CELEX: 31996M0768
Language: en
Date: 1996-07-11 00:00:00
Title: Commission Decision of 11/07/1996 declaring a concentration to be compatible with the common market (Case No IV/M.768 - Lucas / Varity) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31996M0768

Commission Decision of 11/07/1996 declaring a concentration to be compatible with the common market (Case No IV/M.768 - Lucas / Varity) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 266 , 13/09/1996 P. 0006

 COMMISSION DECISION of 11/07/1996 declaring a concentration to be  compatible with the common market (Case No IV/M.768 - Lucas / Varity)  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.768  LUCAS / VARITY <ind> <ind> Notification of 10.6.1996 pursuant to Article 4 of Council  Regulation (EEC) No 4064/89 1.<ind> The companies Lucas Industries plc, Solihull/UK ("Lucas"), and  Varity Corporation, Buffalo, New York/USA ("Varity"), notified that they  intend to enter into a full merger. Under the terms of the merger a new UK  holding company, to be known as LucasVarity plc, will be created. The  Lucas shareholders will own about 62% and the Varity shareholders about  38% of the new merged business. 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 ("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.<tab> THE PARTIES 3.<ind> Lucas designs, manufactures and sales advanced technology systems  and components for the automotive and aerospace industry, in particular  braking systems, diesel fuel injection systems as well as electrical and  electronic systems. In its last business year, ended July 1995, the  company had a worldwide turnover of about ECU 3.5 billion, about ECU 2.5  billion of it was generated within the Community. 4.<ind> Varity is predominantly active in the manufacture of braking  systems and antilock systems (through its subsidiary KelseyHayes) as well  in the manufacture of diesel engines (through VarityPerkins). Besides  that, Varity through its subsidiary VarityZecal is active in the  development of a patented process of additive plating of copper to ceramic  substrates. In its lastbusiness year, ended January 1996, the company had  a worldwide turnover of about ECU 1.8 billion, of which ECU 584 million  was generated within the Community. II.<tab> THE OPERATION 5.<ind> The parties have signed a transaction agreement by which they will  enter into a full merger of their businesses. Under the terms of the  agreement a new UK holding company, to be known as LucasVarity plc, will  be created. The Lucas shareholders will own about 62% and the Varity  shareholders about 38% of the new merged business. Ultimately the new  company will own all the assets of both Lucas and Varity. III.<tab> CONCENTRATION 6.<ind> The merger between two previously independent undertakings, Lucas  and Varity, will constitute a concentration according to Article 3(1)(a)  of the Merger Regulation. IV.<tab> COMMUNITY DIMENSION 7.<ind> The combined aggregate worldwide turnover of Lucas and Varity  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 8.<ind> Although the merged entity will enter a rank within the world's  top ten component suppliers for the automotive industry as well for the  aerospace industry the parties' activities are mostly complementary both  with respect to the affected product markets and to the geographical  markets. The proposed operation will not result in any addition of market  shares in the component markets for the aerospace industry, in the  electrical and electronic systems business and in the field of additive  plating of copper to ceramic substrates since there is no overlap with  respect to the activities of Lucas and Varity. Against that both parties  are active in the diesel systems business and in the braking systems  business. <tab> Relevant product markets 9.<ind> For the case under consideration one can distinguish the overall  diesel systems business into the markets for the manufacture of diesel  engines and of diesel fuel injection systems. The overall market for  diesel engines then has to be divided further into the distinct markets  for the manufacture of diesel engines for cars and of diesel engines for  offhighway vehicles for agricultural, industrial and marine uses. These  markets are characterized by particular requirements for power,  application characteristics, legislative compliance, specific types of  customers etc. According to the power range of diesel engines the market  could be divided further into distinct submarkets, for instance small (up  to 40 horsepower), medium (40 to 300 horsepower) and large diesel engines  (more than 300 horsepower). However, the question of the definition of the  relevant product markets can be left open to that extent, because even in  the narrowest market the proposed concentration would not create or  strengthen a dominant position.  <tab>  10.<ind> With regard to the braking business one has to distinguish  hydraulic braking systems for light vehicles (cars and light commercial  vehicles) and air brakes for heavy commercial vehicles (trucks, buses and  offroad vehicles) [See case No IV/M.148  Lucas/Eaton, points 25 and 28; No  IV/M.726  Bosch/Allied Signal, point 9.]. Both markets have to be divided  further according to the different uses and product characteristics into  the markets for "actuation systems" and for "foundation brakes" [See case  IV/M.337  KnorrBremse/AlliedSignal, points 21 et seq.; No. IV/M.726   Bosch/Allied Signal, point 11.]