COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no: 50/LM/Jun05
In The Large Merger Between:
Siemens Aktiengesellschaft Acquiring Firm
And
Flender Holding GMBH Target Firm
Reasons for Decision
Approval
1. On 20 July 2005, the Competition Tribunal issued a Merger Clearance Certificate
approving the transaction between Siemens Aktiengesellschaft and Flender Holding
GMBH. The reasons for this decision follow.
The Transaction
2. The primary acquiring firm is Siemens Aktiengesellschaft (“Siemens AG”). 1 Siemens
has several subsidiaries around the world. In South Africa, Siemens conducts its
business through Siemens Limited South Africa (“Siemens SA”). Siemens SA has
the following subsidiaries in South Africa: Siemens Telecommunications (Pty) Ltd,
Siemens Real Estate Management (Pty) Ltd, Siemens Demag Delavel
Turbomachinery (Pty) Ltd and Siemed Services (Pty) Ltd. Siemens AG and Siemens
SA will be collectively referred to as “Siemens”.
3. The primary target firm is Flender Holding GmbH (“Flender Holding”). 2 Flender
Holding has the following subsidiary in South Africa: Flender Power transmission
(Pty) Ltd (“Flender”) which in turn has one subsidiary namely Flender Services (SA)
(Pty) Ltd.
4. Siemens AG is acquiring all the issued capital in Flender Holding. According to the
parties, the acquisition will enable Siemens AG to expand its interests from electrical
power transmission equipment to mechanical power transmission equipment. This
would enable Siemens to provide more complete drive solutions to its customers. 3
1 Listed on the German Exchange, the Swiss Stock Exchange, the New York Stock Exchange and the
London Stock Exchange. Its shareholding is widely held with no single entity controlling party.
2 Citigroup Incorporated owns more than 50% of the outstanding voting securities of Flender Holding.
3 During the hearing on 20 July 2005, the merging parties’ attorney stated that: “… there [was] a move
towards a onestopshop supplier…. [customers] would prefer obtaining all of the components from one
The Merging parties’ activities
5. Siemens is active worldwide in a range of businesses. However, in South Africa,
Siemens is involved in information and communication, mobile telephony,
information technology, medical solutions, transportation systems, building
technologies, logistics and assembly systems, automation and drives, industrial
services and solutions, components, power transmission and power distribution. 4
6. Worldwide, Flender produces mechanical power transmission equipment (such as
gears, geared motors and couplings), inverters, generators and electrical motors. In
South Africa, however, Flender focuses on the supply of mechanical geared motors
and standard mechanical gears.
Impact on competition
Horizontal Assessment
7. In South Africa, both merging parties are involved in the broad market for power
transmission. However Flender supplies mechanical power transmission equipment
(including industrial gears and geared motors) and Siemens supplies electrical
power transmission equipment 5 (including motors and drives). 6
8. According to the Commission, there are no overlaps in the activities of the merging
parties, because although both Siemens and Flender participate in the provision of
incomplete drive solutions, they bid for the supply of different product components.
“...Siemens will bid for the supply of drives and electric motors (components) or
for a combination of both and [therefore will] compete with other motor and drive
suppliers for the tender. Flender will bid for the supply of gears or geared motors
(components) or drive application systems will compete against suppliers in these
markets for the tender …” 7
Vertical Assessment
supplier for various reason. These are maintenance issues as well as price. They are better able to obtain
discounts from a supplier such as SEW that will be able to supply all of the components required…” At
page 34 of the transcript.
4 For a complete description of Siemens’s activities in South Africa, see Pages 34 of the Commission's
Report.
5 For more detail on the difference between mechanical and electrical power transmission see Pages
7174 of the record.
6 According to the merging parties, Flender does have minor activities in electrical power transmission
equipment in Europe but is not active in this market in South Africa.
7 See page 8 of the Commission's Report.
2
9. The transaction does give rise to certain vertical issues, as post merger the merged
entity will compete for the provision of a complete drive solution that requires a
combination of various components. Flender is a supplier of gears and drive
application systems while Siemens supplies electric motors and drives. According to
the Commission, these are all components that may be required for the production
of the final drive solution.
10. The Commission identified the following upstream markets: supply of electric
motors, gears, geared motors, drives and of industrial drive applications. The
downstream market is the market for the provision of complete drive solutions.
11. The Commission examined the post merger market shares in the upstream markets
and concluded that there would be no risk of reduced competition in any of the
markets concerned because there are alternative sources of supply and the merged
entity faced several strong internationally based competitors. 8 In the downstream
market for the provision of complete drive solutions, the Commission considered the
characteristics and dynamics of the market and concluded inter alia that:
The various component markets are highly competitive;
Contracts for the supply of components at all market levels and for the
construction of the final drive solution are based on a tender and bid process
market shares are therefore lumpy and vary depending on which bidder is
rewarded the contract;
The specifications and design of the system rests with the customer who will
decide on the best bid put forward Customers therefore exercise significant
countervailing power;
Finally, the merged entity would be a new entrant and would be competing
against other fully integrated competitors such as ABB, SEW, Bearing Man and
Alstom.
Conclusion
12. Having considered the merging parties’ submissions and the Competition
Commission’s report, we are satisfied that the transaction will not substantially
prevent or lessen competition in any of the markets identified above. Furthermore
there are no public interest concerns which would alter our view.
13. We agree with the Commission’s recommendation that the transaction be
unconditionally approved.
8 See pages 913 of the Commission’s Report.
3
12 August 2005
N Manoim Date
Concurring: Y Carrim and T Orleyn
For the merging parties: V Koovejee (Deneys Reitz)
For the Commission: S Nunkoo (Mergers and Acquisitions)
4