CELEX: 31996M0708
Language: en
Date: 1996-06-13 00:00:00
Title: Commission Decision of 13/06/1996 declaring a concentration to be compatible with the common market (Case No IV/M.708 - Exxon / DSM) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31996M0708

Commission Decision of 13/06/1996 declaring a concentration to be compatible with the common market (Case No IV/M.708 - Exxon / DSM) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 306 , 15/10/1996 P. 0004

 COMMISSION DECISION of 13/06/1996 declaring a concentration to be  compatible with the common market (Case No IV/M.708 - Exxon / DSM)  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. To the notifying parties PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)B DECISION Dear Sirs, Subject :<ind> Case No IV/M.708  Exxon/DSM <ind> <ind> Notification of 08.05.1996 pursuant to Article 4 of Council  Regulation No 4064/89 1.<ind> On 8 May 1996 EXXON CHEMICAL HOLLAND VENTURES B.V. and DSM  PLASTOMERS B.V. notified to the Commission their agreement to establish a  joint venture ("JV") in the chemical sector for the production, marketing  and sale of certain polyethylenes (PE's) and plastomers. 2.<ind> After examination of the notification, the Commission has  concluded that the notified operation falls within the scope of the  application of Council Regulation No. 4064/89 and does not raise serious  doubts as to its compatibility with the common market and with the  functioning of the EEA agreement. I<ind> THE PARTIES 3.<ind> EXXON CHEMICAL HOLLAND VENTURES B.V., is a Dutch  affiliate of  Exxon Corporation ("EXXON"),  a diversified company active in oil and gas  exploration and production, coal, minerals and various chemical  businesses. The European chemical business of EXXON is coordinated by  Exxon Chemical Europe Inc. (together " Exxon Chemical"). 4.<ind> DSM Plastomers BV, a Dutch company, is an affiliate of the Dutch  company DSM NV (together "DSM"). DSM NV is a diversified company active in  oil and gas exploration and production, and various chemical businesses. II<ind> THE OPERATION 5.<ind> The JV will concern only relatively small parts of Exxon  Chemical's and DSM's European chemical businesses. It has been established  to produce, market and sell metallocene plastomers, a new generation of  highvalue polymers and certain speciality grades of  highdensity PE  ("HDPE") and linear lowdensity PE ("LLDPE").  (The only grade of LLDPE to  be produced will be C8 LLDPE.)  6.<ind> DSM will contribute to the JV its solution process plant at Geleen  in the Netherlands, along with supporting assets, a pilot plant and a  license for its proprietary "Compact" solution process. Exxon Chemical  will license the JV its proprietary "Exxpol" metallocene catalyst  technology and will guarantee the JV a secure source of  proprietary  catalyst components. III<ind> RELEVANT MARKETS <ind> Relevant Product Market 7.<ind> The JV will produce certain PEs (HDPE and C8 LLDPE) and  metallocene plastomers. It is the markets for these products and for other  products which are substitutable for them which must be examined.  The  relevant products of the JV and its parents are shown in the table below. Product <tab> Exxon Chemicals <tab> JVDSM Metallocene plastomers <tab> Minor imports New entrant LLDPE <tab> Large EC  producer (C4 Commodity) <tab> Mediumsized EC producer (C8 Specialty) <tab>   LDPE <tab> Large EC producer (Commodity) <tab> Large EC producer  (Commodity) HDPE <tab>  <tab> Very small EC producer (Specialty) Large EC producer  (Commodity) 8.<ind> Metallocene plastomers are manufactured by a new technology using  metallocene catalysts which allow exceptional control over the  polymerisation process. The resulting products have narrow molecular  weight and compositional distributions; the process technology enables  clients to specify exactly the performance characteristicsthey require and  escape the fixed relationships between various characteristics, notably  between melt tension and melt flow rate, which apply for PEs. According to  competitors and customers there is the possibility of some limited  substitution between metallocene plastomers and C8 LLDPE.  However, given  the special characteristics of the metallocene plastomers and the  difference in price (plus 50%) compared to C8 LLDPE, this limited  substitutability does not seem sufficient to make them part of the same  market.  However, for the purposes of this decision the question may be  left open and the situation examined on the narrowest basis, that is, that  metallocene plastomers are a separate market. Metallocene plastomers are  therefore one of the relevant markets to be examined. 9.<ind> PEs are produced from ethylene which is polymerised to produce a  resin. The resins are then used to make films, fibres, moulded goods etc. 10.