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[2015] ZACT 57
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General Electric Company v Thermal Power, Renewable Power And Grid Business of Alstom (LM176Jan15) [2015] ZACT 57 (18 June 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM176Jan15
DATE:
18 JUNE 2015
In the
matter between:
General
Electric
Company
..............................................................................
Primary
Acquiring Firm
And
The
Thermal Power, Renewable Power and
Grid
..............................................
Primary
Target Firm
Business
of Alstom
Panel
Andreas Wessels (Presiding Member)
Prof
Fiona Tregenna (Tribunal Member)
Medi
Mokuena (Tribunal Member)
Heard
on 27 May 2015
Order
issued on 27 May 2015
Reasons
issued on : 18 June 2015
Reasons
for Decision
Approval
[1]
On
27 May 2015, the Competition Tribunal (“Tribunal”)
unconditionally approved the large merger between General Electric
Company (“GE”) and the Thermal Power, Renewable Power and
Grid Business of Alstom (“Alstom Energy”).
[2]
The
reasons for approving the transaction follow.
Parties
to proposed transaction
[3]
The
primary acquiring firm is GE, a firm duly incorporated in accordance
with the laws of Connecticut, United States of America
(“USA”).
GE is listed on the New York Stock Exchange, London Stock Exchange,
Frankfurt Stock Exchange and Paris Stock
Exchange. GE is not owned by
a single firm.
[4]
GE
is a global, diversified manufacturing, technology and services
company, made up of a number of business units, each with its
own
divisions. Its primary business units include GE Energy Management,
GE Power and Water and GE Oil and Gas. Of relevance to
the
competition assessment of the proposed transaction are GE’s
activities relating to power generation, gas turbines, steam
turbines
and products that protect, monitor, control and automate the grid, as
well as visualization software that helps to optimize
the grid.
[5]
The
primary target firm is Alstom Energy, which is controlled by the
Alstom Group (“Alstom”). Alstom is duly incorporated
in
accordance with the company laws of France and is listed on the Paris
Stock Exchange.
[6]
Alstom
Energy comprises of the Thermal Power, Renewable Power and Grid
business of Alstom. Alstom is mainly active in the manufacture
of
equipment and the provision of services for power generation and rail
transport.
[7]
Of
specific relevance to this proposed transaction are the activities of
Alstom Energy as a supplier of equipment utilised in several
coal-fired power plants in South Africa and the only nuclear plant
(i.e. Koeberg) of Eskom Holdings SOC Limited (“Eskom”).
Alstom Energy furthermore has ongoing projects with respect to the
Medupi Power Station and the Kusile Power Station in South Africa.
Proposed transaction and rationale
[8]
In
terms of the Master Agreement concluded by Alstom, Alstom Holdings,
GE, GE Industrial France SAS and GE Albany Global Holdings
B.V., GE
will, directly or indirectly, acquire all the shares held by the
Alstom Group, Alstom and Alstom Holdings (“Seller”)
in
the Alstom subsidiaries and a majority of the shares held by the
Seller in Alstom Grid Holdings B.V., which together operate
Alstom
Energy, giving GE sole control over Alstom Energy.
[1]
[9]
According
to GE the proposed transaction is aimed at enlarging and fostering
GE’s offering in the power and grid sector by
integrating
Alstom Energy’s largely complementary products and services. It
is expected that the transaction will lead to
cost synergies with a
focus on supply chain, sourcing, R&D optimization and selling,
general and administrative expenses.
[2]
[10]It is worthy to note that the proposed
transaction is a global transaction notified in numerous
jurisdictions including Australia,
Brazil, China, Columbia, the EU,
India, Israel, Mexico, Pakistan, Russia, Serbia, South Korea, Turkey
and the USA.
Competition
assessment
[11]The Competition Commission
(“Commission”) identified horizontal overlaps between the
activities of the merging parties
in relation to the manufacture and
supply of steam turbines, gas turbines, tidal energy, hydro turbines,
wind turbines and substation
automation systems. The Commission
however found that there is no geographic overlap of the activities
of the merging parties in
South Africa in relation to tidai energy,
hydro turbines and wind turbines. The Commission thus focused its
competition analysis
on the markets for the provision of steam
turbines, gas turbines and substation automation systems. We deal
with these markets
next.
Market
for steam turbines
[12]With regards to the market for steam
turbines (STs), South African customers such as Sasol SA (Pty) Ltd
(“Sasol”)
confirmed that STs with a power output of >100
megawatt (MW) are distinct from those with a power output of <100
MW. The
Commission thus defined separate relevant product markets for
STs with a power output of <100 MW and STs with a power output
of
>100 MW.
[13]With regards to the supply of STs with a
power output of <100 MW in South Africa, the Commission however
found that the merging
parties' activities do not overlap since
Alstom Energy has not supplied STs with a power output of <100 MW
to date in South
Africa.
[14]With regards to the sale of STs with a
power output of >100 MW, the Commission’s market
investigation revealed that
GE tendered for only one project in that
market in South Africa in 2012. The Commission however found that GE
has not made any
sales in the past 10 years of STs with a power
output of >100 MW in South Africa. The Commission therefore
concluded that the
merging parties are not close competitors in South
Africa and that the proposed transaction is unlikely to substantially
prevent
or lessen competition in the national market for the
provision of STs with a power output of 100 MW.
Market
for gas turbines
[15]Based on the Commission’s market
investigation, it delineated the gas turbines (GTs) market according
to the differences
in the power output of the turbines. The market
was delineated into GTs with a power output of (i) <90 MW; and
(ii) >90 MW.
[16]The Commission however found that the
merging parties' activities do not overlap in South Africa in the
market for the supply
of GTs with a power output <90 MW.
[17]In the market for the supply of GTs with
a power output of >90 MW, the Commission found that GE has a
market share of less
than 10% in South Africa and that Alstom Energy
has not supplied any GTs in the South African market in the past 34
years. The
Commission’s analysis of past tenders showed that
Siemens AG (“Siemens”) is the largest player in the South
African
market, followed by Ansaldo Energia ("Ansaldo").
[18]The Commission further considered the
bids that took place in the GTs market with a power output of >90
MW between 2004 and
2014 and found that both the merging parties
submitted bids on projects during that time. Alstom Energy bid on
[,..]
[3]
projects [...] tenders, whilst GE bid on [...] projects and won
[...]. Siemens and Ansaldo won all the other projects.
[19]The Commission ultimately concluded that
the merged entity would be constrained by Siemens and Ansaldo
post-merger and that
the proposed transaction therefore is unlikely
to substantially prevent or lessen competition in the market for the
provision of
GTs with a power output of >90 MW in South Africa.
[20]The Tribunal questioned the merging
parties during the hearing regarding their activities relating to the
sale of steam turbines
and gas turbines in South Africa and past
tenders that they were active in. We were satisfied with the answers
provided and concur
with the Commission that the proposed merger is
unlikely to substantially prevent or lessen competition in South
Africa in relation
to these markets.
Market
for substation automation systems
[21]The Commission found that the merged
entity would have a market share of less than 15% in the national
market for the provision
of substation automation systems (SAS)
products. The Commission further found that the merged entity will
face competition from
players such as Schweizer Engineering
Laboratories (Pty) Ltd, ABB South Africa (Pty) Ltd, Schneider
Electric South Africa (Pty)
Ltd and others. The Commission therefore
concluded that the proposed transaction is unlikely to substantially
prevent or lessen
competition in the SAS market in South Africa. We
concur with this finding.
[22]The merging parties confirmed that the
proposed transaction will not have any adverse effect on employment
in South Africa.
[4]
[23]Eskom however raised a potential public
interest concern. It submitted that it currently outsources the
manufacture of components
to inter alia Alstom Energy. Eskom was
concerned that the proposed merger could lead to a situation where GE
no longer sources
raw materials from local suppliers or allow local
labour and content on the products to be supplied to Eskom, which
could retard
local industrial development.
