Commission, November 26, 2014, No M.7401

Dear Sir/Madam,

Subject: Case No COMP/M.7401 – Blackstone/ Alliance BV/ Alliance Automotive Group

Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/20041 and Article 57 of the Agreement on the European Economic Area2

(1) On 22 October 2014, the European Commission received a notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which The Blackstone Group L.P. ("Blackstone", US) and Alliance Industries B.V. ("Alliance BV", Luxembourg) acquire within the meaning of Article 3(1)(b) of the Merger Regulation joint control of Alliance Automotive Group ("AAG", France), by way of purchase of shares (Blackstone and Alliance BV are designated hereinafter as the 'notifying parties' or 'parties to the proposed transaction').3

1. THE PARTIES

(2) Blackstone is a global alternative asset manager and provider of financial advisory services which operates as an investment management firm. It holds a number of participations in various sectors. One of its portfolio companies is Gates  Worldwide Limited ("Gates", the United States). Gates manufactures and supplies, among others, spare parts to the automotive sector.

(3)  Alliance BV is a financial holding company. In addition to its participation in AAG, it has participations in other companies active in the distribution of boat spare parts and various products and services for boatyards.

(4) AAG is a wholesale distributor of automotive spare parts with both trading and distribution activities. It is currently exclusively controlled by Weinberg Capital Partners ("WCP", France), a private equity fund. AAG's trading arm is in charge of the supply of spare parts through purchasing entities; its distribution activities consist of the selling of spare parts on both the wholesale and retail levels.

2. THE OPERATION

(5) Pre-transaction Aliance BV holds 31.9% of the shares in AAG. The latter is currently solely controlled by WCP that holds 54.3% of its shares. The proposed transaction consists of the acquisition by Blackstone4 of […]% of the stakes in AAG. Post-transaction, Blackstone and Alliance BV will jointly control AAG, with respective shareholdings of […]% and […]%.

3. THE CONCENTRATION

a)  Joint control

(6) Although Blackstone will acquire a […]% stake in AAG, the notifying parties will both have a veto right at the level of AAG's board of directors on several issues which are essential to the latter's strategic commercial behaviour, including on the adoption and modification of the annual budget and business plan.5 Accordingly, Blackstone and Alliance BV will, post-merger, exert joint control over the strategic commercial behaviour of AAG within the meaning of Article 3(1)(b) of the Merger Regulation.

b) Full-functionality

(7) AAG constitutes an existing undertaking that already performs all the functions of an autonomous economic entity within the meaning of the Merger Regulation. Indeed, AAG currently operates independently on the market, having its own financial   resources   and   turnover,  assets   and   staff,  as   well   as  a   dedicated management overseeing its daily business. Although AAG is foreseen to continue its current operations and is therefore likely to, post-merger, constitute a full- function joint venture according to Article 3(4) Merger Regulation, there is no need to finally conclude on that issue as the proposed transaction involves the  acquisition of joint control of a pre-existing business from third parties.6

4. EU DIMENSION

(8) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million7 (Blackstone: EUR […] million; Alliance BV: EUR […]; AAG: EUR […]). Each of Blackstone and AAG has an EU-wide turnover in excess of EUR 250 million (EUR […] and EUR […] respectively). Of these two undertakings, only AAG achieves more than two-thirds of its aggregate EU-wide turnover within one and the same Member State (namely France). The notified operation therefore has an EU dimension within Article 1(2) of the Merger Regulation.

5. COMPETITIVE ASSESSMENT

(9)  The activities of the notifying parties do not overlap at a horizontal level. However, there is a vertical relationship between Gates' activity and AAG's activity. In particular, Gates manufactures and supplies spare parts to the automotive sector,  while AAG acts as a wholesale distributor of automotive spare parts. AAG also owns four different central purchasing agencies. Each of these central purchasing agencies has affiliated wholesale distributors, either owned by AAG or independent of AAG. Finally, AAG also has a limited retail distribution activity.

5.1. Market definition

5.1.1.  Market for the manufacture and supply of automotive spare parts (upstream)

5.1.1.1. Relevant upstream product market

(10) In the automotive sector, the Commission has in the past defined the relevant product market for the manufacture and supply of spare parts and components on a product- by-product basis.8

(11) Based on that decision-making practice, the notifying parties submit that the narrowest relevant product markets that are affected by the proposed concentration  are the markets for the manufacture and supply of (1) ribbed belts, (2) synchronous belts, and (3) synchronous belt kits. In automotive applications, synchronous belts are used to synchronize the rotation of the engine crankshaft to its camshaft due to engine combustion  in a valvetrain  system.  Ribbed  belts,  in turn,  transfer power from   the crankshaft to accessory drive components, such as the alternator, air conditioning compressor, power steering and water pumps. The notifying parties submit that the two types of belts accordingly serve different purposes in the automotive industry and cannot be considered part of the same relevant product market. Finally, the notifying parties indicate that synchronous belt kits form a bundle of products that is sold separately into the independent aftermarket ("IAM") and that, in line with prior decision-making practice of the Commission9, those kits can therefore be considered part of a separate relevant product market.

