Commission, November 8, 2011, No M.6388

Dear Sir/Madam,

Subject:  Case No COMP/M.6388 – ECOLAB/ NALCO HOLDING COMPANY

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

1.  On 04.10.2011, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which Ecolab Inc. ("Ecolab", United States) acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of Nalco Holding Company ("Nalco" or "the Target", United States) by way of purchase of shares2. Ecolab is hereinafter referred to as "the notifying party". Together with Nalco, they are referred to in this note as "the parties".

I.            THE PARTIES

2.  Ecolab is active in the production and sale of cleaning, sanitizing, food safety and infection prevention products and services to foodservice, food and beverage processing, healthcare, and hospitality customers.

3.  The Target is active in the supply of water, energy, air and process services technologies with a focus on water treatment services to industrial and institutional end-customers and integrated water and process improvement services mainly in the petroleum, petrochemical and pulp and paper industry.

II.         THE OPERATION

4.  On 19 July 2011, Ecolab and Sustainability Partners Corporation, a direct, wholly-owned subsidiary of Ecolab entered into an Agreement and Plan of Merger with Nalco. Under the Agreement, Nalco will be merged with and into Sustainability Partners  Corporation  and will cease to exist as a separate company. Sustainability Partners Corporation will continue as the surviving corporation as a direct, wholly-owned subsidiary of Ecolab.

III.      CONCENTRATION

5.  The proposed transaction will result in Ecolab acquiring sole control over Nalco. The notified transaction therefore constitutes a concentration within the meaning of Article 3 (1)(b) of the Merger Regulation.

IV.      EU DIMENSION

6.  The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million3 (Ecolab: EUR 4 594 million, Nalco: EUR 3 206 million). Each of them has an EU-wide turnover in excess of EUR 250 million (Ecolab: EUR […] million; Nalco: EUR […] million), but they do not achieve more than two-thirds of their aggregate EU- wide turnover within one and the same Member State. The notified operation therefore has an EU dimension pursuant to Article 1(2) of the Merger Regulation.

V.         MARKET DEFINITIONS

7.  Ecolab is mainly active in the production and sale of cleaning and sanitizing products4 but has a small presence in the water treatment segment in which Nalco has a significant presence.

1.1.         Water treatment chemicals for cooling and boiler applications

1.1.1.       Product market definition

8.  The water treatment chemicals used in a boiler avoid corrosion and scale formation which creates problems in the boiler and downstream components5. The feedwater required for steam generation must be of a particular quality, as the use of untreated, raw water, which contains impurities, may lead to damage, corrosion  and/or  inefficient steam output.

9.  Similarly, chemical treatment is required for cooling applications, such as cooling towers, in order to avoid corrosion and scale and microbial growth in the tower. Cooling towers remove the heat from an industrial plant by transferring process waste heat to the atmosphere.

10. The notifying party submits that for the purpose of assessing the proposed transaction, the relevant market is the market for all chemicals used in the water treatment for cooling and boiler applications across all industry segments.

11. In case M.5327 - Ashland/Hercules6, the Commission defined a relevant market of water treatment chemicals for cooling and boiler applications. However, the Commission ultimately left open the exact market definition as to whether the market must be further sub-segmented by industry of application or by specific chemicals.

12. The market investigation broadly confirmed that water treatment chemicals can be further segmented according to the industry of application (e.g. food and beverages, paper or energy)7 and to the specific chemicals (e.g. corrosion chemicals, scale  inhibitors, dispersant agents or biocides)8. However, in this regard, a large majority of the customers responding to the market investigation have confirmed that typically they purchase a solution-oriented product and service from the supplier rather than individual chemicals.9

13. Nonetheless, in the present case it is not necessary to come to definitive conclusions on the product market definition since the competitive assessment would not change whichever precise product market definition is retained.

1.1.2.          Geographic market definition

14. The notifying party submits that the geographic scope of the market is EEA-wide, mainly because there are no barriers to trade with respect to water treatment chemicals  in the EEA and transport costs within the EEA are minimal.

15. In Ashland/Hercules, the Commission considered the geographic scope of the market for water treatment chemicals for cooling and boiler applications to be EEA-wide in scope although it ultimately left the question open.

16. The results of market investigation in the present case also suggests that the geographic scope of the market for water treatment chemicals for cooling and boiler application is EEA-wide in scope. In fact the majority of replies of competitors considered the market to be EEA-wide10. Similarly, the majority of customers responding to the market investigation considered the relevant geographic market to be EEA-wide in scope.11

17. In any event, the precise geographic market definition can be left open for the purpose   of this decision since the competitive assessment would not change under any  alternative geographic market definition.

