CELEX: 32018M9060
Language: en
Date: 2018-10-22 00:00:00
Title: Commission Decision of 22/10/2018 declaring a concentration to be compatible with the common market (Case No COMP/M.9060 - HP / Apogee Group Limited) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 22.10.2018
                                                                 C(2018) 7042 final
   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                     PUBLIC VERSION
   other confidential information. The omissions are
   shown thus […]. Where possible the information
   omitted has been replaced by ranges of figures or a
   general description.
                                                                 To the notifying party:
Subject:             Case M.9060 – HP / Apogee
                     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 17 September 2018, the European Commission received notification of a
          proposed concentration pursuant to Article 4 of the Merger Regulation by which
          HP Inc. ("HP", United States) acquires within the meaning of Article 3(1)(b) of
          the Merger Regulation sole control of the whole of Apogee Group Limited
          ("Apogee", United Kingdom).3 HP is designated hereinafter as the "Notifying
          Party" and HP and Apogee are collectively referred to as "Parties".
1.        THE PARTIES
(2)       HP is a US-based multinational technology company that manufactures and sells
          electronic devices, including personal computers and printers. HP markets inkjet
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 340, 24.09.2018, p. 13.
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---       and laser printers geared towards a range of needs to consumers and businesses.
      HP's offerings include personal computing and other access devices; and imaging
      and printing-related products and services.
(3)   Apogee is a provider of managed print services ("MPS") to business users
      primarily in the United Kingdom. Its MPS offering comprises a flexible
      combination of hardware, consumables, software, maintenance, workflow
      management, consulting, training and other related services.
2.    THE OPERATION
(4)   Pursuant to a sale and purchase agreement entered into on 1 August 2018 ("the
      SPA"), HP will acquire control of Apogee through the acquisition of an ultimate
      indirect shareholding of at least 90% of the share capital of Manzana Holdings
      Limited (the holding company through which the Sellers4 hold their interest in
      Apogee) ("the Proposed Transaction"). Following completion of the Proposed
      Transaction, 100% of the shares in the capital of Manzana Holdings Limited
      which bear a right to vote will be held by Perigee Midco UK Limited, a wholly
      owned subsidiary of HP.
(5)   The Proposed Transaction will result in Albacore Holdings Jersey Ltd (a private
      limited company established by HP and incorporated in Jersey) ("Jersey TopCo"),
      indirectly holding (through Perigee Midco UK Limited) 100% of the shares of
      Manzana Holdings Limited. [Details relating to the structure of the proposed
      acquisition].
(6)   A shareholders’ agreement will be entered into in relation to the Proposed
      Transaction upon completion ("the Shareholders’ Agreement"), under which [a
      direct subsidiary of HP] will have exclusive voting rights. […].
(7)   Under the Shareholders’ Agreement, there is no limit on the number of directors
      on Jersey TopCo’s Board (and therefore the number of directors that HP can
      appoint). However, the current intention is that at completion there will be […]
      directors: HP will appoint […] directors while the two current joint-CEOs of
      Apogee (Robin Stanton-Gleaves and Jason Collins) will be entitled to remain as
      joint-CEOs and be appointed as directors of Jersey TopCo. This right is personal
      to […]. Strategic decisions will be taken at board level and voting at board
      meetings will be made on a simple majority basis, meaning that HP appointed
      directors will have control of the Board and there are no reserved matters relating
      to strategic day to day commercial decisions which require greater than simple
      majority votes to pass. HP is also responsible for [….].
(8)   The Proposed Transaction therefore constitutes a concentration pursuant to
      Article 3(1)(b) of the Merger Regulation.
4   The Sellers are Euroblue Investments Limited, certain funds ("the Equistone Funds") managed by
    Equistone Partners Europe Limited ("Equistone") and various other management and employee
    sellers ("the Sellers"). The Equistone Funds are: Equistone Partners Europe Fund V "A" L.P.,
    Equistone Partners Europe Fund V "B" LP, Equistone Partners Europe Fund V "C" L.P., Equistone
    Partners Europe Fund V "D" L.P., Equistone Partners Europe Fund V "E" L.P., Equistone Partners
    Europe Fund V "F" L.P., Equistone Partners Europe Fund V "G" L.P., Equistone V Excess L.P., and
    Europe Equity V.
                                                   2
 ---pagebreak--- 3.      EU DIMENSION
(9)     The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 5 000 million5 (HP: EUR 46 868.09 million; Apogee: EUR […]
        million). Each of them has an EU-wide turnover in excess of EUR 250 million
        (HP: EUR […] million; Apogee: EUR […] million), but they do not achieve more
        than two-thirds of their aggregate EU-wide turnover within one and the same
        Member State.
