NON-CONFIDENTIAL
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM027May20
In the matter between:
Alstom Société Anonyme Acquiring Firm
and
Bombardier Transportation (Investment) UK Ltd Target Firm
Approval
[1] On 19 November 2020, the Competition Tribunal conditionally approved the
large merger between Alstom Société Anonyme (“Alstom”) and Bombardier
Transportation (Investment) UK Limited (“Bombardier”); an international
transaction concerning the market for the manufacture of railway locomotives,
rolling stock and mechanical & electronic signalling, safety & traffic control
management.
Panel: Mondo Mazwai (Presiding Member)
Yasmin Carrim (Panel Member)
Fiona Tregenna (Panel Member)
Heard on: 06 and 18 November 2020
Date of last submission: 18 November 2020
Order issued on: 19 November 2020
Reasons issued on: 12 March 2021
REASONS FOR DECISION
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[2] This is an international transaction taking place at the holding company level.
Under the executed Share Purchase Agreement (“SPA”), Alstom Holdings,
Alstom’s wholly owned direct subsidiary, will act as the direct buyer in the
Transaction
1
but Alstom will have sole control over Bombardier after the
proposed transaction.
[3] The reasons for our approval follow.
Parties to the transaction and their activities
Primary acquiring firm
[4] The primary acquiring firm is Alstom, a French public company listed on the
Euronext Paris Stock Exchange. Alstom’s largest shareholder is Bouygues SA
(15%). In South Africa, Alstom controls the following firms:
4.1. Alstom South Africa Holdings (Pty) Ltd (“ASAH”);
4.2. Alstom Transport Holdings SA (Pty) Ltd (“ATHSA”);
4.3. Alstom Ubunye (Pty) Ltd (“Alstom Ubunye”);
4.4. Gibela Rail Transport Consortium (Pty) Ltd (“Alstom Gibela”).
[5] In South Africa, Alstom engages in both rolling stock and signalling systems
activities through various corporate entities as discussed below.
Primary target firm
[6] The primary target firm is Bombardier a United Kingdom (UK) company
controlled by Canada-based Bombardier Inc. and Caisse de Depot et Placement
du Quebec (“CDPQ”). Bombardier is the rail transport division of Bombardier
1
See SPA Recitals.
3
Inc. Bombardier Inc’s separate aviation business is not part of the proposed
merger and will not be affected.
[7] In South Africa, Bombardier controls:
7.1. Bombardier Transportation South Africa (Pty) Ltd (“BT South Africa”);
7.2. Bombela Maintenance (Pty) Ltd (“Bombela Maintenance”);
7.3. Bombardier Transportation (Rolling Stock) South Africa (RF) (Pty) Ltd
(“BTRS”);
7.4. Bombela Electrical and Mechanical Works (Pty) Ltd (“BE&M”);
7.5. Isithimela Rail Services (Pty) Ltd (“Isithimela”).
[8] In South Africa, Bombardier is involved in both rolling stock and signalling
systems activities through various entities as discussed below.
Proposed transaction and rationale
[9] In terms of the proposed transaction, Alstom intends to acquire 100% of the
issued shares in Bombardier. Post transaction, Alstom will control Bombardier.
[10] The merging parties provide as the rationale for the transaction, product and
geographic complementarities in their global rail businesses. Although the
parties’ rationale was not determined by their South African businesses, the
merging parties submit that the South African market will benefit from the
improved global competitiveness of the merged entity. Through this transaction,
the merging parties hope to combine significant operational, technical, and
research and development (R&D) resources that will allow Alstom to be better
equipped to deliver more innovative and sustainable products in response to
what is said to be ever-increasing demands for efficient and sustainable travel
by customers around the world.
[11] The merging parties submit that these complementarities will result in cost
savings, as Alstom’s strong execution skills and financial management will also
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allow Bombardier’s activities to reach their full potential
Alstom hopes to help Bombardier to achieve its full innovation and efficiency
potential
Third party participation in Tribunal proceedings
[12] We note that on the morning of the second day of the hearing, the Railroad
Association (the “RRA”), approached the Tribunal via email and indicated an
intention to participate in the proceedings. The RRA which had initially indicated
to the Commission that it had no concerns with the transaction, submitted to the
Tribunal that this position had changed based on new information which had
come to light.
