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Case No COMP/M.1030 REDLAND/LAFARGE

Only the English text is available and authentic.

REGULATION (EEC) No 4064/89 MERGER PROCEDURE

Article 9 (3) Date: 16/12/1997 COMMISSION OF THE EUROPEAN COMMUNITIES

In the published version of this decision, some information has been omitted pursuant to PUBLIC VERSION Article 17(2) of Council Regulation (EEC) No 4064/89 concerning non-disclosure of business secrets and other confidential information. The MERGER REGULATION omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description. DECISION ART. 9(3)

Commission Decision of 16.12.1997

referring in part case No. IV/M.1030 - LAFARGE/REDLAND

to the competent authorities of the

pursuant to Article 9 of Council Regulation No 4064/89

(Case No. IV/M. 1030 - LAFARGE/REDLAND)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EEC) No 4064/89 of 21 December 19891 on the control of concentrations between undertakings (‘the Merger Regulation’), and in particular Article 9(3)(b) thereof,

Having regard to the notification made by Lafarge SA pursuant to Article 4 of the Merger Regulation on 4 November 1997

Having regard to the communication received from the United Kingdom Government, dated 26 November 1997

Whereas,

1 OJ L 395, 30.12.1989; corrected version : OJ L 257, 21.9.1990

Commission of the European Communities, B-1049 Brussels – Belgium. Phone : (32.2.299.11.11) 1. On 4 November 1997, Lafarge SA (‘Lafarge’) notified under the Merger Regulation the operation to acquire sole control by purchase of the whole of the ordinary share capital of Redland PLC (‘Redland’) by way of public bid. The notified concentration has a community dimension for the purposes of Article 1 of the Merger Regulation.

2. A copy of the notification was sent to the competent authorities of Member States on 5 November 1997 and was received by the competent authority of the United Kingdom on 6 November 1997.

3. On 26 November 1997 the United Kingdom, in application of Article 9 of the Merger Regulation, and in particular paragraphs 1, 2 and 3 thereof, requested the reference of the notified concentration to the competent authorities of the United Kingdom as regards certain distinct markets within the United Kingdom for the supply of ready-mixed concrete (‘rmc’), on the grounds that the concentration threatens to create or strengthen a dominant position in those markets within the United Kingdom.

I. THE PARTIES

4. Lafarge SA is at the head of a group of businesses producing materials, essentially, cement, aggregates (sand, gravel, crushed rock), concrete, plaster and specialised materials such as aluminates and additives, specially-formulated products, monolithic refractories and paints. The Lafarge group is among the largest producers of construction materials in the world and has operations in Europe, America, and Asia.

5. Redland plc is also among the world’s largest producers of construction materials. Its main activities are the production of aggregates and coated stone, rmc, and tiles, (with a leading position in the last-mentioned sector via its subsidiary Redland Braas Building Group).

II. THE OPERATION

6. Lafarge launched a public bid on the London Stock Market (officially communicated to shareholders on 18 October 1997) with a view to acquiring the whole of the share capital of Redland. Accordingly the operation constitutes a concentration under Article 3(1) of the Merger Regulation.

III. COMMUNITY DIMENSION

7. The undertakings concerned have a combined aggregate world-wide turnover in excess of 5,000 million ECU. Each party has a Community-wide turnover in excess of 250 million ECU (Lafarge [...] million ECU, Redland [...] million ECU). Lafarge does not achieve more than two-thirds of its aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension in accordance with Article 1(2) of the Merger Regulation.

2 IV. ASSESSMENT

A1. Introduction

8. Lafarge and Redland are both active in the supply of aggregates and ready-mixed concrete (‘rmc’) in the UK and France. Lafarge is also active in the supply of these products in Germany, Austria, Spain , Portugal, Italy and Greece. In addition, Lafarge is active in the supply of cement in France, Germany, Austria, Spain and Italy, and in the supply of plaster and speciality products in various Member States. Redland is active in the supply of roofing tiles in several Member States.

A2. Relevant product market.

