Case M.8741 - KSS HOLDINGS / TAKATA CORPORATION€¦ · EUROPEAN COMMISSION DG Competition Case...

EUROPEAN COMMISSION DG Competition

Case M.8741 - KSS

HOLDINGS / TAKATA

CORPORATION

Only the English text is available and authentic.

REGULATION (EC) No 139/2004

MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION

Date: 21/02/2018

In electronic form on the EUR-Lex website under

document number 32018M8741

Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË Tel: +32 229-91111. Fax: +32 229-64301. E-mail: [email protected].

EUROPEAN COMMISSION

Brussels, 21.2.2018

C(2018) 1197 final

To the Notifying Party

Subject: Case M.8741 – KSS Holdings / Takata Corporation

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

Dear Sir or Madam,

(1) On 17 January 2018, the European Commission received a notification of a

proposed concentration pursuant to Article 4 of the Merger Regulation by which

KSS Holdings Inc. ("KSS", USA) acquires within the meaning of Article 3(1)(b)

of the Merger Regulation sole control of substantially all assets of Takata

Corporation ("Takata", Japan) (the "Transaction").3 KSS is designated hereinafter

as the "Notifying Party" and together with Takata as the "Parties".

1. THE PARTIES AND THE CONCENTRATION

(2) KSS is active in the research and development, design, manufacture, marketing

and sale of automotive safety systems, and more specifically seat belts, airbags

and steering wheels. KSS is a wholly-owned subsidiary of Ningbo Joyson

Electronic Corp., a Chinese automotive supplier.

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 033, 30 January 2018, p. 18.

In the published version of this decision, some

information has been omitted pursuant to Article

17(2) of Council Regulation (EC) No 139/2004

concerning non-disclosure of business secrets and

other confidential information. The omissions are

shown thus […]. Where possible the information

omitted has been replaced by ranges of figures or a

general description.

PUBLIC VERSION

2

(3) Takata is an automotive safety systems company that supplies automotive

manufacturers with a product range that includes seat belts, airbag systems and

steering wheels. In particular, Takata engages in research and development on the

design, manufacture, marketing and sale of steering wheels, airbags and seat

belts.

(4) This Transaction forms part of Takata's restructuring plan following its financial

difficulties related to the Phase-Stabilized Ammonium Nitrate ("PSAN") inflators

incident. Over the past several years, certain PSAN inflators manufactured by

Takata have ruptured upon deployment of the airbag, causing injury and in some

cases death. As a result, important recalls were initiated by automotive original

equipment manufacturers ("OEMs") customers resulting in billions of dollars in

reimbursement claims against Takata. Takata is currently in the midst of several

bankruptcy proceedings in various jurisdictions. On 25 June 2017, Takata and

some of its subsidiaries and affiliates commenced voluntary cases under Chapter

11 of the United States Code before the USA Bankruptcy Court for the District of

Delaware. Bankruptcy proceedings are also ongoing in Japan and Canada.4

(5) Despite the occurred incident, Takata is still considered a technically capable

supplier that possesses the necessary know-how and experience, and as such still

has credibility vis-à-vis the customers on the technical level. […].5 […] KSS'

acquisition, is considered necessary as the current management allegedly covered

up test results, […].6

(6) Following this and taking into account Takata's financial situation, as described in

paragraph (4), absent the Transaction, Takata would likely remain a significantly

weaker supplier in the markets for seatbelts, steering wheels and airbags.

(7) Pursuant to the Asset Purchase Agreements, dated 16 November 2017, KSS will

acquire substantially all assets of Takata.7 Therefore, the Transaction consists of

the acquisition of sole control by KSS over Takata within the meaning of Article

3(1)(b) of the Merger Regulation.

2. EU DIMENSION

(8) The undertakings concerned have a combined aggregate world-wide turnover of

more than EUR 5 000 million8 (KSS: EUR [turnover data]; Takata:

EUR [turnover data]). Each of them has an EU-wide turnover in excess of

EUR 250 million (KSS: EUR [turnover data]; Takata: EUR [turnover data]), but

they do not achieve more than two-thirds of their aggregate EU-wide turnover

within one and the same Member State.

