CELEX: 32021M10234
Language: en
Date: 2021-06-18 00:00:00
Title: Commission Decision of 18/06/2021 declaring a concentration to be compatible with the common market (Case No COMP/M.10234 - BAIN CAPITAL / CINVEN / LONZA SPECIALTY INGREDIENTS) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 18.6.2021
                                                                C(2021) 4612 final
                                                                                   PUBLIC VERSION
                                                                  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                                                                  information omitted has been replaced by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.
                                                                Cinven Capital Management (VII) General
                                                                Partner Limited
                                                                Level 4, Mill Court, La Charroterie,
                                                                St Peter Port
                                                                Guernsey GY1 1EJ
                                                                Bain Capital Investors, LLC
                                                                c/o Bain Capital Private Equity (Europe),
                                                                LLP
                                                                Devonshire House
                                                                5th Floor
                                                                Mayfair Place
                                                                London W1J 8AJ
                                                                United Kingdom
Subject:             Case M.10234 – Bain Capital/Cinven/Lonza Specialty Ingredients
                     Commission decision pursuant to Article 6(1)(b) of Council Regulation
                     No 139/20041 and Article 57 of the Agreement on the European Economic
                     Area2
1     OJ L 24, 29.1.2004, p. 1 (the ’Merger Regulation’). With effect from 1 December 2009, the Treaty on the
      Functioning of the European Union (the ‘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     OJ L 1, 3.1.1994, p. 3 (the ‘EEA Agreement’).
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- Dear Sir or Madam,
(1)     On 11 May 2021, the Commission received notification of a proposed concentration
        pursuant to Article 4 of Council Regulation (EC) No 139/2004 by which Bain
        Capital Investors L.L.C. (‘Bain Capital’, US) and Cinven Capital Management (VII)
        General Partner Limited (‘Cinven’, UK) acquire joint control of Lonza Group AG’s
        specialty ingredients business (‘Lonza Specialty Ingredients’, Switzerland). 3
        Together, Bain Capital, Cinven and Lonza Specialty Ingredients are referred to as
        the ‘Parties’ and the acquisition of joint control is referred to as the ‘Transaction’.
1.      THE PARTIES
(2)     Bain Capital is a private equity investment firm that invests in companies across a
        number of industries, including information technology, healthcare, retail and
        consumer           products,           communications,         financial         services and
        industrial/manufacturing.
(3)     Cinven is a private equity business engaged in the provision of investment
        management and investment advisory services to a number of investment funds.
(4)     Lonza Specialty Ingredients comprises the business of Lonza Group AG that focuses
        on microbial control solutions and specialty chemical services. It is divided into two
        business units:
        -     The Microbial Control Solutions (“MCS”) business unit provides microbial
              control solutions and chemical technologies for the protection of homes,
              schools, food processing and healthcare sites, workplaces and other institutional
              environments from bacteria, viruses, mould and other potential pathogens, as
              well as personal care products and ingredients for wood protection, oil and gas,
              plastics, metals, and paints and coatings applications. In the financial year 2019,
              the MCS business unit accounted for around […] of Lonza Specialty
              Ingredients’ total net sales.
        -     The Specialty Chemical Services (“SCS”) provides composite materials,
              performance intermediates and chemicals, and custom development and
              manufacturing services, for the agrochemical, food and feed ingredients,
              personal care and cosmetics, non-cGMP intermediates electronics,
              transportation and aerospace applications and industries. In the financial
              year 2019, the SCS business unit accounted for around […] of Lonza Specialty
              Ingredients’ total net sales.
        -     Prior to the Transaction, Lonza Specialty Ingredients is owned by Lonza Group
              AG (Switzerland). It consists of 17 manufacturing sites, 11 research and
              development centres, and has around 2 800 employees worldwide.
3   Publication in the Official Journal of the European Union No C 197, 26.5.2021, p. 6.
                                                          2
 ---pagebreak--- 2.       THE CONCENTRATION
(5)      On 8 February 2021, Bain Capital, Cinven and Lonza Group AG entered into a sale
         and purchase agreement whereby Bain Capital and Cinven would acquire the entire
         issued share capital of the companies that compose the Lonza Specialty Ingredients
         business, as well as certain ancillary employees, assets and liabilities necessary for
         the operation of Lonza Specialty Ingredients.4
(6)      Post-Transaction, Bain Capital and Cinven will each indirectly hold around 50% of
         the share capital of Herens HoldCo AG (“Herens HoldCo”), a Swiss entity
         established solely for the purpose of the Transaction, that will wholly own Lonza
         Specialty Ingredients. Bain Capital and Cinven will each have the right to appoint
         50% of the directors on the board of this holding entity. The board will take
         decisions by […]. All material matters, such as the approval of the budget and
         business plan as well as the appointment and removal of the management of Lonza
         Specialty Ingredients, are planned to be reserved matters requiring the approval of
         both Bain Capital and Cinven. Bain Capital and Cinven will thus have joint control
         over Lonza Specialty Ingredients.
(7)      The Transaction is therefore a concentration within the meaning of Article 3(1)(b) of
         the Merger Regulation.
3.       UNION DIMENSION
(8)      The undertakings concerned have a combined aggregate worldwide turnover of more
         than EUR 5 000 million 5. Each of them has a Union-wide turnover in excess of
         EUR 250 million, but they do not achieve more than two-thirds of their aggregate
         Union-wide turnover within one and the same Member State. The notified operation
         therefore has a Union dimension within the meaning of Article 1(2) of the Merger
         Regulation.