(10)    The Proposed Transaction therefore has an EU dimension pursuant to Article 1(2)
        of the Merger Regulation.
4.      RELEVANT MARKETS
4.1.    Structure of supply of printers and MPS
(11)    Apogee is active in the provision of MPS direct to its customers, while HP’s
        focus is on the sale of printers (usually via distributors and resellers). Only a
        small portion of HP’s business involves direct sales of branded printers to
        customers and/or the provision of MPS (which is generally limited to large global
        enterprise customers). As a result, HP is primarily active “upstream” of Apogee,
        and sells to Apogee the printer hardware that forms part of Apogee’s supply of
        MPS.
(12)    A simplified overview of the structure of supply in the markets in which HP and
        Apogee operate is set out as Figure 1 below:
                             Figure 1: Structure of supply of printers and MPS
Source: Form CO
5   Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                         3
 ---pagebreak--- 4.2.    Printers
(13)    In previous decisions6, the Commission distinguished the regular format printers
        which use A3 and A4 papers from the large format printers which function on A2
        or larger papers and other supports.7 The Notifying Party does not disagree with
        this finding.
(14)    Respondents to the market investigation confirmed that this is still a valid
        distinction due to different applications and sales channels of regular and large
        format printers.8
(15)    In line with its previous decisional practice, for the purpose of this decision, the
        Commission considers that the supply of large format printers should be
        distinguished from the supply of regular format printers. The following sections
        discuss any possible further sub-segmentation of the market for regular format
        printers and large format printers.
4.2.1. Supply of regular format printers
4.2.1.1. Product market definition
(16)    In previous decisions, the Commission considered distinctions between single-
        function and multi-function printers, but ultimately left the product market
        definition open in this regard.9 The Commission considered that the supply of
        mono (black and white) and of colour regular format printers belong to the same
        relevant product market.10 As to a further segmentation based on printer speed
        ranges measured by the output of pages per minute (ppm), the Commission left
        the exact product market definition open.11 The Commission also looked into the
        possible segmentation of printers by page format (that is to say, A3 printers and
        A4 printers) ultimately leaving the exact product market definition open.12
(17)    The Notifying Party submits that printers with different speed, colour,
        functionalities, etc. belong to the same market for regular format printers as the
        boundaries between the different segments of the regular format printer market
        are becoming increasingly blurred due to technological developments. In any
6     Commission decision of 22 December 2009 in Case M.5672 Canon/Océ, paragraphs 13 and 14;
      Commission decision of 4 April 2017 in Case M.8254 HP/Printer Business of Samsung Electronics,
      paragraph 16.
7     In HP/Samsung, the Commission considered that the supply of branded office automation
      equipment belongs to a separate relevant market than that of the supply of unbranded office
      automation equipment. As Apogee is neither a manufacturer nor a buyer of unbranded printers, this
      market will not be considered further in this decision.
8     Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 4.
9     Commission decision of 4 April 2017 in Case M.8254 HP/Printer Business of Samsung Electronics,
      paragraph 28. The Commission also considered that a distinction could be made between single
      function office equipment (SFPs) and multifunctional peripherals (MFPs), in Commission decision
      of 22 December 2009 in Case M.5672 Canon/Océ, paragraphs 16 to 19 and Commission decision of
      19 January 2010 in Case COMP/M.5666 Xerox/ Affiliated computer services, paragraphs 20-29.
      With regard to the distinction between single function devices, the Commission considered that
      photocopiers, printers and fax machines may constitute three distinct product markets in Case
      M.4434 Ricoh/Danka of 8 December 2006.
10    HP/Samsung, paragraph 36.
11    HP/Samsung, paragraph 44.
12    HP/Samsung, paragraph 51.
                                                         4
 ---pagebreak---         case, the Notifying Party submits that the exact market definition can be left open
        as it does not affect the outcome of the assessment of the Proposed Transaction.
