February 13, 2019

European Union competition officials continue to resist calls to promote “European Champions,” as shown by their decision to block the €15 billion proposed merger between Alstom SA and Siemens AG.

The European Commission’s decision is the latest and perhaps sharpest demonstration that public policy goals alone can’t sway enforcers from following their competition analyses.

The commission has traditionally not yielded to national politicians who ask them to overlook anti-competitive effects of mergers involving home-country firms, attorneys say. The EU stood its ground again in rejecting the rail giants’ merger, even in the face of pressure from EU core members France and Germany, attorneys say. The EC’s dismissal of Germany’s concerns was especially noteworthy, they said, because Berlin traditionally has not vied for its companies on merger reviews before the commission.

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The commission rejected the proposed merger Feb. 6, finding that concessions offered by France-based Alstom and Germany-based Siemens are unlikely to undo reduced competition in railway signaling systems and the market for very high-speed trains.

Even after sweetening the offered concessions, Siemens cannot complete the acquisition of its French peer, the commission said, because the tie-up would reduce competition for track signaling while creating “the undisputed market leader in several mainline signaling markets.” The merger also would remove one of the two largest manufacturers of very high-speed trains operating in the European Economic Area, according to the EC.

“The narrative being spun by the merging companies was that their merger would yield sufficient efficiencies. But … the commission found that those claims didn’t hold up to close scrutiny,” said Cohen Milstein Sellers & Toll PLLC antitrust practice co-head Benjamin D. Brown.

The commission criticized the “complex mix” of proposed remedies that included various restructurings and personnel and asset transfers or licenses, which it said lacked a “stand-alone and future-proof business that a buyer could have used to effectively and independently compete against the merged company.”

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The rail companies and their political backers had justified the merger largely based on what they described as the looming competitive threat of Chinese trains and signaling systems. Siemens, Alstom and their political backers argued the tie-up was needed to counter international competition, especially from China.

The rail companies and their political backers had justified the merger largely based on what they described as the looming competitive threat of Chinese trains and signaling systems. Siemens, Alstom and their political backers argued the tie-up was needed to counter international competition, especially from China.

“You’re holding up the prospect of a justification of a Chinese boogeyman,” Brown said. “That’s a tough argument to make.”

While arguing of future upheavals requiring a merger to become competitive has become part of the “standard playbook,” according to Brown, regulators have the tools, resources, experience and time to consider those assertions and evaluate whether the loss of competition is “justified by these supposed efficiencies.”

The full article can be accessed here.