EUROPEAN COMMISSION C(2018) 1197 final To the Notifying Party Subject:Case M.8741 – KSS Holdings / Takata Corporation

Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004 and Article 57 of the Agreement on the European Economic Area Dear Sir or Madam, (1)On 17 January 2018, the European Commission received a notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which KSS Holdings Inc. ("KSS", USA) acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of substantially all assets of Takata Corporation ("Takata", Japan) (the "Transaction"). KSS is designated hereinafter as the "Notifying Party" and together with Takata as the "Parties". 1.The Parties and the concentration (2)KSS is active in the research and development, design, manufacture, marketing and sale of automotive safety systems, and more specifically seat belts, airbags and steering wheels. KSS is a wholly-owned subsidiary of Ningbo Joyson Electronic Corp., a Chinese automotive supplier. (3)Takata is an automotive safety systems company that supplies automotive manufacturers with a product range that includes seat belts, airbag systems and steering wheels. In particular, Takata engages in research and development on the design, manufacture, marketing and sale of steering wheels, airbags and seat belts. (4)This Transaction forms part of Takata's restructuring plan following its financial difficulties related to the Phase-Stabilized Ammonium Nitrate ("PSAN") inflators incident. Over the past several years, certain PSAN inflators manufactured by Takata have ruptured upon deployment of the airbag, causing injury and in some cases death. As a result, important recalls were initiated by automotive original equipment manufacturers ("OEMs") customers resulting in billions of dollars in reimbursement claims against Takata. Takata is currently in the midst of several bankruptcy proceedings in various jurisdictions. On 25 June 2017, Takata and some of its subsidiaries and affiliates commenced voluntary cases under Chapter 11 of the United States Code before the USA Bankruptcy Court for the District of Delaware. Bankruptcy proceedings are also ongoing in Japan and Canada. (5)Despite the occurred incident, Takata is still considered a technically capable supplier that possesses the necessary know-how and experience, and as such still has credibility vis-à-vis the customers on the technical level. […]. […] KSS' acquisition, is considered necessary as the current management allegedly covered up test results, […]. (6)Following this and taking into account Takata's financial situation, as described in paragraph (4) , absent the Transaction, Takata would likely remain a significantly weaker supplier in the markets for seatbelts, steering wheels and airbags. (7)Pursuant to the Asset Purchase Agreements, dated 16 November 2017, KSS will acquire substantially all assets of Takata. Therefore, the Transaction consists of the acquisition of sole control by KSS over Takata within the meaning of Article 3(1)(b) of the Merger Regulation. 2.EU DIMENSION (8)The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (KSS: EUR [turnover data]; Takata: EUR [turnover data]). Each of them has an EU-wide turnover in excess of EUR 250 million (KSS: EUR [turnover data]; Takata: EUR [turnover data]), but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State.

