On July 18, 2020, CCI approved acquisition of Metso OYJ’s (‘Metso’) mineral business by Outotec OYJ (‘Outotec’). The combination involved a partial demerger of Metso’s assets, rights, debts, and liabilities related to its minerals business (‘Metso Minerals’), which would be acquired by Outotec. In return for the transfer of Metso Minerals, Metso’s shareholders would receive newly issued shares in Outotec, and hold 78% of the new entity’s shareholding, with Outotec’s shareholders holding the remaining 22%. The combined entity would operate under the name Metso Outotec.^[1]

Outotec is present in India in the supply of equipment for the processes of: (i) flotation; (ii) sedimentation; (iii) filtration; (iv) thermal processing, i.e., iron ore pelletizing (‘IOP’); (v) hydrometallurgy; and (vi) refining.

Metso is present in India in the supply of equipment for the processes of : (i) crushers; (ii) grinding mills; (iii) magnetic separation; (iv) flotation; (v) filtration; (vi) IOP; (vii) slurry handling; (viii) materials handling; (ix) size control; (x) aggregates capital equipment; and (xi) recycling.

CCI formed a prima facie opinion that the combination was likely to cause an AAEC in the segment of IOP in India, and issued a show cause notice to the parties under the provisions of the CA02.

With respect to delineation of the relevant product market, the parties submitted that sub-segmentation beyond IOP was not required. The IOP process involves the agglomeration of iron ore fines to ‘pellets’ suitable for iron making furnaces. This involves a thermal processing step referred to as indurating. While there are two indurating technologies, namely straight grate and grate kiln, the parties submitted that: (i) customers did not differentiate between the two; (ii) the same quality of ore would yield the same results, irrespective of technology; (iii) both served the customer’s purpose; and (iv) certain customers might prefer to continue with the same technology purely as a matter of convenience. Additionally, the parties submitted that it was not necessary to offer both technologies to establish a market position. While both parties offered straight grate equipment, Metso also offer grate kiln equipment globally, although it hadn’t sold grate kilns in India for several years. Further, the parties submitted that sub-segmentation on account of type, size, pressure etc., was not required, as the supplier’s point of view did not change on the basis of scale of a customer. A complete set up involved various processes (process islands), and requests for quotations were usually on a product/island wise basis.

CCI, relying on the parties’ submissions, along with submitted bidding data and responses from competitors and customer, restricted the product market to separate process/island of IOP equipment. CCI noted that the European Commission too, conducted analysis on separate processes/islands in industries with features similar to the IOP segment.

With respect to the relevant geographic market, the parties submitted that: (i) equipment sold to customers in India were largely sourced from abroad; (ii) the parties did not manufacture a lot of equipment in India; (iii) very few technical or regulatory barriers existed between geographies; (iv) transportation costs were insignificant; and (v) local physical presence was not required to service a customer. However, CCI noted that while customers in India bought equipment from global players, the operations of global players (who are not present in India, do not currently sell in India, or do not intend to sell in India) might not be relevant to assess AAEC in India. Additionally, the varying market shares of the parties and their competitors in different regions of the world showed a lack of homogeneity, which was noted to be crucial in identifying the relevant geographic market. CCI noted that the conditions for competition as prevailing in India were different from the rest of the world. Accordingly, the CCI noted that the relevant geographic market was that for India.

CCI observed that the parties had a combined market shares between 35-40%, with the nearest competitor having a market share of 5-10%. The Herfindahl-Hirschman Index was 4500-4600, with a delta of 500-600. CCI also observed that the requirement for references in the relevant market acted as a barrier to entry. Additionally, the relevant market being a bidding market, CCI carried out bid data analysis such as frequency analysis, win-loss analysis and runner-up analysis. CCI also noted that that the parties to the combination enjoyed an incumbency advantage. Accordingly, CCI observed that the combination could raise competitive concerns in the relevant market such as, limiting the number of suppliers available to customers, reducing innovation, perpetuating the parties’ market position, reducing the countervailing position enjoyed by consumers, and increasing the cost of entrants and rivals to compete and increase their presence in the market.

In order to address the competition concerns arising as a result of the proposed combination, the parties made certain voluntary remedy proposals. CCI was satisfied that the voluntary remedy proposals eliminated the overlap between the parties in the IOP segment in India since it would effectively transfer Metso Minerals’ Indian straight grate IOP capital equipment business to a suitable buyer, thereby preserving the competition.

^[1] Combination Registration No. C-2020/03/735