COMMISSION DECISION of 01/06/1999 declaring a concentration to be compatible with the common market (Case No IV/M.1404 - GENERAL ELECTRIC/ALSTOM) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic) Official Journal C 205 , 20/07/1999 P. 0003 COMMISSION DECISION of 01/06/1999 declaring a concentration to be compatible with the common market (Case No IV/M.1404 - GENERAL ELECTRIC/ALSTOM) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic) Brussels, 01.06.1999 To the notifying party Dear Sirs, Subject: Case No IV/M.1404 - General Electric / Alstom 1.
On 26/04/1999, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 (1) by which General Electric Company ("GE") acquires within the meaning of Article 3(1)(b) of the Council Regulation control of the large heavy duty gas turbine business of ALSTOM France S.A. ("ALSTOM") by way of purchase of assets. (1) OJ L 395, 30.12.1989 p. 1; corrigendum OJ L 257 of 21.9.1990, p. 13; Regulation as last amended by Regulation (EC) No 1310/97 (OJ L 180, 9. 7. 1997, p. 1, corrigendum OJ L 40, 13.2.1998, p. 17). 2. After examination of the notification, the Commission has concluded that the notified operation falls within the scope of Council Regulation No 4064/89 and does not raise serious doubts as to its compatibility with the common market and the functioning of the EEA agreement.
I. THE PARTIES 3. GE is a US company active in power generation equipment, aircraft engines, industrial and medical systems, transportation equipment, lighting, plastics, and financial, information and other services. 4. ALSTOM is a French company active in power generation equipment, transmission and distribution of energy, transport, and industrial, marine and general engineering. ALSTOM's large heavy duty gas turbine ("LHDGT") business ("EGT transferred business") is operated by European Gas Turbines N.V. ("EGT"), currently 90 % owned by ALSTOM with the remaining 10% owned by GE. (2) (2) Under the terms of the proposed agreement ALSTOM will purchase GE's 10% equity stake in EGT.
II. THE OPERATION 5. The transaction (3) involves the acquisition by GE of the LHDGT business of ALSTOM, which it has conducted using technology obtained from GE under a licence agreement. (3) The transaction should be seen in the context of the establishment of a joint venture in power generation equipment (including gas turbines) between Alstom and ABB (case IV/M.1484, notified on 27th April 1999). III. CONCENTRATION 6. The operation whereby GE will acquire sole control over ALSTOM's LHDGT business is a concentration within the meaning of Art. 3 (1) (b) of the Council Regulation. IV. COMMUNITY DIMENSION 7.
The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 billion (4) (GE : 89617.5 Mio EUR, LHDGT business [ ] Mio EUR). Each of them have a Community-wide turnover in excess of EUR 250 million (GE [ ]Mio EUR, LHDGT business [ ] Mio EUR), but they do not achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension. (4) Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C66, 2.3.1998, p.
25). To the extent that figures include turnover for the period before 1.1.1999, they are calculated on the basis of average ECU exchange rates and translated into EUR on a one-for-one basis. V. COMPETITIVE ASSESSMENT Relevant product markets 8. In previous cases (5) the Commission has examined the market for gas turbines and has made a sub-division between gas turbines up to 10 MW (i.e. small industrial gas turbines) and gas turbines above 10 MW (i.e. large heavy duty gas turbines). According to GE it is possible that the lower limit of LHDGT should be between 10 and 20 MW, in view of recent increases in unit size of small industrial gas turbines.
However, for the purpose of the present case it is not necessary to decide whether the dividing line should be between 10 MW to 20 MW, since this would not change the outcome of this case. (5) Cases Nos IV/M.440 - GE/ENI/Nuovo Pignone (II) and IV/M. 731 - Kvaerner/Trafalgar. 9. A turbine is driven by the pressure, momentum or reactive thrust of moving steam, water, air or gas against the vanes of a wheel or rotor. Generally turbines are used either to power generators for producing electricity or to power mechanical equipment. Gas turbines burn natural gas or fuel oil to power the turbine and are generally used when natural gas is readily available.
