EC approves Thales GTS acquisition

Thales' ground transportation business (GTS)The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of Thales’ ground transportation business (GTS) by Hitachi Rail. The approval is conditional on full compliance with commitments offered by Hitachi Rail.

The Commission’s investigation showed that the transaction, as initially notified, would have reduced competition and led to higher prices and less innovation in the markets for rail mainline signalling projects in France, including interlockings, overlay and resignalling projects, and Germany, including overlay and resignalling projects. On these markets, the transaction would have combined two close competitors and the merged entity would have acquired very high market shares.

To address the Commission’s preliminary competition concerns, Hitachi Rail offered to divest its mainline signalling platforms in France and Germany for interlockings, overlay and resignalling projects.

“Hitachi and Thales are close competitors in mainline signalling, notably in France and Germany. The divestiture of their activities in these countries will preserve competition and ensure that infrastructure managers, and ultimately customers, do not face increased prices, lower quality and less innovation,” the Commissioner Didier Reynders, in charge of competition policy said.

These commitments fully address the competition concerns identified by the European Commission. They will preserve competition by removing the horizontal overlap between the parties in the French and German markets for interlockings and automated train protection wayside systems for mainline signalling platforms.

The commitments come after constructive discussions between the Commission and the parties that resulted in a successful proposal to divest Hitachi Rail’s standalone business in France and Germany, including international locations. Structural divestitures eliminate concerns that arise when the merging companies are close competitors, because they immediately replace the competition that would have been lost as a result from the merger. The commitments will enable a purchaser to run the divestment business as a viable competitive force in the market on a lasting basis. The Commission will closely monitor the divestment process, including the choice of any suitable purchaser for the divested businesses that will have to be approved by the Commission.

Following the positive feedback received in the context of the commitments’ market test, the Commission concluded that the transaction, as modified by the commitments, would no longer raise competition concerns. The decision is conditional upon full compliance with the commitments.

Recently, the Britain’s Competition and Markets Authority (CMA) has approved the EUR 1.7 billion acquisition of Thales’ ground transportation business by Hitachi Rail. In order to address CMA’s concerns, Hitachi Rail also committed to divest its mainline signalling business in the UK.

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