(18)    The market investigation tested whether any segmentations of regular format
        printers (e.g. based on single function vs. multifunctional equipment, mono vs.
        colour format printers, speed ranges, A3/A4 format) would be appropriate. A
        majority of printer suppliers stated that a further segmentation was not
        appropriate due to similarities in customer applications.13
(19)    However, for the purpose of the present decision, the question whether the
        product market consists of all regular format printers or whether separate markets
        exist for any segmentations of regular format printers can be left open as the
        Proposed Transaction does not raise serious doubts as to its compatibility with the
        internal market under any plausible market definition, including the narrowest
        possible markets for (i) single function or multifunctional equipment, (ii) mono
        (black&white) and color regular format printers; (iii) segments based on speed
        measured by the output of pages per minute (ppm) namely personal devices
        (speed up to 10 or 20 ppm for mono and up to 20 ppm for colour), office devices
        (speed between 11-20 and 90 ppm for mono and 20 – 50 ppm for colour) and
        commercial/production devices (speed over 90 ppm for mono and above 50 for
        colour); (iv) A3 and A4 regular format printers.
4.2.1.2. Geographic market definition
(20)    In HP/Samsung, the Commission considered that there were clear indications that
        the relevant markets are wider than national or even EEA wide, ultimately leaving
        the question open.14
(21)    The Notifying Party submits that the relevant geographic market should be
        defined as EEA-wide, given that: (i) OEMs have manufacturing facilities in Asia
        and other global regions from where they ship their products around the world;
        (ii) transportation costs are relatively low for worldwide shipping of printers; (iii)
        there are no import or export quota restraints or other material trade barriers; (iv)
        major distributors in the EEA resell printers in multiple countries, while some of
        them also cover the distribution logistics for several countries with one
        warehouse; (v) OEMs generally price on an EEA or even wider basis following
        standard price lists; and, (vi) product characteristics of printers do not vary
        significantly in the EEA or throughout the world.
(22)    The market investigation indicated that the geographic scope of the market may
        be wider than national, as a majority of printer suppliers are able to supply to
        other countries in the EEA15 and a majority of customers would consider sourcing
        printers from a supplier that is active in another country in the EEA.16
(23)    In conclusion, in spite of the fact that current sourcing patterns for regular format
        printers are usually at national level, there are clear indications that the relevant
        markets are wider than national or even EEA wide. However, for the purpose of
13    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 5.
14    HP/Samsung, paragraph 59.
15    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 8.
16    Replies to questionnaire Q3 – Questionnaire to enterprise customers of 19 September 2018,
      question 5.
                                                       5
 ---pagebreak---          the present decision the question whether the relevant geographic market
         definition is national or EEA-wide can be left open as the Proposed Transaction
         does not raise serious doubts as to its compatibility with the internal market under
         any plausible market definition, including the narrowest possible national market.
4.2.2. Supply of large format printers
4.2.2.1. Product market definition
(24)     Large format printers can be used by customers: (i) to print signage and display
         items (posters, banners, rigid signs, vehicle and building wraps and packaging);
         (ii) to print large format photos and posters; (iii) for print proofing; and (iv) for
         computer aided design (CAD)17. In addition, large format printers will vary
         depending on the printing technology used, the type and size of media they can
         print on, and their printing capacity.
(25)     In Canon/Océ,18 the Commission analysed the transaction by distinguishing
         between graphic arts (GA)19 and CAD applications but did not reach any
         conclusions as to the exact boundaries of the product market.
(26)     The Notifying Party submits that there is no need to reach a conclusion as to
         whether GA and CAD printers are part of separate markets, as the Proposed
         Transaction will not raise any concerns on any plausible market definition.
(27)     During the market investigation a majority of printer suppliers indicated that a
         segmentation between large format printers for GA and CAD applications is still
         relevant due to different applications of each segment.20
(28)     However, for the purpose of the present decision, the question whether the
         product market consists of all large format printers or whether separate markets
         exist for any segmentations of large format printers (e.g. for GA and CAD
         applications) can be left open as the Proposed Transaction does not raise serious
         doubts as to its compatibility with the internal market under any plausible market
         definition, including the narrowest possible markets for GA printers and CAD
         printers.
4.2.2.2. Geographic market definition
(29)     In Canon/Océ21, the Commission noted that in spite of the fact that sourcing
         patterns are usually at national level, there are clear indications that the market for
         office equipment is wider than national if not EEA-wide. Ultimately, the
         Commission left the precise geographic market definition open.
(30)     The Notifying Party submits that the relevant geographic market should be
         defined as EEA-wide.
17    Typical CAD applications are technical line drawings, maps, (architectural) renderings and
      illustration, supporting photographs (to a limited extent) as well as (mainly indoor) posters.
18    Commission decision of 22 December 2009 in Case M. 5672, Canon/Océ, para 39.
19    Typical applications include display materials, advertising material and signage
20    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 6.
