CELEX: 32014M7284
Language: en
Date: 2014-08-04 00:00:00
Title: Commission Decision of 04/08/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7284 - SIEMENS / JOHN WOOD GROUP / ROLLS-ROYCE COMBINED ADGT BUSINESS / RWG) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

                                             Brussels, 4.8.2014
                                             C(2014) 5660 final

                                        [pic]

|To the notifying party                                                 |                                                                       |
|                                                                       |                                                                       |

Dear Sir/Madam,

Subject:    Case M. 7284 - Siemens AG/ John Wood Group/ Rolls-Royce Combined ADGT Business/RWG
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

    1) On 27 June 2014, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger  Regulation
       by which Siemens AG ("Siemens", of Germany) acquires within the meaning of Article 3(1)(b) of the Merger Regulation (i)  sole  control  of
       parts of Rolls-Royce plc ("Rolls-Royce", UK),  namely  Rolls-Royce's  Aero-derivative  Gas  Turbines  Business,  Rolls-Royce's  compressor
       activities and Rolls-Royce's Aftermarket Services Business (together "Rolls-Royce Combined ADGT Business");  and  (ii)  Rolls-Royce's  50%
       stake in (and thereby joint control over) Rolls Wood Group Limited ("RWG"), currently a joint-venture between Rolls-Royce  and  John  Wood
       Group plc ("WG", UK), by way of purchase of shares and purchase of assets.[2] (Siemens, Rolls-Royce plc, Rolls Wood  Group  Ltd  and  John
       Wood Group plc are designated hereinafter as the 'Parties', the 'Notifying Parties' or the 'Parties to the proposed transaction'.)

       THE PARTIES AND THE OPERATION

    2) Siemens is a German stock corporation active in the following sectors: energy, healthcare, industry  and  infrastructure  &  cities.  With
       regard to energy and as concerns this transaction, Siemens supplies industrial gas turbines, gas  process  compressors  and  provides  gas
       turbine services.

    3) Rolls-Royce ("RR") is a UK public limited company. RR is active within the  following  businesses:  civil  aerospace,  defence  aerospace,
       marine, energy and power systems. With regard to energy and  as  concerns  this  transaction,  Rolls-Royce  supplies  aero-derivative  gas
       turbines, gas process compressors and provides gas turbine services.

    4) The Rolls-Royce Combined ADGT Business ("RR ADGT") comprises: (i) the Rolls-Royce ADGT Business, which includes the  design,  manufacture,
       sale and installation of aero-derivative gas turbines (ADGTs); (ii)  Rolls-Royce's  compressors  activities,  which  include  the  design,
       manufacture, sale and installation of compressors sold by Rolls-Royce in conjunction with its aero-derivative gas turbines; and (iii)  the
       Rolls-Royce's Services Business, which provides aftermarket services to operators and customers of installed aero-derivative gas  turbines
       and compressors.

    5) John Wood Group ("WG") is an international energy services company which provides a range of engineering, production support,  maintenance
       management and industrial gas turbine overhaul and repair services to the oil and gas, and power generation industries  worldwide.  WG  is
       listed on the London Stock Exchange.

    6) Rolls Wood Group (Repair & Overhauls) Ltd ("RWG", UK) is a joint venture between RR and WG. It provides maintenance, repair  and  overhaul
       services to operators of Rolls-Royce aero-derivative gas turbines installed for industrial applications.

       THE CONCENTRATION

    7) By means of the proposed transaction, Siemens will acquire sole control over RR ADGT,  Rolls-Royce's  50%  stake  in  (and  thereby  joint
       control over) Rolls Wood Group, currently a joint-venture between Rolls-Royce and John Wood Group plc, through the purchase of shares  and
       purchase of assets. All assets and shares covered by the relevant transaction will be carried out through a single transaction between the
       Parties, from the seller to the buyer. The Transaction therefore constitutes a concentration within the meaning of Article 3(1)(b) of  the
       Merger Regulation.

       EU DIMENSION

    8) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million[3] (Siemens: EUR  75  882  million
       (2013); RR ADGT: EUR […] (2013); WG: EUR 5 400 million (2013); RWG: EUR […] (2013)).

    9) Each of them has an EU-wide turnover in excess of EUR 250 million (Siemens: EUR […] (2013); RR ADGT: EUR […] (2013); WG: EUR  […]  (2013);
       RWG: EUR […] (2013)), but they do not achieve more than two-thirds of their aggregate EU-wide turnover within  one  and  the  same  Member
       State. The notified operation therefore has an EU dimension.

       COMPETITIVE ASSESSMENT

   10) The Parties' activities horizontally overlap within the fields of the supply of gas turbines, the supply of gas process turbo  compressors
       and the servicing of gas turbines.

   11) The activities within the supply of gas turbines will – depending on the exact product and geographic market definitions –  give  rise  to
       affected markets at worldwide and EEA levels. The remaining horizontally overlapping activities within the supply of  compressors  do  not
       give rise to any affected market. The activities of the Parties in the field of gas turbines servicing are minor.

   12) The Commission also investigated possible conglomerate effects in relation to the sale of compressor sets of a certain  power  output  for
       use in offshore oil and gas applications, and concluded to the absence of competitive concerns in this respect.

1 Relevant product markets

1 Gas Turbines

   13) Following the Commission's decisional practice, the Parties submit that the market for gas turbines could  be  segmented  as  follows:  by
       technology type (industrial or aero-derivative gas turbines), by power output (MW) and by sector specific usage of gas turbines  (oil  and
       gas ("O&G") or industrial power generation ("IPG")). However they claim that the exact product market  definition  can  be  left  open  as
       competition concerns are unlikely to arise under any product market definition.

