CELEX: 31994M0458
Language: en
Date: 1994-06-21 00:00:00
Title: COMMISSION DECISION of 21.06.1994 declaring a concentration to be compatible with the common market (Case No IV/M.458 - ELECTROLUX / AEG) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31994M0458

COMMISSION DECISION of 21.06.1994 declaring a concentration to be compatible with the common market (Case No IV/M.458 - ELECTROLUX / AEG) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 187 , 09/07/1994 P. 0000

 COMMISSION DECISION of 21.06.1994 declaring a concentration to be compatible with the common market  (Case No IV/M.458 - ELECTROLUX / 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 Registered with advice of delivery To the notifying party Dear Sirs, Subject : <ind> Case No IV/M.458 - Electrolux/AEG  <ind>  <ind> Notification of 17.5.1994 pursuant to Article 4 of Council Regulation No 4064/89  1. <ind> On 17 May 1994 AB Electrolux (Electrolux) notified its proposed acquisition of 80% of the share  capital of AEG Hausgeraete AG (AHG) pursuant to an agreement made on 5 May 1994. Electrolux already owns  20% of the share capital of AHG and thus now acquires sole control.   <ind> After examination of the notification the Commission has concluded that the proposed operation falls  within the scope of Council Regulation No 4064/89 and does not give rise to serious doubts as to its  compatibility with the common market and the EEA agreement.   <ind> I. The parties  2. <ind> Electrolux, incorporated in Sweden, is party of the Wallenberg Group. It manufactures and supplies  domestic appliances, floor-care products, food-service equipment, industrial laundry equipment and other  goods.   <ind> AHG is incorporated in Germany. It manufactures and supplies domestic appliances and other goods. Its  ultimate parent is Daimler Benz AG.  3. <ind> By an agreement made in 1992 Electrolux purchased 10% of the share capital in AHG and acquired an  option to purchase a further 10%. It exercised that option on 1 January 1994. The agreement also contained  provisions for the cross-supply of top-loaded washing machines, dryers and dishwashers, for trade mark  licensing and for limited joint management. The agreement was notified under Council Regulation No 17/62 to  the Commission on 21 September 1992. By a notice dated 5 June 1993 the Commission indicated that it  intended to take a favourable position with respect to the agreement. The Commission has not yet reached a  conclusion concerning the agreement.   <ind> II. The operation  4. <ind> The proposed operation consists in the acquisition by Electrolux of the remaining 80% of the share  capital in AHG which it does not currently own.   <ind> III. Community/EEA dimension  5. <ind> The aggregate world-wide and Community-wide turnover of both Electrolux and AHG exceeds 5.000  million Ecus. Each party has an aggregate Community-wide turnover exceeding 250 million Ecus. Although   AHG achieves [Deleted business secret.] of its aggregate Community-wide turnover in Germany, Electrolux does  not achieve more than two-thirds of its Community-wide turnover in a single Member State. The operation thus  has a Community dimension.  6. <ind> Given the increase in the already high market shares in the Scandinavian countries, in particular  Sweden, it was necessary to investigate whether the operation was liable to create or strenghten a dominant  position as a result of which effective competition would be significantly impeded in the territories of the EFTA  States or a substantial part thereof. For this reason, it was therefore considered that the proposed concentration  was a cooperation case under the EEA Agreement.   <ind> IV. Compatibility with the common market and the EEA Agreement   <ind> A. Relevant product market   <ind> Major domestic appliances  7. <ind> According to the parties major domestic appliances comprise the following product groups, each group  constituting a separate product market: (i) refrigerators; (ii) freezers; (iii) washing machines; (iv) dryers; (v)  dishwashers; (vi) cooking appliances; (vii) microwaves. Since hoods are often sold with cookers the parties  consider hoods as belonging to the same product market as cooking appliances. However, because of  functionality it seems as if hoods constitute a separate product market.  