EUROPEAN COMMISSION DG Competition

Only the English text is available and authentic.

REGULATION (EC) No 139/2004 MERGER PROCEDURE

Article 6(1)(b) in conjunction with Art 6(2) Date: 03/12/2019

In electronic form on the EUR-Lex website under document number 32019M9449

EUROPEAN COMMISSION

Brussels, 3.12.2019 C(2019) 8791 final

PUBLIC VERSION

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description.

To the notifying party

Dear Sir or Madam,

1.(1) On 14 October 2019, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which Varta Aktiengesellschaft (‘VAG’, Germany) will acquire, within the meaning of Article 3(1)(b) of the Merger Regulation, a part of Energizer Holdings, Inc. (‘Energizer’, USA) (the ‘Transaction’).

1OJ 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 (the ‘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.

2OJ L 1, 3.1.1994, p. 3 (the ‘EEA Agreement’).

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.

2.(2) The Transaction takes place as a result of a prior notification to the Commission of a proposed concentration between Energizer and Spectrum Brands Holdings, Inc.. By decision of 11 December 2018, adopted in application of Article 6(1)(b) in conjunction with Article 6(2) of the Merger Regulation, the Commission declared that concentration between Energizer and Spectrum compatible with the internal market and the EEA Agreement (the ‘Energizer/Spectrum Decision’), subject to full compliance with the commitments annexed to that decision (the ‘Energizer/Spectrum Commitments’). Pursuant to the Energizer/Spectrum Commitments, Energizer committed to divest certain assets (‘the Divestment Business’ or ‘the Target’).

(3) VAG is referred to in the decision as the 'Notifying Party', and VAG and the Divestment Business together are referred to together as the 'Parties'.

1. THE PARTIES

(4) VAG, via its subsidiary Varta Microbattery GmbH (‘Varta Microbattery’, Germany), manufactures and supplies microbatteries, and via its subsidiary Varta Storage GmbH (‘Varta Storage’, Germany), manufactures and supplies energy storage devices for private households, customer-specific, large-scale storage applications as well as energy solutions for customer-specific and standardised lithium-ion batteries. VAG is active on an EEA-wide and global basis.

(5) The Divestment Business comprises of Spectrum’s former Varta consumer battery, chargers and portable power and lighting business in the EMEA region, as detailed in the Energizer/Spectrum Commitments. The structure and entities constituting the Divestment Business are shown in Figure 1.

Figure 1 - Divestment Business (circulated in blue)

[…]

(6) The Divestment Business does not include the Rayovac hearing aid batteries ('HABs') business that Energizer acquired from Spectrum in the Spectrum Transaction. The Divestment Business will have the benefit of a […] exclusive supply arrangement for Rayovac-branded HABs specifically for the mass retail channel (HABs Supply Agreement), pursuant to the HABs re-branding remedy that was approved by the Commission in the Spectrum Decision.

2. THE OPERATION AND THE CONCENTRATION

(7) Pursuant to a binding Acquisition Agreement entered into between VAG and Energizer on 29 May 2019, VAG will acquire the Divestment Business by way of

purchase of shares. VAG will thus acquire sole control over the Divestment Business that prior to the Transaction constitutes a part of Energizer.

(8) The operation thus constitutes a concentration pursuant to Article 3(1)(b) of the Merger Regulation.

3. UNION DIMENSION

(9) The Transaction does not have a Union dimension within the meaning of Article 1 of the Merger Regulation.

(10) On 9 August 2019, the Notifying Party informed the Commission, by means of a reasoned submission under Article 4(5) of the Merger Regulation, that the concentration is capable of being reviewed under the national competition laws of at least three Member States (namely Austria, Germany, Poland, Romania and Spain) and requested that it should be examined by the Commission.

(11) The Commission transmitted this reasoned submission to all Member States on 9 August 2019. The Member States competent to examine the concentration under their national competition law did not express their disagreement to the request for referral within 15 working days.

(12) The Transaction is therefore deemed to have a Union dimension pursuant to Article 4(5) of the Merger Regulation.

4. COMPETITIVE ASSESSMENT

4.1. Introduction

(13) Batteries are devices that store electrical energy by means of a chemical interaction between a negative electrode (anode) and a positive electrode (cathode) through a conductive material (electrolyte). The resulting electricity can be used to power a wide range of devices or installations.

(14) The overall battery industry encompasses different categories: (i) industrial batteries, (ii) automotive batteries, (iii) batteries that are directly integrated into consumer devices and (iv) batteries used in relatively small devices (e.g. power tools and toys).

Consumer batteries can be distinguished based on their size and overall purpose:

Household batteries: common battery sizes such as AA and AAA typically used to power various types of household electric devices. These household batteries can be (i) disposable (primary), if manufactured for example according to an alkaline or lithium chemistry, or (ii) rechargeable (secondary) if manufactured according to a chemistry that allows recharging (e.g. nickel-metal hydride (NiMH));

Specialty batteries: batteries that have a coin or a button shape, are most commonly manufactured with chemistries such as lithium and are typically used for electronic watches and photo equipment; and

Hearing air batteries (‘HABs’): batteries used to power hearing aid devices which are very small button-cell shaped specialty batteries that are most commonly manufactured with a zinc-air chemistry.

(15) The Parties are active in a number of markets; however, since their activities are to a large extent complementary, the resulting overlaps are limited. From a horizontal perspective, the Parties overlap in the wholesale supply of speciality batteries, and more specifically in the wholesale supply of primary alkaline coin batteries to the original equipment manufacturer (‘OEM’) channel. With respect to vertical links, VAG is active in the upstream market for manufacturing and wholesale supply of white label HABs to battery brands, while the Divestment Business is active in the downstream market of wholesale supply of branded HABs to the mass retail channel.

4.2. Market for the wholesale supply of branded primary alkaline coin batteries to OEMs

4.2.1. Market definition

4.2.1.1. Relevant product market

(16) In the recent Energizer/Spectrum case, the Commission concluded that consumer batteries sold to the OEM channel are part of a product market, separate from that of consumer batteries sold to the retail channel. The Commission also considered that consumer batteries sold to the OEM channel should be distinguished according to their rechargeability (primary batteries that are not rechargeable and secondary batteries that are rechargeable), to their shape (cylinder or coin), and to their chemistry (alkaline, lithium, silver oxide, zinc carbon, etc). With respect to the distinction between branded and private label consumer batteries, the Commission concluded that branded consumer batteries are in a separate product market, distinct from private label consumer batteries.

(17) The market investigation has not yielded any information that would speak against applying the same segmentation in this case as the one used in Energizer/Spectrum.

(18) The Commission therefore considers that the conclusions referred to in paragraph (16) above apply in this case as well and that the wholesale supply of branded primary alkaline coin batteries to OEMs constitutes a distinct relevant product market.

4.2.1.2. Relevant geographic market

(19) In the recent Energizer/Spectrum case, the Commission concluded that the wholesale supply of consumer batteries (including its various segmentations) to the OEM channel is EEA-wide in geographic scope.

(20) The market investigation has not yielded any information that would speak against applying the same market definition in this case as the one used in Energizer/Spectrum.

(21) The Commission therefore considers that the conclusions referred to in paragraph (19) above apply in this case as well and that the geographic scope of the relevant market is EEA-wide.

4.2.2. Competitive assessment

(22) The present section demonstrates that post-Transaction the Merged Entity will have limited market share in the market for the wholesale supply of branded primary alkaline coin batteries to OEMs and that a number of credible suppliers would continue to compete with the Merged Entity.

