Commission, March 13, 2017, No M.8308

Subject: Case M.8308 – MUNKSJÖ / AHLSTROM II

Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/20041 and Article 57 of the Agreement on the European Economic Area2

Dear Sir or Madam,

(1)    On 6 February 2017, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which Munksjö Oyj ("Munksjö", Finland) merges, within the meaning of Article 3(1)(a) of the Merger Regulation, with Ahlstrom Corporation ("Ahlstrom", Finland) by way of a purchase of shares.3 Munksjö and Ahlstrom are designated hereinafter as the 'Parties'.

1.         THE PARTIES

(2)    Munksjö, registered in Finland but headquartered in Stockholm, is an  international speciality paper company. It comprises four business segments: (i) Decor; (ii) Release Liners; (iii) Industrial Applications; and (iv) Graphics and Packaging. Within the latter segment, Munksjö produces various types of surface treated paper, including (i) grease resistant paper for food wrapping and flexible packaging, (ii) siliconised kraft for baking and (iii) décor paper for laminating purposes.

(3)    Ahlstrom, headquartered in Helsinki, is an international manufacturer of high performance fiber-based materials. It comprises    two segments: (i) Filtration and Performance; and (ii) Specialties. Within Specialties, Ahlstrom produces various types of specialty paper including vegetable parchment for food wrapping, baking and laminating purposes.

2.           THE OPERATION AND THE CONCENTRATION

(4)    Ahlstrom will be merged into Munksjö pursuant to the Finnish Companies Act. Ahlstrom's shareholders will receive 0.9738 new shares in the combined entity for each share held in Ahlstrom. Post-transaction, Ahlstrom's shareholders will hold approximately 47.2% of the shares in the combined entity with Munksjö's shareholders holding the remaining 52.8%. Thereafter, Ahlstrom will cease to exist as a separate legal entity.

3.          EU DIMENSION

(5)    The undertakings concerned do not have a combined aggregate worldwide turnover of more than EUR 5 000 million [Munksjö: EUR 1 131 million; Ahlstrom: EUR [...] million]. However, both of them have an EU-wide turnover  in  excess   of   EUR 250 million   [Munksjö:   EUR […] million;   Ahlstrom:  EUR […] million]. The notified operation does not have an EU dimension within the meaning of Article 1 of the Merger Regulation but, on 1 December 2016, it was referred to the Commission pursuant to Article 4(5) of the Merger Regulation.

4.        RELEVANT MARKETS

4.1.     Introduction

(6)    Both Munksjö and Ahlstrom produce greaseproof papers for food and fat wrapping, and baking paper. There is a quality scale for greaseproof papers, in particular in terms of grease resistance and reusability, with vegetable parchment being the highest quality and types of grease resistant paper being the lowest quality. In the middle of the scale, there are various grades of high density greaseproof paper.

(7)    Only Ahlstrom is active in the production of vegetable parchment. Its  main brands are Naturemold, Grillon, Unibake and Sulpak.

(8)    Only Munksjö is active in the production of grease resistant paper. Its main  brands are Aderpack, Alipack, Coralpack and Gervalux.

(9)    Neither of the Parties produces high density greaseproof paper.

4.2.           Relevant product markets

4.2.1.        Vegetable parchment

(10)   Vegetable parchment is made out of 100% cellulose with no additives. The base paper for vegetable parchment is "parched" using a sulphuric acid bath, which removes the fibres. The resulting sheet is translucent, dense and with a small number of pores, which creates a natural barrier against grease, water and heat. The main applications for vegetable parchment are:

(a)       Food wrapping: Given its very high level of grease resistance, vegetable parchment is particularly suitable for wrapping very fatty or greasy  product and for long-term wrapping.

(b)      Baking: Given its heat resistance, vegetable parchment can be used for baking at high temperatures without burning. Due to its higher caliper, it can be re-used several times (up to approximately 15 times) and also has excellent release properties which prevent the food from sticking to the paper.

(c)      Cooking: It is naturally water-resistant and can therefore be used, without tearing, for cooking, including steaming and boiling. More recent uses include the single serve capsule coffee segment.

(d)     Others: Additional uses include furniture laminate, industrial usages, textile tubes and graphical applications.– Vegetable  parchment  can  be  used  as  a  bonding  agent  for continuous pressures laminates ("CPL") and high pressure laminates ("HPL"). Laminates consist of several layers of paper which are impregnated with a special resin, are pressed together and transformed into a high performance material. The bonding agent produces the technical characteristics of the laminate. Vegetable parchment can be used in conjunction with décor paper.

