94/1073/EC: Commission Decision of 12 October 1994 concerning the grant of State aid by France to the Bull group in the form of a non-notified capital increase (Text with EEA relevance)
Date: 1994-10-12
Institutions: European Commission
Subjects: France, State aid, capital increase, competition













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31994D1073

94/1073/EC: Commission Decision of 12 October 1994 concerning the grant of State aid by France to the Bull group in the form of a non-notified capital increase (Text with EEA relevance)  


Official Journal L 386 , 31/12/1994 P. 0001 - 0012 





COMMISSION DECISION of 12  October 1994 concerning the grant of State aid by France to the Bull group in the form of a  non-notified capital increase (C33/93 (ex NN 32/93)) (Only the French text is authentic) (Text with  EEA relevance) (94/1073/EC)THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, and in particular the first  subparagraph of Article 93 (2) thereof, Having regard to the Agreement establishing the European Economic Area and, in particular, Article  62 (1) (a) thereof and Protocol 27 thereto, Having given notice in accordance with Article 93 of the Treaty to interested parties to submit  their comments and having regard to those comments, Whereas: I Groupe Bull ('Bull`) is a manufacturer of diversified computing products having its head office  based in France. In addition to its manufacturing operations Bull also provides software and  maintenance services to its clients. At present the majority of Bull's share capital is held either directly or indirectly, through  France Télécom, by the French State. A minority participation in the group's share capital is owned  by the private sector represented by NEC and IBM. The Commission has taken several recent decisions concerning Bull: the first, in 1992, being a  final decision pursuant to Article 93 (2) of the Treaty (1), which considered capital injections  amounting to FF 4 billion to contain aid but that this aid was compatible with the common market.  This decision also assessed aid of FF 2,68 billion, granted for research and development, and found  it to be similarly compatible. It should be noted that this decision is currently subject to  appeal, as concerns the capital injections, at the Court of Justice of the European Communities  (2). Subsequent decisions have been taken in connection with the present programme of  recapitalization: in 1993 the Commission initiated the Article 93 (2) procedure (3) in connection  with an advance on a future capital injection, amounting to FF 2,5 billion. Then, in January 1994,  the procedure was extended (4) to include a further capital increase amounting to FF 8,6 billion of  which FF 5,5 billion was paid in December 1993. II Bull remains one of the larger traditional, broad-based computer companies, manufacturing  proprietary systems, involved with open systems and distributing micro-computers, being ranked  number 13 in the world according to the Datamation 100 Survey published in June 1993. However, it  has been equally affected by the falling turnover and poor results as have been seen by other  major, traditional, broad-based manufacturers in the industry. The adverse financial and commercial position of these companies is reflected by the fact that the  computer sector is going through a phase of accelerated technical and commercial development  thereby necessitating restructuring. Prices are falling dramatically, consumption and production  are slowing and the market is becoming fragmented into many segments. Downsizing and the  standardization of products have intensified competition and reduced margins. Many of the major,  traditional manufacturers have suffered losses during 1992, and are trying to shift their  activities from manufacturing to software and services, being areas that still display high growth  rates. However, it should be noted that extensive changes have taken place in the realm of information  technology in recent years. Companies have invested large sums to design products that will, in due  course, have an effect on many sectors. This trend is partly explained by technological progress as  much as by the demise of the former borders between telecommunications and electronic data  processing (EDP). New applications like inter-active video games and teleshopping symbolize the  emerging multi-media world which is based on a wide range of technologies and where computers are  sold as consumer products. Products that were formerly available only to large companies are now  accessible by smaller industrial users and, importantly, a large market of private consumers has  developed. The various information technologies are converging and EDP is moving towards a standardization of  product resulting in mass produced standard systems. However, the value added by the hardware  producers is decreasing due to strong pressure from components suppliers; therefore, added value  lies increasingly in software and services. To react to the erosion of their core business  manufacturers have tried to cut costs and to diversify and it is only now, with certain companies,  that this solution is working. III Following press reports, in February 1993, relating to an advance on a future capital injection  amounting to FF 2,5 billion for Bull, the Commission addressed a request for information to the  French authorities. This request was followed by a series of letters, between the French  authorities and the Commission, which resulted in the Commission establishing that no restructuring  plan had been adopted by Bull's majority shareholders on which to base their investment in the form  of an advance on a future capital injection. Accordingly, given that the Commission concluded that illegal aid was present in the transaction  and that no grounds, given the absence of a final, approved restructuring plan, could be found for  its compatibility with the Treaty, the Commission decided to initiate the Article 93 (2) procedure  on 6 October 1993. This decision was forwarded to the French authorities by letter dated 16  November 1993 and published in the Official Journal of the European Communities (1). Subsequently,  in a letter dated 6 December 1993 the French authorities informed the Commission that the French  State, together with France Télécom, had decided to invest, in addition to the advance of FF 2,5  billion, a further FF 8,6 billion in Bull. Furthermore, it was stated that part of this amount  would be paid immediately to Bull thereby infringing the procedural requirements of Article 93 (3);  this measure must therefore be classified as illegal. Accordingly, on 26 January 1994 the