COMMISSION DECISION of 26/11/1998 declaring a concentration to be compatible with the common market (Case No IV/JV.14 - PANAGORA / DG BANK) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Brussels, 26.11.1998

To the notifying parties

Dear Sirs,

Subject: Case IV No./JV.14 - PanAgora/DG Bank Notification of a concentration pursuant to Article 4 of Council Regulation No 4064/89

1. On 23 October 1998, the Commission received a notification pursuant to Article 4 of Council Regulation (EEC) No 4064/89 (1), according to which PanAgora Asset Management Ltd ("PanAgora") and DG Deutsche Genossenschaftsbank Aktiengesellschaft ("DG Bank") will create a full function joint venture, called DG PanAgora Asset Management GmbH (the joint venture). The joint venture will initially offer asset management services in Germany, Austria, Switzerland and countries of Eastern Europe. The activities of the joint venture may be expanded to other territories with the agreement of both parents.

(1) O.J. L 395 of 30 December 1989, p.1; corrected version O.J. L 257 of 21.9.1990, p. 13; as last amended by Regulation (EC) No. 1310/97, O.J. L 180 of 9.7.1997, p. 1; corrigendum in O.J. L 40 of 13.2.1998, p. 17.

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

I. Parties

3. PanAgora is a provider of investment management and advisory services from its London offices. Nippon Life Insurance ("Nippon Life") and Putnam Investments Inc. ("Putnam") jointly own PanAgora. PanAgora has [ ] of assets under its management, these being geographically spread as follows: Europe [ ] , USA [ ] and Middle East [ ].

4. Nippon Life is one of the world's largest insurance companies. It provides services such as life and health insurance and pension plans but also more financial market- oriented services such as the advancement of loans to companies and individuals, trades in securities and asset management services. Nippon Life also leases real estate. In December 1997 Nippon Life had (according to the notification) [ ] billion of assets under management, making it the [ ] largest asset manager in the world.

5. Putnam is part of the Marsh & McLennan Group of companies. That Group is based in the USA and has subsidiaries in South America, Asia and Europe. Putnam offers a full range of both equity and income products that are invested domestically and globally, for individual and institutional investors. At the end of 1997 Putnam had [ ] billion under management, placing it among the [ ] largest companies in the world.

6. DG Bank is owned by 1,500 German mutual banks. Its services include the advancement of loans to individuals and institutions, trading in securities, asset management services, money and foreign exchange services, issuing of securities and retail banking services. At the end of 1997 DG Bank had DM [ ] assets under its management, making it one of the top [ ] asset managers in Germany and placing it among the top [ ] worldwide. DG Bank's assets are spread geographically as follows: Europe [ ], USA [ ] and Asia [ ].

II. The Operation

7. The concentration will be established by a Shareholders' Agreement dated 20 October 1998 between DG bank, PanAgora, PanAgora Asset management Inc (the US sister company of PanAgora), Putnam and Nippon. PanAgora will license to the joint venture its investment technology while DG bank [ ]. Both parents will contribute personnel to the joint venture. The joint venture will be established as a Kapitalanlagegesellschaft under German law. Its activities will be the provision of asset management services to institutions in the agreed territory. Its first customer will be DG Bank; however the joint venture will actively seek mandates from other institutions as soon as it is established.

III. Concentration

Joint Control

8. PanAgora will own 40% of the share capital of the joint venture and DG bank just under 40%. Senior management will hold the remaining 20% in the form of non-voting shares. The Supervisory Board of the joint venture will consist of six members; [ ]. The Supervisory Board will have the responsibilities attributed to it by statute (e.g. supervision and advising of the management). It will also appoint and remove the company's registered directors, approve the establishment of the business plan and budget, acquisitions of and mergers with other companies, and approve expenditure exceeding DM [ ] per business year.

9. Votes of the Supervisory Board will be taken by simple majority. No member of the Supervisory Board has a casting vote. If the votes cast are equal, the general rules applying to resolutions will have the effect that a proposed resolution which is not accepted by a majority of the Board will be deemed to have been dismissed.

10. It follows that decisions regarding key strategic commercial matters need the approval of both parties and that they therefore exercise decisive influence over the joint venture. PanAgora and DG Bank therefore jointly control the joint venture.

Full-function entity

11. The parents will contribute to DG PanAgora Asset Management investment technology, assets and personnel. Both parties currently operate as independent business entities.

12. DG PanAgora Asset Management will have its own management dedicated to day-to-day operations. It will have its own offices, as well as administrative staff and office equipment. It will also have copyright and trademark licences from PanAgora to use the latter's investment technology and name.

