Summary of Commission Decision

of 6 February 2019

declaring a concentration to be incompatible with the internal market and the functioning of the EEA Agreement

(Case M.8677 — Siemens/Alstom)

(notified under document C(2019) 921)

(Only the English text is authentic)

(Text with EEA relevance)

(2019/C 300/07)

On 6 February 2019 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(3) of that Regulation. A non-confidential version of the full Decision, as the case may be in the form of a provisional version, can be found in the authentic language of the case 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) Siemens AG (Germany, hereinafter ‘Siemens’ or the ‘Notifying Party’) is a German corporation and the ultimate parent of the Siemens Group, headquartered in Munich, and listed on the Frankfurt am Main and Xetra stock exchanges. Siemens is active in a number of industrial areas with its mobility division offering a broad portfolio of rolling stock, rail automation and signalling solutions, rail electrification systems, road traffic technology, IT solutions, as well as other products and services concerning the transportation of people and goods by rail and road.

(2) Alstom SA (France, hereinafter ‘Alstom’) is a French corporation, headquartered in the Paris region, and listed on Euronext Paris Stock Exchange. Alstom is active globally in the rail transport industry, offering a wide range of transport solutions (from high-speed trains to metros and trams), personalised services (maintenance and modernisation) as well as offerings dedicated to passengers and infrastructure, digital mobility and signalling solutions.

II. THE OPERATION

(3) On 8 June 2018, the Commission received a formal notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (the ‘Merger Regulation’) by which Siemens will acquire sole control of Alstom by way of a contribution of Siemens' mobility business to Alstom in consideration for newly issued Alstom shares (the ‘Transaction’). Siemens and Alstom are collectively referred to as the ‘Parties’.

(4) The Transaction concerns the acquisition of sole control of Alstom by Siemens. It involves the combination of Alstom and Siemens' mobility business, including its rail traction drives and related services activities (hereinafter the ‘merged entity’).

III. UNION DIMENSION

(5) The undertakings concerned have a combined aggregate worldwide turnover of more than EUR 5 000 million. Each of them has an EU-wide turnover in excess of EUR 250 million, but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. The Transaction therefore has a Union dimension.

IV. PROCEDURE

(6) On 26 September 2017, the merger of Siemens' mobility (rail) business division with Alstom was announced.

(7) On 8 June 2018, the Commission received formal notification of the Transaction.

(8) On 13 July 2018, the Commission found that the Transaction raised serious doubts as to the compatibility of the Transaction with the internal market and adopted a decision to initiate an in-depth investigation. The Notifying Party submitted its written comments to the Commission's decision to initiate an in-depth investigation on 6 August 2018.

(9) On 16 July 2018, the Commission, with the agreement of the Parties, extended the legal deadline by 20 working days under Article 10(3)(2) of the Merger Regulation.

(10) On 8 August 2018, the Commission adopted a decision pursuant to Article 11(3) of the Merger Regulation, suspending the merger review time limit due to the failure of the Parties to provide certain requested documents. The suspension lasted from 7 August 2018 until 4 September 2018, the date on which the requested documents were provided.

(11) On 29 October 2018, the Commission adopted a Statement of Objections. The Notifying Party replied to the Statement of Objections on 14 November 2018. The Notifying Party did not request an oral hearing.

(12) The Notifying Party submitted commitments on 12 December 2018 (hereinafter ‘First Commitments’). On 17 December 2018, the Commission launched a market test on the commitments submitted on 12 December 2018.

(13) On 9 January 2019, a first modified version of the commitments was submitted by the Notifying Party (hereinafter ‘Second Commitments’). On 25 January 2019, a second modified version of the commitments was submitted by the Notifying Party (hereinafter ‘Final Commitments’).

(14) The meeting with the Advisory Committee took place on 31 January 2019.

V. RELEVANT MARKETS

(a) High-speed and very high-speed rolling stock

(15) The Commission considers that trains capable of speeds equal to and above 250 km/h (‘high-speed rolling stock’) constitute a separate product market. In addition, both supply and demand-side considerations, as confirmed by a common industry-wide understanding, sales and technical requirements and the results of the market investigation show that high-speed rolling stock (trains capable of speed from 250 km/to 299 km/h) is not substitutable to very high-speed rolling stock (trains capable of speeds equal to or above 300 km/h on dedicated tracks). Therefore, very high-speed rolling stock potentially constitutes a separate market. However, as the Transaction raises competition issues regardless of the precise market definition, effects will be examined on the basis of both conceivable market definitions. The Commission considers that sub-segmentations based on the type of traction system, architecture or the number of floors are not relevant.