(9)The Transaction therefore has an EU dimension within the meaning of Article 1(2) of the Merger Regulation. 3.Relevant markets (10)The Transaction will give rise to horizontal overlaps and a vertical relationship between the Parties' activities. -The activities of KSS and Takata overlap as regards the manufacturing and the supply of airbags, seat belts and steering wheels. -An affected vertical link also arises pursuant to the Transaction, between Takata's sales of flat airbag fabric (upstream) and KSS' activities in airbag modules (downstream). (11)The relevant markets will be further discussed below. 3.1.Product market definition 3.1.1.Manufacture and supply of airbags (12)Airbags are safety devices installed in vehicles that inflate very quickly in case of a rapid and sudden deceleration of the vehicle, generally following a collision or impact, in order to prevent or reduce the occupants from suffering impact-related injuries. Commission's decision making practice (13)First, in previous decisions, the Commission has considered that an airbag system consists of two major modules that each constitute a separate market, namely (i) the airbag control electronics module with the crash sensor, and (ii) the airbag module encompassing the casing, airbag cushion and airbag inflator. As regards a possible distinct market per components, the Commission later noted that airbag components were increasingly and usually manufactured internally by the airbag supplier so as to sell it as a whole. The Commission eventually left open whether the airbag market could be further sub-segmented per components. (14)Second, in previous decisions, the Commission has also considered a potential segmentation depending on the location of the airbag in the vehicle, between (i) driver airbag, (ii) passenger airbag, (iii) curtain airbag and (iv) side airbag. The market definition was ultimately left open. View of the Notifying Party (15)First, with regard to airbag components, the Notifying Party submits that both Parties manufacture the main airbag components, but do not sell them on a standalone basis in the EEA. Further, in line with the Commission's decision making practice, the Notifying Party submits that automotive OEMs almost always purchase the airbag components together and most airbag suppliers manufacture the inflator in-house, their demand therefore being addressed through captive sales. As such, the Notifying Party submits that the relevant product market for the purpose of the present Transaction is the market for the supply of airbags as a whole. (16)Second, with regard to a possible market segmentation according to types of airbags, the Notifying Party agrees with the Commission's decision making practice. (17)Adding to the Commission's decision making practice as regards a potential location-determined segmentation, the Notifying Party submits that knee airbags could potentially constitute another market segment. Both Parties offer knee airbags. Commission's assessment (18)First, with regard to a possible market segmentation for airbag components, the Parties do not sell the airbag's main components on a standalone basis in the EEA. The Parties' competitors also manufacture and sell together the complete airbag module in the EEA. On their side, automotive OEMs source the airbag module as a whole. Consequently, the competitive landscape and market conditions will be the same irrespective of the market definition retained. (19)Second, with regard to a possible market segmentation according to types of airbags, the results of the market investigation confirm the market segmentation as submitted by the Notifying Party, in driver, passenger, curtain, side and knee airbags. (20)From a demand-side perspective, some customers consider the various categories of airbags as not directly substitutable, mainly because of the different sizes and forms of the airbags. However, automotive OEMs explained that the main components are basically similar for all airbags.

(21)From a supply-side perspective, it seems that all main suppliers, namely Autoliv, ZF, Toyoda Gosei, KSS and Takata, are able to provide the complete range of airbag products. Conclusion (22)In light of the above and for the purpose of the present decision, the Commission therefore concludes that there is a relevant market for the manufacture and supply of airbags as a whole. On the other hand, it can be left open whether the market for the manufacture and sale of airbags should be considered as a whole or should be further segmented into (i) driver airbags, (ii) passenger airbags, (iii) curtain airbags, (iv) side airbags and (v) knee airbags as serious doubts as to the compatibility of the Transaction with the internal market do not arise under any plausible market definition. 3.1.2.Manufacture and supply of seat belts (23)Seat belts are harnesses installed on seats to protect occupants in case of accidents or abrupt changes in the motion of the vehicle. Commission's decision making practice (24)The Commission has not yet investigated a potential market for the supply of seat belts. View of the Notifying Party (25)The Notifying Party submits that seat belts as a whole constitute a single relevant market, as all components of a seat belt are sold to automotive OEMs as an integrated product. Commission's assessment (26)The results of the market investigation confirm that seat belts are generally sold as a whole integrated product and not component by component. (27)From a demand-side perspective, respondents consider that the components of a seat belt are almost all the time sourced by OEMs as a single integrated product so that there is no market for the sale of standalone seat belt components. (28)From a supply-side perspective, all main seat belt suppliers are able to provide all various seat belts according to the customer's technical requirements, which are overall the same but with slight variations for each vehicle project. Conclusion (29)In light of the above and for the purpose of the present decision, the Commission considers that the relevant market is the manufacture and sale of seat belts as a whole. 3.1.3.Manufacture and supply of steering wheels (30)A steering wheel is a tool to control the steering of the vehicle that sits on top of the steering column module. They can be constructed with plastic, leather and/or wood, and often include remote commands through switches. Commission's previous decision making practice (31)In previous decisions, the Commission considered that there is a distinct market for steering wheels and that no further segmentation is appropriate. View of the Notifying Party

