CELEX: 32013M7035
Language: en
Date: 2013-12-19 00:00:00
Title: Commission Decision of 19/12/2013 declaring a concentration to be compatible with the common market (Case No COMP/M.7035 - AUSTEVOLL SEAFOOD / KVEFI / JV) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |
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                                        Brussels, 19.12.2013
                                        C(2013)9774 final

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|To the notifying parties:                                              |                                                                       |

Dear Sir/Madam,

Subject:    Case No COMP/M.7035 - AUSTEVOLL SEAFOOD/ KVEFI/ JV
         Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

    1) On 15 November 2013, the European Commission received a notification of  a  proposed  concentration  pursuant  to  Article  4  of  Council
       Regulation (EC) No 139/2004 (the "Merger Regulation") by which the undertakings Austevoll  Seafood  ASA  ('AUSS',  Norway)  and  Kvefi  AS
       ('Kvefi', Norway) controlled by Kverva AS ('Kverva', Norway) intend to acquire within  the  meaning  of  Article  3(1)(b)  of  the  Merger
       Regulation joint control of a newly created company constituting a joint venture ('JV', Norway) by way of purchase  of  shares  (AUSS  and
       Kvefi are designated hereinafter as the 'Parties').[2]

       THE PARTIES

    2) AUSS is active in (i) the processing of pelagic fish for human consumption, as well as (ii) the production and sale of fishmeal  and  fish
       oil. AUSS has its European-based production facilities in Norway, the UK and Ireland. AUSS is also active in salmon farming and processing
       in Norway through its subsidiary Lerøy Seafood Group ASA, as well as in fishing and processing of pelagic fish in Chile and Peru.

    3) Kvefi is active in (i) the processing of pelagic fish for human consumption and (ii) the production and sale of  fishmeal  and  fish  oil.
       Kvefi's production facilities are located in Norway and Denmark. Kvefi is controlled by Kverva, a privately-owned investment company  with
       investments in the seafood sector. Kverva is further active in salmon farming and processing through its subsidiary  Salmar  ASA,  in  the
       production and sale of fishmeal and fish oil from salmon offcuts and in the secondary processing of red and white fish.

       THE OPERATION

    4) The operation entails the creation of a joint venture, to which AUSS and Kvefi will contribute 100 % of the shares of certain wholly-owned
       subsidiaries, by way of contribution in kind.

    5) Specifically, in accordance with the transaction agreement entered into by AUSS and Kvefi on 12 August  2013,  AUSS  will  contribute  its
       European pelagic fish activities via the following companies:

         • Norway Pelagic ASA (Norway) ('NPEL'), a wholly-owned subsidiary active in the primary and secondary processing of  pelagic  fish.  It
           operates 12 production facilities for primary processing in Norway[3] and one in Shetland (Scotland); and

         • Welcon Invest AS (Norway) ('Welcon'), an indirectly wholly-owned subsidiary active in the production and sale of  fishmeal  and  fish
           oil. Welcon owns six facilities for fishmeal and fish oil production in Norway, the UK and Ireland.[4] Welcon also  jointly  controls
           four tank facilities and two production facilities for fish protein concentrate and fish oil in Norway and one facility in the UK.[5]

    6) Kvefi will contribute all the shares in its wholly-owned subsidiary Egersund Fisk AS (Norway) ('Egersund') to the JV. Egersund  is  active
       in the primary and secondary processing of pelagic fish and the production and sale of fishmeal and fish oil.  Egersund  has  two  primary
       processing facilities in Norway and one secondary processing facility in Denmark. It has one facility for fishmeal and fish oil production
       in Norway.

       THE CONCENTRATION

    7) Post-Transaction, AUSS and Kvefi will each own 50 % of the shares of the JV and will be entitled to appoint an equal number of members  of
       the JV Board. The Chairman of the Board will not have a casting vote and to be quorate, each Board meeting will require the attendance  of
       at least one board member appointed by each Party. The adoption of decisions of strategic importance for the JV (i.e.  decisions  relating
       to business plan, budget, appointment of key personnel, etc.) will require unanimity among the directors appointed by the Parties.

    8) With respect to full-functionality, the JV will have sufficient resources to operate independently on a  market.  Indeed,  both  AUSS  and
       Kvefi will contribute to the JV current wholly-owned subsidiaries which are already fully active on the market for pelagic fish, fish meal
       and fish oil. The JV will purchase raw fish from third party fishermen and sell pelagic fish, fish meal and fish oil to various  customers
       throughout the EEA. It will have adequate resources, including tangible assets and staff, to carry out its activities on a lasting basis.

    9) In view of the above, the Transaction constitutes a concentration within the meaning of Article 3 (1) (b) of the Merger Regulation.

       EU DIMENSION

   10) The undertakings concerned have a combined aggregate world-wide turnover[6] of more than EUR 2 500 million.[7] In three Member States  the
       combined aggregate turnover of the undertakings concerned is more than EUR 100 million and the aggregate turnover of at least two  of  the
       undertakings concerned is more than EUR 25 million.[8] The aggregate EU-wide turnover of each of the undertakings concerned is  more  than
       EUR 100 million[9], but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State.
       The Transaction therefore has an EU dimension within the meaning of Article 1(3) of the EU Merger Regulation.

