2000/718/EC: Commission Decision of 1 December 1999 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case No IV/M.1578 - Sanitec/Sphinx) (notified under document number C(1999) 4005) (Text with EEA relevance.) (Only the English text is authentic)
22. 11. 2000 EN Official Journal of the European Communities L 294/1 II (Acts whose publication is not obligatory) COMMISSION COMMISSION DECISION of 1 December 1999 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case No IV/M. 1578 - Sanitec/Sphinx) (notified under document number C(1999) 4005) (Only the English text is authentic) (Text with EEA relevance) (2000/718/EC) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Whereas: Having regard to the Treaty establishing the European Community, Having regard to the Agreement on the European Economic Area, and in particular Article 57(2)(a) thereof, Having regard to Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings (1), as last amended by Regulation (EC) No 1310/97 (2), and in particular Article 8(2) thereof, Having regard to the Commission decision of 3 August 1999 to initiate proceedings in this case, Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission (3), Having regard to the opinion of the Advisory Committee on Concentrations (4), (1) OJ L 395, 30. 12. 1989, p. 1; corrected version in OJ L 257, 21. 9. 1990, p. 13. (2) OJ L 180, 9. 7. 1997, p. 1. (3) Sanitec has refrained from replying to the Commission’s Statement of Objections. The Commission therefore considers that Sanitec is in agreement with the Commission’s analysis set out in the Statement of Objections. (4) OJ C 331, 22. 11. 2000. (1) On 1 July 1999, the Commission received a notification of a proposed concentration whereby the Finnish undertaking Sanitec Ltd Oyj Abp ( Sanitecí), belonging to the Finnish industrial group Metra, acquires control within the meaning of Article 3(1)(b) of Regulation (EEC) No 4064/89 (áthe Merger Regulationí) of the Dutch undertaking NV Koninklijke Sphinx Gustavsberg ( Sphinxí) by way of a public bid. (2) After examination of the notification, the Commission the concluded by decision of 3 August 1999 that the scope of notified operation falls within the Merger Regulation and as doubts to its compatibility with the common market. The Commission therefore decided to initiate proceedings in application of Article 6(1)(c) of the Merger Regulation and Article 57 of the EEA Agreement. serious raises I. THE PARTIES (3) Sanitec is active in the design production and marketing of bathroom products. The Group has three core businesses: bathroom ceramics, bath and shower related products and vacuum toilet systems. Sanitec is active in the Middle East, the Community, central Europe, Its best known south-east Asia and North America. L 294/2 EN Official Journal of the European Communities 22. 11. 2000 Ifö, Ido, Porgsgrund (France), Keramag Scandispa brands are (Germany), (Scandinavia), Allia Albatros, Revita and Pozzi-Ginori (Italy) and Lecico (the United Kingdom). Sanitec is a wholly owned subsidiary of the Metra industrial group. ( Pozzií) and (4) Sphinx is also active in the design, production and marketing of bathroom products, in ceramic sanitary ware, shower enclosures, bathtubs and taps. Sphinx is active in the Community and eastern Europe. Its best known brands are Sphinx, Gustavsberg, Selles, Koralle, Leda and Vårgårda. in particular, II. THE OPERATION (5) On 3 June 1999, Sanitec made a public offer for all outstanding ordinary shares not held by the Stichting Administratiekantoor Aandelen NV Koninklijke Sphinx Gustavsberg (áthe Foundationí) and all the depositary receipts of ordinary shares in Sphinx. Thus, the offer covers all shares in Sphinx. Given that the depositary receipts of shares are held by the Foundation and that, according to Dutch law, the voting rights of the shares in Sphinx can only be exercised by the Foundation, Sanitec will take control over all controlling bodies in Sphinx as well as the Foundation and thus ensure control over Sphinx. (6) The offer memorandum was posted to the shareholders on 17 June 1999 and has the Supervisory Board and the Managing Board of Sphinx. The offer covers the whole Sphinx Group and it is envisaged that Sphinx will become the wholly owned subsidiary of Sanitec. support of the III. CONCENTRATION (7) If the public offer succeeds, Sanitec will acquire sole control of Sphinx. The operation is a concentration within the meaning of Article 3(1)(b) of the Merger Regulation. therefore IV. COMMUNITY DIMENSION (8) The combined aggregate worldwide turnover of the undertakings concerned exceeded EUR 2 500 million in 1998 (Sanitec/Metra: EUR 2 603 million; Sphinx: EUR 270 million). The combined aggregate turnover of the undertakings concerned was more than EUR 100 million in Sphinx: EUR [ ]* million), in each of at least three Member States in which each of those undertakings had an aggregate turnover of more than EUR 25 million, in [ ]* (Sanitec/Metra: EUR [ ]* million; [ ]* (Sanitec/Metra: EUR [ ]* million; Sphinx: EUR [ ]* in [ ]* (Sanitec/Metra: EUR [ ]* million; million), Sphinx: EUR [ ]* million) and in [ ]* (Sanitec/Metra: EUR [ ]* million; Sphinx: EUR [ ]* million). The aggregate Community-wide turnover of each of the undertakings concerned was more than EUR 100 million (Sanitec/Metra: EUR [ ]* million; Sphinx: EUR [ ]* million). Furthermore, the undertakings concerned did not achieve more than two thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension within the meaning of Article 1(3) of a cooperation case purusuant to Article 57(2)(a) of the EEA Agreement and Article 2(1)(c) of Protocol 24 to that Agreement and therefore the case has been assessed by the Commission in cooperation with the EFTA Surveillance Authority in accordance with Article 58 of the EEA Agreement. the Merger Regulation. constitutes It V. RELEVANT MARKETS A. RELEVANT PRODUCT MARKETS 1. Market definition proposed by Sanitec (ii) (iii) trays; shower shower (9) Sanitec has submitted that bathroom products may be divided into the following 12 relevant product markets: (i) bathtubs; screens, enclosures and cubicles (áshower screensí); (iv) sanitary taps and mixers; (v) washbasins; (vi) sinks; (vii) water closets ( WCsí); (viii) vacuum and non-vacuum systems (ix) WC cisterns and for aircraft, (x) hydrotherapy flushing systems ( WC cisternsí); (xi) bathroom furniture products; and (xii) other products, including WC-seats, bidets, urinals, pedestals and accessories. trains and ships; (10) Sanitec argues that an additional segmentation, by price levels (i. e. high-end and low-end products) or material used for the production of bathroom products, within each of is neither the suggested product markets necessary nor feasible because all major manufacturers of bathroom products produce or trade products across the whole price range and thus substitution can easily take place from a supply-side point of view. Sanitec argues further that there are multiple overlaps of price ranges among the suppliers of bathroom products and it is therefore the view of Sanitec that the relevant product from the are markets consumer’s point of view. defined most adequately * Parts of this text have been edited to ensure that confidential information is not disclosed; those parts are enclosed in square brackets and marked with an asterisk. 22. 11. 2000 EN Official Journal of the European Communities L 294/3 (11) While Sanitec and Sphinx have overlapping activities in most of the abovementioned product markets, it is only the following markets which are horizontally affected by the concentration (i. e. the parties have a combined market share above 15 %): washbasins, WCs, WC cisterns, bathtubs, shower trays and shower screens. (a) Washbasins (12) Sanitec that submits the market for washbasins comprises both ceramic and non-ceramic (acrylic and steel) products. Sanitec has argued that washbasins made out of different materials fulfil the same needs for consumers and that the characteristics and prices are the same. Thus, Sanitec considers that washbasins made of different materials are substitutes for one another. In its notification Sanitec estimates that, at the EEA-wide level, [< 95 %]* of washbasins are made of ceramic and [< 15 %]* of non-ceramic material. (b) WCs (13) According to Sanitec, the main type of toilet is the water-flushed vitreous ceramic model. There are a number of different arrangements for WC pans: they can be either pedestal or affixed to the wall. In addition, they may be used with a high or low level cistern as well as with a cistern or flushing valve concealed in or behind the wall. Sanitec contends that there are no substituting products for WCs which are only made of ceramic materials. Urinals complement WCs but do not substitute them. the sales volume of urinals is negligible. In any event, (c) WC cisterns (14) Sanitec submits that there are two principal solutions for the flushing of conventional WCs: an exposed or concealed flushing mechanism inside the cistern or a self-closing tap triggering a water-pressured special flush. Sanitec contends that cisterns made of different materials are substitutes for one another given that customers’ preferences do not relate to material but only to function (which is fulfilled by all the materials), design (which does not depend upon material) and prices. the EEA-wide level, [< 70 %]* of all WC cisterns are made of non-ceramic materials and the rest of ceramic material. Furthermore, Sanitec submits that, at (15) While recognising that WCs and WC cisterns are used they are often bought should thus be together, Sanitec submits that separately and that WC cisterns considered as a distinct product market from WCs. (d) Bathtubs (16) Sanitec contends the price ranges of that bethtubs made of synthetic materials, cast iron or steel serve the same purpose from the demand-side point of view and are substitutes for one another. Although average prices differ for each the different kind of material, materials thus Sanitec considerably overlap considers that the different kinds of bathtub constitute substitutes. According to Sanitec, the split between the sales of different types of bathtub is as follows: [< 50 %]* synthetic materials, [< 60 %]* steel and [< 5 %]* cast iron. Sanitec has submitted that, due to the durability of the product, cast-iron bathtubs are mainly used in public areas such as hospitals and hotels and constitute therefore a niche product. and (e) Shower trays iron) serve (17) Sanitec submits that, as with bathtubs, shower trays made out of different materials (ceramic, synthetic, steel and cast and are the substitutes in terms of function, design and price from the consumer’s point of view. Shower trays are usually used together with enclosures. According to Sanitec, [< 40 %]* of shower trays are made of steel, [< 40 %]* of ceramic and [< 40 %]* of synthetic materials. same purpose (f) Shower screens tray or a bathtub to protect (18) Shower screens and enclosures are usually used together the with a shower bathroom from splashes. Shower cubicles integrate enclosures and trays into one piece. Sanitec submits that shower screens, enclosures and cubicles constitute one single demand-side. Furthermore, manufacturers of shower screens always produce enclosures and often also cubicles. The same material (acrylic sheets) is used when producing shower screens, enclosures and cubicles. However, glass is used in the luxury segment which is estimated to represent less than [< 5 %]*. product market from the 2. An alternative product market definition (19) In the course of the Commission’s market investigation, a number of competitors and customers have suggested an alternative product market definition according to which ceramic sanitary ware (including WCs, WC cisterns, washbasins and bidets made out of ceramic) could be defined as a separate product market. In support of such a broader market definition for ceramic sanitary ware, a number of arguments have been put L 294/4 EN Official Journal of the European Communities 22. 11. 2000 forward. It has been argued that, from the demand-side, distributors and wholesalers of bathroom products usually buy a range of ceramic sanitary ware. A range refers to WCs, WC cisterns, washbasins, pedestals and sometimes also bidets and urinals, which are installed in the bathroom as a set because customers usually require these products to have a common design. This would apply both with regard to new construction as well as to refurbishment It has furthermore (see recital 21). been suggested that it is only in rare replacement cases (considering the long life cycle of ceramic sanitary ware products) that single pieces will be sold. 3. Demand-side substitutability (20) As already stated, Sanitec submitted in its notification that each of the six affected products mentioned, i. e. WCs, WC cisterns, washbasins, bathtubs, shower trays and shower screens, should be considered as distinct markets. With respect to the ceramic products, Sanitec’s that, main argument was instance, WCs and washbasins are not interchangeable from the final consumer’s point of view and that, for this reason, they cannot belong to the same relevant product market. for (21) Sanitec submitted further that customers do not in line (i. e. a range of general purchase one product products encompassing for example either all ceramic sanitary ware and a bathtub and/or a shower tray). However, Sanitec has subsequently clarified its position by submitting further details relating to new building and refurbishment activities. Reference is made to a study (5) which identifies the following end-uses for ceramic sanitary ware: new housing (i. e. construction of (i. e. houses home of construction finally, improvement via home improvement via DIY chains. The first two categories cover new building activities and represent [25 % to 45 %]* of the total market whereas the last two categories cover refurbishment activities and represent [55 % to 75 %]* of the total market. hospitals, installers/showrooms for private households), non-housing etc. ), and, hotels, (22) According to Sanitec’s estimates, [45 % to 75 %]* of the ceramic sanitary ware sold to new building activities is sold as a series of products. With respect to the refurbishment market, Sanitec estimates that [65 % to the ceramic sanitary ware sold to home 85 %]* of improvement via installers is sold as a series of products whereas [25 % to 45 %]* of the ceramic sanitary ware sold to home improvements via DIY chains is sold as a (5) GB Consult, a consultant company publishing studies analysing the European bathroom product markets, has carried out two studies which have been used for the analysis in this Decision: The West European Bathroom Products Market (1998 update) - 10 Country International Synthesis (December 1998) and Ceramic Sanitary Ware Products in Scandinavia (preliminary data) (May 1999). series of products. With respect to the latter, Sanitec estimates that the share of sales of series is increasing steadily (6). (23) In conclusion, the information given by Sanitec clearly confirms the view submitted by a number of third parties in the course of the Commission’s investigation, namely that, while it is true that from the functional cannot be view the different products point of considered as substitutable, final consumers tend to purchase a series of ceramic sanitary ware products for new construction purposes and that the proportion of purchases of series for refurbishment purposes is indeed considerable and amounts at present to more than half of the total sales in this segment. (24) Moreover, therefore, customers and, a large in their of and distributors number wholesalers to the Commission’s responses enquiries have considered it important to be able to supply the whole range of ceramic sanitary ware to typically their demand a full range of each manufacturer’s product portfolio. This applies in general both to the Nordic countries (7) has furthermore been indicated that manufacturers typically offer joint discounts for a range of products, giving an important incentive for distributors and wholesalers to buy a range of products. continental Europe (8). they will and It (25) The Commission notes that the typical ceramic sanitary ware products are only to a very limited extent substituted by other materials. For example, based on the information submitted by Sanitec, non-ceramic washbasins are niche products and represent less than [< 15 %]* of all washbasins sold at the EEA-wide level as well as in general on a national level. This view has been confirmed by third parties who gnerally consider the volumes of washbasins made of non-ceramic materials to be negligible and only used in niche segments. (26) Furthermore, it has been suggested that the price of non-ceramic washbasins is considerably higher than the In addition, based on the price of ceramic products. a information available, proportionally higher share of the sales of non-ceramic washbasins than that of ceramic washbasins and it the parties do not have (6) Sanitec has estimated that the figure concerning the sales of ranges via DIY is even higher in some individual countries where DIY chains are particularly developed, for instance between [< 50 %]* and [< 60 %]* in Germany. Moreover, ranges of products via DIY chains have been estimated to grow at the same time when DIY chains are gradually gaining market share at the expense of traditional distribution channels. In this Decision, the Nordic countriesí or Nordic areaí refers to Denmark, Finland, Iceland, Norway and Sweden. Continental Europeí in this Decision refers to Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and the United Kingdom. the sales of (8) (7) 22. 11. 2000 EN Official Journal of the European Communities L 294/5 not have investigation should be noted that third parties responding to the any Commission’s competition concerns with regard to the parties’ position in other materials than ceramics. Hence, the Commission does not consider it necessary for the purpose of the present assessment to analyse separately the impact of the concentration on non-ceramic sanitary ware products. raised it has been suggested that to bathtubs, shower trays and shower (27) With respect screens, they constitute distinct separate markets from ceramic sanitary ware because distributors normally do not buy these products these products are as part of a set. Furthermore, normally not streamlined with ceramic sanitary ware in terms of a particular design. This would mean in practice that distributors would buy ceramic sanitary ware from one supplier while the remaining bathroom products could be bought from different suppliers. As far as the division according to different materials is concerned, the Commission’s investigation suggests, in line with the arguments put forward by Sanitec, that a segmentation based on different materials would not be from the demand-side, bathtubs, meaningful. Thus, shower trays and shower screens are considered as distinct product markets from ceramic sanitary ware. Moreover, according to the information provided by Sanitec, the parties’ market shares for these products on a national level would not differ significantly even if the products were broken down into different materials. Therefore, for the purpose of the present assessment, the Commission does not consider it necessary to in terms of different further analyse the products materials from the demand-side point of view. (28) Finally, the Commission’s investigation has confirmed that all major competitors offer a range of products representing different price levels. It has been indicated that, it would not be meaningful to define any of the above products according to the price level. for this reason, (29) Based on the foregoing, the Commission considers that, from the demand-side, there are strong indications to define a market comprising a range of ceramic sanitary ware products and that distinct markets exist for bathtubs, shower trays and shower screens, respectively. 4. Supply-side substitutability in of course (30) From the supply-side point of view, the it has been suggested the Commission’s investigations that a separate relevant product market for ceramic sanitary ware exists. It has been argued that producers of ceramic sanitary ware typically produce all ceramic sanitary ware products together and that a particular plant is confined to producing either ceramic sanitary ware or products made of other materials, such as acrylic or steel. Moreover, it has been argued that the switching of existing production lines to manufacture different ceramic products is generally possible and feasible, whereas the switching of production from ceramic sanitary ware products to different materials would require an entirely different type of production. (31) Sanitec has submitted that the production process for the manufacturing of ceramic sanitary ware differs from that used for the manufacturing of steel products and those used for the manufacturing of acrylic products. There are different technologies and production lines used to produce bathroom products out of different materials. (32) The production process of ceramic sanitary ware (9) is briefly described as follows. The production process slip preparation (ceramic mass), glaze consists of preparation, finishing, drying, casting, demoulding, glazing and firing. In the first production phase, the loose slip is poured into plaster moulds where, after a certain period has elapsed, excess slip is removed, the mould opened and the initial product is ready for drying and glazing. The glaze gives the final product a strong surface and colour. For glazing, the product is heated in a kiln at a maximum temperature of 1 230 °C. to After this, a final ensure that there are no defects. inspection will be carried out (33) The production process of enamelled steel products (bathtubs and shower trays) consists of the following phases: after the mechanical pressing of the sheet, the resulting product is degreased and a layer of enamel is sprayed on the entire product surface. The piece is then baked in a stove at 850 °C after which it is sprayed with white enamel. The enamelled product is then baked a second time at 850 °C and the final product control is carried out. (34) The production of synthetic products (bathtubs and shower trays) begins with the heating of synthetic/ acrylic sheets at about 180 °C. The sheets which are stamp to be moulded. then laid down on the Bodyworks obtained in this way are then strengthened in the spraying room with a mixture of polyester resin and calcium carbonate and glass fibres. Subsequently, the bodyworks are placed in a polymerisation stove at a temperature of about 40 °C. Finally, the bodyworks are automatically trimmed along the edges. (35) The production of screens and cubicles mainly consists of assembling parts and is a simple process. shower enclosures, (9) The following materials are used for manufacturing ceramic ware: vitreous china (a fine grain material not absorbing more than 0,5 % of water), fire-clay (a porous medium-grained material absorbing about 9 % of water and covered with white or coloured enamel) and fire-clay (a porous medium-grained material not absorbing more than 13 % of water and covered with white or coloured enamel). fine L 294/6 EN Official Journal of the European Communities 22. 