Commission adopted two further decisions concerning Bull. The  first decision extended the Article 93 (2) procedure in respect of the capital increase of FF 8,6  billion: this decision was forwarded to the French authorities by letter dated 8 February and  published in the Official Journal of the European Communities (2). The second decision ordered the French authorities to refrain from granting further aid to Bull,  and specifically FF 2,5 billion which was believed to be outstanding for payment from the amount of  FF 8,6 billion. This decision was sent to the French authorities by letter dated 8 February 1994  and was published in the Official Journal of the European Communities as Decision 94/220/EC (3). The French authorities responded to the second decision in a letter dated 25 February confirming  that they would not proceed with further payments until the Commission had reached a decision  thereon. In a letter dated 8 March 1994 the French authorities responded to the questions raised by the  Commission in the opening and extension of the Article 93 (2) procedure submitting, in addition, a  final restructuring plan. The Commission raised a series of questions on these documents in May  1994 to which the French authorities replied in June 1994. A meeting was held in July between the  Commission and the French authorities and Bull where several further issues and questions were  raised. An answer to the Commission's questions was received in August. During July 1994 the Commission appointed an independent consultant to assess Bull's restructuring  plan: this work was carried out during August and September and a final report issued in mid  September. This report was submitted to the French authorities by letter dated 20 September 1994  who confirmed that they had no comments to make on the report on 21 September 1994. IV Within the framework of the Article 93 (2) procedure comments were submitted by the UK Government  to both the opening and the extension of the procedure. These comments were submitted to the French  authorities by letters dated 14 March and 26 May 1994. A response dated 28 March 1994 was received  to the letter dated 14 March 1994; no reply was sent in respect of the second letter. In principle the UK Government supported the Commission's position and considered that the aid  should not be used to fund acquisitions or be granted to a company operating in a market in  overcapacity. The French authorities responded stating that they did not share the UK Government's  analysis of the capital injection or market and, specifically, that Bull's acquisition of Packard  Bell was part of a strategy to improve its micro-computer business. V Article 92 (1) of the EC Treaty and Article 61 (1) of the EEA Agreement state that any aid granted  by a Member State or through State resources in any form whatsoever which distorts or threatens to  distort competition by favouring certain undertakings, or the production of certain goods, shall in  so far as it affects trade between the Member States and the Contracting Parties be incompatible  with the common market and the Agreement. In addition, in assessing whether a capital injection  constitutes aid, it must be assessed whether or not the State's action is in accordance with that  of a market economy investor. In order to improve transparency and to assist in ascertaining whether the behaviour of the State  is akin to that of a market economy investor (an approach adopted by the Court of Justice on a  number of occasions) (1), the Commission has adopted two communications: one dated 17 September  1984 concerning public authorities' holdings in company capital (2) and another in 1993 covering  public undertakings in the manufacturing sector (3). This guidance requires a consideration of  whether, in general terms: - the enterprise's financial position is sound, - the participation of any private shareholder takes place in proportion to its shareholding and  whether such a shareholding is economically significant, - the structure and volume of the company's debts can allow a normal return (in dividends or  capital gains) in a reasonable time from the injected capital, - the enterprise is able to raise similar funding on the capital markets given the enterprise's  cash flow, and - the present value of expected future cash flows from the intended project exceed the new outlay, to ascertain whether or not a capital injection includes an aid element. However, in order to make these assessments it is necessary, at the outset, to determine the date  on which the decision was made to undertake the investment. The advance on a future capital  injection of FF 2,5 billion was paid to Bull during February 1993 and the decision to invest a  further FF 8,6 billion was taken by the French authorities in December 1993. Therefore, it is  necessary to consider Bull's financial position at these points in time to assess whether a market  economy investor would have made the same decision as the French State. At the end of 1992, being the latest point at which historic financial information would have been  available before the decision to invest was taken, Bull had experienced three years of falling  sales, having seen its consolidated turnover reduced from FF 35 billion in 1990 to FF 30 billion in  1992, being a fall of some 14 %. Furthermore, operating losses (i. e. revenues less all costs  except net financial charges) had been incurred in each of the years 1990, 1991 and 1992 and,  similarly, Bull's net result (both before and after restructuring provisions) had been negative  during this period, the group having earned its last net profit in 1988. It should also be noted  that Bull has not paid dividends since its acquisition by the State and given the level of losses,  it cannot be supposed that an increase in the value of the company's shares has taken place. Bull's cash flow generated by its operations was not sufficient to meet its investment needs during  the period 1990 to 1992; consequently, for this period Bull had to resort to capital injections to  meet its financing requirements and to reduce the high level of borrowings reached in 1990. Whilst  the Commission did not consider Bull's capital injection of 1990 it has to be recalled that the  majority of the capital injected in 1991 and 1992 came from the State and was considered to be  State aid. By way of comparison IBM, which was profitable in 1990, incurred a net loss in both 1991 and 1992.  