21    Canon/Océ, paragraph 47.
                                                         6
 ---pagebreak--- (31)    The market investigation indicated that the geographic scope of the market may
        be wider than national, as a majority of printer suppliers are able to supply to
        other countries in the EEA22 and a majority of customers would consider sourcing
        printers from a supplier that is active in another country in the EEA.23
(32)    In conclusion, in spite of the fact that current sourcing patterns for large format
        printers are usually at national level, there are clear indications that the relevant
        markets are wider than national or even EEA wide. However, for the purpose of
        the present decision the question whether the relevant geographic market
        definition is national or EEA-wide can be left open as the Transaction does not
        raise serious doubts as to its compatibility with the internal market under any
        plausible market definition, including the narrowest possible national market.
4.2.3. Managed Print Services
4.2.3.1. Product market definition
(33)    MPS offerings cover a broad spectrum of solutions, comprising a flexible
        combination of hardware, consumables, software, maintenance, workflow
        management, consulting, training and other related services. These related
        services may include remote monitoring and management services, audit and
        advice on fleet management, software supply, outsourced provision of document
        production, mailroom services, cloud services, etc. Generally MPS providers will
        enter into multi-year and bespoke agreements with customers to provide some or
        all of these services depending on customer need and preference, and MPS
        providers are broadly able to customise the service offering according to the
        customer’s requirements. At the very least, MPS providers will therefore provide
        the customer with access to hardware (i.e. the printer and consumables) and then
        a range of related added-value features, to provide an overall MPS arrangement.
(34)    The Notifying Party submits that – even though IDC appears to distinguish
        between "basic" and a "sophisticated / managed" MPS offerings – it is not
        appropriate (or indeed possible) to segment MPS by different types of value
        added services that a customer may choose to contract for. According to the
        Notifying Party, from a demand side perspective, customers regularly assess their
        MPS needs and are able to shift between different types of MPS (and vice-versa)
        depending on their on-going requirements. From a supply side perspective, all
        MPS suppliers are able to offer a range of services depending on specific
        customer needs. There is a wide variety of MPS suppliers, and each MPS supplier
        offers several solution packages depending on customer requirements. For the
        more sophisticated services, an MPS provider will often partner with specialised
        companies, like software vendors, which enable them to expand their range of
        service offerings at little or no incremental cost and time. In each case, the key
        value that the MPS supplier adds is not so much the individual underlying
        printers, consumables, and software and systems, but assembling these into a
        package that acts as a finished ‘solution’ for a client’s printing and document
        needs, and ensuring that this ‘solution’ remains functional.
22    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 8.
23    Replies to questionnaire Q3 – Questionnaire to enterprise customers of 19 September 2018,
      question 5.
                                                       7
 ---pagebreak--- (35)    During the market investigation a majority of printer suppliers, MPS providers
        and enterprise customers stated that MPS are different based on the size of the
        business.24 Several respondents stated that large enterprise clients need more
        sophisticated services, such as extensive printer fleet management services.25
(36)    However, the majority of printer suppliers and MPS providers is able to provide
        both basic and more sophisticated types of MPS depending on the customer's on-
        going requirements 26 and a majority of customers is able to shift between these
        different types of MPS depending on their needs.27 For this reason, for the
        purpose of the present decision, the Commission will assses the Transaction in a
        market encompassing all MPS.
4.2.3.2. Geographic market definition
(37)    The Notifying Party submits that the relevant market is that for MPS on an EEA
        basis as demand for MPS is driven primarily by the range of services required by
        the customer and the size of a customer’s business. For example, HP and other
        OEMs enter into MPS agreements that are EEA-wide, if not global, in scope with
        very large enterprise customers (such as major banks and multinational
        corporations). According to the Notifying Party, local or mid-sized national
        businesses are more likely to make purchasing decisions at a regional level, and
        be concerned about consistency across a regional business (and regional
        customisation): they are more likely to procure MPS from resellers, such as
        Apogee, that operate at a national level as well as from certain OEMs, such as
        Xerox, that have expanded into servicing these types of business either through
        acquisition or an expansion of their MPS network. Smaller regional MPS
        providers would be competitively constrained by the national providers, but, in
        each case, there is competition ‘upwards’ and ‘downwards’ from the different
        sized suppliers in the market.