4 Information on the PSAN incident and resulting Takata liabilities based on Form CO, paragraphs 202-

213. 5 See, e.g. Minutes of Conference Call of 10 January 2018 with customer, paragraph 21; Supplemental

Submission on the specificities of the Proposed Transaction from the Notifying Party, dated 22

January 2018. 6 See Annex 5.4 […]; "Takata execs ordered technicians to erase airbag test results, report says",

Automotive News, http://www.autonews.com/article/20141106/OEM11/141109871/takata-execs-

ordered-technicians-to-erase-airbag-test-results-report. 7 This is with the exclusion of certain assets and operations that relate to Takata's manufacturing of

PSAN inflators. […]. 8 Turnover calculated in accordance with Article 5 of the Merger Regulation.

3

(9) The Transaction therefore has an EU dimension within the meaning of Article

1(2) of the Merger Regulation.

3. RELEVANT MARKETS

(10) The Transaction will give rise to horizontal overlaps and a vertical relationship

between the Parties' activities.

The activities of KSS and Takata overlap as regards the manufacturing

and the supply of airbags, seat belts and steering wheels.

An affected vertical link also arises pursuant to the Transaction, between

Takata's sales of flat airbag fabric (upstream) and KSS' activities in airbag

modules (downstream).

(11) The relevant markets will be further discussed below.

3.1. Product market definition

3.1.1. Manufacture and supply of airbags

(12) Airbags are safety devices installed in vehicles that inflate very quickly in case of

a rapid and sudden deceleration of the vehicle, generally following a collision or

impact, in order to prevent or reduce the occupants from suffering impact-related

injuries.

Commission's decision making practice

(13) First, in previous decisions, the Commission has considered that an airbag system

consists of two major modules that each constitute a separate market, namely (i)

the airbag control electronics module with the crash sensor, and (ii) the airbag

module encompassing the casing, airbag cushion and airbag inflator.9 As regards

a possible distinct market per components, the Commission later noted that airbag

components were increasingly and usually manufactured internally by the airbag

supplier so as to sell it as a whole. The Commission eventually left open whether

the airbag market could be further sub-segmented per components.10

(14) Second, in previous decisions, the Commission has also considered a potential

segmentation depending on the location of the airbag in the vehicle, between (i)

driver airbag, (ii) passenger airbag, (iii) curtain airbag and (iv) side airbag. The

market definition was ultimately left open.11

View of the Notifying Party

(15) First, with regard to airbag components, the Notifying Party submits that both

Parties manufacture the main airbag components, but do not sell them on a

standalone basis in the EEA. Further, in line with the Commission's decision

making practice, the Notifying Party submits that automotive OEMs almost

always purchase the airbag components together and most airbag suppliers

9 Case No COMP/M.3972 – TRW Automotive / Dalphi Metal España, paragraph 7. 10 Case No COMP/M.3972 – TRW Automotive / Dalphi Metal España, paragraph 7. 11 Case No COMP/M.3972 – TRW Automotive / Dalphi Metal España, paragraph 8.

4

manufacture the inflator in-house, their demand therefore being addressed

through captive sales.12 As such, the Notifying Party submits that the relevant

product market for the purpose of the present Transaction is the market for the

supply of airbags as a whole.

(16) Second, with regard to a possible market segmentation according to types of

airbags, the Notifying Party agrees with the Commission's decision making

practice.13

(17) Adding to the Commission's decision making practice as regards a potential

location-determined segmentation, the Notifying Party submits that knee airbags

could potentially constitute another market segment. Both Parties offer knee

airbags.14

Commission's assessment

(18) First, with regard to a possible market segmentation for airbag components, the

Parties do not sell the airbag's main components on a standalone basis in the EEA.

The Parties' competitors also manufacture and sell together the complete airbag

module in the EEA. On their side, automotive OEMs source the airbag module as

a whole. Consequently, the competitive landscape and market conditions will be

the same irrespective of the market definition retained.

(19) Second, with regard to a possible market segmentation according to types of

airbags, the results of the market investigation confirm the market segmentation

as submitted by the Notifying Party, in driver, passenger, curtain, side and knee

airbags.

