CELEX: 31996M0731
Language: en
Date: 1996-04-15 00:00:00
Title: COMMISSION DECISION of 15/04/1996 declaring a concentration to be compatible with the common market (Case No IV/M.731 - KVAERNER / TRAFALGAR) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31996M0731

COMMISSION DECISION of 15/04/1996 declaring a concentration to be compatible with the common market (Case No IV/M.731 - KVAERNER / TRAFALGAR) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 135 , 07/05/1996 P. 0006

 COMMISSION  DECISION of 15/04/1996 declaring a concentration to be compatible with the common market (Case No IV/M.731  - KVAERNER / TRAFALGAR) according to Council Regulation  (EEC) No 4064/89  The  paper version of the decision is available through  the sales offices of the Office of Official Publications of  the European Communities. (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.731  Kvaerner/Trafalgar <ind> <ind> Notification of 11.03.1996 pursuant to Article 4 of Council Regulation No 4064/89 1.<ind>   On   11.03.1996,   the   Commission   received   a notification of a proposed concentration pursuant to Article 4  of  Council  Regulation (EEC) No  4064/89  by  which  the undertaking Kvaerner a.s. will acquire within the meaning  of Article  3(1)b of the Regulation control of Trafalgar  House plc by way of a public bid announced on 4.3.1996. The bid is an agreed one. I.<ind> THE PARTIES 2.<ind>  Kvaerner a.s. is a Norwegian company, mainly  active in  shipbuilding,  manufacture and supply  of  oil  and  gas extraction   equipment  and  services,  wood  pulp   process machinery manufacturing, mechanical engineering and a  small amount of shipping. 3.<ind>  Trafalgar  House plc is a  UK  based  company  with activities in engineering services, construction, commercial and residential property and passenger shipping. II.<ind> CONCENTRATION 4.<ind>  The operation is a public takeover bid  by  Kvaerner for  Trafalgar House which was launched on 4 March 1996. The offer  is  for  all  of  the shares of Trafalgar  House  and amounts to an acquisition of sole control by Kvaerner  within the meaning of Article 3 of the Merger Regulation. 5.<ind> Kvaerner made an unsuccessful bid for AMEC plc, a  UK company which also has significant interests in the oil  and gas  construction  sector in November 1995.  This  case  was considered  under  the Merger Regulation and  following  the failure of the bid, the notification was withdrawn. 6.<ind>  Kvaerner now has shares representing 23.87%  of  the voting rights of AMEC. Kvaerner has no board members of  AMEC and  has stated in this notification that its investment  in AMEC  is  not  of strategic interest in the new  situtation. During its investigation, the Commission has discovered that this  level  of  voting rights would not be  sufficient  for Kvaerner to exercise control over AMEC. In any case, even  if AMEC  was  not to be a full competitor in the future,  there remains  a  sufficient number of other  competitors  in  the market  so  the Commission is not concerned about  Kvaerner's stake  in  AMEC, for the purpose of assessing  the  notified transaction. III.<ind> COMMUNITY DIMENSION 7.<ind>   The   undertakings  concerned  have   a   combined aggregateworldwide turnover in excess of 5,000 million  ECU. Each  party  has a Communitywide turnover in excess  of  250 million  ECU. The parties do not achieve more than twothirds of their aggregate Communitywide turnover within one and the same  Member State. The operation therefore has a  Community dimension. IV.<ind> COMPATIBILITY WITH THE COMMON MARKET <ind> 1.<ind> Oil and gas installations in the North Sea <ind> (a)<ind> Product Market 8.<ind>  In  their notification, Kvaerner identify  only  one relevant  product market: oil and gas offshore installations in the North Sea. Total annual expenditure in this market is estimated at 4,600 million ECU. 9.<ind>  The  market  for  the  provision  of  oil  and  gas extraction  equipment and services in  the  North  Sea,  is, according to the notifying parties, further divided into the following narrower categories : <tab>  (i)<ind>  Design and engineering ("greenfield"  work) <ind> 800 mECU/year in North Sea <tab>  (ii)<ind>  Construction / installation  (fabrication) <ind> 1,800 mECU/year      " <tab>  (iii)<ind> Operational and maintenance services <ind> 2,000 mECU/year  <ind> <ind> ("brown field work") <ind> For the purposes of this decision, the precise product market  definition  might be left open  since  under  either approach,  the  merger  does not lead  to  the  creation  or reinforcement   of  a  dominant  position  (see   assessment below). 10.<ind>  Although differing in some technical aspects,  oil and gas installations are considered in the notification  to belong  to  the same product market. This product market  is considered  to be unified because the same companies  tender for  contracts for both types of installation and orders for oil  installations come from the same set of customers  that require  gas installations. A similar rationale  applies  to standing  and  floating installations, the choice  of  which depends  on technical aspects such as location of field  and water depth. <ind> (b)<ind> Geographical Market 11.