CELEX: 31992M0221
Language: en
Date: 1992-05-26 00:00:00
Title: COMMISSION DECISION of 16.05.1992 declaring a concentration to be compatible with the common market (Case No IV/M.221 - ABB / BREL) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31992M0221

COMMISSION DECISION of 16.05.1992 declaring a concentration to be compatible with the common market (Case No IV/M.221 - ABB / BREL) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 142 , 04/06/1992 P. 0000

 COMMISSION DECISION of 26.05.1992 declaring a concentration to  be compatible with the common market (Case No IV/M.221 - ABB /  BREL) according to Council Regulation (EEC) No 4064/89  (Only the English text is authentic)  The paper version of the decision is available through the  sales offices of the Office of Official Publications of the  European Communities. PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(b) DECISION Registered with advice of delivery To the notifying parties Dear Sirs, Subject: <ind> Case No. IV/M.221 - ABB / BREL <tab> <ind> Notification of 22.04.1992 pursuant to Article 4 of  Council Regulation (EEC) No. 4064/89  1.<ind> This case concerns the acquisition by Asea Brown Boveri  Limited (ABB) of a further 40% of the shares of BREL Group  Limited, taking its stake in BREL Group from 40% to 80%.  I.<ind> THE PARTIES  2.<ind> ABB is the holding company for the UK interests of the  Asea Brown Boveri group, which operates in a wide range of  electrical engineering markets, particularly the supply of  equipment for the power generation, transmission, distribution  and railway industries. In the railway supply sector, ABB has  operations in several EC Member States covering the supply of  both electrical and mechanical equipment.  <ind> BREL Group is the parent of BREL Limited (BREL) and acts  as a holding company and vehicle for the joint participation of  its shareholders in the control of BREL. BREL was formerly part  of British Railways Board and following privatisation it was  purchased in 1989 by a consortium of ABB (40%), Trafalgar House  plc (40%) and BREL management and employees (20%). BREL  operates solely in the UK and designs, builds, maintains,  repairs and refurbishes railway rolling stock and also has a  small general engineering operation.  II.<tab> THE CONCENTRATION  3.<ind> Trafalgar House and ABB currently have joint control of  BREL. ABB's purchase of Trafalgar House's stake will give it  sole control of BREL. This acquisition of sole as opposed to  joint control represents a change in the quality of decisive  influence exercised by ABB and brings about a lasting change in  the structure of both undertakings [cf. decision in case No.  IV/M.023 - ICI/Tioxide, 28.11.1990]. Therefore the acquisition  of sole control gives rise to a concentration within the  meaning of Article 3(1) of the Regulation.  III.<tab> COMMUNITY DIMENSION  4.<ind> The aggregate worldwide turnover of the parties in 1991  exceeded 5,000 million ECU, ABB achieving 22,218 million ECU  and BREL 420 million ECU. Both parties have a Community-wide  turnover of more than 250 million ECU and the parties did not  achieve more than two thirds of their Community-wide turnover  in one and the same Member State. The operation therefore has a  Community dimension within the meaning of Article 1 of the  Merger Regulation.  IV.<tab> COMPATIBILITY WITH THE COMMON MARKET  <tab> Product markets  5.<ind> The railway equipment market can be divided between  traction equipment and rolling stock on the one hand and  stationary equipment such as that for signalling on the other.  BREL does not produce, buy or sell stationary equipment and  this market is therefore not considered further. Traction  equipment and rolling stock includes the following vehicle  types:  <tab> - locomotives, <tab> - high speed trains, <tab> - diesel and electrical multiple units, <tab> - passenger coaches, <tab> - freight wagons, <tab> - metro cars, <tab> - light rail vehicles such as trams.  <ind> There are separate markets for the design and  construction ("new build") of the vehicles, for the supply of  components and for the maintenance, repair and refurbishment of  rolling stock.  <tab> New build  6.<ind> Typically there is a "mechanical" element to a vehicle  consisting of the design and construction of the vehicle body  and an "electrical" element consisting of the supply of  traction packages and electrical equipment.  7.<ind> From a demand perspective, each vehicle type  constitutes a distinct market, although there is a considerable  degree of supply-side substitutability, with some larger  suppliers capable of supplying  almost all vehicle types,  albeit in collaboration with sub-contractors. Whether the  relevant product market is that for all new build vehicles or  separate markets for individual vehicle types can be left open  because even on the narrower definition the concentration does  give rise to any cause of concern in the new build sector.  <tab> Components  8.<ind> Vehicle manufacturers rely on sub-contractors for the  supply of components such as seats, wheels, axles, bogies and  electrical packages. Some vehicle manufacturers also  manufacture components which they may use internally or sell to  other vehicle manufacturers.  <tab> Maintenance, repair and refurbishment  9.<ind> Rehabilitation or overhaul orders are normally awarded  on a tender basis every 10 to 12 years and involve the complete  refurbishment of a vehicle. Routine maintenance and repair of  traction equipment and rolling stock has historically been  carried out by the railway operating company concerned. The  policy of British Rail and the London Underground, however, is  to conduct only very light operational maintenance themselves  and to contract out other maintenance and repair work to third  parties.  <tab> Geographic markets  <tab> New build  10.<ind> Historically, vehicle orders have tended to be placed  with national suppliers (where possible) both because of a  preference for national suppliers on the part of publicly-owned  railway operating companies and for technical reasons: the  products of railway vehicle manufacturers are to a high degree  dependent on fixed network installations and need to be  developed in close collaboration with the customer (this is  particularly true for locomotives, but not for non-self  propelling rolling stock)   11.<ind> EC moves to harmonise standards and liberalise public  procurement policies may be expected to erode the barriers  between national markets, as may the development of large  suppliers with interests in more than one Member State and  increased efforts by non-EC suppliers to enter the market.  