European Commission - Press release
Mergers: Commission approves acquisition of Finnish paper company Myllykoski Group by UPM-Kymmene
Brussels, 13 July 2011 - The European Commission has cleared under the EU Merger Regulation the proposed acquisition of Myllykoski Corporation and Rhein Papier GmbH ("the Myllykoski Group") by UPM-Kymmene Corporation ("UPM"). Both groups are active in the paper and pulp industries. The Commission's in-depth investigation confirmed that the merged entity would continue to face competition from a number of other strong competitors and that customers would still have sufficient alternative suppliers in all markets concerned.
Commission Vice President in charge of competition policy Joaquín Almunia said, 'The Commission has an obligation to make sure that consolidation does not take place to the detriment of European consumers. An in-depth investigation was necessary for a proper assessment of the markets involved in this case and I'm satisfied that there will remain sufficient competition after the acquisition'.
The Commission examined the competitive effects of the proposed acquisition in the markets for the supply of magazine paper, newsprint, the acquisition of recovered paper, wood procurement and the production of wood pulp, as well as a number of vertical relationships.
On 4 March 2011, the Commission opened an in-depth investigation, because after a preliminary assessment it had doubts about the transaction's compatibility with the internal market in relation to magazine paper and particularly in the supercalendered (SC) paper segment where the combined entity would have high market shares. SC paper is a non-coated paper used for catalogues and advertising or direct marketing materials. The production of all papers involves the use of calendars at the end of the manufacturing process to smooth the surface.
Following a detailed investigation, the Commission found that the parties' competitors have significant spare capacity which would enable them to react to attempts by Finland's UPM to raise prices. Furthermore, the demand for magazine paper is forecast to remain stable or even slightly decline, so sufficient capacity will remain available on the market in the future. Moreover, a new type of paper, known in the industry under the name SC-B Equivalent, was introduced recently on the market and the Commission's investigation showed that the new products derived from this paper are competing directly with one type of SC, namely SC-B paper. These recent market entrants are already putting significant competitive pressure on the parties and their importance is expected to increase in the near future.
The Commission therefore concluded that the transaction would not raise competition concerns. The transaction was notified to the Commission in January 2011.
UPM is a worldwide company headquartered in Finland which develops, produces and markets paper products. It also produces pulp, electricity, label-stock, sawn timber and wood panel products. Myllykoski is a privately-owned Finnish company, which develops, produces and markets paper products. It also produces pulp.
Magazine paper is mainly used for printing magazines, catalogues and direct mail. It contains mechanical, chemical and/or recycled pulp as well as chemicals, fillers and pigments. The various grades and specifications of magazine paper make up a continuum of different qualities and prices, which in general terms runs from wood-free coated paper (used mainly for magazine covers), to coated mechanical reels (CMR) to supercalendered (SC) paper grades. CMR and SC papers are primarily used for the publication of consumer magazines, catalogues and advertising or direct marketing materials. Both are produced from natural (wood containing) pulp. For lower qualities, recycled paper pulp can also form part of the input. In contrast to CMR papers, SC paper grades are not coated. The production of all kinds of papers involves the use of calendars at the end of the manufacturing process to smooth the surface.
The various grades and sub-grades of magazine paper have differing characteristics such as whiteness, brightness, printability, grammage, bulk, gloss and stiffness, which impact on the quality perception of the products as well as on the pricing. In the continuum, prices and qualities increase gradually.
The Commission's in-depth investigation has found that the boundaries between the different magazine paper grades and sub-grades have become increasingly blurred. The technology of production has improved so that lower grades now offer many of the characteristics once only available in higher grade products. These improved products fill the gaps between the grades and offer customers a good balance between price and quality.
The Commission considered in detail the outer boundaries of the magazine paper market (wood free coated paper on the top end and improved newsprint paper on the low end) and examined in detail the distinctions between SC papers, right above improved newsprint in the quality scale, and the adjacent coated mechanical reels (CMR) papers.
The Commission concluded that the market for magazine papers may comprise all of the CMR and SC grades including the SC-B Equivalent paper, which is an intermediate grade between improved newsprint and the lowest quality SC paper. However, the Commission also examined the concentration on a narrower SC market basis.
Merger control rules and procedures
The Commission, in 1989, was given the power to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation). Its duty is to prevent concentrations that would significantly impede effective competition in the European Economic Area (EEA)1 or any substantial part of it.
The vast majority of mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II). There are currently three ongoing phase II investigations: Seagate / Samsungs's HDD business (M.6214), Western Digital Ireland / Viviti (M.6203) and Caterpillar / MWM (M.6106).
A non-confidential version of today's decision will be available at:
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