(20) From a demand-side perspective, some customers consider the various categories

of airbags as not directly substitutable, mainly because of the different sizes and

forms of the airbags. However, automotive OEMs explained that the main

components are basically similar for all airbags.15

(21) From a supply-side perspective, it seems that all main suppliers, namely Autoliv,

ZF, Toyoda Gosei, KSS and Takata, are able to provide the complete range of

airbag products.16

Conclusion

(22) In light of the above and for the purpose of the present decision, the Commission

therefore concludes that there is a relevant market for the manufacture and supply

of airbags as a whole. On the other hand, it can be left open whether the market

12 Form CO, paragraph 73. 13 Form CO, paragraph 71. 14 Knee airbags are located under the steering wheel and glove compartment and aim to protect a driver

or passenger from suffering knee injuries. 15 Minutes of Conference Call of 16 January 2018 with customer, paragraph 5; Minutes of Conference

Call of 10 January 2018 with customer, paragraphs 10-11; Minutes of Conference Call of 10 January

2018 with supplier, paragraph 6. 16 Minutes of Conference Call of 9 January 2018 with competitor, paragraph 8-9; Minutes of Conference

Call of 12 January 2018 with competitor, paragraph 13; Minutes of Conference Call of 11 January

2018 with customer, paragraph 8; Minutes of Conference Call of 16 January 2018 with customer,

paragraph 8.

5

for the manufacture and sale of airbags should be considered as a whole or should

be further segmented into (i) driver airbags, (ii) passenger airbags, (iii) curtain

airbags, (iv) side airbags and (v) knee airbags as serious doubts as to the

compatibility of the Transaction with the internal market do not arise under any

plausible market definition.17

3.1.2. Manufacture and supply of seat belts

(23) Seat belts are harnesses installed on seats to protect occupants in case of accidents

or abrupt changes in the motion of the vehicle.

Commission's decision making practice

(24) The Commission has not yet investigated a potential market for the supply of seat

belts.


(25) The Notifying Party submits that seat belts as a whole constitute a single relevant

market, as all components of a seat belt are sold to automotive OEMs as an

integrated product.


(26) The results of the market investigation confirm that seat belts are generally sold

as a whole integrated product and not component by component.

(27) From a demand-side perspective, respondents consider that the components of a

seat belt are almost all the time sourced by OEMs as a single integrated product

so that there is no market for the sale of standalone seat belt components.18

(28) From a supply-side perspective, all main seat belt suppliers are able to provide all

various seat belts according to the customer's technical requirements, which are

overall the same but with slight variations for each vehicle project.19

Conclusion


considers that the relevant market is the manufacture and sale of seat belts as a

whole.

17 The competitive assessment is conducted in Section 4. 18 Minutes of Conference Call of 11 January 2018 with customer, paragraph 7; Minutes of Conference


2018 with customer, paragraph 10; Minutes of Conference Call of 10 January 2018 with customer,

paragraphs 4 and 6. 19 Minutes of Conference call of 12 January 2018 with competitor, paragraph 10 and 13; Minutes of

Conference Call of 9 January 2018 with competitor, paragraphs 5, 8-9; Minutes of Conference Call of

10 January 2018 with customer, paragraphs 4 and 6; Minutes of Conference call of 11 January 2018

with customer, paragraph 8.

6

3.1.3. Manufacture and supply of steering wheels

(30) A steering wheel is a tool to control the steering of the vehicle that sits on top of

the steering column module. They can be constructed with plastic, leather and/or

wood, and often include remote commands through switches.

Commission's previous decision making practice

(31) In previous decisions, the Commission considered that there is a distinct market

for steering wheels and that no further segmentation is appropriate.20


(32) The Notifying Party agrees with this market delineation.


(33) The market investigation confirmed that steering wheels constitute a distinct

product market.

(34) From a demand-side perspective, automotive OEMs consider that all suppliers

can slightly adapt their products to meet any sorts of differences that a car model

or specific customer could require.21

(35) From a supply-side perspective, respondents confirmed that there can be small

differences depending on the car type, but that all major suppliers can provide the

whole range of steering wheels.22

Conclusion


considers that the relevant market is the market for manufacture and sale of

steering wheels as a whole.

