2004/276/EC: Commission Decision of 30 January 2002 requiring undertakings to be separated adopted pursuant to Article 8(4) of Council Regulation (EEC) No 4064/89 (Case COMP/M.2283 — Schneider/Legrand) (notified under document number C(2002) 360) (Text with EEA relevance)
Date: 2002-01-30
Institutions: European Commission
Subjects: economic concentration, electrical industry, exchange of information, merger control

L 101/134

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COMMISSION DECISION

of 30 January 2002

requiring undertakings to be separated adopted pursuant to Article 8(4) of Council Regulation
(EEC) No 4064/89

(Case COMP/M.2283 — Schneider/Legrand)

(notified under document number C(2002) 360)

(Only the French version is authentic)

(Text with EEA relevance)

(2004/276/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to the Agreement on the European Economic
Area, and in particular Article 57 thereof,

Having regard to Council Regulation (EEC) No 4064/89 of
21 December 1989 on the control of concentrations between
undertakings (1),
(EC)
No 1310/97 (2), and in particular Article 8(4) thereof,

by Regulation

amended

last

as

Having regard to the Decision adopted by the Commission on
10 October 2001, pursuant to Article 8(3) of Regulation (EEC)
No 4064/89, declaring the concentration between Schneider
and Legrand to be incompatible with the common market and
the functioning of the EEA Agreement,

Having given the undertakings concerned the opportunity to
make known their views on the objections raised by the
Commission on 24 October 2001,

No 4064/89 (hereinafter ‘the Merger Regulation') of a
takeover plan whereby Schneider Electric (hereinafter
‘Schneider') was to acquire, within the meaning of
Article 3(1)(b) of the Merger Regulation, sole control
of Legrand (5) by way of a public offer for
the
exchange of shares announced on 15 January 2001.

Article 7(3) of the Merger Regulation allows a public
exchange offer to be implemented provided that the
acquirer does not exercise the voting rights attached
to the shares in question. The public offer closed on
25 July 2001 and Schneider holds 98,1 % of
Legrand's capital.

On 10 October 2001 the Commission adopted a
Decision (hereinafter ‘the incompatibility decision'),
pursuant to Article 8(3) of the Merger Regulation,
declaring the planned merger between Schneider and
Legrand to be incompatible with the common market
and the functioning of the EEA Agreement.

(2)

(3)

Having regard to the opinion of the Advisory Committee on
Concentrations (3),

(4)

Having regard to the final report by the Hearing Officer in this
case (4),

Whereas:

the

in the

reasons

set out

For
incompatibility
decision, the planned merger would have created a
dominant position with the effect of significantly
restricting effective competition on the following
markets:

— the markets in moulded case circuit breakers,
for

circuit breakers

and cabinets

miniature
distribution boards in Italy;

BACKGROUND

(1)

On 16 February 2001 the Commission received
notification, pursuant to Article 4 of Regulation (EEC)

(1) OJ L 395, 30.12.1989, p. 1.
(2) OJ L 180, 9.7.1997, p. 1.
(3) OJ C 86, 6.4.2004.
(4) OJ C 86, 6.4.2004.

— the markets in miniature circuit breakers, earth
final
and

cabinets
Spain,

in Denmark,

protection

for
Italy

and

leakage
panelboards
Portugal;

(5) In this Decision, ‘Legrand' refers to the whole of the Legrand group

as it existed at the time Schneider's offer closed.

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— the markets in mains connection circuit breakers

in France and Portugal;

— the market in cable trays in the United Kingdom;

— the market in sockets and switches in Greece;

— the market in weatherproof wiring accessories in

Spain;

(7)

— the market in fixing and connecting equipment in

France;

— the market
France;

— the market
France.

in transformation equipment

in

in control and signalling units in

(5)

The Commission also found in the incompatibility
decision that
the planned merger would have
strengthened a dominant position with the effect of
significantly restricting effective competition on the
following markets:

— the markets in moulded case circuit breakers,
miniature
for
distribution boards in France (dominant positions
held by Schneider);

circuit breakers

and cabinets

— the markets in miniature circuit breakers, earth
leakage
final
and
panelboards in France (dominant positions held
by Schneider);

protection

cabinets

for

— the market

in sockets and switches in France

(dominant position held by Legrand);

— the market in weatherproof wiring accessories in
France (dominant position held by Legrand);

— the market

in emergency lighting systems or
self-contained emergency lighting units in France
(dominant position held by Legrand).

(6)

On 24 October 2001 the Commission sent Schneider
a statement of objections (hereinafter ‘the statement
of objections') under Article 13(2) of Commission
Regulation (EC) No 447/98 of 1 March 1998 on the
notifications, time limits and hearings provided for in
Council Regulation (EEC) No 4064/89 on the control
of concentrations between undertakings (6),
finding
incompatible with the
that was
that a merger
common market had been put
into effect and
concluding, pursuant to Article 8(4) of the Merger
Regulation, that a distribution of Legrand shares to

(6) OJ L 61, 2.3.1998, p. 1.

