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REGULATION (EEC) No 4064/89 MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION Date: 10/01/2002

Also available in the CELEX database Document No 302M2176

Office for Official Publications of the European Communities L-2985 Luxembourg

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 10/01/2002

SG (2002) D/ 228107/228108

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EEC) No 4064/89 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus [Ö]. Where possible the information omitted has been replaced by ranges of figures or a general description.

PUBLIC VERSION

MERGER PROCEDURE ARTICLE 6(1)(b) DECISION

To the notifying parties

Dear Sir/Madam,

Subject: Case No COMP/M. 2176 ñ KALI & SALZ / SOLVAY / JV Notification of 28.11.2001 pursuant to Article 4 of Council Regulation 1No 4064/89

1.On 28 November 2001, the undertakings K+S Aktiengesellschaft ("K+S") and Solvay S.A. ("Solvay") notified a proposed agreement by which they will combine their businesses for the production and sale of salt in a newly created joint venture. The joint venture will be named the European Salt Company (ìESCOî).

2.After examining the notification, the Commission has concluded that the notified transaction falls within the scope of the Council Regulation (EEC) No. 4064/89 and that it does not raise serious doubts as to its compatibility with the Common market and with the EEA agreement.

1OJ L 395, 30.12.1989 p. 1; corrigendum OJ L 257 of 21.9.1990, p. 13; Regulation as last amended by Regulation (EC) No 1310/97 (OJ L 180, 9. 7. 1997, p. 1, corrigendum OJ L 40, 13.2.1998, p. 17).

Commission europÈenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

I. THE PARTIES

3.Solvay (Belgium) is the parent company of an international group of companies active in four main areas: chemicals, plastics, pharmaceutical and processing businesses. Solvay produces salt in order to cover its in-house salt requirements for its chemical and pharmaceutical production and also supplies salt and salt products to third parties.

4.K+S (Germany) is the parent company of a group of undertakings engaged in production and distribution of salt, salt based industrial products, fertilisers and potash based products, and in providing waste disposal services.

II. THE OPERATION

5.The parties intend to combine their businesses relating to the production and distribution of salt (crystalline salt and brine) into a joint venture under German law in which they will hold an interest of [Ö]% (K+S) and [Ö]% (Solvay) respectively. The transfer of assets will include all K+S's operations and most of Solvayís operations. However, Solvay will retain facilities related to the production of salt and brine dedicated to its internal consumption in various chemical processes.

III. CONCENTRATION

6.The joint venture will have the sole responsibility for the production of salt and its sale to third parties. The joint venture will obtain all financial, personnel and other resources (such as intellectual properties rights (ex. trademarks)) necessary to operate on a lasting basis as an autonomous entity. The economic ownership for all the above and the production facilities will be transferred to the joint venture, which will also have its own independent management. In conclusion, the joint venture will perform all the functions of an autonomous entity for the production and sale of salt.

7.The management of the joint venture will report to an Advisory Board that will be composed of an equal number of representatives from each parent company. Moreover, resolutions of the Advisory Board will be adopted by unanimous vote and therefore each of the parties concerned has the option to block strategic decisions within the joint venture. Therefore, it can be concluded that the parents will exercise joint control of the joint venture.

8.Solvay will be granted an irrevocable put option with respect to [Ö] in the joint venture, whereas K+S will be granted an irrevocable call option with respect to [Ö] in the joint venture. These put or call options can be exercised after an interim period of [Ö] respectively. However, these options do not constitute a legally binding agreement whereby joint control by the parties will be converted to sole control by K+S and it remains uncertain whether they will be exercised after the interim period. In line with the Commissionís practice in previous decisions, the existence of these options does not put into question the lasting nature of the joint venture.

9.In the light of the factors set out above, the acquisition by Solvay and K+S of joint control in ESCO is a concentration within the meaning of article 3(1)(b) of the Merger Regulation.

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IV. COMMUNITY DIMENSION

10.The combined aggregate world wide turnover of the undertakings concerned exceeds Ä 5.000 million (K+S: Ä [Ö] million; Solvay: Ä [Ö] million) in 2000. Each of the undertakings concerned has a Community wide turnover in excess of Ä 250 million in 2000 (K+S: Ä [Ö] million; Solvay: Ä [Ö] million) but they do not achieve more than two-thirds of their respective turnover in one and the same Member State. The notified operation therefore has a Community dimension.

