CELEX: 32019M9426
Language: en
Date: 2019-10-04 00:00:00
Title: Commission Decision of 04/10/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9426 - 3M COMPANY / ACELITY) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 04.10.2019
                                                                 C(2019) 7228 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
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                                                                To the notifying party
Subject:             Case M.9426 – 3M Company/Acelity
                     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
Dear Sir or Madam,
(1)       On 03.09.2019, the European Commission received notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation (the “Transaction”) by
          which 3M Company (“3M”, US, or the “Notifying Party”) acquires within the
          meaning of Article 3(1)(b) of the Merger Regulation sole control of Acelity, Inc.
          (“Acelity”, US), by way of a purchase of shares3.
(2)       3M and Acelity are collectively referred to below as the “Parties”.
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     OJ L 1, 3.1.1994, p. 3 (the “EEA Agreement”).
3     Publication in the Official Journal of the European Union No C 308, 12.09.2019, p. 7.
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--- 1.      THE PARTIES
(3)     3M is a diversified technology company. Through its health care division, 3M offers
        a broad range of medical solutions, including advanced wound dressings.
(4)     Acelity is primarily active in the development and commercialisation of advanced
        wound care products, including through its subsidiaries Kinetic Concepts, Inc,
        Systagenix Wound Management, Limited and Crawford Healthcare Limited.
2.      THE OPERATION AND THE CONCENTRATION
(5)     The Parties entered into a Stock Purchase Agreement on 1 May 2019. Under the
        terms of the Stock Purchase Agreement, 3M will acquire the 100% equity interest in
        Acelity that is currently directly held by Acelity L.P. Inc..
(6)     As a result of the Transaction, 3M will obtain sole control over Acelity within the
        meaning of Article 3(1)(b) of the Merger Regulation.
3.      EU DIMENSION
(7)     The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 2 500 million4. Each of them has an EU-wide turnover in excess of
        EUR 100 million. In three Member States ([…], […] and […]), their combined
        turnover exceeds EUR 100 million and the turnover of each undertaking concerned
        exceeds EUR 25 million in each of these Member States. Neither 3M nor Acelity
        achieves more than two-thirds of their aggregate EU-wide turnover within one and
        the same Member State. The Transaction therefore has an EU dimension pursuant to
        Article 1(3) of the Merger Regulation.
4.      COMPETITIVE ASSESSMENT
(8)     The Transaction leads to horizontal overlaps between the activities of 3M and
        Acelity in relation to the supply of moist advanced wound care products. These
        overlaps give rise to affected markets only in relation to specific types of wound care
        products at national level.
(9)     In addition, vertically affected markets arise in light of the vertical link between the
        activities of 3M upstream (film drapes, which are included as consumable products
        in negative pressure wound therapy (“NPWT”) kits) and Acelity downstream
        (supply of NPWT kits to hospitals and community customers).
4   Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                          2
 ---pagebreak--- 4.1.     Horizontal non-coordinated effects - Moist advanced wound care products
4.1.1. Market definition
4.1.1.1. Product market definition
(10)     In previous decisions, the Commission concluded that (a) traditional wound care
         products (e.g., surgical dressings, fixation products and swabs), and (b) advanced
         wound care products belong to separate product markets as they do not offer the
         same performance and are not used for the same purpose.5
(11)     In the market for advanced wound care products, the Commission further
         differentiated between (i) moist wound care products,6 (ii) active wound care
         products, and (iii) biological active wound care products.7 Within the segment of
         moist advanced wound care products (the only segment on which the Parties’
         activities overlap) the following sub-segments were also identified: alginates,
         hydrofibres, foams, hydrocolloids, hydrogels, film dressings, contact layers and
         silver antimicrobials.8 Ultimately, the Commission left open whether each of these
         products would constitute a separate product market.
(12)     The Commission also considered a potential alternative definition, grouping some
         moist advanced wound care products into the following categories: (i) a market
         segment for moisture-absorbing advanced wound care products that includes
         alginates, foams and hydrofibres, (ii) a market segment for moisture-donation
         advanced wound care products that includes hydrogels and hydrocolloids, (iii) a
         market segment for secondary dressings that includes films and contact layers, and
         (iv) a market segment for silver antimicrobials and other antimicrobials (which
         include all wound care products in other categories in which silver is incorporated).9
         Ultimately, it did not reach a conclusion on this potential definition.
(13)     The Notifying Party submits that the relevant product market is the supply of moist
         advanced wound care products, noting that each wound is unique and at a given time
         may be treated with more than one of the types of dressing identified above (whether
5   See Cases COMP/M.7323 - Nordic Capital/GHD Verwaltung, decision of 08.08.2014; COMP/M.4367 -
    APW/APSA/Nordic Capital/Capio, decision of 16.03.2007; COMP/M.5190 - Nordic Capital/ConvaTec,
    decision of 15.07.2008; COMP/M.3816 - Apax/Mölnlycke, decision of 15.06.2005; COMP/JV.54 -
    Smith&Nephew/Beiersdorf, decision of 30.01.2001.