(16) The Commission considers that the relevant geographic market is at least EEA-wide and includes Switzerland in light of common applicable rules and the absence of barriers to entry. The Commission cannot exclude that the market is worldwide, to the exclusion of China, Japan and South Korea, due to insurmountable barriers to entry in those countries, as explained by the Notifying Party and confirmed by the market investigation.

(17) The Commission considers that the relevant market is the market for high-speed trains, including the narrower market of very high-speed trains in the EEA (including Switzerland) and on a worldwide basis (excluding China, Japan and South Korea).

(b) Mainline signalling

(18) The Commission considers that mainline signalling and urban signalling are separate markets. Within mainline signalling, signalling projects and signalling products constitute separate markets. In addition, mainline signalling projects should be further segmented between subsystems (interlockings, automatic train protection (ATP), and operation and control systems), between legacy and European Train Control System (ETCS) projects, between on-board and wayside/trackside solutions, as follows: (a) Legacy OBU projects; (b) ETCS OBU projects; (c) Legacy ATP wayside projects; (d) Standalone ETCS ATP wayside (so-called overlay) projects; (e) Standalone interlocking projects; (f) ETCS ATP wayside re-signalling projects (bundle of ETCS ATP wayside and interlockings).

(19) The Commission does not further segment the markets by project size or ETCS level (ETCS Level 1, ETCS Level 2).

(20) In addition, the signalling product market for interlocking equipment forms a separate market.

(21) The Commission considers that the relevant geographic market for ETCS OBU projects, ETCS ATP wayside overlay projects, and ETCS ATP wayside re-signalling projects is EEA wide.

(22) The Commission considers that the relevant geographic market for legacy OBU projects, standalone interlocking projects, and interlocking equipment is national.

VI. COMPETITIVE ASSESSMENT

(a) High-speed and very high-speed rolling stock

(23) The Parties both manufacture and supply high-speed and very high-speed rolling stock.

(24) The Commission conducted its assessment on the basis of market shares calculated over the 2008-2018 period (order intake by value). The merged entity would have a combined market share of [70-80] % on the overall market for high and very-high speed rolling stock in the EEA (including Switzerland) and [60-70] % worldwide (excluding China, Japan and South Korea). On the narrower market for very high-speed rolling stock, the merged entity would have a combined market share of [70-80] % in the EEA (including Switzerland) and [60-70] % worldwide (excluding China, Japan and South Korea).

(25) The Parties' very large market shares on the overall market for high and very high-speed rolling stock as well as on the narrower market for very high-speed rolling stock constitute evidence consistent with the existence of a dominant market position. Competition concerns are all the more likely in that the Transaction will reinforce a concentrated market structure. Thus, the post-merger HHI in all segmentations will be considerably higher than 2 000, with a delta greatly above 250.

(i) The Parties' competitors

(26) Contrary to the Parties, competitors have had no or extremely limited sales of high or very high-speed trains to EEA customers other than to operators located in their home countries. In particular, as concerns very high-speed rolling stock, due to joint bidding strategies and portfolio limitations, the number of actual competitors facing the merged entity after the Transaction is essentially limited to two suppliers, namely Talgo and a consortium formed between Bombardier and Hitachi-Ansaldo. CAF has not had any sales of very high-speed trains.

(27) In addition to EEA-based suppliers, the Notifying Party considers that CRRC, Hyundai Rotem and Kawasaki exercise competitive pressure on a worldwide basis. However, CRRC has never won a high or very high-speed tender in the EEA. CRRC's position on the worldwide market remains marginal and results from a single sale, a 2017 Indonesian Railway contract obtained not through competitive tendering but as a result of government-level negotiations. As a result, CRRC remains untested in competitive tenders against the world's main suppliers of high and very high-speed rolling stock outside of China. In the EEA, CRRC has not been invited to present a bid in the upcoming HS2 (UK) tender. It follows that CRRC has not sold any high or very high-speed rolling stock in normal competitive conditions so far, nor has it been invited to do so. CRRC therefore cannot be considered to exercise a significant competitive constraint on the worldwide market outside of China, Japan and South Korea.

(ii) Closeness of competition

(28) The Commission considers that the Parties are close competitors, on the basis of: (i) their product offering and geographic footprint; (ii) bidding data analysis; and (iii) the Parties' internal documents.