3.1.4. Manufacture and supply of flat fabric

(37) Flat fabric is the woven yarn used to produce airbag cushions.23 Airbag suppliers

source flat fabric externally to then integrate it to the airbag module that is sold as

a whole to automotive OEMs.

20 Case No COMP/M.3972 – TRW Automotive / Dalphi Metal Espana, paragraph 9. 21 Minutes of Conference Call of 16 January 2018 with customer, paragraph 8-9; Minutes of Conference

call of 11 January 2018 with customer, paragraph 8. 22 Minutes of Conference call of 12 January 2018 with competitor, paragraph 10 and 13; Minutes of

Conference Call of 9 January 2018 with competitor, paragraphs 5, 8-9; Minutes of Conference Call of

10 January 2018 with customer, paragraphs 4 and 6; Minutes of Conference Call of 16 January 2018

with customer, paragraph 8-9; Minutes of Conference call of 11 January 2018 with customer,

paragraph 8. 23 In previous decisions, the Commission has further divided airbag cushions into three distinct product

segments: (See M.4389 – WRL / BST, paragraph 9). In the present case, as the vertical relationship

only exists as regards flat airbag fabric, any other segment will not be further discussed.

7


(38) In a previous decision, the Commission has concluded that flat airbag fabric

constitutes a separate relevant product market.24


(39) The Notifying Party agrees with this market definition. KSS does not manufacture

flat fabric, while Takata does even though its share on the merchant market is

marginal.


(40) The market investigation confirmed that flat fabric can be considered the relevant

product market. Most of the suppliers of airbags do not manufacture flat fabric

but source it from market players, such as Milliken, Toray or Hyosung-Global

Safety Textile ("GST"), UTT, NCV etc.

Conclusion


considers that the relevant product market is the market for manufacture and

supply of flat fabric.

3.1.5. No other segmentation

By type of vehicle

(42) For seatbelts, airbags and steering wheels markets, in accordance with the

Notifying Parties' view,25 and the Commission's decision making practice,26 a

further segmentation by type of vehicle (passenger cars and light/heavy

commercial vehicles) is not relevant for the present decision. As the Parties only

overlap on the passenger car segment, the competitive assessment will only

concern this.

OEMs/aftermarket

(43) For each of the seatbelts, airbags and steering wheels markets, in accordance with

the Notifying Party's view,27 the Commission's decision making practice28 and

the results of the market investigation,29 a further sub-segmentation between

components manufactured for OEMs, original equipment services ("OESs") or

independent aftermarket ("IAM") players is not warranted.

24 Case No COMP/M.4389 – WLR / BST, paragraph 17. 25 See Form CO, paragraphs 64-66: the Parties and their competitors generate the majority of their

revenue from the sale of automotive safety products used in passenger cars. 26 Case No COMP/M.3972 – TRW Automotive / Dalphi Metal Espana, paragraph 11. 27 See Form CO, paragraph 63: airbag replacement products must necessarily be of the same brand and

type as the replaced product. For seat belts and steering wheels, the supply of replacement products is

limited to non-existent. 28 Case No COMP/M.3972 – TRW Automotive / Dalphi Metal Espana, paragraph 12. 29 Minutes of Conference call of 12 January 2018 with competitor, paragraph 12; Minutes of Conference

Call of 10 January 2018 with customer, paragraph 4; Minutes of Conference Call of 10 January 2018

with customer, paragraph 12.

8

3.2. Geographic market definition

3.2.1. Manufacture and supply of airbags, steering wheels and seat belts

(44) As the geographic conditions of purchase of the three automotive safety products

are similar, they will be treated together below.


(45) In previous decisions, the Commission has considered that airbags, steering

wheels and seat belts markets are at least EEA-wide, if not wider.30


(46) The Notifying Party agrees with this market delineation, and submits that these

markets are at least EEA-wide in scope.31


(47) The market investigation confirmed that automotive safety systems are purchased

at EEA-level, while in a minority of cases OEMs will send a request for quotation

("RFQ") covering a wider scope.

