Source: EURLEX
Language: en
Format: md

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# 31998M1332

**COMMISSION DECISION of 21/12/1998 declaring a concentration to be compatible with the common market (Case No IV/M.1332 - THOMSON/LUCAS) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)** 
  
*Official Journal C 061 , 03/03/1999 P. 0003*

  

COMMISSION DECISION of 21/12/1998 declaring a concentration to be compatible with the common market (Case No IV/M.1332 - THOMSON / LUCAS) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Brussels, 21.12.1998

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EEC) No 4064/89 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus [ ]. Where possible the information omitted has been replaced by ranges of figures or a general description.

To the notifying parties

Dear Sirs,

Subject: Case No IV/M.1332 - THOMSON/LUCAS

Notification of 19/11/98 pursuant to Article 4 of Council Regulation N/ 4064/89

1. On 19/11/98 the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 by which the companies Thomson-CSF (Thomson), and LucasVarity Plc (Lucas) constitute a new joint venture aimed at operating in the automotive cruise control industry market.

2. After examination of the notification, the Commission has concluded that the notified operation falls within the scope of Council Regulation (EEC) No 4064/89 and does not raise serious doubts as to its compatibility with the common market and with the EEA Agreement.

I. THE PARTIES

3. THOMSON-CSF is a French company active in professional electronics and defence systems, as well as involved in the space and automotive industries.

4. LUCASVARITY Plc. is a British company, international designer, manufacturer and supplier of advanced technology systems, products and services to, among others, world automotive and aerospace industries.

II. THE OPERATION

5. The transaction concerns the creation by THOMSON-CSF and LUCASVARITY Plc. of a joint venture, which will be responsible for the production and sale on a world wide level of a new product, an adaptive cruise control (ACC) sub-system dedicated to the automotive industry market.

III. CONCENTRATION

Joint control

6. The shares of the joint venture will be equally held by the parties. Moreover the parties will acquire joint control given that all major decisions, including, inter alia, the business plan, budget and appointment of managers, will be made by unanimous approval of the Board, consisting of four members equally appointed by the parties. Presiding the Board will be a Chairman serving one year terms, with no casting vote.

Full-function character

7. With respect to the full function nature of the joint venture, it should be noted that the parent companies have carried out most of the R&D [ ]to develop the product outside the joint venture, and do not intend to transfer the intellectual property rights completely to the joint venture. This is due to the highly complex technology employed in the R&D, as well as to the need to use it for other applications engaged by the parties, making it both impracticable and inefficient to transfer these activities entirely to the joint venture. On the other hand, the parties will grant the joint venture the necessary licences for it to operate in its field of activity. However, the remaining part of the initial R&D will be carried out by the parents under the supervision and control of the joint venture who will have two R&D Managers. Moreover, any additional R&D work required for the adaptation of the product will be determined and supervised by the joint venture. The joint venture will be free to choose who will undertake this R&D. It is worth noting that it is common practice in this sector to have recourse to the subcontracting of R&D from third parties.

8. As to the resources of the joint venture, it will be financed partly by capital contributions from the parent companies [..] and partly by loans from third parties [ ]. The Board of the joint venture will also have the power to determine all major strategic decisions, the joint venture having all the financial resources and assets necessary to operate on the market.

9. As to the manufacture of the product, the joint venture will have its own production facilities in Brest and Birmingham with its own personnel [10-15] people will initially be seconded from the parents and progressively transferred to the joint venture, plus additional staff directly recruited by the joint venture, for a total of [75-100] at full production stage). During the initial start-up phase the joint venture will provide at least [50-75]% of the product's added value, with up to [75-100]% after this period. The joint venture will have its own and independent marketing and sales organisation. However, it will resort to the commercial network of Lucasvarity for the sale of approximately [15-30]% of the overall production. As to aftersales services, the joint venture may decide to subcontract them either to the parents or to third party operators.

10. The joint-venture will be established for an unlimited period.

11. In the light of the above, notwithstanding the dependence on the parents with respect to the initial R&D, the joint venture in question will perform on a lasting basis all the functions of an autonomous economic entity. Therefore, the proposed operation will constitute a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

IV. COMMUNITY DIMENSION

12. The undertakings concerned have a combined aggregate worldwide turnover in excess of ECU 5,000 million (THOMSON CSF, ECU 5,846 million; LUCASVARITY ECU 10,326 million ). Each of them has a Community-wide turnover in excess of ECU 250 million (THOMSON CSF, ECU 2,920 million; LUCASVARITY, ECU 3,531 million), and they do not achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension according to Article 1(2) of the Merger Regulation. It does not qualify for co-operation with the EFTA surveillance Authority pursuant to the EEA Agreement.

