CELEX: 31995M0656
Language: en
Date: 1995-11-17 00:00:00
Title: COMMISSION DECISION of 17/11/1995 declaring a concentration to be compatible with the common market (Case No IV/M.656 - Seagate / Conner) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0656

COMMISSION DECISION of 17/11/1995 declaring a concentration to be compatible with the common market (Case No IV/M.656 - Seagate / Conner) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 334 , 12/12/1995 P. 0003

 COMMISSION  DECISION of 17/11/1995 declaring a concentration to be compatible with the common market (Case No IV/M.656  - Seagate  / Conner) 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 No IV/M.656  Seagate/Conner <ind> <ind> Notification of 13.10.1995 pursuant to Article 4 of Council Regulation No 4064/89 1.<ind> On 13.10.1995 the Commission received a notification of  a  proposed concentration pursuant to Article 4  of  the Council   Regulation  (EC)  No.  4064/89  by  which  Seagate Technology  Inc  ("Seagate")  and  Conner  Peripherals   Inc ("Conner") will merge within the meaning of Article 3 of the Regulation. 2.<ind>   After   examination  of  the   notification,   the Commission  has concluded that the notified operation  falls within the scope of Council Regulation No. 4064/89 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 Parties 3.<ind>  Seagate is incorporated in Delaware, USA. The  main operation of Seagate and its subsidiaries is the manufacture of  hard  disk drives (hard disk drives) which are  used  as data  storage  devices  in  computer  and  other  electronic equipment.  Seagate  designs and manufactures  certain  disk drive components such as recording heads, disks, substrates, motors and custom integrated circuits. These components  are mainly  used within the group although a limited  volume  of tape  and  disk recording heads is supplied to the industry. Other   products  include  computer  management  and  access software. 4.<ind>  Conner is also incorporated in Delaware,  USA.  The company  manufactures  information storage  devices,  mainly hard  disk  drives  but  also tape  drives.  Other  products include   software   for   data   protection   and   storage management. II. <tab> The Operation 5.<ind>  The  merger  will be effected by  the  swapping  of Conner  shares for Seagate shares at the ratio  set  in  the Agreement   and   Plan  of  Reorganisation  ("Reorganisation Agreement"),   dated  3  October  1995.  Pursuant   to   the Reorganisation  Agreement, Conner  will  be  merged  with  a subsidiary   of  Seagate  thus  becoming  a   wholly   owned subsidiary   of  Seagate.  The  merger  is  effectively   an acquisition  of sole control and therefore is considered  to be  a concentration within the meaning of Council Regulation No. 4064/89. 6.<ind>  The  merger  is subject to a number  of  conditions including  stockholder  approval  in  the  form  of   simple majorities  from  both sets of stockholders.  The  agreement allows for a consummation of the merger in the period before 3  April  1996  or, under certain exceptional  circumstances before 3 June 1996. III.<ind> Community Dimension 7.<ind> The undertakings concerned have a combined aggregate worldwide  turnover in excess of 5,000 million ECU  (Seagate 3,580 million ECU, Conner 1,988 million ECU). Each party has a  Communitywide  turnover  in excess  of  250  million  ECU [Figures  for  Seagate  and Conner  have  been  deleated  as business  secrets],  but  they  do  not  achieve  more  that twothirds  of their aggregate Communitywide turnover  within one  and  the  same  Member State.  The  notified  operation therefore has a Community dimension. IV.<ind> Compatibility with the Common Market <ind> Product market 8.<ind>  Both Seagate and Conner produce a variety  of  hard disk  drives,  components  for  data  storage  products  and software.  Conner  also  produce  limited  volumes  of  tape drives.  All of these products are used in the computer  and related  industries for data storage. The  applications  for tape drives and hard disk drives are so different as to make substitution impractical. 9.<ind>  Hard disk drives are compact high performance  data storage  devices used in personal computers, work  stations, mainframes  andmultiuse computer networks to  record,  store and  retrieve digital information. A rigid disk drive stores information on a magnetic film deposited on circular  plates which  rotate at high speed. The information is written  and read  by recording/reading heads positioned over the plates.  10.<ind> Hard disk drives constitute [>90%] of Seagate's  EU turnover.  The  figure  for Conner is [8090%],  however  the other  [1020%]  is made up almost entirely  of  tape  drives which do not compete directly with hard disk drives. 11.<ind> The market for hard disk drives is characterised by a   high   degree  of  product  innovation,  short   product lifecycles  and volatility of market shares. The  hard  disk drive  market  is  split  into  three  segments.  The   most important market segment, which accounts for at least 90% of the market, is the 3.5 inch format. This segment is the most competitive  in the market and also the area  where  Seagate and  Conner are the most active. The other sectors  are  the portable computer market where 1.8 inch and 2.5 inch  drives are   most   commonly  used  and  the  server/mini/mainframe computer  segment where higher performance disk  drives  are used. 12.