European Commission - Press release
Mergers: Commission opens in-depth investigation into proposed acquisition of control over Goodrich by United Technology in aviation equipment sector
Brussels, 27 March 2012 - The European Commission has opened an in-depth investigation under the EU Merger Regulation into the proposed acquisition of control over Goodrich Corporation by United Technology Corporation (UTC), both US-based companies active in the production and sale of aviation equipment on a worldwide basis. The Commission’s preliminary investigation indicated potential competition concerns regarding the markets for engine controls and AC power generators, where the parties would have very high combined market shares. The Commission also has vertical concerns concerning the removal of Goodrich as an independent supplier of fuel nozzles and engine controls, as well as in the area of aftermarket services. The opening of an in-depth inquiry does not prejudge the final result of the investigation. The Commission now has 90 working days, until 9 August 2012, to take a final decision on whether the proposed transaction would reduce effective competition in the European Economic Area (EEA).
“The aviation equipment industry is already concentrated and is characterised by high barriers to entry. We need to make sure that competition is preserved and incentives to innovate remain. We must also prevent a rise in input prices for aircraft and engine manufacturers as well as other aviation equipment suppliers" said Joaquín Almunia, Commission Vice President in charge of Competition policy.
The Commission’s initial investigation showed that the transaction would lead to very high market shares in the market for AC power generation, a market with high entry barriers where Goodrich appeared as the strongest contender to UTC's dominant position and as a potential partner for prospective entrants. In addition, the transaction would create a concentrated market structure at a worldwide level concerning engine controls.
The investigation also revealed vertical concerns for some Goodrich customers that compete with UTC's engine subsidiary Pratt & Whitney. The removal of Goodrich as an independent supplier of engine controls and fuel nozzles, particularly for small engines, could result in higher input prices for engine manufacturers competing with Pratt & Whitney. In particular, switching supplier could take a long time and be costly for those currently sourcing from Goodrich.
Finally, in relation to aftermarket services, the preliminary investigation indicated potential concerns as regards the access by competitors to spare parts and related inputs from UTC and Goodrich.
The Commission will now investigate the proposed acquisition in-depth to determine whether these initial concerns are confirmed or not. The transaction was notified on 20 February 2012.
Companies and markets
UTC intends to acquire the whole of Goodrich for a purchase price of USD 18.4 billion, in one of the largest transactions in the aerospace industry in recent years.
UTC is active in the production of a broad range of high-technology products and support services for the building systems and aerospace industries worldwide. The UTC group comprises a number of major business units such as Carrier heating and air conditioning; Otis elevators; UTC Fire & Security systems and UTC Power fuel cells. Three businesses are particularly relevant for the current transaction: Hamilton Sundstrand aerospace systems and industrial products; Pratt & Whitney aircraft engines; and Sikorsky helicopters.
Goodrich is active in the production and sale of systems and services to the aerospace, defence and security industries on a worldwide basis. Goodrich has activities in three main business areas: actuation and landing systems; nacelles and interior systems; and electronic systems.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The Commission clears the vast majority of mergers after a one-month review, but if it has competition concerns it must open an in-depth investigation (phase II review). The opening of a full probe does not prejudge its outcome.
There are currently four other phase II investigations. The first one concerns the planned acquisition of Synthes by Johnson and Johnson, both US companies active in the area of orthopaedic medical devices (see IP/11/1306), with a deadline set for 26 April 2012. The second ongoing phase II investigation was opened in November 2011 into the proposed acquisition of control over the sugar trader ED&F MAN by the German sugar and molasses producer Südzucker (see IP/11/1327), with a deadline set for 22 May 2012. The third phase II investigation relates to the planned acquisition of joint control over a branch of the Italian state-owned ferry group Tirrenia by Compagnia Italiana di Navigazione of Italy (see IP/12/29). The deadline for a decision in the latter case was suspended under Article 11(3) of the Merger Regulation from 13 February 2012 to allow the parties to submit the necessary information for the assessment of the transaction. Finally, the fourth ongoing phase II investigation was opened last week into the proposed acquisition of EMI's recorded music business by Universal (see IP/12/311). The deadline for this investigation is 8 August 2012.
More information on the case will be available at:
Marisa Gonzalez Iglesias (+32 2 295 19 25)