6   The Commission noted that the common functionality of moist advanced wound care products that
    differentiates them from other advanced wound care products is that they provide a moist environment
    that can be beneficial for healing. See e.g. Case COMP/M.7323 - Nordic Capital/GHD Verwaltung,
    decision of 08.08.2014.
7   The Commission noted that the functions performed by each of these product categories are distinct: (i)
    moist wound care products maintain optimum conditions for tissues to repair themselves; (ii) active
    wound care products encourage better healing by interacting with the tissues at a physiological and
    cellular level, and (iii) biologically active wound care products either deliver bioactive compounds or are
    constructed from material having endogenous activity. See Case COMP/M.3816 - Apax/Mölnlycke,
    decision of 15.06.2005.
8   See Cases COMP/M.7323 - Nordic Capital/GHD Verwaltung, decision of 08.08.2014; COMP/M.4579 -
    Investor/Morgan          Stanley/Mölnlycke,      decision    of       27.03.2007;      COMP/M.4229        -
    APHL/L&R/Netcare/General Healthcare Group, decision of 25.07.2006; COMP/M.3816 -
    Apax/Mölnlycke, decision of 15.06.2005.
9   See Cases COMP/M.7323 - Nordic Capital/GHD Verwaltung, decision of 14.08.2014, and
    COMP/M.5190 - Nordic Capital/ConvaTec, decision of 15.07.2008.
                                                            3
 ---pagebreak---         used as substitutes, in combination or in sequence). It also observes that most
        suppliers are active across the whole range of moist advanced wound care products.
        To the extent that segmentation by product type is appropriate, the Notifying Party
        proposes to introduce a new sub-segment of moist wound care products not
        previously considered by the Commission. Superabsorbent dressings are moisture-
        absorbing advanced wound care products that are typically used on moderate to
        highly exudative wounds. As such, the Notifying Party submits they form part of the
        same product market as alginates, hydrofibres, and foams, with which they are
        largely substitutable. It also submits that hydrocolloids should not be categorized as
        “moisture-donating”, but rather as “moisture-absorbing” dressings.
(14)    The majority of respondents to the Commission’s market investigation confirmed
        that moist advanced wound care products should be considered a separate product
        market from active wound care or biological wound care products, and indicated that
        it may be appropriate to consider separate markets for moisture-absorbing dressings,
        moisture-donating dressings, secondary dressings and antimicrobial products.10 The
        market investigation confirmed that superabsorbers should be considered to be
        “moisture-absorbing” but was inconclusive on the appropriate categorisation of
        hydrocolloids.11 The majority of respondents considered that it was not necessary to
        further sub-segment the market (for example by specific product), though it was
        noted that in some cases substitutability between specific products is limited.12
(15)    In any event, for the purposes of the present case, the Commission considers that it is
        not necessary to conclude whether the market for moist advanced wound care should
        be segmented by category (i.e. moisture-absorbing products, moisture-donating
        products or wound dressings) or whether the individual product types should be
        considered as separate product markets, since competition concerns are unlikely to
        arise under any plausible market definition.
4.1.1.2. Geographic market definition
(16)    In previous decisions, the Commission has left open whether the market for moist
        advanced wound care products is EEA-wide or national.13
(17)    The Notifying Party submits that the relevant geographic market for moist advanced
        wound care and its sub-segments is EEA-wide because cross border trade, pan
        European tenders and regional buyer groups are common, there are no or low
        regulatory or transport barriers to trade, and because the competitor set is the same
        across the EEA.
10  Replies to question 4 of Q1 – questionnaire to advanced wound care competitors and replies to question 3
    of Q2 – questionnaire to customers.
11  Replies to questions 5.1 and 5.2 of Q1 – questionnaire to advanced wound care competitors and replies to
    questions 4.1 and 4.2 of Q2 – questionnaire to customers.
12  Replies to questions 5.3 and 7 of Q1 – questionnaire to advanced wound care competitors and replies to
    questions 4.3 and 5 of Q2 – questionnaire to customers.
13  See e.g. Cases COMP/M.7323 - Nordic Capital/GHD Verwaltung, decision of 14.08.2014;
    COMP/M.4367 - APW/APSA/Nordic Capital/Capio, decision of 16.03.2007 and COMP/M.3816 -
    Apax/Mölnlycke decision of 15.06.2005. In case COMP/M.5190 – Nordic Capital/ConvaTec, decision of
    15.07.2008, the Commission however defined the geographic market for advanced wound care products
    as national for the purposes of that specific case.
                                                         4
 ---pagebreak--- (18)    Overall, the market investigation indicated that it may be appropriate to define the
        relevant geographic market as national. On the one hand, the majority of wound care
        suppliers confirmed that they are broadly active across the whole of the EEA.14 On
        the other, the market investigation confirmed that contracts with customers are
        typically at national or local level, that pricing levels vary between Member States
        and that there are differences in coverage of moist advanced wound care products
        (i.e. the extent to which they are reimbursed or are provided by healthcare
        authorities) between Member States.15
(19)    In any event, the Commission considers that the exact geographic market definition
        can be left open for the purposes of the case at hand, as competition concerns are
        unlikely to arise under either a national or EEA-wide market definition.