4.       RELEVANT MARKETS
4.1.     Activities of the Parties
(9)      Lonza Specialty Ingredients manufactures and distributes microbial control solutions
         and chemical technologies for the protection of homes, workplaces and other
         environments from bacteria, viruses, mould and other potential pathogens. In
         particular, Lonza Specialty Ingredients offers a range of biocidal products for
         hygiene end-uses.
(10)     Bain Capital, through its controlled investment Diversey, Inc. (‘Diversey’, US)
         produces cleaning and hygiene products and systems. It therefore purchases biocidal
         products for hygiene end-uses from Lonza Specialty Ingredients (amongst others) as
         an input for its cleaning and hygiene products and systems. This vertical relationship
         will be discussed in paragraphs (13) to (65) below.
4    Form CO, paragraphs 152-160.
5    Turnovers calculated in accordance with Article 5 of the Merger Regulation.
                                                           3
 ---pagebreak--- (11)     In addition, the Notifying Parties submit that both Lonza Specialty Ingredients and
         Bain Capital, through its controlled investment Italmatch Chemicals S.p.A
         (‘Italmatch’, Italy), produce specialty chemicals. Specialty chemicals are value-
         added products manufactured using polymerisation and other reactive processes to
         transform commodity raw materials into polymers and other complex chemical
         outputs that are used as ingredients by customers to formulate finished products for a
         range of industries including healthcare, consumer goods, construction and others.
(12)     In specialty chemicals, the Parties’ activities overlap (a) in the market for polymer
         additives and (b) in the market for cosmetic ingredients, however their combined
         market shares are [0-10]% under any market definition that the Commission
         considers plausible, be it in the EEA and on a worldwide level. 6 Therefore, these
         overlaps are not further considered in this Decision. 7 Moreover, the Commission
         considers that the Transaction does not raise serious doubts as to its compatibility
         with the internal market or the functioning of the EEA Agreement in relation to
         potential conglomerate effects involving products sold by Lonza Special Ingredients
         on the one hand and either of the Notifying Parties on the other hand.
4.2.     Market Definitions
4.2.1. Biocidal products for hygiene end-uses
(13)     Biocidal products consist of a large variety of chemicals that are used in a range of
         applications to kill or control the growth of organisms that might otherwise have a
         negative effect on processes, products, machinery, and end-users. In the EEA,
         biocidal products are subject to registration requirements in accordance with
         European Biocidal Products Regulation (“BPR”).8
4.2.1.1. Product market definition
(14)     In previous cases, the Commission found that it would not be appropriate to assess
         an overall market for ‘all biocides’ or ‘all specialty biocides’. 9 Rather, the
         Commission considered it appropriate to assess the relevant markets for biocidal
         products segmented on the basis of application/end-use or by active ingredient
         chemistry. 10
(15)     In the case at hand, the vertical link would be present in the hygiene end-use.
         Concerning active ingredients, the Notifying Parties submit11 that Lonza Specialty
         Industries supplies the following biocidal products for hygiene end-uses: quaternary
         ammonium           compounds        (“quats”),       didecyldimethylammonium           chlorides
6  Form CO, paragraphs 152-160.
7  For completeness, Lonza Specialty Ingredients and Italmatch also minimally overlap in the supply of
   corrosion inhibitors in the EEA. However, their combined market shares are [0-10]% under any market
   definition that the Commission considers plausible (Form CO, footnote 19). This overlap is therefore not
   further assessed in this Decision.
8  Regulation (EU) No 528/2012 of the European Parliament and of the Council concerning the making
   available on the market and use placing of biocidal products (OJ L 167, 27.6.2012, p. 1).
9  Case COMP/M.5424 – Dow/Rohm and Haas, Commission decision of 8 January 2009, recital 209.
10 Case COMP/M.5424 – Dow/Rohm and Haas, Commission decision of 8 January 2009, recital 209; Case
   COMP/M.5327 – Ashland/Hercules, Commission decision of 6 October 2008, recital 26.
11 Response to RFI 8 of 10.06.2021.
                                                          4
 ---pagebreak---         (“diamines”), polyhexamethylene biguanide hydrochloride (“PHMB”) and
        pyrithione zinc and sodium pyrithione. According to the Notifying Parties, these
        active ingredients are largely interchangeable for hygiene end-use purposes,
        therefore the BPR identifies them under the same product types.
(16)    The Notifying Parties consider that biocidal products for hygiene end-uses have
        properties and characteristics that make them suitable for one end-use (for example,
        disinfectant properties suitable for cleaning hard surfaces) and are not typically
        suitable for other end-uses (for example personal care products for human
        application). Therefore, downstream customers would not switch and demand-side
        substitutability is limited. Likewise, supply-side substitution is limited given that
        biocidal products for different end-uses typically involve different technologies,
        know-how, mix of ingredients and manufacturing processes, as well as the existence
        of different registration requirements under the BPR.12
(17)    The market investigation confirmed the Notifying Parties’ arguments. In particular,
        the market investigation confirmed that manufacturers of biocidal products for
        hygiene end-uses can and do develop and register biocidal products for hygiene end-
        uses under the BPR. This is necessary in order to stay competitive with their peers
        and gain market shares in applications that are attractive to downstream customers.13
(18)    The market investigation further indicated that active ingredients for biocidal
        products for hygiene end-uses are to a considerable extent interchangeable for
        customers, such that “[i]n case an active ingredient is no longer available, it should
        be possible to make a new formulation using an alternate active substance”.14
(19)    In light of the above, and in particular the level of supply-side substitutability
        between different active ingredients, the Commission considers that a segmentation
        based on active ingredient might not be fully appropriate in the present case, whereas
        a segmentation based on end-use continues to be appropriate in light of the above
        demand and supply-side considerations.
