Mergers: Commission clears acquisition of Eaton Hydraulics by Danfoss, subject to conditions

Mergers: Commission clears acquisition of Eaton Hydraulics by Danfoss, subject to conditions

The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of Eaton’s hydraulics business (“Eaton Hydraulics”) by Danfoss. The approval is conditional on full compliance with the commitments offered by Danfoss.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: ”Danfoss and Eaton are both leading players in hydraulic components globally. Manufacturers of agricultural and construction machinery depend on these components for manufacturing innovative and price competitive products. Thanks to the commitments offered by the two companies, these customers will continue benefit from competitive prices and have choice of innovative products.”

Today’s decision follows an in-depth investigation of the proposed acquisition which combines the activities of Danfoss and Eaton Hydraulics. Danfoss and Eaton Hydraulics are both leading global manufacturers of hydraulic components used to make hydraulic systems for various kinds of machinery. The purpose of a hydraulic system is to make a machine move, by transferring energy from the point of source, e.g. an engine, to the point of use. The proposed transaction would remove one of the main competitors in this market.

The Commission’s investigation

During its in-depth investigation, the Commission gathered extensive information and feedback from competitors and customers of the merging companies.

Following its investigation, the Commission had concerns that the transaction, as initially notified, would have harmed competition, due to the combination of both companies’ hydraulic components businesses for mobile machinery, also known as “mobile applications” (for example, agricultural and construction machinery). In particular:

  • The Commission found that the transaction would lead to a reduced choice in suppliers, as well as higher prices, for certain hydraulic components for mobile applications, including (i) hydraulic steering units (HSUs), (ii) electrohydraulic steering valves (ESVs), and (iv) orbital motors.
  • For each of the above hydraulic components the transaction would lead to high combined market shares, in already concentrated markets, where limited credible alternative suppliers to the companies are present. Furthermore, strong entry barriers exist which would prevent the emergence of new entrants.
  • The market investigation also suggested that customers faced strong difficulties in switching suppliers.

The proposed remedies

To address the Commission’s competition concerns, Danfoss offered the following commitments:

  • The divestment of parts of Danfoss’ HSU, ESV and orbital motors businesses. These include Danfoss plants in Wroclaw (Poland), Parchim (Germany) and Hopkinsville (U.S.).
  • The structural divestiture will be complemented by the transfer of Eaton’s production lines for medium power orbital motors (HP and VIS models), Eaton’s Series 10 production line for HSUs, and production assets for Eaton’s ESV portfolio, to the Hopkinsville plant.
  • In order to enhance the competitiveness of the divestment business, and in addition to structural divestitures, Danfoss also committed to transfer additional Danfoss and Eaton technology for HSUs.

Thanks to these commitments, the divestment business will have a wide-ranging portfolio for each of the, HSUs, ESVs and orbital motors.

The commitments offered by Danfoss fully address the competition concerns raised by the proposed transaction. The Commission therefore concluded that the proposed transaction, as modified by the commitments, would no longer raise competition concerns. The Commission’s decision is conditional upon full compliance with the commitments.

Source: Mergers: Clearance of Eaton Hydraulics – Danfoss merger (europa.eu)

Photo Credit : https://pixabay.com/photos/turbine-engine-j79-general-electric-2817617/

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