1 Segmentation by technology type

   14) The Parties submit that a segmentation according to technology type is relevant. Hence the Parties submit  that  Industrial  Gas  Turbines
       ("IGT") and Aero-derivative Gas Turbines ("ADGT") are part of two separate markets.

   15) From a demand side perspective, the two types of technology are usually used in different applications. From a  supply  side  perspective,
       the Parties claim that ADGT are substantially different from IGT in terms of technology and can only  be  produced  by  a  supplier  which
       either has its own aero-engine business or has access to another supplier's aero-engine technology and associated IP rights.

   16) In previous decisions the Commission found indications that the product market could be segmented according to type of technology  between
       industrial and aero-derivative gas turbines,[4] because previous market investigations  show  that  the  unit  size,  fuel,  environmental
       requirements and operating conditions attract different customer bases.[5] The precise market definition was however left open.

   17) Even if almost no customer is aware of past instances where the price for ADGTs and IGTs has  moved  in  clearly  different  ways[6],  the
       market investigation in the present case to a certain extent showed that the product markets could be segmented  as  per  technology.  The
       majority of customers consider IGT and ADGT not to be comparable to one another.  Particularly,  both  the  technological  characteristics
       (ADGTs are typically lighter and smaller in size than the IGTs) and the price are perceived as  non  comparable.[7]  ADGTs  are  typically
       lighter and smaller in size than the IGTs. A number of competitors to the Parties share this view as well.[8]

   18) Notwithstanding the above, the majority of respondents do think that ADGTs and IGTs are used  interchangeably  for  certain  applications,
       because of the substantial differences between the two.[9] Customers in the O&G sector highlighted that, due to  the  different  technical
       specifications of each technology, they often specify the type of technology required (IGT or ADGT), with ADGT often being  the  preferred
       one.[10] Other segments outside O&G do not require a specific technology as often, but this depends on the relevant application.[11]

   19) Equally important, a clear majority of respondents states that it would be technically expensive and complex to install a gas turbine with
       other technical characteristics, and therefore they would not switch from using IGT or ADGT, if they initially  chose  the  one  over  the
       other.[12] Customers stated that, in the event of a small but significant and non-transitory increase in  price  of  their  preferred  gas
       turbine technology, while the other remained constant in terms of price, they would not change gas turbine technology.[13]

2 Segmentation according to power output

   20) In previous decisions the Commission has considered a potential segmentation of the market according to power output of the  turbines.[14]
       The following segmentation has been considered as plausible, although the exact market definition was left open: (i) small  gas  turbines,
       with a power output below 15 MW; (ii) medium gas turbines, with a power output comprised between 15  and  60  MW;  and,  (iii)  large  gas
       turbines, with a power output of more than 60 MW.

   21) The Parties take the view that the exact segmentation for gas turbines has developed somewhat since the European  Commission  last  looked
       into this issue. Consequently the Parties argue that the more suitable demarcation line between small and medium gas  turbines  should  be
       moved to 16 MW (instead of 15 MW) because the market has evolved. Gas turbines with power outputs below 15 MW have been upgraded over time
       and today outputs are slightly above 15 MW. Hence, the segmentation should reflect this change by including small gas turbines of up to 16
       MW and medium gas turbines between 16 MW and 60 MW.

   22) The market investigation in the present case showed the relevance of such segmentation. A clear majority of respondents  thinks  that  the
       segmentation via power output as per small <15MW, medium 15- 60MW and large 60MW, is a relevant and appropriate segmentation. However, the
       exact demarcation line of the small gas turbines could as well be set at 16MW rather than 15MW as they regard turbines with a power output
       slightly above 15MW still as small size gas turbines.[15]

   23) A small majority of customers states that small and medium gas turbines are not comparable in terms of product characteristics,  but  more
       similar if one stays within the same gas turbine technology (ADGT and ADGT, or IGT and IGT).[16] Small and medium  gas  turbines  are  not
       considered as comparable in terms of price either.[17] Additionally, most customers are not aware of the prices between small  and  medium
       gas turbines having in moved in clearly different directions in the past.[18]

   24) Further, small and medium gas turbines may in general be used for similar  end-applications,  according  to  half  of  the  customers.[19]
       However, the exact turbine size/power output will be determined by the application necessary for a specific project.[20] Customers with  a
       specific power requirement usually prefer to buy one single turbine that meets that  specific  requirement  rather  than  several  smaller
       turbines that in total meet that requirement or even turbines that exceed the requirement – except  for  cases  where  spare  capacity  or
       redundancy is needed.[21]

   25) The majority of respondents to the market investigation claimed that small, medium and large gas turbines are used by different customers,
       for different applications having specific needs and they are not produced by the same suppliers.[22] For instance power  industries  more
       often use larger IGTs, whereas the O&G segment mainly uses the small and medium ADGTs. If one was to segment the market even further,  the
       smaller gas turbines are especially used in the O&G offshore platforms.[23] Wherever the larger gas turbines can  be  used  the  size  and
       weight are not as crucial as the users for the small and medium gas turbines find.[24] Therefore, it is  not  surprising  that  almost  no
       customers would switch from one power category to another due to its complexity, and most have no experience from having do so in the past
       either.[25] Most of the competitors' answers reflect the complexity in switching power segment.[26]

3 Segmentation by end-application

   26) The Parties claim that the market could be further segmented according to end use of the turbines. Therefore turbines used in  the  oil  &
       gas ("O&G") sector could be regarded as constituting a distinct product market from turbines  used  in  the  industrial  power  generation
       ("IPG") sector.

   27) Further, the Parties claim that this segmentation, if at all considered, should be applied  in  addition  to,  and  not  instead  of,  the
       distinction by technology and/or by size. Indeed, if broad segments for “all O&G” or “all IPG”  gas  turbines  were  defined,  they  would
       encompass both small and medium gas turbines and both industrial and aero-derivative gas turbines,  and  thus  products  that  are  remote
       competitors to each other.

