CMB merger talks loom

Date: 05/10/1995

By Tim Jones

EU competition policy experts will decide shortly whether to agree to plans to create the world's largest packaging company or put obstacles in its way on the grounds that its power to win price cuts in raw materials from its suppliers is too great.

When they meet on 25 October, the advisory committee on competition policy, which pulls together anti-trust representatives from each member state, will scrutinise the 3-billion-ecu acquisition of France's CarnaudMetalbox by US manufacturer of metal cans and plastic containers, Crown, Cork & Seal.

The plans will then go to the 20-member Commission for a decision in mid-November. However, the position of Competition Commissioner Karel Van Miert is already causing controversy within the EU's executive arm.

An initial Commission investigation into the merger, agreed in May, brought forth a series of questions. Since then the companies have been in constant contact with DGIV, the Directorate-General for competition, in an attempt to meet its demands.

The fact that the merged company would control more than 60&percent; of the market for tin-plate aerosol cans in the EEA, followed only by Germany's Schmalbach-Lubeca with a share closer to 20&percent;, is especially important at a time when aerosol manufacturers are switching to tin-plate from aluminium.

The companies believe this can be addressed. This area accounts for a small part of CMB's annual sales and Crown only has one plant manufacturing tin-plate aerosol cans in Europe, close to Brussels. This could be solved by giving an undertaking that an asset will be sold to reduce market share.

“That's not a problem,” said one analyst. “The more complex issue is bargaining power. For them to totally divest from this area would not be possible at all.”

When it announced that it was opening an investigation into the merger, the Commission warned that the combined firms' strength in the manufacture of aerosols and food cans could win them “cost advantages” from their “increased bargaining power” in buying tin-lined steel.

The companies are keeping quiet, but analysts are perplexed. Extra bargaining power is often the very reason companies merge and to block a concentration on these grounds would be bizarre, they say.

“It's hard to figure out what they mean and who they are trying to protect,” an analyst said. “Are they worried about Crown importing steel and protecting European steel manufacturers or are they protecting other European packagers from the cost reductions the merged company can achieve?”

Murmurings have already begun inside the Commission over DGIV's stance. “If this were used as a reason to block the concentration, it would be the first time this theory was used and it will cause problems in the Commission,” an EU official pointed out.

More than half CMB's sales come from manufacturing food cans from tin-lined steel.

“They can't just sell something off to meet that requirement,” an analyst said.

A spokesman for CMB was less concerned and expects endorsement of the deal in November, even if it is conditional. “We're confident it's going to go through because it makes such good strategic sense.”