11. 2000 information in the notification, (36) As can be seen, the production processes of ceramic, enamelled steel and acrylic sanitary products differ to a considerable extent. The Commission’s investigation has shown that most manufacturers have production plants specialising in a specific production process based on material. This appears also to be the case with respect to the parties’ production plants. For example, based on the Sanitec has 10 production plants in the EEA and six production plants outside the EEA which are all confined to the production of ceramic sanitary ware. Bathtubs and shower trays made of synthetics and steel are produced at other plants. Similarly, Sphinx has five production plants in the EEA and two production plants outside the EEA which are all confined to the production of ceramic sanitary ware. Bathtubs and shower trays made of synthetic materials are produced in another plant while shower screens are produced separately. (37) According to Sanitec, for a manufacturing plant for ceramics cannot, without significant cost and delay, start production of bathroom products made of other materials and vice versa. This view is shared by most competitors. On the other hand, Sanitec submits that the starting-up costs the production of acrylic products are low and estimated to be at the highest, EUR [ ]* million. On that basis, Sanitec considers that a supplier of ceramic sanitary ware could easily start up a new plant for the production of acrylic bathroom The products Commission’s investigation reveals, however, the start-up costs are considered to be significant by other competitors. Furthermore, the information obtained by the Commission in the course of its investigation seems to suggest that high-capacity utilisation is generally needed for profitability in this industry and thus it must be assumed that such a plant would need considerable volume of output in order to be profitable. that were necessary. deemed that if (38) Sanitec has argued that although there are differences in technologies and production lines used to produce bathroom products of different materials, all major manufacturers supply bathroom products made of the Commission’s different materials. investigation this does not, however, seem to be the case for a number of European manufacturers. For example, Bette, Metaliberica, Geberit, Kaldewei, Flair and Merloni do not produce any ceramic sanitary ware. Based on (39) On the basis of the foregoing, the Commission does not supply-side is consider substitutability between manufacturing plants using different materials. sufficient there that shower trays made of ceramics (10). The investigation shows that competitors who produce ceramic sanitary ware also produce a range of these products. (41) According to Sanitec, a supplier of a specific ceramic sanitary ware product (for example WCs) can switch to the production of other products of ceramic sanitary ware (for example washbasins) without major switching costs. Sanitec estimates that the costs would amount to EUR [ ]* for 45 000 pieces of ceramic sanitary ware, provided that it is only the casting equipment that needs to be replaced. Sanitec has estimated this to take between [ ]* months. The foregoing has largely been confirmed by competitors. It has been indicated that, as long as the model is available, switching production would be relatively easy. The investigation shows that one model can be used some 120 times, after which it has to be replaced by another model. Depending on whether casting takes place once or twice a day, switching can take place within three to six months, if the manufacturer wants to use the old model first before switching to another one. However, there is no reason why switching production could not in principle take place earlier, too. (42) Based on the above, it would appear that ceramic sanitary ware is most likely to constitute a single relevant product market from the supply-side point of view. Furthermore, bathtubs, shower trays and shower screens also appear to constitute distinct markets from the supply-side. 5. Conclusion on the relevant product market (43) On the basis of the foregoing, should comprise the Commission considers that there are strong indications that ceramic sanitary ware constitutes one single product market both from the demand-side and the supply-side points of view. It is not, however, necessary for the purpose of the the present Decision to define exactly whether ceramic relevant product market sanitary ware as a whole or, alternatively, individual products. The product market definition can be left open because, as will be shown below, in either of the two alternative market definitions the operation would lead to the creation or strengthening of a countries. in Furthermore, it is the view of the Commission that in the two alternative market definitions the either of operation would or to lead strengthening of a dominant position as a result of significantly which effective competition would be the Nordic considered, dominant position creation not the (40) The Commission further notes that both parties’ ceramic sanitary ware plants all produce the whole range of ceramic i. e. WCs, WC cisterns, washbasins and in some cases also bidets, pedestals and sanitary ware, (10) This is further evidenced by the fact that neither Sanitec nor Sphinx has been able to provide data on capacity, capacity utilisation, production costs, etc. for each ceramic sanitary ware product [ ]*. 22. 11. 2000 EN Official Journal of the European Communities L 294/7 impeded in any of the national or regional markets in continental Europe. Therefore, for the purpose of the present Decision, it is not necessary to finally decide on whether the relevant product market comprises ceramic sanitary ware as a whole or, alternatively, individual products. (44) With respect to bathtubs, shower trays and shower screens, the Commission considers on the basis of the above that these products constitute distinct product markets both from the demand-side and the supply-side point of a view. B. RELEVANT GEOGRAPHIC MARKETS (45) Sanitec has submitted that lines and often market the relevant geographic market for all the abovementioned bathroom products is at least EEA-wide but could even be wider, arguing that all competitors are active in the whole of the EEA or in a large part thereof and that most major players have European product the products under the same names throughout Europe. Furthermore, Sanitec refers to increasing imports from inside considerable cross-border trade flows, the absence of regulatory or tariff barriers, costs, homogeneous conditions of competition, pan-European marketing and identical product standards, the distribution strategies, increasing and converging prices. low transport significance EEA and European outside brands and the of from the investigation, (46) Based on the information submitted by Sanitec and the information resulting the Commission considers, however, that for the reasons set out below the relevant geographic market should be considered to be narrower than the EEA. In fact, several factors indicate that the effects on competition of the notified operation should be assessed separately for the Nordic area and for continental Europe either at a national level or, alternatively, at a regional level. 1. General considerations (a) Imports into the EEA (47) Sanitec submits that during the last few years there has been a steady increase in imports into the EU from low-cost Europe, inter south-eastern Europe and Africa. Sanitec argues more particularly that, from 1993 to 1998, the consumption of bathroom products increased only slightly but that countries central alia, in, imports into the major European countries were stronger. Sanitec further argues that exports from most European countries increased during that period, too. to countries offering more (48) The Commission notes that an important development in the past few years in the western European bathroom product market has been a gradual shift of production capacity competitive production costs. The production of bathroom products has to a large extent moved outside the EEA into low-cost and south-eastern Europe. All major European players in the field of bathroom products produce at low-cost plants in countries like Bulgaria, Hungary, Poland and the Czech Republic and distribute the products throughout the EEA. particular countries central in in (49) The restructuring of the industry is evidenced by the large number of factories being closed down in the EEA. By way of example, Sphinx has recently closed its Novoboch plant in Belgium. It currently has two plants in Poland and one in Slovakia. Sanitec has closed down its plants in Germany and Italy and now has four plants in Poland, two production locations in Egypt and one in Ideal Standard has closed down Lebanon. Similarly, Italy and the United plants Kingdom, and Villeroy & Boch a plant in France. in Germany, France, (50) Sanitec has explained that the driving force behind moving production into low-cost countries has been the need to be more competitive on price. Sanitec has provided examples of production costs in the parties’ It can be ceramic sanitary ware production facilities. seen that while the production costs per piece in Sanitec’s factory in Germany are EUR [ ]* and between EUR [ ]* and [ ]* in Finland and Sweden, production costs are only EUR [ ]* and [ ]* per piece in Sanitec’s Polish plants. With regard to Sphinx’s production facilities, the production costs are EUR [ ]* per piece in Sweden and EUR [ ]* in Germany, while they are between EUR [ ]* and [ ]* in Sovakia and Poland respectively. (51) The fact that production capacity has to a large extent moved outside the EEA appears to be the main reason for the increasing imports into the EEA. Third parties have estimated that as much as 80 % to 90 % of total third country imports originate from production plants or subsidiaries of companies headquartered in the EEA. Sanitec has provided information according to which approximately [< 60 %]* of all imports coming into the EEA are transactions between entities belonging to the same group. In assessing the flow of bathroom products into the EEA, these Intra-group imports are imports should be excluded. merely logistical trade flows based on more favourable production costs and, therefore, imports which do not originate any competitive constraint on the behaviour of the market players already active in the EEA. the Commission considers that from third parties do not impose L 294/8 EN Official Journal of the European Communities 22. 11. 2000 (52) In addressing the trade flows, the Commission has encountered some statistical difficulties. Sanitec has collected statistical data from different sources and has presented data both in terms of value and in volume. The difficulty in assessing the data from these different that volume sources has been in particular the fact figures have been presented both in tonnes as well as pieces and that these are not directly comparable. A further difficulty has been that some statistics relate to 1998 while others cover only 1997. Moreover, statistical data covers a range of products (11) and Sanitec has not been able to provide information separately for individual products. Finally, some of the statistical material available suffers from a lack of reporting and there are significant differences between different statistics. (56) parties into the EEA did not exceed 7 % under any circumstances. imports other than intra-group imports Information obtained from third parties has confirmed that from outside the EEA are not substantial enough to warrant a market definition wider than the EEA. While some wholesalers import ceramic sanitary ware for instance from Asia or from eastern Europe, these imports are small compared to the overall trading volumes of these wholesalers. Some wholesalers have pointed out that imports, for instance from Asia would make commercial sense only if carried out on a large scale. These wholesalers have explained that they have to be able to stock and sell the leading brands and that the demand is not sufficient for them to import large quantities from outside the EEA. (53) The Commission has, however, compared the statistical material available with information obtained from third parties, and considers for the reasons below that the geographic reference area is not wider than the EEA. (54) Sanitec has provided Eurostat statistics showing the total imports in 1998 of WCs, WC cisterns, washbasins, bathtubs, pedestals, urinals and áotherí into the EEA. The Commission has established on the basis of the value figures that these imports were some 6 % of the total value of these products in the EEA. It is to be noted that, based on the product market segmentation provided by Sanitec, pedestals and urinals have not been included in the total value figures given by Sanitec and, thus, imports were actually somewhat lower than 6 %. However, this figure does not take into account the large intra-group sales. Given that Sanitec has submitted that some 50 % of these imports were intra-company it can be concluded that imports from third imports, parties into the EEA totalled only some 3 % at most. (55) Sanitec has also estimated import flows into the EEA on the basis of production and consumption of bathroom products in the EEA. Sanitec submits that imports in 1997 accounted for [< 20 %]* of the consumption in western Europe. The Commission has calculated on the basis of the figures submitted that imports totalled at most some 12 % of production and some 14 % of the total consumption in the EEA (12). However, given that between [45 % to 95 %]* of the imports have to be allocated to intra-group transactions, imports from third (11) For instance, ceramic sanitary ware and bathtubs have been grouped together in different statistics. (12) Two different measurements have been submitted, that is, pieces and tonnes. The Commission has estimated the share of imports by converting pieces into kilograms. Sanitec has submitted that one piece weighs [10-15]* kg and the Eurostat figures assume that one piece weighs 14 kg. (57) Based on the investigation, the overall exports from outside the EEA appear to be insignificant. Most large players have local production facilities outside the EEA serving local or regional markets. As a general rule, exports are made only for some special items. (58) On the basis of the foregoing, the Commission draws the conclusion that the evidence on the limited imports into the EEA together with other evidence as discussed below does not support the adoption of a relevant geographic market wider than the EEA. (b) Trade flows between EEA countries (13) (59) Sanitec has there are submitted that considerable cross-border trade flows within the EEA in the field of bathroom products. It has estimated that [< 50 %]* of the total EEA production of bathroom products is exported from one EEA country to another and [< 40 %]* of the total EEA consumption is imported. the (60) On the basis of the information submitted by Sanitec, flows vary that the Commission notes considerably from one EEA country to another. By way of example, Portugal and Italy are net exporters with very low imports. Germany on the other hand imports [< 80 %]* of its consumption of bathroom products and from exports less than one third of what Germany are, however, its production. Exports [< 40 %]* of trade (13) EEA countriesí refers to the Member States of the Community as well as Norway, Iceland and Liechtenstein. 22. 11. 2000 EN Official Journal of the European Communities L 294/9 from the Portugal and Italy each export. It is in particular noted that with regard to imports, the Nordic countries differ the EEA. Based on the most into the information submitted by Sanitec, imports Nordic all than [< 10 %]* of consumption. countries rest of less are (61) Trade flows inside the EEA can partly be explained by the different production costs within the EEA. For example, the production costs per piece in Sanitec’s factory in Germany are [ ]* times higher than in the production facility in Portugal which explains why almost is [< 80 %]* of exported to Germany. the production of that plant (62) Sanitec has argued that transport costs for bathroom products indicate an EEA-wide market. Sanitec has contended that transport costs are similar in all EEA countries and represent approximately [< 5 %]* of the net average sales price per piece. Sanitec therefore claims that bathroom products can easily be transported over long distances. (63) The Commission has nevertheless been able to establish on the basis of the information supplied by Sanitec that, with the exception of Portugal, with regard to the majority of the parties’ production facilities, the country of production is also the main country of supply and sales. Sanitec’s Norwegian factory mainly that of supplies the the Norwegian market. production in Sanitec’s plant in Germany is supplied in that country. Some [< 100 %]* of Sanitec’s Finnish and Swedish production is supplied in those countries and [< 80 %]* of the production in Italy is supplied there. in With regard to Sphinx’s production facilities Germany, the and overwhelming proportion of production is supplied in those countries. [< 95 %]* of Netherlands, France the (64) Furthermore, an analysis of the product flows also shows that, with the exception of Portugal, the majority of exports from the parties’ European production facilities goes to the neighbouring EEA countries. For instance, Sanitec’s French production outlet and Sphinx’s their Belgian plant export [< 40 %]* and [< 60 %]* of respective production to Germany. With regard to Sanitec’s Italian production facility, which exports [< 30 %]* of its production to Germany, it is to be noted that the production outlet is situated in the north of Italy and, therefore, the physical distance from Germany does not constitute a barrier for such exports. (65) The parties’ product flow patterns would seem to suggest that, with the exception of Portugal, where production costs are on average much lower than in other EEA countries, production is optimised so that the production facilities mainly supply the country of production and exports are mainly directed to the neighbouring EEA countries. This is supported by the fact that most market operators have production facilities in a number of EEA countries. By way of example, Sanitec has altogether 24 production facilities in Europe, 12 of them producing ceramic sanitary ware, in a number of different countries. Therefore, the Commission does not consider that the production of bathroom products particularly is concentrated in the EEA. geographically (66) The Commission notes serve further Indeed, the EEA market. that although there to be a tendency to move production to appears low-cost east and southern European countries, this does not necessarily mean that these production outlets would only the investigation shows that a large part of the production in these countries serves mainly local markets (e. g. [< 70 %]* of the production in Sanitec’s Polish factory is supplied in Poland). It does not therefore appear likely that all production would be moved in the near future to low-cost east European countries. Also the fact that its Sanitec has only recently invested in one of production Scandinavian the argument regional production within the EEA would be essential also in the future. supports facilities that of costs. transport contacted transporters Furthermore, seem to suggest distances. Replies the informed (67) The existence of numerous production outlets would that producers avoid long rather to the Commission’s transport questionnaires show that, depending on the distance, transport costs could be up to 10 % to 15 % of the sales price. Transport companies and forwarding agents have also confirmed that distance is an important factor in vast calculating majority the Commission that they transport bathroom products on a country-by-country basis. The fact that both Sanitec and Sphinx, who are by far the strongest players in the Nordic market, have production facilities in the Nordic countries would seem to suggest that in order to be competitive in this market, local or regional production is needed. This would seem to be supported by the fact that other competitors in the Nordic area have no production in the area and, they have to import all production from continental Europe. These competitors are only marginally present in the Nordic area. With regard to Portugal, however, it can be the production costs in this plant are assumed that sufficiently low to offset transport costs to Germany. The same would appear to apply to production plants situated in central and eastern Europe. therefore, (68) Evidence are further supports from competitors the assertion that the country of production is usually also the country of supply and consumption and that trade flows to regions surrounding the production facilities. For instance, a British manufacturer of ceramic sanitary ware mainly supplies its products in the United Kingdom. Another major manufacturer supplies ceramic sanitary ware from terms directed in general L 294/10 EN Official Journal of the European Communities 22. 