   28) To support such a distinction according to specific end-applications the Parties claim the following substantial differences  between  the
       two applications: (i) the security and health aspects differ  significantly  between  O&G  and  IPG  customers;  (ii)  the  disruption  to
       production and environment risks are more severe for O&G customers; and, (iii) the constant use of the gas turbines within O&G for reasons
       of continuity of supply.

   29) In addition, a further sub-segmentation could be envisaged between onshore/offshore for O&G applications, and single cycle ("SC")/combined
       cycle ("CC")/cogeneration for IPG applications. If such sub-segmentation was considered, the Parties' activities would, at EEA level, only
       overlap on a limited number of segments.

   30) From the market investigation it is unclear whether gas turbines could be segmented by end-application. Half of the  respondents  in  fact
       stated that the choice of a gas turbine depends on the requirements of each single project and therefore it is unclear whether  a  broader
       differentiation between IPG and O&G is relevant.[27]

   31) However, it should be noted that all respondents active in the O&G sectors consider that it is relevant to distinguish between IPG and O&G
       given that O&G projects require very specific technical characteristics.[28]  Further,  most  state  that  there  is  a  price  difference
       depending on end-applications.[29]

   32) When it comes to whether the specifications of a gas turbine being different between  O&G  offshore  and  O&G  onshore  applications,  the
       replies are split when considering all respondents[30], but all actors active  in  the  O&G  sector  consider  that  such  distinction  is
       relevant[31]. A similar segmentation can be made for IGTs, where the answers are split as to the difference between  a  simple  cycle[32],
       combined cycle or cogeneration, but respondents active in IPG applications consider such distinction to be relevant[33].  Competitors  are
       divided as to the ability to supply the IPG sector, if normally present within the O&G sector and vice versa.[34]

4 Conclusion on the product market definition for gas turbines

   33) In conclusion the Commission considers that for the purposes of the present transaction the exact product market definition of the  market
       for gas turbines and its segments can be left open considering that no competition problem is likely to arise  under  any  product  market
       definition.

2 Compressors and compressors set

   34) Compressors are designed to compress or squeeze air and other gases into a more pressurized state than that  in  which  they  exist  under
       normal atmospheric conditions. They are employed in petroleum refineries,  natural  gas  processing  plants,  petrochemical  and  chemical
       plants, and similar large industrial plants which require compression of intermediate and end-product gases, as well as being  used  in  a
       variety of applications within the oil and gas supply chain.

   35) In previous decisions, the Commission has in the first place distinguished between air and gas  compressors.  Within  gas  compressors,  a
       segmentation between standard and process compressors was considered, and, within gas process compressors, between  positive  displacement
       compressors and dynamic/turbo compressors.[35] However, the exact market definition was ultimately left open.

   36) The Parties' activities only overlap with regard to the  sale  of  gas  process  turbo  compressors  (below  referred  to  as  "gas  turbo
       compressors").

   37) The Parties agree with the above segmentation of the product market.

   38) Compressors are for the largest part (for more than 95% of compressors sold, according to the Parties) sold to end customers  as  part  of
       gas turbo compressor sets combining a gas turbo compressor and the gas turbine that is driving the compressor. The remainder are sold on a
       stand-alone basis. Gas turbo compressor sets and gas turbo compressors sold on a stand-alone basis could be considered as  being  part  of
       the same market or as constituting two distinct relevant markets.

   39) As regards gas turbo compressor sets, since they include the gas turbine that is driving the compressor, the segmentations envisaged above
       for gas turbines (by technology, by output, by end-application) can be regarded as relevant for such compressor sets as well.

   40) In particular, gas turbo compressors and gas turbo compressors set used in the oil & gas ("O&G") sector could be regarded as  constituting
       a distinct product market from turbines used in the industrial  power  generation  ("IPG")  sector.  Within  the  O&G  sector,  a  further
       segmentation of the market for gas turbo compressors and gas turbo compressors set in off-shore and on-shore applications  could  also  be
       envisaged.

   41) The Parties take the view that the only relevant segmentation of the market  is  for  gas  turbo  compressors  set,  irrespective  of  end
       application. In fact, the Parties claim that is not appropriate to define a market for the sale of compressors on a stand-alone  basis  as
       compressors are typically sold to end customers as part of a set and they had only minimal sales of compressors on a stand-alone basis.

   42) For the purposes of the present transaction the exact product market definition can be left open considering that no  competition  problem
       is likely to arise under any product market definitions.

3 Servicing of Gas Turbines

   43) The Parties argue that the market for the servicing of gas turbines should be segmented as follows: (i) services that  are  sold  together
       with or at the same time as a gas turbine by an OEM or as part of an associated  long-term  service  agreement;  and  (ii)  services  sold
       separately from the gas turbines.

   44) The Commission has previously considered several markets for servicing gas turbines.[36] It took as its starting point a  putative  market
       for the provision of services to all power generation plants, except for nuclear plants. The Commission also considered whether  it  would
       be appropriate to define the market more narrowly by reference to gas turbines (as opposed to, e.g., steam turbines), and/or by  reference
       to mature technology turbines. The market investigation supported  a  distinction  between  non-mature  and  mature  technology  turbines.
       However, the exact market definition was left open as concerns did not arise on any basis.

   45) In another decision[37], the Commission took as its starting point a putative market for the provision of overhaul and repair services  in
       relation to industrial gas turbines. The Commission also considered whether it would be appropriate to define the market more narrowly  by
       reference to the turbine manufacturer that is the OEM. The market investigation indicated a broader  market  definition  that  is  without
       distinguishing by OEM. Ultimately, the exact market definition was left open as concerns did not arise on either basis.

