EN

Case No COMP/M.6189 - IMERYS / RIO TINTO TALC BUSINESS

Only the English text is available and authentic.

REGULATION (EC) No 139/2004 MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION Date: 07/07/2011

In electronic form on the EUR-Lex website under document number 32011M6189

Office for Publications of the European Union L-2985 Luxembourg EUROPEAN COMMISSION

Brussels, 7.7.2011 C(2011) 5075 In the published version of this decision, some information has been omitted pursuant to Article PUBLIC VERSION 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and MERGER PROCEDURE other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description.

To the notifying party:

Dear Sir/Madam,

Subject: Case No COMP/M.6189 – Imerys / Rio Tinto talc business Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/20041

1. On 30 May 2011, the European Commission received notification of a proposed concentration pursuant to Article 4 and following a referral pursuant to Article 4(5) of the Merger Regulation by which the undertaking Imerys SA (France) acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of the whole of the Talc Business of Rio Tinto Plc ('the Target', United Kingdom) by way of purchase of shares.2

I. THE PARTIES

2. Imerys is a French-based multinational group listed on the Paris Stock Exchange.3 It is principally active in the extraction and processing of industrial minerals. The Imerys group has 240 industrial facilities in 47 countries and operates 116 mining sites worldwide, out of

1 OJ L 24, 29.1.2004, p. 1 ("the Merger Regulation"). With effect from 1 December 2009, the Treaty on the Functioning of the European Union ("TFEU") has introduced certain changes, such as the replacement of "Community" by "Union" and "common market" by "internal market". The terminology of the TFEU will be used throughout this decision

2 Publication in the Official Journal of the European Union No C 168, 8.6.2011, p. 15.

3 Imerys is ultimately jointly controlled by Power Corporation of Canada and CNP (the financial holding controlled by the Frère-Bourgeois family). Although Power Corporation and CNP have controlling interests in a number of companies, none of these companies are active in the sector of industrial minerals or in industries which are vertically related or otherwise complementary to the industrial minerals in which Imerys and the Target are active.

Commission européenne, 1049 Bruxelles, BELGIQUE / Europese Commissie, 1049 Brussel, BELGIË. Tel.: +32 229-91111. which 29 different minerals or mineral groups are extracted. Imerys currently has no activities in talc.

3. The Target comprises the five Rio Tinto subsidiaries (Luzenac America Inc., Luzenac Inc., Rio Tinto Talc Limited, Luzenac Australia Pty Limited and Luzenac NV) which are engaged in the extraction, processing and marketing of talc on a worldwide basis from plants located in Europe, North and Central America and Asia-Pacific to customers in over 100 countries. The talc produced by the Target is used in a wide range of industries including the manufacture of paper, paints, plastics, adhesives and sealants, ceramics, rubber, food, agricultural products, pharmaceuticals and personal care products.

II. THE OPERATION

4. On 22 February 2011, Imerys made a binding offer to Rio Tinto to purchase 100% of the stock capital of the five Rio Tinto subsidiaries constituting the Target. This binding offer shall remain valid and shall be irrevocable until expiry, which will follow at the occurrence of the earlier event between, (i) the 10th business day after the completion of the consultation process that Rio Tinto will carry out with the competent Works Councils and Health and Safety Committees of the Target and (ii) 31 August 2011. The 31 August 2011 longstop date may be extended until 31 January 2012 by Rio Tinto if it considers that additional time is required in order to complete the process of consultation with the Works Councils and Health and Safety committees of the Target. Once these bodies have delivered their opinion, or Rio Tinto considers that such consultation procedures have been duly implemented (a process that may take a few months), Rio Tinto will be entitled to execute the sales and purchase agreement (SPA).

5. In view notably of these elements, it is considered that Imerys's plan to acquire the Target is sufficiently concrete and demonstrates a good faith intention as provided by Article 4(1) paragraph 2 of the Merger Regulation.

III. CONCENTRATION

6. The notified operation will result in Imerys acquiring sole control of the Target. It therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

IV. EU DIMENSION

7. The proposed transaction does not meet the thresholds under Article 1 of the Merger Regulation.4 On 25 March, Imerys requested that the transaction be referred to the Commission for assessment under Article 4(5) of the Merger Regulation as it was capable of being reviewed under the national competition laws of at least three Member States (Austria, Germany, Portugal and Spain). As none of the Member States competent to examine the concentration expressed their disagreement to the request for referral within the 15 working day period, the proposed concentration is deemed to have an EU dimension.

4 The undertakings concerned do not have a combined aggregate world-wide turnover of more than EUR 5 000 million (Imerys EUR 3 346 million, the Target EUR […] million). As far as the alternative thresholds of Article 1(3) are concerned, whilst the combined aggregate turnover of the undertakings concerned exceeds EUR 100 million in each of at least three Member States ([…] and the […]), the Target's turnover exceeded EUR 25 million in only one of these Member States ([…]).