11. 2000 its multiple production plants across Europe on a indicating that for instance the United regional basis, Kingdom and Ireland constitute one region, the Benelux area another region, Germany and Austria yet another one and so on. (69) Therefore, the fact that production has not been geographically particularly centralised and that the parties have a number of production outlets all over Europe with a tendency to supply home markets and the neighbouring markets is taken as evidence that the supply of bathroom products is optimised in order to minimise the transport distance. (c) Market structure (70) The market position of the players differs from one the large country to another. While it suppliers of bathroom products operate in several European countries, the market shares vary significantly between neighbouring countries. is true that (75) (71) Overall, in the For their have their European manufacturers strongest presence, both in terms of production and sales, instance, domestic markets. Duravit/Laufen is strong in Switzerland and Austria but is not present in Spain, Italy or the United Kingdom. in its home market, Villeroy & Boch is strongest Germany, but has no activities Italy or Portugal. Roca, the Spanish producer, has a substantial part of the Spanish market but virtually no activities in Germany or France. Sanitec is by far the strongest while player the abovementioned competitors are present there only marginally. in Spain, countries Nordic the in (72) The Commission considers the foregoing to be a clear competition are not conditions of indication that homogeneous throughout the EEA. (d) Structure of the demand-side (73) Sanitec has submitted that the structure of distribution channels is similar throughout the EEA. In particular, Sanitec argued that most products are being distributed through wholesalers and that wholesalers, together with DIY retailers, are in general active in large parts of the EEA. Later in the proceedings, Sanitec submitted that, at the very least, several large wholesalers are active in an area covering all of Benelux, France and Germany and therefore the geographic market should be defined as at the very least covering that area. (74) While addressing Sanitec’s arguments Beneleux, France covering to alternative relating to a and possible market the Commission’s investigation has shown Germany, that the demand-side in the EEA does not support Sanitec’s argument of an EEA-wide market. On the contrary, while recognising that the majority of supplies of bathroom products are still channelled through wholesalers in many EEA countries, the investigation shows that the structure of the demand-side differs in particular with respect distribution channels (DIY, specialist boutiques and direct supplies). For example, in central Europe (i. e. Belgium, Germany, France, and the United Kingdom), DIY retailing is highly developed and has a significant impact on the bathroom market whereas in the Nordic countries and southern Europe (i. e. Spain, Italy and Portugal) DIY retailing is far less present. the wholesalers Furthermore, concentration of in southern differs throughout the EEA. For example, is Europe, wholesaling remains fragmented while it mostly concentrated in the Nordic countries and to a lesser extent in central Europe. This could mean that the access to distribution channels may differ from one country to another. the Netherlands, Austria the (i. e. wholesalers In addition, the geographic presence of the immediate varies customers significantly within the EEA territory. As a general observation, none of distributors mentioned by Sanitec has a Europe-wide coverage. Moreover, the majority of the distributors are present in at most three EEA countries. the 21 major retailers) and supplies on at the in several EEA countries (76) Sanitec has furthermore submitted that wholesalers and least a DIY retailers purchase their largest wholesalers with national basis while also conclude presence level. By way of contracts on an international illustration, Sanitec has argued that a number of wholesalers (and DIY chains) apply a central purchasing policy making use of their total volumes in several EEA countries. The Commission notes that these examples (Belgium, Germany, cover only five EEA countries France, the Netherlands and Austria) and can thus not be considered as an argument in favour of an EEA-wide market. Furthermore, Sanitec has not been able to provide evidence showing that such central purchasing indeed takes place covering all these countries. (77) On the basis of the that foregoing, the argument the Commission considers that Sanitec has not been able to provide evidence to support the demand structure of bathroom products would be uniform to warrant a market throughout definition comprising the whole of the EEA. The Commission’s own enquiries show, on the contrary, that the vast majority of the wholesalers and retailers purchase their products on a national or, at the very most, regional basis. the EEA so as 22. 11. 2000 EN Official Journal of the European Communities L 294/11 and that distributors (78) Sanitec argues that consolidation is taking place at the in the bathroom products level wholesale and retail sector are becoming more international in their operations. While the Commission does not exclude the possibility that such consolidation could take place on a Europe-wide basis in the future, there is no evidence that the distribution structure at present would warrant a definition of a geographic market comprising the whole of the EEA. (e) Prices and rebates takes place generally at (79) As already stated, the investigation shows that sourcing the of bathroom products national level. The existence of national sales offices and price lists further points towards national rather than regional markets. Sanitec has explained that German price lists are used in those countries where national price lists do not exist. This does not, however, mean that the prices in those countries would be identical to those in Germany in the sense that the geographic market should be defined to include all those countries. Quoting the German price list would rather mean that the product is not normally sold in a particular EEA country and that such a sale would be an infrequent transaction. (80) Sanitec has further submitted that the rebate systems in different countries differ. By way of example, Sphinx normally grants higher rebates in [ ]* than in [ ]*. Similarly, Sanitec applies higher initial rebates in [ ]* than in [ ]* whereas the additional customer-related rebates in [ ]* are lower than in [ ]* (14). the general perception of (81) Several competitors and customers in their replies to the Commission’s enquiries have indicated that prices differ between EEA countries. The investigation shows further the price that while development in continental Europe has been that prices have been declining, several Nordic customers have indicated that prices have actually been increasing. In this respect, the general the Commission notes that trend of price decline in continental Europe has varied from one country to another. For instance, it has been indicated that while prices have gone down in Italy only by 1 %, in Germany the fall has been as much as 10 %. (82) In order to investigate the price levels in EEA countries, the Commission requested Sanitec to provide prices for identical products sold in different EEA countries. Sanitec subsequently explained that the parties do not sell products which are identical in all EEA countries they are active in. Sanitec was able, however, to provide (14) [ ]*. price information on identical products number of EEA countries. sold in a For most of given (83) Sanitec provided gross list prices between 1995 and 1998 for in the ceramic some identical products sanitary ware group for Sanitec’s product line Renovaí and Sphinx’s product lines Myceneí and Ibizaí. Sanitec also provided prices paid by wholesalers net of all discounts and rebates (ánet net pricesí) for some of these products. the price Belgium/Luxembourg, information was Germany, some products, prices covering Spain, France, Italy, Portugal and the United Kingdom were submitted. [Sanitec submits that there are no data available separately for Luxembourg and that Belgium and Luxembourg should be assessed together. Given that the Luxembourg market is very small, the analysis would not change even if Belgium and assessed separately. ]* these products, for the Netherlands and Austria. For Luxembourg were be to (84) The Commission investigated the level of both gross list prices and net net prices in different EEA countries where the products were sold (15). The Commission then indexed the prices, taking Germany as the base. The Commission regards Germany as a suitable reference point because, for instance, the majority of the products sold under Sanitec’s Keramag brand name, like the Renovaí product line, are sold in Germany and, in the absence of a national price list, Sanitec quotes the German price list. (85) An analysis of the gross list prices shows that there is considerable variation between the prices in different EEA countries. By way of example, the list prices for a [ ]* WC fluctuated between [< 30]* and [< 50]* points five EEA countries, between 1994 and 1999 for pointing in prices. Another example is a [ ]* WC where the price difference reached [< 50]* points in 1999. significant differences towards (86) Significant differences in prices can be seen also when comparing the net net prices. During 1995 to 1998, the difference between the highest and the lowest indexed net net price in Belgium/Luxembourg, Germany, Italy, the Netherlands and Austria for a [ ]* WC ranged average between [< 10]* deviation for this period was [< 20]* points. At the same time, for a the difference between those countries Renovaí washbasin ranged between [< 10]* and [< 20]* and [< 30]* points. The (15) Sanitec has argued that the gross list prices are less relevant than the net net prices. Sanitec has explained that although rebate structures differ between countries and that, for instance, higher initial rebates are granted in [ ]* than in [ ]*, the net net prices are approximately the same for identical products in different countries. L 294/12 EN Official Journal of the European Communities 22. 11. 2000 the period differences points, with the average being [< 10]* points. For a [ ]* shower tray the difference was more pronounced: during between price Belgium/Luxembourg, Germany, France, the Netherlands and Austria were [40-100]* points, with an average of [< 60]* points. As for a [ ]* WC, where Sanitec has provided net net prices for Belgium/Luxembourg, Germany, the Netherlands and the United Kingdom, the difference between the highest and the lowest price was between [< 10]* and [< 30]* points, with an average of [< 20]* points. The price differences ranged from [< 20]* to [< 40]* points for a Myceneí washbasin in those countries, with an average of [< 30]* points. (87) Given that price data have been submitted only for a few products (Sanitec produces and sells some 8 000 different models), this information should be considered merely indicative. Sanitec in its submission has used similar price data as evidence of, for instance, narrowing price gaps between EEA countries, price correlation between EEA countries and correlation between prices and market shares. The Commission considers, however, that is not sufficient for the results to be conclusive. It is neither possible to establish any reliable trends in the price movements nor correlations, since price data have been submitted only for three to six years and only yearly price data are available. for any such price analysis the basis (88) Sanitec has admitted that customers packaging, guarantees, and wholesalers, the price levels at present differ to some extent between EEA countries. According to Sanitec, prices differ because the sales mixes, the after-sales structure of services, delivery times and conditions, warranties, repurchasing transportation costs, information material and ordering possibilities differ from one EEA country to another. Given this and the tendency to source on a national basis, different national rebate systems and third party indications of the different price developments Commission considers list in the net net prices further prices and, strengthen the argument of a possibility to discriminate on price, and point towards national or, at most regional markets. in EEA countries, in gross that differences in particular, (f) Geographic coverage of brands and product lines which is marketed in several EEA countries. Sanitec has explained that such products are identical and do not vary between EEA countries as far as design, function, fittings and technical standards are concerned. (90) The investigation shows, however, that the supply structure of different brands and product lines varies, from one EEA country to sometimes considerably, another. A clear-cut separation can first of all be made between the brands supplied in the Nordic countries and those marketed in continental Europe. As a general observation, the brands supplied in the Nordic countries are not supplied, to any significant extent, in continental Europe and vice versa. The brands dominating the Nordic market are Sanitec’s brands Ido and Ifö and Sphinx’s brand Gustavsberg. Sanitec’s Porsgrund brand is sold exclusively in Norway. The sales of those brands outside the Nordic countries are negligible. (91) Secondly, the brands and product lines marketed in continental Europe also differ between regions and frequently from one country to another. In general terms, Sanitec supplies the brand Keramag primarily in Benelux, Germany, Greece, Italy and Austria; the brand Allia in Benelux and France; and the brand Pozzi in Germany and Italy. Sphinx supplies ceramic sanitary ware in continental Europe under the brand names Novoboch, Selles, Sphinx and Warneton. The Novoboch brand is supplied exclusively in Belgium/Luxembourg and the Selles brand in France. Sphinx markets its Sphinx brand in Belgium/Luxembourg, Germany, the Netherlands, Austria and the United Kingdom. (92) The Commission investigated the coverage and the nature of the following of Sanitec’s European product lines for ceramic sanitary ware: Keramag, Allia, Pozzi, Revita and Varicor. As far as the sales and the coverage of bathtubs is concerned, Sanitec has submitted data regarding the brands Keramag, Revita, Albatros and Allia. The data submitted cover a total of 54 product lines (16). (93) The investigation shows that a large majority of the product lines supplied by Sanitec are sold under one brand name. By way of example, Allia is the sole lines and Pozzi of 18. A supplier of seven product number of product lines are also essentially national. This is true predominantly sold in Italy. Three of Allia’s seven product lines are only available in Germany and one in France. Pozzi, which particularly for is (89) Sanictec submits that European production linesí are emerging. Sanitec defines a European product line as a line of products - including ceramic sanitary ware such as WCs, WC cisterns, washbasins and pedestals - (16) It is to be noted that Allia branded products are not shown separately for the Netherlands because they are distributed by Keramag’s sales organisation in the Netherlands. 22. 11. 2000 EN Official Journal of the European Communities L 294/13 (94) There are six product lines which are all supplied under Mangoí, the brand names Keramag, Allia and Pozzi: Cavelleí, Courregesí, Eurotrendí, Opusí and Cleoí. These product lines appear to cover most EEA countries in continental Europe. The investigation has however shown that the coverage of the individual product lines marketed vary considerably from one country to another, suggesting both national/regional demand and supply structures. names may brand under these (99) Sanitec has explained that although all product lines are in those countries where they are sold, this identical does not mean that every product in a product line is sold in every country where that product line exists. Sanitec has explained that sales organisations essentially decide on the nature and the coverage of the product the product mix varies between EEA countries and thus reflects diverging consumer tastes. line. Sanitec has further submitted that local (95) Indeed, a closer analysis of the specific products shows that the range of products sold under different brand names overlaps only marginally. By way of example, Keramag supplies 73 different products under the Mangoí product line, Allia 25 products and Pozzi 71. The analysis shows that Keramag and Allia have only six identical products in their Mangoí product line and Keramag and Pozzi have 19 identical products in their respective lines. Allia and Pozzi, on the other hand, do not have any identical products in their respective Mangoí product lines. (96) Another example can be found where a product with an identical name is supplied under three brand names: Keramag supplies under the product name Courregesí 36 products, Allia 14 and Pozzi 33. The Commission’s analysis shows that Keramag and Allia supply only six identical products in their product line, Keramag and Pozzi 10 products and Allia and Pozzi two identical products in their respective product lines. (97) Therefore, based on the foregoing, the fact that products are offered under the same product line name does not mean that the products are necessarily identical. (98) On the other hand, Sanitec offers product lines, where the products are more or less similar despite different names. Such product lines include for example Cavelleí, Edení and Trylogiaí. By way of example, a 100 cm washbasin supplied under each of the three product lines is identical, although sold under different names in different countries. However, given that the Commission has been able to identify only nine such product lines out of the total of 54 supplied by Sanitec and that these product lines are very limited in the number of products they offer (17), the Commission does not consider this to be an indication of an EEA-wide product coverage. Therefore, the Commission concludes that the majority of the product lines vary from one country/region to another. (17) Cavelleí, Edení and Trylogiaí product lines comprise some 17 products each, while the Mangoí product line under the Keramag brand covers 73 products (excluding bathroom furniture) and the Renovaí product line sold under the Pozzi brand name comprises almost 100 products. but uses cases, however, in most (100) Sanitec submits that the fact that most competitors have European product lines is a clear sign of an EEA-wide market. The main competitors to the parties indeed have brands and product lines which are sold in a number of countries. Similarly to the parties’ brands and product lines, however, many of the competitors’ brands and product lines vary from one country or region to another. By way of example, one competitor sells some of its products under the same brand names throughout Europe a country-specific product name for marketing purposes. Another competitor markets brands and products under the same names everywhere, but the product lines are constructed according to national demand patterns. By way of example, this competitor offers products in Italy, which are not sold in any other EEA countries. In the United Kingdom, where the flushing system based on the British standard differs from those in other EEA countries, this competitor does not offer WCs equipped with this system. Yet another competitor has told the Commission that although it offers brands and product lines under the same names in different countries, there are differences in the product ranges. This competitor has explained that, for instance the models for WCs tend to vary from one country/region to another and that the WCs used in the Nordic countries have traditionally a different distance from the wall compared with models sold in continental Europe. Therefore, a is needed to serve this market. These different model differences would appear in consumer taste, preferences and local traditions between EEA countries or, at the most, regions. to reflect differences (101) Based on the foregoing, the Commission considers that there is little overlap between the products offered in different EEA countries or, at most, regions. Therefore, to be evidence of the Commission considers to according the adjusting national/regional following EEA-wide marketing practices. this offered rather product demand than (g) Technical standards and practices (102) Sanitec submits that there are no legal barriers to entry such as government authorisation or standard setting L 294/14 EN Official Journal of the European Communities 22. 11. 