HDPE plant, requiring a Dowlex  Licence, if the Privatisation Agreement is rescinded after  closing (no later than 31.12.1995).  III.<ind> Community dimension  6.<ind> The concentration will have a Community dimension.  The combined aggregate worldwide turnover of Dow and BSL in  1994 exceeded by far 5 000 MEcu. The aggregate Communitywide  turnover of each party concerned was also higher than 250  MEcu (Dow 1994 : 3 588 MEcu, BSL 1993 : 417 MEcu) and the  two parties did not achieve more than twothirds of their  respective Communitywide turnover in one and the same Member  State (Dow 25%, BSL 91% in Germany).  IV.<ind> Concentration  <ind> Joint control/no coordination  7.<ind> Until the exercise of one of the options mentioned  above unanimity is required for certain decisions of the  shareholders (Art. 16.2.3, 16.3, 17.3 of the Privatization  Agreement). These include the approval of the annual budget  and material business decisions not covered by the budget as  well as certain instructions to the managing directors and  ie. approval of transactions in excess of 500 000 Ecu and  higher thresholds. Unanimity is also required for the  dismissal of the managing directors and members of the  supervisory board and for election and removal of  shareholders' representatives on the supervisory board. Also  the transfer of any of its decision powers to any committees  requires unanimity in the shareholders meeting.  8.<ind> Otherwise, Dow will appoint and dismiss the managing  directors and will clearly have the industrial leadership in  the JV during the transitional period. The business plan has  been jointly decided on and the approval of BvS is required  to any adjustments thereof.Although there is this strong  industrial leadership of Dow in BSL, BvS clearly has an  interest in putting into effect the jointly decided business  plan during the restructuring of BSL.  9.<ind> As a result of the abovementioned veto rights, joint  control of Dow and BvS in BSL is established.  10.<ind> Only Dow remains active in BSL's markets. The other  parent BvS holds some assets of BSL excluded from the  transaction which however do not relate to BSL's markets.  BvS is active on these markets only through the joint  venture. Thus, there is no risk of coordination.  <tab> Autonomous entity  11.<ind> Until now BSL has performed all the functions of an  autonomous economic entity under the sole control of BvS. It  will now be operating under the joint control of Dow and  BvS, even if Dow will play the role of industrial leader.  The Privatisation Agreement, and in particular the Marketing  and Sales Agreement annexed to it, provides that Dow will  assume the obligation of purchasing as of 1 January 1996 at  least 80% of the proven normal capacity of BSL production  facility in each calendar year. This provision is aimed to  give the JV a garanteed level of sales for initial  transitional period. In principle, Dow will pay a price to  BSL that will represent the weighted average selling price  for the product in the calendar quarter plus a discount.  This does not, however, detract from the fact that BSL is an  autonomous economic entity. According to the Marketing and  Sales Agreement BSL will be free to sell through other  distribution outlets.   V.<ind> Compatibility with the common market  <ind> a)<ind> Relevant product markets  12.<ind> The concentration involves the acquisition by Dow  of control of BSL with its petrochemical and electrochemical  production sites in Boehlen, Schkopau and Leuna. There are 31  relevant product markets identified by the parties in  accordance with the product market definitions previously  used by the Commission in the chemical sector.  <ind> b)<ind> Relevant geographic markets  13.<ind> In general, the products involved in the  concentration are easily and safely transportable. Shipment  is normally done by truck, rail and barge. There is  considerable trade within Western Europe and also beyond.  Western Europe should be considered the narrowest possible  geographic market.  <ind> Narrower geographic market definitions could apply to  products which are inflammable or of an otherwise hazardous  nature. These products however are mainly used captively in  integrated production facilities. Transport is by pipeline  and if necessary by special transport facilities involving  special security measures. This will be discussed when an  affected market is in question.  <ind> These market definitions are generally confirmed by  competitors and customers.  <ind> c)<ind> Effects of the concentration  14.<ind> The operation will not create or increase a  dominant position in the common market or in a substantial  part of it.  <ind> Affected markets  15.<ind> The proposed operation will create overlaps in 21  markets. Only four of these (glycol ethers, polystyrene,  propylene glycols and propylene oxide) are affected markets.  