However IBM generated a cash surplus from operations sufficient to cover investment needs in both  1990 and 1992 and only had to resort to borrowings for this purpose in 1991. Similarly DEC, which  was profitable in 1990, but was loss making in 1991 and 1992, generated a sufficient cash surplus  from operations in both 1990 and 1991 to cover investment needs but had to raise other finance for  this purpose in 1992. Bull's debts at the end of 1992, after allowing for the above capital injections, whilst lower than  in the previous two years, still amounted to over FF 10 billion being some 27 times shareholders'  funds (i. e. share capital and retained results). Similarly, Bull's financial charges were some 5 %  of turnover in 1992 and were not covered by operating profits, showing that the group had failed to  earn sufficient profits to cover interest costs on borrowings. This had also been the situation in  both 1991 and 1990. As regards the subsequent decision to invest FF 8,6 billion the French authorities would have had  available Bull's results for the six months to 30 June 1993 and a good indication of the results  for the year to 31 December 1993. The half year results to June 1993 show a fall in sales (when compared to the first half of both  1991 and 1992); an operating loss 50 % higher than that for the first six months of 1992 had been  incurred and the net loss was higher than that of the previous corresponding period. In addition,  interest charges were not covered by operating profits, due to the loss being incurred and debts,  despite the advance on a capital injection, were not significantly reduced because of the continued  level of losses. Similarly, by considering Bull's financial statements for the year ended 31 December 1993 it is  apparent that sales had fallen further from 1992 levels and that an operating loss had been  incurred, being higher than in both 1991 and 1992. Again financial charges were not covered by  operating profits (due to the loss) and whilst indebtedness was reduced to some FF 4,5 billion this  was made possible by the capital injections paid during 1993 amounting to FF 6,1 billion. Given the recent financial performance of Bull, its falling sales, operating losses and high level  of indebtedness it is not believed that its financial position was sound at the date of the  investment decisions. Moreover, considering the structure and volume of Bull's debts it is not  believed, taking due account of historic and future performance, that an adequate return could be  expected, at the date of investment, from the injected capital in a reasonable time. Finally, it is  not considered that Bull, on the basis of its cash flow, would have been able to raise similar  amounts of funding on the capital markets. The communication of 17 September 1984 concerning public authorities' holdings in company capital  states that State aid is not present in a capital injection when both the public and private  shareholders contribute in proportion to their shareholdings; however the private investor's  shareholding must have economic significance. Prior to the payment of the advance of FF 2,5 billion, the NEC and IBM shareholdings in Bull  totalled 10,1 % of the share capital. Neither company was invited by the French Government to  participate in making the advance to Bull but both were informed that they could take part in a  subsequent capital increase. As regards the capital increase of December 1993 it should be noted that IBM did not participate,  thereby seeing its stake in Bull diluted from 5,68 % to 2,1 % - a reduction of 63 %. On the other  hand NEC maintained its shareholding of 4,4 % by investing FF 379 million. Accordingly, it is  necessary to consider whether this shareholding is 'economically significant` and to consider the  monetary value of the shareholding which may be seen from the point of view of either NEC or Bull. This capital injection by NEC represents some 3 % of the total current injections and NEC's total  investment in Bull, since becoming a shareholder, accounts for some 4 % of the total capital  injections made to the group. Whilst these amounts are significant in themselves, the relative  amounts are small in comparison to the total. Similarly, the amounts are small for NEC: at its 1992  financial year and NEC had financial asset investments of FF 14 billion; during its 1992 financial  year NEC invested FF 12 billion in fixed and financial assets. It would not therefore appear that  FF 379 million was a significant investment for NEC to make. In addition it must not be forgotten that NEC has a broader interest than other market economy  investors in continuing to invest in Bull being the access such an investment brings to the French  and European markets especially that of public procurement. Therefore it is not considered that NEC's investment in Bull is economically significant and  therefore this investment does not detract from the aid nature of the State's capital injections. Finally, it is necessary to consider a net present value analysis of the capital injections. This  analysis is based on the financial projections provided by the French authorities for Bull for 1994  and 1995; a period considered, by the French State, to be sufficient to judge Bull's financial  viability. Before proceeding with any analysis based on value or discounted value it is to be noted that at 31  December 1992 Bull had total shareholders' funds (including the advance of FF 2,5 billion)  amounting to FF 375 million. At the end of the restructuring process and after the further  injections by the State of FF 8,6 billion, Bull has projected total shareholders' funds of FF [. .  .] (1) billion, i. e. an erosion of some FF [. . .] billion, being most of the second capital  injection. By taking account of Bull's value at 31 December 1992, its net cash flows in 1993, 1994 and 1995  the capital injections during this period and the value of Bull at 31 December 1995, it would  appear that the internal rate of return generated by these financial flows is insufficient to  convince a market economy investor operating in normal conditions to undertake such a transaction. Therefore, on the basis of these tests it is apparent that both the advance and the capital  injection, made, or to be made, by the French State and France Télécom for the benefit of Bull  contain aid within the meaning of Articles 92 (1) of the EC Treaty and 61 (1) of the EEA  Agreement. The French authorities argue that the capital injections do not contain aid to Bull because: - of the three options available to the State shareholder, namely liquidation, sale or recovery  measures, the latter option would most probably protect the value of the State's investment, - the actions of the minority shareholders supported the State's decision, and - the action of the State was comparable to that of shareholders of other large information  technology groups in difficulty. The French authorities claim that the cost of either liquidating or the net cost to the State of  liquidation, after disposing of Bull's viable business segments, would exceed the amount of the  capital injection. Therefore, as the amount of the capital injection was lower than both these  amounts, injecting funds to permit restructuring was the correct economic decision. A shareholder in a company, limited by shares, is responsible, normally in law and always in  economics, to the amount of his subscribed share capital. Consequently in a liquidation the  shareholders' exposure is limited to this amount. In arriving at a liquidation value for Bull the  French authorities have assumed that the French State, as shareholder, will be accountable for the  total of Bull's debts both as shown on the balance sheet and as contracted to off-balance sheet.  