The European Commission has opened an in-depth investigation under the EU Merger Regulation into the planned acquisition of the Dutch manufacturer of basic chemicals DSP by US equity company Arsenal, which controls Velsicol Chemical Corporation. Both Velsicol and DSP are active in the manufacture of benzoic acid and sodium benzoate.

The Commission’s initial market investigation found that the proposed transaction raises serious doubts as to its compatibility with the Single Market as the merged entity would potentially have very high market shares on the benzoic acid and sodium benzoate markets.

The levels of market concentration following the proposed merger would be very high, as the transaction would combine the only two producers in the EEA being two of the four leading producers in the world of benzoic acid and sodium benzoate.
 
EU Competition Commissioner, Neelie Kroes, justified the Commission's investigation as “the chemicals manufactured by Velsicol and DSP are basic inputs for the food and drink industry and for industrial intermediate products. They are therefore essential to consumers and the competitiveness of European industry, which would be harmed by a reduction of competition that could lead to price increases in the sector.”

The decision to open an in-depth inquiry does not prejudge the final result of the investigation. The Commission now has 90 working days (until 11 December 2008) to take a final decision on whether the concentration would significantly impede effective competition within the European Economic Area (EEA) or a substantial part of it.

Companies involved

• Arsenal Capital Partners is a private equity firm which controls, via its Arsenal Capital Partners QP fund, Velsicol Chemical Corporation which produces plasticizers, food additives and industrial intermediates at its plant in Estonia
• DSM Special Products B.V. ("DSP") produces food additives and industrial intermediates at its plant in Rotterdam.

Benzoic acid and Sodium benzoate

Benzoic acid is used as an antimicrobial preservative in food and drinks, in animal feed, in pharmaceutical products, to produce other chemicals, in paints and coatings and in personal healthcare. Benzoic acid is the main input for the production of sodium benzoate and benzoate plasticizers. Plasticisers are mainly used in the manufacture of PVC.

Sodium benzoate is used primarily as an antimicrobial preservative in food and soft drinks, but is also used in pharmaceutical products, the automotive industry, personal care, household cleaning products and pyrotechnics.

Given that benzoic acid is a key input for the production of benzoate plasticisers, there is a risk that the merged entity's strong position in the upstream business would reduce supplies of benzoic acid to the downstream market.