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 global.
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 merged entity.
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.