On January 27, 2021, the Commission published its decision to conditionally approve Novelis’ acquisition of Aleris, two suppliers of flat-rolled aluminum sheets.[1]

The Commission pushed the boundaries of its own powers in merger control proceedings, both in terms of substance and procedure. With respect to substance, the Commission introduced in its decision a new theory of harm for the competitive analysis of transactions, particularly with respect to markets affected by significant capacity constraints. From a procedural standpoint, the Commission adopted far-reaching measures to enforce the commitments that had been offered– and eventually infringed–by the parties to the transaction.

Pivotality as a (somewhat) new theory of harm

In its conditional approval decision, the Commission raised concerns in relation to Novelis’ pivotal position in the European market of aluminium automotive body sheets. A firm may be considered pivotal when all other competitors are capacity constrained, and therefore unable to cover the entire demand in the market. In these circumstances, according to the Commission, the pivotal firm may have an incentive to keep prices high to maximize profits in the portion of demand that cannot be covered by rivals.

The Commission found that Novelis was “already pivotal pre-Transaction. That is, it faces significant residual demand that cannot be covered by its rivals.”[2] Post-transaction, Novelis would have become even more pivotal, as the acquisition would have eliminated one of its rivals in Europe and would have increased Novelis’ capacity share from more than 40% to over 50%.

The parties argued that these concerns do not take sufficiently into account the specific market conditions characterizing the aluminium industry. In this sector, a large share of the production capacity is committed to long-term supply agreements, and suppliers cannot unilaterally increase prices for volumes covered by those contracts. Novelis argued that its production capacity is not pivotal, because its rivals’ available capacity was sufficient to cover all non-nominated demand in the market (that is, demand that is not yet covered by a long-term supply agreement) at least for the next two years. However, the Commission dismissed these arguments, noting that the transaction would have negatively impacted prices in the longer term, as supply contracts come to an end and have to be renegotiated.

The Commission already used the notion of pivotality as an indicator of market power in previous cases, mainly relating to electricity markets.[3] However, in Novelis/Aleris the Commission developed this notion into a fully-fledged and standalone theory of harm. This approach has been criticized for potentially leading to both false positives and false negatives in merger control enforcement. On the one hand, a pivotal firm may have no incentive to increase prices in light of the market conditions prevailing in a given sector. For instance, an expansion of the competitors’ supplies, even if not sufficient to cover the entire market demand, could be enough to render the attempted price increase unprofitable. On the other hand, a transaction could be problematic even if the merging parties are not pivotal, for instance if they are particularly close competitors.[4]

The infringement of Novelis’ commitments (and the Commission’s reaction)

The Commission eventually cleared Novelis’ acquisition of Aleris, subject to commitments offered by the parties. The commitments consisted of the divestment of Aleris’ plant located in Duffel, Belgium. The divestment of the Duffel plant would have removed the entire overlap created by the transaction in the European market of aluminum automotive body sheets.

At the request of Novelis, the Commission repeatedly extended the deadline for the divestment of the Duffel plant until September 1, 2020. Novelis was still unable to finalize the divestment by that date, and the Commission rejected the company’s request for a further extension of the deadline. Novelis consequently found itself in breach of the commitments.

This unprecedented outcome left the parties in a regulatory limbo. On the one hand, the Commission’s decision clearing the acquisition of Aleris became automatically inapplicable,[5] although in the meantime the acquisition had already been concluded. On the other hand, the commitments attached to that decision, including Novelis’ obligation to divest the Duffel plant, also became inapplicable.

To fill this legal vacuum, the Commission immediately adopted an interim decision to preserve the viability of the Duffel plant during this transitional phase and ensure its complete divestment. After the divestment was finalized on September 30, 2020, the Commission adopted a second decision imposing on Novelis a set of obligations similar to the original commitments, including an obligation not to re-acquire the Duffel plant and not to solicit its customers.[6] Finally, the Commission may impose a fine on Novelis for infringing the original commitments.[7]

This is a rare example of the Commission issuing a decision under the Merger Regulation[8] to replace the commitments infringed by the parties, and force the divestment of a business. For several reasons, this move may signal a stricter stance on the part of the Commission in relation to the implementation of commitments in merger cases.

Firstly, the Commission was uncompromising in rejecting Novelis’ request for a further extension of the divestment deadline. This approach may appear somewhat disproportionate, in particular in the midst of the COVID crisis and given that a short extension would have been enough to allow the parties to comply with the original commitments (and therefore avoid the legal uncertainty resulting from their infringement).[9] Also, longer divestment periods were accepted in previous cases.