1.2.         Water treatment for influent and effluent water

1.2.1.          Product market definition

18. Water treatment chemicals are supplied for the treatment of influent water, that is water that goes into an industrial plant and which is used in the production process, and effluent water, i.e., waste water that flows from an industrial plant. Chemical treatment of influent water is needed to remove contaminants from raw water to make it suitable for industrial uses. These contaminants may be either soluble or insoluble, with  solubility dictating the procedure needed for proper removal. Chemical treatment of effluent water, or wastewater, is necessary to reduce the contaminants going to the municipal sewage system.

19. […].

20.  In Ashland/Hercules, the Commission noted that the market for influent and effluent water treatment chemicals comprises both coagulants and flocculants12. It further considered distinguishing between the physical forms in which influent and effluent water treatment chemicals are sold (dry powders, dry beads, liquid dispersion and emulsions) and the organic or inorganic character of such chemicals. However, the precise market definition was left open as the notified operation did not raise any competition concerns.

21.  In the present case, the precise product market definition can also be left open since the competitive assessment would not change under any alternative product market definition.

1.2.2.   Geographic market definition

22.  The notifying party submits that the geographic scope of the market is EEA-wide since most of the relevant players for water chemicals for the treatment of influent  and effluent water are global companies with worldwide activities, the transport costs within the EEA remain limited and there is an absence of barriers to trade within the EEA.

23.  In Ashland/Hercules, the Commission considered that the geographic scope of the market for water chemicals for the treatment of influent and effluent water could be considered EEA-wide in scope although it ultimately left the question open.

24.   In the present case, the precise geographic market definition can also be left open since the competitive assessment would not change under any alternative geographic market definition.

1.3.         Design, engineering and supply of water treatment equipment

1.3.1.          Product market definition

25.  In Case M.1514 - Vivendi/US Filters13, the Commission defined a separate market for  all hardware installations capable of delivering the required quantity and quality of  water in accordance with the customers’ specifications for the provision of process water, potable water or the treatment of wastewater.

1.3.2.  Geographic market definition

26. The notifying party submits that the relevant geographic market is at least EEA-wide since there are no barriers to trade to water treatment equipment in the EEA, transport costs within the EEA are minimal and customers seek offers from manufacturers from different countries in the EEA.

27. In Vivendi/US Filters, the Commission noted that the relevant geographic market could be considered to be at least EEA wide although it ultimately left the question open.

1.4.         Cleaning and sanitizing products

28. In line with the Commission decisional practice14, the notifying party submits that the relevant product market for the supply of cleaning and sanitizing products should distinguish between the industrial and institutional segment. The Commission left ultimately open the question of defining the geographic scope of the market for the supply of cleaning and sanitizing products15.

1.5.         Operation and monitoring services relating to water and waste water treatment facilities 

29.   In Case M.5724 - Suez Environnement/AGBAR16, the Commission defined a separate market for operation and management services relating to water treatment. However, in the present case, there is no need to provide further details regarding these activities as Ecolab is not active in this segment in the EEA17.

VI.   COMPETITIVE ASSESSMENT Horizontal overlaps

30.  The parties’ activities overlap only with respect to the supply of water treatment chemicals for cooling and boiler applications and, to a very limited extent, water chemicals for the treatment of influent and effluent water.

31.  In the EEA, Ecolab supplies its product and service offerings in water treatment only to customers in the food and beverage industry.

Water treatment chemicals for cooling and boiler applications

32. The proposed transaction leads to an affected market in relation to the supply of water treatment chemicals for cooling and boiler applications and related services.

33. At the EEA level, as shown in Table 1, the combined entity will achieve a market share of [20-30]% (increment of [0-5]%) in the market for water treatment chemicals for  boiler and cooling applications. Even in case of further segmenting the product market according to the industry of application (i.e. food and beverage) and the chemicals concerned (i.e. corrosion inhibitors, scale inhibitors, microbiological control agents and dispersants), the combined market share will not exceed 25%18. Moreover, the  increment of market share will remain below [0-5]% under any possible product market definition.

34.  The market investigation has revealed that competitors perception of Nalco's market share in water treatment chemicals for cooling and boiler application is broadly in line with the notifying party’s own estimate19.