(23) First, the combined market share of VAG and the Divestment Business is small to moderate and market share increments are limited. As shown in Table 1, the Parties and in particular the Divestment Business have low or moderate market shares in the market for wholesale supply of primary alkaline coin batteries to OEMs. In 2018, the Parties’ combined market share in the EEA has been [10-20]% in volume and [30-40]% in value. Therefore, if only market shares in volume had to be considered, the market for wholesale supply of primary alkaline coin batteries to OEMs would not be an affected market under the terms of Commission Regulation No 802/2004. With regard to market shares in value, the Transaction would only lead to a small market share increment (the Divestment Business only holds [0-5]% of the market) despite the fact that the Parties’ combined market share in 2018 has been [30-40]% .

12M.8988 – Energizer/Spectrum Brands, paragraph 74.

13For the purpose of the present Decision, the expression ‘consumer batteries’ is used interchangeably with the expression ‘household and speciality batteries’.

14M.8988 – Energizer/Spectrum Brands, paragraph 127.

15OJ L 133, 30.4.2004, p. 1 (the ‘Implementing Regulation’).

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has a supply agreement with Energizer, which committed in the Energizer/Spectrum Commitments to supply HABs to the Divestment Business, for sale under the Rayovac brand, [… ] for […] (extendable for up to […] at the request of the purchaser).

(30) The Transaction gives rise to no horizontal overlaps. However, it gives rise to a vertical relationship and a vertically affected market between (i) VAG’s upstream activities in manufacturing and supplying white label HABs to battery brands, and (ii) the Divestment Business’ downstream activities in the wholesale supply of branded HABs to the mass retail channel.

4.3.2. Market definitions

4.3.2.1. Relevant product markets

(a) Upstream market: Market for the manufacturing and wholesale supply of white label HABs to battery brands

(31) In the recent Energizer/Spectrum case, the Commission concluded that HABs belong to a product market that is separate from other types of batteries. The Commission concluded that branded and private label consumer batteries are not part of the same product market. Finally, the Commission further concluded that the wholesale supply of branded HABs to the mass retail channel constitutes a distinct product market (as opposed to e.g. wholesale to the audiologist channel).

(32) The Notifying Party agrees that HABs constitute a distinct category of batteries. Further, the Notifying Party submits that the manufacturing and wholesale supply of white label HABs to battery brand businesses constitutes a distinct relevant product market, separate from the downstream markets for the wholesale supply of branded batteries to the mass retail or audiologist channel.

(33) The market investigation has not yielded any information that would speak against defining, in line with what has been done in the Energizer/Spectrum decision, distinct markets for HABs compared to other batteries or as to the distinction between branded and private label batteries.

(34) The results of the market investigation and the information available to the Commission further support the claim of the Notifying Party that the manufacture and wholesale supply of white label HABs to battery brands constitutes a distinct relevant product market.

(35) First, the requirements of battery brand businesses are different from the downstream customers they serve. In practice, the demand for white label HABs by battery brand businesses is essentially based not on brands but on the technical qualities of the batteries supplied and the commercial terms (such as price) on which they are supplied. This is in contrast to the demand of (branded) HABs in the mass retail (or audiologist) channel where branding plays a role.

(36) Second, the structure of demand is different. The number of customers is different and different entities are customers in the supply of white label HABs to battery brands compared to the customers for such branded batteries in the downstream markets that the battery brand businesses serve. There are but a limited number of brand businesses, namely Duracell and a few others, which make up the demand for HABs in the supply of white label HABs to battery brands in the EEA (or globally). In contrast, in the supply of branded HABs to for example the mass retail channel (or audiologist channel) there is a multitude of different customers in the EEA (or even nationally).

(37) Third, from a supply side-perspective, the manufacture and wholesale supply of white label HABs to battery brands requires production facilities for HABs. That is in contrast to the brand businesses that do not need manufacturing equipment but acquire the batteries from the manufacturers (either captively or from third parties). At the same time, a manufacturer of HABs would find it difficult to supply the batteries directly in the wholesale of branded HABs to the mass retail (or audiologist) channel if it did not have a brand to do that.

Therefore, the Commission concludes that the market for the manufacturing and wholesale supply of white label HABs to battery brands constitutes a distinct relevant product market.

(b) Downstream market: Market for the wholesale supply and distribution of branded HABs to the mass retailer channel

(39) In the recent Energizer/Spectrum case, the Commission concluded that HABs constitute a separate relevant product market, distinct from other consumer batteries. The Commission also concluded that the supply of HABs to the mass retail channel (that is traditional retailers such as grocery stores, do-it-yourself stores and other consumer retail stores where a range of consumer products are made available) constitutes a separate relevant product market, distinct from supply to the specialist hearing aid retail channel (e.g. audiologists). Moreover, the Commission concluded that branded and private label consumer batteries are not part of the same product market.

(40) The Notifying Party agrees with the finding of a distinct market for the wholesale supply of branded HABs to the mass retail channel.

(41) The market investigation has not yielded any information that would speak against defining, in line with what has been done in Energizer/Spectrum, a distinct market for the wholesale supply of branded HABs to the mass retail channel.

(42) The Commission therefore considers that the conclusions reached in Energizer/Spectrum and referred to in paragraph (39) apply for the purposes of this case as well and that the wholesale supply of branded HABs to the mass retail channel constitutes a distinct relevant product market.

4.3.2.2. Relevant geographic markets

(a) Upstream Market: Market for the manufacturing and wholesale supply of white label HABs to battery brands

(43) The Notifying Party submits that the market for manufacturing and wholesale supply of white label HABs to battery brands is global in geographic scope. In support of its submission, the Notifying Party explains that there are significant trade flows and that a large part of the HABs it manufactures in its plant in Germany is exported outside the EEA to customers that are typically active globally and have headquarters outside the EEA.

(44) The results of the market investigation nonetheless suggest that geographic markets are not necessarily global but that the market could be EEA-wide in scope. In particular, EEA-customers’ quality expectations are to a certain extent higher than in other regions, which is reflected by the fact that certain Asian suppliers are currently not able to produce the quality required by customers in the EEA.

(45) In any event, it is not necessary for the purposes of this decision to conclude on the exact scope of the relevant geographic market for the manufacture and wholesale supply of HABs to battery brands as the outcome of the competitive assessment remains the same regardless of whether a global or EEA-wide market was considered.

(b) Downstream: Market for the wholesale supply and distribution of branded HABs to the mass retailer channel

(46) In the recent Energizer/ Spectrum case, the Commission concluded that the market for the wholesale supply of branded HABs to the mass retail channel is national in scope.

(47) The market investigation has not yielded any information that would speak against defining, in line with what has been done in Energizer/Spectrum, the market as national in scope.

29 Form CO, paragraphs 75–78.

30 See for example replies to question 7 of Questionnaire to Battery Companies.

31 M.8988 – Energizer/Spectrum Brands, paragraphs 125.

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(63) Fourth, HABs manufacturers established outside the EEA do not represent a viable source of supply or competitive constraint on VAG in the supply of white label HABs to battery brands.

(64) Such suppliers make currently no sales in the EEA and, even if considering the global level, their market shares are limited. Moreover, the results of the market investigation suggest that these suppliers – mainly Chinese – are not able to deliver sufficient quality to be considered as viable alternative. A market participant explains: ‘[t]he HAB batteries manufactured by Rayovac and VAG are by far of superior performance and quality and reliability in comparison with other products. Asian manufacturers able to supply HAB today, cannot match the battery performance and experience important quality issues in terms of leakage and battery cells corrosion.’ Another market participant concurs: ‘We think HAB produced by VAG and Rayovac have better quality than those produced by Chinese manufacturers.’ In any event, even if the sales outside the EEA are considered and therefore sales of non-EEA manufacturer in non-EEA countries are considered, VAG’s market share in 2018 would be as high as [80-90]% in terms of number of units sold, [80-90]% in terms of revenues.

