The European Commission has opened an in-depth investigation to assess BASF SE's proposed acquisition of Solvay SA's global nylon business under the EU Merger Regulation.
The Commission announced June 26 that it was concerned that the merger may reduce competition in the supply of key inputs and intermediates in the nylon production chain.
According to Commissioner Margrethe Vestager, who is in charge of competition policy, only a few manufacturers currently provide essential inputs to produce different nylon products.
Therefore, Vestager said, the commission needs to “carefully assess” whether the proposed acquisition would lead to higher prices or less choice for European businesses and consumers.
Solvay and BASF announced the 1.6 billion euro ($1.9 billion) acquisition in September 2017, with BASF expressing hope to complete the transaction this year.
According to the European Commission, the proposed transaction would create a new player in the nylon compounds market with a market size almost double that of the closest competitor.
The merged entity, the EC has said, would also control “substantial parts” of the merchant markets and of the production capacities at all levels of the nylon production chain.
Solvay is currently the only manufacturer in the European Economic Area with production assets at all levels of the nylon production chain, from raw material adiponitrile (ADN) to nylon compounds and nylon fibers.
BASF is also vertically integrated, but does not produce ADN.
Additionally, the German chemicals company only sells a small part of its production of intermediates due to its internal production needs.
According to the EC, with the proposed transaction, no other player would be similarly fully integrated in the production chain.
“Competitors will thus depend on the merged entity to continue to supply them with one or more essential inputs,” the Commission added.
At this stage, the Commission said it was concerned that the transaction would reduce competition in the market and lead to higher prices.
In particular, the Commission said its initial market investigation raised competition concerns for the supply of a number of essential inputs for the nylon production chain.
The Commission has named ADN, hexamethylene diamine, adipic acid, hexamethylenediamine adipate salt, nylon 6/6 base polymer and nylon 6/6 engineering plastics, among the essential raw materials whose supply may be disrupted.
According to the initial market investigation, competitors fear that the new entity would stop supplying such essential inputs because of its own increased needs downstream.