[13] The RRA was granted an opportunity to address the Tribunal on this new
information. After hearing the RRA it became clear that its concern was about
the control structure of Alstom Gibela. Given that this issue had been fully
investigated by the Commission and formed part of the recommendation before
the Tribunal, the RRA’s request to participate in the proceedings was denied.
[14] The Department of Transport (“DoT”) requested and was permitted to participate
in the Tribunal proceedings. Mr Jan-David de Villiers made submissions on
behalf of the DoT in which he raised concerns in relation to concentration and
the refurbishment market.
Relevant markets
[15] The Commission identified and assessed the proposed transaction in the
following broad markets:
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15.1. The national market for rolling stock (this includes the manufacture and
supply of EMUs and electric locomotives; maintenance and refurbishment
services for EMUs and manufacture and supply of inputs for electric
locomotives); and
15.2. The national market for signalling systems (which includes the
maintenance and supply of spare parts for signalling systems for mainlines,
which consist of both EMU and electric locomotives).
[16] Given that only mainline rolling stock and signalling systems are operated in
South Africa, the Commission’s investigation was primarily focused on this type
of rolling stock and signalling systems.
[17] Both Alstom and Bombardier are active in the rolling stock and signalling
systems markets.
Rolling Stock
[18] Alstom’s participation in South Africa’s rolling stock activities is through two
companies called Alstom Gibela and Alstom Ubunye.
[19] Alstom Gibela is a consortium between Alstom and two B-BBEE shareholders
(61%), Umbambalo Rail (Pty) Ltd (“Umbambalo”) (30%) and New Africa Rail
(9%). In 2012, Alstom Gibela won the Passenger Rail Agency of South Africa
("PRASA”) tender to renew its mainline rolling stock fleet. The Alstom Gibela
trains are electric multiple units (“EMUs”). These EMUs are used in commuter
passenger services on suburban routes. At the end of the ten-year period (i.e.
in 2028), the Gibela consortium will be dissolved and the entire Gibela
manufacturing facility will be handed over to PRASA.
[20] Prior to it being purchased by Alstom in 2016, Alstom Ubunye was a company
called Commuter Transport Locomotive Engineering (“CTLE”).
2
Alstom Ubunye
had previously provided maintenance and refurbishment services to diesel and
2
As such, CTLE and Ubunye are the same company.
6
electric rolling stock including locomotives, coaches, EMUs and traction
systems. Since being acquired, Alstom Ubunye has transitioned from supplier
of rolling stock refurbishment services to a manufacturer of rolling stock
components, to .
[21] In its investigation the Commission found Alstom’s participation in the South
African rolling stock market to be limited to the Gibela-PRASA tender for the
renewal of its mainline rolling stock.
[22] In relation to Bombardier, BT South Africa is involved in the manufacture of
traction systems for electric locomotives (for freight use) for supply to Transnet
Freight Rail (“TFR”), a division of Transnet SOC Ltd (collectively referred to as
“Transnet”), pursuant to a 2014 tender. The parts designed by Bombardier
are assembled by Transnet Engineering and Rolling Stock Repair
Services (Pty) Ltd (“Transnet Engineering”) in South Africa. BT South Africa,
through Transnet Engineering, also supplies limited and indirect spare parts to
PRASA.
[23] Bombela Maintenance provides repair and maintenance services for the
s rolling stock pursuant to a with the
, which will end in Bombela Maintenance
provides rolling stock maintenance services in South Africa
Signalling Systems
[24] In 2004, Alstom ceased its participation in the South African signalling systems
sector when it sold off this portion of the business to a local firm, Actom
(Proprietary) Limited (“Actom”). Although Alstom has stopped participating in
the signalling systems tenders, it continues to supply some of its products in
South Africa
7
[25] Alstom has an indirect 20% interest in Transmashholding Group (“TMH”)
when taken together, may confer
negative control over TMH. In 2018, TMH acquired indirect control over the
business of DCD Rolling Stock through its South African subsidiary, TMH Africa
(Pty) Ltd (“TMH Africa”). This acquisition included a 45,000 square metre rolling
stock facility in Boksburg, South Africa. TMH Africa offers rolling stock
assembly, refurbishment, modernisation, and maintenance services, as well as
manufacturing certain components such as bogies and car bodies.