36 Form CO, paragraph 223

37 Questionnaire to customers, question 9.

38 Questionnaire to customers, question 10.

39 Minutes of a call with a customer

40 Questionnaire to customers, question 11.

41 Questionnaire to customers, question 11.

42 Form CO, paragraph 87.

(65) With respect to the possibility of Asian suppliers developing their quality, a market participant explained that Asian HABs manufacturers, which already enjoy reasonable economies of scale but lack an acceptable level of quality required in the EEA could develop the capabilities to produce higher quality batteries but that it would only be in the long term: ‘In principle, Asian manufacturers that currently produce HAB of lower quality might improve the quality of their HAB, but this of course is not a short-term possibility’.

(66) Fifth, non-vertically integrated HABs battery brands cannot establish their own production capabilities at competitive terms or within short period of time.

(67) The Notifying Party claims that all its HABs customers used to manufacture HABs batteries and could rebuild their own production lines within 1.5 to 2 years. The Notifying Party nonetheless acknowledges that the reason for these battery brands to have discontinued their HABs production is the lack of economy of scale, which makes the business not economically viable.

(68) Nonetheless, the results of the market investigation indicate that a hypothetical new HABs production line in the EEA would not be economically viable because it would not be able to meet the economies of scales required to be competitive on the market. A market participant explains that developing the upstream capabilities to be able to produce HABs internally is not currently considered as an alternative: ‘[t]he Company considers that the investment for becoming a vertically integrated HAB supplier (i.e. to start manufacturing its own HAB battery) is simply not an economically feasible option at the current stage.’

(69) Furthermore, the Commission notes that even if a downstream competitor to VAG could set up its own production, it would not be adequately immediate to counter the anticompetitive effects of the Transaction. The Commission refers in this respect to the Notifying Party's own submission of it taking 1.5 to 2 years to set up such production capability.

(70) Therefore, the Commission considers that VAG likely has the capability to engage into input foreclosure. Battery brand businesses that supply customers in the EEA are likely not able to turn to alternative suppliers to counter such behaviour by VAG. VAG is currently the only supplier in the EEA. While there globally are a number of other suppliers, their market shares – even combined – are limited and they are likely not able to offer such quality HABs that VAG is and that are required by ultimate customers in the EEA.

4.3.4.2. Incentive to foreclose

(71) According to the Non-horizontal Mergers Guidelines, the incentive of a firm to foreclose its customers depends on the degree to which the foreclosure would be profitable. ‘Essentially, the merged entity faces a trade-off between the profit lost in the upstream market due to a reduction of input sales to (actual or potential) rivals and the profit gain, in the short or longer term, from expanding sales downstream or, as the case may be, being able to raise prices to consumers. The trade-off is likely to depend on the level of profits the merged entity obtains upstream and downstream. Other things constant, the lower the margins upstream, the lower the loss from restricting input sales. Similarly, the higher the downstream margins, the higher the profit gain from increasing market share downstream at the expense of foreclosed rivals’.

(72) The present section demonstrates that the Merged Entity would have an incentive to foreclose battery brands active in the downstream market for wholesale supply and distribution of branded HABs to the mass retailer channel because the profit lost due to a reduction of input sales to these customers would be smaller than the profit gained in the downstream market.

(a) The Notifying Party’s argument

(73) The Notifying Party submits that it would not be able to capture an adequate amount of sales at the downstream market to make input foreclosure beneficial to it. According to the Notifying Party, its assumption is that ultimate customers who lose their current HABs brand will purchase from the remaining suppliers (brands) according to their current share in the market. This will lead to a […]% recapture ratio for VAG-Rayovac on the downstream market. The critical recapture ratio defined by the parties as ‘the smallest fraction of sales that would need to be recaptured from white label HAB sales to the foreclosed battery brands to Rayovac branded HAB sales in the mass retail channel for the input foreclosure strategy to be profitable for the combined entity,’ would be […]%.

(74) However the Notifying Party claims that the ‘[t]he structure of white label supply does not allow targeting foreclosure to a specific geography or channel’ and, as a result, ‘[t]he cost of foreclosure is not limited to upstream sales in the EEA as battery brands purchase from VAG through supply agreements negotiated at a global level.’ The Notifying Party then concludes that ‘given that about […]% of VAG’s white label HAB sales volume to battery brands is in the EEA. Taking this into account, the estimate of the actual recapture rate is about […].’

(b) The Commission’s assessment

(75) For the following reasons, the Commission considers that VAG would, post-Transaction, likely have the incentive to engage in input foreclosure.

(76) First, as a result of the transaction, VAG will become one of the leading downstream players by holding a [30-40]% market share in value in the distribution of HABs in the mass retail channel in the EEA as a whole, as evidenced in Table 4, with the market share being significantly higher in some Member States. VAG will compete in the downstream market prices, it is not likely that its incentives would change as a result of the Transaction. There is thus no likelihood of another supplier counteracting an input foreclosure strategy.

(84) It further follows that, were VAG instead of a blocking supplies to increase its prices at the upstream level, customers would likely have no alternative but to either increase their prices at the downstream level – allowing VAG to increase its prices too – or to absorb the additional cost by reducing their own margin.

(85) Fourth, the actual recapture ratio is likely increased by some customers in the wholesale supply of branded HABs in the retail channel requiring suppliers to provide a complete portfolio of products. Therefore, having an HAB brand allows a supplier to bid for more tenders – including those that require a full portfolio of batteries including HABs. A market participant explains: 'Moreover, since VAG would acquire the VARTA/Spectrum portfolio of batteries that are sold in the mass retail channel and it would be competing with the Company for these sales. Indeed, it is important to understand that whereas direct negotiations with several branded battery suppliers are still a common phenomenon in the grocery retail channel, tenders of various kinds are becoming increasingly important in all other channels. Such tenders are sometimes for the whole battery category or the whole store and thus, if a competitor is not able to supply hearing aids batteries, such could not appropriately compete for the tender.’

(86) Fifth, contrary to what the Notifying Party argues, the market investigation indicated that the Merged Entity would be able to identify HABs that its customers eventually sell in the EEA and to price discriminate between HABs sold in different regions of the world. Therefore, in case of input foreclosure of EEA customers, the Merged Entity loss of profits would be limited to those HABs ultimately sold to the EEA markets. This is for the following reasons.

(87) In the first place, HABs manufactured for the EEA market have some distinguishable features in terms of technical specifications and packaging. A market participant explains: ‘Battery labels and packaging should need to be adapted to the European requirements in terms of safety warnings, language translations, disposal advice.’

(88) In the second place, it has been suggested in the market investigation that VAG would have the ability to monitor where its customers ultimately sell their products. A market participant explains: ’There is no monitoring per se of the sales we make in the non-audiologist channel today as we acquire the products manufactured as private label goods for us and then could freely resell them in Europe and Africa. However, VAG has certainly good market knowledge and probably tracks general market share and presence through external sources like Nielsen, etc.’

52 Minutes of a call with a market participant.

53 Minutes of a call with a market participant.

54 Questionnaire to battery companies, question 8.

(89) Therefore, the Commission considers that the Merged Entity would likely have the incentive to engage in input foreclosure relating to the manufacture and supply of white label HABs to battery brands as such a behaviour would likely be profitable to it.

