joint-venture

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On June 11, 2019, the European Commission (EC) prohibited the creation of a joint venture by Tata Steel and ThyssenKrupp, two of the world’s leading steel producers, because it could affect competition in the European market.

On September 20, 2017, Tata Steel Limited and ThyssenKrupp AG announced that they had signed a memorandum of understanding to create a joint venture combining the flat steel businesses of the two companies in Europe and ThyssenKrupp’s steel mill services. After a long negotiation, the companies entered into a final agreement on June 30, 2018, which they notified to various competition authorities worldwide, including the EC.

After a notification of September 25, 2018, the EC started an in-depth investigation into the transaction (Phase II of the procedure) on October 30, 2018.

During the investigation, the EC received information from customers active in the packaging and automotive industries, who depend on steel prices to offer their products to customers at competitive prices. Based on this information, the EC sent a statement of objections to the parties concluding that the merger could lead to a reduced choice in suppliers and higher input prices for the packaging and automotive industries.

In particular, the EC was concerned about two different markets:

  • Metallic coated and laminated steel products for packaging (tinplate, electrolytic chromium coated steel and laminated steel): the EC considered that the joint venture would be a market leader in a highly concentrated market, particularly regarding tinplate, which is the most important packaging steel product in the European Economic Area (EEA).
  • Hot dip galvanized steel products for the automotive industry: according to the EC, the merger would reduce the number of companies in a market where only a few suppliers can offer significant volumes.

Both companies proposed a comprehensive set of remedies to the EC to address the competition concerns indicated in the statement of objections. The proposed remedies, including the divestment of assets, were specifically designed by the parties considering (i) the complexity of the transaction; and (ii) the need to create a sustainable company capable of overcoming the challenges of the European steel industry.

The EC conducted a market test seeking feedback on the proposed remedies from customers, suppliers and other market participants. Based on this feedback, the EC concluded that the set of remedies proposed by ThyssenKrupp and Tata Steel were not “sufficient to ensure effective competition.” The EC also considered that the proposed divestments did not prevent higher prices after the transaction.

After a 9-month procedure, the parties concluded that the additional requirements and divestments sought by the EC to approve the transaction were not feasible, since they would distort the purpose of the transaction. Therefore, they decided not to propose additional remedies and the EC prohibited the creation of the joint venture.

Prohibition of the transaction by the EC contrasts with other competition authorities’ analyses. The competent authorities in Turkey, Pakistan and South Africa approved the transaction. Note that the South African Competition Authority considered that the proposed transaction was unlikely to restrict competition in the relevant markets and did not affect the public interest.

Although the EC rarely prohibits a merger (since 1990, there is an average of one prohibited transaction per year), it has prohibited three in 2019 and rejected another one after the authorities’ objections.

In particular, before prohibiting the joint venture between Tata Steel and ThyssenKrupp, in February 2019, the EC prohibited Wieland’s acquisition of Aurubis’ rolled copper business and Siemens’ acquisition of Alstom, the latter being one of the most controversial decisions in the last years (see the EC press releases here and here).

See the EC press release on the transaction here.

Authors: Alexandre Picón / Icíar Velasco

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alexandre.picon@cuatrecasas.com