4.1.2. Competitive assessment
(20)    Under Articles 2(2) and 2(3) of the Merger Regulation, 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.
(21)    A merger can entail horizontal effects. In this respect, in addition to the creation or
        strengthening of a dominant position, the Commission Guidelines on the assessment
        of horizontal mergers under the Merger Regulation (“the Horizontal Merger
        Guidelines”)16 distinguish between two main ways in which mergers between actual
        or potential competitors on the same relevant market may significantly impede
        competition, namely non-coordinated and coordinated effects. Non-coordinated
        effects may significantly impede competition, eliminating important competitive
        constraints on one or more firms, which consequently would have increased market
        power, without resorting to coordinated behaviour.
(22)    This decision will analyse whether the Transaction is likely to raise serious doubts as
        to its compatibility with the internal market by the creation of non-coordinated
        effects in those markets on which the Parties’ activities lead to horizontal overlaps.
4.1.2.1. Overview of horizontally affected markets
(23)    The Parties overlap in the supply of moist advanced wound care products in the
        EEA. They are active across all product categories (moisture-absorbing products,
        moisture-donating products, secondary dressings and antimicrobial products) and in
        each of the individual products belonging to these categories. However, the
        Transaction would not give rise to any horizontally affected markets at EEA level
        under any plausible product market definition (i.e. whether the product market is
        considered to be moist advanced wound care, the abovementioned product
        categories, or the individual products belonging to these categories).
14  Replies to questions 8 and 8.1 of Q1 – questionnaire to advanced wound care competitors.
15  Replies to questions 9, 9.1, 10, 10.1 and 10.2 of Q1 – questionnaire to advanced wound care competitors
    and replies to question 6 of Q2 – questionnaire to customers.
16  Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
    concentrations between undertakings, OJ C 31, 5.2.2004 p.5.
                                                           5
 ---pagebreak---  ---pagebreak---         (b)      In relation to the supply of hydrogels in Austria, 3M adds a limited increment
                 of [5-10]% (representing sales of less than €[...]) to Acelity’s share of [20-
                 30]%. Furthermore, post-Transaction, the merged entity will continue to face
                 competition from a number of competitors larger than or similar in size to the
                 increment. According to the Notifying Party’s estimates, other suppliers of
                 hydrogels in Austria include Smith & Nephew ([20-30]%), ConvaTec ([10-
                 20]%), Coloplast ([10-20]%), Mölnlycke ([10-20]%), Hartmann Group (0-
                 10%), Lohmann & Rauscher (0-10%), B. Braun (0-10%), and Essity/BSN (0-
                 5%).
(28)    More generally, the results of the market investigation confirmed that the Parties are
        not particularly close competitors. The majority of market participants responding to
        the market investigation identified only one of the Parties among the top three
        suppliers for each of the affected product categories (or their sub-segments) in
        Austria. Overall, it appears that each of the Parties compete more closely with other
        suppliers, rather than between themselves, both in relation to the specific product
        considered (e.g. hydrogels) and in relation to the product categories to which they
        belong.17
(29)    In addition, the market investigation revealed that it is relatively easy for customers
        to change suppliers at the end of the contract or change procurement patterns during
        a contract since (i) customers usually select more than one supplier,18 and (ii) the
        products are generally procured through competitive bidding processes (in which
        price requirements can be set by customers).19 Therefore, there are no or low barriers
        to switching.
(30)    Finally, the vast majority of respondents to the market investigation confirmed that
        they will continue to have a number of alternative suppliers from which to procure
        each of these products post-Transaction.20 They do not expect the Transaction to
        bring about any significant changes on the market.21
(31)    In light of the above, it can be concluded that the Transaction will not significantly
        impede effective competition in relation to the supply of moist advanced wound care
        products (or any plausible sub-segmentation thereof) in Austria.
4.1.2.3. Ireland
(32)    According to the Notifying Party, 3M and Acelity have a combined market share of
        more than 20% in the supply of secondary dressings in Ireland (secondary dressings
        are a category of products comprising contact layers and films). The affected market
        in the overall category of secondary dressings arises primarily from Acelity’s [50-
        60]% market share in the supply of contact layers in Ireland. There is, however, no
        overlap in this sub-segmentation as 3M only supplies films, but not contact layers, in
17  Replies to questions 11 and 13 of Q1 – questionnaire to advanced wound care competitors and replies to
    question 9 of Q2 – questionnaire to customers.
18  Replies to questions 7 and 7.1 of Q2 – questionnaire to customers.
19  Replies to question 8 of Q2 – questionnaire to customers.
20  Replies to question 16 of Q1 – questionnaire to advanced wound care competitors and replies to question
    10 of Q2 – questionnaire to customers.