(32)The Notifying Party agrees with this market delineation. Commission's assessment (33)The market investigation confirmed that steering wheels constitute a distinct product market. (34)From a demand-side perspective, automotive OEMs consider that all suppliers can slightly adapt their products to meet any sorts of differences that a car model or specific customer could require. (35)From a supply-side perspective, respondents confirmed that there can be small differences depending on the car type, but that all major suppliers can provide the whole range of steering wheels. Conclusion (36)In light of the above and for the purpose of the present decision, the Commission considers that the relevant market is the market for manufacture and sale of steering wheels as a whole. 3.1.4.Manufacture and supply of flat fabric (37)Flat fabric is the woven yarn used to produce airbag cushions. Airbag suppliers source flat fabric externally to then integrate it to the airbag module that is sold as a whole to automotive OEMs. Commission's previous decision making practice (38)In a previous decision, the Commission has concluded that flat airbag fabric constitutes a separate relevant product market.



View of the Notifying Party (39)The Notifying Party agrees with this market definition. KSS does not manufacture flat fabric, while Takata does even though its share on the merchant market is marginal. Commission's assessment (40)The market investigation confirmed that flat fabric can be considered the relevant product market. Most of the suppliers of airbags do not manufacture flat fabric but source it from market players, such as Milliken, Toray or Hyosung-Global Safety Textile ("GST"), UTT, NCV etc. Conclusion (41)In light of the above and for the purpose of the present decision, the Commission considers that the relevant product market is the market for manufacture and supply of flat fabric. 3.1.5.No other segmentation By type of vehicle

(42)For seatbelts, airbags and steering wheels markets, in accordance with the Notifying Parties' view, and the Commission's decision making practice, a further segmentation by type of vehicle (passenger cars and light/heavy commercial vehicles) is not relevant for the present decision. As the Parties only overlap on the passenger car segment, the competitive assessment will only concern this. OEMs/aftermarket (43)For each of the seatbelts, airbags and steering wheels markets, in accordance with the Notifying Party's view, the Commission's decision making practice and the results of the market investigation, a further sub-segmentation between components manufactured for OEMs, original equipment services ("OESs") or independent aftermarket ("IAM") players is not warranted. 3.2.Geographic market definition 3.2.1.Manufacture and supply of airbags, steering wheels and seat belts (44)As the geographic conditions of purchase of the three automotive safety products are similar, they will be treated together below. Commission's previous decision making practice (45)In previous decisions, the Commission has considered that airbags, steering wheels and seat belts markets are at least EEA-wide, if not wider. View of the Notifying Party (46)The Notifying Party agrees with this market delineation, and submits that these markets are at least EEA-wide in scope. Commission's assessment (47)The market investigation confirmed that automotive safety systems are purchased at EEA-level, while in a minority of cases OEMs will send a request for quotation ("RFQ") covering a wider scope. (48)From a demand-side perspective, automotive OEMs explained that components incorporated in cars sold in EEA are generally manufactured in EEA and definitely not at a national level. (49)From a supply-side perspective, suppliers consider that they can provide automotive safety systems at a global level, but observe that EEA-based automotive OEMs generally purchase from manufacturing plants located in the EEA. Moreover, homologation and testing systems are uniform in the EEA. Conclusion (50)In light of the above and for the purpose of the present decision, the Commission considers that the relevant geographic scope of the markets for manufacture and supply of airbags, seat belts and steering wheels is at least EEA wide. The competitive assessment will be conducted at the narrowest market level; the EEA level. 3.2.2.Manufacture and supply of flat fabric Commission's previous decision making practice (51)As regards the upstream market for flat fabric, the Commission has in previous decisions concluded that this market is EEA-wide in scope.





