IP/00/424
Brussels, 3 May 2000
Commission clears merger between Alcoa and
Reynolds Metals, under conditions
The European Commission has decided to authorise a merger between U.S.
aluminium producers Alcoa and Reynolds subject to undertakings submitted
by the companies. The merger, which will create the largest integrated
aluminium producer worldwide, would have resulted in dominant positions in
three product markets : smelter-grade alumina (SGA), commodity alumina
hydrate and high purity P0404 aluminium. But Alcoa proposed significant
divestments aimed at restoring the competitive conditions prevailing before
the merger therefore ensuring healthy competition and protecting
consumers’ interests.
United States-based Alcoa is the largest aluminium producer worldwide, with
interests in all aspects of the aluminium industry (bauxite mining, alumina refining,
aluminium smelting, manufacturing and recycling as well as research and
technology). It has operations in North America, Brazil, Australia, Japan, China and
the European Union.
ReynoldsMetals isalso a US corporation involved in the same markets as Alcoa and
with operations in various parts of the world.
During an in-depth investigation, the Commission identified competition concerns in
relation to the merchant market for smelter-grade alumina (SGA), ie sales of surplus
alumina to third parties commodity alumina hydrate and high purity P0404
aluminium.
- Smelter-grade alumina (SGA) is the raw material used by smelters to produce
aluminium metal. The merging parties’ combined assets (alumina refineries) and
global production capacity would give them an outstanding position as the
largest supplier of SGA to competing smelters. Moreover, the merger would
bring under the control of the merged firm the lowest-cost refineries in the world,
those located in the Darling Range, a geographic area in Australia. Combining
the refineries which were already in the portfolio of the merging companies with
the lowest-cost refineries would have resulted in the merged firm being capable
of controlling the entry andfuture development of competitors in this market.
This means Alcoa/Reynolds would be able to increase capacity or output at a
very lowcost to discourage entry or expansion by competitors at times when
alumina prices are high.
In order to address these concerns Alcoa proposed to divest Reynolds’ share in
one of the Darling Range refineries, namely the Worsley refinery. This was the
only Darling Range asset that Reynolds would have contributed to the merged
firm. Therefore, its divestiture removes the competitive overlap. In addition, Alcoa
offered to divest Reynolds’50-percent stake in Aluminium Oxid StadeGmbH, a
German alumina refinery controlled jointly with VAW.
Although this undertaking is meant to address competition concerns in relation to
commodity alumina hydrate, it also reduces further the combined market share of
the merged firm in the SGA market.
- In relation to commodity alumina hydrate (used as a raw material for the
production of detergents as well as in the purification of water), the merger
would have created the largest producer in the European Economic Area – the
15 EU states plus Norway and Liechtenstein. The Commission’s analysis
concluded that this would have created a dominant position in the EEA market.
The merging firms have, in consequence, offered to divest Reynolds’
overlapping activity in the EEA, namely its Stade stake. The removal of the
competitive overlap eliminates the dominant position that would otherwise have
been created in the commodityalumina hydrate market in the EEA.
- In relation to P0404 high purity aluminium, the merged would have created a
vertical relationship conducive to vertical foreclosure of a downstream
competitor. P0404 is a particular grade of primary aluminium metal, used in the
manufacture of aerospace aluminium alloys. Alcoa is a producer of such alloys
whereas Reynolds is the outstanding producer of P0404 and a supplier to
Alcoa’s only competitor in the aerospace alloys market, namely McCook Metals.
As a resultof the merger and given the absence of any ready reply by other
smelters to commit to the production of P0404 for McCook’s needs, McCook run
the risk of losing its supplies of P0404 raw material and, therefore, could have
been shut out from the downstream aerospace alloys market.
To address this concern, Alcoa offered part of a smelter that currently produces
P0404 to a third independent party. This will enable the acquiring party to supply
P0404 in quantities enough to cover a potential growth in the demand for
aerospace alloys.
After consultation with interested third parties in the industry and the competition
authorities of the Member States, the Commission concluded that the undertakings
were sufficient to prevent the merger from creating dominant positions in the relevant
markets of concern. Consequently, subject to the fulfilment of the conditions
contained in the proposed undertakings, the Commission has decided to declare the
proposed merger compatible with the common market and the EEA agreement.
“I’m pleased that the companies were able to address our concerns by offering
significant divestments which will ensure strong competition remains to the benefit of
industrial users and ultimately the consumers”, European Competition Commissioner
Mario Monti said.
Some of the commitments were submitted to the Commission at a late stage but
were nevertheless accepted as they obviously solved the concerns raised without
requiring any further market testing.
As with previous global mergers, the Commission cooperated closely with the
Antitrust Division of the US Department of Justice in the review of the
Alcoa/Reynolds deal thanks to the bilateral antitrust agreement of 1991 between the
two competition authorities. The Commission also cooperated with the antitrust
authorities of Canada and Australia.
2