V. BACKGROUND: THE SALT INDUSTRY

11.Salt can be divided into three different types based on the production method (rock salt, sea salt and vacuum salt). Rock salt is mined from underground salt deposits, crushed and then transported via conveyor belts and hoisted to the surface where it is processed (i.e. it is milled and sieved to produce the required grain size; also additives such as anti caking agents or iodine or fluoride may be added). Vacuum salt is now generally produced by the solution mining method, in which fresh water is forced though a bore-hole into the salt deposit to dissolve the salt and at the same time to displace brine which is already saturated; this brine is then evaporated to produce salt which is subsequently processed. Sea salt is produced in vast flat basins, so called salt gardens, where seawater is evaporated by the heat of the sun. After crystallising the salt is gathered, dried and further processed.

12.The three types of salt differ in shape, hardness and purity grade, with vacuum salt being the purest product and sea salt containing the highest level of impurities. Vacuum salt is the most expensive product priced approximately 5% higher than comparable rock salt and sea salt.

13.The three salt types are used for a variety of application, the most important ones being electrolysis (splitting NaCl into sodium hydroxide and Chlorine with the help of electrical current) representing 42% of the usage, deicing of roads (24%) and human consumption (14%). Other important applications are industrial uses such as dishwasher salt, water-softening salt, animal feed and pharmaceutical purposes.

14.The different applications require different properties in the salt used, such as a certain purity level, grain size etc. and specific additives. Therefore the raw salt has to be further processed. For example grain size requirements are basically defined by the required dissolving speed. Smaller particles dissolve fairly quickly. Dissolving qualities play a role in water softening, dishwater salt and food processing. The methods for meeting grain size requirements differ according to the purpose and type of salt. Rock salt necessitates pre-crushing, grinding, screening and separating of grains in various fractions. As regards vacuum salt, the primary salt resulting from the evaporation process is already very fine. To achieve larger grain sizes, the vacuum salt must be pressed or compacted into the form of tablets, cushions and sheets. The sheets are crushed, ground and screened or sieved.

15.The requirements for the different applications can be met by all three types of salt which consequently can be used interchangeably to a large extent. However, this is not true for pharmaceuticals (representing only 0.2% of the total market) which require a particularly high level of purity which can only be achieved by vacuum salt (99,9%).

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VI. PRODUCT MARKETS

20.According to the parties two markets can be distinguished within the salt producing industry: non deicing salt and deicing salt.

21.As regards deicing salt, the parties have emphasised that there are specific characteristics for this market due to the fact that deicing salt is purchased on the basis of public tenders and usually sold in combination with logistical services (including guaranteed deliveries at short notice) to public road authorities. Distributors and traders of salt often participate in the tendering process. Salt for deicing services is normally purchased in large quantities on an annual basis. The producer or distributor then delivers the salt to local warehouses. The warehouses are normally geographically distributed in order to provide fast truck delivery.

22.With regard to non deicing salt the parties have submitted that three segments can be distinguished and subdivided into eight different sub-segments:

1) salt for human consumption: i) salt for the food processing industry, ii) table salt.

2) salt for industrial and technical uses: i) lickstone, ii) water-softening salt, iii) dishwasher salt, iv) salt for pharmaceutical uses, and v) salt for industrial/technical uses.

3) salt for chemical transformation (electrolysis).

23.The applications differ in specifications of purity level, grain size and additives. For example purity is a very important requirement for salt for food and pharmaceuticals whereas grain size is important in particular for water-softening and dish water salt. Consequently, there is no demand side substitutability.

24.However, the parties argue that due to a high degree of supply-side substitutability between the various products they should be considered as one single product market.

25.The parties have summarised the information about the different sub-segments in the following table (see annex).

26.The Commissionís investigation has confirmed that the different applications (deicing and non-deicing with its sub-segment) require different specifications. For each application the customer specifies the quality (purity), product characteristics (ex. grain size and coarseness) and the additives, if any. The significance of product brands and private labels also differs from segment to segment and distributors of salt play a role in some segments (ex. dishwasher salt) but are absent in other segments. Customers have pointed out, that deicing salt is not considered to meet the quality requirements for human consumption or industrial use, i.e. non deicing applications. By contrast, non deicing can apparently be used for deicing but would be too expensive to be competitive.

