CELEX: 32014M7330
Language: en
Date: 2014-10-20 00:00:00
Title: Commission Decision of 20/10/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7330 - MITSUBISHI HEAVY INDUSTRIES / SIEMENS / METAL TECHNOLOGIES JV) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

                                        Brussels, 20.10.2014
                                        C(2014) 7797 final

                                        |In the published version of this decision, some information |           |Public version                                                 |
|has been omitted pursuant to Article 17(2) of Council       |           |                                                               |
|Regulation (EC) No 139/2004 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|omitted has been replaced by ranges of figures or a general |           |                                                               |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.                                                |           |                                                               |
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|                                                            |           |MERGER PROCEDURE                                               |

                                        |                                                                       |To the notifying parties                                               |

Dear Sirs,

Subject:    Case M.7330 – Mitsubishi Heavy Industries / Siemens / Metal Technologies JV
         Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

    1) On 15 September 2014, the European Commission received a notification of a proposed concentration pursuant to  Article  4  of  the  Merger
       Regulation by which the undertakings Mitsubishi Heavy Industries, Ltd. ('MHI', Japan) and Siemens Aktiengesellschaft ('Siemens',  Germany)
       intend to create a full-function joint venture ('JV') in the metal plant building sector within the meaning of Article 3(4) of the  Merger
       Regulation.[2] MHI, Siemens and the JV are collectively referred to as 'Parties'.   MHI  and  Siemens  are  collectively  referred  to  as
       'Parents'.

       THE PARTIES

    2) MHI is a company headquartered in Tokyo, Japan. It is active as a heavy machinery manufacturer,  with  a  diverse  line  of  products  and
       services such as shipbuilding, power plants and chemical plants. MHI is active in the metal plant building  industry  through  Mitsubishi-
       Hitachi Metals Machinery, Inc. ('MHMM'), in which it holds a majority interest. MHMM was established in 2000 by  the  combination  of  the
       mechanical metal plant building divisions of MHI and Hitachi Ltd.  The  current  shareholders  of  MHMM  are  MHI,  Hitachi  and  the  IHI
       Corporation, but it is solely controlled by MHI. MHMM’s metal plant building activities are focused on mechanical metal plant building and
       mainly on flat rolled products and, to a more limited extent, the supply of mechanical maintenance and support services.

    3) Siemens is a German stock corporation that offers a wide range of products  and  services  to  customers  in  multiple  business  sectors,
       including: energy, healthcare, industry and infrastructure. Siemens' mechanical metal plant building business was acquired as part of  the
       VA Technologie AG acquisition in 2005[3] and combined with Siemens' pre-existing electrical metal plant building business to form what  is
       now Siemens VAI Metals Technologies. Siemens VAI Metals Technologies offers mechanical metal plant building solutions for the entire steel
       production process including the liquid phase (iron making, steel making), continuous casting and the production of flat  rolled  products
       and long rolled products. In addition, Siemens VAI Metals Technologies provides mechanical maintenance and repair services.

    4) The JV will be jointly controlled by MHI and Siemens, the Parents, and it will be active in the field of metal plant building. The  JV  is
       to be headquartered in the United Kingdom.

       THE OPERATION

    5) Pursuant to a Framework Agreement and a Joint Venture Formation Agreement signed on 6 May 2014, MHI and Siemens will contribute nearly all
       of their respective metal plant building activities into a new joint venture which will be  controlled  by  a  newly  formed  and  jointly
       controlled private limited company, the JV, incorporated under English law.

       THE CONCENTRATION

    6) Once the operation is implemented, MHI – indirectly through MHMM – will own 51% of the registered share capital of the JV and Siemens will
       own the remaining 49%. [Description of provisions relating to control over the JV]. The JV will therefore be jointly controlled by MHI and
       Siemens.

    7) The JV is intended to operate on a lasting  basis,  and  it  will  have  access  to  sufficient  resources  to  carry  out  its  functions
       autonomously.[4] The JV will also have an independent market presence, selling its products directly to its  customers  with  the  Parents
       making no or negligible purchases.

    8) In view of the above, the operation constitutes a concentration within the meaning of Article 3(4) of the Merger Regulation.

       EU DIMENSION

    9) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000  million[5]  (MHI:  EUR  24  547  million;
       Siemens: EUR 74 004 million; JV: EUR […][6]). Each of them has a Union-wide turnover in excess of EUR 250 million (MHI: EUR […];  Siemens:
       EUR […]; JV: EUR […][7]), but they do not achieve more than two-thirds of their aggregate Union-wide turnover  within  one  and  the  same
       Member State. The notified operation therefore has a Union dimension.

