CELEX: 32014M7318
Language: en
Date: 2014-09-03 00:00:00
Title: Commission Decision of 03/09/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7318 - ROSNEFT / MORGAN STANLEY GLOBAL OIL MERCHANTING UNIT) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

                                        Brussels, 3.9.2014
                                        C(2014) 6318 final

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                                        To the notifying party

Dear Sir/Madam,

Subject:    Case M.7318 – Rosneft/ Morgan Stanley Global Oil Merchanting Unit
         Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

    1) On 29 July 2014, the European Commission received the notification of a proposed  concentration  pursuant  to  Article  4  of  the  Merger
       Regulation by which OJSC Oil Company Rosneft (the "Notifying Party", Russia) acquires within the meaning of Article 3(1)(b) of the  Merger
       Regulation control of parts of Morgan Stanley ("Morgan Stanley", United States), namely the Morgan Stanley  Global  Oil  Merchanting  Unit
       (the "Target", and together with the Notifying Party the "Parties"), by way of purchase of shares and assets.[2]

       THE PARTIES

    2) The Notifying Party is a Russian public company, indirectly owned by the Russian State for 69.5% and by BP plc ("BP") for 19.75%, with the
       remainder being free float on the Moscow and London Stock Exchanges.

    3) The Notifying Party is primarily engaged in the exploration, development, production and sale of crude oil and natural gas,  primarily  in
       Russia (no exploration and production activities in the EEA). The Notifying Party  is  also  active  in  the  refining  and  marketing  of
       petroleum products and petrochemicals, primarily in Russia and Ukraine. The Notifying Party also owns one refinery in Germany jointly with
       BP. The Notifying Party does not currently have any independent third party trading activities.

    4) Morgan Stanley is a US-registered company, globally active in the provision of a wide range of investment  banking,  securities,  trading,
       investment management and wealth management services.

    5) The Target consists of Morgan Stanley's crude oil and petroleum products merchanting activities.  In  carrying  out  its  activities,  the
       Target acquires and resells supplies of crude oil and petroleum products (so called "physical trading"). To the extent that these physical
       trading activities require the use of storage and logistics assets, the Target leases storage facilities and charters vessels.

       THE OPERATION AND THE CONCENTRATION

    6) On 20 December 2013, the Notifying Party and Morgan Stanley signed a Purchase Agreement, by which the Notifying  Party  will  acquire  the
       Target. The Target is currently a functional unit of Morgan Stanley, which will undergo an internal reorganization into a separate  entity
       pre-closing. Morgan Stanley will transfer the Target's shares and assets to the Notifying Party, which will subsequently have sole control
       over the Target.

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

       EU DIMENSION

    8) The undertakings concerned have a combined aggregate worldwide turnover of more than EUR 5 000  million  (Notifying  Party:  EUR  121  693
       million, Target: EUR […] million). Each of them has an EU-wide turnover in excess of EUR 250 million (Notifying Party:  EUR  […]  million,
       Target: EUR […] million),[3] but they do not achieve more than two-thirds of their aggregate EU-wide turnover  within  one  and  the  same
       Member State. The notified operation therefore has an EU dimension according to Article 1(2) of the Merger Regulation.

       COMPETITIVE ASSESSMENT

1 Market definition

1 Exploration of crude oil and natural gas

    9) The Commission has in the past considered the market for the exploration of  both  crude  oil  and  natural  gas  as  one  single  product
       market.[4] The Commission has further considered that the relevant geographic scope of this market is worldwide.[5]  The  Notifying  Party
       agrees with this market definition.

   10) In any event, the exact market definition can be left open, as under none of the  plausible  market  definitions  the  transaction  raises
       serious doubts as to its compatibility with the internal market.

