EN Official Journal of the European Union C 60/5

Summary of Commission Decision

of 19 October 2011

declaring a concentration compatible with the internal market and the functioning of the EEA Agreement

(Case COMP/M.6106 — Caterpillar/MWM)

(notified under document C(2011) 7434)

(Only the English text is authentic)

(Text with EEA relevance)

2012/C 60/05

On 19 October 2011, the Commission adopted a decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1), and in particular Article 8(1) of that Regulation. A non-confidential version of the full decision can be found in the authentic language of the case and in the working languages of the Commission on the website of the Directorate-General for Competition, at the following address:

http://ec.europa.eu/comm/competition/index_en.html

I. THE PARTIES

(1) Caterpillar Inc. (‘Caterpillar’, USA) is the ultimate parent company of a global diversified group that is inter alia active in the provision of machinery, engines and financial products. It manufactures and sells engines and machinery for a large number of applications (such as marine, petroleum, industrial, agricultural), including gas and diesel fuelled engines and machinery for electric power generation systems.

(2) MWM Holding GmbH (‘MWM’, Germany) and its subsidiaries produce and sell products, services and technologies for decentralised energy supply using gas and diesel reciprocating engines. MWM sells gensets, co-generation (heat and power) and related products.

II. THE OPERATION

(3) On 14 March 2011, the Commission received a formal notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which Caterpillar acquires indirect sole control of MWM (together the ‘Parties’), by way of a purchase of shares (the ‘proposed transaction’).

III. THE PROCEDURE

(4) The proposed transaction did not have Union dimension but was notifiable in Germany, Austria and Slovakia. Germany requested the Commission to examine the proposed transaction pursuant to Article 22 of the Merger Regulation. This request was joined by Austria and Slovakia. By decisions of 26 January 2011, the Commission decided to examine the proposed transaction since the legal requirements for a referral were met. On 14 March 2011, the proposed transaction was notified to the Commission pursuant to Article 22(3) of the Merger Regulation.

(5) On 25 March 2011, the Commission received a complaint from a third party in response to a questionnaire regarding the proposed transaction. Several other respondents to the Commission’s Phase I market investigation raised similar concerns.

(6) On 12 April 2011, the Parties proposed a remedy.

(7) By decision of 5 May 2011, the Commission raised serious doubts as to the compatibility of the transaction with the internal market and initiated proceedings pursuant to Article 6(1)(c) of the Merger Regulation.

(8) From 25 to 31 May 2011, inspections pursuant to Article 13(4) of the Merger Regulation took place at premises of Caterpillar in the UK and of MWM in Germany, and were continued at the premises of the Commission.

(9) During the investigation, the Commission also adopted three decisions pursuant to Article 11(3) of the Merger Regulation. One of these three decisions was addressed to Caterpillar and, pursuant to Article 10(4) of the Merger Regulation, the time limits referred to in Article 10(3) of the Merger Regulation were suspended until the receipt of complete and correct information from Caterpillar. That suspension was lifted on 8 July 2011.

(10) The meeting of the Advisory Committee on Concentrations took place on 4 October 2011.

IV. EXPLANATORY MEMORANDUM

A. The relevant product markets

(11) Both Parties are active in the market for gas gensets for power generation both on an EEA and global basis. In addition to this overlap, the proposed transaction gives rise to a number of horizontal overlaps and vertical links. The Commission assessment focused on the market for gas gensets, as this was the market that raised serious doubts in the decision pursuant to Article 6(1)(c) of the Merger Regulation. In addition, the vertical relationship between the market for gas gensets (downstream) and the market for gas bare engines market (upstream) was investigated, as the Commission received a formal complaint as regards this vertical link.

Gas gensets market

(12) A reciprocating engine generator sets, or genset, is a device that recombines a reciprocating (i.e. piston) engine with various ancillary equipment, such as an electricity generator, a switching gear, a turbocharger and possibly other equipment (at the customer’s option) to form a standalone electricity generator device. The engine is one of the most significant components of a gas genset, also because the engine’s design and characteristics are crucial determinants of the efficiency, output and emissions of the genset.

(13) There are a number of parameters by which the gas gensets market can be segmented, namely: (i) fuel used to run the gas genset; (ii) engine speed; and (iii) power output, i.e. the power that can be generated with a gas genset.

(14) The Commission’s Phase II market investigation corroborated that, given the high supply-side substitutability, gensets on natural and non-natural gas would form part of the same relevant market. The Commission's Phase II market investigation also showed that the market may be subdivided into high-speed gensets (with speeds generally above 1 000 rpm), and medium-speed gensets (with speed below 1 000 rpm).

(15) Moreover, it can now be concluded that high-speed gas gensets with a power below 0,5 MW and high-speed gensets with a power above 0,5 MW are part of different products markets, in particular due to limitations in demand-side substitutability.

(16) Concerning the size classes of 0,5 MW and above, the market data collected in the Commission's Phase II market investigation revealed the following facts: (i) there are no sales worldwide of high-speed gensets with a power above 5 MW; and (ii) multiple genset installations based on smaller gensets compete with single gensets. Thus, there is no need to apply an upper limit to the market because the investigation has shown that competition happens on project size (served by single or multiple engines) and not on genset size. The higher the power requirements from the customers, the higher the substitutability between single and multiple engine projects.

(17) In any event, it is not necessary to establish where this upper bound is located, as it will not affect the competitive assessment of this case. In view of the above, the product market can be defined as the market for gas gensets with a power above 0,5 MW.

(18) The Commission's Phase II market investigation confirmed that the geographic market for gas gensets is at least EEA-wide in scope, and probably global. In any event, the Commission can ultimately leave the geographic market definition open since the transaction would not impede competition under either EEA-wide or worldwide markets.

