Affected market: Basic organic chemical manufacture
The OFT’s decision on reference under section 22 given on 21 April
2006. Full text published 28 April 2006.
Please note that square brackets indicate figures or text which have
been deleted or replaced with a range at the request of the parties for
reasons of commercial confidentiality.
Tata Chemicals Limited (TCL) is a public company incorporated in India
and listed on the Bombay Stock Exchange. It manufactures inorganic
chemicals (including synthetic soda ash), fertilisers and food additives
at manufacturing plants in India. TCL’s worldwide turnover for the
fiscal year ending 31 March 2005 was approximately £370 million. Its UK
turnover for the same fiscal year was approximately £12,000.
Brunner Mond Group Limited (Brunner Mond) is a UK company active in the
manufacture and supply of soda ash and associated alkaline products. It
has manufacturing plants in the UK (Cheshire), the Netherlands and
Kenya, together with a transportation terminal in South Africa. The UK
turnover attributable to Brunner Mond for the fiscal year ending 30
April 2005 was approximately £80 million.
On 24 November 2005, TCL agreed to acquire (via a wholly-owned
subsidiary) approximately 63.5 per cent of the entire issued share
capital of Brunner Mond, amounting to a controlling interest. Completion
took place on 22 December 2005. TCL subsequently made an offer on 6
January 2006 to acquire the remaining shares in Brunner Mond and now
owns 100 per cent of its share capital.
The statutory deadline is 21 April 2006.
As a result of this transaction TCL and Brunner Mond have ceased to be
distinct. The UK turnover of Brunner Mond 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 a relevant merger situation has been created.
The parties overlap in the supply of soda ash (sodium carbonate) and
sodium bicarbonate. Soda ash is manufactured either naturally or
synthetically and is used as a raw material for a variety of sectors,
including chemical, metallurgical, fertilisers, detergents and glass.
Sodium bicarbonate is an intermediate by-product of the soda ash
manufacturing process. It can be processed into a range of grades
suitable for use in a variety of applications (e.g. pharmaceutical
products, animal feedstuffs, human nutrition).
The parties claim that there is no single product that can be
substituted for either soda ash or sodium bicarbonate in all of their
applications. More narrowly, while soda ash can be dense or light,
substitution appears possible between the two. For sodium bicarbonate,
evidence suggests that grades suited for certain applications (e.g.
quality critical higher grades used by the pharmaceutical industry) may
not be substitutable with other grades. The parties have confirmed that
the parties only overlap in the supply of lower quality grades of sodium
bicarbonate, as TCL does not have the facilities to produce higher
grades, while Brunner Mond manufactures the full range of grades.
For the above reasons, the supply of soda ash and the supply of sodium
bicarbonate are considered separately. However, it is not necessary to
conclude on the exact product market as no competition issues are raised
whichever definitions are used.
For soda ash, the parties submit that transport costs result in
segmentation into a series of regional markets, and the UK forms part of
a geographic market at least as wide as Western Europe. TCL does not
produce or sell soda ash into Western Europe (including the UK). The
OFT’s investigation suggests that the geographic scope of the supply of
soda ash is supra-national as customers of Brunner Mond confirmed that
they can and do source from outside the UK (e.g. within Europe or from
the US). However, high transport costs appear to act as a significant
constraining factor on UK sales by suppliers with increasing distance
(e.g. from Asia) suggesting a narrower frame of reference than
In relation to sodium bicarbonate, the parties argue that the geographic
frame of reference should be left open, but comment that supply of lower
quality grades on anything wider than a regional basis would be
uneconomical due to transport costs. Third parties confirmed they
purchase predominantly from within the UK but can and do source from
abroad (e.g. the US). Again, however, the presence of high transport
costs suggests competitive constraints from outside Europe (e.g. India)
are not significant and the frame of reference is narrower than global.
It is not necessary to conclude on the exact geographic market as the
competition analysis is unchanged whichever definition is used. However,
for completeness, the OFT has considered shares of supply on both a
global basis and more narrowly.
Post-acquisition, the parties estimate that they have a combined share
of approximately 5 per cent (increment less than 2 per cent) in the
global supply of soda ash. While the merged entity has become the third
largest soda ash producer in the world (see [Note 1]), high
transport costs suggest that TCL did not form a significant constraint
on Brunner Mond pre-transaction. The parties estimate that Brunner
Mond's share of production capacity of soda ash in Western Europe is
approximately 21 per cent and its wider EU share is approximately 14 per
cent. As TCL does not manufacture or supply any soda ash anywhere in the
EU, including the UK, there is no increment.
For sodium bicarbonate, the parties estimate that they have a combined
global share of supply of approximately 5 per cent (increment
approximately 2 per cent). In the UK, the parties estimate that Brunner
Mond's share is approximately [60-70 per cent] , however, the
increment is negligible. Apart from a one-off supply by TCL of a small
quantity (120 tonnes) worth approximately £12,000 to Brunner Mond in the
UK in the financial year ending 31 March 2005, (see [Note 2]) the parties
confirm that TCL has never produced or supplied any sodium bicarbonate
in the UK or the EU.
In summary, whether examined at a world-wide or narrower level, either
shares of supply are low and the increment is negligible or there is no
overlap. None of the third parties that were contacted by the OFT
considered that the parties were close competitors for soda ash or
sodium bicarbonate. Further, the presence of other large international
producers (e.g. Solvay, Ciech SA, FMC Corporation, Church & Dwight)
should act as a constraining factor in the event of a price rise by the
No vertical issues are raised by this transaction.
THIRD PARTY VIEWS
Third parties were unconcerned by this transaction, save a few commented
that TCL could close Brunner Mond’s UK plants post-acquisition and
local prices of sodium bicarbonate and/or soda ash could be affected as
a consequence. However, given the lack of competition between the
parties, the OFT considers that such an outcome could not be a result of
a lessening of competition.
The parties overlap in the supply of soda ash and sodium bicarbonate, in
relation to which the impact of this transaction has been considered.
TCL is an Indian company not active prior to the transaction in any part
of Western Europe (including the UK) in the production and supply of
soda ash, and only present in Western Europe (the UK) to a negligible
extent (a one-off sale of approximately £12,000) for sodium bicarbonate.
Where the parties overlap on a global scale their combined shares of
supply are no more than 5 per cent and the increments small in each case
as a result of the transaction.
Taken in conjunction with a general lack of third party concerns, the
transaction is not considered to give rise to any significant
competition concerns. Consequently, the OFT does not believe that it is
or may be the case that the merger has resulted or 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 22(1) of the Act.
- As stated in Brunner Mond’s press release announcing the completion of this transaction.
- The parties estimate that this equated to less than 1% of sodium bicarbonate sales in the UK.