CELEX: 31992M0258
Language: en
Date: 1992-09-25 00:00:00
Title: COMMISSION DECISION of 25.09.1992 declaring a concentration to be compatible with the common market (Case No IV/M.258 - CCIE / GTE) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31992M0258

COMMISSION DECISION of 25.09.1992 declaring a concentration to be compatible with the common market (Case No IV/M.258 - CCIE / GTE) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 265 , 14/10/1992 P. 0000

 COMMISSION DECISION of 25.09.1992 declaring a concentration to  be compatible with the common market (Case No IV/M.258 - CCIE /  GTE) 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 with advice of delivery To the notifying party Dear Sirs, Subject: <ind> Case No. IV/M.258 - CCIE / GTE <tab> <ind> Your notification pursuant to Article 4 of Council  Regulation (EEC) No. 4064/89 ("the Regulation")  1.<ind> The notified operation concerns the buy-out led by  Citicorp (with temporary support from Siemens) of GTE's  International Lighting Division ("IL"), comprising GTE's non- North American lamps and lighting fixtures business.  I.<tab> THE PARTIES  2.<ind> EDIL International Lighting B.V. ("EDIL" - to be  renamed Sylvania Lighting International B.V.) is a shell  company which will effect the acquisition. It is controlled by  Citicorp Capital Investors Europe Limited ("CCIEL") which is a  wholly-owned subsidiary of Citicorp.  3.<ind> GTE Corporation is a US company whose main activity is  the manufacture and supply of telecommunications equipment and  services. It announced in September 1991 its intention to sell  its lighting business in order to concentrate on  telecommunications. The lighting business comprised of the  North American Lighting Division ("NAL") and the International  Lighting Division ("IL") which is the object of this  transaction. GTE wished to dispose of its two lighting  divisions simultaneously. IL manufactures and sells general  purpose lamps, some specialty non-automotive lamps  and non- residential lighting fixtures and represents one third of GTE's  global sales in lighting. Both divisions use the trade name  "Sylvania".  4.<ind> Siemens AG is a German company whose main activities  are in the fields of power generation and distribution,  electronics, communications equipment, information technology  and electrical engineering. Osram GmbH is its wholly-owned  subsidiary which manufactures a full range of general purpose  lamps.   II.<tab> THE OPERATION  5.<ind> CCIEL intends to buy the shares of IL's subsidiaries  from GTE through EDIL. Osram will simultaneously acquire NAL.  The two transactions are mutually dependent as to completion.  <tab> CITICORP'S ACQUISITION OF IL  6.<ind> CCIEL is committed to providing a little under  [Business secret - less than half] of the purchase price by way  of equity. In order to facilitate its own acquisition, Siemens  agreed to provide debt financing for the buy-out of IL and will  provide bridging finance for nearly [Business secret - more  than half]. The balance will be funded by GTE in the form of a  promissory note issued by EDIL.  7.<ind> CCIEL's share of voting rights in EDIL will not exceed  19% either before or after the transaction. Currently the  balance of voting rights is held by an independent investment  banking firm which has delegated its management powers to two  employees (the "Representatives") of Citicorp Venture Capital  Limited (a wholly-owned Citicorp subsidiary).  <ind> Both shareholders hold a veto over all board decisions,  although their approval is not required for the actions of the  Representatives. Furthermore, the independent investment  banking firm has undertaken not to obstruct completion of the  transaction. CCIEL thus has the right to manage EDIL's affairs  within the meaning  of Article 5(4)c and is an "undertaking  concerned" within the meaning of Article 5.  8.<ind> Following completion CCIEL will hold [Business secret -  a minority] of the voting rights, the balance being held by  other investors [Business secret] and management [Business  secret]. CCIEL will have a permanent seat on EDIL's board and  will appoint the Chairman and CEO. Other investors will  together have only one seat on the board. The CCIEL director's  prior written approval will be required for all significant  decisions (such as appointments and removal of board members,  engagement and dismissal of senior employees, material capital  expenditure, disposal of significant assets and approval of the  annual budget). The parties state that this veto right will  also apply to shareholder meetings and will be provided for in  a new shareholders' agreement. CCIEL will thus continue to  control EDIL following completion.   9.<ind> Citicorp's acquisition of EDIL constitutes therefore a  concentration within the meaning of Article 3(1)b.  <tab> FINANCING AND COMMERCIAL AGREEMENTS WITH SIEMENS  10.<ind> Siemens will provide bridge-financing for the buy-out  in the form of a loan to EDIL, 75% of which will fall due  within three years and the balance in the fourth year. The rate  of interest on the loan will increase with time and it will be  secured on the assets acquired by EDIL. Until the principal  amounts fall due Siemens will not have the usual creditor right  to put EDIL into bankruptcy or accelerate repayment of the  loan, only to sue for unpaid interest. EDIL may prepay the loan  without penalty.  <ind> Should EDIL not prepay the loan within two years of  completion, Siemens is entitled to receive an amount equal to  5% of the value of EDIL on its sale or listing. Siemens will  not have any representation on EDIL's board or have access to  confidential business information of EDIL.  11.<ind> EDIL will also sign various intellectual property  right, supply and R&D agreements with Osram. Prior to the  transaction IL had access to the R&D of the North American part  of the GTE Lighting business ("NAL") which also provided it  with some engineering support services and certain  manufacturing apparatus. IL also had access, through NAL, to  Osram's technical information and patents because of existing  reciprocal patent licensing and technical information exchange  agreements between Osram and GTE. On completion, agreements  between EDIL and Osram will guarantee continued access for EDIL  to:  <tab> -<ind> Osram technical information resulting from Osram  (and thus NAL) R&D, production engineering and manufacturing  activities; <tab> -<ind> certain Osram engineering support services at  cost; <tab> -<ind> Osram manufacturing apparatus at cost; and <tab> -<ind> licences or sub-licences of Osram and NAL patents  on a royalty free basis. NAL (as opposed to Osram) patents will  for five years be licensed on an exclusive basis.  <ind> These agreements will last ten years, although in each of  the last three years EDIL will have to pay a [Business secret -  nominal amount] contribution to Osram's R&D expenses and  [Business secret] of EDIL turnover generated from patents  granted in years 8, 9 and 10 must be paid to Osram following  the end of the agreement. The effect of these agreements and of  the first of the supply agreements described below is  substantially to recreate IL's position prior to the operation  by assuring EDIL temporary access to R&D expertise for a  transitional period.  <ind> Osram will also enter certain non-exclusive, arms-length  supply agreements with EDIL guaranteeing EDIL supplies of lamp  parts formerly supplied to IL by NAL. In addition, EDIL will be  able to order from Osram, for a maximum of four years in each  case within the overall term of the agreement, new lamps and  lamp parts at a price, according to the contracts, which will  enable "EDIL to be  competitive (including with Osram Group) in  the market place ..." The purpose of this last agreement is to  ensure that, should it become necessary, EDIL can temporarily  fill any gaps in its lamp range in the period in which it is  building up its own R&D capability. EDIL will be free to  procure supplies in both cases from other sources.  12.<ind> The links created by these agreements are all  temporary, and the agreements themselves contain economic  incentives for EDIL to develop its own in-house technical R&D  capability. These are also one-way agreements which do no more  than guarantee EDIL continued access to intellectual property  and technical assistance to the extent needed. As such they  represent a safety-net for the buy-out as it builds up its own  financial resources, in-house R&D capability and develops new  lines of supply. The parties maintain that Siemens has agreed  to these terms purely in order to facilitate its own  acquisition of NAL. While these agreements may afford Siemens  some limited influence over EDIL this influence will neither be  permanent and long-lasting or decisive. Siemens/Osram will thus  not control EDIL within the meaning of Article 3(3).   III.<tab> COMMUNITY DIMENSION  13.<ind> The 1991 combined worldwide "turnover" of IL and  Citicorp (calculated in accordance with Article 5(3) in respect  of Citicorp) is ECU 18,024 million (ECU 17,506 million for  Citicorp and ECU 518 million for IL). EC turnover for both  Citicorp and IL thus exceeds ECU 250 million and the parties do  not achieve more than two thirds of their EC turnover in one  and the same Member State. The concentration therefore has a  Community dimension.  IV.<tab> COMPATIBILITY WITH THE COMMON MARKET  <tab> PRODUCT MARKETS  14.<ind> IL's activities in the Community are centred in the  areas of lamps for general purpose lighting and lighting  fixtures for non-residential use.  15.<ind> Lamps for general purpose lighting can be further  divided in the following product groups according to the basic  technology used and the broad characteristics of the lamp (eg.  energy consumption and properties of the light produced):  incandescent, halogen, fluorescent, compact fluorescent  and  high intensity discharge lamps (HID). The general purpose  lighting market excludes lamp products designed specifically  for outside use, such as street and railway lighting and  floodlights. It also excludes lamps for specialty applications,  such as vehicle lights, sun tanning lights etc. Whether the  relevant market is that of lamps for general purpose lighting  or that of individual types of lamp can be left open since it  will not affect the subsequent competition analysis.  16.<ind> Lighting fixtures for non-residential use include  architectural fixtures and industrial/commercial fixtures. IL  also has a small number of sales of fixtures for residential  use in France under the brand name Le Dauphin.  <tab> GEOGRAPHIC MARKETS  <tab> Lamps  17.<ind> The parties have submitted in their notification that  competition in the overall lamp market takes place at a  Community-wide level because of the absence of technical  barriers to trade, low transport costs, centralized production,  the large volume of intra-EC shipments (60% of the total lamp  market), and the presence of major producers throughout the EC.  