2000 in construction works, between the EEA countries and that there are no non-regulatory barriers. Sanitec argues that bathroom products are áproducts produced for incorporation in a permanent manner including both buildings and civil engineering worksí and are therefore covered by Council Directive 89/106/EEC of 21 December 1988 on the approximation of laws, regulations and administrative provisions of the Member States relating to construction products (18), as amended by Directive 93/68/EEC (19). Sanitec also submits that including ceramic sanitary most bathroom products products are presently covered by EN standards, such as EN 33 (pedestal WC pans with close-coupled flushing cistern), EN 38 (wall hung WC pans with independent water supply) or EN 37 (pedestal WC pans with independent water supply) or preliminary EN standards. (103) The Commission’s market investigation has, however, regulations, and practices which vary between EEA there are a number of indicated that standards countries. (104) First, there are some sanitary appliances (WC pans, urinals, whirlpools and flushing cisterns for toilets) for which different national binding regulations exist in EEA countries. There are also some EEA countries where there are legally binding rules for construction and housing products including sanitary ware (such as the In the United Kingdom Netherlands and Denmark). there is a national law on flushing systems for toilets. (105) Second, while the Commission recognises that European standards (EN standards) are indeed in place for certain bathroom appliances, they are still relatively limited in number (20) and some of them are only applicable or the EN applied in certain EEA countries. Moreover, standards only contain requirements on connecting dimensions and therefore they are usually combined standards containing requirements on with national dimensions, It should be function and performance. noted that the EN standards are voluntary but producers who wish to use the EN mark on their products must conform with the standard’s requirements. a are (106) Third, the Commission’s investigation has shown that national considerable there to sanitary specifications dimensions, they differ between the EEA countries. In France, there are flushing system of specific requirements for the dual of relating function and performance and that number products for (18) The construction products Directive, OJ L 40, 11. 2. 1989, p. 12. (19) OJ L 220, 30. 8. 1993, p. 1. (20) According to information obtained in the the Commission’s investigation, there are currently 29 EN standards in place. However, 16 thereof are amendments and thus there are only 13 autonomous EN standards in place. course of for toilets, load resistance for urinals and thermal resistance of the products. In the United Kingdom, there is a siphonic flushing for toilets and floaters for low pressure have to be applied. In the Nordic countries, the distance between the outlet pipe and the wall differs from other EEA countries. In the Netherlands, there is a special test for water exchange of toilets, and so on. (107) Although are national voluntary and standards producers are not obliged to comply with them in order to sell their products in the EEA country concerned, the investigation has shown that the customers (wholesalers, installers and plumbers) as a rule ask their producers to comply with national standards, mostly by having their products tested and certified by institutions which are recognised by national law. There seem to be a number of reasons for this. For example, in buying products which are in compliance with the national standards, customers in general feel they can rely on getting only products which fulfil the essential requirements for their intended use. This consideration is an important factor also for plumbers who grant warranties to their end-consumers, which are usually of 10 years duration. Also, plumbers and installers have an interest in purchasing products which can be installed applying national plumbing practices and for which fittings can be obtained without difficulty. are there (108) On the basis of the above, the Commission considers regulatory differences that indeed some between EEA countries and that, although national standards are in principle voluntary, customers and thus also competitors have strong commercial incentives to comply with these standards. (h) Europeanisationí (109) Sanitec argues that while old product lines may have been used in a limited number of countries, the trend is to introduce European product lines with a reduced number of series and identical products in order to cut costs and to achieve economies of scale. In this context, Sanitec has explained that Sphinx is striving to reduce the number of different models [ ]*. (110) Sanitec argues further that the development of Sanitec’s product coverage between 1996 and 1998 would the argument of a European trend in the support market. Sanitec introduced such European product lines as Cavelleí, in 1997 and 1998. Moreover, Sanitec has only recently started to develop its Keramag brand’s position in Greece, Spain and the United Kingdom. Trylogiaí and Edení 22. 11. 2000 EN Official Journal of the European Communities L 294/15 to a pan-European market. However, (111) The Commission recognises that there may be some tendencies in the industry to streamline products to be suitable the investigation shows that, at present, products and product ranges are largely adjusted to national/regional demand. The fact that Sanitec alone markets more than 50 product lines and 8 000 models under its brands across Europe is a clear indication of this. Furthermore, marketing of bathroom products is to a large extent carried out on a national basis with local sales organisations adapting sales catalogues and brochures to use the local language. Finally, the fact that prices are set on a national basis and that all market players have national prevailing national/regional nature of the business. The fact that, in the bathroom product market may the long term, become European cannot be taken into account in the assessment of the present case. emphasise offices sales the (i) Barriers to entry are essentially national, (112) The investigation has shown that barriers to entry in the European bathroom product market are high. The markets characterised by traditional preference for local, well-established brands. Market entry essentially takes place via acquisition of local brands which are then preserved. By way of example, Ideal Standard recently acquired the Blue Circle Bathroom Division and is using established brands, the products in the United Kingdom. Sanitec itself has reached by acquisitions. Indeed, in its annual report Sanitec explains that its enlargement strategy has been to buy companies with a strong market position. Most of Sanitec’s subsidiaries are market leaders in their respective home markets with well-established and well-known brands and long traditions. such as Armitage Shanks, leading position mainly its present to market (113) At present, there is considerable restructuring in the European bathroom product market and the market therefore be appears to be in transition. excluded that, as a consequence, direct entry could be easier in the future. However, in the light of the present investigation, the Commission considers that the role of local, traditional brands is still significant. It cannot (j) Conclusions (115) On the basis of the foregoing, the Commission does not for ceramic consider the relevant geographic market sanitary ware, bathtubs to be EEA-wide, but national (21) or at best covering a few countries, as will be shown separately below for the Nordic countries and continental Europe. and shower trays 2. The Nordic area that nevertheless (116) Sanitec has submitted that imports into Scandinavia are approximately at into Italy and the same level as Portugal, that is, some [< 10 %]* of total consumption. into argues Sanitec Scandinavia have increased more than [< 400 %]* over the past that imports into Scandinavia from outside the EEA (e. g. from Poland and Thailand) are rising due to the very the products. Sanitec has also competitive prices of submitted that there are large exports from Scandinavia, amounting to some [< 40 %]* of the total production in that area. three years. Sanitec submits imports further (117) On the basis of is not these total the import less than 1 % of reliable and that submitted by Sanitec, statistics provided by Sanitec, the Commission has estimated that the flow of imports into Scandinavia in terms of value was some 13 % in 1998. However, based on the internal import the Commission has figures estimated that imports originated from third parties, the bulk of imports being intra-group transactions of Sanitec and Sphinx. Sanitec the statistical data concerning third has argued that party imports third party imports are underestimated. Statistical difficulties arise especially from FECS (22) statistics. According to these statistics, imports in 1996 represented less than 8 % of total consumption in Scandinavia. However, according to the same statistics, in 1997 imports dropped to only half of that figure, which is contrary to what Sanitec has argued. Sanitec has subsequently explained that FECS statistics are not reliable due to a lack of reporting. In any event, the FECS statistics do not distinguish between imports originating from third parties and intra-group trade flows which form the major part of the imports the going the Nordic Therefore, countries. to investigation suggests (114) Furthermore, the information obtained in the course of that high the Commission’s capacity utilisation is generally necessary for the production of bathroom products to be profitable and thus it must be assumed that a new market entrant would be required to sell a considerable volume of output. (21) The national scope of certain bathroom products has been confirmed in a number of decisions from the national competition authorities. Reference is in particular made to a Decision of April 1999 from the Italian competition authority (Decision No 7080 (C3409) Ideal Standard/Ceramica Dolomite) and a Decision from the Spanish competition authority (Decision R. 104/94 - Roca Radiadores SA) which was upheld in a Spanish court. (22) Federation europØenne des fabricants de cØramiques sanitaires. L 294/16 EN Official Journal of the European Communities 22. 11. 2000 concludes Commission than that intra-group imports mainly by Sanitec and Sphinx into the Nordic countries are negligible. imports other (118) The Commission’s own investigations confirm that imports into the Nordic countries are modest. In their replies to the Commission enquiries, customers have confirmed that they source bathroom products either on a national basis or they import ceramic sanitary ware from other Nordic countries, mainly from Sweden and Finland. (119) Sanitec argues that the total exports of ceramic sanitary ware from Scandinavia totalled some [< 40 %]* in 1997. By way of example, Sweden exported [< 80 %]* of its total production to other Nordic countries and Finland almost [< 70 %]*. The majority of the remaining exports were intra-group exports mainly to continental Europe. Finland also exported some ceramic sanitary ware to to the Russia Commission’s estimates these exports were less than 1 % of the total exports made from Nordic countries in 1997. States. According and the Baltic (120) that In addition to very low imports originating from continental Europe, a striking feature pointing strongly towards the separation of the Nordic countries from the rest of Europe is the fact the supply structure differs from that in continental Europe. As explained above, the brands supplied in the Nordic countries are not supplied, to any significant extent, in continental Europe and vice versa. Other producers, such as Villeroy & Boch and Ideal Standard, are only very marginally present in the Nordic countries. Moreover, the products supplied under from those supplied in continental Europe. these brands also differ (125) (121) A further characteristic pointing towards the separation of the Nordic countries from continental Europe is the the 21 major European distribution structure. Of distributors and DIY stores) of bathroom products mentioned by Sanitec only three are present the major distributors present in continental Europe is active in the Nordic countries. in the Nordic countries. None of (i. e. wholesalers continental Europe supports the inclusion of Denmark than in continental in the Nordic countries Europe. rather separately (123) As for bathtubs and shower trays, no import figures are available two product groups. for the However, given that the overall imports into the Nordic countries are very minor as shown above, it can be imports of bathtubs and shower trays deduced that other than intra-group, even if considered separately, would not warrant relevant geographic market wider than the Nordic countries. the definition of a (124) As already noted, The that Commission there are some considerable trade flows between the Nordic countries, which would the demand is more or less appear to suggest homogeneous and transport costs do not discourage trade flows within this area. However, the Commission has found in its investigation that there are some considerable price differences between the Nordic price countries. information provided by Sanitec on some individual products which were sold in different Nordic countries in 1998. A comparison of the net net prices shows that the prices between Denmark, Finland, Iceland, Norway the differences being and Sweden vary considerably, often in the region of [15 to 45 %]*. It is not, however, necessary to define the exact scope of the geographic market because in all alternative definitions considered, the assessment of the case would not be materially affected. shown below, as will be analysed has Conclusion on the Nordic area a area separate constitutes In view of the foregoing, the Commission considers that the Nordic relevant geographic market from continental Europe. It is not necessary, however, to reach a conclusion as to whether the Nordic area constitutes one relevant geographic market or whether each country therein should be regarded as a separate geographic market because, in either market definition, the notified operation would lead to the creation or strengthening of a dominant position and the assessment of this case consequently would not be materially affected. (122) Denmark differs to some extent from the rest of the Nordic countries in that Villeroy & Boch has somewhat more sales in ceramic sanitary ware in Denmark than in the other Nordic countries. However, the Commission’s investigation shows that these sales are very small and that both the demand and the overall supply structure in Denmark are similar to those in the other Nordic countries. Furthermore, the wholesalers active in Denmark also operate in Sweden in and/or Finland (Ahlsell, Onninen, Dahl) but not some of the fact that 3. Continental Europe (126) As already discussed, the Commission investigations show that the geographic markets are national or, at 22. 11. 2000 EN Official Journal of the European Communities L 294/17 in scope. the Merger Regulation, most, regional In its Decision of 3 August 1999 to initiate proceedings in accordance with Article 6(1)(c) of the Commission identified potential competition problems in Belgium/ Luxembourg and in the Netherlands. However, the Commission’s subsequent analysis has shown that, for later (see recitals 146 to 173), no reasons set out competition concerns will arise as a result of the operation in this area. only a fraction of these products are sold in France. With regard to the product lines sold under the Allia product lines, with some few exceptions, it appears that most products are sold in Belgium/Luxembourg, France and the Netherlands, but not in Germany. (127) In the course of proceedings, Sanitec has argued that Belgium/Luxembourg and the Netherlands are among the most open markets in the EEA and that there are large imports of products produced outside those countries. Sanitec has contended, at a later stage of the proceedings, that at least Benelux, France and Germany belong to the same relevant geographic market. The Commission notes that Sphinx’s production facilities in the Netherlands and Belgium/Luxembourg are indeed the only manufacturing plants in this area. Neither Sanitec nor any of the competitors produce ceramic sanitary ware in the Benelux area. Consequently, there are trade flows in particular from Germany and France. However, for the reasons set out below, France and Germany are not considered to belong to the same relevant product market as Belgium/Luxembourg and the Netherlands. (128) Based on the product information submitted by Sanitec, it can be seen that there are some similarities between the products sold in France and in Belgium/Luxembourg on one hand and between Belgium/Luxembourg, Netherlands and Germany on the other hand. Due to lack of data concerning sales to the Netherlands under the Allia brand (23), to draw conclusions on the extent of the products sold in the Netherlands under this brand nor make comparisons between the Netherlands, Belgium/Luxembourg and Sanitec has, however, Germany submitted in products Belgium/Luxembourg are also sold in the Netherlands. is not possible in this that respect. most sold it (129) By way of example, the majority of identical products lines Cavelleí/ Edení/ supplied under Sanitec’s product Trylogiaí, Opusí/ Palaosí and Felinoí are Eurotrendí, supplied in Belgium/Luxembourg, the Netherlands and Germany. As for the rest of the product lines under the Mangoí and Keramag brand, such as Cleoí/ Arpegeí, Courregesí, some [ ]* of the products sold in Germany are Belgium/ Luxembourg and the Netherlands. At the same time, identical those sold also to in (23) Allia branded products are not the shown separately for Netherlands because they are distributed by Keramag’s sales organisation in the Netherlands. In other words, any sales made by Allia to the Netherlands would be registered under sales made by Keramag there. (130) On the basis of the foregoing it would appear that the product coverage in Belgium/Luxembourg, Germany, France and the Netherlands is not identical. Moreover, a comparison of list prices shows that prices can vary up to almost in Benelux, Germany and France. A further comparison of the net net prices in Belgium/Luxembourg, Germany significant and differences between prices exist, often exceeding [5 to 25]* percentage points. some identical products the Netherlands (24) [< 50 %]* for shows that the conditions of (131) The fact that the market position of the players differs significantly in France and Germany as compared with Belgium/Luxembourg and the Netherlands is a further indication that competition are different. As already discussed, the market shares of the players vary significantly in neighbouring countries or regions. While Spinx has traditionally been the strongest player in the Netherlands and in Belgium/Luxembourg, it has only a minor presence in Germany and France. Similarly, Villeroy & Boch accounts for about [< 30 %]* of the German market, but has a weaker position in France and, in particular, in the Benelux area. Therefore, the Commission considers this to be a strong indication pointing towards different conditions of competition in these markets. (132) More similarities can, however, be found between Belgium/Luxembourg and the Netherlands. With regard to the product coverage, Sanitec has submitted that some [< 100 %]* of the parties’ individual models sold in the Netherlands are also sold in Belgium/Luxembourg and vice versa. The analysis of Sanitec’s product coverage above indeed shows that most products sold in Belgium/Luxembourg are also sold in the Netherlands. There are some differences in the range of products available in the two countries, but the number of specific models sold only in one country is very small. large The same brands are used in Benelux by all manufacturers of ceramic sanitary ware, too. Some Dutch customers have explained that, should the prices in the Netherlands rise, they could source - and actually have done so in the past - a large part of the products in Sanitec’s product lines they normally source in the Netherlands also in Belgium/Luxembourg. in the Therefore, products supplied in those countries, these differences are not considered to be significant. although some differences exist (24) Sanitec has not been able to submit net net prices for France. L 294/18 EN Official Journal of the European Communities 22. 11. 