Commission, January 15, 2016, No M.7567

I. THE PARTIES

(1) Ball Corporation ('Ball') is a company based in the United States of America. It is active worldwide in the production and supply of metal packaging for beverage, food and household products. Ball has production facilities in North America, Brazil, Europe and the Asia Pacific region. It is also present in the design, development and manufacture of aerospace systems. Ball is the largest beverage can manufacturer worldwide and the second largest beverage can manufacturer in the EEA.

(2) Rexam PLC ('Rexam') is a company based in the United Kingdom. It is active worldwide in beverage can manufacturing, with production facilities in North America, South America, Europe, Africa, the Middle East and Asia. Rexam is the second largest beverage cans manufacturer worldwide and the largest beverage can manufacturer in the EEA.

II. THE OPERATION

(3) On 15 June 2015, the Commission received a formal notification pursuant to Article 4 of the Merger Regulation by which Ball is to acquire the entire issued and to be issued share capital of Rexam (the 'Transaction'). Ball is referred to as the 'Notifying Party'. Ball and Rexam are jointly referred to as the 'Parties'.

III. EU DIMENSION

(4) The undertakings concerned have a combined aggregate worldwide turnover of more than EUR 5 000 million (2). Each of them has an EU-wide turnover in excess of EUR 250 million, and they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. The Transaction therefore has a Union dimension.

IV. THE PROCEDURE

(5) On 20 July 2015, the Commission found that the Transaction raised serious doubts as to its compatibility with the internal market and the EEA Agreement and adopted a decision to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation. The serious doubts were raised in relation to beverage cans, as well as aluminium bottles.

(6) On 29 September 2015, the Commission adopted a Statement of Objections ('SO') pursuant to Article 18 of the Merger Regulation. The Notifying Party replied to the SO on 13 October 2015. On 23 October 2015, a formal State of Play meeting took place.

(7) On 18 November 2015, the Notifying Party submitted commitments in order to address the competition concerns identified in the SO (the 'Commitments of 18 November 2015'). Consequently, the period for the adoption of a final Decision was extended by 15 working days pursuant to Article 10(3) of the Merger Regulation.

(8) On 20 November 2015, the Commission launched a market test of the Commitments of 18 November 2015.

(9) On 3 December 2015, the Notifying Party submitted a final set of commitments ('the Final Commitments').

V. THE RELEVANT PRODUCT MARKETS

Beverage cans

(10) The Commission concluded that (i) beverage cans constitute a separate market from other forms of beverage packaging solutions such as glass, polyethylene terephthalate (PET) and cartons, (ii) can bodies and can ends belong to the same relevant market, irrespective of whether they are made out of steel or aluminium, and (iii) various can sizes and can types belong to the same market even though they constitute differentiated products within this market.

Aluminium bottles

(11) The Commission found that aluminium bottles and beverage cans belong to separate markets. Furthermore, the Commission noted that depending on the production technology employed, aluminium bottles can be distinguished between IE bottles and DWI bottles. However, the Commission left the exact product market definition open.

VI. THE RELEVANT GEOGRAPHIC MARKETS

Beverage cans

(12) The Commission's starting point was a catchment area with a radius of 700 km around each customer filling location. The Commission then concluded that the catchment areas around individual customer filling locations can be clustered together in broader geographic areas where these catchment areas are subject to sufficiently homogeneous competitive conditions.

(13) The Commission considers that competitive conditions are sufficiently homogenous for customer filling locations located in the following regions: Central Europe (Austria and Germany), Benelux, France, Italy, Iberia (Spain and Portugal), North East Europe (Poland, Czech Republic, Slovakia, Lithuania, Estonia and Latvia), South East Europe (Hungary, Slovenia, Croatia, Romania, Bulgaria, Greece and Cyprus), the Nordics (Denmark, Norway, Sweden, Finland, and Iceland) and the UK and Ireland.

Aluminium bottles

(14) The Commission left open the geographic market definition for aluminium bottles since the proposed Transaction does not significantly impede effective competition under any of the plausible alternative geographic market definitions.

VII. COMPETITIVE ASSESSMENT

Beverage cans

(15) Rexam and Ball are the two largest players in the EEA. At the EEA-level, the merged entity would have a large dominant position post-Transaction with [60-70] % of sales volumes and [60-70] % of the capacity.

(16) The beverage can industry is already very concentrated and not highly competitive with essentially only the Parties, Crown and Can-Pack active in the EEA. The Transaction would further reduce the number of players in the EEA from 4 to 3.

(17) Post-Transaction, Crown and Can-Pack would be unable to compete on an equal footing with the merged entity because of their much smaller size and footprint.

(18) The Transaction would eliminate a competitive force from an innovation point of view. Market participants consider the Parties as the main innovators in the EEA while Crown and Can-Pack lag behind. The Parties could have less incentive to innovate post-merger.

(19) Capacity is very tight in the EEA with a utilization rate generally above 90 %. Overall spare capacity in 2014 of competitors for plants located in the EEA was equivalent to between 5 to 10 % of the combined sales of the Parties to EEA customers in 2014.

(20) The possibility to switch to other forms of packaging would also not impose a sufficient competitive pressure on the merged entity and on prices. Customers' choice of packaging mix is mostly determined by end-consumer needs and not primarily price driven.

(21) Customers, even the largest ones, have limited countervailing buyer power during negotiations. In particular the scale and footprint of the Parties and the tightness of the overall capacity reduce customers' market power. The investigation also showed that in Europe self-supply is not a viable solution from an economic point of view.

