Commission Decision

of 3 May 2000

on aid granted by France to TASQ SA

(notified under document number C(2000) 1337)

(Only the French text is authentic)

(Text with EEA relevance)

(2000/647/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to those Articles(1), and having regard to those comments,

Whereas:

I

PROCEDURE UNDER ARTICLE 88(2) OF THE EC TREATY

(1) The Commission learnt in April 1998 through a complaint from a competitor that TASQ had been recapitalised several times by Consortium de Réalisations (CDR), the hive-off vehicle set up in 1995 for the non-performing assets of Crédit Lyonnais. On 20 May 1998 the Commission wrote to the French authorities asking them for information on the recapitalisation operations. The French authorities replied by letter dated 14 September 1998, confirming that TASQ had been recapitalised on several occasions by CDR and, earlier, by Crédit Lyonnais, its previous shareholder. In the same letter, the French authorities also stated that TASQ had been sold by means of agreements signed, subject to conditions precedent, on 24 July 1998 and 8 August 1998. On 22 December 1998 the complainant wrote to the Commission to withdraw the complaint it had lodged against TASQ on 16 April 1998.

(2) By letter dated 2 March 1999 the Commission informed France of its decision to initiate the procedure provided for in Article 88(2) of the EC Treaty in respect of the measures. The Commission considered that the recapitalisation of TASQ in 1988 and 1991 by Crédit Lyonnais and the capital injections by CDR in 1995 and 1997 were liable to include aid elements. It also pointed out that the conditions under which the firm was privatised could involve aid to the purchaser.

(3) The Commission decision to initiate proceedings was published in the Official Journal of the European Communities(2). The Commission invited interested parties to submit their comments on the measures in question.

(4) The French authorities sent a reply by letter dated 2 June 1999, together with a file containing the information requested by the Commission in its Ietter initiating the procedure. Following the publication of the Commission notice in the Official Journal of the European Communities, a letter was received from CDR dated 4 August 1999 and a file received from TASQ dated 10 August 1999.

II

DESCRIPTION OF TASQ

(5) TASQ provides businesses with computer maintenance and other services. It is independent of computer manufacturers and supplies multi-brand services on behalf of third parties. This activity accounts for nearly 60 % of its turnover. TASQ also supplies IT services, in particular the integration, deployment, installation and cabling of systems.

(6) TASQ as it stands was created out of the merger in 1991 of the former TASQ (a company set up in 1988 to externalise maintenance of the Crédit Lyonnais microcomputers) and Metroservice (set up in 1983 by the Métrologie group, subsequently taken over by Crédit Lyonnais in 1991 and renamed "TASQ International").

(7) In 1995 TASQ was transferred to CDR as part of the hive-off plan for Crédit Lyonnais.

(8) At 31 December 1997, TASQ employed some 460 people. Following the merger with Metroservice in 1991, its turnover fluctuated between FRF 200 million and FRF 270 million. It often recorded a loss, except in 1990, 1995 and 1997, as shown in the following table (figures in millions of FRF):

>TABLE>

(9) Crédit Lyonnais increased the capital of TASQ in two stages: the first was a capital increase of FRF 4 million in 1988; the second was in November 1991, during preparations for the merger between TASQ and Metroservice, when both these companies injected capital of FRF 30,6 million and FRF 26 million respectively. In December 1991 TASQ made a capital increase of FRF 51 million in return for the assets contributed by TASQ International (formerly Metroservice).

(10) After TASQ was transferred to CDR, two operations were carried out, consisting in a first capital increase in 1995 by offsetting claims amounting to FRF 5 million. A second capital increase was made in June 1997 by means of a cash injection of FRF 60 million. CDR was the only subscriber to these two capital increases totalling FRF 65 million.

(11) It should be noted that none of the abovementioned transactions was notified to the Commission.

(12) In August 1998, about a year after the last capital increase of FRF 60 million, CDR sold TASQ for FRF 16 million.

(13) The Commission considered, when it initiated this procedure, that the capital increases described above were liable to include State aid, owing to the apparent lack of any prospect of an adequate return on the investment.