2 V. COMPETITIVE ASSESSMENT

A. GENERAL INTRODUCTION

8. The proposed transaction leads to no direct horizontal overlap between the parties' activities since Imerys is not present in talc. However, there are certain applications where talc can be used in combination with one or more of the minerals in Imerys's portfolio or replace such minerals to a certain extent. According to the parties, however, there are no applications where substitution on a one-to-one basis occurs.

9. The competitive assessment of the transaction therefore hinges on whether for each of the end applications in which talc is used, the minerals in Imerys's portfolio are to be regarded as substitutes to talc, the single mineral in which the Target is present, therefore leading to potential horizontal effects, or rather as complements, leading to possible conglomerate effects. In addition, the assessment covers a vertical relationship which arises as a result of the proposed transaction between the Target's supply of talc for technical ceramics and Imerys's production of refractory cordierite which is in turn used in the production of certain refractory ceramics known as kiln furniture.

B. RELEVANT PRODUCT MARKETS

Talc and other industrial minerals

10. Talc, which is technically known as hydrated magnesium silicate, is the softest rock in the world with a score of one on the Mohs scale of mineral hardness. Commercially exploited talc ores have a talc content of between 20% and 99%. Major producers of talc include (in order of volume) China, the United States, Finland, India, France, Brazil, Australia, Italy, Austria, Spain, Canada, Egypt, Japan and Korea. According to the notifying party, there is an increasing reliance in Europe on talc ore imports from Asia and Australia (especially high-brightness ores from China).

11. Talc has a diverse range of end-uses, reflecting its qualities as a soft, lightweight, bright white mineral. Those end-use applications include paper, paints, plastics (polymers), ceramics, pharmaceuticals, cosmetics, food, rubber, construction applications, agricultural applications and others. Different end-use applications will typically demand different levels of purity, particle distribution and grades of talc, as well as different methods of processing. However, for some end-use applications similar grades of talc are employed, and also processing can be similar. This said, the notifying party considers that supply-side considerations are not sufficient as to justify the definition of a single product market consisting of all types and grades of talc. It has therefore retained a traditional and more conservative market segmentation by end application based only on demand-side substitution which it considers is in line with the Commission's previous practice in cases concerning industrial minerals.

12. According to the notification, in Europe talc is currently used predominately for functional filling5 in multiple end uses. Talc’s specific chemical and physical properties (high aspect

5 Functional filling is the use of minerals as fillers to give the end-product certain functional characteristics (e.g. adding impact resistance; improving flow; improving stiffness; improving water resistance, etc).

3 ratio and low surface energy) bring unique functionalities to the various end-use applications, such as reinforcement (for plastics), matting and anticorrosion (for paints), pitch control6 (for paper), and others. These functionalities allow talc to participate at the higher-end of mineral fillers and, thus, to command a price premium over most other industrial minerals.

13. Talc can also be used as a basic filler7 (for instance in decorative paints and paper) or as basic flux agent8 (e.g. in traditional ceramics) in some low-end industry applications, whenever it is available at a cheap price, in large quantities and in proximity to customers. However, while in China, India and other developing countries this is still the case due to the large reserves still available, in Western Europe and the United States, the use of talc as a basic filler or flux agent has almost completely disappeared, according to the parties. This is because for these particular uses talc has been displaced by other less expensive industrial minerals equally suitable as a basic filler (e.g., ground calcium carbonate ("GCC') in painting, carbonates and kaolin in paper filling) or fluxing agent (e.g. feldspar in basic ceramics)9.

14. The Commission has not addressed the issue of market segmentation for talc in previous decisions10. However, in past cases dealing with other industrial minerals, the Commission has typically confined the product market to a single mineral and further segmented it by end-use application.11 A series of decisions adopted by national competition authorities relating to talc have also followed this approach.12

6 Contaminants (e.g. wood pitch or "stickies") from recycled fibre can cause problems within the papermaking process. Pitch control agents effectively "clean" the papermaking process by adsorbing any sticky resinous particles in the wood pulp onto their platy surfaces, thereby preventing the agglomeration and deposit of these on the papermaking equipment.

7 Basic filling is the use of a mineral as a filler without caring about the specific functionalities the mineral adds to the end application. In this respect, a basic filler can technically be substituted by a large number of minerals - since for such use the specific properties of each mineral become irrelevant, only price and availability playing a role.

8 A flux agent is a mineral added to ceramic glaze in ceramic applications to accelerate firing cycles in order to reduce firing temperatures and cycles and thereby save energy costs.

9 According to the parties, the price of the price premium of talc against other related industrial minerals although depending on the end use application ranges from 30% against kaolin up to 100% and more with respect to GCC, feldspar, bentonite and silica.

