Jointly by (i) Platin 2170. GmbH, (“Advent HoldCo”), Germany (ii) LANXESS Deutschland GmbH (“LDG”), Germany and (iii) JV HoldCo, Germany — Combination C-2022/11/990

Notice under Section 6(2) of the Competition Act, 2002 jointly given by Platin 2170 GmbH, LANXESS Deutschland GmbH and Zehnte LXS GmbH

CORAM:

Ms. Sangeeta Verma Acting Chairperson

Mr. Bhagwant Singh Bishnoi Member

Order under Section 31(1) of the Competition Act, 2002 1. On 30th November 2022, the Competition Commission of India (Commission) received a notice (Notice) under Section 6(2) of the Competition Act, 2002 (Act), jointly given by Platin 2170 GmbH (Advent HoldCo), LANXESS Deutschland GmbH (LDG), and Zehnte LXS GmbH (JV HoldCo) (collectively, Acquirers). The Notice was given pursuant to the execution of, inter alia, the Investment Agreement between Advent HoldCo., LDG, and JV HoldCo on 31st May 2022 (IA) and Shareholders Agreement between Advent HoldCo, LDG, and JV HoldCo on 31st May 2022 (SHA). Koninklijke DSM N.V., SCUR-Alpha 1503 GmbH, LDG, Al Montelena BidCo LLC (US Purchaser), and Al Montelena (Netherlands) B.V. (Dutch Purchaser) executed a Signing Protocol on 31st May 2022 (Signing Protocol). Koninklijke DSM N.V., SCUR- Alpha 1503 GmbH, LDG, US Purchaser, and Dutch Purchaser entered into a Share Purchase Agreement on 30th November 2022 (SPA). 2. The Commission, vide its communications dated 20th December 2022 and 4th January 2023 issued under Regulation 14(3) of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011, required the notifying party(ies) to remove defects in the Notice and furnish certain information relevant for the purpose of assessment of the Proposed Combination. Notifying party(ies) furnished their responses vide submissions dated 26th December 2022, 12th January 2023, and 24th January 2023.

Invalidation of Earlier Notice 3. The Proposed Combination was earlier notified to the Commission in Form I on 15th July 2022 vide Combination Registration. No. C-2022/07/955 (Earlier Notice). It was observed that the Earlier Notice contained several information gaps and deficiencies. Therefore, vide letter dated 22nd July 2022, issued under Regulation 14(3) of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations), the notifying parties were required to furnish the requisite information. The notifying parties submitted their response dated 31st August 2022. It was found that the Earlier Notice continued to remain defective and the notifying parties failed to cure them in spite of the opportunity provided by the Commission. As the Earlier Notice exhibited deficiencies and information gaps and was not in conformity with the requirements of the Combination Regulations, the Commission invalidated the Notice in terms of Regulation 14(2A) of the Combination Regulations and directed the parties to furnish a notice afresh, after curing the deficiencies. In terms of Regulation 5(5) of the Combination Regulations, the notifying parties were directed to give fresh notice in Form II. The directions of the Commission were communicated to the notifying parties vide order dated 29th September 2022. The notifying parties filed the instant notice i.e. Notice on 30th November 2022.

The Proposed Combination

4. The Proposed Combination envisages: (i) consolidation of the high performance material business of LDG (HPM Business) and the engineering materials business of Koninklijke DSM N.V. (DEM Business) under JV HoldCo; (ii) post-completion shareholdings of 58–70% and 30–42% of Advent HoldCo and LDG, respectively, in JV HoldCo; and (iii) the acquisition of joint control by Advent HoldCo and LDG over JV HoldCo (Proposed Combination). Hereinafter, DEM Business and HPM Business are collectively referred to as the Targets, and the Acquirers and the Targets are collectively referred to as the Parties and individually referred to as a Party.

5. JV HoldCo, a newly incorporated entity, is currently wholly owned by LDG. LDG is a wholly owned subsidiary of LANXESS AG (LANXESS). LANXESS is said to be a speciality chemicals company. The core business of LANXESS is the development, manufacturing, and marketing of chemical intermediates, additives, specialty chemicals, and plastics. Its operating activities comprise four segments, namely, (i) specialty additives, (iv) advanced intermediates, (iii) consumer protection, and (iv) engineering materials.