10. The current operation only relates to LHDGT, which are mainly used for power generation and are either used in simple cycle or in combined cycle. In a combined cycle power plant ("CC plant") a steam turbine and a heat recovery steam generator (6) is added to the process in order to increase the efficiency of the plant. Customers for LHDGT include utilities, independent power producers (IPPs) and industrial companies requiring power alone or power plus heat. (6) A heat recovery steam generator is used to recover waste heat from the exhaust gases from the gas turbine and is then used to create steam, which in turn is used to power a steam turbine and generator.
LHDGT are sophisticated products characterised by on-going improvements of their technology and thus requiring high R&D investments. 11. In these previous decisions the Commission has also examined the substitutability between LHDGT and aeroderivative gas turbines. The latter combine an industrial version of an established aircraft engine with a power turbine to convert energy from the engine exhaust into rotational shaft power. In these cases the Commission came to the conclusion that substitution is possible at power outputs below 60 MW. The degree of the substitutability would depend on unit size, fuel, environmental requirements and operating conditions.
LHDGT are preferred because of their lower cost or if the fuel quality is poor. Aeroderivatives are preferred if high simple cycle efficiencies are required and if weight/size is important (e. g. marine propulsion and power generation and mechanical drive applications on offshore platforms). They are also used in power plants for peak loads. Aeroderivatives have traditionally tended to be more expensive than other gas turbines on an initial cost basis, although initial cost differences can be offset during the turbine life cycle because of the aeroderivative's higher simple cycle efficiency. 12.
GE is of the opinion that the substitutability between LHDGT and aeroderivatives is limited and that it is not appropriate to identify further segments within the market for LHDGT, any demarcation by output being arbitrary. 13. In general the market investigation has confirmed that there is substitutability between LHDGT and aeroderivatives and that a further segmentation can be made between LHDGT (including aeroderivatives) in the 10 to 60 MW range and LHDGT above 60 MW. 14. However, for the purpose of the present case the precise definition of the relevant product market can be left open, since in all alternative definitions considered above, the operation will not lead to the creation or strengthening of a dominant position.
Relevant geographic markets 15. In a previous case (7) the Commission has left the definition of the relevant geographic market open. The Commission considered that previously the relevant geographic markets had been national, but that barriers to cross-frontier procurement had been removed and that suppliers had developed manufacturing and marketing operations on a European or world-wide basis. (7) Case No IV/M.440 - GE/ENI/Nuovo Pignone (II). 16. GE submits that the relevant geographic market is now at least European and probably world-wide, given the fact that non-European large heavy duty gas turbine manufacturers as GE and MHI have been successful in selling their products in the Community.
However, in this respect it has to be noted that GE has manufacturing facilities in the US and in Italy and has set up a service network in the EEA (see also below with regard to the importance of service). 17. A number of customers indicated that the market is global, however, others were of the opinion that the market is not (yet) global, but that there are three distinct geographic areas/markets : Europe/EEA, America and the rest of the world (mainly Asia) for the following reasons : customer preference in Europe and America for "home based" suppliers, whereas in the rest of the world European, American and Japanese companies are all able to sell without having to cope with this preference.
This preference of European customers is on the one hand historical, but is, according to the market investigation, also influenced by the customers' need to obtain a speedy repair (and spare-parts) in case of a breakdown. In this respect, the customers' confidence that non-European based suppliers will be able to meet their service requirements seems not as high as the confidence they have in European based manufacturers. Indeed, gas turbines are sophisticated products characterised by on-going improvements of their technology and requiring a service organisation closer to the customer. 18. For the purpose of the present case the definition of the relevant geographic market can however be left open, since in all alternative market definitions considered above, the operation will not lead to the creation or strengthening of a dominant position.
Assessment 19. All market shares are volume data based on McCoy Power Reports, an independent source of data on power generation equipment. They are averages for a five year period (1994-1998) to average out the peaks and troughs, which are due to the fact that contracts are awarded relatively infrequently. The market investigation has largely confirmed these data. 20. There are four companies with proprietary gas turbine technology world-wide: GE (US), ABB (Swiss/Swedish), Siemens (Germany)/Westinghouse and MHI (Japanese). Other companies manufacture LHDGT under licence. 21. On the market for LHDGT (excluding aeroderivatives) GE's EEA market share would increase from [10%-20%] to [20%-30%] and from [25%-35%] to [35%-45%] on a global basis.
The other main competitors are Siemens (EEA [20%-30%]; world [20%-30%]), ABB (EEA [20%-30%]; world [10%-20%]) , MHI (EEA [