Table 1: EEA-wide market shares by value of the parties and competitors (2010) in water treatment chemicals for cooling and boiler applications

Source: Notifying Party's estimates

35. The merged entity will continue to face strong competition from a number of large players, including General Electric, Ashland, BK Giulini and Buckman. Furthermore, the notifying party signals recent market entry by a series of local and regional companies such as Facci Services, Celko, Aurora Srl, Axchem, Cillit Gmbh and Servophil. In this regard, the customers responding to the market investigation have indicated that the recent entrants in the industry of water treatment chemicals constitute either strong or average competitors.20

36.   At the national level, the notifying party submits that in the market for the supply of water treatment chemicals for cooling and boiler applications, Nalco's share in Belgium, Denmark, Finland, Ireland, Norway, Poland and Sweden would be approximately [20- 30]%. It would be slightly higher in France, Italy and Spain with approximately [20- 30]% market share and slightly lower in Austria, Germany, the Netherlands, and the United Kingdom with around [20-30]%. However, in each of these jurisdictions, Ecolab's estimated national share of sales is less than [0-5]%.

37. The notifying party submits that even under the narrowest possible product and geographic market definition which considers national markets and distinguishes between specific chemicals and industry/area of application, the overlap between the parties would be limited to the national supply of (i) corrosion inhibitors, (ii) scale inhibitors, (iii) microbiological control agents, and (iv) dispersing agents to the Food  and Beverage industry21. In each of these overlapping segments, the notifying party estimates that the parties' combined share, even at the national level, would remain below 25%.

38.  The market investigation confirmed that competitors can expand output in response to a shortage in the supply of the water treatment chemicals for cooling and boiler applications.22

39.  The market investigation further revealed that the vast majority of customers can switch suppliers albeit with some difficulty23. This view was confirmed by competitors in the market investigation24. In effect, the majority of respondents also indicated that customers have a multiple sourcing policy requiring at least two suppliers for their water treatment chemicals25.

40. The majority of competitors in the market investigation indicated that the transaction is likely to have an effect on competition on the water treatment chemicals for cooling and boiler applications26. However, they also indicated that the transaction would not lead to price increases in any of the products concerned due to, among other reasons, the pro- competitive character of the merger, the existence of excess capacity and significant remaining competition in the market27. In fact, the overwhelming majority of customers (21 out of 26) indicated that the transaction will not have an impact on their business28.

41. In light of all the aforementioned factors the proposed transaction does not raise competition concerns under any plausible product or geographic market definition regarding the supply of water treatment chemicals for cooling and boiler applications.

Chemicals for the treatment of influent and effluent water

42. At an EEA wide level, as shown in Table 2, the proposed transaction leads to horizontal overlaps in relation to chemicals for the treatment of influent and effluent water.

Table 2: EEA-wide market shares by value of the parties and competitors (2010) in influent and effluent water treatment chemicals

Source: Notifying Party's estimates

43.  The notifying party submits that the market shares would not be materially different if a distinction was made between "inorganic" and "organic" influent and effluent water treatment chemicals, given that Nalco is mainly active in the supply of "organic" chemicals and believes that all its main competitors also principally supply "organic" chemicals.

44. With respect to the physical forms of influent and effluent water treatment chemicals, Nalco does not supply dry beads. According to the notifying party estimates, at an EEA level, Nalco's market share in dry powders, liquid dispersions and emulsions were respectively [5-10]%, [10-20]% and [10-20]%. Ecolab only sold chemicals in liquid dispersion form in the EEA in 2010. Ecolab's share for liquid dispersion chemicals for influent and effluent water treatment is well below [0-5]% at the EEA level.

45. At a national level, the parties' activities overlap in Denmark, Ireland, Netherlands, Spain, Sweden and United Kingdom but the combined market share in each of these Member States will remain below 15%.

46.  Therefore, it is concluded that the proposed transaction does not raise competition concerns under any plausible product or geographic market regarding the supply of chemicals for the treatment of influent and effluent water.

Other markets

47. The notifying party submits that there are no other markets in which either party has a market share exceeding 25% and on which the other party is either a potential entrant or holds significant intellectual property rights. The market investigation did not reveal that this might be the case.

Vertical relationships

48. The transaction leads to some very limited vertical relations between Nalco and Ecolab. Nalco supplies chlorine dioxide generators29 to Ecolab and water treatment chemicals30 to some of Ecolab's competitors in the water treatment business.

49. However, the notifying party submits that either the individual or combined market share of the parties will remain below 25% in any product market, which is upstream or downstream of a market in which the other party is engaged regardless of whether or not there is any existing supplier/customer relationship between the parties to the concentration. Consequently, the proposed transaction will not lead to any vertically affected market.