2 Production and wholesale of crude oil

   11) The Commission has in the past considered the production and wholesale of crude oil as a separate product market.[6]  The  Commission  has
       generally considered the market for the production and wholesale of crude oil to  be  worldwide  in  scope.[7]  However,  with  regard  to
       specific 'difficult to reach' customers, such as refineries in certain land-locked EEA countries, the Commission has considered  that  the
       geographic scope could be limited to a specific supply pipeline, such as the Druzhba pipeline.[8]

   12) The Notifying Party considers the market for the production and wholesale of crude oil as worldwide, but has submitted market  data  under
       the narrowest plausible market definition (on a pipeline basis).

   13) In any event, the exact market definition can be left open, as under none of the  plausible  market  definitions  the  transaction  raises
       serious doubts as to its compatibility with the internal market.

3 Ex-refinery sales of certain refined fuel products

   14) The Commission has previously considered ex-refinery sales of refined fuel products as a separate relevant product market,[9] which can be
       further segmented into markets for ex-refinery sales of fuel and non-fuel products.[10] The Commission has further  considered  that  fuel
       sales can be sub-segmented into sales of gasoline, diesel, fuel oil, aviation fuel and LPG.[11] The Commission has in the past  considered
       the relevant geographic market for ex-refinery sales of refined fuel products to be Western Europe-wide, EU-wide or EEA-wide, depending on
       the product considered.[12]

   15) The Notifying Party generally agrees with these market definitions and  has  submitted  market  information  under  all  plausible  market
       delineations.

   16) In the market investigation, with regard to ex-refinery sales of fuel oil, all competitors replied that fuel oil is sourced on a worldwide
       level, which has also been confirmed by a majority of customers with the remaining customers stating  that  they  source  on  an  EEA-wide
       basis.

   17) In any event, the exact market definition can be left open, as under none of the  plausible  market  definitions  the  transaction  raises
       serious doubts as to its compatibility with the internal market.

4 Trading of crude oil and petroleum products

1 Product market

   18) The Commission has in the past considered a possible separate market for the trading of crude oil  and  petroleum  products.[13]  However,
       such market has never been investigated in-depth and the product market definition has consistently  been  left  open  in  merger  control
       procedures.

   19) It should  also  be  noted  that  the  Commission  has  considered  in  the  past,  as  regards  other  commodities  (certain  metals[14],
       electricity[15]), that trading activities do not constitute a separate market but rather are  a  part  of  the  production  and  wholesale
       market, on the basis that customers source such products interchangeably from producers and traders.

   20) The Notifying Party submits that a separate market for the trading of crude oil and petroleum products exists, on which traders buy and re-
       sell third party products with a view to obtaining a broker's margin. Such market would be distinct from the market on which producers are
       active, according to the Notifying Party, mainly because producers tend to sell under long-term agreements, while traders use spot and ad-
       hoc bilateral agreements to a larger extent.

   21) The market investigation, with regard to ex-refinery sales of fuel oil specifically, provided evidence that the physical trading  of  fuel
       oil may be part of the market for production and ex-refinery sales of fuel oil. A large  majority  of  both  competitors  and  almost  all
       customers consider the sales conditions for fuel oil of traders and producers as comparable, while all customers and a large  majority  of
       competitors regard the price terms as comparable. All customers source fuel  oil  for  their  EEA  operations  from  traders  as  well  as
       producers, while all competitors state that they compete with traders and producers  on  the  same  market.  Almost  all  customers  would
       therefore switch between traders and producers/suppliers in case of a price increase by 5-10% and moreover have already done  so,  a  fact
       that has been confirmed by almost all competitors.

   22) In any event, the exact product market definition can be left open, as under none of the  plausible  market  definitions  the  transaction
       raises serious doubts as to its compatibility with the internal market. The transaction is analysed  under  both  alternatives,  a  market
       including sales by producers and traders and separate markets for sales by producers and sales by traders.

2 Geographic market

   23) The Commission previously considered the separate market for trading of crude oil and petroleum products to be at least EEA- or  worldwide
       in scope, but left the geographic market definition open.[16] The Notifying Party submits that crude oil is traded on a worldwide basis.