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27.With regard to the question of supply side substitutability some producers have confirmed that they would be able to shift their production of salt from one application into another application in the short term without incurring significant costs. It has also been indicated that the shift between salt for different applications of salt is generally not a barrier for a supplier. However, some producers have indicated that their existing packaging facilities would be inadequate to pack additional quantities of a given product. Such constraints could be eliminated at reasonable cost and in a maximum of six months.

28.The precise market definition can be left open, as no competition problems would arise under any of the possible product market definitions. Consequently, for the purpose of the present decision, the Commission has analysed the following working hypotheses as to the relevant product markets:

ñ the overall salt market

ñ deicing salt

ñ each of the 8 applications for non-deicing salt (cf. paragraph 22)

29.As regard downstream related markets it should be noted that electrolysis produces mainly chlorine, caustic soda and hydrogen or sodium chlorate and hydrogen and these products can in turn enter the production process of other downstream products. Soda ash is also a down stream related product and is mainly used as a raw material in the production of glass.

VII. GEOGRAPHIC MARKETS

Submission of the parties

30.With regard to non deicing salt, the parties have pointed out that - due to the high transport costs amounting to [Ö]% of the final sales price - deliveries by truck are only economical within a radius of 700-800 km around the production facilities. This means that each producer is able to effectively compete in an area defined by overlapping circles of that size. The parties have also submitted that the economical delivery distance is much longer for bulk deliveries by barge or vessel.

In their view the relevant geographic markets are:

ñ Mainland Europe (excluding Iberian Peninsula but including Belgium, the Netherlands, Luxembourg, Germany, France, Denmark, Switzerland, Italy, Austria and Greece) forms one single geographic market.

ñ The Iberian Peninsula (Spain and Portugal) is outside the reach of the Northern European producers but has some indigenous production. Consequently this area constitutes a separate market.

ñ The UK and Ireland constitute a separate geographic market due to the fact that supplies from other areas would inevitably incur additional cost for sea transportation. In combination with the indigenous production in UK, this situation makes UK and Ireland a separate market.

ñ The Nordic countries (Norway, Sweden, Finland and Iceland) have no indigenous production. Deliveries are not made by truck but have to be shipped to the Nordic seaports. Consequently, foreign producers (including non-EEA-producers) compete at an equal footing in these countries which therefore are considered by the parties to constitute a distinct geographic market.

32.Given that deicing salt is used to keep roads open it must be available on short notice and therefore cannot be transported more than about 150 km. To solve this problem suppliers have established warehouses in key locations. These warehouses are supplied in bulk directly from the production facilities. Customers can thus be resupplied from the nearest warehouse quickly and conveniently. This enables competing suppliers to compete effectively irrespective of their actual distance from the customer.

33.Therefore, the parties suggest that Continental Western Europe (Belgium, the Netherlands, Luxembourg, France, Germany, Denmark, Switzerland and Austria) constitutes a single geographic market for deicing salt. This market definition differs from their market definition for non deicing products (Mainland Europe). Greece and Italy are not included, as deicing products do not play a role in these countries.

For same reasons explained above for non deicing salt, the parties claim that UK and Ireland, the Iberian Peninsula and the Nordic Countries (Norway, Sweden, Finland and Iceland) constitute three other distinct geographic markets.

The Commission's investigation

35.The Commissionís investigation has confirmed that the geographic scope of the product markets is larger than national. The high cost of transport, compared to the generally low value of the salt products, is an important factor in the definition of the relevant geographic market. However, customers and producers readily transport salt across the borders of EEA-Member States with intra-EEA- trade reaching one third of the total sales. Imports from non-EEA-countries are less significant (3%). It also appears that the transport mode is generally by truck in Mainland Europe as suggested by the parties. Customers in the Nordic countries are supplied by ship because there is no indigenous production and road routes are uneconomic.

36.The investigation has confirmed the partiesí market definitions that Mainland/Continental Europe, the Nordic Countries, the UK and Ireland, and the Iberian Peninsula form distinct markets.