(8)

(9)

shareholders,

in proportion to their
Schneider
holding, within a period of […]* (*) was the most
appropriate means of restoring effective competition
on the relevant markets. Schneider
responded in
writing on 7 November 2001 and gave its views
orally at a hearing held on 26 November 2001.

is

to ensure

to Article 7(4) of

that Legrand enjoys

authorising Schneider

On 4 December 2001 the Commission adopted a
the Merger
Decision, pursuant
to appoint
Regulation,
a
trustee to exercise on its behalf
the voting rights
attached to the Legrand shares held by Schneider
(hereinafter ‘the derogation decision'). The power of
attorney conferred on the trustee, as laid down in the
derogation decision, stipulates that the trustee's prime
objective
the
necessary independence and room for manoeuvre so
that it can continue to act as a competitor in its own
right on the relevant markets and that Legrand's
the
senior management
company in the normal manner of
running a
business and in line with its previous practice. The
power of attorney assigns the trustee the following
tasks: administering Schneider's stake in Legrand in
such a way as to enable the latter's management
bodies to function regularly; ensuring that Schneider
does not act in breach or in excess of the derogation
decision; taking part in preparations by Schneider for
possible demerger; and reporting to the Commission
on the implementation of its assignment.

to manage

continues

At a meeting held on 15 January 2002 Commission
officials informed representatives of Schneider of the
broad lines of the draft of this Decision as submitted
to the Advisory Committee on Concentrations. The
draft Decision allowed Schneider a free choice as
regards the demerger arrangements and stipulated
that the demerger had to be carried out within a
period of
[…]*. The representatives of Schneider
argued that such a deadline would not enable them
to exercise their free choice as regards the demerger
arrangements and pressed for at
[…]* (see
points 107-122).

least

PRINCIPLES FOR ASSESSING THE ARRANGEMENTS
FOR DEMERGING SCHNEIDER AND LEGRAND

A decision adopted under Article 8(3) of the Merger
Regulation
concerned
incompatible with the common market and, where
the EEA
appropriate, with the

functioning of

transaction

declares

the

(*) Parts of this text have been omitted in order to ensure that no
confidential information is disclosed; these are contained in square
brackets and marked with an asterisk.

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(10)

(11)

(12)

Agreement. As stated above, Schneider holds 98,1 %
of the shares in Legrand and has therefore already
implemented the planned merger within the meaning
of Article 8(4) of the Merger Regulation.

The merger that was notified to the Commission and
then declared incompatible with the common market
and the functioning of the EEA Agreement involved
the acquisition by Schneider of the whole of Legrand.
In these circumstances the transaction should be
undone by means of a full demerger of Schneider and
Legrand.

Commission,

Any proposal by Schneider involving anything other
than a full demerger of Legrand could be accepted by
the
the
proportionality principle, only if it enabled, beyond
possible doubt, effective competition to be restored
on the relevant markets.

accordance

with

in

effective

restoring

interests of

competition,

The proportionality principle also means that, where
it has to choose between alternatives all of which are
the
capable of
Commission will prefer the option which affords the
best protection for the individual
the
companies concerned. The individual
interests at
stake in the case in point are (i) preservation, to the
extent possible, of the financial value of Schneider's
in Legrand (7) and (ii) maintenance of
investment
Legrand's
Consequently, while
competitiveness.
Schneider's interest in preserving the financial value
of its investment should be taken into consideration
in accordance with the proportionality principle,
there could be no question of accommodating any
desire on the part of that group to strengthen, via the
demerger, its commercial positions at the expense of
its competitors, in particular by weakening Legrand.
The Commission considers in this connection that
the individual interests of Schneider and Legrand are
subordinate to the general
restoring
effective competition on the relevant markets and
that the interest of neither of the companies should
take precedence over the other.

interest of

(7) It should be stressed that Schneider acquired its stake in Legrand by
means of a public offer for the exchange of shares. Announcement
of the bid before the Commission had taken its decision on the
compatibility of the planned merger with the common market is
allowed by Article 7(3) of the Merger Regulation; such action does
not constitute an infringement of the competition rules and should
not therefore be sanctioned. However, Schneider has to take the
normal business consequences of its deliberate decision to go ahead
with the operation in the climate of uncertainty as to the outcome
of the Commission's investigation. Schneider was free to notify an
agreement before announcing a bid, as other companies listed on
the Paris stock exchange have done. It should also be pointed out
that, after the Commission had raised serious doubts under Article
6(1)(c) of the Merger Regulation as to the compatibility of the
planned merger between Schneider and Legrand, Schneider was in
Legrand's minority
a
position,
It nevertheless
shareholders,
decided to maintain its bid.

following
to withdraw from the operation.

dispute with

a

ADVERSE EFFECTS ON COMPETITION CAUSED BY
SCHNEIDER'S STAKE IN LEGRAND

It should first be noted that Schneider's current
98,1 % stake in Legrand is far in excess of the share
ownership threshold conferring specific rights such as
those granted to blocking minorities and has the
effect of freezing Legrand's development (8). Legrand
will be dependent on Schneider for any fresh capital
it needs to finance its planned growth (through either
investment or acquisitions). However, the markets on
which Legrand is active can require large investments,
for example to fund acquisitions (usually the only
way of entering a geographic market) or to renew
product
circuit
breakers) (9). And Legrand cannot embark on major
new projects before it has a clear enough picture of
its shareholder structure, the resources on which it
can expect to be able to rely, etc.

(such as moulded case

ranges

a direct
Furthermore, Schneider henceforth has
interest
two
in Legrand's profits,
companies are competitors on many markets. Such
an entitlement to Legrand's profits would partly offset
any loss of Schneider's sales to Legrand and would
therefore reduce
to
compete with Legrand on the relevant markets.

for Schneider

although the

incentive

the

the quantities

sold by the operator

Any additional price
increase by an economic
operator leads to two types of effects. First, the profit
generated by the sale of each item is increased.
in
Second,
question fall in response to the price increase, with
competitors picking up the lost sales. The price
increase is profitable only if the first effect is greater
than the second, and the economic operator
in
question takes its decision on price increases having
due regard in particular to the level of the likely loss
of sales to competitors. The situation changes if the
economic operator can recover some of the profits
lost in the wake of an increase in its prices through
an entitlement
its
competitors. In such a case, the negative effect of the
losses of sales and therefore profits to competitors is
partly offset by the right
to the profits of a
in which the operator holds a stake.
competitor
Clearly, the greater the stake in and the market share
of
this
concerned,
offsetting effect.

to the profits of one of

competitor

stronger

the

the

Before
Schneider were set at a level

transaction,

the

the prices

charged by
that maximised its

(13)

(14)

(15)

(16)

(8) Under French law a blocking minority corresponds to 33 % of a
company's
a 50 % quorum for
shareholders' meetings, this is equivalent to a stake of more than
16 %.

capital. Taking account of

(9) See points 511-516 of the incompatibility decision.