(14) The Commission also stated when it opened this procedure that it did not have sufficient information to conclude that the sale of TASQ complied with the principles of openness, transparency and non-discrimination, as defined by the Commission in its Twenty-Third Competition Report(3), which would have allowed all possibility of aid to be ruled out.

III

REPLY FROM THE FRENCH AUTHORITIES

(15) In their reply, the French authorities took the view that the capital injected by Crédit Lyonnais before 1995 into TASQ and Metroservice did not constitute State aid as it did not use State resources but complied with the criterion of a private investor operating in a market economy and had not affected trade between Member States.

(16) For the same last two reasons, the two transactions engaged in by CDR after 1995 could not be regarded as constituting State aid. In any case, according to the French authorities, the last capital increase qualified for exemption under Article 87(3)(c) of the EC Treaty.

(17) As regards the sale of TASQ to the private sector, the French authorities considered that it had complied with the principles set out by the Commission in its Twenty-Third Competition Report.

(18) The arguments of the French authorities are examined in detail in Section V.

IV

COMMENTS FROM INTERESTED PARTIES

(19) In a letter dated 10 August 1999, TASQ put forward the same arguments as the French authorities and submitted a detailed file of information. CDR, in a letter dated 4 August 1999, subscribed to the view of the French authorities.

V

ASSESSMENT OF THE MEASURES UNDER ARTICLE 87

(i) Financing of the firm by Crédit Lyonnais prior to the hive-off to CDR

(20) The French authorities firstly challenged the view that the funds provided by Crédit Lyonnais for TASQ were State resources. In their view, the use by a public enterprise of funds from private sources, such as those obtained from the collecting of savings by Crédit Lyonnais, is not covered by Article 87 unless it can be shown that the behaviour of the firm managing the private funds can be ascribed to the State. In the present case, specific support from the French authorities for TASQ was not possible owing to the smallness of the firm and its slight impact from a socio-economic standpoint. In addition, the public holding in TASQ was far from being a direct stake as it was held through a series of firms. Hence the decisions on increasing the capital of TASQ were not even discussed by the Crédit Lyonnais board but by the board of CLIO, which does not include any State representatives.

(21) The Commission considers in the present case that the Crédit Lyonnais resources are State resources within the meaning of Article 87(1) of the Treaty as they are resources available to the bank, controlled by the State, its shareholder. Those resources, like all the resources entered on the balance sheet of a public enterprise, must be categorised as State resources. That is sufficient to characterise the investments in question as State action which may constitute aid within the meaning of Article 87(1) of the Treaty(4).

(22) That characterisation does not mean that the use of the State resources by Crédit Lyonnais automatically entails State aid. The Commission does not normally have any reason to consider that, where Crédit Lyonnais has granted financing, it constitutes aid. Most of the bank's actions, before and after 1995, are not, despite the serious difficulties it experienced, regarded as aid and are in principle based on commercial market principles and aimed at achieving a margin contributing to profits, even if the investments subsequently proved to have resulted in losses. The Commission describes such measures as State aid only when it can be established, on the basis of specific facts, that the measures seen in their context fail to comply with the market economy investor principle.

(23) In order to determine whether the financing received by TASQ comprises elements of aid, the Commission does not examine the current position, where the result of the financing is known, but rather the context in which the financing was granted by Crédit Lyonnais before 1995.

(24) In order to determine whether such financing from public resources contains aid, the Commission applies the market economy investor principle(5) and concludes that State aid is involved if that principle is not satisfied, i.e. if a private investor operating under identical conditions would not have granted such financing to the firm, in view of the risk and expected profitability.