4.3.4.3. Overall impact

(90) A merger can raise competition concerns if input foreclosure would lead to a price increase in the upstream market. The higher the proportion of the proportion of the rivals which would be foreclosed on the downstream market, the more likely the merger can be expected to result in a significant price increase in the downstream market and, therefore, to significantly impede effective competition therein.

(91) For the following reasons, the Commission considers that input foreclosure by VAG post-Transaction would have an overall impact in the market.

(92) First, the Merged Entity’s input foreclosure would impact a large part of its competitors and a significant share of overall supply in the downstream market for the wholesale supply of branded HABs to the mass retailer channel. As already explained in Section xxx, all but one major downstream competitor in the EEA – Energizer – relies on HABs manufactured by VAG. As set out in Table 4, even if the analysis of the market were carried out on the wider EEA level, the cumulated market shares of the Parties’ downstream competitors excluding Energizer is [40-50]% in volume and [30-40]% in value.

(93) Second, in case of input foreclosure, only Energizer would be able to produce, as a vertically integrated player, adequate alternative HABs. All the main companies active downstream, excluding Energizer, are fully dependant on the supply of HABs by VAG. Therefore, in case of input foreclosure, the Merged Entity would have to compete only with Energizer in the downstream market for the wholesale supply and distribution of branded HABs to the mass retailer channel. Moreover, by itself the foreclosure will be profitable for VAG as explained in paragraphs (76) to (88).

(94) Third, the result of an input foreclosure behaviour by the Merged Entity would lead to a literal duopoly at the downstream market, conducive to higher prices than a market with more market participants. In a question to Herbert Schein, Chairman of the Executive Board of VARTA AG during an investor call an analyst states: ‘exclusive supply and licence agreement for Rayovac-branded hearing aid batteries produced in the UK and the US. Those are batteries from your direct competitor and you have a majority market share in what is almost a duopoly in Europe’.

Non-horizontal Mergers Guidelines, paragraph 47.

Non-horizontal Mergers Guidelines, paragraph 48.

Although the geographic market definition is national-wide, an EEA-wide assessment complements the national analysis and provides a better overview of the cumulated impact of the input foreclosure on each of the EEA markets.

Reply to RFI 17, ‘VARTA AG Update Call 29 May 2019, 10:00 am CEST’.

4.3.5. Conclusion on input foreclosure

95.For the reasons set out in Section 4.3.4 and considering all evidence available to it, the Commission concludes that, post-Transaction, VAG would likely have the ability and incentive to engage in input foreclosure, and that such foreclosure would have an overall impact in the downstream market for the wholesale supply of branded HABs to the mass retail channel.

96.The Transaction, as notified, thus raises serious doubts as to its compatibility with the internal market due to an input foreclosure related to the vertical link between (i) the upstream market for the manufacture and supply of white label HABs to battery brand businesses and (ii) the downstream market for the supply of branded HABs to the mass retail channel.

5. VAG’S MARKET POWER IN OTHER MARKETS

97.During the market investigation, one market participant expressed a concern that the Transaction would increase VAG’s market power overall in batteries. According to this market participant, such an overall market power would allow VAG to foreclose its customers in markets that are not affected by the Transaction. More specifically, this market participant is concerned that VAG might stop supplying or supplying at less favourable conditions rechargeable batteries for hearing aid devices.

98.Nonetheless, the information made available to the Commission does not allow the conclusions that the Transaction would give rise to such competition concern. Moreover, as this market participants explained, the Divestment Business is not active in the supply of rechargeable batteries for hearing aids. Therefore, post-Transaction, the incentives and ability of VAG to foreclose its customers in these markets would likely not change materially. Accordingly, the Commission does not consider that the Transaction would raise serious doubts with respect to rechargeable hearing aid batteries.

6. PROPOSED REMEDIES

6.1. Introduction

99.On 12 November 2019 the Notifying Party submitted commitments (‘Initial Commitments’), pursuant to Article 6(2) of the Merger Regulation, in order to remove the serious doubts identified by the Commission and to render the Transaction compatible with the internal market and the functioning of the EEA Agreement.

100.On 13 November 2019, the Commission launched a market test on the Initial Commitments.

Minutes of a call with a customer on 27 November 2019.

101.On 21 November 2019, the Commission reported to the Notifying Party on the results of the market test.

102.On 25 November 2019, the Notifying Party submitted revised commitments, which they resubmitted in a clarified version on 2 December 2019 (‘Final Commitments’).

6.2. Initial Commitments

6.2.1. Description of the Initial Commitments

103.The Initial Commitments consisted of the Notifying Party committing to supply HABs globally to any undertaking currently or potentially active in the wholesale supply of HABs under its own brand, such brand being used for batteries of any kind or for hearing aid devices, provided that the customer would purchase a certain minimum volume of HABs from the Notifying Party.

104.The term of the supply obligation under the Initial Commitments was set to ten (10) years from the Commission’s decision. However, any supply agreements with customers would have been made for an initial five-year term (in maximum up to the ten years from the Commission’s decision) whereafter a monitoring trustee would have annually reviewed the need to extend the agreement with the particular supplier, given the prevailing market situation at that time.

105.The Initial Commitments further set other key terms of the supply, among others price, volumes and quality. As to price, the Initial Commitments provided a ceiling price based on the prices previously charged from a given customer or, in case of a new customer, based on the prices charged for existing customers, such ceiling prices being subject to annual indexation on the basis of inflation and other rules set out in the Initial Commitments. As to volumes, a threshold was set in the Initial Commitments at 120% of the volumes supplied to a given customer in the preceding year, with the possibility for a monitoring trustee to review requests for any excess quantities. As to quality, the Initial Commitments provided certain standards that the HABs to be supplied by the Notifying Party would need to fulfil and certain further guarantees of a maintained quality.

106.Further, the Initial Commitments provided for an obligation for the Notifying Party to supply any possible new products that it might start to produce during the term of the Initial Commitments.

6.2.2. Notifying Party’s position

107.According to the Notifying Party, the Initial Commitments are clear-cut and they would eliminate any serious doubts of competition concerns related to the Transaction.

Form RM.

6.2.3. Results of the market test

108.On balance, the results of the market test were positive and they suggest that the Initial Commitments are in principle capable of the removing the serious doubts identified by the Commission.

109.In particular, the majority of market participants taking a position submit that the Initial Commitments would ensure their continued access to HABs in adequate volumes and reasonable terms. The results of the market test further show that most market participants responding do not expect significant increases in the overall market demand and, even the market participant that is expecting demand increases, expect them to be at most in line with the 120% threshold or lower.

110.Further, the results of the market test suggest that the term of the Initial Commitments are adequate to ensure that customers currently active in the wholesale of branded HABs to the mass retail channel can develop alternative supply sources for HABs of adequate quality before the end of the duration of the Initial Commitments.

111.Finally, multiple market participants indicated that they would be interested in entering into a supply agreement with the Notifying Party under the terms set out in the Initial Commitments either as they are, or subject to certain limited amendments.

112.Nonetheless, market participants referred to a limited number of technical clarifications and improvements to the Initial Commitments that they suggested were necessary to ensure the effectiveness of the remedies. The clarifications and improvements mentioned relate to for example indexation of the price, packaging options made available and an explicit confirmation that – in order to achieve adequate volumes – customers can sell the HABs sourced from the Notifying Party to any downstream customer including those not active in the mass retail channel.

