IP/01/1393 Brussels, 10 October 2001 Commission prohibits acquisition of control of Legrand by Schneider Electric Following a detailed investigation, the Commission has decided to prohibit the merger of Schneider Electric and Legrand, the two main French manufacturers of electrical equipment. The merger would have considerably weakened the operation of the market in a number of countries, particularly in France, where the rivalry between the two companies has hitherto been the mainstay of competition. Despite the scale and seriousness of the problems posed by the merger, Schneider Electric did not put forward in good time adequate undertakings to ensure that, following the merger, the conditions of effective competition would be restored, to the benefit of consumers in France and in other countries. Schneider's proposed takeover of Legrand was notified to the Commission on 16 February 2001, and a second-stage detailed investigation was initiated on 30 March 2001. The public offer of exchange of shares announced by Schneider on 15 January 2001 was closed on 25 July 2001, and Schneider holds some 98% of Legrand's shares. The effects of the merger on competition related primarily to low-voltage electrical equipment, i.e. all the systems used for electricity distribution and the control of electrical circuits in homes, offices or factories. Such equipment covers many different types of products, ranging from electrical distribution boards and sockets and switches to cable trays. The Commission's investigation showed that there were substantial overlaps between the activities of Schneider and Legrand in the markets for electrical switchboards (distribution boards and final panelboards, together with their components, where the combined market share would have been between 40% and 70% depending on the country); wiring accessories (in particular, sockets and switches and fixing and connecting equipment, where combined market shares ranged from 40% to 90%); and certain products for industrial use (industrial pushbuttons and low-voltage transformers) or for more specific applications (for example, emergency lighting). In France, the merger gave rise to particularly serious problems over virtually the whole range of products concerned and would, in most cases, have resulted in the strengthening of a dominant position. Schneider and Legrand are by far the largest players on the French market, and the Commission's investigation demonstrated clearly that there was little prospect of any significant development in the activity of foreign competitors in the short and medium term. Furthermore, competition problems were also identified in Denmark, Spain, Greece, Italy, Portugal and the United Kingdom. In an attempt to remedy these competition problems, Schneider submitted an initial series of undertakings to the Commission on 14 September 2001, the deadline for presenting undertakings. However, it became evident, in particular following the market investigation carried out by the Commission, that these initial undertakings were not such as to restore the conditions of effective competition. Undertakings submitted late Once the deadline of 14 September had passed, the Commission could not accept any "last minute" undertakings unless it was able to establish immediately, without any possible doubt, that they would restore the conditions of competition. Schneider submitted new undertakings on 24 September, but they left serious doubts as to the competitive capacity of the entities to be sold off, notably as regards access to distribution in France and the economic risks associated with the actual separation of these entities from the rest of the group to which they belonged. At all events, the uncertainties associated with the fact that these were last minute proposals could not be cleared up within the deadlines set. Lastly, Schneider's proposals did not provide any effective solution as regards a number of geographic markets and/or product markets on which competition problems had been identified. "This unfortunate outcome illustrates the absolute need for the partners in a merger which involves clear competition problems to give thought, at a very early stage in the project, to possible remedies and to enter into discussion without delay with the competition authorities", said Mario Monti, the competition Commissioner, adding: "Taking this precautionary step should obviate the need to submit last minute remedies which, by their very nature, may be inappropriate and may raise uncertainties which cannot be dissipated within the brief period of time remaining." This prohibition must be seen in the wider context of the merging of two companies originating in one and the same Member State with a view to creating a "national champion". Such a merger cannot be authorised unless the conditions of effective competition, ensuring in particular fair prices for consumers, continue to apply or are rapidly restored. In some of the proposed mergers of this type already dealt with by the Commission, such as that between TotalFina and Elf, this proved possible on the basis of substantial remedies, while in other cases, such as Volvo/Scania and the present case, it proved impossible. In view of the particular circumstances created by the fact that Schneider has already acquired virtually the whole of Legrand's shares, the Commission is prepared to examine the practical arrangements for restoring effective competition. 2