This approach is mixing the State's roles of owner/shareholder and as a body responsible for social  policy. From an economic standpoint and as supported by the Court of Justice in its judgment of 14  September 1994 (2), it is clear that the State's involvement is limited to its share capital and in  the words of the Advocate-General 'if the company's liabilities exceed its assets, its creditors  would not have been able to call upon the Patrimonio del Estado (the State) to make good the  difference`. As the French authorities have calculated that the sale of Bull's viable parts would exceed the  legal cost of redundancies, and the immediate cost of running Bull down, it is considered that it  is erroneous to include the whole of Bull's other liabilities (especially as none are covered by  State guarantees) in calculating a liquidation cost and to compare this to the cost, by way of a  capital injection, of a restructuring. Such an analysis would not be carried out by a market  economy investor who would simply compare the diminution of value that would be incurred by losing  the share capital in a liquidation with the cost of restructuring. Therefore, it is considered that  this analysis may be discounted. Furthermore, it is considered that even if a responsibility exceeding the nominal shareholders'  liability is imposed by national courts, as is claimed by the French authorities in this case, then  the fact that Bull was not restructured or liquidated at an earlier point in time is contrary to  the behaviour of a market economy investor. Such an investor would have taken appropriate action  once it became clear that liabilities were arising that put his limited liability in doubt.  Therefore if national law establishes such an unlimited guarantee, governments must take account of  this fact and act as market economy investors in their investment decisions. The Commission's  position in such cases has been clearly established in Decisions 92/329/EEC (1) and 94/259/ECSC  (2), and in its communication in the EFIM case (3). The actions of Bull's minority shareholders have already been dismissed above: it is, however, to  be reiterated that it is not considered that the shareholding of NEC is economically significant  and that the continuing investment was motivated by market access reasons; moreover, it should be  remembered that IBM did not participate in the transaction. The fact that Bull has raised debt funding in 1992 and 1993 does not detract from this analysis. As  no details of either the lender, the length of the loans or the applicable interest rate is given  it is not possible to conclude that these transactions indicate that aid is not being granted to  Bull. Turning to consider the actions of the shareholders of companies in a position similar to Bull, the  French authorities make reference to Siemens (SNI), Olivetti and AT & T and point out that, in the  case of SNI, its parent company has supported it financially despite a recurring high level of  losses. Furthermore, as regards Olivetti funds have been raised on the stock exchange and that DEC  has participated in this increase. Finally, as concerns AT & T it is stated that AT & T has  continued to support its information technology business even going as far as acquiring the loss  making NCR. Several points require further consideration. As regards SNI the capital injected by Siemens in  1990 at current exchange rates, amounts to some FF [. . .] billion: Bull has received over FF 15  billion to restructure since 1991. Whilst Siemens has lent a further FF [. . .] billion to SNI to  restructure, this money, as a loan, can be recovered. Moreover, it must be remembered that SNI is a  larger company, in terms of turnover, than Bull, and therefore may cost proportionately more to  restructure. In addition, as SNI does not make publicly available its full financial results, it is  not possible to ascertain to what extent SNI's losses may be due to restructuring costs.  Furthermore, the behaviour of Siemens with respect to SNI is based on an industrial rationale as  SNI forms a complementary part of a larger electrical, electronic and consumer goods conglomerate. SNI accounted for only some 16 % of Siemens' turnover in 1991 with the greatest segment of sales  (33 %) coming from industry, automation and transport. Due to the group's diversified structure,  which also includes electrical components, energy and medical divisions, there is an economic  rationale in having a computer company within the group. The fact that SNI can draw on Siemens'  components division and then sell products to the captive automation and components division  supports the argument that SNI is retained for strategic reasons. Similarly, Olivetti has raised some FF 1 billion by way of a rights issue, again a far smaller  amount than that given to Bull and Olivetti raised this sum on the back of a more successful  trading performance than Bull. In addition despite the participation of DEC in this original  transaction it should be noted that DEC is currently in the process of withdrawing from Olivetti. Finally, as regards AT & T, whilst it has supported its own information technology business, and  that of NCR, it would not appear that it has called upon its shareholders for funding but instead  has relied on internally generated monies to undertake the restructuring of the group. Therefore, the actions of the French State in respect of Bull can be distinguished from these cases  on three grounds: first, the size of external capital injections (if any at all) in these cases  must be contrasted with that of Bull. Secondly, in the case of SNI and AT & T, at least, the fact  of industrial synergy must not be omitted, something which is lacking in the case of Bull. Thirdly,  AT & T and Olivetti have generated