EN Official Journal of the European Union L 345/28

COMMISSION DECISION

of 13 July 2009

on the restructuring aid for Combus A/S

(notified under document C(2009) 4538)

(Only the Danish text is authentic)

(Text with EEA relevance)

(2009/973/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 the provisions cited above (1), and having regard to their comments,

Whereas:

1. PROCEDURE

(1) By letter dated 30 November 2000, the Danish authorities notified their intention to provide financial support to the state owned bus company Combus A/S (hereinafter referred to as ‘Combus’) in association with its sale to Arriva Denmark A/S (hereinafter referred to as ‘Arriva’).

(2) Prior to the notification, the Commission had received a letter, dated 25 June 1999, and a complaint, dated 11 November 1999, from the trade association ‘Danske Busvognmaend’ (2) in which the association criticised financial support granted to Combus in the past and a possibly forthcoming new financial support.

(3) The Commission requested further information from the Danish authorities by letter dated 15 December 2000, to which the Danish authorities answered by letter dated 18 December 2000. The Danish Competition Authority also provided information by letter dated 20 December 2000. The Danish authorities provided further information by letter dated 8 January 2001. The Commission requested further information on 9 January 2001 to which the Danish authorities replied on the same day. The Danish authorities provided further information by letter dated 23 January 2001 and by letter dated 26 February 2001.

(4) Meetings between the Danish authorities and the Commission's services have taken place in Brussels on 23 November 2000 and 19 December 2000 and in Copenhagen on 4 January 2001 and on 15 January 2001.

(5) By decision SG(2001) D/287297 of 28 March 2001 (hereinafter referred to as ‘the initial decision’), the Commission, following a preliminary assessment, decided not to raise objections to the notified measures, considering that they — did not constitute State aid (as regards the compensation payment of DKK 100 million for pension charges), or — were compatible, for an amount of DKK 162 million (3), with the common market based either on Article 73 EC or on Article 87(3)(c) EC in combination with the Community Guidelines on State aid for rescuing and restructuring firms in difficulty (4) (hereinafter referred to as ‘the 1999 Restructuring Guidelines’), or — were compatible, for an amount of DKK 328 million (5), with the common market based on Council Regulation (EEC) No 1191/69 of 26 June 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway (6).

(6) The decision was published in the Official Journal on 5 May 2001 (7). By letter of 8 May 2001, the Commission informed ‘Danske Busvognmaend’ of the initial decision.

(7) By letters dated 6 November 2002, received by the Commission on 12 November 2002, and dated 19 January 2004, received by the Commission on 20 January 2004, the Danish authorities reported to the Commission about the implementation of the restructuring plan for Combus.

(8) On 11 July 2001, ‘Danske Busvognmaend’ filed an action with the Court of First Instance (hereinafter referred to as ‘the CFI’) for annulment of the initial decision.

(9) By judgment of 16 March 2004 (hereinafter referred to as ‘the Combus judgment’), the CFI annulled the initial decision ‘in so far as it declares aid granted by the Danish authorities to Combus A/S in the form of capital injections in the amounts of DKK 162 million and DKK 328 million to be compatible with the common market’ (8).

(10) As far as the capital injection in the amount of DKK 328 million is concerned, the CFI found, firstly, that the initial decision is ‘vitiated by an error in that it finds the payment of DKK 328 million to be compensation for public service obligations for the purposes of Articles 2 and 10 to 13 of Regulation (EC) No 1191/69. […] Accordingly, the contested decision must be annulled in so far as it authorised the payment of DKK 328 million pursuant to that regulation, without its being necessary to rule on the other pleas put forward on this point’ (9).

(11) Still regarding the capital injection in the amount of DKK 328 million, the CFI found, secondly, that, as far as Article 73 EC is concerned, ‘the Member States may no longer rely directly on Article 73 EC in situations not covered by secondary Community law. Thus, so long as Regulation (EC) No 1191/69 does not apply to the present case and the payment of the DKK 328 million falls within the scope of Article 87(1) EC, Regulation (EEC) No 1107/70 of the Council of 4 June 1970 on the granting of aids for transport by rail, road and inland waterway (OJ, English Special Edition 1970 (II), p. 360) lists exhaustively the circumstances in which the authorities of the Member States may grant aids under Article 73 EC (10). Accordingly, the plea directed against the contested decision in so far as it authorises the payment of the DKK 328 million on the basis of Article 73 EC must be upheld.

(12) As far as the capital injection in the amount of DK 162 million authorised in application of Article 87(3)(c) EC in combination with the 1999 Restructuring Guidelines is concerned, the CFI found that ‘the contested decision cannot be interpreted as meaning that the college of Commissioners granted clear, unconditional and definitive authorisation for payment of DKK 162 million on the basis of Article 87(3)(c) EC and the Guidelines. On the contrary, the Commission's reasoning must be considered as expressing serious doubt as to Combus’s viability for the purposes of that article and the Guidelines, a doubt which the Commission did not, however, believe it was bound to clarify since Article 73 EC seemed to it to be a sufficient legal basis for the authorisation of the aid in question. Since that latter provision may not be so relied on (see paragraphs 100 and 101 above), the payment of the DKK 328 million is no longer validly authorised in the contested decision. It follows from the foregoing that the authorisation for the payment of the DKK 162 million must be annulled in its entirety, without its being necessary to rule on the other pleas in law submitted on this point’ (12).

(13) Following the judgment of the CFI, the Commission prepared a new decision. On 11 January 2005, the Commission services met with the Danish authorities in order to get further information on the development of Arriva/Combus in the time lapsed since the initial decision. On 1 March 2005, the Danish authorities sent the Commission a memo on the development of the Danish bus market, which had been prepared by the Danish Office for transport (Trafikstyrelse).

(14) By letter of 3 March 2005 (SG (2005) D/200926), the Commission informed Denmark of its decision to initiate the procedure provided for in Article 88(2) EC with regard to these measures (hereinafter referred to as ‘the decision to initiate the procedure’), and invited Denmark to submit its comments. The Danish government requested twice a prolongation of the period to submit its observations, which the Commission granted by letters of 5 April 2005 (TREN D (2005) 106964) and 24 June 2005 (TREN D (2005) 113062). On 21 June 2005, a meeting between the Commission and the Danish government took place. On 30 June 2005, the Danish authorities sent their observations with regard to the decision to initiate the formal proceedings.

(15) The decision to initiate the procedure was published in the Official Journal of the European Union (13) on 22 September 2005. The Commission called on interested parties to submit their comments on the measures covered by this decision within one month of the date of publication, that is to say by 23 October 2005.

(16) The Commission informed Danske Busvognmaend of its decision to initiate the procedure by letter of 12 May 2005 (TREN (2005) D 109473). The Commission, following requests of the Danske Busvognmaend, twice prolonged the delay for receiving its observations (letter of 15 July 2005, TREN (2005) D 115786 and letter of 16 August 2005, TREN (2005) D 117806).

(17) In a letter dated 17 June 2005 (TREN (2005) A 15223), Danske Busvognmaend asked the Commission to send it a copy of the decision to initiate the procedure including the information which had been removed following a request from Denmark. By letter of 15 July 2005, the Commission answered that according to Article 24 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules on the application of Article 93 of the EC Treaty (14), the Commission shall not disclose information which it has acquired through the application of the Regulation and which is covered by the obligation of professional secrecy. The Commission further on explained that as the pieces of information which had been deleted from the copy of the decision sent to Danske Busvognmaend were covered by the obligation of professional secrecy, the Commission could not disclose them to it.

(18) In the same letter of 17 June 2005, Danske Busvognmaend also asked the Commission for a copy of the observations of the Danish government on the decision to initiate formal proceedings. The Commission answered that Article 20 of Regulation (EC) No 659/1999, which stipulates the rights of interested parties, does not provide for the transmission of the reply of the Member State to the plaintiff and that accordingly, the Commission could not transmit a copy of the observations of the Danish government to Danske Busvognmaend.

(19) With letter of 23 September 2005, Danske Busvognmaend submitted its observations. The Commission transmitted these observations with letter of 25 October 2005 (TREN D (2005) 122503) to the Danish authorities, giving Denmark the opportunity to respond to the comments within a period of one month. The Commission received Denmark’s response to these observations with letter of 23 December 2005 (SG (2006) A 80), after having prolonged the time period for the reply by one month following a request of the Danish government.

(20) The Commission received comments from one interested party, Arriva Denmark A/S, by letter of 21 October 2005 (TREN (2005) A 27196). It transmitted these comments to Denmark by letter of 24 November 2005, giving Denmark the opportunity to respond to the comments within a period of one month. The Commission received Denmark’s response to the comments from Arriva also with letter of 23 December 2005, cited above.

(21) The Danish authorities submitted additional factual information with letters of 22 February 2007 and 2 April 2007 (TREN (2007) A 28850).

2. FACTS

2.1. THE DANISH BUS MARKET

2.1.1. GENERAL DESCRIPTION OF THE MARKET

(22) The decision to initiate the procedure gives (recitals 13 to 22) a detailed description of the Danish bus market. Accordingly, the description of the bus market is limited here to the most important features of the market for the present case and to additional factual information submitted by the Danish government and the interested parties.

(23) Starting in 1990, Denmark has gradually opened its bus market to competition, in the form of public tendering of the public service contracts, which public authorities conclude with bus operators in Denmark. Since 1994, the applicable Community rules on public procurement (Council Directive 92/50/EC of 18 June 1992 on the coordination of public procurement procedures for service contracts (15)) oblige Denmark to tender public service contracts for the provision of bus transport, except if these services are provided ‘in house’ (16).

(24) In 1999, the year in which Combus for the first time received financial support from the Danish State, 9 out of the 12 Danish counties were tendering out 100 % of their lines. The 3 remaining counties tendered respectively out 96 % (Copenhagen), 35 % (Ribe) and 21 % (Vyborg) of their lines (17). Public service contracts in Denmark run for 5 years, some of them foreseeing the option of an extension for another 3 years.