13. Its first client will be [ ] itself. However, the joint venture will actively seek mandates from other institutions as soon as it is established. The initial business provided by [ ] is intended to generate sufficient revenue to cover the joint venture's costs.

14. The joint venture is intended to be perpetual and will not lapse if one of the existing shareholders sells its stake in the joint venture.

15. [ ] will be the first customer of the joint-venture but as soon as it is established, the joint venture will operate immediately in the market, actively seeking mandates from other institutions. The joint venture will therefore not rely entirely on its parent company, except in the first days of the initial start-up period. This is why the presence of [ ] as the first customer does not put into question the full-function character of the joint venture. [ ], as a reference for new customers, will help the joint venture to enter the market quickly.

16. The joint venture will accordingly perform on a long-lasting basis all the functions of an autonomous economic entity.

IV. Community Dimension

17. PanAgora has a worldwide turnover of ECU 63,258 million while DG Bank has ECU 11,013 million worldwide. Therefore, the parties have an aggregated worldwide turnover of more than ECU 5,000 million. The Community-wide turnover of PanAgora is ECU [ ] million, that of DG Bank is ECU [ ] million. Thus taken together the Community-wide turnover exceeds ECU 250 million. Neither PanAgora nor DG Bank achieves more than two-thirds of its turnover in one and the same Member State. The operation therefore has a Community dimension.

V. Relevant Product Market

Asset Management

18. The joint venture will only be active in the market for asset management services. It will provide portfolio management services to pension funds, institutions and international organisations.

19. As the Commission already indicated in Case No IV/M.1067 Merrill Lynch/Mercury (2), asset management services are typically divided into at least two categories; asset management provided for individuals and asset management provided for institutions. Thus, even though the tasks of asset managers are similar, there are some important differences between the type of asset management provided to institutions and that provided to individuals. First, the resources and expertise are larger with institutions. Second, institutional clients often have an individual securities account with their asset manager whereby the manager may trade on capital markets - according to a mandate given by the client - on his customers' behalf ("mandate business"). This product is customer-specific whereas the types of asset management which are provided to individuals (collective investment schemes, unit trusts, etc) many times are mass products. It should be mentioned however that there is a category of asset management provided to private individuals which is customer specific (so-called high net worth individuals). The latter type of asset management demands a very high capital input by the client.

(2) At paragraph 7 of the Decision.

20. Third, different regulatory provisions may apply depending on the type of asset management provided. Regulation tends to be more severe for asset management provided to individuals. For example, in Germany mutual funds and real estate funds generally require more detailed record keeping and more frequent communications to be made with the client.

21. However, it is not necessary to define conclusively the relevant product market as, whichever market definition is chosen, the concentration does not create or strengthen a dominant position nor is it likely to lead to the co-ordination of the competitive behaviour of the parents to an appreciable extent as a result of which effective competition would be significantly impeded in the common market or a substantial part thereof, as will be seen below under Section VII (Competitive Assessment) of this decision.

VI. Relevant Geographic Market

22. According to the notifying parties the market for asset management is arguably a global one. However, they note that there may be different levels of product sophistication between the different national states.

23. From the investigation undertaken by the Commission it appears that the asset management market, in so far as services provided to institutional clients are concerned, is indeed a global one.

24. However, there is no need to define the relevant geographic market conclusively since even with the narrowest market, Germany, the parties would not create or strengthen a dominant position nor is it likely to lead to the co-ordination of the competitive behaviour of the parents to an appreciable extent as a result of which effective competition would be significantly impeded in the common market or a substantial part thereof, as will be seen below under Section VII (Competitive Assessment) of this decision.

VII. Competitive Assessment

A. Dominance

25. Both PanAgora (and its parents Nippon and Putnam) and DG Bank are active on the market for general asset management services. On this market their combined global market shares are below [ ]%. Even if the relevant geographic market is found to be national, the market shares of the parents are relatively small. PanAgora is active in the United Kingdom and in Switzerland, while DG bank provides asset management services in Germany, Switzerland and Austria. In all these countries they hold market shares of less than [ ]%, apart from Germany, where DG bank holds a market share of [ ]%. If the product market were further narrowed down to the one for asset management services provided to institutions, DG Bank's market share would be [ ]% in Germany. As already mentioned above, neither PanAgora nor Nippon or Putnam are active on the German market.

26. In the light of the above information, and even based on the narrowest market definition, the concentration will not create or strengthen a dominant position on any market as a result of which effective competition would be significantly impeded in the common market or a substantial part thereof.

