CELEX: 31994M0496
Language: en
Date: 1994-09-05 00:00:00
Title: COMMISSION DECISION of 05/09/1994 declaring a concentration to be compatible with the common market (Case No IV/M.496 - Marconi / Finmeccanica) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31994M0496

COMMISSION DECISION of 05/09/1994 declaring a concentration to be compatible with the common market (Case No IV/M.496 - Marconi / Finmeccanica) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 253 , 10/09/1994 P. 0010

 COMMISSION DECISION of 05/09/1994 declaring a concentration to be compatible with the  common market (Case No IV/M.496 - Marconi / Finmeccanica) according to Council Regulation  (EEC) No 4064/89  (Only the English text is authentic).  The paper version of the decision is available through the sales offices of the Office of Official  Publications of the European Communities. PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(b) DECISION To the notifying parties Dear Sirs, Subject:<ind> Case N* IV/M.496  - Marconi/Finmeccanica <ind> <ind> Notification of 02.08.1994 pursuant to Council Regulation (EC) No. 4064/89 1. The above mentioned operation concerns the establishment of a concentrative joint venture  between Marconi S.p.A ("Marconi"), an Italian company that forms part of the GEC Group, and  Finmeccanica S.p.A. ("Finmeccanica"). I.<ind> THE OPERATION AND THE PARTIES 2. On February 24, 1994, Marconi and Finmeccanica signed a Memorandum of Understanding for  the creation of a concentrative joint venture which will operate in a number of communications  markets. The obligations contained in the Memorandum of Understanding became binding only after the  parties reached agreement as to the value of the assets to be transferred to the JVC.  The parties  reached this agreement on July 27, 1994. 3. With the notified operation the parties will merge the Italian activities of Finmeccanica and  Marconi in the fields of radio-communications, value added telecommunications and information  technology systems.  In particular Marconi will transfer to the JVC some of the activities of  Marconi's telematic systems, public telecommunications, military telecommunications and avionic  systems divisions, along with its equity interest (85%) in Marconi Olivetti Defence Information  Systems S.p.A. (MODIS) and its participation (60%) in Larimart S.p.A. (LARIMART). The JVC will acquire from Finmeccanica its Alenia ITC and Alenia Spazio Ground Station divisions  and two of its subsidiaries, OTE S.p.A. and Elmer S.p.A. 4. Marconi is an undertaking controlled by GEC Marconi Ltd., a wholly-owned subsidiary of the  General Electric Company P.l.c. (GEC), which is a public company listed on the London Stock  Exchange.  Marconi is active in the design, manufacture and support of certain electronic systems  for the military market and the civil infrastructure market. GEC has activities in the sectors of electronic systems, power systems, telecommunications,  consumer goods, electronic metrology, office equipment and printing, medical equipment, electronic  components and industrial apparatus. 5. Finmeccanica is owned as to 86.15% of its share capital by the Istituto per la Ricostruzione  Industriale S.p.A. (IRI).  Finmeccanica operates as a fully independent company and its stock is  quoted on the Milan Stock Exchange.  IRI's function is limited to that of a holding company on  behalf of the Italian State, and for the purposes of this notification, Finmeccanica is considered to be  "an economic unit with an independent power of decision" as described in Recital 12 to the Merger  Regulation. II.<ind> CONCENTRATION <tab> Joint Control 6. Finmeccanica and Marconi shall each own 50% of the issued share capital in the JVC and each  shall have the right to appoint half of the members of the Board of Directors.  The Chairman of the  Board will be appointed by Marconi, which will also have the right to appoint the Chief Financial  Officer of the JVC, subject to the consent of Finmeccanica.  Finmeccanica will have the right to  appoint the Managing Director, subject to the consent of Marconi. 7. The Shareholders Agreement sets forth that, in addition to the powers reserved to it by law or  pursuant to the by-laws of the JVC, the Board of Directors shall have exclusive competence to decide  strategic matters and matters of particular importance to the assets of the Joint Venture.  These  include among others: <ind> -<ind> approval of the budget and long-term business plans <ind> -<ind> approval of investments <ind> -<ind> appointment of management and fixing of their compensation. A quorum of 75% of the company's share capital is required for adoption of resolutions in the  Ordinary Shareholders' Meetings held on first call and in the Extraordinary Shareholders' Meetings  held either on a first or second call. 8. As a result of the above, each of the parties will have the right at least to veto the principal  decisions referring to the Joint Venture.  Therefore they will have joint control of it. Full Function Entity 9. The Joint Venture will have all the assets and resources necessary to enable it to perform the  functions of an autonomous entity including R&D, manufacturing, distribution and after-sales  support. Absence of Coordination 10. While parts of the GEC group will remain active in some of the same product markets as the  JVC, Finmeccanica is to withdraw from the markets concerned by transferring its relevant  businesses to the JVC.  