4.2.2.                 High density greaseproof paper

(11)   High density greaseproof paper, also referred to as mechanical greaseproof paper, is produced from chemical pulp. This pulp is subject to prolonged mechanical beating to produce it, which results in a very dense paper with good barrier properties. The high density greaseproof paper can also be subject to a process of coating with different chemicals in order to give the paper a release quality. The main applications for high density greaseproof paper are:

(a)   Food wrapping: Without further treatment, high density greaseproof paper is particularly suitable for fat and food wrapping applications.

(b)   Baking: The main end-user of siliconised high density greaseproof paper  is the baking industry, where a good release property is critical for preventing baked goods sticking to the paper. It can be re-used several times like vegetable parchment, however, according to the Parties, it is of  a lower quality by comparison.

(c)  Other: When coated, high density greaseproof paper can also be used in various industrial applications.

4.2.3.          Grease resistant paper

(12)   Grease resistant paper includes chemical greaseproof paper and other surface treated paper.

(13)   Chemical greaseproof paper, also called imitation greaseproof paper, is produced from chemical pulp, which is subject to less severe mechanical beating compared to high density greaseproof paper, resulting in a paper with a more open structure. It is coated with fluoro-organic chemicals to achieve grease resistance. Chemical greaseproof papers can be classified by their KIT level, which measures the amount of resin applied to the paper and the corresponding level of grease resistance. KIT 3, which is the most common level, provides limited grease resistance, whereas KIT 10 provides a higher level, but has a lower grease resistance than vegetable parchment. The main applications for chemical greaseproof paper are:

(a)       Food wrapping: The paper with lower KIT levels are generally used for  the wrapping of food that do not require a high level of grease resistance, such as street food or fast food i.e. short term wrapping. Paper with KIT level 10 or higher can be used for wrapping more greasy or fatty products, such as butter or margarine or for long-term wrapping in general.

(b)     Flexible packaging: Due to its flexibility, chemical greaseproof paper is suitable for packaging of pet food, microwave popcorn bags and carry out bags, where folding properties are important.

(14)   Other surface treated papers where Munksjö is active include:

(a)      C1S: This refers to one-sided pigment coated paper that is fluoro- chemically treated for grease resistance. This type of paper is mainly used for pet food bags

(b)      Siliconised kraft: This high strength paper is made from sulphate pulp and can be siliconised to achieve release properties. It is not grease resistant but, because of its heat resistance and release properties, is commonly used for baking applications.

4.2.4.        Other paper

(15)   Munksjö produces décor papers. These are specialty papers that are used to upgrade the surface of wood-based panels. They are technically advanced and highly engineered products that serve as a carrier of print and resins. They are used in the production of furniture, laminate flooring and other interior and exterior architectural panels. Décor papers can be used in conjunction with vegetable parchment.

4.2.5.    The Notifying Parties' view

(16)   The Parties argue that vegetable parchment and grease resistant paper form two separate product markets as there is limited demand-side substitutability between them.

(17)   While both grease resistant paper and vegetable parchment can be used for baking and food and fat wrapping purposes, their main end-uses within these applications differ because of their different qualities and price levels.

(18)   Munksjö's siliconised kraft and Ahlstrom's vegetable parchment can be used for baking.   However,  vegetable  parchment   is   much  more   expensive  than    the siliconised kraft ranges.4 Furthermore, vegetable parchment can be re-used  several times and is more likely to be used by professionals. Siliconised kraft is mainly aimed at consumers and one-time users.

(19)   In a similar vein, both Munksjö's chemical greaseproof paper and Ahlstrom's vegetable parchment can be used for fat and food wrapping. However, vegetable parchment is more expensive than chemical greaseproof paper, and vegetable parchment's high level of grease resistance means it is mainly used for very greasy products or long-term wrapping. By contrast, chemical greaseproof paper is mainly used for street food and fast food wrapping.

(20)   Additionally vegetable parchment is used for furniture laminate, industrial usages, textile tubes and graphical applications. Grease resistant paper is used for pet food, microwave popcorn bags and the inner liner for biscuits, for which vegetable parchment is unsuitable.

(21)   The Parties also argue that there is no supply-side substitutability between grease resistant paper and vegetable parchment as the production process is substantially different due to the necessity of treating vegetable parchment in sulphuric acid. The machines necessary to produce vegetable parchment can also not be used for producing grease resistant/siliconised kraft or greaseproof paper, and vice versa.