(25) The first capital increase was in 1988 and amounted to FRF 4 million. The French authorities explained that the involvement of Crédit Lyonnais in the transaction had been limited to FRF 2,6 million. In assessing the reasons for the transaction, it must be remembered that the firm in question had just been set up with a small capital of FRF 4 million and a limited number of staff. It had immediately encountered considerable commercial success. By 1989 it already had 150 third-party customers and a turnover of almost FRF 65 million, against FRF 4 million in the previous year. The growth in turnover thus made it essential to increase the capital, taking account of the necessary tangible fixed assets. The increase was also desirable because of the success of the firm and its expected profitability, which was also consistent with the market growth predictions of several experts who forecast a 20 % - 25 % growth per annum of the French third-party maintenance market in the period 1987 to 92. In view of the firm's start-up phase, it would be wrong to regard the losses of 1988 as evidence of a crisis in the firm. The information in the possession of the Commission thus indicates that the investments by Crédit Lyonnais are consistent with the actions of a private investor in similar circumstances. The favourable predictions were indeed confirmed two years later, in 1990, when TASQ produced significant results at the operational level (FRF 7 million) and overall (in excess of FRF 5 million), which corresponds to a particularly high return on capital (about 67 %) and allowed almost three quarters of the losses incurred in the early years to be absorbed. In view of these factors, the Commission considers that the capital increase in 1988 does not comprise State aid.

(26) The increases of FRF 26 million in the capital of TASQ and of FRF 30,6 million in that of Metroservice were carried out in November 1991 with a view to the merger of the two companies. Given the slowdown in market growth and also the development of microcomputing and information technologies, the merger was intended to enable TASQ both to gain broader access to the third-party maintenance market in order to reposition activities that were still too focused on the Crédit Lyonnais markets and rapidly to attain the critical size that would have enabled it to achieve significant economies of scale. At the time, the market in question was experiencing a growing number of restructuring and merger operations. TASQ thus required an injection of capital in order to sustain the surge in activity in 1991 and adapt its structures and resources to the nature and volume of business. Metroservice, on the other hand, which was emerging from a more serious position, had to cover the losses forecast for the year preceding the merger. The acquisition of Metroservice by Crédit Lyonnais, its former creditor, thus gave the bank the opportunity it had hoped for to allow TASQ more easily to reach a size better suited to economies of scale and to make use of synergies between the two firms. The conduct of Crédit Lyonnais appears, given the favourable market trend, to be consistent with the actions of a prudent investor. It forms part of the trend towards mergers in the sector and is based on the complementary nature of the two companies concerned and on the economies of scale resulting from the merger in terms of geographical cover and technical investments. In view of these factors, the Commission considers that the two capital increases may be regarded as consistent with the actions of a prudent investor and hence as not containing State aid.

(27) The French authorities explained that the capital increase of FRF 51 million in December 1991, referred to in the initiation of the procedure, was not a recapitalisation but the mechanical effect of the merger between the two firms controlled by Crédit Lyonnais. At the time of the merger, the absorbing company (TASQ) had issued new securities in exchange for the cancellation of the securities of the firm taken over in order to remunerate the net assets contributed. The exchange rate adopted (15 TASQ International (formerly Métropole) shares for two TASQ shares) was based on the different comparison methods available, which produced a similar estimate of the value of the two firms. The assets and liabilities contributed by TASQ were assessed in detail, in accordance with the usual principles applicable in this area. The whole operation and its details were approved by the Stock Exchange Committee (COB) and the auditors appointed by the Commercial Court. In view of the foregoing, which confirms that the transaction did not bring any financial advantages to TASQ, the Commission considers that the transaction does not contain any State aid.

(ii) Financing of TASQ by CDR

(28) CDR financed TASQ on two occasions: in December 1995, shortly after the hive-off, CDR provided FRF 5 million; in June 1997, following a particularly poor year (a loss of FRF 76 million), TASQ received FRF 60 million. In August 1998, CDR sold the firm for FRF 16 million.

