CELEX: 31996M0744
Language: en
Date: 1996-05-21 00:00:00
Title: Commission Decision of 21/05/1996 declaring a concentration to be compatible with the common market (Case No IV/M.744 - Thomson / Daimler-Benz) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31996M0744

Commission Decision of 21/05/1996 declaring a concentration to be compatible with the common market (Case No IV/M.744 - Thomson / Daimler-Benz) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 179 , 22/06/1996 P. 0003

  COMMISSION DECISION of 21/05/1996 declaring a concentration  to be compatible with the common market (Case No IV/M.744 -  Thomson / Daimler-Benz) according to Council Regulation  (EEC) No 4064/89   (Only the English text is authentic).  The paper version of the decision is available through the  sales offices of the Office of Official Publications of the  European Communities.  PUBLIC VERSION  MERGER PROCEDURE  ARTICLE 6(1)(b) DECISION  Registered letter with advice of delivery  To the notifying parties  Dear Sirs,  Subject :<ind> Case No IV/M.744  THOMSON / DAIMLERBENZ  <ind> <ind> <ind> Notification of 12.04.1996 pursuant to  Article 4 of (EEC) Council Regulation No 4064/89  1.<ind> The above mentioned notification concerns the  proposed acquisition by ThomsonCSF Semiconducteurs  Specifiques SA, Paris ("TCSS"), of 50%, by DaimlerBenz  Aerospace AG, Munich ("DASA"), of 30% and by TEMIC  TELEFUNKEN microelectronic GmbH, Heilbronn ("TEMIC"), of 20%  of the sharecapital of a newly created company, ATDM Holding  SAS, Orsay ("ATDM Holding"), into which the parent companies  will merge their worldwide business activities in the field  of Gallium Arsenide based microwave components.  2.<ind> After the examination of the notification, the  Commission has concluded that the notified operation falls  within the scope of application 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.<tab> THE PARTIES  3.<ind> TCSS is a majority owned subsidiary of ThomsonCSF  SA, Paris ("TCSF"), which is a majority owned subsidiary of  Thomson S.A. ("Thomson"). Thomson is a holding company,  majority owned by the French state, mainly being active in  the fields of consumer electronic products and electronics  for industrial applications and defence systems. The Thomson  group of companies has a total worldwide turnover (1995) of  ECU 11.015 billion, ECU 3.524 billion of which was generated  within the Community.  4.<ind> DASA is a (indirect) subsidiary of DaimlerBenz AG,  Stuttgart ("DaimlerBenz"), mainly being active in the field  of aerospace and defence technology. TEMIC is a joint  venture of AEG Aktiengesellschaft, Frankfurt/M. ("AEG"), and  of DASA, being active in the development and manufacture of  electronic components for the automotive industry and for  the electronic industry. The DaimlerBenz group of companies  has a total worldwide turnover (1994) of ECU 54.078 billion,  ECU 31.961 billion of which was generated within the  Community. Turnover figures for 1995 were not available at  the date of notification.  II.<tab> THE OPERATION  5.<ind> The operation consists of two steps: First, Thomson,  through its subsidiary TCSS, and DaimlerBenz, through its  subsidiaries DASA and TEMIC, will acquire each 50% of the  sharecapital of the newly created venture ATDM Holding. In a  second step ATDM Holding will acquire two operating  companies, one located in Orsay/France named ADTM SAS, to  which Thomson shall transfer its Gallium Arsenide  activities, and the other named ATDM GmbH located in  Ulm/Germany to which DaimlerBenz shall contribute its  Gallium Arsenide activities.  6.<ind> The business to be transferred consists mainly of  development contracts for specific processes and products,  foundry fabrication of application specific circuits and  devices and the small to medium scale production and supply  of GA based devices and circuits.  The global turnover of  the contributed activities to the joint venture amounted in  1995 to ECU 26.4 million. In 1996 the turnover of the joint  venture is expected to be around ECU 18.5 million.  III.<tab> CONCENTRATIVE JOINT VENTURE  <tab> Joint control  7.<ind> The Supervisory Board of ATDM Holding will consist  of six members, three of whom will be appointed by TCSS, two  by DASA and one by TEMIC. The Chairman, who will not have  any casting vote, will be chosen by the parties among the  members of the Supervisory Board. The Supervisory Board will  have the full power to direct and supervise the management  of the joint venture. The Management Board of ATDM Holding  will be in charge of ATDM SAS and ATDM GmbH operations. All  decisions of the Supervisory Board will be reached by  unanimous vote, including decisions concerning the  appointment and removal of all members of the Management  Board, approval of the business plans and budgets as well as  decisions on all other substantial business issues such as  development of new product lines, investment decisions  involving amounts in excess of [Deletedbusiness secret] and  matters that are out of the ordinary course of business or  in the ordinary course of business but involving amounts in  excess of [Deleted business secret].  8.