Steel merger under EU review

The European Commission has decided to launch an in-depth investigation into the planned merger of France’s Usinor, Aceralia of Spain and Luxembourg-based Arbed.

The European Commission has decided to launch an in-depth investigation under the ECSC Treaty into the planned merger of France’s Usinor SA, Aceralia Corporación Siderúrgica SA of Spain and Luxembourg-based Arbed SA, which would create the world’s biggest steel company.

The Commission’s initial one-month review suggests that there are serious competition concerns arising from the companies’ strong position in a number of steel markets. At the same time, the Commission has cleared the non-ECSC aspects of the case which constitute only a small part of the parties activities.

The operation consists of a merger of all the businesses of Aceralia, Arbed and Usinor. For this purpose, the companies have created a new single corporate entity temporary called Newco Steel, incorporated as a société anonyme under the laws of Luxembourg, and which will make an offer of its shares for the entire issued share capital of each of the parties.

On the successful completion of the stock exchange operations, Aceralia’s shareholders will hold approximately 20,1% of Newco, Arbed’s will hold approximately 23,4% thereof and Usinor’s shareholders will hold the remaining 56,5%.

The deal was notified for clearance both under the ECSC Treaty (Treaty establishing the European Coal and Steel Community) and the EC Merger Regulation, because the parties produce products covered by the ECSC treaty and products not falling under the jurisdiction of the ECSC Treaty.

The majority of the products for which the parties’ activities overlap fall to be investigated under the ECSC Treaty. In particular this concerns hot rolled flat steel products, cold rolled flat steel products, quarto plates, tinplate, coated sheets, and the related distribution markets.

Products falling under the EC-Merger regulation are construction sheet profiles, sandwich panels for the construction industry; tailor welded blanks and tubes. In relation to the non-ECSC products, the Commission has not identified any serious competition concerns and has therefore cleared the operation in so far as it relates to these products.

The proposed transaction will create the world’s biggest steel company with a total crude steel production of 45 million tons. In the EU, Newco would be at least twice the size of its closest competitors Corus (20 million tons) and Thyssen Krupp (18 million tons).

The Commission’s so-called first phase (one-month) review revealed that the merger would lead to particularly high market shares in the European market for hot rolled coils, cold rolled flat carbon steel products, hot dip galvanised sheets, electro-galvanised sheets, organic coated sheets, steel for packaging, constructions sheets in France and the Benelux and certain distribution markets in France and Spain/Portugal.

In most of these markets 70% of the market shares will be held by not more than three companies. Many of the customers replying to the Commission’s inquiries had reservations about the effects of the proposed concentration.

The Commission’s in-depth investigation will focus particularly on the questions of geographical market definition, the relationships between the major players in the various steel markets after the merger, the extent to which customers – particularly the automotive and packaging industry – could exert significant buyer power and the potential for steel suppliers outside Europe to meet customers’ requirements particularly in relation to quality and reliability.

The Commission now has a maximum of four months in which to conduct a further investigation before reaching a final decision. The opening of an in-depth review does not prejudge the final outcome of the case and respects the rights of the merging and other interested parties to be heard.