CELEX: 32007M4456
Language: en
Date: 2007-03-06 00:00:00
Title: Commission Decision of 06/03/2007 declaring a concentration to be compatible with the common market (Case No COMP/M.4456 - MAHLE / DANA EPG) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EN
                                         Case No COMP/M.4456 -
                                         MAHLE / DANA EPG
                                  Only the English text is available and authentic.
                           REGULATION (EC) No 139/2004
                                        MERGER PROCEDURE
                            Article 6(1)(b) NON-OPPOSITION
                                                        Date: 06/03/2007
 In electronic form on the EUR-Lex website under document
                                                number 32007M4456
Office for Official  Publications    of    the     European        Communities
L-2985 Luxembourg
 ---pagebreak---                         COMMISSION OF THE EUROPEAN COMMUNITIES
                                                                 Brussels, 06.03.2007
                                                                 SG-Greffe(2006) D/201071
   In the published version of this decision, some                       PUBLIC VERSION
   information has been omitted pursuant to Article
   17(2) of Council Regulation (EC) No 139/2004
   concerning non-disclosure of business secrets and
   other confidential information. The omissions are
   shown thus […]. Where possible the information
   omitted has been replaced by ranges of figures or a
                                                                      MERGER PROCEDURE
   general description.                                            ARTICLE 6(1)(b) DECISION
To the notifying party
Dear Sirs,
Subject:        Case No COMP/M.4456 – MAHLE / DANA EPG
                Notification of 30/01/2007 pursuant to Article 4 of Council Regulation
                No 139/20041
                Publication in the Official Journal of the European Union No. C 027, dated
                07/02/2007, page 25.
1. On January 30, 2007, the Commission received a notification of a proposed
      concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004, by which
      the German company Mahle GmbH (hereinafter referred to as "Mahle" or "the notifying
      party") intends to acquire sole control over the Engines Product Group (Dana EPG) of
      the US-based company Dana Corporation by means of purchase of shares and assets.
I.     THE PARTIES AND THE TRANSACTION
2. Mahle is a company active in the automotive and engine industry and supplies piston
      systems, cylinder components, valve train systems, air management systems, and liquid
      management systems to the automotive and the engine industry. Dana Corporation, the
      seller of Dana EPG, is an automotive supplier of drivetrains, chassis, engines, and
      structural technologies. Dana Corporation is under chapter 11 protection in the US.The
      primary products of the business being sold, Dana EPG, are piston rings and bearings
      for internal combustion engines.
II.     CONCENTRATION
1     OJ L 24, 29.1.2004 p. 1.
Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.
 ---pagebreak--- 3. The notified operation is intended to confer to Mahle sole control over Dana EPG, based
    on an agreement signed on December 1, 2006. It therefore constitutes a concentration
    within the meaning of Article 3(1)(b) of the EC Merger Regulation.
III. COMMUNITY DIMENSION
4. Mahle has a world-wide turnover of EUR 4 122 million and Dana EPG has a world-
    wide turnover of EUR [300-800] million. Moreover, the turnover of Dana EPG does not
    exceed EUR 25 million in three Member States2. The notified concentration therefore
    does not have a Community dimension within the meaning of Article 1 of the EC
    Merger Regulation.
5. However, on December 11, 2006, the notifying party informed the Commission in a
    reasoned submission pursuant to Article 4(5) of the EC Merger Regulation that the
    concentration was capable of being reviewed under the national competition laws of at
    least three Member States, namely Austria, France, Germany, and Sweden, and
    requested that the case be referred to the Commission. None of the Member States
    competent to examine the concentration indicated its disagreement with the request for
    referral within the period laid down by the Merger Regulation.
6. Therefore the concentration is deemed to have a Community dimension pursuant to
    Article 4(5) of the EC Merger Regulation.
IV. COMPETITIVE ASSESSMENT
7. Both parties to the transaction are active in the supply of two specific engine
    components for internal combustion engines: connecting rod bearings and pistons rings.
    A connecting rod bearing is a metal shell that joins the connecting rod to the crankshaft,
    and allows the connecting rod and the crankshaft to move at different speeds, while also
    passing along the load generated by the piston in order to turn the crankshaft (see Figure
    1). Piston rings are metallic engine parts that that are inserted into the piston to preserve
    a gas-tight seal between the piston and the cylinder wall (see Figure 2).
                                                           Figure 2: Piston rings (where the
              Figure 1: Connecting rod bearings
                                                           parties overlap) with piston head
2   Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice
    on the calculation of turnover (OJ C66, 2.3.1998, p. 25).
                                                          2
 ---pagebreak---       PRODUCT MARKET DEFINITIONS
8. The notifying party submits that piston rings and bearings are distinct products, both
    used as components in internal combustion engines. For the definition of the relevant
    product markets, however, further subdivisions should be made for each products, based
    on the sales channel and on size of the engines in which these products are used.