B. Co-ordination of competitive behaviour

27. Pursuant to Article 2(4) of the Merger Regulation a joint venture having as its object or effect the co-ordination of the competitive behaviour of undertakings that remain independent has to be appraised in accordance with the criteria of Article 85 (1) and 85(3) of the EC Treaty. In order to establish a restriction of competition in the meaning of Article 85(1), it is necessary that the co-ordination of the parent companies' competitive behaviour is likely and appreciable and that it results from the creation of the joint venture, be it as its object or its effect.

1. Definition of candidate markets for co-ordination

28. According to Article 2 (4) (2) of the Merger Regulation, the Commission shall, when making the said appraisal, take into account in particular whether two or more parent companies retain to a significant extent activities in the same market as the joint venture or in a market which is downstream or upstream from that of the joint venture or in a neighbouring market closely related to the relevant market. Therefore candidate markets for co-ordination are those on which the joint venture and at least two parent companies are active on an upstream, downstream or closely related neighbouring market where at least two parent companies remain active.

29. The joint venture will be active in the market for general asset management services in Germany, Austria, Switzerland and countries of Eastern Europe. More specifically, the joint venture will provide asset management services to institutions in these countries. Depending on the relevant geographic market chosen, the parents to the joint venture are either actual or potential competitors to the joint venture. If the relevant geographic market were the world, then the relevant market would be the one for the worldwide provision of general asset management and/or asset management provided to institutions. The parents of the joint venture would hence be competing on the same relevant market as the joint venture. If the relevant geographic market was narrower, i.e. national, then the parents of the joint venture would be active on the same market as far as Switzerland is concerned and on a neighbouring market as far as the other countries in question are concerned.

30. Apart from asset management, both parents provide the following services that could constitute candidate markets for coordination: the advancement of loans to institutions and individuals (DG bank and Nippon), trading in securities (DG bank and Nippon) and money services (DG bank and Putnam). However, for the reasons set out in the assessment below, the definition of further possible candidate markets with regard to the other services mentioned above can be left open.

2. Assessment under Article 2 (4)

31. There are no indications that would allow the conclusion that the creation of the joint venture has the object of co-ordinating the competitive behaviour of PanAgora and DG bank on the markets concerned. It should therefore be examined whether the operation might have the effect of co-ordinating the competitive behaviour of the parents.

General asset management and asset management provided to institutions

32. The Commission's investigation has revealed that both general asset management and asset management provided to institutions are very competitive markets in the countries where the joint venture will be active and that the market shares of the parents are relatively small. No specific barriers to entry, apart from the fulfilment of regulatory requirements, have been identified. Given the parties market position, it is likely that there will be no incentive for them to co-ordinate their competitive behaviour. Therefore, the setting up of the joint venture will not lead to any co-ordination of the parents' competitive behaviour in this market.

Other candidate markets

33. As regards other services and products mentioned above, there are no indications which would allow the conclusion that the setting up of the joint venture will lead to the co-ordination of the parents' competitive behaviour on any of the markets concerned.

VIII. Ancillary Restraints

34. The parties have identified in the notification a number of restrictions that they consider to be directly related to or necessary for the implementation of the concentration.

35. First, pursuant to Section 15.1 and 15.3 of the Shareholders Agreement both PanAgora and DG Bank agree that they will not actively seek asset management business in the agreed territory using the same investment technology and techniques licensed to the joint venture. However, DG Bank is explicitly allowed to continue providing asset management services in the manner it did prior to the shareholders agreement.

36. Secondly, pursuant to Section 15.2 of the Shareholders Agreement the parties agree to procure that the joint venture restrict its activities using the investment technology licensed to it to the agreed territory. The only exception to this policy is that the joint venture may, with the written approval of PanAgora, actively seek business from existing clients of DG Bank outside the agreed territory. This geographical restriction is meant to ensure that the joint venture will focus its resources on the agreed territory which is believed to be best served by a German joint venture.

37. Both non-competition clauses will apply as long as PanAgora and DG Bank or their respective affiliates hold [ ]% or more of the shares in the joint venture.

38. The Commission considers that a prohibition on the parent undertakings competing with the joint venture aims at expressing the reality of the lasting withdrawal of the parents from the market assigned to the joint venture. This is why non-competition clauses are recognised as an integral part of the concentration. It goes without saying that this characterisation does not hold anymore when the parent company does no longer control the joint venture. The non-competition clause can then no longer be said to be directly related and necessary to the implementation of the notified concentration.

IX. Conclusion

39. In the light of the above, the setting up of the joint venture does not raise serious doubts as to its compatibility with the common market and with the functioning of the EEA Agreement.

40. The Commission therefore has decided not to oppose the notified operation and to declare it compatible with the common market and with the functioning of the EEA Agreement. This decision is adopted in application of Article 6 (1) (b) of Council Regulation (EEC) 4064/89 and Article 57 of the EEA Agreement.

For the Commission