50.   The market investigation broadly confirmed that the vertical relationships arising from the proposed transaction do not give rise to competition concerns31.

Conglomerate effects

51.  The notifying party submits that none of the parties hold shares in excess of 25% in markets in which the parties' activities are complementary or in a range of products generally purchased by the same set of customers for the same end-use.

52. The notifying party considers that Ecolab’s cleaning and sanitizing products and Nalco’s chemicals for water treatment, paper and energy processes are not complementary since these products have very different end-uses32. In fact, Ecolab’s cleaning and sanitizing products comprise detergents, cleaners, disinfectants and sanitizers used for personal hygiene, and surface cleaning and disinfection. These end-uses are very distinct from and not related to the water treatment chemicals for cooling and boiler applications or the treatment of influent and effluent water. Furthermore, Nalco's paper and energy products comprise mainly processed chemicals which are used in the manufacturing process.

53.  A series of competitors and customers in the market investigation signalled that since  the proposed transaction will allow the merged entity to supply a range of products which are purchased by the same set of customers, it could result in the merged entity engaging in some kind of bundling, tying or exclusionary practice.33 Customers  indicated that the proposed transaction would allow the merged entity to achieve synergies reinforcing its core competencies and enabling the merged entity to offer a complete package to its customers, particularly in the food and beverages industry.

54.  However, it is unlikely that the proposed transaction would allow such a concern to materialise. First, the merged entity will not have the ability to leverage its market position from one market to another by means of bundling or tying or other exclusionary practices. Neither of the parties will have market power in relation to their respective activities. On the one hand, the merged entity will hold market shares below [30-40]% even under the narrowest market segmentation of water treatment products34. On the other hand, the notifying party estimates that Ecolab's share in cleaning and sanitizing products in the industrial or institutional segments is below 25% both at the EEA or national level35. Significant competitors for cleaning and sanitizing products to the industrial segment include Diversey, Sopura, Dr. Wiegert and Holchem. As to the institutional segment, competitors include Diversey, Tana Professional, Dr.Schnell, Nilfisk-Advance, Vileda Professional and a number of other regional and national suppliers. Both segments have also experienced recent entries.

55.  Second, concerning the overlaps between the parties' customer bases, the notifying party submits that this overlap is very limited. This is attributed to the fact that whilst about […]% of Nalco's total EEA sales are to the paper, energy and heavy industries as well as to manufacturing customers in the light industry, Ecolab sells its cleaning and sanitizing products as well as its water treatment products mainly to the food and beverages industry and to institutional customers36. Therefore, the only potential bundling opportunities arise in relation to the limited percentage of the parties' overlapping customers in the food and beverages industry and in the institutional customers segment. Even within these segments, the customers' overlap between the parties' activities is very limited.37

56.  Third, although some customers expressed concerns in relation to the potential commercial bundling of cleaning and sanitizing and water treatment products, the majority of them observed that the merged entity would not be able to engage in any bundling, tying or exclusionary practices38. This practice does not appear to be common in the industry. In fact, Ecolab estimates that in the EEA less than [0-5]% of its total sales of cleaning and sanitizing products are made as part of a bundle with its water treatment products. Furthermore, the majority of the customers' replies to the market investigation indicate that it is not common place in the industry that suppliers offer discounts or advantageous packages upon the joint purchase of water treatment chemicals and cleaning products.39

57.  Fourth, there would be a number of suppliers who would be able to offer a comparable, if not larger, competitive response to any commercial bundling strategy of the post- merger entity. Some of these competitors such as BK Giulini, GE Water, Diversey and Veolia have a sufficiently broad internal product line to be able to offer their own comparable commercial bundles. In the alternative, competitors can enter into teaming arrangements with other firms to provide a similar range of products.

58.   Therefore, it is concluded that the proposed transaction would not lead to a significant impediment of effective competition as a result of the merged entity engaging in any type of bundling, tying or exclusionary practice.

VII.  CONCLUSION

59.  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          Publication in the Official Journal of the European Union No C 301, 12.10.2011, p.11.

3      Turnover calculated in accordance with Article 5 of the Merger Regulation.

4      Approximately […] percent of Ecolab' sales are realized in the cleaning and sanitizing segment. There are no horizontal overlaps between Ecolab and Nalco in this segment.

5      A boiler is an integral component of a steam engine used in a variety of industries. It is used to create steam by heating up boiler feedwater.