operating profits in recent years to fund their restructuring  themselves which Bull has been unable to do. Furthermore, it must also not be forgotten that a number of computer companies, being competitors  of Bull, for example IBM, whilst loss making have restructured without the help of their  shareholders. These companies have, in general, only incurred net losses as the result of  restructuring provisions: they were profitable at the operating level. Finally it should be noted that the French authorities have submitted a net present value analysis  which shows that an internal rate of return of some [. . .] % is generated on the capital  injections. This calculation is erroneous for the following reasons: - the calculation ignores the recapitalization by France Télécom. As a public undertaking this  company's capital injection should be taken into account, - in determining the cash flow, the analysis assumes that the State has to meet the whole of Bull's  liabilities on liquidation. As discussed above, on economic grounds, this is inappropriate. Therefore, its is considered that this calculation may be discounted. In summary the arguments advanced by the French authorities do not point to the conclusion that the  French State and France Télécom have acted as market economy investors in their recapitalization of  Bull. Therefore, as concluded above, the capital injections amounting, in total, to FF 11,1 billion  by the French State and France Télécom are considered to contain aid within the meaning of Articles  92 (1) of the EC Treaty and 61 (1) of the EEA Agreement. However it also became apparent during  this analysis that the payment of the advance on a future capital injection appeared to be an  intention of the French Government to grant rescue aid whilst the capital injection, on the other  hand, was in the nature of restructuring aid. VI Bull operates in several distinct areas being those of proprietary computers (GCOS 7 and GCOS 8),  open systems and business software (Unix), personal computers (ZDS), systems integration and  services. In 1993 and 1992 Bull's sales of equipment amounted to FF 15 billion and FF 16 billion respectively  and its rental and service income to FF 13 billion and FF 14 billion respectively. This sales  revenue may be analysed as follows: >TABLE>It is understood that some 50 % of Bull's sales in western Europe take place in  France. Data for the size of the European market in 1992 (as set out in the Commission's Panorama of  Industry 1994) indicate that the total market size was some FF 260 billion. Alternatively for the  EEA as a whole (for 1993) the Yearbook of World Electronics Data indicates a market of some FF 375  billion for EDP equipment; finally, the 1993 IDC Worldwide Black Book indicates a western European  market size of FF 660 billion for 1992 and FF 718 billion for 1993. Bull, with sales of some FF 20 billion in western Europe, of which some FF 10 billion are exported  from France, is therefore involved in trade between the Member States and the Contracting Parties.  Consequently any aid to Bull would be capable of distorting trade within the meaning of Articles 92  (1) of the EC Treaty and 61 (1) of the EEA Agreement. VII Whilst Articles 92 (1) of the EC Treaty and 61 (1) of the EEA Agreement lay down the general  incompatibility of State aid, certain derogations from this general incompatibility are contained  in Articles 92 (2) and (3) and 61 (2) and (3) respectively. In this case the aid does not have a  regional dimension as none of the French mainland can benefit from a derogation pursuant to  Articles 92 (1) (a) or 61 (3) (a) respectively. Similarly, the aid does not have any regional  specificities and, as it is believed that none of Bull's continuing, major plants are located in  regions falling under the regional derogation of Articles 92 (3) (c) and 61 (3) (c) respectively  the aid cannot benefit from this derogation. Therefore, the Commission believes that the aid can only be considered for the derogation provided  for in Articles 92 (3) (c) and 61 (3) (c) respectively being aid to facilitate the development of  certain economic activities, where such aid does not affect trading conditions to an extent  contrary to the common interest. The Commission has recently adopted revised guidance (Community guidelines on State aid for  rescuing and restructuring firms in difficulty (Notice to the Member States)) concerning the  circumstances under which it may be prepared to permit State aid to allow undertakings to  restructure both physically and financially. Restructuring usually involves one ore mor of the following elements: the reorganization and  rationalization of the firm's activities on to a more efficient basis typically involving the  withdrawal from activities that are no longer viable or are already loss-making, the restructuring  of those existing activities that can again be made competitive and, possibly, the development of  or diversification to new viable activities. Financial restructuring usually has to accompany the  physical restructuring. Restructuring plans take account of, inter alia, the circumstances giving  rise to the firm's difficulties, market supply and demand for the relevant products as well as  their expected development and the specific strengths and weaknesses of the firm. They allow an  orderly transition of the firm to a new structure that gives it viable long-term prospects,  producing an adequate return on the injected capital, and will enable it to operate on the strength  of its own resources without requiring further State assistance. It is considered that aid for restructuring may contribute to the development of economic  activities without adversely affecting trade against the Community interest if certain conditions  are fulfilled. In this context it should be noted that the Commission has recognized in the White Paper on Growth,  competitiveness and employment that with an imminent information society and with the emergence of  information highways, it is in the Community's and the EEA's interests to meet new challenges in  these areas. This is because the first economies which successfully complete this change will hold  significant competitive advantages. Therefore, whilst Bull does not operate specifically in  telecommunications, aid to establish a viable and competitive information technology industry, as  long as any competitor operating in the EEA is not unduly disadvantaged by the aid, could be said  to facilitate economic development from the standpoint of the Community. It must not be forgotten that both the advance and the capital injection are linked to a  restructuring plan (le plan de