10 Talc was mentioned in COMP/M.3976 – Omya/Huber PCC in the context of the supply of industrial minerals to the paper industry. The Commission noted that the market investigation in that case 'showed kaolin is the closest substitute to talc' and that talc and calcium carbonates (PCC and GCC) are not part of the same product market.

11 See for example case COMP/M.3796, Omya/Huber PCC, decision of 19 July 2006 where the Commission examined the market for carbonates Ground Calcium Carbonate ('GCC') and Precipitated Calcium Carbonate ('PCC') in paper applications and case COMP/M.1381, Imetal/English China Clays, decision of 26 April 1999 where it examined the market for kaolin in paper, ceramics and other refractory applications. Imetal changed its name to Imerys on 22 September 1999.

12 See Spain, Luzenac/Ibetasa, and Finland, Omya/Mondo and HgCapital/Eirene/Mondo.

4 15. The market investigation broadly confirmed that the relevant product markets should be defined according to the end-use application of the mineral in question13 and that in particular separate product markets should be identified as regards talc used in different end-use applications. The market investigation showed that, from a supply-side perspective, producing talc for the different end use applications depends on the supplier's capacity to develop a specific knowledge for that application as well as the availability of the raw material with the quality required14. Due to historical reasons and to regional proximity talc suppliers have developed patterns of specialisation in particular end-use applications.

16. In line with the reasoning above, the market investigation largely confirmed the view of the notifying party that for the purpose of product market definition for talc the following relevant markets should be distinguished15: (i) talc for polymers, (ii) talc for adhesives and sealants, (iii) talc for paints, (iv) talc for cosmetics and personal care, (v) talc for ceramics, (vi) talc for rubber, (vii) talc for paper, (viii) talc for food, (ix) talc for pharmaceuticals, and (x) talc for agricultural products.16

17. Given Imerys's portfolio of minerals which are used in the end applications in which talc is also used, the market investigation examined as well whether some of these minerals could be considered to be close substitutes to talc in the end applications concerned to such an extent that these minerals and talc would form part of the same relevant product market.

18. The notifying party submitted that close substitution of talc with other minerals Imerys has in its existing portfolio should be discarded based on the parameters which have to be considered for market definition purposes, i.e. properties, performance and price. However, the notifying party noted that one of the minerals in its portfolio, kaolin, may provide a function similar to talc in one end-use application (though not being a close substitute), namely paper coating in rotogravure printing applications17 but it did not

13 Replies to questions 7 and 11 of the Commission's questionnaire to competitors dated 1 June 2011. Replies to questions 7 and 11 of the Commission's questionnaire to customers dated 1 June 2011.

14 Replies to questions 13, 14, 15 and 16 of the Commission's questionnaire to competitors dated 1 June 2011.

15 Replies to questions 8 and 15 of the Commission's questionnaire to customers dated 1 June 2011. Replies to questions 8 and 14 of the Commission's questionnaire to competitors dated 1 June 2011

16 According to the notifying party, some of these broad end applications are often further sub-segmented as follows: (i) talc for polymers into a) talc for performance plastics and b) talc for commodity polymers, [(ii) talc for adhesives and sealants – no sub-division], (iii) talc for paints into a) talc for industrial paints and b) talc for decorative paints, [(iv) talc for cosmetics and personal care – no sub-division], (v) talc for ceramics into a) traditional (basic) ceramics and b) technical ceramics, [(vi) talc for rubber – no sub-division], (vii) talc for paper according to its function into a) paper filling, b) paper coating (in offset printing processes and in rotogravure printing processes) and c) pitch control, [(viii) talc for food – no sub-division], [(ix) talc for agricultural products – no sub-division] and [(x) talc for agricultural products – no sub-division]. The question of whether any of these segmentations constitute separate product markets can however be left open, since it does not affect the competitive assessment of the present transaction.

17 The rotogravure printing process is a printing process which is used for commercial printing of various kinds of papers, including light weight coated (LWC) papers, such as those used for magazines, as well as for postcards and corrugated (cardboard) product packaging. In paper coating in Europe, talc is mainly 5 consider that this is sufficient to define a product market comprising talc and kaolin for this particular end application.

19. The market investigation showed indeed that although from a demand side there is a certain degree of substitution between talc and other minerals in various end-use applications18, these patterns of substitution are not enough to justify including these other minerals in the same relevant product market as talc for a specific end use application. In particular, the market investigation revealed that the substitution of talc for other related minerals in the different end-use applications is not perceived to be easy19 and in most cases the substitute mineral will confer different properties and functionalities to the end product so as not to render talc and the related mineral to be considered close substitutes20. In most cases, also there are significant price differences between the minerals considered which limits the substitution possibilities.