(12) The Commission has also further segmented the various relevant markets for the manufacture and supply of automotive components by reference to:

- The vehicles for which the product is supplied: in this respect the Commission has distinguished between spare parts for (a) light vehicles, and (b) heavy commercial vehicles.10

- The distribution channel to which the product is supplied: in this regard, the Commission has distinguished between (a) products for original equipment manufacturers (“OEM”), including products for the original equipment service (“OES”) businesses, and (b) products sold to the IAM.11

(13) The notifying parties agree with this product market segmentation which was also confirmed during the Commission's market investigation. The Commission therefore retains that product market segmentation for the purpose of this decision.

5.1.1.2. Relevant upstream geographic market

(14) As regards the geographic scope of these markets, the Commission considered in previous decisions12 a national scope for the IAM markets and an EEA-wide, if not global, scope for the OEM/OES markets.

(15) The notifying parties did not take a position on the geographic market and provided market shares at a national level for the IAM segment.

(16) In any event, for the purpose of this decision the exact delineation of the relevant geographic markets can be left open as the proposed transaction will not give rise to competition concerns even under the narrowest plausible geographic market.

5.1.2. Market for the wholesale distribution of automotive spare parts (downstream)

5.1.2.1.      Relevant downstream product market

(17) AAG is active in the wholesale distribution of spare parts for both light vehicles and heavy commercial vehicles in the IAM distribution channel in France and in  the UK.

(18) The Commission has stated in a number of decisions that the market for the wholesale distribution of automotive components is to be divided by reference to the vehicles for which products are supplied (light vehicles vs. heavy commercial vehicles). The Commission also considered a distinction by reference to the distribution channel (OEM/OES vs. IAM), but ultimately left open the exact definition of the relevant product market.13

(19) According to the notifying parties, the markets for the wholesale distribution of spare parts, whether for light vehicles or for heavy commercial vehicles, encompass both the IAM and the OES segment. The notifying parties provided AAG's market shares separately for the IAM segment.

(20) In any event, for the purpose of this decision the exact delineation of the relevant market involving the wholesale distribution of spare parts can be left open as the proposed transaction will not give rise to competition concerns even under the narrowest plausible product market.

5.1.2.2. Relevant downstream geographic market

(21) As regards the geographic scope of those wholesale spare parts markets, the Commission considered in previous decisions14 that their geographic scope could  be either EEA-wide, nation-wide or even regional.

(22) The notifying parties are of the view that the wholesale distribution markets in which AAG operates are at least national in scope.

(23) In any event, for the purposes of this decision, the exact delineation of the relevant geographic markets can be left open as the proposed transaction will not give rise to competition concerns under any alternative geographic delineation considered. Indeed, the notifying parties confirmed that AAG's share of the market for the wholesale distribution of spare parts remains below 30% under any possible alternative product and geographic market definitions.

5.2. Competitive assessment

(24) As explained above, the activities of the notifying parties do not overlap at a horizontal level. However, there is a vertical relationship between Gates' activities on the upstream markets for the manufacture and supply of automotive components for light vehicles into the IAM channel and AAG's activities on the downstream markets for the wholesale supply of automotive spare parts for light vehicles into the IAM channel, both in the UK and in France. This vertical relationship gives rise to six vertically affected markets.

(25) On the relevant downstream markets and considering the narrowest plausible product and geographic market definitions, AAG has a market share of less than 30%. In particular, the notifying parties estimate that, in 2013, AAG had a market share in the wholesale distribution of spare part for light vehicles in the IAM distribution channel of [20-30]% in France15 and of [10-20]% in the UK. With regards to wholesale distribution of spare parts for heavy commercial vehicles they estimate that, in 2013, AAG had a market share of [20-30]% in France and [20- 30]% in the UK.

(26) On the relevant upstream markets in 2013, Gates only had a market share of 30% or more under the narrowest possible product and geographic market definitions (i.e. at a national level) in six relevant markets.

(27) The table below sets out the parties' market shares in each of the six vertically affected markets.