<ind> Kvaerner define two relevant geographic markets: the Norwegian sector of the North Sea and the British sector  of the  North Sea. Historically, contracts have had a  tendency to  be  awarded  to  "home  market" contractors  because  of practical  considerations such as the  proximity  of  yards, technical  backup  and labour. According to  a  minority  of customers,  there  is  evidence that the  UK  and  Norwegian sectors in the North Sea are converging into one market  but that,  for  the  present, the UK and Norwegian  sectors  are separate markets. For the purposes of this case, however, as the  operation  does  not create or  strengthen  a  dominant position  in either sector or the North Sea as a whole,  the precise market definition can be left open. <ind> (c)<ind> Assessment 12.<ind>  The tables at Annex A, B and C provide the  market shares   of  the  main  competitors  as  provided   in   the notification. 13.<ind> The operation will create the largest competitor in provision  of oil and gas extraction equipment and  services in  the North Sea as a whole with an overall market share in the  two sectors of [Deleted business secrets  below  25%.]. In   this   market,  there  will  be  three   players   with approximately  equal market shares: Kvaerner/Trafalgar  House ([Deleted  business  secrets   below  25%.]);  AMEC  ([below 25%.])  and  Aker ([below 25%.]). The remaining  competitors all have market shares of [below 10%.] or below. 14.<ind>  If  the two markets are considered separately,  as seems   to  be  the  case  according  to  the  majority   of respondents   consulted   by  the  Commission   during   its investigation,  the  market position of the  merged  company appears  to  be  weaker  in  the UK  and  Norwegian  sectors individually. In the UK sector, the merged entity  would  be the  second largest competitor behind AMEC ([below 25%]) and before  Brown and Root ([below 25%]) and alongside AOC  with [below  25%]. In the Norwegian sector, Kvaerner will maintain its  [below  25%]  market share as Trafalgar  House  is  not present  in that sector. It has to be noticed as well,  that as  Trafalgar  does not have a significant presence  in  the Norwegian  sector and Kvaerner's activities in the UK  sector are  basically limited to design and engineering, the merger does  not  lead to significant reinforcement of  preexisting positions. 15.<ind> Contracts in the North Sea have traditionally  been awarded  on  a  piecemeal basis, with different  contractors being engaged to perform different tasks. Some customers are beginning to consider awarding contracts on a turnkey basis, where  one  contractor takes responsibility for  the  entire project,   and  either  carries  out  the  work  itself   or subcontracts as appropriate. This is not a common manner  of awarding  contracts at present, but some oil  companies  are considering  awarding contracts in this  manner  in  future, with  a view to reducing the total costs of a project. There is   even  the  possibility  that  contractors  will  retain ownership of the installation and the oil company will lease it for the duration of the project. 16.<ind>  According  to  information  collected  during  the Commission's investigation, the combination of  Kvaerner  and Trafalgar House will create a contractor which will be large enough  to  be  able  to bid for turnkey  contracts  in  the future.  However, both Kvaerner and Trafalgar had  a  turnkey capability before the merger. The merged entity is, however, faced with competition from a number of other contractors in this sector including AMEC, Brown and Root and McDermott for the provision of turnkey solutions. Other companies may join to  tender for turnkey projects. There are a large number of other  companies who are able to compete in  the  individual product   segments  identified  above.  In   addition,   the possibility of other contractors currently active  in  other parts of the world entering the North Sea market as well  as the  buying  power of the large oil companies  who  are  the customers  of Kvaerner and Trafalgar House in these  markets, are  two  important sources of competitive pressure  on  the parties. 17.<ind>  Some  concern  was expressed  about  the  possible effects  of  the  merger  on the suppliers  of  Kvaerner  and Trafalgar  House as the combined company could  exercise  an increased buying power on these suppliers. Given the  market position  of the combined company as identified  above,  the extent  of this buying power is unlikely to be great and  in any  case would not be anticompetitive as such and it  would have  benefits for the ultimate consumer in terms  of  lower costs. 18.