20. The market investigation confirmed that in most instances customers would not replace talc by another mineral in response to a small but significant non transitory increase in price.21

21. The market investigation also confirmed the parties' view that the use of talc for basic filling applications22 has almost disappeared and that it is nowadays mostly used as a functional filler23 for the specific properties it confers to the end use applications. Therefore, the disappearance of talc from basic filling applications reduces the scope of any substitution of talc for other minerals in these applications.

22. As to the possibility of substituting talc and calcium carbonates in paper coating applications, the market investigation confirmed, in line with the Commission precedent in Omya/Huber PCC, that talc and calcium carbonates (GCC and PCC) constitute separate product markets.

used in rotogravure paper in order to improve printability, reduce surface friction and improve productivity at the paper mill and print house by extending the life time of the paper rolling equipment.

18 For example, substitution of talc for calcium carbonates in paper, paints and plastic end-use applications. Substitution of talc for kaolin in ceramics, rubbers, adhesives and sealants, food and agriculture. Substitution of talc for mica in cosmetics and pharmaceuticals (Replies to question 17 of the Commission's questionnaire to competitors dated 1 June 2011; replies to question 18 of the Commission's questionnaire to customers dated 1 June 2011).

19 Replies to question 19 of the Commission's questionnaire to competitors dated 1 June 2011. Replies to question 20 of the Commission's questionnaire to customers dated 1 June 2011.

20 Replies to question 17 of the Commission's questionnaire to competitors dated 1 June 2011.

21 Replies to question 14 of the Commission's questionnaire to customers dated 1 June 2011. Reasons included quality and feasibility of the substitution.

22 Basic filling is the use of a mineral as a filler without focusing about the specific functionalities the mineral adds to the end application.

23 Functional filling consists in the use of minerals as fillers to give the end-product certain functional characteristics.

6 23. Only when considering a hypothetical alternative narrow market definition of paper coating for rotogravure printing applications has the market investigation revealed that competitors and customers consider talc and kaolin as relatively close substitutes24. However, the market investigation also provided indications that there are significant price differences between the two minerals, favouring the use of kaolin instead of talc in coating for rotogravure. Moreover, the market investigation showed that the substitution of talc by kaolin is not considered easy by market operators and that the marginal substitution between talc and kaolin resulting from a small and permanent relative price increase in talc is limited since such substitution would lead to problems in the production process and would require an expensive reformulation of the mixture. However, for the purpose of this decision, the precise market definition may be left open since even in a market comprising talc and kaolin for rotogravure printing applications the transaction does not give rise to competitive concerns.

24. In the light of the above it is considered that the relevant product markets for the purposes of the assessment of the present transaction should be delineated according to the single mineral, talc, and further segmented in accordance with its end use applications, with the possible exception of a market comprising talc and kaolin for paper coating for rotogravure printing applications.

Cordierite and kiln furniture

25. Cordierite is a mineral alloy typically consisting of talc, kaolin and other minerals which is used in kiln furniture to improve thermal shock resistance and reduce thermal expansion.

26. The notifying party submits that talc is not an essential mineral in cordierite and alternative minerals such as magnesium carbonate or chlorite can be used instead of talc and lead to end product properties that are very similar in quality to those of talc-based cordierite.25 The notifying party also submits that cordierite is just one of a number of materials out of which kiln furniture and other shaped refractory ceramics are manufactured and that in recent years technical advances have resulted in cordierite-based kiln furniture increasingly being replaced by silicon carbide-based kiln furniture.

27. According to the notifying party, cordierite is very seldom traded on the merchant market and in negligible quantities as Imerys, like other industrial mineral suppliers, manufactures cordierite for captive use only. As such, the notifying party considers that cordierite does not constitute a distinct product market for competition purposes.

28. The term 'kiln furniture' refers, in turn, to refractory pieces that are used to stack, support, separate or protect ceramic components such as roof tiles, sanitaryware and tableware inside the kiln.26 The notifying party submits that the kiln furniture industry is not

24 Replies to question 21 of the Commission's questionnaire to customers dated 1 June 2011. Replies to question 20 of the Commission's questionnaire to competitors dated 1 June 2011.

25 Such a change would require a readjustment of the mix and quantities of the minerals employed in the recipe to obtain the desired results. According to the notifying party, it would take approximately three months to re- develop a recipe.

26 See Commission Decision of 26 April 1999 in Case No IV/M.1381, Imetal/English China Clays, paragraph 36.

7 dependent on talc and that talc-based cordierite as non-talc based cordierite as well as solutions based on silicon carbide are available on the market.

29. The market investigation in the present case has confirmed the absence of a merchant market for cordierite used in the production of kiln furniture. It has also indicated that talc can indeed be replaced by other minerals such as magnesium carbonate and/or chlorite for the manufacture of cordierite without significantly altering the properties of the cordierite or its cost. At the same time, however, the market investigation has shown that silicon carbide-based solutions differ significantly from cordierite-based kiln furniture (whether talc based or not) both in terms of price and performance.27

30. For the purposes of the present decision, however, the question whether silicon carbide- based solutions form part of the same product market as cordierite-based solutions can be left open as it would not significantly affect the competitive assessment.