. Foundation brakes again consist of  several different components (disc brakes, drum brakes) that, from a  customers point of view, belong to separate product markets. 11.<ind> Within the line followed in several cases antilock systems for  light vehicles and for heavy commercial vehicles constitute separate  product markets [See case No IV/M.726  Bosch/Allied Signal, point 14.]. <tab> Relevant geographic market 12.<ind> For the case under consideration the geographical scope of the  relevant product markets is assumed to be EEAwide. There are no apparent  reasons for dividing markets on a national basis. Local production is not  a necessary precondition for determining marketpositions in individual  Member States and the costs for transportation and freight within the EEA  are of minor importance. <tab> Assessment <tab> Diesel systems 13.<ind> Lucas Diesel systems is the world second largest manufacturer of  diesel fuel injection systems. In Europe, Lucas manufactures diesel fuel  injection systems in plants in France, UK and Spain. According to the  parties, Lucas reaches the second rank in Europe having a market share of  about 29%. Market leader is the German company Bosch with a market share  of more than 50%. Smaller competitors in Europe are Stanadyne, Caterpillar  and Cummins. Since Varity does not manufacture diesel fuel injection  systems the proposed merger will not result in any addition of market  shares to that extent. 14.<ind> Varity through its subsidiary Perkins manufactures a  comprehensive array of multicylinder watercooled diesel engines in the 7  to 2,500 horsepower range in United Kingdom and purchases diesel fuel  injection systems for its engines in the 30 to 600 horsepower range from  Lucas. According to the parties, VarityPerkins' market share in Europe  does not exceed 25%. Sizeable competitors are Cummins, Deutz, Caterpillar  and John Deere each having a market share of at least 10%. Since Lucas  does not manufacture diesel engines the proposed merger will not result in  any addition of market shares to that extent. 15.<ind> However, through the proposed merger Lucas and Varity will  vertically integrate their diesel businesses. This link between one of the  leading suppliers of diesel fuel injection systems with the leading  supplier of diesel engines will result in a reduction of independent  sources of supply with regard to diesel fuel injection systems. However,  since there will be at least two independent sources of supply left, Bosch  and Standyne, and two manufacturer of diesel engines, Cummins and  Capterpillar, also produce diesel fuel injection systems the merger is  unlikely to result in a foreclosure effect in the market for diesel fuel  injection systems. <tab> Braking systems 16.<ind> The European markets for "actuation systems" and for "foundation  brakes" for light vehicles are highly concentrated. Varity does not  manufacture "actuation systems" and has not hitherto sold "foundation  brakes" into the European market. In the OEM/OESmarket for "actuation  systems" Lucas reaches the third rank behind the leading ITT/Teves and  Bosch. In the component markets for "foundation brakes" Lucas has the  leading position followed by ITT and Bosch. Since Varity is not active in  these markets the market shares of Lucas will not be affected by the  merger. The new entity will face strong competition from the other  integrated brakes manufacturers Bosch and ITT. On both markets the  suppliers face significant buying power from their customers in the  automotive industry [See case No IV/M.726  Bosch/Allied Signal, points 41  et seq..]. In addition, several components for the foundation brakes  (front and rear disc brakes, drum brakes) are still produced by the car  manufactures themselves (inhouse production). 17.<ind> In the European markets for air brakes for heavy commercial  vehicles Lucas has the leading position with a market share of between 40%  and 50% [See case No IV/M.149  LUCAS/EATON, point 36.]. Sizeable  competitors in this markets are KnorrBremse, Rockwell, WABCO (Perrot) and  Eaton. Since Varity has not hitherto sold heavy duty brakes into the  European market the market shares of Lucas will not be affected by the  merger. Approximately 51% of total European demand for heavy duty brakes  is still met by inhouse production by vehicle manufacturers, although the  balance is progressively shifting towards outsourcing [See case No  IV/M.149  LUCAS/EATON, point 37.]. 18.<ind> The European market for antilock systems (ABS) for light vehicles  is characterized by the strong market position of the leading Bosch and  the following ITT/Teves. The sales of both companies account for more than  80% of the EEA market volume. Although Varity through its subsidiary  KelseyHayes is the world's largest producer of antilock braking systems  the companies' current market share in Europe is just under 5%.  KelseyHayes has set up a production plant for ABS in Heerlen/NL and seeks  to increase its market share. Lucas has only minor ABS activities both  with regard to Europe as well on a worldwide level. It is expected that  the proposed merger will provide the new entity the potential to compete  effectively with the leading integrated brakes manufacturers. Theproposed  merger therefore  in the longterm  will have a positive effect on the  conditions of competition in Europe. VI.<ind> CONCLUSION 19.<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. 20.<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. For the Commission,