(29) In order to examine the two operations, it should first be noted, as the Commission stated in its Decision 98/490/EC on aid to Crédit Lyonnais(6), that "CDR's resources are State resources within the meaning of Article 92 of the Treaty(7), not only because CDR is the wholly owned subsidiary of a public undertaking but also because it is financed by a participating loan guaranteed by the State and because its losses are borne by the State. The Commission notes that such transactions do not qualify for any derogation exempting them from the obligations arising out of Articles 92 and 93 of the Treaty, and in particular that the French authorities and CDR cannot be exempted from such obligations under Decision 95/547/EC or under this Decision. It should be noted that CDR's operations with regard to its subsidiaries are deemed not to include any aid component only if they conform with the 'market economy investor' principle and that any injection of funds (or abandonment of claims) complies with this principle. In its communication to the Member States(8) concerning the principles to be applied to determine whether public intervention should be regarded as aid, the Commission considers that injections of capital into public undertakings contain elements of State aid if, in similar circumstances, a private investor, in view of the expected return on the contribution of funds, would not have made the capital injection in question. In a letter dated 16 October 1997 addressed to the Minister for Economic, Financial and Industrial Affairs, Mr Van Miert pointed out that CDR operations involving a recapitalisation of its assets, a sale at a loss or a cancellation of debt were likely to include aid and should be notified to the Commission. Similarly, sales of CDR assets other than by open, transparent tendering procedures must also be notified to the Commission. Only operations definitely below the de minimis aid threshold of ECU 100000 are exempt from this obligation."

(30) The recapitalisation measures taken by CDR as regards TASQ should for the reasons set out be examined as such and cannot be deemed to be approved under the rescue and restructuring plan for the bank, the sole object of which is the aid granted to Crédit Lyonnais as such.

(31) The Commission acknowledges the merits of the reasons for taking the banking and off balance-sheet risks into account in the calculation of the economic rationale for the decisions taken by CDR. It also acknowledges that, if viewed as an isolated act, the measures taken by the State through CDR, starting from the hive-off in 1995, could on the whole be regarded as constituting sound management, aimed at minimising losses and safeguarding the interests of the State.

(32) In order for the assumption that CDR acted as a prudent investor to be confirmed in the present case, it must first be shown that CDR sought to maximise the proceeds of the sale of the firm and that the sale was open, transparent and non-discriminatory (see subdivision (iii)), so that its recapitalisations would be fully justified and very clearly not include any aid to the purchaser.

(33) In its assessment of the transactions under Article 87, however, the Commission takes account of the continuous nature of the State's assistance to TASQ through Crédit Lyonnais and its subsidiaries and CDR which the hiving-off of TASQ to CDR cannot interrupt as though nothing had happened before 1995. If the Commission did not take this approach, Member States could easily grant aid and avoid the consequences of Article 87 of the Treaty and the Commission controls provided for by the Treaty by setting up structures to which firms receiving aid are hived off with their debts and obligations and invoking the rationality of the financial conduct of the manager of the hiving-off in relation to the hive-off itself and its obligations.

(34) In the present case, it should be noted that the first recapitalisation took place just after TASQ was transferred to CDR. The funds are not new but simply a conversion into capital of a debt of FRF 5 million. The extent of CDR's exposure in respect of TASQ did not change. Following years affected first by post-merger restructuring costs and then by a poor economic performance in the sector, 1995 saw a significant improvement in TASQ's turnover and a return to profitability, despite a loss of FRF 9 million resulting from unfair competition. TASQ thus appears to be a recovering firm with good prospects of viability on a market where growth has been restored, according to the financial analyses carried out at the time. The financial indicators concerning TASQ and the market situation allowed CDR to anticipate an adequate return on its investment. The Commission considers that, under the circumstances, the behaviour of CDR can be justified on the basis of the private investor principle. It also considers that the conversion of CDR's loan to TASQ into capital is not the final materialisation of aid granted at the end of a lasting process of support for the firm, undertaken earlier by Crédit Lyonnais before its hive-off to CDR. Consequently, the Commission considers that the transaction does not contain State aid.

(35) There is no doubt that TASQ experienced considerable losses in 1996, which could throw doubt on the advisability of the 1995 decision. However, some of the losses were due to unforeseeable events, whilst others were inevitable. All the losses can be explained by one-off events resulting in the creation of exceptional provisions.

(36) Firstly, TASQ had been active in business with the general public, but this led to significant losses in 1996 (of FRF 6 million), as a result of which it decided to create provisions for the following year of FRF 16 million for losses incurred through the termination of the contracts concerned. TASQ also had to write off, through a provision of FRF 10 million, the residual goodwill connected with the maintenance contract with Crédit Lyonnais, which had informed TASQ in 1996 that it intended in future to conclude its contracts on an annual basis.

