Brussels, 4 August 2014
Mergers: Commission clears acquisition of parts of Rolls-Royce by Siemens
The European Commission has authorised under the EU Merger Regulation the proposed acquisition of Rolls-Royce's aero-derivative gas turbine business, compressor activities and aftermarket services as well as Rolls Royce's 50% stake in Rolls Wood Group, both of the UK, by Siemens of Germany. The Commission's investigation confirmed that the proposed transaction does not raise competition concerns, in particular because the parties are not close competitors and a number of competitors will remain in the market after the transaction.
The Commission's investigation focused on the supply of small and medium sized gas turbines and compressor sets, where both Siemens and Rolls-Royce are active. Small and medium gas turbines are mainly used in the oil and gas sector and for electricity generation. Siemens manufactures only industrial gas turbines whereas Rolls-Royce only manufactures aero-derivative gas turbines (ADGT) derived from aero engines. Compressor sets combine a gas turbine and a compressor. They are mainly used in the oil and gas supply chain.
The Commission's investigation found that in the field of gas turbines customers do not view Siemens and Rolls-Royce as close competitors because of the technological differences between their products. Moreover, a number of strong competitors that are able to effectively compete with the merged entity will remain on the market.
The Commission also investigated concerns expressed during the investigation that after the merger Siemens could stop supplying certain Rolls-Royce's ADGT to compressor manufacturers and prevent them from competing with the merged entity for certain offshore oil and gas projects. However, the investigation has shown that customers of oil & gas compressor sets typically view the compressor as the most customised component, while the gas turbine is seen as a more standardised product. Customers are therefore unlikely to accept a compressor model in a set that does not fully meet their specific technical requirements. Also, an alternative source for the supply of ADGTs will remain in the market. These factors will significantly constrain the merged entity's ability to shut out competitors from supplies of ADGT.
In the supply of compressors and gas turbine services the parties' market positions and the overlaps are minor.
The Commission therefore concluded that the transaction would not raise competition concerns.
The transaction was notified to the Commission on 27 June 2014.
Companies and products
Siemens is a German stock corporation which offers a wide range of products and services to customers in four sectors: energy, healthcare, industry and infrastructure & cities. The energy sector includes Siemens’ industrial gas turbines business.
The Rolls-Royce aero-derivative gas turbine business designs, manufactures, sells and installs aero-derivative gas turbines and provides services to operators and customers of its turbines and compressors.
Rolls Wood Group is currently a 50/50 joint venture between Rolls-Royce plc and John Wood Group plc and services certain Rolls-Royce aero-derivative gas turbine models.
John Wood Group is an international energy services company which provides a range of engineering, production support, maintenance management and industrial gas turbine overhaul and repair services to the oil and gas and power generation industries worldwide. WG is listed on the London Stock Exchange.
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 to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).