6.2.4. Commission’s assessment

113.The Commission considers that the Initial Commitments are in principle capable of removing the serious doubts raised by the Transaction. This is because:

114.First, the Final Commitments cover supplies to all existing customers as well as to any potential new entrants that are active in nearby markets such as batteries or hearing aid devices. The Commission considers that the inclusion in the Initial Commitments of all current suppliers as well as any potential supplier already active in nearby markets increases the likelihood that competitive conditions in the downstream market are not made worse because of the Transaction.

See for example replies to questions 1, 4, 10 and 11 of the Market Test.

Replies to question 8 of the Market Test.

Replies to question 3 of the Market Test.

Replies to question 2 of the Market Test.

115.Second, the results of the market investigation are overall positive. As explained in Section 6.2.3 , market participants see that the Initial Commitments would ensure that the Initial Commitments would ensure a continued access to HABs in adequate volumes and at reasonable terms, including price and quality.

116.Third, the term of the Initial Commitments and the duration of the supply obligation on the Notifying Party appears adequate to allow customers to develop alternative supply sources, for example by working with the suppliers whose quality at present is not adequate. This is also in line with the replies to the market test explained in Section 6.2.3. The Commission further considers that it is in order to incentivise customers to seek alternative supply sources without delay and not to unduly rely on the commitments for longer than necessary. This purpose appears to be adequately served by the fact that the supply agreements are initially concluded for five years instead of the whole duration of the Initial Commitments (10 years), and that extensions are subject to a review.

117.Fourth, it appears that the volume thresholds set in the Initial Commitments are adequate to ensure that the Notifying Party is obliged to supply HABs not only in line with the overall market growth but to allow for market share growth by its downstream competitors in the supply of branded HABs to the mass retail channel. In particular, the Initial Commitments provide that the Notifying Party shall supply a given customer with at least 120% of the customer’s demand in the previous year. This allows for a 20-% guaranteed supply increase every year compared to the previous, at the request of the customer. As explained in Section 6.2.3, market participants generally consider the volume threshold to be adequate, and market participants largely expect the overall market demand to grow less than the guaranteed 20-% annual increase in supplies set in the Initial Commitments. The threshold would thus allow customers to not only grow in line with overall expected market expansion but to gain market share.

118.Fifth, the interest by market participants to enter into supply relationships with the Notifying Party under the conditions of the Initial Commitments, as explained in Section 6.2.3, supports the finding that the conditions of supply laid down in the Initial Commitments are suitable.

119.Sixth, while the market test revealed some shortcomings in the Initial Commitments, they are not of such magnitude that they would call into question the suitability and effectiveness of the Initial Commitments to, in principle, remove the competition concerns the Commission has identified. The shortcomings relate to, for example, indexation of the ceiling price, the types of packaging that the customers could acquire the HABs with and clarification on how the volume threshold is calculated.

120.Therefore, the Initial Commitments would in principle ensure that downstream competitors do not face disruptions, higher prices or reduced quality in the supply of hearing aid batteries they offer to customers while they develop alternative sourcing options. The commitments would also allow other companies to enter the market relying on similar supply conditions from the Notifying Party.

121.Nonetheless, the Commission considers that the shortcomings referred to by market participants in the market test, even if limited, relate to key conditions of supply such as price, packaging and volumes. They must thus be addressed in order for the commitments to be effective from all points of view.

6.2.5. Conclusion on the Initial Commitments

122.Based on the considerations explained in 6.2.4 and in light of the results of the market test and all information available to it, the Commission concludes that the Initial Commitments were in principle capable of removing the identified serious doubts, subject to implementation of the necessary improvements identified.

6.3. Final Commitments

6.3.1. Description of the Final Commitments

123.The Final Commitments, provide the following improvements over the Initial Commitments:

The annual indexation of the ceiling price was amended based on the feedback from the market test;

An amendment was added to clarify that the Notifying Party will supply customers with all types of packaging it uses in its own downstream businesses;

A clarification was added to explain customers are allowed to see the HABs supply by the Notifying Party in any downstream sales channel (including to mass retail but to others as well), and that the volume thresholds are calculated on the basis of such total supplies; and

Certain other technical amendments and clarifications were added.

6.3.2. Commission assessment and conclusion on the Final Commitments

124.The Commission notes that the Final Commitments address all the issues identified in the Initial Commitments and put forward the improvements found necessary by the Commission.

125.Overall, the Final Commitments ensure that downstream competitors do not face disruptions, higher prices or reduced quality in the supply of hearing aid batteries they offer to customers while they develop alternative sourcing options. The commitments also allow other companies to enter the market relying on similar supply conditions from the Notifying Party. The Final Commitments also ensure that customers can acquire the HABs with all types of packaging used by the Notifying Party itself, and that the customers are able to acquire adequate volumes of HABs from the Notifying Party and to sells them in any downstream channel.

126.Therefore, the Final Commitments entered into by the Notifying Party are suitable and sufficient to remove the competition concerns identified by the Commission and

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to thus eliminate the serious doubts as to the compatibility of the Transaction with the internal market.

7. CONDITIONS AND OBLIGATIONS

The commitments in section B of the Annex constitute conditions attached to this decision, as only through full compliance therewith can the conditions of competition be preserved. The other commitments set out in the Annex constitute obligations, as they concern the implementing steps which are necessary to achieve the modifications sought in a manner compatible with the internal market.

8. CONCLUSION

128.For the above reasons, the Commission has decided not to oppose the notified operation as modified by the Final Commitments and to declare it compatible with the internal market and with the functioning of the EEA Agreement, subject to full compliance with the conditions in section B of the commitments annexed to the present decision and with the obligations contained in the other sections of the said commitments. This decision is adopted in application of Article 6(1)(b) in conjunction with Article 6(2) of the Merger Regulation and Article 57 of the EEA Agreement.

129.This decision is without prejudice to the Commission's approval of VAG as a suitable purchaser of the Divestment Business in the case M.8988 – Energizer/Spectrum Brands and of the Commission's assessment of whether the terms of the divestiture are consistent with the Commission's decision and the commitments in that case.

For the Commission

(Signed) Margrethe VESTAGER Executive Vice-President

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Dated 2 December 2019

Non-confidential version

Varta Aktiengesellschaft

Commitments to the European Commission

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COMMITMENTS TO THE EUROPEAN COMMISSION

Pursuant to Article 6(2) of Council Regulation (EC) No 139/2004 (Merger Regulation), VARTA Aktiengesellschaft and any of its Affiliated Undertakings (VAG or Notifying Party) hereby enters into the following Commitments (Commitments) vis-à-vis the European Commission (Commission) with a view to rendering the acquisition by VAG of sole control of Varta Consumer Battery, Chargers and Portable Power and Lighting Business (Varta Business) (Concentration) compatible with the internal market and the functioning of the EEA Agreement.

This text shall be interpreted in light of the Commission’s decision pursuant to Article 6(1)(b) of the Merger Regulation to declare the Concentration compatible with the internal market and the functioning of the EEA Agreement (Decision), in the general framework of European Union law, in particular in light of the Merger Regulation, and by reference to the Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 (Remedies Notice).

Section A. Definitions

For the purpose of the Commitments, the following terms shall have the following meaning:

Affiliated Undertakings: undertakings controlled by the Notifying Party and/or by the ultimate parents of the Notifying Party, whereby the notion of control shall be interpreted pursuant to Article 3 of the Merger Regulation and in light of the Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (the "Consolidated Jurisdictional Notice").

Confidential Information: any business secrets, know-how, commercial information, or any other information of a proprietary nature that is not in the public domain.