<ind> Whatever the precise market definition for oil  and gas  installations in the North Sea, on  the  basis  of  the market  shares and the other elements described  above,  the operation will not create or strengthen a dominant  position in  this  market. In addition, the vertical  integration  of Kvaerner's  and Trafalgar House's activities in  this  sector will not create a dominant position for the merged entity in the   provision  of  turnkey  contracts  for  oil  and   gas installations. <ind> 2.<ind> Manufacture of turbines <ind> Relevant product market 19.<ind> Both Kvaerner and Trafalgar House are active in  the manufacture  of gas turbines used for electricity  and  heat generation;  Kvaerner  in  aeroderivative  gas  turbines  and Trafalgar   House  (through  its  subsidiary,   John   Brown Engineering Ltd) in heavy duty industrial gas turbines. <ind> a)<ind> Gas turbines 20.<ind> Gas turbines burn natural gas to power the turbine. Gas  turbines are typically chosen where natural  gas  is  a readily  available fuel source. This segment can be  further subdivided  into large, heavy duty gas turbines (>10MW)  and small industrial gas turbines (010 MW). 21.<ind> Large, heavy duty gas turbines are used chiefly for power  generation by utility plants, either in simple  cycle or   in  combined  cycle  with  steam  turbine  to  maximize efficiency. Customers for large heavyduty gas turbines  also include large industrial companies requiring power alone  or power  plus  heat.  This  customer  segment  has  grown   as industrials have obtained contracts to sell excess generated power  to  nearby  utilities. Kvaerner builds  heavyduty  gas turbines  under  a  Business Associate  Agreement  with  the General Electric Company (GE), USA. Trafalgar House also has a  Business  Associate Agreement with GE. By this  agreement Trafalgar House manufactures, for sale to other corporations in  the gas turbine industry, components and assemblies  for gas  turbines. It also assembles complete gas turbine  units from  the  components it produces, its designs  and  certain high  value,  high  tech  components (e.g.  rotor  assembly, control  panel) obtained from GE or its licensee.  Trafalgar House  supplies gas turbine plants for power generators  and mechanical processors.  <ind> b)<ind> Aeroderivative gas turbines 22.<ind>  Aeroderivative gas turbines combine an  industrial version  of  an  established aircraft engine  with  a  power turbine  which  converts energy in the engine  exhaust  into shaft  power. Aeroderivative gas turbines have a wide  range of  capacities, up to approximately 45 MW. Furthermore, they are  more  fuel  efficient, lighter and  more  compact  than equivalent small industrial and heavyduty gas turbines.  The initial cost for a aeroderivative gas turbine is higher than that of other gas turbines but this is partially compensated for,    during   the   turbine's   life   cycle,   by    the aeroderivative's   higher   efficiency.   Kvaerner   supplies aeroderivative  turbines under an OEM  agreement.  Trafalgar House does not produce aeroderivative gas turbines. <ind> c)<tab> Substitutability 23.<ind>  Heavyduty and aeroderivative gas turbines  can  be substituted  for one another at power outputs below  60  MW. The  degree  of  substitution depends on  unit  size,  fuel, environmental   requirements   and   operating   conditions. Heavyduty gas turbines are preferred because of their  lower cost  or  if  the fuel quality is poor. Aeroderivatives  are preferred if high simple cycle efficiencies are required and if  weight/size is important, e.g. certain types of offshore platforms. d)<ind> Technology in the turbines sector 24.<ind> Manufacture of turbines is based on worldwide known technology, but there are few competitors in each market who possess   proprietary   technology.  Neither   Kvaerner   nor Trafalgar  House  possess proprietary  technology.  However, both  Kvaerner and Trafalgar House have access to proprietary technology through the GE Business Associated Manufacturers' group. Furthermore, Kvaerner and Trafalgar House manufacture, package and sell gas turbines designed by GE.  <ind> Assessment 25.<ind>  There is an overlap on the heavyduty gas  turbines market  only. Both Kvaerner and Trafalgar House have Business Associate Agreements with GE. It is estimated that GEC's own worldwide  market  share  in gas turbines  is  approximately [Deleted  business  secrets.] and  that  the  share  of  GEC technology  (ie  GE plus its licensees) is  around  [Deleted business secrets.]. 26.<ind> Both Kvaerner and Trafalgar House's main competitors in  the  gas  turbine  market  are  ABB,  Siemens,  GEC  and Westinghouse. Moreover, there is strong competition,  purely on  price,  from other GEC licensees such as EGT (which  has companies   in   France,  Germany  and  UK),   Hitachi   and Thomassen. 27.<ind>  In  the  light  of  the  above  information,   the operation will not create or strengthen a dominant  position in  the  gas turbine sector, neither for heavy duty nor  for aeroderivative turbines. <ind> 3.<ind> Other markets 28.