Commission, June 6, 2011, No M.6221

Dear Sir/Madam,

Subject: Case No COMP/M. 6221 - COLGATE PALMOLIVE / SANEX BUSINESS

Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/20041

1.          On 28 April 2011, the Commission received a notification of a proposed concentration by which Colgate-Palmolive Group ("CP" or "the Notifying Party"), acquires sole control of Unilever's Sanex business ("Sanex") by way of purchase of assets and shares (CP and Sanex are together referred to as "the Parties").

I.            THE PARTIES

2.          CP is active internationally in the consumer goods sector and has as its core businesses oral care, personal care, home care and pet nutrition. As regards personal care, CP is active in the markets for bath & shower products and soaps. To a limited extent CP is present at the deodorant market, hair care and shaving products markets.

3.          Sanex is active in the personal care sector and especially in the markets for bath & shower products, soap and deodorant and, to a marginal extent, in hair care and shaving products.

4.          Sanex is part of the Sara Lee group companies that was acquired by the Unilever group ("Unilever") pursuant to the transaction examined by the Commission in Case M.5658 Unilever/Sara Lee Body Care ("Unilever/Sara Lee Case"). The Commission cleared the case  by  decision  of  17  November  2010.  The  clearance  was  conditional  upon    the divestiture of the Sanex business in order to remove competition concerns in relation to the market for deodorants ("Commitments").

II.         THE OPERATION AND THE CONCENTRATION

5.          Unilever chose CP as the purchaser as a result of a divestment process in compliance with the Commitments. On 22 March 2011, Unilever and CP signed an agreement according to which CP will acquire sole control over Sanex. Hence, the proposed transaction constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

III.      UNION DIMENSION

6.          The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 2 500 million 2 (CP: EUR 11 730 million, Sanex: EUR 187.3 million). In []  the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million. In […] the aggregate turnover of each of the undertakings concerned is more than EUR 25 million. The aggregate Union turnover of each of the undertakings concerned is more than EUR 100 million. Finally, none of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

7.          Therefore, pursuant Article 1(3) of the Merger Regulation, the notified operation has a Union dimension.

IV.      COMPETITIVE ASSESSMENT

8.          Both Parties are active in the personal care market and have overlapping activities in bath & shower products, soap, deodorants, hair care and shaving products. Affected markets arise in relation to bath & shower products, soaps and deodorants.3

1.     Relevant Product Markets

a)          Bath & shower products

9.          The skin cleansing category comprises a range of products for the purposes of personal washing. These include products targeted for use in the shower or in the bath (washes, gels, foam and lathers) as well as soaps (bar soaps and liquid soaps).

10.     In M.4193 L'Oreal/The Body Shop, the Commission considered "bath & shower" products to be a separate market from other personal care products, although no final conclusion was reached. In the same decision, men's care products within the bath & shower category were also considered as a possible distinct market.

11.     In the Unilever/Sara Lee Case, the Commission concluded, after an in-depth investigation, that bath & shower products form a distinct market within the personal care category.4 Moreover, the investigation found indications that depending on the Member State the bath & shower market could be further subdivided into shower products and bath products. This was in particular the case in the United Kingdom, Ireland, Belgium, the Netherlands, France and Germany while for others like Spain, Portugal, Greece and Denmark such distinction was not relevant. Ultimately, the segmentation between bath & shower products was left open.

12.     In the same case, the Commission did not exclude that the shower market could potentially be subdivided according to gender, distinguishing male-specific shower gels (hereinafter "male shower gels" or "male shower") from non-male-specific shower gels (hereinafter "non-male shower gels" or "non-male shower").

13.     The Notifying Party submitted that the relevant product market definition with bath & shower products can be left open in the present case and provided data and analysis for all alternative product markets, notably for the overall bath & shower market and for potential sub-markets (bath/shower and shower male/non-male).