2000 (133) A comparison of net the net prices significant. Price differences between Belgium/Luxembourg and the Netherlands shows that there are some differences in the prices of identical products in the two countries. These differences are not, however, tend to be generally below [< 10]* percentage points, exceeding this figure only for some specific products. Sanitec has explained that although the list prices and rebate systems the Netherlands, the net net prices paid by wholesalers are more or less the same in the two EEA countries. Some customers have explained that the price differences in the two countries used to be significant some 10 years ago. However, according to these wholesalers prices have been more or less the same over the past five years. Belgium/Luxembourg differ and in the (134) According to Sanitec, the distribution structure is almost identical in Belgium/Luxembourg and the Netherlands. By way of example, in all those countries, some [80 to 95 %]* of ceramic sanitary ware is distributed directly from the manufacturers to wholesalers. Moreover, a factor pointing towards a wider geographic market is the fact that a number of large wholesalers are present in Netherlands in both Belgium/Luxembourg. of wholesalers/DIY Examples stores with presence in both countries are Plieger, Technische Unie, Raab Karcher, and Intergamma. It is also noted that [ ]* wholesalers in the Benelux, [ ]* both have central purchasing offices in the Netherlands. The parties’ both in Belgium/Luxembourg and the Netherlands go via their central purchasing offices and the rebates granted are accounted for on their total purchases through these central purchasing offices. Bricorama sales also and (135) Finally, as already indicated, the market structure in Belgium/Luxembourg and the Netherlands is more homogeneous as compared with that in Germany and in France. Sphinx has traditionally been the strongest player in the Netherlands and, until very recently, the clear market leader also in Belgium/Luxembourg. With regard to the other players, however, the Commission notes that the position varies to some extent. Apart from Villeroy & Boch, whose market position is more or less the same in the three countries, the market shares of the other players vary. Most importantly, Ideal Standard accounts for some [< 30 %]* of the ceramic Belgium/ market sanitary Luxembourg but only some [< 5 %]* of in the Netherlands. Both Duravit/Laufen’s and Kohler’s market shares in the Netherlands are only some [< 60 %]* of those in Belgium/Luxembourg. Therefore, while the in position Belgium/Luxembourg and the Netherlands, the fact that all other players are stronger in Belgium/Luxembourg with higher market shares would appear to suggest that the conditions of competition vary, at least to some extent, in the three countries. Sphinx strong ware been both that has of in Conclusion on continental Europe (136) On the basis of the foregoing, the Commission considers that there are several factors pointing towards including the the existence of a geographic market whole of the Benelux area, but not Germany or France. On the other hand, the existence of national price lists, the differences in the net net prices and the diverging market positions of the competitors would in particular seem to suggest that the market conditions vary, which would point to the existence of purely national markets. (137) The exact definition of the relevant geographic market can, however, be left open because, following the Commission’s investigation and based on third party comments, and as will be shown below, even if assessing the operation on a national the or lead not operation would strengthening of a dominant position in this part of the EEA or in any substantial part thereof. For the same reasons, this geographic market should also include Germany and/or France can be left open because the assessment of the case would not be materially affected in this respect. the issue whether level, creation the to VI. COMPATIBILITY WITH THE COMMON MARKET AND WITH THE FUNCTIONING OF THE EEA AGREEMENT A. OVERVIEW 1. Preliminary remarks (138) The operation will combine the activities of the second and fifth largest European producers of bathroom products. Although both producers offer a large range of bathroom products, ceramic sanitary ware constitutes the most important business of each producer. Sanitec has traditionally held a very strong position in the Nordic area whereas Sphinx has been the market leader in Benelux. Sphinx entered the Nordic area in 1994 by its acquisition of the Swedish company Gustavsberg AB whereby Sphinx became the second largest competitor in that area. (139) As explained above, the narrowest possible markets where competition takes place are at the level of individual products and at a national level. Based on the information provided by Sanitec, the operation would result in overlaps in most of the individual products in all EEA countries. However, the overlaps whereby the parties would reach combined market shares of 15 % and above would be confined to WCs, WC cisterns, washbasins, bathtubs, shower trays and shower screens the following EEA countries: in one or more of France, Belgium/Luxembourg, Denmark, Germany, and Sweden. the Netherlands, Norway Finland, Iceland, 22. 11. 2000 EN Official Journal of the European Communities L 294/19 individual EEA countries. However, (140) The following analysis will be carried out primarily at the the level of analysis will also include the alternative broader product market definition (i. e. ceramic sanitary ware) and the wider alternative geographic market definition (i. e. the Nordic competitive assessment would not materially change in either alternative. to demonstrate in order area) that and recent In recent restructuring years, concentration. bathroom product manufacturers have mainly increased their market positions by acquisitions of existing brands rather than new entries and/or innovations. The most significant the transactions the European bathroom product consolidation of market have been Sanitec’s acquisition of Allia/Keramag, Sphinx’s acquisition of Gustavsberg, Ideal Standard’s acquisition of Blue Circle, Laufen’s acquisition of Duravit and of Duravit/Laufen. announced acquisition recently leading Roca’s to 2. European bathroom product market (145) (141) The overall demand in the market for bathroom products has been rather static and in some cases decreasing. The industry follows closely the trends in the housing, construction and refurbishment markets. Thus, the stagnation in the construction industry in many west European countries in the early 1990s had a negative impact on the overall market for bathroom products. In 1996 and 1997, most European countries started to see an improvement in total construction output growth and this upward trend has continued. Although the development has differed between EEA countries, the overall trend has been one of decline in the core products (i. e. ceramic sanitary ware, bathtubs, taps and mixers) in value terms, whereas the volumes of these products have generally recovered by one or two percentage points since 1996. According to forecasts made by GB Consult, modest volume growth both in the EEA as a whole and on national level is expected during the next five years. (142) The bathroom product market, and the ceramic sanitary market in particular, show the signs of a mature market. There is little product innovation and differentiation and the products normally have long life cycles. No material fluctuations have occurred in the market shares of the main European manufacturers during the last three years and, moreover, there have not been major market entries in recent years. (143) Sanitec has estimated that the value of the total European bathroom market in 1998 was EUR [8 000 to 10 000]* million. Ceramic sanitary ware constituted around [< 30 %]*, bathtubs and shower trays around [< 10 %]* each and shower screens/enclosures/cubicles around [< 20 %]*. they offer more or Ideal Standard, Sanitec, Duravit/Laufen, Roca, Sphinx and Villeroy & Boch are the major players in the European bathroom product market and, in particular, in the ceramic sanitary ware market. Generally, the largest European suppliers have their strongest presence in their domestic markets although they are often present in several EEA countries. By way of illustration, Laufen is strongest in Switzerland, Roca is strongest in Spain, Sanitec in the Nordic countries and Sphinx in the Netherlands. Another characteristic of these suppliers is less the whole range of that bathroom products. there are also some In contrast, suppliers of a considerable size who specialise in particular products, for example, the German company Friedrich Grohe which is only active in taps and mixers. Moreover, there are many smaller suppliers which either limit their business activities to a national, or at the most a regional market, and/or specialise in certain bathroom products. By way of example, the Swedish fairly broad range of a company Svedbergs has bathroom products but is only active in the Nordic countries whereas the Spanish Metaliberica specialises in certain bathtubs, and hydrotherapy shower products and is active in several EEA countries. trays B. CONTINENTAL EUROPE 1. Belgium/Luxembourg (a) Actual competition 3. Overall European supply structure (144) The European characterised by bathroom products a high and growing industry level (146) Ceramic sanitary ware constitutes around [< 20 %]* of the total bathroom market in Belgium/Luxembourg. In 1998, the volume of the ceramic sanitary market was estimated by Sanitec at approximately [800 000 to 900 000]* pieces and the value at approximately EUR [20 to 30]* million. is of (147) The market shares of the parties and their main competitors are given in Table 1. L 294/20 EN Official Journal of the European Communities 22. 11. 2000 Market shares of producers of ceramic sanitary ware in Belgium/Luxembourg Table 1 (25) Ceramic sanitary ware Washbasins WCs Sanitec Sphinx Volume Value Volume Value Volume Value [< 20 %] * [< 20 %] * [< 15 %] * [< 15 %] * [< 30 %] * [< 20 %] * [< 30 %] * [< 30 %] * [< 15 %] * [< 15 %] * [< 40 %] * [< 30 %] * Total [< 40 %] * [< 50 %] * [< 30 %] * [< 30 %] * [< 60 %] * [< 50 %] * Ideal Standard Duravit/Laufen Roca Villeroy & Boch Kohler/J. Delafon [< 30 %] * [< 20 %] * [< 10 %] * [< 10 %] * [< 5 %] * [< 30 %] * [< 20 %] * [< 10 %] * [< 10 %] * [< 5 %] * [< 30 %] * [< 20 %] * [< 10 %] * [< 10 %] * [< 5 %] * (148) As can be seen from Table 1, the parties would become the market leader both in the overall ceramic sanitary ware market as well as in washbasins and WCs individually. However, all major producers of ceramic sanitary ware offering equivalent products are active in Belgium/Luxembourg unlike the Nordic countries where the presence of other competitors is marginal. 1998 from some [< 50 %]* to some [< 30 %]* in the overall market of ceramic sanitary ware (in value terms). Hence, Sphinx has lost more than [< 30]* percentage points of market share in only three years. While Sanitec has managed to pick up some of Sphinx’s the majority has been taken over by market share, Duravit/Laufen. This indeed shifting. that demand is shows (149) The parties would face strong competition in particular from Ideal Standard, which would account for some [< 30 %]* of the markets following the operation. The parties would have a leading position in WCs and in ceramic sanitary ware as a whole but, with regard to washbasins, the market position of the parties and Ideal Standard would be very similar. There exist also other on strong as Duravit/Laufen, Roca and Villeroy & Boch, with well-known and strong brands, long-term presence and experience on the market. It should also be noted that, if and Duravit/Laufen proceeds, these two players would have Ideal a combined market Standard. announced merger the market, share similar competitors to that of between Roca such the (150) A recent example of competitors picking up the market leader’s market position clearly shows that competitive Belgium/Luxembourg. market Sphinx, which has in been strong share rapidly Belgium/Luxembourg, has in 1996 to there. In fact, Sphinx’s market share fell in traditionally lost market conditions exist (25) In the following, account will be taken only of 1998 figures. However, on the basis of the information in the notification, the market shares have in general been relatively stable over the past three years. least (151) The investigation has also shown that most customers two or in Belgium/Luxembourg source from at three producers, the number of suppliers of ceramic sanitary ware being often even higher. This means that, unlike in the Nordic countries, the customers are usually familiar with more than one producer. For the suppliers this means they have the necessary customer contacts and do not need to build their customer base from scratch, as in the case of new entry. Therefore, should the parties raise prices, customers could switch a large part of ceramic sanitary ware currently sourced from the parties to other suppliers. that the effects of (152) None of the customers contacted by the Commission in the course of its investigation have expressed concerns over the proposed operation in Belgium/Luxembourg. Instead, they have confirmed that competitive alternatives exist on the market and that they would indeed switch suppliers if faced with a price increase of the order of 5 % to 10 %. Given that the average duration of a supply contract is normally one year at the maximum, customers are not tied to an existing supplier for an unreasonable period of time and switching is there are indications that the commercial relationships between customers and suppliers have not traditionally been as long term as in the Nordic countries. therefore feasible. Moreover, 22. 11. 2000 EN Official Journal of the European Communities L 294/21 (b) Supply-side substitutability (153) The Commission’s investigation shows that from the there is supply-side substitutability in ceramic sanitary ware. Any attempt from the combined entity to raise prices could be met with a relatively rapid supply-side response competitors. The Commission’s investigation shows that, as long as the producer has a cast for a particular model, switching the production to this particular model can take place relatively rapidly. Switching would take at most three months, which is the overall life cycle of a cast in the production cycle, but could easily take place more quickly, too, by simply replacing an existing cast with another one. No significant retooling or additional equipment would be needed and there would be no major costs involved in such a switch either. As already indicated above, all competitors have product lines and models which they already Switching production would thus not require any development of the or models. Commission’s investigation has shown that overcapacity exists on the market and therefore possible constraints in this respect would not limit the supply-side response. Belgium/Luxembourg. new products Furthermore, sell in (154) On the basis of the the Commission considers is substitutability sufficient to constrain the behaviour of the combined entity. supply-side foregoing, that the (c) Market entry national (155) As already shown, the investigation has confirmed that market entry normally takes place via acquisitions of to brands. With existing, Belgium/Luxembourg, however, direct entry is not entirely ruled out. As evidence of this, it is to be noted that, within a few years, Sanitec has been able to build a market presence of some [< 10 %]* from scratch in Belgium/Luxembourg. This the assumption that the Belgium/Luxembourg market may not be as foreclosed as the Nordic market. supports regard (156) Sphinx is the only producer with a production facility in Belgium/Luxembourg. The other players have sales offices and source their sales from their factories mainly in Germany. Although it can be argued that, from the point of view of logistics and transport costs, it may be an advantage to have local production, the fact that, for instance, Ideal Standard currently accounts for more than [< 30 %]* of the market in Belgium/Luxembourg the Commission’s supports finding that producers supply from certain production outlets mainly the country of production but also the neighbouring countries. Therefore, it would appear that a market operator can be successful in the Belgium/Luxembourg market even without local production. (157) Finally, given the current trend towards concentration in the European bathroom product market, it is reasonable to assume that further consolidation will create new players who are able to challenge the parties’ combined position in Belgium/Luxembourg. Most importantly, Laufen and Roca, who have only recently announced their merger, are likely to improve their position in a number of countries, including Belgium/Luxembourg. (d) Conclusion on Belgium/Luxembourg (158) On the basis of the foregoing, the Commission does not consider that the parties would be able to maintain their market position if, following the operation, they were to increase prices. Therefore, the Commission does not consider that the notified operation would lead to the creation or strengthening of a dominant position in Belgium/Luxembourg as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it. 2. The Netherlands (a) Actual competition the ceramic sanitary market (159) Ceramic sanitary ware constitutes around [< 30 %]* of the total bathroom market in the Netherlands. In 1998, the volume of in the Netherlands was estimated by Sanitec at approximately [1 800 000 to 2 000 000]* pieces and the value approximately EUR [70 to 80]* million. Based on the figures provided by Sanitec, the market has grown significantly over the period 1996 to 1998, [< 20 %]* in terms of value, but it is expected to stagnate in the near future. (160) The market shares of competitors are presented in Table 2. the parties and their main L 294/22 EN Official Journal of the European Communities 22. 11. 2000 Market shares of producers of ceramic sanitary ware in the Netherlands Table 2 Ceramic sanitary ware Washbasins WCs Volume Value Volume Value Volume Value Sanitec (26) [< 5 %] * [< 10 %] * [< 5 %] [< 10 %] * [< 5 %] * [< 10 %] * Sphinx [< 50 %] * [< 60 %] * [< 50 %] * [< 50 %] * [< 60 %] * [< 70 %] * Total [< 50 %] * [< 60 %] * [< 50 %] * [< 50 %] * [< 60 %] * [< 70 %] * Villeroy & Boch Duravit/Laufen Kohler (J. Delafon) Ideal Standard Vitra (Eczacibasi) [< 10 %] * [< 10 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 10 %] * [< 10 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 10 %] * [< 10 %] * [< 5 %] * [< 5 %] * [< 5 %] * (161) As can be seen from Table 2, the parties would become the market leader both in the overall ceramic sanitary ware market as well as in washbasins and WCs individually. The parties’ combined market position in these markets would be somewhat stronger than in Belgium/Luxembourg. The parties would have market shares in the region of [< 60 %]*, exceeding [< 70 %]* only for WCs in value terms. (162) some customers, should be noted that It such as Technische Unie and Plieger, have central purchasing offices for Benelux in the Netherlands. Therefore, given that part of the sales attributed to the Netherlands are actually sold in Belgium/Luxembourg, Sanitec has estimated that up to [< 5 %]* of the parties’ market share should be deducted from their market shares in the Netherlands. Consequently, combined market shares in the Netherlands should be lower than indicated in Table 2. parties’ the (163) It should also be noted that the increment of market share resulting from the operation is relatively low, only some [< 10 %]*. set out below, the Commission does not consider that the notified operation would lead to the creation or strengthening the Netherlands. dominant position of in a (165) First, although the parties’ combined position would appear to be relatively strong in the Netherlands, it is to be noted that Sphinx’s market shares have been declining in recent years. The Dutch market has traditionally been Sphinx’s home market where Sphinx has been the market its market share has decreased by some [< 20]* percentage points over the period 1996 to 1998, from [< 70 %]* to some [< 60 %]* for ceramic sanitary ware. The lost market share has been picked up mainly by Sanitec and [ ]*. leader for many years but (166) Sphinx has lost considerable market share during this period, which has been a period of strong growth in the Dutch market. At present, there is overcapacity on the market, with indications of falling price levels. On the basis of the investigation, the total market is expected to stagnate in the near future. It can therefore be assumed that the market conditions will not favour the present positions of Sphinx. (164) Market shares are only one indication reflecting market power of the Commission the players. Therefore, considers that market shares alone do not necessarily indicate other considerations to be taken into account. For the reasons dominance there that but are (167) (26) [ ]*. in the addition, line with the Commission’s in situation In Belgium/Luxembourg, investigation has shown that customers in the Netherlands tend to apply multiple sourcing strategies. There are indications that customers three ceramic sanitary ware suppliers and, moreover, that the source from at two or least 22. 11. 