<ind> In its natural form PE is a milky white, solid thermoplastic  material. PEs include low density polyethylene (LDPE), LLDPE and HDPE.  Within these families of PEs, there are different grades which are  achieved by varying the temperature and pressure with the reactor. Within  the LLDPE family three distinct groups can be identified, by the copolymer  used in the manufacturing process, C8 LLDPE (octene), C6 LLDPE (hexene)  and C4 LLDPE (butene). The relative ease with which manufactures can  switch production from one grade to another for most of these families and  groups (by varying the reaction conditions) gives rise to a high degree of  supplyside substitutability between most grades of LDPE and LLDPE . 11.<ind> This is not true, however, for C8 LLDPE which, because of the  volatility of the copolymer, octene, can only be made by a solution  process or a slurry process (economically the slurry process is not viable  for C8), rather than the high pressure and gas phase processes used for  the manufacture of LDPE and other grades of LLDPE. In this situation  producers of these latter grades cannot switch their production to C8  LLDPE without substantial capital investment and significant delay. 12.<ind> The survey undertaken by the Commission amongst producers and  customers of the various PEs shows that none of those contacted considered  that LDPE was a substitute for C8 LLDPE. Only one respondent considered  that C4 LLDPE was a substitute for C8 LLDPE and only if price  differentials were very large. 13.<ind> There are physical properties of C8 LLDPE which make it  particularly suitable for certain applications, in particular for stretch  film where over  60% of West European production is used. Neither LDPE nor  C4 LLDPE are much used in this application. 14.<ind> It follows that C8 LLDPE does not form part of the same market as  C4 LLDPE and LDPE, the bulk PE products. C6 LLDPE may form part of the  same market as C8 LLDPE. For the purposes of this analysis it is not  necessary to decide this question as neither the JV nor its parents  produce this product.  (EXXON has announced its intention to produce C6  LLDPE at its Cipen JV plant.) 15.<ind> In its EXXON/Shell decision [Case N  IV/33.640 EXXON/Shell, OJ  L144.20] the Commission made a distinction between LDPE and LLDPE on the  one hand and HDPE on the other, on the basis of the characteristics of the  products and their applications. 16.<ind> The relevant product markets to be examined are, therefore,  metallocene plastomers, C8 LLDPE (with or without C6 LLDPE), LDPE and C4  LLDPE, and HDPE <ind> Relevant Geographic market  17.<ind> The relevant geographic market for metallocene plastomers is at  present world wide, the only producers being EXXON and Dow in the United  States of America. However when the JV, Dow and BASF commence production  in Europe this situation may change.   18.<ind> The relevant geographic market for PEs products is at least the  whole of the European Union. [For a similar definition see again  Exxon/Shell, supra.] PEs are easily transported across Europe. Transport  costs are relatively low (about 6%) when compared to the value of the  products in question. There are no tariff barriers for trade between  Member States. The producers of PEs sell  these products in different  Member States.  19.<ind> From these elements it can be considered that the relevant  geographic market for PEs is the European Union. This is confirmed by the  low level of imports from outside Europe, These imports are subject to  significant duties (on the basis of the information provided by the  parties, 10%). III<ind> CONCENTRATION <ind> Joint Control 20.<ind> Exxon Chemical and DSM will each have a 50% interest in the JV.   A Management Committee comprised of six members, three appointed by each  party, will govern and manage the JV. The chairperson of the Management  Committee will be appointed annually on a rotating basis by the parties  and decisions taken by the Committee must be approved by the unanimous  consent of all members attending a meeting at which a quorum is present.  Such decisions comprise the principal decisions relating to the governance  of the JV. Thus both Exxon Chemical and DSM will, by virtue of their  representation on the Management Committee, have a right of veto over all  matters of fundamental importance for the JV and, accordingly,  will  exercise joint control within the meaning of Regulation 4064/89. <ind> Full function 21.<ind> The JV will have a production plant, contributed by DSM, and   technology licensed by DSM and Exxon Chemical. Likewise, Exxon Chemical  and DSM will equip the JV with sufficient startup capital to operate on  the market. The JV will manufacture at its own production plant and buy  its own raw materials and have its own personnel dedicated to  manufacturing and marketing. 22.