       APPLICABILITY OF THE EEA AGREEMENT

   11) All the pelagic fish, fish oil, fish meal and offcuts products affected by the proposed  concentration  fall  outside  the  scope  of  the
       Agreement on the European Economic Area ('EEA Agreement'). Article 8(3)(a) of the  EEA  Agreement  states  that  products  falling  within
       Chapters 1 to 24 of the Harmonised Commodity Description and Coding System are not covered by the EEA Agreement, unless such products  are
       listed in Protocol 3 of said Agreement. Therefore fish products which are listed in Chapter 3 (fish), Chapter 15 (fish  oil),  Chapter  16
       (preparations of fish) and Chapter 23 (fish oil) of the Harmonised Commodity Description and Coding System and are not listed in  Protocol
       3 of the EEA Agreement are not covered by the EEA Agreement.

   12) The assessment of the impact of the Transaction in the EFTA States hence falls outside the jurisdiction of the Commission.[10]

       MARKET DEFINITION

1 Introduction

1 Overview of the value chain

   13) Pelagic fish refer to fish that generally swim in the pelagic zones of the oceans, i.e., in the upper water masses of the  sea  (from  the
       surface of the sea down to 200 metres). The main species of pelagic fish are herring, mackerel and sardine[11].

   14) Pelagic fish can be used for human consumption (i.e. production of  consumer  products),  as  well  as  for  non-human  consumption  (i.e.
       production of compound feed).

   15) The production of pelagic fish products for human consumption involves the following stages:

|Fishery  (supply of raw whole fish)        |Fishery takes place under regulated quota regimes. The harvest is delivered at     |
|                                           |coastal facilities.                                                                |
|Primary processing (supply of primary fish)|Sorting/grading, filleting, deep-freezing and packing at coastal facilities.       |
|                                           |Transported fresh or deep-frozen for secondary processing.                         |
|Secondary processing (supply of processed  |Further processing into various human consumption products for retail sale.        |
|fish)                                      |                                                                                   |
|Retail sales (supply of consumer products) |Distribution and sale of various human consumption products to end users.          |

   16) Pelagic fish for non-human consumption is used for the production of fishmeal, fish protein concentrate (FPC) and fish oil, which are  all
       ingredients for compound feed for the aquaculture (e.g. salmon farming) and agricultural industries. In addition, offcuts from  processing
       of fish for human consumption can be used as an alternative ingredient for fishmeal, FPC and fish oil.

2 General context of the pelagic fish procurement system in Norway

   17) The Parties have no activities in fisheries and since they are based in Norway, they are obliged to procure pelagic fish under a mandatory
       auction regime organised by the Norwegian pelagic fishery industry, Norges Sildesalgslag (Norwegian  Fishermen’s  Sales  organisation  for
       pelagic fish, hence referred to as 'NSSL').[12]

   18) According to the rules of this auction regime, all raw pelagic fish caught by Norwegian registered vessels  or  landed  at  facilities  in
       Norway, regardless of the vessel's nationality, has to be sold through the auction regime. On the other hand, all facilities in Norway are
       required by law to purchase raw fish through the auction regime.[13] Buyers can only conclude direct contracts with the fishermen  if  the
       size of the catch is less than 50 tonnes or the fish has been caught outside of the main catching periods. Notwithstanding  this,  80%  to
       90% of the sales are carried out through the auction system.

   19) The Norwegian auction regime is a closed electronic auction, by which each authorised buyer enters[14]  the  system  and  makes  its  bids
       (without seeing the other bids). The buyer with the highest bid in each catch lot will win the auction. Once the auction is finished,  the
       data results (quantity and price) from the auction are made available to everyone online.

   20) The bidding areas for the individual catches are determined by the fishermen. While still at sea, the vessel reports information about the
       catch to the NSSL and determines the bidding areas. Only buyers with facilities located in the bidding areas are allowed  to  participate.
       Conversely, the bidding areas are also partly determined based on where production facilities are located.  For  instance,  bidding  areas
       will have to include foreign buyers, e.g. in Ireland, if the vessel is passing by the buyers' facilities in Ireland.

   21) NSSL tries to maximise the competition in each bidding area. Hence, minimum bidding areas have to include at least two buyers. The size of
       the bidding area often depends on the size of the catch. According to NSSL, as an average, bidding areas may be smaller for small  catches
       (including only two buyers), whereas for the largest catches a bidding area may include eight to ten buyers. In  general,  the  number  of
       buyers increases as the size of the catch increases.

