Summary of Commission Decision of 12 April 2019 declaring a concentration compatible with the internal market and the functioning of the EEA Agreement (Case M.8947 – Nidec/Whirlpool (Embraco Business)) (notified under document number C(2019) 2734) (Only the English text is authentic) (Text with EEA relevance) 2020/C 229/05
Date: 2019-04-12
Institutions: Directorate-General for Competition, European Commission
Subjects: European Economic Area, cold store, economic concentration, electrical engineering, merger control








C_2020229EN.01000701.xml










13.7.2020   


EN


Official Journal of the European Union


C 229/7






Summary of Commission Decision
of 12 April 2019
declaring a concentration compatible with the internal market and the functioning of the EEA Agreement
(Case M.8947 – Nidec/Whirlpool (Embraco Business))


(notified under document number C(2019) 2734)


(Only the English text is authentic)
(Text with EEA relevance)
(2020/C 229/05)

On 12 April 2019 the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1), and in particular Article 8(2) of that Regulation. A non-confidential version of the full Decision, as the case may be in the form of a provisional version, can be found in the authentic language of the case on the website of the Directorate-General for Competition, at the following address:


http://ec.europa.eu/competition/elojade/isef/index.cfm?clear=1&policy_area_id=2

1.   INTRODUCTION









(1)


The Decision declares the acquisition of the refrigeration compressor business of Whirlpool Corporation, Embraco (‘Embraco’) by Nidec Corporation (‘Nidec’, or the ‘Notifying Party’) compatible with the internal market and the EEA Agreement, in accordance with Articles 2(2) and Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement.




2.   PROCEDURE









(2)


On 8 October 2018, the European Commission (the ‘Commission’) received a notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which Nidec intends to acquire, within the meaning of Article 3(1)(b) of the Merger Regulation, sole control of Embraco (the ‘Transaction’). Nidec and Embraco are collectively referred to as the ‘Parties’.












(3)


By decision dated 28 November 2018, the Commission found that the proposed Transaction raised serious doubts as to its compatibility with the internal market and initiated proceedings pursuant to Article 6(1)(c) of the Merger Regulation.












(4)


The in-depth investigation confirmed the competition concerns preliminarily identified.












(5)


The Parties submitted the final commitments on 28 February 2019 (‘Final Commitments’) that render the Transaction compatible with the internal market.












(6)


The draft Decision was consulted with the Member States during the Advisory Committee on Concentrations on 29 March 2019, which provided a favourable opinion. The Hearing Officer provided his favourable opinion on the proceedings in his report, which was submitted on 1 April 2019.




3.   THE PARTIES









(7)


Nidec is a Japanese company active in the engineering, manufacture, and distribution of a range of electric motors and motor application products. Nidec has been manufacturing and selling compressors for use in refrigeration appliances since its 2017 acquisition of Secop GmbH (‘Secop’). Nidec manufactures compressors in Austria, Slovakia and China.












(8)


Embraco, headquartered in Brazil, is active in the manufacture and sale of compressors for use in refrigeration appliances. Embraco manufactures compressors in Slovakia, Brazil, Mexico and China. Embraco is owned and controlled by Whirlpool, a U.S. company that manufactures home appliances (including refrigeration appliances).




4.   UNION DIMENSION









(9)


The undertakings concerned have a combined aggregate worldwide turnover of more than EUR 5 000 million. Each of them has an EU-wide turnover in excess of EUR 250 million, but each does not achieve more than two thirds of its aggregate EU-wide turnover within one and the same Member State. The Transaction therefore has a Union dimension pursuant to Article 1(2) of the Merger Regulation.




5.   EXPLANATORY MEMORANDUM

5.1.   The relevant product markets









(10)


Nidec and Embraco overlap in the manufacture and sale of compressors for use in refrigeration appliances. Refrigeration compressors are electro-mechanical devices used to lower the temperature of an enclosed space (such as a freezer or refrigerator) by compressing vaporised refrigerant to remove heat from that space and transfer it elsewhere.












(11)


There are many types of refrigeration compressors (for example scroll, rotary, semi-hermetic). Embraco and Nidec principally manufacture hermetic reciprocating compressors which can be installed in refrigeration appliances used in household or light commercial applications. Reciprocating compressors are compressors which generate pressure through pistons which are attached to a rotary crankshaft. ‘Hermetic’ reciprocating compressors are devices in which both the compressor and the motor which drives the compressor are contained in the same, hermetically sealed encasement.












(12)


Household refrigeration compressors are mainly used in refrigerators and freezers for residential use. A household refrigeration compressor typically is able to displace around 1,5 cm3 to 12 cm3 of refrigerant (referred to as the compressor’s ‘displacement capacity’).