The only slight exception to this is that Elsag Bailey S.p.A., a subsidiary of  Finmeccanica, is active in industrial process control/automation, and as part of this activity,  occasionally produces and sells products for building automation, which is a joint venture product.   The potential for coordination arising from this is minimal given that the demand is for distinct  products but that there is a certain technology link on the supply side. 11. The Memorandum of Understanding ("MOU") between the parties includes a non-compete  clause covering Italy, and preventing certain other parts of GEC from competing with the JVC in  Italy.  A number of products, constituting less than 10% of the JVC's turnover, are, however, exempt  from this clause.  This exemption was necessary because products in certain of these JV markets  represent specific applications of fundamental technologies with far wider uses and the parents  wished to remain free to deploy variants of these technologies on other markets outside the scope of  the JVC without risking infringement of the MOU.  A separation of such activities from the parents  would affect their ability to operate in markets other than those of the JVC. 12. Thus effectively only GEC will remain active on the JVC's markets, and for the most part outside  Italy.  It is technically possible under the terms of the MOU for Finmeccanica to re-enter  independently certain markets in Italy and all of the JVC's markets outside Italy.  Having  transferred, however, its assets and expertise in the high-tech products concerned, it would be costly  and commercially unreasonable for Finmeccanica to attempt to re-enter.  The risk of coordination  between the parents and between the JVC and Finmeccanica can thus be excluded. III.<ind> COMMUNITY DIMENSION 13. The undertakings have a combined aggregate worldwide turnover in excess of 5,000 million  ECU.  Finmeccanica achieved a turnover of 5,958 million ECU in 1993 and GEC one of 12,437  million ECU in the financial year ending on March 31, 1994.  They both have a Community-wide  turnover of more than 250 million ECU.  They do not achieve more than two-thirds of their  aggregate Community-wide turnover in one and the same Member State.  The operation therefore  has a Community dimension. IV.<ind> COMPATIBILITY WITH THE COMMON MARKET A<ind>  Product markets 14. The parties are combining their activities in a large number of related areas in the new JV some  with civil and some with military applications and one with joint use. Military products 15. The parties have been unable to provide market share information for the military markets  because of the absence of publicly available information in the sector. 16. The parties argue that while some of the military products concerned have civilian counterparts  (eg computers, radios), the potential for civilian applications is negligible.  The special features  required in order to meet a military specification (eg resilience of computers under arduous  conditions of climate or transport) dramatically increase the price of the product.  The parties  estimate that over 95% of their sales of the products designated as "military" are sold exclusively to  military authorities (NATO or national ministeries of defence) or consortia developing other military  products (eg the European Fighter Aircraft consortium). 17. The parties' customers for military products are thus, directly or indirectly, monopsonist buyers  with an element of countervailing market power were a supplier ever to attempt to abuse its market  position. 18. The sort of equipment to be manufactured by the JV is normally the subject of sizeable contracts  and procurement is therefore "lumpy".  A large contract may be awarded one year and none for the  next three, or one company might win a contract one year and another supplier be successful the  following year.  The effect of this is reduce the usefulness of market shares as an approximate index  of market power.  In these sorts of markets it is thus important to assess the number and strength of  alternative potential suppliers who could compete for a contract.  The sales figures given below are,  for the same reason, averages over the last three years. 19. Although detailed specifications may vary between the military of different countries for these  military products, suppliers are well able to adjust their product to meet these different requirements.   The question of whether the geographic market is, as a consequence, wider than national can be left  open since the competition assessment would not change whichever market definition were  adopted. 20. Of the military products to be sold by the JVC, one, that of informatic platforms (an integrated  computer and application software), is made only by Marconi and not by Finmeccanica resulting in  there being no overlap and no change arising out of the operation. High frequency radio equipment 21. HF military radio equipment enables single channel communication at frequencies up to and  including 30 MHz.  Such systems may be used for voice or data, include optional cryptography  functions and are designed for military or paramilitary use over distances of up to 1000 kilometres.   Finmeccanica's sales in Italy averaged some [deleted as a business secret, less than 50] million ECU  over the last three years with marginal sales to Belgium, Netherlands, Norway and NATO.  Marconi  is not active in this market while GEC averaged sales of [deleted: less than 25] million in the United  Kingdom.   