Second, the Commission adopted an extensive interpretation of its powers under the Merger Regulation. Those provisions only empowered the Commission to order restorative measures, consisting in the dissolution of the acquisition of Aleris or in any event the restoration, to the extent possible, of the conditions prevailing before that acquisition.[10] Instead the Commission used its powers to achieve a different outcome, namely the full implementation of the infringed commitments.

Finally, this case shows that an infringement of the commitments may have far-reaching consequences. The Commission effectively replaced the commitments designed by the parties with its own unilateral decision. And while the Commission’s decision in this case seems to largely reflect the original commitments, in principle any “appropriate” measures could be ordered to remedy an infringement, irrespective of the commitments initially offered.[11]

EU courts will have the last word

Novelis/Aleris is the last in a string of cases affecting the metals industries in which the Commission has put forward innovative approaches to merger control. The Commission’s reasoning in several of these cases is currently subject to judicial review before the General Court.

For instance, the steel producer ThyssenKrupp challenged the prohibition of its merger with Tata Steel, claiming that the Commission erred in the definition of the relevant market for galvanized steel.[12] Likewise, the copper supplier Wieland-Werke challenged the prohibition of its merger with Aurubis, arguing that the Commission erred in applying an untenable theory of harm confounding horizontal with non-horizontal effects.[13] Lastly, Novelis challenged the Commission’s decision not to extend the deadline for the divestment of the Duffel plant, claiming that “in light of its legal consequences and the availability of several less onerous means, the [decision] infringes the principle of proportionality.”[14]

These actions will provide several opportunities for the EU courts to clarify the scope of the Commission’s powers in merger control proceedings.

[1]      Novelis/Aleris (Case COMP/M.9076), Commission decision of October 1, 2019.

[2]      Ibid., para. 532.

[3]      See, EDF / British Energy (Case COMP/M.5224), Commission decision of December 22, 2008; EDF / AEM / EDISON (Case COMP/M.3729), Commission decision of August 12, 2005. For natural gas markets, see, Gazprom/Wintershall/Target Companies (Case COMP/M.6910), Commission decision of December 3, 2013.

[4]      See, R. De Coninck, R. Fischer, “Pivotality: A Sound New Theory of Harm in Horizontal Mergers?” in Journal of European Competition Law & Practice, Volume 11, Issue 7, September 2020, pp. 380–385.

[5]      See, Commission notice on remedies acceptable under Council Regulation (EC) No. 139/2004 and under Commission Regulation (EC) No. 802/2004, para. 20: “where … a condition is breached, e.g., a business is not divested in the time-frame foreseen in the commitments … the compatibility decision is no longer applicable.”

[6]      See, Commission’s Press Release IP/21/687, “Commission adopts final measures to preserve the divestment of former Aleris plant in Belgium following Novelis’ acquisition of Aleris,” February 18, 2021. The text of the interim and final decisions have not been published.

[7]      See, Commission Notice on remedies acceptable under Council Regulation (EC) No. 139/2004 and under Commission Regulation (EC) No. 802/2004, para. 20: when the compatibility decision is no longer applicable, “the Commission may, first, take interim measures appropriate to maintain conditions of effective competition … Second, it may … order any appropriate measure to ensure that the undertakings concerned dissolve the concentration or take other restorative measures … In addition, the parties may also be subject to fines …”

[8]      Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ L 24, 29.01.2004, pp. 1–22.

[9]      In fact, Novelis was able to finalize the divestment less than one month after the final deadline.

[10]    See, Merger Regulation, Article 8(4): “Where the Commission finds that a concentration … has been implemented in contravention of a condition attached to a [conditional clearance decision], the Commission may: (-) require the undertakings concerned to dissolve the concentration … so as to restore the situation prevailing prior to the implementation of the concentration; in circumstances where restoration of the situation prevailing before the implementation of the concentration is not possible through dissolution of the concentration, the Commission may take any other measure appropriate to achieve such restoration as far as possible, (-) order any other appropriate measure to ensure that the undertakings concerned dissolve the concentration or take other restorative measures as required in its decision.”

[11]    Ibid.

[12]    Thyssenkrupp v. Commission (Case T-584/19) action brought on August 22, 2019.

[13]    Wieland-Werke v. Commission (Case T-251/19) action brought on April 15, 2019.

[14]    Novelis v. Commission (Case T-680/20), action brought on November 11, 2020. See, the summary of the application published in OJ C 19 on January 18, 2021, pp. 64–64.