OFT closed case: Anticipated acquisition by Beacon Global Limited (Indorama Group) of Eastman Chemical Company’s European PTA and PET resin plants.
Affected market: Manufacturing of PET resin
The OFT’s decision on reference under section 33(1) given on 7 February 2008. Full text of decision published on 21 February 2008.
Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties and third parties for reasons of commercial confidentiality.
Beacon Global Limited (Beacon) is a company incorporated in Thailand. It is at the head of the Indorama group, which is active world-wide in the production of clothing, polyester and other yarns and chemicals. One of its divisions is Indorama Polymers (Indorama), which produces polyethylene terephthalate (PET) resin in Lithuania, Thailand and the USA, and PET-based food and drink packaging in Thailand.
Eastman Chemical Company’s European PTA and PET plants (the Eastman plants) consist of a plant in Workington (the UK), producing PET resin, and a plant in Rotterdam (the Netherlands), producing PET resin and purified terephthalic acid (PTA). Both plants are currently owned by Eastman Chemical Company. The UK turnover of the Eastman plants in 2006 was €[ ] million, which at the current exchange rate is around £[more than 70] million.
Beacon, through its Indorama subsidiaries, has agreed to acquire the assets that constitute the Eastman plants, subject, among other things, to clearance by the relevant competition authorities.
The parties filed a satisfactory submission on 21 December 2007. The administrative deadline is therefore 20 February 2008.
As a result of this transaction Indorama and the Eastman plants will cease to be distinct. The UK turnover of the Eastman plants exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.
Indorama and the Eastman plants both produce PET resin in the EU. PET resin is used to manufacture packaging materials. The Eastman plants also produce PTA in the EU, which is one of the inputs for PET resin.
Indorama also produces PET-based packaging in Thailand, consisting of PET containers and PET preforms (which are semi-finished PET containers). As these products are made from PET resin, there is a potential vertical relationship between the parties in this respect. However, in a recent decision regarding this industry the OFT found, taking a cautious approach, that the geographic frame of reference for PET containers and PET preforms was not wider than the UK and the EU respectively due to, in particular, transport costs [See note 1] As Indorama does not produce PET containers or PET preforms in the EU, the OFT has not further considered these products.
Product and geographic market
In its recent decision the OFT found that PTA and PET resin were appropriate product frames of reference, with the EU as the appropriate geographic frame of reference for PTA and, taking a cautious approach, for PET resin [See note 2]. Indorama agrees with this finding and no third parties submitted information to suggest a different approach. Accordingly, the OFT has considered the present using these frames of reference.
The parties overlap in the production of PET resin in the EU. Indorama submitted that in 2007 its share of supply was around [0-10] per cent and that the Eastman plants’ share of supply was around [5-15] per cent, with a combined share of around [10-20] per cent. These shares are similar whether calculated on the basis of turnover, volume or capacity. Third parties broadly supported these share figures.
Indorama submitted that the merged entity will face a number of competitors. Artenius (part of La Seda de Barcelona) has a significantly larger share than the parties, while there are four competitors that have shares that are not much smaller than the parties’ share. In addition, there are a number of smaller competitors as well as some imports of PET resin from outside the EU. Competitors also have significant spare capacity and are therefore able to expand production in response to any price increase by the merging parties.
Barriers to entry and expansion
Indorama submitted that barriers to entry and expansion are low. According to Indorama, although significant investments are needed to set up a PET resin production facility, there are no other material barriers to entry. Indorama referred to recent entry, including by Indorama itself, which before 2006 was hardly active in the market. Indorama also referred to examples of significant recent expansion. This was broadly supported by third parties. However, there is no need for the OFT to conclude on barriers to entry and expansion given its findings in paragraphs 9 and 10 above.
Indorama submitted that buyers are generally large industrial companies with significant buyer power. Third parties agreed that customers have a degree of buyer power. However, there is no need for the OFT to conclude on buyer power given its findings in paragraphs 9 and 10 above.
As a result of the merger, Indorama will acquire production capacity of PTA, which is an input of PET resin. For a vertically-integrated firm to have the ability to foreclose supply or market access, it must have a degree of market power on at least one level of the supply chain. Due to the factors set out above, the OFT does not consider that the merged entity will have significant market power in the production of PET resin. In addition, with regards to the production of PTA, the OFT found in its recent decision regarding this industry that the Eastman plants' share in the production of PTA in the EU is limited and that there are at least three producers with a higher share [see note 3]. Hence, the OFT does not consider that the merged entity will have significant market power in the production of PTA.
Further, Indorama submitted that almost all of the PTA currently produced by the Eastman plants is used in the Eastman plants' own production of PET resin. No third parties raised any concerns about vertical issues.
THIRD PARTY VIEWS
No third parties raised any concerns about the merger.
Indorama and the Eastman plants overlap in the production of PET resin. The OFT does not consider that the merger raises horizontal concerns, due to the merged entity's limited share of supply, the presence of strong competitors and the availability of spare capacity.
The merger will also create a vertical link, as PTA, produced by the Eastman plants, constitutes an input for PET resin. The OFT does not consider that the merger raises concerns in this respect, as the merged entity will not have significant market power in the supply of either PET resin or PTA.
Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.
- OFT decision of 4 October 2007 regarding the anticipated acquisition by La Seda de Barcelona S.A. of Amcor PET Packaging Europe, paragraphs 16 and 17.
- Idem, paragraphs 7 to 9 and 12 to 15.