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to its

sales
revert

profits. Any additional price increase would have led
to losses of sales (and therefore profits) that were
large enough to cancel out the extra profit generated
by the sale of each unit at a higher price. However,
Schneider has now acquired a right
to Legrand's
profits through the stake it holds in its capital.
Legrand's additional profits generated by losses in
following a price increase will
Schneider's
ultimately
Schneider.
shareholder
Therefore, thanks to the 98,1 % of Legrand's capital
which it has acquired, Schneider has gained further
room for manoeuvre for increasing its prices. This
extra room for manoeuvre is all
if
Schneider's and Legrand's products compete head-on
sales consequently
(and the losses in Schneider's
benefit Legrand more than other competitors); the
market is concentrated (in which case Schneider's lost
sales are, again, picked up by Legrand more than by
other competitors); and Schneider holds a large stake
in Legrand. Both the first two conditions above are
amply satisfied in the case in point: Schneider and
Legrand manufacture, for the most part, the same
product ranges, and on certain geographic markets,
France in particular, they are the two largest players
and, for the reasons developed in the incompatibility
decision, rivalry between them is the main driving
force of competition.

the greater

(17)

If the reduced competition resulting from Schneider's
stake in Legrand were maintained, it would have the
direct effect of strengthening the dominant positions
already held by Schneider or Legrand on the French
markets in distribution boards (pre-merger Schneider
market shares of around [between 60 and 70]* % for
moulded case and miniature circuit breakers and an
HHI of some [between 3 000 and 6 000 ]* points),
final panelboards
Schneider market
(pre-merger
shares of around [between 40 and 50]* % and an
HHI of some [between 3 000 and 4 000]* points)
and sockets and switches (pre-merger Legrand market
shares of around [between 80 and 90]* % and an
HHI of
and 8 000]*
[between 7 000
points) (10).

some

(10) The Herfindhal-Hirschman Index (HHI) of market concentration is
calculated by summing the squares of the individual market shares
of the firms present in a given market. Under certain conditions it
can be demonstrated that the Index reflects the average level of
margins in an industry. The change in the Index caused by a
transaction can be equated with a change in margins and is
therefore a useful indicator of the potential effect of the transaction
on prices. The HHI is therefore used to measure the intensity of
competition on a particular market or the changes thereto caused
for example, Case COMP/M.1383 —
by a transaction (see,
Exxon/Mobil or the Horizontal Merger Guidelines issued by the
US Department of
and Federal Trade Commission:
http://www.usdoj.gov/atr/public/guidelines/horiz_book/toc.html).
The maximum Index is 10 000 points
(the square of 100
percentage points), and a value of over 3 000 indicates a highly
concentrated market where competition can be very limited.

Justice

(18)

(19)

sockets and switches

in France,
In the case of
Schneider
is practically Legrand's sole competitor.
Legrand has a [between 80 and 90]* % market share
and Schneider is the only other credible player with a
market share of around [between 0 and 10]* % (11).
Any increase in prices by Schneider would thus
almost entirely benefit Legrand and, in proportion to
its stake in Legrand, revert
to Schneider. A price
increase initiated by Schneider could be followed by
Legrand up to the price level at which any further
increase would trigger a fall in overall demand on the
market that would make it unprofitable. Legrand and
Schneider are furthermore the only players on the
French market in mains connection circuit breakers,
with […]* (12). The establishment of a structural link
stake in
through Schneider holding a significant
Legrand's capital would introduce further incentives
(in particular, over and above the high entry barriers
and multi-market contacts between Schneider and
to oligopolistic behaviour that
Legrand in France)
would be detrimental
to competition between the
two firms. On all these markets, the change in the
HHI caused by Schneider having a 98.1 % stake in
Legrand would be substantial (see table in point 30),
ranging from around [between 0 and 1 000]* points
for distribution boards (moulded case and miniature
circuit breakers), through [between 0 and 1 000]*
points for sockets and switches and [between 1 000
and 2 000 ]* points for final panelboards to as much
2 000 and 3 000]* points for mains
as [between
connection circuit breakers (13).

‘the

reply'),

(hereinafter

In its reply of 7 November 2001 to the statement of
objections
Schneider
nevertheless took the view that the present situation,
in which Schneider holds 98,1 % of the shares in
Legrand but cannot exercise its voting rights, is not
detrimental to competition, especially in view of the
steps
to ensure Legrand's
in particular the appointment of an
independence,
trustee responsible for administering
independent
Schneider's stake in Legrand.

taken by Schneider

(11) See points 689-691 of the incompatibility decision.
(12) See point 537 of the incompatibility decision. Schlumberger and
Hager are present on this market, but only as resellers of products
made by Legrand and Schneider respectively.

(13) These calculations are based on an extension of
(by
the HHI
‘Quantifying the
Timothy F. Bresnahan and Steven C. Salop,
International
competitive effects of production joint ventures ',
Journal of Industrial Organisation, 1986) to take account of the
existence of shareholdings between competitors.
In a situation
where company A holds x % of
the shares in company B,
company A will endeavour to maximise not just its own profits
but the sum of its own profits and x % of the profits of company
B. According to the reasoning developed in point 15, company A
thus gain further room for manoeuvre for increasing its
will
function for company A in the
prices.
calculation of
things being equal, gives:
[modified HHI] = [standard HHI] + [Schneider's market share] x
[Legrand's market share] x [Schneider's stake in Legrand].