(29) In terms of geographic footprint, both Siemens and Alstom are active outside of Germany and France, with sales to customers in Italy (NTV/Alstom), Belgium/France/Netherlands/UK (Eurostar/Siemens) Finland (Karelian/Alstom) and Poland (PKP/Alstom). Outside of the EEA, the Parties are active in Morocco (ONCF/Alstom), the US (Amtrak/Alstom), Russia (RZD/Siemens) and Turkey (TCDD/Siemens).

(30) Respondents to the market investigation confirmed that the Parties' product offerings compete closely. Customers have confirmed that the Parties' very high speed product offerings represent the best alternative to one another.

(31) The analysis of tenders in which either of the Parties has placed a bid (2008-2018) shows that the Parties are each other's most frequent competitors in high and very high-speed rolling stock tenders. Furthermore, the analysis of the bidding data shows that participation in tenders is generally limited, with two or fewer participants (i.e., suppliers placing a bid) in the majority of tenders for high and very high-speed trains in the EEA and at the worldwide level.

(32) Tender participation analysis shows that the Parties' interaction focuses primarily on very high-speed tenders whereas the frequency of the Parties' interaction is significantly lower in high-speed rolling stock tenders.

(33) Overall, especially in very high-speed rolling stock, the bidding analysis shows that the Parties constitute each other's closest competitors and main competitive constraint. In addition, bidding analysis shows that Talgo and the Bombardier/Hitachi-Ansaldo consortium exercise more distant competitive constraints on Alstom and virtually none on Siemens. CAF and Stadler do not exercise any competitive constraints in very high-speed rolling stock.

(34) Overall, the Parties' internal document confirm the close competitive constraints exercised by the Parties on one another before the Transaction and the more distant pressure exerted by rival suppliers.

(iii) Barriers to entry

(35) Several barriers to entry in the high and very high-speed rolling stock markets have been identified in the course of the market investigation. Among the barriers identified, a number apply generally to any activity in high or very high-speed rolling stock, regardless of location. These include the costs to develop rolling stock and the requirement to hold an adequate track-record in order to credibly bid in calls for tenders. Other barriers to entry are specific to the EEA and include the European authorisation scheme for rolling stock, the necessity of having an EEA-specific track-record, informal localisation requirements and the privileged relationship between a number of EEA-based suppliers and national operators in their home countries.

(36) These barriers have been acknowledged by CRRC, which recognises that it is currently not a credible bidder outside of China. The same is true of other Asian suppliers which the Parties consider to be potential entrants but are currently inactive in the EEA and exercise no competitive constraints.

(iv) Conclusion

(37) For the reasons set out above, the Commission considers that the Transaction will significantly impede effective competition, due to horizontal non-coordinated effects in the market for high-speed trains, including the narrower market of very high-speed trains in the EEA (including Switzerland) and on a worldwide basis (excluding China, Japan and South Korea).

(b) Mainline signalling

(i) ETCS OBU projects — horizontal unilateral effects

(38) The Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects, in relation to ETCS OBU projects in the EEA.

(39) The Commission conducted its assessment on the basis of market shares calculated over the 2008-2018 period (order intake by value). The merged entity would have a combined market share of [70-80] %, well ahead of its competitors.

(40) The Parties are close competitors, as shown by the analysis of bidding data for the period 2008-2018 and according to the views of customers and based on the Parties' internal documents. The Parties are important innovators in ETCS OBUs and the Transaction would remove an important innovator. The merged entity would enjoy a competitive advantage, which would weaken competitors and significantly decrease competition post-Transaction, due to the Parties' access to legacy signalling systems and the Parties' stronger position for international corridors. The Commission considers that new entry is unlikely in the EEA market, including from Chinese suppliers in the foreseeable future. To date, Chinese suppliers have not bid for any ETCS OBU projects in the EEA.

(ii) Legacy OBU projects in Belgium — horizontal unilateral effects

(41) The Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects, in relation to legacy OBU projects in Belgium.

(42) In the period 2008-2018, Alstom was the sole supplier of legacy OBU projects in Belgium. Siemens is the only other supplier that has a homologated interlocking in Belgium. Siemens exerts a competitive constraint on the basis of its homologated interlocking that would be lost post-Transaction.

(iii) Interlocking projects (standalone) — horizontal unilateral effects

(43) The Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects, in relation to standalone interlocking projects in Belgium, Croatia, Greece, Hungary, Portugal, Romania, Spain, and the UK.

(44) In countries in which affected markets arise, namely Croatia, Spain, UK, and Portugal, the merged entity would have high combined market shares (based on order intake by value in the period 2008-2018) of [90-100] % in Croatia, [40-50] % in Spain, [70-80] % in the UK, and [50-60] % in Portugal. The Parties are close competitors and any potential buyer power of the infrastructure manager would be insufficient to overcome the loss of competition from the Transaction.

(45) In addition to the countries in which there is an actual sales overlap between the Parties in the period 2008-2018, the Transaction would also lead to a significant impediment to effective competition in countries where given the very limited number of bidders the Parties exert a strong competitive constraint by participating in bids for standalone interlockings or bids involving interlockings. These countries are Greece, Romania, Belgium, and Hungary. The Parties are close competitors and any potential buyer power of the infrastructure manager would be insufficient to overcome the loss of competition from the Transaction.

(iv) ETCS ATP wayside overlay projects — horizontal unilateral effects

(46) The Commission considers that the Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects, in relation to ETCS ATP wayside overlay projects in the EEA.

(47) The Commission conducted its assessment on the basis of market shares calculated over the 2008-2018 period (order intake by value). The merged entity would become the market leader with a combined market share of [30-40] %, well ahead of competitors.

(48) The Parties are close competitors, new entry (in particular by Chinese suppliers) is unlikely, and any potential buyer power of customers would be insufficient to overcome the loss of competition from the Transaction.

(v) ETCS ATP wayside re-signalling projects — horizontal unilateral effects

(49) The Commission considers that the Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects, in relation to ETCS ATP wayside re-signalling projects in the EEA.

(50) The Commission conducted its assessment on the basis of market shares calculated over the 2008-2018 period (order intake by value). The merged entity would become the market leader with a combined market share of [50-60] % in the EEA, well ahead of competitors.

(51) The Parties are close competitors, new entry (in particular by Chinese suppliers) is unlikely, and any potential buyer power of customers would be insufficient to overcome the loss of competition from the Transaction.

(vi) Interlocking equipment — horizontal unilateral effects

(52) The Commission considers that the Transaction would cause a significant impediment to effective competition due to horizontal non-coordinated effects in the market for interlocking equipment in the UK.

(53) The merged entity would have a combined market share of [90-100] % based on market shares calculated over the 2015-2017 period (order intake by value). There would not be viable alternative suppliers of UK-specific interlocking equipment post-Transaction and any potential buyer power of customers would be insufficient to overcome the loss of competition from the Transaction.

(vii) Vertical effects — input foreclosure from the market for standalone interlocking projects in in the UK

(54) The Commission considers that the Transaction would cause a significant impediment to effective competition due to non-coordinated vertical effects in the market for standalone interlocking projects in the UK.

(55) The Commission considers that post-Transaction the merged entity will have the ability and the incentive to foreclose access to interlocking equipment to downstream rivals in the UK against whom the merged entity competes for the supply of standalone interlocking projects

(56) First, the merged entity will have the ability to foreclose access to interlocking equipment, by increasing prices or otherwise frustrating the ability of competitors active on the market for standalone interlocking projects, to bid competitively in tenders for which they rely on the Parties' interlocking products. This is the case given that the Parties' interlocking products are a critical component in the supply of standalone interlocking projects in the UK and the merged entity holds a significant degree of market power on the upstream market for the supply of interlocking equipment in the UK.

(57) Second, the merged entity will have an incentive to foreclose access to upstream signalling products post-Transaction because it would be a profitable strategy.

(58) Finally, the past behaviour of the Parties show they have already tried to frustrate the ability of competitors to bid for mainline signalling projects in the UK.

(viii) Conclusion

(59) For the reasons mentioned above, the Commission considers that the Transaction would cause a significant impediment to effective competition as a result of horizontal and/or non-horizontal non-coordinated effects, in relation to the following markets: (a) High-speed and very high-speed rolling stock, including the narrower market of very high-speed rolling stock in the EEA and on a worldwide basis (excluding China, Japan and South Korea); (b) ETCS OBU projects in the EEA; (c) Legacy OBU projects in Belgium; (d) Standalone interlocking projects in Belgium, Croatia, Greece, Hungary, Portugal, Romania, Spain, and the UK; (e) ETCS ATP wayside overlay projects in the EEA; (f) ETCS ATP wayside re-signalling projects in the EEA; (g) Interlocking equipment in the UK.