EC tariffs for lamps range between 4.9-6% and imports from  outside EC account for under 10% of the market.  18.<ind> However, marketing and pricing remain organized  essentially at national level. The Commission's investigations  have shown that the pricing and marketing policies of at least  two of IL's competitors are decentralized. Each   national  sales organization is responsible for the fixing and  publication of prices and for the negotiation with customers of  conditions of sale and discounts within their respective State.  Equally, major customers also organize their purchases at a  national level.  19.<ind> Given the national organization of both wholesalers  and manufacturers, markets could be viewed as national, in the  sense that different pricing policies and price levels could be  applied in each Member State. However, the absence of barriers  to trade and the significance of trade flows, the high degree  of product standardization and the existence of EC wide  distributors for more than half of the total sales of lamps  indicate that perhaps substantial price differences and  divergent price tendencies could not be sustained for a long  period of time. The precise geographic market definition can be  left open since it would not alter the competition assessment  below.  <tab> Fixtures  20.<ind> In respect of fixtures, the parties submit that  markets are national in scope. The bulk of production of  fixtures is accounted for by a large number of small,  specialised companies operating generally on a national basis  at most. National consumer tastes and preferences are in all  probability particularly important in this market.  ASSESSMENT  21.<ind> The acquisition of control of IL by the venture  capital company CCIEL does not create or strengthen a dominant  position either on the markets for fixtures or on the markets  for general purpose lamps.  22.<ind> The fixtures market is characterized in all Member  States by its low degree of concentration. A large number of  small producers account for 66% of the overall EEC market and  up to 80% in certain Member States. Even the combined market  shares of IL and Siemens are below 25% in all Member States,  therefore these agreements will not create or strengthen a  dominant position in this market.  23.<ind> The markets for general purpose lamps are throughout  the Community concentrated with Philips and Siemens holding a  combined market share of more than 50% and the leading four  firms, including IL,  having a total share of around 90%. The  balance of the market comprises some small European producers  and imports from US, the Far East and Eastern Europe. Imports  from the US and Far East tend to be of higher-value added  products benefiting from the trend to miniaturisation, while  those from Eastern Europe are of more basic lamps. It is in the  higher-value added products that imports have had the greatest  impact [Council Regulation (EEC) No. 117/91 of 16.01.1991  imposed a definitive anti-dumping duty on imports of certain  linear halogen lamps originating from Japan.]. IL achieves its  strongest market positions in France, Spain and Belgium where  its market share is [Business secret - no more than 25%].  <ind> Market concentration is basically the same with regard to  the five different product groups, although some manufacturers  are stronger in one product group than in others. Traditional  fluorescent and incandescent lamps for example represent a  greater percentage of IL's sales than the average for the  industry.  24.<ind> The overall market for general purpose lamps is  growing moderately in value terms (approx. 4%). New or improved  lamp products are growing fastest, whereas sales of  incandescent and fluorescent lamps are stagnating. Compact  fluorescent lamps and halogen lamps, for example, have shown an  annual growth rate of more than 20% and more than 10% by value  respectively in the years 1986-90. The prices of incandescent  and fluorescent lamps are broadly stagnant while those of newer  lamp technologies are falling in real terms.  25.<ind> There exist substantial barriers to entry to the  general purpose lamp market in respect of economies of scale  and technology. Although the base technology is accessible for  all interested companies, a significant and viable competitor  in the market needs its own research and development facility  and engineering capability in order to participate in the  competition for new or improved lamps. In addition, most major  lamp manufacturers appear to have entered into cross-licensing  arrangements and a new entrant without its own research to  trade would have difficulty in gaining access to others'  patents, at least on a royalty-free basis.  26.<ind> Major manufacturers also cooperate in manufacturing  components. The joint venture Emgo, for example, which  manufacturers glass bulbs, is jointly owned by Philips and  Osram. GTE itself has 49% in a joint venture with GE in Italy  (SIVI). Moreover, there are similar deliveries of parts across  the industry.  27.<ind> The demand side is widely dispersed. Electrical  wholesalers hold the largest share of demand (approximately  50%), followed by modern distribution chains (17%), public  procurement (16%) as well as contractors, OEMs and other  purchasers (together 17%).  28.