21  Replies to question 29 of Q1 – questionnaire to advanced wound care competitors and replies to question
    11 of Q2 – questionnaire to customers.
                                                          7
 ---pagebreak---  ---pagebreak---  ---pagebreak--- (42)    Finally, the vast majority of respondents to the market investigation confirmed that
        they will continue to have a number of alternative suppliers from which to procure
        superabsorbers in the UK post-Transaction.30 They do not expect the Transaction to
        bring about any significant changes on the market.31
(43)    In light of the above, it can be concluded that the Transaction will not significantly
        impede effective competition in relation to the supply of moist advanced wound care
        products (or any plausible sub-segmentation thereof) in the UK.
4.1.3. Conclusion on horizontal non-coordinated effects
(44)    For the reasons set out in Section 4.1, the Commission concludes that the
        Transaction does not raise serious doubts as to its compatibility with the internal
        market in the markets for the supply of moist advanced wound care products under
        any plausible product and geographic market definitions due to horizontal effects.
4.2.    Vertical overlaps between the supply of film drapes (3M, upstream) and the
        production of NPWT kits (Acelity, downstream)
(45)    Vertically affected markets arise in light of the vertical link between the activities of
        3M upstream (film drapes, which are included as consumable products in NPWT
        kits) and Acelity downstream (supply of NPWT kits to hospitals and community
        customers).32
4.2.1. Market definition - Negative Pressure Wound Therapy devices (“NPWT”)
4.2.1.1. Product market definition
(46)    NPWT technology promotes healing in complex wounds by applying controlled
        negative pressure (sub-atmospheric or “vacuum” pressure) to a wound site through a
        specially sealed dressing. The negative pressure removes excessive exudate to allow
        wound healing, reduce edema, and increase metabolic activity in the cells. This
        promotes blood flow to the area and leads to growth of healthy granular tissue,
        which fills the wound bed.
30  Replies to question 24 of Q1 – questionnaire to advanced wound care competitors and replies to question
    15 of Q2 – questionnaire to customers.
31  Replies to question 29 of Q1 – questionnaire to advanced wound care competitors and replies to question
    16 of Q2 – questionnaire to customers.
32  For completeness, barrier film would technically be an additional vertically affected market in light of the
    link between 3M’s supply of barrier film upstream and Acelity’s supply of NPWT kits downstream.
    Barrier films are a polymeric solution, which upon application to intact or damaged skin forms a
    waterproof film acting as a protective interface between the skin and bodily wastes, fluids, adhesive
    products, and friction. Barrier films are widely used in many clinical settings, including with NPWT
    technology to improve the seal created by a film drape. Barrier films are typically sold separately from
    NPWT kits but in some limited cases are included in the kits. In any event, no vertical competition
    concerns arise in light of this link as the Transaction will not bring about any change in the market: (i)
    input foreclosure is implausible as already pre-Transaction 3M does not supply barrier film to any of
    Acelity’s competitors, and (ii) customer foreclosure is implausible as already pre-Transaction Acelity
    purchases the entirety of its barrier film needs from 3M. Moreover, no specific concern was raised in this
    respect during the market investigation. In light of the above, the Commission considers that the
    Transaction does not raise serious doubts as regards this vertical relationship between barrier film and
    NPWT, which will not be assessed further in this decision.
                                                           10
 ---pagebreak--- (47)    In Apax/Kinetic Concepts,33 the Commission considered that NPWT devices belong
        to the active wound care products category. While the Commission assessed market
        shares both in the broader market for active wound care products and in the
        narrowest possible product market for NPWT devices, it ultimately left the precise
        market definition open.
(48)    The Notifying Party submits that the relevant product market is the supply of active
        wound care products and that NPWT products do not form a separate product
        market.
(49)    In any event, in the present case, the product market definition can be left open, as
        competition concerns are unlikely to arise under the narrowest product market
        definition (i.e. NPWT devices), where the Parties’ market shares are at their
        highest.34
4.2.1.2. Geographic market definition
(50)    As regards the geographic market, the Commission has so far left open the question
        of whether the market for advanced wound care products is national or EEA-wide.35
(51)    The Notifying Party submits that the relevant geographic market is EEA-wide,
        noting inter alia that NPWT products are the same across the EEA, intra-EEA
        transportation costs are very low, and NPWT suppliers ship their products across the
        EEA from a few manufacturing plants.
(52)    In any event, in the present case, the geographic market definition can be left open,
        as competition concerns are unlikely to arise under either a national or EEA-wide
        market definition.
4.2.2. Market definition - Film drapes
4.2.2.1. Product market definition
(53)    Film drapes are transparent, airtight, adhesive polyurethane film dressings. Film
        drapes are used with NPWT devices to seal the wound and to prevent entry of air
        and bacteria, creating a “vacuum seal.” The film drape covers the dressing and
        secures the foam, allowing negative pressure to be maintained evenly at the wound
        site. Film drapes are included in NPWT kits sold to customers and are also sold
        independently (either by themselves or, more commonly, as part of dressings kits for
        use with particular NPWT devices).36
33  See Case COMP/M.6343 - Apax/Kinetic Concepts, decision of 7 October 2011. Note that Kinetic
    Concepts is a predecessor company to Acelity.
