The European Commission has opened an in-depth investigation to assess whether GE's proposed acquisition of the Thermal Power, Renewable Power & Grid businesses of Alstom is in line with the EU Merger Regulation. The Commission's preliminary investigation indicates potential competition concerns in the market for heavy-duty gas turbines which are mainly used in gas-fired power plants. The transaction would bring together the activities of GE, the world's largest manufacturer of heavy-duty gas turbines, with those of Alstom, eliminating one of the three main global competitors to GE in this market.
The opening of an in-depth inquiry does not prejudge the final result of the investigation. The Commission now has 90 working days, until 8 July 2015, to take a final decision.
Commissioner Margrethe Vestager, in charge of competition policy, said: "We are concerned that the proposed acquisition might not only lead to higher prices but also result in less choice for customers and less innovation in the sector. Technology is and will continue to be crucial to help Europe meet its environmental commitments. Therefore, it is essential to maintain competition in the heavy-duty gas turbines market."
The Commission has preliminary concerns in relation to the sale and servicing of heavy-duty gas turbines (HDGTs). The market for HDGTs is characterised by high technological and financial barriers to entry, leading to a concentrated market with only four globally active competitors: GE, Alstom, Siemens and Mitsubishi Hitachi Power Systems (MHPS). The fifth player, Ansaldo, is characterised by the Commissison as a niche supplier with a more limited geographic reach. The margins in the market for HDGTs appear to be higher than those of neighbouring markets for power generation equipment such as steam turbines.
The HDGTs market worldwide is divided into two frequency regions, namely those operating at 50 Hz and those at 60 Hz. All the countries in the European Economic Area (EEA) operate at 50 Hz frequency.
Since MHPS seems to be less active in the EEA than in the rest of the world, the transaction would bring together the activities of two of the three main competitors in the EEA.The transaction would eliminate Alstom from the market, leaving European customers without an important competitor of GE and Siemens. Indeed, in the market for the sale of new 50 Hz frequency HDGTs, the merged entity would reach high market shares of around 50%, both in the EEA and at worldwide level excluding China.
Furthermore, the transaction might significantly reduce R&D and customer choice in the HDGT industry. After the merger there is a risk that GE would discontinue the production of certain Alstom HDGT models and that advanced HDGT technology developed by Alstom would not be brought to the market.
Finally, in the market for the servicing of General Electric's mature technology HDGT frames, the transaction eliminates competition by Alstom's subsidiary Power System Manufacturing.
Overall, the Commission is at this stage concerned that the transaction may lead to an increase in prices, a reduction in customer choice and a reduction of R&D in the HDGT industry, leading to less innovation. The Commission will now further investigate the proposed acquisition in-depth to determine whether its initial concerns are justified.
At this stage, the Commission considers that the transaction is not likely to raise concerns in relation to power generation equipment for nuclear, coal-fired, wind and hydro power plants, as well as in relation to electricity transmission equipment.