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IP/01/1436

Brussels, 17 October 2001

Commission prohibits CVC's acquisition of Austrian fibre company LENZING

The European Commission has decided to prohibit the planned acquisition by CVC Capital Partners Group Ltd (CVC) of Lenzing AG, an Austrian man-made fibres manufacturer. CVC already controls Acordis, Lenzing's principal rival in Europe and only rival in the United States. The combination of Lenzing and Acordis would have created or strengthened a dominant position in a number of fibres markets, therefore reducing choice and leading to higher prices for customers and end consumers. The Commission's review of the concentration has been conducted in close co-operation with the US Federal Trade Commission (FTC).

The deal relates to the fibres sector. Fibres can be grouped in three main categories: natural fibres (such as cotton, wool, silk etc.), man-made synthetic fibres (such as polyester and polypropylene) and man-made cellulosic fibres that are obtained from wood-pulp (viscose and lyocell). Fibres can be used for textile applications (such as fabrics and garments) and for non-textile applications (wipes, surgical gowns, swabs, band-aids, and tampons).

The concentration would have led to very serious competition concerns in the production of viscose staple fibres (viscose), where Lenzing is the leading supplier in the European Economic Area, as well as in the markets for lyocell staple fibres and technonoly, where the deal would have created a monopoly since Acordis and Lenzing are the only producers worldwide.

The parties argued that the Commission should look at the fibres market as a whole, but an in-depth investigation has revealed not only that viscose and lyocell are two different and non-substitutable products, but that they are also different from other fibres, such as cotton, polyester and polypropylene.

Even within viscose, a distinction has to be made between commodity viscose, spundyed viscose and viscose for tampons. Commodity and spundyed viscose are used for both textile and non-textile applications, however, spundyed viscose, which is coloured during the production of the fibre itself, is characterised by specific properties that cannot be achieved simply by dyeing the commodity fibre at a later stage. Viscose for tampons differs from other viscose fibres because it has to conform with very stringent health regulatory standards. In addition, the Commission concluded that there is a technology market for lyocell production and processing which is distinct from the downstream market for the production and sale of lyocell.

Therefore, the relevant product markets taken into account for the competitive assessment of the concentration were five, namely: commodity viscose, spundyed viscose, viscose for tampons, lyocell, and lyocell production and processing technology.

The Commission considered that all three viscose markets are Europe-wide, since imports are very low (considerably below 10%), and that the market for lyocell technology is worldwide. As regards lyocell production, the Commission took the view that it was not necessary to define the geographical market since Lenzing and Acordis are the only producers worldwide.

The Commission's review showed that the merger would have achieved very high combined shares on all three viscose markets (more than 55% in commodity viscose and more than 85% in spundyed viscose and viscose for tampons), and that it would have led to a worldwide monopoly on the lyocell production and technology markets. The concentration would have eliminated Acordis' strongest competitor in the viscose market in the European Economic Area and would have left only three smaller, less performing competitors : Sniace of Spain, Svenska Rayon of Sweden and Säteri of Finland.

The Commission's investigation showed that there are high barriers to entry in the viscose markets, where production is capital intensive, and that a substantial increase of viscose imports from outside the European Economic Area appears unlikely. The new entity would thus be able to act independently, and its competitors would likely act as "price takers" (i.e. would follow rather than challenge price increases).

Given the high combined market shares, and the market conditions described above, the Commission concluded that the concentration would have created a dominant position in the commodity viscose, and in the spundyed viscose markets.

As regards the viscose market for tampons, Acordis, with 70% of the market and its patent for the production of the highest-quality viscose for tampons, called "Galaxy", has already a dominant position. The Commission therefore concluded that the merger would strengthen Acordis's dominant position, as the number of manufacturers in Europe would be reduced from three to two.

As regards lyocell, Lenzing and Acordis are currently the only producers of lyocell worldwide and the only two players in the market for lyocell production and processing technology currently able to offer "ready-to-operate" technology. Together, the parties hold the vast majority of all existing patents for lyocell production and treatment, and market entry in this market is difficult. The Commission therefore concluded that the concentration would create a dominant position in the both lyocell production and technology markets.

During the second phase of the review the parties submitted the following commitments: (i) a non-exclusive licence with regard to lyocell; (ii) a toll-manufacturing arrangement whereby the parties would produce lyocell for the licensee; (iii) a non-exclusive licence with regard to Galaxy tampon fibre. The Commission took the view that these commitments were not adequate to eliminate the concerns raised by the concentration.

The FTC, which is the competent US antitrust authority in this case, and the Commission have remained in close and mutually beneficial contact all along the procedure by sharing information, and by discussing and developing consistent analysis of the main substantive issues. This case therefore constitutes an example of co-operation and mutual understanding between US and EU competition authorities.


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