CELEX: 31996M0769
Language: en
Date: 1996-07-29 00:00:00
Title: Commission Decision of 29/07/1996 declaring a concentration to be compatible with the common market (Case No IV/M.769 - Norsk Hydro / Arnyca (Enichem Agricoltura)) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31996M0769

Commission Decision of 29/07/1996 declaring a concentration to be compatible with the common market (Case No IV/M.769 - Norsk Hydro / Arnyca (Enichem Agricoltura)) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 266 , 13/09/1996 P. 0006

 COMMISSION DECISION of 29/07/1996 declaring a concentration to be  compatible with the common market (Case No IV/M.769 - Norsk Hydro / Arnyca  (Enichem Agricoltura)) according to Council Regulation (EEC) No 4064/89  (Only the English text is authentic) The paper version of the decision is available through the sales offices  of the Office of Official Publications of the European Communities. Public version Merger procedure Article 6(1)b decision To the notifying parties Dear Sirs, Subject:  Case No. IV/M.769  Norsk Hydro/Arnyca (Enichem Agricoltura) <ind> <ind> Notification of  27.06.1996 pursuant to Article 4 of Council  Regulation No 4064/89 1.<ind> On 27 June 1996 the Norwegian company Norsk Hydro A.S.A. ("HYDRO")  notified the Commission of its intention to acquire the major part of the  fertilizer business of Agricoltura S.p.A. (formerly Enichem Agricoltura  S.p.A.), a company belonging to the Enichem group ("ENICHEM"). This  acquisition takes place through Arnyca S.r.l. ("ARNYCA"), a dormant  company controlled by ENICHEM. 2.<ind> After examination of the notification the Commission has concluded  that the notified operation falls within the scope of application of  Council Regulation N  4064/89 and does not raise serious doubts as to its  compatibility with the common market or with the functioning of the EEA  Agreement. I.<ind> THE PARTIES 3.<ind> HYDRO is active in the production of chemical and mineral  fertilizers, oil and gas,  petrochemical and light metals industries. 4.<ind> ARNYCA will own before completion the major part of the ENICHEM  fertilizer business, which includes the production and sale of fertilizers  and intermediates with manufacturing plants located in Ferrara, Ravenna  and Barletta (Italy).  II.<ind> THE OPERATION <ind>  5.<ind> On the basis of the notified agreements, HYDRO is to acquire the  entire share capital of ARNYCA, to which ENICHEM will have previously  transferred the major part of its fertilizer business. This  business  includes  the assets connected  to  the exercise of  the production and  sale of  fertilizers with manufacturing  plants in Ferrara, Ravenna and  Barletta.  ENICHEM will retain the fertilizer businesses of Terni  Industrie Chimiche and Sariaf.  HYDRO [Deleted  Business secrets.]. 6.<ind> The acquisition is the result of the restructuring and liquidation  of Enichem Agricoltura S.p.A. which was examined and approved  by the  Commission in its decision of 21 June 1995 on the State aid granted to the  company in connection with the restructuring. III.<ind> CONCENTRATION 7.<ind> The transaction, involving acquisition of sole control by HYDRO of  parts of Enichem Agricoltura's assets, is a concentrationwith in the  meaning of article 3(1) (b) of the Merger Regulation.  IV.<ind> COMMUNITY DIMENSION 8.<ind> The combined aggregate worldwide turnover of the undertakings  concerned exceeds 5.000 million ECU. The aggregate Community wide turnover  of  HYDRO and ENICHEM's transferred assets each exceed 250 million ECU.  ARNYCA  achieves more than twothirds of its  turnover in Italy.  HYDRO  does not achieve more than twothirds of its turnover in one and the same  Member State. The operation has therefore a Community dimension. V.<ind> THE RELEVANT MARKETS A.<ind> Relevant product market 9.<ind> Nitrogen (N), phosphorus (P) and potassium (K) constitute the  primary plant nutrients  which are needed in large quantities for  agricultural applications. Fertilizers can be in a single nutrient form  (straight nitrogen, straight phosphate and straight potash fertilizers) or  in a compound form which may contain any combination of N, P, and K  (multinutrient fertilizers). 10.<ind> The sector concerned by the present operation is the production  and sale of nitrogen containing fertilizers, which includes straight  nitrogen and nitrogencontaining compounds fertilizers. 11.<ind> There are various types of straight nitrogen fertilizers, which  vary in their chemical composition, and in particular in their content of  nitrogen. Calcium ammonium nitrate (CAN), ammonium nitrate (AN) and urea  are by far the most common in Europe. Other less used straight nitrogen   fertilizers also include urea ammonium  nitrate solutions  (UAN)  and  ammonium sulphate (AS). 12.<ind> The processing of nitrogen containing fertilizers requires  different types of production facilities for the different types of  fertilizers. Nonetheless, nearly all manufacturers produce a wide range of  these products. The raw materials needed are principally natural gas and  air, the reaction of which produces ammonia, which is the basic   intermediate.  