Introducing this profit

the HHI, all other

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(20)

(21)

(22)

a

for

effects

adverse

resulting

transitional period,

the
In any event, Schneider's

share this view. The
The Commission does not
appointment of a trustee can indeed help to ensure
that,
the day-to-day
management of Legrand is kept at arm's length from
Schneider's influence. But the existence of the trustee
has no impact on Schneider's rights to Legrand's
on
profits
and
competition.
line of
argument based on the
existence of a trustee
presupposes that the latter will be maintained for an
indefinite period. Appointment of a trustee is, on the
the
contrary,
a
anticompetitive
until
effects
structural measures are
in place to restore
effective competition. The existence of a trustee does
in particular,
not dispel the uncertainties regarding,
Legrand's shareholder structure and the resources on
which it can expect to be able to rely in future. It
does not therefore give Legrand sufficient visibility to
internal or
to initiate major plans for
enable it
external growth.

intended only temporarily to limit

transaction

of
set

the

in the

is clear

It
foregoing that
light of
Schneider's holding of a significant stake in Legrand
has adverse effects on competition. In this context,
the Commission takes the view that,
in order to
restore effective competition, the two companies have
to be rapidly demerged.

DEMERGER ARRANGEMENTS

In the statement of objections the Commission found
that Schneider could not be allowed to keep a
significant stake in Legrand and that Legrand should
be delineated as before. It also recommended that the
demerger of Schneider and Legrand should take the
form of
to
in proportion to their
Schneider's
holding. Lastly,
the divestment
it proposed that
should be required to take place within […]* of
adoption of the decision.

a distribution of Legrand shares

shareholders,

(23)

In its reply Schneider considered those requirements
to be disproportionate and challenged each of the
Commission's findings.

Schneider must no longer hold a significant stake
in Legrand

(24)

In the statement of objections the Commission found
if effective competition was to be restored,
that,
stake in
Schneider could not keep a significant
Legrand. This
finding derived directly from the
impact on competition which maintenance of such a
holding would have, particularly in the markets
where either Schneider or Legrand is dominant (see
points 14-18 of this Decision).

(25)

(26)

(27)

(28)

(29)

(30)

In its reply, Schneider did not challenge the substance
of the Commission's findings regarding the adverse
effects on competition if Schneider were to keep a
significant stake in Legrand. On the other hand,
Schneider considered that to require divestment over
and above the disposal of a controlling stake was
‘superfluous and disproportionate '.
It argued that
such a requirement was unnecessary in so far as all
other precautions were taken, for example through
the appointment of a trustee,
to ensure Legrand's
independent operation and competitiveness.

In the first place, it is quite possible that by keeping a
significant stake Schneider would be able to control
Legrand. That would depend on Legrand's future
ownership structure and the level of attendance of
shareholders at
two factors
which are clearly unknown at this stage. At the very
least, the possibility cannot be ruled out in advance
the possession of a blocking minority of
that
Legrand's shares (33 % of
the voting rights under
French law) might give Schneider rights comparable
to control.

its general meetings,

The adverse effects on competition would in any
if Schneider continued to hold a
event persist
significant stake in Legrand, even if
this did not
enable it to exercise control over the latter. This is
incentives
change
because of
resulting from the lasting possession of
such a
significant stake (see points 14-18).

in economic

the

Furthermore, as
stated earlier, appointment of a
trustee is only intended temporarily to maintain
competitive conditions until structural measures are
set in place to restore effective competition.

reduced its

The Commission therefore takes the view that the
objective of restoring effective competition would be
achieved only if Schneider
stake in
that could give rise to
Legrand to below a level
adverse
those
the
described earlier. Given the characteristics of
relevant markets and the range of possible market
less than 5 % of Legrand's
structures, a stake of
capital would not
effects on
competition.

effects on competition such as

lead to adverse

stake in Legrand
This 5 % limit on Schneider's
In
exceeds the maximum obtained using the HHI.
the French
highly concentrated markets
markets in distribution boards,
final panelboards,
mains connection circuit breakers and sockets and
switches (see the HHI values in point 17), where
competition is driven by rivalry between Schneider

such as

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and Legrand, a change of more than 100 points
normally raises serious doubts as to the effects on
competition. With a 98.1 % stake, the change in the
HHI would greatly exceed the 100 point threshold for
all the relevant markets (see point 18 and the table

below). With a 4 % stake, the threshold of 100 points
would be reached for the market in mains connection
circuit breakers only. Schneider could, however, be
allowed the benefit of the doubt for a stake of less
than 5 %.

Calculation of the changes in the HHI on certain French markets

Market shares

Distribution boards
(moulded case circuit
breakers)

Distribution boards
(miniature circuit breakers)

Final panelboards

Mains connection circuit
breakers

Sockets and switches

Schneider

[between 60 and
70]*

[between 60 and
70]*

[between 40 and
50]*

[between 40 and
50]*

[between 0
and 10]*

Legrand

Other 1

Other 2

Other 3

Other 4

HHI

Delta
modified
HHI

98,1 %

5 %

4 %

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 20 and
30]*

[between 40 and
50]*

[between 80 and
90]*

[between 20 and
30]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 0
and 10]*

[between 3 000 and
4 000]*

[between 5 000 and
6 000]*

[between 3 000 and
4 000]*

[between 4 000 and
5 000]*

[between 7 000 and
8 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 1 000 and
2 000]*

[between 2 000 and
3 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

[between 0
and 1 000]*

Source: market shares as indicated in the incompatibility decision.