Bath vs. Shower

14.     The investigation in the present case has basically confirmed the findings in previous cases, in particular that bath & shower products form a distinct product market within the personal care segment.

15.     Concerning a possible distinction between bath products and shower gels, customers and competitors indicated that in Belgium and France bath products and shower products should not be regarded as substitutes but rather as distinct products used for different needs (bathing vs. taking a shower). This is true for Belgium as well as for France, even if in the latter Member State there are a small number of brands (including Sanex) which offer products dual-labelled as "bath and shower gels". In these Member States a general trend seems to exist gradually substituting bath products (which are declining)  by shower products, but this is a long-term process and retailers argued that consumption patterns are different for the two products; they also generally tend to separate them on their shelves and run promotions separately.

16.     The picture in Denmark differs and confirms the finding of Unilever/Sara Lee. For a clear majority of market participants active in Denmark, the two product groups are not clearly distinct as bathing is not very common and the bath segment in  Denmark amounts to a very minor (below 5%) part of the bath & shower market. In addition, the investigation indicates that promotions are made in common across both categories and the products occupy the same shelf space.

17.     From a supply side perspective, competitors have confirmed that the production process is indeed very similar (using same production lines, the main difference being larger packaging). Expansion from one segment to the other seems technically possible but it presupposes that the particular brands are appealing to customers for both bathing and shower. Main brands are often present in both bath & shower segments, however with different strengths and market share.

18.     In any event, for the assessment of this case, it is not necessary to conclude on the exact product market definition, since even under the narrowest definition of the product markets discussed above, the concentration does not raise serious doubts as to its compatibility with the internal market.

Gender differentiation

19.     The investigation in the present case revealed that within bath products, a further segmentation according to gender is not relevant as specific gender-oriented bath products do not exist. However, there is an increasing differentiation within the shower gels category, which are often marketed with specific variants "for men", or with variants appealing specifically to female consumers.

20.     Retailers as well as competitors submitted that male shower brands are a growing segment and are often presented separately on retailer shelves (such as in a special men's fixture or corner, also possibly featuring other male personal care products). Marketing campaigns are usually different for male and for female brands/variants as they are directed to different types of consumers.

21.     From a supply-side perspective, the investigation revealed that expansion from the male to the female shower segment - albeit not difficult from a production point of view may involve significant marketing costs because many existing brands are geared towards a specific gender and entering the other segment can only be done by changing the brand appearance and awareness.

22.     However, for the assessment of this case, it is not necessary to conclude on the exact product market definition, since even under the narrowest definition of the product markets discussed above, the concentration does not raise serious doubts as to its compatibility with the internal market.

a)          Soaps

23.     Soaps exist in two forms: bar soaps and liquid hand soaps ("LHS"). In the Unilever/Sara Lee decision the Commission identified soaps as a distinct product market.5 The  question whether it should be further subdivided into bar soaps and LHS was ultimately left open. In a previous case6, the Commission defined a separate market for liquid hand soap.

24.     The market investigation confirmed that soaps represent a separate market from bath & shower products. With regard to a potential distinction between bar soaps and liquid soaps, there are some indications that bar soaps and LHS should be distinguished   from each other. For example, competitors explained that supply-side substitutability does not exist since composition, packaging and production process are different for bar and liquid hand soaps, which cannot be produced on the same lines. Also, although  providing basically the same functionality, bar and liquid soaps are usually not promoted and advertised together.

25.     For the purpose of this Decision, however, it is not necessary to conclude on the exact scope of the product market definition, since no competition concerns arise under any potential market delineation.

a)          Deodorants

26.     Deodorants are products which minimise or eliminate the negative effects of sweating through control of odour and/or wetness. They are available in different formats (sprays, roll-ons, sticks) targeting different consumer groups (male, female). While in previous decisions, the Commission left the product market definition open, without assessing  any potential sub-segmentation7, after an in-depth investigation in Unilever/Sara Lee, the Commission identified male deodorants and non-male deodorants as separate product markets, but concluded that a further segmentation according to format would not be applicable.8

27.     For the purpose of this Decision, however, it is not necessary to conclude on the exact scope of the product market definition, since no competition concerns arise under any potential market delineation.