       COMPETITIVE ASSESSMENT

6 General remarks

   10) The Parties' activities appear largely complementary both in terms of geography and the product offering. The Parties' presence in the EEA
       is mainly due to Siemens' presence as MHI's relevant activities are negligible: the assets MHI is to contribute to the JV only accumulated
       a turnover of EUR […] in the EEA in 2013 while Siemens' assets to be contributed to the JV  accumulated  a  turnover  of  EUR […].[8]  The
       finding of complementarity is also supported by statements made by customers and competitors in the market investigation.[9]

   11) Nonetheless, the proposed transaction leads to limited horizontal overlaps in the markets for (i) mechanical metal  plant  building,  (ii)
       electrical metal plant building[10] and (iii) maintenance and servicing of metal plants.  However,  there  are  no  horizontally  affected
       markets in electrical metal plant building[11] or maintenance and servicing. Within the market of mechanical metal  plant  building,  some
       potential sub-segmentations constitute affected markets at world-wide level, namely (i) continuous casting, (ii)  hot  rolling  and  (iii)
       cold rolling. However, there are no affected markets at the EEA-level due to the very limited scope of MHI's activities in the EEA.

   12) Moreover, both Siemens and MHI produce and supply certain upstream components that can be used as inputs in metal  plant  building.  Those
       activities will generally not be contributed to the JV. Nonetheless, Siemens' supply of certain electrical components may potentially give
       rise to vertically affected relationships in the EEA.

7 Horizontal effects – mechanical metal plant building

8 Relevant markets

9 Relevant product market definitions – mechanical metal plant building

   13) Mechanical metal plant building plans the use of machines for the relevant metal production process, supplies those machines and  installs
       them in the production plant. Traditionally it includes the area of process  technology,  but  does  not  include  the  civil  engineering
       construction of the physical premises in which the machinery will operate.

   14) In Siemens/VA Tech, the Commission analysed the market of mechanical metal plant building and considered that a distinction could be  made
       according to the metal production stages, namely (i) pig iron making, (ii) steelmaking, (iii) continuous casting plants, (iv) hot  rolling
       mills, (v) cold rolling mills, (vi) strip plants, (vii) section rolling mills, (viii) pipe manufacturing plants and (ix) hot pressing  and
       forging. In addition, the Commission considered that a distinction could be drawn between metal plant building for ferrous metals  on  the
       one hand and non-ferrous metals on the other hand. Nonetheless, the product market definitions were ultimately left open in that case.[12]

   15) The Parties consider that there is a single market for mechanical metal plant building and that it should not be further  subdivided.  The
       Parties support their view by referring to significant degree of supply-side substitutability due to the fact that metal plant building is
       an engineering market where a significant range of players can supply a wide range of mechanical metal plant solutions.

   16) The results of the market investigation do not support the Parties'  view.  In  contrast,  market  participants  responded  that  not  all
       competitors supply all production stages and, even if many competitors do supply all or most of the production  stages,  the  competitors'
       relative capabilities vary and different suppliers may be considered market leaders for different stages.[13] Moreover, it appears to be a
       common practice for customers to order the different production stages from different suppliers.[14]

   17) However, as the proposed transaction does not give rise to serious doubts as to its compatibility with the internal market even under  the
       narrowest alternative product market definitions, it is not necessary to conclude on the exact scope of the product markets.

10 Relevant geographic market definitions – mechanical metal plant building

   18) In Siemens/VA Tech, the Commission considered the geographic market definition for mechanical metal plant building and its  possible  sub-
       segmentations as EEA-wide or wider leaving the exact definition ultimately open.[15]

   19) The Parties put forward that the relevant geographic market for mechanical  metal  plant  building  is  at  least  EEA-wide  and  possibly
       worldwide.

   20) The results of the market investigation indicate that the market could be world-wide, and a majority of  both  customers  and  competitors
       indicated that their respective purchasing and selling patterns are worldwide and that the same suppliers are generally active at least in
       Europe, Asia and North America.   However, a majority of both customers and competitors nonetheless indicated that  a  supplier  needs  to
       have a fixed presence in the EEA to be a viable competitor there. Many respondents also clarified that the presence should extend beyond a
       simple sales office and include, for instance research and development capabilities.[16] Moreover,  it  should  also  be  noted  that  the
       Parties' own activities are geographically complementary and, for instance MHI's activities in mechanical metal plant building in the  EEA
       are negligible while Siemens is one of the major suppliers there.