6. Advent HoldCo is indirectly controlled by GPE X, a fund managed by entities ultimately controlled by Advent International Corporation (AIC/Advent). Advent is a private equity investor based in Boston, USA. Advent focuses on (i) the acquisition of equity stakes in companies and (ii) the management of investment funds. It has stake in various sectors, including healthcare, industrial, technology, retail, consumer and leisure, and business and financial services.

7. HPM Business refers to the manufacture, sale, and marketing of high-performance thermoplastic polymers and intermediates necessary for the production of such polymers, i.e., polyamide and polybutylene terephthalate (PBT)-based engineering plastics (EPs) and continuous fibre-reinforced thermoplastic composites by LDG.

8. DEM Business refers to the manufacturing and sale business of high-performance thermoplastics by DSM housed in DSM Engineering Materials B.V., DSM Engineering Materials International B.V., and DSM Engineering Materials, Inc., along with their subsidiaries, associated activities, and IP rights. DEM develops, produces, and supplies thermoplastics, offering a range of polymers, including polyamides, polyesters, and polyphenylene sulphides.

Polyamide and Engineered Polyamide

9. High-performance thermoplastics refer to lightweight polymers that possess high temperature tolerance as well as chemical resistance. They are an advanced grade of EPs created by the addition of stabilisers and reinforcing materials such as glass and carbon fibres to increase the degree of polymerisation. They are primarily utilised as replacements for metal parts owing to their lighter weight and are used in diverse sectors such as electronics, aircrafts/aerospace, oil/energy, and medical implants.

10. A polyamide (PA) is a polymer with repeating units linked by amide bonds. Nylon is a generic word representing a class of polymers as polyamides, implying that nylon and polyamide are interchangeably used terms. PAs are high-temperature resistant, strong, and tough. They are used in several different applications, such as fibres, flexible films, components, and parts. A variety of PAs are presently manufactured and marketed under several different trade names, of which nylon 6 (PA 6) and nylon 66 (PA 66) are the two most commonly manufactured PAs. There are several other nylons, such as nylon 46 (PA 46), nylon 610 (PA 610), nylon 612 (PA 612), nylon 10 (PA 10), and nylon 12 (PA 12), which are used for specialised applications. 11. PAs are typically made by combining monomers (e.g., adipic acid, diaminohexane, etc.). Once these monomers have reacted together, they form water as a by-product of each polymer chain linkage. This linking of the monomers is known as polymerisation. The result of this polymerisation is a base polymer (BP).

12. Engineering Plastics or EPs are produced in a compounding process by mixing a molten neat resin BP (PA 6/6.6 BP for PA 6/6.6 EP, PBT BP for PBT EP, etc.) with glass fibres (e.g., 20–40%) and additional ingredients such as additives (e.g., flame retardants) and stabilisers (e.g., to improve resistance against heat or UV light). These additives can change the physical properties of the polymer. Depending on the field of application, these additives or additional ingredients are added for stiffness, strength, impact, or other performance features such as thermal or electrical conductivity, fire retardancy, and pigmentation. EPs, with different types of additives, can be used across multiple industries.

Horizontal Overlaps and Vertical Interfaces

13. The activities of the parties exhibit horizontal overlap in relation to production and/or supply of: (i) PA 6 BP; (ii) PA 6 EP; (iii) PA 6.6 EP; (iv) PBT EP; and (v) polyethylene terephthalate (PET) EP.

14. The HPM Business and DEM Business exhibit vertical interface in relation to: (i) supply of glass fibre and manufacturing of PA6 EP, PA6.6 EP, PBT EP, and PP EP; (ii) supply of PA6 BP and PA6 EP; and (iii) supply of PBT BP and PBT EP. Further, LANXESS supplies flame retardants to DEM Business.