2.   Relevant Geographic Markets

28.     In previous decisions9, the Commission usually considered the geographic markets for personal care products on a national basis in spite of the fact that several suppliers use Pan-European brands and customers have started to organise themselves in international buying organisations.

29.     In its latest decision covering that sector - the Unilever/Sara Lee decision - the Commission considered that the markets for bath & shower, soaps and deodorants were national in scope10. That conclusion was mainly based on the findings that prices and consumer preferences differ between Member States, local brands still play an important role in several Member States, and that price negotiations as well as procurement are conducted at national level.

30.     The Notifying Party agrees that the relevant geographic markets for bath & shower products, soap and deodorants are national in scope. This has been confirmed by the market investigation carried out by the Commission. Customers and competitors across all Member States argued that prices and consumer preferences for formats or gender varieties differ between countries. Moreover local brands still play an important role in several Member States. Finally, almost all market participants confirmed that price negotiations as well as procurement are conducted at national level.

31.     For the purpose of the present decision, all affected markets will be analysed on a national level.

3.   Competitive Assessment

32.     The Notifying Party has identified horizontal overlaps with a combined market share of 15% or more in a number of bath & shower, soap and deodorant markets. However, in most of these markets, the combined market shares are relatively low (less than 25%) and/or the increment is insignificant11. Furthermore, the existence of strong  multinational competitors who are present across many categories12 and of more established local competitors13 is indicative of the absence of competitive concerns. Therefore, a more detailed analysis is only done for Denmark, Belgium and France for bath and shower products and for Denmark for LHS.

a) Bath & shower products

Denmark

33.     In Denmark, Colgate Palmolive is mainly active with the bath & shower brand Palmolive.

34.     Following the transaction the Parties' market share amounts to [40-50%] in the bath & shower market of which [20-30%] comes from Sanex and [10-20%] from CP (almost all from its Palmolive brand).

35.     There are a number of competing suppliers including strong multinational companies like Unilever and Beiersdorf as well as local companies (Unicare, Derma, or Cederroth). In addition, private labels exert a significant constraint on brands in Denmark and hold sizeable market shares. The Parties' competitors hold market share of [10-20%] (private label), [10-20%] (Unilever with its brands Dove and Neutral), [5-10%] (Beiersdorf with its Nivea brand), [0-5%] (Cederroth with it brand Family Fresh), [0-5%] (Unicare who distributes Adidas) and [0-5%] (Derma who entered last year).

36.     Although the market investigation confirmed that there is no discrete bath segment in Denmark (confirming the findings in the Unilever/Sara Lee case), if one were to define a relevant product market for shower products only, the market shares in the shower segment would be very similar to the bath & shower market. Finally, if one considers a male/female distinction of the shower market, very similar market shares also arise in  the non-male segment (combined [40-50%], Sanex [10-20%] and CP [20-30%]). The shares in male are lower ([30-40%] combined, [10-20%] Sanex and [10-20%] CP).

37.     The Notifying Party emphasizes that […]. According to the Notifying Party the closest brands to Sanex bath & shower products in Denmark are […].

38.     This submission was widely supported by the investigation. A wide majority of Danish retailers and competitors considered that the closest brand to Sanex is Neutral followed by Dove and Nivea - mainly because of their skin friendly and healthy characteristics. Palmolive was not considered to be a close substitute for Sanex. For Palmolive, respondents indicated that although it is a well-known brand, it does not have a particular focus and is known for its wide range of products and fragrance rather than for its skin friendly characteristics. Thus, the investigation could not clearly identify a closest competitor to the Palmolive brand. Instead, several brands like Dove, Nivea, Sanex or Lux were mentioned as alternatives.

