Move over digital: killer acquisitions are going green

Everyone’s talking about killer acquisitions. Competition authorities globally are laser focused on properly scrutinising these perceived attempts by large incumbents to remove smaller players before they have a chance to become a more dangerous rival.

The concerns at play are well established in the context of healthcare and digital markets, where innovation is key. But something is different about the European Commission’s current review of Norsk Hydro/Alumetal. Here, the concern is a green one.

What started off as a simplified notification (aka a “nothing to see here folks” procedure used for deals which don’t raise competition issues) has turned into an in-depth review. This is because of “preliminary” concerns about Norsk Hydro (the leading supplier of aluminium foundry alloys which are used mainly to cast auto parts) buying its smaller Polish rival Alumetal. Alumetal makes the same products – which already have the potential to reduce emissions by enabling lighter and therefore more fuel-efficient vehicles – but from recycled aluminium.

The Commission is worried that Alumetal has a “strong growth potential” for alloys made with recycled aluminium and that the deal may (1) reinforce Norsk Hydro’s leading position as a supplier of aluminium foundry alloys, and (2) “eliminate a growing competitor able to bring cheaper and advanced recycled aluminium products to the market”.

Norsk Hydro’s situation is not helped by the fact that the Commission has just conditionally approved another deal in the same sector between KPS’s Speira business – the former Norsk Hydro Aluminium Flat Rolled Products division – and Real Alloy Europe, which recycles aluminium and magnesium scrap. The deal was notified just one day earlier than Norsk Hydro/Alumetal. To address the Commission’s concerns around higher prices for aluminium flat rolled products used to manufacture beverage cans, KPS offered to divest a stand-alone business of two plants.

We’ve talked previously about the Commission’s intention to scrutinise green killer acquisitions. And it seems that moment has now arrived.

Yesterday, Norsk Hydro insisted to its investors that it remains committed to the deal and indicated that it doesn't believe the Commission’s concerns will be proven in the in-depth investigation. The Commission has until 22 February 2023 to decide on whether to allow the deal to go ahead.

Regardless of the outcome, the message is clear: dealmakers should expect similar transactions to attract greater scrutiny from the Commission and national competition authorities especially in Europe. This needs to be factored into the deal strategy, including around risk allocation and timing, right at the outset.