. During the hearing, Alstom’s
control over TMH was clarified. There is a minority shareholding at the global
level whereby Alstom holds a minority share in TMH. However, the nature of
the minority rights that Alstom has in TMH at the global level does not filter down
to the South African entity. Thus, Alstom’s minority shareholding does not
provide it access to any disaggregated information relating to the business of
TMH in South Africa.
3
[26] Commuter Transport Engineering (“CTE”) is a company active in the rail sector
in South Africa and specifically in the refurbishment and modernisation of
passenger trains.
[27] Bombardier’s activities in the South African signalling systems market, are
mainly limited to the maintenance of signalling systems, supply of spare parts
and re-signalling positions.
3 Tribunal Transcript of proceedings LM027May20 (6 November 2020) at p28.
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[28] Bombela Maintenance maintains the Gautrain signalling system under an
existing contract.
[29] Bombela Maintenance had two prior signalling activities in South Africa. In 2018,
PRASA terminated its contract with Bombela Maintenance regarding the re-
signalling and operation of PRASA’s network in the Durban region.
Refurbishment market
[30] The Commission found no overlap between the merging parties in the market
for the provision of refurbishment services
[31] Alstom Ubunye (previously CTLE) was involved in the provision of maintenance
and refurbishment services for diesel and electric rolling stock including
locomotives, coaches, EMUs and traction systems for PRASA and Transnet.
[32] However, concerns were raised by the DoT about potential competition in this
market by the merged entity and possible impact on local players. We address
this under the public interest section.
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Impact on Competition
[33] The Commission found that the proposed transaction would result in a horizontal
overlap in each of the relevant markets above. This is discussed in more detail
below.
[34] The Commission also identified a pre-existing vertical relationship between the
merging parties in which Alstom Ubunye provides driver desks to Bombardier
for use in its locomotives which it supplies to Transnet. This is done on an
exclusive basis whereby Alstom Ubunye exclusively supplies driver desks to
Bombardier and Bombardier exclusively procures driver desks from Alstom
Ubunye. Given that the driver desks are not supplied to any third parties but
exclusively to Bombardier, the Commission was of the view that the proposed
transaction was unlikely to result in any foreclosure concerns. The Commission
did not assess this overlap further.
Market shares and market concentration
[35] In South Africa, the rolling stock market and signalling systems market can be
characterized as bidding markets with large and infrequent tenders. Further,
most suppliers are active in each of the relevant markets and can provide a wide
range of services in the rolling stock and signalling systems market. Given this
characteristic, the Commission was of the view that market shares would not be
a particularly useful indicator of competition dynamics in the market. Hence the
Commission assessed the tenders in the rolling stock and signalling markets
that have taken place in South Africa over the last ten years.
[36] With respect to the rolling stock market, the Commission found that the merged
entity would have a post-merger market share of less than 20% in terms of the
tenders awarded over the last 10 years. Further that although both Alstom and
Bombardier were competitors and bidders in the market, there were several
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other large competitors in the market such as Siemens,
4
GE Wabtec,
5
CRRC
6
which would continue to exert a competitive constraint on the merged entity.
[37] With respect to the signalling systems market the Commission found that the
merged entity would have a post-merger market share of less than 20% in terms
of the number of tenders awarded over the last 10 years. However, the merged
entity would continue to be constrained by the presence of other large players
in the market such as Hitachi Rail,
7
Actom, Siemens, Thales
8
and GE Wabtec.
[38] Based on the above, the Commission was of the view that the proposed
transaction was unlikely to result in a substantial lessening of competition in
either of the relevant markets in South Africa.
Global Context
[39] Although, the Commission concluded that the proposed transaction was unlikely
to result in a substantial prevention or lessening of competition in any relevant
market in South Africa the Commission noted that globally the proposed
transaction raised concerns in both the international rolling stock and
international signalling systems markets.
[40] The Commission found that the proposed transaction mainly raised concerns in
sub-markets and specific products which include the market for very high-speed
rolling stock, mainline EMUs market and the market for legacy OBUs in the EU
and high-speed rolling stock and propulsion system markets in the US.
[41] The Commission was unable to collect independently verifiable market share
figures for each of the sub-markets and therefore analysed the broad markets
for rolling stock and signalling systems.
4
Siemens Mobility GmbH
5
GE Transportation (of General Electric), since purchased by Wabtec Corporation.
6
CRRC Corporation Limited
7
Hitachi Rail Limited.
8
Thales Group
11
[42] In the global market for rolling stock, the Commission found that the merged
entity would have a market share of less than 30% with an accretion of between
10 and 15% globally. In addition, the merged entity would continue to be
constrained by other players in the market including CRRC (<35%), Siemens
(<15%), Hitachi (<15%) and GE Wabtec (<10%).
[43] In the signalling systems market, the Commission found that the merged entity
would have a market share of less than 15% with an accretion of between 5 and
10% globally. This translated to the following post-merger market shares for
competitors: CRRC (<25%), Siemens (<20%), Thales (<15%) and Hitachi
(<10%).
[44] Based on the above estimates, the Commission concluded that the behaviour
of the merging parties would continue to be constrained by the presence of
several large players in each of the relevant global markets post-merger.
Barriers to entry
[45] The Commission found that barriers to entry in the markets for rolling stock and
signalling systems were high. In particular, the Commission identified regulatory
requirements and capital costs as the main barriers to entry in South Africa.
Therefore most of the players which compete with the merging parties in the
relevant markets tend to be large, international firms with significant resources.
[46] The Commission next considered the issue of countervailing power.
Countervailing power
[47] In conducting its analysis, the Commission considered: firstly the extent to which
customers that procure rolling stock and signalling systems can credibly threaten
to resort to alternative suppliers within a reasonable period of time; secondly,
whether the customer would be able to refuse to buy products or delay
purchases from the supplier.
12
[48] The Commission found that given that the relevant markets were tender-based
this conferred some countervailing power to customers who could then exercise
some discretion when issuing new tenders or using existing suppliers. In
addition, the Commission found that there are several firms that bid for rolling
stock and signalling systems tenders such as Ansaldo,
9
Actom, Siemens and
CRRC amongst others.
[49] In light of the above the Commission was of the view that the proposed
transaction was unlikely to reduce the countervailing power of customers.
[50] As part of its analysis the Commission also considered whether the transaction
would result in unilateral effects, coordinated effects and portfolio effects.
Unilateral effects
[51] In its assessment of unilateral effects, the Commission considered two issues.
The first being the loss of a potential competitor and the second being whether
the merged entity would enjoy an enhanced bargaining position post transaction.
[52] The Commission found that the merging parties are direct competitors and have
at times competed for the same tenders. While the Commission acknowledged
that the transaction would remove a credible competitor, Bombardier, it found
that there are a number of large, sophisticated suppliers (competitors) present
in the market which would continue to exert a competitive constraint on the
merged entity. These suppliers were found to have competed directly with the
merging parties and as such the Commission was satisfied that this would
alleviate any potential competition concern which may arise as a result of the
proposed transaction.
9
Ansaldo STS.
13
Coordinated effects
[53] As part of its investigation, the Commission considered the extent to which the
proposed transaction would create a platform for the exchange of information
given the structural links that exist pre-merger. The structural links are created
by the fact that firstly; Alstom has an indirect interest in TMH, the holding
company of TMH Africa. In South Africa, TMH Africa offers rolling stock
assembly, refurbishment or modernisation and maintenance services.
[54] However, given that this relationship was pre-existing, the Commission
concluded that it was not merger specific and therefore did not assess this
concern any further.
Portfolio effects
[55] In assessing portfolio effects, the Commission assessed whether the merging
parties would have the ability and incentive to leverage and exclude rivals in the
relevant markets.
[56] Recall that the Commission had found that the merged entity’s market share
would be less than 20% in all the relevant markets post-merger. Further that the
markets comprised several significant competitors which would continue to
constrain the behaviour of the merged entity post-merger.
[57] The Commission was therefore of the view that it was unlikely that the merged
entity would have significant market power or the ability to foreclose its rivals,
the merger was unlikely to increase its portfolio power.
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Third party concerns
[58] During the Commission’s investigation, concerns were raised by third parties.
The main concerns were that the merger would: (i) have a negative impact on
future competition and the ability of other players, to interface with / integrate
their signalling systems, ETCS OBUs, on the installed base of Alstom-
Bombardier in commuter trains; and (ii) the merger would result in the non-
availability of some parts and support in the signalling systems market. The
concerns regarding the non-availability of some parts and support in the
signalling systems market are dealt with under the public-interest assessment.