(37) Secondly, TASQ was faced with problems connected with the property of which it had the use, subject to penalising conditions. Thus provision had to be made for some FRF 60 million in order to take account of the extra cost of rent and the under-occupation of the business premises. Although these problems had already emerged in 1995, they gained in importance later and, in any event, they left CDR with no alternative in view of its commitments to Crédit Lyonnais in this connection. At the time of the hive-off, CDR had granted Crédit Lyonnais a repayment guarantee for property commitments which TASQ had entered into with two subsidiaries of the bank. In addition, under the Protocol of Agreement of 5 April 1995 between the French State and Crédit Lyonnais, authorised by Commission Decision 95/547/EC of 26 July 1995 on aid to Crédit Lyonnais(9), CDR acted as guarantor in the event of default by TASQ for the repayment to the two subsidiaries in question of two leasing contracts. The value of the guarantee is estimated at over FRF 81 million.

(38) The decision taken by CDR to inject FRF 60 million into TASQ in 1997 must be assessed in the light of three factors: the commitments described in recital 37, the task assigned to CDR of selling or liquidating its holdings as soon as possible and the restructuring started by TASQ in 1996.

(39) The radical restructuring plan ended in 1997 with a significant reduction in turnover (- 14 %). The results of this extensive and controlled action were immediately evident: in 1997 TASQ recorded very positive results both at the operational level (+ FRF 14 million) and overall (+ FRF 30 million). It is worth noting that TASQ achieved the highest profits in 1997 of all French companies in this sector. The business plan drawn up by the stockbrokers Ferri in collaboration with TASQ anticipated a negative result in 1998, equilibrium in 1999 and a return to profit in 2000, with a return on capital after tax of some 17 %. Forecasts for the following years indicated a return on capital of 20 % in 2002. Even if the 2002 result is viewed with caution, the return in 2000 would be satisfactory to a private investor, in view in particular of the level of long-term interest rates for investments without risk (between 5 % and 6 %).

(40) The French authorities state in this connection that the option of recapitalising and selling TASQ chosen by CDR was in any case the least expensive option. First, because the estimated cost of winding-up TASQ would have been higher than the costs of recapitalisation less the proceeds from the sale of TASQ. Second, because CDR was tied to the repayment guarantee given to Crédit Lyonnais for property commitments entered into by TASQ and described in recital 37, the cost of terminating the guarantee exceeded FRF 81 million.

(41) The Commission rejects the first reason given by the French authorities as it considers that the eligible winding-up costs for determining the aid content of an operation carried out by the State as shareholder are limited to the value of the shares held by the State. The Commission and the Court of Justice of the European Communities, in similar precedents(10), have already rejected the argument that extends the liability of the State as shareholder for liquidation debts beyond its capital contribution on the ground that extending liability in that way amalgamates the roles of the State as shareholder and the welfare State.

(42) In the present case, however, in view of the fact that the Commission approved the guarantee given by CDR to Crédit Lyonnais in its decisions on aid to Crédit Lyonnais, it acknowledges that CDR may have had other obligations with regard to Crédit Lyonnais taken over when the hive-off was created, in so far as the obligations stem from the charges borne by the firm even before it was decided to transfer it to CDR. As the cost of the obligations (FRF 81 million taken over by the purchaser) was higher than the net cost of the recapitalisation (FRF 60 million minus FRF 16 million = FRF 44 million), the Commission considers that CDR acted like a private investor operating under normal market economy conditions, provided that it can be shown that the privatisation followed the principles set out by the Commission and guaranteed effective and transparent competition between potential buyers in order to obtain the maximum price for TASQ (subdivision (iii)). In deciding whether the decision of CDR was prudent, the Commission also takes account of the fact that the operation in question is part of a major restructuring plan and is likely to restore TASQ to a normal market position as a viable concern so that it can be sold under the best conditions.