34  See paragraph 65 and footnote 47 below.
35  See Case No. COMP/M.6343, Apax/Kinetic Concepts, decision of 7 October 2011.
36  The components of Acelity’s NPWT kits include: (i) the NPWT device, (ii) film drapes, (iii) a foam or
    gauze (compressible, open and porous material, which is placed in the wound to ensure that the negative
    pressure is applied across the entire wound), (iv) a drainage tube used to remove excess exudate from the
    wound and drain it to the collection canister, (v) a connection pad which connects the drainage tube to the
    wound dressing, and (vi) barrier films, which are an optional component of the kits used as skin
    preparatory products to aid in ensuring a reliable seal.
                                                            11
 ---pagebreak--- (54)    Film drapes produced for NPWT use have two relevant stages of production. They
        typically start as bulk rolls of uncut, non-adhesive film drapes (“uncut film”). Uncut
        film is then “converted” into finished film drapes for NPWT use (“finished film
        drapes”) through a process that involves adding an adhesive, backing layers, and
        handling bars which assist with applying the finished film drape onto patients and
        cutting the film to specification for the specific NPWT dressing.
(55)    The Commission has not assessed film drapes in the past. The Notifying Party
        submits that the relevant product market in this case is the upstream supply of film
        drapes appropriate for NPWT use. The Notifying Party submits that any further
        segmentation, for example between uncut film and finished film drapes, is not
        appropriate.
(56)    The market investigation indicated that it may be appropriate to distinguish between
        the supply of uncut film and finished film drapes appropriate for NPWT use. While
        uncut film has a number of applications, including use with NPWT after
        conversion,37 finished film drapes can generally only be used with the specific
        NPWT device for which they have been approved. However, the market
        investigation also revealed that the equipment used to produce finished film drapes
        can also be used to produce wound care dressings for many other applications.38
(57)    In any event, the question of whether uncut film drapes appropriate for use with
        NPWT and finished film drapes for use with NPWT devices constitute separate
        markets can be left open, as competition concerns are unlikely to arise under either
        plausible market definition.
4.2.2.2. Geographic market definition
(58)    The Notifying Party submits that the market for the upstream supply of film drapes
        appropriate for NPWT use is global in scope since the product is highly
        commoditized and transportation costs are low.
(59)    The majority of respondents to the market investigation confirmed that suppliers
        based outside the EEA can and do compete to supply film drapes to customers in the
        EEA.39 Indeed, 3M supplies film drapes to […] in […] from 3M’s film drape
        manufacturing facility in […]. Likewise, […] supplies film drapes to […] in […]
        from its manufacturing facility in […].
(60)    In any event, the geographic market definition can be left open in the present case, as
        competition concerns are unlikely to arise under either an EEA-wide or worldwide
        market definition.
37  Replies to question 4.2 of Q3 – questionnaire to film drape competitors and Non-confidential minutes of a
    conference call with a NPWT supplier on 18 September 2019.
38  Replies to question 4.3.1 of Q3 – questionnaire to film drape competitors and Non-confidential minutes of
    a conference call with a NPWT supplier on 18 September 2019.
39  Replies to question 8 of Q3 – questionnaire to film drapes competitors and to question 28 of Q1 –
    questionnaire to advanced wound care competitors.
                                                          12
 ---pagebreak--- 4.2.3. Competitive assessment
(61)     According to the Non-Horizontal Guidelines,40 non-coordinated effects may
         significantly impede effective competition as a result of a vertical merger if such
         merger gives rise to foreclosure. Foreclosure occurs where actual or potential
         competitors' access to supplies or markets is hampered or eliminated as a result of
         the merger, thereby reducing those companies' ability and/or incentive to compete. 41
         Such foreclosure may discourage entry or expansion of competitors or encourage
         their exit.42
(62)     The Non-Horizontal Guidelines distinguish between two forms of foreclosure. Input
         foreclosure occurs where the merger is likely to raise the costs of downstream
         competitors by restricting their access to an important input. Customer foreclosure
         occurs where the merger is likely to foreclose upstream competitors by restricting
         their access to a sufficient customer base.43
(63)     With regard to input foreclosure, in assessing the likelihood of an anticompetitive
         foreclosure scenario, the Commission examines, first, whether the merged entity
         would have, post-Transaction, the ability to substantially foreclose access to inputs,
         second, whether it would have the incentive to do so, and third, whether a
         foreclosure strategy would have a significant detrimental effect on competition
         downstream.44
(64)     With regard to customer foreclosure, in assessing the likelihood of an
         anticompetitive foreclosure scenario, the Commission examines, first, whether the
         merged entity would have the ability to foreclose access to downstream markets by
         reducing its purchases from its upstream rivals, second, whether it would have the
         incentive to reduce its purchases upstream, and third, whether a foreclosure strategy
         would have a significant detrimental effect on consumers in the downstream
         market.45
(65)     The Notifying Party submits that vertically affected markets arise in light of
         Acelity’s market shares on the market for NPWT devices,46 in which the Notifying
         Party estimates that Acelity holds a share of [30-40]% in the EEA and up to [80-
         90]% at national level.47 3M is not active in the supply of NPWT devices.