(13)


Light commercial refrigeration compressors are mainly used in beverage coolers, glass door merchandisers, commercial refrigerators and freezers, display cabinets and supermarket merchandisers, ice-making machines, ice cream cabinets. The displacement capacity of light commercial refrigeration compressors typically ranges from around 1,5 cm3 to 28 cm3.












(14)


Refrigeration compressors may either run at a fixed speed (‘fixed speed compressors’ or ‘single speed compressors’), regulating the temperature by turning on and off as needed; or variable speed (‘variable speed compressors’), adjusting the speed at which they run depending on the need for cooling in order to maintain the desired temperature. Variable speed compressors tend to be more energy efficient, quieter and more expensive than fixed speed compressors with the same cooling capacity. Variable speed compressors are more common in household than in light commercial appliances.




5.1.1.   Hermetic reciprocating compressors









(15)


The Commission found that hermetic reciprocating refrigeration compressors cannot be substituted with different types of refrigeration compressor technology (for example rotary or scroll compressors) and are therefore in separate product markets.




5.1.2.   Household and light commercial refrigeration compressors









(16)


Within hermetic reciprocating refrigeration compressors, the Commission found that household refrigeration compressors and light commercial refrigeration compressors are in separate product markets for several reasons. These are: (i) different temperature limits, cooling power and displacement; (ii) physical size, efficiency rates and types of refrigerant used; (iii) back pressure; and (iv) durability and reliability, as light commercial applications have to be more durable due to heavy use.




5.1.3.   Fixed speed and variable speed refrigeration compressors









(17)


The Commission also found that fixed speed and variable speed refrigeration compressors constitute separate product markets for each of household and light commercial refrigeration compressors. This is because variable speed compressors are: (i) technically different to fixed speed refrigeration compressors (they have an electrical motor and inverter); (ii) more efficient than fixed speed compressors (only variable speed refrigeration compressors can achieve the highest energy efficiency rating); and (iii) more expensive than fixed speed compressors.




5.2.   The relevant geographic markets









(18)


The Commission found that for both household refrigeration compressors (fixed and variable speed) and light commercial refrigeration compressors (fixed and variable speed), the geographic market definition was EEA-wide or, at least, worldwide with an EEA differentiation. The Commission considered that the exact geographic market definition could however be left open. The competitive assessment was conducted at both the EEA and worldwide level.




5.2.1.   Household refrigeration compressors









(19)


While the Commission’s market investigation indicated that some large international customers of household refrigeration compressors concluded procurement contracts on a global level and that transport costs are low, the Commission did not find that these elements supported on their own a conclusion that the geographic market for household refrigeration compressors is worldwide in scope. Rather, the market investigation indicated that the conditions of competition are not homogeneous across regions:






(a)


There are significant market share variations between the EEA and worldwide level, and for variable speed household refrigeration compressors in particular. In addition, for variable speed household refrigeration compressors, only very few of the global players are currently selling variable speed household refrigeration compressors in the EEA (namely Nidec, Embraco and Wanbao/ACC).










(b)


There are different levels of import tariffs around the world. For example, EEA 2,2 %, China imposes import tariffs of 8 %, Thailand of 10 %, Pakistan of 11 %, India of 10 %, South Korea of 8 %, Brazil of 18 %, Chile of 6 %, Egypt of 30 % and the United States of America of 25 % on imports from China. This provides a further indication that conditions of competition are not homogeneous globally.










(c)


There are differences in the regulatory environment around the world. The Commission found that while there is a global trend towards the standardisation of various regulations relating to energy efficiency, there are currently no uniform norms or binding regulations that would apply across the world. The impact of certain regulations appears to influence directly the types of compressors sold in a given region. For example, certain compressors sold in the US would no longer be compliant with the current EU regulations.








5.2.2.   Light commercial refrigeration compressors









(20)


The Commission’s market investigation highlighted that EEA-based customers encountered a number of difficulties when considering whether to purchase from suppliers based outside the EEA. For example, the longer delivery time (and related lack of flexibility) was considered to be problematic. In addition, the different environmental regulatory requirements in the EEA were different to those outside the EEA, and not all suppliers were able to comply with these. The locations of R & D, manufacturing and sales facilities in the EEA were also considered important by EEA customers.












(21)


In addition, the Commission found that the sharp variations in market shares at EEA and global level were further indications that conditions of competition were not homogeneous worldwide in the market for fixed and variable speed light commercial refrigeration compressors.




5.3.   Competitive assessment

5.3.1.   Fixed speed household refrigeration compressors









(22)


The Transaction only gives rise to affected markets in fixed speed household refrigeration compressors in the EEA, where the Parties’ combined market share is [30–40] % based on volume and [30–40] % based on value. The Parties’ combined market share in fixed speed household refrigeration compressors globally is [10–20] % based on volume and [10–20] % based on value.