   22) The NSSL also establishes a minimum bidding price for the catches in order to protect the small vessels (guaranteeing that  their  catches
       are not sold below value). This minimum price is set after discussion with the buyers'  organisations.  Generally,  an  agreement  on  the
       minimum price, which tends to reflect the market price, is reached. If many buyers are present in the  bidding  area,  the  final  auction
       price tends to be above the minimum price, while if the market is under pressure (with high volumes) the auction price tends to be  closer
       to the minimum price. It is rare that no buyer is willing to pay the minimum price, but this has happened (e.g. in bidding  areas  with  a
       small number of buyers). If there are no sales in an auction due to the minimum price level, new negotiations with the buyers to fix a new
       minimum price will take place. There is also an obligation to re-negotiate the minimum price if one side asks for a re-negotiation.[15]

2 Relevant product and geographic markets

   23) The activities of the Parties being contributed to the JV overlap horizontally in (i) the supply of primary pelagic fish  (fish  that  has
       undergone primary processing such as slaughtering, gutting and packing but no further treatment) for human consumption; (ii) the supply of
       secondary pelagic fish (fish that has undergone secondary processing such as marinating, smoking, etc.) for human consumption;  (iii)  the
       production and sale of fishmeal and fish oil; and (iv) the supply of pelagic fish offcuts as raw material for fishmeal and fish oil.

   24) As regards the supply of secondary pelagic fish, the transaction would give rise to a negligible overlap, which would remain below  [0-5]%
       at the EEA level and in any case always below [0-5]% in the individual countries to which the  JV'  products  are  sold.  Therefore,  this
       market will not be further discussed in this decision.

   25) Additionally, both Parties have activities in salmon farming and processing, which however are outside the scope  of  the  Transaction  as
       they will not be contributed to the JV.[16]

1 Primary pelagic fish

1 Relevant product market

   26) Primary processing of pelagic fish involves the purchase and receipt of the catch from fishing vessels for sorting/grading, filleting  and
       packing at a processing facility. Primary processing may include freezing, depending mainly on  logistical  considerations  (deep-freezing
       allows transportation over long distances). Transportation to customers, fresh or deep-frozen, is handled mainly by  ship  and  land-based
       transport. The buyers of primary fish are either secondary processors or importers/wholesalers or traders that resell the fish, mainly  to
       secondary processors.

   27) The Commission has not previously considered primary processing of pelagic fish, although it has considered primary processing markets for
       other fish species such as salmon (in that case, the primary processing activity was associated with farming).[17]

   28) The Parties submit that the market for the supply of primary pelagic fish constitutes a  separate  product  market  and  that  no  further
       segmentation should be made.

       Fresh vs. Frozen primary pelagic fish

   29) The Parties take the view that the supply of primary pelagic fish includes both fresh and frozen  fish  since  fresh  and  frozen  primary
       pelagic fish are fully interchangeable from the perspective of secondary processors.

   30) The Commission has not previously considered a distinction between fresh and frozen products as regards  pelagic  fish,  although  it  has
       envisaged that frozen fish do not exercise a strong competitive constraint on fresh fish for other fish species such  as  salmon.[18]  The
       question was ultimately left open.

   31) The market investigation indicated that from a demand-side perspective, most customers of fresh primary pelagic fish do not consider it to
       be equivalent to frozen primary pelagic fish, although most of them buy both  types.  From  a  supply-side  perspective,  the  process  of
       freezing the fish requires some additional know-how.

       Whole fish vs. Fillets

   32) The Parties submit that whole fish and other variants (such as fillets) form part of the same product market. In fact, the Parties  submit
       that filleting is an optional operation that may take place during primary processing or alternatively may be  carried  out  by  secondary
       processors.

   33) The Commission has not previously considered a distinction between whole fish and fillets (or other parts of the fish) as regards  pelagic
       fish, nor for other species of fish.

   34) Regarding the segmentation between whole fish and fillets, most customers responding to the market investigation considered that these are
       not equivalent. From a supply-side perspective, the market investigation confirmed that the  production  of  fillets  requires  additional
       fileting machines and equipment.

       Pelagic fish species

   35) The Parties also consider that primary processing of pelagic fish cannot be separated into different markets for each species of fish. The
       supply of various species of pelagic fish is determined by natural  conditions  and  quota  regimes.  Facilities  for  primary  processing
       normally receive and process all pelagic fish species that are caught in the maritime zone constituted by the  North  Sea,  the  Norwegian
       Sea, the Barents Sea and parts of the North Atlantic Ocean. The equipment for grading, filleting, freezing,  etc.  may  be  used  for  any
       specie of pelagic fish (excluding tuna, which is significantly larger and in which neither  Party  is  active).  The  major  customers  of
       primary pelagic fish generally purchase several species.

   36) However, according to the market investigation, the secondary processing of specific species (e.g. mackerel,  herring)  requires  specific
       production technology compared to the secondary processing of other species. For instance, mackerel is  used  mainly  for  smoking,  while
       herring is mainly used for canning, marinating and salting. Furthermore, most of the secondary processors would not switch from purchasing
       a given species to another one, if the price of that species were to increase by 5-10%. Similarly, most of the  primary  processors  would
       not switch from sourcing a given species to sourcing another one if the price of that species were to increase by  5-10%.  Finally,  since
       the supply of pelagic fish in the EEA is primarily determined by quota regimes set by  species,  the  competitive  conditions  may  differ
       according to the main species of pelagic fish.