   21) However, as the proposed transaction does not give rise to serious doubts as to  its  compatibility  with  the  internal  even  under  the
       narrowest alternative geographic market definitions, it is not necessary to conclude on the exact scope of geographic markets.

11 Competitive assessment

   22) Within the overall market of mechanical metal plant building, the proposed transaction does not result in horizontally affected markets at
       the EEA or world-wide levels.

   23) With respect to the potential sub-segments of mechanical metal plant building, the proposed transaction does not result  in  any  affected
       markets within the EEA. However, on the world-wide level, the potential sub-segments for (i) continuous casting (ii) hot rolling and (iii)
       cold rolling would be affected. The Parties' estimations of their world-wide market shares in those potential sub-segments are set out  in
       the table below.

      Table 1 - The Parties' market shares, world-wide, cumulated 2009–2013[17]

|                              |Siemens (%)                   |MHI (%)                      |Combined (%)                  |
|Continuous casting            |[10-20]%                      |[0-5]%                       |[20-30]%                      |
|Hot-rolling                   |[10-20]%                      |[10-20]%                     |[20-30]%                      |
|Cold-rolling                  |[5-10]%                       |[10-20]%                     |[20-30]%                      |

      Source: The Notifying Parties

   24) The Commission notes that the parties' market shares remain modest and are, as such, not  indicative  of  significant  market  power.  For
       continuous casting, the market share increment is also low.

   25) The JV will continue to face competition after the transaction by notable competitors with similar or higher market shares  than  the  JV.
       The main competitors in all of the potential sub-segments of mechanical metal plant building are SMS and Danieli. SMS has a  market  share
       of [20-30]%[18] in continuous casting, [20-30]% in hot-rolling and [20-30]% in cold-rolling. Danieli has a market  share  of  [10-20]%  in
       continuous casting, [10-20]% in hot-rolling and [10-20]%. In addition, there are a number of other competitors such as  the  Metallurgical
       Corporation of China and Andritz.

   26) Moreover, respondents to the Commission's market investigation did not raise competition concerns related to  the  transaction.  In  fact,
       some customers even viewed the transaction positively because it could give them access to MHI's technology in geographic areas  where  it
       has not been available before the transaction. Some competitors also indicated that this might make competition tougher for them.[19]

   27) In light of the above and on the basis of the evidence available to the Commission, the proposed transaction does not give rise to serious
       doubts as to its compatibility with the internal market as regards mechanical metal plant building.

12 Vertical effects – electrical metal plant building and the supply of components

   28) The proposed transaction results in a potential vertical relationship between the JV's activities in electrical metal plant  building  and
       Siemens' supply of electric and automation components that can be used as inputs in that activity.

13 Relevant markets

14 Relevant product market definitions – electrical metal plant building

   29) Electrical metal plant building consists of various levels of automation. Level 0 automation refers to the general electrification of  the
       plant as well as the assembly of drives and sensors. Levels 1– 2 automation refer to the actual  automation,  which  consists  of  the  IT
       platform, human-machine interface, basic automation and drive control (as opposed to the drives themselves) as well as process automation.
       In addition, the more abstract levels of manufacturing execution systems,  including  plant  logistics  and  production  planning  can  be
       understood to be part of electrical metal plant building in the broad sense (level 3 automation).[20]

   30) In Siemens/VA Tech, the Commission analysed the market for electrical metal plant building, leaving open whether further  segmentation  of
       the market on the basis of, for instance the automation levels described above, process areas (such as liquid phase,  hot  phase  or  cold
       phase of metal production), process stages (such as different cold rolling process stages)  or  the  metal  produced  in  the  plant  were
       warranted.[21]

   31) The Parties put forward that there is a single overall market for electrical metal building.

   32) The results of the market investigation do not fully support the Parties' view. For instance, market participants responded that  not  all
       competitors supply all production stages (e.g. cold-rolling and hot-rolling) and, even if many competitors do supply all or  most  of  the
       production stages, the competitors' relative capabilities vary and different suppliers may be  considered  market  leaders  for  different
       stages.[22] Moreover, it appears to be a  common  practice  for  customers  to  order  the  different  production  stages  from  different
       suppliers.[23]

   33) However, as the proposed transaction does not give rise to serious doubts as to its compatibility with  the  internal  market  as  regards
       potential vertical links under any feasible plausible product market definition related to electrical metal  plant  building,  it  is  not
       necessary to conclude on the exact scope of the relevant product markets in this case.

15 Relevant product market definitions – components

   34) Siemens produces electric and automation components that can be used for a variety of different end-uses, including electrical metal plant
       building.