4.2.6.      The Commission's assessment

(22)   In a previous decision5, the Commission considered a separate market for imitation greaseproof paper, pure greaseproof paper and vegetable parchment. However, the market definition was ultimately left open as no competition concerns arose even on the narrowest plausible product market definition.

(23)   In the present case, respondents to the market investigation confirmed that the product range can be based on a scale of the level of grease resistance with vegetable parchment being the most resistant and grease resistant paper being the least.

(24)   One competitor pointed to important overlaps between the three types of paper without a specific delineation being found. It suggested to define the markets by end-uses. In its view, in the present case, this should include: baking and food wrapping.

(25)   For the purposes of this Decision, the exact product market definition can be left open, since the Transaction does not raise serious doubts as to its compatibility with the internal market under any plausible product market definition.

4.3.         Relevant geographic markets

4.3.1.      The Notifying Parties' view

(26)   The Parties submit that the geographic market for vegetable parchment, high density greaseproof paper and grease resistant paper is worldwide or at least EEA-wide in scope.

(27)   Munksjö exports […]% of its grease resistant paper and Ahlstrom exports […]% of vegetable parchment outside the EEA. Regulatory requirements for grease resistant paper and vegetable parchment are also similar across different regions such as Asia, EEA and USA.

4.3.2.        The Commission's assessment

(28)   In a previous decision6, the Commission considered the geographic market to be EEA-wide in scope.

(29)   Respondents to the market investigation also considered the market to be at least EEA-wide and potentially worldwide in scope.

(30)   For the purposes of this Decision, the exact geographic market definition can be left open, since the Transaction does not raise serious doubts as to its compatibility with the internal market under any plausible geographic market definition.

5.             COMPETITIVE ASSESSMENT

5.1.         Non-coordinated horizontal effects

(31)   The transaction leads to horizontal overlaps on the following three possible markets: (i) all greaseproof papers; (ii) greaseproof papers for food and fat wrapping; (iii) baking paper.

5.1.1.        All greaseproof papers

(32)   While neither of the Parties produces high density greaseproof paper, the Parties suggest that various grades of high density greaseproof paper compete both with Ahlstrom's more sophisticated vegetable parchment products and with Munksjö's more basic grease resistant paper products.

(33)   Therefore, if both products are considered as part of an overall market for greaseproof papers including vegetable parchment, high density greaseproof  paper and grease resistant paper, according to the Parties, their combined market share would be [10-20]% (Munksjö: [5-10]%; Ahlstrom: [5-10]%) in the EEA  and [5-10]% (Munksjö: [0-5]%; Ahlstrom: [5-10]%) worldwide in 2015.

(34)   There are also a number of strong competitors such as Nordic Paper ([20-30]%), Metsä Tissue ([10-20]%) and Delfortgroup ([5-10]%) active in the EEA. Strong competitors worldwide include Expera ([10-20]%), Domtar ([5-10]%), Nordic Paper ([5-10]%).7

(35)   According to the Parties, if the market were to be further segmented by type of greaseproof paper, this would result in no overlaps between the Parties' activities.8

5.1.2.           Food & fat wrapping

(36)   If both products were to be considered as part of an overall market for food and  fat wrapping paper, the Parties submit that their estimated combined market share for 2015 by value would be [5-10]% (Munksjö: [0-5]%; Ahlstrom: [0-5]%) in the EEA and [0-5]% (Munksjö: [0-5]%; Ahlstrom: [0-5]%) worldwide.

(37)   There are also a number of strong competitors such as Nordic Paper   ([20-30]%), Delfortgroup ([10-20]%) and BillerudKorsnas ([5-10]%) active in the EEA.9

(38)   One respondent to the market investigation pointed out that vegetable parchment was unlikely to dominate other greaseproof papers as the chemicals used in its production are environmentally harmful and costly hence siliconised greaseproof paper would be seen as a better option.

5.1.3.            Baking paper

(39)   If both products were to be considered as part of an overall market for baking paper, the Parties submit that their estimated combined market share for 2015 by value would be [10-20]% (Munksjö: [0-5]%; Ahlstrom: [5-10]%) in the EEA and [10-20]% (Munksjö: [0-5]%; Ahlstrom: [10-20]%) worldwide.

(40)   There are also a number of strong competitors such as Metsä Tissue ([20-30]%), Nordic Paper ([20-30]%) and Delfortgroup ([5-10]%) active in the EEA.10

5.1.4.        The Commission's assessment

(41)   The Commission considers that the limited market shares of the Parties under any possible market definition, the presence of a number of strong competitors in each possible segment and the fact that respondents to the market investigation generally considered the Parties' products to be complementary rather than  directly competing with each other, along with potential logistical advantages from purchasing different types of paper from the merged entity, the proposed concentration does not raise competition concerns.

