European Union: European Commission Opens Phase II Investigation Into Proposed Acquisition Of Alstom By Siemens

Last Updated: 13 August 2018
Article by Marta Isabel Garcia and Anna Victoria Delahey

On 13 July 2018, the European Commission ("EC") opened an in-depth Phase II investigation into the proposed acquisition by Siemens of Alstom under the EU merger control rules.  The EC is concerned that the merger may reduce competition in the supply of certain types of trains and signalling systems.

In particular, the proposed merger would combine the two largest suppliers of rolling stock and signalling solutions in the European Economic Area ("EEA") not only in terms of size of the combined operations, but, also in terms of geographic footprint of their activities.

The EC is due to take a final decision by the end of this year.  If approved, the proposed merger is expected to be completed in the first half of 2019.  The deal has been approved unconditionally in China, however, it is still awaiting competition and other clearances in other jurisdictions.

Siemens / Alstom – Background

In March 2017, German industrial group Siemens and French rival Alstom announced the planned rail merger. This was followed by a memorandum of understanding announced in September 2017 and on 17 July 2018 the shareholders of Alstom approved the proposed merger by a majority of over 95%.

Siemens and Alstom are global leaders in rail transportation. Both companies have a wide product portfolio and compete in tenders for the manufacture and supply of:

  • High speed, mainline and urban rolling stock (trains). High speed rolling stock includes trains operated for long-distance travel at speeds above 250 km/h, mainline rolling stock includes intercity and regional trains and urban rolling stock includes metros and trams.
  • Mainline and urban signalling solutions. Signalling solutions include signalling systems that provide safety controls on mainline and urban rail networks.

The transaction was notified to the EC on 8 June 2018 and the EC had a total of 25 working days to decide whether to grant approval in Phase I or start an in-depth Phase II investigation if it had concerns that the deal could significantly impede effective competition in the EEA or any substantial part of it.

On 13 July 2018, the EC referred the proposed deal to a Phase II investigation. Despite having the opportunity to avoid such a reference by offering up remedies to the EC in Phase I to allay any competition concerns, the parties chose not to do so. The EC now has 90 working days to take a decision, but recently announced on 16 July 2018 that it had extended the initial deadline of 21 November 2018 to 19 December 2018.

Importantly, the opening of an in-depth investigation does not prejudge the outcome of the investigation. The companies can still offer remedies such as asset sales and/or allow competitors access to key technology or services to address any competition concerns. Likewise, they can look to further develop their competition law arguments to try and persuade the EC to clear the proposed merger without any remedies.

Competition concerns

The EC's initial Phase I investigation found that the merged parties would create a strong competitor in rolling stock and rail signalling with a significant stronghold in several markets. Siemens-Alstom would be the global leader with three times the market share of its closest rival and was unlikely to be constrained by competitors.

In particular, and as outlined by Competition Commissioner Margrethe Vestager, the EC's Phase II investigation will focus around the following: "Trains and the signalling equipment that guide them are essential for transport in Europe. The Commission will investigate whether the proposed acquisition of Alstom by Siemens would deprive European rail operators of a choice of suppliers and innovative products, and lead to higher prices, which could ultimately harm the millions of Europeans who use rail transportation every day for work or leisure."

More specifically, the EC has raised the following concerns:

  • For rolling stock, the proposed transaction would remove a very strong competitor and reduce the number of suppliers. In relation to high speed trains, the EC has examined the impact of the transaction both within the EEA and on a worldwide basis (excluding China, Japan and Korea which appear to have barriers preventing imports from foreign suppliers). On both of these geographic markets, the merged entity would be the undisputed market leader, over three times larger than the closest competitor. The merged entity will also become the market leader in mainline (including regional trains) and metro rolling stock in the EEA. Furthermore, after the proposed transaction, competitors in the sector would struggle to compete against the merged entity's track-record and installed-base of rolling stock.
  • For signalling solutions, the proposed transaction would remove a very strong competitor from several mainline and urban signalling markets. After the proposed transaction, the merged entity would become the undisputed market leader, with around three times the market share of the closest competitor and in this way would be unlikely to face significant competitive pressure.

Interestingly, the EC has dismissed Siemens' arguments that the deal is to stave off the competitive threat from bigger Chinese rival CRRC (China Railways Rolling Stock Corporation) and Canada's Bombardier Transportation. Rather, the EC has indicated that Chinese suppliers were unlikely to enter the market for rolling stock and signalling solutions markets in the foreseeable future. Ultimately, it is well known that market entry into the sector is difficult. The question will be whether there is already meaningful competition in Europe and whether in fact there is any real and demonstrable willingness or ability of other foreign companies wishing to enter the European market. CRRC with an annual turnover of US$35 billion dwarfs Siemens' rail unit Siemens Mobility, Alstom and Bombardier. It already has two projects in Britain and the Czech Republic, such that the parties consider that CRRC could easily increase its position in the European market.

Bombardier has said that the EC should take a closer look at the deal. Its general counsel, Daniel Desjardins said: "Our view is that this deal will distort fair competition and enable one player to leverage dominance in the signalling space to lock-out competition in rolling stock and hold the industry captive, at the expense of all its stakeholders".

