COMMISSION DECISION of 11/03/1999 declaring a concentration to be compatible with the common market (Case No IV/M.1462 - TRW/LUCAS VARITY) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Brussels, 11-03-1999

to the notifying party

Dear Sirs,

Subject: Case No IV/M. 1462 - TRW/LucasVarity

Notification of 10 February 1999 pursuant to Article 4 of Council Regulation No 4064/89

1. On 10 February 1999, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 (1) by which TRW Inc., a US company, will acquire sole control of LucasVarity plc, a company incorporated in the United Kingdom.

(1) OJ L 395, 30.12.1989, p.1; corrected version OJ L 257 of 21.9.1990, p. 13; as last amended by Regulation (EC) No 1310/97, OJ L 180, 9.7.1997, p. 1, corrigendum in OJ L40, 13.2.1998, p. 17.

2. After examining the notification, the Commission has concluded that the notified concentration falls within the scope of Council Regulation (EEC) No 4064/89 and does not raise serious doubts as to its compatibility with the common market and with the functioning of the EEA Agreement.

I. THE PARTIES

3. TRW Inc. ("TRW") is a US company based in Cleveland, Ohio. The company provides technology products and services to the automotive and space, defense and information systems industries. The company's principal products and services include the design, manufacture and sale of automotive systems and components to the automotive industry globally (i.e., occupant safety, engine valves, steering gears, suspension components, fasteners, switches and electronic controls) as well as spacecraft, software and systems engineering support services and electronic systems, equipment and services. TRW's manufacturing plants are located in the United Kingdom, Germany, Italy, Spain, the Czech Republic, Brazil and China.

4. LucasVarity plc ("LucasVarity") is a public company, incorporated in the UK, which designs, manufactures and supplies advanced technology systems, products and services to the automotive and aerospace industries world-wide. Within the automotive industry the company's principal areas of activity are light and heavy vehicle breaking systems, diesel fuel injection systems, electrical and electronic systems including electronic controls, wiring and body electrical systems as well as aftermarket products and services. In the aerospace industry, the company is active in engine controls, power generation, flight controls, cargo systems, hosts and winches, missile actuation and customer support. LucasVarity's manufacturing plants are located in the United Kingdom and Malaysia.

II. THE OPERATION

5. The notified operation concerns the acquisition of sole control of LucasVarity by TRW, which will be carried out by way of simultaneous public tender offers in the United Kingdom and the United States. The offers are conditional, inter alia, upon the acquisition by TRW of more than 50% of Lucas Varity's voting rights, which are normally exercisable at general meetings. Following the operation, TRW expects to hold at least 90% in nominal value of LucasVarity securities, but in any event more than 50% of the voting rights normally exercisable at general meetings of LucasVarity at the time the offer becomes or is declared unconditional in all respects.

III. CONCENTRATION

6. The acquisition by TRW of LucasVarity constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

IV. COMMUNITY DIMENSION

7. The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 billion (2) (EUR 9,550 million for TRW in 1997 and EUR 5,804 million for LucasVarity in 1998). Each of TRW and LucasVarity has a Community-wide turnover in excess of EUR 250 million (EUR 2,797 million for TRW in 1997 and EUR 2,875 million for LucasVarity in 1998), but they do not achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension.

(2) Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C66, 2.3.1998, p25). To the extent that figures include turnover for the period before 1.1.1999, they are calculated on the basis of average ECU exchange rates and translated into EUR on a one-for-one basis.

V. COMPETITIVE ASSESSMENT

8. The economic sectors involved in the proposed concentration are the automotive, and space and defense sectors.

9. Both TRW and LucasVarity are active in the manufacture and supply of products to the space and defense industry. TRW's products include military and civilian spacecraft equipment, propulsion subsystems, electro-optical and instrument systems, spacecraft payloads and micro-electronics for spacecraft, amounting to approximately 17% of TRW's total sales. LucasVarity manufacturers engine control systems, power generation and distribution systems, flight controls, cargo handling, hoists and winces and flight actuation. Sales in this sector represent approximately 16% of LucasVarity's total sales.

10. Both companies are involved in tactical missile programs, whereby LucasVarity supplies electro-magnetic actuators and controls that operate missile flight control surfaces and TRW solely thrust vector controls. They manufacture different products in this sector, not in competition with each other. Consequently, as there seems to be no overlaps between the activities of the parties in the space and industry, this sector is therefore not considered further.

A. Relevant product markets

(i) Automotive electronics industry

11. Automotive electronics and electrical components used in automotive vehicles include electronic systems for braking and engine control, entry systems, safety functions, convenience like mirror adjustments, and driver information. Such products are sold directly to automobile manufacturers for installation on new vehicles (the Original Equipment Manufacturer "OEM") or as replacement products to OEMs and their authorised dealers (the Original Equipment Services "OES") or as replacements products to independent customers ("independent aftermarket"). Both companies manufacture electronic components in this sector but for different purposes. TRW provides electronic components for airbags and seat belts and LucasVarity for gasoline and diesel fuel injection systems. Sales in this sector constitute [less than 10%] of the total sales of TRW (3) and [less than 10%] of the total sales of LucasVarity.