C. RELEVANT GEOGRAPHIC MARKET

Talc and related minerals

31. The notifying party submits that the relevant geographic market definition for talc for all major end-use applications is at least EEA wide28 on the basis of the following observations: (i) significant cross-border trade of talc within the EU, (ii) significant imports (more than 50%) of talc from outside the EU (mainly China), (iii) relative high value of talc, (iv) ease of transport, and (v) low cost of maritime freight. It also highlights that this view is in line with other talc related decisions taken by national competition authorities29. The same consideration as to the geographic scope is made for a hypothetical market for talc and kaolin for paper coating in rotogravure printing processes.

32. The market investigation confirmed that talc suppliers in the different end use applications compete on an EEA or global basis, in particular as regards talc used for specialised applications30. For less sophisticated end applications, transport costs considerations play a more relevant role in the sourcing decision31.

27 A producer of kiln furniture indicated that silicon carbide-based solutions are more expensive than cordierite-based solutions but have certain advantages in terms of improved mechanical strength, bending resistance and refractoriness. Consequently, the thickness of kiln furniture using silicon carbide can be reduced which in turn reduces the mass of kiln furniture in the kiln and the energy used in the firing process.

28 Imerys submits that with respect to talc of very low value employed as basic non functional filler, sales would typically occur only in proximity of the reserves since transport costs would more significantly affect the final price. According to Imerys, however, this end-use of talc has almost completely disappeared in Europe.

29 In the Spanish decision on Luzenac/Ibetasa, the geographic scope of the market for talc products was defined as worldwide while in the two Finish decisions Omya / Mondo and HgCapital / Eirene / Mondo, the geographic scope of the market was defined to be EEA-wide.

30 Replies to question 27 of the Commission's questionnaire to competitors dated 1 June 2011.

31 Replies to question 25 of the Commission's questionnaire to competitors dated 1 June 2011.

8 33. Furthermore, the market investigation signalled that there are significant imports of talc into the EU, in particular from China, India, US and Australia32 and for the applications requiring the highest qualities and grades.33

34. The market investigation showed that for talc-based high end applications such as technical ceramics, performance plastics and cosmetics, transport costs do not exert in fact a significant constraint to trade in talc given the relative high value per ton of talc. As to lower value talc-based end use applications such as paper filling and traditional ceramics, transport costs constitute more of a limiting factor for sourcing talc. Lower costs of transport by ship seem to compensate for the longer distances.

35. As to the minerals available in Imerys's portfolio, in the case of filler PCC for paper applications, in line with the Commission decision in Omya/Huber PCC, the market investigation signalled that the geographic scope of the market might be narrower than EEA wide34. However, the question of whether the geographic scope of the market is narrower than EEA can be ultimately left open since this will not change the competitive assessment of the proposed transaction given that calcium carbonates and talc are not considered to belong to the same product market.

36. As to other minerals in Imerys's portfolio, largely in line with the results in the case Imetal/English China Clays, the market investigation broadly confirmed that the geographic scope of the market for most minerals considered is at least EEA irrespective of the end use application. However, the market investigation revealed that the scope of the relevant geographic market depends on the type of customer. In particular, large customers for most of the different end applications seem to have an EEA wide procurement practice for sourcing their mineral requirements35.

37. On the basis of the above, it is considered that, except for the market of PCC, for the remaining minerals and end use applications considered, the geographic scope of the market is at least EEA wide. The consideration of whether the market for the minerals concerned is EEA wide or wider can ultimately be left open since it will not change the competitive assessment of the case.

Cordierite and kiln furniture

38. The notifying party submits that, if a market for cordierite were found to exist, such a market, following the approach of the Commission in Imetal/English China Clays in which certain high value refractory clays for the kiln furniture industry were considered,36 would have a worldwide dimension in that it is a high value mineral alloy

32 Replies to questions 31 and 32 of the Commission's questionnaire to competitors dated 1 June 2011.

33 The Target estimates that it accounts for approximately [25-35%] of imports. Other imports into the EEA are made by the Target's main competitors (Mondo and IMI Fabi) as well as various traders.

34 Replies to question 29 of the Commission's questionnaire to customers dated 1 June 2011.

35 Replies to question 29 of the Commission's questionnaire to customers dated 1 June 2011.

36 See Commission Decision of 26 April 1999 in Case No IV/M.1381, Imetal/English China Clays, paragraph 56.

9 whose transport costs are immaterial compared to its final price. It also notes that the downstream market for kiln furniture, in which cordierite is primarily employed, is in decline as European producers relocate to cheaper manufacturing locations and imports from Asia increase. The notifying party therefore submits that the market for kiln furniture is global.