   46) In a more recent case, the Commission found the segmentation according to mature and non-mature technology to be appropriate.  Further  to
       this it considered a possible segmentation according to services rendered by OEMs and Independent Service Providers ("ISP") and  concluded
       that they do form part of one same market. A further segmentation of the market according to size of the  turbine  and  to  OEM  has  been
       considered but eventually the market definition was left open.[38]

   47) For the purposes of the present transaction the exact product market definition can be left open considering that no  competition  problem
       is likely to arise under any product market definition.

2 Relevant geographic markets

1 Gas turbines

   48) The Parties submit that the geographic market, irrespective of how the product market is defined, is global  in  scope.  They  argue  that
       major suppliers generally bid for all major contracts across the world, regardless of customers' location, and that contracts are  offered
       in diverse geographic areas. A local presence is generally not required to supply  gas  turbines,  however  when  necessary  this  can  be
       established on an ad hoc basis to comply with the client's requirement.

   49) With respect to gas turbines, the Commission previously considered the market to be most likely EEA-wide in scope, if not world-wide.  The
       precise definition of the geographic market was however left open.

   50) The market investigation supports the Parties' submission that the geographic market is indeed global in scope. Namely,  the  majority  of
       respondents to the market investigation states that they buy gas turbines from production facilities both inside and outside of  the  EEA,
       for installing inside and outside EEA. For half of the respondents, they would not change their purchasing patterns as regards  their  gas
       turbine EEA operations if there was a 5-10% increase, while outside the EEA the price remained constant.  Importantly,  if  the  customers
       would totally or partially switch their purchasing patterns following a price increase, a strong majority of customers would look for  new
       suppliers on a worldwide basis.

   51) Also, there are no hinders to most customers in terms of transport costs, technical specification, national preferences or brand awareness
       that limit their ability to buy gas turbines from outside or inside the EEA. The same and  equally  strong  majority  does  not  find  any
       barriers to their business in form of regulatory regimes, import duties, tariffs, quotas or patents etc.

   52) Almost all respondent state that there are no price differences between inside and outside the EEA, nor are there any quality or technical
       differences between inside or outside the EEA. The purchasing patterns of the customers within the gas  turbine  product  market  are  not
       differentiated, regardless of whether they relate to inside or outside the EEA.

   53) For the purposes of the present transaction the exact geographic market definition can  be  left  open  considering  that  no  competition
       problem is likely to arise under any geographic market definition.

2 Compressors

   54) The Parties argue that the market is global in scope. It is partly due to compressors primarily being supplied together with gas  turbines
       sold, not on a stand-alone basis. Consequently, the Parties deem compressors to belong to an equally wide geographic  market  as  the  gas
       turbines they are supplied with.

   55) The Commission has, in connection to compressors, found that the geographic market is at least  EEA-wide  in  scope,  and  perhaps  world-
       wide.[39]

   56) For the purposes of the present transaction the exact geographic market definition can  be  left  open  considering  that  no  competition
       problem is likely to arise under any geographic market definition.

3 Servicing of Gas Turbines

   57) Again, the Parties consider the relevant market to be world-wide, due to the conditions of competition being similar across world regions.

   58) Regarding the servicing of gas turbines, the Commission has previously considered the market to be at least EEA-wide and  possibly  global
       in scope.[40]

   59) For the purposes of the present transaction the exact geographic market definition can  be  left  open  considering  that  no  competition
       problem is likely to arise under any geographic market definition.

3 Competitive assessment – horizontal analysis

1 Gas Turbines

   60) The proposed transaction will mainly have an impact on production and supply of gas turbines. Depending  on  how  the  product  market  is
       defined, the proposed transaction will give rise to certain affected markets.

   61) If the market definition retained were the market for all small and medium gas turbines, irrespective of technology, power output and  end
       application, the post-transaction combined market share of the Parties would be [20-30]% at worldwide level and [30-40]% at EEA level.  On
       this hypothetical market, the increment would be [5-10]% at worldwide level and [10-20]% at EEA  level.  GE  would  remain  the  strongest
       player with an estimated market share of [40-50]% globally and [40-50]% at EEA level.[41]

   62) If the product market were segmented according to the type of technology, the parties' activities would not overlap. Siemens  manufactures
       and supplies only IGTs whereas RR ADGT only offers ADGTs. Given the lack of an overlap  the  transaction  would  not  give  raise  to  any
       affected market. The analysis on the basis of such segmentation will thus not be further discussed.

   63) If the product market were segmented according to the size of the turbines, irrespective  of  technology  type  and  end  use,  the  post-
       transaction situation would be the following:

a. On the hypothetical small gas turbines market, the post-transaction combined market share of the Parties would be [10-20]%  globally  (Siemens
   [10-20]% and RR [0-5]%) and [20-30]% at EEA level (Siemens [20-30]% and RR [5-10]%); the strongest player would  be  Solar  with  [50-60]%  at
   global level and [50-60]% at EEA level; and,

b. on the hypothetical medium gas turbines market, the post-transaction combined market share of the Parties would be [20-30]%  at  global  level
   (Siemens [10-20]% and RR [10-20]%) and [30-40]% at EEA level (Siemens [20-30]% and RR [10-20]%) and the strongest player would be  GE  with  a
   ca. [50-60]% market share at both global and EEA levels.

   64) If the product market were segmented according to the end-application of the turbines, irrespective of the technology used and the size of
       the turbine, the post-transaction situation would be the following:

a. On the hypothetical O&G market, the post-transaction combined market share of the Parties would be [10-20]% globally (Siemens [5-10]%  and  RR
   [5-10]%) and [20-30]% at EEA level (Siemens [10-20]% and RR [0-5]%); the strongest player would be GE with [40-50]% at global level  and  [60-
   70]% at EEA level; and,

b. On the hypothetical industrial power generation (IPG) market, the post-transaction combined market share of the Parties would be  [20-30]%  at
   global level (Siemens [20-30]% and RR [5-10]%) and [40-50]% at EEA level (Siemens [20-30]% and RR [10-20]%). The strongest player would be  GE
   at global level with a ca. [40-50]% market share. At EEA level, the merged entity would be the strongest player  but  would  face  competition
   from GE ([20-30]%), Solar ([10-20]%) and Pratt & Whitney ([10-20]%).