(25) The Danish bus market has been characterised by a process of continued concentration. In 1988, more than 400 undertakings were offering bus services, whereas in 2004, only approximately 100 operators remained in business. Historically, the Danish Railways, through their bus subsidiary, were the single biggest operator. In June 1995, the Danish Railways spun off their bus subsidiary and incorporated it as a joint stock company under the name DSB Busser A/S. In 1997, the name of the company was changed into Combus A/S. The Danish State kept 100 % of the shares in Combus. Combus and its predecessor had throughout the 1990s a market share of 20 % in Denmark.

(26) In 1997, Arriva Denmark A/S (hereinafter referred to as ‘Arriva’), a subsidiary of the British company Arriva plc, and Connex Denmark A/S (hereinafter referred to as ‘Connex’), a subsidiary of the French company Veolia, entered the Danish bus market through acquisitions (18). In 1999 and 2004, the last year for which figures are available, the market shares of the three companies were the following: Table 1 Market shares for Combus, Arriva and Connex in 1999 and 2004 (in %) Combus 1999 Combus 2004 Arriva 1999 Arriva 2004 Connex 1999 Connex 2004 Nordjylland 64,85 0 0 18,64 7,17 24,72 Viborg 17,27 0 0 17,40 0 0,33 Århus 54,24 0 0 10,15 9,11 41,07 Ringkjøbing 38,18 0 0 27,38 0 0 Vejle 56,96 0 21,68 13,29 0 17,22 Ribe 0 0 0 0 0 39,23 Sønderjylland 32,41 0 0 0 0 0 Fyn 97,80 0 0 100,00 0 0 Vestsjælland 25,20 0 24,00 33,86 32,60 35,26 Storstrøm 19,78 0 1,80 28,51 64,49 33,00 Bornholm 28,00 0 0 0 50,67 81,02 Metropolitan Denmark 22,26 0 50,47 46,73 8,60 27,95 Entire country 33,98 0 26,59 34,46 10,99 25,14 Entire country excluding Metropolitan Denmark 56,06 0 5,82 23,94 13,06 22,73

(27) For the interpretation of these figures, the following information is necessary: In 2001, Arriva acquired Combus. Later the same year, Connex acquired 50 % of the lines initially exploited by Combus from Arriva. In 2004, Arriva further strengthened its position by acquiring the undertaking Wulff Bus A/S, which had a 10 % market share in the province of Jutland.

(28) The Danish bus market represents a total volume of appr. DKK 5,5 billions per year.

2.1.2. FINANCIAL DIFFICULTIES OF COMBUS

(29) As explained in the decision to initiate the procedure (recitals 34 and following), Combus had, following its spin-off from the Danish Railways, embarked on an ambitious expansion policy. Combus won many new contracts, especially in the Copenhagen area, and increased its turnover by more than 40 % between 1995 and 1999. However, the vast majority of these new contracts turned out to be loss-making.

(30) As a consequence, Combus got into serious financial difficulties, starting in 1998. The following two tables illustrate these difficulties in both absolute numbers and percentages. Table 2 Key figures for Combus A/S 1995-2000 (absolute numbers) DKK 1 000 1995 1996 1997 1998 1999 2000 Net turnover 625 392 686 123 763 432 1 049 489 1 097 535 1 091 253 Gross result 84 172 100 003 81 776 11 910 –17 230 68 206 Result before interest 30 870 37 423 12 227 – 105 029 – 134 812 –50 035 Year's result 31 184 28 546 7 684 – 139 128 – 168 267 –82 249

Table 3 Key figures for Combus A/S 1995-2000 (in %) DKK 1 000 1995 1996 1997 1998 1999 2000 Operating profit margin 4,9 5,5 1,6 neg. neg. neg. Profit/capital ratio 4,0 5,5 1,3 neg. neg. neg. Gross margin 13,5 14,6 10,7 6,3 –1,6 1,1 Return on equity 23,5 18,2 2,5 neg. neg. neg.

(31) Three periods can be distinguished in the process of privatisation of Combus. In the period 1995 to 1998, the Danish State pursued the objective of selling only a minority stake of 25 % but this never materialised. Starting at the end of 1998, it launched a first attempt at selling 100 % of the shares. This attempt failed in July 1999. The Danish government then decided to first restructure and then sell the company. This plan resulted in the sale of Combus to Arriva in early 2001.

(32) The Act No 232 on DSB Busser A/S of 1995, by which Combus A/S was set up as an independent company, foresaw that the Danish State would sell up to 25 % of the shares in the company until the end of 1998. To this end, a steering committee was set up, which was composed of representatives from the Ministry of Finance, the Ministry of Transport, Combus and external legal and financial advisers. The steering committee held a total of 7 meetings, before the work was put on hold in mid 1997.

(33) At the beginning of November 1998, the steering committee resumed its work, now with the instruction to prepare the sale of at least a majority holding in Combus. The committee started out with a financial evaluation of the company.

(34) As a basis for this evaluation, Combus submitted in mid November 1998 a forecast of its accounting results for 1998 and a forecast for budget figures for the period 1999 to 2001. Based on these submissions, the financial adviser of the government, the Copenhagen office of Alfred Berg Corporate Finance (hereinafter referred to as ‘Alfred Berg’), concluded as follows: ‘.… it can be concluded that Combus’ total share capital has a negative market value of hundreds of millions of Danish kroner. In addition to the profitability of the primary business having fallen significantly over the last couple of years, the estimated value is further reduced by the significant interest-bearing net debt built up by the company over the same period. Most potential buyers understand, however, that financially and economically very weak companies such as Combus are not traded at large negative values as it would then be more appropriate for the vendor to close down the company. Against this background we recommend that, in the sales process and the information material being prepared in that connection, the scene must be set, as far as possible, for the price of Combus to be set on the basis of the company’s actual equity capital, minus a discount. On this basis and combined with — the potential for operational improvements — the potential for synergies — the company’s strategic value by virtue of its large market share in the Danish bus sector it is presumably still conceivable that, despite the continuing deterioration in the company’s financial and economic situation, a buyer can be found for Combus so that the Danish State (“the State”) can dispose of the company with full cover for its creditors. It should also be expected that the majority of potential buyers will consider that, in the light of Combus’ very weak capital structure and low profitability, the need for an injection of capital into the company is so great that it would be unprofitable for them to acquire Combus’ total share capital for a positive amount. The considerable uncertainty therefore surrounding the terms under which the State can dispose of Combus can, however, only be overcome by continuing the ongoing sales process.’

(35) Alfred Berg listed the following options as alternatives to the quick sale of Combus A/S: ‘— carrying out a controlled closure of the company which would, amongst other things, mean the State/DSB taking over all the civil servants who are today seconded to Combus by DSB, and the concomitant financial obligations. It is doubtful whether Combus, despite the positive book value of capital and reserves, could be wound up while fully covering the company's creditors, and consequently there is a risk of negative coverage of the State’s handling of the case by lenders, the press etc. — continuing ownership in order to carry out a thorough rationalisation and streamlining of Combus and thereby ensure that the company will be profitable within 2-3 years and consequently more saleable. Due to the company’s very weak capital structure and large debt burden at this time, this will probably mean the State injecting a nine-figure amount in new equity capital in the short term. There is considerable risk in investing in a “turnaround” of Combus, and no guarantee of a positive return on the State’s investment.’

(36) The financial adviser, based on this assessment, gave the following recommendation: ‘Neither of the two aforementioned alternatives appears immediately attractive, and also depend on the State's attitude to injecting further equity capital into Combus and also assuming the responsibility for carrying out a thorough streamlining of the company. Alfred Berg therefore recommends that the State continue the ongoing process of selling Combus in order to obtain a more exact picture of which and how relevant aspects (such as trends in results, capital structure, market share, order book, condition of the bus fleet, management resources, potential for operational improvements and synergies etc.) will be given weight by potential buyers in their overall assessment of the company. Should this process not result in a potential buyer being found who appears attractive in relation to the terms in the two aforementioned alternatives, the State will choose the alternative that it considers most financially attractive and politically suitable at the time.’

(37) Following this advice, the Danish parliament adopted in December 1998 an act allowing the State to dispose of all its shares (100 %) in Combus (19).

(38) Alfred Berg then performed a market screening based upon five criteria; the potential buyer should — be active within public administration, — have a strong financial position, — have a certain size (defined as ‘operating more than 1 000 buses’), — have a significant turnover (defined as ‘more than DKK 1 billion’), — be active in similar markets as Combus.

(39) The outcome of Alfred Berg’s market screening was a list of 12 potential buyers

(40) The steering committee established then the following time table: Management presentations for 12 pre-selected potential buyers were to be hold in the period 9 to 18 February 1999. The deadline for submitting ‘indications of interest’ was end of February 1999, and the ‘indications of interest’ were to be assessed at the beginning of March 1999. Selected buyers were to have access to the data room in the period 10 to 24 March 1999. They then had to submit their final offers on 1 April, and on 8 April the steering committee was to choose a final buyer.

(41) Out of the 12 potential buyers, 7 participated in the management presentation of Combus. At the presentation, potential buyers received a letter describing the forthcoming acquisition process. Potential buyers were, via this letter, informed that they could get access to Combus’ data and also have additional meetings with the management of Combus, if they wished to do so. In order to take advantage of these possibilities, potential buyers had to submit an ‘Indication of interest’ by the end of February 1999.

(42) Alfred Berg received such indications of interest from 6 pre-selected potential buyers in February 1999. In March 1999, 2 of these were selected to have access to the data room. After the examination of the data room, both potential buyers reduced their price indications so significantly that they corresponded to a negative market value of several hundreds of millions DKK.

