The European Commission has approved under the EU Merger Regulation the proposed acquisition of rotating equipment manufacturer Dresser-Rand of the US by Siemens of Germany. Both companies supply turbo compressors as well as the engines which drive these compressors ("drivers"). There are different kinds of drivers including aero-derivative gas turbines ("ADGT"), industrial gas turbines ("IGT"), steam turbines and electric motors.
The combination of a turbo compressor with a driver is called a turbo compressor train. Turbo compressor trains are widely used for various applications in the oil and gas industry, i.e. exploration and production of oil and gas, their transport and storage, as well as for the refining and production of various oil and gas products.
The Commission had concerns that regarding ADGT drivers, turbo compressors and turbo compressor trains driven by ADGTs the transaction would reduce the number of significant suppliers from 3 to 2. The initial investigation also indicated that the parties' competitors for the supply of small steam turbines of less than 5 MW have a limited presence and do not pose a significant competitive constraint on the parties. These two concerns could lead to less product variety and ultimately higher prices.
After an in-depth investigation launched in February 2015, the Commission has concluded that the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.
Commissioner Margrethe Vestager, in charge of competition policy, commented: "After a detailed assessment of the markets involved, the Commission is satisfied that European consumers will not be negatively affected by the merger.Today's decision proves that even after an in-depth analysis, the Commission can unconditionally approve a merger if it does not have a negative effect on competition."
Turbo compressor trains' drivers
Gas turbines are internal combustion engines that use air as their working fluid. They are used for transport applications, power generation or to drive a mechanical device such as a compressor. There are two broad categories of gas turbines:
- ADGTs are gas turbines that have been derived from aero engines designed to propel aircrafts. The aero engine is adapted so that it can be used for power generation or driving mechanical devices such as compressors.
- IGTs have been designed specifically for industrial purposes.
Steam turbines are used as drivers for mechanical equipment, such compressors or pumps, or to drive generators where fuels are available to be burned in a boiler to produce steam.
Electric motors transform electric energy into mechanical energy to power machinery, such as compressors.
The Commission’s investigation
The Commission's initial investigation indicated that:
- Regarding ADGT driven turbo compressor trains, the transaction would reduce the number of competitors from three main suppliers– Siemens/Rolls-Royce, Dresser-Rand and General Electric – to two main suppliers.
- Regarding small steam turbines below 5 megawatts (MW), Siemens and Dresser-Rand would only face competition from few suppliers.
The Commission therefore focused its in-depth investigation on these two market segments.
The ADGT driven turbo compressor trains
With regard to ADGT driven compressor trains ,the Commission's investigation showed that the activities of Dresser-Rand and Siemens are largely complementary, as:
- they are, to a large extent, focusing on different oil and gas applications; and
- they are only rarely bidding against each other in tender procedures
In addition to this, the in-depth investigation showed that ADGT driven compressor trains are largely substitutable with light IGT driven compressor trains. For turbo compressor trains with a power requirement below 23 MW, Solar is currently the market leader ahead of respectively GE and Dresser-Rand. Siemens has only a limited offering of IGTs. As a result, for trains requiring a power output below 23 MW, the Commission found that the two companies not only face competition from GE but also from Solar. Solar does not manufacture light IGTs with a power output above 23 MW..
The Commission therefore concluded that the proposed concentration would not raise competition concerns with respect to ADGT and light IGT driven compressor trains.
The steam turbines below 5 MW
With regard to small steam turbines below 5 MW, the in-depth investigation showed that the two companies are not close competitors, as their activities are largely complementary. Instead, they both face strong competition from other major suppliers on their respective market segment. Moreover, the investigation showed that a number of smaller competitors are, and will remain, active in small steam turbines below 5 MW.
Based on its investigation, the Commission found that these smaller suppliers could expand their production and that additional producers could enter the market. As a result, the Commission concluded that the proposed concentration would not raise competition concerns with respect to small steam turbines below 5 MW.
Companies and products
Siemens is a German public listed company headquartered in Munich. Siemens offers a wide range of products and services through a number of business divisions.
Siemens' product portfolio includes gas turbines, steam turbines, generators and compressors. Siemens also produces electric motors.
Dresser-Rand is a US public company headquartered in Houston, Texas. Dresser-Rand focuses on supplying customers in the oil and gassector and in particular for upstream exploration and production, midstream transportation, LNG and gas storage applications and downstream refinery processes, as well as distribution of oil and gas related by-products.
Dresser-Rand's product portfolio includes centrifugal and reciprocating gas compressors, small gas and steam turbines, gas expanders, gas and diesel engines and associated control panels.
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).
There are currently four other on-going phase II merger investigations.
- the proposed acquisition of the industrial chocolate business of Archer Daniels Midland ("ADM") by Cargill, with a decision deadline of 6 August 2015;
- General Electric's proposed acquisition of Alstom's energy business, with a decision deadline of 21 August 2015;
- the proposed joint venture between the Danish operations of TeliaSonera AB and Telenor ASA with a decision deadline of 2 September 2015 and;
- the proposed acquisition of the Greek gas transmission system operator DESFA by the State Oil Company of Azerbaijan Republic (SOCAR).