39. As indicated above, the market investigation in the present case has confirmed the absence of a merchant market for cordierite used in the production of kiln furniture. With regard to kiln furniture (or its possible sub-segmentations), the precise scope of the geographic market can be left open for the purposes of the present decision since it does not affect the assessment of the case.

D. COMPETITIVE ASSESSMENT

I. HORIZONTAL EFFECTS

40. Imerys has currently no activities in the production or marketing of talc, the only mineral produced by the Target. As indicated in the section on product market definition (see recitals 10 to 24 above), the market investigation confirmed that, within all the possible market definitions for end use applications in which talc is used, the only one in which the existence of a significant pattern of substitution between talc and other minerals in Imerys's portfolio could be considered is paper coating for rotogravure printing applications. Under this hypothetical product market definition, a potential overlap arises given the parties' respective activities in relation to talc and kaolin for paper coating for rotogravure printing applications.

41. On this hypothetical product market, the merged entity would have a share in volume terms comprising Imerys's sales of kaolin and the Target's sales of talc of [40-50]% on a global basis (Imerys [30-40]%, the Target [5-10]%) and [30-40]% in the EEA (Imerys [20- 30]%, the Target [5-10]%). The merged entity's market shares on a value basis do not differ significantly from those in volume terms at [40-50]% on a global basis (Imerys [40- 50]%, the Target [5-10]%) and [30-40]% in the EEA (Imerys [20-30]%, the Target [5- 10]%).

42. Other competitors with significant market shares will remain in this hypothetical market. The merged entity would continue to face competition from Mondo, present in talc only with an EEA-wide share in 2010 of [30-40]% in volume ([30-40]% in value), as well as two other competitors present in kaolin only, AKW with an EEA-wide market share of [10-20]% in volume ([10-20]% in value) and Thiele with a market share of [5-10]% in volume ([5-10]% in value).

43. Moreover, the parties' products cannot be considered as close substitutes, in so far as they consist of different minerals with somewhat different properties and diverse prices. It should be noted, in particular, that there is no perfect two-way substitution between talc and kaolin in paper coating for rotogravure printing applications due to the different characteristics of the two minerals. In particular, talc has certain 'runnability properties' which enhance the quality and speed at which printing presses can be run that kaolin lacks.

10 44. Finally, it shall be observed that, during the market investigation, no substantiated anticompetitive horizontal concerns have been raised.

45. In the light of the above, it is concluded that the proposed acquisition does not raise serious doubts with respect to potential horizontal effects resulting from the transaction.

II. CONGLOMERATE EFFECTS

46. Imerys has an extensive portfolio of industrial minerals and will, post transaction, acquire a leading position in talc for some end-use applications. Given that talc is used in a number of applications in which some of the minerals Imerys supplies are also used (primarily in paper, paints, plastics and ceramics), the market investigation also addressed the likelihood of the proposed transaction leading to anticompetitive conglomerate effects.

47. As noted in the Commission's guidelines on the assessment of non-horizontal mergers37, when assessing the likelihood of anticompetitive foreclosure in conglomerate mergers, the Commission must examine whether the merged entity would have the ability to foreclose its rivals, whether it would have the economic incentive to do so, and whether a foreclosure strategy would have a significant detrimental effect on competition, thus causing harm to consumers.

48. As regards the ability to foreclose competitors, the proposed transaction confers Imerys, as indicated, a strong position in talc with respect to several end-use applications. According to the parties' estimates, the Target holds a share of [10-20]% worldwide and [40-50]% in the EEA in the overall talc sector. Its major competitors are Mondo Minerals with a global share of [10-20]% and an EEA wide share of [40-50]%, and IMI Fabi, with a global share of [0-5]% and an EEA-wide share of [5-10]%. More precisely, the Target holds high market shares in several markets for talc for different end-use applications, as shown in the Table below.

37 Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 265, 18.10.2008, p. 6.

11 Table: Imerys's market shares post transaction based on sales (volume) by talc end-use application

End-use application EEA-Wide Worldwide

Paper coating – rotogravure printing processes [10-20]% [10-20]% Paper filling [30-40]% [0-5]% Paper pitch control [20-30]% [30-40]% Decorative and industrial paints [60-70]% [10-20]% Commodity and performance plastics [60-70]% [10-20]% Traditional ceramics [60-70]% [5-15]% Technical ceramics [40-50]% [10-20]% Rubber [70-80]% [30-40]% Adhesives and sealants [20-30]% [20-30]% Cosmetics and personal care [30-40]% [5-15]% Source: Notifying party estimates (market share estimates for each end use application originally provided in ranges)

