2005/941/EC: Commission Decision of  1 December 2004  on the State aid which France is planning to implement for Bull  (notified under document number C(2004) 4514)   (Text with EEA relevance)
Date: 2004-12-01
Institutions: European Commission
Subjects: France, State aid, control of State aid, information technology industry

24.12.2005

EN

Official Journal of the European Union

L 342/81

COMMISSION DECISION

of 1 December 2004

on the State aid which France is planning to implement for Bull

(notified under document number C(2004) 4514)

(Only the French text is authentic)

(Text with EEA relevance)

(2005/941/EC)

(3)

(4)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1) and having regard to
those comments,

The Commission Decision to open the procedure was
published in the Official
European
Union (4). The Commission called on interested parties
to submit their comments on the aid in question.

Journal

the

of

from represen-
The Commission received comments
tatives of Bull's employees. A meeting between a dele-
gation of those representatives and the Commission took
place on 8 June 2004, following which the represen-
tatives provided the Commission with additional
infor-
mation. The Commission forwarded the information to
France for its comments, and at the same time asked a
number of questions about several aspects of the case. It
received France's comments and replies by letters dated
28 May and 29 July 2004. A meeting between the
Commission, the French authorities and Bull took place
on 10 September 2004.

Whereas:

(1)

I. PROCEDURE

On 13 November 2002, the procedure laid down in
Article 88(2) of
the Treaty opened in respect of a
EUR 450 million cash advance granted by France to
Bull was
closed by the Commission by Decision
2003/599/EC (2) — a positive decision conditional on
the aid being repaid by 17 June 2003. On 26
November 2003,
the Commission brought an action
before the Court of Justice of the European Communities
for France's failure to comply with the decision (3). At the
end of 2003 and beginning of 2004, a number of
meetings took place in the course of which the French
authorities and Bull explained the content of Bull's
restructuring plan, and in particular its third stage, that
of recapitalisation. France notified the aid proposal to
which the present Decision relates by letter dated 20
February 2004.

(2)

By letter dated 16 March 2004,
the Commission
informed France of its decision to open the procedure
laid down in Article 88(2) of the Treaty in respect of the
said proposal.

II. DESCRIPTION

1. The aid recipient

(5)

is an international

Bull
information technology (IT)
group based in Europe doing business in over 100
countries (5). It is active mainly in two areas:

servers. Bull's market

— high-end professional computer servers: Bull designs
and markets a range of large servers for professional
use and provides maintenance services directly linked
to those
in the
Community as constituted on 30 April 2004 (here-
inafter called the Community of Fifteen) came to
approximately 3 % (approximately 5 % in the case
of medium and high-end servers). Its main compe-
titors in this field are IBM (34,3 % market share),
Hewlett Packard (HP), which took over Compaq in
2001 (29,4 %), Sun (12,6 %) and Fujitsu/Siemens
(8,9 %),

share

— specialised IT engineering services: Bull develops and
integrates different applications, builds software archi-
tectures, etc. Following the sale of its Integris division
to Steria, Bull's activities in this market sector have
been centred particularly on France and Italy. Bull's
main competitors here are IBM and HP. Bull's market
share in the Community of Fifteen comes to less than
1 %.

(1) OJ C 102, 28.4.2004, p. 12.
(2) OJ L 209, 19.8.2003, p. 1.
(3) Case registered under the number C-504/03.

(4) See footnote 1.
(5) http://www.bull.com

(7)

(8)

(9)

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(6)

turnover amounted to EUR 1 265
In 2003, Bull's
million, broken down as follows: products 46 %, asso-
ciated maintenance 27 % and services 27 %.

(10)

For a number of years, Bull had invested heavily in
Internet technologies, focusing its commercial activities
‘e-services’ and ‘net-infrastructure’.
on the concepts of
The crisis in the Internet sector revealed that Bull had
made, in this respect, poor technological choices and had
concentrated on markets in which it was unsuccessful.
Moreover, Bull showed a marked lack of consistency
between, on the one hand,
its ambitions in terms of
markets targeted and products offered for sale and, on
the other, the technological development investment and
commercial and administrative expenditure undertaken.

In addition, the group felt the backlash from the very
high charges linked with its employees’ pension schemes
in the United States.
In accordance with American
standards, the assets of the consolidated balance sheet
included the cost of pensions due, which represented
the pension fund assets (current
the excess value of
market value) over
the
the discounted liability of
In 2002, Bull decided to
projected pension rights.
to insurance
transfer all of
In combination with falling stock values,
companies.
this decision resulted in a financial
loss of EUR 87
million for the whole of the years 2002 and 2003.

its pension obligations

The uncertainty surrounding the company's financial
health led to a degree of reticence on the part of
customers to carry out large projects, given that they
its
were no longer sure that the company could fulfil
obligations
imposed
stricter payment terms at a time when Bull's access to
bank guarantees had almost dried up.

ahead. Suppliers

in the years

Bull is a limited company incorporated under French law.
Its shareholders, after the July 2004 recapitalisation and
the exercise of share warrants by existing bondholders,
are France Télécom and NEC, each with 10,1 %, Axa
Private Equity and Artemis with 8,6 %, Bull's senior
management with 5,1 %, Motorola with 3,0 % and
Debeka with 2,9 %. The French State now holds only
2,9 %,
the remaining 57,3 % being accounted for by
floating shareholders.

