Proposed Acquisition by Gebr. Knauf KG of USG Corporation

Notifying Parties:

Gebr. Knauf KG and USG Corporation

Notifying Date:

28 August 2018

Summary of transaction:

(i) the names of the merger parties;

1. Gebr. Knauf KG (“Knauf”); and

2. USG Corporation (“USG”). (the “Parties”)

(ii) a description of the transaction;

The merger relates to the US$7 billion acquisition of USG by Knauf.

(iii) a description of the business activities of the merger parties worldwide and in Singapore;

Knauf

The Knauf Group is a family owned, international manufacturer of plasterboards and drywall systems, plasters and accessories, modern insulation materials and thermal insulation composite systems, paints, floor screed, floor systems, construction equipment and tools. The company has subsidiaries and business activities worldwide, with its headquarters in Iphofen, Germany.

Knauf’s core business segments are: (1) drywall construction, (2) insulation materials and (3) moulded products.

In Singapore, Knauf supplies gypsum boards (also known as plasterboards), metal profiles, modular and fixed suspended ceilings, and a minimal range of insulation products.

USG

Headquartered in the United States, USG is a manufacturer and supplier of plasterboard, acoustical ceiling tiles and related products.

In Singapore, USG supplies gypsum boards, compounds, insulation products, substrates, metal profiles, cement boards and modular suspended ceilings.

(iv) a description of the overlapping goods or services, including brand names;

The Parties overlap in the supply of gypsum boards, modular suspended ceilings and metal profiles in Singapore.

(v) a description of substitute goods or services;

From the Parties’ perspective:

1. gypsum board is subject to substitution competition from alternative internal cladding products, notably exposed brick and wood paneling; gypsum fibre boards may also be considered as substitutable for gypsum boards in relation to specific applications such as high impact resistance;

2. fixed suspended ceilings and modular suspended ceilings are similar in that they generally both consist of tiles and a grid system, and customers may choose between installing either a fixed suspended ceiling or a modular suspended ceiling. However, there are certain differences between each product, such as the degree of flexibility of access to the ceiling cavity, input materials used and functionality (e.g. acoustic properties), which may limit the substitutability of one product for the other; and

3. for metal profiles, while grids for modular suspended ceilings may be, to a certain extent, substitutable from a supply-side perspective, they may not be substitutable from a customer perspective, due to the different characteristics.

(vi) the applicant’s views on:

a. definition of the relevant market(s);

The Parties submit that the relevant product markets are (1) the supply of at least gypsum boards in Singapore; (2) the supply of at least modular suspended ceilings in Singapore; and (3) the supply of at least metal profiles in Singapore.

b. the way in which competition functions in this market;

Gypsum boards, modular suspended ceilings and metal profiles are manufactured outside of Singapore and exported to Singapore by suppliers. In Singapore, the markets for the supply of gypsum board, modular suspended ceilings and metal profiles are highly competitive. While gypsum boards, modular suspended ceilings and metal profiles are typically procured through distributors, end customers do have the option of sourcing these products directly from the manufacturer / supplier.

As gypsum boards, modular suspended ceilings and metal profiles are commoditised goods, competition is based primarily on pricing factors. Other factors that end customers take into consideration include quality, diversity in the range of products, compatibility of systems, product design features, relationship and customer loyalty.

c. barriers to entry and countervailing buyer power; and

There are no significant barriers to entry into any of the relevant markets. Regulatory approvals, which are required for entry into the supply of the gypsum boards and modular suspended ceilings in Singapore, are neither difficult nor costly to obtain. The Parties are not aware of any restrictions on the importation of gypsum boards, modular suspended ceilings and metal profiles in Singapore, and there are a large number of globally active manufacturers for gypsum boards, modular suspended ceilings and metal profiles, who could enter the Singapore market.

The industry is characterised by several large customers that are able to easily, and at no cost, switch to different suppliers. End customers also have the option of directly importing from global suppliers.

d. the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).

The Parties submit that non-coordinated effects will not arise as a result of the merger in view of the following:

• the intense nature of competition and the myriad of competitors that currently exist in the supply of gypsum boards, modular suspended ceilings and metal profiles;

• the absence of significant barriers to entry and expansion given that all of the overlapping products in Singapore are imported, and some end customers can and do directly source from suppliers outside of Singapore as well through parallel imports; and

• the ability of customers to switch easily between suppliers, and the high price-sensitivity of end customers, which affects the price-sensitivity of the customers (distributors).

The Parties submit that coordinated effects will not arise as a result of the merger as:

• there are numerous competitors in the provision of gypsum boards, modular suspended ceilings and metal profiles. In addition, the ease of switching by, and high price-sensitivity of, customers in the industry creates strong commercial incentives for suppliers to continue pricing competitively. This reduces the sustainability of coordinated behaviour and makes it difficult for competitors to align their behaviour; and

• there are no significant barriers to entry in the supply of gypsum boards, modular suspended ceilings and metal profiles generally, and accordingly there is high potential for increased competition, which similarly creates disruptive effects and reduces sustainability of any coordinated behaviour.

Decision:

The proposed merger, if carried into effect, will not infringe the Section 54 prohibition.

Decision Date:

8 February 2019.

Read Media Release.

Read the Grounds of Decision.