(38)    The market investigation provided mixed results as to the geographic market for
        MPS. Different MPS suppliers supply at different geographic levels, i.e. either
        worldwide, in the EEA or at the national level28 and only MPS suppliers already
        active internationally could start supplying in other countries.29 A majority of
        printer suppliers who replied during the market investigation supply MPS on
        EEA-wide basis.30, and a majority of these printer suppliers also stated that they
24    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 11;
      Replies to questionnaire Q2 – Questionnaire to providers of managed print services of 19 September
      2018, question 4; Replies to questionnaire Q3 – Questionnaire to enterprise customers of 19
      September 2018, question 8.
25    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question
      11.1; See also Replies to questionnaire Q3 – Questionnaire to enterprise customers of 19 September
      2018, question 8.1.
26    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 12;
      Replies to questionnaire Q2 – Questionnaire to providers of managed print services of 19 September
      2018, question 5.
27    Replies to questionnaire Q3 – Questionnaire to enterprise customers of 19 September 2018,
      question 9.
28    Replies to questionnaire Q2 – Questionnaire to providers of managed print services of 19 September
      2018, question 6.
29    Replies to questionnaire Q2 – Questionnaire to providers of managed print services of 19 September
      2018, question 7.
30    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 9.
                                                       8
 ---pagebreak---         could not start supplying MPS to end-customers outside the EEA.31 A majority of
        enterprise customers purchase MPS from suppliers located in the same EEA
        Member State where they are located32 but would consider purchasing from a
        MPS supplier active in another country in the EEA.33
(39)    For the purpose of the present decision, the question whether the geographic
        market for MPS is national or wider can be left open as the Transaction does not
        raise serious doubts as to its compatibility with the internal market, under any
        plausible geographic market definition, including the narrowest possible national
        market.
5.      COMPETITIVE ASSESSMENT
5.1.    Horizontally affected markets34
5.1.1. Regular format printers
(40)    The Proposed Transaction gives only rise to a horizontally affected market in the
        supply of regular format printers.35 The Parties’ combined market share of regular
        format printers (on the basis of direct sales to end-users) does not exceed [0-5]%
        on the market for the supply of regular format printers across the EEA and would
        not exceed [10-20]% for sales in the UK alone. Considering narrower product
        categories (split by function, speed, colour; and split by A3/A4 and inkjet/laser)
        no affected markets arise in the EEA or in the UK, except for one sub-segment
        (SFP, colour, > 45ppm) in the UK, in which however the increment to Apogee’s
        [30-40]% share is less than [0-5]%: this reflects the fact that HP sold only […]
        printers directly to end-users in 2017.
(41)    The Notifying Party submits that the Proposed Transaction does not raise
        horizontal concerns in the supply of regular format printers at an EEA and UK
        level since sufficient competition will remain to prevent any harm to competition
        occurring as a result of the Proposed Transaction. According to the Notifying
        Party, HP’s closest competitors for the supply of regular format printers are the
31    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 10.
32    Replies to questionnaire Q3 – Questionnaire to enterprise customers of 19 September 2018,
      question 6.
33    Replies to questionnaire Q3 – Questionnaire to enterprise customers of 19 September 2018,
      question 7.
34    The market shares in this section are based on the Parties' direct sales to end-consumers.
35    The Proposed Transaction does not give rise to a horizontally affected market in the supply of large
      format printers. The Parties’ combined share printers (on the basis of direct sales to end-users) does
      not exceed [5-10]% on the market for the supply of large format printers across the EEA or the UK.
      For printers for CAD applications, the Parties’ combined share does not exceed [5-10]% across the
      EEA and would not exceed [5-10]% in the UK. For printers for GA applications, the Parties’
      combined share is below [0-5]% across the EEA or the UK. In addition, in both the EEA and the
      UK, the share of Apogee is below [0-5]% (reflecting the fact that it sold a total of […] large format
      printers over the three year period 2015-2017). The horizontal overlap in the supply of large format
      printers will therefore no longer be discussed in this Section. Similarly, the Proposed Transaction
      does not give rise to a horizontally affected market in the supply of MPS. The Parties’ combined
      share on this market (on the basis of direct sales to end-users) does not exceed [5-10]% on the
      market for the supply of MPS across the EEA (HP: [0-5]%; Apogee: [0-5]%) and would be below
      [10-20]% for sales in the UK alone (HP: [0-5]%; Apogee: [10-20]%). The horizontal overlap in the
      supply of MPS will also not be discussed further in this Section.