       Conclusion

   37) The market investigation suggests that segmentations by species, fresh/frozen fish and whole fish/fillets might  be  appropriate  for  the
       market for the supply of primary pelagic fish. However, the Commission considers that for the  purposes  of  this  decision,  the  precise
       product market definition can be left open since, irrespective of the exact market definition, the competitive assessment would remain the
       same.

2 Relevant geographic market

   38) The Parties consider that the geographic market for primary pelagic fish is worldwide  or  at  least  EEA-wide  in  scope.  A  significant
       proportion of the total catch of pelagic fish processed in Norway is exported over large distances, including between continents. Fish may
       be transported over short distances as fresh fish, while fish that is exported is normally  deep-frozen.  […]%  of  the  Parties'  primary
       pelagic fish is sold outside the EEA ([…]% of the primary herring and […]% of the primary mackerel).

   39) According to the market investigation, most of the primary processors supply primary pelagic fish worldwide, regardless of the  fish  type
       (fresh, frozen, whole fish or fillets) and the fish species (herring, mackerel or other pelagic fish). From a demand-side perspective, the
       majority of customers located in the EU source primary pelagic fish cross-border within the EEA, as well as from outside the EEA.

   40) In conclusion, the Commission considers that the supply of primary pelagic fish is at least EEA-wide.

2 Production of fishmeal and fish oil

1 Relevant product markets

   41) The Parties consider that the production of fishmeal and fish oil is part  of  an  overall  market  for  single  feed,  which  encompasses
       different types of raw materials for the production of compound animal feed.

   42) In previous decisions, the Commission considered that there are at least separate markets for the supply of: (i)  single  feed;  and  (ii)
       compound feed. However, the issue whether the market for single feed should be further segmented on the basis  of  the  ingredients  (e.g.
       fishmeal) was left open.[19]

       Fishmeal vs fish oil

   43) The Parties claim that the overall market for single feed includes all raw materials, regardless of whether they are based  on  vegetable,
       marine or animal resources. In fact, compound feed manufacturers source the  most  cost-effective  feedstuff  components  to  achieve  the
       highest nutritional value at the lowest possible price. Accordingly, customers can normally substitute  fishmeal  with  other  sources  of
       protein (e.g. soy meal), and substitute fish oil with other sources of fats (e.g. rapeseed oil) for their compound feed production.

   44) On the other hand, the Parties acknowledge that it is appropriate to consider protein sources and fat sources as separate  markets  within
       single feeds. For compound feed manufacturers, sources of protein cannot be substituted with sources of fats, and vice-versa. Accordingly,
       according to the Parties, fishmeal forms part of a market for protein sources for compound feed and fish oil is part of a market  for  fat
       sources for compound feed.

   45) According to the market investigation, from a demand-side perspective single feed made from vegetable, marine and animal sources  are  not
       substitutable in view of the different end-applications and nutritional content,  and  protein  sources  and  fat  sources  are  also  not
       substitutable. This implies that fishmeal and fish oil should be separated from the other types of single feed and may belong to  separate
       relevant markets.

       FPC vs fishmeal

   46) The Parties also submit that FPC, which has higher water content than standard (dried) fishmeal, is highly interchangeable  with  standard
       fishmeal as sources of protein for the production of aquafeed.

   47) Most of the customers have indicated that fishmeal and FPC are not equivalent for their production of compound feed given  the  difference
       in the nutritional value and properties.

       Conclusion

   48) The market investigation suggests that the markets for fishmeal and fish oil constitute separate markets.

   49) As regards the possible further segmentation between FPC and fishmeal, the Commission considers that for the purposes  of  this  decision,
       the precise product market definition can be left open since, irrespective of the exact  market  definition,  the  competitive  assessment
       would remain the same.

2     Relevant geographic market

   50) The Parties take the view that the geographic market for fishmeal and fish oil is worldwide in scope, and under no circumstances  narrower
       than EEA-wide. A significant proportion of global production of fishmeal and fish oil is exported over large distances, including  between
       continents (40% of fishmeal and 50% of fish oil).  Both fishmeal and fish oil are commodities that are  traded  internationally,  with  no
       barriers to inter-state trade.

   51) In previous decisions, the Commission considered that the geographic scope of the market for single feed is at least EEA-wide.[20]

   52) According to the market investigation, customers located in the EU source fishmeal, fish oil and FPC cross-border within the EEA, as  well
       as from outside the EEA. The majority of producers of fishmeal, fish oil and FPC supply at EEA or worldwide level. Hence,  the  Commission
       considers that the supply of fishmeal and fish oil is at least EEA-wide.

3 Trading of fishmeal and fish oil

1 Relevant product market

   53) The Parties consider that trading of fishmeal and fish oil does not constitute a separate market as traders and manufacturers compete with
       each other. These products are mainly sold to feed manufacturers. According to the Parties, a hypothetical monopolist in trading could not
       profitably increase prices, as these customers would then purchase directly from producers.

   54) The Commission considers that for the purposes of this  decision,  the  precise  product  market  definitions  can  be  left  open  since,
       irrespective of the exact market definition, the competitive assessment would remain the same.