In addition, the British rail regulator the Office of Rail and Road ("ORR") has welcomed the investigation into the proposed merger, noting that the union could have a significant detrimental impact on competition in the British rail markets. The ORR considers that together Siemens and Alstom would represent approximately 75% of the British signalling market – and that in fact - this share could well be higher in specific areas of signalling, such as interlocking. The ORR effectively considers the proposed deal a '2 to 1' merger, creating a single monopoly supplier for signalling. For rolling stock, the ORR has also warned that the merger could reduce the number of potential bidders for new rolling stock manufacturers, citing the case of the HS2 rolling stock tender in which Alstom and Siemens were two of the five bidders. Siemens and Alstom have historically and in recent tenders been close rivals. According also to certain estimates, the merger could lead to a rise in costs by tens of millions of pounds each year due to significantly reduced competition. Network Rail would absorb these costs, which are currently covered by taxpayers and passengers. The ORR have pledged its support for the EC to protect the UK's public interest on the matter and it is understood that it is pressing for significant structural remedies to ensure competition in the key railway supply chains is protected.

On the other hand, the parties consider that the transaction brings together two innovative players in the railway market and that the two businesses largely complement each other in terms of activities and geographies. In particular, the companies consider that the proposed merger would deliver substantial value to the mobility sector, customers and everyday users. Siemens and Alstom have indicated that they aim to save a significant €470 million a year by joining forces and that the deal will create jobs and innovation. In short, it will increase the competitiveness of Europe's rail industry. The parties are working closely with the EC to explain the rationale and benefits of the merger as well as the dynamics of the relevant markets.

The EC will now carry out an in-depth investigation into the effects of the transaction to determine whether its initial competition concerns are confirmed. Ultimately, the EC will no doubt be considering if the deal is really necessary to compete in Europe and what the deal enables the companies to do that they could not otherwise do independently.

Third Party Merger Interventions

Where a proposed transaction makes it difficult for other players to compete in the market, such as it is alleged may well be the case in respect of the proposed acquisition of Alstom by Siemens, third parties may wish to intervene to oppose the proposed deal. Third parties generally include customers, suppliers or other competitors in the market that are considered to have a sufficient interest in the matter.

In particular, if a third party has sufficiently credible arguments corroborated with strong evidence (and ideally supported by other players in the market), it can:

  • Scupper the deal thereby forcing the merging parties to abandon the transaction or persuading the competition authority to prohibit the deal;
  • Strategically position a third party to purchase any divestments imposed by the competition authority in a conditional clearance decision;
  • Ensure the competition authority is looking at the markets and competitive dynamics in the right way (especially if the merging parties have failed to disclose important information about the deal) in order to set a sensible precedent for any future cases (this is useful where a third party may be contemplating a merger concerning the same markets in the near future); and/or
  • Simply make life difficult for the merging parties by pushing them into a lengthy and burdensome investigation.

Third parties can intervene and make comments on a merger to the EC at any time and may even do so before any notice inviting comments is published or indeed, even before any transaction is officially notified to the EC. After a deal has been notified and during its Phase I review, the EC will publish a notice in the Official Journal inviting third parties to comment; but it will also regularly send out information requests and even contact third parties directly.

In particular, during a Phase II investigation third parties can receive numerous information requests from the EC at different points of the timetable, including shortly after the start of the Phase II investigation, after any State of Play1 meeting and/or following the submission of any remedies by the merging parties. In Phase II, third parties can also receive a non-confidential summary of key arguments contained in the Phase I decision (and may have some form of limited access to the EC's file) as well as being sent the Statement of Objections2  (non-confidential summary). Third parties can also participate in any oral hearing if the notifying parties request such a hearing. Given the effectiveness of interventions by third parties at oral hearings in the past, there is an increasing reluctance on the part of notifying parties to request an oral hearing.

It is also useful to remember that, increasingly, merging parties are offering up wider and more substantial remedies to address a competition authority's concerns, such that a third party can really take advantage of the process and intervene for its own commercial benefit.

A few final thoughts…

Should you wish to intervene and submit any concerns your company may have to the EC in respect of the proposed acquisition of Alstom by Siemens, carefully plan out your strategy:

  • What do you expect to achieve? An infringement/prohibition decision, or, an opportunity to purchase divested assets?
  • Do you have substantive competition grounds on which to challenge the merger? Can such grounds be supported by concrete evidence?
  • Are you prepared to commit the necessary resources in terms of time, legal fees and econometric analysis (if necessary) to support your case?
  • Could an intervention impact your relationship and any future relationships with the competition authority in any adverse way? Also, is your "house in order"?
  • Are you prepared to litigate the decision if it does not go your way?
  • Are there any public relations considerations that you need to take into account?

While intervening in merger cases will involve time, money and effort, the long-term strategic and commercial advantages can very often outweigh any apparent short-term disadvantages.

However, any intervention needs to be raised in the correct form and effectively managed to your commercial advantage.

Footnotes

1 A State of Play meeting is a forum for the exchange of information between the EC and the parties to a transaction at key points of the procedure to ensure transparency and communication.

2 A Statement of Objections is a detailed document which sets out the EC's theory of harm as to why the proposed transaction is likely to eliminate or adversely affect competition in the marketplace.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions