(EC) No 139/2004 MERGER PROCEDURE Decision on the Implemen

EUROPEAN COMMISSION

DG Competition

Case M.8951 –

SUZANO PAPEL E CELULOSE / FIBRIA CELULOSE

Only the English text is available and authentic.

REGULATION (EC) No 139/2004 MERGER PROCEDURE

Decision on the implementation of the commitments Purchaser approval Date: 10.01.2019

EUROPEAN COMMISSION

Brussels, 10.01.2019 C(2019) 166 final

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and PUBLIC VERSION 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 Where possible the information omitted has been replaced by ranges of figures or a general description.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 M.8951 – Suzano Papel e Celulose / Fibria Celulose Approval of Klabin as purchaser of the Divestment Business and of the Termination Agreement following your letter of 13 December 2018 and the Trustee's opinion of 3 January 2019

I. FACTS AND PROCEDURE

1. By decision of 29 November 2018, (the "Decision") based on Article 6(1)(b) in conjunction with Article 6(2) of Council Regulation (EC) No 139/2004 (the "Merger Regulation")1, the Commission declared the operation by which Suzano Papel e Celulose S.A. ("Suzano") acquired sole control over Fibria Celulose S.A. ("Fibria") (the "Transaction") compatible with the internal market following modification by Suzano, subject to conditions and obligations (the "Commitments"). Suzano is hereafter referred to as the "Notifying Party" and together with Fibria as the "Parties".

2. Under Section B of the Commitments, Suzano made the following commitments: (i) the Bleached Eucalyptus Kraft Pulp ("BEKP") offtake agreement between Suzano (as intervening party and guarantor), Fibria and Klabin S.A. (“Klabin”) (which Fibria entered into with Klabin on 4 May 2015) (the "Offtake Agreement") shall be terminated; and (ii) all tangible and intangible assets necessary to allow Klabin to independently and in a competitive manner sell BEKP produced by Klabin at its production facility located in the city of Ortigueira, Paraná, Brazil ("Klabin Product") to any customer in the EEA and in other regions outside South America, shall be divested and transferred or made available to Klabin on terms approved by the Commission (the "Divestment Business").

1 OJ L 24, 29.1.2004 p. 1.

Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË

Tel: +32 229-91111. Fax: +32 229-64301. E-mail: [email protected]

3. Klabin is a Brazilian pulp and paper producer, with 18 industrial units – 17 in Brazil and 1 in Argentina – and with sales offices in Brazil, the United States and Austria as well as sales representatives and agents in many countries. Klabin started selling BEKP in 2016. It entered into the Offtake Agreement with Fibria because it did not have at that time, as a new entrant, the capability of serving the global market.

4. In order to implement the Commitments, Suzano committed to enter into an agreement with Klabin (the "Termination Agreement"). The Commitments require that the Termination Agreement is entered into within a period of 4 weeks as of the date of adoption of the Decision. Suzano has committed not to implement the Transaction until the Termination Agreement has been concluded and approved by the Commission.

5. On 11 December 2018, Suzano informed the Commission of the fact that the Termination Agreement had been entered into on 10 December 2018, and by letter of 13 December 2018, Suzano submitted the signed Termination Agreement and reasoned submission requesting the approval of the Commission of this Agreement (the "Reasoned Submission").

6. On 3 January 2019, the Monitoring Trustee (the "Trustee") submitted an assessment of Klabin's suitability as acquirer of the Divestment Business (the "Reasoned Opinion"), and also an assessment as to whether the Termination Agreement is being concluded in a manner consistent with the Commitments.

II. ASSESSMENT OF THE PROPOSAL

7. The Termination Agreement as submitted is twofold. On the one hand, it provides for the termination of the Offtake Agreement in its entirety, giving complete and irrevocable release and discharge from any and all obligations, rights and/or payments related to or which may arise from the Offtake Agreement, including any termination payment, penalty or fee or any other liability, which shall not be due.