                                                        9
 ---pagebreak---        other OEMs, which are large multinational competitors with established business
       connections throughout the EEA, including Ricoh, Canon, Konica Minolta,
       Kyocera, Xerox, Epson and Brother, all of which have shares of over 5%
       throughout the EEA and exert significant competitive pressure on HP throughout
       the EEA. The Notifying Party submits that Apogee has a minimal market share in
       the supply of regular format printers and only sold […] large format printers in
       the EEA in 2017.
(42)   The Commission considers that the Proopsed Transaction does not raise serious
       doubts as to its compatibility with the internal market in the supply of regular
       format printers, for the following reasons.
(43)   First, as described above (see recital (40)), irrespective of the precise product and
       geographic market definition, the combined market shares of HP and Apogee lead
       to an affected market only in a one sub-segment (SFP, colour, > 45ppm) in the
       UK. The increment to Apogee’s [30-40]% share is less than [0-5]%. Therefore,
       the competitive conditions that would result from the merger are not materially
       different from those that would have prevailed absent the merger. This follows
       from the fact that HP only sells a very limited amount of printers directly to end-
       users.
(44)   Second, the market investigation confirmed that post-Transaction there will be a
       sufficient number of suppliers of regular format printers to ensure the same level
       of competition in the market as today and ensure choice for customers, as is
       confirmed by a majority of competitors and customers.36 A majority of
       competitors37 and customers38 consider that the likely impact of the Proposed
       Transaction on the intensity of competition in the market for the supply of regular
       format printers, will either remain the same or will increase.
5.2.   Vertically affected markets39
(45)   The Proposed Transaction would give rise to several vertical relationships. In
       particular, HP is primarily active upstream of Apogee and sells to Apogee the
       printer hardware that forms part of Apogee's supply of MPS.
(46)   According to the Non-Horizontal Merger Guidelines, foreclosure occurs when
       actual or potential rivals’ access to supplies or markets is hampered, thereby
36   Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 17
     and 18; Replies to questionnaire Q2 – Questionnaire to providers of managed print services of 19
     September 2018, question 5.
37   Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, questions 14
     and 15.
38   Replies to questionnaire Q3 – Questionnaire to enterprise customers of 19 September 2018,
     questions 11 and 12
39   The market shares in this section are based on the HP's total sales of regular and large format
     printers in the EEA and the UK through all routes to market (i.e. its "upstream" sales or
     direct/indirect sales to end-users). This includes sales of HP printers made through resellers, such as
     Apogee.
                                                         10
 ---pagebreak---         reducing those companies’ ability and/or incentive to compete. Such foreclosure
        may discourage entry or expansion of rivals or encourage their exit.40
(47)    The Non-Horizontal Merger Guidelines distinguish between two forms of
        foreclosure: input foreclosure occurs where the merger is likely to raise the costs
        of downstream rivals by restricting their access to an important input and
        customer foreclosure occurs where the merger is likely to foreclose upstream
        rivals by restricting their access to a sufficient customer base.41
(48)    In order for foreclosure to be a concern, three conditions need to be met post-
        merger: (i) the merged entity needs to have the ability to foreclose its rivals42 ; (ii)
        the merged entity needs to have the incentive to foreclose its rivals43; and (iii) the
        foreclosure strategy needs to have a significant detrimental effect on the
        parameters of competition on the downstream market (input foreclosure)44 or on
        consumers (customer foreclosure). In practice, these factors are often examined
        together since they are closely intertwined.45
(49)    The Commission examined whether the Proposed Transaction could give rise to a
        possible risk of input foreclosure for the supply of large and/or regular format HP
        printers exclusively to Apogee to the detriment of other downstream providers of
        MPS. In addition, the Commission assessed the risk of a possible customer
        foreclosure for HP's competitors provided that the merged entity would stop
        acquiring large and/or regular format printers from other printer suppliers and
        exclusively rely on the printers provided by HP.
5.2.1. Regular format printers
(50)    On the potential market for the supply of all regular format printers to MPS
        providers that rely on purchasing regular format printers from the OEMs, no
        vertically affected market arises (neither in the EEA nor the UK) on the basis of
        value shares (i.e. market shares based on sales value). HP's share is moderate in
        the EEA and in the UK (at [20-30]% and [20-30]%, respectively). In HP/Samsung
        the Commission used shares by value as the appropriate metric by which to assess
        market power in these markets.
(51)    However, vertically affected markets arise for the supply of all regular format
        printers if market power were to be assessed on the basis of volume shares as
        HP’s share would be [40-50]% (EEA) and [40-50]% (UK).
(52)    In addition, in a number of sub-segments for the supply of regular format printers
        segmented by function, speed and colour, HP has market shares above 30%.