Starting in 1994, to resolve the difficulties encountered
in the early 1990s Bull introduced the measures provided
for under an earlier restructuring plan in accordance with
the
commitments given by France of which the
Commission took note in its Decision 94/1073/EC 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 (6). In particular, Zenith Data Systems was
sold off and the OSS (open systems and software)
division was closed down. France privatised Bull by
opening up its capital.
In 1999, Bull again had to
dispose of assets and announce redundancies. In 2000,
a plan resulted in a strategic refocusing of the company,
the sale of non-strategic assets and a reduction in costs.
At the end of 2001, Bull employed only 9 500 people
throughout Europe, compared with 11 500 in 1999.

(11)

(12)

2. Bull's difficulties prior to the restructuring plan to
which this Decision relates

In spite of the measures referred to in paragraph 8, in
2001 the strategic plan failed. First of all, the crisis in the
technology stock market prevented Bull from selling its
heavily loss-making Integris division to an outside buyer.
Secondly, the crisis in the Internet sector hit Internet-
based technology businesses hard. The collapse of the
telecommunications market, the bursting of the Internet
bubble, greatly reduced corporate margins and interna-
tensions resulted in a contraction in demand.
tional
Corporate expenditure on computers
sharply in
2002 (– 25 % in the case of medium and high-end
servers). The services market
suffered a drastic fall
compared with the earlier rise owing to the Year 2000
problem and the changeover to the euro. The worsening
economic situation after the events of 11 September
2001 weakened Bull's situation still further.

fell

(6) OJ L 386, 31.12.1994, p. 1.

3. Restructuring plan

(13) On 2 December 2001, a new chairman was appointed at
the head of Bull. His restructuring plan, which was
adopted by the board of directors in March 2002,
involves a massive reduction in overheads and staff
together with a refocusing on the company's strengths
through substantial
industrial asset sales. The growth
strategy is based on three main elements:

— upgrading of the range of large business servers while
the same time guaranteeing the continuity of
at
solutions used by customers, coupled with compe-
titive technological development,

— a positioning as European leader in Intel 64-bit archi-
tecture-based solutions and open source software in
target markets,

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L 342/83

stands apart,

— continued development of service activities in those
the
areas where Bull
provision
+
middleware + applications) to priority sectors such
as the public sector (tax and customs authorities,
social services, e-government), defence and security,
and telecommunications operators (7).

in particular
(hardware

complete

solutions

of

(14)

The main strands of
follows:

the financial component are as

(16)

their bonds,

the due date of

— a 90 % reduction in the EUR 204 million debt owed
to convertible bond holders, combined with an offer
to convert their securities into equity or into equity
coupled with stock-options. This is reflected in an
extension of
a
reduction in the yearly coupon payment and the
abolition of the redemption premium. The terms of
the offer to exchange their bonds are either, in the
first alternative, 20 new shares per bond or, in the
second alternative, 16 shares plus 16 stock options
exercisable by 15 December 2004. Inasmuch as the
vast majority have chosen the second alternative and
supposing they systematically exercise their stock
options, convertible bond holders will thus contribute
EUR 17,2 million,

Table

2005

[…]*
[…]*
[…]*

2004

[…] (*)
[…]*
[…]*

(EUR million)

2006

[…]*
[…]*
[…]*

2007

[…]*
[…]*
[…]*

Turnover

EBIT (**)

Net result

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.
(**) Earnings before interest and tax.

4. Description of the aid

The notified aid will take the form of a EUR 517 million
payment by the French State,
to be made on 31
December 2004 at the earliest. This amount is equivalent
to the rescue aid authorised by Decision 2003/599/EC,
including interest since its payment in December 2001
and June 2002. The new aid will not actually be paid
until after Bull has
In
exchange,
imposing a better
fortunes clause in the form of payment to the State by
Bull of 23,5 % of its annual consolidated current result
before tax for a period of eight years starting from the
financial year ending 31 December 2005.

reimbursed the rescue aid.

French State

the

is

— a capital increase launched on the market and guar-
anteed to the tune of EUR 33 million by a group of
investors: NEC and France Télécom (Bull's historical
shareholders) for EUR 7,5 million each, Debeka (a
German insurance company and one of Bull's major
customers) for EUR 3 million, the investment funds
Axa Private Equity and Artemis for EUR 7 million
and EUR 2 million respectively and, lastly, 350 senior
managers of the Bull group for EUR 6 million. In
contributed EUR 13,8
reality,
investors’
million.
contributions
amount to only some 90 % of the amounts guar-
anteed. The total increase comes to EUR 44,2 million,

the public has
Consequently,

(17) According to the French authorities, the clause represents
a present value of between EUR 50 million and EUR 60
million. The maximum amount of aid therefore comes to
EUR 467 million, or approximately 90 % of the existing
debt. In this way, the French authorities are seeking to
ensure a treatment similar to that of convertible bond
holders, who are likewise foregoing approximately 90 %
of their claims.

— the aid described in section 4, which consists of a
EUR 517 million payment coupled with a better
fortunes clause.

(18)

(15) Once all these measures have been implemented, the Bull
to EUR 59,2
group's equity capital
million. The financial projections associated with the
plan are given in the table below.

should amount

III. GROUNDS FOR OPENING THE PROCEDURE LAID
DOWN IN ARTICLE 88(2) OF THE TREATY

(hereinafter called the guidelines).