9. The request for referral is made in respect of rmc. All concrete consists essentially of a mixture of cement, aggregates and water. Rmc is prepared - mixed - on demand (at fixed or moveable installations known as ‘concrete plants’); transport to the point of use requires special vehicles (‘mixer trucks’), and is generally undertaken by the producer. Rmc is used almost exclusively by builders and civil engineering contractors in construction work, as a cheaper and/or more practical alternative to the traditional on-site mixing. Rmc producers all offer similar products, capable of satisfying a wide range of customers’ requirements.

10. In Holdercim/Cedest2, the Commission considered that concrete remained a relatively homogenous product and accordingly a distinct product market, since customers did not generally value producers’ efforts to differentiate their products and extend their product range. No indications to the contrary have been received in the present case. Accordingly the relevant product market for this case will also be taken as that for all rmc.

B. Relevant geographic market

11. Rmc solidifies and becomes unusable within a relatively short time (one or two hours) of being mixed The request for referral emphasises this characteristic, observing that rmc needs to be delivered within at most 90 minutes of being mixed, and notes that transport costs are high. The request also notes that the bulk of demand for rmc comes from customers located in towns, whereas concrete plants are generally located on the periphery. Accordingly, it suggests, there are distinct, highly local markets for rmc within the United Kingdom, extending typically to around 20 kilometres from the point of production. The request refers to previous investigations by the United Kingdom competition authorities, and also to the Holdercim case (see above), as supporting this view.

12. The request identifies, on the basis of information provided by the notifying party, two distinct geographic markets in respect of which reference to the competent national authority is sought; Norwich and Leicester. In the notification, these markets were delineated on the basis of an area of supply of approximately 20km radius from the centre of each town. In the Holdercim case already cited, the Commission concluded, for similar reasons to those in the preceding paragraph, that the rmc sector was essentially composed of distinct, local geographic markets within

2 Case No. IV/M.460, decision of 6/9/94 under Article 9 of the Merger Regulation

3 a Member State (albeit that in some instances several such markets might reasonably be grouped together for analytical purposes). A precise geographic market definition could only be established by more detailed investigation; but whatever the exact definition eventually adopted, each of the geographic reference markets in respect of which the United Kingdom’s request is made in the present case constitutes a distinct geographic market within the United Kingdom for the purposes of Article 9(2) and (3) of the Merger Regulation.

C. Risk of Creation or Reinforcement of a Dominant Position

13. The United Kingdom authorities consider that there is a risk of creation or reinforcement of a dominant position in each of the two reference markets mentioned above, for the following reasons.

(a) Norwich

14. According to the notification, the structure of this market, centred on a medium- sized town in the East Anglia region of England, is already concentrated, with four large firms - Lafarge (via subsidiary Ennemix), Redland, RMC and (via a 50% subsidiary) each having a share of production of between [...]% and [...]%. The concrete plants of Lafarge and Redland in this area are both located on the same arterial route, a factor which, in the United Kingdom’s view, encourages competition between them. After the merger, Lafarge’s share would increase by [...] percentage points, to [...]%, nearly [...] that of its nearest competitor, and the number of competitors present wouldreduce to three.

(b) Leicester

15. Leicester is the county town of Leicestershire, in the South Midlands region of England. According to the notification, there are five large firms (Lafarge, Redland, RMC, ARC, and Tarmac) with shares ranging from [...]% (Lafarge) to [...]% (Tarmac) and two local suppliers with [...]% between them. As in Norwich the merging parties’ plants are located close to each other, increasing the scope for competition between them, and hence for reduction in competition post-merger. After the merger, Lafarge’s share would increase by [...]% percentage points to [...]%, nearly [...] that of its next-largest competitor.

16. The request also comments on entry barriers and buyer power. It suggests that entry barriers in rmc are generally significant, referring to the need for entrants to ensure supplies of aggregates from a source reasonably close to the concrete plant, and to the need for planning permission from the local authority (which for environmental reasons may be reluctant to approve new sites). Buyer power, according to the request, is unlikely to be very great. First, the final customer in a construction contract may not be able to obtain a clear indication of the price of the rmc, because it will be purchased by a sub-contractor which is itself a sub-contractor to the main contractor for the project. Second, on-site mixing does not appear to have constituted a real substitute for rmc in terms of its effect on prices; it did not, for example, prevent the effective operation of cartels among the main suppliers in the 1980s, which, according to the UK authorities, led to substantial price increases (c. 20%).