Complementarity

15. It has been submitted that there are no complementary linkages, actual or potential, between LANXESS (including its retained business) and DEM Business. Further, the existing investments of Advent on a global level in the chemicals sector cannot be said to be economically complementary to the activities of the Targets. Overlapping EPs largely belong to the group of widely used, commoditised EPs. DEM Business also supplies, by way of imports into India, a limited number of specialty polyamides, so-called High Temperature Polyamides (HTPA), i.e., PA 46, PA 4T, and specialty EPs, particularly, TPC, PPS, and PC EP. These specialty polymers are not as widely used as the commodity products and are characterised by particularly high performance, especially regarding temperature resistance. Further, the future JV Co will be unable to impose bundles upon its customers (pure bundling or commercial tying), as it lacks the market power to do so. Customer purchasing patterns are not compatible with bundling strategies. Customers typically purchase EPs on the basis of individual projects, meaning that, even where a customer may, over time, purchase multiple engineering plastic products, these purchasing decisions are made at different points in time. Customers are typically sophisticated enterprises with significant countervailing buyer power and typically certify more than one supplier of EP even within a project. This prevents EP suppliers from offering discounts that are made conditional upon buying product bundles. Neither DEM nor HPM engage in commercial bundling pre-transaction despite supplying product ranges that span multiple EP segments.

Relevant Market

16. It has been submitted by the notifying parties that, for PA 6 BP, PET EP, and PBT EP, the relevant markets are supply of PA 6 BP in India, PET EP in India, and PBT EP in India, respectively. The notifying parties have argued that PA 6 EP and PA 6.6 EP form part of the same relevant product market. This is largely based on the following:

‐ There is increased substitution of PA 6.6 EP by PA 6 EP; and ‐ The prices of PA 6.6 EP are higher relative to the prices of PA 6 EP. However, the same is due to temporary supply issues and prices for PA 6 EP and PA 6.6 EP to converge in the future.

17. It has been submitted that the Commission has not previously assessed the market for polyamides and high-performance thermoplastics, and the parties have, inter alia, relied on the practice of the European Commission (EC). The notifying parties have referred to the decision of the EC in the BASF/Solvay1 case and the subsequent Domo/Solvay2 case. In the BASF/Solvay case, both PA 6 and PA 6.6 were considered by the EC to constitute distinct product markets. The EC also followed the said distinction in the Domo/Solvay case. The EC in the BASF/Solvay case observed that PA 6 and PA 6.6 EP constitute distinct product markets for the following reasons:

‐ Larger majority of such customers reject the claim that PA 6.6 EP can be replaced by any other material. A majority of customers of PA 6.6 EP stated that it is not possible to replace PA 6.6 EP by PA 6 EP for applications where they use PA 6.6 EP. Less than 10% of the respondents managed to replace some of their PA 6.6 EP volumes by PA 6 EP;

‐ PA 6 EP is not a suitable preplacement for PA 6.6 EP, since PA 6.6 EP presents different technical characteristics;

‐ Switching to PA 6 EP would be costly and time-consuming (1 to 2 years);

‐ The state of the PA 6.6 value chain, characterised by important price differences between PA 6 and PA 6.6. PA 6.6 EP, is considerably more expensive than PA 6 EP on a per ton basis;

‐ Most of PA 6.6 EP customers undergo a supplier qualification process in place by their own customers (e.g., OEMs). Some end-customers require the approval of the specific material used (such as PA 6.6 EP). As a result, the substitutability

1 Decision dated 18th January 2019 in Case No. M.8674 2 Decision dated 25th November 2019 in Case No. M.9552 of PA 6.6 EP by other non-PA 6.6 EP materials is virtually impossible, at least in the short term; and ‐ Responses of PA 6 EP producers confirm that technically compounding equipment can produce both PA 6 EP and PA 6.6 EP. However, to produce PA 6.6 EP, access to PA 6.6 BP and its upstream components (ADN, HMD, and/or AH Salt) is also necessary, which limits significantly their ability to switch production to PA 6.6 EP.

18. The statement of the Head of Business Unit of HPM Business, one of the Targets, is reproduced as under:

Actual market conditions show that the supply chain for precursors of polyamide 66 compounds is and will remain structurally strained for several years to come. LANXESS offers reliable and cost-efficient alternatives to PA66.

19. The above statement of the Head of Business Unit of HPM Business, i.e., one of the Targets, argues that the supply chain for the precursors of PA 6.6 compounds would remain structurally strained for several years to come.

20. The notifying parties have claimed that the higher prices of PA 6.6 EP vis-à-vis the prices of PA 6 EP are temporary because of the supply issue and prices of PA 6 EP and PA 6.6 EP to converge in the future. From the prices of PA 6 EP and PA 6.6 EP, supplied by DEM Business and HPM Business from January 2017 to June 2022, it is observed that the prices of PA 6.6 EP have been substantially higher than the prices of PA 6 EP. Further, initially, the price differential was lower. The argument of the notifying parties that the higher prices of PA 6.6 EP are temporary is not supported by the data furnished by them.

21. With regard to the arguments of the notifying parties concerning increased substitution of PA 6.6 EP by PA 6 EP, it is observed that both the Targets have been running campaign to replace PA 6.6 EP with PA 6 EP and cited certain cases for the substitution of PA 6.6 EP with PA 6 EP. However, all these cases pertain to the substitution of PA 6.6 EP with PA 6. The cases and argument suggest for a trend of shift from PA 6.6 EP to PA 6 EP. However, vice-versa is not the case.

22. From a commercial point-of-view, it may be rational for a business to substitute PA 6.6 EP wherever technical requirements permit so, because the prices of PA 6.6 EP have been and are higher. However, it is not commercially prudent to substitute PA 6 EP with PA 6.6 EP since it incurs a considerable higher cost without the compelling need for same. The higher prices constrain substitution of PA 6 EP by PA 6.6 EP even in a case where technical requirements permit so. Therefore, PA 6.6 EP does not exert competition constraints on PA 6 EP from a commercial point-of-view.

23. The above suggests that PA 6 EP and PA 6.6 EP are not part of the same relevant market and warrant a separate assessment, regardless of the statement of the Head of Business Unit of HPM Business.

Submissions of the Notifying Parties regarding the likely effect of the Proposed Combination

Supply of PA 6 BP

24. The combined market share of the Parties, both in terms of value and volume, for the last three calendar years ending 2021 are less than 1%. Further, this product segment is characterised by the presence of other players such as Century Enka, SRF, Kuybishev Azot, LiPeng, and Modipon.

Supply PA 6.6 EP

25. The combined market share of the Parties, both in terms of value and volume, for the last three calendar years ending 2021 are less than or around 10%, with incremental market share being [0–5]%. This product segment is characterised by the presence of other players such as DuPont, Ascend, BASF, Kingfa, and Asahi Kasei.

Supply of PBT

26. The combined market share of the Parties, both in terms of value and volume, for the last three calendar years ending 2021, are up to 15%, with incremental market share being [0–5]%. This product segment is characterised by the presence of other players such as CCP, SABIC, BASF, Kingfa, and DuPont.

Supply PET EP

27. The combined market share of the parties, both in terms of value and volume, for the last three calendar years ending 2021, are less than or around 10%, with incremental market share being less than or around 1%. This product segment is also characterised by the presence of other players such as DuPont, Toray, Celenese, Changchun, and Polyplastics.

Supply PA 6 EP

28. The combined market share of the parties, in terms of value, for the last three calendar years ending 2021, are less than 35%, with incremental market share being [5–10]%. In terms of volume, the combined market share of parties for the last three calendar years ending 2021 are less than 40%, with incremental market share being [5–10]%.

29. It has been submitted that the business for EPs, including PA 6 EP, is marked by the presence of a large number of compounders, ranging from global enterprises with an Indian presence or which import into India, such as BASF, Ascend, Toray, Kingfa, and Celanese, amongst others, to domestic compounders such as APPL, KL Jain Group, and Sundaram Polymers, amongst others. All of these competitors, including the smaller players, pose a credible constraint on the ability of parties to increase prices, as they compete for and win projects from the same customers. These competing suppliers have ample spare compounding capacity already available, which they could use to quickly increase output in response to any hypothetical increase in PA 6 EP prices. Hence, post combination, the PA 6 EP market would remain competitive and contestable.

30. It has been submitted that all EP products such as PA 6 EP, PA 6.6 EP, and PBT EP can be compounded on the same compounding line, meaning that suppliers of other EP products could easily switch their production to PA 6 EP in the event of a price increase, thus implying that compounding production lines of EPs are multi-product and hence fungible. To switch production between compounds, suppliers must only undergo a simple cleaning process referred to as flushing/purging. This process refers to the cleaning out of production residue from a previous compound lot on the compounding line. It can be completed in time periods as short as a few minutes without any accompanying substantial costs (on the part of the EP compounder) in the course of a product changeover on the compounding line. Compounders undertake changeovers between EP products in a manner that balances changeover costs, inventory costs, and production throughput. In this process of efficiency-centred product changeovers, the average changeover time is 2–3 hours, depending on the nature of the products and the additives used in the EP product before the changeover.