39.     Moreover, brand loyalty seems to be low and customers can be induced to switch easily using promotions. An internal document14 from Colgate shows that […]. A majority of competitors and retailers considered price, volume or fragrance as being equally important to the brand when the consumers compare two shower gel products.

40.     The market investigation has shown that private labels play an important role. All the main retailers sell private labels in bath & shower with characteristics (skin friendly, different fragrance) similar to those of the major brands. In addition, private labels are generally priced lower than brands. However, since over 50% of branded products are sold on promotion they also directly compete on price. While private labels already represent a significant part of the bath & shower sales (up to 60% of the volume sales for a retailer), around half of the Danish retailers intend to increase their private label sales in the near future.

41.     A wide majority of retailers and competitors do not expect that the transaction will give rise to anti competitive effects, in particular price increases for bath & shower products, since sufficient alternatives would be available and the Parties are not close competitors. An important Danish retailer notably affirmed that it did not "expect any negative effect of the transaction on the competition in the market and consider that after the transaction there will be still enough competition". The same retailer also indicated that it did not "expect a price increase as a result of the transaction, such an increase would not be profitable for Colgate as customers would then rather buy cheaper products".

42.     In conclusion, given the absence of closeness between Sanex and Palmolive, the presence of strong competitors which have brands with similar benefits to Sanex and the direct competition exerted from private labels on the Parties' brands, the transaction will not give rise to any competition concerns in Denmark on the markets for bath & shower and its sub-markets.

Belgium

43.     In Belgium, Colgate Palmolive is active with the bath & shower brands Palmolive and Tahiti.

44.     The merged entity would hold a combined market share of [20-30%] in the overall market for bath & shower products (CP currently holding shares of [10-20%] with its brands Palmolive [5-10%] and Tahiti [5-10%]). The combined market shares would be [30-40%] in the shower segment (CP currently holding shares of [20-30%] with its brands Palmolive [10-20%] and Tahiti [10-20%]). The combined shares in the non-male shower segment would be similar, at [30-40%] and below 5% on the male shower segment. The Parties’ combined share on the bath market is [20-30%]..

45.     Post-merger the entity would face competition on the bath & shower market from Unilever holding a market share of [20-30%]. Other notable competitors include private labels ([10-20%]), Beiersdorf with Nivea ([10-20%]), Johnson & Johnson ([5-10%]) and Henkel with Fa ([5-10%]). The market shares of the competitors are very similar on a hypothetical shower market.

46.     There is therefore a high degree of competition from strong multinational companies like Unilever, Beiersdorf, Johnson & Johnson and Henkel. In addition, private labels hold significant market shares in Belgium.

47.     Respondents to the market investigation confirmed that Sanex and Palmolive-Tahiti are not close competitors in all potential markets. A majority of retailers and competitors identified Fa or Nivea as the closest competitor to Palmolive while the most similar brands to Tahiti would be Ushuaïa, Le Petit Marseillais, Fa or Palmolive. Finally, Dove and Nivea are considered as the closest competitor to Sanex by a broad majority of respondents.

48.     The market investigation has revealed that Belgian retailers offer most of their private labels on similar positioning than national brands but at a lower price. As stated by a competitor: "Private label products play an increasingly important role within the bath & shower category of products in Belgium. It is not unusual to find private label products that are largely the same as the branded products whose position they mirror". Therefore, a competitive constraint is exerted by private labels on brands.

49.     Finally, a wide majority of retailers and competitors do not expect that the transaction will result in anti competitive effects like price increases. One of the main Belgian retailers expressed the absence of competition concerns the following way: "Colgate Palmolive will continue to face competition from other established shower & bath brand suppliers (e.g., Nivea and Unilever). This trend in particular can be seen in the shower & bath brand segment associated with the skin care benefits where the strongest competition takes place among Sanex, Nivea and Dove products".