2 Relevant geographic market

   55) According to the Parties, a hypothetical market for trading would be defined on a worldwide basis. The market investigation confirmed that
       all traders buy fishmeal and fish oil at a worldwide level, and the overwhelming majority re-sell also worldwide.  The  vast  majority  of
       customers confirmed that they source from traders located across the EEA and at a worldwide level.

   56) In conclusion, the Commission considers that the trading of fishmeal and fish oil is at least EEA-wide.

4 Pelagic fish offcuts

1 Relevant product markets

   57) Offcuts are a by-product of the processing of fish for human consumption. They are used as raw material for the  production  of  fishmeal,
       FPC and fish oil.

   58) The Parties consider that for the producers of fishmeal and fish oil, offcuts and whole (non-human consumption) fish  are  equivalent  raw
       materials, although the latter represents a larger share of the total raw material volumes in Norway.

   59) According to the Parties, some producers also use silage as an alternative to offcuts in their production of FPC and fish oil.  Silage  is
       fresh offcuts to which formic acid has been added for preservation. Moreover, offcuts and silage used in the production  of  fishmeal  and
       fish oil include trimmings mainly from pelagic fish, some from red fish (salmon farming) and, to a lesser extent, offcuts from white fish.

   60) In any case, the Parties submit that the relevant market should not be further segmented on the basis of the type of fish  and  should  be
       defined on a broader basis as the market for the supply of raw material (including silage, whole fish and offcuts) for the  production  of
       fishmeal, FPC and fish oil.

   61) The market investigation confirmed that single feed manufacturers use interchangeably offcuts and whole fish as input to their production.
       However, none of them considered silage to be a substitutable raw material to whole fish and offcuts.

   62) However, the Commission considers that for the purposes of this decision, the precise product market definition can be  left  open  since,
       irrespective of the exact market definition, the competitive assessment would remain the same.

2 Relevant geographic market

   63) Offcuts, as well as whole fish used for the production of single feed, are a low-value and high volume input of short  durability.  Silage
       has long durability but high volumes, and given its low value it is thus not transported over long distances. According  to  the  Parties,
       this market could therefore be considered national in scope.

   64) The market investigation confirmed that all EEA manufacturers source raw material at a national level. Therefore, for the purposes of this
       decision, the Commission considers that this market is national in scope.

       COMPETITIVE ASSESSMENT

1 Horizontal overlaps[21]

1 Market for the supply of primary pelagic fish

   65) The supply of pelagic fish depends on total allowable catches, based on which quotas are granted to the fishing industry of each  country.
       In the case of herring and mackerel, the quotas granted to Norway represent  respectively  41.6%  and  27.6%  of  the  EEA  quota.   Post-
       Transaction, the JV would become the most important buyer of  pelagic  fish  for  human  consumption  in  the  Norwegian  auction  regime,
       representing [50-60]% of the total purchases, and in particular [50-60]% of the herring purchases and [40-50]% of the mackerel purchases.

   66) However, given that the downstream market for the supply of primary pelagic fish and its potential segmentations are  at  least  EEA-wide,
       the Parties' combined market shares for the relevant EEA or worldwide markets of primary pelagic fish remain, for  the  most  part,  below
       15%. Only when considering possible segmentations by species, the hypothetical EEA-wide markets for the  supply  of  primary  herring  and
       primary mackerel would be affected.[22]

|Supply of primary pelagic fish (volume) (2012)                                                                          |
|                                  |Total                     |Herring                      |Mackerel                    |
|                                  |Worldwide      |EEA       |Worldwide      |EEA          |Worldwide      |EEA         |
|Kvefi                             |[0-5]%         |[0-5]%    |[0-5]%         |[5-10]%      |[0-5]%         |[5-10]%     |
|AUSS and Kvefi combined           |[0-5]%         |[10-20]%  |[10-20]%       |[20-30]%     |[5-10]%        |[10-20]%    |
|AUSS retained                     |[0-5]%         |[0-5]%    |[0-5]%         |[0-5]%       |[0-5]%         |[0-5]%      |

   67) If the relevant markets for primary pelagic fish are further segmented on the basis of the distinction between frozen and fresh fish,  the
       hypothetical EEA-wide markets for the supply of  frozen  primary  herring  and  for  the  supply  of  frozen  primary  mackerel  would  be
       affected.[23]

|Supply of frozen primary pelagic fish (volume) (2012)                                                                   |
|                                  |Total                     |Herring                      |Mackerel                    |
|                                  |Worldwide      |EEA       |Worldwide      |EEA          |Worldwide      |EEA         |
|Kvefi                             |               |[0-5]%    |[0-5]%         |[5-10]%      |[0-5]%         |[5-10]%     |
|AUSS and Kvefi combined           |[0-5]%         |[10-20]%  |[5-10]%        |[20-30]%     |[5-10]%        |[10-20]%    |
|AUSS retained                     |NA             |[0-5]%    |[0-5]%         |[0-5]%       |[0-5]%         |[0-5]%      |

