What could be the most far-reaching merger in germany’s pulp market is off the table for the time being. The federal cartel office has prohibited the waste disposal giant remondis from lunen (north rhine-westphalia) from merging with the koln-based company DSD, which holds the trademark rights to the gruner punkt recycling symbol.
This was announced by the authorities in bonn on thursday. The merger "had led to a considerable impediment to competition in the dual systems," declared antitrust office chief andreas mundt. In his view, remondis’ market power would ultimately have been to the detriment of consumers.
Dual systems are enormously important for the waste management industry in germany. They receive money from industry and trade for packaging recycling. They organize the collection, sorting and recycling of waste.
Among other things, they award contracts for refuse collection, for example to remondis. The merger could have meant that many of DSD’s orders remained within the same group.
DSD – the company abbreviation stands for duales system deutschland – was once a monopolist, but after the turn of the millennium the EU commission intervened and competitors entered the market. Today there are eight dual systems.
With roughly one-third of the market, DSD is still the number one among the companies. Its turnover in 2016 was 561 million euros, more up-to-date figures are not available. Remondis, in turn, has sales of 7.9 billion euros (2018) and 36,000 employees, making the company from lunen the market leader by a wide margin.
The federal cartel office fears that remondis had exploited its market power created by the acquisition and had been able to pass on costs to competitors. The fact that this is possible is due to the way the market is constructed: of the eight dual systems, only one in each region puts out to tender for the refuse collection, sorting plants and recyclers. If a mullabfuhrer is awarded the contract, it concludes contracts with all eight systems.
Mundt criticizes the fact that after a merger, remondis had an incentive to set its prices for the other dual systems higher than before the merger. The logic behind this: then the own subsidiary came off better than its competitors – and had a better position on the market.
"With this strategy of raising prices for DSD’s competitors, remondis/DSD was then able to gain significant market share, drive out competitors and ultimately impose higher prices on the market for dual systems," said mundt. "In the end, consumers had to bear the cost of higher prices for packaging."
The head of the cartel office was also concerned about the marketing of cullet from drinking bottles or glass cans. A dominant position was created here, said the competition watchdog – the combined market shares were 40 to 60 percent.
It is not unusual for a refuse collection company to have its own dual system. For example, the interseroh system, which is also based in colonia, is a subsidiary of the berlin-based waste disposal company alba; both are number two in their respective markets, but with a large gap between them and remondis and DSD respectively.
A remondis spokesman announced that the letter would be reviewed. The company can file a complaint with the dusseldorf higher regional court. A reaction from DSD indicates that it all boils down to this judicial review of the decision.
After evaluating the cartel office’s letter, DSD will "take the necessary measures," said a spokesman for DSD. "It is regrettable that the bundeskartellamt did not abandon its intention to prohibit the merger despite well-founded arguments and far-reaching offers of undertakings."
Remondis’ competitors were relieved. With the merger, "a new threshold of oligopoly formation would have been crossed," said patrick hasenkamp of the association of municipal utilities (VKU). The association represents, for example, municipal mull.
"Parent and subsidiary companies had been able to mab tailor offers to each other and thus virtually eliminate competitors," said hasenkamp. The federal association of secondary raw materials and disposal, which represents many smaller remondis competitors, also buried the decision.