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.