CELEX: 31995M0527
Language: en
Date: 1994-12-02 00:00:00
Title: COMMISSION DECISION of 02/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.527 - Thomson CSF / Deutsche Aerospace ) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0527

COMMISSION DECISION of 02/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.527 - Thomson CSF / Deutsche Aerospace ) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 065 , 16/03/1995 P. 0004

 COMMISSION  DECISION of 02/12/1995 declaring a concentration to be compatible with the common market (Case No IV/M.527  - Thomson  CSF  /  Deutsche Aerospace ) 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.527    Thomson   CSF/Deutsche Aerospace <ind>  Notification of 28 October 1994 pursuant  to  Council Regulation (EC) No. 4064/89  1<ind>  The concentrations were notified on 28 October  1994 and  consist  of the creation of two joint ventures  between ThomsonCSF,  a subsidiary of the French company  Thomson  SA (Thomson), and Deutsche Aerospace AG (DASA), a subsidiary of the  German  company  DaimlerBenz  AG.  One  joint  venture, Thomson DASA Armament (TDA), will be active in the field  of armaments. The other joint venture, Bayern Chemie (BC), will be active in the field of missile propulsion.  2<ind> After examination of the notification, the Commission has  concluded that the notified operations fall within  the scope of application of Council Regulation No 4064/89 and do not  raiseserious doubts as to their compatibility with  the common   market  and  with  the  functioning  of   the   EEA Agreement. <tab> I<ind> THE PARTIES  3<ind> Thomson is a holding company controlled by the French State,  with  two  main  subsidiaries.  The  first,  Thomson Consumer  Electronics, is active in the design,  development and manufacture of consumer electronic products. The second, ThomsonCSF,  is  active  in  professional  electronics   and defence   systems.  Its  main  strengths  are  in   aircraft equipment,  communication  and command  networks,  detection systems,   missile  systems,  electronics  and   information technology.  4<ind> DaimlerBenz is a German holding company active  in  a variety  of sectors such as the manufacture and distribution of  passenger  cars  and  commercial vehicles  (through  its subsidiary    MercedesBenz   AG),   the   manufacture    and distribution  of  automation  equipment  and  systems,  rail transport  systems, electronic equipment and components  and multifunctional electronics (through its subsidiary AEG AG), and  services  in the areas of computer retailing,  finance, insurance,   distribution   and   marketing   (through   its subsidiary  DaimlerBenz  InterServices  AG).   Through   its subsidiary   DASA  DaimlerBenz  is  also   active   in   the development,  manufacture  and sales  of  aerospace  related products,  defence  technology,  medical  technology,  power plants, diesel engines, radar, radio and sensor systems. <tab> II<ind> THE OPERATION <ind> a) <ind> Joint control 5<ind>  The  parties have agreed that they will merge  their activities relating to armaments in a French joint  venture, TDA,  and  will similarly transfer their activities relating to  missile propulsion to a German joint venture,  BC.  Both joint  ventures  will  be jointly owned  and  controlled  by ThomsonCSF and DASA.  6  <ind>  More  precisely DASA will acquire from  Thomson  a shareholding  of 50 per cent in TDA, into which  almost  all Thomson's   armamentsrelated  activities  will   have   been transferred, and DASA will transfer to TDA all the shares in its  wholly  owned  German  subsidiary  TDWGesellschaft  fuer verteidigungstechnische Wirksysteme mbH (TDW), to which DASA will  have  contributed its armament business prior  to  the creation of the joint venture. 7<ind> Thomson will similarly acquire a shareholding  of  50 per   cent    in   BC,   into  which  all   DASA's   missile propulsionrelated activities will have been transferred, and Thomson shall cause the transfer to BC of all the shares  in its   subsidiary   PROTAC,  to  which  Thomson   will   have contributed its missile propulsion business. 8<ind> As regards TDA, both Thomson and DASA will be equally represented  on the board of directors which will  have  six members.  TDA  will  be  managed by  a  president  directeur général  (PDG) elected by the board by a unanimous  vote  of the  directors.  The PDG will for the first  five  years  be proposed  by  Thomson. He will have a casting  vote  at  any meeting  of  the  Board  with  the  exception  of  strategic decisions  such  as  the approval of the general  accounting principles,  the budget, the midterm business plan  and  the strategic  plan.  It follows that TDA will  operate  in  all respects  as  a  single entity under the  joint  control  of Thomson and DASA. 9<ind>  As regards BC, both Thomson and DASA will be equally represented  on  the  council  (Beirat),  composed  of  four members.  The council will elect a chairman from  among  its members  by  unanimous vote, and the chairman  will  have  a casting  vote  at  any  meeting  of  the  council  with  the exception of certain matters to be voted unanimously such as the  approval  of  the  general accounting  principles,  the budget,  the  midterm business plan and the strategic  plan. The   council  will  exercise  all  the  functions  of   the shareholders meeting except those which are assigned by  law to  the shareholders meeting, such as changes in the statute or  in capital.  The parties will be equally represented  in the  shareholders  meeting.  It follows  that  BC  too  will operate  in all respects as a single entity under the  joint control of Thomson and DASA. <ind> b)<tab> Concentrative joint venture 10<ind>  Each  of the joint ventures performs on  a  lasting basis  all  the functions of an autonomous economic  entity. Except for provisions in the joint venture agreement in  the event of deadlock the joint ventures are intended to operate on  a lasting basis.  They each perform functions comparable to  those carried out by other undertakings operating on the same  market.   The parties will transfer to  them  all  the assets  necessary to carry on their business;  these include the  relevant  intellectual property rights, which  will  be assigned or (if the parties have independentapplications for the  rights) either licensed to the joint ventures for their duration  or assigned to them and then licensed back.   Each joint  venture will be responsible for the marketing of  its own  products.  Each will independently fulfil  its  funding requirements.   Each  will recruit its own  staff,  although some of the personnel may be seconded by the parties. 11<ind> In addition to remaining active in sectors described in paragraph <tab>  above   which are not directly connected with   armaments   and   missile  propulsion   Thomson   and DaimlerBenz will not contribute the following activities  to the joint ventures: <ind>  <ind> Thomson will continue to supply 76 mm proximity fuses   for   naval  application.   The  turnover   involved represents less than [Deleted business secret, 015%] of  the current  French  and  EU  turnover and  less  than  [Deleted business  secret;  015%] of the current  total  turnover  of Thomson  in proximity fuses;  indeed it is the minor  nature of  the activity and of the subsidiary concerned which makes it  economically unfeasible to transfer it to TDA.   Thomson will  be  unable  to develop further proximity  fuses  as  a consequence   of   (among  other  factors)  the   investment required. <ind>  <ind>  Thomson will continue to  participate  in  the development of submunitions for the Multiple Launch  Rockets Systems (phase 3), a programme for the development of a  new type  of  rocket  in which France is now  the  only  country involved.  Thomson coordinates this project;  it will itself have  no  industrial  activities but  will  subcontract  the development. <ind>  <ind> DaimlerBenz will retain control of Conventional Munitions  Systems  Inc,  a  United  States  company   which supplies  warheads and their components and related services exclusively  on  its  home market.   Provisions  of  US  law relating  to the foreign acquisition of armaments  make  the transfer of these activities to TDA very difficult. <ind>  <ind>  DaimlerBenz  will  retain  its  50  per   cent participation  in RTG, a joint venture company  with  Diehl, another  German company.  RTG manufactures the MW1 dispenser system  for  use on Tornado aircraft.  The last delivery  of Tornado  aircraft has now taken place.  Except for  warranty work and the delivery of spare parts the activity of RTG has also ended. 12<ind>  These activities are either of minimal significance or  are  carried  on  in  separate product  or  geographical markets   from  those  of  the  joint  ventures.  With   the exceptions of these activities technological barriers,  high investment requirements and the general reduction in defence budgets will prevent Thomson and DaimlerBenz from reentering the  markets  of  the  joint ventures.   The  joint  venture agreement  provides  that  if either  party  by  acquisition obtains an armaments or missile propulsion business it  will transfer it to the joint venture. 13<ind>  The  parties  also remain active  in  markets  both upstream and downstream from the joint ventures.  The  joint venture  agreement provides for them to supply  products  to the   joint   ventures  provided  that  they   are   broadly competitive with other suppliers (see paragraph  33  below). The  proportion of the joint ventures' supplies  originating from  the  parties  is  however  low.   Such  products  will furthermore  be  passed  on  with a  substantially  enhanced value,  having been incorporated into the products  supplied by  the  joint ventures.  The agreement also envisages  that the   parties  will  subcontract  from  the  joint  ventures specific manufacturing requirements.  These requirements are limited  both  in  quantity and duration  (a  maximum  of  4 years);   they  arise  from existing weapons  programmes  in which  Thomson  and  DaimlerBenz  are  engaged  and  related subcontracts entered into by them with TDA and BC. 14<ind>  The operation thus involves no substantial risk  of cooperative  behaviour  between the parties.   The  proposed joint  ventures  are  therefore of  a  concentrative  nature within article 3(2) of the Regulation. <ind> III<ind> CONCENTRATION OF COMMUNITY DIMENSION 15<ind>  The notified operations have a Community  dimension within the meaning of Article 1(2) of the Regulation. 16<ind> The undertakings concerned have a combined aggregate worldwide  turnover  in  excess of 5000  million  ECU.  Both Thomson  and  DaimlerBenz have a Communitywide  turnover  in excess  of  250  million ECU, but 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.     Thomson   and DaimlerBenz  each  have  a  turnover  in  the  EFTA   states exceeding250 million ECU.  The notification is  therefore  a cooperation case with the EFTA Surveillance Authority  under the EEA Agreement. <ind> IV<ind> COMPATIBILITY WITH THE COMMON MARKET <ind> a)<tab> Relevant product markets 17<ind>  The  concentrations concern  six  separate  product markets.  Five of these products (to be supplied by TDA) are types   of  armament   mortars  and  associated  ammunition; unguided antiarmour weapons;  subsystems such as airtoground rockets,  bombs, cargoes and submunitions; proximity  fuses; and  warheads.  The sixth product (to be supplied by BC)  is propulsion components for tactical missiles. 18<ind>  Mortars  are a form of artillery used  by  infantry troops  on  a  decentralised basis.  They are classified  by calibre   or  degree  of  mobility  and  fire  a  range   of projectiles intended for different objectives. 19<ind>  Unguided  antiarmour weapons  consist  of  antitank weapons fired from the shoulder and various types of mine. 20<ind>  Subsystems  such  as  airtoground  rockets,  bombs, cargoes  and submunitions are devices installed on  aircraft or  helicopters and more recently ships for the  purpose  of attacking mobile targets on the ground. 21<ind> Cargoes are dispensing bombs, designed to release  a high  number of submunitions onto the target area  and  thus providing a short standoff capability to aircraft. 22<ind>  Proximity  fuses are the electronic  components  in ballistic  projectiles which control their explosion;   they differ from mechanical fuses which operate on impact. 23<ind>  Warheads  are the payloads for missiles  and  other weapons.   The warheads supplied by TDA contain conventional explosives, 24<ind>  Propulsion components are the motors  and  boosters used to propel tactical missiles. <tab> b)<ind> Geographic reference markets 25<ind>   The   Commission  has  generally  considered   the geographic  reference  markets for defence  products  to  be national,  at  least  where  a country  has  an  established producer  of  the  relevant product.  This  is  because  the government  in such countries, wishing to maintain  national suppliers  and  thereby the country's military independence, favours national producers if they exist to the exclusion of importers;   since the government is almost  invariably  the sole  purchaser it is difficult for such importers to  enter the  market.   France and Germany are national  markets  for most   defence  products.   Similar  considerations  usually influence governments to insist that subcontractors are also of  the  same  nationality, so that  the  markets  for  such products are also generally national.  A European market  is beginning   to  develop  as  a  result  of  common   defence programmes. c)<tab> Competitive assessment 26<ind>  On the demand side markets for all defence products are  reducing  as a result of the end of the  cold  war  and national  budgetary constraints;  capacity  already  exceeds actual and forecast demand, with the result that competition will  become  even more intensive and further  concentration can  be anticipated.  A further result is that on the supply side these markets will become increasingly multinational as national  governments enter into cooperation agreements  and suppliers collaborate on research and development and  other aspects  of development.  The need for an extensive  variety of   knowhow  and  technological  expertise,  together  with national   regulatory  systems  and  the  need  to   finance development  projects  during long  lead  times,  are  entry barriers for the industry.  Another powerful factor  is  the increasing penetration of European markets by United  States suppliers  facing reduced domestic markets.  Above  all  the demand side in markets for defence products is influenced by the existence of a single ultimate consumer in each country, the ministry of defence.  27<ind>  With  regard to the supply within the  EEA  of  the relevant  products  Thomson  and  DaimlerBenz  have  so  far operated   largely  within  distinct  geographical  markets. Thomson's  principal  market is  its  home  market,  France; similarly  the principal market of DaimlerBenz  is  Germany. Their  respective  markets  overlap  only  in  France,   for warheads and proximity fuses. 28<ind> As far as warheads are concerned, both companies are present  in  France. According to the parties, their  market shares  in  France are [Deleted business secret; 1530%]  for DaimlerBenz and [Deleted business secret; 015%] for Thomson, while  the  other main suppliers for warheads in France  are Aerospatiale  ([Deleted  busines  secret;3045%])  and   Giat ([Deleted  business  secret; 1530%]). Thomson,  Aerospatiale and  Giat are each French public undertakings.  In spite  of the fact that warheads are only an element of a whole system such  as  a  missile, warhead manufacturers are chosen  most often  directly  by  the end customer, ie  the  ministry  of defence, simultaneously with the system provider. 29<ind>  Increasingly missile programmes are not  undertaken at  a  national  level but in cooperation  by  two  or  more states.  