Brussels, 16 June 2014
Mergers: Commission approves acquisition of part of Honeywell's friction material business by rival Federal-Mogul, subject to conditions
The European Commission has cleared under the EU Merger Regulation the proposed acquisition of the European part of Honeywell's friction material business by another large US friction material manufacturer, Federal-Mogul Corporation. Both companies produce friction material, in particular brake pads for trucks and passenger cars. In these segments, both companies have a strong presence in the European Economic Area (EEA) for original equipment and original equipment spare parts (OEM/OES). The clearance is conditional upon the divestment of the OEM/OES business at a German and a French factory producing brake pads for commercial and light vehicles. The Commission had concerns that the transaction, as originally notified, would have significantly reduced competition in these markets in the EEA. The commitments offered by Federal-Mogul address these concerns.
The proposed transaction, as originally notified, would have combined two of the largest OEM/OES producers for commercial and light vehicle pads in the EEA. The Commission had concerns that the remaining players, a single competitor of similar size for commercial vehicle pads and two for light vehicle pads, would have been unable to sufficiently constrain the merged entity to avoid price increases.
The Commission's investigation showed that the barriers to entry and even to expansion are high. The market investigation confirmed that the customer side is dominated by a relatively small number of large producers of vehicles or brake systems and the supply side is even more concentrated. Moreover, customers are often reluctant to switch existing contracts, because the process is time consuming and costly. Customers do not seem to have sufficient countervailing buyer power to counteract the consequences of the increased concentration in the two supply markets.
In order to address the Commission's concerns, Federal-Mogul committed to divest the OEM/OES business located in Marienheide, Germany, which focuses on the production of commercial vehicle pads, and another factory located in Noyon, France, which is active in the production of light vehicle pads. These divestments would remove the entire overlap with regard to the OEM/OES market for commercial vehicle pads. Moreover, the divestments would allow the entry of an additional competitor or the expansion of an existing competitor in both markets.
The Commission therefore concluded that the proposed transaction, as modified by the commitments, would not raise competition concerns. This decision is conditional upon full compliance with the commitments.
The Commission also found that the transaction would not lead to competition concerns as regards the independent aftermarket for automotive brake friction material or the markets for rail brake friction material.
The transaction was notified to the Commission on 16 April 2014.
Companies and products
Federal-Mogul is an international company which develops, manufactures and sells engine, transmission and driveline components as well as brake friction materials, chassis, sealing and wiper products for automotive, rail and other applications. Federal-Mogul also distributes, markets and sells brake fluids and hardware (e.g. discs), chassis, sealing and engine components as well as ancillary equipment.
Honeywell's friction materials business is an international company which designs, develops, manufactures, markets, repairs, overhauls and sells brake friction materials and ancillary equipment for automotive, rail and other applications. It also distributes, markets and sells brake fluids, and brake hardware (e.g. discs, drums) for automotive and rail applications.
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 vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days (35 working days if commitments are offered) to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).