Anticipated acquisition by Danaher Corporation of LEM Instruments from LEM Holding SA The OFT’s decision on reference under section 33(1) given on 10 June 2005. Full text of decision published 23 June 2005.

Please note square brackets indicate information excised or replaced by a range at the request of the parties for reasons of commercial confidentiality

PARTIES 1. Danaher Corporation (Danaher) is a company headquartered in the USA and listed

on the New York Stock Exchange and the Pacific Stock Exchange. Danaher is a manufacturer of professional instrumentation, industrial technologies, and tools and components. Danaher's UK turnover in 2003 in the electrical testing and measurement instruments and of power quality analysers sectors was £[*] million.

2. LEM Instruments (LEM) is a business division of LEM Holding SA. LEM Holding SA

is based in Switzerland and is listed on the SWX Swiss Exchange. LEM Instruments' main business involves the design, manufacture and marketing of instruments and probes for the measurement and analysis of electricity parameters. LEM's UK turnover in 2004 was £[*] million.

TRANSACTION 3. Danaher proposes to acquire LEM from LEM Holding SA. A satisfactory

submission was received on 18 March 2005.

JURISDICTION 4. As a result of this transaction, Danaher and LEM will cease to be distinct. The

parties overlap in the supply of electrical testing and measurement instruments and of power quality analysers; the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met in certain categories of electrical testing and measurement instruments. The Office of Fair Trading (OFT) therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

1

RELEVANT MARKET

5. Within the UK, the parties' activities overlap in the areas of power quality

analysers and electrical testing and measurement instruments. The specific segments in which there is overlap within each area will be considered in more detail below.

Product market

Power quality analysers

6. Power quality analysers are typically used to measure, among other things,

voltage, current, frequency, power and power consumption. Power quality analysers capture events like dips and swells, interruptions and rapid voltage changes. They are used by electricians, electrical engineers, electricity companies and large end-users of electricity.

7. Power quality analysers may be divided into the following categories: (a) hand-

held; (b) portable; (c) stationary wide-band power analysers; (d) stationary permanent power quality monitoring systems; and (e) stationary digital fault recorders.

8. In the absence of well informed third party feedback or market research evidence

on the issue, it is difficult to gauge how strong the degree of demand-side substitution might be between these different categories. There are, however, some important differences between distribution channels, most notably between non-fixed (hand-held/ portable) and fixed products, that need to be taken into account.

9. Power quality analysers are sold through catalogues, via specialist distributors and

by direct sales through agents (or proprietary sales teams). There are two large distributors of power quality analysers that operate through catalogues, and, we have been told, some sixteen regional distributors (some of which have independent sales teams) through which suppliers sell non-fixed power quality analysers. Both parties supply non-fixed power quality analysers through these channels, but only LEM supplies these products directly.

10. Fixed power quality analysers are not generally sold through catalogues or through

specialist distributors, given that they generally require some customisation to meet the specifications of the installation in question. This is particularly the case with installed instruments (such as stationary power quality monitoring systems), as the supplier will generally work with the customer in order to integrate the product into the customer's system. In such instances, customers are typically large businesses and in many cases contract for installed systems through a tender procedure.

11. On the supply side, the parties asserted that the basic technology behind hand-

held, portable and stationary permanent power quality analysers is the same, with any differences in the products reflecting their level of functional sophistication. Although instruments are housed in different types of case (with both hand-held

2

and portable being encased in plastic, and stationary permanent power quality analysers being encased in metal), they argue that this reflects the way in which such instruments are typically handled, rather than divergent technology or functionality. In their opinion, therefore, there is considerable scope for supply-side substitution.

12. The share of supply figures (see Tables 1 and 2 for the UK and EC respectively)

indicate, however, that the parties would be the only leading suppliers with products in each category of power quality analysers. They have not been able to put forward any examples where supply-side substitution has taken place in response to competitive moves by themselves or by other companies. Differences in distribution channels also need to be considered, especially as between non-fixed and fixed categories, and cast further doubt on the strength of the potential for supply-side substitution.

13. The above analysis therefore points towards taking the individual product

categories as a starting point for assessing this transaction within the area of power quality analysers. Aggregation into non-fixed and fixed categories might be appropriate, though there is little evidence to support this one way or the other. Aggregation beyond this appears to be less appropriate, given the differences in characteristics and distribution channels described above.

