CELEX: 31993M0331
Language: en
Date: 1993-03-31 00:00:00
Title: COMMISSION DECISION of 31.03.1993 declaring a concentration to be compatible with the common market (Case No IV/M.331 - FLETCHER CHALLENGE / METHANEX) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31993M0331

COMMISSION DECISION of 31.03.1993 declaring a concentration to be compatible with the common market (Case No IV/M.331 - FLETCHER CHALLENGE / METHANEX) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 098 , 07/04/1993 P. 0000

 COMMISSION DECISION of 31.03.1993 declaring a concentration to  be compatible with the common market (Case No IV/M.331 -  FLETCHER CHALLENGE / METHANEX) 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 Registered with advice of delivery To the notifying party Dear Sirs, Subject: <ind> Case No. IV/M.331 - Fletcher Challenge/Methanex  <ind>  <ind> Notification of 01.03.1993 pursuant to Article 4  of Council Regulation No. 4064/89  1. <ind> The above operation concerns the acquisition by  Fletcher Challenge Ltd of joint control over Methanex  Corporation, the other controlling shareholder being  Metallgesellschaft AG.  2. <ind> After examination of the notification, the Commission  has concluded that the notified concentration falls within the  scope of Council Regulation No. 4064/89 and does not raise  serious doubts as to its compatibility with the common market.  I. <ind> THE PARTIES  3. <ind> Fletcher Challenge ("FC") is a company based in New  Zealand whose activities include the manufacture of pulp and  paper, and building materials, construction, agriculture and  energy.  Its methanol and synthetic fuels production activities  are located in New Zealand and Chile, but most of the methanol  is subsequently sold in the EC, Japan and the US.  4. <ind> Metallgesellschaft ("MG") is a German company  principally active in trade and financial services, the  processing of base materials and engineering services, as well  as chemistry, mining and environmental technology.  After MG  transferred its European marketing division to Methanex in 1992  in exchange for a 32% shareholding in the latter, it is no  longer present in the methanol industry for its own account.   5. <ind> Methanex is a Canadian-based company active in the  production and marketing of methanol and ammonia.  Its  production facilities are situated in Canada and the methanol  produced is sold in Canada, the US and the Far East.  In  Europe, Methanex does not sell its own production but has a  wholly owned subsidiary called Methanex GmbH that operates as a  trader, re-selling methanol only purchased from independent  producers.  II. <ind> THE OPERATION  6. <ind> Methanex' current shareholding structure is the  following: 32% of the capital is held by Metallgesellschaft  (see point 4), the rest being widely dispersed amongst the  public.  In addition to the voting rights attached to its  shareholding, MG has the right to appoint the Chairman and the  Vice Chairman of Methanex' 7-member board.  7. <ind> FC and Methanex have entered into an agreement whereby  FC transfers its methanol and synthetic fuels businesses to  Methanex in exchange for shares and cash.  As a result of this  transfer of assets and increase of Methanex capital, the new  shareholding structure of Methanex will be as follows:   <ind> FC 44%  <ind> MG 10%  <ind> Public 46%  8. <ind> FC and MG have concluded a Shareholders Agreement  providing for, inter alia, the following:   <ind>   (i) <ind> The number of directors on the Methanex  board will be increased to 11, of whom 5 will be FC designees,  3 MG designees and the remaining 3 will be independent  directors but jointly nominated by FC and MG.  Both parties  have agreed on the identity of the directors and will jointly  support their nominations when submitting them for approval to  the shareholders' meeting.  Two of the three independent  directors have already been jointly nominated.  They are a  partner and a counsel from the law firm advising Methanex.   Both have been directors of Methanex since December 1991.    <ind>  (ii) <ind> FC and MG agree on the identity of the  Chairman and Deputy Chairman, who will initially be an MG and  an FC designee respectively.  The Chairman and the Deputy  Chairman have co-ordination roles.   <ind> (iii) <ind> Methanex board decisions are taken by simple  majority.  This implies that either party can act without the  other provided it obtains the support of at least one - in the  case of MG all - of the independent directors.  However, both  parties are obliged to vote together in favour of any proposal  adopted by the board on submission to the shareholders' meeting  (even if they had voted against it in the board).   <ind>  (iv) <ind> Both parties have mutual rights of first  offer and refusal in respect of share transfers.  MG also has  certain "take  along" rights in the event that FC wishes to  transfer any of its shares.  III. CONCENTRATION  9. <ind> As a result of the present operation, Methanex will  become a joint venture of FC and MG.  Methanex will perform on  a lasting basis all the functions of an autonomous economic  entity.  Methanex' activities will be enlarged and it will  continue to hold all the production and distribution assets  necessary to carry out its business in the methanol and ammonia  sectors.  10. <ind> As to joint control the following elements have to be  taken into account:   <ind> - <ind> FC and MG together will command the majority of  shares and voting rights (54%) in Methanex.   <ind> - <ind> FC and MG have concluded a shareholder agreement  which provides that they exercise their voting rights to a  large extent, including important resolutions, jointly.   <ind> - <ind> FC and MG agreed to decide jointly on the  composition of the enlarged board of directors of Methanex.   They will also jointly fill any vacancy created by the  resignation or removal of a director.  All future independent  directors must be mutually acceptable to FC and MG.   <ind> - <ind> The parties also agreed on the internal board  appointments.  The Chairman of the executive board of MG shall  be Chairman of Methanex and an FC designee shall be deputy  Chairman until the end of 1994.  Thereafter an FC designee  shall be Chairman of Methanex and an MG designee Deputy  Chairman.   <ind> - <ind> FC and MG will define their common position in  shareholder meetings by resolutions taken by the board of  directors of Methanex.  They agreed to vote in favour of all  transactions and proposals approved by the board by simple  majority.    <ind> - <ind> FC and MG complement each other as substantial  shareholders in Methanex.  FC has developed significant  experience as a producer of methanol with natural gas as a  feedstock.  MG has become an important marketer of methanol  with access to the big US and European markets.  After  transferring their methanol businesses to Methanex they have a  common interest in using their complementary expertise in order  to make Methanex a major player in the worldwide methanol  industry.  11. <ind> Taking into account all the above elements, it is  concluded that FC and MG will jointly control Methanex.  12. <ind> Both parent companies will withdraw from the sector  on completion of the operation.  Therefore, the creation of the  joint venture does not give rise to co-ordination of the  competitive behaviour of the parties and constitutes a  concentration within the meaning of Article 3 of Regulation  4064/89.   IV. <ind> COMMUNITY DIMENSION  13. <ind> The present operation has a Community dimension  within the meaning of Article 1(2) of the Regulation.  The  combined aggregate worldwide turnover of FC, MG and Methanex  exceeded 17,000 million ECU in 1992 [In the case of FC, the  figures correspond to the financial year ending 30 June 1992.].   Both FC and MG attained a Community-wide turnover of more than  250 million ECU in the same financial year, of which they did  not achieve more than two-thirds within one and the same Member  State.  V. <ind> COMPATIBILITY WITH THE COMMON MARKET   <ind> Relevant product market  14. <ind> The main effects of the transaction concern the  production and distribution of methanol, a basic liquid  petrochemical, primarily obtained from natural gas.  It is a  homogeneous product once it reaches the minimum quality  standard internationally accepted and is generally traded as a  commodity.  It has two major uses: the production of resins for  building materials and engineering plastics and fuel  applications, in particular the production of unleaded  gasoline.  Methanol is usually converted into MTBE (methyl  tertiary butyl ether) which is used for the production of  unleaded gasoline.   <ind> Methanol itself constitutes a product market because it  has no realistic substitutes in terms of applications and  price.  15. <ind> FC is a multinational producer of methanol.  In New  Zealand it also converts crude methanol directly into unleaded  gasoline and produces small quantities of durene, a by-product  of gasoline.  Most of FC's gasoline is sold in New Zealand's  domestic market and the remainder is exported, primarily to  Australia and countries in the Far East.  FC does not sell  gasoline in the EC.  All these businesses will be transferred  to the joint venture.   <ind> Methanex produces and distributes methanol and, to a  lesser extent, ammonia.  It does not sell ammonia in Europe.   FC is not engaged in the production of ammonia.   <ind> Geographic reference market  16. <ind> Methanol is internationally traded as a commodity.   The fact that certain production plants - especially in  developing countries have very low production costs and  sometimes benefit from more favourable import duties, helps to  explain why methanol can be profitably transported over long  distances, even if transport costs are not low.  This is  usually the case for those plants situated in remote locations  whose local demand by no means absorbs production and where  there is easy access to transport by sea (for example, plants  in Chile, Malaysia or Trinidad).  Such production is shipped to  areas of the world where demand exceeds production.   <ind> However, the situation is not such as to conclude that  there is a world market, since conditions of competition vary  between the three main demand areas of the world:  EC/Europe,  North America and  Asia.  In the EC the current system of  tariffs and ceilings imposes a 13% duty on the CIF value of all  imports of methanol except for those originating in countries  that benefit from preferential status (such as Chile, Trinidad  or Malaysia).  In the US there is an 18% import tariff, but as  a result of the Canada-US Free Trade Agreement, Canadian  methanol is exempt.  Finally, in Asia, Japan is by far the most  important net importer (accounting for around 50% of total Far  East and Asian demand) and imports to Japan are only subject to  a 2.8% import duty.  17. <ind> Overall it can be concluded that due to tariff  barriers, transport costs and the different demand conditions  of the three main geographic areas described, the latter have  not yet achieved sufficiently homogeneous conditions for  competition to consider that there is a world market.  