07 May 2019 Business

Heidelberg plans for MBO thwarted by German competition office

The Bundeskartellamt has prohibited Heidelberg's take over of MBO saying that the loss of choice would be detrimental to the operation of the market.

Heidelberg has a month to appeal after the German Bundeskartellamt blocked its planned acquisition of MBO.

The press supplier and finishing specialist had agreed terms in October, but the takeover was called in for referral, a process that took longer than the expected three months. Now the competition body has ruled that the deal should be prohibited.

“By acquiring the MBO group the market leader Heidelberger Druckmaschinen would take over its main competitor,” says Andreas Mundt, president of the Bundeskartellamt.

“There are already only four companies active on the relevant market throughout the whole of Europe. The merger would create a dominant position for Heidelberger Druckmaschinen and significantly impede competition in the market to the detriment of customers.

“We have conducted very intensive investigations into the market. We carefully considered the relevant economic market definition and found that from a customer perspective industrial sheet folding machines constitute a single product market.”

It is understood that Heidelberg argued that different formats of folding machine constituted distinct markets and should be considered separately. Taken in this way it could show that it was not in a dominant position in all markets. The body has rejected this explanation along with that arguing that printers can choose different technology to create folded signatures.

“The Bundeskartellamt has established that industrial sheet folding machines form a single product market and that so-called mailing systems, inline finishing systems and combined finishing machines belong to separate markets,” says a statement.

Now MBO and Heidelberg must continue as separate businesses with Horizon and GUK as their only competitors in Europe. Barriers to entry, comprising costs and time, are high, with hefty demands on service and supply making it difficult for new entrants to gain a toe-hold. “In fact no market entries were witnessed in the last 20 years,” it continues.

The delay in reaching a ruling suggests the decision was not entirely unexpected. Both parties to the merger “reman convinced that integrating the offerings of MBO would have given customers added benefits in terms of smooth industrial processes in the digital future,” says Heidelberg, where CEO Rainer Hundsdörfer adds: “We take note of the decision with regret and moving on, even though we see the future market position of the combined company's differently.”

Heidelberg says that the decision will not derail plans for continued development of its post-press product lines. This includes aligning products better with packaging and digital printing, cartons and pharmaceutical inserts in particular.

This is a target development for MBO through its Herzog+Heymann brand for large format folding of lightweight papers. MBO is unlikely to seek another partner. Group CEO Thomas Heininger says: “We have made tremendous progress in restructuring the business and managed the turnaround in time.

“Defying the general market trends, the group has grown in 2018 and we can also report a positive earnings development.” This has continued into this year, Heininger reporting a very good level of new orders. It intends to strengthen relationships with its distributors to boost activities in international markets.

There will be development of its digital finishing technology, including rollfed systems, and an emphasis on Industry 4.0 applications for “production planning and improving efficiency in the connected print processing segment”.

Under the takeover rules, Heidelberg and MBO have a month to appeal against the decision.

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The German competition office had a deep look into the operation of the market for sheetfed folders after Heidelberg and MBO agreed a takeover deal. It decided that contrary to representations from the two companies, this is a single market where printers have a limited choice of suppliers already.

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