5.2.     Non-horizontal effects

5.2.1.  Vertical effects

(42)   There is one potential vertical link between the Parties relating to pulp i.e. Ahlstrom could potentially source part of its needs from Munksjö which currently owns Aspa Mill.11 This produces bleached long-fiber pulp and unbleached kraft pulp. The former is used in the production of specialty paper, including paper  used in hygiene products, graphic paper, printing and writing paper, coated paper, cardboard paper, transparent paper and passport paper. The latter is a specialty pulp mainly produced for electrotechnical papers. It is also used in kraft paper, board paper, filter paper (primarily coffee filters), paper used in hygiene products, and greaseproof paper.

(43)   Furthermore, the Parties today mainly source their pulp jointly so the vertical integration is not likely to change any purchasing decisions post-Transaction.

(44)   In any event, given Munksjö's small presence in the supply of long-fiber pulp (<4% of total demand in the EEA) and in unbleached pulp (around [0-5]% of total demand worldwide) and Ahlstrom’s limited demand of long-fiber pulp and unbleached pulp, the Transaction does not raise any competitive concerns resulting from vertical effects.

5.2.2.                 Conglomerate effects

(45)   The Commission also considered whether the merger could create anti- competitive effects as a result of bundling in those segments where customers buy products from the Parties, in particular given Ahlstrom's strong market position in vegetable parchment segment.

(46)   There are two possible ways whereby mixed bundling could be instigated by the new entity: (i) Munksjö's décor paper could be sold with Ahlstrom's vegetable parchment and (ii) Munksjö's grease resistant paper could be sold with Ahlstrom's vegetable parchment. In these cases, the new entity could offer both products together at more favourable prices as opposed to prices for both products when sold separately in order to foreclose competitors.

5.2.2.1.         Potential bundling of décor paper and vegetable parchment

(47)   Regarding décor paper and vegetable parchment, the products are used in the manufacture of CPL and HPL. Ahlstrom's vegetable parchment product Sulflex is used as a bonding agent to attach décor paper to furniture (for example doors); the bonding agent prevents resins from pushing through.

(48)   However, post-transaction, the entity would neither have the ability nor incentive to foreclose competitors.

(49)   First, while Ahlstrom has a strong position in the market for vegetable parchment, there is strong competition from other materials used as bonding agents for laminates. The Parties estimate that Ahlstrom's share of bonding agents for laminates is less than 20% in the EEA.

(50)   Second, only a very small number of customers source both products. In 2015, only […] of Munksjö's […] individual customers (less than 5%) for décor paper purchased vegetable parchment.

(51)   Third, the profit margin on Ahlstrom's vegetable parchment product, Sulflex ([…]%), is higher than on Munksjö's décor paper ([…]%), which indicates that  the merged entity would be less likely to wish to forego sales in vegetable parchment in order to gain sales in décor paper.

(52)   The vast majority of respondents to the market investigation12 raised no concerns about the transaction and identified many alternative suppliers for décor paper.13 Likewise for vegetable parchment, alternative suppliers14 exist, along with alternative products to substitute for vegetable parchment.

(53)   Based on the above, small market and market shares, margins and the lack of concerns raised in the market investigation, it is unlikely that the Parties would engage in any type of bundling behaviour resulting in anti-competitive effects.

5.2.2.2.         Potential bundling of grease resistant paper and vegetable parchment

(54)   Some customers (mainly converters) purchase both grease resistant paper and vegetable parchment from the Parties. Converters convert different types of papers, such as those sold by the Parties, into different end products. In particular, converters may purchase vegetable parchment, convert it into professional baking paper and sell it to professional end customers such as bakeries, while – at the same time – they may purchase grease resistant paper, convert it into food wrapping paper and sell it to fast food chains or supermarkets.

(55)   However, the Commission considers it unlikely that the merged entity will have the ability to foreclose these customers.

(56)   First, these papers are ultimately mainly destined for different end applications and customer groups so it is unlikely that any bundling strategy would be successful.

(57)   Second, while Ahlstrom holds a strong position in the vegetable parchment segment, it faces strong competition from other materials, including high density greaseproof paper. In 2015, a total of […] kt of high density greaseproof paper was sold in the EEA compared to […] kt of vegetable parchment.