        Vertically affected markets arise in most of these sub-segments as shown Table 1
        below. Although HP’s market share is [60-70]% in the EEA and [60-70]% in the
40    Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the
      control of concentration between undertakings (the Non-Horizontal Merger Guidelines) OJ C 265/6,
      18.10.2008, paragraphs 29-30.
41    See Non-Horizontal Merger Guidelines, paragraph 30.
42    See Non-Horizontal Merger Guidelines, paragraphs 33 to 39 and 60 to 67.
43    See Non-Horizontal Merger Guidelines, paragraphs 40 to 46 and 68 to 71.
44    See Non-Horizontal Merger Guidelines, paragraphs 47 to 57.
45    See Non-Horizontal Merger Guidelines, paragraphs 72 to 77.
                                                      11
 ---pagebreak---  ---pagebreak---  ---pagebreak---       would exclusively supplylarge and/or regular format HP printers, regardless of
      any further segmentation, to Apogee to the detriment of other downstream
      providers of MPS.
(62)  First, with regard to the ability to engage in input foreclosure, the merged entity
      does not appear to have a significant degree of market power in the upstream
      market for the supply of regular format printers. Based on the Notifying Party’s
      submission, other suppliers of branded regular format printers in the EEA, i.e.
      Ricoh, Canon and Konica Minolta all have shares above 10% in the EEA and the
      UK, and other significant OEMs have shares between 5% and 10%. The market is
      fragmented with no player having a share of over 25%. HP’s competitors can all
      manufacture or acquire unbranded printers, and their distribution systems will
      enable them to supply printers throughout the EEA. With the established reliance
      on unbranded printers and good supply-side substitutability, price increases by
      OEMs can easily be met by increased supply from competitors.
(63)  Second, with regard to large format printers, based on the Notifying Party’s
      submission, there are other competitors such as Canon (with a [20-30]% share at
      an EEA level and [10-20]% share at a UK level), Epson, and the wide format
      specialist OEMs, Mimaki, Roland and EFI, with shares of greater than [0-5]% at
      both the EEA and UK level.
(64)  Third, as discussed above, there appear to be a number of competitors to HP's
      printer business which could provide alternatives to the merged entity, notably
      Canon which suppies regular format and large format printers. A majority of MPS
      providers indicated that they already source regular format and large format
      printers from other manufacturers (such as Konica Minolta, Canon, Ricoh,
      Kyocera and others).47
(65)  Fourth, with regard to the incentive to engage in any input foreclosure, the
      Commssion considers that, based on the Notifying Party’s submission, the
      combined entity’s share in the MPS market would only be moderate and therefore
      HP would not be incentivised to implement an input foreclosure strategy that
      would prevent other resellers from selling HP printers to the market. Furthermore,
      in accordance with the Notifying Party’s submission, despite HP having a higher
      share than some of its OEM rivals large format printers, Apogee’s sale of large
      format printers related to its MPS offering is de minimis (having sold only […]
      printers in the EEA during 2017) ruling out any potential benefit for HP of by
      implementing an input foreclosure strategy.
(66)  Fifth, during the market investigation, a majority of MPS providers responding to
      the market investigation consider that the merged entity could or would not
      engage in input foreclosure.48 For instance, a competitor indicated that "HP
      products will be available to a multitude of resellers and dealers". Another
      competitor indicated that “whilst Apogee is a large reseller, I do not consider it to
47   Replies to questionnaire Q2 – Questionnaire to providers of managed print services of 19 September
     2018, question 2.
48   Replies to questionnaire Q2 – Questionnaire to providers of managed print services of 19 September
     2018, question 11.
                                                     14
 ---pagebreak---         be large enough to fulfill the requirements of HP, and therefore HP will need to
        also supply other resellers”.49
(67)    Based on the above, the Commission concludes that the Proposed Transaction
        does not give rise to serious doubts as to its compatibility with the internal market
        in relation to input foreclosure in light of the vertical link between the upstream
        market for regular and large format printers and the downstream market for MPS.
5.2.4. Customer foreclosure
5.2.4.1. Notifying Party's views
(68)    The Notifying Party submits that the Parties lack the ability and incentive to
        foreclose printer suppliers from access to key customers.