40  Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of
    concentrations between undertakings ("Non-Horizontal Guidelines"), OJ C 265, 18.10.2008, p. 6-25.
41  See Non-Horizontal Guidelines, paragraph 18.
42  See Non-Horizontal Guidelines, paragraph 29.
43  See Non-Horizontal Guidelines, paragraph 30.
44  See Non-Horizontal Guidelines, paragraph 32.
45  See Non-Horizontal Guidelines, paragraph 59.
46  For completeness, Acelity’s primary active advanced wound care product is NPWT. Its market share in a
    broader market for active advanced wound care products would be less than 30% across the EEA. While
    Acelity’s share may exceed 30% on some national markets for active advanced wound care products, in
    all cases its share in this broader category is driven by and lower than its market share for NPWT. As the
    vertical link between 3M’s film drapes is with NPWT (and not other active advanced wound care products
    sold by Acelity), the broader category of active advanced wound care products is not considered further.
47  In particular, Acelity’s market share is 30% or more in Austria ([80-90]%), Belgium ([60-70]%), Cyprus
    ([60-70]%), France ([30-40]%), Germany ([60-70]%), Ireland ([60-70]%), Luxembourg ([40-50]%),
    Slovenia ([50-60]%), Sweden ([50-60]%), and the UK ([30-40]%).
                                                            13
 ---pagebreak--- (66)    Respondents to the market investigation confirmed that Acelity is the largest
        supplier of NPWT kits by a considerable margin, and indicated that its EEA-wide
        market shares may be higher than the Notifying Party’s estimates.48
(67)    On the upstream markets, the Notifying Party estimates that 3M holds a market share
        of less than [5-10]% on the market for uncut film and finished film drapes, both in
        the EEA and worldwide. The Notifying Party notes that once uncut film has been
        converted to finished film drapes for use with a particular NPWT device, it can only
        be used with the specific NPWT device for which it has been manufactured and
        approved.
4.2.3.1. Input foreclosure
(68)    The Notifying Party submits that 3M’s position in the supply of film drapes
        appropriate for use with NPWT devices (be it uncut film or finished film drapes) is
        marginal with a market share of less than [5-10]% both in the EEA and worldwide.
        Post-Transaction many alternative suppliers of film drapes will remain active on the
        market.
(69)    The market investigation confirmed that competing NPWT producers will continue
        to have sufficient sources of supply for film drapes appropriate for use with NPWT
        devices.49 In addition, already pre-Transaction, 3M is not a material supplier of film
        drapes to any of Acelity’s NPWT competitors,50 so the Transaction will not bring
        about any significant change in the market.
(70)    In light of the above, the Commission considers that the merged entity would not
        have the ability to engage in an input foreclosure strategy and that it is unlikely that
        the Transaction would lead to input foreclosure risks in relation to the supply film
        drapes in the EEA or globally.
4.2.3.2. Customer foreclosure
(71)    The Notifying Party submits that the merged entity will not have the ability to
        engage in a customer foreclosure strategy. Acelity currently procures […]. The
        Notifying Party submits that 3M […]. The Notifying Party further explains that it is
        necessary to design, test and obtain regulatory approval for the finished film drapes
        to be used in a particular NPWT kit, which may take […] to complete. Therefore, it
        argues that the merged entity will not have the ability to […]. Moreover, it considers
        that […]. Finally, it argues that there will continue to be a number of NPWT
        suppliers to whom film drape suppliers can sell post-Transaction.
(72)    As regards uncut film, the respondents to the market investigation confirmed that
        uncut film is used for a wide range of applications other than with NPWT devices
48  Non-confidential minutes of a conference call with a wound care supplier, 30 August 2019; Non-
    confidential minutes of a conference call with a wound care supplier, 17 September 2019; Non-
    confidential minutes of a conference call with a wound care supplier, 18 September 2019; and Non-
    confidential minutes of a conference call with a film drape supplier, 5 September 2019.
49  Non-confidential minutes of a conference call with a wound care supplier, 30 August 2019; Non-
    confidential minutes of a conference call with a wound care supplier, 17 September 2019; and Non-
    confidential minutes of a conference call with a wound care supplier, 18 September 2019.
50  3M […]. 3M only supplies […] amount of uncut film drapes to […] – 3M’s sales to […] amounted to less
    than €[…] in 2018.
                                                           14
 ---pagebreak---         and that post-Transaction a number of suppliers will continue to sell uncut film for
        NPWT use and other applications.51 This supports the Notifying Party’s estimates
        that only around [10-20]% of uncut film is ultimately used with NPWT devices.