The decision to open the procedure laid down in Article
88(2) of the Treaty includes a preliminary assessment of
the aid measure in the light of the Community guidelines
on State aid for rescuing and restructuring firms in
difficulty (8)
In its
the Commission doubted whether the plan
decision,
guaranteed a return to viability. The latest
financial
figures pointed to a return to viability in the event of
the balance sheet being restored, but the Commission
considered that one year was too short a period in
return to viability. The
a
which to demonstrate

(7) For more

details of

the

restructuring plan,

see Decision

2003/599/EC.

(8) OJ C 288, 9.10.1999, p. 2.

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term. More importantly,

forecasts for the relevant markets were not very detailed
and they did not all agree, and it appeared that several of
those markets would remain problematic, especially in
the short
the information
provided by the French authorities did not make it
possible to assess whether Bull would be capable of
benefiting from a growth in the markets inasmuch as
the group's remaining industrial activities relied heavily
on the manufacture of systems where the competition
was intense. Furthermore, the recapitalisation plan did
not
involve any new partners beyond those already
present, namely France Télécom and NEC.

the large amount of aid involved,

In view of
the
Commission also doubted whether undue distortions of
competition were avoided, whether the aid was limited to
the minimum needed and whether it avoided providing
the company with surplus cash which could be used for
aggressive, market-distorting activities not linked to the
restructuring process. For instance, it was not clear what
the solvency and liquidity ratios would be after the aid
was paid and how they would compare with those of
competitors in the relevant markets.

(23)

(24)

hoped-for market recovery in 2005, the launch of Bull's
new offerings and a restored financial situation will
necessarily lead to a further growth in profitability. The
business plan for the period 2004 to 2007 also shows
that the company's return to viability will be lasting.

By also basing its growth on Intel 64-bit architecture-
based servers, Bull has made technological choices
which correspond to customers’ needs
in the years
ahead. Moreover,
this technology on Bull
servers offers fresh avenues for growth, especially in
the scientific calculation field.

the use of

the
In relation to services, Bull's strategy stands at
meeting point between three distinct competences and
three priority sectors. The areas of competence are: (1)
the integration and deployment of open infrastructures;
(2) the security of information systems; and (3) the info-
management of distributed systems. The priority sectors
are those to which Bull's most faithful customers belong:
government departments, telecommunications operators
and public services (utilities).

IV. COMMENTS FROM THIRD PARTIES AND FROM
FRANCE

(25)

France communicated discounted projections
the
relevant markets together with information on leading
competitors, on the financial data and on events in
recent months,
including the success of the recapitali-
sation plan.

for

France stresses that the aid is accompanied by substantial
financial commitments from certain private shareholders
and creditors. From a competition standpoint, Bull's
continued existence is more likely to promote compe-
tition in the European market than to hamper it. Bull's
market share is not such as to enable it to play a price
leader role;
it would play more the role of outsider,
helping to make competition livelier. The implemen-
tation of Bull's strategy based on Itanium and open
source would enhance this role in future.

France observes that the improvement in the company's
results held up throughout 2003 despite the poor market
conditions. The forecasts for 2004, which again must be
viewed against
the background of a difficult envi-
ronment, show an operating result similar to that for
2003: an EBIT of EUR 17 million and a net profit of
EUR 2 million for the first half of 2004. This indicates
that the company has succeeded in appreciably reducing
its break-even point. Under
the
improvement in discounted turnover next year due to a

the circumstances,

choices

sectoral

and these

competences

are
These
trends
perfectly in phase with the leading market
apparent
from expert analyses: optimisation of and
reduction in infrastructure costs (which generate the
need for open infrastructure deployment), urbanisation
and consolidation of
(areas of
excellence for Bull), and administration and securitisation
(in which Bull is active in various guises: cryptographic
equipment supplier, software publisher and integrator).
Bull has also very quickly established itself
in certain
emerging markets: mobile platforms, electronic adminis-
tration, and generalisation of electronic identity and
signature.

information systems

(26)

(27)

Inasmuch as Bull's strength is highly relative and the
degree of concentration in the market is very high, the
aid to Bull is not likely to lead to undue distortions of
competition. In certain specific markets, Bull's offering is
the only credible alternative to IBM. Moreover, Bull's
open-source-oriented strategy is likely to make compe-
tition in the servers market more dynamic in the years to
come.

The aid will be kept
to a minimum. The company's
viability depends in fact on the reconstitution of the
equity capital, of which the aid and the debt reduction
are essential elements. The various investors would not
have agreed to invest if part of the financing needed to
restore the company's viability had been provided by
borrowing.

(19)

(20)

(21)

(22)

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Official Journal of the European Union

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(28)

Bull will not have any surplus cash once the aid has been
paid. The aid will help to restore the equity capital to an
adequate, but far from excessive, level, as is borne out by
the debt to capital ratio and the ratio of coverage of
short-term debt by circulating assets compared with the
same ratios among leading competitors.

(29) As far as the private contribution to the restructuring
plan is concerned, three elements must be combined:
the effort made by the company itself
in 2002 to
increase and the contribution from
the capital
2003,
convertible bond holders.

(30)

France recalls that,
in recitals 60 and 70 of Decision
2003/599/EC authorising the payment of rescue aid to
Bull, the Commission expressly states that France must
not grant restructuring aid to Bull before 31 December
2004.

(31)

support

The representatives of Bull's employees
the
restructuring plan and stress the importance of the aid
when it comes to ensuring the company's survival and
safeguarding existing jobs. They endorse the information
provided by the French authorities, while transmitting
additional data and reference material concerning,
in
particular, the company's viability and competitiveness.
Their comments were forwarded to the French autho-
rities, which voiced their agreement.