Conflict of Interest: any conflict of interest that impairs the Monitoring Trustee's objectivity and independence in discharging its duties under the Commitments.

Customer: any undertaking currently or potentially active in the wholesale supply of HAB under its own brand (Customer Own-Branded HAB), such brand being used for batteries of any kind or for hearing aid devices. Undertakings failing to satisfy annual Product purchases of at least three million Customer Own-Branded HAB and failing to resell substantial part of them in the EEA do not qualify as Customers.

Customisation: the process through which Customers may obtain from the Notifying Party Product customisation, including with respect to packaging and specification on terms specified in the Supply Agreement. For the avoidance of doubt, with respect to packaging, Customers shall be free to demand either customised packaging options in accordance with established market standards or any packaging option sold by the Notifying Party.

Effective Date: the date of the adoption of the Decision.

Excess Quantities: the amount of Products exceeding 120% of the Notifying Party’s volumes of Products actually supplied further to the Supply Agreement with any given Customer during the prior fiscal year, or in case of Existing Customers, the amount exceeding 120% of Notifying Party’s volumes of Products actually supplied in the fiscal year preceding entering into the Supply Agreement, with such 120% threshold set on a rolling annual basis during the Term. To the extent the Notifying Party sells Products on its own account under a licence agreement entered into with the Customer and the Customer intends to sell those Products under its own brand because of termination or expiry of the license or other cause, those quantities shall not be considered Excess Quantities. Those volumes, even if sold by the Notifying Party under license, shall be accounted together with Products actually supplied when computing the 120% threshold for Excess Quantities.

HAB: primary batteries for use in hearing aid devices (as opposed to other consumer batteries).

Indexation – the Supply Agreement will allow for the Notifying Party and a Customer to negotiate in good faith for the Price to be adjusted at the end of each consecutive period of 12-months following the conclusion of the Supply Agreement in order to reflect significant increases or decreases in its cost base (for example, due to an increase in raw material prices, development or labour costs or to adequately reflect Customer-specific efficiencies and changes in Customisation). The Monitoring Trustee will, subject to consultation with the Commission, determine whether any such adjustment is reasonable. Further, to compensate for the innovation expenses and costs the Notifying Party had to incur to develop the New Products from which Customer will benefit, the Price shall be reasonably increased by Notifying Party; the Monitoring Trustee has to approve such increased Price for New Products, subject to consultation with the Commission and taking into account whether the benefit of the innovation objectively justifies the Price increase. In consultation with the Commission, the Monitoring Trustee shall also determine, whether such adjustment reasonably reflects a decrease of costs that may arise due to the introduction of a certain innovation.

Monitoring Trustee: one or more natural or legal person(s) who is/are approved by the Commission and appointed by the Notifying Party, and who has/have the duty to monitor the Notifying Party’s compliance with the conditions and obligations attached to the Decision.

New Products: HAB similar to the Products, in relation to which quality or functionality has been changed, provided that the change in quality or functionality is used by the Notifying Party in any of the HAB manufactured by it.

Price: the ceiling price at which the Products are offered to be sold to the Customer, which shall be the average per-unit price at which the Notifying Party (directly and indirectly) supplied the Customer the Products during the period immediately preceding the conclusion of the Supply Agreement with the Customer of either: (i) the last 12-months; or (ii) the last three years (Existing Customers), whichever is more favourable for the Customer. For Customers who have not been supplied by the Notifying Party for periods of at least three years immediately preceding the conclusion of the Supply Agreement (New Customers), the Notifying Party shall submit a proposed Price determined on bona fide and non-discriminatory commercial conditions to the Monitoring Trustee. The Monitoring Trustee shall, subject to consultation with the Commission, assess the issue taking into account the conditions offered to Existing Customers (including Customisation and volumes) and make a determination of the Price. The Notifying Party shall disclose to the Monitoring Trustee all necessary information for such determination. With respect to Excess Quantities, the Price shall be set further to good faith discussions between the Notifying Party and the Customer, taking into account any potential cost increase involved in supplying such Excess Quantities.

Products: HAB manufactured by VAG as defined, specified and/or supplied further to the Supply Agreement. New Products, should these be developed during the Term, will be included as Products.

Supply Agreements: the agreements to be entered into between the Notifying Party and the Customer, according to which the Notifying Party shall be obliged to supply the Products to the Customer during the Supply Agreement Term. The Notifying Party shall agree on a form of the Supply Agreement with the Monitoring Trustee, subject to consultation with the Commission. Any material deviations from the Supply Agreements shall be approved by the Monitoring Trustee, subject to consultation with the Commission.

Supply Agreement Expiry: termination or expiry of the Supply Agreement Term or the absence of the Supply Agreement Term, upon expiry, being further extended. As part of the Initial Review and of each Subsequent Review (if any), the Monitoring Trustee shall, subject to consultation with the Commission, compile a report containing a recommendation as to whether Supply Agreement Expiry should take place, taking into account the prevailing competitive dynamics at the time.

Supply Agreement Term: the term of any given Supply Agreement, commencing as from the Supply Agreement Commencement Date for an initial period of 5 years. The Supply Agreement Term shall be first reviewed by the Monitoring Trustee 5 years after the Supply Agreement Commencement Date (Initial Review). Provided that, following the Initial Review, Supply Agreement Expiry has not taken place, the Supply Agreement Term of the Supply Agreement in question shall be extended by one year. Further reviews by the Monitoring Trustee (Subsequent Reviews) are to be carried out starting 6 years after the Supply Agreement Commencement Date and at yearly intervals thereafter, the last Subsequent Review being possible 9 years after the Supply Agreement Commencement Date provided that, at each Subsequent Review, Supply Agreement Expiry may take place under the circumstances set out herein. For the avoidance of doubt, the duration of the Supply Agreement Term may in no circumstances extend beyond the Term or the duration of the Commitments, if shorter than the Term, and may be subject to

termination or expiry as specifically provided for in the Supply Agreement. The Monitoring

Trustee's reports shall be submitted in a timely manner, allowing the Commission a period of three

months for its consideration.

Supply Shortage: any situation in which the Notifying Party is unable to produce or supply

sufficient quantities of Product to fulfil its obligations under the Supply Agreements.

Term: the period of 10 years following the Effective Date.

Territory: global.

Section B. Description of Commitments

The Notifying Party undertakes that, during the Term, it will supply under the Supply Agreement

in the Territory the Products to the Customer on reasonable and non-discriminatory commercial

terms at the Price. Supply Agreements shall provide for the possibility of Indexation and

Customisation. For the avoidance of doubt, all Customers shall have the option of safeguarding

the terms they might have agreed with the Notifying Party prior to the Effective Date or of freely

negotiating with the Notifying Party terms which deviate from those set out herein. To the extent

the Notifying Party sells Products on its own account under a licence agreement entered into with

the Customer and the Customer intends to sell those Products under its own brand because of

termination or expiry of the licence or other cause, those quantities shall be covered by the Supply

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Agreement.

In the event that a Customer requests to purchase Excess Quantities and the fulfilment of such

request would impose unreasonable costs on the Notifying Party, the Notifying Party commits to

discuss with the Customer in good faith, in consultation with the Monitoring Trustee a means of

resolving such supply request. If the Notifying Party and the Customer do not reach an agreement,

the Monitoring Trustee will, subject to consultation with the Commission, determine whether the

supply request for Excess Quantities shall be fulfilled, in full or in part, with the Monitoring

Trustee taking into account the reasonableness of the request of the Customer, any capacity

constraint encountered by the Notifying Party and any additional necessary and non-

discriminatory expenditures that may be imposed on the Customer in the fulfilment of such

request.

