Brattle Economists Advise In Clearance of Ground-Breaking European Merger

On 17 October 2014, the European Commission published its decision on the acquisition of a specialty base oil manufacturer of certain refinery assets operated by Shell Deutschland at the Harburg refinery in Hamburg, Germany by Nynas AB, giving Nynas supply shares in excess of 70 percent of the relevant market. A team of Brattle economists, led by principal Dr. Pinar Bagci, advised Nynas AB and its legal counsel, Helström Law and Allen & Overy, throughout the pre-notification, preliminary and in-depth investigation phases of the transaction. The team undertook detailed econometric and cost-price analysis aimed at defining product and geographic markets, identifying transaction efficiencies and developing counterfactual scenarios. The transaction was eventually cleared by the European Commission in September 2013.

Notwithstanding the high concentration, the transaction was cleared without remedies on the basis that it would not lessen competition relative to the counterfactual. The Commission broke new ground by departing from the strict “failing firm” criteria and adopting a more sophisticated and nuanced interpretation, finding that in the absence of the transaction Shell would have closed down the Harburg refinery, due not to financial difficulties, but because of commercial considerations.

“The Commission case team was initially very opposed to the merger due to the high concentration and deeply skeptical of any efficiency claims,” commented Dr Bagci. “We worked closely with Nynas to demonstrate the production efficiencies that would result from the transaction and our analysis helped persuade the Commission that the most likely counterfactual was closure of the Harburg refinery, which would have reduced capacity and raised costs and prices of naphthenic base oils in Europe.”