<ind> The total world market is growing rapidly in volume terms, up from 44 million units in 1992 to 51 million  units in  1993  and  69  million units in 1994. During  this  time worldwide  revenue  from hard disk drive  sales  has  stayed relatively  flat,  around  15,000  million  ECU  per   year, reflecting the decreasing average price per unit. 13.<ind>  The  world's  largest manufacturer  of  hard  disk drives by volume is IBM. However a substantial proportion of IBM disk drives are used in IBM brand machines and therefore are  not sold on the open disk drive market. Given this fact and  the  difficulty of assessing the market value  of  disk drives  that  are used internally, the Commission  has  used worldwide  aggregate  revenue figures derived  from  shipped hard  disk drives to ascertain market shares. On this basis, the  world  market leaders in hard disk drives are generally agreed  to  be  Quantum  Corporation,  Seagate  and  Conner. Seagate  is  assessed to have a market share of [2030%]  and Conner of [1020%] on the basis defined above.  14.<ind> The market for hard disk drives is characterised by rapid  changes in market share and new entrants are  common. For  example, Conner itself started in business  nine  years ago  and  now has [1020%] of the 15,000 million ECU  market. Other  examples are a company which increased  market  share from  10.0% to 12.8% between 1993 and 1994 and another whose market share fell from 9.8% to 6.9% in the same period. 15.<ind>  The  large majority of the parties' production  of hard  disk  drives is of 3.5 inch hard disk drives  (Seagate [>90%], Conner [>90%]). Products are sold either to original equipment  manufacturers  or resellers.  Original  equipment manufacturers are usually large customers with  considerable purchasing power. 16.<ind> The product market will be examined on the basis of the  individual market segments as set out in paragraph  11. It  is  not necessary to define the relevant product  market because if the transaction does not give rise to competition questions  on  these narrowly defined market segments  there will be no problems at other levels <ind> Geographic Market 17.<ind> The manufacture of hard disk drives appears  to  be concentrated in East Asia and the USA. Manufacturers  supply globally  to their customers who select suppliers regardless of  their  geographical proximity. Given the value  to  size ratio of hard disk drives, transport costs are insignificant and have no bearing on global trade flows. 18.<ind>  Analysis of prices shows no significant  variation between  the average selling prices on the world market  and those  in  Western  Europe. Furthermore differences  between average  selling  prices for the products in  Member  States were  randomly distributed and can be explained by  purchase quantity variations. 19.<ind>  The above facts indicate that the hard disk  drive market  is  probably  a  global  market.  However,  for  the purposes  of  the EC merger Regulation, it is sufficient  to verify   that  the   transaction  does  not  give  rise   to competition questions at the EU level. <tab> Assessment 20.<ind>  The combined entity will be the largest hard  disk drive shipper in the world with [3040%] revenue based market share. Quantum, the second largest shipper, currently has  a world  revenue based market share of [2030%] and  there  are two other producerswith market shares in excess of 10%. 21.<ind>  The  transaction  will  give  Seagate  and  Conner combined EU market shares of approximately [2030%],  [3040%] and  [3040%] in hard disk drives for the portable, 3.5  inch desktop    and    server/mini/mainframe    market    sectors respectively.  22.<ind>  Only  one  of  the  parties  is  active   in   the server/mini/mainframe   market  the   operation   will   not therefore affect the competitive situation in this segment. 23.<ind>  The  hard disk drive market is experiencing  rapid growth,  approximately 25% per year since 1992. Competitors, such  as Fujitsu, NEC and Hyundai have announced very  large capacity  expansion plans for the near future.  The  capital cost of hard disk drive manufacturing plants is low compared to  the potential turnover of these plants. Industry sources indicate that a facility producing 10 million units per year could  be  built in one to oneandahalf years for  under  100 million  ECU. At current average prices such a plant  would, if  operated  at  full capacity produce a turnover  of  over 2,000 million ECU. 24.<ind>  Strong price competition has kept overall revenues flat indicating an equivalent level of price reductions. The market is also experiencing a rapid rate of innovation  with product  lifecycles of one to two years. Customer  enquiries have indicated that price is the main purchase criteria  and no  evidence  of  exclusive purchase  agreements  have  been found. 25.<ind> There are also no significant barriers in terms  of licensing  of  patents. Patents are normally for  components and  processes rather than the drives themselves.  There  is extensive   cross   licensing  in  the  industry   and   the combination   of  Seagate  and  Conner's  patents   is   not considered a threat to this situation.  IV.<ind> Conclusion 26.<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,