The  presence of DaimlerBenz in France is  directly linked  to  transnational  programmes,  ie  the  Euromissile programme,  controlled jointly by the French and the  German states,  and  the  Euromissile  Dynamics  Group,  controlled jointly  by  the  British, German and French  states.  Those transnational   programmes  represent  a   major   part   of DaimlerBenz' turnover in Europe.  That is why the market for warheads  tends  to be less national, thus allowing  warhead manufacturers from different states to compete against  each other.  On  the  demand side the final purchaser  remains  a state  or a group of states. This ultimate buyer can  always either   obtain   its  supplies  from  TDA   or   from   the abovementioned  French  public  undertakings  or   turn   to alternative  suppliers  such as Diehl  (Germany)  and  Royal Ordnance (part of British Aerospace, United Kingdom),  which have  the  capacity  to  supply warheads  of  an  equivalent standard  to  those  supplied  by  the  parties.   In   such circumstances the operation does not create or strengthen  a dominant position in the supply of warheads. 30<ind>  As regards proximity fuses Thomson has 94 per  cent of  the  French market.  DaimlerBenz attempted to enter  the French  market in 1993 in connection with a study to  decide whether  their fuses could be adapted for French  use.   But they  did  not  succceed in doing so.   The  operation  thus creates no addition of share on the French market. 31<ind>  As a conclusion the operation  will not  create  or strengthen  a  dominant  position  as  a  result  of   which effective competition would be significantly impeded in  the common market or in a substantial part of it. <ind> V<ind> ANCILLARY RESTRAINTS 32<ind> The parties have requested that certain restrictions contained  in  the joint venture agreement be considered  as ancillary to the concentration. 33<ind>  Article 6.1 gives to ThomsonCSF and DASA preference in  the  supply of goods and services to the joint ventures, provided in some cases that they are competitive with  other suppliers  and  in other cases that there is  no  overriding advantage  in  sourcing elsewhere (cf paragraph  13  above). Also  by article 6.1 existing suppliers to the parties  will be  engaged by the joint ventures in some cases if they  are competitive with other suppliers and in other cases  subject to  continued  satisfactory performance.   These  conditions create restrictions on competition.  They cannot be said  to be  necessary to the implementation of the concentration  in the  sense that in their absence the concentration could not be  implemented  or  could be implemented  only  under  more uncertain conditions, at substantially higher costs, over an appreciably   longer  period  or  with   considerably   less probability of success.  They are accordingly not covered by the present decision. 34<ind>  By  article 6.6 the parties agree (subject  to  the exceptions  discussed at paragraph 11 above) not to  compete with the joint venture companies and express their intention that, if either of them later acquires a competing business, it  will  be  added to the joint venture.  This  prohibition aims at expressing the reality of the lasting withdrawal  of the  parents from the market of the joint ventures;   it  is therefore  an  integral  part  of  the  concentration.   The restriction   contained  in  the  licences  of  intellectual property  rights granted back to Thomson and DaimlerBenz  by the  joint venture companies (article 11.2) to their use  in noncompeting  businesses has a similar aim.  They  are  thus ancillary to the concentration. 35<ind>   Article  19  imposes  upon  the  parties   various limitations on their conduct pending the completion  of  the arrangements  to  set  up  the joint  ventures.   These  are intended to ensure that the concentration is put into effect in  the  conditions  contemplated by the  parties  and  that neither party can during this period act in relation to  the businesses to be merged to the detriment of the  other.   To the extent that these provisions constitute restrictions  on competition they are necessary for the implementation of the concentration in the sense described in paragraphs above. 36<ind> As discussed in paragraph 13 above, annex 9 requires Thomson  and  DASA to continue to subcontract  work  to  the joint  ventures the manufacture of specified components  for armaments.   These  requirements are for a limited  duration and  for  limited quantities and are in some cases qualified by the condition that the subcontractor must be competitive. Since   they   impose   no   exclusivity   they   have    no anticompetitive  effect.   To the extent  that  they  create restrictions  they are intended to ensure  outlets  for  the joint ventures during the initial period of their operation. They  thereby contribute to the certainty, economy and speed of  implementation  of  the  joint  ventures  and  are  thus ancillary to the concentration.. <ind> VI<ind> CONCLUSION 37<ind>    For   the   foregoing   reasons,   the   proposed concentration  does  not  raise serious  doubts  as  to  its compatibility   with  the  common  market   and   with   the functioning of the EEA Agreement. 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