V. THE RELEVANT MARKET

The product market

13. The Radar ACC subsystem, which can help make driving more convenient, is based on radar technology, and combines a small radar sensor with an electronic control unit which is linked to a vehicle's braking system. There are two other technologies for cruise control: standard automotive cruise control (SCC) and ACC sub-system based on Lidar (light detection and ranging) technology. These products have very different characteristics, not only in terms of prices (which are substantially different), but also in terms of functionality and performance. In particular, whilst the SCC is a basic cruise control system with no link to the braking system, the Lidar products make use of light beams and are therefore environment sensitive. Radar ACC performances, instead, are not influenced by adverse environmental conditions. Demand side considerations would therefore suggest that these products are not substitutable. Also from the supply side, SCC, Radar ACC and Lidar ACC subsystems appear to be based on quite different technologies. As a consequence, Radar ACC subsystems appear to constitute a separate product market. In any event, this question can be left open since the operation does not raise any competition concerns irrespective of the product market definition being chosen.

The geographic market

14. The parties submit that the relevant geographic market should be at least EEA-wide if not world-wide. In this respect, it should be noted that the products in question have high value in relation to their transport costs. In addition, they are relatively standard products which makes them compatible with any car model. As a consequence, the relevant geographic market should be viewed as being at least EEA-wide. In any event, this question can be left open since the operation does not raise any special competition concerns irrespective of the geographic market definition being chosen.

VI. ASSESSMENT

15. From a competition point of view, there are no concerns arising from this operation. In this respect, it should first be stressed that none of the joint venture's parent companies is active either in the SCC or in the lidar ACC markets. As to the radar ACC which will be manufactured by the joint venture, it is still at a prototype stage and it will be put on the market in 2000. At that time, the joint venture will be facing competition from other strong existing operators that will have arrived on the market before the joint venture, thus having a head start. These are VDO (part of Mannesman group), ADC (joint venture between Temic and Leica), Bosch and Delphi. All these operators have already signed contracts with some of the largest car manufacturers and are expected to market their ACC subsystems before the launch of the product by the joint venture. Second, the technology necessary to manufacture the ACC subsystem is currently being developed by several players on the market. As a consequence, the exclusive licences granted by the parents to the joint venture to manufacture the product do not involve any risk of foreclosure. Finally, customers (car manufacturers and subsystem producers) appear to have strong countervailing power.

16. During the investigation, the Commmission's attention has been drawn to the link existing between Thomson and Daimler within the company UMS, a joint venture active in a market upstream to Radar ACC sub-systems. This joint venture manufactures a component of the radar ACC sub-systems (Monolithic Microwave Integrated Circuit, (MMIC)). Thomson and Daimler are also direct competitors in the market of the radar ACC sub-systems through their respective joint ventures (Thomson with the new joint venture with Lucas, and Daimler through ADC, a joint venture between Temic (a subsidiary of Daimler) and Leica). It thus must be examined whether the above described link could lead to the creation of a collective dominant position. In this respect, it should be noted that the sector at stake constitutes a completely new market where all the operators are new entrants, which makes anticompetitive parallel behaviour unlikely. As mentioned in the preceding paragraph, ADC and the joint venture between Thomson and Lucas are only two of many players entering or about to enter the emerging market for ACC systems, and even if coordination between the two of them was likely, it could not lead in itself to collective dominance. In any event, coordination between the new joint venture and ADC seems unlikely: first, UMS will in principle only supply the joint venture between Thomson and Lucas and not ADC; second, even if UMS were to start supplying MMIC also to ADC, the value of such a component is small compared to the overall value of the ACC products (around 10%), and could therefore not have any significant impact on the cost structure of the ACC products.

17. Consequently, the proposed concentration does not create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the EEA or any substantial part of that area.

18. As to possible co-operative aspects involving the joint venture's parent companies, with the exception of the scope of activities of the joint venture itself, from which both parties commit to withdraw, there are no other sectors where there is a risk of horizontal overlap. Nor there is a risk of vertical co-ordination between the parents.

VII. ANCILLARY RESTRAINTS

19. According to the Joint Venture Agreement each party has agreed not to compete with the business to be developed by the joint venture in Radar ACC for the duration of the Joint Venture agreement. This restriction aims at preserving the ongoing investment made by the parent companies in the joint venture. It can, therefore, be considered ancillary and is covered by the present decision.

20. Furthermore both parents have agreed not to enter any neighbouring ACC systems markets so long as the joint venture decides to integrate such activities within its scope. The duration of this prohibition has been limited to 15 years from the completion date, or to the duration of the joint venture, if shorter. From the parties' point of view, this restriction also aims at ensuring that the parent companies withdraw from any further ACC product market in which the joint venture may decide to operate. This restriction cannot be considered as merely ancillary to the operation as it concerns product markets other than the market in which the joint venture will be directly active, which do not even exist at the time when the operation takes place. Therefore, this decision does not cover this provision.

VIII. CONCLUSION

21. For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of Council Regulation (EEC) No 4064/89.

For the Commission,

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