V. ASSESSMENT OF THE AID

1. Existence of aid

(32) Article 87(1) of the Treaty states that ‘any aid granted by
a Member State or through State resources in any form
whatsoever which distorts or threatens to distort compe-
tition
the
certain
favouring
production of certain goods shall,
insofar as it affects
trade between Member States, be incompatible with the
common market’.

undertakings

by

or

(33)

The measure notified by France constitutes aid within the
meaning of Article 87(1) of the Treaty. Granted by the
State, it will be financed through State resources and will
is incompatible
favour a specific undertaking, Bull.
with the principle of a private investor in a market
economy.
it cannot be maintained that
the State is acting in the same capacity and under the
same conditions as convertible bond holders because
aid whose
France's

claim concerns

In particular,

rescue

State

It

reimbursement deadline has expired and because the
renouncing of such a claim, or the granting of new aid
of an amount equivalent to that of the aid which is to be
reimbursed, is inconsistent with the conduct of a private
investor and cannot therefore be assessed in accordance
with the private investor principle. Moreover, the notified
measure differs both as regards its form and as regards its
underlying conditions from the financial measures taken
by the shareholders and convertible bond holders. In any
event, the notified measure is not accompanied by any
comparable financial commitments on the part of the
trade between
other
shareholders. The
Member States and distorts or
to distort
competition owing to the fact that Bull
is an interna-
tional company and its products are the subject of inter-
national trade. Furthermore, Bull has competitors in the
common market, such as IBM, Fujitsu/Siemens, Sun and
HP. The
French authorities do not question this
assessment.

aid affects

threatens

2. Compatibility of the aid

(34)

The notified measure must be assessed as ad hoc State
the Treaty provides for
aid. Article 87(2) and (3) of
derogations from the general
incompatibility rule set
out in Article 87(1).

(35) Article 87(3)(c) of

adversely affect

contrary to the

the Treaty provides

such aid does not
to an extent

that aid to
facilitate the development of certain economic activities,
trading
where
conditions
common
interest, shall be compatible with the common market.
the Commission has adopted specific
On this basis,
guidelines for the purpose of assessing aid for rescuing
and restructuring firms in difficulty (9). In the light of the
figures relating to its capital, it is clear that Bull must be
considered to be in difficulty within the meaning of point
5(a) of the guidelines and that the group as a whole is
also in difficulty within the meaning of points 4 to 8 of
the guidelines (10). After consideration, the Commission
takes the view that no other Community framework or
other provision allows the aid in the present case to be
declared compatible with the common market. France
has, moreover,
invoked no other derogation from the
Treaty and has based itself exclusively on the guidelines
in defending the compatibility of the aid in question. The
Commission has therefore assessed the aid in the light of
the guidelines.

(9) A new version of the guidelines was published recently (OJ C 244,
1.10.2004, p. 2). In accordance with point 103 of this new version,
the aid measure in the present case must be examined in the light
of the criteria that were in force when the measure was notified,
that is to say, in the light of the 1999 guidelines.

(10) Since 2001, the equity capital has been negative, amounting to
minus EUR 726 million at the end of 2003. Losses in 2000,
2001 and 2002 came to EUR 243 million, EUR 253 million and
EUR 548 million.

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(41)

(42)

(43)

(36)

(37)

(38)

(39)

The guidelines lay down four cumulative conditions for
authorising restructuring aid: a plan guaranteeing long-
term viability, the avoidance of distortions of compe-
tition, aid limited to the minimum and full implemen-
tation of the restructuring plan. Moreover, the principle
time’ and that
of
laid down in the
judgment in Deggendorf (11) are applicable.

‘one time,

last

Restoration of viability (points 32 to 34 of the guidelines)

In accordance with the guidelines, the grant of the aid
must be conditional on implementation of the restruc-
turing plan, which must be endorsed by the Commission
in all cases of individual aid. The restructuring plan, the
duration of which must be as short as possible, must
the firm within a
restore the long-term viability of
reasonable
realistic
assumptions as to future operating conditions. Restruc-
turing aid must therefore be linked to a viable restruc-
turing plan to which the Member State concerned
commits itself.

timescale and on the basis of

The aid in question is linked to the restructuring plan of
March 2002 and its financial component as described in
the aid notification. The plan concerns the period up to
the end of 2007, after which the financial situation will
have been restored and the new structure put in place.
Most of the measures have already been implemented
and the recapitalisation has already been completed.
However, the period up to the end of 2007 may be
considered to be a reasonable time-span which is
company's
necessary
offerings and adapt its activities to reflect trends in the
relevant markets.

to restructure

in order

the

It

three

scenarios

It presents

The plan seems to be based on realistic hypotheses
concerning future operating conditions.
takes into
account the slow market recovery and does not appear
over-optimistic.
the
outcome of the recapitalisation, the most optimistic of
which is the closest to the current outcome. It under-
scores the re-establishment of consistency between the
its strengths, customers’ needs and
company's strategy,
technological developments. Given the
technological
the plan appears suffi-
and commercial uncertainties,
ciently precise in view of
information
sent by the French authorities.

the additional

for

(40)

The improvement in viability stems mainly from internal
measures, in particular the cessation of non-core business

(11) Judgment of the Court of Justice of 15 May 1997 in Case C-355/95
P Textilwerke Deggendorf GmbH v Commission of the European Commu-
nities and Federal Republic of Germany [1997] ECR I-2549.

activities, the restructuring of offerings and the reduction
of overheads.