<ind>  The  operation also has effects on  certain  other markets. These are covered as follows. <ind> In the hydro power turbine sector, Kvaerner are present as  a  provider  of  mechanical  equipment  which  typically accounts for [Deleted business secrets.] of the project  and Trafalgar  House are present on the civil construction  side which typically account for [Deleted business secrets.] of a project's value. In addition, a Trafalgar House company also supplies  a  Kvaerner company with water turbine  units.  The operation  will  enable the combined entity to  offer  joint tenders  for turnkey contracts covering both the  civil  and mechanical  equipment aspects of hydro power projects.  This is  the combination of complementary activities where  there are  many other competitors who can provide some or  all  of the services required in this sector. 29.<ind>  Kvaerner  provides subsea  equipment  for  offshore activities  to  Trafalgar House as well  as  to  other  main contractors  and to oil companies. There is  no  overlap  in this  market  and Kvaerner has a number of competitors  which will  prevent  Kvaerner  from  creating  or  strengthening  a dominant position on any market. 30.<ind>  Both  Kvaerner  and  Trafalgar  House  are   active manufacturers of processing equipment. Kvaerner is active  on the  upstream processing equipment market, whilst  Trafalgar House  is  primarily active downstream in  onshore  pressure vessels.  31.<ind> Trafalgar House owns the Cunard Line which operates 8  passenger  ships  and provides luxury cruises  worldwide. Kvaerner   obtains  43%  of  its  operating   revenues   from shipbuilding  and  it  has approximately  [Deleted  business secrets   less  than  30%.] of the worldwide  cruise  vessel building market. Given this position of the parties in these vertically related markets, the proposedconcentration is not likely to result in any foreclosure effect. 32.<ind>  In the manufacture of chemical pulp,  there  is  a small  percentage  of  the cost of the  machinery  which  is accounted  for by pollution control equipment. Both  Kvaerner and  Trafalgar  House  are active in this  market  primarily supplying hoses and gas tanks for the destruction  of  gases produced   by  the  pulp  production  process.   After   the operation, the two companies will have a market share  of  [ less  than  35%.]  worldwide. However,  there  are  powerful competitors  on  the  market,  the  entry  barriers  to  the industry  are  low  as the technology for  the  products  is comparatively  simple  and  the  majority  of  equipment  is accounted  for  by inhouse production. The  free  production represents  a  small  proportion  of  the  total  amount  of activity in this area. 33.<ind>  In  the  light  of  the  above  information,   the operation does not create or strengthen a dominant  position on  any  market. Accordingly, it can be declared  compatible with  the  common  market  and the functioning  of  the  EEA agreement. 34.<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  No 4064/89. For the Commission, Annex Market share last 3 years <tab> Geographical Sector: UK <tab> Design <tab> Fabrication <tab> Services <tab> Weighted total AME C <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Brown & Root <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] AOC <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Trafalgar <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Wood Group <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] SLP <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Barmac <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Kvaerner <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Kvaerner  +  Trafalgar House <tab> [ ] <tab> [ ]  <tab>  [  ] <tab> [ ] Value (MNOK/yr) <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ]  <tab> Geographical Sector: Norway <tab> Design <tab> Fabrication <tab> Services <tab> Weighted total Aker <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Kvaerner <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Haugesund <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] AMEC <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] ABB <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Westamarin <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Other <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Value (MNOK/yr) <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ]  <tab> Geographical Sector: Combined <tab> Design <tab> Fabrication <tab> Services <tab> Weighted total Aker <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] AMEC <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Kvaerner <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Brown & Root <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Haugesund <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] AOC <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Trafalgar <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Wood Group <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Kvaerner + Trafalgar <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ] Value (MNOK/yr) <tab> [ ] <tab> [ ] <tab> [ ] <tab> [ ]