   68) If the relevant markets for primary pelagic fish are segmented on the basis of the distinction between whole fish  and  fillets,  affected
       markets arise on an EEA-wide basis for whole primary herring, whole primary mackerel, primary herring fillets and primary mackerel fillets
       as well as on the level of fillets without segmenting by species. On a worldwide basis affected markets would only arise  in  relation  to
       whole primary herring.[24]

|Supply of whole primary pelagic fish (volume) (2012)                                                                     |
|                                  |Total                       |Herring                     |Mackerel                    |
|                                  |Worldwide      |EEA         |Worldwide       |EEA        |Worldwide      |EEA         |
|Kvefi                             |[0-5]%         |[0-5]%      |[0-5]%          |[10-20]%   |[0-5]%         |[5-10]%     |
|AUSS and Kvefi combined           |[0-5]%         |[5-10]%     |[20-30]%        |[20-30]%   |[5-10]%        |[10-20]%    |
|AUSS retained                     |[0-5]%         |[0-5]%      |[0-5]%          |[0-5]%     |[0-5]%         |[0-5]%      |

    |Supply of primary pelagic fish fillets (volume) (2012)                                                                   |
|                                 |Total                      |Herring                        |Mackerel                    |
|                                 |Worldwide      |EEA       |Worldwide      |EEA            |Worldwide      |EEA         |
|Kvefi                            |[0-5]%         |[0-5]%    |[0-5]%         |[5-10]%        |[0-5]%         |[0-5]%      |
|AUSS and Kvefi combined          |[0-5]%         |[10-20]%  |[5-10]%        |[20-30]%       |[0-5]%         |[10-20]%    |
|AUSS retained                    |[0-5]%         |[0-5]%    |[0-5]%         |[0-5]%         |[0-5]%         |[0-5]%      |

   69) The combined market shares would remain below 25% under all possible segmentations with the exception of the hypothetical market for whole
       primary herring (where the market share would be [20-30]%).

   70) The Parties argue that even if the JV were to reduce its purchases in the auction regime and its supplies of primary pelagic fish  to  the
       market, so as to induce a price increase, other primary processors are likely to buy those volumes  through  the  auction  regime.[25]  As
       such, output reduction is not feasible.

   71) Moreover, the Parties argue that primary pelagic fish is a homogeneous product and that the industry is characterized by excess production
       capacity and low entry barriers. The Parties also consider that post-Transaction the JV would continue to have low market shares and  face
       a significant degree of competition from several strong competitors.

   72) The results of the market investigation confirmed that there are several alternative suppliers of primary pelagic fish in the EEA such  as
       Samherji HF, HB Grandi, Skagerak Pelagic A/S, Fresh Catch, Iceland Pelagic, and customers of primary  pelagic  fish  usually  multi-source
       from different suppliers. Moreover, the majority of customers indicated that they can switch suppliers easily and  the  vast  majority  of
       them have switched between suppliers in the last three years. The market investigation also confirmed  that  there  is  excess  production
       capacity in primary processing and capacity expansion does not require considerable investment  costs.  Furthermore,  suppliers  indicated
       that the only constraint to their production expansion (or indeed utilisation of any spare capacity) is set by the quotas regime  and  the
       seasonality of catch. In fact, any restrictions on primary pelagic fish production would only depend on quota variations as all the quotas
       tend to be fully harvested.

   73) Two specific concerns[26] were raised in the course of the market investigation about the impact of  the  transaction  on  the  supply  of
       primary pelagic fish.

   74) The first concern relates to the JV's potential ability to leverage its strong buying position in certain pelagic fish segments in Norway,
       in order to obtain better purchasing conditions from fishermen. However, since the JV would continue to be subject to  the  rules  of  the
       Norwegian auction system, any such attempt would be prevented by the possibility for the NSSL  to  control  minimum  prices  and  redefine
       bidding areas to maximize competition.

   75) The second concern relates to the supply of frozen skinless herring fillets. Apparently high quality frozen skinless herring fillets  only
       come from Norway, because large herrings are caught in the surrounding Artic Zone. One customer claimed that post-Transaction there  would
       be only two suppliers left, including the JV, in Norway. However, the Parties clarified[27] that the quality of raw herring depends  on  a
       number of factors, including the nutritional content (i.e. fat content), size and consistency as well as the harvesting season  and  stock
       from year to year. Thus, not all catches from one geographic area would be of a higher or lower quality than the fish  caught  in  another
       area. As already mentioned, the vast majority of customers indicated that there are valid alternative suppliers  of  primary  herrings  in
       Norway and in other countries to which they could turn to in case of a price increase. Moreover, since there is significant  over-capacity
       among primary processors in Norway, if the JV purchases less herring through the auction system, other processors would buy these  volumes
       and supply to the market. If, on the contrary, the JV were to buy all the herring and foreclose competitors in Norway, it would still face
       competition from other firms located across the EEA, which would continue to discipline its pricing behaviour.

   76) AUSS will retain activities in Chile and Peru which overlap with those of the JV. However, these activities mostly concern  other  pelagic
       fish species where the JV would have a less relevant position ([0-5]% at worldwide level).  Therefore,  the  transaction  is  unlikely  to
       increase coordination between AUSS and the JV.