(48) From a demand-side perspective, automotive OEMs explained that components

incorporated in cars sold in EEA are generally manufactured in EEA and

definitely not at a national level.32

(49) From a supply-side perspective, suppliers consider that they can provide

automotive safety systems at a global level, but observe that EEA-based

automotive OEMs generally purchase from manufacturing plants located in the

EEA. Moreover, homologation and testing systems are uniform in the EEA.33

Conclusion


considers that the relevant geographic scope of the markets for manufacture and

supply of airbags, seat belts and steering wheels is at least EEA wide. The

competitive assessment will be conducted at the narrowest market level; the EEA

level.

30 Case No COMP/M.3972 – TRW Automotive / Dalphi Metal Espana, paragraph 13. 31 See Form CO, paragraph 84: the Notifying Party refers to the Commission's precedent that found that:

(i) testing and approval methodologies are uniform across Europe; (ii) production activities are

centralized within the EEA; (iii) the buying policy of OEMs is European-wide; (iv) prices are

homogenous within the EEA; and (v) transport costs are relatively limited (less than 5% of the product

costs). 32 Minutes of Conference Call of 16 January 2018 with customer, paragraph 10; Minutes of Conference

Call of 10 January 2018 with customer, paragraph 7; Minutes of Conference Call of 9 January 2018

with competitor, paragraph 11. 33 Minutes of Conference Call of 9 January 2018 with competitor, paragraphs 10, 11 and 13; Minutes of

Conference Call of 17 January 2018 with competitor, paragraph 11; Minutes of Conference Call of 12

January 2018 with competitor, paragraph 18.

9

3.2.2. Manufacture and supply of flat fabric


(51) As regards the upstream market for flat fabric, the Commission has in previous

decisions concluded that this market is EEA-wide in scope.34


(52) The Notifying Party agrees with this delineation and considers that the

competitive conditions are homogeneous within the EEA, and practically all

customers and competitors of flat fabric have production facilities in the EEA.35


(53) The market investigation confirmed that the market for the manufacture and

supply of flat fabric is at-least EEA wide in scope, but could potentially be wider.

Some respondents indicated that generally, facilities located within the EEA will

supply flat fabric to EEA customers, but a minority has mentioned that the supply

chain could be global.36

Conclusion


considers that the relevant geographic scope for the market for manufacture and

supply of flat fabric is at least EEA-wide. The assessment will be conducted at the

narrowest geographic market level; the EEA level.37

4. COMPETITIVE ASSESSMENT

(55) The Transaction will give rise to horizontal overlaps and a vertical relationship

between the Parties' activities.

(56) The activities of KSS and Takata overlap as regards the manufacturing and the

supply of airbags, seat belts and steering wheels. The overlaps between the

Parties' activities give rise to a limited number of affected markets, namely (i)

airbags, (ii) driver airbags, (iii) passenger airbags, (iv) curtain airbags, (v) seat

belts and (vi) steering wheels.

(57) An affected vertical link also arises pursuant to the Transaction, between Takata's

merchant sales of flat airbag fabric (upstream) and KSS' sales of driver airbags

(downstream).

34 Case No COMP/M.4389 – WRL / BST, paragraph 19. 35 See Form CO, paragraphs 85-86. 36 Minutes of Conference Call of 17 January 2018 with competitor, paragraph 10. 37 The Notifying Party submitted that the Parties' market shares are broadly similar on a global level, See

Submission by the Notifying Party of 16 February 2018. This statement is in accordance with Annex

5.4; [...]. Also, a larger number of competitors is active on the global level than on the EEA level.

12

specialised in curtain airbags and while it currently does not supply other types of

airbags, iSi estimates that there is a growing demand for them to develop such

products.41

(64) Consequently, there will remain sufficient competition post-Transaction on these

markets.

Takata's declining position

(65) The results of the market investigation show that neither competitors nor

customers of the Parties foresee any negative impact resulting from the

Transaction. In line with the Parties' internal documents, respondents perceive the

Transaction as necessary for Takata's production, technology and know-how to

remain in the market.42 Respondents overall do not expect Takata to survive as a

standalone company.43

(66) As explained in paragraph (5), following the PSAN incidents, Takata's position as

a third supplier in the EEA has on the one hand been greatly impaired. On the

other hand, KSS is a smaller player that is predominantly active in the US and

Japan rather than in the EEA. As the relatively small increment brought about by

the Transaction illustrates, KSS is considered a more distant fourth player

compared to the historical EEA-players ZF, Autoliv and Takata. Therefore, the

combination of the declining Takata with the rather small KSS is unlikely to have

a negative impact on the affected markets.