[59] With respect to the first concern, the Commission took into account the
interoperability of signalling systems and rolling stock as a factor of the merged
entity’s ability to foreclose rivals. Although there is a common understanding
among different role players in the rolling stock and signalling market that
signalling systems should be interoperable, the Commission found that ensuring
that interoperability occurs can be difficult. This is because, for systems to be
interoperable, manufacturers of signalling systems and rolling stock should
exchange commercially sensitive information such as intellectual property
(Information Technology software) and there should be collaboration between
personnel.
[60] A competitor of the merging parties submitted that Alstom and Bombardier are
the only two suppliers that have existing contracts for the manufacture, supply,
and maintenance of commuter trains in South Africa. As such, the merger would
be creating a monopoly in commuter trains in South Africa. As a consequence
of creating a monopoly for commuter trains in South Africa, the competitor
submitted that suppliers of OBUs would no longer be able to install their OBUs
on the Alstom / Bombardier fleet as the combined entity would use its own
components and would have the ability and incentive to refuse assistance to
components and would have the ability and incentive to refuse assistance to
other OBUs suppliers to integrate their OBUs on the Alstom / Bombardier fleet.
15
[61] It should be noted that in the European Commission’s consideration of this
merger, similar concerns were raised and a behavioural remedy was imposed
and accepted by the merging parties in this regard. The EU further found that
Alstom was a clear market leader in the ETCS OBU segment in the EU. In order
to address this concern, the parties agreed to a remedy requiring the merged
entity to make information and support available to rival ETCS OBUs suppliers
when seeking to retrofit legacy Alstom and Bombardier rolling stock with ETCS
OBUs.
[62] In South Africa, the merging parties submitted that the ETCS standard is not yet
in operation. Whilst customers are open to select ETCS in their discretion, none
of the South African track-side signalling systems are equipped to comply with
ETCS ATP today and there have never been any ETCS OBU retrofit projects in
South Africa. In addition, the Commission found that the merged entity’s
combined installed base of rolling stock with legacy systems only comprise of
rains which accounts for less than 1% of all rolling stock in South Africa. As
such, the Commission was of the view that there was no basis for a remedy to
be imposed in this instance.
[63] At the hearing, after receipt of the Commission’s confidential recommendation,
the DoT, which had made submissions to the Commission during its
investigation, refined its concerns about the merger, stating that the merger
between Alstom and Bombardier will create a strong original equipment
manufacturer (OEM) in South Africa. In DoT’s view the risk this creates is that
the merged entity may start purchasing existing local companies within the rail
manufacture supply chain thus preventing or lessening competition in the local
supply chain in the rolling stock sector in South Africa. This concern is fully
canvassed below, under the public interest concern relating to a particular
industry sector.
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Public interest
Employment
[64] The merging parties submitted that the proposed transaction would not have a
negative effect on employment because the target firms would continue to
operate as is post-merger.
[65] Given that the merging parties made a firm statement that there would be no
negative effects on employment in South Africa and the fact that none of the
employee representatives and trade unions representing the employees of both
the merging parties raised any concerns, the Commission was of the view that
the proposed transaction was unlikely to have a negative impact on employment.
It was clarified on the first day of hearing that employment levels would be
maintained.
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Spread of ownership
[66] Alstom Ubunye is a level 4 B-BBEE contributor, as 49% of the shares in Alstom
Ubunye are held by historically disadvantaged persons (“HDPs”). Alstom Gibela
is a level 2 B-BBEE contributor, as 39% of the shares in Alstom Gibela are held
by Umbambalo and New Africa Rail, which are owned and controlled by HDPs.
On the other hand, the Commission found that Bombardier is a Level 2 B-BBEE
contributor. The DTIC submitted that it was concerned about the impact of the
proposed transaction on B-BBEE. The merging parties submitted that the
merged entity would have no incentives to dilute its B-BBEE shareholding
because of the tender bidding requirements. The Commission was of the view
that the proposed transaction was unlikely to have a negative impact on the
spread of ownership.
10
Transcript (6 November 2020) above n 3 at p29.