(69)    First, according to the Notifying Party, the combined entity’s MPS business will
        not be an important customer on the downstream market for printers, given its
        low market shares on the downstream market for MPS both a worldwide, EEA
        and UK level. Moreover, large competitors will continue to place competitive
        pressure on the combined entity in the EEA and the UK. As […] of Apogee’s
        printers are sourced from OEMs other than HP/Samsung, if the combined entity
        purchased 100% of its printers post-Transaction from HP, the impact on the sales
        of other OEMs would be a reduction of less than [0-5]% of non-HP suppliers’
        sales globally, or less than [0-5]% in the UK. Moreover, vertical integration
        protects competing printer suppliers from any attempted customer foreclosure
        strategy.
(70)    Second, the Notifying Party submits that the merged entity would lack the
        incentive to cease procuring products from upstream OEM rivals, as it could not
        capitalise on the increased profits that the combined entity could derive either at
        the upstream level (i.e. by increasing sales in the MPS market) or at the
        downstream level (due to lessened competition as a result of the foreclosure
        strategy) for the following reasons: (i) the combined entity’s share at the
        downstream level is low and foreclosure is unlikely to lead to higher profits at the
        upstream level based on a hypothetical increase in sales downstream; and; (ii) the
        downstream business relies on being able to offer customers a comprehensive
        ‘print solutions’ offering, which includes access to a broad range of printers,
        services and value added products that are packaged together to fit a customer’s
        bespoke MPS requirements.
5.2.4.2. Commission's assessment
(71)    The Commission considers that for the reasons set out below, the Proposed
        Transaction does not raise serious doubts as to its compatibility with the internal
        market with respect to potential customer foreclosure by which the merged entity
        would stop acquiring large and/or regular format printers from other printer
        suppliers and exclusively rely on the printers provided by HP for the provision of
        MPS.
(72)    First, with regard to the ability to engage in any potential customer foreclosure
        strategy, the merged entity does not appear to have a significant degree of market
49    Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 20.
                                                      15
 ---pagebreak---       power in the downstream market for the provision of MPS, irrespective of the
      precise geographic market definition.
(73)  Second, there are other MPS competitors which will continue to exert competitive
      constraint on the merged entity post-Transaction. The market investigation results
      confirmed that MPS customers consider that Apogee’s market share is low and
      that "less choice in the market will inevitably lead to increased competition”
      amongst the remaining players on the market.50
(74)  Third, based on the Notifying Party's submission, even if the merged entity would
      source printers exclusively from HP, the impact on the sales of other OEM
      providers would not be significant.
(75)  Fourth, during the market investigation a competitor expressed the view that "HP
      cannot only resell through Apogee as their sales and market coverage through
      resellers is much bigger".51 Another competitor responding to the market
      investigation indicated that that there is limited incentive for the merged entity to
      employ a possible foreclosure strategy as it would restrict the market on which it
      would operate and thereby reduce sales.52 A majority of competitors responding
      to the market investigation consider that the merged entity would not have the
      ability and incentive to degrade the terms and conditions of the supply of regular
      format and/or large format printers.53
(76)  Fifth, with regard to the incentive to engage in any potential customer foreclosure,
      the Commission considers that the combined MPS offerings of the merged entity
      would be impeded if they attempt a foreclosure strategy, while MPS competitors
      would remain free to offer customers HP printers and services as well as a range
      of other branded printers from HP’s OEM competitors and an assortment of
      bundled services (some proprietary and some contracted from other providers
      such as document software providers).
(77)  A majority of MPS providers responding to the market investigation consider that
      the merged entity will not have an incentive to engage in a customer foreclosure
      strategy because the one supplier approach would limit their market
      opportunities.54 For instance, one competitor expressed the view that "the
      company Apogee is a service provider and the success of the company is among
      others the great manufacturer portfolio, The customers who need an appropriate
      solution will certainly also get the right products offered in the future for their
      requirements. Therefore, [we] think that in the future Apogee will focus more on
      HP products but will also continue to market the other manufacturers with
      appropriate solutions".55
(78)  Based on the above, the Commission concludes that the Proposed Transaction
      does not give rise to serious doubts as to its compatibility with the internal market
50   Replies to questionnaire Q2 – Questionnaire to providers of managed print services of 19 September
     2018, question 10.
51   Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 20.
52   Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 20.
53   Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 21.
54   Replies to questionnaire Q2 – Questionnaire to providers of managed print services of 19 September
     2018, question 11.
55   Replies to questionnaire Q1 – Questionnaire to printer suppliers of 19 September 2018, question 22.
                                                     16
 ---pagebreak---      in relation to customer foreclosure in light of the vertical link between the
     upstream market for regular and large format printers and the downstream market
     for MPS.
6.   CONCLUSION
(79) 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
                                            17