The Notifying Party shall not do or fail to do anything that will knowingly and significantly

degrade the quality of the Product in comparison to: (i) the quality of HAB supplied through its

own wholesale distribution and; (ii) the quality requirements according to leading industry

standards, in particular the internationally accepted standards set by the International

Electrotechnical Commission under IEC 60086-2 and IEC 60086-1, as amended from time to

time.

In case of a Supply Shortage, Notifying Party shall provide the Products to the Customers in

priority to servicing the Notifying Party’s own requirements. In such case, an allocation

methodology for the Products to each of the Customers and the Notifying Party shall be

established by the Monitoring Trustee in consultation with the Commission.

The Notifying Party commits to put in place internal information barriers with a view to

establishing a separation between its hearing aid battery related activities upstream (i.e., VAG’s

HAB supplies to the Customers) and its hearing aid battery related activities downstream (i.e.,

VAG’s HAB supplies to retailers, wholesalers and distributors other than the Customers)

(Information Barrier).

The Notifying Party undertakes that it will not make the supply of Products subject to acceptance

by the Customer of supplementary obligations which by their nature and according to commercial

usage have no connection to the subject of the Supply Agreement (Non-Tying Obligation).

Section C. Monitoring Trustee

I. Appointment procedure

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The Notifying Party shall appoint a Monitoring Trustee to carry out the functions specified in

these Commitments for a Monitoring Trustee. The Notifying Party commits not to close the

Concentration before the appointment of a Monitoring Trustee.

The Monitoring Trustee shall:

(i) at the time of appointment, be independent of the Notifying Party;

(ii) possess the necessary qualifications to carry out its mandate, for example have sufficient

relevant experience as an investment banker or consultant or auditor; and

(iii) neither have nor become exposed to a Conflict of Interest.

The Monitoring Trustee shall be remunerated by the Notifying Party in a way that does not impede

the independent and effective fulfilment of its mandate.

Proposal by the Notifying Party

No later than two weeks after the Effective Date, the Notifying Party shall submit a list of one or

more persons whom the Notifying Party proposes to appoint as the Monitoring Trustee to the

Commission for approval. The proposal shall contain sufficient information for the Commission to

verify that the person or persons proposed as Monitoring Trustee fulfil the requirements as set out

in paragraph 9 and shall include:

a. the full terms of the proposed mandate, which shall include all provisions necessary to

enable the Monitoring Trustee to fulfil its duties under these Commitments;

b. the outline of a work plan, which shall describe how the Monitoring Trustee intends to

carry out its duties under these Commitments.

Approval or rejection by the Commission

The Commission shall have the discretion to approve or reject the proposed Monitoring Trustee(s)

and to approve the proposed mandate subject to any modifications it deems necessary for the

Monitoring Trustee to fulfil its obligations. If only one name is approved, the Notifying Party shall

appoint or cause to be appointed the individual or institution concerned as Monitoring Trustee, in

accordance with the mandate approved by the Commission. If more than one name are approved,

the Notifying Party shall be free to appoint the Monitoring Trustee from among the names

approved. The Monitoring Trustee shall be appointed within one week of the Commission’s

approval, in accordance with the mandate approved by the Commission.

New proposal by the Notifying Party

If all the proposed Monitoring Trustees are rejected, the Notifying Party shall propose at least two

more natural or legal persons within one week of being informed of the rejection, in accordance

with paragraph 8 to 12 of these Commitments.

Monitoring Trustee nominated by the Commission

If all further proposed Monitoring Trustees are rejected by the Commission, the Commission shall

nominate a Monitoring Trustee, whom the Notifying Party shall appoint, or cause to be appointed,

in accordance with a trustee mandate approved by the Commission.

II. Functions of the Monitoring Trustee

The Monitoring Trustee shall assume its specified duties and obligations in order to ensure

compliance with the Commitments. The Commission may, on its own initiative or at the request

of the Monitoring Trustee or the Notifying Party, give any orders or instructions to the

Monitoring Trustee in order to ensure compliance with the conditions and obligations attached

to the Decision.

Duties and obligations of the Monitoring Trustee

The Monitoring Trustee shall:

(i) monitor the execution and implementation of the Supply Agreements and ensure that the

rights and obligations arising under the Supply Agreements, including with respect to

matters such as pricing, quality, quantities and other key parameters, are determined and

carried out in fully compliance with the Commitments;

(ii) propose to the Notifying Party such measures as the Monitoring Trustee considers

necessary to monitor and ensure the Notifying Party’s compliance with the conditions and

obligations with respect to the Information Barrier and Non-Tying Obligations;

(iii) propose in its first report to the Commission a detailed work plan describing how it

intends to monitor compliance with the obligations and conditions attached to the

Decision;

(iv) propose to the Notifying Party such measures as the Monitoring Trustee considers

necessary to ensure the Notifying Party’s compliance with the conditions and obligations

attached to the Decision;

(v) act as a contact point for any requests by third parties, in particular the potential

Customers, in relation to the Commitments;

(vi) promptly report in writing to the Commission, sending the Notifying Party a non-

confidential copy at the same time, if it concludes on reasonable grounds that the Notifying

Party is failing to comply with these Commitments;

(vii) assume the other functions assigned to the Monitoring Trustee under the conditions and

obligations attached to the Decision.

III. Replacement, discharge and re-appointment of the Monitoring Trustee

If the Monitoring Trustee ceases to perform its functions under the Commitments or for any

other good cause, including its exposure to a Conflict of Interest:

a. The Commission may, after hearing the Monitoring Trustee, require the Notifying Party

to replace the Monitoring Trustee; or

b. The Notifying Party, with the prior approval of the Commission, may replace the

Monitoring Trustee.

If the Monitoring Trustee is removed according to paragraph 24, the Monitoring Trustee may be

required to continue in its function until a new Monitoring Trustee is in place to whom the

Monitoring Trustee has affected a full hand-over of all relevant information. The new Monitoring

Trustee shall be appointed in accordance with the procedure referred to paragraphs 8 to 14.

Unless removed according to paragraph 24, the Monitoring Trustee shall cease to act as

Monitoring Trustee only after the Commission has discharged it from its duties after all the

Commitments with which the Monitoring Trustee has been entrusted have lapsed. However, the

Commission may at any time require the reappointment of the Monitoring Trustee if it

subsequently appears that the Commitments might not have been fully and properly implemented.

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Section D. Arbitration

In the event that the Customer claims that the Notifying Party is failing to comply with the

requirements of the Commitments described in paragraphs 2 to 7 above, the Customer may choose

to utilise the fast track dispute resolution procedure as described in this Section.

Fast Track Dispute Resolution

If the Customer wishes to avail itself of the fast track dispute resolution procedure, it shall send a

written request to the Notifying Party (with a copy to the Monitoring Trustee) setting out in detail

the reasons leading the Customer to believe that the Notifying Party is failing to comply with the

requirements of these Commitments. The Customer and the Notifying Party will use their best

efforts to resolve all differences of opinion and to settle all disputes that may arise through

cooperation and consultation within a reasonable period of time not exceeding fifteen (15)

working days after receipt of the request.

The Monitoring Trustee shall present its own proposal (Trustee Proposal) for resolving the

dispute within seven (7) working days, specifying in writing the action, if any, to be taken by the

Notifying Party in order to ensure compliance with the Commitments vis-à-vis the Customers, and

be prepared, if requested, to facilitate the settlement of the dispute.