49. However, according to the notifying party, there are a number of reasons why the ability of the merged entity of leveraging its acquired leading position in talc into other minerals can be excluded. Firstly, it submits that talc and the minerals it supplies at present are essentially commodity products and that anticompetitive portfolio effects cannot arise in the case of homogeneous products belonging to the same product market and that these products (namely, the offerings of the different competitors of each mineral for a particular application) are completely interchangeable and thus that no supplier could then own a must-have product. Secondly, it argues that there is a large number of minerals which are used in talc end use applications which Imerys does not supply. It further argues that Imerys does not hold significant market shares in some minerals such as GCC, PCC, feldspar and titanium dioxide which can be considered much particularly relevant given the share they represent within the total market for industrial minerals. In this context, it is noted that in the various end applications in which it is used, talc does not represent a significant share in the total market for industrial minerals ([5-20]%, except for paper, where it represents [20-30]%).

50. The notifying party also notes that bundling is uncommon in the sectors where it operates and this is unlikely to change as a result of the transaction38. In this respect, it signals that customers prefer to source their minerals separately in order to keep their formulations secret which allows them to protect their business and to provide them with the flexibility to alter their formulations in response to changes in market dynamics.

51. Moreover, the notifying party notes that for end use applications such as paints, plastics, ceramics, rubber, adhesives and sealants, where the revenues generated by talc are more appreciable than those generated by other minerals, the aggregated revenues of the

38 According to the notifying party bundling represents less than 10% of Imerys mineral sales.

12 merged entity will never exceed [10-20]% of the total revenues generated in that specific application, rendering ineffective any attempt of bundling.

52. Contrary to the notifying party's submission, the market investigation revealed that there is certain degree of product differentiation within talc between grades of different colour, particle size and mineralogy. As a result, switching suppliers is not necessarily straightforward particularly in certain applications, such as performance plastics, where changes in the mineralogy can affect the performance of the finished product (e.g. car bumpers).

53. The market investigation provided however indications that Imerys will lack the incentive to engage in a practice of bundling or tying talc with other minerals as it might risk foregoing significant revenues in favour of its competitors in other minerals. In particular, if the merged entity were to engage in bundling or tying practices it would forego a large amount of sales to its competitors supplying a single industrial mineral such as for example BASF, AKW, Thiele, KaMin, Burgess, Dorfner, and Hoffman Minerals in the market for kaolin for different end-use applications. The same holds true with respect to the other minerals in Imerys's portfolio where it faces competition from a number of players in each end-use application39. On the basis of the information provided by the parties, the turnover and profits which Imerys would forego by implementing a bundling or tying strategy between the minerals already in its portfolio and talc would in any case make this strategy unprofitable and would not make sense from a commercial standpoint40.

54. Furthermore, the market investigation revealed that no capacity constraints exist, generally, as to the possibility of competitors of increasing their output of talc or any of the other minerals supplied by Imerys.

55. As to currently existing bundling practices, the market investigation has largely confirmed, in line with the notifying party's submission, that bundling or tying practices are not common with respect to the end use applications in which the talc and the minerals in Imerys's portfolio are used.41 In particular, despite Imerys's significant presence pre transaction with a portfolio of minerals in the different end-use applications in which talc is used, the market investigation did not reveal that this company had engaged in any significant bundling strategy.

39 Remaining strong competitors present in other minerals include BASF, AKW, Thiele, Omya, Specialty Minerals in paper applications. BASF, AKW, Lasselberger, Mondo, Solvay and Specialty Minerals in paint applications. Sibelco, Kaltun, AKW, UMG and Lasselberger in traditional ceramics. BASF, Alcan MAL, Almatis, Saint-Gobain in technical ceramics. BASF, AKW, Burgess, Lasselberger, Solvay and Specialty Minerals in plastics. Hofmann, Carmeuse, BASF, AKW, Alpha Calcit and Omya in rubber. Omya, Thiele, BASF, AKW, Specialty Minerals and Alpha Calcit in adhesives and sealants.

40 For example, in paper applications, Imerys’s revenues in kaolin and carbonates are about EUR […] million, while in talc revenues would be limited to EUR […] million. As a result a bundling strategy would be unprofitable given the risk of suffering significant losses in sales of kaolin, which constitutes Imerys core business generating significant revenues for the company […]larger than those that will be generated by talc.

41 Replies to question 57 of the Commission's questionnaire to customers dated 1 June 2011.

13 56. In that regard, a significant number of replies from customers to the market investigation showed that suppliers that offer a portfolio of minerals to their customers will not necessarily enjoy a strong competitive advantage against their competitors.42 In fact, a majority of customers in the market investigation highlighted that the breadth of a given supplier product range does not play a significant role in their procurement process.43

57. With regards to the discount policies applied, the market investigation revealed that discounts are not related to the purchase of a portfolio of minerals. The market investigation highlighted that the prices are negotiated individually for each mineral and are adjusted on the basis of the volumes purchased.44

58. Finally, the vast majority of replies from customers showed no concerns in relation to the potential conglomerate effects which may arise as a result of the presence of the Target in talc and of Imerys in other related minerals.45

59. In the light of the above, it is concluded that the transaction will not lead to anticompetitive conglomerate effects.