(20)     In any event, the Commission considers that, for the purposes of the present
        Decision, the exact scope of the product market definition for the supply of biocidal
        products can be left open, since the Transaction does not raise serious doubts as to its
        compatibility with the internal market or the functioning of the EEA Agreement
        under any product market definition that the Commission considers plausible (i.e.
        biocidal products for hygiene end-uses overall or biocidal products segmented by the
        active ingredients produced by Lonza Specialty Chemicals for hygiene end-uses, see
        paragraph (15)).
4.2.1.2. Geographic market definition
(21)    The Commission has previously considered the relevant geographic market for
        biocidal products for hygiene end-uses to be at least EEA-wide, while leaving open
        whether the relevant market should be EEA-wide or worldwide. 15
12  Form CO, paragraphs 116-120.
13  Reply by competitor of 04/06/2021.
14  Reply by competitor of 04/06/2021.
15  Case COMP/M.5424 – Dow/Rohm and Haas, recital 210.
                                                   5
 ---pagebreak--- (22)    The Notifying Parties argue that that there are reasons to consider the relevant
        geographic product market has become broader and so a worldwide market
        definition is appropriate. In particular, they point to the fact that manufacturers
        typically transport biocidal products for hygiene end-uses from centralised
        production facilities to customers around the world with insignificant costs. They
        argue that a non-EU manufacturer can sell biocidal products for hygiene end-uses in
        the EU if it can prove that its products are equivalent to biocidal products for
        hygiene end-uses that are approved in the EU.
(23)    The Notifying Parties argue that in any event, the relevant geographic market
        definition can be left open for the purposes of this case.16 In particular, they submit
        that a substantial part of the biocidal products for hygiene end-uses they supply in
        the EEA is imported from the US. 17
(24)    The market investigation did not provide sufficient indications to determine which of
        the plausible alternative potential geographic market definitions (i.e. EEA-wide or
        worldwide) is appropriate for biocidal products for hygiene end-uses.
(25)    The Commission takes note of the […] sales of Lonza Specialty Ingredients into
        Europe from the US. However, on the basis of the inconclusive market investigation
        and the fact that the outcome of the competitive assessment of the Transaction as to
        its compatibility with the internal market or the functioning of the EEA Agreement
        is not affected under either of the two plausible alternative geographic market
        definitions (EEA-wide or worldwide), the Commission considers that for the
        purpose of assessing the Transaction, the exact scope of the geographic market
        definition for biocidal products for hygiene end-uses can be left open.
4.2.2. Cleaning and hygiene products and systems
(26)    Cleaning and hygiene products and systems comprise cleaning products intended for
        routine cleaning of offices, institutions, warehouses, and industrial facilities,
        including the removal of visible dirt, soil and grease from a surface. They are
        available in various forms such as sanitation and janitorial cleaners,
        industrial/technical cleaners, kitchen and catering cleaning agents, food and dairy
        processing cleaners, laundry agents and others.
4.2.2.1. Product market definition
(27)    In previous cases, the Commission has considered a segmentation for the supply of
        hygiene and cleaning products between the industrial sector (customers such as
        commercial laundries and food and beverage producers) and the institutional sector
        (customers such as hotels, restaurants, hospitals and schools), but ultimately left
        open the scope of the relevant product market.18 The Commission also considered
        further sub-segmentations by end-use, namely for the industrial sector between
        (i) food and beverage hygiene, and (ii) professional laundry detergent, and for the
16  Form CO, paragraphs 123-125.
17  Form CO, paragraphs 124 and 144 and responses to RFI 4, paragraph 12 and to RFI 5, paragraph 1.
18  Case COMP/M.2665 – Johnson Professional Holdings/DiverseyLever, Commission decision of
    4 March 2002, recitals 8-16; Case COMP/M.704 – Unilever / Diversey, Commission decision of
    20 March 1996, recitals 7-12; Case COMP/M.6012 – CD&R / CVC / Univar, Commission decision of
    25 November 2010, recitals 17-20.
                                                      6
 ---pagebreak---         institutional sector between (i) kitchen hygiene, (ii) on-premises laundry, and
        (iii) housekeeping hygiene), without concluding whether such sub-segmentations
        were appropriate.19
(28)    The Notifying Parties consider that the relevant product market is the supply of
        cleaning and hygiene products and systems (overall), without any further
        segmentation. They submit that from a demand-side perspective customers can and
        do use the same cleaning and hygiene products regardless of sector and from a
        supply-side perspective suppliers tend to offer the full range of products. In any
        event, the Notifying Parties submit market data for all plausible product market
        definitions. 20
(29)    The market investigation did not provide indications that would allow the
        Commission to determine which of the plausible alternative potential product market
        definitions (i.e. overall, industrial, or institutional, or further segmentations by end-
        use) would be appropriate for the market for the supply of cleaning and hygiene
        products and systems.
(30)    In any event, the Commission considers that for the purpose of this Decision, the
        question of whether there is an overall relevant product market for the supply of
        cleaning and hygiene products and systems, or whether it should be segmented by
        sector and/or end use can be left open. Neither of these alternative product market
        definitions affects the outcome of the competitive assessment of the Transaction as
        to its compatibility with the internal market or the functioning of the EEA
        Agreement.