(22) Barriers to entry and expansion are high. Building a plant requires time, expertise and know-how as well as large volume long-term commitments from customers. Investments to build a one-line plant are comprised between EUR 50-100 million In order to be efficient, a plant generally needs at least two production lines which should be fully utilised.

(23) The Transaction would, at best, represent a 4 to 3 merger and result in the creation or strengthening of a dominant position in the following regional clusters: Benelux, Central Europe, France, Italy, North-East Europe and South-East Europe. In the Nordics, the Transaction would mainly consist in a 3 to 2 merger. The transaction would result in the creation or strengthening of a dominant position also in Iberia and the UK and Ireland. The Parties' combined capacity share would range from [40-50] % to [90-100] % with increments between [5-10] % and [30-40] %.

(24) Therefore the Commission reached the conclusion that the Transaction would lead to a significant impediment of effective competition for the beverage can market in all the regional clusters.

Aluminium bottles

(25) The Commission reached the conclusion that the Transaction is unlikely to lead to a significant impediment to effective competition in relation to aluminium bottles.

VIII. COMMITMENTS

(26) In order to render the Transaction compatible with the internal market, the Notifying Party submitted the Commitments of 18 November 2015.

(27) The Notifying Party proposed to divest its entire Metal Beverage Packaging, Europe segment save for certain excluded entities, assets and personnel as listed in the Commitments of 18 November 2015 (the exclusions mainly related to certain holding companies, three Ball can body plants, some key personnel and IP in pipeline products). In addition, the Notifying Party proposed to divest two Rexam can body plants.

(28) The assets to be divested pursuant to the Commitments of 18 November 2015 mainly comprised the following: Ball's production facilities in the UK (Rugby and Wrexham), Central Europe (Weissenthurm, Hassloch and Hermsdorf) and Benelux (Oss), as well as one of Ball's production facilities in France (La Ciotat), Rexam's production facility in Austria (Enzesfeld) and one of Rexam's production facilities in Spain (Valdemorillo), Ball's Business and Technical Centre in Bonn and, at the purchaser's option, Ball's European headquarters in Zurich, Ball's can-ends production facilities at Braunschweig and Deeside (with the exception of one production module).

(29) The proposed divestment package included the transfer of legal entities, personnel, customer contracts, supplier contracts, intellectual property, etc., subject to several exclusions. It also included an upfront buyer clause and envisaged the divestment business being sold to a single buyer.

(30) The Commission found that the Commitments of 18 November 2015 failed to address the elimination of increased competition in the North-East Europe cluster. Absent the merger, it is likely that Rexam would have increased capacity in the region and consequently reduced market concentration. Significant concentration effects for a sub-set of customers in the Central Europe cluster also remained.

(31) As regards the viability and competitiveness of the divestment business, the Commission noted that the Notifying Party had excluded a large number of key personnel (notably management, R & D, sales and other personnel) from the scope of the Commitments of 18 November 2015. However, because the divestment business would have consisted in a very large network of plants across the EEA, resulting in a combination of assets of both Parties, and operating in a highly concentrated and capacity-constrained industry, the Commission considered that a high degree of continuity of key staff would be crucial for the divestment business' ability to serve its customers and compete effectively in the market immediately after the divestiture. In addition, it appeared unlikely that there would be sufficient justification to carve-out all the listed personnel and there could be concerns regarding the degree of competition post-Transaction between the merged entity and the new entrant if all of these personnel would stay with the merged entity. The market test also highlighted these issues.

(32) The Commission therefore concluded that the Commitments of 18 November 2015 were incapable of rendering the Transaction compatible with the internal market, in particular since they would not fully remove the significant impediment to effective competition identified by the Commission in the North-East Europe cluster, and did not sufficiently ensure the viability of the divestment business.

(33) The Notifying Party submitted the Final Commitments on 3 December 2015 to address the Commission's remaining concerns. In particular, it added to the package Ball's plant in Radomsko, Poland, as well as further personnel, including management, R & D and sales staff.

(34) The Commission considered that through the inclusion of Radomsko, its concerns relating to the North-East Europe regional cluster, in particular those resulting from the elimination of capacity expansion, will be remedied. Moreover, the addition of Radomsko also reduces the significant concentration effects that a sub-set of customers in the Central Europe cluster still faced. The Commission therefore concluded that the Final Commitments remove its competition concerns in their entirety.

(35) As regards the Commission's concerns with respect to the viability and competitiveness of the divestment business, the addition of further management, R & D and sales staff, together with the single purchaser and upfront buyer clause should ensure that the business can be sold as a going concern.

(36) For these reasons, the Commission considered that the Final Commitments are suitable and sufficient to eliminate the competition concerns raised by the Transaction and render it compatible with the internal market and the EEA agreement.

IX. CONCLUSION

(37) For the reasons mentioned above, the Commission concluded that the proposed concentration will not significantly impede effective competition in the internal market or in a substantial part of it.

(38) Consequently the concentration should be declared compatible with the internal market and the functioning of the EEA Agreement, in accordance with Article 2(2) and Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement.

NOTES

(1) OJ L 24, 29.1.2004, p. 1.

(2) Turnover calculated in accordance with Article 5 of the Merger Regulation and the Commission Consolidated Jurisdictional Notice (OJ C 95, 16.4.2008, p. 1).