(31)

over

to enter

effect of
in

limiting the number of
Legrand.
taking

Furthermore, if it were accepted that Schneider could
keep a significant stake in Legrand, and if Schneider
into
were allowed, on that prior basis,
negotiations with potential buyers, this could have
investors
the
interested
Likewise,
possession of over 95 % of the shares and the voting
rights attached to shares in a listed company entitles
the holder to make a public repurchase offer followed
the capital held by other
by a squeeze-out of
shareholders. Giving the buyer
the possibility of
acquiring more than 95 % of Legrand shares and the
voting
attached thereto would therefore
encourage more potential buyers to come forward. In
such an eventuality of sale to a third party, Schneider
should not hold more than 3,1 % of Legrand shares
and the voting rights attached thereto.

rights

(32)

of potential

Schneider also argued that requiring it to sell off its
entire stake in Legrand in a single transaction would
buyers
range
narrow down the
considerably, since such a requirement would prevent
it from negotiating a sale with investors that were
unable to raise upfront
the full value of Legrand
(around EUR […]* million, according to Schneider).
Schneider urged the Commission to allow it,
if a
potential buyer so requested, to keep a minority stake
in Legrand, for example of some 20 %, for a further
period of two to three years.

(33)

The Commission acknowledges the desirability of
encouraging bids from as many buyers as possible
who could help restore effective competition on the

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financial

end, any mechanism
relevant markets. To that
whereby, at the buyer's request, Schneider granted the
latter
facilities or even shared with the
buyer, to a limited extent and for a limited period,
the risks involved in buying Legrand should not be
rejected out of hand. However, any risk sharing
should under no circumstances create a relationship
of dependency either between Schneider and the
buyer or between Schneider and Legrand. Neither
should such a mechanism create an incentive for
Schneider to see Legrand maximise its profits. A
minority shareholding, with the associated voting
rights
should
therefore be ruled out (without prejudice to the levels
of non-significant shareholdings indicated in points
30 and 31). On the other hand,
the holding by
instruments ranking as a claim on
Schneider of
Legrand or
carrying
(and therefore
its buyer
remuneration set
in advance and unaffected by
Legrand's future performance) could, for an amount
such as that suggested by Schneider (see point 32), at
the buyer's request and subject to appraisal by the
Commission of the precise details of this financial
package, constitute an acceptable interim risk-sharing
arrangement.

and an entitlement

to dividends,

The separate sale of some of Legrand's
subsidiaries

statement of objections,

In its
indicated that
meant
involve changing Legrand's structure.

the Commission
restoring effective competition also
the separation procedure should not

that

(36)

(37)

it

Legrand's

structure. More

it
In its reply, Schneider expressed the view that
to the objective of
would be disproportionate
from
restoring effective competition to prohibit
precisely,
changing
Schneider expressed the view, on the one hand, that
the disposal of some of Legrand's assets would not
weaken its competitiveness in the EEA and might
even promote competition. By letter of 30 November
2001, Schneider indicated to the Commission which
of Legrand's assets it felt could be sold separately to a
third party or retained by Schneider without going
against
effective
competition on the relevant markets. The letter
the
referred to […]*. Schneider considered that
Commission's
and
effects
assessment of
economies of scale and scope did not take account of
the realities of the markets in question. On the other
hand, since Schneider had a very strong financial
incentive to maximise the selling price for Legrand

restoring

objective

range

the

of

(34)

(35)

and the assets it could dispose of separately, it would
be very strongly encouraged not to weaken Legrand
by stripping it of
the assets it needs to remain
competitive.

Schneider's proposal to retain or sell […]* separately from
Legrand

that
It

As explained in points 11 and 12, any assessment of
Schneider's proposals concerning the firms
[…]*
should first ensure, with a sufficient degree of
they are able to restore effective
certainty,
competition.
should also guarantee a balance
between the interests of Schneider and Legrand on
the basis of the following principles: the interests of
one should not take precedence over those of the
two
other,
companies are subordinate to the general interest of
restoring effective competition.

interests of

individual

and the

the

research

scale or

investment,

promotional

times in the incompatibility decision,

It should initially be stressed that, as was explained
several
the
competitive pressure exerted by a brand on a given
market may also result from factors which go beyond
that market on its own, such as customer-relations
and
and
the
scope,
development, economies of
presence of a complete range of products,
the
existence of privileged relations with wholesalers, or
the general perception of the brand among installers.
The separate sale of some of
the businesses of
Legrand to Schneider or to other third parties might
alter some of these factors and affect Legrand's ability
to compete on some markets. In particular, Legrand's
cost structure for the markets in question would
probably be
loss of
economies of scale or scope at the level of factories,
commercial and logistic structure, discounting policy,
research and development, etc. A separate sale might
reduce the breadth or depth of Legrand's product
range by depriving it of production plant, technology
or intellectual-property rights linked to one or more
product categories. This would undermine the image
and credibility of
the Legrand brand among final
customers, installers, panel builders and wholesalers.

adversely affected by the

(38)

the Commission has established that

Finally,
the
combined turnover of […]* is almost EUR [between
400 and 1 000]* million ([…]*), or some [between
10 % and 30 %]* of Legrand's overall turnover and
[…]* of its operating result over the same period.
this
Approximately [between 10 % and 30 %]* of
is generated in Europe. Consequently,
turnover

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splitting […]* of these assets off from Legrand would
significantly affect
the Legrand's group's general
financial position and thus its competitiveness. The
same conclusion applies if only […]* is split off
because it accounts for some [between 5 % and
25 %]* of Legrand's total turnover.

the Legrand group the subsidiary companies that it
proposed keeping or selling separately. The sale of
Schneider's stake in Legrand must be carried out in
such a way that Schneider will no longer have a
significant holding in Legrand,
so that effective
competition is restored.

(39)

The possibility of Schneider retaining or separately
selling off […]* is examined below on the basis of its
impact of the restoration of effective competition and
its effect on the safeguarding of Schneider's and
Legrand's respective interests.

