CELEX: 31996M0706
Language: en
Date: 1996-09-03 00:00:00
Title: Commission Decision of 03/09/1996 declaring a concentration to be compatible with the common market (Case No IV/M.706 - GEC Alsthom / AEG) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Avis juridique important

|

31996M0706

Commission Decision of 03/09/1996 declaring a concentration to be compatible with the common market (Case No IV/M.706 - GEC Alsthom / AEG) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 308 , 17/10/1996 P. 0004

 COMMISSION DECISION of 03/09/1996 declaring a concentration to be  compatible with the common market (Case No IV/M.706 - GEC Alsthom / AEG)  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 To the notifying parties Dear Sirs, Subject : <ind> Case No IV/M. 706  GEC Alsthom NV / AEG <ind> <ind> Notification of 31.07.1996 pursuant to Article 4 of (EEC)  Council Regulation No 4064/89 1.<ind> On 31.07.1996, the Commission received a notification of a  proposed concentration pursuant to Article 4 of Council Regulation (EEC)  No 4064/89 by which the undertaking GEC Alsthom NV acquires within the  meaning of Article 3(1)b of the Council Regulation control of the whole of  AEG power transmission and distribution equipment business. 2.<ind> 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 functioning of the EEA  Agreement.  I.<ind> THE PARTIES 3.<ind> GEC Alsthom NV (GEC Alsthom), which is a Dutch joint venture  between General Electric Company, p.l.c. and Alcatel Alsthom CGE, is an  industrial holding company for a range of companies primarily active in  the energy and transport sectors. The main business activities of the GEC  Alsthom group include the manufacture and commissioning of power stations,  the manufacture of switchgears, transformers and other power transmission  and distribution equipment, the manufacture of railway rolling stock and  signalling and automation equipment, the production of industrial  equipment and marine equipment. 4.<ind> AEG Aktiengesellschaft (AEG) is a German industrial company,  majority owned by DaimlerBenz AG. The main business activities of AEG  include rail systems, microelectronics, diesel engines, automation and  electrical power systems. In Germany, AEG's activities in the power  transmission and distribution equipment (T&D) sector are carried out both  by separately incorporated subsidiaries and by a newly formed subsidiary,  AEG Energietechnik GmbH, to which AEG has now transferred the T&D  activities of its German operational subdivisions. Outside Germany, the  whole of AEG T&D business is going to be reorganized into dedicated  subsidiaries.  II.<ind> THE OPERATION 5.<ind> The operation consists of the acquisition by GEC Alsthom of AEG's  worldwide power transmission and distribution equipment business (AEG  T&D), by way of purchase of shares.  III.<ind> CONCENTRATION 6.<ind> The transaction, involving the acquisition of sole control by GEC  Alsthom of AEG's power transmission and distribution equipment business,  is a concentration within the meaning of article 3(1)(b) of the Merger  Regulation.  IV.<ind> COMMUNITY DIMENSION 7.<ind> The undertakings concerned have a combined aggregate worldwide  turnover in excess of ECU 5,000 million. Each of them has a Communitywide  turnover in excess of ECU 250 million, but they do not achieve more than  twothirds of their aggregate Communitywide turnover within one and the  same Member State. The notified operation therefore has a Community  dimension, but does not constitute a cooperation case under the EEA  Agreement, pursuant to Article 57 of that Agreement.  V.<tab> THE RELEVANT MARKETS <tab> Relevant product markets 8.<ind> The business being acquired include the production and supply of  equipment which is used as component of power transmission and  distribution networks. The notifying parties state that there are distinct  relevant product markets for the following products: high voltage  switchgears, medium voltage switchgears, transformers, protection and  control devices, turnkey systems and instrument transformers. These  relevant product markets furthermore consist of the following product  lines: <ind> high voltage switchgears: individual circuit breakers, individual  disconnectors and lighting arresters, gas insulated switchgear  assemblies. <ind> medium voltage switchgears: individual circuit breakers, individual  disconnectors, individual contactors, circuit breaker/contactor cubicles  (air insulated), circuit breaker cubicles (gas insulated), load break  disconnector switch cubicles, transformer substations; <ind> transformers: power transformers, distribution transformers; <ind> turnkey packages: AC substations, HVDC links, SVC systems. 9.<ind> However, it is not necessary to further delineate the relevant  product markets because, as argued below, even for a narrower product  market definition, it appears that effective competition would not be  significantly impeded in the EEA or any substantial part of that area.   <ind> Relevant geographic markets 10.<ind> The notifying parties contend that the relevant geographic market  for the supply of power transmission and distribution equipment is at  least EEAwide. Their analysis is based on the absence of legal barriers to  trade between Member States, the low transport costs, the fact that the  technology for transmission and distribution of electric power is uniform  across Europe and basic product designs are similar, and that the  traditional national standard have largely become aligned to the reference  technical standards set by the International Electrical Commission. They  add that remaining differences in national standards are marginal and do  not significantly influence basic product development or design and that  T&D products are suited to largevolume highly automated assemblyline  production involving significant economies of scale. These elements are  reflected by the fact that the major competitors are present throughout a  range of EEA countries, organize manufacturing and product development at  least at EEAwide level and source products for the whole of EEA business  from large production centres. 11.<ind> Replies obtained by the Commission from main customers and  competitors, which were questioned with respect to this specific issue,  have largely confirmed the information provided by the parties. In  particular, major european utilities agree upon the definition of a  EEAwide market for T&D equipment. Accordingly, they have confirmed that:  (i) they select their suppliers of power transmission and distribution  equipment on the basis of multiple sourcing policies; (ii) in accordance  with the EC rules laid down in Council Directives 90/531 and 93/38, they  usually award theirprocurement contracts through competitive and non  discriminating procedures; (iii) suppliers from other Member States can  and usually do participate in these procedures by submitting their own  bids. 12.<ind> The Commission recognizes that in some Member States national  producers still hold positions of strength to some extent, largely as a  result of both historical specialisation and the utilities' national  buying habits which were prevailing in the past. However, it considers  that since the last few years this situation has been undergoing  significant changes due to several concurring factors. In particular,  technical specifications applied by the customers have substantially  converged in recent years and T&D equipment is currently designed to allow  the modifications necessary to comply with customer specification. Thus,  equipment provided by a new supplier is often just as likely to serve a  user's purposes as equipment provided by a different supplier selected in  the past and technical requirements no longer impose on producers from  other Member States significant additional costs. On the other hand,  utilities are no longer tied to their current suppliers since major  competitors offer functionally substitutable products that, in most cases,  can be used to replace installed equipment without significant switching  costs. Furthemore, although Eurostat statistics on intracommunity trade do  not perfectly correspond to the product description provided by the  parties, the available figures for electrical equipment for connecting to,  switching and protecting electrical circuits, show the existence of  significant trade flows between different Member States. In view of all of  the above elements the Commission considers that the relevant geographic  markets for the products concerned can be deemed to have a EEAwide  dimension.  VI.<ind> ASSESSMENT 13.<ind> GEC Alsthom and AEG combined shares at the EEA level for 1995 are  [3040%] [Deleted business secret, replaced by range.] for high voltage  switchgears, [1520%] [Deleted business secret, replaced by range.] for  medium voltage switchgears, [1520%] [Deleted business secret, replaced by  range.] for transformers, [3040%] [Deleted business secret, replaced by  range.] for protection and controls devices, [3040%] [Deleted business  secret, replaced by range.] for turnkey systems and [1520%] [Deleted  business secret, replaced by range.] for instrument transformers. AEG has  no sales of instrument transformers, while for high voltage switchgears,  medium voltage switchgears, transformers and turnkey systems, GEC Alsthom  is contributing the most important proportion of the future market  position of the new entity. 14.<ind> As regards the individual product lines, a detailed analysis  shows that the parties are broadly complementary. For medium voltage  individual contactors, HVDC links and SVC systems there is no overlap  between GEC Alsthom and AEG's activities. For medium voltage transformer  substations and distribution transformers the parties' combined shares are  below 15%. As to the remaining product lines the parties' combined shares  range between 17.2% and 41.4%. 