37.In addition, a thorough investigation was conducted in order to exclude the possibility that there might be some regional or local areas where the proposed concentration could eliminate effective competition. However, the results of this investigation show that there are no regions where the parties are active and which can not be reached by their competitors. In all locations where the parties' plants are in close proximity to each other major competitors have facilities nearby.

In conclusion, for the purposes of this decision, the relevant geographical markets are:

ñ Mainland / Continental Europe

ñ The Nordic Countries

ñ UK and Ireland

ñ The Iberian Peninsula

VIII. COMPETITIVE ASSESSMENT

a) Horizontal issues

Nordic Countries

39.With regard to non-deicing salt the parties accounted in 2000 for a combined market share of [20-30%] (K+S: [20-30%], Solvay: [0-5%]). In the Nordic Countries they face competition from AKZO (Netherlands ñ [45-55%]), Salins du Midi (France ñ [5-10%]), Salt Union (UK ñ [0-5%]) and others including third country imports ([5-15%]).

40.For each non-deicing application the parties combined market share will be below [30-40%] in the Nordic Countries. Given the presence of powerful competitors, this situation will not give rise to competition concerns. Furthermore, because the Nordic Countries have no indigenous production of salt, all the salt consumed has to be imported by ship and therefore third country exporters compete on a more equal footing with the Community producers.

In a market for deicing products the parties accounted in 2000 for a combined market share of [50-60%] (Solvay: [30-40%]; K+S: [20-30%]) followed by Salins du Midi ([10-20%]), Italkali ([5-10%]) and AKZO ([0-5%]). In addition, imports from Chilean suppliers accounted for [10-20%]. Given the general over capacity in the salt sector and significant buyer power at the level of the public authorities these positions of the parties do not give rise to any competition concerns. The EFTA Surveillance Authority has also indicated that it has no concerns about similarly high market shares in Norway and Iceland.

Overall market

42.In an overall market for all salt products the parties combined market share will amount to [30-40%]. On this overall market the parties will face competition from AKZO ([30-40%]) and Salins du Midi ([10-20%]). As mentioned above, imports are an important constraining factor.

43.On the basis of the arguments set out above, the proposed operation will not give rise to serious doubts as to the creation or strengthening of a dominant position in the Nordic Region.

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Mainland / Continental Europe

44.In non deicing products the parties accounted in 2000 for a combined market share of [10-20%] (K+S; [5-10%], Solvay; [5-10%]) in Mainland Europe, whereas AKZO had a share of [30-40%], Salins du Midi [10-20%], S¸dsalz (Germany) [10-20%], and Italkali (Italy) [5-10%].

45.In the individual non-deicing applications the parties would only account for less than [30-40%] in all market segments apart from water-softening and pharmaceuticals in Mainland Europe. For water-softening the parties combined market share would account for [40-50%] (K+S; [30-40%], Solvay; [5-10%]) and for pharmaceuticals their combined market share would be [60-70%] (K+S; [5-10%], Solvay; [50-60%]).

With regard to water-softening it is relatively easy for existing producers of salt of food grade purity, which is used for this application, to compress it into tablets/large pillows or pebbles - as used for water-softening. The equipment necessary would require an investment of approximately EUR [Ö] for a capacity to produce 20,000 tonnes per year. New equipment could generally be delivered within six months. Most of the partiesí competitors are able to produce salt of such quality. In addition, the customers include large, powerful retailers and chemical distributors who are in a position to exert countervailing buyer power. Retailers and chemical distributors represent [Ö]% of Solvayís sales of salt into water softening application. Therefore on the basis that competitors can easily switch their production to water softening salt from other products, the barriers to entry into this segment are low and because customers have some degree of buyer power the proposed transaction does not give rise to competitive concerns in relation to water softening in Mainland Europe.