In another two markets (SBL, UPR) vertical relations have to  be examined. For most products the market shares of the  parties are insignificant in the context of the competitive  market structures of the chemical industry. Some products  are manufactured wholly or partially as intermediates for  captive use, eg. chlorine.  <ind> Butadien/SBL  16.<ind> Butadien is an intermediate product used for the  manufacture of styrene butadiene latex (SBL), synthetic  rubber of styrene butadien rubber (SBR), polybutadiene  rubber (PBR) and acrylonitrile butadiene styrene (ABS).  <ind> The horizontal overlap is insignificant because the  combined market share of the parties is about 5% in Western  Europe.  17<ind> As the market leader in the downstream SBL market,  Dow has a share of 28% in Western Europe and will continue  to rank fourth in terms of capacity behind Shell, Enichem  and BP. Other producers with resources comparable to those  of Dow are Repsol, Elf, DSM, Veba, Bayer and BASF. However,  the vertical effect of the concentration is insignificant in  view of BSL's share of 0.4% of the European butadien  market.  18.<ind> BSL produces SBR and has in this downstream market  a share of 12.5% in Western Europe. The major producers in  terms of market shares are Enichem (42.5%), Shell (20%) and  Bayer (20%). In view of the fact that Dow has a share in the  Western European butadien market of only 4.4% the  concentration will not create any dominantposition in the  dowstream SBR market.  <ind> For the same reasons PBR is not vertically affected  given that Dow does not procedure any PBR and that BSL has a  market share of 6.8% in Western Europe.  <ind> ABS is produced only by DOW.  <ind> Propylene glycols/UPR  19.<ind> The main use for propylene glycols (PG) is as a  solvent in unsaturated polyester resins (UPR) and a variety  of consumer products.  <ind> The combined shares of the parties of the Western  European PG market is 31.8% (Dow 30%, BSL 1.8%). Arco is  another leading player (32%). Other important competitors by  resources and capacity are BASF, Erdoelchemie, Huels, Repsol  and Enichem. Thus, also in this market the concentration  will not lead to the creation of a dominant position.  20.<ind> The activities of BSL as a manufacturer of UPR give  it a market share of 2.8%. Therefore Dow's high market share  in propylene glycols does not give rise to any vertically  affected market. Furthermore, the concentration will not  have a longterm impact in this market as Dow will shut down  the PG production unit of BSL in mid1997 at the latest.  <ind> Glycol ethers  21.<ind> This range of products is widely used as solvents,  coalescents or coupling agents in consumer products. Dow has  a share of nearly 20% and BSL under 2%. The main competitors  are BASF (20%), BP (16%), Shell (12%), Union Carbide (10%)  and Arco (9%). The leading players by capacity are BP and  Dow.  22.<ind> The concentration would give Dow the highest share  of the market but would not basically change the competitive  structure of a relatively wide oligopoly in Western Europe.  Again, the BSL production facilities for propylene oxide  will be closed down in mid1997 at hte latest. PO is a base  product for glycol ethers. Therefore, no structural longterm  effect on this market will be caused by the notified  concentration.  <ind> Propylene oxide  23.<ind> This is a liquid intermediate produced by eight  major suppliers based in the EEA for the manufacture of  polyols (about 60% of product output), propylene glycols,  propylene glycol ethers and certain speciality chemicals.  Due to its hazardous nature, transportation is relatively  expensive and therefore traded including delivery costs.  Nevertheless PO is freely moved around the world and indeed  about 40% of EEA production is sold, while the rest is used  captively. The market shares of Dow (17%) and BSL (3%)  result in a combined share of 20%. Arco (42%) and  Erdoelchemie (30%) are the leading players. Dow's proposed  shutting down of BSL's production facility, which sells  about 2/3 of its production to the market, will have the  effect of reducing supply. However, this effect is  relatively small because BSL covers only about 5% of  commercial demand and less than 2% of production capacity in  Western Europe. Moreover, Dow has declared its intention of  expanding its POunit in Stade by 50 000 mt/a before shutting  down BSL's 40 000 mt/a unit.  24.<ind> According to the information provided in the  notification and the answers given to the Commission's  enquiries by competitors and customers, effective  competition mainly results for the following reasons :  <ind> <ind> the market shares are unevenly distributed;  <ind> <ind> they differ significantly from year to year  especially for the leader Arco;  <ind> <ind> the various producers have different degrees of  production and distribution integration;  <ind> <ind> transparency of prices is difficult and  influenced by longterm customers as well as spot sales;  <ind> <ind> customers include powerful chemical companies  which are partly themselves PO producers. For example, Dow  sells more than 85% of its PO sales to [Deleted; business  secrets.] sells 70% to [Deleted; business secrets.];  <ind> <ind> potential supply by producers who normally  manufacture for captive use only.  <ind> Thus, the notified operation will not create or  increase a dominant position in the European POmarket.  <ind> Low density polyethylene (LDPE/LLDPE)  25.<ind> LDPE is one of the main plastic commodities with  similar properties and enduses as linear LDPE (LLDPE) with  which it probablyforms one product market. The low combined  market share of Dow (< 13%) and BSL (3% ) shows the limited  effect of the concentration. Furthermore, by capacity the  parties would hold the second place behind Enichem and ahead  of eight other large producers (Borealis, Exxon, DSM, BP,  Shell, BASF, Atochem and Repsol).  <ind> The notified concentration will therefore not lead to  the creation or increase of a dominant position on this  mature market.  <ind> Polystyrene (GPPS/HIPS)  26.<ind> Polystyrene is a thermoplastic made from styrene by  means of a polymerisation process as general purposetype PS  (GPPS) and highimpact PS (HIPS). Both types can easily be  processed and produced in different colours but at least the  demandside substitution is limited according to different  properties : GPPS is transparent and rigid, HIPS is  translucent and breakage resistant. However, it can be left  open whether they form two separate markets because the  closure of Buna's PS facilities will take place within two  years. Therefore, no longterm structural effects will take  place as a result of this concentration. Dow's market share  in PS is nearly 17%; BSL has a share of 1%. In terms of  capacity, Dow is and will be one of the major mass producers  behind the leader BASF, with the concentration causing no  lasting change.  VI.<ind> Competitive assessment  27.<ind> Having regard to the competitive structure of the  six affected product markets, the maximum combined market  shares of the parties in any market is 32% (propylene  glycols). However, this is one of four markets without a  long term impact by the concentration, as Dow will shut down  the BSLfacility. No dominant position results on the  vertical affected markets for SBL and UPR. Therefore, no  dominant position arises as a result of the concentration.  28.<ind> As far as the market for propylene oxide is  concerned, the Commission's investigation has confirmed that  structural differences exist between five of the eight  producers serving the market (Arco, Erdoelchemie, Shell, Dow  and Buna) which result in effective competition between  them. This will continue after the concentration.  Furthermore, the remaining three producers for captive use  only (BASF, Enichem, Repsol) together with imports create  potential competition in case of price increases. Therefore,  also in this market the concentration will not create or  increase a dominant position in the Western Europe.  VII.<ind> Ancillary restraints  29.<ind> The above mentioned ancillary restrictions [See  point 5.] do not expressly include a noncompetition clause  since BvS retains no assets relating to BSL's markets.  However, Dow and BSL have undertaken to comply with a  noncompetition obligation concerning the mining rights for  the brine fields in Teutschenthal which are part of the  operation contributed by BvS to BSL (Art. 5.8 and 32 of the  Privatisation Agreement). Treuhandanstalt (now BvS) and  Kali&Salz AG had agreed not to compete with their JV  Mitteldeutsche Kali AG and to impose this obligation on a  purchaser of assets which could be used for such  competition. In accordance with the Commission's decision  Kali&Salz/MdK/Treuhand (Case No IV/M.308) this restriction  goes much further than restrictions directly connected to  and necessary for the implementation of the concentration.  Therefore it cannot be considered as ancillary to the  proposed concentration.  30.<ind> Finally, the Privatisation Agreement (Art.  30.2.9ii) provides that Dow will manage the distribution of  the output of the new LLDPE/HDPE plant (Dowlex Licence) if  the Privatisation Agreement is rescinded after closing. This  would then limit BSL's freedom to sell its products. Such  restriction goes far beyond what is necessary to implement  the concentration. Therefore, it would have to be notified  under Art. 85.  VIII. Conclusion  31.<ind> For the above reasons, the Commission has decided  not to oppose the notified concentration 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 and Article 57 of the EEA Agreement.  32.<ind> This decision is without prejudice to any decision  which the Commission will adopt under state aid procedures  regarding Dow/BSL.  For the Commission