Should the Customer and the Notifying Party (together Parties to the Arbitration) fail to resolve

their differences of opinion in the consultation phase, the Customer shall serve a notice (Notice),

in the sense of a request for arbitration, to the ICC (Arbitral Institution) with a copy of such

Notice to the Notifying Party.

The Notice shall set out in detail the dispute, difference or claim (Dispute) and shall contain, inter

alia, all issues of both fact and law, including any suggestions as to the procedure, and all

documents relied upon shall be attached, e.g. documents, agreements, expert reports, and witness

statements. The Notice shall also contain a detailed description of the action to be undertaken by

the Notifying Party.

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The Notifying Party shall, within ten (10) working days from receipt of the Notice, submit its

answer (Answer), which shall provide detailed reasons for its conduct and set out, inter alia, all

issues of both fact and law, including any suggestions as to the procedure, and all documents

relied upon, e.g. documents, agreements, expert reports, and witness statements. The Answer

shall, if appropriate, contain a detailed description of the action which the Notifying Party

proposes to undertake vis-à-vis the Customer.

Appointment of the Arbitrators

The Arbitral Tribunal shall consist of three (3) persons. The Customer shall nominate its arbitrator

in the Notice; the Notifying Party shall nominate its arbitrator in the Answer. The arbitrators

nominated by the Customer and by the Notifying Party shall, within five (5) working days of the

nomination of the latter, nominate the chairman, making such nomination known to the Parties to the

Arbitration and the Arbitral Institution which shall forthwith confirm the appointment of all

three (3) arbitrators. The three-person arbitral tribunal is herein referred to as the Arbitral

Tribunal.

Should the Parties to the Arbitration fail to nominate an arbitrator, or if the two (2) arbitrators fail

to agree on the chairman the default appointment(s) shall be made by the Arbitral Institution.

Arbitration Procedure

The Dispute shall be finally resolved by arbitration under the rules of the Arbitral Institution, with

such modifications or adaptations as foreseen herein or necessary under the circumstances

(Rules). The Arbitration shall be conducted in Frankfurt, Germany, in the English language.

The procedure shall be a fast-track procedure. For this purpose, the Arbitral Tribunal shall shorten

all applicable procedural time-limits under the Rules as far as admissible and appropriate in the

circumstances. Parties to the Arbitration shall consent to the use of e-mail for the exchange of

documents.

The Arbitral Tribunal shall, as soon as practical after the confirmation of the Arbitral Tribunal,

hold an organisational conference to discuss any procedural issues with the Parties to the

Arbitration. Terms of reference shall be drawn up and signed by the Parties to the Arbitration and

the Arbitration Tribunal at the organisational meeting or thereafter and a procedural time-table

shall be established by the Arbitral Tribunal. An oral hearing shall, as a rule, be established within

two months of the confirmation of the Arbitral Tribunal.

In order to enable the Arbitral Tribunal to reach a decision, it shall be entitled to request any

relevant information from the Parties to the Arbitration, to appoint experts and to examine them at

the hearing, and to establish the facts by all appropriate means. The Arbitral Tribunal is also

entitled to ask for assistance by the Monitoring Trustee in all stages of the procedure.

The Arbitral Tribunal shall not disclose Confidential Information and apply the standards

attributable to Confidential Information under the Merger Regulation. The Arbitral Tribunal may

take the measures necessary for protecting confidential information in particular by restricting

access to Confidential Information to the Arbitral Tribunal, the Monitoring Trustee and outside

counsel and experts of the opposing party.

The burden of proof in any dispute under these Rules shall be borne as follows: (i) the Customer

must produce evidence of a prima facie case and (ii) if the Customer produces evidence of a prima

facie case, the Arbitral Tribunal must find in favour of the Customer unless the Notifying Party

can produce evidence to the contrary.

Involvement of the Commission

The Commission shall be allowed and enabled to participate in all stages of the procedure by:

i. Receiving all written submissions (including documents and reports, etc.) made by the

Parties to the Arbitration;

ii. Receiving all orders, interim and final awards and other documents exchanged by the

Arbitral Tribunal with the Parties to the Arbitration (including Terms of reference and

procedural timetable);

iii. Having the opportunity to file amicus curiae briefs; and

iv. Being present at the hearing(s) and being allowed to ask questions to the Parties to the

Arbitration, witnesses and experts.

The Arbitral Tribunal shall forward, or shall order the Parties to the Arbitration to forward, the

documents mentioned to the Commission without delay.

In the event of disagreement between the Parties to the Arbitration regarding the interpretation of

the Commitments, the Arbitral Tribunal may seek the Commission’s interpretation of the

Commitments before finding in favour of any Party to the Arbitration and shall be bound by the

interpretation.

Decisions of the Arbitral Tribunal

The Arbitral Tribunal shall decide the dispute on the basis of the Commitments and the Decision.

Issues not covered by these Commitments and the Decision shall be decided (in the order as

stated) by reference to the Merger Regulation, EU law and the general principles of law common

to the legal orders of the Member States without a requirement to apply a particular national

system. The Arbitral Tribunal shall take all decisions by majority vote.

Upon request of the Customer, the Arbitral Tribunal may make a preliminary ruling on the

Dispute. The preliminary ruling shall be rendered within one month after the confirmation of the

Arbitral Tribunal, shall be applicable immediately and, as a rule, remain in force until a final

decision is rendered.

The Arbitral Tribunal shall, in the preliminary ruling as well as in the final award, specify the

action, if any, to be taken by the Notifying Party in order to comply with these Commitments vis-

à-vis the Customer (e.g. specify a contract including all relevant terms and conditions). The final

award shall be final and binding on the Parties to the Arbitration and shall resolve the Dispute and

determine any and all claims, motions or requests submitted to the Arbitral Tribunal. The arbitral

award shall also determine the reimbursement of the costs of the successful Party to the

Arbitration and the allocation of the arbitration costs. In case of granting a preliminary ruling or if

otherwise appropriate, the Arbitral Tribunal shall specify that terms and conditions determined in

the final award apply retroactively.

The final award shall, as a rule, be rendered within six (6) months after the date of the terms of

reference. The time-frame shall, in any case, be extended by the time the Commission takes to

submit an interpretation of these Commitments if asked by the Arbitral Tribunal.

The Parties to the Arbitration shall prepare a non-confidential version of the final award, without

business secrets. The Commission may publish the non-confidential version of the award. Nothing

in the arbitration procedure shall affect the power to the Commission to take decisions in relation

to the Commitments in accordance with its powers under the Merger Regulation.

Section E. The review clause

The Commission may extend the time periods foreseen in the Commitments in response to a

request from the Notifying Party or, in appropriate cases, on its own initiative. Where the

Notifying Party requests an extension of a time period, it shall submit a reasoned request to the

Commission no later than one month before the expiry of that period, showing good cause. This

request shall be accompanied by a report from the Monitoring Trustee, who shall, at the same time

send a non-confidential copy of the report to the Notifying Party. Only in exceptional

circumstances shall the Notifying Party be entitled to request an extension within the last month of

any period.

The Commission may further, in response to a reasoned request from the Notifying Party showing

good cause waive, modify or substitute, in exceptional circumstances, one or more of the

undertakings in the Commitments. This request shall be accompanied by a report from the

Monitoring Trustee, who shall, at the same time send a non-confidential copy of the report to the

Notifying Party. The request shall not have the effect of suspending the application of the

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Section F. Entry into force

The Commitments shall take effect upon the date of adoption of the Decision.

……………………………………

duly authorised for and on behalf of

VARTA Aktiengesellschaft

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