View of the Notifying Party (52)The Notifying Party agrees with this delineation and considers that the competitive conditions are homogeneous within the EEA, and practically all customers and competitors of flat fabric have production facilities in the EEA. Commission's assessment (53)The market investigation confirmed that the market for the manufacture and supply of flat fabric is at-least EEA wide in scope, but could potentially be wider. Some respondents indicated that generally, facilities located within the EEA will supply flat fabric to EEA customers, but a minority has mentioned that the supply chain could be global. Conclusion (54)In light of the above and for the purpose of the present decision, the Commission considers that the relevant geographic scope for the market for manufacture and supply of flat fabric is at least EEA-wide. The assessment will be conducted at the narrowest geographic market level; the EEA level. 4.Competitive assessment (55)The Transaction will give rise to horizontal overlaps and a vertical relationship between the Parties' activities. (56)The activities of KSS and Takata overlap as regards the manufacturing and the supply of airbags, seat belts and steering wheels. The overlaps between the Parties' activities give rise to a limited number of affected markets, namely (i) airbags, (ii) driver airbags, (iii) passenger airbags, (iv) curtain airbags, (v) seat belts and (vi) steering wheels. (57)An affected vertical link also arises pursuant to the Transaction, between Takata's merchant sales of flat airbag fabric (upstream) and KSS' sales of driver airbags (downstream). 4.1.Horizontal overlaps (58)As market conditions are similar in the three markets for the manufacture and supply of airbags (including submarkets), steering wheels and seat belts, the competitive assessments will address them all together in each of the subsections. 4.1.1.Market shares (59)Below are the market shares for each market where the activities of the Parties lead to an affected market under any potential segmentation. Market shares for airbags Table 1: Market share for airbags in the EEA (in value) Company 2015 2016 2017 KSS [5-10]% [5-10]% [5-10]% Takata [10-20]% [10-20]% [10-20]% Combined [20-30]% [20-30]% [20-30]% ZF [20-30]% [30-40]% [30-40]% Autoliv [20-30]% [20-30]% [20-30]% Others/unknown [20-30]% [10-20]% [10-20]% Total 100% 100% 100% Source: Form CO Table 2: Market share for driver airbags in the EEA (in value) Company 2015 2016 2017 KSS [0-5]% [0-5]% [0-5]% Takata [30-40]% [30-40]% [30-40]% Combined [30-40]% [30-40]% [30-40]% ZF [30-40]% [30-40]% [30-40]% Autoliv [20-30]% [20-30]% [20-30]% Others/unknown [10-20]% [10-20]% [10-20]% Total 100% 100% 100%

Source: Form CO Table 3: Market share for passenger airbags in the EEA (in value) Company 2015 2016 2017 KSS [10-20]% [10-20]% [10-20]% Takata [10-20]% [10-20]% [10-20]% Combined [20-30]% [20-30]% [20-30]% ZF [20-30]% [20-30]% [20-30]% Autoliv [20-30]% [20-30]% [20-30]% Others/unknown [20-30]% [20-30]% [20-30]% Total 100% 100% 100% Source: Form CO Table 4: Market share for curtain airbags in the EEA (in value) Company 2015 2016 2017 KSS [10-20]% [5-10]% [10-20]% Takata [10-20]% [10-20]% [10-20]% Combined [20-30]% [20-30]% [20-30]% ZF [20-30]% [30-40]% [30-40]% Autoliv [20-30]% [20-30]% [20-30]% Others/unknown [20-30]% [10-20]% [10-20]% Total 100% 100% 100% Source: Form CO



Market shares for seat belts Table 5: Market share for seat belts in the EEA (in value) Company 2015 2016 2017 KSS [0-5]% [0-5]% [0-5]% Takata [20-30]% [20-30]% [20-30]% Combined [20-30]% [20-30]% [20-30]% ZF [20-30]% [20-30]% [20-30]% Autoliv [40-50]% [40-50]% [40-50]% Others/unknown [10-20]% [10-20]% [10-20]% Total 100% 100% 100% Source: Form CO Market shares for steering wheels Table 6: Market share for steering wheels in the EEA (in value) Company 2015 2016 2017 KSS [0-5]% [5-10]% [5-10]% Takata [30-40]% [30-40]% [30-40]% Combined [30-40]% [30-40]% [30-40]% ZF [30-40]% [30-40]% [30-40]% Autoliv [10-20]% [20-30]% [20-30]% Others/Unknown [10-20]% [10-20]% [10-20]% Total 100% 100% 100% Source: Form CO (60)Except for the driver airbag ([30-40]%) and the steering wheels ([30-40]%) markets, the combined market share of the Parties under any market definition will be less than [30-40]%. The increment brought about by KSS (between [0-10]%) is often limited as it only has small shares in the EEA. (61)In any case, as indicated by the market share tables, the merged entity will continue to face competition from credible competitors such as ZF or Autoliv, with market shares higher or comparable to that of the merged entity. 4.1.2.Competitive landscape Competitive pressure remains post-Transaction