17
Impact on a particular industrial sector or region and the ability of national industries
to compete in international markets
Refurbishment market
[67] As discussed earlier the Commission did not raise any concerns about the
refurbishment market. During the hearing, the Tribunal probed the Commission
on whether it had investigated Alstom’s reasons for
.11
.12
[68] Mr De Villiers provided some industry insights into how refurbishment and
maintenance services were rendered. He explained that in the refurbishment
market the best practice for trains is to do a general overhaul after every 10
years for three terms. When the trains get to year 30, there should be a total
upgrade or refurbishment. After that the trains receive a general overhaul again
for three 10 -year terms and then they leave the system when they get to year
60.
13 The PRASA renewal programme which Alstom Gibela is involved in
14
[69] According to him the refurbishment market is also a tender market. Historically
mainly local entities with high localization percentages have participated in
bidding for refurbishment tenders. These firms included Wictra, Transport Rail
Engineering, Naledi and CTE.
15 He could not foresee one bidder winning the
11 Tribunal Transcript of Proceedings LM027May20 (18 November 2020) at p42.
12 Transcript above n 9 (18 November 2020) at p42-43.
13 Transcript above n 9 (18 November 2020) at p20.
14 Transcript above n 9 (18 November 2020) at p20.
15 Transcript above n 9 (18 November 2020) at p30.
18
entire refurbishment contract. 16 The general duration of such refurbishment
contracts is five years. 17 However, PRASA has not issued a refurbishment
tender for the last two to three years.
[70] The concern of the DoT was that the merger between Alstom and Bombardier
would create a very dominant OEM in South Africa which would have a negative
impact upon local firms participating in the rolling stock refurbishment program.
[71] The DoT then proposed a condition that would in effect prevent the merged entity
from entering the refurbishment market for 20 years, in order to protect local
firms.
[72] The Commission, in response, reiterated that the merging parties did not overlap
in relation to refurbishment, with Alstom Ubunye being seen as the only business
active in refurbishment,
Bombardier was not active in this market. In light of
this there was no market share accretion in relation to the refurbishment
segment of the market.
[73] The merging parties submitted that the DoT’s concerns were non-merger
specific. Further that there were no facts supporting the theory of harm that the
merged entity would have incentives to foreclose local rivals in the refurbishment
segment. The merging parties submitted that the proposed remedy was too
wide-reaching and would unduly prevent the merged entity from being able to
compete against its well-resourced rivals in the future.
[74] The Tribunal was of the view that preventing the merged entity from bidding
could have the perverse consequence of preventing competition, by lowering
competitive rivalry, among the incumbent local firms. The Tribunal, after
ventilation of the DoT’s concerns with the parties was persuaded that there was
no basis to impose any conditions in this regard. Furthermore, the tender-based
characteristic of the market would mitigate against this concern.
16 Transcript above n 9 (18 November 2020) at p29.
17 Transcript above n 9 (18 November 2020) at p57.
19
[75] The DoT proposed a second condition, asking that the Tribunal impose a
restriction that the merged entity may not purchase any shareholding in South
African companies within existing local companies in the rail manufacture supply
chain without approval from the Competition Commission. We were not
persuaded that this would be an appropriate remedy. This is because such a
condition would be redundant as the merger parties would have to, in any event,
notify the Commission of any mergers that meet the notification thresholds.
Further, the Commission has the power to call for small merger notifications,
where thresholds are not met. The Commission also submitted that market
participants often bring information to its attention in markets of interest.
Non-availability of certain parts and support in the signalling systems market
[76] During its investigation, the Commission received a concern from Transnet.
Transnet is one of the major customers in the rail industry in South Africa and
whose trains were already installed with the merging parties’ products. The
concern was that the merger would result in the unavailability of some parts in
supporting the signalling systems market.
[77] More specifically, Transnet raised concerns in relation to the availability of three
products post transaction. The first concern was with respect to the availability
of the AGATE control system post-merger. Where “AGATE” refers to the
advanced generic Alstom traction electronics solution produced in Alstom’s
facility in Villeurbanne, France, comprising a suite of components which have
been supplied by Alstom to and TFR previously.