(58)   Third, other market players, in particular, Delfortgroup and Pfleiderer, which  have a large production of both high density paper and grease resistant paper, can offer a similar portfolio and therefore match any bundling or tying attempts by the merged entity. Troitskaya also produces both vegetable parchment and siliconised kraft. Also, while Nordic Paper and Metsä Tissue are not currently producing grease resistant paper, they could either enter this segment or team-up with one of the many suppliers of grease resistant paper, thereby offering a counter-bundle.

(59)   Fourth, in 2015 and 2016 in the EEA, the pool of customers common to both Parties was […] in total; […] in 2016 alone. The latter represents […]% of Ahlstrom's total vegetable parchment customers and […]% of Munksjö's total greaseproof paper customers. Thus, these converters represent a small common group of customers for both Parties. Furthermore, Munksjö is already the sole supplier of grease resistant papers for the majority of these common customers. In fact, more than […]% of Munksjö's grease resistant paper sales in 2016 to these common customers were purchased by customers for whom Munksjö is the sole supplier.

(60)   Fifth, there is large capacity in the industry for competing suppliers to easily increase production.

(61)   Sixth, since both products are sold to converters separately, the converters could  in theory, depending on the price reduction/rebate, profitably resell them unbundled without converting them at all.

(62)   Finally, the vast majority of respondents to the market investigation15 raised no concerns about the transaction and confirmed that there are multiple alternative suppliers for grease resistant paper16 and some alternatives for vegetable parchment.17 Furthermore, the quantities of vegetable parchment purchased by individual customers are rather limited.

(63)   Based on the above, it is unlikely that the Parties would engage in any type of bundling behaviour resulting in anti-competitive effects.

5.2.2.3.           Conclusion on conglomerate effects

(64)   The Commission considers that the merged entity is unlikely to foreclose competitors by engaging in any type of exclusionary practices.18

(65)   The results from the market investigation suggest that alternative suppliers exist  in the market, the market sizes are very small, there is large capacity in the industry and the majority of respondents to the market investigation were neutral or positive about the Transaction.

6.            CONCLUSION

(66)   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 and Article 57 of the EEA Agreement.

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       OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').

3       Publication in the Official Journal of the European Union No C 47, 14/02/2017, p. 8.

4 In the baking segment, the price of vegetable parchment is 2 400 to 3 000 €/T; the price of siliconised kraft is 1 400 to 1 800 €/T.

5 COMP/M.2552 Norske Skog / Peterson.

6 COMP/M.2552 Norske Skog / Peterson.

7 Market shares based on 2015 volume data 2015.

8       Ahlstrom's market share of vegetable parchment was [50-60]% in the EEA and [50-60]% worldwide in 2015. The main competitor is Troitskaya Paper Mill ([20-30]% EEA; [10-20]% worldwide). Munksjö's market share of grease resistant paper was [10-20]% in the EEA and [0-5]% worldwide in 2015. The main competitors in the EEA are Gascogne ([10-20]%), KRPA Paper ([10-20]%) and BillerudKorsnas ([10-20]%). Market shares worldwide, based on volume data, 2015 – Expera ([10-20]%), Domtar ([10- 20]%), Verso ([5-10]%).

9       Market shares worldwide 2015 – Expera ([10-20]%), Verso ([5-10]%), Domtar ([5-10]%), Nordic  Paper ([5-10]%).

10    Market shares worldwide 2015 – Nordic Paper ([20-30]%), Metsa Tissue ([10-20]%), Expera ([5- 10]%).

11    Aspa Mill is one of Europe's smallest pulp mills producing approximately […] kilo tons ("kt") of bleached long-fiber pulp and approx. […] kt unbleached kraft pulp.

12    One customer pointed to limiting options further but this was not transaction-specific.

13    Schoeller Technocell GmbH & Co. KG, Papierfabrik August Koehler SE, Cartiere de Guarcino, Cartiere Panigada Srl, Cartiera Giacosa, Malta Décor, Hoffsümmer.

14    Arjowiggins and Troitskaya Paper Mill.

15    Two customers gave a negative view of the transaction but one was not transaction-specific and the other was unsubstantiated.

16    Asia Paper and Pulp, Metsä, Nordic Paper, KRPA Paper, Gascogne, Beetham, Arjowiggins, Cham Paper Group, Aralar, Cartiere Ermolli, Pfleiderer, Drewson, Zanders, Billerud, Burgo Mosaic S.p.a.

17    Troitskaya Paper Mill and Spezialpapierfabrik Oberschmitten GmbH.

18    Furthermore, nothing in the Parties' internal transaction documents suggest that conglomerate concerns would be credible.