50.     In conclusion, given the relatively low combined market shares, the absence of closeness between Sanex and Palmolive/Tahiti, the presence of strong competitors which have brands with similar benefits to Sanex and the constraint exerted from private labels, the transaction will not give rise to any competition concerns in Belgium on the markets for bath & shower and its sub-markets.

France

51.     In France, Colgate Palmolive is active with the bath & shower brands Palmolive and Tahiti.

52.     The Parties combined market share amounts to [20-30%] on the bath & shower market. Other competitors hold the following market shares: [10-20%] (Johnson & Johnson), [10-20%] (private labels), [10-20%] (Unilever) and [5-10%] (Henkel).

53.     If the market is defined more narrowly and a separate market is defined for bath products the merged entity would hold in France a market share of [30-40%]15. Other important competitors would remain with Johnson & Johnson ([20-30%]), private label ([10- 20%]), Unilever ([5-10%]) and Henkel ([0-5%]).

54.     On all potential markets, the merged entity will face strong competitive constraints exercised by other remaining competitors, in particular Johnson & Johnson, Unilever, private labels and Henkel.

55.     In addition, results of the market investigation suggest that Sanex and ¨Palmolive-Tahiti are not perceived as close competitors. Palmolive and Tahiti are considered as close to Dop, Fa or Ushuaïa while the closest competitors to Sanex would clearly be Cadum or Dove whatever the market definition chosen.

56.     In conclusion, given the low combined market shares, the absence of closeness between Sanex and Palmolive/Tahiti, the presence of strong competitors which have brands with similar benefits to Sanex and the direct competition exerted from private labels on the Parties' brands, the transaction will not give rise to any competition concerns in France on the markets for bath & shower and its sub-markets.

b)   Soap in Denmark

57.     In Denmark, Colgate Palmolive is active with the soap brand Palmolive.

58.     Post transaction, the merged entity will hold a market share of [20-30%] with an increment of [0-5%] on the LHS market. There is no overlap between the Parties on the bar soap market.

59.     Other competitors include private labels accounting for [20-30%] of the market, Unilever holding [10-20%] of the market and other smaller companies with market shares in range of [0-5%] to [5-10%]. Accordingly, the merged entity will not become the leader at the market as private label has gained a leading position.

60.     In soaps, loyalty remains low with 80% switching between different brands or  not buying any particular brand.

61.     The respondents to the market investigation overwhelmingly support the view that Palmolive is not the closest competitor to Sanex. The majority of competitors and retailers rather emphasize the similarities between Neutral and Sanex. Indeed these two brands are perceived as having similar core characteristics: "hypoallergenic" for Neutral and "skin- care, healthy" for Sanex. Other brands such as Derma, Dove or Palmolive are quoted more occasionally by market participants. With regards to Palmolive, the market investigation did not identify a clear closest competitor. Dove, private labels, Lux and Sanex have been quoted as potential alternatives to Palmolive.

62.     The market investigation has also showed that private labels soap play an important role. All the main Danish retailers have their own private label in soaps. Some of them even provide a very large choice to the end-consumers. Dansk Supermarked offers the following own brands: Nature essentials, Fridas, Budget DKS, Soft Balance, Alosan,  and Flydende. These brands try to cover all the various needs of the consumers, from the "good value for money" product to the skin sensitive soaps. For some of these retailers, the private labels represent around 45% of their total sales in soaps and the ones which replied to the market investigation plan to extend their sales of private label soaps. In consequence, it can be concluded that private labels exert a competitive constraint on the Parties' brands.

63.     In conclusion, given the low combined market shares, the absence of closeness between Sanex and Palmolive, the presence of strong competitors which have brands with similar benefits to Sanex and the direct competition exerted from private labels on the Parties' brands, the transaction will not give rise to any competition concerns in Denmark on the markets for soaps and its sub-markets.