<ind> Apart from price, a key competitive parameter in this  industry is innovation. R&D effort is mainly concentrated on  the higher-margin products such as HID, compact fluorescent and  halogen lamps. Although new products may serve as a partial  substitute for lamps manufacturers'existing sales, they may be  able to receive a higher price for the new product and gain  additional sales from clients of other competitors. An ability  to innovate appears to be necessary for a producer's long-term  market credibility. There is also a certain pressure from  customers that their principal  suppliers be able to provide  the whole range of lamp products including new high-tech  products which may only constitute a small proportion of  turnover. Such products are nonetheless therefore necessary to  achieve sales of maturer products (incandescent and fluorescent  lamps typically represent well in excess of half of a  manufacturer's turnover).  <ind> The two major product innovations in the last ten years  are said to have been Philips' compact fluorescent lamp and  GE's low-voltage halogen lamp, both of which launched new  product families on the market. Since there exists the practice  of cross-licensing in the market, most major manufacturers  probably use the same or similar basic research data, but  compete in terms of quality, product characteristics, designs,  attributes and efficiency of production. IL's major  contribution in recent years seems to have been the  introduction of a miniature version of the existing compact  fluorescent lamp (the "Mini-Lynx"). Current trends are towards  environmentally more friendly lamps, increased length of life  of lamps and their further miniaturization.  29.<ind> The proposed financial and commercial arrangements  between Siemens and IL will not fundamentally change the  present conditions of competition:  <tab> Loan agreement  30.<ind> The bridge financing arrangements afford Siemens  neither shareholder (at any time) nor customary creditor rights  (at least before the loan reaches maturity). The parties have  stated that following their transaction, EDIL will be less  reliant on debt than the existing IL is. This together with the  three-year grace period should help to prevent EDIL's debt  service burden in its early years from compromising its ability  to compete. The financing is also structured to include an  increasing interest rate which will provide an incentive for  EDIL to refinance the loan earlier than would otherwise be the  case. Notwithstanding the protection for EDIL embodied  contractually in the terms of the financing agreement any  inhibition EDIL might still feel because of the loan in its  competitive relationship with Osram would be short-lived and  last a maximum of four years.  <tab> Research and development agreement  31.<ind> The terms of the agreement mainly entitle EDIL to have  access to Siemens' R&D. It is basically a one-way flow of  technical information. The agreement is limited in time and  includes built-in economic incentives to encourage EDIL to  develop its own capacity for R&D. Since the agreement partly  replaces a pre-existing R&D arrangement between Siemens and GTE  its impact on competition is limited. It may further weaken  competition between Siemens and EDIL, but will not lead to  either a fundamental or a lasting structural change of  conditions of competition, since it will only have an  appreciable effect until IL has become a fully independent  company with its own research and development facilities.  <tab> The supply agreements  32.<ind> The supply agreements with Siemens appear to serve the  same purpose as the research and development agreement. They  entitle EDIL to have access to Siemens' supplies for a limited  period of time. Since the agreements will also only cover a  relatively small part of EDIL's supplies, they will not have a  substantial impact on EDIL's position on the markets for  general purpose lamps. Being non-exclusive they will not  prevent other businesses from supplying EDIL.  VI.<tab> ANCILLARY RESTRAINTS  33.<ind> The above agreements are substantial and both directly  related and necessary to the implementation of the  concentration and form an integral part of it. Their evaluation  forms part of the Article 2 assessment of compatibility with  the common market made above.  VII.<tab> FINAL ASSESSMENT  34.<ind> On the basis of the above findings, the Commission has  come to the conclusion that the proposed acquisition and the  financial and commercial arrangements will not lead to the  creation or strengthening of a dominant position in the common  market or a substantial part thereof. The envisaged  concentration will therefore not raise serious doubts as to its  compatibility with the common market.  35.<ind> It should be noted, however, that this conclusion is  based on the terms of the financial and commercial arrangements  between Siemens and IL as submitted in the notification. Any  change in these terms, in particular any prolongation of the  agreements, would affect the conclusion and might require a new  notification under Council Regulation (EEC) No. 4064/89 or  Regulation No. 17. Furthermore, this decision deals only with  those agreements between Siemens/Osram and EDIL notified as  part of this operation and should not be interpreted to cover  agreements entered into by Siemens and GTE prior to the  notification of this operation.  For the above reasons, the Commission has decided not to oppose  the notified concentration and to declare it compatible with  the common market. This decision is adopted in application of  Article 6(1)b of the Council Regulation No. 4064/89.  For the Commission,