Lenzing’s Tencel Takeover to Proceed (2005)

Lenzing’s takeover of Tencel, its rival in the global market for lyocell cellulose fiber, had been blocked by Austria’s Supreme Court on competition grounds. However, the Austrian company says it has reached a compromise with the country’s antitrust authority, according to which the acquisition will be allowed to proceed within the next one to two months.

The merger, proposed 10 months ago, would give Lenzing a complete monopoly in the European and North American lyocell markets, where Tencel is the only other producer.

The Supreme Court upheld a decision by the Higher Regional Court of Vienna, Austria’s antitrust authority, that the acquisition from the investment group CVC Capital should be barred because it creates a monopoly in the fiber.

Under the compromise, Lenzing has agreed that over the next six years it will not close its 40,000 ton-per-year lyocell plant at Heiligenkreuz, northern Austria, thereby safeguarding 180 jobs. It has also pledged not to move a lyocell R&D unit out of Austria.

“Under Austrian competition law, a ban on an acquisition can be waived if a compromise is reached which benefits the Austrian economy,” says a Lenzing official.

The takeover did not have to be backed by the European Commission, the European Union’s main competition authority, because Tencel’s annual sales of €100 million ($133 million) were below the threshold for EU approval.

The only national antitrust authority, besides Austria’s, to investigate the acquisition was the Office of Fair Trading (OFT) of the UK, where Tencel is based. It accepted Lenzing’s argument that the merger would not form an illegal monopoly because lyocell has to compete against viscose, cotton, polyester and other fibers.

The OFT enquiry found that in 2003, Tencel produced a maximum of 55,000 tons of lyocell, equivalent to 60 to 80 percent of the total capacity of its plants at Grimsby, UK, and in Alabama. Yet it accounted for 75 percent of total worldwide sales of the fiber, according to the OFT.

28 February 2005 00:01 [Source: ICB Americas]