BASF AG/TAKEDA CHEMICAL INDUSTRIES MERGER INQUIRY

ISSUES AND REMEDIES STATEMENT

The Competition Commission has sent an issues and remedies letter to BASF AG in its inquiry into the acquisition by BASF of certain assets of Takeda Chemical Industries Ltd.

An issues letter is always sent before the Competition Commission has reached any conclusions and is designed to highlight those matters which have been identified by the investigating group for further consideration, and to ensure nothing has been missed. The statement of issues and remedies is being made public to inform all interested parties should there be any further points they wish to raise with the Competition Commission within two weeks. No conclusions have yet been reached by the Competition Commission about whether any matters operate or may be expected to operate against the public interest. Conclusions will not be reached until the issues have been discussed with BASF.

The issues the Commission intends to consider are as follows:

1. Market definition

Are the appropriate product markets those for vitamin C, vitamin B2 feed grade, and vitamin B2 food/pharmaceutical grade, or should the economic markets be more widely or more narrowly defined? Is there, for example, a separate economic market for direct compression vitamin C?
Should pre-mixes be regarded as a separate economic market from individual vitamins or simply as a delivery route for the supply of those vitamins?
What is the appropriate geographical market definition? Are there any factors that might indicate the existence of a separate UK market or should the market be defined more broadly?

2. The effects of the merger on the supply of vitamins

The public interest issues which the Commission intends to consider are as follows:-

Will the merger result in a significant decrease in competition in the UK market for the supply of vitamins or pre-mixes?
Will the merger have the effect of creating a duopoly between BASF and Hoffmann La Roche in the UK market and will it make market conditions more conducive to tacit collusion on the part of the two companies? In particular, will it lead to a reduction in price competition and product or process innovation?
Alternatively, given that the merger will enhance BASF’s portfolio of vitamins, is there likely to be an increase in competition between the suppliers of vitamins?
Will the merger increase barriers to entry or expansion in the supply of vitamins or pre-mixes? For example, will it have an impact on access to technical knowledge and patents or access to distribution systems?
With respect to pre-mix manufacture:

Will the merger enable BASF, or BASF and Hoffmann La Roche, to exclude competing pre-mix manufacturers from the market by adversely affecting the ability of competing pre-mix manufacturers to source raw materials at competitive prices?
Will the merger deter the entry of pre-mix manufacturers (or compounders or integrators) into the market?
Will there be similar effects in the market for human food pre-mixes, as well as animal feed?
Will the merger have an adverse effect on the ability of compounders or integrators to source raw vitamins or pre-mixes at competitive prices?

Will the merger enable BASF, or BASF and Hoffmann La Roche, to exclude competing vitamins traders from the market by restricting the ability of traders to obtain raw vitamins at competitive prices?
Has BASF paid more than the commercial worth of the Takeda assets? If so, does the price paid by BASF for the assets provide it with an enhanced incentive to increase prices?
What scope would there be for competitors to respond to price increases by increasing output?
Will the merger in any way affect the ability of Chinese vitamin producers to sell directly or indirectly in the UK market? Are the Chinese producers likely to provide an effective and long-term competitive discipline on the ability of BASF, or BASF and Hoffmann La Roche, to raise vitamin prices?
Should the effects of the merger be considered in the light of the pre-merger situation (ie separate BASF and Takeda vitamins businesses) or some other situation, for example Takeda and/or BASF exiting the vitamins business, either by winding down and ultimately closing existing facilities or possibly selling to another buyer?

3. Possible adverse effects on the public interest

The Competition Commission invites views on the following possible adverse effects of the merger on the public interest:-

Higher prices for raw vitamins and, eventually, for the end products;
Increased price discrimination between buyers of vitamins, in particular pre-mixers, leading to adverse effects on the structure of the premix market;
A reduction in product and process innovation.

4. Possible remedies

The Competition Commission invites views on the following possible remedies, in the hypothetical situation that the merger is found to be against the public interest:-

To require BASF:-

To divest Frank Wright Ltd (BASF’s UK pre-mix manufacturing subsidiary);
To operate Frank Wright Ltd at arm’s length from the main BASF business ie to remove any obligation to source vitamins preferentially from BASF and instead to allow Frank Wright Ltd to source from whichever supplier can offer the best deal;
To undertake that it will not seek to damage competitors in the supply of vitamins or pre-mixes through engaging in practices such as price discrimination or refusal to supply.
Not to increase vitamin prices above current levels for a given period.
To reduce prices in real terms by a given amount and for a given period.
To increase price transparency by providing list prices to all its customers.

Views are requested by 21 March, and should be addressed to the Reference Secretary, BASF/Takeda merger inquiry, at the Competition Commission.

Notes to Editors

The reference was made under the Fair Trading Act 1973 on 15 December 2000 (see DTI Press Notice P/2000/852).
Denise Kingsmill, one of the Commission’s Deputy Chairmen, is chairing the inquiry. The other members are Nicholas Garthwaite, Charles Henderson and David Parker.
Further information can be found on the Commission website at www.competition-commission.org.uk
Enquiries should be directed to: Francis Royle, Press Officer Tel: 020 7271 0242