EU stops Merger of Tencel and Lenzing Lyocell - Part 6 (2001)

The Commission makes the point that neither Birla nor Hanil nor the unspecified Chinese competition could enter the market in the near future and if they did they'd likely infringe the Tencel/Lenzing patents.  There's also surplus lyocell capacity and the incentive for the merged company to reduce this and seek higher prices.

237. Furthermore, the parties' Reply does not indicate at what time it realistically expects most of these third parties to enter the market. As regards the market entry of the Indian Birla Grasim group, which is foreseen ìwithin the next two years, the Reply omits that this time-frame is put into question by the nonavailability of certain critical equipments on account of patent restrictions on design by Lenzing/Acordis and hence may require more efforts and longer time.  Furthermore, any potential market entry faces the threat of patent litigation by Acordis and Lenzing. As regards the reference made to market entry by a Chinese company whose name the Reply fails to reveal, it has not been confirmed by the overall results of the market investigation; in particular, the Commission has not been able to enter into contact with such a company during the market investigation in order to get confirmation from that potential market entrant itself as to its future strategy. Nor has Hanil of Korea confirmed to the Commission to what extent it is already active or planning to become active in the lyocell fibres market.180 Based exclusively on vague submissions regarding third parties, the probability of market entry in the near future is not sufficiently great for the Commission to conclude that significant competitive constraints will be exercised on the parties in the short run.

238. Under these circumstances, potential competition cannot be considered a source of sufficient competitive constraint on the parties, capable of outweighing the effects of the notified operation.

239. The market investigation has furthermore revealed that the lyocell market is currently characterised by overcapacity. Consequently, there will be an incentive for the new entity to reduce its lyocell production in order to achieve higher prices (integrating Lenzing into Acordis' strategy based on its high-priced branded product Tencel), in particular given the high investment in lyocell technology to be recouped. It should be noted that a majority of customers expect lyocell prices to rise or at least to remain stable in the event of a merger between Acordis and Lenzing, whereas they would expect prices to fall in the absence of the merger. Whilst most customers regard their current bargaining power as balanced, the overwhelming majority expects it to be rather weak if the notified operation goes ahead.

(More to come)

Case No COMP/M.2187 CVC/Lenzing