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European Commission - Statement

Statement by Commissioner Vestager on two merger decisions to prohibit HeidelbergCement and Schwenk's proposed takeover of Cemex Croatia's assets and to approve ChemChina's acquisition of Syngenta

Brussels, 5 April 2017

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Today, the Commission has taken two very different decisions on two very different takeovers. Different because they concern two sectors – cement on the one hand and pesticides on the other. And different because in one case the companies failed to address our competition concerns, while in the other case the companies offered significant remedies.

So, we have prohibited the proposed takeover of Cemex's assets in Croatia by HeidelbergCement and Schwenk. And we have approved ChemChina's acquisition of Syngenta.

What both cases have in common is that the Commission made sure that the takeovers do not weaken competition in the European Union. This is our role, when a merger lands on our desk. No matter if competition is reduced only in a particular region or across the whole of Europe. Because we have to protect effective competition to the benefit of consumers and businesses anywhere in Europe.

The first case involves two major German cement companies, HeidelbergCement and Schwenk, buying the assets of Cemex Croatia.

They all manufacture and sell grey cement – that's the everyday type of cement that we're all familiar with.

Cemex Croatia is the largest cement producer in Croatia. It owns three plants in Split, in the South of Croatia.

HeidelbergCement and Schwenk have a joint venture called DDC. DDC imports cement into Croatia from nearby plants in Hungary and Bosnia and Herzegovina. In addition, HeidelbergCement imports cement from a plant in Italy. Combined, they import more cement into Croatia than anyone else.

After the merger, a bit less than half of all cement bought in Croatia would come from the parties.

When it comes to cement, distance really matters. It's expensive to transport over long distances. And it's harder for distant suppliers to guarantee that it will always be there when it's needed.

That is why the effect of the transaction may vary in different parts of Croatia. We had to look at the effect of the takeover on the regional cement markets. Our investigation focused on the area, which can reasonably be supplied from the plants in Split. This area has a radius of 250 kilometres, and covers almost two thirds of Croatian cement consumption.

And our investigation showed that, after the merger, prices would have gone up. We reached this conclusion after having spoken with customers and competitors; reviewed internal documents from the parties about what they expected after the merger and after having done an in-depth analysis of the supply patterns in the market.

What we could see was that DDC had been a strong force of competition for Cemex Croatia in recent years. The takeover would have removed that competition.

We also concluded that other competitors would not be able to replace the competition that would be lost. Either the competitors would be located too far away or face other difficulties in ramping up cement sales in the relevant parts of Croatia.

The effects on the market would have been particularly strong in Dalmatia, where prices are already higher than in the rest of Croatia. In Dalmatia, the closest alternative source of cement to Cemex's plants is DDC's plant in Bosnia and Herzegovina. The combined market shares in that region would be as high as 70%.

So, the merger would have led to higher prices for customers.

And that's precisely what our merger rules are there to prevent. We could not allow the merger to go ahead unless these serious problems were resolved.

That means we needed a remedy that offers a clear and lasting solution to our concern. For mergers between direct competitors, we generally have a preference for a clean, structural solution, such as selling a production plant.

HeidelbergCement and Schwenk decided not to offer that. Instead they proposed to give a competitor access to a cement terminal in southern Croatia. Essentially, this amounted to giving a competitor access to a storage facility – without existing customers or established access to cement, without brands and without sales or managerial staff.

As we always do, we tested this proposal with competitors and other stakeholders for their views on whether it could work in practice. The Commission's final conclusion was clear. The proposal wasn't sufficient to address our concerns.

Any company that wanted to use the terminal would have faced higher costs than the parties. Moreover, the capacity of the terminal was too small to address our concerns. In other words: the remedy would not have been able to sufficiently replace the competition that would disappear with the merger.

That is why we have decided to block the transaction. To protect customers from a merger that would have reduced competition and raised prices. Cement is an important input to the building industry, which delivers many jobs in Croatia and which has been suffering in recent years. Our decision will prevent the negative effects from higher input prices to this important sector.

Today's case is part of a consistent enforcement line of EU merger rules in cement markets. Last year, we approved HeidelbergCement's much larger takeover of Italcementi. In that case we had concerns in the regional cement markets in Belgium. However, in that case HeidelbergCement addressed those concerns by agreeing to sell all of Italcementi's business activities in Belgium - including it's cement plant.

 

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Today's second case shows that in the end a deal can still be approved, even when the Commission raise a number of competition concerns.

ChemChina, via its subsidiary Adama, is the world's biggest producer of generic pesticides – in other words they develop and produce pesticides based on active ingredients, for which the patent has expired.

This transaction combines Adama with the leading supplier of pesticides worldwide, Syngenta, based in Switzerland.

The deal affects the same types of markets as the Dow and DuPont transaction, which we approved just last week. The deals are however quite different. Since Adama is not active in the research and development of new pesticides, we did not have the same concerns as in Dow/DuPont about loss of competition among innovators.

Instead, the focus in this case was on competition for existing pesticides. We have analysed the effect for every type of pesticide in each of our Member States. In all, we had to look closely at more than 450 markets, where the parties held relatively high combined market shares.

And our investigation raised concerns that the transaction would reduce competition in a number of markets.

Specifically, we found that Adama and Syngenta are close competitors for a variety of pesticides that kill weeds and insects, target plant diseasesand treat seeds. In other words, certain herbicides, insecticides, fungicides and seed treatment products.

In addition, both companies sell a type of product called plant growth regulator. These are used to slow or stimulate plant growth. Adama and Syngenta both produce a plant growth regulator that can slow the growth of cereals. This avoids that they grow too high too fast and get knocked down by gusts of wind.

For all these products, the parties are close and important competitors. Together they would have held a large share of the markets, with few other competitors remaining. This would have meant higher prices for European farmers and ultimately for consumers.

But the parties were prepared to address our concerns. They offered to sell off a major share of their overlapping business. This includes a significant part of Adama's business for pesticides and plant growth regulators, as well as some pesticides owned by Syngenta. They also agreed to sell 29 Adama products that are under development.

The remedy also includes access to all the assets, which the buyer will need to run the business – including all the necessary data to maintain and renew regulatory approvals.

Also in this case we confirmed that these remedies can work in practice in a market test.

On this basis, we concluded that whoever buys the business will be able to compete effectively, today and in the future, and approved the transaction.

This is a global transaction and we cooperated with competition authorities in many different countries, which are looking at how the merger affects their own markets. They include the US Fair Trade Commission – who issued their consent agreement yesterday - and the competition authorities of Brazil, Canada, China and Mexico.

When it comes to pesticides there are of course other vital concerns in addition to competition. This includes obviously the safety of the products. This falls under the responsibility of my colleague Vytenis Andriukaitis. Here in Europe, we have strict standards that have at their heart the protection of human health and the environment. Of course they will remain just as strict after this transaction as before.

So, today we took decisions on one transaction involving a Chinese company buying a Swiss headquartered multinational, and another on two German companies buying Croatian assets from a Mexican company. This shows that we do not care about the flag of the company. We care about how each transaction affects competition in Europe.

And whether the effect of a transaction is global, national or regional, our two decisions today show that we will protect competition in all parts of the Single Market, to the benefit of European consumers and businesses.

Thank you for your attention.

STATEMENT/17/888


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