2000 EN Official Journal of the European Communities L 294/23 from Sphinx customers who source also source considerable amounts of bathroom products from other alternative suppliers at the same time. Indeed, there are several competitors on the Dutch market, [ ]* Villeroy & Boch, and Ideal [ ]* Duravit/Laufen, Kohler Standard. All four competitors are resourceful suppliers with well-known and well-established brands as well as long-term presence and experience on the market. Therefore, should the parties raise prices, customers could switch a large part of ceramic sanitary ware currently sourced from the parties to other suppliers. (b) Supply-side substitutability suppliers. None of concerns about the transaction. them have raised any serious (c) Market entry (171) As already discussed, Sphinx has traditionally enjoyed a strong position in its home market but this position has been somewhat eroded during recent years. As in Belgium/Luxembourg, Sanitec has managed to penetrate the Dutch market within a few years and take some [< 10 %]* of the market. Another player, the Turkish manufacturer Eczacibasi, has also been able to penetrate the Dutch market. the customers (168) The Commission notes first of all that Sphinx’s position is historically very strong and, on the basis of its market share, Sphinx appears to be the preferred choice of many of in the Netherlands. The existence of a relatively high level of brand loyalty can make it difficult to persuade customers to switch to other products and, therefore, for new suppliers to enter the market. The Commission considers, however, that the traditional preference for Sphinx’s products does not necessarily mean that the parties’ market position would be maintained, should the parties raise prices following the operation. sufficient in ceramic sanitary ware the supply-side substitutability is (169) The Commission considers that, for the same reasons that apply for Belgium/Luxembourg, there is supply-side substitutability in the the Commission considers Netherlands. Furthermore, to that constrain the market power of the merged entity in the Netherlands. In this respect, the Commission notes that, as in Belgium/Luxembourg, all the main competitors are active in the Netherlands, although with lower market Belgium/Luxembourg. shares However, that most competitors in the Dutch market have the readiness, capacity and financial strength to increase their market in the eventuality of a position there. Consequently, the existing models, price increase by the parties, knowledge of contacts together with overcapacity on the market would lead to a quick supply-side response and an increased market penetration by the competitors. the Commission compared with and customer the market considers as (170) Comments from third parties indicate that the majority of the market is price sensitive and that the switch from one competitor to another can be immediate. Indeed, all Dutch customers who replied to the Commission’s enquiries have indicated that, should the parties raise prices by 5 to 10 %, they could would switch to other (172) Finally, a further consolidation in the European bathroom product market can be expected to change the market situation in the Netherlands, too. Roca, which currently has no activities in the Dutch market, can be expected to increase its presence there due to its recent merger with Duravit/Laufen. (d) Conclusion on the Netherlands (173) The market in some investigation of product markets, the Commission has confirmed that, despite the high market shares of the parties supply-side substitutability is significant and actual and potential competitors are able to act as a counterweight on the Dutch market. Therefore, the Commission does not consider that the notified operation would lead to the creation or the strengthening of a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it. 3. Germany (174) Germany is the largest single bathroom product market in Europe, accounting for some [< 40 %]* of the whole European market. Sanitec has estimated that the total value of the German bathroom product market in 1998 was some EUR [2 500 to 3 500]* million. The value of the ceramic sanitary ware market was estimated at EUR [250 to 450]* million, to some [8 000 000 to 10 000 000]* pieces. corresponding (175) In Germany, the parties’ combined market shares exceed 15 % in washbasins and WCs and the overall ceramic sanitary ware. The market shares are given in Table 3. L 294/24 EN Official Journal of the European Communities 22. 11. 2000 Table 3 Market shares of producers of ceramic sanitary ware in Germany Ceramic sanitary ware Washbasins WCs Sanitec Sphinx Volume Value Volume Value Volume Value [< 40 %] * [< 30 %] * [< 30 %] * [< 40 %] * [< 40 %] * [< 30 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * Combined [< 40 %] * [< 30 %] * [< 30 %] * [< 40 %] * [< 40 %] * [< 30 %] * Villeroy & Boch Duravit/Laufen Vitra/Eczacibasi Ideal Standard Roca [< 20 %] * [< 20 %] * [< 15 %] * [< 10 %] * [< 5 %] * [< 20 %] * [< 20 %] * [< 15 %] * [< 10 %] * [< 5 %] * [< 20 %] * [< 20 %] * [< 15 %] * [< 10 %] * [< 5 %] * (176) As can be seen from Table 3, the parties’ combined market shares would be below some [< 40 %]* in all affected markets. Sphinx has only minor activites in Germany. The overlap of the parties in all the affected markets is less than [< 5 %]*; which the Commission considers insignificant (27). is not indicative of a dominant position being created there. (177) The Commission notes that although the parties will leaders in all affected markets, other become market competitors have significant market shares. The parties will face strong competition in particular from Villeroy & Boch and Duravit/Laufen, which both account for some [< 20 %]* of the markets. The Turkish importer Vitra/Eczacibasi has achieved a substantial foothold in the German market with some [< 20 %]* and Ideal Standard accounts for approximately [< 10 %]*. of the market. Standard have significant domestic production and Germany is their home market. Moreover, most of the competitors also offer a wide range of bathroom products comparable with that offered by the parties. traditionally considered as Villeroy & Boch Ideal and (178) On the basis of the foregoing, and in particular given the the several Commission considers that competitive conditions exist on the German market and the parties’ market position existence of competitors, strong (27) [ ]*. 4. France (179) The total value of the French bathroom product market has been estimated to amount to EUR [1 to 1 500]* million. According to information provided by Sanitec, the French ceramic sanitary ware market comprises approximately [6 500 000 to 7 500 000]* pieces with a value of EUR [200 to 300]* million; bathtubs [550 000 to 650 000]* with a value of EUR [50 to 60]* million; and shower trays [600 000 to 700 000]* pieces with a value of EUR [30 to 40]* million. (180) The parties have overlapping activities, where their combined market shares exceed [< 20 %]*, in the overall market for ceramic sanitary ware and and the markets for washbasins and WCs, in bathtubs and shower trays. (181) On the basis of the abovementioned market volumes and values, the market shares of the parties and their main competitors in ceramic sanitary ware are given in Table 4. 22. 11. 2000 EN Official Journal of the European Communities L 294/25 Table 4 Market shares of producers of ceramic sanitary ware in France Ceramic sanitary ware Washbasins WCs Volume Value Volume Value Volume Value Sanitec Sphinx [< 20 %] * [< 20 %] * [< 20 %] * [< 30 %] * [< 20 %] * [< 20 %] * [< 10 %] * [< 10 %] * [< 10 %] * [< 10 %] * [< 10 %] * [< 10 %] * Combined [< 30 %] * [< 30 %] * [< 30 %] * [< 40 %] * [< 30 %] * [< 30 %] * Ideal Standard Kohler/J. Delafon Villeroy & Boch Roca Duravit/Laufen [< 20 %] * [< 15 %] * [< 15 %] * [< 10 %] * [< 5 %] * [< 20 %] * [< 15 %] * [< 15 %] * [< 10 %] * [< 5 %] * [< 20 %] * [< 15 %] * [< 15 %] * [< 10 %] * [< 5 %] * (182) With regard to ceramic sanitary ware, the parties will become the market leader but their combined market shares do not exceed [< 40 %]*. Moreover, a larger number of other bathroom product manufacturers are present in France with substantial market shares; Ideal Standard accounts for some [< 20 %]* of the market, Kohler about [< 15 %]* and Villeroy & Boch and Roca around [< 15 %]* of the market each. (183) The market shares of the parties and those of their main competitors with regard to bathtubs and shower trays are given in Table 5. Table 5 Market shares of producers of bathtubs and shower trays in France Bathtubs Shower trays Sanitec Sphinx Volume [< 10 %] * [< 5 %] * Combined [< 15 %] * Kohler/J. Delafon Roca Merloni (MTS) Ideal Standard Aqualine Villeroy & Boch Sarreguemines Volume [< 30 %] * [< 10 %] * [< 40 %] * Value [< 15 %] * [< 5 %] * [< 20 %] * [< 30 %] * [< 20 %] * [< 20 %] * [< 15 %] * [< 10 %] * Value [< 30 %] * [< 15 %] * [< 40 %] * [< 15 %] * [< 15 %] * [< 5 %] * [< 15 %] * [< 15 %] * (184) With regard to bathtubs, Kohler [ ]* will remain the market leader with some [< 30 %]* of the market. Manufacturers such as Roca, Merloni and Ideal Standard also have substantial market shares. As for shower trays, the parties will become market leaders with some [< 40 %]* of the market. There are, nevertheless, several other competitors with market shares [< 20 %]* active on the market. L 294/26 EN Official Journal of the European Communities 22. 11. 2000 (185) Contrary to the situation in the Nordic countries, it is to be noted that the major competitors are active in ceramic sanitary ware as well as in bathtubs and shower trays and, thus, these competitors have a broad range of products comparable with that offered by the parties. C. THE NORDIC AREA 1. Ceramic sanitary ware (a) Actual competition (186) On the basis of the the Commission considers that the notified operation will not lead to the creation of a dominant position in any of the markets discussed above in France. foregoing, 5. Overall conclusion for continental Europe (187) On the basis of the foregoing, the Commission considers that the notified concentration will not lead to the creation or strengthening of dominant positions in any relevant product market in Belgium/Luxembourg, the Netherlands, Germany or France. (188) The parties and their brands have a very strong historical market position in the Nordic countries. As will be shown below, Sanitec and Sphinx together would account for between some [55 % to 95 %]* of the sanitary ware market while other Nordic competitors are only marginally present there. ceramic (i) S w e d e n sanitary ware market (189) Sanitec has estimated that in 1998 the volume of the ceramic Sweden was approximately [600 000 to 700 000]* pieces and the value approximately EUR [35 to 45]* million. GB Consult from 1999 the market should recover due to the predicted rise in construction investment, and in gradually grow until 2003. new construction, foresees that especially in (190) As a result of the operation, the parties would become by far the strongest player in all affected markets in Sweden. The market shares are illustrated in Table 6 (28). Market shares of producers of ceramic sanitary ware in Sweden Table 6 Ceramic sanitary ware Washbasins WCs WC cisterns Volume Value Volume Value Volume Value Volume Value 55-65 % 55-65 % 55-65 % 55-65 % [< 60 %] * [< 60 %] * [< 60 %] * [< 60 %] * 25-35 % 25-35 % 25-35 % 25-35 % [< 40 %] * [< 30 %] * [< 40 %] * [< 30 %] * Sanitec Sphinx Combined 80-90 % 80-90 % 80-90 % 80-90 % [< 90 %] * [< 90 %] * [< 90 %] * [< 90 %] * Svedbergs Caradon Villeroy & Boch Duravit/Laufen Ideal Standard Muscle Machine [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * < 3,0 % [< 20 %] * [< 10 %] * [< 10 %] * < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % (28) Sanitec has not been able to provide the Commission with reliable market shares for washbasins. In particular, the Commission has found that the parties’ estimates on Muscle Machine’s market shares for washbasins have proved to be incorrect. Therefore, in share data for washbasins the following tables, allocated both to the parties and Muscle Machine reflects the Commission’s best estimates and are given as ranges. Furthermore, given that the market shares allocated to washbasins have an impact on the market shares on the overall ceramic sanitary ware market, the market share figures for the parties have been given as estimates in this column, too. the market 22. 11. 2000 EN Official Journal of the European Communities L 294/27 (191) the Swedish market It can be seen from figures in Table 6 that the parties would reach very high market shares in Sweden in WCs, cisterns and washbasins. The market shares would exceed [< 90 %]* both in terms of volume and value. With regard to washbasins, Sanitec in its notification has submitted that Muscle Machine accounts for some [< 50 %]* of for washbasins. However, it appears from the Commission’s market investigation that Muscle Machine in fact toll-produces its products under the brand names of its immediate customers, [ ]*. Therefore, the market share allocated to Muscle Machine by Sanitec cannot be considered to reflect Muscle Machine’s market power as a competitor. the market share should in fact be divided Rather, the immediate customers, among others among its reallocation of Muscle parties. However, Machine’s secrets of sales would disclose business Muscle Machine and, moreover, for the purpose of the present assessment such a reallocation would not materially change the Commission’s assessment. The Commission has therefore estimated that the correct market share allocated to Muscle Machine should be in the region of [< 20 %]* at the maximum. such a (192) The market position of the parties would not change even taking the ceramic sanitary ware market as a whole. The main competitors to the parties would have in general terms less than [< 10 %]* of the market each, the only exception being Muscle Machine which would have some [< 20 %]* of the market in washbasins. (ii) F i n l a n d (193) Sanitec estimates that, the volume of in 1998, sanitary ware market the ceramic Finland was approximately [450 000 to 550 000]* pieces and the value approximately EUR [25 to 35]* million. GB Consult has estimated that the market will continue to grow in 1999 and then decline slightly so that the market will reach the same level in 2003 as in 1998. in (194) In Finland, the parties would also have very high market shares just as in Sweden and become the market leader in all affected markets. The market shares are set out in Table 7. Table 7 Market shares of producers of ceramic sanitary ware in Finland Ceramic sanitary ware Washbasins WCs WC cisterns Volume Value Volume Value Volume Value Volume Value Sanitec Sphinx 70-80 % 60-70 % 65-75 % 55-65 % [< 80 %] * [< 80 %] * [< 80 %] * [< 80 %] * 5-10 % 5-10 % 5-10 % 5-10 % [< 15 %] * [< 15 %] * [< 15 %] * [< 15 %] * Combined 80-90 % 70-80 % 70-80 % 60-70 % [< 95 %] * [< 90 %] * [< 95 %] * [< 95 %] * Svedbergs Cersanit Villeroy & Boch Roca Caradon Muscle Machine Novotec Swemolit [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * < 3,0 % [< 20 %] * [< 5 %] * [< 5 %] * [< 10 %] * [< 10 %] * < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % L 294/28 EN Official Journal of the European Communities 22. 11. 2000 (195) As in Sweden, the parties would become by far the strongest player in WCs, WC cisterns and washbasins with market shares up to [< 95 %]*. Taking the ceramic sanitary ware market as a whole, the parties’ combined market shares would exceed [< 80 %]*. The competitors would be weakest in WCs and WC cisterns, where the second largest competitor would have merely [< 10 %]* of the market. In washbasins, the largest competitor, Muscle Machine, would have only some [< 20 %]* of the market (with respect to the further reduction of Muscle Machine’s market share see recital 191). The rest of the competitors would have less the market. than [< 10 %]* of (196) With regard to washbasins, however, the Commission considers that the parties’ market share should actually be somewhat higher than the figure given by Sanitec share for ceramic since the parties’ overall market sanitary ware is also higher. If the market share data it available for other Nordic countries are considered, individual the market can be seen that shares for follow closely the overall market shares products allocated for the ceramic sanitary ware market as a whole. (iii) D e n m a r k (197) According to Sanitec’s estimates, in 1998, the volume of the ceramic sanitary ware market in Denmark was approximately [550 000 to 650 000]* pieces and the value approximately EUR [30 to 40]* million. GB the market will decrease until Consult 2001 and, thereafter, the market is expected to grow again. forecasts that (198) As indicated in Table 8, the parties would become the market leader in all affected markets where they would also yield very high market shares. Table 8 Market shares of producers of ceramic sanitary ware in Denmark Ceramic sanitary ware Washbasins WCs WC cisterns Volume Value Volume Value Volume Value Volume Value Sanitec Sphinx 60-70 % 60-70 % 60-70 % 55-65 % [< 70 %] * [< 70 %] * [< 70 %] * [< 70 %] * 15-25 % 15-25 % 5-10 % 5-10 % [< 20 %] * [< 20 %] * [< 20 %] * [< 20 %] * Combined 80-90 % 80-90 % 70-80 % 60-70 % [< 90 %] * [< 90 %] * [< 90 %] * [< 90 %] * Villeroy & Boch [< 10 %] * [< 5 %] * [< 10 %] * [< 10 %] * Duravit/Laufen Caradon Svedbergs Cersanit [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % Muscle Machine [< 20 %] * Geberit < 3,0 % < 3,0 % < 3,0 % [< 10 %] * 22. 11. 2000 EN Official Journal of the European Communities L 294/29 (199) The parties’ combined market shares in Denmark would exceed [> 70 %]* for most product groups, even when considering the ceramic sanitary ware market as a whole. The position of competitors would be weakest in WCs and WC cisterns, with the strongest competitor In having merely some washbasins, where the parties would have a combined market share of between [55 %]* and [85 %]*, the main competitor would be Muscle Machine with some [< 20 %]* of to the further reduction of Muscle Machine’s market share see recital 191). Villeroy & Boch would have [< 5 %]* of the market, and Duravit/Laufen, Caradon and Svedbergs would all have market shares below [< 5 %]*. (with respect [< 10 %]* of the market. the market (201) because the parties’ overall market share for ceramic sanitary ware is also higher. (iv) N o r w a y to the volume of In 1998, the ceramic sanitary ware market in Norway was estimated to be approximately value [350 000 approximately EUR [20 to 30]* million. According to GB Consult, the market will be fairly stable in 1999 and will the negative construction forecasts. subsequently 450 000]* decrease pieces and due the to (200) For the same the Commission considers that the parties’ market share for washbasins as given by Sanitec should be higher, as given for Finland, reasons (202) The market structure and the position of the parties in Norway would be similar to the Swedish, Finnish and Danish markets. As indicated in Table 9, the parties shares and become would have very high market market leader in all affected markets. Table 9 Market shares of producers of ceramic sanitary ware in Norway Ceramic sanitary ware Washbasins WCs WC cisterns Volume Value Volume Value Volume Value Volume Value Sanitec Sphinx 65-75 % 65-75 % 65-75 % 65-75 % [< 70 %] * [< 70 %] * [< 70 %] * [< 70 %] * 15-25 % 15-25 % 15-25 % 15-25 % [< 30 %] * [< 30 %] * [< 30 %] * [< 30 %] * Combined 80-90 % 80-90 % 80-90 % 80-90 % [< 90 %] * [< 90 %] * [< 90 %] * [< 90 %] * Villeroy & Boch [< 5 %] * [< 5 %] * Svedbergs Caradon Ideal Standard Vitra/Eczacibasi Muscle Machine Swemolit Geberit [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * < 3,0 % < 3,0 % [< 20 %] * [< 10 %] * < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % (203) As can be seen from Table 9, the parties would have market shares close to [< 95 %]* in all product markets and also in the overall market for ceramic sanitary ware (with respect to the market share of Muscle Machine see recital 191). L 294/30 EN Official Journal of the European Communities 22. 11. 2000 (v) I c e l a n d (204) Sanitec estimates in Iceland was approximately [35 000 to 45 000]* pieces and the value approximately EUR [1 to 2]* million in 1998. the ceramic sanitary ware market the volume of that (205) The market shares of the parties and those of their competitors are given in Table 10. Table 10 Market shares of producers of ceramic sanitary ware in Iceland Ceramic sanitary ware Washbasins WCs WC cisterns Volume Value Volume Value Volume Value Volume Value Sanitec Sphinx 20-30 % 30-40 % 20-30 % 25-35 % [< 30 %] * [< 20 %] * [< 30 %] * [< 20 %] * 40-50 % 40-50 % 40-50 % 40-50 % [< 60 %] * [< 60 %] * [< 60 %] * [< 60 %] * Combined 70-80 % 70-80 % 70-80 % 70-80 % [< 80 %] * [< 80 %] * [< 80 %] * [< 80 %] * Roca [< 10 %] * [< 10 %] * [< 10 %] * [< 10 %] * Villeroy & Boch [< 10 %] * [< 10 %] * [< 10 %] * [< 10 %] * Caradon Cersanit Svedbergs Muscle Machine Swemolit [< 5 %] * < 3,0 % [< 5 %] * [< 5 %] * < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % [< 20 %] * [< 10 %] * (206) In Iceland, although the combined market position of the parties would be similar to the one identified in all the other Nordic countries in the sense that the parties would have high market shares and become market leaders in all affected markets, it is to be noted that Sphinx has, at present, the leading market position in WCs and WC cisterns and washbasins in Iceland. (207) Following the operation, the parties would become the clear market leader in WCs, WC cisterns and washbasins with market shares of between some [< 80 %]* and [< 90 %]*. This position would not change considering the ceramic sanitary ware market as a whole. The largest competitor, Roca, would have less than [< 15 %]* of the markets and Villeroy & Boch less than [< 10 %]*. Other competitors include Caradon and Svedbergs with very low market shares. (vi) T h e o v e r a l l N o r d i c a r e a (208) Sanitec has estimated that the Nordic area would account for approximately [< 10 %]* of the total value of the EEA-wide bathroom product market, corresponding to some EUR [400 to 500]* million and some [2 to 3]* million pieces in 1998. (209) With respect to ceramic sanitary ware products, Sanitec has estimated that, in 1998, the overall Nordic market accounted to volume 3 000 000]* pieces and a value of EUR [100 to 150]* million. Based on these volume and value figures, the overall position of the parties and their main competitors are indicated in Table 11. [2 000 000 for of a 22. 11. 