(28) The market investigation focused on the potential impact on competition of the proposed transaction in relation to the six vertically affected markets set out in  this table. For each of those, the Commission assessed below two types of foreclosure risks: (i) the risk of an input foreclosure and (ii) the risk of a customer foreclosure. As the arguments are similar for each of these vertical relations, the input foreclosure and customer foreclosure analyses apply equally to all the affected markets.

5.2.1. Input foreclosure

(29) Input foreclosure “arises where, post-merger, the new entity would be likely  to restrict access to the products or services that it would have otherwise supplied absent the merger”.19

5.2.1.1.  Ability

(30) The notifying parties submit that the merged entity will not have the ability to engage in any type of input foreclosure in relation to ribbed belts, synchronous belts and synchronous belt kits for the following reasons:

-        With [30-40]% market share, Gates does not have a significant degree  of market power in the ribbed belt markets.

-        AAG's competitors will continue to have access to numerous suppliers  of ribbed belts, synchronous belts and synchronous belt kits, to which they can  turn for their purchases.

-        Gates' ribbed-belts, synchronous belts and synchronous belt kits are not important inputs for the wholesale distribution of spare parts. In the case of AAG, these three products represent together between [0-5]% and [0-5]% of the total value of its purchase of automotive spare parts, in France and in the UK respectively.

(31) The Commission considers that the proposed transaction is unlikely to confer upon Gates the ability to significantly impact AAG's competitors' access to ribbed belts, synchronous belts and synchronous belt kits, as several other credible suppliers of those inputs will remain post-merger. These competitors include Contitech (ribbed belts France: [10-20]%; ribbed belts UK [10-20]%; synchronous belts France: [10- 20]%; synchronous belts UK: [10-20]%; synchronous belt kits France: [5-10]%; synchronous belt kits UK: [5-10]%), Dayco (ribbed belts France: [20-30]%; ribbed belts UK [10-20]%; synchronous belts France: [20-30]%; synchronous belts UK: [30- 40]%; synchronous belt kits France: [10-20]%; synchronous belt kits UK: [20-30]%), Hutchinson and Goodyear. Also, ribbed belts, synchronous belts and synchronous belt kits together represent only a very limited part of the total value of automotive spare parts purchases made on the relevant downstream markets (those inputs represent [0-5]% and [0-5]% of AAG's total spare parts purchases in France and the UK respectively). Finally, Gates does not hold any IP rights in relation to those products.20

5.2.1.2.  Incentive

(32) The notifying parties submit that neither Gates nor Blackstone will have an incentive to engage in any type of input foreclosure in relation to ribbed belts, synchronous belts and synchronous belt kits for the following reasons:

-        Gates would lose significant sales upstream without any certainty that AAG's competitors ability and incentive to compete downstream would be impacted, since AAG's competitors have access to other suppliers of ribbed belts, synchronous belts and synchronous belt kits.

-        An input foreclosure strategy would endanger Gates’ customer relationships with spare parts wholesalers, and may eventually result in AAG's competitors diverting part of their demand for other types of products from Gates to Gates' competitors. This would result in an additional loss of sales for Gates upstream.

-        Each Blackstone company is independently managed and finance. As such, there will be no formal vertical integration between Gates and AAG. Therefore, it will be very difficult for AAG and Gates to coordinate their commercial strategy in order to maximise their combined profit. Instead, post-merger the most likely outcome is that both entities will continue to be run independently.

-        Blackstone will have no economic incentive to engage in an input foreclosure strategy as it would support all the costs (loss of sales for AAG), while all of the benefits (if any) will be shared with Alliance BV (which will have joint control over AAG).

(33) The Commission considers that the proposed transaction is unlikely to confer upon the merged entity an incentive to engage in any type of input foreclosure. In particular, the Commission considers that such strategy would likely have a significant negative impact on Gates' profit upstream,21 while it is much less likely that AAG could benefit from this strategy on the downstream markets, because AAG's competitors will still have access to several other credible suppliers of ribbed belts, synchronous belts and synchronous belt kits. As such, those competitors' ability and incentive to compete downstream is unlikely to be impacted.

5.2.1.3.  Conclusion on input foreclosure

(34) On the basis of the above and all available evidence, and given that no concerns were raised during its market investigation, the Commission considers that the proposed transaction does not raise serious doubts with regard to input foreclosure.

5.2.2.   Customer foreclosure

(35) Customer foreclosure arises where the merged entity forecloses "access to a sufficient customer base to its actual or potential rivals in the upstream market (the input market) and reduce their ability or incentive to compete. In turn, this may raise downstream rivals' costs by making it harder for them to obtain supplies of the input under similar prices and conditions as absent the merger".22

5.2.2.1.   Ability

(36) The notifying parties submit that the merged entity will have no ability to engage in customer foreclosure because there are sufficient economic alternatives for Gates' rivals in the downstream markets. In particular, AAG would only account for [10- 20]% of all purchases of spare parts for light vehicles in France and for [5-10]% thereof in the UK.