   35) According to Siemens' estimates, the company's market shares  with  respect  to  some  of  those  components,  namely  programmable  logic
       controllers ('PLCs'), human machine interface hardware ('HMI-HW'), high voltage inverters, motion controls and  motors  and  certain  high
       voltage energy transmission products may be [30-40]% and thus result in potentially affected vertical relationships.

   36) In Siemens / VA Tech, the Commission considered some of those products in connection to electrical metal plant building but found  it  not
       necessary to conclude on the market definitions.[24]

   37) However, as the proposed transaction would not give rise to serious doubts as to its compatibility with the  internal  market  as  regards
       vertical links under any plausible product market definition related to components used in electrical metal  plant  building,  it  is  not
       necessary to conclude on the exact scope of the product markets in this case.

16 Relevant geographic market definitions

   38) In Siemens/VA Tech, the Commission considered the geographic market definition for electrical metal plant building and its  possible  sub-
       segmentations as EEA-wide or wider, leaving the exact definition ultimately open.[25] The Commission did also not conclude  on  the  exact
       geographic market definition concerning components used for electrical metal plant building.

   39) The Parties put forward that the geographic market for electrical metal plant building is at least EEA-wide and possibly  worldwide.  When
       it comes to components, the Parties' market shares generally do not rise above 30% on markets wider than the EEA.[26]

   40) However, as the proposed transaction does not give rise to  serious doubts as to its compatibility with the internal market  with  respect
       to the potential vertical links under any plausible market definition, it is not necessary to conclude on the exact scope of the  relevant
       geographic markets in this case.

17 Competitive assessment

   41) It should first be recalled that there are no horizontally affected markets concerning electrical metal plant building at  any  geographic
       level as the Parties' combined market shares remain below 20% both in the EEA and at the world-wide level.

   42) The potential vertical links are thus only the result of Siemens' market shares in the  potential  component  markets.  According  to  the
       Parties' submission, the market shares may rise above 30% generally only within the EEA.[27] None of the market shares  would  rise  above
       50%. According to the Parties, a number of competitors will also remain on the market for all of the  components  in  question,  including
       suppliers such as ABB, Alstom and Rockwell Automation.

   43) The value of the components involved appears to be modest compared to the total value of electrical metal plant building  projects.  While
       there was some variation between the responses of competitors, many competitors noted that the value of their purchases of the  components
       was 5–10% of all their purchases for their metal plant building businesses, some competitors indicating even smaller figures.  Competitors
       also named a number of actual and potential alternative suppliers such as ABB, Rockwell Automation and WEG.[28]

   44) However, some market participants indicated that, particularly in brownfield upgrades of existing metal plants, the ultimate customer  may
       require that the components used are those of a certain supplier and that,[29] within the EEA, the designated supplier may be Siemens[30].
       Many customers nonetheless commented that they would be willing to consider suppliers alternative to their  initially  requested  ones  if
       there were good reasons to do so.[31]

   45) Nevertheless, the proposed transaction is de-concentrative in nature: the  transaction  only  results  in  potentially  affected  vertical
       relationships within the EEA where any market position the Parties' may have is  the  result  of  Siemens'  market  position  since  MHI's
       activities both upstream and downstream are negligible or non-existent. While Siemens will contribute its electrical metal plant  building
       business into the JV, it will retain its component business within itself and will not contribute those activities to the  JV.  Therefore,
       Siemens would also suffer any possible negative effects of an input foreclosure strategy alone while it would need to share  the  possible
       downstream profits with MHI after the proposed transaction.

   46) In light of the above and on the basis of the evidence available to it, the Commission considers that the Parties do not have the  ability
       or incentive to engage in input foreclosure of their downstream competitors as a result of the proposed transaction. Moreover, as  the  JV
       will only achieve a market share of less than 20% on  the  downstream  market  for  components  irrespective  of  such  a  market's  exact
       boundaries, it is also unlikely that it could successfully engage in customer foreclosure.

   47) Therefore, the Commission considers that the proposed transaction does not give rise to serious doubts as to its  compatibility  with  the
       internal market due to vertical relationships.

       CONCLUSION

   48) For the above reasons, the European Commission has decided not to oppose the notified operation and to  declare  it  compatible  with  the
       internal market and with the EEA Agreement. This decision is adopted in application of  Article  6(1)(b)  of  the  Merger  Regulation  and
       Article 57 of the EEA Agreement.