   77) Therefore, the Commission concludes that the transaction does not raise serious doubts as to its compatibility with the internal market in
       relation to the market for the supply of primary pelagic fish and its possible segmentations.

2 Markets for the supply of fishmeal and fish oil

       As illustrated by the table below, only the hypothetical market for the  supply  of  fishmeal  defined  on  an  EEA-wide  basis  could  be
       potentially affected by the Transaction.

|Market for the supply of fishmeal, fish oil and FPC (volume) (2012)                                                      |
|                                 |Fishmeal[28]                |Fish oil                     |FPC                        |
|                                                                                                                         |
|                             |Raw material             |Raw material from pelagic fish     |Pelagic fish offcuts         |
|                             |(whole fish, offcuts and |(pelagic whole fish, pelagic       |(including silage)           |
|                             |silage)                  |offcuts and silage)                |                             |
|AUSS                         |[0-5]%                   |[0-5]%                             |[5-10]%                      |
|Kvefi                        |[0-5]%                   |[5-10]%                            |[10-20]%                     |
|AUSS and Kvefi combined      |[5-10]%                  |[5-10]%                            |[20-30]%                     |

   78) No specific concerns were raised regarding the vertical relationship between these two activities of the Parties except by one producer of
       fishmeal, fish oil and FPC, who indicated that the Parties would control the supply of pelagic fish offcuts to the production of FPC,  and
       therefore could charge higher prices or foreclose access to this input.

   79) However, whereas the market for raw material is national in scope, the downstream market for the supply of FPC is at least EEA-wide.  This
       implies that the JV would not be able to engage in input foreclosure vis-à-vis its rivals in the EEA-wide market for FPC.

   80) Moreover, the Parties point out that producers of FPC could use alternative inputs for their production, namely whole  pelagic  fish  (for
       non-human consumption). This was confirmed by the market investigation according to which all producers of single feed  use  both  pelagic
       fish offcuts and whole pelagic fish  and  consider  both  to  be  equivalent  inputs.  Therefore,  the  existence  of  a  high  degree  of
       substitutability makes any attempt of input foreclosure likely to fail.

   81) Therefore, the Commission concludes that the transaction does not raise serious doubts as to its compatibility with the  internal  market,
       in relation to the vertical relationship between the market for the supply of fish offcuts and the market for the supply of FPC.

3 Vertical relationship between the markets for the supply of fishmeal and fish oil and the markets for trading of fishmeal and fish oil

   82) Another potential vertical relationship would arise between the JV's activity as a supplier of fishmeal and fish oil and the  activity  in
       trading of fishmeal and fish oil carried out by Norsildmel AS, in which the JV will have a 50% interest.

   83) However, on the one hand, the JV would have a limited market share in the hypothetical upstream market for the supply of fishmeal and fish
       oil (exceeding 25% only in the hypothetical segment for FPC, where the JV would have [30-40]% share). On  the  other  hand,  the  JV,  via
       Norsildmel AS, would also have a limited market position in the downstream hypothetical market for trading of fishmeal and fish  oil  both
       on a EEA ([20-30]% in trading of fishmeal, less than [10-20]% in trading of fish oil) and worldwide level ([5-10]% in trading of fishmeal,
       [10-20]% in trading of fish oil).[31]

   84) As regards the likelihood of customer foreclosure, in the course of market investigation, customers of fishmeal and fish oil  expressed  a
       clear preference for buying directly from manufacturers (in order to build  a  direct  relationship  with  the  primary  supplier  of  the
       product). Consequently, if Norsildmel AS were to trade only the JV's single feed production, competitors in the  supply  of  fishmeal  and
       fish oil would not only find alternative traders, but could also easily negotiate directly with final customers.

   85) As regards the likelihood of input foreclosure, in the market investigation all traders  indicated  that  there  are  several  alternative
       suppliers to the Parties and that they can easily switch between suppliers of fishmeal, fish oil and FPC.

   86) Finally, no specific concern was raised in the course of the market investigation in relation to this vertical relationship.

   87) Therefore, the Commission concludes that the transaction does not raise serious doubts as to its compatibility with the  internal  market,
       in relation to the vertical relationship between the markets for the supply of fishmeal and fish oil and the markets for trading  of  fish
       meal and fish oil.

       CONCLUSION

   88) 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.

                                        For the Commission
                                        (signed)
                                        Joaquín ALMUNIA
                                        Vice-President