(62)In line with the above market shares, the results of the market investigation indicated that large global companies such as Autoliv and ZF are strongly competing with the Parties. ZF and Autoliv have the technical capabilities to cover the complete product range of products expected by automotive OEMs. ZF and Autoliv have often been described as the market leaders, while Takata is considered the third main player and KSS a more distant number four. (63)In addition, other alternative suppliers are present and could expand their activity should the merged entity attempt any price increase post-Transaction. Indeed, Toyoda Gosei manufactures and sells airbags and steering wheels in the EEA. It already has a certain number of customers in the EEA. Similarly, iSi is also manufacturing and already selling certain types of airbags in the EEA. iSi is specialised in curtain airbags and while it currently does not supply other types of airbags, iSi estimates that there is a growing demand for them to develop such products. (64)Consequently, there will remain sufficient competition post-Transaction on these markets. Takata's declining position (65)The results of the market investigation show that neither competitors nor customers of the Parties foresee any negative impact resulting from the Transaction. In line with the Parties' internal documents, respondents perceive the Transaction as necessary for Takata's production, technology and know-how to remain in the market. Respondents overall do not expect Takata to survive as a standalone company. (66)As explained in paragraph (5) , following the PSAN incidents, Takata's position as a third supplier in the EEA has on the one hand been greatly impaired. On the other hand, KSS is a smaller player that is predominantly active in the US and Japan rather than in the EEA. As the relatively small increment brought about by the Transaction illustrates, KSS is considered a more distant fourth player compared to the historical EEA-players ZF, Autoliv and Takata. Therefore, the combination of the declining Takata with the rather small KSS is unlikely to have a negative impact on the affected markets. (67)For completeness, there is no major specific innovation expected on the airbags, steering wheels and seat belts markets. Therefore, the Transaction will not result in innovative harm on these markets. (68)Consequently, the Transaction does not eliminate a long-term viable supplier. It rather allows a distant fourth player to increase its production strengths and credibility in the EEA. Strong automotive OEMs as customers (69)The automotive OEMs purchasing passive safety products are large, well-established buyers that have a high level of expertise. The results of the market investigation indicate that OEMs are confident that, for the products concerned, they would be able to counter any price increases brought about by the Transaction.



Conclusion (70)In conclusion, the Commission considers that horizontal unilateral effects are unlikely to materialise post-Transaction. Therefore, the Transaction does not raise serious doubts as to its compatibility with the internal market in this regard. 4.2.Vertical relationships 4.2.1.Manufacture and supply of flat fabric – Manufacture and supply of airbags (71)An affected vertical link arises pursuant to the Transaction, between Takata's merchant sales of flat airbag fabric (upstream) and KSS' sales of driver airbags (downstream). (72)The Commission considers that any vertical foreclosure attempt following the Transaction is unlikely to materialise for the below developed reasons. (73)First, with regard to the upstream market for the manufacture and supply of flat fabric, Takata's manufacture of flat fabric is targeted to its own in-house production of integrated airbags. Takata only sells less than [0-5]% of its overall flat airbag fabric production to third parties. Strong suppliers competing with Takata on the market for the manufacture and supply of flat fabric are for example Global Safety Textiles ("GST") and Milliken. (74)Second, Takata does not have the ability to expand on the upstream market so as to engage in a foreclosure attempt. Indeed, [business secret – information on Takata's production capacity]. Therefore, unless the merged entity engages in a significant development of its flat fabric activity (which would take significant time and efforts), it would not be able to cover all of KSS' demand in flat fabric, in addition to its own. (75)Third, with regard to the downstream markets for the manufacture and supply of airbags only the sub-market for driver airbags is affected with a combined market share of the Parties of [30-40]%. On all other markets, the Parties have a combined market share of less than [20-30]%. In addition, none of the above mentioned suppliers of flat fabric are dependent on sales to KSS. Therefore, even if Takata were to supply KSS internally post-Transaction, effects on the merged entity's rivals would be limited.