(23)


Respondents to the Commission’s market investigation indicated that the Parties were not close competitors. In addition, respondents indicated that there would be a sufficient number of alternative suppliers of fixed speed household refrigeration compressors in the EEA post-merger. Customers did not generally express concerns regarding the effects of the Transaction in fixed speed household refrigeration compressors. This is a market which has seen entry of new competitors and in which prices have been falling over the last five years.












(24)


For these reasons, the Commission considered that the Transaction does not give rise to a significant impediment to effective competition in the market for fixed speed household refrigeration compressors in the EEA.




5.3.2.   Variable speed household refrigeration compressors









(25)


The Parties overlap in variable speed household refrigeration compressors at EEA and global level. Their combined market shares are very high in the EEA, at approximately [90–100] % for both volume and value shares. The merged entity would also be the largest player globally, with a volume share of [30–40] % and a value share of [30–40] %.












(26)


Unlike in fixed speed household refrigeration compressors, where there are many competitors active, the Commission’s market investigation confirmed that many suppliers have not yet mastered the variable speed technology. Customers confirmed that there are fewer suppliers offering variable speed technology to the market. This is a more advanced technology for refrigeration compressors, and allows compressors to be more energy efficient and quieter. In addition, the Commission found that more stringent energy regulations would lead to increased demand for variable speed compressors for use in household applications.












(27)


The Commission’s investigation confirmed that Embraco and Nidec are close competitors, and both have strong technology and good quality products. Embraco in particular is the leading supplier of variable speed compressors with the most innovative technology. The Commission found that Nidec’s competitive advantage seemed to also benefit from the long-standing reputation of the Secop brand and its strength in fixed speed compressors as well as light commercial refrigeration compressors. Therefore, while Nidec’s current portfolio may not be completely at par with that of Embraco, customers still considered them as close competitors. The closeness of competition between the Parties was also demonstrated by the Parties’ internal documents. For example, Embraco’s internal documents showed that the company closely monitored Nidec’s market presence, product launches and customer base.












(28)


In addition, the Commission’s market investigation confirmed that the competition between Nidec and Embraco was, absent the merger, likely to intensify. Nidec, following the acquisition of Secop in 2017, made a strategic decision to further grow in the household market and in particular the variable speed household refrigeration compressors market. In particular, upgrading and investing in its variable speed household refrigeration compressors portfolio was identified by Nidec as a goal.












(29)


The Commission has found that the elimination of dynamic competition between Embraco and Nidec would not only impact the EEA segment for variable household refrigeration compressors, but also the worldwide market given that going forward the competitive pressure stemming from Nidec’s products under development would no longer constrain Embraco.












(30)


As regards competitive constraints, customers in the EEA did not seem to consider vertically integrated players (in particular LG, Panasonic, and Samsung) as an alternative source of supply. This is mainly due to two reasons: (i) they consider them as competitors downstream and do not want to source such an important refrigeration input as a compressor from a competitor; and (ii) compressors from these suppliers are more expensive.












(31)


As regards non-EEA rivals, the Commission found that European customers currently limit their sourcing to the Parties, in addition to marginal volumes from one other competitor.












(32)


Negotiations and orders of compressors usually take place several months before the actual delivery date. The Commission therefore contacted customers in order to determine their projected purchases for 2019 and 2020. This data showed that only a very limited number of Chinese players would gain market share in the supply of variable speed household refrigeration compressors in the EEA in the next two years. These new entrants would increase their market share from virtually zero to a small market share. At the same time, the merged entity’s market share in the EEA in 2020 is still forecast to remain very high, clearly above the level indicative of dominance ([70–80 %]). Also other evidence available to the Commission has not supported the likelihood of timely and sufficient entry by non-EEA competitors.












(33)


For these reasons, the Commission considered that the Transaction would be likely to significantly impede effective competition in the market for variable speed household refrigeration compressors in the EEA and also globally, due to horizontal non-coordinated effects and/or due to the creation or strengthening of a dominant position.




5.3.3.   Fixed and variable speed light commercial refrigeration compressors









(34)


The Parties overlap in both fixed and variable speed light commercial refrigeration compressors at EEA and global level and have high market shares in all markets, as can be seen in the table below.