VII. REMEDIES

(60) In order to remove the competition concerns identified by the Commission, the Parties submitted the First Commitments on 12 December 2018, which were market tested by the Commission on 17 December 2018.

(61) On 9 January 2019, the Parties submitted the Second Commitments. On 25 January 2019, the Parties submitted further revisions in the Final Commitments. The Second and Final Commitments were not market tested.

(62) The First, Second and Final Commitments included in particular measures aimed at solving the competition concerns identified by the Commission in relation to the markets for (i) high and very high-speed rolling stock (the ‘Very High-Speed Rolling Stock Commitments’); and (ii) for mainline signalling (the ‘Mainline Signalling Commitments’).

(a) Very High-Speed Rolling Stock Commitments

(i) Description

(63) The Very-High Rolling Stock Commitments consist of two alternative packages: (a) The Velaro Package consists of (i) the transfer of the right to develop, improve, manufacture and commercialise the third generation of Siemens' Velaro platform (‘Velaro 3G’); and (ii) a technology transfer of the core technology bricks of Siemens' Velaro Novo concept (the ‘Velaro Novo Licence’), which will be made available to the purchaser under certain conditions; or (b) The Pendolino Package consists in the divestment of Alstom's Pendolino platform (the ‘Pendolino Divestment’), which will be made available to the purchaser under certain conditions.

(ii) Assessment

(64) The Commission considers that both packages are insufficient to address the competition concerns described above in relation to very high-speed trains: (a) The Velaro Package does not include any production, manufacturing and research and development assets. Moreover, the Velaro Novo licence is also too restrictive in scope (exclusive for 10 years in the EEA and non-exclusive worldwide) and contains important exceptions, which would prevent any remedy taker from exercising a material competitive constraint; (b) The Pendolino package is inadequate as the Pendolino platform is a high-speed platform, unable to address the very high-speed competition concerns raised by the Commission. It is also limited because of envisaged carve outs, necessary third party agreements, back license of certain aspects.

(b) Mainline Signalling Commitments

(i) Description

(65) The Mainline Signalling Commitments consist of the ‘ETCS OBU Commitment’ and the ‘ETCS wayside and interlocking Commitment’.

(66) The ETCS OBU Commitment includes access to Siemens' ETCS OBU technology via a transfer of Siemens' ETCS OBU software application, but only a licence/supply and service agreement for the underlying safety platform, limited in time to 4 years, after which the remedy taker would need to migrate the OBU application onto its own safety platform. The proposal includes a licence and supply and service agreement to be supplied with Class B STMs wholly owned by Siemens.

(67) The proposal includes also a transfer of Siemens' Belgian legacy OBU (TBL+) application, without the underlying platform and a licence to Siemens' Class B STMs. The Final Commitments extends the platform licence from 4 to 6 years to ease the migration to the remedy-taker's own platform and includes a right for the remedy taker to be supplied, pursuant to a supply and service agreement, with Alstom's Class B STMs at commercially negotiated rates.

(68) The ETCS wayside and interlockings Commitment comprises a mixture of transfer of ownership and licensing arrangements to Alstom technology, specifically: (a) For ETCS ATP wayside: Transfer of ownership of Alstom's ETCS Level 1 and Level 2 software applications and a licence and supply and service agreement for the platforms on which the software applications run and a transfer of technology, which is a different form of licensing arrangement, for one of those platforms; (b) For interlockings: A mixture of a transfer of technology and licensing for access to Alstom's main interlocking technology currently installed in the EEA. The merged entity reserves the right to compete outside of the EEA with the same technology. For certain other Alstom interlocking technology, the commitments comprise a mixture of transfer of ownership, transfer of technology and licensing.

(ii) Assessment

(69) The Commission considers that Mainline Signalling Commitments are insufficient to address the competition concerns that arise in mainline signalling markets. (a) The ETCS OBU Commitment involves a limited term licence to technology which is insufficient to ensure the viability and competitiveness of the divestment business. Moreover, the remedy taker will be dependent on the merged entity for the supply of interfacing technology which would likely adversely affect its ability to compete effectively. (b) The ETCS wayside and interlockings Commitment is inadequate because it is complex and involves a mix of assets and licensing arrangements that will likely result in implementation risks that will undermine the viability of the divestment business. The package is also limited in that it excludes manufacturing and research and development sites, pipeline technology and related personnel.

VIII. CONCLUSION

(70) Based on its analysis and available evidence, the Commission concludes that the Transaction is incompatible with the internal market and the functioning of the EEA Agreement.

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