4.2.2.2. Geographic market definition
(31)    The Commission has previously found that competition for the supply of cleaning
        and hygiene products and systems (in the institutional sector) takes place at the
        national level. However, it has left open the relevant geographic market definition
        and assessed the supply of cleaning and hygiene products to the institutional and
        industrial sectors at national and EEA level.21
(32)    The Notifying Parties submit that the market dynamics have evolved since the
        Commission’s last decision in relation to these product markets (in 2010). They
        submit that cleaning and hygiene products are increasingly sold at European, if not at
        worldwide, level. While the majority of customers still source cleaning and hygiene
        products and systems locally, cross-border trade flows have increased and national
        disparities in prices, transport costs and legislative requirements have decreased. The
        Notifying Parties accordingly submit that the relevant geographic market should be
        at least EEA-wide.22
(33)    The market investigation did not provide sufficient indications to determine which of
        the plausible alternative potential geographic market definitions (i.e. EEA-wide or
19   Case COMP/M.6012 – CD&R/CVC/Univar, recitals 18-20.
20   Form CO, paragraph 129-132.
21   Case COMP/M.6012 – CD&R/CVC/Univar, recital 25; Case COMP/M.2665 – Johnson Professional
     Holdings/DiverseyLever, recital 24.
22   Form CO, paragraphs 134-135.
                                                     7
 ---pagebreak---          national) would be appropriate for the supply of cleaning and hygiene products and
         systems.
(34)     In any event, the Commission considers that for the purpose of assessing the
         Transaction, the exact scope of the geographic market definition for cleaning and
         hygiene products and systems can be left open. Neither of the plausible alternative
         geographic market definitions (EEA-wide or national) affects the outcome of the
         competitive assessment of the Transaction as to its compatibility with the internal
         market or the functioning of the EEA Agreement.
5.       ASSESSMENT
5.1.     Analytical framework
(35)     Under Articles 2(2) and 2(3) of the Merger Regulation, 23 the Commission must
         assess whether a proposed concentration would significantly impede effective
         competition in the internal market or in a substantial part of it, in particular through
         the creation or strengthening of a dominant position.
(36)     A concentration can entail horizontal effects. When the Commission analyses such
         cases it does so in line with the Commission Guidelines on the assessment of
         horizontal mergers under the Merger Regulation. 24
(37)     Furthermore, a concentration can entail vertical and/or conglomerate effects. The
         Commission Guidelines on the assessment of non-horizontal mergers under the
         Merger Regulation 25 (the “Non-Horizontal Merger Guidelines”) also distinguish
         between two main ways in which non-horizontal mergers may significantly impede
         effective competition: (a) when they give rise to input and/or customer foreclosure
         (non-coordinated effects); and (b) when the merger changes the nature of
         competition in such a way that firms that previously were not coordinating their
         behaviour, are now more likely to coordinate to raise prices or otherwise harm
         effective competition (coordinated effects).26 The Non-Horizontal Merger
         Guidelines distinguish two types of foreclosure: (a) where the merger is likely to
         raise the costs of downstream rivals by restricting their access to an important input
         (input foreclosure) and (b) where the merger is likely to foreclose upstream rivals by
         restricting their access to a sufficient customer base (customer foreclosure)27.
         According to the Non-Horizontal Merger Guidelines, the Commission is unlikely to
         find concern in non-horizontal mergers, where the market share post-merger of the
         new entity in each of the markets concerned is below 30%. 28 The Non-Horizontal
         Merger Guidelines define conglomerate mergers as mergers between firms that are
23   As regards the application of the Merger Regulation in the EEA, see also Annex XIV to the EEA
     Agreement.
24   Commission Guidelines on the assessment of horizontal mergers under the Merger Regulation (OJ C 31,
     5.2.2004, p. 5).
25   Commission Guidelines on the assessment of non-horizontal mergers under the Merger Regulation
     (OJ C 265, 18.10.2008, p. 6).
26   Ibid, paragraphs 17-19.
27   Ibid, paragraph 30.
28   Ibid, paragraph 25.
                                                      8
 ---pagebreak---          in a relationship which is neither horizontal (as competitors in the same relevant
         market) nor vertical (as suppliers or customers). 29
5.2.     Vertical Relationships
5.2.1. Overview of affected markets
(38)     Upstream, Lonza Specialty Industries’ market share in the supply of biocidal
         products for hygiene end-uses is moderate both at worldwide level ([10-20]%) and in
         the EEA ([20-30]%).30 It faces competition from a number of sizeable competitors
         across the EEA and globally. Specifically for the EEA these are Stepan ([10-20]%),
         Thor ([10-20]%), Solvay ([10-20]%), and others ([30-40]%) including Kao, Evonik,
         Nouryon, Pilot, Lanxess and BASF.
(39)     Downstream, Diversey’s market share in the overall market for the supply of
         cleaning and hygiene products and systems is [10-20]% at EEA level and does not
         exceed 30% in any EEA Member State.31 Likewise, its market share would not
         exceed 30% based on a segmentation between the industrial and institutional sector
         on an EEA-wide or national basis.32 Diversey’s main competitors in relation to
         cleaning and hygiene products and systems across the EEA include:
         Ecolab ([10-20]%), P&G ([0-5]%), Hako ([0-5]%), and others ([60-70]%) including
         Nilfisk and Deb.
(40)     If the relevant market were to be further sub-segmented by end-use, Diversey’s
         market share would be less than 30% for most end-uses in most Member States and
         at EEA level.33
(41)     However, Diversey’s market share in the supply of cleaning and hygiene products to
         the institutional sector would be 30% or more for certain end-uses in some Member
         States, namely (a) in Finland: Kitchen hygiene ([30-40]%), (b) in Greece:
         Housekeeping hygiene ([40-50]%) and (c) in Portugal: (i) Food and beverage end-
         use ([30-40]%), (ii) on-premises laundry ([40-50]%).
