EU stops Merger of Tencel and Lenzing Lyocell - Part 1 (2001)

A review of the EU documents blocking the proposed Acordis/Lenzing merger (to create "the new entity") reveals the following conclusions on the technology involved in the Tencel/Lyocell part of the merger.

• The new entity would remain the only player worldwide who is able to license this technology as far as ready-to-produce technology is concerned.
• No other producer could therefore start lyocell production without entering into a licensing agreement with the new entity or running the risk of patent litigation.
• Competition in the market for lyocell production and processing technology would therefore be eliminated as far as ready-to-produce technology is concerned. 
• The effect of such a situation would not only be the slowing down of technological development but also the likely alignment of any new entrants behaviour in lyocell staple fibre production with the new entity's behaviour, making it likewise impossible for any new entrant to effectively challenge the new entity's dominant position in lyocell staple fibres.
• This slowing down of technological development would be due to two factors: firstly, the immediate incentive of the new entity to invest in technological developments, and thus lower barriers to entry, would be reduced by the "free rider" problem it could face with regard to the licensee. 
• Whilst this freerider problem also exists in regard to the current competitive situation between Acordis and Lenzing, it is effectively counterbalanced by the technological rivalry between both companies, which provides an incentive to innovate. 
• Post-merger, the incentive to innovate would therefore be reduced.

Case No COMP/M.2187 CVC/Lenzing

(More to come)

How the EU justified the same merger 3 years later will be the subject of later posts.