   65) If the product market were segmented according to both size and end-application, irrespective of the technology used, the post-transaction
       situation would be the following:

   |Sector         |Size              |Hypothetical market     |Combined share worldwide  |Combined share EEA      |
|               |                  |                        |(aver. 2009-2013)         |(aver. 2009-2013)       |
|IPG            |3-16 MW           |--                      |[10-20]%                  |[20-30]%                |
|IPG            |16-60 MW          |Simple Cycle (SC)       |[20-30]%                  |[30-40]%                |
|               |                  |                        |                          |(no increment)          |
|IPG            |16-60 MW          |Combined Cycle /        |[30-40]%                  |[60-70]%                |
|               |                  |Cogeneration            |                          |(no increment)          |
|O&G            |3-16 MW           |Onshore                 |[10-20]%                  |[20-30]%                |
|O&G            |3-16 MW           |Offshore                |[10-20]%                  |[40-50]%                |
|               |                  |                        |(no increment)            |(no increment)          |
|O&G            |16-60 MW          |Onshore                 |[10-20]%                  |[30-40]%                |
|O&G            |16-60 MW          |Offshore                |[10-20]%                  |[0-5]%                  |
|               |                  |                        |(no increment)            |                        |
|O&G            |30-60 MW          |Offshore                |[20-30]%                  |[0-5]%                  |
|               |                  |                        |(no increment)            |                        |

   66) As such, the plausible horizontally affected markets are the following:

a. All small gas turbine, at EEA level ([20-30]% combined market share);

b. All medium gas turbines, at both global ([20-30]%) and EEA levels ([30-40]%);

c. All turbines for all O&G application, at EEA level ([20-30]%);

d. All turbines for all IPG applications, at both global ([20-30]%) and EEA levels ([40-50]%);

e. Small gas turbines for onshore O&G application, at EEA level ([20-30]%);

f. Medium gas turbines for O&G offshore applications, at EEA level ([30-40]%);

g. Small gas turbines for all IPG application at EEA level ([20-30]%);

h. Medium gas turbine for IPG simple cycle application at global level ([20-30]%);

i. Medium gas turbines for IPG Combined Cycle/Cogeneration applications, at global level ([30-40]%).

   67) The Parties claim that, despite the fact that the proposed transaction may potentially  give  rise  to  the  above  affected  markets,  no
       competition concerns will arise. The Parties argue that they are not close competitors on any possible segment. Further  they  argue  that
       customers exert significant buyer power. Finally, the Parties claim that a number of strong competitors being able to effectively  compete
       with the merged entity will remain on the market.

   68) The Commission considers that the Parties are distant competitors. Siemens only produces IGTs while RR only  produces  ADGTs.  The  market
       investigation confirmed that ADGTs and IGTs have distinct characteristics and are often used for  different  application.  ADGTs  are  the
       preferred product for applications where low size and weight as well as a short start-up period and short maintenance times are essential.
       IGTs on the other hand often have lower NOx emissions, lower fuel requirements and lower initial capital cost. As a  result,  in  a  power
       range where both ADGTs and IGTs are available ADGTs are often more suited for a specific application than IGT, and vice versa.

   69) This point was confirmed during the market investigation. The majority of responding customers did not consider ADGTs and IGTs  comparable
       to one another. None of the respondents – except for one – considers the Parties to be close competitors in the market(s)  for  small  and
       medium sized gas turbines.

   70) Furthermore, the bidding data submitted by the Parties indicates that ADGTs and IGTs compete only to a very limited extent. Out of all the
       bids that Siemens made in the EEA in the past six years, an industrial gas turbine supplier won in more than […].% of the bids. Out of all
       the bids that Rolls-Royce submitted in the past six years in the EEA, an aero-derivative gas turbine supplier won in about  […].%  of  the
       bids. Out of the total number of more than […]. projects in the EEA in the past six years involving the supply of gas turbines the Parties
       bid against each other on only […]. occasions – of which […]. projects were won by a third party.

   71) Regarding buyer power, the Parties submit that the markets are bidding markets and purchasers of gas  turbines  having  significant  buyer
       power vis-á-vis the suppliers. They claim that (i) gas turbines, whether bought as a stand-alone product or  as  part  of  a  gas  turbine
       compressor set, are usually sourced in tender procedures; (ii) customers have technical expertise (either in-house or through  using  sub-
       contractors; and (iii) may enter into framework agreement with suppliers giving  them  the  freedom  to  "mix  and  match"  components  of
       different suppliers according to customers' preferences.

   72) The market investigation in the present case showed that gas turbines are often purchased in a tender process. Prior to a call for  tender
       the buyer specifies the technical requirements of the turbine that he plans to employ. The market investigation furthermore confirmed that
       customers – in particular in the segment of O&G application – are large multinational companies with a substantial technical knowledge  of
       the products. Bids that do not fully meet the exact technical requirements – if submitted at all –  are  not  further  considered  in  the
       bidding process. Thereby customers can ensure to choose the most competitive alternative  among  the  products  that  meet  the  technical
       requirements. Accordingly, the majority of respondents therefore consider that the threat to switch to another supplier is a credible one.
       However, the market investigation also showed, that other means to exert buyer power such as threatening to sponsor a new supplier,  delay
       payments or stop purchasing are of minor importance in the market. Against this background, the Commission considers that  customers  have
       negotiation power vis-á-vis the vender to some extent.