(iii) Possibility of aid during the privatisation of TASQ

(43) As stated in the notice initiating this procedure, in order to determine whether a privatisation includes aid, the Commission applies general criteria that have been defined over the years on the basis of individual cases and are set out in its 1993 Competition Report(11). It also specifically reminded the French authorities of these principles in a letter sent by the Director-General for Competition on 14 July 1993. According to the letter, the sale of certain public undertakings may comprise elements of State aid which must be notified in advance under Article 88 of the Treaty.

(44) The principles set out in the letter are as follows:

(a) the presence of aid is ruled out and notification is not required if the following conditions are fulfilled:

- the sale takes place by competitive, unconditional tender, in accordance with non-discriminatory and transparent procedures and conditions,

- the firm is sold to the highest bidder, and

- the bidders are given enough time to prepare their bid and receive all the necessary information to carry out a proper valuation of the assets;

(b) on the other hand, the following sales must be notified in advance in accordance with Article 88(3) of the Treaty as they are likely to contain elements of State aid:

- all sales carried out by restricted procedure or between individuals,

- all sales preceded by the writing-off of debt by the State, other public undertakings or bodies,

- all sales preceded by the conversion of debt equity or capital increases,

- all sales on conditions that would not be acceptable to private investors operating in a market economy.

(45) In the present case, the French authorities stated that the privatisation had been carried out by a specialised independent firm (Développement et Finances) which invited tenders from some 60 potential purchasers of TASQ, including several foreign firms or firms under foreign control. The French authorities also showed that the invitation to tender was transparent and unconditional, that the deadlines were reasonable and that the bidders had been fully and continuously informed. In particular, the documents submitted to the Commission showed that the sale of TASQ was not conditional on, for example, job maintenance, locations or continuation of activity.

(46) As regards the choice of buyer, the French authorities stated that, of the three bidders selected, only two had made a firm offer. The difference between the two bids was only 1 %. The highest bid was not chosen because of its weak financing, the financing guarantee given not complying with the law. The successful bid was adjusted to take account of the most recent valuation of TASQ's own capital at 30 June 1998, in accordance with the TASQ sale agreement. The final price corresponds to the top value of the range calculated by the independent experts appointed by CDR, Mazard et Guerard. In view of these elements, the Commission considers that the privatisation of TASQ did not give rise to State aid either to TASQ or to its purchaser.

VI

CONCLUSIONS

(47) The Commission concludes that, in the present case, taking account of the data available, the transactions examined above do not involve State aid to TASQ within the meaning of Article 87 of the Treaty,

HAS ADOPTED THIS DECISION:

Article 1

The capital increases of FRF 4 million and FRF 56 million injected into TASQ by Crédit Lyonnais in 1988 and 1991 and the capital increases of FRF 5 million and FRF 60 million injected into TASQ by CDR in 1995 and 1997 do not constitute aid under Article 87(1) of the EC Treaty.

Article 2

This Decision is addressed to the French Republic.

Done at Brussels, 3 May 2000.

For the Commission

Mario Monti

Member of the Commission

(1) OJ C 194, 12.7.1999, p. 9.

(2) See footnote 1.

(3) See Twenty-Third Competition Report, point 403, page 276. The principles to which the Commission refers in the Report had been communicated to the French authorities in a letter from the Director-General for Competition dated 14 July 1993.

(4) See in particular the judgment of the Court of First Instance in Case T-358/94 Compagnie nationale Air France v Commission of the European Communities [1996] ECR II-2109.

(5) See in particular Commission communication to the Member States, OJ C 307, 13.11.1993, p. 3.

(6) OJ L 221, 8.8.1998, p. 28.

(7) On 1 May 1999 Article 92 became Article 87 of the EC Treaty, as amended by the Amsterdam Treaty, Article 93 becoming Article 88.

(8) OJ C 307, 13.11.1993, p. 3.

(9) OJ L 308, 21.12.1995, p. 92.

(10) See in particular Commission Decision 94/1073/EC (Bull), OJ L 386, 31.12.1994, p. 5, and the Court Judgment in Joined Cases C-278/92, C-279/92 and C-280/92 Kingdom of Spain v Commission of the European Communities (Hytasa) [1994] ECR I-4103, paragraph 22.

(11) See footnote 4.