31. Estimated installed compounding capacity of competitors, for EPs not limited to PA 6 EP, are as under:

Name of Compounder Indian Installed Capacity (in KT) Kingfa 110 Celanese (DuPont) (including NextPolymers) 40 BASF 20 Ascend Polymers 30 Toray 35 APPL 135 GSFC 5

Lyondell Basell 60 Rajiv Plastics 35 Radici (including Ester Industries) 26 Loxim Industries 20 Plast Alloys 18 Calco 12 P.I. Polyblendz 12 Axel Polymers 10 Sun Polyblends 8 Domo Chemicals 10 Modlon Polymers 2 Nagpal Enterprises 1.2 32. EPs, including PA 6 EP, are commodity products. There is little to no qualitative distinction between EPs produced/supplied by various enterprises, including the Parties. Accordingly, customers of EPs focus on seeking the best price and delivery terms while identifying suppliers. The customers are not loyal to any specific brand or supplier of EP. Thus, all competitors, including the Targets, seek to win customer contracts based on prices and delivery terms. Invariably, the supplier offering better prices and delivery terms has the maximum chances of securing a customer contract. Competitors, including the Targets, are constrained to offer competitive pricing terms to customers or risk losing the business to another competitor offering better terms.

33. PA 6 EP is sold on a Request for Quote (RFQ) or project basis on one hand and an ad hoc/on-the-spot basis on the other hand. DEM Business and HPM Business have estimated that a significant portion of their sales in India is generated through projects, tenders, or RFQs. Competition plays out at the time of every bid, and existing market share reflective of victories in past bids does not offer any guarantee that such a player will be successful in future bids.

34. Customers pursue a dual or multiple-sourcing strategy to have security of supply, seek better terms by way of intra-supplier competition, and avoid re-certification. Many PA 6 EP customers have the ability to exercise considerable buyer power in pricing negotiations. These customers range from large and well-established Tier-1 OEM suppliers such as Bosch, Mahle, Mann+Hummel, and Continental, to E&E players such as Philips, Motherson Sumi, Siemens, Crompton Greaves, and Godrej, who have the ability and incentive to retaliate in response to a hypothetical price increase in PA 6 EP by switching (or threatening to switch) purchase volumes to competitors.

Vertical Interfaces

35. HPM Business supplies glass fibre in India. DEM Business is engaged in the production of EPs. Glass fibre are used in the production of EPs such as PA 6 EP, PA 6.6 EP, PBT

EP, and PET EP. Therefore, activities of HPM Business and DEM Business exhibit a vertical interface. The market share of HPM Business for supply of glass fibre is less than 1%. Further, this product segment is characterised by the presence of other players such as Jushi, NEG, Taishan, and CPIC.

36. Both HPM Business and DEM Business are engaged in the supply of PA 6 BP. Similarly, both are engaged in the manufacture and supply of PA 6 EP in India. Therefore, PA 6 BP supply activity of one, exhibit vertical interface with PA 6 EP manufacture, and supply activity of the other. The market share of each of HPM Business and DEM Business for supply of PA 6 BP in India is less than 1%. Further, this product segment is characterised by the presence of other players such as Century Enka, SRF, Kuybishev Azot, LiPeng, and Modipon.

37. The HPM Business supplies PBT BP in India by way of imports. On the other hand, the DEM Business manufactures and sells PBT EP in India. Therefore, activities of HPM Business and DEM Business exhibit vertical interface. The market share of HPM Business for supply of PBT BP is less than 1%. Further, there were no sales of PBT BP by HPM Business in 2019 and 2022 in India.

38. Considering the material on record, including the details provided in the Notice and the assessment of the Proposed Combination based on 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 hereby approves the Proposed Combination under Section 31(1) of the Act.

39. This order may be revoked if, at any time, the information provided by the Acquirers is found to be incorrect.

40. It is made clear that nothing contained in this order shall be deemed to be confidential, as the same has been used for the purposes of the Act in terms of the provisions contained in Section 57 of the Act.

41. The Secretary is directed to communicate to the notifying parties accordingly.