Alternative suppliers include Thomson CSF, Ericsson, Alcatel, Rode & Schwarz of  Germany and Harris of the US. VHF/UHF radio equipment 22. VHF/UHF radio equipment enables single channel communication at frequencies between 30  MHz and 400MHz.  Such systems may be used for voice or data, include optional cryptography  functions and are designed for military or paramilitary use over distances of typically up to 40  kilometres.  Marconi and Finmeccanica are both present on this market as is GEC and each had  sales in three or four EEA states over the last three years.  Alternative suppliers include Thomson  CSF, Ericsson, Alcatel, Siemens and Harris and ITT both of the US. Airborne VHF/UHF radios 23. Airborne VHF/UHF radio equipment includes additional features required for airborne operation,  including those enabling the equipment to operate under high acceleration and deceleration forces.   Finmeccanica, Marconi and GEC are all present in this market, although in the past three years the  only overlap was between Marconi and Finmeccanica in Italy.  Alternative suppliers include  Thomson CSF, Ericsson, Alcatel, Rode & Schwarz and Harris and ITT both of the US. Global positioning systems equipment 24. Global positioning systems (GPS) equipment enable military airborne users to determine their  position to within a few metres by processing the so-called P-code signals from a series of satellites  managed by the US Department of Defence.  The civil applications of this technology, which use the  so-called C-code signals are much less sophisticated and less accurate. 25. Finmeccanica sales averaged [deleted: less than 25] million ECU over the last three years in Italy  while GEC had marginal sales in the Netherlands and UK.  Marconi is not active on this market.   Alternative suppliers include Thomson CSF, Alcatel, Siemens and Rockwell-Collins and Magnavox,  both of the US. Integrated Systems 26. This is an emerging market for equipment combining airborne radio and GPS radio navigation  systems into a single architecture.  Only GEC has achieved any sales in this area.  It is thought that  in the near future, alternative suppliers will include Thomson CSF, Alcatel and Rockwell-Collins,  Honeywell and Magnavox, all of the US. Communications electronic warfare 27. This equipment enables the military to detect the existence of enemy communications, analyse  their content or direction and to jam them.  Both Finmeccanica and Marconi are present on this  market while GEC is not.  Marconi's EEA sales averaged only [deleted: less than 1 million] ECU,  entirely in Italy over the last three years.  Alternative suppliers include Thomson CSF, Rhode &  Schwartz and Watkins & Johnson and Loral both of the US. Dual use products 28. The only dual civilian/military product to be made by the joint venture is satellite ground  stations.  Satellite ground stations fall into two categories: firstly, those for the command and control  of spacecraft and secondly, those providing an interface (ie transmission of voice and data signals)  with orbiting satellites or vehicles.  Both types of station typically comprise a number of sub-systems  including antennae, sensitive receivers, high power transmitters, frequency conversion equipment,  highly stable clocks and oscillators, modulation and multiplexing equipment and appropriate control  and monitoring facilities.  The Commission, however, considers that market shares calculated on the  basis of ground stations as a whole give a good indication of the relative strength of the prime  contractors in this sector (a prime contractor would hold overall responsibility for a project but  would in most cases need to source certain sub-systems from other suppliers) and it can be left open  whether the relevant product market should distinguish between component sub-systems.  The  question of whether the market should also include satellites, launchers and space flight vehicles can  be left open because even on the more restrictive definition of ground stations only, there is no  competition problem. 29. Whilst the geographical reference market may be global, it is possible to leave this question open  since a more restrictive EEA market definition would not change the competition assessment. 30. The parties estimate that the global ground stations market is worth about 3.4 - 6.8 billion ECU,  and that the EEA accounts for 20% of this global market ie between 1360 million and 680 million  ECU.  Both Finmeccanica and GEC are active in this market in both command and control stations  and communications interface stations, while Marconi is not active.  Finmeccanica and GEC's  combined turnover is [deleted as a business secret] ECU, giving them an EEA share of [deleted: less  than 10%].  Even were the market smaller than the parties estimate, it is unlikely that they would  acquire a market share such as to give rise to competition concerns.  Furthermore, there are a  number of strong alternative suppliers including Alcatel Espace, Deutsche Aerospace, Hughes Space  and Communications, NEC corp., Space Systems/Alliance (comprising Aérospatiale, Alcatel,  DASA, Alenia and the US company Loral) and Andrews Vsat. Civilian products Private mobile radio systems 31. Private mobile radio ("PMR") is a non-cellular system providing communication between mobile  terminals and one or more base stations.  Typically the systems do not allow simultaneous two-way  communication and are used by operators of fleets of cars, lorries, trains and aircraft.  