2000 EN Official Journal of the European Communities L 294/31 Table 11 Market shares of producers of ceramic sanitary ware in the Nordic countries Ceramic sanitary ware Washbasins WCs WC cisterns Volume Value Volume Value Volume Value Volume Value Sanitec Sphinx 60-70 % 60-70 % 55-65 % 55-65 % [< 70 %] * [< 70 %] * [< 70 %] * [< 70 %] * 15-25 % 15-25 % 15-25 % 10-20 % [< 30 %] * [< 30 %] * [< 30 %] * [< 30 %] * Combined 80-90 % 80-90 % 70-80 % 70-80 % [< 90 %] * [< 90 %] * [< 90 %] * [< 90 %] * Svedbergs [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * Villeroy & Boch [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * Laufen Caradon Cersanit Muscle Machine Roca Ideal Standard < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % [< 20 %] * < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % (210) As can be seen from Table 11, the parties would have market almost shares of between [< 80 %]* [< 100 %]* in WCs, WC cisterns and washbasins, even relevant considering the Nordic geographic market. The leading market position would also be retained for the ceramic sanitary ware market as a whole. countries as one and (211) Compared with the above market data on individual countries, the market position of the parties would not materially change whether the geographic market was to be considered as one overall Nordic market or as individual markets. (b) Supply-side substitutability (212) Sanitec has contended that the existence of high market shares in the Nordic countries does not in itself confer it is to since large, countries. Standard these strong easy for market power, such as US multinationals American competitors compete and Kohler Standard/Ideal The Commission in effectively investigation, however, clearly refutes Sanitec’s argument of effective competition in the Nordic countries. Sanitec has submitted that the switching costs between suppliers are very low for customers and that suppliers are even willing to contribute to costs in return for the customer switching to them. Sanitec has therefore argued that, should the price level for bathroom products rise, there are numerous players that could increase their presence in Scandinavia or enter the market. According to Sanitec, this is very easy due to low transport costs. Sanitec has further argued that there is overcapacity - in the EEA, in south-eastern Europe and south-east Asia - in the bathroom products industry, meaning that any thus price increase would provoke immediate entry, constraining the parties’ ability to raise prices. (213) Most customers the Commission that they would not have real alternatives however, replied have, to L 294/32 EN Official Journal of the European Communities 22. 11. 2000 to switch suppliers if faced with a price increase in the order of 5 % to 10 %. Some customers have indicated that, if faced with a price increase in the region of 5 % to 10 %, they would consider importing from Asia or Poland. However, given that these customers source relatively small volumes and they would still need to stock the parties’ leading brands, the Commission does not consider this alternative to be realistic. Some large wholesalers have indicated that the demand for other than the leading brands is not sufficient for them to these import customers have indicated that imports over a long distance could take up to several months and the risk of product failure and breakage is too high. Customers have also mentioned that after-sales services would be problematic if products were imported over a long distance. Given that to be achieved for the imports to be competitive, importing from outside the EEA cannot be considered a realistic alternative for small customers. some critical mass has competitive prices. Furthermore, at (214) Furthermore, on the basis of investigation, there are no indications that the its Commission does not consider it feasible either that these wholesalers could to a significant extent switch their branded, well-reputed products to low-cost imports from outside the EEA. Given the current low level of imports, the level of imports would increase to any significant extent in the future with the effect of off-setting the market position of the parties. Finally, the current low level of imports, few alternative suppliers are despite the fact available the argument that imports are not a feasible alternative for customers. in the Nordic strengthens countries, that (c) Market entry (215) The majority of wholesalers have indicated that Ido, Ifö and Gustavsberg are more or less the norm in the Nordic coutries and that these are the brands customers demand. As discussed in recitals 102 to 108, there are different national standards which make entry difficult. With regard to the Nordic countries, some wholesalers have gone so far as to suggest that Sanitec and Sphinx, through the acquisition of Gustavsberg, have in fact created a Nordic áumbrellaí with specific products and product standards, which makes it particularly difficult for competitors to enter the Nordic market. (216) The Commission’s investigation shows, that should the rise, competitors for bathroom products price level could not, in a relatively short period of time, increase their presence in the Nordic countries. This situation appears to be very different from that in the Benelux area, where the competitors, even though they have lower market are well established and increasing their presence. This would also seem to suggest that, unlike continental Europe, the Nordic area is relatively isolated and local production is an important competitive advantage. At present, only Sanitec and Sphinx have production facilities in the Nordic area. than the parties, shares (217) The tradition and loyalty behind the established brands in the Nordic countries are further evidenced by the fact that no new suppliers of importance have emerged in these markets for more than 20 years and that those new producers, such as Muscle Machine, which have entered the market in recent years are active in niche procucts and/or are specialised in toll production. (d) Absence of buying power (218) Sanitec argues number represent that countervailing buying power is particularly present in the Nordic countries since a very limited large of wholesalers proportions of the demand. Sanitec has estimated that, in Denmark, Dahl has some [< 50 %]* of the market, A & O Johansen [< 20 %]* and Rör & Armatur [< 20 %]*. In Finland, Onninen has [< 80 %]* of the market, Dahl [< 20 %]* and LV Tuko [< 15 %]*. Sanitec submits that in Norway, Dahl has [< 50 %]* of the market, Stavanger Rör [< 30 %]* and Bergens Rör [< 20 %]*. Finally, Sanitec estimates that the market, Ahlsell [< 40 %]* and Onninen [< 20 %]*. Sanitec claims further that consolidation is taking place at the wholesale and retail in the Nordic countries. As examples of this Sanitec has mentioned Ahlsell, which has recently acquired the Swedish wholesaler Lando AB and a stake in the Finnish wholesaler Starckjohann; Dahl, which operates in a number of Scandinavian countries, acquired the Swedish wholesaler Skoogs VVS; and Sanistål, which acquired the Danish wholesalers Erik Hassel-Kjaer A/S and PE Ernhardt A/S. in Sweden, Dahl has [< 50 %]* of level (219) Sanitec has further argued that the turnover of the wholesalers is often greater than that of the suppliers of bathroom products and that this would confer buying power. Moreover, Sanitec has argued that companies often that may have their collaborate Sanitec, bargaining power increase to to according in power. bargaining Finally, limited buying groups 22. 11. 2000 EN Official Journal of the European Communities L 294/33 wholesalers use their buying power for instance to threaten to switch to other suppliers or to establish their private label if prices are raised. (220) The Commission refutes Sanitec’s argument of countervailing buying power. Although the Commission notes that the wholesale market in the Nordic countries is indeed relatively concentrated, the Commission does not in the Nordic countries have enough purchasing power to offset the market power of the combined entity. the wholesalers consider that it has developed a specific washbasin together with EUDIM. failed to conclude According to EUDIM, agreements with any other strong, branded European ceramic sanitary ware suppliers, mentioning Sanitec as an example. The Commission notes, however, that these the groups could influence wholesalers they may recommend their members to use a certain supplier and receive bonuses from this supplier at the end of the year. However, there is no evidence at present that such these activities would increase the buying power of groups’ Nordic members to the level where they could offset the parties’ dominant position. the buying power of long run in that in the (221) In particular, the Commission notes that in order to exercise buying power, wholesalers must have viable alternative suppliers they could switch to. It is clear from the investigation that this is not the case. The Commission’s enquiries show that wholesalers in the Nordic countries switch to other suppliers very rarely, if at all. Most wholesalers have told the Commission that during the past three to five years they have not changed suppliers. Some wholesalers have indicated that Sanitec, for instance, has been their supplier for more than 50 years. Although Sanitec argues that supply contracts are short-term (generally one year) and that wholesalers can, within a short period of time, switch the Commission’s investigation suppliers at shows in the Nordic that countries are in practice long-term and customers are very loyal to the established brands. An important difference between the Nordic countries and the Benelux area is that the wholesalers in Benelux have indicated that, in the face of a hypothetical price increase, they would readily change suppliers. There is also evidence that this has happened in the past and that the demand has shifted from the market leader to the competitors. low cost, the supply relationships (222) The investigation also shows that buying groups are not sufficiently strong to counterbalance the position of the parties in the Nordic countries. The Commission has contacted two such groups mentioned by the parties, EDT and EUDIM (29), whose members also include Nordic customers. It is clear from the investigation that, with regard to bathroom products, both groups are mainly forums for exchanging information, collecting data, buying market studies and assisting in practical commercial matters. The groups do not act as direct purchasing organisations, although EUDIM negotiates framework agreements. However, according to EUDIM, it is very difficult to negotiate agreements for ceramic sanitary ware because design, culture and technical requirements prevent negotiations on áthe same product for everyoneí basis. Furthermore, during its 20 years of existence, EUDIM has succeeded in negotiating only one such framework agreement with a ceramic sanitary ware producer, namely Duravit/Laufen. This must, however, be considered as an exceptional case, because Laufen (29) European United Distributors of Installation Materials. the investigation shows that (223) With regard to Sanitec’s submission that, in the face of a price increase, wholesalers would start producing their few own private labels, wholesalers in Scandinavia have private labels. Similarly with imports, the traditionally strong position of Sanitec and Sphinx via Gustavsberg has made it very difficult for the introduction of cheaper private labels. On the basis of third party comments, it appears that at present only a very small part of the sales includes private labels. Currently, there are no indications that, within the near future, wholesalers would switch a considerable part of their product range to a private label so as to counterbalance the position of the parties. (224) Lastly, concerning Sanitec’s submission that the size of the turnover of should be taken as the customer evidence of buying power, the Commission notes that all wholesalers mentioned by Sanitec, such as Dahl, are active in a number of other products. Bathroom the turnover products account generated by those wholesalers and, large turnover evidence of cannot be alone countervailing buying power. for only a part of taken as therefore, (225) On the basis of the foregoing, the Commission does not consider that customers in the Nordic countries have sufficient buying power to offset the market position of the parties, feasible alternative suppliers. in particular due to lack of (e) Third party comments (226) Most third parties and, most importantly, customers have voiced serious concerns about the effects of the L 294/34 EN Official Journal of the European Communities 22. 11. 2000 operation in the Nordic countries. Both customers and the operation competitors have been concerned that would lead to a significant reduction of competition in what is already a very concentrated market. Customers have expressed concerns over possible price increases and the weakening of their position vis-à-vis the parties. The fact the parties would practically control all production in the Nordic countries has aroused fears in customers that the choice and availability of products would be limited in the future. Competitors have expressed concerns that the operation would lead to a total foreclosure of the market, which is already extremely difficult to enter. that, after the operation, (f) Conclusion on ceramic sanitary ware (227) Sanitec’s very high market shares, combined with their stability over a long period of time, the barriers to entry and the absence of buying power lead the Commission to conclude that, at present, Sanitec has a dominant position in the Nordic countries in ceramic sanitary ware. The fact that the gap between Sanitec’s market shares and those of the competitors has, over a long period of time, been substantial is a further indication that Sanitec has been able to act relatively independently sales prices and profit on the market, keeping its margins (30). Furthermore, Sanitec’s position has not been challenged by imports, which have remained at a low level. (228) The a in result operation would considerable aggregation of market shares which would reinforce Sanitec’s very high existing market shares. As already stated, all other players are only marginally present in the Commission the Nordic countries. Furthermore, notes that Sphinx, is the only supplier of products with a alternative significant market share in the Nordic countries. Other competitors are mainly active in niche markets. in addition to Sanitec, full-range customers would be (229) The investigation has shown that Nordic customers are currently sourcing a large proportion of their supplies from Sanitec. In the absence of viable alternative even more suppliers, Nordic dependent on supplies from Sanitec. Sanitec would thus be able to employ a number of strategies to further advance its position in the market which were not previously available to it. It could for instance raise independently from other market operators, prices worsen the supply conditions or even refuse to supply altogether. (230) The fact that the operation would lead to the elimination of the only viable alternative supplier with significant presence in the Nordic countries could lead to further foreclosure of the market from prospective entry. Given the significant brand loyalty in this sector and the well-established position of Gustavsberg in the Nordic countries, the acquisition would mean that any potential entrant would be denied the possibility of entering the Nordic market by buying a strong existing brand. The operation could foreclose the market also from direct entry. Given that wholesalers would be dependent on the new entity, Sanitec could punish those customers who encouraged alternative suppliers to enter instance, making those for customers pay higher prices or imposing tougher supply less conditions. Customers would incentive to switch to new entrants. the market by, therefore have (231) On the basis of the foregoing, the operation would enable Sanitec to act on the market even more its customers and competitors than independently of further today forcelosed. Therefore, the operation would lead to the strengthening of Sanitec’s dominant position in the Nordic markets for ceramic sanitary ware. and the Nordic market could be 2. Bathtubs (a) Actual competition (i) T h e i n d i v i d u a l N o r d i c c o u n t r i e s (232) With regard to the individual Nordic countries, the value and volume of each bathtub market is as follows: Sweden: [40 000 to 50 000]* pieces and EUR [9 to 10]* million; Finland: [3 500 to 4 500]* pieces and EUR [< 1]* million; Denmark: [10 000 to 15 000]* pieces and EUR [2 to 3]* million; and Norway: [15 000 to 20 000]* pieces and EUR [3 to 4]* million (31). Based on these figures, it can be seen that Sweden is by far the most important country for the sale of bathtubs in the Nordic area. (233) The market shares of the parties and their main competitors are shown in Table 12 for Sweden, Finland, Denmark and Norway. (30) [ ]*. (31) [ ]* that [the bathtub]* market will therefore not be assessed separately in this context. 22. 11. 2000 EN Official Journal of the European Communities L 294/35 Table 12 Market shares of producers of bathtubs in individual Nordic countries Sweden Finland Denmark Norway Sanitec Sphinx Volume Value Volume Value Volume Value Volume Value [< 40 %] * [< 40 %] * [< 40 %] * [< 50 %] * [< 30 %] * [< 20 %] * [< 50 %] * [< 40 %] * [< 40 %] * [< 40 %] * [< 40 %] * [< 30 %] * [< 10 %] * [< 15 %] * [< 15 %] * [< 15 %] * Total [< 80 %] * [< 80 %] * [< 70 %] * [< 70 %] * [< 40 %] * [< 30 %] * [< 60 %] * [< 60 %] * Metaliberica Bette Merloni VVS Marketing Aqua Novitek Svedbergs Kaldewei < 3,0 % [< 30 %] * < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % [< 15 %] * [< 10 %] * < 3,0 % [< 15 %] * [< 10 %] * < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % < 3,0 % in all (234) Today, Sanitec and Sphinx are the largest and the second largest bathtub suppliers the Nordic countries. With the exception of Denmark, the parties’ combined market shares would range between [< 60 %]* and almost the markets. The market positions of the main competitors are very fragmented with typically only one player of a reasonable size. The largest competitor in Sweden and Finland is parties’ Svedbergs, is Bette and in Norway Metaliberica. in Denmark it [< 90 %]* of (235) In by fact, Sanitec. unexplained in Denmark. is to be noted that the market shares based on It the Sanitec’s estimates leave more than [< 50 %]* of market the Commission considers that the actual market share of the parties should be considered to be higher than estimated the Commission’s investigations show that neither Kaldewei nor Svedbergs supply bathtubs in Denmark. Moreover, none of the the largest wholesalers in customers, who represent Denmark, have indicated that they purchase bathtubs from Metaliberica the Commission estimates that the parties’ combined market share in Denmark should be considered at to exceed [< 60 %]*. or Merloni. Therefore, Indeed, least (236) Similarly, Sanitec has allocated almost [< 30 %]* of the market in Norway to Metaliberica. However, none of customers who replied to the Commission’s the enquiries have indicated that they buy bathtubs from Metaliberica. Therefore, the Commission does not exclude the possibility that also in Norway the market share of the parties would in fact be higher than that estimated by Sanitec. (ii) T h e N o r d i c a r e a (237) With regard to the overall Nordic area, Sanitec has estimated that the total value of the market in 1998 was EUR [10 to 20]* million, corresponding to [80 000 to 90 000]* pieces. (238) The market shares of the parties and their main competitors are shown in Table 13. L 294/36 EN Official Journal of the European Communities 22. 11. 2000 Table 13 Market shares of producers of bathtubs in the Nordic area (240) On the basis of the foregoing, and in line with the the Commission analysis of ceramic sanitary ware, considers that barriers to entry into the Nordic market are high. Nordic area Volume Value [< 40 %] * [< 40 %] * [< 30 %] * [< 30 %] * Total [< 70 %] * [< 70 %] * Sanitec Sphinx Metaliberica Bette Merloni VVS Marketing Aqua Novitek [< 10 %] * [< 10 %] * [< 5 %] * < 3,0 % < 1,0 % (c) Absence of buying power (241) On the basis of the investigation, customers in the bathtub market are the same as in ceramic sanitary ware. Therefore, in line with the analysis conducted on buying power in ceramic sanitary ware (see recitals 220 to 225), that customers for bathtubs have sufficient buying power to offset the parties resulting from the operation. the Commission does not consider the dominant position of (d) Conclusion on bathtubs Sanitec and Sphinx are by far the largest bathtub suppliers in the overall Nordic area with a combined market position of more than [< 70 %]*. The market shares very are the third largest fragmented. Metaliberica, which is player on the market, has a market share of [< 10 %]*, Bette has [< 10 %]*, Merloni [< 5 %]* and the remaining competitors less than [< 5 %]* of the market. competitors remaining the of (242) On the basis of the foregoing, the Commission considers that the proposed operation would lead to the creation of a dominant position in bathtubs in the individual Nordic countries or, alternatively, in the overall Nordic area as a whole. 3. Shower screens (a) Actual competition (b) Market entry (i) T h e i n d i v i d u a l N o r d i c c o u n t r i e s (239) The Commission’s investigation shows that the parties’ brands in the Nordic bathtub market have an important position in the Nordic countries and that brand loyalty among customers is as strong as in ceramic sanitary ware. Moreover, given that the parties are the only large and powerful suppliers with a broad range of bathroom products and that most competitors in bathtubs are the Commission considers specialised manufacturers, that entry into the Nordic bathtub market for those competitors is particularly difficult. Unlike full-range suppliers Sanitec and Sphinx, those companies are not able to establish and further strengthen their position on the bathtub market with the support of other products. is as follows: Sweden: (243) With regard to the individual Nordic countries, Sanitec has estimated that the value and volume of each shower [100 000 to screen market 150 000]* pieces and EUR [20 to 30]* million; Finland: [30 000 to 40 000]* pieces and EUR [5 to 10]* million; Denmark: [40 000 to 50 000]* pieces and EUR [5 to 10]* million; and Norway: [90 000 to 100 000]* pieces and EUR [20 to 30]* million (32). The market shares of the market participants are indicated in Table 14. (32) [ ]* that [the shower screen]* market will therefore not be assessed separately in this context. 22. 11. 