(42)     Therefore, the Transaction gives rise to vertically affected markets in the supply of
         biocidal products for hygiene end-uses in the EEA (upstream) and the supply of
         cleaning and hygiene products and systems in the institutional sector for particular
         end uses in Finland, Greece and Portugal (downstream). The risk of customer
         foreclosure in each of these Member States is assessed below. The Commission will
         discuss the Notifying Parties’ ability and incentives to run a customer foreclosure
         strategy as well as the possible effects of such a strategy in paragraphs (44) to (53)
         below.
29   Ibid, paragraph 5
30   Form CO, Tables 3-4, paragraphs 162-164. Market share estimates presented in this Decision are on a
     value basis and for 2020. For completeness, its market shares would not exceed 30% in the EEA or
     worldwide if the relevant market for biocidal products for hygiene end-uses were segmented by active
     ingredient chemistry (Form CO, paragraph 165).
31   Form CO, paragraph 168 (a).
32   Form CO, paragraph 168 (b).
33   Form CO, paragraph 168 (c) – (e).
                                                        9
 ---pagebreak--- (43)    The Commission notes that in its response to the market investigation, a market
        participant raised concerns about the Parties trying to implement an input foreclosure
        strategy relating to biocidal products in the EEA post-Transaction. The Commission
        also notes that no other market participant raised any similar concerns. For the sake
        of completeness, although the merged entity’s market shares would be less than 30%
        in the upstream market for the supply of biocidal products under any plausible
        market definition, the Commission assesses below the risk of input foreclosure. The
        Commission will discuss the Notifying Parties’ ability and incentives to run an input
        foreclosure strategy as well as the possible effects of such a strategy in
        paragraphs 5.2.3.1 to (65) below.
5.2.2. Customer foreclosure
5.2.2.1. Notifying Parties’ submissions
(44)    Despite the merged entity’s high market shares downstream (in certain end-uses), the
        Notifying Parties argue that it is unlikely that the Transaction would give rise to any
        anti-competitive effects as a result of a customer foreclosure strategy in Finland,
        Greece or Portugal, for the following reasons.
(45)    Firstly, the Notifying Parties submit that the merged entity would have no ability to
        engage in customer foreclosure, since Diversey accounts for a low proportion of
        demand for biocidal products for hygiene end-uses across the EEA ([5-10]%) and so
        upstream suppliers of biocidal products for hygiene end-uses have a number of
        sizeable downstream customers to which they can sell their products.34
(46)    Secondly, the Notifying Parties consider that the merged entity would not have any
        incentive to engage in customer foreclosure. Since Diversey represents only a low
        proportion of demand the strategy is unlikely to lead to material gains for Lonza
        Specialty Ingredients.35
(47)    Thirdly, the Notifying Parties submit that upstream rivals will continue to be able to
        sell to a number of major international manufacturers of cleaning and hygiene
        systems, so any attempted customer foreclosure strategy would not have a
        detrimental effect on competition.36
5.2.2.2. The Commission’s assessment
(48)    The results of the Commission’s investigation indicate that the merged entity is
        unlikely to be able to successfully engage in a customer foreclosure strategy in
        relation to the purchase of biocidal products for cleaning hygiene end-uses for the
        following main reasons.
(49)    The Commission considers that the merged entity will lack the ability to engage in a
        successful customer foreclosure strategy:
        (a)     First, the market investigation confirms that the upstream market is at least
                EEA-wide, given that suppliers of biocidal products are active at EEA-wide
34   Form CO, paragraphs 177-182.
35   Form CO, paragraphs 183-184.
36   Form CO, paragraphs 185-188.
                                                   10
 ---pagebreak---                  level and sell their products to customers across the EEA (in addition,
                 customers procure products from across the EEA). 37 Suppliers of biocidal
                 products for hygiene applications can therefore turn to customers in the EEA
                 as a whole, where Diversey represents a small share of purchases of only
                 [5-10]%.38
        (b)      Second, a narrow product market segmentation at the downstream level
                 (i.e. segmenting between industrial and institutional customers, and then
                 further sub-segmenting by type of institutional customer) does not reflect the
                 reality that upstream suppliers can and do sell biocidal products for hygiene
                 end-uses to all types of institutional customers. 39 A number of institutional
                 purchasers of cleaning and hygiene products will remain available to
                 suppliers. This is illustrated by the fact that, while Diversey’s market share
                 exceeds 30% for particular end-uses in Finland, Greece and Portugal, in the
                 institutional sector overall its market share remains less than 30% in all of
                 these three Member States.40
        (c)      Third, Diversey only accounts for a modest proportion of purchases in each
                 of these Member States.41 At national level, Diversey represents
                 approximately [10-20]% of purchases of biocidal products destined to be
                 processed and then sold to the institutional sector in Finland, [10-20]% in
                 Greece and [20-30]% in Portugal. It is noteworthy that Diversey does not
                 have any manufacturing plants in Finland, Greece or Portugal and supplies its
                 own customers from its plants located elsewhere.
        (d)      Fourth, in each of the affected Member States, a number of major customers
                 will remain post-Transaction, including Ecolab and P&G (all three Member
                 States), Unilever (Portugal and Finland), 3M (Finland and Greece) and
                 others.
