Gateway Velocity Holding Corporation (Gateway), USA — Combination C-2023/01/997

Notice under Section 6(2) of the Competition Act, 2002 filed by Gateway Velocity Holding Corp.

CORAM:

Ms. Sangeeta Verma Acting Chairperson

Mr. Bhagwant Singh Bishnoi Member

Order under Section 31(1) of the Competition Act, 2002

1. On 13.01.2023, the Competition Commission of India (Commission) received a notice under sub-section (2) of Section 6 of the Competition Act, 2002 (Act) filed by Gateway Velocity Holding Corp. (Acquirer). The notice has been filed pursuant to an Equity Purchase Agreement (EPA) dated 31.07.2022. In addition to the EPA, the Seller, Acquirer, and AOC have executed a Side Disclosure Letter (SDL) dated 31.07.2022.

2. The proposed combination concerns the acquisition by the Acquirer of 100% of the issued and outstanding share capital and sole control of VGP Holdings LLC (VGP/ Target) from Valvoline Inc. (Valvoline/Seller) (Proposed Combination) (Hereinafter, Acquirer and Target are collectively referred to as the Parties).

3. In terms of Regulation 14 of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations), the Commission, vide communication dated 27.01.2023,

Combination Registration No. C-2023/01/997 sought certain information(s)/clarification(s), inter alia, relating to the activities of the Parties; the response to the same was received on 01.02.2023. Further, the Acquirer provided certain information(s) through the submission dated 20.02.2023.

4. The Acquirer is a newly formed Delaware, US Corporation and a wholly owned subsidiary of Aramco Overseas Company B.V. (AOC), which is a company organised under the laws of the Netherlands. It is a special purpose vehicle established for the purposes of the Proposed Combination.

5. AOC is a wholly owned subsidiary of the Saudi Arabian Oil Company (Saudi Aramco). It is primarily engaged in prospecting, exploring, drilling, and extracting hydrocarbon substances and processing, manufacturing, refining, and marketing these substances. AOC is a company operating primarily in Europe, North America, Asia, and Africa, providing its affiliates with a wide range of services, including finance support, supply chain management, technical support services, and a variety of administrative support services.

6. Saudi Aramco is a joint stock company established by Royal Decree No. M/8 of Saudi Arabia. In India, Saudi Aramco (through its affiliates) is primarily engaged in the marketing and selling of hydrocarbons and derivatives (including polyethylene, polypropylene, resins, lubricants, and base oils). Further, there are certain affiliates of Saudi Aramco that are active (at the global level) in one or more of the product areas that are relevant to the proposed transaction in India, i.e., lubricants, coolants, base oils, urea, or AdBlue, i.e., (i) Hyundai Oilbank Co., Ltd. (HDO) (active in lubricants, coolants, base oils, and urea); (ii) Gulf Petrochemical Industries Company (GPIC), (active in urea); and (iii) Clariant AG ( active in lubricants, coolants, and base oils).

7. The Target is indirectly owned and controlled by the Seller and will own the Seller‟s Global Products Business. It is stated that the Global Products Business sells Valvoline and other branded and private label engine and automotive preventive maintenance products in more than 140 countries and territories to mass market and automotive parts retailers, installers, and commercial customers, including distributors and Combination Registration No. C-2023/01/997 licensees, as well as OEMs. It is submitted that the Target has one wholly owned subsidiary in India (Valvoline Lubricants & Solutions India Private Limited) and a 50/50 JV with Cummins (Valvoline Cummins Private Limited/VCPL). The Target primarily sells automotive and industrial lubricants (including engine oils, transmission fluids, gear oils, brake fluids, greases, metal working fluids, rust preventive oils, and hydraulic oils), coolants, AdBlue (diesel exhaust fluid), and, to a very limited extent, certain manufacturing components (base oils and additives) in India.

