On 2 May 2017 the European Commission published the full text of its decision of September 2015 clearing General Electric (GE)’s acquisition of Alstom’s energy businesses, subject to conditions, following an in-depth investigation.
The Commission was concerned that the proposed merger would eliminate one of GE’s main global competitors, have negative effects on innovation and result in higher prices in the markets for the sale and servicing of 50 Hz heavy duty gas turbines (HDGT), a technology key to meeting climate change goals.
The Commission’s investigation showed that Alstom had significant research and development (R&D) capabilities which made it a key competitor of GE in terms of R&D spend, R&D headcount, product pipeline, testing facilities and technological abilities. The Commission found that, post-transaction, GE would have “likely eliminated most of Alstom’s R&D capabilities related to HDGTs”, meaning that the merged entity would not go on to develop Alstom’s advanced technology.5 Furthermore the transaction would have “reduced the overall incentives to invest significantly in innovation”.6 Given the very high barriers to entry in the HDGT industry7, this would have had long-term negative effects on prices and the choices available to customers in parts of the market for 50 Hz HDGTs.
The deal was eventually cleared on the condition that GE divested the technologically most advanced parts of Alstom’s HDGTs business to its Italian competitor Ansaldo Energia. The assets to be divested included a large number of Alstom R&D engineers who will continue to develop the Alstom HDGT technology, two test facilities in Switzerland and existing upgrades and pipeline technology. The Commission held that the divestments would guarantee the continuation of Alstom’s distinctive HDGT technology and give Ansaldo the resources and incentives to “replicate Alstom as an important innovator” and “continue on Alstom’s innovation path”.8
The decision serves as useful guidance on the factors that might lead the Commission to take issue with a merger from an innovation and technology point of view. It suggests that companies that invest large amounts in R&D, disproportionate to their market shares and overall resources, could be regarded as key innovators and might therefore attract careful examination from competition regulators. The decision indicates that the Commission may also consider the number of employees involved in a company’s R&D, the sophistication of its testing facilities and whether it spends more on R&D than its competitors.