        Consequently, Acelity only represents a small proportion of the overall demand for
        uncut film.52 Therefore, post-Transaction, suppliers of uncut film will have a large
        array of customers to turn to. In light of this, it seems unlikely that the merged entity
        would have any ability to foreclose uncut film suppliers (upstream) by attempting a
        customer foreclosure strategy.
(73)    As regards finished film drapes more specifically, once uncut film has been
        converted into finished film for use with a particular NPWT device (for which the
        finished film is approved), it can only typically be used together with that device.
        Acelity is the largest NPWT player by some margin and so for some suppliers of
        uncut film drapes it is an important customer with a significant degree of market
        power in the downstream market. In addition, Acelity is responsible for seeking
        authorisation for the finished film drapes to be used together with its NPWT devices
        and consequently can determine which supplier’s finished film drapes can be used
        with its NPWT devices. The respondents to the market investigation indicated that
        film drape suppliers have limited opportunities to sell finished film drapes for use
        with NPWT devices when their products are not approved for use with the particular
        device.53 Therefore, while the merged entity would need to design, test and obtain
        regulatory approval to use 3M’s finished film drapes in all of Acelity’s NPWT
        devices and increase its conversion capacity, which would require some time and
        investment, it cannot be excluded that the merged entity would have the ability to
        foreclose access to the downstream markets in the medium-term. However, it is not
        necessary for the Commission to conclude on whether the merged entity would have
        this ability, as in any event such a strategy would be unlikely to have an adverse
        impact on the downstream market.
(74)    As regards incentives, respondents to the market investigation considered that in the
        medium-term the merged entity may have the incentive to reduce purchases from
        third parties and vertically integrate its film drape and NPWT activities.54 However,
        it is not necessary for the Commission to conclude on whether the merged entity
        would have this incentive, as in any event such a strategy would be unlikely to have
        an adverse impact on the downstream market.
(75)    Even if the combined incentive had the ability and incentive to foreclose customers,
        it is unlikely that a customer foreclosure strategy would have an adverse impact in
        the downstream market.
51 Replies to question 6.1 of Q3 – questionnaire to film drapes competitors. Non-confidential minutes of a
   conference call with a wound care supplier, 30 August 2019; Non-confidential minutes of a conference
   call with a wound care supplier, 17 September 2019; Non-confidential minutes of a conference call with a
   wound care supplier, 18 September 2019; and Non-confidential minutes of a conference call with a film
   drape supplier, 5 September 2019.
52 The Notifying Party submits that Acelity’s demand for uncut film appropriate for NPWT use would be
   less than [10-20]% of the total demand for uncut film drapes appropriate for NPWT use at global level.
53 Non-confidential minutes of a conference call with a wound care supplier, 18 September 2019. For
   example, hospitals may be reluctant to purchase non-approved finished film drapes for use with NPWT
   devices.
54 Replies to question 10 of Q3 – questionnaire to film drapes competitors. Non-confidential minutes of a
   conference call with a film drape supplier, 5 September 2019.
                                                        15
 ---pagebreak--- (76)    First, the market investigation confirmed that the rotary die presses used to convert
        uncut film into finished film drapes for use with NPWT devices can be used to
        produce other wound dressings and disposable medical products.55 Reconfiguration
        of the equipment can be done relatively easily and with limited cost or time
        required.56 Therefore, there are effective and timely counter-strategies that film
        drapes suppliers can deploy over time to mitigate a reduction in demand and it
        appears likely that these finished film drape suppliers will continue to be able to
        meet existing or new demand from NPWT suppliers.
(77)    Second, respondents to the market investigation confirmed that post-Transaction
        there will remain a number of NPWT competitors and that at least some of these
        currently source finished film drapes from third parties.57 Conversely, respondents to
        the market investigation expect that these NPWT competitors will continue to have
        sufficient sources of supply for finished film drapes post-Transaction.58
(78)    Third, it is unlikely that such a strategy would impact competing NPWT providers to
        such an extent as to allow the merged entity to profitably raise prices or reduce
        output downstream. The cost of converting uncut film into finished film drapes is
        low; according to the Notifying Party, conversion represents less than […]% of the
        total cost of producing NPWT kits. In addition, some competing NPWT producers
        already convert uncut film to finished film drapes for use in their NPWT kits in-
        house and would not be affected by such a foreclosure strategy. The market
        investigation indicated that the costs for an existing wound care manufacturer to
        begin converting uncut film in-house for use with its own NPWT devices, while not
        immaterial, are not prohibitive (and that this can be an attractive investment for
        wound care manufacturers as they can also use the equipment for other purposes).59
(79)    In light of the above, the Commission considers that it is unlikely that the
        Transaction would lead to customer foreclosure risks in relation to the supply of film
        drapes in the EEA or globally.
