CELEX: 31995M0669
Language: en
Date: 1995-12-11 00:00:00
Title: COMMISSION DECISION of 11/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.669 - Charterhouse / Porterbook ) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0669

COMMISSION DECISION of 11/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.669 - Charterhouse / Porterbook ) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 350 , 30/12/1995 P. 0018

 COMMISSION  DECISION of 11/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.669  - Charterhouse / Porterbook ) 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 party Dear Sirs, Subject :<ind> Case No IV/M.669  Charterhouse / Porterbrook <ind> <ind> Notification of 9.11.1995 pursuant to Article  4 of Council Regulation No 4064/89 1.<ind>  On  the  9 November 1995, Charterhouse  Development Capital  Holdings Limited ("CDCH") notified an operation  by which it will acquire control of Porterbrook Leasing Company Limited ("Porterbrook"). The transaction forms a first  step in the UK rail privatization process. 2.<ind>   After   examination  of  the   notification,   the Commission  has concluded that the proposed operation  falls within  the scope of the Council Regulation No 4064/89  (The Merger Regulation) and does not raise serious doubts  as  to its  compatibility  with  the common  market  and  with  the functioning of the EEA Agreement. I.<ind> The Operation and the Parties 3.<ind> CDCH, whose principle activity is the acquisition of interests in unlisted companies, is part of the Charterhouse Group   whose  ultimate  parents  are  the  French,   Crédit Commercial  de France SA ("CCF") and the German,  Handelsund Frankfurter Bank ("BHF"). 4.<ind>  CDCH will acquire, via Porterbrook Leasing  Company MEBO  Limited,  its  wholly  owned subsidiary,  Porterbrook. Following   the  operation  Charterhouse  Group  will   hold [Deleted   business   secret.]  of   the   shareholding   of Porterbrook and will have sole control over this company. 5.<ind>  Porterbrook is one of the three ROSCOS  which  will provide  railway passenger rolling stock, through  operating leases,  to  Train Operating Companies ("TOCS"). Porterbrook is  also  responsible for certain heavy maintenance  of  the rolling stock. II.<ind> Application of Article 3(5)(c) Merger Regulation 6.<ind>  CDCH  has submitted that as Porterbrook  is  to  be acquired  by  "financial  holding  companies",  within   the meaning  of  Article 3(5)(c) of the Merger  Regulation,  the transaction is not notifiable. 7.<ind>  It  is  the  view  of  the  Commission  that   this interpretation   of   Article  3(5)(c)   is   inappropriate. "Financial holding companies" are defined in Article 5(3) of the  Fourth  Council Directive (78/660/EEC) [ OJ  L  222  of 14.8.78, page 11.] of 1978 concerning the annual accounts of certain  types  of companies as being: "those companies  the sole  object  of  which  is  to acquire  holdings  in  other undertakings, and to manage such holdings and to  turn  them to   profit,   without  involving  themselves  directly   or indirectly  in  the  management of  such  undertakings  .... limitations  imposed on the activities  of  these  companies must  be  such that compliance ... can be supervised  by  an .... authority". 8.<ind>  CDCH has submitted its Memorandum and  Articles  of Association to the Commission to support its assertion  that it  is a "financial holding company" and quotes clause 3(1), which states that one of CDCH's objects is "to carry on  the business   of   an   investment  company".  However   CDCH's Memorandum  of  Association also  shows,  through  39  other clauses, that it may acquire shares or securities (clauses 2 and 3), lend money (clause 6), constitute trusts (clause 7), guarantee,  support or secure (clause 9),   manage,supervise or control businesses (clause 19), develop land (clause 22), effect insurance (clause 25) etc. Clearly therefore its sole object   is  not  simply  to   acquire  holdings  in   other undertakings and to manage such holdings and to turn them to profit  as required by the Article 5(3) definition  set  out above.  For  these  reasons it is not considered  that  CDCH forms  a  "financial holding company" within the meaning  of the Fourth Directive and, therefore, the Merger Regulation. 9.<ind>  Furthermore  it  should  be  noted  that   the   UK authorities  have  not  taken  advantage  of  the  exception provided  by  Article  5(3)  to  allow  "financial   holding companies"  to prepare annual accounts in a special  format. This  is  evidenced  by UK company law in  general  and  the absence of the specific supervisory body required by Article 5(3) to supervise such companies. Consequently CDCH has  not been defined as a "financial holding company" by UK law. 10.<ind>  The second test of Article 3(5)(c) is to ascertain whether   the   "financial  holding  company"  manages   its investments  simply  "to maintain the full  value  of  those investments"  or  whether  it  "determine[s]   directly   or indirectly  the  competitive conduct of those undertakings." In  this respect it should be recalled that the Charterhouse Group  will  control  [Deleted  business  secret.]  of   the shareholding  of Porterbrook; in addition,  it  may  appoint [Deleted   business   secret.]   "special   directors"    to Porterbrook  Leasing  Company MEBO  Limited,  one  of  whose consent  is  necessary to permit this company  to  undertake certain transactions. 11.<ind> Such transactions are set out in Schedule 3, Part 2 of  the Agreement relating to the subscription of shares  in Porterbrook Leasing Company MEBO Limited. These include, for example, matters such as [Deleted business secret.]