(37)  As part of the Commission's market investigation, it was confirmed that AAG accounts for only a small part of all purchases of spare parts for light vehicles in France and in the UK respectively. In addition, no concerns were raised regarding possible customer foreclosure during the Commission's market investigation.

(38)  In light of the results of its market investigation, the Commission considers that it  is very unlikely that AAG will have the ability to engage in customer foreclosure, in particular because AAG does not appear to have any form of market power on the downstream markets.

5.2.2.2. Conclusion on customer foreclosure

(39) Based on the above and all available evidence, the Commission considers that the proposed transaction does not raise serious doubts with regard to customer foreclosure.

6. CONCLUSION

(40) For the above reasons, the European Commission has decided not to oppose the notified operation and to declare it compatible with the internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation and Article 57 of the EEA Agreement.

 1  OJ L 24, 29.1.2004, p. 1 ('the Merger Regulation'). With effect from 1 December 2009, the Treaty on 
the Functioning of the European Union ('TFEU') has introduced certain changes, such as the 
replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The terminology of 
the TFEU will be used throughout this decision. 

2  OJ L 1, 3.1.1994, p.3 ("the EEA Agreement"). 

3  Publication in the Official Journal of the European Union No C 383, 29.10.2014, p. 18. 

4  Its stake in AAG is foreseen to be acquired by two investment funds, the respective general partners of 
which will be indirectly owned and controlled by Blackstone. In line with the Commission's 
consolidated jurisdictional notice (OJ C95, 16.04.2008, p. 1), Blackstone will, by means of the 
proposed transaction, acquire joint control of AAG as it will control both aforementioned investment 
funds. 

5  Draft shareholders' agreement, […]. 

6  In line with the Commission's consolidated jurisdictional notice, recitals 91 and 24. 

7  Turnover calculated in accordance with Article 5 of the Merger Regulation and the Commission 
Consolidated Jurisdictional Notice (OJ C95, 16.04.2008, p. 1). 

8  See e.g. Cases COMP/M.4456, Mahle / Dana EPG (connecting rod bearings and pistons rings 
COMP/M.3972, TRW Automotive / Dalphi Metal Espana (airbags and steering wheels); 
COMP/M.2535, Sogefi / Filtrauto (filters); COMP/M.2939, JCI / Bosch / VB Autobatterien JV 
(starter batteries) 

9  Case COMP/M.6944, Thermo Fisher Scientific / Life Technologies. 

10  See e.g. Case COMP/M.3789, Johnson controls / Robert Bosch / Delphi SLI, para 7. 

11  See e.g. Case COMP/M.4456, Mahle / Dana EPG, paras 9 and 10. 

12  See e.g. Cases COMP/M.2535, Sogefi / Filtrauto, para 25; COMP/M.4456, Mahle / Dana EPG, 
para 24; COMP/M.6319, Triton / Europart, paras 16 and 17; COMP/M.5799, Faurecia / Plastal, 
para 7; COMP/M.3972, TRW Automotive / Dalphi Metal Espana, para 13 and footnote 5. 

13  See especially Case COMP/M.6319, Triton / Europart, para 18. 

14  See Cases COMP/M.5250, Porsche / Volkswagen; COMP/M.3198, VW – Audi / WW – Audi 
Vertriebszentren.

15  This [20-30]% market share is estimated on the basis of the sales of spare parts for light vehicles made 
by all of AAG's affiliated distributors, regardless of whether they are owned by AAG or independent. 

16  This [20-30]% market share is estimated on the basis of the sales of spare parts for light vehicles made 
by all of AAG's affiliated distributors, regardless of whether they are owned by AAG or independent. 

17  See para 135 and 138 of the Form CO, even at regional level, the notifying parties' shares do not 
exceed 30%. 

18  See para 135 and 139 of the Form CO, even at regional level, the notifying parties' shares do not 
exceed 30%. 

19  Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control 
of concentrations between undertakings, OJ C 265/6 from 18 October 2008 (“Non-horizontal 
Guidelines”), point 31.

20 Form CO, footnote 81.

21  During the market investigation, one respondent confirmed that such a strategy by Gates would indeed 
have a negative impact on Gates' sales, Questionnaire Q3 – AAG's IAM light vehicle competitors in 
France, question 14.  

22  Non-horizontal Guidelines, point 58.