Local users  include police, taxi firms, ambulances and the fire brigade.  Historically, manufacturers supplied  their own proprietary system with only limited inter-operability with other systems.  PMR equipment  is thus generally sold as a system, including terminals. 32. The parties argue that the market for the supply of PMR equipment is EEA-wide.  While there is  some evidence historically for national procurement by some of the public sector customers, these  products are now covered by the EC procurement directives and furthermore the emergence of  European-wide standards for digital PMR (TETRA) and the greater use of cordless PABX  extensions (with the corresponding DECT European standard) will remove major technical barriers  on the supply side.  There are thus signs that the market is EEA-wide, but this point can be left open  since even on a more restrictive national defintition there is no competition porblem arises. 33. The JV's market shares are estimated to be [deleted, less than 25 %] in Italy and [deleted, less  than 5%] in the EEA as a whole.  Alternative suppliers are major telecommunications equipment  manufacturers.  On the European level, Motorola and Ascom/Bosch are the market leaders followed  by a second level of suppliers, Matra/AEG, Philips and Alcatel and only then by Marconi.  Ericsson  and Nokia are also active on this market. The Commission concludes therefore that the JV will not  be dominant on this market. PTT network traffic management and supervisory systems 34. These systems comprise software enabling a telecommunications network operator to perform  traffic management, quality control, remote monitoring, real-time alarm collections and alarm  history tasks.  The parties consider that demand for the product is national reflecting the unique  configurations of national public networks and a history of local preference in procurement.  Whilst  this may be true, potential suppliers have the capacity to customise their product to the specifications  of individual networks, multi-vendor environment products are being developed and Community  rules on public procurement have recently come into effect, suggesting that the market may be wider.   The precise scope of the geographic market can be left open, however, since even on the more  restrictive national definition no competition problem arises. 35. Marconi and Finmeccanica are only active in this market in Italy, where the parties estimate that  the JV will as a result have a [deleted, less than 25%] share of sales, while GEC has marginal sales  in three other EEA states.  There is a large range of alternative suppliers in Italy, Europe and further  afield which includes full-line suppliers of telecommunications equipment such as Italtel, Alcatel,  Siemens, AT&T, Northern Telecom and Ericsson, major information technology businesses such as  IBM, Hewlett-Packard, Bull and DEC and large software houses such as Telesoft in Italy and Cap  Gemini Sogeti of France.  The Commission concludes therefore that the JV will not be dominant on  this market. Other products 36. The operation will result in the combination of the parties' activities in the following areas where  the resulting market shares will be below 10%, whether the market is national or EEA-wide: <ind> a) infrastructure for public cellular radio networks; <ind> b) equipment for the provision of value-added services over PTT networks; <ind> c) road pricing/automatic vehicle monitoring equipment; <ind> d) public information displays;  <ind> e) building automation. 37. The JV agreement also includes in the JV's range of activities air traffic control communications  equipment, game/lottery automation, point of sale equipment and terminals for public cellular radio  networks (which products neither GEC nor Marconi produce) and  automatic ticketing (in which  market none of the parties has made any sales to date).   38. The Commission concludes that no competition issues arise in these markets as a result of this  operation. Ancillary restraints 39. The MOU signed by the parties provides for the transfer directly from Finmeccanica to Marconi  of Finmeccanica's activities in radio relays for military applications and multiplex systems.  The  parties have requested that this transfer be treated as an ancillary restraint within the meaning of  Article 8(2) of the Merger Regulation. 40. Article 8(2) refers only to "restrictions directly related and necessary to the implementation of  the concentration".  The Commission considers that the transfer envisaged is neither a "restriction",  nor "necessary" to allow the concentration to take place and this decision does not cover these  transfers of assets. Conclusion 41. In respect of the military products, the Commission considers that the number of other potential  suppliers and the monopsonist nature of demand preclude any risk that this operation will result in  the creation of a dominant position for the JV.  In respect of the civilian and dual use products the  combined market shares post-operation and the array of strong multinationals as alternative  suppliers are not such as to give rise to any competition concerns. On the basis of these findings, the Commission has decided not to oppose the notified operation and  to declare its compatibility with the common market and with the functioning of the EEA  Agreement.  This decision is adopted in application of Article 6(1)(b) of Council Regulation No.  4064/89 and Article 57 of  the EEA Agreement. <tab> For the Commission