8. <ind> In each product group there exist a number of different product models that are generally marketed at  different price points. The various models combine common elements with different functional and aesthetic  variations  to create different performance and appearance specifications. In addition, the domestic appliances  are produced in several different sizes. Furthermore, some of the major domestic appliances are produced both as  free-standing appliances and as products designed for built-in use. According to Electrolux, there is no  functional or technical difference between free-standing and built-in appliances,  9. <ind> The parties regard all models/sizes in each product group of major domestic appliances as part of the  same product market since their intended end uses are the same, and since the core technology and components  used in the manufacture of these different models are largely identical. In this connection the parties argue that  the high degree of supply-side substitutability has to be taken into consideration. According to the parties all  major manufacturers produce a full range of models and the flexibility of manufacturing lines used to produce  domestic appliances allows products that are differentiated both technically and aesthetically to be manufactured  on the same line.  10. <ind> According to the parties, consumers do not have strong brand attachments to major domestic  appliances and the ratio of advertising expenditure to sales is relatively low. This is due largely to the  infrequency with which most households purchase major domestic appliances as well as the lack of product  differentiation.  11. <ind> Although the major domestic appliances in each product group are produced and purchased to fulfil  the same specific function (for example dishwashing), in several of the product groups a further distinction could  be made between models because of the different characteristics and end uses of the products. However, this  distinction is not necessary since all the main producers of major domestic appliances produce and sell a full  range of models; accordingly, producers can switch existing capacity from the production of one model  specification to another, so that there are a  high degree of supply side substitutability.   <ind> Vacuum cleaners  12. <ind> According to the parties, there are four principal models of domestic vacuum cleaners used for  cleaning floors, carpets and furniture: (i) canisters (i.e. traditional cylindrical appliances); (ii) hand sticks (i.e.  cleaners with the motor and dust bag on a stick); (ii) uprights (i.e. appliances with the dust bag in an upright  position but the motor at the bottom part); (iv) barrels (i.e. spherical shaped cleaners). In the light of their  common functions all these models can be regarded as part of the same product market.   <ind> Small domestic appliances  13. <ind> Since the transaction does not give rise to any overlap in small domestic appliances (the only small  appliances produced and sold by Electrolux are kitchen machines for bread, that do not compete with any of  AHG's products) the question of relevant product market can be left open.   <ind> Water heaters   14. <ind> Water heaters are powered by gas or electricity and operate as either instant or storage heaters.  According to the parties, since these products fulfil the same function and are perceived as interchangeable by  the consumers, they are considered part of the same product market. Since even on the narrowest market  definition the concentration will not give raise to competition problems the question of the relevant product  market can be left open.  15. <ind> In conclusion, the relevant product markets are considered to be : (i) refrigerators; (ii) freezers; (iii)  washing machines; (iv) dryers; (v) dishwashers; (vi) cooking appliances  (vii) hoods; (viii) microwaves; (ix)  vacuum cleaners and (x) water heaters.  <ind>   <ind> B. Geographic market   <ind> Major domestic appliances and vacuum cleaners  16. <ind> The parties consider the markets for major domestic appliances and vacuum cleaners as at least  Western Europe. There are no legal barriers to trade; as to technical harmonization, the EU legislation on  electrical equipment is applicable in the EFTA countries which have signed the EEA Agreement. These  countries have abandoned or are abandoning mandatory registration and certification. The EFTA countries are  members of CENELEC, so they also must transpose European standards. There are still some deviations to  standards known as special national conditions. However, the remainder of these regulations are supposed to be  eliminated within two to three years. According to the parties transport costs are low (between most Western  European countries approximately [Deleted business secret.] of sales ex factory). In addition the technology for  the production of domestic appliances is well known.  17. <ind> Large European manufacturers tend to have pockets of strength in their respective "home" territories.  That is also true of Electrolux in Scandinavia, in particular in Sweden. Such a pattern might be evidence of the  existence of separate geographic markets. However, the integration of EU and EFTA States and the resulting  removal of barriers to trade means that markets are no longer national in scope.  