<ind> The JV has entered into a supply agreement  for ethylene with DSM  . Under this agreement, the latter has agreed to supply the JV with a  certain maximum quantity of ethylene for an initial threeyear period.  Furthermore, such a supply by DSM is subject to the JV's exercise of its  option to purchase from DSM and, consequently, the JV will be free to  purchase on the open market and  its fullfunctionality will thus not be  constrained by the said agreement.  23.<ind> The JV will have its own Managing Director, Commercial Director  and Financial Manager, separate from the management of its parents and  these will operate  out of office facilities separate from those of both  parents. The JV's  management will have sole responsibility for  determining and developing the JV's commercial  strategy. While the sales  functions for the JV's products will be performed by its parents on an  agency basis for the initial fiveyear start up period, the JV will retain  control over product marketing to customers, the allocation of products to  each of its sales agents and the prices at which products will be sold to  customers, thus determining its own marketing strategy. 24.<ind> In the light of the abovementioned factors, the JV is considered  to constitute a full function, autonomous  entity. <ind> Absence of coordination of competitive behaviour 25.<ind> The relevant product markets are described above (point 16) as  HDPE, metallocene plastomers, C8 LLDPE (possibly including C6 LLDPE), LDPE  and C4 LLDPE. 26.<ind> As the output of the JV will be less than 1% of 1995 European  HDPE sales and as only DSM is present in this market area, there is no  likelihood of coordination between the parents in HDPE. 27.<ind> In metallocene plastomers only the JV and EXXON (in the USA) will  be in the market so there is no possibility of coordination in this  product. 28.<ind> For C8 LLDPE (whether or not C6 LLDPE is included) only the joint  venture will be involved in production in Western Europe. EXXON may  produce C6 LLDPE at its Cipen joint venture.  However, as DSM is not  engaged in the production of either C8 or C6 LLDPE, there is no  possibility of coordination between the parents whichever product market  definition is used. 29.<ind> The JV will not produce LDPE or C4 LLDPE.  However, the market  for LDPE and C4 LLDPE is a neighbouring market to the markets upon which  the JV is active  It is therefore necessary to consider whether the JV  could be used as an instrument for the coordination of the parents'  activities in this market. 30.<ind> On the market for LDPE and C4 LLDPE it is not likely that there  will be a risk of coordination between the parents for the following  reasons: <ind> <ind> first, the independent activities of the parents in LDPE and  C4 LLDPE are much more important than their activities in metallocene  plastomers and C8 LLDPE combined in the JV;  therefore; it is not likely  that the JV will, as such, influence their activities in the LDPE and C4  LLDPE market. <tab> <ind> secondly, the market structure in the LDPE and C4 LLDPE market  (eight large companies including EXXON and DSM accounting for some 65% of  West European sales in 1995) is not such as to make it likely that EXXON  and DSM would use the JV as a vehicle for coordinating their behaviour. 31.<ind> The JV will make use of solution technology which has costs at  least 30% more than the competing high pressure and gas phase technologies  used to produce PEs. Neither EXXON nor DSM will retain any solution  technology plants capable of producing C8 LLDPE.  32.<ind> The Commission concludes that there is no possibility of  coordination between the parents in the markets for metallocene  plastomers, HDPE, C8 and C6 LLDPE because at the most only one parent is  active in the manufacture and sale of these products. In the neighbouring  market for LDPE and C4 LLDPE, where both parents will remain active, a  market structure such as the one described above should normally make it   unlikely that this particular JV entails a risk of coordination between  the parent companies. IV<ind> COMMUNITY DIMENSION 33.<ind> The combined aggregate turnover of the parties exceeded 5,000  million Ecu in 1994.  (EXXON 94.036 billion Ecu and DSM 4.681 billion  Ecu).  The European Union turnovers at 7.645 billion Ecu and 3.337 billion  Ecu respectively, exceeded 250 million Ecu.  The parties do not generate  more than two thirds of their aggregate community wide turnover in one and  the same Member State.  The operation therefore has a Community  dimension. V<tab> COMPETITIVE ASSESSMENT 34.<ind> The market of metallocene plastomers is very new and only limited  quantities are sold in the European market. At the moment, in the EU three  suppliers are present on the market, DOW Chemical, Exxon Chemical and  BASF. Currently, there is no production of metallocene plastomers within  the EU and Dow is by far the most important importer.  