4.2.4. Conclusion
(80)    In light of the above, the Transaction does not raise serious doubts as to its
        compatibility with respect to the vertical relationships between 3M’s supply of film
        drapes (upstream) and Acelity’s production of NPWT kits (downstream) under any
        plausible market definition.
55  Replies to question 6.1 of Q3 – questionnaire to film drapes competitors. Non-confidential minutes of a
    conference call with a wound care supplier, 17 September 2019; and Non-confidential minutes of a
    conference call with a wound care supplier, 18 September 2019.
56  Non-confidential minutes of a conference call with a wound care supplier, 17 September 2019; and Non-
    confidential minutes of a conference call with a wound care supplier, 18 September 2019.
57  Responses to question 26 of Q1 – questionnaire to advanced wound care competitors. Non-confidential
    minutes of a conference call with a wound care supplier, 17 September 2019; and Non-confidential
    minutes of a conference call with a wound care supplier, 18 September 2019.
58  Non-confidential minutes of a conference call with a wound care supplier, 30 August 2019; Non-
    confidential minutes of a conference call with a wound care supplier, 17 September 2019; and Non-
    confidential minutes of a conference call with a wound care supplier, 18 September 2019.
59  Non-confidential minutes of a conference call with a wound care supplier, 18 September 2019.
                                                         16
 ---pagebreak--- 4.3.    Conglomerate effects
(81)    The Transaction does not give rise to any conglomerate effects or concerns for the
        following reasons.
4.3.1. Conglomerate effects between different categories of moist advanced wound care
        products.
(82)    Both Parties are already active in most moist advanced wound care segments and
        have not engaged in tying or bundling. The Transaction will not affect the Parties’
        ability or incentive to tie/bundle moist advanced wound care products since (i) the
        Parties are constrained by a number of strong and active competitors in each segment
        and across the EEA, (ii) the Parties’ market shares and/or the increment are generally
        moderate and there are limited affected markets on the narrowest plausible basis, (iii)
        these products are often sold in response to tenders and the market investigation
        confirmed that the tenders are often for the individual types of moist advanced
        wound care product,60 and (iv) the market investigation confirmed that it is generally
        the customer (and not the supplier) that determines the specific products or
        combinations of products for which it will seek quotes.61
4.3.2. Conglomerate effects between NPWT and moist advanced wound care products.
(83)    Acelity is already active in most moist advanced wound care segments and has not
        engaged in tying or bundling. The Transaction will not affect the Parties’ ability or
        incentive to leverage Acelity’s position in NPWT into moist advanced wound care
        products since (i) the Parties are constrained by a number of strong and active
        competitors in each moist advanced wound care segment and across the EEA, (ii)
        3M is not active in the supply of NPWT products and so the Transaction does not
        change Acelity’s ability to leverage from NPWT into moist advanced wound care as
        there is no increment in NPWT, (iii) the market investigation confirmed that NPWT
        and moist advanced wound care products are generally procured separately62, and
        (iv) the market investigation confirmed that it is generally the customer (and not the
        supplier) that determines the specific products or combinations of products for which
        it will seek quotes.63
4.3.3. Conglomerate effects between NPWT and film drapes sold independently of NPWT
        kits.
(84)    Customers of NPWT devices procure finished film drapes either (i) as part of a
        NPWT kit containing the consumables necessary for use with the NPWT device
        included in the kit, or (ii) independently from a NPWT kit but for use with the
        particular NPWT device for which its use has been approved (either as part of a pack
        of dressings including film drapes or, less commonly, as finished film drapes only).
        The Transaction is unlikely to have any material impact on customers’ procurement
60  Non-confidential minutes of a conference call with a wound care supplier, 18 September 2019, replies to
    questions 14, 18 and 22 of Q1 – questionnaire to advanced wound care competitors and replies to
    questions 8, 13 and 18 of Q2 – questionnaire to customers.
61  Non-confidential minutes of a conference call with a wound care supplier, 30 August 2019.
62  Non-confidential minutes of a conference call with a wound care supplier, 18 September 2019, replies to
    questions 14, 18 and 22 of Q1 – questionnaire to advanced wound care competitors and replies to
    questions 8, 13 and 18 of Q2 – questionnaire to customers.
63  Non-confidential minutes of a conference call with a wound care supplier, 30 August 2019.
                                                         17
 ---pagebreak---      of finished film drapes independently of NPWT kits. This is because even when film
     drapes are procured independently from NPWT kits, they are typically procured
     from the NPWT supplier (and not directly from the manufacturer of finished film
     drapes). In the case of Acelity, its third party converters do not supply finished film
     drapes directly to end customers. Already pre-Transaction, it is Acelity (and not the
     converter) that sells finished film drapes independently of NPWT kits. Therefore, the
     Transaction has no impact on any plausible market for the supply of finished film
     drapes independently of NWPT kits.
5.   CONCLUSION
(85) 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 and Article 57 of the EEA Agreement.
                                                     For the Commission
                                                     (Signed)
                                                     Margrethe VESTAGER
                                                     Member of the Commission
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