(43) Alfred Berg submitted on 9 April 1999 a memo to the steering committee, in which it concluded that Combus A/S could hardly be sold at a positive value. Against this background, Alfred Berg laid down three alternatives to selling the company: ‘Option 1: For the State to continue ownership in order to carry out a thorough rationalisation and streamlining of Combus and thereby ensure that the company will be profitable within 2-3 years and consequently more saleable. Due to the company’s very weak capital structure and large debt burden at this time, this will probably mean the State injecting a nine-figure amount in new equity capital in the short term. There is considerable risk in investing in a “turnaround” of Combus, and is no guarantee of a positive return on the State’s investment. Option 2: To carry out a controlled closure of the company and/or hand over the “key” to the company’s creditors. It is doubtful whether Combus, despite the positive book value of capital and reserves, could be wound up while fully covering the company’s creditors, and consequently there is a risk of negative coverage of the State’s handling of the case by lenders, the press etc. Option 3: Combus separating the daily bus operations into an independent subsidiary. In other words, the present assets (buses etc.) and liabilities (loans etc.) would be retained in Combus as it stands, whilst the right to the bus contracts etc. would be placed in an [independent] new subsidiary which would then lease the relevant assets (buses etc.) from Combus. An attempt would be made to sell the new subsidiary and use the sale revenue to reduce debt in Combus, which would continue to be 100 % owned by the State. An attempt could then be made to reduce the debt still remaining in Combus using the rent from leasing the current assets to the new subsidiary. This model does not directly provide any security that the company’s creditors will emerge from their commitments with Combus without losses. The creditors are therefore likely to demand some form of State guarantee, etc.’

(44) Based on this assessment of Alfred Berg, the Danish government decided to keep Combus going through a restructuring process with a view to a subsequent sale (option 1 proposed by Alfred Berg). This restructuring process is described in detail in the next sub-section.

(45) On 23 April 1999, Alfred Berg informed the government that a new ‘indication of interest’ had been received from Arriva with an offer to take over 100 per cent of Combus A/S’ share capital for DKK 35 million. Conditions relating to the amount of the equity capital and the company’s results were attached to the offer, with a clause for a ‘krone for krone’ reduction in the event of deviations. The offer was based on the equity capital amounting to DKK 131 million, and Alfred Berg estimated that the equity capital was currently around DKK 10 million lower. Alfred Berg recommended continuing the sales process with this buyer in parallel with the development of the restructuring option. Alfred Berg pointed out that particularly difficult matters still had to be discussed, which could make it difficult to achieve a satisfactory agreement for both parties.

(46) On 27 April 1999, a letter of intent was signed by the Ministry of Transport and Arriva for the takeover of Combus for DKK 45 million, provided that the company’s equity capital at the time of transfer was DKK 131 million.

(47) In early June, negotiations with Arriva were so advanced that the advisers considered that a final sales agreement could realistically be concluded in the first half of July 1999. In the remainder of June 1999, however, there was a lot of press coverage on Combus, particularly with regard to statements from several political parties on the need for legal regulation of bus operations in Denmark as regards significant market shares. In the light of the speculations about market caps, Arriva lost interest in acquiring Combus. Arriva stressed, however, that depending on the introduction of any market restrictions, they would be interested in acquiring Combus in the long term.

(48) The restructuring of Combus had become very urgent in April 1999, as, pursuant to the Danish Annual Accounts Act, Combus had to hold its Annual General Meeting (AGM) before the end of May 1999 and to submit its audited accounts for 1998. The annual accounts had to be available to the press and public no later than 14 days before the AGM.

(49) The company’s finances had been so strained that the accountants had stated that the annual accounts could not be presented without reservations as to the going concern principle. On the basis of the accountants’ examination of the company’s contracts, which had demonstrated a need for a provision of approx DKK 65 million to cover loss-making contracts, the company would have to go into administration unless further capital was injected. In addition, there was an imminent risk of a compulsory redemption of loan agreements with a number of financial institutions, all of which contained covenant provisions requiring a minimum capital base of 10 % of the balance sheet total, but no less than DKK 125 million.

(50) In April 1999, the Danish Ministry of Transport appointed a legal adviser, Kromann and Münter, to assist in solving Combus’ financial problems. The legal adviser suggested in a memo issued in mid-May 1999 a capital injection of DKK 300 million. Based on this memo, the Ministry of Transport presented on 21 May 1999 a confidential bill to the Finance Committee of the Danish parliament, proposing a capital injection of DKK 300 million. The bill was approved by a majority of the Finance Committee on 27 May 1999 (20).

(51) As regards Combus’ financial situation, the bill stated that in 1998, the company had had to adjust its expectations regarding the result for 1998 several times. Most recently, after the adoption in December 1998 of the Act on the sale of all shares in Combus, there had been a significant downturn in the company’s finances.

(52) The bill furthermore states that Combus was in imminent danger of going into administration or going bankrupt, but that an injection of capital would ensure that the company could be kept going with a view to a sale taking place at a later date. It was estimated that there was a need for a capital injection in the order of DKK 300 million, against the background of the solidity requirement in the company’s loan agreements and the need for an appropriate relationship between debt and equity capital.

(53) The bill also foresees that the option of selling Combus would continue to be investigated. It was considered unlikely that the State would recoup the capital injected, in the short term. The capital injection was made with a view to ensuring the future operation of the company and ensuring that it had sufficient capital available.

(54) The bill was approved by a majority of the Finance Committee on 27 May 1999.

(55) The sales process was resumed in the spring 2000, after Combus’ annual accounts for 1999 had been approved at the AGM in May 2000. Alfred Berg would continue to be involved in the sales negotiations as financial adviser, and Kromann and Münter as legal advisor.

(56) In mid July 2000, Alfred Berg presented an indicative evaluation of Combus. Alfred Berg considered that traditional evaluation methods could not be used with regard to Combus due to the high level of uncertainty. The advisers had carried out an evaluation based on a projection of the company’s results to 2004 on the basis of a number of weighted assumptions on turnover developments and restructuring measures. The value of the company was calculated at the future date. Account was taken of any profits/deficits in the intermediate period and the effect on the company’s negative net balance at the future date. The actual sales value was found by discounting back the future sales value calculated. The following table shows the results of this assessment. Table 4 Summary of Alfred Berg’s evaluation of Combus Scenario Worst case Neutral/negative Neutral/positive Best case Assumption: Turnover Unchanged Unchanged Increasing Increasing Gross margin Unchanged Unchanged Unchanged Increasing Improvement measures No Yes Yes Yes Value in DKK millions of equity capital, July 2005 ÷ 1 116,2 ÷ 431,9 6,0 674,2 Value in DKK millions of equity capital current (10 % disc.) ÷ 693,1 ÷ 268,2 3,7 418,6 Source: Indicative valuation from the financial advisers.

(57) The following additional observations are necessary for the understanding of this evaluation: ‘Unchanged turnover’ assumes that the contracts in the Copenhagen region are not replaced by new contracts when they expire, while contracts in the regions continue unchanged. ‘Increasing turnover’ assumes that turnover in the other regions is increasing as the existing contracts in the Copenhagen region expire. The result of the effects of improvement measures adopted by the new management was assumed to be DKK 48,7 million annually from 2002. The table shows that the value of Combus had to be assessed as very negative, particularly because the assumptions regarding rising turnover and gross earnings and the implementation of improvement measures within such a short period had to be regarded as difficult.

(58) An important issue for the privatisation process was the political debate on the introduction of market caps for bus operators. The Danish Parliamentary Transport Committee had requested a report on concentration and competition in the Danish bus market, which had been drafted in autumn 1999 by a working group consisting of representatives from the Danish Competition Authority, the Ministry of Finance, and the Ministry of Transport. The report found that the majority of regional and local bus services were subject to public tenders, that the market was characterised by tough competition between contractors, despite an on-going concentration process, and that there were no signs that a single or individual contractor was dominating the market to the detriment of the competition. The working group concluded that their assessment of the Danish bus market had revealed no need to introduce market caps. In reaction to the report, the Transport Committee issued a statement in the autumn 1999, in which it approved the conclusions in the report and re-iterated that it was inappropriate to introduce market caps.

(59) The Danish government then contacted again a number of potential buyers. After a presentation of Combus’ finances, two potential buyers announced that they were interested in acquiring 100 % of the shares in Combus. A third buyer made a more cautious expression of interest.

(60) One of the interested buyers was Arriva, whose indicative offer corresponded to a negative sales price of DKK 200-250 million.

(61) The other interested buyer was Metroline. Its offer was, at first sight, more attractive, as it proposed to buy the shares for a positive price in the range of DKK 10-24 million. Metroline had added, however, that during the financial presentation of the company it had become aware of a number of matters that they wished to examine in greater detail.

(62) On 18 October 2000, Alfred Berg informed the Danish government that it had received a revised offer from Metroline, which now proposed to acquire Combus for a negative price of DKK 500 million. In addition, Metroline requested a number of guarantees.

(63) Following the submission of this offer, Alfred Berg recommended cancelling the on-going general discussions with the third interested buyer, as Alfred Berg did not consider the buyer sufficiently interested. The steering group asked Alfred Berg to contact Arriva, whose indicative offer was now clearly better than Metroline’s, in order to investigate options for a sale.

(64) On 3 November 2000, Arriva announced in a letter to Alfred Berg that the company had carried out the due diligence process, and that they could now suggest how to proceed. In the letter, Arriva pointed out that they had cooperated with Connex in their assessment. Arriva had previously informed the financial advisers of the two bus companies’ joint interest.

(65) According to the proposal, Arriva offered to pay DKK 100 for all the shares in Combus. The offer was subject to the condition that the loan capital of DKK 100 million injected by the Ministry of Transport in 1999 was converted into equity capital, and that a further injection of capital amounting to DKK 290 million was being made into Combus. The offer was furthermore subject to the condition that all necessary adjustments to the company’s balance sheet items identified during the subsequent due diligence process would be covered by the injection of funds. Arriva mentioned a number of examples for such adjustments, which already amounted to approx. DKK 109 million. Arriva set the Danish government a deadline of 8 November 2000 to reach agreement.