The company's difficulties were brought about above all
by poor technological choices and by the concentration
in which Bull was unsuccessful. These
on markets
including the network
activities have been abandoned,
of services in a number of European countries. Several
reasons underlying specific losses, such as those related
to pension schemes, are unlikely to recur. Most of the
senior managers have been replaced. Bull has refocused
on its strengths.

R e s t r u c t u r i n g
m a n c e

a n d o p e r a t i o n a l p e r f o r -

a

for

righting of

expenditure,

For the years 2000 to 2002,
the gross margin on
turnover was between 21 % and 25 %. However,
research and development
commercial
expenses and administrative costs together exceeded the
gross margin by about EUR 100 million a year. The
restructuring plan provides
this
imbalance: research and development expenditure is set
to fall from EUR 160 million in 2000 to EUR […] (*)
million by the years 2005 to 2007. Commercial
expenses and administrative costs are set to fall from
EUR 706 million in 2000 to EUR […] (*) million by
the years 2006 to 2007. The projections take account
of contingency provisions for possible judicial awards.
increase to […] (*) % of turnover by
This heading will
2007. On the basis of these projections, future EBIT is
estimated at […] (*) % after contingencies. Current costs
the
for 2003 and the first half of 2004 support
projections. From this point of view, the Commission
considers that the restructuring plan makes for a satis-
factory operational performance.

F o r e c a s t s f o r t h e r e l e v a n t m a r k e t s

of

generalisation

lower communication charges,

In the future, demand is expected to pick up, albeit more
slowly than during the past decade, owing to several
factors combined:
the
development of high-speed networks, the growth of tele-
procedures in the public sector, the upsurge in appli-
cations sharing via the Internet, increased mobility, the
taken of security constraints and,
increasing account
lastly,
technologies
digital
the
everywhere in place of the pre-existing analogue tools.
According to the latest forecasts by IDC (International
Data Corporation)
the
European market for servers should grow in volume by
44 % and that for medium and high-end servers by 39 %.
64-bit
The market
components, which is a major growth area for Bull,
should enjoy considerable expansion.
is estimated
that
it should be worth USD 2,4 billion in 2007,
accounting for 16 % of the servers market (compared
with less than 1 % in 2003).

for the years 2003 to 2007,

servers

based

Intel

for

on

It

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Official Journal of the European Union

L 342/87

(44)

Intel

IDC,

(November 2003)

in a study dating from December 2002,
Thus,
foresees in western Europe an increase of 30 % in
corporate expenditure on services and of almost 20 %
on servers between now and 2006. The more recent
concerning
forecasts by Gartner
services in western Europe are for + 3 % in 2004 and
an annual average growth rate of 6,2 % between 2002
and 2007. In the case of servers, the amount of growth
will depend above all on the technologies used;
in
Itanium components, which form the
particular,
basis of Bull's new range of servers and which were
first used in 2003, should generate a turnover of EUR
8 billion in 2008. The market
for services is highly
dispersed, highly competitive and in a permanent state
of restructuring, but in the medium to long term it will
expand more rapidly than the market for products. In
conclusion, conditions in the relevant markets are not
such as to call
in question the return to viability and
they make possible an increase in the share of total
sales
the gross margin accounted for by
services, as provided for in the restructuring plan.

and of

(45)

Several studies confirm the growth projections in the
niche markets targeted by Bull and the opportunities in
the technologies chosen (12).

(46)

(47)

V i a b i l i t y i n t h e m e d i u m a n d l o n g t e r m

The large GCOS servers installed in current customers’
businesses are an important cash cow. However, after
[…] (*), the replacement for the GCOS servers will be
almost ready and Bull will have to face up to its compe-
its ambitions, even if they are modest,
titors and fulfil
under other conditions. Against
the
Commission has noted,
in particular, what follows in
recitals 47 to 54.

this background,

In opting for Intel 64-bit architecture-based solutions,
open source software and the benefits of component
standardisation (commoditisation),
it would appear that
technological course, corre-
Bull
is plotting the right
to market developments and
sponding as
it does
customer needs. These developments
are going to
increase the intensity of competition in the markets for
servers and in the markets for services, but thanks to its
size Bull
inconsiderable
amounts in R & D and of offering a broader and more
coherent range than start-ups and more specialised small
Its size may also provide it with a degree of
firms.
dependability in the eyes of customers who attach
strategic importance to their choice of server supplier.
The giants such as IBM, HP and Dell, on the other
hand, specialise more in large-series products whose
scope of application is wider and where customers do
not have the same need for ‘tailor-made’ products.

is capable of

investing not

(12) For example, Forrester, ‘Market overview — Exploiting open source

in Europe’, 22.6.2004.

(48)

The plan targets those sectors where customers are the
most faithful: the public sector, defence and security, and
telecommunications operators. Bull has no ambitions
beyond that of being a niche player.

(49)

(50)

(51)

The market introduction of the new NovaScale range of
servers, which is designed to replace the GCOS systems,
has been viewed favourably by independent experts (13).
Bull has achieved substantial reference sales and this
product line is said to differ from competing products
in terms of cost, reliability, ease of use and size adapt-
ability.

it

is

enabling

restructuring

Bull's
to re-establish
consistency between its know-how, its offerings, its orga-
nisation and its short-term objectives. A major cause of
the company's difficulties was precisely the lack of such
consistency. The rejuvenation of
its staff, which was
largely completed in 2002, and the substantial range of
should provide a technological
strategic partnerships
springboard for the future.

turnover

The role planned for the new family of servers based on
Intel processors, and in particular the 64-bit processor,
should attain
is very important:
in 2007,
[…] (*) % of
sales, with a gross margin of
total
[…] (*) %. As a ‘proprietary’
technology is no longer
involved, it is logical that this margin should not attain
the level of the margins on the old servers, the GCOS
servers. Although 64-bit servers make it possible to
support more complex and broad systems,
they are
naturally more expensive than ‘standard’ 32-bit servers.
Bull will try to gain its customers’ trust through the
technical quality of its 64-bit servers, adding its services
specialised competences of which are
offering,
It will establish coop-
recognised,
its
and those of
eration between its own teams
customers. The Commission acknowledges
this
that
concentration on
strategy is
certain sectors.

consistent with Bull's

to those products.

the

(13) See The Clipper Group Navigator, ‘Bull transitions GCOS 8 to Open
Systems — Novascale 9000 to the Rescue’, 15.10.2003 and IDC,
‘Vendor needs and Strategies, Bull fills out Novascale line — targets
commercial and High-Performance Computing (HPC) Customers in
2004’, April 2004. IDC, for example, concludes that ‘Bull’s intro-
duction of NovaScale servers in 2003 saw it enhancing its approach
to the high-performance computing market — a market it had
reasonable number of
It has won a
previously addressed.
reference customers in this sector over the last year. … The
addition of the Microsoft Windows 2003 Server operating system
and SQL Server, plus new ISV software — especially from Oracle,
SAP and BEA — will see it matching an expected growth in
demand for high-end commercial applications in the recovering
European market.’

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(52)

(53)

(54)

the

abovementioned

In the services segment, mention should be made of a
few conclusions of
Forrester
report (14). Concerning open source
services, Bull's
expertise is considered superior to that of other global
generalists such as IBM. Among global generalists and
those of medium size, Bull is alone in offering full tech-
nological coverage. The report mentions only one small
open source specialist offering the same coverage.

The recapitalisation plan involves no new industrial
from the operators who are already
partner apart
present, i.e. France Télécom and NEC. However, the parti-
cipation of Debeka, an insurance company, backs up the
strategy of focusing on a limited number of sectors. In
addition, Bull has entered into a number of partnerships
and has embarked upon several projects for developing
technologies that are key to future activities. Lastly, by
way of example, mention should be made of
the
signature of an initial original equipment manufacturer
contract with Kraftway, the leading Russian producer of
the
Intel-based servers. Another agreement concerns
distribution of servers in China.

the Commission considers

In conclusion,
the
restructuring plan enables Bull to position itself satisfac-
torily. Notwithstanding the technological and commercial
risks inherent in the relevant markets, the Commission
considers that the return to viability is sufficiently gua-
ranteed.

that

target markets. The market for Intel 64-bit architecture-
based servers is estimated at nearly USD 2,4 billion in
2007, which would account
the servers
market (compared with less than 1 % in 2003).

for 16 % of

(57)

In the area of services, there is evidence to suggest that
the relevant geographic market must be considered to be
Europe-wide, although the existence of
regional or
national markets cannot be ruled out.
In the services
market of the Community of Fifteen, Bull held in 2002
a market share of approximately 0,4 %, and since 2002
Bull has refocused itself even more on infrastructure
services and its other specificities, experiencing strong
reductions in its turnover in services. In a study dated
September 2003, published by the Gartner Institute, Bull
does not number among the first 10 competitors in the
world market for IT services and in 2002 it occupied
only 22nd place in the European market. That market
is, moreover, highly competitive, a circumstance which
made possible, by way of illustration, the authorisation
by the Commission of the merger operations concerning
(HP — Compaq (15), Cap
several competitors of Bull
Gemini — Transiciel (16), ATOS Origin — SEMA (17))
on the ground that
these mergers would not affect
competition in the markets for IT services.

(58)

Clearly, the company's presence is stronger in certain
geographic areas, notably France. But the competition
remains strong, including at the level of these geographic
areas.

Avoidance of undue distortions of competition (points 35 to
39 of the guidelines)

(59)

(55)

In order for it to be authorised by the Commission,
restructuring aid must fulfil a second condition, namely
that measures must be taken to mitigate as far as possible
any adverse effects of the aid on competitors.

(56) As was pointed out by France, Bull's market shares in the
area of services and in that of servers are very small. In
the area of servers, the relevant geographic market must
be considered to be worldwide or at least Europe-wide.
In 2002, in the whole servers market in the Community
of Fifteen, Bull held a market share of the order of 3 %.
In the segment of medium and high-end servers, Bull had
retained a position evaluated at approximately 5 %, far
behind its main competitors IBM (40 %), HP-Compaq
In the high-end
(24 %), Sun (17 %) and Fujitsu (9 %).
segment, the market share will be higher. Bull wishes
to position itself as European leader in Intel 64-bit archi-
tecture-based solutions and open source software in

(14) See footnote 12.

for

intensity

In some segments of the servers market in Europe, Bull's
continued existence is quite likely to stimulate compe-
tition in the market, especially in those segments where
IBM's position is preponderant. In the segment of high
transactional
example, Bull's
systems,
offerings seem to be the only alternative to IBM for all
customers who cannot easily migrate to the solutions
insurance
proposed by Sun, HP or Wintel
companies, social services, social security organisations,
etc.). […] (*) shows that this type of customer wishes to
see Bull's offerings maintained. The markets concerned
are, however, highly specific niche markets and Bull's
continued existence has little impact on competition in
the high-end server segment as a whole.