8. On the other hand, it provides for a "Structural Commitment", in order to enable Klabin to serve customers in the EEA and other regions outside of South America, in an independent and competitive manner and as quickly as possible following the Commission's approval of the Termination Agreement.

9. Concretely, Klabin will be able to obtain or make use - at cost - of a range of tangible and intangible assets included in the Divestment Business. These include:

a. Personnel: up to […] of (either of) the Parties' […];

b. Storage capacity for a transitional period of […];

c. Shipping contracts, and thus access to ports, for a transitional period […];

d. […] records: […];

e. Technical support and assistance, for a transitional period of […], in qualification of Klabin BEKP to maintain or obtain acceptance by EEA customers will be provided to Klabin;

f. Additional and ancillary transitional services, for a transitional period of […], reasonably required for Klabin to market Klabin Product within the scope of the Termination Agreement will be provided to Klabin at its sole discretion.

10. In addition, over a transitional period of […], Klabin shall gradually reduce the volumes delivered to Fibria in order to enable it to supply BEKP to customers in the EEA and other regions outside of South America. […].

11. […].

(a) Independence from the Parties

12. Suzano submits that Klabin is independent from both itself and Fibria. Particularly, Suzano submits that:

a. Klabin does not have any shareholding in Suzano and Fibria (or vice versa);

b. Klabin does not have direct or indirect ownership interests in any company owned or controlled by Suzano, Fibria or any of their affiliates (or vice versa);

c. No company owned or controlled by Suzano or Fibria has direct or indirect ownership interests in any company owned or controlled by Klabin or any of its affiliates (or vice versa);

d. There are no cross-directorships between Suzano and/or Fibria and Klabin.

13. Furthermore, to Suzano's knowledge no shareholder holding more than 5% in Suzano also owns a meaningful stake in Klabin (i.e. a share of more than 10%), nor are there joint ventures between Klabin and either of the Parties in the forestry, pulp or paper sectors. In addition, Klabin is not economically or strategically dependent on either of the Parties.

14. The Trustee submits in its Reasoned Opinion that, based on the information available, Klabin is independent from the Parties in view of the lack of any control, ownership or influence of either of the Parties on Klabin or vice versa. Any transitional arrangements will be at arm's length.

15. In line with the Trustee's Reasoned Opinion, the Commission considers that, following the implementation of the Termination Agreement, there will be no structural or material commercial links between Klabin and either Suzano or Fibria that could impair Klabin's independence from the Parties. Therefore, the Commission takes the view that Klabin is independent and unconnected to the Parties and their Affiliated Undertakings.

(b) Financial resources, proven expertise and incentive to maintain and develop the Divested Business as a viable and active competitor

16. Suzano submits that Klabin is financially healthy and has the resources to market Klabin Product in the EEA and the rest of the world. The sales of pulp which Klabin will be able to market in the EEA and the other regions outside of South America will likely reinforce Klabin's ability to develop its business. Klabin also has significant free cash flow, and has been demonstrating a consistent pattern of growth.

17. Moreover, Klabin has experience in the pulp sector. It was founded in 1899 and has been producing pulp and paper ever since. It is also the only South American pulp producer to market both hardwood and softwood pulp, as well as fluff pulp. Indeed, Klabin already sells softwood pulp globally, including in the EEA.

18. Finally, Klabin has the incentive to grow the Divestment Business. As any other pulp supplier, it will aim at diversifying its customer base, and the fact that it recently opened a sales office in Austria demonstrates its willingness to develop its presence in the EEA.

19. According to the Reasoned Opinion of the Trustee, Klabin has the financial resources to market Klabin Product in the EEA and the rest of the world. Klabin has reported a strong cash position in each of the last three financial years. Even more, its cash position has increased every year, with cash inflows from operation and investing activities. In addition, Klabin has offices outside of South America, including in Austria, and Klabin Product has been approved by many customers in the EEA and thus meets the requirements of European customers. Lastly, pursuant to the Commitments, Klabin was introduced as a new independent competitive force in the EEA and elsewhere, and has indicated its incentive to maintain and develop the Divestment Business.