(66) An examination of Arriva’s proposal by the financial advisers showed that the offer involved DKK 399 million of new funds being injected into Combus and that the Ministry of Transport was also to convert the subordinated loan of DKK 100 million to equity capital and therefore a total loss of DKK 499 million for the State. In addition, there was the loss of the remainder of the equity capital in Combus, which was estimated at DKK 38 million on 30 September 2000.

(67) The Ministry of Transport and the Ministry of Finance considered Arriva’s offer to be low. On the other hand, no other previous serious offer had been better than Arriva’s. Metroline had requested the same negative price as Arriva, i.e. approximately DKK 500 million, and the third interested buyer had only made a loose and non-binding offer for a negative price of approx. DKK 350 million.

(68) It was decided that, as a first step, the Ministry of Transport should contact Arriva with a view to increasing the company’s price for taking over Combus. At the same time, the Ministry went over several scenarios for winding up/developing Combus. The scenarios were not a direct evaluation of the company, but a calculation of the company’s liquidity needs under various conditions compared with Arriva’s offer. The result of the calculation, which was approved by Combus, the company’s auditors and solicitors, is shown in the following table: Table 5 Scenarios for winding up/developing Combus Scenario Liquidity at the end of the period in DKK million Comment Gradual winding up over 5 years – 331 Uncertain scenario Continuation with newer, better contracts for 6 years – 315 More uncertain scenario Continuation for 1 year without refinancing of due debt 71 Would require, among other things, new bank debts of DKK 107 million. Would win time, but the sales situation thereafter would presumably be unchanged. Bankruptcy – 649 Total deficit, dividend 35-40 %. Lenders would lose DKK 280-300 million. Arriva's offer – 399 Source: The Ministry of Transport

(69) According to an internal memo, the Ministry considered that the scenarios illustrated that the creditors had nothing to gain from continuing the company, either with a view to a gradual winding up or continued operation, as none of the scenarios was significantly better than Arriva’s offer. The uncertainty for the future would probably lead to the creditors preferring to bring about a quick sale.

(70) In addition, the scenarios illustrated, in the opinion of the Ministry, that Arriva’s offer was probably based on Combus’ financial situation in the short term rather than an actual evaluation of the company. In summary, against this background, it would probably be difficult to convince Arriva that the Ministry had better alternatives in reserve in the form of a gradual winding up or continued operation.

(71) It was emphasised in the memo that it could not be entirely ruled out that a gradual winding up, combined with the gradual disposal of the bus service contracts in small — geographical — packages to local bus companies, could be a relevant alternative to the scenarios outlined. This scenario was not investigated, but was also very uncertain as, according to Combus, there would probably be several interested local bus companies but, at best, only a few would have sufficient financial strength to take over even smaller parts.

(72) The Ministry concluded that, if Arriva’s offer could be reduced to a negative price of DKK 290 million, it would clearly be the best alternative to pursue with the creditors.

(73) These negotiations resulted, on 21 November 2000, in the agreement of a Letter of Intent regarding the sale of Combus to Arriva, which was signed between the Danish Ministry of Transport, acting as seller of Combus, Arriva, acting as buyer of Combus, and the private commercial creditors of Combus.

(74) The letter of intent contained the following main elements: — The State would receive DKK 100 for the transfer of all shares in Combus (100 %). — The State would convert in advance the subordinated loan capital of DKK 100 million into share capital. — Combus’ capital base would be strengthened by a further DKK 240 million, either in the form of an injection of new equity capital or the writing down/conversion of bank debt. — The State would additionally provide limited guarantees amounting to a total of DKK 57,5 million in the form of (i) a guarantee for potential environmental costs of DKK 22,5 million, which would be released to the extent that such costs exceeded the amount of DKK 10 million already allocated in the company for environmental costs and (ii) a guarantee of up to DKK 35 million for all matters including the regulation of the company’s equity capital in relation to the balance presented by the management as at the end of September 2000 and further commitments. — The State would provide unlimited guarantees to Arriva in connection with any tax demands that could result from the period prior to the transfer, for losses as a result of any claims from former employees, for any losses that could result from Combus previous sale of Combus International, and for any financial losses that Arriva could establish originated from the forthcoming audit report. — The transfer would take place with effect as from 1 January 2001. — The deal was conditional on both the transport companies and Denmark’s Road Safety and Transport Agency approving Combus’ bus service contracts being taken over by the new owner and also on the approval of the competition authorities.

(75) The further process, agreed in the letter of intent, meant that the Ministry of Transport and Arriva — after prior approval from the Finance Committee of the Danish Parliament and Arriva’s board — subsequently entered into a final agreement in accordance with the above guidelines. The conclusion of the deal would not take place until all necessary external approvals had been obtained, but no later than 1 February 2001.

(76) As an extension of the letter of intent, the Ministry of Transport negotiated with the creditors on the distribution of the injection of DKK 240 million. Agreement was reached that the Danish government would inject new equity capital of DKK 140 million and that the creditors would either convert debts to share capital to an amount equivalent to DKK 100 million or write down the debt by this amount.

(77) In the memorandum, the Danish government had engaged to adjust the sales price (limited to a maximum amount of DKK 35 million), provided the company’s balance sheet as per 31 December 2000 revealed a capital reserve of less than DKK 31,8 million, which was the management’s expectation when the Letter of Intent between the parties was signed. The capital reserves as per 31 December 2000 turned out to be DKK 10,3 million. Hence, the Danish government was obliged to make a payment of DKK 20,5 million to fulfil its obligations under this guarantee.

(78) Arriva took over the remaining liabilities of Combus, which at the time amounted to DKK 208 million. Arriva paid off these liabilities immediately upon purchasing Combus, and replaced them by a loan contracted from its mother company, Arriva plc.

(79) Compared to the initial offer of Arriva, the Danish government had negotiated the following significant changes: — Combus’s lenders had agreed to participate in the restructuring process, by writing down parts of their debt (in total DKK 100 million); — The requirement for an injection of DKK 290 million was reduced to DKK 240 million; — The agreement contained guarantees limited in coverage for a total of DKK 57,5 million and a number of unlimited guarantees; — The Danish government guaranteed for Combus’ net assets value as of 31 December 2000, after adjustment for write-offs etc. under the agreement, amounting to DKK 31,8 million; — Arriva agreed that the requests for adjustments totalling DKK 109 million (mentioned in the proposal of 3 November 2000) were no longer relevant.

(80) In conclusion, the Ministry of Transport was thereby successful in the negotiations on the content of the letter of intent in significantly reducing Arriva’s price demands in relation to the proposal of 3 November 2000.

(81) In a confidential bill of 13 December 2000, the Ministry of Transport requested the Finance Committee’s approval for the State to dispose of all shares in Combus. The majority of the Finance Committee approved the confidential bill on the same day.

(82) The ‘Share Sale Agreement’ was signed on 15 January 2001; Combus was transferred to Arriva on 2 April 2001, after the initial Commission decision had been adopted, with retrospective effect from 1 January 2001. ‘Closing’ took place on 2 April 2001 between the Ministry of Transport and Arriva.

(83) An earlier draft of the share sale agreement, sent by the Danish government to the Commission on 18 December 2000, contained a clause, according to which the Danish government was to guarantee Arriva for possible claims from public institutions (e.g. competition authorities and the EU Commission). The Danish government informed the Commission in its letter of 23 January 2001 that this clause had not been included in the final share sale agreement. The reason for this change was that ‘the Danish government has chosen to demand approval from the relevant authorities prior to the closing’.

(84) The sales process has also been the object of a special report of the Office of the Auditor General of Denmark (21).

(85) The conclusion (page 60) of the report states that: ‘The investigation of the Office of the Auditor General of Denmark has shown that Arriva's offer was low, but that no serious offer was better. The Office of the Auditor General of Denmark has established that the Ministry of Transport’s investigations showed that the total sale of shares in Combus was preferable to a gradual dismantling of the company or going into administration. The Office of the Auditor General of Denmark has established that the Ministry of Transport’s considerations, when preparing and conducting the sale of shares, were well founded. The Ministry of Transport managed, by negotiation, to have Arriva’s price for taking over the shares reduced and the Ministry also managed, by negotiation, to involve the company’s lenders in the shares deal. On the basis of the assessments and information available, the Office of the Auditor General of Denmark conclude that the agreement should be regarded as satisfactory. It was therefore necessary for the State to inject DKK 140 million into Combus and provide guarantees of approx. DKK 58 million for the company in connection with the sales agreement.’

(86) In recital 66 of the decision to initiate the procedure, the Commission had raised doubts as to whether the sales price of Combus to Arriva was the market price. These doubts were in particular founded on the observation that according to the Danish press, the sale of 50 % of Combus to Connex, which took place on 1 May 2001, less than a month after the signing of the sales agreement between the Danish government and Arriva, took place at a sales price of DKK 223 million.

(87) The Danish government and Arriva have transmitted additional factual information on this point to the Commission.

(88) The process of the negotiations between Arriva and Connex started in 2000. Arriva and Connex agreed on a ‘Memorandum of Understanding’ at European management level on 10 October 2000, which established the principles for cooperation between the parties in the run-up to the take-over of Combus. The initial idea was that both companies submitted a joint bid.

(89) Prior to the drawing up of this declaration of intent, Connex, as well as Arriva, had taken part in the screening process controlled by Alfred Berg, but the company had chosen not to go further on its own. In accordance with the ‘Memorandum of Understanding’, both parties were given access to the data room in order to assess the company’s value and the risks associated with the purchase.

(90) Arriva and Connex exchanged experiences from the data room and it was clear that there were great differences in the two companies’ expectations and assessment of Combus. Thus, Arriva assessed the company as having a negative value of approx DKK 300 million and Connex assessed Combus as having a negative value of approximately DKK 700-1 000 million.

(91) As the parties therefore fundamentally disagreed on the risks associated with the purchase, negotiations on a division of the company were broken off and Arriva continued the negotiations with the Danish State on its own. As described above, these negotiations eventually led to the successful sale of Combus to Arriva in May 2001.