B. Competitive assessment

1. Unilateral effects

(19) The table below results from the market reconstruction obtained from the Commission Phase II market investigation. It is based on sales data in volume (in terms of nominal power of gensets/bare engines) submitted by genset manufacturers pursuant to the Commission’s data request. Market shares for high-speed gas gensets (rpm > 1 000) with nominal power > 0,5 MW EEA sales Worldwide sales 2008 2009 2010 2008 2009 2010 Caterpillar group [10-20 %] [5-10 %] [5-10 %] [20-30 %] [10-20 %] [10-20 %] MWM [10-20 %] [10-20 %] [20-30 %] [5-10 %] [10-20 %] [10-20 %] Combined entity [20-30 %] [20-30 %] [30-40 %] [30-40 %] [30-40 %] [30-40 %] GE group [40-50 %] [50-60 %] [40-50 %] [50-60 %] [50-60 %] [40-50 %] Cummins [10-20 %] [10-20 %] [20-30 %] [5-10 %] [5-10 %] [10-20 %] Guascor [0-5 %] [0-5 %] [0-5 %] [0-5 %] [0-5 %] [5-10 %] Tognum/Rolls-Royce (2) [0-5 %] [0-5 %] [0-5 %] [0-5 %] [0-5 %] [0-5 %] Mitsubishi [0-5 %] [0-5 %] [0-5 %] [0-5 %] [0-5 %] [0-5 %] MAN — — — — — — Wärtsila — — — — — —

(20) Based on the above reconstruction of the market, the Parties’ market shares are more accurate than those included in the decision pursuant to Article 6(1)(c) of the Merger Regulation and are not exceeding [30-40] % in 2010 for the overall market for high-speed gas gensets with a power band above 0,5 MW. Moreover, a number of significant competitors are present in this market, in particular GE.

(21) As discussed in the relevant product market section above, it is appropriate to consider power bands within this overall market. If a market including a number of power bands were to be considered, the Parties would have non-marginal overlaps in the EEA only in the power range between 0,5 MW and 2 MW. In these power bands (other than the 1,5-2 MW), Caterpillar's market shares would always be below 10 % in the EEA. Thus, the increment brought about by the transaction will be moderate.

(22) In the (high speed) power band 1,5-2 MW, the Parties’ combined market shares would be significant ([50-60] % in the EEA) (3). However, [30-40 %] of gensets within the 1,5-2 MW power range are sold as part of multiple genset projects, and [30-40 %] of projects within this power range are served with multiple genset bids. These figures increase with the total power output of the project, i.e. the degree of substitution becomes higher in higher power bands. For instance, more than half of the projects in the 2-2,5 MW class are supplied with multiple genset configurations that include gensets with a power output of 1,5-2 MW. As a result, the prima facie high combined market share in this power band is considerably diluted once considered in terms of project size.

(23) The Commission Phase II market investigation also indicated that: (i) the Parties are not close competitors, in particular in terms of products/portfolio, technology/innovation and competing projects; (ii) entrance in the market is feasible; and (iii) sufficient alternative suppliers will remain in the market for gas gensets post-transaction.

(24) As a result, no evidence exists that the proposed transaction gives rise to a significant impediment of effective competition in the market of gas gensets with power above 0,5 MW based on unilateral effects.

2. Coordinated effects

(25) The Commission Phase II market investigation indicated that the proposed transaction would not lead to significant changes in the structure of the market nor necessarily increase the future sustainability of any coordination. This is because: (i) the combined entity would still remain below the market leader, GE; (ii) other market players remaining in the market for gas gensets post-transaction have a much larger market share than suggested by the Phase I data and continue to pose an effective competitive constraint; (iii) other sources of asymmetry in the market continue to exist, in particular differences in electrical efficiency as well as R&D investments among the main competitors; (iv) the Parties are not close competitors; and (v) the specificity of the genset competition, which takes place on the basis of projects (as opposed to gensets), along with the heterogeneity of the projects and the customers hinder genset manufacturers’ ability to monitor each other’s behaviour on the gas genset market.

(26) As a result, no evidence exists that the proposed transaction gives rise to a significant impediment of effective competition in the market of gas gensets for power generation based on coordinated effects.

3. Vertical effects

(27) The potential vertical effects of the proposed transaction were assessed primarily as a reaction to the complaint of a third-party packager, which relates to the Parties’ alleged ability and incentive post-transaction to stop supplying bare gas engines. The Commission Phase II market investigation confirmed that a theory of harm based on vertical effects can be excluded. First, only Caterpillar is active in the market for supply of bare engines (upstream). Second, its market presence is not significant, with a market share below 25 % in the EEA and below 10 % worldwide under any alternative market delineation. Thus, it is unlikely that the combined entity will have the ability or incentive to engage in an input foreclosure strategy post-transaction as regards the supply of gas bare engines.

(28) As to the other vertically affected markets, such as the supply of gensets and spare parts, a theory of harm based on vertical effects can be excluded as it is unlikely that the combined entity will have the ability or incentive to engage in an input foreclosure strategy post-transaction.

V. CONCLUSION

(29) For the reasons mentioned above, the decision concludes that the proposed transaction will not significantly impede effective competition in the internal market or in a substantial part of it.

(30) Consequently, the concentration should be declared compatible with the internal market and the functioning of the EEA Agreement, in accordance with Article 2(2) and Article 8(1) of the Merger Regulation and Article 57 of the EEA Agreement.

(1) OJ L 24, 29.1.2004, p. 1.

(2) Market shares for Tognum and Rolls-Royce are combined as Daimler and Rolls-Royce have recently acquired joint control over Tognum.

(3) No sales of medium-speed gas gensets with capacities below 2,5 MW were recorded in the last five years worldwide.