18. <ind> It appears that the main Western European producers of major domestic appliances and vacuum  cleaners transport and market their products on a Western European scale. In addition, information provided by  the retailers shows that they are able to buy the products from the most competitive supplier. Major domestic  appliances are suited to large-volume assembly-line manufacture and production plants are increasing in size to  take advantage of significant economies of scale. Almost all the principal firms source domestic appliances sold  throughout Western Europe from large manufacturing centres. Italy and Germany are the major European  production centres for domestic appliances, and products are shipped from Italy and Germany to every EEA  State in large quantities. Furthermore, there is a high degree of cross-border trade between Italy and Germany.  19. <ind> According to the parties, products sold across Western Europe are becoming less and less  differentiated and more "look a like". This applies especially to microwave ovens, dishwashers, washing  machines and vacuum cleaners. Nevertheless, certain regional preferences still exist, in particular in regard to  free-standing cookers because of certain regional cooking habits and preferences. There is considerably greater  product commonality across Europe in regard to other forms of cooking appliances (i.e. built-in ovens and hobs),  and sales of built-in cooking appliances have in the last 10 years increased from approximately 30% of all  cooking appliances sold to approximately 45%.  20. <ind> Information provided by the parties and by the main competitors seems to confirm that the lack of  barriers to entry, the centralization of production in large European centres and the increasing product  commonality across Europe prevent the producers from using different price strategies in different EU/EFTA  States.  21. <ind> In conclusion, information provided by the parties, the main competitors and the customers indicates,  that the markets for major domestic appliances and vacuum cleaners are Western European in scope.   <ind> Water heaters  22. <ind> AEG does not sell water heaters outside Germany and, according to the parties, sales of water heaters  tend to be national in scope because they have to meet different technical specifications. However, given the  transaction's limited effect on these appliances the question of geographic market definition can be left open.   <ind> C. Assessment of the operation  23. <ind> Since the parties have provided comprehensive market share data expressed only in terms of volume  the following figures for 1993 are based on volume. According to Electrolux, the company has been unable to  provide complete shares of sales data by value because independent value-based data are not available for certain  countries. Further information given by the parties indicates that volume-based figures do not differ significantly  from value-based figures.  24. <ind> After the acquisition, Electrolux's shares within Western Europe will be between 20% and 24% in  each of the product markets, except for hoods and microwave ovens where Electrolux's market shares will not  exceed 10%. (AEG adds to Electrolux's pre-merger market shares in each of the product markets - but not hoods  and microwave ovens - approximately [Less than 10%.]). Except for dishwashers, Electrolux will be the leader  on all markets followed by two competitors, each with more than 9% of the markets, the larger with market  shares from approximately 11% to 15%. As to dishwashers, the leader - Bosch-Siemens -  has more than 25% of  the European market.  25. <ind> In common with their competitors, Electrolux and AEG sell certain quantities of products to  competitors and private label producers. These sales do not figure in Electrolux's and AEG's market shares as  discussed abowe but have been attributed to the company under whose brand they are sold. These sales constitute  a relatively small proportion of Electrolux's and AEG's total sales on the Western European market.   26. <ind> As a Swedish producer Electrolux has a particularly strong position in the Nordic countries, especially  in Sweden, and that position will be strengthened by the acquisition, even though the market share of AEG is  small. This applies especially to  refrigerators, freezers and cooking appliances, which are among the least  "Europeanized" products, where the combined market shares in Sweden will exceed  [More than 60%.].  However, it appears that the process of European integration and the integration of EFTA States into the EU  with greater product communality  has already reduced and will continue to weaken the position of producers in  their home markets over the next few years. In this connection it can be noted that the trend in Electrolux's  position in Sweden has shown a gradual reduction in their market shares. Furthermore, the competitors expect  that Electrolux will lose some of its AEG customers to other producers.  27. <ind> Because the markets for major domestic appliances and vacuum cleaners are Western European in  scope, high local market shares do not necessarily translate into market power. There are many European  producers of domestic appliances, including large and financially strong companies, and the importance of large  distribution or buying groups that operate across Western Europe is increasing.  