COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 04/LM/Jan01
In the large merger between:
Framatome Societe Anonyme
and
Siemens AG
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Order
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Approval
1. The Competition Tribunal issued a Merger Clearance Certificate on 19 March
2001 approving the large merger between Framatome Societe Anonyme
(“Framatome”) and Siemens AG (“Siemens”) without conditions. We set out
the reasons for our approval of the merger below.
The parties to the merger
2. Framatome is a multinational company incorporated in France, ultimately
owned and controlled by the French State. Framatome conducts its business in
the nuclear energy and nuclear connectors sector. Framatome has a subsidiary
in South Africa, Framex SA (Pty) Limited, and also a South African branch
office since 1 July 2000. The South African branch is not a separate legal
entity and is part of Framatome.
3. Siemens is a publicly owned multinational company incorporated in Germany.
It owns and controls a number of subsidiaries involved in various sectors
including the nuclear energy sector, information and communication, medical
engineering and building technology. Siemens has no South African
subsidiary involved in the nuclear energy business.
The merger transaction
4. This is an international merger combining the nuclear energy businesses of the
merging parties to form a jointly owned company to be named Framatome
ANP. No consideration will be paid in relation to the merger; in exchange for
shares in Framatome ANP the merging parties will transfer all the assets in
their respective nuclear businesses to this new company. Framatome and
Siemens will jointly control Framatone ANP the former owning 66% and the
latter 44% of the issued share capital in the new company.
5. In terms of the parties’ submissions changes in the nuclear energy market have
made it necessary for the parties to merge so as to ensure their longterm
competitiveness. Changes in this market include a decline in the demand for
services, ongoing consolidation amongst suppliers and utilities, strong
competition from other energy sources and ever increasing pressure on prices.
6. The merging parties have for some time been collaborating on individual
projects in the nuclear energy sector. In 1989 they cooperated in the
development of a new generation of nuclear power plants, the European
Pressurised Water reactor, and have since 1993 been involved in a joint
venture called European VVER Fuels. The joint venture is for the design,
manufacture and marketing of fuel assemblies for a particular design of a
Russian nuclear power plant. In the merging parties’ opinion this form of
integration is no longer sufficient because of the abovementioned changes in
the market and a complete merger of their nuclear energy businesses is
necessary.
7. The European Commission and the Federal Trade Commission have approved
this merger.
Evaluating the merger
8. The parties are combining their interests in the nuclear energy sector. The
nuclear energy sector involves mainly the design and supply of nuclear power
nuclear energy sector involves mainly the design and supply of nuclear power
plants (“NPPs”), maintenance services, replacements of parts of the nuclear
power plants and the supply of fuel assemblies. The parties claim that
information relating to their market shares in this sector is confidential
information. We have not examined whether this claim is justified since there
were no other interested parties to place it in dispute. We do not wish our
failure in this regard to be construed as a finding that evidence in relation
market share is confidential.
9. Nuclear power plants have a lifespan of between 30 and 40 years. During this
period certain parts of the nuclear plants will be replaced and maintenance
services are provided to the nuclear plant. Parts that that will generally be
replaced during the lifespan of a nuclear power plant are steam generators,
spent fuel storage racks, fuel assemblies and reactor vessel closure heads.
Maintenance services for the nuclear power plants include inservice
inspections to examine the condition of the components of the plant,
conducting engineering studies regarding the enhancement of nuclear safety
and performance and the repair and replacement of parts of the plant.
10. Worldwide there is an overlap in the activities of the merging parties in two
areas in the nuclear energy sector: the replacement of parts of the nuclear
power plants and provision of maintenance services in the nuclear energy
sector. According to the information supplied to us by the merging parties
Siemens has not supplied any nuclear power stations for the past ten years and
therefore only Framatome participates in this market.
Replacement of parts of the nuclear power plants
11. Both parties are involved in the replacement of steam generators and spent
fuel racks and there is therefore an overlap in the services of the parties in
these markets.
12. With regard to the replacement of fuel assemblies, Framatome has supplied
this service to Eskom in the past. Apart from the supply to Eskom the merging
parties have not been involved in this market anymwhere else in the world.
There is therefore no overlap in the replacement of fuel assemblies as Siemens
does not participate in this market.
13. There is also no overlap with regard to the replacement of reactor vessel
closure heads as well; Siemens has not supplied reactor vessel closure heads in
the last ten years.
Provision of maintenance services for nuclear power plants
14. The merging parties provide a wide range of maintenance services for nuclear
power plants worldwide. There is therefore an overlap between the businesses
of the merging parties in this market.
The relevant services market
15. The relevant market for purposes of merger analysis is the market where there
is an overlap in the services or products provided by the merging parties.
There are two markets that are relevant for purposes of this merger: the market
for the replacement of steam engine generators and spent fuel racks and the
market for the provision of maintenance services for nuclear power plants.
market for the provision of maintenance services for nuclear power plants.
The relevant geographic market
16. The relevant geographic market for both these markets is international. The
merging parties are international companies providing services relevant to this
transaction worldwide.
17. No local presence is required to replace steam engine generators and spent fuel
racks or to provide maintenance services for nuclear power plants. The parties
normally send personnel to perform services wherever required around the
world, the employees will be based on the country where the service is
provided until their task is copleted. In South Africa the parties will normally
send personnel for a period of 18 months to provide major maintenace services
to Eskom. As a result all the international companies in the nuclear energy
industry compete with each other on a worldwide market to provide their
services to international clients.
Impact on competition
18. Considering the geographic extent of the relevant market and the number and
size of competitors in the market this merger is unlikely to substantially lessen
or prevent competition. Worldwide the merging parties are in direct
competition with all international companies such as Westinghouse, MHI,
BNFL, ABB and AECL for the provision of nuclear energy services. BNFL,
Westingouse and ABB merged their worldwide nuclear activities in 2000.
19. Furthermore, in terms of the Commission’s recommendation the view of
Eskom, the merging parties’ only customer in South Africa, is that even
though it is preferable to source replacement parts from the original supplier
nothing prevents other suppliers from providing the same parts. This means
that Eskom is not bound to source parts or services from one supplier and
since it requires that suppliers tender for the provision of maintenance services
and replacement parts for its nuclear power plants, if the merging parties were
to increase their prices after the merger it will be able to source these services
from other suppliers. Eskom therefore had no objection to the merger.
20. It is therefore unlikely that this merger transaction is will result in competition
being substantially reduced or lessened.
Public interest concerns
being substantially reduced or lessened.
Public interest concerns
21. There are no public interest considerations raised merger. The parties do not
foresee any impact on employment resulting from the merger. Siemens’s
nuclear energy business is based in Germany and it has no employees in South
Africa. Framex, Framatome’s South African subsidiary, has three employees
and they did not indicate any intention to participate in these proceedings.
_______________ ____________
N.M. Manoim 26 March 2001
Concurring: D. H. Lewis, P. Maponya