<ind> In case of disagreement on substantial matters, a  deadlock procedure is provided in which put and call options  are granted to either party. If no mutually acceptable  solution is agreed upon within a certain time limit either  of the parties will have the right to notify the other that  it wishes to terminate the joint venture and unless both  parties agree to dissolve the joint venture an auction  procedure takes place. In the end of that auction procedure  it is provided that one of the parent companies acquires the  all shares in the joint venture of the other party.  9.<ind> Having regard to the provisions in the joint venture  agreement, the Commission has concluded that ADTM Holding  will be jointly controlled by its parent companies.  <tab> Autonomous full function entity on a lasting basis  10.<ind> The joint venture will be active in all phases from  design, research and development, production, marketing and  sales and will be established on an indefinite basis. It  will have its own independent organisation with regard to  marketing and sales of its products. The joint venture will  also perform all research and development activities in the  field of Gallium Arsenide and it will fully replace its  parent companies in tender procedures for R&D contracts  awarded by public organizations in the same field. In  addition, the joint venture may, on a case by case basis,  place some research and development projects at the research  centres of the parent companies at normal commercial  conditions.  11.<ind> The respective activities which remain with the  parent companies only concern basic research that is not  specifically related to Gallium Arsenide technology or that  is related to materials not covered by the joint venture.  They are needed to demonstrate the feasibility of new  semiconductor technologies and do not in any case include  modifications to devices structures used by the joint  venture nor complete process development, qualification and  production of prototypes. None of these activities are  necessary for the near and midterm activities of the joint  venture. As this research is long term research, no impact  on the joint venture's GA business is expected before 5  years or more. Moreover, according to the JV Agreement, all  new GAspecific intellectual property rights resulting from  such basic research activities will be offered for license  to the joint venture on a royaltyfree, nonexclusive basis.  12.<ind> Sales to companies of the same group currently  account for more than two thirds of both parties product  sales. However, the parties intend to broaden the joint  venture's customer base in the future. They expect sales to  third parties will increase during the next five years from  18% to 76% of product sales. Taking into account that the GA  technology is an immature technology which is about to be  developed and that its importance within the overall  semiconductor field is likely to increase in the years to  come, the period of five years can be regarded as reasonable  for the joint venture to achieve significant sales to third  parties.     <tab> Absence of coordination of competitive behaviour  13.<ind> DaimlerBenz will transfer to the joint venture its  activities related to the threeinch Gallium Arsenide  production line that are carried out at the DaimlerBenz  Research Centre in Ulm. TCSS will transfer to the joint  venture its activities related to the fourinch Gallium  Arsenide production line (for the product description see  paragraph 17ff). In addition, TCSS's threeinch technologies  and processes will be licensed to the joint venture on a  royaltyfree, nonexclusive basis for a 10 year term, with an  automatic renewal for subsequent 10 year periods unless  terminated by either party.  14.<ind> TCSS will retain its threeinch production line for  a period of twelve months and the joint venture will  subcontract the manufacture of threeinch line wafers to  TCSS. This ongoing production of TCSS in the startup phase  of the joint venture is necessary, because some of TCSS's  processes are not yet available in the DaimlerBenz threeinch  production line. Such subcontracting will therefore enable  the joint venture to perform all existing contracts awarded  to TCSS until the transfer of these TCCS's technologies to  the joint venture is completed. After this period TCSS will  phase out its threeinch production line and the joint  venture will have the complete capability to meet the  customer'sneeds.   15.<ind> By transferring to the joint venture all their  assets in the field of Gallium Arsenide, the parent  companies will completely withdraw from the market assigned  to it. Therefore, the fact that they will retain their basic  research activities does not raise any risk of coordination  of their competitive behaviour.  <tab> Conclusion  16.<ind> With the contribution to the joint venture by  Thomson and DaimlerBenz of all their assets related to  design, development, manufacture and sale in the field of GA  based microwave components with the exception of some basic  research activities the ADTM Holding will have the means to  perform on a lasting basis all the functions of an  autonomous economic entity. Hence, as the parent companies  will not be active in the market of the joint venture, it is  unlikely that the concentration will lead to a coordination  of the competitive behaviour of the parent companies.  IV.<tab> COMMUNITY DIMENSION  17.