(banks,

(15) Commission Decision of 31 January 2002 declaring a concen-
(Case
tration to be
No IV/M.2609 — HP/Compaq) on the basis of Council Regulation
(EEC) No 4064/89 (OJ C 39, 13.2.2002, p. 23).

compatible with the

common market

common market

compatible with the

(16) Commission Decision of 24 November 2003 declaring a concen-
tration to be
(Case
No IV/M.3307 — Cap Gemini/Transiciel) on the basis of Council
Regulation (EEC) No 4064/89 (OJ C 295, 5.12.2003, p. 16).
(17) Commission Decision of 10 November 2003 declaring a concen-
tration to be
(Case
No IV/M.3295 — Atos Origin/Sema Group) on the basis of
Council Regulation (EEC) No 4064/89 (OJ C 295, 5.12.2003,
p. 16).

compatible with the

common market

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(60)

The Commission also takes account of the fact that Bull's
strategy is geared towards open source. The majority of
competitors are, moreover, at the same time partners in
several development projects. No competitor spoke of
distortions of competition when the procedure was
opened.

(65)

(61) No external growth operation is planned, apart from the
acquisition of ‘grey matter’, which is common practice in
the sector. Bull considers that any major purchase would
fly in the face of the restructuring plan's strategy and
would pose problems of integration.

The contribution from the recipient and its shareholders
is
substantial. Since 31 December 2001, Bull has
contributed EUR 160 million to the restructuring from
the sale of non-core business assets in 2002 and during
it had reserved for
the first half of 2003. In addition,
restructuring measures EUR 94 million out of its free
cash available on 31 December 2001 (18). Shareholders,
both existing and new, have contributed to the recapita-
lisation to the tune of EUR 44,2 million, which is a
substantial contribution. The fact that the subscription
to the investors’ capital stems partly from companies
having partnerships with Bull
(France Télécom, NEC),
from customers (Debeka) and from senior managers of
the Bull group in no way detracts from this finding. The
the capital
Commission can also take into account
contributed at the time of exercise of share warrants to
the tune of EUR 17 million, since former convertible
bond holders were not obliged to choose this option.

(62)

it has disposed of most of

Bull has sold substantial assets. In the products segment,
it has sold all of its businesses involving automated teller
machines, payment terminals and smart cards and a large
part of its businesses involving middleware software. In
the services market,
its
commercial network outside of France and Italy by
selling its Integris division to Steria. The restructuring
plan provides for a refocusing on core activities. This
also limits the aid's negative impact on competition
between Member States. In this context, it is important
that this strategy, which is provided for in the restruc-
turing plan, is actually implemented.

(66)

The solvency and liquidity ratios, after payment of the
aid and viewing the aid as a debt, are at
levels
comparable to those of competitors. The restoration of
financial health will make it possible above all to obtain
bank guarantees for current activities. Bull is to continue
to have recourse to external short-term financing based
on the securitisation of its assets to the tune of EUR
[…] (*) — […] (*) million. In view of the risks inherent
in the markets and Bull's niche player strategy,
is
institutions will be prepared to
unlikely that financial
grant
for aggressive activities not
linked to the restructuring process.

fresh credit

lines

it

(63)

In the light of the above, the Commission considers that
undue distortions of competition are avoided. Bull's
position in the
combined with
relevant markets,
compliance with the restructuring plan and the refo-
cusing carried out, does not render any further quid
pro quos necessary.

(64)

Aid limited to the minimum (points 40 and 41 of
guidelines)

the

In order for the aid to be authorised, a third condition
must be fulfilled, i.e. the amount and intensity of the aid
must be limited to the strict minimum needed to enable
restructuring to be undertaken in the light of the existing
financial resources of the company,
its shareholders or
the business group to which it belongs. Aid recipients
must make a significant contribution to the restructuring
plan from their own resources. In any event, it must be
demonstrated to the Commission that the aid will be
used only for
restoring the firm's
viability and that it will not enable the recipient during
the implementation of the restructuring plan to expand
production capacity.

the purpose of

for

(67) According to the French authorities, had there been less
aid on the table the other partners would not have
agreed to invest and convertible bond holders would
not have agreed to exchange their claims for new secu-
rities. As
the main alternative proposed by an
American investment fund — an alternative which was
rejected — the French authorities explained to the
Commission's satisfaction that it would not have led to
less aid. The fund proposed a larger capital injection than
the EUR 33 million proposed by the group of investors,
the EUR 11 million guarantee provided by
but
convertible bond holders covers the difference.

(68)

In conclusion, the Commission considers that the aid
does not provide the company with surplus cash which
could be used for aggressive, market-distorting activities
not linked to the restructuring process.

(18) This amount does not include the advance granted by the State at
the end of December 2001 or the resources which Bull may have
generated thanks to that advance.

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(69)

One time, last time principle

In order to prevent firms from being unfairly assisted,
point 48 of the guidelines states that restructuring aid
should be granted only once. If the company concerned
has already received restructuring aid in the past and if
less than 10 years has elapsed since the restructuring
period came to an end, the Commission will normally
allow further restructuring aid only in exceptional and
unforeseeable circumstances for which the company is
not responsible. The aid notified in the present case
will be paid on 31 December 2004 at the earliest. In
1993 and 1994, the French State granted Bull restruc-
turing aid which was approved by the Commission at the
restructuring plan in question
end of 1994. The
concerned, however, a period lasting until the end of
1995. Decision 2003/599/EC, by which the Commission
approved the rescue aid (19) and which in recital 60 refers
to the date of 31 December 2004 as being the date as
from which further restructuring aid may be granted, is
incorrect on this point. The 10-year period has therefore
not elapsed in the present case.