      OEM/OES versus IAM
9. The notifying party proposes to consider the Independent AfterMarket (IAM) as a
    separate product market from OEM/OES markets3 This is in line with the Commission's
    decisional practice. The notifying party also proposes to consider a single market for
    Original Equipment Manufacturers (OEM), i.e. engine producers, and Original
    Equipment Suppliers (OES), i.e. the official repair network of the engine producers. The
    notifying party submits that OE customers do not distinguish between the purchases for
    OEM and for OES when negotiating supplies, that suppliers do not know what the final
    destination of the products are and that the products are identical for OEM and for OES.
10. No respondent to the Commission's market investigation has disputed these claims (that
    is, the existence of separate IAM and OEM/OES markets and the absence of distinction
    between OEM and OES purchases for the specific cases of bearings and piston rings).
      Light duty versus heavy duty bearings and piston rings
11. Following the Commission's decisional practice4 in cases involving the supply of engine
    components, the parties distinguish between light duty and heavy duty markets5. Light
    duty engine parts are sold largely for vehicles up to 6 tons (excluding very small ones,
    e.g. for motorcycles and lawn mowers). Conversely, heavy duty engine parts are sold
    largely for vehicles above 6 tons.
12. Lack of demand side substitutability is clear in this case. As for supply side
    substitutability, the parties state that light duty engine components are typically
    produced in larger volumes in an automated process, while heavy duty components are
    produced in smaller quantities. In addition, light duty and heavy duty components have
    different technical characteristics.
13. Even if some competitors noted some degree of supply-side substitutability between
    light duty and heavy duty bearings and piston rings, the market investigation has
    overwhelmingly confirmed the relevance of this distinction6.
       Other possible distinctions
3   In OEM/OES markets, parts are sold to equipment manufacturers for assembly in new vehicles and for
    resale through their service network. In IAM markets, parts are sold to independent retailers for
    automotive spare parts and independent repair shops.
4   See e.g. Case M. 1587 Dana/GKN.
5   The distinction is also reflected in Dana EPG's information memorandum to potential acquirers.
6   See majority of the answers to questions 4 and 6 in the Article 11 letters sent to customers and
    competitors.
                                                          3
 ---pagebreak--- 14. The Commission has investigated whether further distinctions would be relevant by
    asking OEM customers to evaluate the ability of their suppliers to meet fully their
    demand.
15. In particular, as regards piston rings, the Commission investigated whether there was a
    good supply-side substitutability between diesel and gasoline piston rings. Indeed, in a
    1999 Bundeskartelamt case Federal Mogul – Alcan Deutschland GmbH, the German
    Competition Authority considered that gasoline and diesel piston rings were part of
    distinct product markets.
16. Mahle submitted that such a distinction is no longer relevant. According to Mahle, the
    reason for the limited substitutability at the time the German Bundeskartellamt
    examined the merger between Federal Mogul and Alcan in 1999 was linked to Federal's
    Mogul patent on the dominant CKS technology used for producing light duty rings.
    Now Federal Mogul's patent has expired and new technologies like the PVD have been
    developed7. As a result, all piston rings producers today use their capacity to
    manufacture both gas and diesel rings. There is now full supply-side substitutability
    between diesel and gasoline piston rings.
17. All competitors and customers confirmed Mahle's claim and making a distinction
    between diesel and gasoline piston rings or any other distinction does not prove to be
    relevant for the competitive assessment8.
      Conclusion
18. In conclusion, the relevant product markets identified in this case are the following:
     • Bearings for light duty applications to OEM/OES customers;
     • Bearings for heavy duty applications to OEM/OES customers;
     • Bearings for light duty applications to IAM customers;
     • Bearings for heavy duty applications to IAM customers;
     • Piston rings for light duty applications to OEM/OES customers;
     • Piston rings for heavy duty applications to OEM/OES customers;
     • Piston rings for light duty applications to IAM customers
     • Piston rings for heavy duty applications to IAM customers
7   CKS and PVS are two alternative coating technologies. They respectively stand for Chromium Ceramic
    Coating and Physical Vapour Deposition.
8   See question 8 in the article 11 letters sent to customers and competitors
                                                            4
 ---pagebreak---       Geographic market definitions
      (i) OEM/OES markets
19. As regards OEM/OES markets, the parties submit that the OEM/OES markets are least
    EEA-wide, which is in line with the Commission's decisional practise.
20. The market investigation provided mixed elements on the geographical scope of the
    markets. As regards bearings, the demand seems to be somewhat different in Europe due
    to the existence of tougher regulation standards, and the large number of diesel engines
    for light duty vehicles9. Other specificities of European manufacture requirements
    would lie in their life-time expectation, the specific design of engines, and the power
    output of engines. Furthermore, some customers indicated that there still exists a home
    bias and that bearing manufactures tend to be strong in their home markets. This would
    be due, as indicated below, to the difficulty to switch supplier and also to the existence
    of aftermarket sales which reinforces ties of car and truck manufacturers to their historic
    suppliers.