[24]The Commission brought this concern to
the attention of the merging parties. The merging parties then held a
meeting with Eskom
and after their discussions made submissions to
the Commission indicating that:
[5]
(i)
GE
will honour all contracts currently in place in accordance with their
terms;
(ii)
GE
will have no reason to take any steps that may be detrimental to the
contracts insofar as they recognise and/or take into account
the
provisions of the Preferential Procurement Policy Framework Act No. 5
of 2000 (“PPPFA”);
(iii)
GE
has no reason to detract from the measures in the contracts aimed at
recognising the provisions of the PPPFA. In practice, GE
assumes that
Eskom (through the tendering and negotiations phase) is able to
exercise a high degree of influence over the contents
of the
contracts with Alstom Energy and Actom (Pty) Ltd, including the
applicable sourcing and localisation requirements;
(iv)
Although
the contracts would have been concluded and entered into in the names
of Alstom Energy legal/corporate entities that are
distinct from GE
and, as a question of corporate law of contract, they would be
binding as between Eskom and those Alstom Energy
entities in
accordance with the terms and conditions of the contracts in
question;
(v)
These
contracts will continue to bind those of Alstom Energy entities after
the merger. GE sees no reason that the contracts will
not be
completed in the ordinary course in accordance with the provisions
thereof;
(vi)
GE’s
expectations in South Africa, as in many African countries, is that
government and state owned enterprises will continue
to demand
localisation commitments from suppliers, in their drive for
industrialisation, job creation and growth. GE understands
these
demands and has demonstrated its ability to invest with governments
to deliver them; and
(vii)While the endeavours can only be
concretised when tenders are issued by Eskom and/or by other organs
of state in future, the
above factors make it apparent that the
transaction will more likely foster and identify opportunities to
enhance the provisions
of the PPPFA and similar legislation aimed at
socio-economic imperatives in South Africa.
[25]Given the above-mentioned commitments,
the Commission ultimately concluded that the proposed merger raises
no significant public
interest concerns.
[26]We note that Eskom was satisfied with
the commitments provided and did not make any submissions at the
hearing. The Tribunal
at the hearing however questioned the merging
parties regarding the concern raised by Eskom and the commitments
that they have
provided to address that concern.
[27]
Mr.
Bruce Campbell, the general counsel for GE Africa, confirmed that “GE
has committed to honour aii of those contracts
in accordance with their terms, but beyond that we don’t see
any particular
need at this stage to interfere with the thrust of
what we understand those contracts to be. We understand Eskom’s
responsibilities
under the legislation to promote local
enterprise,
local manufacture of products.”
[6]
He further said that GE has “a track record of localising
manufacture here in South Africa. We also have a track record in
other parts of Africa of doing the same thing and we completely
understand the political imperative of African governments to
localise and industrialise as far as possible. So, we would actually
like to see our localisation efforts here in South Africa spread
beyond the transportation sector. We have actually been assembling
low voltage switch gear for the Medupi project in Midrand”
[7]
Mr Campbell further spoke to GE’s announcement of its intention
“to invest in a local engineering centre here in Gauteng
...
that would serve customers across the sectors in South Africa, both
transportation and power as well as healthcare potentially.”
[8]
He also said that GE announced its intention “to invest in a
supplier development vehicle, which would promote black
entrepreneurship
and the development of small and medium sized
enterprises and hopefully enable them to participate in the supply
chain of ail the
GE businesses here in South Africa . ...”
[9]
[28]Given the above, we concur with the
Commission’s finding that the proposed merger is unlikely to
raise significant public
interest concerns.
CONCLUSION
[29]We agree with the Commission’s
finding that the proposed transaction is unlikely to substantially
prevent or lessen competition
in any relevant market. In addition,
the proposed transaction raises no significant public interest
concerns. We therefore approve
the proposed transaction without
conditions.
18 June
2015
Andreas
Wessels
Prof
Fiona Tregenna and Medi Mokuena concurring
Tribunal
Researcher: Caroline Sserufusa
For
the merging parties: Derek Lotter of Bowman Gillfillan and Stephen
Langbridge of Fasken Martineau For the
Commission: Rakgole Mokolo
[1]
For further transaction details, see inter alia pages 10 to 13 of
the Commission’s Report.
[2]
Alstom's rationale for the proposed transaction has been claimed as
confidential. See inter alia
Commission’s
Report, page 14.
[3]
Information claimed as confidential by the merging parties.
[4]
See inter alia pages 1701 and 1719 of the merger record.
[5]
Merging parties’ submission to the Commission dated 20 April
2015.
[6]
Transcript, page 12.
[7]
Transcript, page 13.
[8]
Transcript, page 13.
[9]
Transcript, pages 13 and 14.