Acquisition of control over Tiszai Vegykombinát Rt. By MOL Magyar Olaj- és Gázipari Rt.
The Competition Council approved the acquisition of control over Tiszai Vegykombinát Rt. (hereinafter TVK Rt.) by MOL Magyar Olaj- és Gázipari Rt. (hereinafter MOL Rt.).
MOL Rt. put a public tender offer on all of the ordinary shares of TVK Rt. on the 25th of March, 2001. It acquired 1.45 % of the shares; it has now 34.48 % and with the options it is 52.33 %.
The parties concerned
1. MOL family
MOL Rt. is a public limited company that has been selling shares to the public since November 1995 on the Budapest Stock Exchange. Its majority shareholder is the Állami Privatizációs és Vagyonkezelő Rt. that owns ordinary shares which provide 25 % + 1 voting right and one "golden share" (special share enabling its holder to veto major decisions of the management). Minority shareholders may hold only 10 % or less voting rights.
MOL Rt. has direct or indirect control over 82 undertakings. The net income of the MOL family was 957.6 billion HUF in 2000. The main activity of the MOL family is the production and the sales of natural gas, mineral oil products and some chemical by-products of the oil refinery (e.g. propylene and basic materials for carbon black production).
2. Slovnaft family
MOL Rt. is one of the companies which control directly the Slovakian Slovnaft A.S. The latter refines mineral oil and produces chemical products. 2 % of polyethylene and less then 1 % of polypropylene used in Hungary originated from Slovnaft family in 2000.
3. TVK family
TVK Rt. is a public limited company officially listed on the Budapest Stock Exchange. MOL Rt. has 32.51 % voting rights in it and has options on other shares. There is a majority of MOL employees in the management of TVK.
TVK Rt. has direct or indirect control over 23 undertakings. The net income of the TVK family was 169.4 billion HUF in 2000. Its main activity is the production and the sales of chemical by-products of the oil refinery (olefin: ethylene and propylene and polyolefin). BorsodChem Rt. buys ethylene from TVK which has to import a surplus to its own production. TVK family is the only producer and seller of olefin; the entry into the producers` market is hindered by economies of scale and great capital intensity; the entry into the sellers` market is restricted by the fact that olefin can only be transported via pipelines. TVK family is the only producer of polyolefin as well, but this is more transportable; it is imported and exported in large quantities. The capacity of TVK in Eastern Europe is considerable, in whole Europe it is above 5 %. The bottle neck for TVK is the production of olefin. TVK group sells other chemical by-products, e.g. basic materials for carbon black production.
MOL and TVK family stand in broad vertical contacts. Only MOL family produces the basic material for ethylene production; TVK buys it from MOL under long-term contracts and imports only 5 % of its needs. Basic materials for carbon black production of MOL are sold to an ex-subsidiary of TVK Rt. through TVK Rt.
Effects on competition
1. Horizontal effects
There is an overlap between the activities of MOL and VK family regarding propylene and the basic materials for carbon black production. Propylene cannot be regarded as a product in the Hungarian market, because it remains in the sphere of interests of the two groups. MOL family also sells the basic materials for carbon black production to TVK Rt., to an ex-subsidiary of TVK Rt. This practice originates from the past contact between the latter firms. That is why the transaction might have an effect on competition in this respect, but this is not significant, because these materials are wastes that cannot be used for other purposes and dangerous.
The direct control of MOL Rt. over the Slovakian Slovnaft A.S. and the presence of Slovnaft family in the market of Hungarian polyolefin production might have negative effects on competition. The Competition Council set the geographical market as Europe. In this respect the small share of Slovnaft and TVK group in polyolefin production capacities indicates that there is not any possible negative effects on competition.
2. Vertical effects
The most important issue in vertical aspects is the possibility of serious constraints on competition when the two firms are concentrated, because MOL family is the sole Hungarian producer of the basic and essential material (chemical benzene and diesel oil) for TVK family. The possible competitors of TVK would face barriers of entry if TVK was not only their supplier anymore but their competitor. As far as real competition is concerned, there are not any negative effects on competition, because chemical benzene and diesel oil is only used by TVK family in Hungary. As concerns potential competition, it is not really possible for a new firm like TVK to be created, because the capacity of TVK family is enough to supply the demand, and the creation would involve enormous costs of investment.
TVK family supplies MOL family with basic and essential materials for mineral oil refinery; this raises no competition problems, because only the MOL family refines oil in Hungary.
3. Other effects
The Competition Council analysed portfolio effects as possible consequences of the merger, but it found there are not any, because the portfolios of the two groups are not supplementary and there are no overlaps in their clientele. Only the basic materials for carbon black production can be supplementary, but the nature of these materials and the market position of the buyer, as analysed above, do not indicate any significant effect on competition.
The merger will strengthen the financial and income situation of the group which might have an effect on the product markets, but the Competition Council considered the efficiency advantages much higher.
The Decision of the Competition Council
The Competition Council decided that the transaction neither threaten competition in horizontal aspects nor in vertical or other aspects.