(3) All figures given by the parties for TRW's OEM sales include its sales in the OES channel.

12. According to the parties, there are no affected markets. A competitive overlap exists, however, between TRW's and LucasVarity's activities in respect of switches (driver-operated switches and hidden switches), entry systems (security devices and remote keyless entry systems), relays, fuse boxes, body controllers and information displays. For the purpose of the notified concentration, these markets constitute the relevant markets in this case.

13. Switches: can be divided into driver-operated switches and hidden switches. Driver-operated switches are the interface between a driver and a number of actuators or signals. Such switches are generally grouped according to their geographical location within the interior of the vehicle (steering and column switches, window and window-lift switches, console panel or dashboard switches and seat, mirror and other switches). Driver-operated switches are marked by their visibility and ergonomic characteristics. The parties submit that these switches constitute a single segment within the market of switches due to their characteristics, identical sales channels and the increasing tendency of the automobile manufacturers to order these switches from the same suppliers. Hidden switches constitute the interface between a device operated by the occupant (for example a pedal) and an actuator (for example a break light) but which are neither operated nor visible to the occupant. Such switches include plunger switches (break-light switches, handbrake switches, door, hood and trunk switches, glove-box switches and gearbox switches), fluid pressure switches and ignition switches.

14. According to the parties, switches are produced following similar core manufacturing processes and thus they generally have the same core technology. Manufacturers produce switches in accordance with customer specifications required for the vehicle platform in question and are therefore capable of manufacturing virtually all types of switches. In view of the supply-side substitution, there is no need to define separate markets for driver-operated switches and hidden switches. The precise definition of the relevant market can, however, be left open since there is no creation or strengthening of a dominant position irrespective of the market definition chosen.

15. Entry systems: include mechanisms, which enable access to the vehicle, its operation and its protection from infraction. Such appliances include intrusion sensing devices, alarm controllers, central locking functions, immobilizers and remote keyless entry products. According to the parties, such products are to an increasing extent manufactured and sold as single systems, which combine the different functions into one module.

16. Relays: constitute interfaces between low-current and high-current automotive electronic devices.

17. Fuse boxes: are appliances, which link fuses in a physical location. The main power supply for electrical items in an automotive vehicle is passed through a set of fuses located in a fuse box.

18. Body controllers: control one or more functions in the vehicle, for example, windscreen wiper intervals or heated rear screen timers. Body controllers include remote control input (wires coming from sensors and switches) and remotely controlled outputs (wires leading to displays and actuators). Information displays: consist of electronic devices employed to provide information to the driver either in the form of a primary (such as temperature or speed) or secondary (such as time or radio station) display.

(ii) Independent aftermarket sales

19. In 1992, TRW divested its global automotive independent aftermarket distribution of certain steering gear, suspension and engine components to Federal-Mogul Corporation ("Federal-Mogul"). TRW continues, however, to supply these products to Federal-Mogul under the trademark "TRW". TRW supplies certain steering locks, switches and relays on the independent automotive electronics aftermarket, through independent wholesalers and service outlets, in Italy, Germany, the United Kingdom and France.

20. LucasVarity holds an aftermarket division ("Lucas Aftermarket Operations, LAO") possessing aftermarket centres on its primary aftermarkets in the United Kingdom, Germany, France and Italy. It has recently divested its wholly-owned wholesale network in the United Kingdom.

21. According to the parties, the overlap in the automotive electronics independent aftermarket sales concerns only driver-operated, hidden and fluid pressure switches and relays in the United Kingdom, Italy, Germany and France.

B. Relevant geographic markets

22. The notifying parties have taken the view that the relevant geographic market with respect to OEM and OES sales in the automotive electronics sector comprises the EEA. The parties base this assumption on previous Commission decisions relating to the OEM sales in the automotive industry. (4) According to the parties, transportation costs within the EEA are not significant and proximity of the production location of suppliers to the vehicle manufacturer has become increasingly irrelevant. There are no specific obstacles to intra-EEA trades. In fact, intra-EEA trade is extensive and similar conditions of competition as well as prices apply in this area.

(4) See e.g. Case No. IV/M.1245 - Valeo/ITT Industries, decision of 30.07.1998; Case No. IV/M768 Lucas/Varity, decision of 11.07.1996; Case No. IV/M.721 - Textron/Valois, decision of 20.03.1996; and Case No.IV/M.253 - BTR/Pirelli, decision of 17.8.1992.

23. The parties submit that as regards the demand side, such sales are made to vehicle manufacturers, which tend to internationalise their purchases with global procurement policies and in many cases have production plants in several EEA countries. The introduction of Euro has increased the price transparency and thus equal competition conditions for suppliers to European based OEMs. On the supply side, the parties maintain that the suppliers themselves tend to serve the entire EEA from only a few plants located in the EEA and consider the EEA as a distinct geographic market when planning their production, sales and marketing activities.