-----------------------
[1]   OJ L 24, 29.1.2004, p. 1. 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]   Publication in the Official Journal of the European Union No C 342, 22.11.2013, p.9.
[3]   The facility in Kalvag (Norway) is the only one that is also engaged in secondary processing of pelagic fish.
[4]   Three facilities are located in Norway, two in the UK and one in Ireland.
[5]   Hordafor AS, which owns the four tank facilities and the two production facilities in Norway,  is  jointly  controlled  by  Welcon  and  PR
      Karoløs ANS. Rossyew Ltd, which owns the facility in the UK, is jointly controlled by Welcon and A P Jess Ltd.
[6]   Turnover calculated in accordance with Article 5 of the Merger Regulation.
[7]   AUSS: EUR […] million, Kvefi: EUR […] million.
[8]   France: AUSS: EUR […] million, Kvefi: EUR […] million; Germany: AUSS: EUR […] million, Kvefi:  EUR  […]  million;  Poland:  AUSS:  EUR  […]
    million, Kvefi: EUR […] million.
[9]   AUSS: EUR […] million, Kvefi: EUR […] million.
[10]  The proposed concentration was also notified in Norway on 22 November 2013.
[11]  Other species used for human consumption include horse mackerel, anchovy, sandeel, capelin, blue whiting and Norwegian pout.
[12]  Cf. Norwegian Raw Fish Act Section 2.
[13]  International buyers and sellers (from Sweden, Denmark, Scotland, Ireland, Faroe Island, Germany and Russia) may also  participate  in  the
    auction regime on equal conditions as Norwegians, provided that their facilities are located in one of the bidding areas.
[14]  Any bidder must be registered as a buyer with the Directorate of Fisheries in accordance with Act no. 34 of 24 June 1994.
[15]  The price negotiation takes place once a year for each fish species,  unless  something  unexpected  happens  that  requires  a  new  price
    negotiation. The price negotiations for each fish species do not take place at the same time of the year. For  example,  the  minimum  price
    negotiation for mackerel takes place once a year, whereas the minimum price negotiation for herring takes place twice a year (normally a new
    minimum price is fixed for the summer due to a differentiation between North Sea herring - autumn spawner, and the Norwegian Spring Spawning
    herring).
[16]  This activity is not directly related to the activities of the JV, and the creation of the JV is unlikely  to  increase  the  risk  of  co-
    ordination between the parent companies in this respect.  Moreover,  customers  of  fishmeal  and  fish  oil  indicated  during  the  market
    investigation that they do not expect that the combination of AUSS' and Kvefi’s activities in fishmeal and fish oil would have a significant
    impact on competition in salmon farming even if fishmeal and fish oil is used as an input into compound feed used by  salmon  farmers  given
    that the Parties are not active in the production of compound feed.
[17]  See M.6850 Marine Harvest/Morpol, §31 to 34.
[18]  See M.6850 Marine Harvest/Morpol, §37-38.
[19]  See e.g. COMP/M.6573 Forfarmers / Agricola.
[20]  See e.g. COMP/M.6573 Forfarmers / Agricola.
[21]  As a result of the transaction, the Norwegian market for the supply of pelagic fish offcuts would be affected. However, since this  product
    category is not covered by the EEA agreement, the horizontal effects on this market are out of the scope of this investigation.
[22]  Herring and mackerel represent respectively […]% and […]% of the  Parties'  primary  processing  activities,  whereas  other  species  only
    account for […]%. In any case, the Parties' combined market shares for the segmentations involving other pelagic fish species  remain  below
    [0-5]%.
[23]  There is no overlap between the Parties in the hypothetical market for the supply of fresh primary pelagic fish, since only AUSS is  active
    in the supply of fresh primary pelagic fish.
[24]  Since 99% of the primary pelagic fish is sold frozen, the segmentation fillets/ round fish for the market of frozen  primary  pelagic  fish
    would have a similar market structure to the segmentation fillets/ round fish for the market of primary pelagic fish.
[25]  NSSL confirmed that bidding areas in the Norwegian auction regime are defined so as to have at least two buyers  and  maximize  competition
    between buyers.
[26]  A number of respondents raised doubts as to whether the availability and/or price of primary pelagic fish would be negatively  affected  by
    the transaction. However, these respondents did not substantiate their doubts and generally confirmed that alternative sources  for  primary
    pelagic fish exist.
[27]  Note from the Parties dated 4 December 2013.
[28]  In the hypothetical relevant market of fishmeal excluding FPC, the combined market share (in value) would be [0-5]% worldwide and  [10-20]%
    EEA-wide. The retained market share of Kverva would be lower than [0-5]%.
[29]  Post-transaction, the JV would become the largest buyer of pelagic  fish  for  non-human  consumption  in  the  Norwegian  auction  system,
    representing [70-80]% of the total purchases. However, the JV is not a supplier of whole pelagic fish to single feed producers and  competes
    on the markets for fishmeal and fish oil on an at least EEA-wide basis.
[30]  In the hypothetical markets for whole fish (for non-human consumption), red fish offcuts and white fish offcuts, there would be no  overlap
    as none of the Parties is active in these markets. In the hypothetical market for pelagic silage and  pelagic  offcuts  (excluding  silage),
    there would no overlap as Kvefi is only active in pelagic silage, whereas AUSS is only active in pelagic offcuts (excluding silage).
[31]  As regards the trading of FPC, the Parties were not able to provide market shares, but  estimated  that  the  value  of  sales  of  FPC  by
      Norsildmel AS represent approximately [0-5]% of the EEA market for the supply of FPC and approximately [0-5] % of the worldwide market  for
      the supply of FPC.

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                                                                  PUBLIC VERSION

                                                                 MERGER PROCEDURE

 In the published version of this decision, some information 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 omitted has been replaced by ranges of figures or a general description.