Consequently, the  present position of the other suppliers is insignificant.  35.<ind> Furthermore, DOW Chemical has recently announced the conversion  of its plant in Tarragona, Spain, for the production of metallocene  plastomers. It can be expected that by means of this DOW will be better  able to defend its present strong presence in the EU. In these  circumstances the present operation will create a new producer in the EU.  It can thus be concluded that the operation will have a procompetitive  effect with respect to the supply of metallocene plastomers in the EU and  elsewhere. 36.<ind> With respect to C8 LLDPE, the main suppliers on the EU market,  according to the parties, are DOW, DSM and Polimeri, with respective  shares of approx. 50%, (deleted business secret  between 15% and 20%) and  5% of the total sales of this product, while Exxon has no activities in  the EU with respect to this product. The joint venture will inherit the  DSM market share of (deleted business secret  between 15% and 20%) but  this may fall as the JV's production of metallocene plastomers increases. 37.<ind> In C6 LLDPE neither DSM nor Exxon have a presence, therefore  their share of the possible combined product market for C6 and C8 LLDPE is  lower than their share if C8 LLDPE alone is considered the relevant  product market. Whether or not the relevant market is considered to be C8  LLDPE or C8 LLDPE and C6 LLDPE, there is no addition of market shares as a  result of the operation. 38.<ind> As the JV does not operate in the market for LDPE and C4 LLDPE,  it is not necessary to examine the situation in this market as there will  be no addition of market shares.  39.<ind> For HDPE the overall situation will be unchanged by the  operation.  Only DMS is currently present on this market.  DSM will cede  part of its business, respresenting less than (deleted business secret   between 1% and 5%) of Western European demand, to the JV.  Overall DSM's  share in 1995, including the sales from the plant ceded to the JV,  accounted for about (deleted business secret  between 5% and 10%) of total  Western Europe sales. 40.<ind> Consequently it is not considered that the concentration creates  or strengthens a dominant position in the common market. VI<ind> AGREEMENTS AND ANCILLARY RESTRAINTS 41.<ind> DSM has undertaken to supply ethylene to the JV for an initial  period of three years. The JV is not required to purchase its ethylene  requirements from DSM and is free to purchase supplies from wherever it  wishes. The agreement, which places a minor restriction on DSM, ensures  the JV of a sufficient and reliable source of its essential raw material  during the startup period. It is therefore directly related and necessary  to the operation and may be regarded as ancillary to it. 42.<ind> EXXON will license its proprietary metallocene catalyst  technology and supply the JV with catalyst and cocatalyst.  To theextent  that these agreements are a restraint on competition, they can be  considered as ancillary, because without them the joint venture would be  unable to produce metallocene plastomers. 43.<ind> DSM will license its solution technology to the JV. To the extent  that this agreement is a restraint of competition it may be considered as  ancillary because without it the JV would not be able not be able to  operate its plant. 44.<ind> EXXON is restricted, for five years, from licensing its  metallocene catalyst technology to any licensee of DSM's solution  technology for the purpose of producing metallocene plastomers. Similarly  DSM is restricted for five years from licensing its solution technology to  any licensee of EXXON's metallocene catalyst technology for the purpose of  producing metallocene plastomers. In effect these restrictions only  constrain the parents from licensing third parties to produce metallocene  plastomers using the combination of technologies, metallocene catalysts  and solution technology, which will be used by the JV. They do not prevent  the parents from licensing their technologies for any other purpose.The  restrictions which are incorporated in the JV agreements are essential to  ensure the JV the full value of these technologies in so far as they are  used for the principal purpose of the JV, that is, to produce metallocene  plastomers. They do not last longer than the startup period for the JV.  They are, therefore, no more restrictive than is necessary. They are,  therefore, directly related and necessary to the operation and may be  regarded as ancillary to it. VII<tab> CONCLUSION 45.<ind> It follows from the above that the proposed concentration would  not create or strengthen a dominant position as a result of which  competition would be significantly impeded in the common market or in a  substantial part of it. 46.<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. For the Commission,