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Mergers: Commission approves DIC's acquisition of BASF Colors & Effects, subject to conditions

The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of BASF Colors & Effects by the DIC Corporation (‘DIC'). The approval is conditional on full compliance with a commitments package offered by DIC.

Executive Vice-President Margrethe Vestager, in charge of competition policy, yesterday said:

Pigments are essential inputs for many consumer products that require a colouring process, for example in the automotive and advanced plastics value chains. There are only a few alternative producers for these products and the combination of DIC and BASF Colors & Effects risked depriving customers of high quality pigments. This merger is approved on the condition that the companies divest DIC's main manufacturing facility for pigments, thereby preserving effective competition in the market.

BASF Colors & Effects and DIC are two market leaders in the production and sale of pigments and other colourants. In particular, they are the two main suppliers of certain categories of pigments worldwide.

Pigments are compounds that colour a material by covering its surface or mixing with it. They are obtained through a variety of chemical processes. Within a given chemical class, there are typically several different pigments, with different chemical compositions, providing different colour shades and technical characteristics. These individual pigments are usually referred to as ‘colour indices'.

The Commission's investigation

The Commission's investigation primarily focused on perylene pigments, which constitute a chemical class of red, maroon, violet and black pigments, as well as quinacridone pigments, a chemical class of pigments with tints ranging from yellowish red to violet. Perylene and quinacridone pigments are suitable for the most complex applications, such as automotive coatings, advanced plastics applications, and some industrial applications.

The Commission had concerns that the proposed transaction, as originally notified, would have reduced competition on the market for the supply of perylene and quinacridone pigments.

In particular, the Commission's market investigation indicated that although several Asian pigments manufacturers have been gradually entering the pigment markets for many chemical classes over the last decades, it is difficult for pigment customers to switch suppliers. This was due to high qualification and reformulation costs that the pigment markets require. In addition, the Commission found that for some perylenes and quinacridone pigments, only a small number of manufacturers are considered to be suitable suppliers for customers requiring high specification pigments.

As a result, the Commission had concerns that following the merger, those customers seeking pigments for the most complex applications would have insufficient alternatives for the supply of some colour indices within perylene and quinacridones pigments.

The acquisition would therefore have likely led to higher prices, reduced choice in products and lower quality of services provided to customers.

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