28. <ind> There are now approximately 100 - 150 manufacturers covering the total range of major domestic  appliances in Western Europe (in 1970 approximately 700). Growth by acquisitions is a well established strategy  and normally the acquirer continues to market under the acquired brands. For example, Electrolux markets its  products in Sweden under the brands of Electrolux, Electro Helios, Husqvarna, Volta and Zanussi. Furthermore,  there are many private label producers; the sale of private labels accounts for approximately between 8,5% and  12%  (% of total sale) (dishwashers and cooking appliances only  4-5%).    29. <ind> Electrolux, AEG, Bosch-Siemens (BS) and Whirlpool (WH) are active in most Western European  countries on all the product markets. These four companies together account for approximately 45% of total  Western Europe sales of major domestic appliances.  30. <ind> Other companies, for example EL.FI Elettrofinanziaria S.P.A. (ELFI), Merloni and Miele, are present  in several countries. In addition, there are large companies with activities in a few countries, where they can  have strong positions in one or more product markets. Besides, there are a further 100 - 125 smaller producers  that compete mainly on local markets.  31. <ind> A considerable bargaining pressure is exercised by big stores and by buying groups, of which several  are active on a cross-border basis. In addition, private label products are sold under trademarks owned by large  retail chains and are mostly produced under tenders by manufacturers. It is estimated that approximately 30% of  total Western European volume of major domestic appliances now goes through about 20 companies (retail  chains and stores). As to Sweden, Electrolux  estimates that, in 1993, chain stores accounted for approximately  45% of all major domestic appliance sales while the figure in 1980 was 30%.  32. <ind> Electrolux accounted for approximately [More than 25%.] of compressors installed in refrigerators  manufactured in Western Europe in 1993. Approximately [Deleted business secret.] of these compressors are  supplied to other major domestic appliance manufactures. The other [Deleted business secret.] are used by  Electrolux. In addition, Electrolux manufactures motors for use in washing machines, dryers and dishwashers.  Electrolux accounted for approximately [More than 30%] of motors installed in major domestic appliances sold  in Western Europe in 1993. Approximately [Deleted business secret.] of these motors are sold to other major  domestic appliance manufactures. The remaining [Deleted business secret.] are installed in Electrolux's  appliances. Since AEG is not vertically integrated to any significant degree in regard to any of the affected  product markets the operation does not give raise to any overlap in the above mentioned product markets.  33. <ind> As to water heaters, Electrolux's post-concentration share of all water heaters sold in Germany will be  less than 10% (considering a separate market for electrical water heaters, Electrolux's market share would  increase from [5% to 15%.].). In Germany Electrolux and AHG face competition from several other local  producers, including Stiebel, Vaillant, Junkers, Clage EGS and Blomberg.  34. <ind> As mentioned above the proposed concentration is an EEA "cooperation case" and the Commission  has been in close and constant laison with the EFTA Survaillance Authority (ESA). ESA has expressed its views  upon the concentration wich are in accordance with the Commission's approach. In short, ESA rejects the  conception that the Swedish market for major domestic appliances should be considered as a market seperate  from the rest of the European market because of the clearly identified trend towards an integrated European  market.   <ind> V. Conclusion  35. <ind> As to major domestic appliances and vacuum cleaners : the markets are Western European in scope  and Electrolux's post-merger market shares on any of the affected markets will not exceed 24%. Furthermore,  Electrolux will face competition from several large competitors and considerable bargaining pressure from large  distribution or buying groups. As to water heaters the concentration will not give rise to competition problems  since even on the narrowest market definition the  share does not exceed 13%.   36. <ind> Based on the above, the concentration does not raise doubts as to its compatibility with the common  market and the EEA Agreement.  For the above reasons, the Commission has decided not to oppose the notified concentration and to declare it  compatible with the common market and the EEA Agreement. This decision is adopted in application of Article  6(1)(b) of Council Regulation No 4064/89 and Article 57 of the EEA Agreement.  For the Commission,