Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: EC to investigate acquisition of Walki industrial packaging division by Mondi, (Sep 2, 2015)

By Linda O’Brien, J.D., LL.M.

The European Commission (EC) has opened an in-depth investigation to assess whether the proposed acquisition by Mondi of two industrial packaging plants currently owned by Walki Group is in line with the European Union (EU) merger regulation, the EC announced today. The Commission was notified of the transaction on July 29, 2015.

Mondi is a vertically integrated packaging and paper manufacturer headquartered in the United Kingdom. The company’s main activity is the manufacturing of packaging paper, converted packaging products (including corrugated packaging, industrial bags and flexible packaging), and uncoated fine paper. Mondi also produces extrusion-coated materials, in four plants that are located in Austria, Belgium, the Czech Republic, and Sweden.

Mondi and Walki are the two leading suppliers in the European Economic Area (EEA) of several products derived from extrusion coating, in particular wrapping materials for the paper industry and case lining. The two companies are currently vigorously competing on these markets. The transaction entails the sale of two of Walki's extrusion coating plants located in Pietarsaari, Finland and Wroclaw, Poland.

Extrusion coating is a process through which a molten resin is added on to a substrate material—for example, paper. It is a coating technique that results in a strong and moisture resistant foil employed with a large number of uses, like paper packaging, envelopes, food wrapping and bags, timber wrapping, and insulation materials for construction.

Mondi operates a number of plants across Europe manufacturing extrusion coating products. The plants Mondi intends to buy from Walki also manufacture extrusion coating products. The Commission has concerns that the removal of a key competitor may lead to less choice and ultimately higher prices for customers of wrapping materials that also serve as moisture barriers, which are used in the paper industry or in boxes for fresh food products.

The EC’s initial investigation has shown that the proposed acquisition of Walki's plants may remove a major competitive constraint on Mondi. Remaining competitors would have considerably lower production capacity than the merged entity and may not be able to match its product offering or proximity to key customers. At this stage, the Commission has concerns that these competitors may be unable to exert sufficient competitive constraint on the behavior of the merged entity. The transaction risks leading to a reduction of choice for customers and potentially to price increases for the products concerned. The Commission will now investigate in-depth the effects of this transaction on competition to determine whether its initial concerns are confirmed.

"The proposed merger could remove a key competitor for several types of packaging material,” Commissioner Margrethe Vestager, in charge of competition policy, commented. “These are used in everyday items such as food packaging. I am concerned that the merger would lead to higher prices and less choice for these companies' clients and that the price increases could ultimately be passed on to consumers."

Companies: Mondi plc; Walki Group

News: AcquisitionsMergers Antitrust