EU Commission Approves Acquisition of the German Chemical Company Bakelite AG by the Apollo Group

The European Commission has cleared under the EU Merger Regulation the proposed acquisition of Bakelite AG by the invesent group Apollo, subject to conditions. The Commission found that the proposed transaction could give rise to competition concerns in the fields of phenolic resins for refractory materials and reactive diluents for epoxy systems. Phenolic and epoxy resins are chemical products used in a variety of end applications, such as insulation, laminates, friction material, coatings and flooring. However, the parties have offered remedies that remove the concerns identified by the Commission.

Competition Commissioner Kroes commented “the proposed remedies address the competition concerns identified and will ensure effective competition in those markets following the merger”.

The Apollo Group controls two companies active in the sectors concerned by the transaction, namely Borden and Resolution which manufacture respectively formaldehyde resins and epoxy resin products for sale throughout the world.

Bakelite is a producer of formaldehyde resins, moulding compounds and epoxy resins. Based in Germany, it is mainly active in Europe. Prior to the transaction, Bakelite was controlled by the Rütgers group, which is part of the RAG group.

The activities of Bakelite and Borden overlap in the sector of phenolic resins (a type of formaldehyde resins), and the activities of Bakelite and Resolution overlap with respect to epoxy resins.

The market investigation carried out by the Commission into phenolic resins confirmed that Bakelite and Borden were complementary businesses in terms of both geographic sales and end-applications. The Commission found however that the proposed operation would significantly impede effective competition in the markets of phenolic resins for refractory bricks, shapes, and taphole clay (refractory materials) in the EEA. In order to remove these competition concerns, the parties offered to license a “Technology package” to their customers, who could then sublicense it to an alternative supplier. The proposed remedy will therefore help customers to turn to alternative suppliers. The Commission did not consider that the proposed operation would significantly impede effective competition in other end-applications for phenolic resins due to the parties’ complementarities and the presence of strong alternative suppliers, such as Dynea and Sumitomo.

In the field of epoxy resins, the Commission’s market investigation identified concerns regarding mono-functional aliphatic glycidyl esters (Cardura), a specific type of diluents, where the parties have strong market positions.

This raw material is an essential component of epoxy formulated systems, which are tailor made epoxy product packages for specific end uses, such as composites, surface protection and electrical laminates, where Bakelite is already a major market player. Hence, the new entity could have leveraged its market power in this market to strengthen its overall position over the whole epoxy product value chain and to foreclose Bakelite’s downstream competitors. However, the parties offered to enter into long term supply agreements with any direct customer of Cardura using it in epoxy formulated systems to secure supply and pricing conditions.

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