(67) For completeness, there is no major specific innovation expected on the airbags,

steering wheels and seat belts markets. Therefore, the Transaction will not result

in innovative harm on these markets.44

(68) Consequently, the Transaction does not eliminate a long-term viable supplier. It

rather allows a distant fourth player to increase its production strengths and

credibility in the EEA.

Strong automotive OEMs as customers

(69) The automotive OEMs purchasing passive safety products are large, well-

established buyers that have a high level of expertise. The results of the market

investigation indicate that OEMs are confident that, for the products concerned,

they would be able to counter any price increases brought about by the

Transaction.45

41 Minutes of Conference Call of 17 January 2018 with competitor, paragraph 7. 42 Annex 5.4, […]. 43 Minutes of Conference Call of 10 January 2018 with supplier, paragraph 17; Minutes of Conference


2018 with customer, paragraph 21; See also the Supplemental Submission on the specificities of the

Proposed Transaction from the Notifying Party, dated 22 January 2018. 44 See Reply to RFI to Notifying Party dated 1 February 2018. 45 Minutes of Conference call of 9 January 2018 with competitor, paragraph 29; Minutes of Conference

call of 10 January 2018 with customer, paragraph 17.

13

Conclusion

(70) In conclusion, the Commission considers that horizontal unilateral effects are

unlikely to materialise post-Transaction. Therefore, the Transaction does not raise

serious doubts as to its compatibility with the internal market in this regard.

4.2. Vertical relationships

4.2.1. Manufacture and supply of flat fabric – Manufacture and supply of

airbags

(71) An affected vertical link arises pursuant to the Transaction, between Takata's

merchant sales of flat airbag fabric (upstream) and KSS' sales of driver airbags

(downstream).

(72) The Commission considers that any vertical foreclosure attempt following the

Transaction is unlikely to materialise for the below developed reasons.

(73) First, with regard to the upstream market for the manufacture and supply of flat

fabric, Takata's manufacture of flat fabric is targeted to its own in-house

production of integrated airbags. Takata only sells less than [0-5]% of its overall

flat airbag fabric production to third parties. Strong suppliers competing with

Takata on the market for the manufacture and supply of flat fabric are for

example Global Safety Textiles ("GST") and Milliken.46

(74) Second, Takata does not have the ability to expand on the upstream market so as

to engage in a foreclosure attempt. Indeed, [business secret – information on

Takata's production capacity]. Therefore, unless the merged entity engages in a

significant development of its flat fabric activity (which would take significant

time and efforts), it would not be able to cover all of KSS' demand in flat fabric,

in addition to its own.47

(75) Third, with regard to the downstream markets for the manufacture and supply of

airbags only the sub-market for driver airbags is affected with a combined market

share of the Parties of [30-40]%. On all other markets, the Parties have a

combined market share of less than [20-30]%. In addition, none of the above

mentioned suppliers of flat fabric are dependent on sales to KSS.48 Therefore,

even if Takata were to supply KSS internally post-Transaction, effects on the

merged entity's rivals would be limited.

(76) In conclusion, the Commission considers that vertical foreclosure effects are

unlikely to materialise post-Transaction. Therefore, the Transaction does not raise

serious doubts as to its compatibility with the internal market as a result of

vertical effects.

46 Some of these independent suppliers can provide various products, from flat fabric, to cut-and-sewn

airbag cushions ("CSC"), to the complete airbag, depending on the level of vertical integration of its

customer. 47 See Reply to question 5(b) of RFI 2 of 10 January 2018: […]. 48 Minutes of Conference Call of 10 January 2018 with supplier, paragraph 17; Minutes of Conference

Call of 11 January 2018 with supplier, paragraph 11.

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4.3. Coordinated effects

(77) The Commission considers that any coordinated effects following the Transaction

are unlikely to materialise for the below developed reasons.