13.<ind> Urea and AN are basic chemical compounds. Urea is produced by  reacting ammonia with carbon dioxide (a byproduct of ammonia production)  in a complex chemical procedure. AN is produced by  reacting ammonia with  nitric acid. CAN and UAN are obtained by further processing urea and AN. 14.<ind> Compound fertilizers can be in the form of NPK, NP, NK and vary  in their percentage of nitrogen, phosphate and potash. They can be  produced as complex granules whereby each granule contains each of the  nutrients, or in the form of a blend where each of the nutrient is present  in separate granules and then "blended" to the right formula. 15.<ind> The parties have suggested a broad product market definition  including all the nitrogencontaining fertilizers (urea, CAN, UAN, AN, AS,  other straight nitrogen, NPK), or in alternative a subdivision between  straight nitrogen and compounds fertilizers. 16.<ind> From the demand perspective, the various specific types of  nitrogen containing fertilizers each  have individual characteristics. For  instance, urea, which is the most concentrated solid fertilizer available  (46% N), is most effective at medium temperatures and in the presence of  moisture, e.g. in southern Europe. CAN and AN are the two of the most  important nitrates. CAN is the major source of straight N within the EU,  and is particularly used in north and east European regions.  It contains  nitrogen which is immediately available to plants and its lime content  helps to limit any increase in soil acidity. AN is most commonly used in  the UK, France and Spain.  NPK compounds fertilizers are widely used in  Europe, since they offer further options to meet the different agronomic  and environmental requirements of soils and crops in the EU. 17.<ind> The choice of the farmer as to what product he actually purchases  will be a result of a combinations of  factors including local  availability, efficiency of the product (which can change depending on  type of crop, local climatic and soil conditions), application method,  farmer preference and price (expressed homogeneously per unit of  nitrogen). In addition, accessibility to the different fertilizers varies  depending upon factors such as different packaging, transportation and  storage requirements. 18.<ind> For the purpose of the present case it is however not necessary  to decide whether all nitrogen containing  fertilizers constitute the same  product market, or wether straight nitrogen fertilizers and    nitrogencontaining compounds  constitute twoseparate product markets, or  even if within straight nitrogen fertilizers a further product market  subdivision could be maintained.  In fact, as it is demonstrated in the  assessment below, a dominant position would not be created or reinforced  even on the narrowest product market definition. 19.<ind> Ammonia is a key intermediate for the production of nitrogen  containing fertilizers. Because of its importance, every major producer of  fertilizers has its own ammonia production capacity. The large majority of  ammonia is used internally by fertilizer producers. However, ammonia is a  commodity which is traded worldwide, being easily and economically  transportable in bulk as a raw material.  Despite the fact that HYDRO, as  the majority of its competitors, is a net purchaser of ammonia, it does  also sell [Deleted  Business secrets.] amounts of ammonia (approximately  [Less than 15%.] of its total capacity). On its part, ARNYCA sells approx.  10% of its capacity, while the rest is used captively. As HYDRO and  ARNYCA's combined  sales on the Western European market  represent  approximately [Between 5% and 15%.] of the total trade, the ammonia market  is not  affected by this concentration. B.<ind> Geographic Reference Market 20.<ind> There is significant trade of nitrogen containing fertilizers  between the various Member  States of the EEA. In particular, CAN, urea  and NPK are largely traded (e.g. large quantities are imported in UK,  France, Germany and Italy). The major exporters are Belgium, the  Netherlands, France and Germany. Data provided by the  European  Fertilizers Manufacture's Association  (EFMA)  for Italy show that in  1993/94 the imports of nitrogen containing fertilizers accounted for  approx.  40% of the total consumption. Within the EEA as a whole trade is  estimated to amount to approx. 39.5% of the total consumption  in 1994/95,  and imports from non EEA countries amount  to approx. 29.1% of the EEA  total consumption. 21.<ind> Regarding the single products, the 1994/95  NPK's EEA trade is  estimated at  36% of the EEA consumption, the EEA trade of  CAN  is  estimated to be approx. 50% of the EEA consumption and urea's EEA trade is  estimated to be 50.3% of the EEA consumption. 22.<ind> Considering this high volume of trade between Member States, the  market appears to be of EEA dimension. This dimension of the geographic  market has been proposed by  the notifying  parties and has also been  confirmed by clients and competitors.  There are no significant regulatory  limitations on the accessibility and trade of fertilizers in the EEA. One  exception is represented by AN, for which special safety requirements  concerning storage, shipping and usage are provided in Austria, Germany,  Belgium, Denmark, Finland, Ireland, and Holland.  However, since HYDRO and  ARNYCA's AN sales in these countries are minimal, it is not necessary for  the present case to identify any of the above countries as separate  geographic markets. Certain restrictions on the use of fertilizers to  limit their impact on environment are present and vary in the different EU  countries. The investigation carried out has shown that these restrictions  are not sufficient to qualify national markets as separate, given in  particular the high level of interstate trade. 23.<ind> The geographic market  for urea tends to be wider than Western  European.  In fact, urea has become the world's major source of nitrogen  and is traded worldwide on a large scale.  Its shipping is extremely cost  efficient, also as a consequence of  its production costs which are the  lowest compared to the other straight nitrogen fertilizers.  EFMA's data  show important worldwide patterns for urea's imports from nonWestern  European countries which amounted to 1243 Kt  product  in 1994/95, i.e.  45.9% of the Western European internal production and 47,9% of the EEA  consumption. Also, urea prices appear quite homogeneous worldwide.  Duties  are still present on imports into EU. However, these tariffs are to be  substantially reduced under new Europe (Association) agreements, for  example with the Central and Eastern European States, under new free trade  agreements, as with the Baltic States, and  under the WTO rules. VI.<tab> ASSESSMENT [For the purpose of the following assessment, all  figures concerning nitrogen fertilizers are calculated and expressed in  terms of  the nitrogen contained (KtN), unless differently indicated.] 24.<ind> The fertilizer industry  worldwide has experienced sharp  variations in the balance between offer and demand as a result ofthe  breakup of the former Soviet Union. In the EU, the major drive for change  has been the reform of the agricultural sector under the new Common  Agricultural Policy. In particular, setaside requirements have  significantly reduced  the fertilized areas. In addition, new  environmental regulations are moving farmers to focus more on the improved  use of animal manure and on more efficient use of mineral  fertilizers.  Under these circumstances, Western European demand has declined quite  substantially over  the last years. Market conditions are to remain tight   notwithstanding the more favourable trend forecast at a world level.  Competitive pressure from Eastern European and nonEuropean countries will  remain strong. In fact, imports of nitrogen fertilizers into Western   Europe has  increased by approximately 45% between 1990 and 1995. The EU  market will further openup following the entering into force of both new   European (Association) agreements and new free trade agreements, and also  with the implementation of the WTO rules. All these agreements are  providing for a substantial reduction of import duties on all nitrogen  fertilizers. The fall in agricultural prices, the openingup of the market,  as well as new environmental constraints are keeping under constant  pressure the European companies, obliging them to reduce and streamline  excess and inefficient capacity and to rebalance supply and demand. 25.<ind> The market for nitrogen containing fertilizers is characterized  by a small number of major competitors, mainly belonging to chemical  groups, who are stronger in their home markets primarily due to historical  reasons. These include KEMIRA of Finland, AGROLINZ of Austria, BASF of  Germany, DSM of the Netherlands, GRANDE PAROISSE (GP) of France and   FERTIBERIA of Spain. 26.<ind> Companies active in the market have the possibility of adjusting  the production of the various types of fertilizers according to the  variation of the demand, therefore there is a substantial volume of trade  among the EEA as there is competition to satisfy the demand where it  occurs. Large shipments over long distance are, in fact,  very common as  bulk sea freight is extremely cost efficient and as the demand for  fertilizers varies according also to the slight difference in season  between North and South Europe. Long distance trade is a common practice. A.<tab> NPK, Nitrates and Urea 27.<ind> CAN, Urea and NPK are the three product areas where the  activities of HYDRO and ARNYCA overlap. 28.<ind> As to NPK, HYDRO and ARNYCA's EEA combined market share will be  [Between 20% and 30%.] (in 1995 HYDRO: [More than 10%.]; ARNYCA [Less than  5%.]).  The closest competitor is KEMIRA, which had in 1995 [Between 15%  and 25%.] of the market, followed by BASF with [Between 5% and 10%.]. At  the national level there is essentially no geographic overlap in this  market, with the exception of Italy. 29.<ind> As to CAN, HYDRO and ARNYCA's combined market share will  be[Between 25% and 35%] (in 1995 HYDRO: [More than 20%.]; ARNYCA [Less  than 5%.]).  DSM has had in 1995 a market share [Between 10% and 20%.]. As  to AN (the second most commonly used nitrate in Western Europe, which  appear highly substitutable to CAN both  from the demand and  the supply  side), in 1995 HYDRO has had a market share of [Between 20% and 30%.],  ARNYCA has had [ Less than 5%.], GP has had [Between 10% and 20%.] market  share in the EEA. Since in the EEA the CAN market size is bigger than that  of AN, even  considering the two products as being part of the same  market,  the market share of HYDRO/ARNYCA is not increased. 30.<ind> As regards urea, HYDRO and ARNYCA's combined market share will be  [Between 30% and 40%.] (in 1995 HYDRO: [Less than 20%.]; ARNYCA[Less than  20%.])  Among the competitors, GP has had in 1995 a market share [Between  5% and 10%.]. Again, there is essentially no geographic overlap in this  market, with the exception of Italy. However, as noted above, the  geographic market for urea tends to be worldwide. 31.<ind> The situation on the markets for these products reflects the  overall patters described above for the fertilizer market in general.  Price competition is strong, due to the decline in the demand and to the  pressure exerted by imports from outside EEA. Even if the single  fertilizers are in principle differentiated on the basis of farmers' needs   (which are determined by a number of physical and technical factors as  described in para. V.A. above) the relative price, in terms of nitrogen  content, plays an importantrole in farmers' choice. If the price per unit  of nitrogen changes significantly between products containing nitrogen  then a shift to a  less expensive nitrogen carrier can take place. B.<ind> Straight nitrogen fertilizers 32.<ind> As the parties and some competitors have also suggested, CAN, AN,  urea, together with UAN, AS and other straight nitrogen fertilizers could  be considered as being part of the same relevant product market.  If this  market definition is accepted,  the combined market share of HYDRO and  ARNYCA in the EEA will be of [Between 20% and 30%.] (in 1995 HYDRO: [More  than 20%.]; ARNYCA [ More than 5%.]). The closest competitors in this  market definition is GP with an EEA share of [Between 5% and 15%.] in  1995, followed by BASF and KEMIRA with [Between 5% and 10%.] each. Again,  as for the broader Nitrogencontaining fertilizers market definition, there  is minimal geographic overlap,  indeed limited to Italy, between the  activities of HYDRO and ARNYCA. 33.<ind> The addition of the markets for UAN, AS and other straight  nitrogen fertilizers, which are far less important in volume than Urea,  CAN and AN in the EEA, does not change the competitive assessment made on  the individual products above. This assessment  remains therefore valid  for  the enlarged market definition. 34.<ind> In light of the above, it appears that a dominant position of  HYDRO will not be created or strengthened as a result of the acquisition  of ARNYCA, in any of the possible above market definitions. VII.<ind> ANCILLARY RESTRICTIONS 35.<ind> The parties have stipulated a noncompetition clause which imposes  on ENICHEM a noncompetition obligation for any activity of manufacturing  and trading of fertilisers and ammonia, in all the countries of the world,  for a period of [Not more than 5 years.], [Business secrets.]. It is  however stipulated that [Business secrets.]. 36.<ind> This noncompetition obligation on ENICHEM is designed to assure  the transfer of the full value of the fertiliser business, in particular  its goodwill and knowhow. It appears therefore necessary for the  acquisition to take place. In addition, its duration is limited to a  period of [Not more than 5 years] from the transfer [See Commission Notice  regarding restrictions ancillary to concentrations, OJ C 1990 203/5,  III.A.2.]. Its geographic scope however must be limited to the area where  ENICHEM was active before the sale. [See Commission Notice regarding  restrictions ancillary to concentrations, OJ C 1990 203/5, III.A.3.] <ind> <ind> <ind> <ind>  VIII.CONCLUSION 37.<ind> For the above reasons, the Commission has decided  not to oppose  the notified operation and to declare it compatible with the common market  and with the functioning of the EEA Agreement. This decision is adopted in  application of Article 6(1)(b) of Council Regulation No 4064/89. 38.<ind> This decision is without prejudice of the position of the  Commission as regards the fulfilment by the Italian government of the  conditions set out in the above mentioned State aid decision. <tab> <tab> <tab> For the Commisison