                                        For the Commission

                                        (signed)
                                        Joaquín ALMUNIA
                                        Vice-President
-----------------------
[1]   OJ L 24, 29.1.2004, p. 1 ('the Merger Regulation'). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
      ('TFEU') has introduced certain changes, such as the replacement of 'Community' by 'Union' and 'common market' by  'internal  market'.  The
      terminology of the TFEU will be used throughout this decision.

[2]   Publication in the Official Journal of the European Union No C 330, 23.9.2014, p. 11.

[3]   COMP/M.3653 – Siemens / VA Tech.

[4]   The JV will have a management team dedicated to  its  day-to-day  operations,  approximately  9  000  employees,  production  and  research
      facilities and other business assets that currently form part of the Siemens VAI Metal Technologies and MHMM businesses.

[5]   Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the  Commission  Consolidated  Jurisdictional  Notice  (OJ
      C95, 16.04.2008, p1).

[6]   The turnover attributed to the JV is the turnover of the assets to be contributed to the JV.

[7]   The turnover attributed to the JV is the turnover of the assets to be contributed to the JV.

[8]   On a worldwide level, MHI's relevant assets accumulated a turnover of EUR […] in 2013 while Siemens' assets accumulated a turnover  of  EUR
      […] in 2013.

[9]   Replies to Questionnaire to customers, questions 26–8, and replies to Questionnaire to competitors, questions 24,  26  and  27.  See  also,
      e.g. the approved minutes of a pre-notification conference call with a customer of 3 September 2014 and the  approved  minutes  of  a  pre-
      notification conference call with a competitor of 9 September 2014.

[10]  While MHI has no internal competences or production related to electrical metal plant building,  it  resells  other  suppliers'  electrical
      metal plant building solutions.

[11]  It should be noted that one of the minority shareholders of MHMM, Hitachi Ltd. ('Hitachi'), which nonetheless does not  control  MHMM  even
      jointly, is also active in electrical metal plant building. However, the proposed transaction would not result in an affected  market  with
      respect to electrical metal plant building even if Hitachi's market shares were added to the Parties' market shares.

[12]  M.3653 – Siemens / VA Tech, paragraphs 230–2.

[13]  Replies to Questionnaire to customers, questions 4 and 24; and replies to Questionnaire to competitors, questions 4 and 22

[14]  Replies to Questionnaire to customers, question 4.

[15]  M.3653 – Siemens / VA Tech, paragraph 291.

[16]  Replies to Questionnaire to customers, questions 13 and 15–6; and replies to Questionnaire to competitors, questions 13 and 15–6.

[17]  The Parties have calculated the market share figures on the basis of total order intake during  2009–2013.  The  figures  represent  market
      shares on the market for steel production plants; however, the Parties submit that their market shares are at most comparative with respect
      to metal plants producing other metals. Mechanical metal plant building is a project market involving a relatively small number of valuable
      projects that typically take a number of years to complete each. Therefore, market shares for individual  years  can  be  volatile  due  to
      singular projects being won or lost by market participants and they do not generally represent market participants' market  positions.  For
      instance, the Parties' combined market share for cold-rolling has varied during the years 2009–2013 between [30-40]% in 2009 to [10-20]% in
      2013. On the basis of 2013 figures only, the potential sub-segment for cold-rolling would thus not have been an affected market.

[18]  Market shares are the Parties' best estimates based on cumulated order intake 2009–2013.

[19]  Replies to Questionnaire to customers, questions 27–9; and replies to Questionnaire to competitors, questions 26–8.

[20]  M.3653 – Siemens / VA Tech, paragraphs 234–9 and 255–6.

[21]  M.3653 – Siemens / VA Tech, paragraphs 269–274.

[22]  Replies to Questionnaire to customers, questions 4 and 24; and replies to Questionnaire to competitors, questions 4 and 22

[23]  Replies to Questionnaire to customers, question 4.

[24]  M.3653 – Siemens / VA Tech, paragraphs 414 and 422.

[25]  M.3653 – Siemens / VA Tech, paragraph 296–8.

[26]  However, Siemens reports an approximate [40-50]% market share in a potential worldwide market for high voltage coils.

[27]  With the exception of high-voltage coils where the Parties report a market share of approximately [40-50]% world-wide.

[28]  Replies to Questionnaire to competitors, question 25.

[29]  Replies to Questionnaire to competitors, questions 25; and replies to Questionnaire to customers, questions 20–1.

[30]  Replies to Questionnaire to competitors, question 25. See also confirmed minutes of a conference  call  with  a  competitor,  22  September
      2014.

[31]  Replies to Questionnaire to customers, questions 20–1.