(101)

(40)–(97) […]*

The argument that Schneider, having a very strong
financial incentive to maximise the sale price of Legrand
and the assets that it could divest separately, would be very
strongly encouraged not to weaken Legrand

investors. Legrand shares

For that purpose, Schneider has two possible options:
the private sale of Legrand to a third party or the
sale of Legrand shares on the stock exchange (where
they are still listed). A private sale can be made to a
third party already active in the relevant industry or
to financial
could be
disposed of on the stock exchange either by a
flotation or by a distribution of Legrand shares (or of
shares in a new entity to which the Legrand shares
had been transferred) to holders of Schneider shares,
for example in proportion to their holdings. In the
statement of objections the Commission indicated
to Schneider
that distribution of Legrand shares
shareholders
suitable
solution.

appeared to be

the most

(98)

it

the

accepted as

is. Admittedly,

The Commission also considers
that Schneider's
argument that its incentive to maximise the proceeds
of selling Legrand or certain assets separated from
Legrand ruled out any weakening of Legrand, cannot
be
financial
proceeds of disposal of a Legrand group slimmed
reduced
down in advance would a priori be
accordingly. But
from Schneider's
the lost profit,
point of view, would be offset by the acquisition of
assets of
it
necessarily could not have obtained in normal
circumstances and by the weakening of its principal
competitor. But
in its reply to the statement of
objections Schneider did not show how the result of
this arbitrage would lead it to favour the immediate
financial proceeds of its sale of Legrand instead of a
lasting competitive advantage on the relevant markets
by the weakening of its principal competitor and by
its own strengthening resulting from the integration
of the assets taken over from Legrand.

its choice on financial

terms

that

(102)

In the Commission's view, private sale would require
its approval of the purchaser, who should meet a
number of conditions to do with the restoration of
competition:
independence from Schneider, proven
capacity to restore effective competition and absence
of uncertainties as to the implementation of the sale.
Moreover, a private sale would probably require the
price to be negotiated, which would in turn require
Schneider to obtain from Legrand certain sensitive
information that could be detrimental to competition.
Lastly, a private sale and a flotation have the
on market
disadvantage
conditions and would in all
likelihood take longer
than a share distribution. A share distribution offers
the advantage of not being dependent on market
conditions and therefore of being easier to carry out
at short notice.

dependent

being

of

Conclusion

(99)

It follows that Schneider's proposal to demerge from
Legrand by hiving off […]* must be rejected.

THE TERMS FOR THE SALE OF SCHNEIDER'S STAKE
IN LEGRAND

(100)

the Commission
In the light of
competition
considers
Schneider must sell Legrand without hiving off from

the foregoing,

to restore

effective

that

(103)

But the statement of objections pointed out that the
effect of a share distribution would be that Schneider
and Legrand would, initially at least, have the same
shareholders. This raises a risk of coordination of
competitive conduct if both companies are controlled
by the same group of shareholders, or if the same
group of shareholders can exert major influence on
at least one of the companies. To avert this risk, no
shareholder or group of shareholders common to
Schneider and Legrand must be in a position to exert
a major influence on one of the two companies.

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(104)

(105)

for complex
In its reply, Schneider explained that
legal and tax reasons demerging from Legrand by
means of a distribution of shares or a division would
take at least as long as the other possible separation
solutions to carry out and that it should be left the
choice of separation solution. But it did not reject the
principle of a share distribution out of hand.

In view of the arguments put forward by Schneider,
the Commission considers that
is preferable to
it
leave Schneider
to choose the legal methods of
demerging from Legrand provided they make it
possible to achieve a separation in line with the
conclusions presented earlier: Schneider must no
longer have a significant holding in Legrand's capital,
and Schneider must sell the Legrand group without
hiving off certain businesses […]*.

TIME LIMITS

(106)

Since a significant Schneider stake in Legrand has
serious, adverse effects on competition, the disposal
of the Schneider holding in Legrand should therefore
be carried out as soon as possible. In the statement
of objections the Commission took the view that the
maximum time limit should be […]*, starting from
the adoption of the Decision under Article 8(4) of
the Merger Regulation.

(107)

In its reply, Schneider considered that such a time
limit would be disproportionate, and for three main
reasons.

(110)

(111)

(112)

(113)

(108)

(109)

the

Schneider first argued that it had appealed to the
Court of First Instance of the European Communities
It
(CFI) against
believed that any decision requiring it to dispose of
shares in Legrand before the CFI and, if appropriate,
the Court of Justice gave judgment in this case would
irreparably render any annulment decision ineffective.

incompatibility decision (14).

Second, Schneider believed that the imposition of a
[…]* time limit would be disproportionate, because
the merger and the measures taken by Schneider to
ensure Legrand's independence had no adverse effect
on competition,
Schneider would run a
considerable risk of making a capital loss if it had to
sell Legrand quickly.

and

(114)

(14) The appeal was lodged on 13 December 2001.

in any event, a
Third, the company believed that,
[…]* time limit would not be long enough for
practical reasons to sell Legrand. It based this view
on the time taken for other
recent disposals or
acquisitions to be completed. According to Schneider,
such examples showed that the sale of undertakings
of comparable size to Legrand generally took a
[…]*,
considerable
time, maybe more
particularly where the companies
involved were
French.

than

the

complexity and scale of

In view of
the
transaction, the Commission considers that a period
[…]* would allow Schneider ample time to
of
demerge from Legrand by means of the separation
arrangements of
an
choice.
additional period of […]*, in which the trustee would
be granted irrevocable, exclusive authority to sell,
should also be granted to Schneider.