   24) In any event, the exact geographic market definition can be left open, as under none of the plausible market definitions  the  transaction
       raises serious doubts as to its compatibility with the internal market.

2 Competitive assessment

1 Horizontal overlaps

   25) The concentration would only give rise to horizontal overlaps, if the trading of (i) crude oil and (ii) refined petroleum products were to
       be considered part of, respectively, (i) the market for the production and wholesale of crude oil and (ii) the  various  markets  for  ex-
       refinery sales of (a) aviation fuels, (b) diesel, (c) fuel oil, (d) gasoline, (e) LPG and (f) naphtha.

   26) On all but one of these plausible markets, the Parties' combined market share would remain well below 10%.

   27) The only affected market[17] would be the market for ex-refinery sales of fuel oil at EEA-level, where the Parties' combined market  share
       would reach around [30-40]% by value (Notifying Party: [20-30]%, Target: [5-10]%).

   28) Moreover, the new entity will face strong competition from a number of large integrated international oil  companies  such  as  ExxonMobil
       ([10-20]%), Shell ([10-20]%) and BP ([5-10]%) as well as large traders such as Gunvor, Trafigura and Vitol (5-10% each).

   29) Moreover, the Parties would be distant competitors. Fuel oil producers,  such  as  the  Notifying  Party,  essentially  aim  to  secure  a
       consistent off-take of the fuel oil produced as a by-product of the crude oil refining process, and thus typically  enter  into  long-term
       supply contracts with customers. On the contrary, traders, such as the Target, derive their revenue through  the  buying  and  selling  of
       third party volumes with a view to obtaining a margin and typically utilise spot market trades and ad-hoc bilateral sales agreements.  The
       Parties would, therefore, be partially complementary in meeting different customer needs (long-term versus short-term supplies).

   30) In the market investigation, all responding customers and a large majority of competitors considered that the proposed  transaction  would
       have no or only a limited impact on their company or the availability of fuel oil in the EEA. Almost all customers and a large majority of
       competitors consider that the intensity of competition post-merger will remain the same, while some competitors and customers even  expect
       an increased level of competition.

   31) In view of the above, the concentration does not raise serious doubts as to its compatibility with the internal market with regard to  the
       EEA-wide market for the ex-refinery sales and trading of fuel oil.

2 Vertical relations

   32) If the trading of (i) crude oil and (ii) refined petroleum products was to be considered part of, respectively, (i)  the  market  for  the
       production and wholesale of crude oil and (ii) the various markets for ex-refinery sales of petroleum products,  the  concentration  would
       give rise to a vertical relation between (i) upstream, both Parties' activities in the production and wholesale  of  crude  oil  and  (ii)
       downstream, both Parties' activities in the ex-refinery sales of certain refined petroleum products.

   33) The concentration would give rise to vertically affected markets in relation to (i) upstream, the global market  for  the  production  and
       wholesale of crude oil including traders (combined market share below [10-20]%) and (ii) downstream, the EEA-wide  ex-refinery  sales  and
       trading of fuel oil (combined market share of [30-40]%).

   34) Strong competitors will remain post-transaction on both the global market for the production and wholesale of crude oil  (as  for  example
       ExxonMobil, BP and Chevron) and the EEA market for ex-refinery sales and  trading  of  fuel  oil,  where  the  Parties  would  be  distant
       competitors as explained in Section 4.2.1 above.. Such competitive constraints will limit the Parties' ability to foreclose competitors or
       customers.

   35) In view of the above, the concentration would not raise serious doubts as to its compatibility with the internal market with regard to the
       global market for the production and wholesale of crude oil and the EEA-wide market for the ex-refinery sales and trading of fuel oil.