restructuration) which has been approved by Bull's majority  shareholders and which was submitted to the Commission in March 1994. The French authorities stress  that this plan has for its objectives the rectification of Bull's financial results within two  years and the restoration of its viability, which should permit its privatization as soon as  possible. (a) Restoration of viability Whilst the goal of any restructuring plan is to restore the undertaking's long-term viability and  health within a reasonable time scale, it is also necessary to ensure that the aid related thereto  is in proportion to the restructuring costs and its benefits and that the proposed restructuring  plan is implemented in full. Bull's restructuring plan provides for the restructuring of the group into seven operating  divisions segregated by business type; the restructuring of these operations and specifically the  micro-computer and open systems and software businesses; reductions in the labour force; the  closing of factories and the sale of certain activities. The main thrust of the plan is to reduce  Bull's cost structure by a reduction in the number of employees, by the rationalization of its  factories, and their capacity, and by the sale of marginal operations. The cost of these actions was estimated at FF [. . .] billion of which FF [. . .] billion are met  by the current recapitalization, the balance having already been provided in accordance with the  1992 restructuring (plan de mutation). The balance of the recapitalization will be employed in  reducing Bull's third-party indebtedness. It is estimated that these measures would improve Bull's  operating margin by FF [. . .] billion in 1995. Whilst these restructuring measures themselves generate cumulative cost reductions of FF [. . .]  billion during the period 1992 to 1995, of which FF [. . .] billion relate to distribution and  administration costs, FF [. . .] billion to research and development charges and FF [. . .] billion  to gross margin improvements, it is also necessary to add the continuing improvements due to the  1992 plan de mutation. The 1992 plan adds further savings, resulting from the reduction in the  number of employees, of FF [. . .] billion together with other variable cost reductions amounting  to a further saving of FF [. . .] billion. Consequently, the total cost reduction foreseen for 1995, in comparison to 1992, amounts to FF [. .  .] billion. However this saving must be reduced because of the effects of inflation, lower external  financing for research and development programmes and the reduced capitalization of software  development expenses. Therefore the net saving is forecast to amount to FF [. . .] billion. This  improvement is, however, attenuated by the fact that sales values are expected to decrease and,  with them, gross margin. Bull's sales, in total, are forecast to fall from FF 30 billion in 1992 to FF [. . .] billion in  1995, a reduction of [. . .] %. However, within this total hardware sales will reduce by [. . .] %  during this period whilst software, maintenance and service revenues by [. . .] %. In terms of  gross margin an overall fall of [. . .] % is predicted, this has to be split between hardware,  where an overall reduction of [. . .] % is incurred and software, maintenance and services where a  fall of [. . .] % is foreseen. As the result of the expected increased competitiveness of the  market Bull's gross margin is forecast to be [. . .] % in both 1994 and 1995 whereas in 1992 a  margin of 37 % was achieved. The negative effect of the reduction in turnover and gross margin  amounts to FF [. . .] billion thereby reducing the impact, at an operating level, on the profit and  loss account to FF [. . .] billion. These measures are forecast to return all operating divisions to a profit, except for [. . .], for  which further measures are anticipated, and which will still break-even, by the end of 1995. The  net result will be improved by the impact of the debt reduction, reducing financial charges by FF  [. . .] billion, and because of the fact that Bull will not have to make further restructuring  provisions. In addition the Commission has considered the debt/equity ratio for Bull during the restructuring  period. From a level of 27 at the end of 1992 this ratio was 4 at the end of 1993 (after the  capital injections that are classified as aid above) and is forecast to improve to [. . .] at the  end of 1995. Consequently, at the end of its restructuring process Bull is expected to be profitable at both the  operating and net result levels but with a reduced operating capacity. However, little flexibility  is permitted by these forecasts to allow for unforeseen events. The rationalization of Bull's factories has resulted in the closure of Villeneuve d'Ascq in France  and [. . .] in the United States: these actions will lead to some [. . .] job losses of which half  will be in France. In total Bull foresees some [. . .] redundancies during the period 1993 to 1995  being some [. . .] % of the workforce at 31 December 1992. In addition a further [. . .] jobs will  be lost at Bull's partners and through natural wastage. About 40 % of these cuts will be in  administration with the balance of the cuts being shared equally between research and development,  manufacturing and services. Bull's greatest loss-making division, ZDS, is addressed specifically by the restructuring plan  which has led to Bull ceasing the final assembly of micro-computers and has given rise to the  partnership arrangement with Packard Bell. Under this agreement Packard Bell will complete the  final assembly of desk-top computers and all lap-top computers will be sourced from Asian  suppliers. The advantages of the partnership are twofold. First, given Packard Bell's distribution  network, ZDS and Packard Bell have increased their chance to reach a critical mass in order to  compete in a market where a high sales volume is crucial for success but they need further size in  order to succeed fully. Secondly, only with a high sales volume can the amount of gross profit be  generated (given that gross margins are low and compressed because of competition) to finance the  necessary research and development to continue product innovation. It is apparent that ZDS has considerably reduced its losses as the result of these measures;  however, it is also considered that ZDS has not yet reached a critical mass to compete  successfully, in the long term, with major competitors. Therefore, it is important that the  forthcoming privatization of Bull ensures that, if ZDS is retained, suitable synergies are built up  between the purchaser and ZDS. Bull has also experienced serious problems in its [. . .] business. In addition to the original  restructuring plan, a second wave of restructuring (as identified in the independent consultants'  report referred to above) has started in August 1994 and it is important, if this division is to be  returned to financial health, that this process is continued in accordance with an accelerated  procedure. It is possible to ascertain the impact of the restructuring plan to date by an examination of  Bull's financial performance for the six-month period to 30 June 1994; for example salary costs in  the first six months of 1994 when compared to the previous year have fallen by FF 259 million and  non-salarial variable costs have been reduced by FF 623 million. The results of the first six months to 30 June 1994 are set out in the summary below; these results  are shown before further restructuring reserves (amounting to FF 700 million) in 1994. No such  reserve took place in the first six months of 1993.  >TABLE>Consequently it can be seen that despite a growth in sales, which if repeated in  the second six months of the year would lead to Bull exceeding its 1994 forecast, the gross margin  has deteriorated as predicted. Notwithstanding this a reduction in administration costs has  resulted in an improvement in the operating margin. These figures are believed to be indicative of  the success of Bull's restructuring. The independent consultants' report has also concluded that Bull's restructuring plan will return  the group to viability in its current diversified form. However, it is also apparent from the  report that, in order to achieve the necessary size and to return to long-term sustainable  viability, Bull's privatization is a necessary condition in order to enable the group, through a  private industrial partnership, to attain the necessary increase in scale, to refocus its strategy  and to give customers and personnel confidence in its future. In fact the consultants conclude that privatization in the very short term is the key to Bull's  turnaround because it would: - send clear signals that Bull wished to survive to its employees, clients and partners, - end strategic uncertainties, - reinforce some business units, - allow for continued turnaround and cost reduction. The consultants conclude that if Bull wishes to remain a broad-based computer group, both  manufacturing goods and providing services, privatization is necessary and should take place before  31 December 1995. Only if this occurs can Bull, in such a format, be returned to long-term  viability. The Commission shares the consultants' views that Bull has the need of a strong industrial partner  to support its [. . .] and [. . .] divisions and thereby remain a broad-based computer group.  However, the Commission also recognizes the effect of Article 222 of the EC Treaty and Article 125  of the EEA Agreement whereby the rules governing the system of property ownership cannot be  prejudiced and, therefore, the Commission appreciates that it cannot request or oblige the  privatization of Bull. However it is also apparent that the French Government itself wishes to  privatize the group and has made this fact known to the Commission. In this respect it should be noted that the French Government has already included Bull on its list  of privatization candidates in its Law No 93-923 concerning privatization; in addition, it should  be noted that the current restructuring has been geared to the privatization of the group and that  legal and procedural steps have been taken to enable the privatization to proceed. The French authorities have confirmed, in a letter dated 6 October 1994, that such a privatization,  reducing the State's direct or indirect shareholding (including voting power) to below 50 % of  Bull's capital is a priority and will be carried out as soon as possible. Furthermore, the French  authorities have stated, in both the restructuring plan and in a meeting on 26 September 1994, that  this is the last payment to be made to Bull. The Commission concurs with the report of the consultant and considers that in order for Bull to be  viable, in its current form, a major industrial partner must be found before 31 December 1995.  However it must be noted that should the maintenance of Bull in its current form not be required,  or should a major industrial partner not be found by this date, then the independent consultants  have identified a second scenario which may arise. This second scenario assumes that Bull becomes a 'downstream` operator i. e. concentrating on  services close to the customer. In this case both [. . .] and [. . .] would be sold, together with  marginal manufacturing operations, but such an option would also entail drastically reduced  overheads. In such a case, if Bull was reduced to the level of a service company partnership is not  necessarily believed to be crucial for long-term viability. However such a development would affect  the Commission's view of the case. Therefore on the basis that Bull continues to be a broad-based computer producer, which will  rapidly find an industrial partner, the Commission considers that Bull will be returned to  sustainable financial viability on the basis of its 1993 restructuring plan together with the  additional measures put in motion in August 1994. (b) Common interest A further condition of aid for restructuring is that measures must be taken to offset, as far as  possible, adverse effects on competitors. The Commission has come to the conclusion that whilst most major computer companies operating in  the EEA are suffering from financial difficulties these problems are caused by rapid change in the  industry and not by excess production capacity. However, it must not be forgotten that Bull derives  a major part of its revenues from services, which is an expanding market, and that any aid may  effect competing providers of similar services. Even if there is no structural excess production capacity, the Commission must be satisfied that  the aid will not enable the beneficiary to increase production capacity except in so far as is  essential for restoring viability, without thereby unduly distorting competition. To ensure such is  the case the Commission may impose any necessary obligations or conditions on the beneficiary. As a consequence of closing factories and reducing personnel, Bull will reduce its industrial  capacity (in terms of hours) from [. . .] billion in 1992 to [. . .] billion in 1995: utilization  will increase from [. . .] % to [. . .] % during the same period. During this period Bull foresees a reduction in the value of total hardware sales despite increases  in the sales value derived from Unix systems and micro-computers. In addition, in value terms,  software and maintenance sales will be reduced during the same period whilst services increase by  14 %. However, the reduction in software and maintenance is greater than these increases, leading  to an overall reduction in non-manufacturing sales by value. The French Government has provided estimated market data extracted from the 1993 IDC Worldwide  Black Book. This shows that the world market, in value terms, will increase during 1994 and 1995  and that, during the same period, Bull's share of the world market will fall. Similarly, in the  western European market, Bull's share is forecast to fall 3,9 % in 1993 to [. . .] % in 1995 with a  market growth of 5 % per annum. In addition, it should be noted that Bull is engaged in the process of disposing of several  peripheral activities, namely [. . .]