Gebr. Knauf KG

On 28 March 2019, the ACCC announced it had accepted an undertaking (the Undertaking) from Gebr. Knauf KG (Knauf), Knauf Gypsum (Australia) Pty Ltd, Knauf Insulation Pty Ltd and KnaufAMF Australia Pty Ltd pursuant to s 87B of the Competition and Consumer Act 2010 (Cth) in connection with Knauf’s proposals to acquire USG Corporation (USG) (the Proposed Acquisition) and Armstrong World Industries Pty Ltd (AWI Acquisition).

USG’s only interest in Australia is its 50% share in a joint venture with Boral International Pty Limited and Boral Building Materials Pty Limited.

The ACCC concluded that, in the absence of the Undertaking, the Proposed Acquisition would have the effect, or be likely to have the effect, of substantially lessening competition for (i) the supply of plasterboard, plaster compounds and treatments, fixed suspended ceilings and metal profiles in Australia; and, (ii) the supply of modular suspended ceilings in Australia when combined with the AWI Acquisition (Overlapping Markets).

The key competition concerns identified by the ACCC include:

• In relation to plasterboard and fixed suspended ceilings:
  • imports would not provide sufficient constraint on the Knauf/USG merged entity, including because plasterboard is fragile and expensive to transport
  • there has been limited entry or expansion since Knauf’s entry into Australia, and new suppliers face substantial barriers to entry including to develop a distribution network and establish customer credibility; and
  • the Proposed Acquisition could increase the likelihood of coordinated conduct in a market that may facilitate coordinated effects given the fairly uniform nature of products, the similarity of market shares and market participants, and the repeat interaction by suppliers across a number of product markets.
• Similar issues arise in relation to plaster compounds and treatments, notwithstanding some import competition.
• While the parties would have a smaller combined market share for metal profiles, the USG Boral joint venture holds a 50% interest in Rondo, the largest supplier of metal profiles, and the next closest competitor has significantly smaller market share.
• In relation to modular suspended ceilings, Armstrong World Industries and the USG Boral joint venture are the market leaders and close competitors, with new entrants achieving relatively minor market shares. While modular suspended ceilings are primarily imported by suppliers, it would not be feasible for customers to directly import because of issues regarding product quality and reliability.

The objective of this Undertaking is to address the ACCC’s competition concerns that may otherwise arise as a consequence of the Proposed Acquisition and the AWI Acquisition. The Undertaking aims to achieve this objective by placing obligations on Knauf to:

1. divest:
   1. USG’s joint venture interest in Australia to an approved purchaser, thereby removing the competitive overlap between Knauf and USG in Australia; or
   2. the Divestiture Assets (as defined in a confidential schedule in the undertaking) to an approved purchaser;
2. through the divestiture, create or strengthen a viable, effective, stand-alone, independent and long term competitor in the Overlapping Markets;
3. ensure the purchaser of the joint venture interest or the Divestiture Assets (as applicable) has all the necessary associated assets and rights to compete effectively with Knauf in the Overlapping Markets;
4. maintain the economic viability, marketability, competitiveness and goodwill of the business of the joint venture interest and the Divestiture Assets prior to divestiture; and
5. provide for the effective oversight of Knauf's compliance with the Undertaking, including appointment of an ACCC approved independent auditor.

Variations

Knauf requested to vary a confidential schedule of the Undertaking and on 18 April 2019 the ACCC consented to the variation pursuant to s87B(2).

Knauf requested to vary a number of confidential schedules of the Undertaking (including some consequential changes to the main text of the Undertaking) and on 7 September 2020 the ACCC consented to the variations pursuant to s87B(2).