   73) The market investigation also showed that a number of customers have framework agreements in place with suppliers of gas  turbines.  These
       framework agreements are usually non-exclusive, allowing customers  to  purchase  turbines  from  several  suppliers  according  to  their
       preferences. They usually do not bind the customers to make purchases nor do they guarantee the  customer  a  certain  price  for  turbine
       purchases. If bids submitted by a supplier holding a  framework  agreement  are  not  competitive  a  customer  can  simply  bypass  them.
       Nevertheless, given the flexibility within framework agreements  it  seems  unlikely  that  framework  agreements  significantly  limit  a
       supplier's negotiation position vis-á-vis a customer.

   74) Moreover, the Commission considers that a number of strong competitors able to effectively compete with the merged entity will  remain  on
       the market. In the hypothetical market of small gas turbines, Solar, offering IGTs, will remain the strongest market player with  [50-60]%
       at global level and [50-60]% at EEA level. In the segment of medium sized gas turbines GE will remain the strongest  supplier  with  a  of
       approximately [50-60]% market share at both global and EEA levels, offering both IGTs and ADGTs. In addition,  Kawasaki  Heavy  Industries
       and Pratt & Whitney Power Systems/Mitsubishi Heavy Industries, with market shares either greater or comparable to  those  of  the  merging
       entities will remain active market players, maintaining or even extending their product range of gas  turbines.  The  competitors'  market
       activity is also reflected in the bidding data submitted by the parties indicating that competitors won a substantial  share  of  projects
       that were put out to tender in the past six years.

   75) Finally, the majority of the responding market participants assumes that the transaction  will  not  have  any  adverse  effect  on  their
       undertaking and on the competition in the market for small and medium sized gas turbines  and  its  individual  segments.  One  competitor
       expects that, as a result of the transaction, competition in the segment of industrial power generation applications will  increase.  Some
       customers – among them a packager of gas turbine sets – expect that the merged entity will be in a better position to compete with GE.

   76) Given the above, the Commission considers that the transaction does not give rise to serious doubts as regards its compatibility with  the
       internal market on the following markets:

a. The market for small gas turbines, irrespective of the end application;

b. The market for medium gas turbines, irrespective of the end application;

c. The market for small gas turbines used in the IPG sector;

d. The market for medium gas turbines used in the IPG sector in simple cycle applications;

e. The market for medium gas turbines used in the IPG sector in cogeneration and combined cycle applications;

f. The market for small gas turbines used in offshore O&G applications;

g. The market for small gas turbines used in onshore O&G applications;

h. The market for medium gas turbines used in offshore O&G applications;

i. The market for medium gas turbines used in onshore O&G applications;

j. The market for gas turbines with a capacity between 30 MW and 60 MW used on offshore O&G applications.

2 Compressors

   77) If a market for the supply of gas turbines gas process turbo compressors on a stand-alone basis is considered,  the  proposed  transaction
       will not generate any overlap. In fact only Siemens supplies such compressors on a stand-alone basis.

   78) As regards compressor sets, a small overlap of [5-10]% within the EEA (Siemens [5-10]% and RR [0-5]%) exists on a putative market for  the
       supply of gas turbine gas process turbo compressor sets.

   79) If compressor sets were to be segmented in line with plausible segments of the market for gas turbines (by output, by technology, by  end-
       application), the Parties submit that the Transaction would not give rise to any affected market.

   80) The Parties state that the limited increment shows that they are not each other's closest competitor and  that  competition  concerns  are
       unlikely to appear at this low level of market shares. Both Parties supply gas turbine compressor sets, but not for  similar  applications
       as Rolls-Royce supplies compressors in connection to its own ADGTs, while Siemens mostly supplies compressors on a stand-alone  basis  for
       industrial applications.

   81) Additionally, the Parties state that there will be strong remaining competitors on the market after the proposed transaction  such  as  GE
       (estimated market share [30-40]%), Solar (estimated market share [10-20]%), and  Dresser  Rand  (estimated  market  share  [10-20]%).  All
       competitors will be in a position to act as competitive forces also post-merger, particularly as neither of the Parties is  a  substantial
       player within this market. […].

   82) The market investigation showed that the proposed transaction is unlikely to  have  any  adverse  effect  on  a  hypothetical  market  for
       compressors and compressors sets due to horizontal overlaps of the activities of the Parties. The Commission  therefore  agrees  with  the
       statements of the Parties.

   83) Given the above, the Commission considers that the transaction does not give rise to serious doubts as regards its compatibility with  the
       internal market on the markets for compressors and compressor sets, nor any of their plausible sub-segments.

3 Servicing of Gas Turbines

   84) On the market for the servicing of gas turbines, the proposed transaction will not lead to  any  affected  markets,  irrespective  of  the
       market definition adopted.

   85) If the product market is defined as the market for the servicing of all gas turbines, regardless of size and  OEM,  the  post  transaction
       market share of the Parties would be of [10-20]% at global level and [20-30]% at EEA level. Moreover, the increment brought about  by  the
       proposed transaction would be minimal. At a global level RR has an estimated market share equal to [0-5]% and at an EEA level of [5-10]%.

   86) If the relevant product market is further segmented per OEM, as considered possible in previous cases, the activities of the Parties would
       not overlap as Siemens does not service RR turbines, and vice versa. This also holds true when considering the activities of Ethos Energy,
       a jointly controlled JV between Siemens and WG, and of RWG. […].

   87) The Parties claim that the proposed transaction will not have an impact on the market for the servicing of gas turbines for the  following
       reasons:

a. Siemens and RR are not close competitors. As OEMs, in fact, they do not compete at all;

b. The market for the services to gas turbines is a market where other strong competitors will remain on the market such  as  GE,  Alstom,  Solar
   and Mitsubishi Heavy Industries within the EEA;

c. Not only OEMs will constrain Siemens post transaction, but also ISPs;

d. Customers on the market are sophisticated industrial customers exerting significant buyer power.