(70) However, the one time,

true

even more

the EC Treaty,

the purpose of

last time principle cannot be
applied absolutely. As the Court of Justice has held (20),
admittedly within the framework of the ECSC Treaty,
so within the
although it holds
framework of
the
provisions concerning aid is to grant the Commission
power to meet unforeseen situations by taking account
of the changing nature of market conditions. This being
so, indiscriminate application of the one time, last time
principle would excessively restrict the category of aid
capable of being regarded as necessary and would not
allow the Commission to examine,
in each particular
restructuring aid was
case, whether
necessary in order to attain Treaty objectives. Similarly,
the Commission cannot in principle base itself exclu-
sively on the existence of an earlier decision in order
to prohibit subsequent aid to the same recipient (21).

a project

for

(71)

It is against this background that the guidelines provide
for the possibility of derogating from the one time, last
time principle in exceptional and unforeseeable circum-
stances for which the company is not responsible. In this
respect, it should be pointed out that, although the crisis
in the information and communication technologies
in 2001 was neither exceptional nor unfore-
sector
seeable,
tech-
nologies related to the Internet and telecommunications,
was exceptional, unforeseeable and not the fault of Bull.
Another consideration to be taken into account in the
present case is the very high speed of technological devel-
opments in the relevant sector.

its scale, especially in the segment of

(19) See footnote 7.
(20) Judgment of the Court of 23 November 2000 Case C-441/97 P
Wirtschaftsvereinigung Stahl, Thyssen Stahl AG, Preussag Stahl AG and
Hoogovens Staal BV, formerly Hoogovens Groep BV v Commission of the
European Communities [2000] ECR I-10293, paragraph 55.

(21) Opinion of Mr Advocate General

Jacobs

in Case C-110/02

Commission v Council, paragraph 43 (not yet reported).

(72) Moreover, it should be stressed in this context that Bull
and the French State had scrupulously adhered to the
earlier restructuring plan, notably as regards the privati-
sation, the partnership with NEC and France Télécom
and the sale of several assets, as proposed by an inde-
pendent expert and as supported by the Commission,
and that
the said plan could not have foreseen the
current difficulties. The financial difficulties at that time
were largely linked to divisions and subsidiaries which
were sold under the restructuring plan, notably Zenith
Data Systems in the microcomputers sector and the OSS
division. A first restructuring of Bull has indeed taken
in the course of which the company tried to
place,
adapt
the
to its
company's workforce reflects this radical change: from
44 500 in 1990, it shrank to 24 000 in 1995 and to
11 500 in 1999. The current difficulties, as described in
recitals 9 to 12, differ in their nature from those which
led to the 1993-95 restructurings.

environment. The downsizing of

(73)

It follows that, in the present case, the philosophy behind
the one time,
last time principle, namely the wish to
prevent firms from being unfairly assisted, is respected.
The State has not propped up Bull artificially despite the
fact that its difficulties are of a recurring nature; on the
contrary,
the aid to which this Decision relates was
intended to deal with difficulties that are new in nature.

(74)

It should be added that the 10-year period has almost
elapsed.

(75)

In conclusion, in the circumstances of the present case,
the Commission considers that the one time,
last time
criterion is not a bar to the notified aid being authorised.

‘Deggendorf’ principle

take all

(76) According to the judgment of the Court of Justice in
Deggendorf (22), when the Commission examines
the
compatibility of aid,
the relevant
it must
factors into account, including any cumulative effect of
that aid and other aid which has not been repaid. In the
present case, Bull has at its disposal the rescue aid the
authorisation of which was subject to its being reim-
bursed by Bull by 17 June 2003 at
latest.
the
According to the French authorities,
the notified aid
will, however, not be paid until after the rescue aid has
‘Deggendorf’
been reimbursed. This being so,
principle is respected, although the Commission will
have to ensure that that is the case.

the

(22) See footnote 11.

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Implementation of the restructuring plan communicated

Article 2

(77)

In accordance with point 43 of
the
restructuring plan communicated to the Commission,
as explained and added to, must be implemented in full.

the guidelines,

Monitoring and reports

In accordance with points 45 and 46 of the guidelines,
annual
the
be
Commission.

reports must

communicated

to

Bull's

1.
Commission by France, shall be implemented in full.

restructuring plan,

communicated to the

as

2.
The aid referred to in Article 1 shall not be paid until the
rescue aid approved by Decision 2003/599/EC has been reim-
bursed. It shall be paid on 31 December 2004 at the earliest.

3.
France shall submit to the Commission annual reports on
the implementation of the restructuring plan for the period up
to the end of 2007.

VI. CONCLUSION

Article 3

The Commission considers that the restructuring aid for
Bull notified by France may be declared compatible with
the common market provided that all the commitments
undertaken by France and all the conditions imposed are
fulfilled,

HAS ADOPTED THIS DECISION:

France shall
inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with it.

Article 4

This Decision is addressed to the French Republic.

(78)

(79)

Article 1

Done at Brussels, 1 December 2004.

The State aid which France is planning to implement for Bull,
which consists of a EUR 517 million payment coupled with a
better fortunes clause, is compatible with the common market
subject to the conditions laid down in Article 2.

For the Commission

Neelie KROES
Member of the Commission