2000 EN Official Journal of the European Communities L 294/37 Market shares of producers of shower screens in individual Nordic countries Table 14 Sweden Finland Denmark Norway Volume Value Volume Value Volume Value Volume Value [< 30 %] * [< 30 %] * [< 20 %] * [< 20 %] * [< 20 %] * [< 20 %] * [< 80 %] * [< 70 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 5 %] * [< 10 %] * [< 10 %] * [< 20 %] * Total [< 30 %] * [< 30 %] * [< 20 %] * [< 20 %] * [< 30 %] * [< 30 %] * [< 90 %] * [< 90 %] * [< 15 %] * [< 20 %] * [< 10 %] * [< 10 %] * < 3,0 % [< 15 %] * [< 10 %] * < 3,0 % < 3,0 % [< 30 %] * [< 30 %] * [< 20 %] * [< 10 %] * [< 10 %] * [< 10 %] [< 5 %] * [< 10 %] * < 3,0 % [< 5 %] * < 3,0 % Sanitec Sphinx Svedbergs Makro Combac Kesko/Gent Sanka Flair Hüppe Geo (244) As can be seen from Table 14, the parties would achieve a combined market position of some [< 90 %]* in Norway. In the other Nordic countries, the parties’ combined market shares would be between some [< 20 %]* and [< 30 %]*. Despite a more limited presence in Sweden and in Denmark, the parties would remain the market leader in those countries, too. (ii) T h e N o r d i c a r e a (245) Sanitec has estimated that the total Nordic market for shower screens in 1998 was in the region of EUR [60 to 70]* million, corresponding to some [200 000 to 300 000]* pieces. The market shares of the parties and those of their competitors are given in Table 15. Table 15 Market shares of producers of shower screens in the Nordic area Nordic area Volume Value [< 40 %] * [< 40 %] * [< 5 %] * [< 10 %] * Total [< 50 %] * [< 50 %] * Sanitec Sphinx Nordic area Volume Value [< 15 %] * [< 10 %] * [< 10 %] * [< 10 %] * [< 10 %] * [< 10 %] * < 3,0 % < 3,0 % < 3,0 % Gent Makro Svedbergs Combac Flair Sanka Geo VVS Marketing Hüppe (246) Following the operation, the parties would achieve a combined market share of some [< 50 %]*, both in terms of volume and value, in the overall Nordic area. According to the information submitted by Sanitec, Gent accounts the Nordic market [< 15 %]* of whereas Makro and Svedbergs each have [< 10 %]* of the market. Combac for [< 10 %]* of the market. The remaining competitors are very fragmented. each account and Flair for L 294/38 EN Official Journal of the European Communities 22. 11. 2000 (b) Effects on competition (247) With regard to shower screens, as indicated in Table 14, Sanitec is at present market leader and dominant in the Norwegian market with a market share of [< 70 %]*. The second competitor there is Sphinx with a share of [< 20 %]*. Thus, the parties would achieve a combined market [< 90 %]*, which the Commission considers to be a strengthening of Sanitec’s dominant position for the same reasons as set out for ceramic sanitary ware (see recitals 227 to 231). share of (248) With regard to the overall Nordic area, the Commission considers that the proposed concentration could lead to the creation of a dominant position on the market in shower screens at Nordic level. Given the parties’ very strong position in ceramic sanitary ware in the Nordic countries and the fact that the parties are virtually the only full-range suppliers in that area, this could give them the possibility of further increasing their sales of shower screens. The parties could use their high profit margins in ceramic sanitary ware and bathtubs to set the prices for shower screens at a considerably lower the level than competitors. This would squeeze competitors and, eventually, drive them out of this market. (c) Conclusion on shower screens (249) On the basis of the foregoing, the Commission considers that the notified operation would lead to the strengthening of a dominant position in Norway or, alternatively, to the creation of a dominant position in the overall Nordic area in the market shower screens. for 4. Overall conclusion on the Nordic area the that conclusion transaction notified common market (250) For all the above reasons, the Commission has come to is the incompatible with the and the functioning of the EEA Agreement, since it would lead to the strengthening of a dominant position, as a result of which effective competition would be significantly impeded within the common market within the meaning of Article 2(3) of the Merger Regulation, in the in the ceramic sanitary ware market or, alternatively, markets for WCs, WC cisterns and washbasins in the Nordic countries or, alternatively, in Denmark, Finland, Iceland, Norway and Sweden. (251) The operation would further lead to the creation of a dominant position as a result of which effective competition would be significantly impeded in the market countries or, alternatively, in Denmark, Finland, Norway and Sweden. in the Nordic for bathtubs Finally, the operation would lead to the strengthening of a dominant position in the market for shower screens in Norway or, alternatively, lead to the creation of a dominant position in the market for shower screens in the overall Nordic area, as a result of which effective competition would be significantly impeded in this part of the EEA. VII. COMMITMENTS PROPOSED BY SANITEC (252) In order to resolve the competitive concerns raised by the Commission with respect to the Nordic countries and under the precondition that the conditions set out in Sanitec’s offer document dated 17 June 1999 regarding Sphinx are fulfilled, Sanitec has, by letter of 26 October 1999, offered to enter into the following commitments. A. DIVESTMENT OF THE GUSTAVSBERG BATHROOM PRODUCTS BUSINESS 1. Sanitec will divest the entire Gustavsberg bathroom products business of Sphinx in Sweden, Denmark, Finland, Norway, Iceland, Russia and the Baltic States which comprises: (i) the ceramic sanitary ware production company Gustavsberg VVS AB in Gustavsberg, Sweden; (ii) the taps and mixers company Gustavsberg Vårgårda Armatur AB (the Companyí) in Vårgårda, Sweden (subject to the conditions stipulated in point 4); (iii) the sales companies Gustavsbergs Försäljnings AB in Gustavsberg, Sweden; Gustavsberg VVS A/S in Rłdovre, Denmark; Oy Gustavsberg Ab in Helsinki, sales companies in Estonia and Lithuania as well as the sales offices in Latvia, Ukraine and Russia); the branch office of Gustavsberg VVS AB in Oslo, Norway; distributorship the agreement concerning Iceland; Finland (including and the (iv) the Gustavsbergí brand name worldwide for any and all products; and (v) all other assets and liabilities that form part of the Business (as defined in point 5). 2. Sanitec to the offer undertakes prospective purchaser the possibility of enteing into any subcontracting agreement presently concluded for the production of bathtubs sold by Sphinx under the brand name Gustavsbergí, to the approval of the respective subcontractor. [ ]*. subject 22. 11. 2000 EN Official Journal of the European Communities L 294/39 3. Sanitec to the enteing offer prospective undertakes a of into posibility the purchaser subcontracting agreement according to which Sanitec shall continue to supply to the prospective purchaser shower screens/enclosures/cubicles sold by Sphinx under the brand name Gustavsbergí as part of the Business [ ]*. 4. Sanitec undertakes prospective purchaser the possibility of acquiring the Company within the time limit set out in point 9. [ ]*. offer the to 5. The undertakings referred to in points 1 to 4 are referred to in the following as áthe Businessí to be divested. as for that least favourable competition as 6. Sanitec undertakes to divest the Business as a single undertaking and shall pursue this alternative in the first place. However, this shall not preclude, subject to the Commission’s explicit approval, the Business may be divested as two or more business units provided that Sanitec has shown to the Commission that such divestments would be viable separately or together with the other activities of the purchaser and that such divestments would be at a divestment of the Business as a single undertaking. In this context, a business unit refers to ceramic sanitary ware (and, if requested by the prospective and mixers), purchaser, shower screens/enclosures/cubicles, and bathtubs, respectively. Furthermore, the Business shall be divested as a going concern and, as such, shall include facilities, particular in in equipment, machinery, process and finished products as well as any rights concerning trade marks, patents, inventions, business secrets, technology, know-how, design and intellectual property of the respective products of the Business. its inventories, together with present goods taps 7. Moreover, in order to enhance its commercial viability to prospective purchasers, the divestiture of extent permitted by law or contract, the following, unless not required by the purchaser: the Business include, to the shall (i) the transfer of relevant sales staff currently engaged in the Business; circumstances where the purchaser cannot the reasonably technical matters himself or through resources existing within the Business; to manage expected be (iv) Sanitec’s best efforts to ensure that production capacity and selling activities are maintained, pursuant to good business practices, at their current level and that all contracts necessary to preserve the Business are entered into or continued in accordance with their terms, consistent with past practice and the ordinary course of business; and (v) Sanitec’s best efforts to procure the assignment to the prospective purchaser of other existing commercial arrangements (covering current supply agreements, sales contracts or business subcontracting and with customers, current distributorship agreements as well as other contracts entered into in the regular course of business in this respect). 8. Furthermore, with respect to the staff of the Business, Sanitec shall, prior to completion of the sale of the Business to a purchaser, not hire or from the employ current management or staff Business. B. TIMING 9. In the event that the sale of the Business has not the been completed by Sanitec within [ ]* of Commission’s Decision, Sanitec undertakes to give the Trustee, referred to in point 15, an irrevocable mandate to find a valid purchaser for the Business and to complete the divestment of the Business within [ ]* thereafter. The latter period can be prolonged by another [ ]* by the Commission on reasonable grounds upon application from Sanitec. In the event that the Trustee has not been able to divest of the Business within the first [ ]*, or alternatively within the second [ ]* provided that such a prolongation has been granted by the Commission, the Business [ ]*. Such divestiture shall take place prior to the end of the first [ ]* period, or, alternatively, within the second [ ]* period provided that such a prolongation has been granted by the Commission. (ii) transfer of production and administrative personnel the dedicated currently production facility of the Business; to C. THE PURCHASER (iii) the provision of manufacturing the production facility of technical assistance at the Business, for a period of not more than 12 months from the date of the sale. However, shall only be granted in such assistance 10. The prospective purchaser referred to in points 2, 3, 4, 6, 7, 8 and 9 shall be a viable existing or prospective and unconnected to Sanitec, possessing the financial resources and proven expertise in the field of bathroom products enabling it to maintain and develop the Business as an active competitive force independent competitor of L 294/40 EN Official Journal of the European Communities 22. 11. 2000 in competition to Sanitec’s remaining business on the various markets concerned. indicate to the Commission whether 11. Sanitec, within the period of time set out in the first sentence of point 9 or, thereafter, the Trustee, shall it believes that a purchaser with which it is proposed to sign a letter of intent or a contract fulfils the description of a valid purchaser set out in point 10, and if it considers that negotiations with such a purchaser should continue. In doing so, Sanitec or, alternatively, the Trustee Commission with a fully documented and reasoned proposal enabling the Commission to assess: provide shall the (i) whether the prospective purchaser satisfies the to the relevant purchaser criteria pursuant provisions of point 10; (ii) the envisaged time of completion of divestiture; and the (iii) whether the purchaser has, or reasonably can be expected to obtain, all necessary approvals from the competent regulatory bodies. the prospective purchaser and, Prior to approval, the Commission may request to meet if deemed necessary, ask for the submission of business plans for the Business. 12. If the Commission has not within 10 (ten) working days following receipt of a fully documented proposal for a prospective purchaser expressed in writing its disagreement, negotiations with such party as a valid purchaser shall be free to proceed. In the case that the Commission has to request additional such information shall constitute the starting point for the 10 (ten) working days referred to above. information, receipt the of and distinct from that of Sanitec’s management that shall, under the guidance and control of the Trustee, be under instructions to manage it on an independent basis in order to ensure its continued viability, its market value and its independence from Sanitec. In addition, Sanitec undertakes that it shall make no structural changes to the Business without prior Commission approval. after it than 10 (ten) working days 15. Sanitec undertakes that, as soon as practicable after the Commission has adopted a favourable decision under the Merger Regulation and in any event no the later shall Commission has adopted its decision, appoint an independent trustee to be approved by the Commission in accordance with point 16 to in overseeing the ongoing act on its behalf management of its the Business, continued viability and market value and, provided Sanitec does not itself manage to sell the Business to a valid purchaser as defined in point 10 within the period of time set out in point 9, its rapid and effective divestiture from the rest of Sanitec’s activities (hereafter referred to as áthe Trusteeí). to ensure 16. Sanitec’s proposal of be shall the appointment of by approved the the deemed Trustee Commission, if the Commission has not within 10 (ten) working days following receipt of a fully documented and reasoned request rejected in writing any proposal submitted to it for approval. The Trustee must be an investment bank or similar institution, such as an auditing institution, having a proven expertise. 17. Together with Sanitec’s request for approval of a proposed Trustee, Sanitec shall submit a proposed draft mandate setting forth in detail the scope of the mandate of the Trustee and the responsibilities to be performed under the mandate. Once the mandate has been concluded, Sanitec shall not make any changes to such mandate without the Commission’s approval. 13. Provided the offers concerned have been received from purchasers recognised as valid according to the procedure laid down in point 10, Sanitec alone shall be free to accept any offer or to select the offer it considers best in case the of a plurality of offers. 18. D. IMPLEMENTATION 14. Prior to and until completion of the sale of the Business, Sanitec undertakes to ensure that the Business is held separate and managed as a distinct and saleable entity with its own management accounts. Sanitec the Business shall have its own management, separate further undertakes that In adddition to the tasks mentioned above, Trustee’s mandate shall responsibilities: include the following the (i) (ii) the to monitor Sanitec the of according to the undertaking; satisfactory discharge by into obligations entered to provide every two months (or at the request of the Commission at such other reasonable times in the event of significant developments in the divestment process) written reports to the Commission on the progress of the discharge of the mandate, containing sufficient information to enable the Commission to assess all relevant developments in Sanitec’s 22. 11. 2000 EN Official Journal of the European Communities L 294/41 negotiations in relation to the divestment of the Business and the time frame within which is expected. Such supporting an agreement documentation shall include a report by the management of the Business on its ongoing commercial operations; (iii) to provide, in the event that the Trustee is to carry out the divestiture of the Business, the Commission with sufficient information on the prospective purchaser as described in point 10; that thus ensure (254) The proposed divestments cover the entire Gustavsberg a and will bathroom business competitive alternative to Sanitec exists in the Nordic countries. Moreover, the divestments will remove the entire overlap of Sanitec and Sphinx in the Nordic countries, except for de minimis sales of ceramic sanitary ware sold under the brands Sphinx and Warneton. Given that these sales represent a market share of less than [< 10 %]* in the overall Nordic area, they are considered to be insignificant and would thus not lead to a strengthening of Sanitec’s dominant position for ceramic sanitary ware in any of the Nordic countries. (iv) to manage the pending Business, the divestiture, on an independent basis in order to ensure its continued viability, market value and independence from Sanitec. In this respect, the Trustee shall: - in consultation with Sanitec determine the best management structure to ensure the viability and marketability of the assets or businesses to be divested, - monitor that Sanitec maintains the viability and marketability of the assests and/or business to be divested in accordance with this undertaking, - monitor that no competitively sensitive information concerning the assets or the businesses to be divested is disclosed to Sanitec for any other purpose than to allow Sanitec to prepare for the divestiture, and - independently exercise rights in the best interest of the Business. Sanitec’s voting for supplies and mixers to taps and mixers, (255) The divestments will include the ceramic sanitary ware production plant in Gustavsberg, Sweden, from where its sales in the Nordic Sphinx presently sources all countries. With a capacity of [ ]* pieces and a utilisation rate of [ ]*, the plant is considered as a viable source of the Nordic countries. Furthermore, the divested business will also include the taps company Gustavsberg Vårgårda Armatur AB. Although the notified operation has not given rise to any separate competition concerns with respect several customers and competitors in their responses to the Commission’s enquiries concerning the commitments indicated that also the taps and mixers business of Gustavsberg should the company. Following be included in the sale of further investigations, it became clear that the viability of Gustavsberg would be significantly improved if the acquirer of Gustavsberg was able to offer the full range the reaction of bathroom products. On the basis of from the market, the Commission therefore considers it important for the viability of the divested business that the purchaser will have the possibility of acquiring this business, should he so wish. 19. Sanitec shall provide the Trustee with all assistance including copies of all relevant and information, documents, as the Trustee may reasonably require in order to carry out its mandate. (256) 20. A independent the and arbitrator prospective jointly proposed by Sanitec and purchaser approved of by the Commission, shall, in the case of a dispute between Sanitec and the prospective purchaser and within the time limits set out in point 9, decide [ ]*. the sales close companies importance of In addition, given the and continuous customer relationships and knowledge of the form an respective markets, important part of the divested business. Currently, the sales companies employ some 130 people in the Nordic area. Furthermore, the divestment of the brand name Gustavsberg worldwide for any and all products is crucial in a market where established brand names are very important. The Commission’s market investigation has clearly confirmed that Gustavsberg is a significant brand in the Nordic markets. VIII. ASSESSMENT OF THE COMMITMENTS (253) The Commission is satisfied that the commitments proposed by Sanitec are such as to prevent the creation or strengthening of a dominant position for ceramic sanitary ware, bathtubs and shower in the Nordic countries. screens (257) [ ]*. (258) On the basis of the foregoing, the commitments will contribute to the maintenance of competitive conditions for the sale of ceramic sanitary ware, bathtubs and shower screens in the Nordic area. Given that Sphinx, through Gustavsberg, is present in all Nordic countries, customers will have an additional independent source of supply which will offer a range of products similar to the ones offered by Sanitec. L 294/42 EN Official Journal of the European Communities 22. 11. 2000 (259) Finally, the terms and conditions for the divestitures, which are consistent with the Commission’s practice, are considered adequate. IX. CONCLUSION (260) the foregoing, In light of the notified concentration should be declared compatible with the common market and the functioning of the EEA Agreement, subject to the condition of full compliance with the commitments given by Sanitec to the Commission, as set out in Section VII of this Decision, HAS ADOPTED THIS DECISION: Aandelen NV Koninklijke Sphinx Gustavsberg and all the in NV Koninklijke depositary receipts of ordinary shares Sphinx Gustavsberg, is declared compatible with the common market and the functioning of the EEA Agreement, subject to the condition of full compliance with the commitments given by Sanitec to the Commission, as set out in Section VII of this Decision. Article 2 This Decision is addressed to: Sanitec Ltd Oyj Abp PO Box 447 FIN-00101 Helsinki John Stenbergin ranta 2 FIN-00530 Helsinki Article 1 Done at Brussels, 1 December 1999. The concentration notified by Sanitec Ltd Oyj Abp on 1 July 1999, relating to the public offer for all outstanding ordinary Stichting Administratiekantoor shares not held by the For the Commission Mario MONTI Member of the Commission