. 12.<ind>  It  could  be argued that a number  of  the  above consents are necessary to safeguard the full value of CDCH's investment. However the far more probable interpretation  is that   these  restrictions  can  be  employed  in   managing directly,   or   indirectly,  the   daytoday   business   of Porterhouse. 13.<ind>  For these reasons the Commission does not consider that   the   exemption  foreseen  by  Article   3(5)(c)   is appropriate  in this case and that therefore the transaction is subject to the Merger Regulation. III.<ind> Community Dimension 14.  <ind>  The  operation  has a Community  dimension.  The worldwide   turnover  of  all  the  undertakings   concerned amounted, in 1994/95, to more than ECU 5 billion. CCF has  a worldwide  turnover  of  ECU 5  billion  and  BHF  ECU  3.02 billion,  both  calculated in accordance with Article  5(3), for the year ending 31 December 1994. 15.<ind> The Communitywide turnover of each of at least  two of   the  undertakings  exceeds  ECU  250  million  and  the undertakings concerned do not achieve more that twothirds of their  aggregate Communitywide turnover within one  and  the same Member State. The Communitywide turnover for 1994/95 of the  undertakings concerned was as follows: Porterbrook  ECU [Deleted   business  secret.],  CCF  ECU  [Deleted  business secret.] and BHF ECU [Deleted business secret.], the  latter two calculated in accordance of Article 5(3). IV.<ind> Compatibility with the Common Market <ind> The relevant product market 16.<ind> CDCH has submitted that the relevant product market is  the provision of passenger rolling stock for the British railway  industry. However it is also necessary to  consider whether  the method of financing this provision is relevant. Porterbrook  will provide the rolling stock to the  TOCS  by way  of  operating  leases. The provision of  rolling  stock through  operating  leases differs  from  the  provision  of rolling  stock either through finance leasing or by outright purchase  by  the  train  operator.  Operating  leases   are structured over a shorter period than the economic  life  of the  asset and, consequently, are aimed at a shorter  period of  supply,  geared  to the needs of the  TOCS,  which  have franchises limited to some 710 years. 17.<ind> Finance leasing, on the other hand, is generally of a longer period and fully repays the asset cost resulting in the  transfer  of ownership of the product  to  the  lessee. Similar  considerations apply to the  outright  purchase  of passenger  rolling stock therefore differentiating  it  from rolling stock provided on the basis of operating leases. 18.<ind>  However,  for  the  purposes  of  this  case,  the question  ofwhether  the  type  of  financing  changes   the definition of the relevant product market can be  left  open as, on the basis of the assessment set out below, a dominant position  would not be created or strengthened even  on  the narrowest definition of the product market. <ind> The relevant geographic market 19.<ind>  The  relevant geographic market is Great  Britain. This is because, at present, no opportunities exist in other Member  States  for the independent provision  of  passenger rolling  stock  to  train operating companies.  Furthermore, restrictions on the design and construction of  the  rolling stock  and  track  make it impossible to  provide  passenger rolling   stock  designed  for  Great  Britain   without   a fundamental redesign of the existing stock, to other  Member States.  Finally it should be noted that railways  operating in  Northern  Ireland  are, at present,  excluded  from  the privatization process. <ind> Assessment 20.<ind> The acquisition only has an impact in Great Britain and  there is no overlap between the operations of CDCH  and Porterbrook. 21.<ind>  Following this step in the privatization  process, the  provision of passenger rolling stock to the  twentyfive TOCS will be carried out by the three ROSCOS which will have an approximate market share of 33% each. These market shares arise  due  to the fact that each ROSCO has been granted  an approximately  equal  share  of existing  passenger  rolling stock  of  an equal average age. Furthermore each ROSCO  has been  endowed with operating leases, of similar lengths  and values, that already exist with the TOCS. 22.<ind>  The  purpose  of the sale  of  the  ROSCOS  is  to introduce  competition into the market for the provision  of passenger  rolling stock. At the outset it may  appear  that competition  may be restricted due to the market  shares  of the three ROSCOS and specifically of Porterbrook. However it should  be  noted that the TOCS, on renewal of the operating leases, will be able to choose between the various providers of  passenger rolling stock. Furthermore, there will  be  no regulatory restrictions or licence requirements (other  than those  appertaining  to safety) preventing  other  operators entering  the market. In this respect, and in the  light  of the   Commission's   enquiries,   it   would   appear   that manufacturers of passenger rolling stock may be willing,  in the  short term, to supply such equipment, on the  basis  of operating or finance leases, to the TOCS. 23.<ind>   Consequently  it  is  not  considered  that   the acquisition of Porterbrook by CDCH creates or strengthens  a dominant position in the common market. V.<ind> Conclusion 24.<ind> For the above reasons, the Commission has concluded that the notified operation does not raise serious doubts as to  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  N 4064/89. For the Commission,