   36) If the trading of (i) crude oil and (ii) refined petroleum products was to be considered separate from (i) the market for  the  production
       and wholesale of crude oil and (ii) the various markets for ex-refinery sales of refined petroleum products, the concentration would  give
       rise to the following vertical relations:

a. Between (i) upstream, Rosneft's activities in the production and wholesale of crude oil and (ii) downstream, the Target's  activities  in  the
   trading of crude oil;

b. Between (i) upstream, the Target's activities in the trading of crude oil and (ii) downstream, Rosneft's activities in  ex-refinery  sales  of
   various refined petroleum products;

c. Between (i) upstream, Rosneft's activities in ex-refinery sales of various refined  petroleum  products  and  (ii)  downstream,  the  Target's
   activities in the trading of various refined petroleum products.

   37) The above vertical relations would however not give rise to any affected market under any plausible market definitions.

       CONCLUSION

   38) 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
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[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
      ('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 255, 6.8.2014, p. 16.
[3]   Turnover calculated in accordance with Article 5 of the Merger Regulation.
[4]   COMP/M.1383 - Exxon/Mobil; COMP/M.4934 - Kazmunaigaz / Rompetrol; COMP/M.6801- Rosneft/TNK-BP.
[5]   M.4934 - KazMunaiGaz/Rompetrol.
[6]   M.6801 - Rosneft/TNK-BP; M.2681 - Conoco/Philipps Petroleum; M.1383 - Exxon/Mobil; M.6807 - Mercuria Energy Asset Management/ Sinomart  KTS
      Development/ Vesta Terminals; M.4208 - Petroplus/European Petroleum Holdings.
[7]   M.5629 - Normeston/Normeston/Mol/Met JV; M.4208 - Petroplus/European Petroleum Holdings.
[8]   M.6801 Rosneft/TNK-BP.
[9]   M.6801 -Rosneft/TNK-BP; M.6261 - North Sea Group/Argos Groep /JV; M.6151 - Petrochina/Ineos/JV; M.5846  -  Shell/Cosan/JV;  M.5005  -  Galp
      Energia/Exxonmobil Iberia; M.4934 - Kazmunaigaz/Rompetrol; M.727-  BP/MOBIL.
[10]  M.4934 - Kazmunaigaz/Rompetrol, paragraph 8.
[11]  M.1383 - Exxon/Mobil, M.3516 - Repsol YPF/Shell Portugal, M.4348 - PKN/Mazeikiu; M.5637  -  Motor  Oil  (Hellas)  Corinth  Refineries/Shell
      Overseas Holdings.
[12]  M.727 - BP/MOBIL, paragraph 34; M. 4934 - Kazmunaigaz/Rompetrol;  M.5445  -  Mytilineos/Motor  Oil/Corinthos  Power;  M.6261  -  North  Sea
      Group/Argos Groep/JV.
[13]  M.6807 - Mercuria/Sinomart/Vesta Terminals, paragraph  16;  M.  5629  Normeston/MOL/Met  JV,  paragraph  14;  M.4208  -  Petroplus/European
      Petroleum Holding, paragraph 10; IV/M.85 - Elf/Occidental, paragraph 4.
[14]  M.6541 - Glencore/Xstrata, paragraphs 78-390.
[15]  M.5979 - KGHM/ Tauron Wytwarzanie/JV; M.5911 - Tennet/Elia/Gasunie; M.3696 - E.ON/MOL; M.3440 - EDP/ENI/GDP; M.3268 - Sydkraft/Graninge.
[16]  M.6807 - Mercuria/Sinomart/Vesta Terminals, paragraph  25;  M.  5629  Normeston/MOL/Met  JV,  paragraph  15;  M.4208  -  Petroplus/European
      Petroleum Holding, paragraph 10.
[17]  According to Section 6 of the Form CO horizontally affected markets are markets on which the combined market share of the  Parties  is  15%
      or more.

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 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.

                                                                  PUBLIC VERSION

                                                                 MERGER PROCEDURE