Identification of the Overlaps

Horizontal Overlaps 8. The Acquirer has submitted that both Saudi Aramco (including its affiliates) and the Target (including its affiliates) are active worldwide in the lubricants and coolants sectors. In India, the activities of Saudi Aramco (including its affiliates) and the Target (including its affiliates) only overlap in the lubricants sector. There is no overlap in the coolants sector in India. However, Saudi Aramco cannot exclude that HDO or Clariant AG had sales of coolants (worldwide and/or in India).

9. It is stated in the notice that the market for lubricants may be further segmented based on the end-use of lubricants, as lubricants can be used in (i) automotive vehicles („automotive lubricants‟); (ii) ships („marine lubricants'); (iii) jet engines („aviation lubricants‟); and (iv) industrial applications („industrial lubricants‟), of which, the Parties overlap in the sale of automotive lubricants in India. Accordingly, it is submitted that Saudi Aramco (including its affiliates) and the Target (including its affiliates) exhibit overlap in the “market for the manufacture and sale of lubricants in India” or, alternatively, in the “narrower segment for manufacture and sale of automotive lubricants in India”. Further, based on the submissions of the Acquirer, it appears that the activities of the Acquirer (through HDO and Clariant AG) and Target also exhibit a horizontal overlap in the coolants market, and for a competitive assessment of the same, the relevant market may be considered as the „market for manufacture and sale of coolants in India‟.

Combination Registration No. C-2023/01/997

10. Further, with respect to the market for base oils, in which Saudi Aramco, through its affiliates, including HDO through its JV Hyundai Shell Base Oil and Clariant AG and the Target, appear to be active in, the Acquirer has submitted that, while technically, both Saudi Aramco (including its affiliates) and the Target (including its affiliates) are active in the market for base oils, there is no horizontal overlap between the Parties in relation to this market in India, as the Target sells base oils to a very limited extent in India. However, these are insignificant intra-group sales from VGP to VCPL. VGP does not sell these products to third parties in India or elsewhere in the world.

Vertical Relationship 11. The Acquirer has submitted that Saudi Aramco (including its affiliates) supplied certain products such as base oil and urea to the Target (including its affiliates) in India for manufacturing lubricants and AdBlue, respectively.

12. Accordingly, with respect to the vertical relationship between Parties arising from base oil and lubricants, the upstream relevant product market is identified as the “overall market for base oils”. Further, based on the classification of base oils by the American Petroleum Institute, which classifies base oils into five groups, i.e., Group I, II, III, IV, and V, depending on specific physical characteristics, it is stated that Saudi Aramco is active in the sale of Group I, Group II, and Group III base oils in India. Accordingly, for the purposes of competition assessment, the upstream relevant market has been considered as the “market for base oils in India” segmented into “markets for Group I, Group II and Group III base oils in India”. Further, the downstream relevant market has been considered as the “market for manufacture and sale of lubricants in India”.

13. Further, with respect to the vertical relationship between Parties arising from urea and AdBlue (also known as diesel exhaust fluid) in India, the Parties have submitted that the upstream relevant market is the „market for urea in India‟. Further, the downstream relevant market is defined as the “market for manufacture and sale of diesel exhaust fluid in India”.

Combination Registration No. C-2023/01/997

14. In addition, the Acquirer has submitted in the notice that ethylene glycols are used as an input for the production of coolants. Therefore, there could be a potential vertical relationship between Saudi Aramco and Target in relation to ethylene glycols (at upstream level) and coolants (at downstream level), respectively. Accordingly, for the purposes of competition assessment, the upstream relevant market has been considered as the “market for ethylene glycol in India” and the downstream relevant market has been considered as the “market for manufacture and sale of coolants in India”.

15. The Commission decided to assess the Proposed Combination in the segments identified by the Parties. However, the exact delineation of the relevant market is left open, as the material available on record does not suggest that the Proposed Combination is likely to cause any competition concern in India.