In any event,

its

Impact of the time limit for the demerger on the
effectiveness of an appeal by Schneider against
the incompatibility decision

The Commission considers that Schneider's analysis,
according to which a decision imposing demerger
before all possible appeals against the incompatibility
decision are exhausted would render those appeals
ineffective, is not sound.

could

Schneider

a demerger decision did render
always

the
lodge
interim measures asking for

appeal
If
an
ineffective,
application for
the
decision to be suspended. Furthermore, the line taken
by Schneider would mean that any appeal against an
incompatibility decision would automatically be
suspensory, which is contrary to Article 242 of the
Treaty. Such a situation would also be tantamount to
ruling out reliance on Article 8(4) of
the Merger
Regulation as a basis for imposing a demerger in
order to restore effective competition, and hence to
rendering an incompatibility decision ineffective
whenever an appeal is lodged against it.

A time limit of […]* is not enough for practical
reasons

above

points

14-21),

explained

As
the
(see
Commission does not share Schneider's opinion that,
in view in particular of the measures taken by the
Legrand's
company
independence
to
(appointment of a trustee),
its stake in Legrand did
not have an adverse effect on competition. The mere
existence of a significant Schneider stake in Legrand

ensure

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arrests

Legrand's

adversely affects competition on the relevant markets,
incentive to be
since it undermines Schneider's
competitive
expansion.
and
Similarly, the appointment of an independent trustee
does not appreciably reduce the principal restrictions
of competition resulting from Schneider's significant
stake in Legrand;
the appointment of a trustee
therefore does not alter the fact that the situation
needs to be resolved quickly.

(115)

A distinction has to be made between the two
losses that might be
possible causes of the capital
incurred if Legrand were sold too soon. The first
could be adverse developments on the stock market.
This is not a relevant
factor in the Commission's
analysis, since future stock-exchange trends clearly
cannot be predicted. The second could be that too
little time would not allow Schneider to negotiate
with third parties or with financial markets on
favourable terms, particularly since it would leave no
room for manoeuvre as far as the constraints of the
different timetable options are concerned.

(116)

The Commission considers that Schneider's argument
that it is impossible to carry out the demerger in
[…]* is unsound.

(117)

(118)

(119)

in particular

The Commission finds
several
transactions on the list of examples supplied by
Schneider were completed in less than […]*. As the
merchant bank commissioned by Schneider points
out, these examples do not seem to be exceptions but
simply ‘cases involving no special difficulty'.

that

for

the times
Legrand has also provided examples of
and
completing
required
in
involving
acquisitions,
particular. These show that a period of […]* from
the date of the decision to sell is generally sufficient.

recent mergers
companies

French

Schneider argued that although an individual sale or
division transaction could technically be carried out
within […]*, such a time limit would not enable
Schneider to explore, at least initially, all the possible
counsel
demerger
nevertheless
the Commission
to […]* it would give
increased the time limit
Schneider the necessary flexibility to explore each of

arrangements.
indicated

Schneider's
if

that

the options envisaged (sale and division) before
deciding, while being able to complete the demerger
within the time allowed.

(120)

Lastly, it should be noted that Schneider was able to
start organising the demerger after the Commission
adopted the incompatibility decision on 10 October
2001. It was with this goal in mind, moreover, that
on 22 November, Schneider asked the Commission
for a derogation under Article 7(4) of the Merger
Regulation so that a start could be made on
preparing a possible demerger; that derogation was
granted. The time limit of […]* referred to in point
119 would be added, therefore, to the period which
has already elapsed between 10 October 2001 and
the date of adoption of this Decision, thus giving a
total of more than […]*.

(121)

In addition, […]*.

(122)

(123)

(124)

so as

terms.

In any event,

It is therefore clear that a time limit of […]* for
the demerger would be enough in
carrying out
practical
the Commission is
ready to grant an additional period of […]*, in which
the trustee would be given irrevocable, exclusive
authority to sell,
the
necessary room for manoeuvre in its negotiations
with potential buyers or investors. To counter any
jeopardise
adverse
the
[…]*,
compliance with the
is
Commission may extend these periods
it
if
requested to do so by Schneider or the trustee,
if
Schneider or the trustee can show that it has made
every effort to meet the deadline.

that might
limits of

to leave Schneider

circumstances

time

Consequently, Schneider should be granted an initial
period of […]* in which to carry out the demerger. If
Schneider has not done this by then, the trustee will
be instructed to sell Schneider's shares in Legrand
during a further period of […]*.

its

it should be
In its reply, Schneider suggests that
allowed to dispose of its Legrand holding in stages.
However, as the Commission has already found (see
points 32 and 33), any delay in the disposal by
Schneider of
stake in Legrand would harm
competition. Other arrangements enabling Schneider
to attract other buyers that were unable to make an
offer for the entire value of
its stake in Legrand
should nevertheless, under certain conditions, be able
to be examined by the Commission on a duly
substantiated request from Schneider.

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INDEPENDENT TRUSTEE

HAS ADOPTED THIS DECISION:

(125)

all

the

that

powers

granted

necessary

that, along the lines of

The […]* time limit, possibly extended by a further
[…]* for the benefit of the trustee, will mean that
Schneider will continue to hold about 98 % of
Legrand's capital during that period. The Commission
therefore considers
the
arrangements introduced by the derogation decision
the restoration of effective
of 4 December 2001,
competition requires
the power of attorney
assigned to the trustee appointed by the derogation
decision be immediately extended. The trustee should
be
and
independence to manage Schneider's stake in Legrand
during the transitional period preceding the demerger
leave Legrand the necessary
of the two companies;
independence and room for manoeuvre so that it can
continue to act as a competitor in its own right on
the relevant markets; ensure that Schneider does not
this
take any action in breach or
Decision; and take part in Schneider's preparations
for and implementation of the demerger. If Schneider
does not manage to complete the demerger within
the […]* period, the trustee will be given exclusive,
in
irrevocable power
Legrand by means of a further amendment to the
power of attorney. Amendments to the power of
attorney
the Commission in the
derogation decision will have to be approved by the
Commission,

to sell Schneider's

endorsed by

in excess of

shares

Article 1

To restore effective competition, Schneider Electric is required
to demerge from the Legrand group in accordance with
Annex II.