VI.   CONCLUSION

64.     For the above reasons, the European Commission has decided not to oppose the notified operation and to declare it compatible with the internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation.

1       OJ 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 ("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.

2       Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Consolidated Jurisdictional Notice (OJ C95, 16.04.2008, p.1).

3       The Parties' activities do not result in any affected markets for hair care and shaving products independently of the relevant product market definition considered in previous Commission decisions. For hair care these are (i) shampoos, (ii) conditioners and treatments, (iii) styling products and (iv) hair colorants and by distribution channels (hairdresser/general retailers). Concerning the shaving sector, potential markets are products intended to treat the skin before shaving. A further segmentation between gels and foams or between male and female orientation has also been considered. In relation to aftershave preparations/treatments, there may be a separate “men’s care” market notably split into shaving and toiletries. See e.g. Unilever/Sara Lee case. Given the limited overlap all, hair care and shaving products will not be considered further in this decision.

4       Unilever/Sara Lee case, para 1083.

5       Unilever/Sara Lee case, footnote 1 and para 1198-1199.

6       Commission Decision of 30 July 2008, M.5230 – CapMan/Litorina/Cederroth.

7       Case No. COMP/M.3732 Procter & Gamble/Gillette (15/07/2005); Case IV/M.630 – Henkel/Schwarzkopf (18/10/1995); Case IV/M.186 – Henkel/Nobel (23/02/1992).

8       Unilever/Sara Lee case, see footnote 1 , para 38 and 142.

9       Case No. COMP/M.3149 Procter & Gamble/Wella (30/07/2003); Case M.3732 Procter & Gamble/Gillette (15/07/2005); Case M.5230 Capman/Litorina/Cederroth (30/07/2008).

10   As to the relevant geographic markets for hair care and shaving products, the Decision concluded that those markets were also national in scope.

11     Other affected markets but where market shares are indicative of no competition concerns are for bath & shower: i) Greece with highest combined market shares ("CMS") in shower non-male – [20-30%] and increment of [0-5%]; ii) Hungary with highest CMS in shower non-male – [10-20%] and increment of [0- 5%]; iii) Ireland, with highest CMS in shower non-male – [10-20%] and increment of [5-10%]; iv) Lithuania with highest CMS in shower non-male – [10-20%] and increment of [0-5%] and v) Spain with highest CMS in shower non-male – [20-30%] and increment of [5-10%]. For soaps, these markets are: i) Belgium with highest CMS in Liquid hand soap ("LHS") – [20-30%] and increment of [0-5%]; ii) Ireland with highest CMS in LHS – [20-30%] and increment of [0-5%]; iii) the Netherlands with highest CMS in LHS – [20-30%] and increment of [0-5%]; iv) Spain with highest CMS in LHS – [10-20%] and increment of [0-5%]. For deodorants, these markets are: i) Denmark with highest CMS in non male deodorants – [20- 30%] and increment of [0-5%]; ii) France with highest CMS in non male deodorants – [20-30%] and increment of [0-5%] and iii) Spain with highest CMS in non male deodorants – [20-30%] and increment of [0-5%]

12       Such as Unilever, Johnson & Johnson, Beiersdorf, Henkel and Reckitt Benckiser.

13     Such as Cussons in Irish soaps, Puig in Spanish deodorants or Unicare in Danish deodorants.

14     Form CO Annex 22.

15     Allocating Sanex dual products to the bath and shower segment respectively results in an overestimation of Sanex share in bath. As the available market shares for 'bath' and 'shower' segments are calculated on the basis of the bottle size (bottles below 400ml are labelled as shower and above that as bath), the Sanex share in the ‘bath’ segment is clearly overstated as its 'dual' product is sold in larger bottles. In Unilever/Sara Lee, the Commission therefore recalculated the market shares taking into account this effect. Applying the same method here results in combined market share well below 25%, namely [15-25%] in bath and [15-25%] in shower.