Light commercial markets


Embraco market share


Nidec market share


Combined market share




Fixed speed EEA


[40–50] % volume, [50-60] % value


[20–30] % volume, [20–30] % value


[70–80] % volume, [70–80] % value




Fixed speed global


[30–40] % volume, [40–50] % value


[10–20] % volume, [10–20] % value


[40–50] % volume, [50-60] % value




Variable speed EEA


[60–70] % volume, [50–60] % value


[30–40] % volume, [40–50] % value


[90-100] % volume, [90–100] % value




Variable speed global


[60–70] % volume, [60–70] % value


[30–40] % volume, [40–50] % value


[90–100] % volume, [90–100] % value
















(35)


The Commission found that globally, the merged entity would be larger in fixed speed light commercial refrigeration compressors than the second global player, Changhong, which has a share of [10–20] % based on volume and [10–20] % based on value. At EEA level, the merged entity would be even stronger, with a [70–80] % (volume) and [70–80] % (value) combined market share. The only other three players active in the EEA would be significantly smaller (between [10–20] % for Tecumseh and Changhong and it is less than [0–5] % for GMCC). In variable speed light commercial refrigeration compressors, the merged entity would become the monopolist, both in the EEA and globally.












(36)


The Commission’s market investigation confirmed that, as might be suggested by their market shares, the Parties are close competitors in light commercial refrigeration compressors, in both fixed and variable speed, and in the EEA and globally.












(37)


In particular, customers indicated that Nidec and Embraco are the leading suppliers of light commercial refrigeration compressors. Further, many light commercial refrigeration compressor customers, in particular in the EEA, source either exclusively, or predominantly, from Nidec and Embraco. The Parties compete closely, have a similar portfolio, and are the two leading producers when it comes to technology, innovation and range. Many market participants also raised concerns regarding the impact of the Transaction, in particular noting that prices in light commercial refrigeration compressors could rise post-Transaction. Further evidence of the closeness of competition between the Parties was found in the Parties’ internal documents.












(38)


The Commission found that competitive constraints were limited. The other two main competitors in light commercial refrigeration compressors, Changhong and Tecumseh, are the only other two meaningful players currently capable of supplying customers in the EEA and are the next largest competitors globally. However, the Commission found that their light commercial refrigeration compressors are not of the same quality as the Parties’ compressors, and some customers do not consider their quality to be adequate. Further, in variable speed light commercial refrigeration compressors, the merged entity would not face any competition. The Commission’s market investigation revealed that the market situation was not expected to change in the near future.












(39)


For these reasons, the Commission considered that the Transaction would be likely to significantly impede effective competition in the market for fixed and variable speed light commercial refrigeration compressors in the EEA and also globally, due to horizontal non-coordinated effects and/or due to the creation or strengthening of a dominant position.




5.3.4.   Conclusion









(40)


The Commission therefore concluded that the Transaction raised a significant impediment to effective competition with regard to the markets for variable speed household refrigeration compressors and fixed and variable speed light commercial refrigeration compressors, both at EEA level and worldwide. The Commission concluded that the Transaction did not give rise to a significant impediment to effective competition in the market for fixed speed household refrigeration compressors in the EEA.




6.   REMEDIES









(41)


In order to render the Transaction compatible with the internal market in relation to the markets for variable speed household refrigeration compressors and both fixed and variable speed light commercial refrigeration compressors, on 7 February 2019 the Notifying Party formally submitted commitments pursuant to Article 8(2) of the Merger Regulation (the ‘First Commitments’).












(42)


The Commission market-tested the First Commitments on 11 February 2019. In order to address the issues raised in the market test, the Notifying Party submitted the Final Commitments on 28 February 2019.












(43)


The Final Commitments consist of the divestment of Nidec’s global refrigeration compressor business, with the exclusion of Nidec’s battery driven (mobile) compressor business (the ‘Divestment Business’). This includes, in particular:






(a)


the freehold and leasehold titles to the Nidec Austria Plant, the Nidec Slovakia Plant and the Nidec China Plant and offices for Nidec Germany, Nidec Italy, and Nidec USA;










(b)


all of the patents and know-how owned by Nidec used by the Divestment Business to develop, manufacture and sell the Divestment Products (subject to a non-exclusive licence back to Nidec in relation to patents relevant to the battery-driven refrigeration compressors for use in mobile applications);










(c)


the Secop brand and any associated trademarks and product names;










(d)


all personnel currently working in Nidec Slovakia, Nidec Austria, Nidec China (with the exclusion of personnel working on the battery-driven compressors business and motors for washing machines);










(e)


employees as Key Personnel.
















(44)


Moreover, Nidec commits to make available to the purchaser CAPEX funding for the purpose of improving the competitiveness and development of compressors produced in the Nidec Austria Plant and Nidec Slovakia Plant. This amount is equal to the CAPEX that Nidec would have committed to the two plants absent the divestment.












(45)


The Commission concluded that the Final Commitments are adequate and sufficient to eliminate the significant impediment to effective competition in relation to the markets for variable speed household refrigeration compressors and fixed and variable speed light commercial refrigeration compressors in the EEA and globally.




7.   CONCLUSION









(46)


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












(47)


Consequently, the decision declares the concentration compatible with the internal market and the functioning of the EEA Agreement, in accordance with Article 2(2) and Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement.






(1)  OJ L 24, 29.1.2004, p. 1.