<ind> The combined aggregate worldwide turnover of  Thomson and DaimlerBenz group of companies exceeds ECU 5,000  million. Each of the undertakings 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 according to  Article 1(2) of the Merger Regulation.  V.<tab> COMPATIBILITY WITH THE COMMON MARKET  <tab> Relevant product market   <ind> GA based microwave components  18.<ind> The proposed operation affects the overall market  for the manufacture and sale of Gallium Arsenide ("GA")  based microwave components. GA is a compound of the metallic  element Gallium and of the nonmetallic element Arsenic  serving as a semiconductor material for the manufacture of  integrated electronic circuits which are attached to wafers.  GA based semiconductor components are manufactured in  several consecutive sequences of process steps. First,  semiconductor devices (also called chips) will be "printed"  through a certain number of operations on a disc shaped GA  wafer which is of three or four inch diameter. After  processing on the wafers, the chips are separated and are  attached on a ceramic or plastic substrate.  19.<ind> There are two distinct market segments within GA.  First, Digital GAs which normally have high packing  densities, each chip may have up to 10,000 or even 500,000  transistors. The transistor design is adapted to digital  operation. Second, Analog GAs (monolithic microwave  integrated circuits and discrete integrated circuits) which  normally have low packaging densities and usually the number  of components on the individual chip is limited to 10 up to  100 transistors. The transistor design is different from the  Digital one, as it must operate in the analog domain.     20.<ind> GA is primarily used for the manufacture of  monolithic microwave integrated circuits (MMIC) and discrete  components. GA based microwave components have specific  electronic characteristics that are required for  applications operating at very high frequency from 1 to 100  GHz. Such components especially are used for military and  aerospace technology (radar sensors, satellite receivers,  navigation), mobil and wireless communications (cellular  telephone, base stations, mobile broadband systems, radio  links), traffic and automotive applications (collision  avoidance systems, cruise control radars) and consumer  electronics (cable TV tuner, video, computer workstations).  21.<ind> Compared to the well known Silicon based components  the GA based components are used for high frequency  applications. GA based components can be used in high  frequency applications due to GA's higher mobility.  Furthermore, GA based components are available in a highly  insulating form which is required for the fabrication of  transmission lines on GA substrates which are necessary for  high frequency applications. The frequency that is covered  by GA's ranges from 1 to 100 GHz whereas Silicon based  components predominantly operate with frequencies ranging  from 1 MHz to 1 GHz. The production line of GA based  components and that of Silicon based components is different  because first, GA wafers are normally smaller than Silicon  wafers; second, GA is much more brittle than Silicon; third,  GA wafers are much heavier than Silicon wafers and finally  the metals used in GA based components cause degradation in  Silicon based components so that after a short period of  operation they cease tofunction. Because both kinds of  components are aimed at different applications and are not  generally interchangeable it can be concluded that they  belong to distinct markets.  <ind> R&D activities relating to GA  22.<ind> In addition, the joint venture will perform  research and development activities consisting in own  research, studies and development works for public and  industrial customers in the field of technology development  (wafer fabrication process, assembly process) as well as in  the field of product development (definition and design,  test and validation). A large share of these activities are  financed by public administrations and agencies of each  Member State through specific military and civil national  programs. Since GA technology is still immature, the  turnover generated by R&D activities is particularly high in  comparison with that coming from product sales. In fact the  turnover generated from such activities and services will,  at startup, largely exceed the turnover from sales of GA  based components. However, according to the estimates  provided by the parties, the research and development  activities of the new joint venture are expected to fall to  17% of its total turnover within the next five years.  23.<ind> No reliable estimates are available on the  relevance of GA development activities within the overall  field of R&D contracts. However, it is significant that,  notwithstanding the relatively high proportion of its  turnover generated at present by R&D activities, the joint  venture will be a small player in the market for GA  components in comparison with other strong competitors (see  assessment below). Therefore, given the significant links  between R&D and production activities in this field, the  joint venture is likely to face a number of other companies  at least as advanced in GA research and technology. Thus,  even if GA related research activities were considered to  constitute a distinct activity, the proposed concentration  would be unlikely to give rise to any serious competitive  concerns in this respect. The Commission has therefore  concentrated its assessment on the product market of GA  based components.  <tab> Relevant geographic market  24.<ind> Because of relatively low transportation costs and  the lack both of structural barriers to market entry and of  import tariffs GA based semiconductors are distributed  worldwide. Hence, the geographical scope of the market for  the manufacture and sale of these products is considered to  be at least Europeanwide.  <tab> Assessment  25.<ind> According to the parties the worldwide market for  the manufacture and sale of GA based microwave components in  1994 had a value of about ECU 628.9 million, of which about  ECU 129.3 million were generated within the Community. In  Europe, most of the components were used for applications in  the field of mobile communication (about ECU 60.8 million),  followed by military and aerospace technology (about ECU  27.5 million), consumer electronics (about ECU 13.7 million)  and traffic or automotive applications (about 3.0 million).  26.<ind> According to the parties the GA based microwave  components represents less than 1% of the semiconductor  production by values. The annual average of GA market growth  is expected at 19% in the 199598 period. The parties  estimate that the demand trend for the overall GA market  within the EEA will rise from about ECU 147 million in 1996  to about ECU 274 in the year 2000. At the same time they  expect that the overall Silicon market within the EEA will  rise from about ECU 25,8 billion in 1996 to about ECU 47,1  billion in the year 2000.    27.<ind> In 1994 DaimlerBenz generated a total turnover in  the field of GA based microwave components of [Deleted  business secret], most of it achieved through research and  development activities and [Deleted business secret]  generated through the sale of GA components in the market.  Thomson generated a total turnover of [Deleted business  secret], most of it achieved through research and  development activities and [Deleted business secret]  generated through the sale of GA components in the market.  28.<ind> In the Communitywide market for the manufacture and  sale of GA based microwave components the parties reach a  combined market share of about [<5%] [Business secret  replaced by range]. Moreover, even looking at narrower  segments as those of traffic and automotive applications,  military and aerospace applications and applications in  mobile communication, the parties' shares are generally  quite lowand never above 25%.  29.<ind> Besides the parties there are five other suppliers  based in Europe: Siemens, Philips Microwave Limeil,  GECMarconiMaterial Technologies, AlcatelTelettra and Alenia.  Among the Europebased companies Siemens is the leading  supplier, having a market share of about [<10%] in the  overall market for GA based microwave components and of  about [<10%] in the segment for military and aerospace  applications and of about [<10%] in the segment for mobil  communication. Philips and GEC at present have only minor  market shares of [<5% or <5%] respectively. Alcatel Telettra  and Alenia currently produce predominantly for their  internal need.  30.<ind> On a Communitywide basis the concentration is  unlikely to raise serious competition concerns as even after  the merger there will be several suppliers and market shares  will be relatively widely spread. In addition, the European  suppliers face strong competition from companies based in  USA and Japan. Imports into the Community reach a total of  ECU 106.2 million representing about 82.1% of the overall  market value. The largest nonEuropean suppliers are the big  industrial groups Texas Instruments, TRW, Rockwell, FUJITSU  and Toshiba as well as the small and mediumsized companies  ANADIGICS, VITESSE and MACOM. Motorola is a large producer  of GA based microwave components predominantly for internal  need.  31.<ind> Because the market share of the combined  undertakings will remain relatively limited and there will  be several suppliers of more or less the same size as well  as sizeable imports into the Community, the proposed  concentration is not likely to impede effective competition  within the different markets for the manufacture and sale of  GA based microwave components.  VI.<tab> ANCILLARY RESTRAINTS  32.<ind> The notifying parties have requested that the  clauses and agreements described below be considered as  ancillary to the concentration.  33.<ind> The parties to the concentration have agreed not to  compete with the joint venture in the field of GA based  microwave components. This restriction expresses the reality  of the lasting withdrawal of the parent companies from the  markets assigned to the joint venture. This clause may be  considered as directly related and necessary to the  implementation of the concentration, in order to protect the  value of the assets transferred.  VII.<tab> CONCLUSION  34.<ind> It follows from the above that the proposed  concentration would not create or strengthen a dominant  position as a result of which competition would be  significantly impeded in the common market or in a  substantial part of it.  <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 (EEC)  No 4064/89.  <tab> For the Commission