The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of BASF Colors & Effects by the DIC Corporation (‘DIC'). The approval is conditional on full compliance with a commitments package offered by DIC.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said, “Pigments are essential inputs for many consumer products that require a coloring process, for example in the automotive and advanced plastics value chains. There are only a few alternative producers for these products and the combination of DIC and BASF Colors & Effects risked depriving customers of high-quality pigments. This merger is approved on the condition that the companies divest DIC's main manufacturing facility for pigments, thereby preserving effective competition in the market.”
The Commission's Investigation
The Commission's investigation primarily focused on perylene pigments, which constitute a chemical class of red, maroon, violet and black pigments, as well as quinacridone pigments, a chemical class of pigments with tints ranging from yellowish red to violet. Perylene and quinacridone pigments are suitable for the most complex applications, such as automotive coatings, advanced plastics applications, and some industrial applications.
The Commission had concerns that the proposed transaction, as originally notified, would have reduced competition on the market for the supply of perylene and quinacridone pigments.
In particular, the Commission's market investigation indicated that although several Asian pigments manufacturers have been gradually entering the pigment markets for many chemical classes over the last decades, it is difficult for pigment customers to switch suppliers. This was due to high qualification and reformulation costs that the pigment markets require. In addition, the Commission found that for some perylenes and quinacridone pigments, only a small number of manufacturers are considered to be suitable suppliers for customers requiring
high specification pigments.
As a result, the Commission had concerns that following the merger, those customers seeking pigments for the most complex applications would have insufficient alternatives for the supply of some color indices within perylene and quinacridones pigments.
The acquisition would therefore have likely led to higher prices, reduced choice in products and lower quality of services provided to customers.
The Proposed Remedies
To address the Commission's competition concerns, DIC offered to divest its pigment manufacturing facility, operated by its subsidiary Sun Chemical and located in Bushy Park (South Carolina, US). DIC's Bushy Park facility manufactures the large majority of DIC's perylene and quinacridone pigments.
The divestment business includes the full transfer of the plant, technology, brands, manufacturing equipment, and other intangible assets and needs to be divested to a manufacturer with proven expertise in pigment production.
The commitments fully address the Commission's concerns as they remove almost entirely the overlap between DIC's and BASF Colors & Effects' activities in the relevant pigments. The commitments ensure that the same number of suppliers will remain active on these markets and that customers continue to enjoy the same level of choice.
The Commission therefore concluded that the proposed transaction, as modified by the commitments, would no longer raise competition concerns. The decision is conditional upon full compliance with the commitments.
Source: European Commission