(92) At the end of December 2000, the negotiations between Arriva and Connex were resumed, this time with a view to the sale of certain assets (i.e. contracts and busses) of Combus to Connex. Connex was given full access to the due diligence material that had been compiled and Arriva initiated Connex in the details of a business case drawn up by Arriva. Against this background, the parties entered into an agreement, ‘Head of Terms’, which was signed on 21 February 2001 with an agreed price of DKK 230 million. This value corresponded to the book value of the actives involved (busses, infrastructure and existing loss-making public service contracts, in particular in the Copenhagen area).

(93) Following further negotiations, which involved in particular a detailed cash-flow analysis, the final price in the sales agreement signed on 30 April 2001 was DKK 113,9 million. The downward adjustment of the sales price is due to the fact that the cash-flow analysis showed that losses from on-going public service contracts were much higher than initially foreseen. As a consequence, Arriva had to make full use of the provisions made in Combus’ accounts for the loss-making public service contracts.

(94) In response to recital 118 of the decision to initiate the procedure, where the Commission wonders whether Arriva could sell the contracts, when there were legal clauses to prevent the contracts being terminated, the Danish government explains that the sale of the contracts means a straightforward change in the provider, which requires the consent of the recipient (municipalities and counties) and involves bus operations being maintained at the previously fixed price and on the previously agreed terms. In the case of the transfer of contracts from Arriva to Connex, the municipalities and counties involved gave their consent.

2.1.3. THE 1999 AND 2001 RESTRUCTURING MEASURES

(95) The capital injections of 1999 and 2001 have been accompanied by restructuring measures. These are described in detail in the following sections.

(96) The Danish authorities submitted to the Commission in April 2007 four separate notes. Three of the notes, dated 26 April 1999, 15 May 1999, and 18 May 1999, had been written by Kromann and Münter, one, dated 18 May 1999, by KPMG. The Danish authorities consider that the note of KPMG constitutes the operational restructuring plan for the 1999 capital injection, and that the three notes of Kromann and Münter constitute the financial restructuring plan.

(97) KPMG, one of Combus’s accountancy firms, had carried out an examination of the profitability of selected bus contracts in May 1999. In a memo of 18 May 1999, entitled ‘Profitability of selected transport service contracts in the period 1999/2001’, it transmitted its results.

(98) The examination was based on the operating budgets for Combus for the years 1999-2001, as approved by the board of Combus in November 1998, and corrected with a budget estimate drawn up by the management in April 1999. The accountants stated in the memo that the work carried out was not a budget examination. According to the memo, this meant that the accountants had not assessed whether the budgets as a whole contained all the information that was necessary for an independent assessment of Combus’ anticipated development, nor had they assessed whether the budgets reflected the most probable development.

(99) In their memo, the accountants stated that profitability could not be assessed by contract, but rather by bus area. An assessment of the profitability of a bus area was thereby at the same time an indirect assessment of the bus service contracts associated with the bus area. The accountants had examined the operating budgets for 5 bus areas.

(100) The accountants’ summary of the examination is shown in Table 6. Table 6 Accumulated budgets for the period 1999-2001 (in DKK million) Net turnover Result prior to offsetting provisions Provisions 1998 Result before tax Copenhagen Bus Area 927,1 –90,0 60,0 (22) –30,0 Sjælland Bus Area 230,4 4,8 4,8 Århus Bus Area 353,3 19,8 19,8 Vejle Bus Area 351,0 0,5 0,5 Fyn Bus Area 371,6 4,7 4,7 Total selected bus areas 2 233,4 –60,2 –0,2 Other bus areas in total 725,2 34,4 34,4 Overheads –77,4 –77,4 Bus areas + overheads in total 2 958,6 – 103,2 60 43,2 Streamlining and rationalisation 105,9 105,9 Anticipated subsequent result 2 958,6 2,7 60 62,7 Source: Memo on the profitability of selected bus service contracts in the period 1999-2001.

(101) The table shows that the board of Combus expected the total result for the period 1999-2001 to be a profit of DKK 62,7 million.

(102) As shown in the table, the operating budgets for the bus areas and for overheads revealed a total deficit of DKK 103,2 million. The management estimated in April 1999, against the background of implemented or planned streamlining and rationalisation measures, that savings of approx. DKK 105,9 could be realised between 1999 and 2001. These cost-saving measures were the following: — Savings related to civil servants as a result of the change of status from civil servants to normal contracts, — Reduced sickness pay; — Improved logistics amongst civil servants; — Improved planning of duties; — Reductions in administrative personnel; — Reductions in maintenance costs; — Reductions in purchase costs; — Restructuring of head office.

(103) The estimated savings were not divided into bus areas but, according to the memo, the board considered that a very significant part of the savings could be made in the Copenhagen bus area.

(104) The three notes by Kromann and Münter state that the law firm and the accountants had examined the profitability of a representative selection of the company’s contracts with a view to an assessment of the company’s operations, and that following the examination, it was deemed necessary to undertake a further provision of approx. DKK 65 million to cover loss-making contracts for the rest of their term. The company’s equity capital accordingly amounted to DKK 47 million. It was therefore obvious that the company could not satisfy the terms in its loan agreements and that the annual accounts could not be presented without reservations from the accountants regarding the going concern principle, unless the situation changed significantly.

(105) In the opinion of the adviser, a reconstruction of the company would require a capital injection in the range of DKK 300 million. This amount was justified as follows: — The solidity requirement in the different bank loans would increase from 10 % to 20 % on 31 December 1999, rendering necessary an increase in capital (23); — A capital increase of this amount would lead to an appropriate debt/equity ratio.

(106) A capital injection of the amount mentioned would, in the opinion of the adviser, make it possible to resolve the company’s financial situation.

(107) In parallel with the preparation of the sale of Combus to Arriva, the Danish government had requested Arriva to draw up a business and restructuring plan for Combus. In January 2001, the Danish government submitted this restructuring plan to the Commission. The submission took place in two steps, on 8 and 23 January 2001. These submissions formed part of the on-going Case NN 127/00, which led eventually to the Commission’s initial decision.

(108) This restructuring plan consists of the following elements: — A market study; — A detailed description of all circumstances that lead to the severe financial difficulties of Combus; — A detailed description of all changes planned in order to safeguard that the company, on its own, will be able to cover all its costs, inter alia, instalment and financial costs, and to face competition after the restructuring process has been finalised; — A detailed description of the financing of the restructuring.

(109) The market study states that the Danish bus market has stabilised after the deregulation started back in 1990.

(110) Prices for providing transport services by bus had fallen constantly between 1990 and 1997. This development is most likely due to the market opening that started in the early 1990ies. The lowest point of prices seems to have been achieved in 1997; since then, prices have recovered and show a slight, but regularly increase.

(111) The overall Danish market for public bus transport was dominated, in 1999, by four large operators. Together these four operators hold approximately two thirds of the tendered contracts (24).

(112) According to a report of the Danish Competition Authority from 2000, which the market study refers to, the Danish bus market is not likely to be characterised by over-capacity. Due to the fact that regional and local authorities subsidise bus routes to an extent of more than 50 %, a bus transport operator will only offer a bus service if it wins a call for tender. Hence, an operator only concludes a deal regarding the amount of buses and bus drivers necessary to perform bus transport, once it has won a public service contract following a tender procedure.

(113) The report of the Danish Competition Authority also concludes that barriers to entry are low; this is due to two factors: — First, all public service contracts are put up for tender every five years. Accordingly, every year approximately 20 % of the market can be contested by new entrants. — Second, both buses and employees are not too expensive, and can be easily found on the Danish market.

(114) Consequently, the Danish Competition Authority concluded that the market was characterised by buyer power, a conclusion that was illustrated by the price development subsequent to the deregulation of the Danish bus market.

(115) The detailed description of all circumstances that led to the severe financial difficulties of Combus indicates that the company’s financial problems were due to Combus’ aggressive expansion policy on the Danish bus market, in particular in the Copenhagen area. Combus won contracts at excessively low prices, thus creating financial problems. Consequently to the expansion policy, Combus came to operate a large number of loss-making bus services (25).

(116) The submission of 8 January 2001 states, among other things, the measures Arriva would take and the contributions it would make in connection with the purchase of Combus.

(117) In so far as the detailed description of planned changes is concerned, the restructuring plan outlines 6 cost-cutting measures to be taken by Arriva subsequently to Arriva’s purchase of Combus. The restructuring plan also foresees an increase in maintenance and fuel costs, as well as some extraordinary costs relating to the restructuring of Combus.

(118) As regards the outlined changes, costs have been divided into operational, financial and exceptional costs in relation to the restructuring of Combus.

(119) Table 7 provides a brief overview of increases and decreases with regards to operational costs. Table 7 Increases and reductions with regard to foreseen operational costs (DKK p/a) (DKK million) Cost increases Increase in maintenance costs –28,0 Increased fuel prices –3,0 –31,0 Cost reductions Reduction in sickness 3,5 Reduction in the costs of repairs 7,0 Reduction in insurance costs 2,0 Closing and disposal of business premises 3,0 Merger of headquarters 39,0 +54,5 Annual net effect +23,5 Source: Arriva

(120) As disclosed in Table 7, overall operational costs will be reduced by reductions in staff sick days, in the costs of repairs of buses, insurance costs, administrative costs and sales of superfluous infrastructures.

(121) As regards the staff sick days, the restructuring plan confirms that Combus’ employees are sick more frequently than Arriva’s employees. Arriva intends to introduce its own methods to following up on employees with high sick absence. By doing so, Arriva expects to reduce costs up to an amount of DKK 3,5 million.

(122) As regards the reduction in costs for repairs on buses and insurances, Arriva intends to introduce its own methods and insurance contracts in order to cut Combus’ costs on those areas. Thereby, Arriva expects to reduce costs for employees insurances up to an amount of DKK 2 million and as for vehicles insurances up to an amount of DKK 7 million.