III. VERTICAL FORECLOSURE EFFECTS

60. The proposed transaction also gives rise to a vertical relationship between the Target's supply of talc for technical ceramics and Imerys's production of refractory cordierite which is in turn used in the production of certain refractory ceramics known as kiln furniture by Imerys and others.46

61. It is recalled that there is no merchant market for cordierite used to manufacture kiln furniture. According to the notifying party, the Target's share of a market for talc supplied for use in technical ceramics, which includes kiln furniture, would be in the region of [10- 20]% on a worldwide basis and [40-50]% in the EEA.47 As far as the downstream market for kiln furniture is concerned, the notifying party estimates its shares on a global and EEA basis to be [5-10]% and [20-30]% respectively.48 The notifying party's share on a market

42 Replies to question 58 of the Commission's questionnaire to customers dated 1 June 2011.

43 Replies to question 55 of the Commission's questionnaire to customers dated 1 June 2011.

44 Replies to question 56 and 59 of the Commission's questionnaire to customers dated 1 June 2011.

45 Replies to question 63 of the Commission's questionnaire to customers dated 1 June 2011.

46 Talc can also be used in the production of honeycomb cordierite and enstatite. According to the notifying party, honeycomb cordierite is used in automotive applications (automotive catalytic converters and diesel particulate filters) while enstatite possesses electro-insulating properties for high density, high frequency applications in electroceramics. As Imerys makes only negligible sales of cordierite and is only active downstream in the production of kiln furniture, the proposed transaction does not give rise to any other vertical relationship and as such technical ceramics other than kiln furniture are not considered further in this decision.

47 Form CO, annex 14.

48 Form CO, p.76. 14 consisting of cordierite based kiln furniture only in the EEA would not differ significantly from its position on the overall kiln furniture market at [20-30]%.49

62. In assessing whether a non-horizontal merger gives rise to vertical concerns in terms of input foreclosure, it is necessary to examine inter alia whether the merged entity would have the ability and incentive to substantially foreclose downstream rivals' access to an input (talc) and in addition whether such a foreclosure strategy would have a significant detrimental effect on competition downstream.50

63. Talc-based cordierite recipes contain, besides talc, a number of minerals such as alumina silicates, ball clays and kaolin. Talc is used in these types of recipe as a source of magnesia. In such recipes, the talc component represents between [10-20]% of the recipes' costs and [0-5]% of the total production costs of a kiln furniture final product. Therefore, a decision on the part of the merged entity to substantially increase its rivals' costs for talc would have a limited impact on their total production costs. Moreover, talc is not an essential mineral in the production of cordierite and can be replaced by other minerals such as magnesium carbonate and/or chlorite with results similar to recipes using talc.51 Imerys has no activities in either magnesium carbonate or chlorite and would therefore not be able to influence a switch on the part of a kiln furniture producer from talc to these alternative minerals.52

64. Moreover, if the merged entity were to increase prices or indeed refuse to supply talc to kiln furniture producers, this would enable other suppliers already on the market to increase their sales as well as attract entry in the market from other European talc suppliers not currently active in this segment, such as Mondo, and non-European suppliers active in the supply of talc to the kiln furniture industry around the world.

65. In light of the foregoing, it is concluded that the proposed transaction does not raise vertical foreclosure concerns.

49 Imerys estimates the overall market for kiln furniture in the EEA at EUR […] million and its own sales at EUR […] million. If only cordierite based kiln furniture is considered, Imerys estimates the EEA market to be some EUR […] million and its own sales EUR […] million.

50 Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 256, 18.10.2008, paragraphs 31-39 and 47-57.

51 The switch from talc to either chlorite or magnesium carbonate (MgCO3) as MgO (magnesia) source in the formulation is directly linked to the stochiometry / chemistry of each mineral containing magnesium (Mg-carriers). Cordierite has a fixed Mg-content. Thus, the balance of magnesia (MgO) to achieve cordierite depends on the alumina and silicate balance to eventually form cordierite.

52 The replacement of talc by another mineral, or indeed any reformulation of a producer's cordierite recipe, would involve time and cost in terms of product testing. Imerys has submitted that the time to re-develop a recipe would take approximately a few months and be relatively straightforward in that identical process equipment can be applied (including kilning). See Imerys's reply to the Commission's questions of 20 June 2011

15 VI. CONCLUSION

66. For the above reasons, the European Commission has decided not to oppose the notified operation and to declare it compatible with the internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation.

For the Commission

(signed)

Joaquín ALMUNIA Vice-President

16