21. As a result, regional suppliers and car/truck manufacturers have developed a
    relationship of trust and confidence that makes it difficult to enter a new geographic
    market. Moreover, a manufacturer willing to expand its presence in Europe would need
    a knowledgeable salesforce, a good distribution network, and gather market intelligence,
    which could also be obstacles for being an effective competitor. Overall, competitors
    that responded to the market test estimated that, for a competitor with no current
    operations in Europe, it would take up to 3 years to become an effective competitor in
    Europe.
22. On the other hand, car/truck manufacturers are increasingly becoming global companies
    which value a worldwide presence of their suppliers. In any case, the question whether
    the OEM/OES markets for light duty and heavy duty bearings are EEA-wide or larger in
    scope can remain open as it does not alter the conclusions of the competitive
    assessment.
23. As regards piston rings, the European dimension of the OEM seems to be even more
    manifest. Again, there is a more stringent regulation, higher technical loads, more diesel
    engines, and a different quality standard in Europe. For example, superior noise
    reduction conditions have to be achieved with European engines and engines tend to
    have a smaller size and higher power. The historical ties between car/truck
    manufacturers and regional suppliers seem also to be strong. Furthermore, several
    customers mentioned also the remoteness of plants from Europe (e.g. Brazil for Mahle)
    as an important weakness. However, the question whether the OEM/OES markets for
    light duty and heavy duty piston rings are EEA-wide or larger in scope can remain open
    as it does not alter the conclusions of the competitive assessment.
      (ii) IAM markets
24. Concerning IAM markets, in line with the Commission's decision practise, the parties
    submit that IAM markets are national in scope. The question whether the IAM markets
9   While suppliers already present in Europe can provide bearings both for gas and diesel engines, the
    specificities of the European demand means that would a potential entrant would have to adapt its
    production process to enter the market.
                                                     5
 ---pagebreak---     for light duty and heavy duty bearings and piston rings are national or wider in scope
    can remain open as it does not alter the conclusions of the competitive assessment.
      a.     ASSESSMENT
      (i) OEM/OES markets
      Light Duty Bearings
25. The proposed transaction does not raise any competition concerns on the market for
    light duty bearings since the overlap is limited to [<5]% at the EEA level (and the
    combined market share would be [15-25]%; Federal Mogul, Kolbenshmidt, and Miba
    have respectively [35-45]%, [15-25]%, and [5-15]% of the market). At the worldwide
    level, the market is not affected.
      Heavy Duty Bearings
26. In the EEA market for heavy duty bearings, the transaction would reinforce the number
    two position currently held by Dana EPG behing market leader Federal Mogul10:
    2005 data     Mahle      Dana    Combined     Federal   Kolbenschmidt     Miba     Others
                             EPG                   Mogul
       EEA        [<5]%    [30-40]%   [35-45]%   [40-50]%      [5-15]%       [<5]%     [<5]%
27. The parties submitted that no anticompetitive effect would result from the merger,
    considering the relatively small overlaps, the strength of the market leader Federal
    Mogul, the competitive pressure exerted by other, smaller competitors coming from
    Japan, China and India, and the considerable buyer power of customers.
28. In the market investigation, car and truck manufacturers explained that changing
    suppliers is a very heavy and expansive process that can take several years. The
    qualification process for a new supplier involves discussion on the technical
    characteristics of the products, as well as extensive testing first in the laboratory and in
    the actual production process. As a result, car and truck manufacturers prefer to
    establish a relationship and work with a relatively small number of suppliers (3-4). They
    choose their suppliers based on the price, quality, and technology of products.
29. However, the market investigation revealed that most car and truck manufacturers do
    not consider Mahle and Dana EPG as close competitors. Indeed, on the market, Federal
    Mogul is considered as the technological leader, which keeps its edge through important
    R&D investment and is able to supply a wide range of products. It appears that Dana
    EPG has a comparable positioning. By contrast, according to the market investigation,
    Mahle markets less quality oriented products which come from its production facility in
    Brazil.
30. Thus, the merger removes a weak competitor from the market, and the new entity will
    still face the strong competition of Federal Mogul, whereas Kolbenschmidt remains a
10  2005 data provided by Mahle.
                                                   6
 ---pagebreak---     sizable competitor. It therefore appears unlikely that the proposed transaction will give
    rise to non-coordinated effects.
31. Accordingly, only one customer expressed fears that the merger would bring about
    higher prices. Other customers did not express strong concerns, and some of them
    explained that the takeover of Dana EPG would make the latter a more reliable partner
    as one of its current weaknesses is its financial instability.