4 17. In accordance with the Commission’s practice, the undertakings concerned have been supplied with a copy of a summary of the United Kingdom’s request and have been given an opportunity to comment on it. In a joint reply, they commented that in their view, and for the following main reasons, the transaction does not give rise to a threat of dominance in any part of the United Kingdom. They suggested that competitive conditions in the reference markets have not changed substantially since April 1996, when the UK authorities approved the acquisition by Redland of Ennemix, which was in turn acquired by Lafarge earlier this year and which constitutes Lafarge’s only operation in rmc in the areas concerned by the request. They also produced new data, which according to the notifying party only became available to it following enquiries of Redland in connection with the Article 9 request. This, they suggest, indicates that the parties’ combined market shares in the reference markets are lower than previously estimated (by Lafarge alone) for the purposes of the notification. The parties’ revised estimates of their combined shares (on the same basis as before) are : Leicester, c. [...]% (Lafarge c. [...]%); Norwich, c. [...]% (Lafarge c. [...]%), and those of their competitors generally larger. In Norwich, they also identified two additional local competitors, whom they estimate to supply some [...]% of the local market between them, with a corresponding reduction of the parties’ shares in that area..

18. The Commission has carefully considered these points and has sought the views of the United Kingdom on them. The Commission notes that the United Kingdom considers that the analytical basis for its decision on the proposed acquisition of Ennemix by Redland was inappropriate and inconsistent with that employed in previous similar cases by the United Kingdom and EU authorities, and which it has used as the basis for its request. As regards the revised estimates of market shares and related information, the Commission notes, first, that they remain estimates based on the parties’ own analysis rather than on objectively verified data; second, that they do not show a radically different market structure from that in the notification. In both markets, the combined shares would still, on the new estimates, be close to [...]% (compared with around [...]% in the notification) - the difference is accordingly not overwhelming. The merged entity would moreover still be the market leader by a substantial margin (about [...] percentage points) in both areas. In Leicester there is no change in the number of competitors, only in their relative shares. In Norwich, neither of the additional suppliers now identified is a major national supplier or vertically-integrated, as will be the merged entity. One of them is located some 16 miles away from the centre of Norwich, implying that customers there are at or close to the limit of its economic radius of supply. The other has an estimated [...]% share in the area, but its total production is estimated at only some [...]% of total demand there. There must therefore remain doubts as to their ability to offer effective competition to the merged entity.

19. The United Kingdom remains of the view that its request is justified, and the Commission shares that view. On the basis of the information in the notification, the operation would significantly increase the level of concentration in the reference markets, whose structure is already quite highly concentrated. It also affects a sector in which entry barriers are generally regarded as quite high and buyer power limited. The United Kingdom has explained its position in regard to the earlier case. The new information provided by the parties remains based on their own estimates of their shares and those of competitors, so that its accuracy cannot be taken for granted. Moreover, even if more accurate than that in the notification, it would not

5 necessarily lead to the conclusion that there was no threat of dominance in the reference markets; in particular, there is no suggestion that the structure of those markets is fundamentally different from that described in the notification. Accordingly, the Commission concludes that, as regards Article 9 of the Merger Regulation, the concentration threatens to create or strengthen a dominant position in the reference markets, being distinct markets within the United Kingdom, as a result of which competition would be significantly impeded.

V. CONCLUSION

20. On the basis of the foregoing, the United Kingdom’s request meets the conditions of Article 9(3). The Commission has also taken note of the following points. France has made a request under Article 9 in respect of certain distinct markets for rmc and for aggregates within the territory of that Member State. Lafarge has indicated its willingness to cooperate with both national authorities with a view to reaching a satisfactory outcome. Accordingly the Commission considers that the United Kingdom authorities are best placed to assess the effect of the concentration in the reference markets identified in their request, and to pursue any remedial measures that may be appropriate.

has adopted this decision :

Article 1

The notified concentration between Lafarge SA and Redland PLC is hereby referred to the competent authorities of the United Kingdom with regard to the supply of ready-mixed concrete in the Norwich and Leicester areas of the United Kingdom, with a view to the application of national legislation.

Article 2

This decision is addressed to the United Kingdom.

Done at Brussels, 16.XII.1997

For the Commission

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