[78] The second concern related to the continued availability, supply and support for
Bombardier’s Ebilock interlocking product, the design and software of which are
developed by Bombardier Transportation Sweden, and its hardware
components are produced by various suppliers worldwide, and which is part of
components are produced by various suppliers worldwide, and which is part of
Bombardier’s Interflo signalling solution that has been approved by TFR for
application in TFR tenders.
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[79] Transnet’s third concern was that the merged entity will have the ability and
incentive to refuse to supply with the Alstom’s Integrated Vital Processor
Interlocking component, produced in Alstom’s facility in Rochester, U.S.A (“iVPI
interlocking system”),
Alternatively, Transnet was
concerned that Alstom may have the ability and incentive to continue to offer
he iVPI interlocking system on unfavorable terms and conditions.
[80] Transnet requested the merging parties to make a commitment that these
products would not be adversely impacted by the merger.
[81] While the merging parties dismissed each of Transnet’s concerns for various
reasons, the Commission remained concerned that if the merging parties were
to discontinue the supply of these parts, this would have a significant impact on
the rail sector, an important industrial sector in South Africa.
[82] In response, the merging parties made the following commitments which were
then imposed as conditions to the merger. The merging parties committed to
make:
82.1. AGATE available in South Africa
for
twelve years from the implementation date.
82.2. Ebilock and spare parts and support available to TFR in South Africa for
twelve (12) years from the implementation date.
82.3. iVPI, including spare parts and support, available to
for a period of twelve (12) years from the implementation date.
[83] During the hearing the panel probed the specific mention of and whether
this could have any unintended anti-competitive effects at the level of distribution
of Alstom iVPi. The representatives of Actom and the merging parties explained
that Transnet, in the case of iVPI,
21
They argued that if, by reason of this merger, could no
longer access Alstom iVPI, an effective competitor would be removed from the
market reducing the number of competitors from four to three. Thus, the
condition was motivated as a condition aimed at preserving and maintaining the
existing status quo in relation to existing agreements, providing Transnet and
comfort that there will be no change brought about in relation to those
contractual obligations as a result of the merger. The intention was not to limit
other parties, and the condition does not prevent any other supplier concluding
agreements.
18 At the time of the merger hearing, there were four such approved
products. At the end of this cycle, Transnet will go out to tender again and
market players will be free to tender for the next cycle.
19
[84] During the hearing it was confirmed that the duration of the conditions was linked
to the obsolescence management program because over the duration of the
conditions some products will have a limited lifecycle and/or become obsolete.
In those circumstances the ordinary commercial terms that govern lifecycle
product management principles and obsolescence management predetermined
principles that are fairly standard in the market will become operable.
[85] The Commission also requested the merging parties to provide an undertaking
that they will not reduce or discontinue any existing enterprise and supplier
development programmes as a result of the merger. These programmes include
merging parties’ existing policies or programmes aimed at prioritising
procurement from small local suppliers and providing technical and training
support to such suppliers and other small businesses operating in the South
African rail industry. This undertaking was provided.
18 Transcript (6 November 2020) above n 3 at p17-20.
19 Transcript (6 November 2020) above n 3 at p22-23.
22
Conclusion
[86] In light of the above, we concluded that the proposed transaction was unlikely
to substantially prevent or lessen competition in any relevant market. However,
the transaction would negatively impact the public interest in that it would have
an impact on a particular industrial sector or region, in particular regarding the
continued availability of certain parts and support in the signalling systems
market. In this regard, we are of the view that the conditions adequately address
this concern. Accordingly, we approved the proposed transaction subject to the
tendered conditions, attached marked “Annexure A”.
12 March 2021
Ms Yasmin Carrim Date
Ms Mondo Mazwai and Prof Fiona Tregenna concurring.
Tribunal case manager: Mpumelelo Tshabalala
Tribunal economist: Karissa Moothoo Padayachie
For the Commission: Zintle Siyo assisted by Mogau Aphane and
Yongama Njisane
For the merging parties: Deanne Wood assisted by Neil Mackenzie of
Fasken attorneys for Alstom also instructed by Judd
Lurie of Bowmans attorneys for Bombardier
For the participants: Sybrand Nel assisted by Peter Colborne for
Mesela Nhlapo for the RRA
Jan-David de Villiers for the DoT
Reason:Witnessing Yasmin Tayob Carri
Signed by:Yasmin Tayob Carrim
Signed at:2021-06-10 13:20:21 +02:00