(123) In so far as reduction in administrative costs is concerned, Arriva expects the merger of the companies’ headquarters will result in cost cuts amounting to DKK 39 million as from 2002.

(124) Finally, Arriva intends to sell four depots which will be superfluous after the merger. By doing so, Arriva expects to cut costs to a level of DKK 3 million p/a. In total, the cost cuts foreseen by Arriva will amount to DKK 54,5 million p/a.

(125) Arriva, however, foresees an increase in maintenance costs. According to information provided by Combus, Combus had maintenance costs amounting to DKK 70 000 per bus in 2000. Arriva anticipates an increase up to DKK 120 000 per city bus and DKK 80 000 per regional bus, resulting in an increase in maintenance costs amounting to DKK 28 million. Furthermore, Arriva foresees a fuel costs increase amounting to DKK 3 million p/a.

(126) As to the expected reduction in financial costs, Arriva is contractually obliged to reimburse the total outstanding debt of Combus to its private lenders.

(127) In this respect, the sales agreement foresees that the Danish State and the private commercial debtors of Combus shall partially write off Combus’ debt prior to the sale to Arriva, leaving the undertaking with a debt of DKK 208 million. Arriva then, upon purchase, has to pay immediately this outstanding debt.

(128) The restructuring plan foresees that Arriva replaces the debt from private lenders by an intra-group loan. The annual interest payments for this intra-group loan amount to DKK 13,5 million.

(129) As regards the exceptional costs relating to the restructuring of Combus, Arriva estimates that they will be DKK 35,6 million for the period 2001/02. Approximately DKK 15 million relates to necessary dismissals in order to reduce general expenses (26). The outstanding amount relates to the integration of the respective companies IT systems (DKK 5 million), to the purchase of new bus driver uniforms (DKK 7,2 million), to legal and economical expenses related to the merger and the restructuring (DKK 7 million) and finally to other small expenses (DKK 2,5 million).

(130) Arriva also intends to cut costs by successively terminating all of Combus’ loss-making contracts. Furthermore, Arriva proposes to make reserves in relation to the expiration of the contracts in Copenhagen and Aalborg, due to the risk that these city buses cannot be used to traffic other routes, as they are either out of date (as for Copenhagen, the reserve will amount to DKK 45 million) or too specific to be used in another city (as for Aalborg, the reserve will amount to DKK 18 million).

(131) The restructuring plan foresees that Combus will return to economic viability as from 2006, thanks to the measures taken by Arriva. Table 8 shows the forecasts for the turnover and the profits/losses of Combus for the period 2000 to 2007. Table 8 Forecasts for the turnover and the profits/losses for period 2000-2007 (in DKK million) Year 2000 2001 2002 2003 2004 2005 2006 2007 Turnover 1 089 1 055 934 824 696 440 206 60 Profit/Loss – 118 –66 –59 –53 –43 –21 +6 +2

(132) The financing of the restructuring costs is achieved through: — The restructuring aid granted by the Danish government, — The restructuring of Combus’ debt, and — The own contribution of Combus and Arriva.

(133) The details of the contribution of the Danish government are explained in the description of the privatisation process above. A table summarising the contributions can be found in the next section.

(134) The contribution of Combus’ private creditors consisted in a write-off of debts of DKK 100 million.

(135) The own contribution of Combus and Arriva consisted in the following elements: Arriva — The pay-off of the remaining loans immediately after the purchase, — Direct contribution to the restructuring costs of DKK 33,6 million, — The sale, at a price of DKK 113,9 million, of 50 % of Combus to Connex by Arriva, — The sales price of DKK 100. Combus — The savings foreseen in the restructuring plan, explained above.

2.1.4. SUMMARY OF THE FINANCIAL SUPPORT OF THE DANISH STATE TO COMBUS

(136) In table 11 of the initial decision and in recital 68 and Table 8 in the decision to initiate the procedure, the Commission summarised the restructuring measure paid to Combus by the Danish State. There is an apparent discrepancy between the numbers, which is explained by the fact that table 7 in the initial decision expresses the amounts in 2001 in net present value, whereas table 8 of the decision to initiate the procedure expresses the amounts in real terms.

(137) The Danish government, in its observations, drew the Commission’s attention to the fact that DKK 100 million being shown twice in table 8 of the decision to initiate the procedure was misleading as Combus had only received this amount once (27). The Commission, in view of this observation of the Danish government, has adjusted the table, as can be seen in Table 9 below. Table 9 Corrected summary of the financial support of the Danish State to Combus, in real terms Type of support Year Amount (in DKK million) Provision in the opening accounts for civil servants (this payment has been authorised through the part of the initial decision that the CFI upheld) 1995 140 One time payment to civil servants for statute change (this payment has been authorised through the part of the initial decision that the CFI upheld) 1999 100 Capital increase 1999 200 Subordinated loan (This subordinated loan has been written off in 2001) 1999 100 Capital increase 2001 140 Guarantees (see detailed description below table 9) 2001 and following 37,1 Total 1995 to 2001 717,1

(138) In Table 8 of the decision to initiate the procedure, the Commission stated the maximum amount of the guarantees provided in 2001 in connection with the conclusion of the sales agreement with Arriva.

(139) In Table 10 below, in addition to the maximum cover, the Commission shows also for information the actual amounts paid in relation to the guarantees at the end of February 2005. Table 10 Summary of claims and payments from the guarantees provided Guarantee Maximum cover Amount paid Environmental costs DKK 22,5 million No payments Reduction in equity capital DKK 35,5 million DKK 20,5 million Further commitments in relation to the equity capital guarantee DKK 0,9 million DKK 0,9 million Tax demand from the period prior to the transfer of Combus Unlimited Claims for payment of DKK 6,2 million have been submitted (current case at the National Tax Tribunal) Losses as a result of civil servants previously employed Unlimited No claims or payments Losses in connection with the sale of Combus International (Comfort Bus Danmark A/S) Unlimited DKK 9,5 million (partial repayment of the payment of dividends from Comfort Bus Denmark A/S u/k) Any losses related to the audit investigation into Combus A/S Unlimited No claims or payments Total DKK 37,1 million

(140) The two previous tables can be summarised as follows: Table 11 Summary of State support Measure and year Amount (in DKK million) Comment Capital increase, 1999 200 Subordinated loan, 1999 100 Written off in 2001 Capital increase, 2001 140 Total amount paid under guarantees, 2001 37,1 The cap of limited guarantees was DKK 58,9 million, out of which DKK 21,4 million have been drawn upon; for the unlimited guarantees, a total of DKK 15,7 million has been drawn Total 1999 300 Expressed in real 1999 terms Total 2001 177,1 Expressed in real 2001 terms

(141) The above figures slightly deviate from both the figures set out in the initial decision, table 7, and the figures set out in the decision to initiate the procedure. These deviations are explained by the fact that the initial decision had converted the numbers into 2001 net present value, and that both the initial decision and the decision to initiate proceedings were not coherent as to the calculation of the monetary value of the guarantees.

2.1.5. DEVELOPMENT OF ARRIVA/COMBUS AFTER THE PRIVATISATION

(142) After the share sale agreement had been entered into on 2 April 2001 (28), Arriva proceeded as follows: — Combus became a 100 % subsidiary of Arriva. — In an agreement of 11 April 2001, Arriva Scandinavia A/S, another 100 % subsidiary of Arriva, acquired from Combus assets and financial liabilities in exchange of one share in Arriva Scandinavia, which has a nominal value of DKK 1 000. The assets and liabilities included in this agreement are listed and specified in the sales contract. They cover all assets and all liabilities on the books of Combus on that day. — On 1 May 2001, 50 % of the assets (i.e. contracts, busses, and infrastructure), owned by Combus at the time of the sale of the company to Arriva, were transferred to Connex by Arriva Scandinavia A/S for a cash price of DKK 113,9 million (see detailed explanation above).

3. THE COMMISSION’S DOUBTS

(143) In recital 121 of the decision to initiate the procedure, the Commission stated five doubts. The first concerns the question of whether the 1999 and the 2001 restructuring measures constitute two separate measures, or whether they should be assessed as one single measure. The subsequent four doubts concern the private investor test, and the assessment of the restructuring measures under the 1994 and/or 1999 restructuring guidelines, in case they constitute State aid.

4. COMMENTS FROM DENMARK AND INTERESTED PARTIES

4.1. REPLY OF THE DANISH GOVERNMENT

(144) The comments of the Danish government concern the possibility to terminate Combus’ public service contracts, the private investor principle and the compatibility of the aid with the 1999 restructuring guidelines.

4.1.1. THE TERMINATION OF COMBUS’ PUBLIC SERVICE CONTRACTS

(145) The Danish government considers that, contrary to what the Commission had stated in its decision to initiate the procedure, public service contracts concluded according to Article 14 of Regulation (EEC) No 1191/69 cannot be terminated before their expiry.

(146) The Danish government points out in this respect that the Commission had obviously misinterpreted Article 14(4) of Regulation (EEC) No 1191/69 in its decision to initiate the procedure. It draws the Commission’s attention to the fact that, as expressly stated in the provision, a transport service may be terminated in accordance with Article 14(4) only if the transport service is not covered by the contract system or the public service obligation. The contracts that Combus had entered into were covered by the contract system, as they were general contracts won during tendering rounds. This was confirmed by the CFI in paragraph 78 and following of the Combus judgment. The contracts could not, therefore, be terminated on the basis of Article 14(4).

(147) If Combus however had interrupted, discontinued or in any other way sought to end the transport agreements entered into without having any legal basis for doing so in the contracts, the company would in fact have been liable for breach of contract under Danish civil law.

4.1.2. APPLICATION OF THE MARKET ECONOMY INVESTOR PRINCIPLE

(148) The Danish government considers that the measures taken by the Danish government in the present case should be regarded as investments made in accordance with the Market Economy Investor Principle.

(149) In reply to recital 89 of the decision to initiate the procedure, where the Commission had stated that a private investor might have conducted itself as the Danish State did, if it was going to be less costly to restructure the company with a view to a sale than to allow it to go bankrupt, the Danish government concedes that in the case at issue, the direct losses in the event of bankruptcy would not have exceeded the loss made in the sale.

(150) However, despite the fact that at face value, the sale was therefore ‘more expensive’ than a bankruptcy, a sale was nevertheless preferred by the Danish government. Indeed, the Danish government, following the analysis provided by its advisers, considered that it would probably have been more costly in the long term to allow Combus to go bankrupt than to sell the company, due to latent indirect losses and damage to future privatisations. In order to underline these considerations, the Danish government presents a ‘group assessment’ of the decision to privatise Combus and argues that, with regard to the prospect of future privatisations, it was important to preserve the State’s reputation.

(151) In the view of the Danish government, Member States’ investments cannot simply be compared with those of ordinary private investors, as the latter normally require a return on the investment in a far shorter time. In this connection, it considers that the Court of Justice has accepted in many cases that the State as an investor is more likely to act in the same manner as holding companies or private business groups which pursue a more long-term investment policy taking account of a global or sectoral company strategy (29). The Danish government quotes in particular Case C-305/89, Italy v Commission (30): ‘Although the conduct of a private investor with which the intervention of the public investor pursuing economic policy aims must be compared need not be the conduct of an ordinary investor laying out capital with a view to realising a profit in the relatively short term, it must at least be the conduct of a private holding company or a private group of undertakings pursuing a structural policy — whether general or sectoral — and guided by prospects of profitability in the longer term.’

(152) The Danish government argues that it was taking the same approach when assessing whether to allow Combus to go bankrupt.

(153) The Danish government maintains its position, set out in recitals 86 and 87 of the decision to initiate the procedure, with regard to consideration for the State’s reputation and the references to Case C-303/88, Italy v Commission, made in that connection.

(154) The Danish government recalls that the Commission has previously noted — for example in its intervention at the CFI, quoted in the last point of paragraph 106 of the Combus judgment — that ‘a rollback of public-sector involvement generally serves to promote free trade’.

(155) For the Danish government, the connection between the State’s image as a company owner and the privatisation of public companies is therefore clear: only if the State is allowed to protect its reputation as a company owner and a serious and responsible investor can future privatisation be ensured, leading to increased competition and an improvement in the market situation for operators on that market throughout the EU.

(156) The aid measures in connection with restructuring and privatisation of Combus were, according to the Danish government, very much based on consideration for the State’s reputation as an employer, investor and company owner. If the State had allowed Combus to become bankrupt, it would probably have had a negative impact on interest rates and general loan terms for State-owned companies as regards financial institutions in both Denmark and abroad.

(157) In this respect, the Danish government explains that over the last few years, Denmark has privatised a number of State-owned companies, and plans further privatisations. One of the companies converted into a public limited company with a view to privatisation after the privatisation of Combus is Post Danmark A/S (31). The Danish State has just entered into a conditional agreement for the sale of 25 % of the shares in the company. The selling price for 22 % of the shares (the last 3 % will be offered to employees) which were sold to Post Invest (part of the CVC Group) is DKK 1,27 billion.

(158) Prior to the conversion into a public limited company and the partial privatisation, the company’s civil servants were bought out in 2001. At that time, Post Danmark had a total of approx. 30 000 employees, approx. 11 800 of whom were civil servants. The civil servants were given the offer of moving to employment on a group contract basis, while retaining the right to a civil servant pension. A large majority of 96 % accepted this. This meant that more than 10 500 civil servants chose employment on a group contract basis in accordance with a model that meant a lump sum of DKK 50 000 before tax from Post Danmark. At the same time, they accepted a broader interpretation of the duties they could be transferred to. The other approx. 650 civil servants wanted employment on a group contract basis in accordance with a model that to all intents and purposes gave them the same terms as their civil servant status. This model did not lead to any lump sums. A smaller percentage of the civil servants, approx. 480, wished to retain their civil servant status with the State. When Post Danmark A/S was established, they were therefore seconded from the State to the public limited company.

(159) In connection with the establishment of Post Danmark A/S, an opening balance of approx. DKK 1,7 billion (DKK 1,190 billion after tax) was set aside for an actuarially calculated lump sum payment to the State to bring down future annual pension contributions from 20 % to 12 % of salaries for former and remaining civil servants for whom the company still had to pay pension contributions, etc. The amount was paid in 2002. Equality of treatment regarding pensions was thereby achieved between former civil servants and those employed on a group contract basis.

(160) In the Danish Government’s opinion, its negotiating position with the civil servants in Post Danmark would have been extremely difficult, and the outcome of the negotiations much more costly, if the Danish State had allowed Combus to go bankrupt, thereby leading to massive unemployment of those civil servants who had given up their civil servants status prior to the privatisation of Combus.

(161) In this context, the Danish government points out that employment as a civil servant means that the individual civil servant basically has a guarantee of employment until pension age and a subsequent lifelong pension. These rights are surrendered in transferring to employment on a group contract basis. When State companies are placed under private control, civil servants may regard it as an unjustified transfer and thereby request redundancy. This triggers off a particularly large amount of compensation to the individual civil servant.

(162) This makes it extremely important for Denmark, from a financial point of view, that an agreement can be reached with any civil servants on a transfer to employment on a group contract basis in return for a reasonable amount of compensation prior to privatisation of State-owned companies.

(163) The Danish government considers that the amount of compensation demanded by civil servants is largely dependent on whether they feel reasonable job security after the transfer to employment on a group contract basis. The effect of the State leaving the former civil servants in the lurch by letting the company become bankrupt, shortly after concluding agreements with the civil servants on a transfer to employment on a group contract basis, would most likely be that all civil servants in a similar situation in the future would demand significantly higher compensation before surrendering their status.

(164) In this context, the Danish government also mentions the example of the sale of certain divisions of Banedanmark (32). Banedanmark’s Advisory Division was sold to WS Atkins International Limited on 1 July 2001 (33). The cash selling price was DKK 70 million. In addition to the selling price, the State acquired a cash payment of approx. DKK 35 million.

(165) Banedanmark’s advisory division employed 326 employees, 66 of whom were civil servants. In the transfer of the Advisory Division, the civil servants basically remained civil servants in Banedanmark, as, according to their status as civil servants, they had no obligation to transfer to the new employer. There was, however, the option of the individual civil servants voluntarily being seconded to the buyer.

(166) Civil servants who wanted to transfer to employment on a group contract basis with the buyer were offered 15 months’ salary from Banedanmark at the time of severance. The offer to buy them out applied for up to a year after the date of transfer. The cost of buying out the civil servants, which was to be defrayed from the proceeds of the sale, could have come to DKK 23 million if all the civil servants had transferred to employment on a group contract basis.

(167) At the moment, Denmark is aiming at the total sale of Banedanmark’s Civil Engineering Division (34). The civil engineering division had a turnover of approx. DKK 1,3 million in 2004 and employed about 1 470 staff at the end of the year, 740 of whom were civil servants. In the event of a sale of the civil engineering division, the civil servants would not be obliged to transfer to employment with the buyer and a solution to the civil servant issue will therefore have to be found, as with other privatisations.

(168) Another option for privatisation under consideration is the sale of the Danish railway company DSB. DSB is an independent public company that operates passenger transport as a public service after negotiations on the basis of a transport contract entered into with the Danish State. Around half of the company’s 8 500 employees are civil servants. The privatisation of DSB would mean the transfer to group contract conditions for all these civil servants.

(169) Denmark considers that, if the State had allowed Combus to become bankrupt after having compensated the civil servants for transferring to group contracts, it would have been impossible to persuade civil servants to go over to group contracts instead of civil service employment in the event of future privatisations.

(170) The State would thereby be prevented from, or in any case have significantly reduced options for privatising State-owned companies with civil servants. Denmark considers that at best, bankruptcy of Combus would have damaged the State’s credibility and the civil servants would, as a result, have demanded better terms in the form of significantly higher amounts of compensation to transfer to employment on a group contract basis and renounce their civil servant rights. Using Post Danmark as an example, a doubling of the amount of compensation to individual civil servants in relation to that company alone would have meant a further outlay for the Danish State of DKK 500 million.

(171) The Danish government also points out in this context that it had already allowed a company, converted to a public limited company a short time before, to become bankrupt, namely Statens Konfektion, which was converted into a public limited company in 1992. Prior to the conversion, all the civil servants were offered employment on a group contract basis in return for financial compensation. When the Armed Forces, which were the company’s biggest customer, subsequently decided to invite tenders for their supply contracts, the company’s business base disappeared. The company therefore went bankrupt in 1992, which led to harsh criticism of the Danish government including by those now employed on a group contract basis.

(172) The Danish government considers that in the light of experiences from Statens Konfektion, it had no choice in connection with the sale of Combus, as yet another bankruptcy would have been devastating for negotiations with civil servants in connection with preparations for future privatisations.

(173) The Danish government furthermore explains that if it is not possible to transfer civil servants to a group contract in connection with privatisation, making the civil servants redundant is often the only real alternative because it would not be possible to offer them other work within their areas of employment which they would be obliged to accept. It has been estimated in connection with the sale of shares in Post Danmark that it costs DKK 2 million to make a civil servant redundant. Such expenditure per civil servant for future privatisations would be devastating for the State’s privatisation plans and the expenditure on this would, to a great extent, undermine the financial benefits of privatisation. It is clear that such expenditure would far exceed the financial burden to the State of the capital injections into Combus.

(174) Beyond the issue of changing the status of civil servants in order to prepare companies for privatisation, Denmark considers that a bankruptcy of Combus would have damaged the State’s reputation as a responsible investor and would have had a negative influence on all the State’s financial activities and future investment options. In particular, the Danish government considers that a bankruptcy would have had a negative effect on interest rates and general loan terms for other State-owned companies.

