The European Commission has opened an in-depth investigation to assess whether General Electric's (GE) proposed acquisition of the Thermal Power, Renewable Power & Grid businesses of Alstom is in line with the EU Merger Regulation. The Commission’s preliminary investigation indicates potential competition concerns in the market for heavy-duty gas turbines which are mainly used in gas-fired power plants. The transaction would bring together the activities of GE, the world's largest manufacturer of heavy-duty gas turbines, with those of Alstom, eliminating one of the three main global competitors to GE in this market.
The opening of an in-depth inquiry does not prejudge the final result of the investigation. The Commission now has 90 working days, until 8 July 2015, to take a final decision.
Commissioner Margrethe Vestager, in charge of competition policy, said: "We are concerned that the proposed acquisition might not only lead to higher prices but also result in less choice for customers and less innovation in the sector. Technology is and will continue to be crucial to help Europe meet its environmental commitments. Therefore, it is essential to maintain competition in the heavy-duty gas turbines market."
The Commission's preliminary concerns
The Commission has preliminary concerns in relation to the sale and servicing of heavy-duty gas turbines (HDGTs). The market for HDGTs is characterised by high technological and financial barriers to entry, leading to a concentratedmarket with only four globally active competitors: GE, Alstom, Siemens and Mitsubishi Hitachi Power Systems (MHPS). The fifth player, Ansaldo, appears to be a niche player with a more limited geographic reach. The margins in the market for HDGTs appear to be higher than those of neighbouring markets for power generation equipment such as steam turbines.
The HDGTs market worldwide is divided into two frequency regions, namely those operating at 50 Hz and those at 60 Hz. All thecountries in the European Economic Area (EEA) operate at 50 Hz frequency.
Since MHPS seems to be less active in the EEA than in the rest of the world, the transaction would bring together the activities of two of the three main competitors in the EEA.The transaction would eliminate Alstom from the market, leaving European customers without an important competitor of GE and Siemens.Indeed, in the market for the sale of new 50 Hz frequency HDGTs, the merged entity would reach high market shares in the range of around 50 %, both in the EEA and at worldwide level excluding China.
Furthermore, the transaction might significantly reduce R&D and customer choice in the HDGT industry. After the merger there is a risk that GE would discontinue the production of certain Alstom HDGT models and that advanced HDGT technology developed by Alstom would not be brought to the market.
Finally, in the market for the servicing of General Electric's mature technology HDGT frames, the transaction eliminates competition by Alstom's subsidiary Power System Manufacturing.
Overall, the Commission is at this stage concerned that the transaction may lead to an increase in prices, a reduction in customer choice and a reduction of R&D in the HDGT industry, leading to less innovation.
The Commission will now further investigate the proposed acquisition in-depth to determine whether its initial concerns are justified.
At this stage, the Commission considers that the transaction is not likely to raise concerns in relation to power generation equipment for nuclear, coal-fired, wind and hydro power plants, as well as in relation to electricity transmission equipment.
Given the worldwide scope of the parties' activities, the Commission is cooperating closely with the Department of Justice in the US.
The transaction was notified to the Commission on 19 January 2015.
Companies and products
General Electric is a US multinational conglomerate company. The company operates through the following business department: Power and Water, Oil and Gas, Energy Management, Aviation, Healthcare, Transportation, and Capital.
Alstom is a French multinational company active in electricity generation and rail transport markets.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involvingcompanies 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).
There are currently eight on-going phase II merger investigations:
- the planned acquisition of a controlling stake in De Vijver Media by Liberty Global, with a decision deadline on 5 March 2015;
- the planned acquisition of Jazztel by Orange in the Spanish telecommunications market. The deadline for a decision is 30 April 2015;
- the planned acquisition of Biomet by Zimmer, both of the US, with a decision deadline on 26 May 2015;
- the proposed joint venture between two of world's leading coffee manufacturers, Douwe Egberts Master Blenders 1753 B.V. of the Netherlands, and Mondelēz International Inc. of the US. The Commission's deadline for a final decision is 1 June 2015;
- the proposed joint venture between the three collective rights management organisations PRSfM, STIM and GEMA in the online licensing of musical works, with a deadline on 26 June 2015;
- the proposed acquisition of US-based rotating equipment manufacturer Dresser-Rand by Siemens of Germany, with a deadline on 30 June 2015.
- the proposed acquisition of ADM's industrial chocolate business by Cargill, with a deadline on 8 July 2015.
- the proposed acquisition of the Greek gas transmission system operator DESFA by the Azeri state oil company SOCAR.