(50)    Therefore, Diversey as a producer of cleaning and hygiene products and systems is
        not an important customer in Finland, Greece, Portugal or the EEA as a whole,
        despite its high market shares for the narrower market segments discussed in
        paragraph (41). Consequently, post-Transaction, suppliers of biocidal products for
        hygiene end-uses, will continue to have a sufficient customer base (of producers of
        cleaning and hygiene products and systems) for whom they will continue to compete
        fiercely. Thus, the combined entity would not have the ability to engage in a
        customer foreclosure strategy.
(51)    As regards the incentive of the merged entity to engage in a customer foreclosure
        strategy, upstream, Lonza Speciality Ingredients has a modest base of sales of
        biocidal products for hygiene end uses on which to recoup profits from a foreclosure
        strategy ([20-30]% market share in the EEA). However, even if a national-level
        customer foreclosure strategy were to be attempted in Finland, Greece or Portugal,
        upstream suppliers are major international manufacturers capable of supplying
        biocidal products for hygiene end-uses to customers downstream (producers of
37   Responses of upstream competitors dated 27 May 2021.
38   Form CO, table 6.
39   Reply of an upstream competitor dated 28 May 2021.
40   Form CO, table 6.
41   Form CO, table 6
                                                      11
 ---pagebreak---         cleaning and hygiene products and systems) across the EEA. So, any attempt of
        customer foreclosure at national level would fail. Further, the market investigation
        suggested that Lonza Specialty Ingredients may not produce all products required by
        Diversey for its production, implying that a foreclosure strategy may take some time
        to implement. 42 The Commission therefore concludes that the merged entity would
        have no incentive to engage in a customer foreclosure strategy.
(52)    As regards the likely impact of a customer foreclosure strategy, the Commission’s
        investigation indicates that upstream suppliers are unlikely to face any significant
        impact even if the merged entity were to internalise all of its purchases. On the one
        hand, already pre-Transaction, Diversey spreads its purchases of biocidal products
        for hygiene end-uses across a number of suppliers other than Lonza Specialty
        Ingredients, namely […]. These suppliers are large, international players active
        across the EEA, with a combined market share that is substantially higher than that
        of Lonza Specialty Ingredients (whose market share upstream at the EEA level is
        only [20-30]%). On the other hand, a number of other major suppliers (who do not
        sell to Diversey) will continue to operate in the EEA post-Transaction, such as […].
        Finally, none of the competitors who replied to the market investigation indicated
        any concerns regarding the possibility of customer foreclosure.43 Any attempted
        customer foreclosure strategy is therefore unlikely to have such an impact on
        upstream suppliers that competitive conditions in the supply of biocidal products for
        the hygiene end-use would deteriorate.
(53)    In light of the above, taking into account the results of the market investigation and
        of all the evidence available to it, the Commission considers that the Transaction
        does not raise serious doubts as to whether it would lead to customer foreclosure
        risks in the EEA or any Member State from the vertical link between biocidal
        products for hygiene end-uses (upstream) and cleaning and hygiene products
        (downstream).
5.2.3. Input foreclosure
5.2.3.1. Notifying Parties’ submissions
(54)    The Notifying Parties argue that the Transaction is unlikely to give rise to any anti-
        competitive effects from input foreclosure in the EEA.
(55)    Firstly, the Notifying Parties consider the merged entity would have no ability for
        such a strategy, given that Lonza Specialty Ingredients’ market share in the supply of
        biocidal products for hygiene end uses is less than 20% worldwide and only
        [20-30]% in the EEA. They submit that Lonza Specialty Ingredients’ market share
        would remain less than 30% even if the relevant product market were segmented by
        active ingredient. In addition, a number of strong competitors remain in the EEA and
        customers are sophisticated, price sensitive purchasers who typically multisource
        and can switch.44
42    Reply of a competitor to Q1 dated 28 May 2021.
43    Replies of competitors to Q1.
44    Form CO, paragraph 174.
                                                     12
 ---pagebreak--- (56)    Secondly, the Notifying Parties submit that Diversey’s competitors represent an
        important source of income for Lonza Specialty Ingredients, which would have a
        continued incentive to supply to downstream competitors. Further, Diversey’s
        market share is small downstream at EEA level ([10-20]%), meaning that an
        upstream foreclosure strategy would, at best, only translate into limited additional
        sales downstream. 45
(57)    Thirdly, given that Lonza Specialty Ingredients does not have a significant degree of
        market power in the supply of biocidal products for hygiene end-uses, any input
        foreclosure strategy would be unlikely to have a significant detrimental effect on
        competition in the market for cleaning and hygiene solutions. 46
5.2.3.2. The Commission’s assessment
(58)    The Commission notes that on the basis of market shares data, which represent the
        Notifying Parties’ best estimates, Lonza Specialty Ingredients market shares in the
        upstream market for the supply of biocidal products for hygiene end-uses are
        [20-30]% in the EEA (and [10-20]% worldwide). These estimates are based on the
        Parties own sales data and knowledge of the market, while relying on third party
        market intelligence reports from IHS Markit, Biocides International and Reports and
        Data, as well as publicly available announcements from competitors. 47 The
        Commission reviewed the robustness of the Parties’ estimates, which are further
        supported by market factbooks prepared for Lonza Specialty Ingredients by […] and
        internal documents and estimates prepared by the Parties in the ordinary course of
        business. 48 Finally, the market investigation did not give rise to any reason to doubt
        the Parties’ estimates. In light of the above, the Commission is satisfied that the
        Parties’ estimates of their market shares are reasonably accurate.
(59)    The results of the Commission’s investigation indicated that the merged entity is
        unlikely to be able to successfully engage in an input foreclosure strategy in relation
        to the supply of biocidal products for cleaning hygiene end-uses for the following
        main reasons.
(60)    The Commission considers that the merged entity will lack the ability to engage in a
        successful input foreclosure strategy:
        (a)      First, the Commission notes that the Parties’ market shares in the upstream
                 market for the supply of biocidal products are [20-30]% in the EEA and
                 [10-20]% worldwide. In both cases, on the assumption that none of the
                 smaller “other” competitors identified by the Notifying Parties has a market
                 share greater than that of the smallest of the identified major competitors the
                 post-Transaction HHI is […] for the EEA and […] worldwide.49 The
45    Form CO, paragraph 175.
46    Form CO, paragraph 176.
47    Response to RFI 4, question 3, of 28/05/2021. See […].
48    Annex 4.2 to RFI 4, pages 21 onwards; Annex 4.8 to RFI 4, page 8; Annex 4.5 to RFI 4, pages 10, 14,
      23, 28, 35, 50.
49    Calculated on the basis of the market shares presented in Form CO, Tables 3-4, paragraphs 162-164.
                                                         13
 ---pagebreak---                Commission considers that it is unlikely to find non-horizontal concerns in
               such a market structure.50
     (b)       Second, there are several credible competitors active in the EEA, who will
               continue to meet customers’ needs, including Stepan, Thor, Solvay, Nouryon,
               Kao, Evonik, Pilot and Lanxess. The Notifying Parties’ internal documents in
               the ordinary course of business confirm that these are active competitors that
               constrain the Lonza Specialty Ingredients in the supply of biocidal products
               for hygiene end uses and that this market is fragmented.51 Likewise,
               shipments from outside the EEA appear to be a credible constraint for any
               foreclosure strategy at EEA level; for example, shipments of biocidal
               products for hygiene uses from its facilities in the US represent at least […]
               of Lonza Specialty Ingredients’ sales in the EEA.52
     (c)       Third, the Commission considers that there is some spare capacity in the
               production of biocidal products at the upstream level. Estimates submitted by
               the Notifying Parties indicate that competing suppliers of biocidal products
               have likely sufficient spare capacity to meet all of the downstream demand
               even if LSI were to stop supplying to any customers in the EEA. 53 The
               market investigation supports the finding that competing producers of
               biocidal products have some spare capacity.54 Rival suppliers will also be
               able to turn to toll manufacturers to ensure sufficient production to meet
               downstream demand.55 In the event that Lonza Specialty Ingredients’ input
               foreclosure strategy were to divert its sales away from Diversey’s
               downstream rivals in order to vertically integrate with Diversey, Lonza
               Specialty Ingredients’ rival suppliers who were previously supplying
               Diversey would have spare capacity to sell to the (former) customers of
               Lonza Specialty Ingredients.56
     (d)       Third, the Commission investigated to what extent customers can switch
               between rival suppliers of biocidal products. The Commission considers that
               switching is a credible threat by customers to render an input foreclosure
               strategy unlikely:
50 Non-Horizontal Merger Guidelines, paragraph 25.
51 Annex 4.5 to RFI 4, page 10; Annex 4.6 to RFI 4, page 4.
52 Case Team calculations based on Notifying Party’s response to question 1 of RFI 5 and question 1 of
   RFI 6.
53 Case Team calculations based on Notifying Party’s response to question 1 of RFI 5 and Table 3 of the
   Form CO; also response to question 5 of RFI 4.
54 Upstream competitor’s response to Q2 dated 28 May 2021.
55 Indeed, […] – response to question 5 of RFI 4 and question 2 of RFI 5 and RFI 6. […].
56 For completeness, the COVID-19 pandemic led to a substantial increase in demand for certain cleaning
   and hygiene products during 2020. However, following the peak in demand, the level of demand
   appears to be decreasing: IHS Markit estimates the “biocide market to reach their 2019 levels again in
   the second half of 2021” and notes that “[i]ndustry sources anticipate that the biocides used in
   disinfection will normalize at a level about 5% to 15% above the pre-coronavirus consumption”.
   (https://ihsmarkit.com/research-analysis/the-biocides-market-in-the-times-of-coronavirus.html). This is
   also supported by Lonza Specialty Ingredients’ year-on-year sales performance comparing 2020
   and 2021 (response to question 6 of RFI 4). This indicates that there should be spare capacity currently
   and in the near future.
                                                      14
 ---pagebreak---               –      Substitution of active ingredients. Downstream manufacturers rely on
                     particular biocidal active ingredients in their formulas to produce
                     different cleaning and hygiene products. As explained in section 4.2.1.1
                     above, the biocidal active ingredient must be authorised under the BPR.