(175) In conclusion, it is the Danish government’s view that the State — particularly in the light of the special problem that manifested itself in relation to the civil servants — would not have been acting as a responsible and loyal investor if it had chosen to allow Combus to become bankrupt.

(176) With respect to recital 88 of the decision to initiate the procedure, where the Commission stated that the ECJ only accepts consideration for the State’s reputation as grounds for an injection of capital if there is a prospect of the company becoming profitable enough to convince a private investor in the same situation to assume the risk at the time of carrying it out, the Danish government observes that Arriva actually assumed the risk for the undertaking when the company purchased Combus.

4.1.3. COMPATIBILITY WITH THE 1999 RESTRUCTURING GUIDELINES

(177) The Danish government considers that the contested measures fulfil all conditions set out in the 1999 restructuring guidelines. With respect to the points where the Commission had raised doubts in its decision to initiate the formal proceedings, the Danish government presents the following observations:

(178) As regards the question of whether the aid measures in 1999 and 2001 respectively constitute one or two separate measures, the Danish government asserts that the measures were connected so closely chronologically and in purpose that they should be regarded as one aid measure. As a result of this, the 1999 restructuring guidelines should apply to this aid measure. Denmark justifies this point of view with several arguments.

(179) The Danish government notes in connection with this that the Commission stated the following in point 3.4.6 of the initial decision with regard to the question of ‘one time, last time’ aid: ‘In the case of Combus, the chronology and the purpose of the capital injections made by the Danish government, as well as Combus’ situation also suggest that the two measures should be treated as part of a continuing restructuring process. In particular, the first injection of capital in 1999 served to reduce the debts of the company that had resulted from the heavy losses in previous years. There had also been efforts to modify drivers’ contracts. The clear intention was the privatisation of the company, which forms the final part of the restructuring strategy.’

(180) The Commission maintained this opinion in paragraphs 50 and 54 of the defence it submitted to the CFI. In this connection, the Danish government would point out that the Commission’s assessment of the measures as being ‘one time, last time’ does not appear to have given rise to criticism in the Combus judgment (35).

(181) The Danish government recalls that in Case T-11/95, BP Chemicals (36), the CFI found that the assessment as to whether it is reasonable to separate one payment from another is to be made taking into account the chronology of the injections of capital, their purpose and the company’s situation at the date when the decisions on the individual injections were made.

(182) The two measures had the same purpose. A political agreement on the reorganisation and sale of shares in Combus was entered into on 26 November 1998 when the then government reached an agreement with the opposition on the Budget for 1999) As expressly stated in the Finance Committee’s bill of 27 May 1999, the purpose of the injection of capital in 1999 was to reorganise Combus prior to selling the shares, i.e. fully privatising the company.

(183) The reason there was a need for reorganisation with a view to privatisation because a significant deterioration had taken place in the company’s economy. This was how it was established that Combus’ equity capital as at 31 December 1999 would come to approx. DKK 47 million, which should be seen in relation to a requirement for equity capital of at least DKK 125 million on the part of the company’s lenders.

(184) The political agreement on privatisation could therefore only be carried out if the Danish government ensured that Combus had a sufficient capital base to continue operating until a buyer was found.

(185) The aid in 2001 had exactly the same purpose as the injection of capital in 1999. In 2000, a potential buyer was found and the writing off of the subordinated loan from 1999 and the guarantees provided were intended as the last piece in the economic puzzle that would allow the sale of all shares in Combus. The measure in 2001 was therefore the final stage in making the company more saleable.

(186) The purpose of the two measures was therefore exactly the same: to make Combus more saleable with a view to privatisation. There was therefore a direct and obvious connection — legally, financially and logically — between the measures in 1999 and 2001.

(187) The two measures have a close chronological connection. As a result of the political agreement on the privatisation of Combus, the Finance Committee’s bill of 27 May 1999 was passed. The Danish government hereby injected capital amounting to a total of DKK 300 million, DKK 100 million of which was subordinated loan capital. The subordinated loan capital was established through a loan agreement of 30 May 1999.

(188) The Finance Committee’s bill of 13 December 2000 authorised the Ministry of Transport to sell all shares in the public limited company, Combus, which was fully owned by the Danish State.

(189) The Minister of Transport was also authorised to provide a number of guarantees to buyers in connection with the conclusion of a sales agreement. The guarantees, mentioned in the bill, were part of the basis of the sales agreement of 15 January 2001. The Danish Parliament’s Finance Committee was informed of these guarantees in bill 190 of 25 June 2002.

(190) Little more than 18 months passed between the date of the decision to pay the first injection of capital and the sale of Combus. Considering the size and importance of the company to the Danish State and the complicated procedures required to obtain tenders from interested buyers etc., the Danish government is of the opinion that the two capital injections were so closely connected chronologically that there can be no doubt that this was one — and only one — financial measure.

(191) In the opinion of the Danish government, it must be significant that the date of the decision to implement the measure in 2001 depended solely on when the Danish government had a sufficient basis for assessing the need for a capital injection and guarantees etc. in connection with a sale. The date of the measures in 2001 was therefore completely dependent on the duration and result of the sales process.

(192) In this context, the Danish government recalls also the facts of BP Chemicals, where the first injection was made on 1 October 1992, the second injection was approved by the Board on 2 December 1993 and the third injection was approved by the Board on 29 June 1994.

(193) The Court referred, in paragraph 178 of the judgement, to the decisions on the three capital injections being made over a relatively short period from October 1992 to July 1994. As regards the chronological relationship between the second and third capital injections, the Court commented that these were chronologically very close to each other.

(194) In this context, the Danish government points out that the injection of capital in 2001 could not have been made earlier as the negotiations with the buyer had to be concluded before the extent of the need for capitalisation in connection with the sale could be determined.

(195) Combus’s situation at the dates of the capital injections. The Danish government endorses the Commission’s description in recital 75 of the decision to initiate the procedure, according to which Combus was in serious financial difficulties in 1999 and 2001, which was mainly due to the company having entered into unprofitable contracts for bus transport in previous years. The Commission concludes that the financial situation in Combus was therefore unchanged at the stated dates.

(196) The Danish government explains furthermore that, in 1998-2000, Combus had a significant accounting deficit, which can be almost exclusively attributed to the loss-making contracts in the Copenhagen area. In addition, in 1998 and 1999, significant amounts of DKK 65 000 000 and DKK 53 637 000 respectively were allocated to the accounts to cover future losses from the loss-making contracts. The requirement for provisions for loss-making contracts was due to the company being bound by the bus service contracts until their expiry.

(197) The Danish government considers that, when the Court in BP Chemicals states that the decision as to whether it is one and the same aid measure has to take into account the ‘situation at the date when the decisions on the individual injections were made’, this must be because it is to be investigated whether, in the period between the individual injections, changes occurred in the company’s financial situation that demonstrate that the injections — despite any chronological and relative connection — actually cover different needs. In the view of the Danish government, this is not the case here, for the following reasons:

(198) The injections of capital in both 1999 and 2001 were intended to cover the need for capital that had arisen because the company had entered into loss-making contracts in the period prior to 1999. The fact that this was done in two stages is only because it was not until the conclusion of negotiations with the buyer Arriva that it became clear what the real extent of the need for capital was, although, seen objectively, this need already existed at the time of the first injection of capital in 1999.

(199) Conclusion: It is therefore the Danish government’s opinion that all the criteria to which importance was attached in BP Chemicals as regards the assessment of whether several chronologically separate injections of capital constitute one and the same financial measure are met. Therefore the requirement for ‘one time, last time’ aid laid down in the restructuring guidelines is met in relation to the total injections of capital in 1999 and 2001.

(200) It is the opinion of the Government that, following the injections of capital in 1999 and 2001, Combus was economically viable. The fact that it was not possible to achieve a profit prior to 2006 was only due to the loss-making contracts that Combus had entered into in connection with the licensing rounds.

(201) The sale of all shares in Combus to Arriva is, in the opinion of the Danish government, proof that Combus was entirely viable after the provision of restructuring aid. A private investor such as Arriva would not have taken the significant financial risk of buying Combus unless Arriva had, following an extensive due diligence process, found that Combus was a viable company with a satisfactory future earnings potential in relation to standard market economy terms.

(202) The Government notes that, in recitals 107 and 108 of the decision to initiate the procedure, the Commission raised a question regarding, firstly, the termination of contracts and, secondly, the difference between the accumulated deficit and the aid paid.

(203) The comments of the Danish government with respect to the possibility of terminating public service contracts have already been outlined above.

(204) As regards the question of the difference between the accumulated deficit of DKK 360 million in the period 2000-2005 and the total aid of DKK 291 million paid in 2001, the Government observes that the Commission’s statement must be due to a misunderstanding.

(205) The amount stated for the accumulated deficit in the period 2000-2005 is correct but funds were provided to Combus in 2001 exceeding this accumulated deficit. As regards the funds provided by the Government, these amounted to DKK 291 million, cf. the comments that, when calculating the amount of aid paid, it is clearly the actual amount paid under the guarantees that is to be included.

(206) A more important consideration, however, is that the amount paid by the Government should be added to the creditor’s debt remission of DKK 100 million. The capital provided in 2001 therefore exceeded the estimated accumulated deficit for the period 2000-2005.

(207) The Danish government first considers that the 1999 restructuring guidelines must be interpreted to mean that the use of measures to mitigate the competition distorting effect of the aid on competitors is optional and is only to be demanded where such measures are necessary. This is emphasised by the use of the word ‘ought’ in point 35 of the guidelines and the whole of point 39 ii). Moreover, the Danish government points out that the Commission did not request or demand that Arriva make counter-concessions or implement measures that could mitigate potential distortion of competition in connection with the sale when adopting its initial decision.

(208) Secondly, the Danish government points out that there is no structural overcapacity in the bus transport sector. In addition, it recalls that the Danish competition authorities have stated that there is particularly active a