. The disposal of these operations would limit further the  distortive effect of Bull's aid. Finally, the Commission has considered whether the aid is in proportion to the restructuring costs  and its benefits. As stated above the aid is used both to finance Bull's restructuring and to repay  its debts. As regards the financing of the restructuring, the pay-back period arising from the improved  results of Bull is satisfactory. This means that the cost of any rationalization is covered by  resulting cost savings in a relatively short time. However, this analysis does not detract from the  overall aid nature of the recapitalization. As regards the write-off of debts, it would appear that  Bull's level of indebtedness at the end of its restructuring is comparable to that of its main  competitors. However, its financial charges will still be at a level which could place Bull at  risk. Consequently it would appear that the amount of the aid does not exceed what is strictly  necessary. On 19 September 1994, is was ammounced that Bull was to dispose of certain of its North American  operations to Wang for an amount of $ 135 million in cash and bonds and $ 25 million in Wang  shares. This money will be used by Bull to settle outstanding obligations in respect of pension  funds and property leases in the United States of America and, therefore, it can be said that Bull  has used its own resources, albeit to a limited extent, to finance its restructuring. However, it would also appear that the aid contained in both the advance and the capital increase  paid to Bull in 1993 of FF 8,6 billion has, in the main (some FF 7 billion) been used to extinguish  the group's accumulated losses. As stated in the restructuring guidelines if aid is used to  extinguish accumulated losses the tax credits relating thereto should be eliminated and not  retained to be offset against future profits or sold or transferred to third parties. Therefore,  such tax credits should be extinguished in order to prevent the group receiving aid a second time. In the light of the above it is considered that the aid contained in both the advance on a capital  injection and in the capital injection itself facilitate the economic development of the computer  industry in the Community and the EEA. This aid does not distort trade to an extent contrary to the  common interest. VIII In the light of the above the aid contained in the advance of FF 2,5 billion and the capital  injection of FF 5,5 billion, paid in February and December 1993 respectively, and the amount of aid  of FF 3,1 billion still to be granted, may benefit from the exemption provided for in Article 92  (3) (c) of the EC Treaty and Article 61 (3) (c) of the EEA Agreement, provided certain commitments  are fulfilled, HAS ADOPTED THIS DECISION: Article 1 The aid contained in the advance granted to Bull in February 1993,  amounting to FF 2,5 billion, in the capital injection of December 1993, amounting to FF 5,5 billion  and to be granted to Bull in 1994, amounting to FF 3,1 billion, is compatible with the common  market and the EEA Agreement in accordance with Article 92 (3) (c) of the EC Treaty and Article 61  (3) (c) of the EEA Agreement, provided that the French authorities respect the following  commitments: (a) that the various measures, including the sale of [. . .], set out in the restructuring plan (le  plan de restructuration), is completed in accordance with the timetable therein; (b) that the restructuring of the [. . .] division as proposed in August 1994 and as detailed [. .  .] is carried out; (c) that the aid is used only for the purposes set out in the plan; (d) that the Commission is informed of the progress being made in respect of both these  restructuring plans, by means of reports setting out the situation of the restructuring and the use  to which the aid is put at the 31 December 1994 and at the 30 June and 31 December 1995. These  reports are to be submitted by the end of the month following these dates; (e) that further aid is not paid to Bull except in conformity with Community law; (f) that in the framework of the envisaged privatization, an industrial partner will acquire a  significant amount of the shares of Bull or, should this partnership not be achieved, Bull will  dispose of all its activities in [. . .] within a period that would guarantee the return to  long-term viability of the group; (g) that the Commission is informed of the details of the envisaged privatization process (at (f)),  in advance of its being put into operation. Article 2 The carry forward of any losses must be effected in conformity with paragraph 3.2.2  (iii) of the Community guidelines on State aid for rescuing and restructuring firms in difficulty. Article 3 France shall inform the Commission within two months of the date of notification of  this Decision of the measures taken to comply with Articles 1 and 2. Article 4 This Decision is addressed to the French Republic. Done at Brussels, 12 October 1994. For the Commission Karel VAN MIERT Member of the Commission (1) OJ No C 244, 23. 9. 1992, p. 2. (2) Case C-367/92. (3) OJ No C 346, 24. 12. 1993, p. 4. (4) OJ No C 80, 17. 3. 1994, p. 4. (1) See footnote 3, p.1. (2) See footnote 4, p. 1. (3) OJ No L 107, 28. 4. 1994, p. 61. (1) For example Joined Cases C-296 and C-318/82, Netherlands and Leeuwarder Papierwarenfabriek BV  v. Commission [1985] ECR, p. 809; Case C-323/82, SA Intermills v. Commission [1984] ECR, p. 3809;  Case C-234/84, Belgium v. Commission [1986] ECR, p. 2263 (Meura). (2) Bulletin EC No 9-84. (3) OJ No C 307, 13. 11. 1993. p. 3. (1) [...] indicates business secrets. (2) Joined Cases C-278/92, C-279/92 and C-280/92, Imepiel and Intelhorce, paragraph 22, not yet  published. (1) OJ No L 183, 3. 7. 1992, p. 30. (2) OJ No L 112, 3. 5. 1994, p. 64. (3) OJ No C 75, 17. 3. 1993, p. 2.