Assessment of the Proposed Combination 16. Based on the submissions of the Acquirer, it is noted that, in 2021, the market share of the Parties (including their affiliates) in the market for the manufacture and sale of lubricants in India as well as the narrower segment for the manufacture and sale of automotive lubricants in India was in the range of [0-5]% both by value and volume. Further, there are other players in these markets, such as Hindustan Petroleum Corporation Limited, Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, and BP plc, which will continue to exert a competitive constraint on Saudi Aramco following the Proposed Combination.

17. Further, the Acquirer has submitted in the notice that, in 2021, the estimated market share for each of HDO and Clariant in the market for manufacture and sale of coolants in India was in the range of [0-5]% and that of the Target in India was also in the range of [0-5]% in 2021 on a volume basis. Further, there are other players in the market for coolants in India, such as S-CCI India Private Limited, Arteco Coolants, Castrol, Brakes India, and Indian Oil Corporation Ltd.

Combination Registration No. C-2023/01/997

18. Based on the submissions of the Acquirer, it is noted that, in 2021, the market share of Saudi Aramco (including its affiliates) in the upstream market for base oils in India was in the range of [25-30]%, both by value and volume. Further, its market share in the sub-segments of Group I, II, and III base oils in India was in the range of [5-10]%, [35-40]%, and [40-45]%, respectively, in terms of volume, and [5-10]%, [30-35]%, and [30-35]%, respectively, in terms of value. Further, the upstream market for base oils in India along with narrower sub-segments is characterised by the presence of suppliers such as Hindustan Petroleum Corporation Limited, Exxon Mobil, and GS Caltex, among others. Similarly, the downstream market for lubricants in India and its narrower sub-segment also is characterised by the presence of players, which include Hindustan Petroleum Corporation Limited, Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, Apar Lubricants Ltd. and BP plc.

19. Further, based on the submissions of the Acquirer, it is noted that, in 2021, the market share of Saudi Aramco (including its affiliates) in the upstream market for urea in India was in the range of [0-5]% only, both by value and volume, and the market share of the Target (including its affiliates) in the downstream market for the manufacture and sale of diesel exhaust fluid in India was in the range of [0-5]% only, both by value and volume. Further, the upstream market for urea in India is characterised by the presence of suppliers such as National Fertilizers Ltd., Chambal Fertilisers & Chemicals Ltd., Indian Farmers Fertiliser Co-Op. Ltd., Gujarat Narmada Valley Fertilizers & Chemicals Ltd., and Kanpur Fertilizers & Chemicals Ltd. Similarly, the downstream market for diesel exhaust liquid in India is characterised by the presence of other players such as Nandan Petrochemicals, Gulf, Indian Oil, and HPC, among others.

20. With respect to the potential vertical relationship, the Acquirer has submitted that there were no actual buy-sell relationships with respect to ethylene glycols between Saudi Aramco and the Target in 2021 in India or anywhere else in the world. Based on the submissions of the Acquirer, it is noted that, in 2021, both Saudi Aramco and the Target had market share in the range of [0-5]% only in terms of volume in the upstream market for ethylene glycol and the downstream market for coolants in India,

Combination Registration No. C-2023/01/997 respectively. Further, there are other players in the upstream market for ethylene glycol, such as Reliance, Equate, Indian Oil Corporation Ltd. and India Glycols Ltd., among others. Similarly, the downstream market for coolants in India is characterized by the presence of other players such as S-CCI India Private Limited, Arteco Coolants, Castrol, Brakes India, and Indian Oil Corporation Ltd.

21. Considering the material on record, including details provided in the notice given under Section 6(2) of the Act and assessment of the combination based on the factors stated in Section 20(4) of the Act, the Commission is of the opinion that the Proposed Combination is not likely to have any appreciable adverse effect on competition in India in any of the relevant market(s), and therefore, the Commission approves the same under Section 31(1) of the Act.

22. This order may stand revoked if, at any time, the information provided by the Acquirer is found to be incorrect.

23. The information provided by the Acquirer shall be treated as confidential in terms of and subject to provisions of Section 57 of the Act.

24. The Secretary is directed to communicate to the Acquirer accordingly.