                     Generally, there are multiple suppliers who have obtained BPR
                     authorisations for a given active ingredient. The Notifying Parties
                     demonstrated that for the active ingredients for cleaning and hygiene
                     end-uses supplied by Lonza Specialty Ingredients, other suppliers
                     already have active ingredient authorisations. 57 Moreover, the
                     Notifying Parties confirmed that there is nothing to prevent other
                     producers from applying for and obtaining a BPR authorisation for the
                     same active ingredients of biocidal products for cleaning and hygiene
                     end-uses, which are supplied by Lonza Specialty Ingredients and for
                     which the latter holds an authorisation under the BPR.58 Finally, even if
                     the specific active ingredient is unavailable, the market investigation
                     indicates that generally customers are able to find alternatives: “[i]n
                     case a specific active ingredient is no longer available, it should be
                     possible [for customers] to make a new formulation using an alternate
                     active substance”.59
              –        Regulatory barriers, time and cost of switching. The market
                       investigation confirmed that for a customer to be able to use a
                       particular active ingredient in its cleaning and hygiene product, the
                       biocidal active ingredient must be authorised under the BPR and the
                       downstream product must also be authorised. The Notifying Party
                       estimates that a customer seeking to switch to another authorised
                       active ingredient for its end-product would incur costs of [below 500
                       000 EUR] for authorisations in all Member States at the national
                       level, and that this could take up to two years (though in some
                       Member States, such as France and Germany the process is
                       substantially faster and would take approximately one month). 60 The
                       results of the market investigation indicated that these estimates were
                       broadly accurate.61 This time frame and level of cost appears
                       moderate, in particular in light of the substantial margins generated by
                       downstream manufacturers of cleaning and hygiene products.62
57 With the exception of one product, for which there is nothing to prevent rival suppliers applying for a
   BPR authorisation and which the Notifying Party explains is “very similar” to and substitutable for the
   hygiene end-use with another active ingredient for which several other suppliers have received
   authorisation. Response to RFI8 of 10.06.21, annex RFI8.1
58 Response to RFI 7 of 9.6.2021.
59 Upstream competitor’s response dated 4 June 2021.
60 Response to question 3 of RFI 5.
61 Upstream competitor’s response dated 4 June 2021.
62 The Commission notes that Diversey’s gross profit margin in the downstream supply of cleaning and
   hygiene products in Europe was approximately […] in 2020, implying gross profits of circa EUR […]
   (RFI 5 question 2). This suggests that the level of gross profits of manufacturers of cleaning and
   hygiene products in the downstream market would be more than sufficient to absorb the necessary level
   of investment to switch suppliers, without any impact on the competitiveness of manufacturers cleaning
   and hygiene products.
                                                     15
 ---pagebreak---                –       Evidence of switching. In practice, already pre-Transaction,
                       manufacturers of cleaning and hygiene products and systems pursue a
                       multi-sourcing strategy for biocidal products for hygiene uses. For
                       example, Diversey spreads its EEA purchases of these products across
                       a number of different suppliers, with its […] largest suppliers each
                       accounting for […] of its needs.63 Moreover, the market investigation
                       confirmed that downstream customers can and do apply a multi-
                       sourcing strategy. 64 The Notifying Parties have also provided details of
                       Lonza Specialty Ingredients’ customers successfully switching
                       considerable parts of their procurement needs to rival suppliers.65
                       Competitors confirm that customers can switch in practice subject to
                       the BPR elements described above.66
(61)  Therefore, Lonza Specialty Ingredients is unlikely to have significant market power
      in the supply of biocidal products for hygiene end-uses in the EEA or worldwide and
      the merged entity would not have the ability to engage in an input foreclosure
      strategy, in particular as its market shares are limited, a number of credible rival
      sources of supply will remain and have spare capacity, and customer switching is a
      credible threat.
(62)  As regards the incentive of the merged entity to engage in an input foreclosure
      strategy, downstream, Diversey only has a relatively small base of sales of cleaning
      and hygiene products ([10-20]% in the EEA) from which to capture any customer
      diversion from an input foreclosure strategy. Moreover, Lonza Specialty Ingredients’
      internal documents suggest that […].67
(63)  Finally, an input foreclosure strategy would require a change of business strategy for
      Lonza Specialty Ingredients, and pursuant to the joint venture, Cinven’s consent is
      required for the approval of the business plan and budget of Lonza Specialty
      Ingredients. While a successful input foreclosure strategy might benefit Bain Capital
      (which controls Diversey), it is unlikely that Cinven would benefit from such a
      strategy since it would lose profits from foregone upstream sales by Lonza Specialty
      Ingredients, but without a corresponding increase in downstream profits (given that
      it is not active in the downstream market). So it is unlikely that Cinven will approve
      any such strategy. Accordingly, it appears unlikely that the merged entity would
      have the incentive to engage in an input foreclosure strategy relating to biocidal
      products.
(64)  As regards the likely impact of an input foreclosure strategy, the Commission notes
      the modest market share of the merged entity ([20-30]% in the EEA, [10-20]%
      worldwide) and the fact that downstream customers can, if necessary with time and
      manageable investment, turn to rival suppliers. Moreover, other than one customer,
      the market investigation did not give rise to any concerns regarding the risk of input
      foreclosure. The Commission therefore concludes that any customer foreclosure
      strategy of the merged entity would have no impact on downstream customers.
63   Table 4.4 of the reply to RFI 4.
64   Response of an upstream competitor dated 9 June 2021.
65   Response to RFI 5, paragraph 11. In particular, this indicates that one customer was able to move […].
66   Response of an upstream competitor dated 4 June 2021.
67   Annex 4.5, pages 8, 22, 23 of reply to RFI 4.
                                                         16
 ---pagebreak--- (65) In light of the above, taking into account the results of the market investigation and
     of all the evidence available to it, the Commission considers that the Transaction
     does not raise serious doubts as to whether it would lead to input foreclosure risks in
     the EEA or worldwide from the vertical link between the supply of biocidal products
     for hygiene end-uses (upstream) and cleaning and hygiene products (downstream).
6.   CONCLUSION
(66) For the above reasons, the European Commission has decided not to oppose the
     notified concentration 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 and Article 57 of the EEA Agreement.
                                                    For the Commission
                                                    (Signed)
                                                    Margrethe VESTAGER
                                                    Executive Vice-President
                                               17