Lightning strikes twice as Commission prohibits two mergers on the same day

On 6 February 2019, the European Commission ("Commission") decided to prohibit two mergers following in-depth-investigations: Siemens' proposed acquisition of Alstom, and Wieland's proposed acquisition of Aurubis Rolled Products and Schwermetall.  Commission prohibition decisions are rare. These latest prohibitions are only the ninth and tenth prohibition decisions under the 2004 EU Merger Regulation ("EUMR").

Siemens/Alstom

The proposed acquisition of Alstom by Siemens was notified to the Commission on 8 June 2018.

Both Alstom and Siemens compete in tenders for the manufacture and supply of (a) high speed, mainline and urban rolling stock, and (b) signaling solutions on mainline and urban rail networks. The proposed transaction would have combined the two largest suppliers of rolling stock and signaling solutions in the EEA.

On 13 July 2018, the Commission opened an in-depth Phase 2 investigation into the proposed transaction in the light of initial concerns that the proposed transaction would remove a very strong competitor and reduce the number of suppliers in the EEA of rolling stock and signaling systems.

Upon completion of its Phase 2 investigation, the Commission found that the proposed acquisition would remove a very strong competitor and reduce the number of suppliers in the EEA of both:

• signaling systems for mainline and metro systems; and
• very high-speed trains (i.e. trains capable of travelling in excess of 300 km/h).

As a result, the Commission considered that there would not be effective competition in those markets following the completion of the proposed transaction.

The parties offered commitments to the Commission in an attempt to remedy any adverse effects on competition:

• as regards mainline signaling solutions, the parties offered to divest a mixture of Siemens and Alstom assets. However, some of those assets would only be transferred in part and others licensed or copied. In addition, the Commission's press release notes that businesses and production sites would have had to have been split, with staff transferred only in some cases. The Commission considered that this remedy package was not sufficient to address the serious competition concerns it had identified in relation to signaling solutions as a result of the threat of higher prices and reduced choice for railway operators and infrastructure managers. In particular, the Commission had doubts as to the effectiveness of the remedy on the basis that it did not comprise a standalone business capable of competing against the merged business; and
• as regards very high-speed rolling stock, the parties offered to divest either: (a) a train not currently capable of running a very high speeds: or (b) a licence for very high-speed technology, subject to multiple restrictive terms and carve-outs that would not have given the purchaser the ability and incentive to develop a competing very high-speed train. The Commission considered that neither of these alternatives constituted an effective remedy.

Wieland/Aurubis Rolled Products/Schwermetall

The proposed acquisition of Aurubis Rolled Products and Schwermetall by Wieland was notified to the Commission on 13 June 2018.

Wieland and Aurubis Rolled Products both produce rolled copper products and copper alloys. Rolled copper products are used as an input in the manufacturing of many products, including transformers, semiconductors, heat exchangers and roofing materials. In addition, Aurubis Rolled Products produces billets, an input in the manufacturing of copper tubes. Schwermetall produces pre-rolled strip made of copper, and copper alloys. Pre-rolled strip is used as an input in the manufacturing of rolled copper products. Schwermetall sells pre-rolled strip to both Wieland and Aurubis Rolled Products, as well as to other copper manufacturers.

On 11 July 2018, the Commission opened a Phase 2 investigation into the proposed acquisition in the light of initial concerns that the proposed transaction could: 

• resulting in higher prices and reduced choice for rolled copper products;
• make access to pre-rolled strip more costly or difficult for Wieland's competitors in rolled copper products; and
• make access to billets more costly or difficult for Wieland's competitors in the copper tubes sector.

Upon completion of its Phase 2 investigation, the Commission found that the proposed acquisition would have allowed Wieland to eliminate competition from one of its most important challengers and become a dominant player in the markets for rolled copper products in the EEA.  As a result, downstream industrial customers would have faced significant price increases.

Wieland offered commitments to the Commission in an attempt to remedy any adverse effects on competition.  In particular, Wieland offered to divest two Aurubis plants that manufacture rolled copper products in Stolberg and Zutphen, but it was not willing to divest Aurubis' 50% stake in Schwermetall.  The Commission considered its competition concerns could not be effectively addressed without Wieland agreeing to divest Aurubis' stake in Schwermetall because:

• following a transitional period, the Stolberg and Zutphen plants would no longer have access on the same terms to pre-rolled strip from Schwermetall and thus would no longer be able to recreate the competitive pressure that existed before the merger; and
• through its controlling stake in Schwermetall, Wieland would have been able to raise smaller competitors' input costs and get access to their confidential commercial information.

Concluding remarks

It would be easy to jump to the conclusion that there has been a shift in Commission's policy with respect to merger remedies as a result of the coincidence of it prohibiting two mergers on the same day.  However, in practice, in both of these merger investigations the merging parties fell short of offering adequate commitments to remedy the Commission's competition concerns.

Therefore, these cases serve as a reminder of the Commission's position that the merging parties need to put forward suitable and comprehensive remedies that eliminate the Commission's competition concerns entirely.  In particular, in both of these cases, the proposed remedies did not comprehensively address the Commission's concerns with respect to higher prices, reduced customer choice and possible input foreclosure.  These decisions can be contrasted with the Commission's recent decision in the BASF/Solvay case (see our article of March 2019), which was approved after the parties agreed to offer a package of structural and behavioural remedies capable of removing similar types of serious competition concerns.

These two recent prohibition decisions have, however, prompted further discussion about possible reforms of the EU merger control rules.  In particular, the decision to block Siemens proposed acquisition of Alstom has been highly politicised as senior politicians in both France and Germany have argued that there is a need to create "European champions" to respond to increased global competition.  This case is a reminder of the Commission's continued approach to prioritise the protection and promotion of competition over the creation of "European champions".

With thanks to Camille Ammeloot of Ashurst for her contribution