This is  confirmed by the fact that methanol producers usually sell in  the market closest to their plant (for example, Saudi Arabian,  Libyan and Russian production tends to be exported to the EC).   <ind> However, a precise definition of the relevant geographic  market does not need to be established as the concentration  will not create or strengthen a dominant position even on the  basis of the narrowest geographic market.  Although there are  grounds to consider that this market could be wider, ie  comprising the whole of Western Europe, the market analysis of  the present transaction will focus on the EC, the narrowest  area where conditions of competition are homogeneous.   <ind> Assessment  18. <ind> The Community market for methanol has undergone  considerable structural changes in the last decade.  Due to  demand growth the market is now much more open and captive  production has become less important.  In addition, the average  production capacity per plant has increased and natural gas has  replaced oil and coal as the major feedstock for methanol  production.  Several production facilities within the EC had to  be closed down and have been replaced by imports.  Market  growth is expected to continue, but will only be 10% in the  period between 1991 and 1995.  19. <ind> The Community market is moderately concentrated.  No  supplier holds a market share of more than 25%; the five major  suppliers serve around two-thirds of EC demand.  There are  three categories of suppliers for methanol: EC producers, non- EC producers and marketers who purchase from both for resale to  end users.  End users are mainly large chemical companies.  20. <ind> EC production plants are owned by Methanor in the  Netherlands; Leunawerke, RWE DEA, VEBA and BASF in Germany; ICI  in the UK and Chemie Linz in Italy.  BASF produces methanol  exclusively for internal consumption but all the others sell  part of their production on the open market.  Neither FC nor  Methanex own plants in the EC (see points 3 and 5).  21. <ind> Since demand exceeds production in the EC by a  considerable amount, imports (in particular from Saudi Arabia,  Libya, Russia and Chile) account for around 60% of the total  sales in the Community.  FC sells methanol from its Chilean  plant and a small amount from New Zealand.  Methanex does not  import methanol from its refineries.   Its German subsidiary  sells the petrochemical from EC producers as well as from other  non-EC producers.  22. <ind> Price fluctuations in the past in the different areas  of the world where methanol is sold show that these areas are  closely interlinked.  A price rise in one area has usually led  to a rapid increase in supply, thereby bringing prices back to  a uniform level.  23. <ind> The proposed concentration will have horizontal as  well as vertical effects.  Although it will create one of the  world's largest methanol  producers (approximately 10% of world  capacity) and marketers, the operation will not fundamentally  change conditions of competition within the common market.  24. <ind> As to the horizontal effect, Methanex appears to  become the leading supplier with an overall market share  (including the sales of its trade subsidiary Methanex GmbH) not  higher than 25%.  25. <ind> The present supply structure within the Community may  very well change further with the continuing growth of demand  and the interest of countries far away from the industrial  centres to make use of their resources of natural gas.  FC's  Chilean plant is itself an example of the dynamics of the  industry.  It began operating in 1988 and has since become one  of the largest suppliers to the EC.  Currently, new methanol  production facilities are under construction in Trinidad and  Venezuela.  The EC already imports methanol from Trinidad.   Additional market entry is being considered by Norway.  A new  methanol plant, which is costly to build (costs can exceed US$  300 million), could be constructed in two and a half to four  years.    26. <ind> Moreover, EC producers, non-EC producers and  marketers have very divergent cost structures.  Non-EC  producers are subject to different import regulations depending  on the country from which they import (some are totally free to  import).  It appears, therefore, unlikely that they will be  able to arrive at a common supply policy which serves their  divergent interests.  This will not be altered through the  operation since it only increases the market concentration  moderately.  27. <ind> As to the vertical effects of the operation,  foreclosure may occur given the fact that Methanex GmbH belongs  to the leading group of traders within the Community.  FC will  have better access to EC chemical companies.  However, in view  of the overall supply structure of the Community market, which  is moderately concentrated, the possible foreclosure effect  will not lead to the creation or strengthening of a dominant  position.  28. <ind> It can, therefore, be concluded that the proposed  operation does not create or strengthen a dominant position as  a result of which effective competition will be significantly  impeded in the common market or in a substantial part of it.  For the above reasons, the Commission has decided not to oppose  the notified concentration and to declare it compatible with  the common market.  This decision is adopted in application of  Article 6(1)(b) of Council Regulation No. 4064/89.  For the Commission