47.With regard to pharmaceutical applications it is relatively easy for vacuum salt producers to enter the pharmaceutical salt market with relatively modest investments. In addition, long term supply contracts are rare and prices are frequently negotiated at European level and some customers use tender procedures. There are only four large European customers (Fresenius AG, Braun Melsungen AG, Baxter Healthcare Corp. and Gambro AB) who enjoy considerable buyer power. In addition to K+S and Solvay these customers may also obtain supplies from Akzo, S¸dsalz, OSAG and New Cheshire Salt, which are all equally qualified to supply. Moreover, Akzo and S¸dsalz have all their plants located in Mainland Europe. Akzo accounts for a market share of [10-20%] for pharmaceutical applications. The pharmaceutical application constitutes less than 0.2% of the total consumption of salt. Consequently, the notified operation would not affect significantly the competitive situation in Mainland Europe.

48.Generally, it should be noted that existing producers have confirmed that there are no significant barriers to entry for any of the non-deicing product markets. In addition, the industry is characterised by general over-capacity. Much of this over-capacity is in Mainland Europe where the majority of EEA production is concentrated.

49.In conclusion, the operation does not give rise to serious doubts as to the creation or strengthening of a dominant position as regards any non-deicing product market in Mainland Europe.

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Deicing Salt

50.In deicing salt, the combined market share of the parties in 2000 was [20-30%] (K+S: [10-20%], Solvay: [10-20%]) in Continental Western Europe (Mainland Europe without Greece and Italy where deicing products do not play a role). The main competitors in 2000 were Salins du Midi ([20-30%]), S¸dsalz ([10-20%]), AKZO ([5-10%]), Italkali ([0-5%]), Austrian Salinen ([0-5%]) and Rheinsalinen (Switzerland ñ [0-5%]).

51.In conclusion, the operation does not give rise to serious doubts as to the creation or strengthening of a dominant position in the deicing market in Continental Europe.

Overall market

52.In an overall market for all salt products the partiesí combined market share will amount to [10-20%].

Conclusion

53.On the basis of the arguments set out above, the proposed operation will not give rise to serious doubts as to the creation or strengthening of a dominant position in Mainland/Continental Europe.

Iberian Peninsula

54.Based on the different applications (8 sub-segments of non-deicing + deicing) the partiesí market shares would be below [20-30%] in each segment, apart from water softening ([30-40%]) and pharmaceutical applications. Solvayís share of the pharmaceutical market is [70-80%] in the Iberian Peninsula. This market share would not increase as a result of the proposed operation because K+S does not sell into this segment.

55.Based on an overall market for salt the partiesí combined market share in this area would be [5-10%].

56.Consequently, the transaction does not give rise to serious doubts as to the creation or strengthening of a dominant position in the Iberian Peninsula.

UK and Ireland

57.Based on the different applications (8 sub-segments of non-deicing + deicing) the parties market shares would be below [5-10%] in each segment.

58.Based on an overall market for salt in the UK and Ireland, the partiesí combined market share in this area would be [0-5%].

59.Consequently, the transaction does not give rise to serious doubts as to the creation or strengthening of a dominant position in UK and Ireland.

b) Vertically related markets

K+S is not involved in any of the downstream vertically related products. According to the parties the creation of the JV will not have any material effect on any of the

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60.products directly resulting from electrolysis as, on a European basis in 2000, Solvay only had market shares of below [15-25%] for these products (and below [30-40%] on all national markets).

61.As regard soda ash Solvay would on a national basis account for market shares in the range of [Ö] with shares above [45-55%] in several Member States. However, the parties have emphasised that Solvay mainly produces soda ash from its captive brine and that it will continue to do so in the future. They argue that the transaction concerning production and sale of crystalline salt would not affect Solvay's position on the soda ash market.

62.K+S is not engaged in the production of soda ash. It sells brine from its Bernburg brine field to two customers one of which produces soda ash. This company sources 75% of its requirements for brine from its own brine fields in the same locality and so could easily replace the K+S brine from its own resources. Solvay does produce the product but it uses and will continue to use its own captive sources of brine for the bulk of this manufacture. It is a net purchaser of brine. The proposed operation will not enable the parties to foreclose the supply of brine to competing soda producers. Therefore the operation will not give rise to serious doubts as to the creation or strengthening of a dominant position in the vertically related markets.

IX. CONCLUSION

63.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 EEA Agreement. This decision is adopted in application of Article 6(1)(b) of Council Regulation (EEC) No 4064/89.

For the Commission

(signed) Mario MONTI Member of the Commission

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