15.<ind> Following the proposed operation, at EEA level, GEC Alsthom will  be the largest supplier of high voltage switchgears, medium voltage  switchgears, protection and controls devices and the second largest  supplier of transformers and turnkey systems. However, for all the  products mentioned above, they are facing strong competitors such as ABB,  Schneider, Siemens, NEI, Pauwels, which are groups with significant  financial resources, EEAwide activities and a large and appropriate  technological base. In particular, whatever the product market definition  adopted, where the parties' combined shares exceed 25%, their three major  competitors account for an aggregated share of about 50%, the only  exceptions concerning the individual product lines for medium voltage  individual disconnectors and AC substations. As regards individual  disconnectors the parties' combined share is [2030%] [Deleted business  secret, replaced by range.] whereas ABB, Schneider and F&G have an  aggregated share of about 24%. In this respect, however, it has to be  taken into account that the contribution of AEG is limited to [less than  5%] [Deleted business secret, replaced by range.]. As to AC substations,  the parties' combined share is [4050%] [Deleted business secret, replaced  by range.], whereas ABB, Siemens, NEI and Schneider have an aggregated  share of about 49%. However, demand for AC substations, as in general for  other turnkey packages, is significantly erraticand single projects can  represent a large proportion of demand over a number of years. Therefore,  both market size and market shares often vary to a large extent from one  year to another, depending on the value and number of the contracts  tendered, and market shares may not accurately reflect the degree of  competition in the market. 16.<ind> As regards the structure of demand, across the whole sector of  power transmission and distribution equipment customers fall into two  categories: electricity utilities (such as Electricité de France, ENEL,  National Grid PLC and VEAG) and large industrial companies (such as Shell  France, Ferrovie dello Stato S.p.A. and BASF AG.). All of these companies  are very powerful groups with significant negotiation power, which they  exert through competitive calls for tender and multiple sourcing policies.  Furthermore, in their replies to the questionnaires sent to them by the  Commission, they have expressed no concern about the possible impact on  competition of the proposed operation, also pointing out that even after  the concentration they still will face a  number of alternative suppliers  sufficiently large to met their demand and to countervail any appreciable  price increase of the products supplied by GEC Alsthom/AEG. Finally, the  ongoing liberalization and privatization processes in the electricity  systems of several Member States, are likely to further strengthen the  importance of costeffectiveness criteria in utilities' procurement  decisions. 17.<ind> In view of the characteristics of the T&D equipment sector and  the presence of well established competitors, the proposed operation will  not lead to the creation or strengthening of any dominant position as a  result of which effective competition will be significantly impeded in the  EEA or a substantial part of it.  VII.<ind> ANCILLARY RESTRAINTS 18.<ind> The parties have asked for some provisions of the sale and  purchase agreement to be declared ancillary to the concentration. Two of  them are basically noncompetition clauses according to which: (i) AEG will  not compete with the acquired business for a period of five years; (ii)  for the same period DaimlerBenz undertakes not to engage in any competing  activity (subject to certain exceptions) and to offer to sell GEC Alsthom  any T&D equipment activities which may be incidentally acquired. The third  clause provides that certain intellectual property rights held by AEG or  DaimlerBenz, but used in the acquired business, will be licensed to GEC  Alsthom and, in particular, that (subject to certain exceptions) such  intellectual property rights will not be licensed to nonaffiliates for the  purposes of manufacturing T&D products. 19.<ind> All of these provisions are directly related and necessary to the  implementation of the concentration, since they are aimed at guaranteeing  the transfer to the buyer of the full value of the assets transferred, and  they can therefore be declared ancillary to the transaction.  VIII. CONCLUSION 20.<ind> 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 functioning of the EEA Agreement. This decision is adopted in  application of Article 6(1)(b) of Council Regulation No 4064/89. <tab> <tab> <tab> For the Commission,