Indeed, it has been suggested to the Commission that access to  the UK new build market for suppliers without a local  manufacturing presence is possible with both British Rail and  London Underground putting contracts out for full international  tender. It has further been suggested that UK suppliers  consider that they are competing directly for business with  companies from elsewhere in Europe, and from Japan and North  America.  12.<ind> Thus the geographic market must to a degree be seen as  in transition. It is not necessary to take a definitive view on  whether the new build market is national or EC-wide because the  competition analysis points to the same conclusion in either  case.  <tab> Components  13.<ind> The market for components is at least EC-wide and may  be global for certain components. The parties suggest that 46%  of UK orders for bogies, about 33% of those for wheel sets and  30-40% of those for traction components were placed outside the  Community in 1989-91.  <tab> Maintenance, repair and refurbishment  14.<ind> This market is national and is unlikely to change  given the costs involved in transporting vehicles and  components a long distance for repair work, particularly for an  island such as the UK.  <tab> COMPETITION ANALYSIS  15.<ind> Manufacturers design and build vehicles to meet the  specific needs of each customer and project. As a result,  orders are intermittent and may create sizeable fluctuations in  demand from year to year. Consequently market share figures may  not accurately reflect the competitive situation, even where  several years' figures are taken into account. More important  is  a company's current ability to supply when successful in  winning a bid. A manufacturer may possess the capability to  build a vehicle but receive no orders in one year, only to take  50% of the market with a single contract the following year.  16.<ind> If the new build market is considered to be national  and the relevant product markets those for individual vehicle  types, this concentration will not give rise to any increments  in market shares for any of the four products manufactured by  BREL (electrical and diesel multiple units, metro cars and  passenger coaches). ABB's only current independent activities  in the UK consist of the manufacture and importation of certain  components not supplied by BREL. [Deleted: business secret]  17.<ind> Other than for coaches where it did not win the only  contract let in the period 1989-91, BREL has high UK market  shares: [Deleted: business secret - over 30%] for electrical  multiple units (EMUs), [Deleted: business secret - over 60%]  for diesel multiple units (DMUs) and [over 60%] for metro cars.  BREL's two competitors in the EMU market, Telfos and GEC  Alsthom had market shares of [over 10%] and [over 30%]  respectively, and GEC Alsthom had also won contracts to supply  DMUs prior to 1989. BREL's [over 60%] share of the metro car  market reflects its having won the only sizeable contract in  the past three years (for London's Central Line): all previous  metro contracts for London had been awarded to a GEC Alsthom  subsidiary, Metro Cammell. These high market shares need to be  seen in the context of existing alternative sources of supply  such as GEC Alsthom, and it should be remembered that the  concentration does not result in any increase in market share.  18.<ind> If the relevant geographic market for new build is  considered to be the EC, and the narrow product definition  taken, the concentration will result in market share increments  of between [under 20%]. High market shares are produced in the  DMU market [over 50%] and the metro car market [over 30%] with  a [over 10%] share in EMUs. These shares are largely a  reflection of contracts won by BREL in the UK between 1989-91  (as discussed in the previous paragraph) and the large share of  the EC market represented by the UK market in this period. Of  greater consequence than simple market shares, however, is the  degree of competition likely to exist for future contracts, and  there could not appear to be cause for concern given the  competitive capability of the large European manufacturers such  as AEG, Siemens and GEC Alsthom and other manufacturers such as  Veronesi and CAF in the DMU and metro car markets.  19.<ind> BREL is not a major producer of components. It  produces bogies principally for in-house use, although [under  300] were ordered by third parties in the UK between 1989-91  (representing approximately [under 10%] of total orders placed  in the UK). ABB supplies components such as electrical  equipment, wheels and axles. This concentration will not result  in any increment in ABB's market share.  20.<ind> BREL has approximately [under 20%] of the UK repair,  maintenance and refurbishment market (including in-house work)  and does not carry out such work on any other EC market.  Competitors include RFS Industries, Rosyth Dockyard, Devonport  Dockyard, Telfos and a considerable number of smaller repair  companies. ABB does not carry out any such activity in the UK.  21.<ind> The vertical issues which arise are in respect of the  future use of ABB components by BREL in its business. This  relates as much to maintenance as new build activities because  it is not usually possible to use spare parts which are  produced by one manufacturer on another manufacturer's  equipment. It could be argued that following the transaction,  customers letting contracts where BREL is the lead contractor  will be obliged to accept ABB components (such as wheelsets or  traction packages).  Component suppliers competing with ABB  could possibly find BREL-led contracts closed to them. This  would only be the case, however, where an ABB component was  entirely substitutable in operational and performance terms  since a manufacturer must be able to offer a full range of  components in order to remain fully competitive. Certain  components, particularly those with a bearing on safety or  where compatibility with existing components is important may,  in any case, be specified by the customer in the contract  (although there is a trend to specify only operational and  performance criteria wherever possible). Furthermore, given the  concentration of UK demand in the British Railways Board and  London Underground and the overcapacity in the industry  (estimated at 50% EC-wide) customers have considerable power in  relations with their suppliers.  VI.<tab> CONCLUSION  22.<ind> There is no horizontal overlap between the parties to  this concentration and the small vertical links do not give  rise to concern. It is concluded that this concentration will  not create or strengthen a dominant position as a result of  which effective competition would be significantly impeded in a  substantial part of the EC.  23.<ind> For the above reasons the Commission has decided not  to oppose the notified concentration and to declare it  compatible with the common market. This decision is adopted in  application of Article 6(1)b of Council Regulation (EEC) No.  4064/89.  For the Commission,