24. A number of third parties have stated that the relevant geographic market for automotive electronic products is world-wide in scope, whereby car manufacturers as customers for such products follow to a large extent a policy of global sourcing. Therefore, in line with the position taken by the Commission in a number of decisions concerning automotive systems and components, the relevant geographic market is at least the EEA. (5)

(5) See e.g. Case IV/M.1196 - Johnson Controls/Becker, decision of 24.06.1998; and Case IV/M.1368 - Ford/ZF, decision of 21.12.1998.

25. As regards the independent aftermarket sales in the automotive electronics sector, the markets appear to be national in scope. However, it is not necessary in the present case to define the markets precisely because the transaction does not raise competition problems under the Merger Regulation.

C. Competitive Assessment

26. According to the parties, the aim of the acquisition of LucasVarity by TRW is to enable the combined entity to offer a broader product range and enlarged capabilities in the automotive as well as in the space, defence and information technology sectors.

27. Taking account of the general trend in the automotive industry towards integrated systems suppliers, the parties anticipate that the integration of TRW's steering and suspension business with LucasVarity's braking business also enables them in the longer run to create a platform for developing next generation of vehicle control systems (IVC). The parties also expect the combination of the parties' automotive electronics businesses to provide them with a greater mass to compete more effectively against some well-established global market leaders.

28. TRW and LucasVarity have overlapping activities in the markets for automotive electronics in respect of switches, entry systems, relays, fuse boxes, body controllers and information displays in the EEA.

29. The parties estimate that the total value of the automotive switches market in the EEA amounts to EUR [ ]. The parties submit that their combined market share in the EEA market for switches would be [less than 20%], whereby the market share of the parties for driver-operated switches segment would be [less than 20%] and [less than 10%] for the segment of hidden switches. In the sub-segment of console switches within the segment of driver-operated switches, TRW's present market share of [less than 20%] would increase by LucasVarity's market share of [less than 10%], their combined market thus totalling [less than 20%].

30. The parties' main competitors in the segment of driver-operated switches are Kostal with [less than 20%] market shares in various product sub-segments, Eaton with [less than 20%] market share in various product sub-segments, and Valeo with [less than 20%] market share in various product sub-segments. The main competitors in the sub-segment of console switches are Valeo with [less than 20%] market share, Kostal with [less than 20%] market share and Eaton with [less than 20%] market share. The parties' main competitors in the segment of hidden switches are Methode with [less than 20%] market share in plunger switches, Siemens with [less than 30%] market share and Texas Instruments with [less than 30%] market share in fluid pressure switches. Valeo has [less than 20%] and [less than 20%] market share in plunger and ignition switches respectively and UTA a market share of [less than 20%] in ignition switches.

31. The total value of the automotive entry systems market in the EEA is estimated to be EUR [ ]. As regards entry systems, the combined market share of the parties would be [less than 20%]. The parties' main competitors are Siemens with [less than 20%] market share, Valeo with [less than 20%] market share, Delphi with [less than 20%] market share, Bosch with [less than 10%] market share, and VDO with [less than 10%] market share.

32. The parties submit that the total value of the automotive relays market in the EEA amounts to EUR [ ]. The combined market share of the parties for relays would be [less than 10%]. The main competitors include Siemens with [less than 30%], Bosch with [less than 20%], Cartier with [less than 20%], and Bitron with [less than 20%] market share, respectively.

33. Pursuant to the information submitted by the parties, the total value of the fuse boxes market in the EEA amounts to EUR [ ]. The combined market share of the parties for fuse boxes is estimated to increase to [less than 20%]. The main competitors are Delphi with [less than 30%], UTA with [less than 30%], Siemens with [less than 20%], and Kostal with [less than 20%] market share, respectively.

34. According to the parties, the total value of the body controllers market in the EEA amounts to EUR [ ]. The combined market share of the parties for body controllers would be approximately [less than 10%], whereby the main competitors would have the following market shares: Bosch [less than 20%], Hella [less than 20%], Kostal [less than 20%], Valeo [less than 20%], and Sagem [less than 20%], respectively.

35. In respect to information displays, the parties submit that the total value of the market in the EEA amounts to EUR [ ]. The combined market share of the parties would reach some [less than 10%]. The main competitors would have the following market shares: VDO [less than 20%], Delphi [less than 20%], Marelli [less than 20%], Bosch [less than 20%], and Visteon [less than 20%].

36. As far as the independent aftermarket is concerned, on the basis of the information provided in the notification, there is a minor overlap between the parties' aftermarket activities. The combined market share of the parties on certain national markets would not, however, exceed [less than 10%] in the United Kingdom, [less than 10%] in Italy, [less than 10%] in Germany, and [less than 10%] in France.

37. On the basis of the information submitted by the parties and obtained through the Commission's investigation, it can be concluded that the proposed transaction would not result in creation or strengthening of a dominant position in the relevant markets. The acquisition would therefore not reduce the choice of products for automobile manufacturers taking account of the dynamics of the automotive electronics industry with vehicle manufacturers' multiple supplier strategy, fiercely competitive bidding processes and resulting price pressure as well as the existence of powerful global competitors.

38. In view of the foregoing, it can be concluded that the proposed transaction does not create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the EEA or any substantial part of that area.

VI. CONCLUSION

39. For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of Council Regulation (EEC) No 4064/89.

For the Commission,