6      Case COMP/M.5327 – Ashland / Hercules, decision of 6 October 2008.

7      Replies to question 5 of the Commission's questionnaire to competitors dated 5 October 2011.

8      Replies to question 4 of the Commission's questionnaire to competitors dated 5 October 2011.

9      Replies to question 15 of the Commission's questionnaire to customers dated 5 October 2011.

10   Replies to question 6 of the Commission's questionnaire to competitors dated 5 October 2011.

11   Replies to question 7 of the Commission's questionnaire to customers dated 5 October 2011.

12   These are separation agents which cause the precipitation of suspended solids, which can then be filtered out of the water.

13   Case COMP/M.1514 – Vivendi / US Filters, decision of 24 April 1999.

14   Case COMP/M.2665 - Johnson Professional Holdings/ DiverseyLever, decision of 4 March 2002.

15   Ibid.

16   Case COMP/M.5724 – Suez Environnement / AGBAR, decision of 27 April 2010.

17   Ecolab provides monitoring services only with respect to simple concentration monitoring of the chemicals used in the chemical treatment for cooling and boiler applications.

18    See recital 32 of the Merger Regulation.

19    Replies to question 7 of the Commission's questionnaire to competitors dated 5 October 2011.

20   Replies to question 11 of the Commission's questionnaire to customers dated 5 October 2011.

21   In the EEA, Ecolab supplies its product and service offerings in water treatment only to customers in the food and beverage industry. In 2010, Ecolab generated a minimal revenue of approximately EUR […] million in the EEA from its water treatment business, which accounts for a mere […]% of Ecolab’s total EEA revenues in 2010.

22   Replies to question 19 of the Commission's questionnaire to competitors dated 5 October 2011. Replies to question 21 of the Commission's questionnaire to customers dated 5 October 2011.

23   Replies to question 20 of the Commission's questionnaire to customers dated 5 October 2011.

24   Replies to question 18 of the Commission's questionnaire to competitors dated 5 October 2011.

25   Replies to question 16 of the Commission's questionnaire to customers dated 5 October 2011. Replies to question 17 of the Commission's questionnaire to competitors dated 5 October 2011.

26   Replies to question 20 of the Commission's questionnaire to competitors dated 5 October 2011.

27   Replies to question 20 of the Commission's questionnaire to competitors dated 5 October 2011.

28   Replies to question 24 of the Commission's questionnaire to customers dated 5 October 2011.

29   An equipment used for producing chlorine dioxide, a chemical used for water disinfection.

30   Corrosion inhibitors and biocides.

31   Replies to question 25 of the Commission's questionnaire to competitors dated 5 October 2011. Replies to question 27 of the Commission's questionnaire to customers dated 5 October 2011.

32   Ecolab’s cleaning and sanitizing products comprise detergents, cleaners, disinfectants and  sanitizers which are used for personal hygiene, and surface cleaning and disinfection. These products are very distinct from and not related to Nalco's water treatment chemicals for cooling and boiler applications or  for the treatment of influent and effluent water. Ecolab's cleaning and sanitizing products are also not related to Nalco's paper and energy products comprising mainly process chemicals used in the manufacturing process for pulp and paper, the petrochemical or other heavy industries. Nalco’s Paper chemicals are used to treat process water in pulp and paper mills to prevent microbiological growth and to enhance the quality or characteristics of finished paper products. Nalco’s Energy chemicals are used to assist in the recovery of oil, and the processing and refining of petroleum products.

33   Replies to questions 20 and 24 of the Commission's questionnaire to competitors dated 5 October 2011. Replies to question 26 of the Commission's questionnaire to customers dated 5 October 2011.

34   According to the notifying party's estimates, Nalco's share in process chemicals for the paper industry;  and process chemicals for the energy industry are below 25%.

35   According to the notifying party's estimates, market shares will remain below 25% even under the narrowest market segmentation the food and beverages and institutional segments which are the only two potentially overlapping customer segments.

36   Restaurants, hotels, hospitals, catering companies, nursing homes, schools, universities, office buildings and airports.

37   Only three customers ([…]) appear in both parties' lists of top 20 customers in the food and beverages segment, and only one customer ([…]) in the list of top 20 customers in the institutional segment. Although there may be other overlapping customers in these categories (each party has thousands of customer accounts in the EEA), these are the most representative customers of each party in these categories.

38   Replies to question 26 of the Commission's questionnaire to customers dated 5 October 2011.

39   Replies to question 25 of the Commission's questionnaire to customers dated 5 October 2011.