   88) Therefore, the Commission considers that the transaction does not give rise to serious  doubts  as  regards  its  compatibility  with  the
       internal market on the market for the servicing of gas turbines, nor any of its plausible sub-segments.

4 Competitive assessment – conglomerate analysis

   89) During the market investigation, two competitors in the manufacturing of compressors and one customer in the O&G sector expressed concerns
       in relation to the market for compressor sets for offshore O&G applications. In summary, they expressed the concern that  the  acquisition
       of RR by Siemens could allow the latter to restrict access to  RR's  ADGTs  by  gas  turbo  compressors  manufacturers.  Hence  gas  turbo
       compressor manufacturers would be prevented from competing for certain projects in the offshore O&G segment.

   90) As explained in Section 4.1.1.3, in the offshore O&G segment ADGTs are typically preferred over IGTs. This is due to  their  lower  weight
       and size and lighter maintenance requirements. Up to a  certain  output  range  (c.  25-30  MW),  there  is  still  a  limited  degree  of
       substitutability between IGTs and ADGTs for offshore O&G applications. Above this power output, the  use  of  ADGTs  is  the  only  viable
       option, according to the majority of respondents.

   91) As explained in Section 4.3.1, when looking at a putative segment for 30-60  MW  gas  turbines  for  offshore  O&G  applications  more  in
       particular, there are only two suppliers having the required ADGT capabilities: GE with an estimated market share of [70-80]%  and  Rolls-
       Royce with an estimated market share of [20-30]% at global level.

   92) As explained in Section 4.1.2, end customers usually purchase gas turbo compressors sets, associating a gas turbine and a compressor.  The
       market investigation confirmed that, in order to create a gas turbo compressor set, the compressor OEMs that  do  not  have  gas  turbines
       manufacturing capabilities either (i) purchase gas turbines from gas turbine OEMs and integrate  them  with  their  own  compressors  (the
       compressor OEM "goes prime"), or (ii) sell their compressors to gas turbine OEMs that integrate these compressors with their own  turbines
       (the gas turbine OEM "goes prime"). Alternatively, the end customer purchases the two items separately and then entrusts one  of  the  two
       OEMs, usually the compressor OEM, to combine the two elements.

   93) In the segment of compressor sets for offshore O&G applications using 30-60 MW ADGT gas turbines, compressor OEMs (except for GE) have  no
       other option but to partner with the only two active turbines OEMs, GE and Rolls-Royce, for their sales of compressors.

   94) In this context, certain market participants expressed concerns that the Parties, post-transaction, may use  their  market  power  in  the
       supply of 30-60 MW gas turbines for offshore O&G applications to foreclose competitors in the market for compressor sets for offshore  O&G
       applications using 30-60 MW gas turbines. The scenario described by these market participants is one of tying, with gas turbines being the
       tying good and compressors being the tied good: the Parties would only supply their gas turbines at the condition that the  customer  also
       purchases the compressor from the Parties. However, the below analysis of the Parties' ability and incentive to foreclose applies  equally
       to potential tying and bundling strategies.

   95) With regard to the Parties' ability to foreclose, it cannot be excluded that the Parties could have a significant degree of  market  power
       on a putative market for 30-60 MW gas turbines for offshore O&G applications. The Commission notes that the existence  of  another  player
       with plausibly higher market power does not per se exclude the possibility for the Parties to have a significant degree of market power as
       well.

   96) However, the market investigation has shown that there is a sufficient degree of buyer  power  that  would  significantly  constraint  the
       Parties' ability to foreclose. O&G customers want to be able to "mix and match" the gas turbine of their choice  with  the  compressor  of
       their choice, in order to have a compressor set that meets the exact technical and performance requirements of their  project.  Crucially,
       O&G customers tend, for offshore O&G projects, to perceive compressors as the most customised component of the package, with gas  turbines
       being seen as a more standardised product. It can be noted that compressor OEMs are typically chosen as integrator and  interface  by  O&G
       customers, rather than gas turbine OEMs.

   97) Against this background, O&G customers contacted during the market investigation  have  considered  that  the  strategy  to  "impose"  the
       purchase of a certain compressor as a condition for the supply of a gas turbine would only work if such compressor  happens  to  meet  the
       exact technical and performance requirements of the project, but would otherwise be "unrealistic". In the past, gas turbine and compressor
       OEMs working on an exclusive basis (i.e. associating a specific turbine with a specific compressor when responding to bids) have, at least
       in certain occasions, been forced to leave their exclusivity arrangements and associate their gas turbine with a third party's  compressor
       (or their compressor with a third party's gas turbine).

   98) Contacts with market participants also confirmed that Siemens is not generally perceived as  a  strong  competitor  with  respect  to  the
       manufacture of compressors for offshore O&G applications. All the market participants contacted, in fact, perceive  Siemens  as  a  second
       tier competitor and regard it as inferior to other competitors such as GE and Dresser Rand. Although  the  market  investigation  has  not
       allowed to gather the exact market shares for compressor sets for offshore O&G applications, all respondents have estimated Siemens  share
       below or significantly below 10%, while GE was estimated in the 30-40% range and Dresser Rand in the 20-30% range.

   99) Market participants explained that Siemens is not a strong competitor because it lacks the technology to cover the full range of  products
       typically required by end customers, such as higher pressure compressors. Moreover, in the course of the market investigation  it  emerged
       that O&G customers are generally very conservative and, given the complexity of the compression equipment, they tend to  prefer  suppliers
       with a proven track record and reliability. Since Siemens currently lacks a sufficient track record in the field  of  compressors,  market
       participants consider that it currently does not effectively compete with stronger players such  as  GE  and  Dresser  Rand.  Even  though
       Siemens is currently participating in calls for tender issued by O&G customers, market participants expect that it will require more  than
       three years to build the reputation and track record required to be perceived as an effective competitor of the more established player on
       the market.

