Anticipated acquisition by Taminco N.V. of the European Methylamines and derivatives business of Air Products and Chemicals Inc

Affected market: Methylamines and methylamine derivatives

No. ME/1130/04

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, assessment and decision.

Please note that square brackets indicate actual figures or text that have been deleted or replaced at the request of the parties for reasons of commercial confidentiality.

PARTIES

Taminco N.V. (Taminco) specialises in the production of methylamines and methylamine derivatives and has production facilities in Ghent (Belgium), Leuna (Germany) and Shanghai (China). It is majority owned by AlpInvest Partners N.V., a Dutch private equity investor that acquired Taminco in 2003 from UCB N.V.

Air Products and Chemicals Inc, a US based company, and its subsidiary Air Products (Chemicals) Teeside Ltd, based in the UK (together AP), engage in the production and supply of methylamines and methylamine derivatives.  AP's European Methylamines & Derivatives Business (EM&D Business) produces these chemicals through production facilities at its Billingham plant in Teeside, UK, and through a toll production agreement with [ ] carried out at a plant at [the toll plant] (the [toll] Agreement).  The UK turnover for the EM&D Business was £[ ] in 2003.

TRANSACTION

Taminco is proposing to acquire certain assets relating to the commercial operations of the EM&D Business from AP. Taminco will acquire the customer contracts, stock, IP rights, business records, goodwill and know-how of AP, several product swap agreements with other producers, and the [toll] Agreement. However, Taminco will not acquire the Billingham production facility which AP has announced it intends to close irrespective of the merger. The OFT is satisfied that the assets subject to the proposed transaction form an enterprise for the purposes of the Enterprise Act 2002. The EM&D Business relates to the production and supply of methylamines and various methylamine derivatives: dimethylformamide (DMF); alkylalkanolamines (AAA); and choline chloride.

The transaction was notified in the form of a merger notice on 14 May 2004.  The parties withdrew the merger notice on 9 June 2004 and requested that the OFT continue to consider the merger as an informal submission. The administrative timetable expires on 19 July 2004.

JURISDICTION

As a result of this transaction Taminco and the EM&D Business will cease to be distinct.  Post-merger, the parties will account for more than 25 per cent of the supply of methylamines and methylamine derivatives in the UK.  Therefore the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met.  A relevant merger situation will be created if the arrangements between Taminco and AP in relation to the EM&D Business are carried into effect.

THIRD PARTY VIEWS

Competitors were generally unconcerned, while customers' views were more split on the transaction's impact on competition.  Almost all the concerns raised by third parties were in relation to AAAs and the limited ability to switch suppliers following the merger.  In general, it was considered that this loss of choice would result in a reduction in competition for the supply and production of AAAs.

ASSESSMENT

The relevant counterfactual for examining this merger is considered to be the closure of the Billingham plant and the transfer of the [toll] Agreement to a third party.  The parties provided substantial evidence to support the belief that the decision to close the Billingham plant was irreversible and would occur regardless of whether the proposed merger with Taminco went ahead.  With respect to the [toll] Agreement, based on the information provided, it was not possible to accept the parties' argument that termination of the [toll] Agreement would be a more viable option than its transfer to a third party.  In light of the counterfactual, the merger is not considered to give rise to competition concerns in relation to the supply and production of methylamines, DMF and choline chloride.  However, concerns do arise in relation to AAAs.

The parties' combined share of supply for AAAs is [60-70] per cent and the merger results in a reduction of the number of European players from three to two.  There is some evidence that the remaining competitors are capacity constrained, which would give the merged entity the ability to increase price unilaterally post acquisition.  Barriers to entry and expansion are considered to be significant due to the risks associated with such a significant investment.  On the basis of the available evidence, imports are not considered to constrain the parties sufficiently, due to the costs and difficulties of transportation.  In addition, while the industry is characterised by a small number of large customers, the ability of these customers to switch may be limited if there is an absence of spare capacity amongst competitors.

Consequently, the OFT believes that it 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. 

DECISION

This merger will therefore be referred to the Competition Commission under section 33(1) of the Act.

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