Affected market: Supply of corrugated boxes
Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.
The OFT’s decision on reference under section 33(1) given on 28 August 2008. Full text of decision published 4 September 2008.
Please note that square brackets indicate figures or text which have been deleted or replaced at the request of the parties for reasons of commercial confidentiality.
Sociedad Anónima Industrias Celulosa Aragonesa (SAICA) is a Spain-based manufacturer and supplier of containerboard and corrugated boxes throughout Europe. In the UK, where it has two conventional corrugated box plants, the company operates through its subsidiary, SAICA Packaging UK Limited.
SCA Packaging Limited (SCA) is a wholly owned subsidiary of the Swedish company, Svenska Cellulosa Aktiebolaget SCA (publ), a global supplier of packaging, paper and personal care products. In the UK, SCA is a vertically integrated supplier of containerboard and corrugated boxes and the UK turnover of the business being divested was around £[ ] million in 2007.
SAICA proposes to acquire the UK and Republic of Ireland corrugated board business of SCA for around £[ ]. In the UK, the plants proposed to be acquired are nine conventional corrugated box plants (Aylesford, Edinburgh, Ellesmere Port, Hartlepool, Milngavie, Newport, Thatcham, Wigan and Warrenpoint), eight conventional corrugated sheet plants (Exeter, Grangemouth, Lurgan, Oxford, Peterlee, Telford, Whittlesey and York) and one conventional corrugated sheet feeder in Histon. Together these assets are referred to in this decision as the Divested Business.
Additionally, SAICA and SCA have entered into a joint venture (JV) agreement. Under the terms of the JV agreement, SAICA will establish a new company, SAICA Containerboard UK Limited, which will operate SAICA's corrugated board business in the UK (including the Divested Business). SAICA will build a new containerboard plant and when it is complete and operational, SCA will close its (testliner) containerboard plant at New Hythe and have the option of purchasing a 45 per cent share of the containerboard division and a 55 per cent share in the corrugated division of SAICA Containerboard UK Limited.
The parties filed an informal merger submission with the Office of Fair Trading (OFT) on 2 July and the OFT's administrative target for reaching a decision in this case is 2 September.
As a result of this transaction SAICA and the Divested Business will cease to be distinct. The Divested Business includes staff, plant and machinery, intellectual property rights, goodwill, business records and stock. The OFT therefore considers that the Divested Business constitutes an enterprise within the meaning of section 129 of the Enterprise Act 2002 (the Act).
The UK turnover of the Divested Business exceeds £70 million, so the turnover test in section 23(1) (b) of 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.
However, since SCA has not yet exercised either of its options to purchase a shareholding in SAICA Containerboard UK Limited the OFT does not consider these options constitute a relevant merger situation. A relevant merger situation may be created if, and when, these options are exercised (section 27(3) of the Act).
Restrictions under the JV arrangement
The JV arrangement contains a number of restrictions including non-compete clauses, supply agreements and investment agreements. To the extent that such restrictions are ancillary to the merger (that is, directly related and necessary to the merger) they are automatically excluded from the Chapter I prohibition of the Competition Act 1998 (CA98) and Article 81 of the EC Treaty.
The OFT’s analytical approach to ancillary restrictions generally follows the European Commission's notice on ancillary restrictions and, in light of the guidance that it contains, the OFT considers that it is in principle no better placed than the merging parties to determine whether the restrictions in this case are ancillary to the merger and, therefore, automatically excluded from the Chapter I prohibition of CA98. Moreover, the parties in this case have not specifically requested the OFT's view on whether these restrictions are ancillary.
As such, the JV arrangement and the restrictions therein - or any other restrictions contained in any other agreement related to the transaction - have not been considered by the OFT in this decision (and therefore, for the avoidance of doubt, are not addressed explicitly in this decision), and instead the OFT considers that the parties themselves are best placed to self-assess and come to a view on whether these restrictions fall outside the Chapter I prohibition of CA98 and Article 81 EC Treaty.
THIRD PARTY VIEWS
No third parties, whether customers or competitors, expressed concerns about the proposed merger to the OFT.
The parties overlap in the manufacture and supply of corrugated boxes in the UK. The OFT has assessed the proposed merger on the basis of corrugated boxes only (omitting packaging made from other materials) at both the national and sub-national levels.
Unilateral concerns do not arise as a result of the proposed transaction. The increment to the share of supply is small on both geographic measures (around five per cent) and after the merger SAICA will face competitive constraints from major suppliers DS Smith, Mondi, and Smurfit Kappa, as well as some other national and regional suppliers.
Nor does the OFT believe that the proposed merger will create or strengthen coordinated behaviour. The structure of supply will not be greatly changed and the OFT does not consider that the proposed merger will remove a maverick from the market. In addition, the OFT does not have any evidence to suggest that collusive behaviour is occurring in the industry.
Finally, while the proposed merger does have a vertical element to it, competition concerns do not arise on account of SAICA's limited requirements for containerboard when compared to the overall supply of containerboard in the UK.
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.