Article 2

This Decision is addressed to:

SCHNEIDER ELECTRIC S.A.
43-45, Boulevard Franklin Roosevelt
F 92500 RUEIL-MALMAISON
France

Done at Brussels, 30 January 2002.

For the Commission

Mario MONTI

Member of the Commission

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ANNEX I

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ANNEX II

Point 1

Schneider Electric (hereinafter ‘Schneider') shall demerge from the Legrand group (hereinafter ‘Legrand'), without
hiving off any individual businesses of Legrand, within […]* of the date of reception of this Decision.

The demerger may be carried out as Schneider determines, provided that the principles laid down in point 2 are
adhered to.

Point 2

1.

If Schneider chooses to sell, or have sold, the shares it owns in Legrand's capital to one or more buyers, it shall sell
the requisite number of shares that will enable the buyer(s) to make a public repurchase offer followed by a
squeeze-out so that the Legrand shares can be withdrawn from the official list of securities.

2. Once the disposal has been carried out, Schneider and the other minority shareholders should between them have
less than 5 % of Legrand's capital and the voting rights attached thereto. If the buyer(s) does/do not ask to be
allowed to make a public repurchase offer followed by a squeeze-out, Schneider may keep a stake of less than 5 %
in Legrand's capital.

3.

4.

If Schneider decides to place, or have placed, on a stock market shares in Legrand or another entity that controls
Legrand, it shall assure the Commission in advance that as a result of this flotation no shareholder or group of
shareholders common to Schneider and Legrand will exert a major influence over one of the two companies.
Neither may Schneider keep a stake of 5 % or more in the capital.

If Schneider chooses a demerger arrangement other than those referred to in paragraphs 1 and 2, it shall seek the
Commission's prior approval for that arrangement, with special reference to any possibility for Schneider of
retaining for a limited period a limited number of instruments ranking as a claim on Legrand or on any other
company acquiring control of Legrand. The Commission may in that case impose further requirements on
Schneider to ensure that effective competition is restored. Prior to the sale of Legrand, and provided — especially
in the event of a flotation — that Schneider can identify the purchasers of Legrand, Schneider shall ask the
Commission to approve any purchaser.

The approval request shall contain the information that will allow the Commission to check whether the
purchaser(s) meet(s) the purchaser standards laid down in point 49 of the Commission Notice on remedies
acceptable under Council Regulation (EEC) No 4064/89 and under Commission Regulation (EC) No 447/98 (1).

Any transaction which would lead to the subsequent transfer by one or more purchasers of any individual
businesses of Legrand to Schneider shall disqualify those purchasers.

Point 3

Schneider shall submit to the Commission at the earliest opportunity:

(a)

the draft(s) of the information document intended for potential purchasers or investors;

(b) a list of the potential buyers which Schneider intends to contact and information on the outcome of such

contacts.

These documents shall be deemed to have been accepted by the Commission if the latter has not given its opinion
on them within five working days of the date of delivery.

(1) OJ C 68, 2.3.2001, p. 3.

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Point 4

1.

Schneider shall, within five working days of the date of receipt of this Decision, submit for the Commission's
approval an amendment to the contract binding it to the trustee appointed in accordance with the Commission
Decision adopted on 4 December 2001 in this case pursuant to Article 7(4) of Regulation (EEC) No 4064/89.

If no draft amendment is forthcoming by the end of that period, or if the Commission and Schneider do not agree
on the draft amendment, the Commission may impose such an amendment after consulting the trustee.

2. The amendment referred to in paragraph 1 shall be drawn up in accordance with the following principles:

(a)

the power of attorney shall be extended until the demerger between Schneider and Legrand is complete;

(b)

the trustee shall ensure that Schneider does not take any action which is in breach or in excess of this
Decision;

(c)

the trustee shall take part in Schneider's preparations for and implementation of the demerger;

(d)

the amendment shall include any other measure deemed necessary for the implementation of this Decision and
the independence and room for manoeuvre that will enable Legrand to remain a
the preservation of
competitor in its own right on all the relevant markets.

3.

If Schneider does not respect its commitments in practice, the Commission may extend the trustee's powers to
include all possible means of ensuring that this Decision is complied with.

4. As soon as the tasks which have been assigned to it have been accomplished, Schneider shall request

the

Commission to authorise it to discharge the trustee.

Point 5

The time limit laid down in point 1 shall cease to run when an irrevocable sale agreement is signed, a public
offering of shares is published or the general meeting of Schneider's shareholders decides on a division.

The effective demerger of Schneider and Legrand shall occur within […]* of that date.

Point 6

1.

If Schneider is not able to sign an irrevocable sale agreement with a third party or to publish a public offering of
shares within the […]* time limit referred to in point 1, it shall give irrevocable, exclusive power to the trustee
referred to in point 4 to carry out the demerger between Schneider and Legrand at the best possible price, without
stipulating a minimum price.

To that end, Schneider shall, not later than ten working days before the expiry of the time limit, submit for the
Commission's approval an amendment to the trustee contract.

If no draft amendment is forthcoming not later than ten working days before the expiry of the time limit, or if the
the Commission may impose such an
Commission and Schneider do not agree on the draft amendment,
amendment after consulting the trustee.

2. The trustee shall have […]* in which to sign an irrevocable sale agreement with a third party or to publish a public

offering of shares.

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Point 7

If exceptional circumstances should prevent the signing of an irrevocable sale agreement with a third party or the
publication of a public offering of shares by Schneider or the trustee referred to in point 4, the time limit
mentioned in point 1 or the time limit mentioned in point 6(2) may be extended, at the Commission's discretion,
on a duly substantiated request from Schneider or the trustee. Such a request shall be submitted immediately after
the exceptional circumstances have occurred and shall show that every effort has been made to meet the deadlines.