32. As regards possible coordinated effects, the market investigation revealed that markets
    cannot be considered as transparent. Indeed, while the successful bidder of tenders is
    generally public, pricing remains unknown. Furthermore, as explained above, the market
    is somewhat differentiated with technological leaders such as Federal Mogul. These
    elements—lack of transparency and lack of product homogeneity—make it difficult for
    suppliers of heavy duty bearings to reach a common understanding on the terms of
    coordination and to monitor such coordination. Thus, coordinated effect are unlikely to
    arise as a result of the market investigation.
33. If the markets were to be considered worldwide in scope, the position of the new entity
    would be weaker (Mahle: [5-15]%; Dana EPG: [10-20]%; Daido: [30-40]%; Federal
    Mogul: [15-25]%; Taiho: [10-20]%; Kolbenschmidt: [<5]%; others: [<5]%) as it would
    be limited to [20-30]%. In particular, it would face the competition of the Japanese
    suppliers such as Daido and Taiho in addition to that of Federal Mogul. Thus, the
    proposed transaction is unlikely to significantly impede effective competition on a
    worldwide basis.
      Light duty and heavy duty piston rings
34. On other EEA markets for piston rings, the proposed transaction brings about limited
    changes as can be seen from the following table11:
     2005 data      MAHLE     Dana      Combine      Federal    Riken   NPR      Others
                              EPG       d            Mogul
      Light duty
                    [10-20]%    [0-10]%  [15-25]%    [60-70]%   [0-10]%  [<5]%    [<5]%
     piston rings
      Heavy duty
                     [0-10]%   [10-20]%  [15-25]%    [55-65]%   [5-15]%  [<5]%   [0-10]%
     piston rings
35. Thus, non-coordinated effects are very unlikely as a result of the merger. Coordinated
    effects are also unlikely due to the lack of transparency on the market (pricing) and the
    different market positioning of market players (for example, Federal Mogul is stronger
    in piston rings for diesel engines than Mahle and Dana EPG).
36. In addition, as explained by the notifying party, that there have been several new
    entrants on the market, notably from Japan (Riken, NPR), as well as from China and
    India. It appears that the Czech company Bachibuzuk is also newly active on the market.
37. This analysis holds at the worldwide level. For light duty piston rings, the new entity
    would hold [20-30]% of the market (Mahle: [5-15]%; Dana EPG: [10-20]%) and would
    face competition from Federal Mogul [35-45]% and Japanese manufacturers (Riken ([5-
11  2005 data provided by Mahle
                                                   7
 ---pagebreak---     15]%), TPR ([5-15]%), NPR ([5-15]%)). As for heavy duty piston rings, the new entity
    would only hold [10-20]% of the market and would face competition from Federal
    Mongol ([25-35]%) and Japanese manufacturers (Riken ([20-30]%), TPR ([10-20]%),
    NPR ([10-20]%)).
38. For these reasons, the proposed transaction is very unlikely to significantly impede
    effective competition on the markets for piston rings. In fact, no customers raised
    concerns specific to these markets and some of them even expect a boost to innovation.
      (ii) IAM
39. The only national IAM affected would be the French light duty bearing market and the
    French light duty piston rings markets. European IAM markets for engine components
    are micro-markets compared to the OEM/OES markets: the estimated market size in
    France in 2005 was € 1.4 million for light duty bearings and € 3 million for light duty
    piston rings.
40. The transaction would lead to combine market shares of [30-40]% (Mahle [25-35]%,
    Dana EPG [0-10]%, market leader is Federal Mogul with [40-50]%) for light duty
    bearings. However, Dana EPG's sales in the French market are not made to French
    customers (i.e. repair shops and mechanics operating in France) but to exporters that
    resell bearings in the Maghreb. Thus, Dana EPG is a niche player on the market and its
    peculiar market positioning makes it unlikely that non-coordinated effects will arise as a
    result of the merger. As for light duty piston rings, the merger will barely bring about
    any change and the combined market share would be limited to [10-20]% (Mahle [10-
    20]%, Dana EPG [<5]%, market leader Federal Mogul with [60-70]%).
41. In view of these elements, the proposed transaction does not give rise to competition
    concerns on the French IAM markets for light duty bearings and piston rings.
42. No competition concerns would arise in hypothetical EEA-wide IAM markets. As for
    light duty bearings, in all European countries other than France, Mahle's position is
    clearly below 15% and Dana EPG is hardly present. Similarly, Mahle's position in light
    duty piston rings is below 15% in all EEA countries but France, and Dana EPG is hardly
    present in these countries.
VI. CONCLUSION
43. 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 EEA Agreement.
    This decision is adopted in application of Article 6(1)(b) of Council Regulation (EC) No
    139/2004.
                                                       For the Commission
                                                       signed
                                                       Neelie KROES
                                                       Member of the Commission
                                                  8