  100) Finally, from contacts with other market participants it emerged that a new supplier on the medium 30-60 MW ADGT is expected within  three
       years. That new supplier is expected to meet the offshore O&G standards. Therefore manufacturers of compressors will have the  possibility
       to resort to a further manufacturer of ADGTs thus lessening Siemens ability to foreclose.

  101) In view of the above, the Commission considers that the Parties are unlikely to have the ability to enter into  a  successful  foreclosure
       strategy with regard to compressor sets for offshore O&G applications.

  102) The Commission considers that is not necessary to conclude as to the Parties' incentive to foreclose, in view of  the  doubts  as  to  the
       Parties' ability to do so. However, in any event the Parties do not seem to have an incentive to enter into a foreclosure strategy as  the
       potential profit gain by selling an additional compressor is low compared to the potential loss by losing the sale of a gas  turbine.  The
       investigation indicated that the gas turbine typically accounts for [70-80]% of the total cost  of  a  compressor  set  for  offshore  O&G
       applications, with the compressor representing [30-40]%. In addition, information provided by the Parties indicates EBIT margins of around
       [10-20]% for gas turbines (when including associated servicing revenues) and of around [0-5]-[5-10]% for compressors.

  103) The Commission also considers that is not necessary to conclude as to the effect on competition of a potential foreclosure strategy, as in
       any event the Parties do not have the ability and are unlikely to have the incentive to foreclose.

       CONCLUSION

  104) 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.

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 213, 08.07.2014, p. 9-10.
[3]   Turnover calculated in accordance with Article 5 of the Merger Regulation.

[4]   COMP/M.2220 General Electric/Honeywell (2001) paras 463-465.
[5]   COMP/M.1484 Alstom/ABB (1999).
[6]   Questionnaire 1 for Customers, question 18.
[7]   Questionnaire 1 for Customers, questions 16 and 17.
[8]   Questionnaire 2 for Competitors, questions 12 and 13.
[9]   Questionnaire 1 for Customers, question 19, Questionnaire 2 for Competitors, question 14.
[10]  Questionnaire 1 for Customers, question 20.
[11]  Questionnaire 1 for Customers, question 20.
[12]  Questionnaire 1 for Customers, questions 21 and 22, Questionnaire 2 for Competitors, questions 16 and 17.
[13]  Questionnaire 1 for Customers, questions 21 and 22.
[14]  COMP/M.3148 Siemens /Alstom (2003), COMP/M.3113 GE/Jenbacker (2003), M.2220 General Electric/ Honeywell (2001), M.1623 Allied  Signal/  MTU
(1999).
[15]  Questionnaire 1 for Customers, question 6, Questionnaire 2 for Competitors, question 6.
[16]  Questionnaire 1 for Customers, question 7.
[17]  Questionnaire 1 for Customers, question 8.
[18]  Questionnaire 1 for Customers, question 9.
[19]  Questionnaire 1 for Customers, question 10.
[20]  Questionnaire 1 for Customers, question 10.1 (Shell), Questionnaire 2 for Competitors, questions 7.1.1 and 7.2.1 (Caterpillar).
[21]  Questionnaire 1 for Customers, question 11, particularly Shell, Toshiba and Total.
[22]  Questionnaire 1 for Customers, questions 12.1, 12.2, and 12.3, Questionnaire 2 for Competitors, questions 7.1, 7.2 and 7.3.
[23]  Questionnaire 1 for Customers, questions 12.1, 12.2 and 12.3.
[24]  Questionnaire 1 for Customers, questions 12.1,  12.2  and  12.3,  particularly  Centrax  Ltd,  ExxonMobil,  RWE  AG,  Shell,   Toshiba  and
Vattenfall.
[25]  Questionnaire 1 for Customers, questions 13 and 14.
[26]  Questionnaire 2 for Competitors, questions 9, 10 and 11.
[27]        Questionnaire 1 for Customers, questions 24 and 25, Questionnaire 2 for Competitors, questions 24 and 25.
[28]  Questionnaire 1 for Customers, question 24.
[29]  Questionnaire 1 for Customers, question 25, Questionnaire 2 for Competitors, question 23.
[30]  Questionnaire 1 for Customers, question 26, Questionnaire 2 for Competitors, question 24.
[31]  Questionnaire 1 for Customers, question 26.
[32]  Questionnaire 1 for Customers, question 27, Questionnaire 2 for Competitors, question 25.
[33]  Questionnaire 1 for Customers, question 27.
[34]  Questionnaire 2 for Competitors, questions 26 and 27.
[35]  COMP/M.6222 GE Energy/Converteam (2011), COMP/M.2834 Alchemy/Compare (2002), IV/M.1775 Ingersoll Rand/Dresser Rand/Ingersoll  Dresser  Pump
(1999), IV/M.479 Ingersoll Rand/MAN (1994).
[36] COMP/M.3084 - SIEMENS / SEQUA / JV, paras 12-15.
[37] COMP/IV/M.1224 - TPM / WOOD GROUP, paras 7-8.
[38]  COMP/M.7083 - JOHN WOOD GROUP/ SIEMENS/ JV.
[39]  COMP/M.6222 GE Energy/Converteam (2011), COMP/M.2834 Alchemy/Compare (2002), IV/M.1775 Ingersoll Rand/Dresser Rand/Ingersoll  Dresser  Pump
(1999), IV/M.479 Ingersoll Rand/MAN (1994).
[40]  COMP/M.7083 John Wood Group/Siemens/JV (2014).
[41]        All market shares used in this note are the average of the past 5 years.

-----------------------
 In the published version of this decision, some information 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.

                                                                  PUBLIC VERSION

                                                                 MERGER PROCEDURE