OFT closed case: Completed acquisition by VB Autobatterien GmbH, in which Robert Bosch GmbH has material influence, of Optima Batteries AB and certain assets and companies constituting Johnson Controls Batterien.
Affected market: Automotive batteries
The OFT’s decision on reference under section 22 of the Enterprise Act 2002 given on 26 September 2003
VB Autobatterien GmbH (VB) is a full function joint venture jointly controlled by Johnson Controls Inc (JCI) (80 per cent shareholding) and Robert Bosch GmbH (Bosch) (20 per cent shareholding). JCI is a worldwide manufacturer of automotive interior equipment and other automotive components. VB is involved in the manufacture and supply of a wide range of batteries, including automotive starter batteries (original equipment and replacement parts) for vehicle manufacturers and independent customers. In 2002 VB had sales in the UK of [more than 30] (see [note 1]) million euros.
JCI is the owner of Johnson Controls Batterien GmbH Co. KG and Johnson Controls Batteries (UK) Ltd and certain assets owned by Johnson Controls Batteries France S.A.S. collectively known as JCB – these businesses are involved in the supply of automotive starter batteries. JCB had UK sales of [more than 10] (see [note 1]) million euros in 2002. Optima Batteries AB (Optima) is a wholly owned subsidiary of JCI which had UK sales of [less than 1] (see note 1) million euros in 2002.
The transaction involves a re-structuring of existing business from JCI to VB. Optima and JCB which were wholly owned businesses of JCI have been transferred to VB, the joint venture company owned 80 per cent by JCI and 20 per cent by Bosch. The parties have stated that this represents a change in control from sole control by JCI to joint control by JCI and Bosch. The purpose is to consolidate all of JCI’s European automotive battery activities into VB to streamline the business and the parties therefore believe this primarily represents an internal reorganisation within the JCI group.
The transaction was completed on 22 July 2003. The statutory deadline is 21 November 2003 and the OFT administrative deadline is 2 October 2003. The acquisition has been cleared in Austria, Germany, Italy, France and Spain.
As a result of the transaction JCB and Optima, and VB have ceased to be distinct. Bosch’s existing 20 per cent shareholding in VB, and the fact that Bosch has the ability to veto strategic commercial decisions, is in our view sufficient to confer on Bosch the ability to materially influence VB and thus, as a result of the merger, the business of JCB and Optima for the purposes of section 26 of the Enterprise Act 2002 (the Act). The parties overlap in the supply of automotive starter batteries in the UK and the share of supply test in section 23 of the Act is met. In consequence an increment in the share of supply directly accrues to VB, the acquiring enterprise. A relevant merger situation has therefore been created.
The VB joint venture was cleared by the European Commission (EC) in October 2002 – for full details see Case No COMP/M.2939 – JCB/Bosch/VBB Autobatterien JV, Commission Decision of 18 October 2002. In its decision, the EC considered there are two relevant product markets: the manufacture and supply of original batteries and replacements to vehicles manufacturers (OEM/OES); and the manufacture and supply of replacement parts to independent customers in the aftermarket, such as supermarkets and fast fitters (IAM).
Both markets were found to be EEA wide in scope. The reasoning behind the market definition was product homogeneity and standardisation, supply- and demand-side substitutability, declining brand preferences, EEA-wide branding, fewer manufacturers and customers which results in a wider operative basis and, for the latter, a significant buyer power as well as increased competition from non-Member State production.
The merger resulted in market shares of between 30-40 per cent in the EEA held by the JCI group, however, a number of countervailing factors were found. In the OEM/OES sector, the EC found:
- the presence of another strong competitor (Exide) provided a significant large alternative to VB
- a number of other smaller competitors such as Delpho supports the conclusion that there is a potential for capacity expansion – excess capacity was present
- there have been significant price decreases over the past ten years, showing that competition has been vigorous
- buyers consist of a limited number of large, knowledgeable and price-sensitive companies that are in a position to obtain more favourable purchasing conditions
- procurement is based on bidding and multi-sourcing strategies that reduce the dependence of purchasers on individual suppliers
- strong supply substitutability between different battery manufacturers because they can all produce a full-range of all types of batteries.
In the IAM sector, in addition to price decreases, the presence of a strong competitor and other small competitors, and strong supply side substitutability, the EC found:
- IAM customers could typically switch battery suppliers at a modest cost and within a short time
- increasing buying power by large customers such as supermarkets, fastfitters/autocentres.
For these reasons the EC found that the transaction did not lead to significant competition concerns.
THIRD PARTY VIEWS
A number of third party customers and competitors were contacted in the usual way. Third parties agreed that the appropriate geographic market is EEA wide and did not view the transaction as raising substantive competition concerns - competition was generally regarded as vigorous in both the OEM and IAM sectors. Only one third party expressed concern about the change in having to negotiate with VB instead of Optima.
The parties overlap in the manufacture and sale of automotive starter batteries. The parties submit, and third parties have confirmed, that there have been few changes in the industry since the EC investigation in 2002 and that the analysis and definitions used in that case still accurately reflect the current competitive situation i.e. the supply to automotive manufacturers of original equipment (OEM) and replacements or services (OES); and the supply to customers in the independent aftermarket (IAM). Both are taken to be EEA wide in scope.
Bosch’s only involvement in the supply of automotive starter batteries in Europe is through its shareholding in VB. The parties combined shares of supply to the automotive manufacturers of original equipment and replacements or services within the EEA were estimated at [between 40-50 per cent] (see [note 2]) during the financial year of 2002. Optima is not present in this sector. EEA wide shares of supply were estimated at [between 30-40 per cent] (see note 2) for supply to customers in the independent aftermarket. However, the parties submit that this transaction does not change or strengthen their position. Given that Optima and JCB, VB and JCI are already part of the same group, there is no real increase in the share of supply held by JCI. This is simply an internal transfer such that competition between JCI and competitors is unaffected. Significant constraints identified in each product market are also present. No vertical issues arise from the transaction.
The OFT does not believe that it is or may be the case that the creation of the relevant merger situation has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom for goods or services.
This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.
1. Actual figures replaced at the request of the parties 2. Actual figures replaced by a range at the request of the parties