(78) First, the market for passive safety systems in the EEA is not transparent. In this

industry, prices are discussed bilaterally with customers and generally in the

context of tenders, and RFQs are negotiated in confidentiality. Also, not all

suppliers receive every RFQ,49 so that there is asymmetrical information between

suppliers.

(79) Second, the Commission's Guidelines on the assessment of horizontal mergers

mention that past behaviour of firms can be used as evidence to predict a risk of

coordinated effects.50 The Commission has recently fined automotive safety

system suppliers for breaching EU antitrust rules. In this context, Takata had

cooperated with the Commission and received full immunity.51 KSS was not part

of the cartel and, as explained in paragraph (5), one aspect of the Transaction is

that […].52 Especially in light of the latter fact, the risk of the past conduct of

Takata leading to coordinated effect post-Transaction is limited.

(80) Third, structural links exist between Takata and ZF, as Takata owns a non-

controlling minority shares in certain ZF subsidiaries (the "Subsidiaries") active

in the manufacturing of steering wheels and airbags.53 These links have been

previously investigated by the Commission, and at the time it was concluded that

such structural links did not entail a risk of coordinated effects.54

(81) The Notifying Party submits that market conditions have since then not changed

and that Takata's non-controlling shares will not provide the merged entity with

the ability or incentive to increase the flow of information between ZF and the

merged entity so as to allow them to reach terms of coordination.55

(82) In addition, […].56 […].57

49 Reply to question 3(b) of RFI 4 of 10 January. 50 See paragraph 43 of the Guidelines on the assessment of horizontal mergers under the Council

Regulation on the control of concentrations between undertakings, OJ C 31, 5.2.2004, p. 5-18. 51 See European Commission, Press release of 22 November 2017, IP-17-4844:

http://europa.eu/rapid/press-release IP-17-4844 en.htm (Accessed on 06.02.2018). 52 See Annex 5.4; […]. 53 See Form CO, paragraph 50: Takata owns a […] stake in Dalphi Metal Espana S.A. ("DME"), a

company that is currently controlled by ZF. […] Takata has a non-controlling interest in three

subsidiaries of DMG ([…]). The remaining […] of the shares are held by DME. 54 Case No COMP/M.3972 – TRW Automotive / Dalphi Metal España, paragraphs 24 and seq. 55 The Notifying Party argues that (a) Takata's minority share does not provide ZF and Takata with the

ability or incentive to reach terms of coordination as Takata does not hold influence on the companies'

daily business or on its strategic orientation or organization. Takata has no influence or control over

the Subsidiaries production output, distribution agreements, technology sharing or other arrangements,

nor does Takata receive any information about such agreements or arrangements with the Subsidiaries.

Moreover, [business secret – corporate structure of the subsidiaries]. Takata's interest is strictly

financial. [business secret – corporate structure of the subsidiaries]. (d) DME has not been involved in

any illicit conduct with Takata. There is no evidence that DME played a role in any exchange of

confidential information between its shareholders. See Reply to RFI 4 of 30 January 2018 and Reply to

Follow-Up Question on the impact of JV between Takata and ZF on the competitive assessment on

coordinated effects of 12 February 2018. 56 See submission of competitor of 2 February 2018.

15

(83) In any case, the links between ZF and Takata are pre-existing to the Transaction.

There is no tangible evidence that post-Transaction the Parties and ZF would

engage in coordinated behaviour on the safety systems products in the EEA.

(84) Finally, as developed in paragraph (69) the market investigation revealed that, in

the present case, automotive OEMs would likely be able to counter attempts of

airbags, steering wheels and seat belts manufacturers to increase prices through

coordinated behaviour.

(85) In conclusion, the Commission considers that coordinated effects are unlikely to

materialise post-Transaction. Therefore, the Transaction does not raise serious

doubts as to its compatibility with the internal market as a result of coordinated

effects.

5. CONCLUSION

(86) 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.

(Signed)

For the Commission

Margrethe VESTAGER

Member of the Commission

57 See Reply to Supplemental Question submitted by the Notifying Party on 9 February 2018, and Reply

to Follow-Up Question by the Notifying Party of 13 February 2018.

Case M.8741 - KSS HOLDINGS / TAKATA CORPORATION€¦ · EUROPEAN COMMISSION DG Competition Case...

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