20. On the basis of the information provided by both the Parties and Klabin, and in line with the Trustee's Reasoned Opinion, the Commission considers that Klabin has the financial resources and the experience necessary to market Klabin Product in the EEA and the rest of the world. Furthermore, the Commission considers that the Termination Agreement ensures that Klabin will quickly and easily gain access to markets outside of Brazil, and in particular in the EEA. As Klabin's plant producing BEKP has a capacity of 1.5 […]* that is for the largest part used for the production of BEKP, by allowing it to sell outside of South America Klabin will be able to significantly expand its market presence. Gaining direct access to BEKP customers in the EEA and across the world also increases Klabin's incentives to grow the business and potentially expand its capacity in the long-run. Furthermore, Klabin has indicated its willingness to increase its sales of BEKP to the EEA.

21. In light of the above, the Commission takes the view that Klabin has the financial resources, proven expertise and incentive to maintain and develop the Divestment Business as a viable and active competitive force on the market.

22. Suzano submits that the implementation of the Commitments cannot give rise to competition concerns in the EEA or elsewhere. According to Suzano, the Offtake Agreement meant that Klabin was not present outside of South America – the Commitments will allow the entry of Klabin as a new independent competitive force in the EEA and elsewhere. As such, the Commitments provide European and other consumers of pulp with an alternative Brazilian supply source of BEKP. Therefore, the implementation of the Commitments does not result in an "overlap" which could give rise to competition concerns.

* Should read: “MT”

23. With respect to the time-period within which the proposed divestment can be implemented, Suzano submits that the transfer of the Divestment Business is subject to a strict timeline. From the moment the Termination Agreement is approved by the Commission (or from the moment of the Closing of the Concentration, whichever is later), the Parties must transfer or make available to Klabin the Divestment Business and effectuate the Termination Agreement within a period of […].

24. The Trustee submits in its Reasoned Opinion that, as the Commitments introduce Klabin as a new competitor in the EEA and elsewhere while before it was not present outside of South America, there will be no competition concerns. The transfer of the Divestment Business will also not be held up by any regulatory approval process.

25. The Commission considers that the Termination Agreement allows the entry of Klabin as a new independent supplier of BEKP outside of South America. As such, the implementation of the Termination Agreement is not likely to give rise to competition concerns.

26. Moreover, the Commitments provide for a […] period for the Parties to transfer or make the Divestment Business available to Klabin. Given the short timeframe set by the Commitments and replicated in the Termination Agreement, and the straightforwardness of the implementation, the risk of delay is limited.

27. Therefore, the Commission considers that it is unlikely (i) that prima facie competition concerns will arise pursuant to the implementation of the Termination Agreement, and (ii) that considerable delays to the implementation of the Termination Agreement will occur.

(d) The Divestment Business is being sold in a manner consistent with the Commitments

28. Suzano submits in its Reasoned Submission that the Termination Agreement duly reflects the Commitments, in the sense that the Offtake Agreement will be terminated and the Divestment Business will be transferred in a manner consistent with the Commitments.

29. The Trustee submits in its Reasoned Opinion that the Termination Agreement does not include any provisions that are inconsistent with the Commitments, so that the Divestment Business is being transferred and the Offtake Agreement is being terminated consistently with the Commitments.

30. In view of all the above and in line with the Trustee's Reasoned Opinion, the Commission considers that the Termination Agreement is consistent with the Commitments, including their objective to bring about a lasting structural change in the market and introduce Klabin to the market as an independent supplier of BEKP.

III. CONCLUSION

31. On the basis of the above assessment, the Commission approves the suitability of Klabin as purchaser of the Divestment Business and the Termination Agreement.

32. This decision only constitutes approval of Klabin as purchaser of the Divestment Business and of the Termination Agreement. This decision does not constitute a confirmation that Suzano has complied with its Commitments.

33. This decision is based on paragraph 17 of the Commitments attached to the Commission Decision of 29 November 2018.

For the Commission

(Signed)

Johannes LAITENBERGER Director-General