Proposed Acquisition by Joint Venture between Denka and Mitsui of DuPont’s Global Neoprene Business

Notifying Parties:

Denki Kagaku Kogyo Kabushiki Kaisha (“Denka”)

Mitsui & Co., Ltd. (“Mitsui”)

E.I. du Pont Nemours and Company (“DuPont”)

Notifying Date:

25 March 2015

Summary of transaction:

(i)        the names of the merger parties;

Acquirer 1:     Denki Kagaku Kogyo Kabushiki Kaisha (“Denka”)

Acquirer 2:     Mitsui & Co., Ltd. (“Mitsui”)

Target:           Global neoprene business of E.I. du Pont Nemours and Company (“Global Neoprene Business of DuPont”)   

(ii)        a description of the transaction;

This notification relates to the acquisition of the assets of DuPont’s Global Neoprene Business by the joint venture formed between Denka and Mitsui (the “JV”). The JV was created specifically for the purposes of the proposed acquisition and operation of the acquired business, and has entered into an Asset Purchase and Sale Agreement (“APSA”) on 9 December 2014 with DuPont (the “Transaction”).

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

Denka is a chemicals manufacturer headquartered in Japan which develops businesses on a global scale in a wide range of fields, from raw materials, both inorganic and organic, to electronic materials and pharmaceuticals. Denka’s subsidiaries in Singapore are involved in the manufacturing and sales of various products, including polystyrene resin, synthetic fibres and special cement additives.

Mitsui is a general trading company that mainly engages in a variety of businesses including metals, machinery and infrastructure, chemicals, energy, lifestyle and innovation and corporate development. Mitsui established its regional Asia Pacific headquarters in Singapore in 2007, and its subsidiaries in Singapore are involved in a variety of businesses in the Asia Pacific region, covering coal imports, electrical supplies, marine products, foodstuffs, rubber, metals, steel, chemicals, machinery, textile, lumber, construction and cement.

The Global Neoprene Business of DuPont engages in the manufacture and distribution of chloroprene rubber (“CR”) worldwide, including Singapore. It is fully owned by DuPont, a science, technology and engineering company, which develops products, materials, and services in a wide range of sectors, focused on agriculture and nutrition, industrial biosciences and advanced materials. DuPont’s subsidiaries in Singapore (that are not part of the Global Neoprene Business of DuPont to be transferred pursuant to the Transaction), are involved in the manufacturing and sale of chemicals, chemical products, industrial chemicals and pigments, finished and fabricated products, petrochemicals, polymer products, fibers and electronic products as well as providing administrative services to related companies within the DuPont group.

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

The overlapping good in the Transaction is the supply of CR worldwide, including Singapore. CR is a general-purpose synthetic rubber that is widely used for adhesives, car parts (e.g., automotive belts, boots, and hoses), general industrial products (e.g., conveyor belts), and other miscellaneous products (e.g., wetsuits, gloves). Denka sells CR under the brand name “Denka Chloroprene” and the Global Neoprene Business of DuPont sells CR under the brand name “Neoprene”.

   (v)        a description of substitute goods or services;

The applicants submit that there are viable substitutes for nearly all applications of CR. These substitutes include various synthetic polymers and rubbers such as polyurethane (PU), ethylene-propylene diene monomer (EPDM), styrene-butadiene rubber (SBR), nitrile butadiene rubber (NBR), natural rubber (NR) thermoplastic elastomer (TPE) and polyvinyl chloride (PVC).

   (vi)       the applicant’s views on:

a.             definition of the relevant market(s);

The applicants submit that the narrowest relevant product market is the market for CR and the relevant geographic market is worldwide.

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

The applicants submit that at present, the CR industry is characterised by excess CR capacity, the ability for customers to switch between CR suppliers, availability of cheaper CR substitutes and increasing competition from Chinese CR manufacturers that offer CR at lower prices.

c.             barriers to entry and countervailing buyer power; and

The applicants submit that the relevant markets are characterised by low barriers to entry and the presence of countervailing buyer power.

Low barriers to entry

The relevant markets have low barriers to entry because:

(i)            it is generally not difficult for a potential entrant to secure a distribution arrangement with a local or international distributor to supply its products;

(ii)           most intellectual property rights relating to the manufacture of CR have entered the public domain; and

(iii)          with respect to Singapore, there are no specific regulations or import levies that would affect the CR market and pose as a barrier to entry.

Countervailing buyer power

The merged entity will continue to be constrained by significant buyer power exerted by customers worldwide and in Singapore because:

(i)            most customers usually purchase CR from various suppliers (or at least have multiple suppliers validated) in order to ensure a stable supply of CR, reduce switching costs at a later period and maintain bargaining power when negotiating CR prices with a supplier.

(ii)           customers have the option to switch to a CR substitute for almost all CR applications.

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

The applicants submit that the Transaction will not result in a substantial lessening of competition in any market in Singapore because:

(i)            the existence of significant excess capacity prevents CR manufacturers from increasing their prices as any unilateral price increase by a CR manufacturer can be countered by other CR manufacturers increasing their CR output to gain a greater market share;

(iii)          almost all customers purchase CR from multiple suppliers, and even the customers that purchase from one manufacturer have other CR suppliers validated in order to reduce switching costs a later period, to ensure a continuous supply of CR and to encourage competition between CR suppliers;

(ii)           global CR manufacturers produce similar ranges of CR grades that are interchangeable to each other, thereby making it easy for customers to switch suppliers or validate multiple suppliers;

(iii)          there are viable substitutes for nearly all applications of CR;

(iv)         most customers are part of large organisations that operate on a global basis and purchase CR for use in multiple jurisdictions around the world. Therefore, should Denka decide to increase prices in Singapore post-Transaction, these customers could retaliate by decreasing purchases in other jurisdictions;

(v)          the barriers to entry are low;

(vi)         increasing competition from Chinese CR manufacturers, the merged entity will not be in a position to raise prices; and

(vii)        the Transaction will not lead to coordinated effects. Among many other reasons, there is no price transparency on the market. Therefore, even if the CR suppliers were capable of reaching a common understanding, they would have no means to monitor compliance. Also, the rapid rise of the Chinese suppliers, which compete aggressively on price, is of the nature to disrupt any common understanding.

Decision:

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

Decision date:

7 May 2015

Click here for the media release. Click here for the Grounds of Decision.