Electrical testing and measurement instruments

14. Electrical testing and measurement instruments are typically used by commercial

and industrial electricians, installers and service personnel to measure various electrical parameters. There are a number of different types of instrument to be considered: (a) insulation measurement instruments; (b) earth testers; (c) residual current devices; (d) multi-function installation testers; (e) clampmeters; (f) voltage and continuity testers; (g) phase sequence indicators; (h) appliance and machinery testers; (i) multimeters; (j) cable locators; (k) test and measurement software; and (l) probes.

15. Two general points are worth noting. First, products in some of the above categories are likely to be complementary in the sense that, as in a toolbox, some customers will want to have a range of instruments. Indeed, a number of suppliers sell 'kits' in addition to selling the instruments separately. Second, there appears to be scope for substitution between multi-function installation testers and various combinations of single function instruments.

16. Share of supply figures (see Tables 3 and 4 for the UK and EC respectively) show

that several companies produce instruments across most of the range. This might indicate some potential for supply-side substitution, though the parties have not sought to put forward detailed arguments on this point.

17. Electrical testing and measurement instruments are typically sold through three

main channels: catalogues, specialist distributors and wholesalers. Both parties sell their products through catalogues and specialist distributors but, whilst Danaher sells its products through wholesalers, LEM does not. As with power quality analysers, there are the same two large distributors of electrical testing and measurement instruments that operate through catalogues, and some sixteen

3

regional distributors. Danaher and other suppliers, but not LEM, also supply electrical testing and measurement instruments to wholesalers.

18. Based on the above analysis, it seems to be appropriate to take the individual

product categories as the starting point for evaluating this transaction within the area of electrical testing and measurement instruments.

Geographic market

19. For both segments, there are some arguments that the geographic scope of the

market is wider than the UK. In particular, a number of suppliers are active in many different countries across the world, and a significant proportion of products sold in the UK is sourced from overseas.

20. However, the need for local distribution, local training and local product support,

which has been raised by third parties, may affect the ability of some of these companies to compete in the UK.

21. The OFT therefore considered in its analysis the shares of supply and the

competitive conditions at both UK and EC levels, as well as competitive constraints coming from outside these regions.

HORIZONTAL ISSUES

Shares of supply 22. Tables 1 to 4 contain the share of supply information provided by the parties. 23. Danaher said that there were no independent market studies available from which

it could provide shares of supply information about the market segments affected by this transaction. The parties have put forward their own best estimates of shares of supply, based in large part on the knowledge of their internal sales staff. Recognising that such estimates are inevitably subject to some margin of error, a key point put by the parties was that the information provided by them clearly shows that there are a large number of active suppliers in each category.

24. On several points during this investigation, third parties' market data were

inconsistent with those given by the parties. The particular areas of discrepancy are discussed below, but it is worth noting at this point that the OFT's general approach was to consider all the market data available to it in its analysis.

Power quality analysers

25. Within the UK, the transaction causes overlaps in hand-held, portable and

stationary permanent power quality monitoring systems. 26. For large fixed systems, according to information given by the parties, there are

usually three or four suppliers bidding for contracts. Despite their being contacted individually, only one utility customer responded, and had no concerns about the transaction. Further, the parties' combined share of supply in this segment whether at the UK or EC level is small. In sum, there is no indication of any

4

competition concerns in this tendered segment. Therefore, OFT's analysis has focused on hand-held and portable power quality analysers.

27. Based on the parties' figures, there is no category in which the transaction creates or increases a share of supply of 25 per cent for either the UK or EC, as shown in Tables 1 and 2. A small number of third parties believe, however, that the parties' shares of supply might be much higher in some categories within the power quality analysers segment than the parties themselves estimate. It is also worth noting that they believe that some competitors' shares are higher than the parties' estimates.

28. The parties' and third parties' figures are difficult to reconcile because there

appear to be no published figures at the necessary degree of disaggregation, and the methodology used by the parties to estimate total demand is not precise. In addition, differences of terminology might well mean that different parties are adopting different categorisations.

29. Nonetheless, even if the highest share of supply figures attributed to the merged

entity by third parties are taken as the basis for the assessment, the balance of evidence provided in this case suggest that no substantial lessening of competition should arise from this transaction.

30. First, a sufficient number of large alternative suppliers remain in the UK and the

EC - albeit some of them with rather small shares of supply – who will represent a competitive constraint to the merged entity. This view is supported by comments made by a number of customers who cited a number of specific alternatives from the EC and indeed beyond.

31. Second, the parties argue that there are no substantial barriers to entry because

the relevant technology is readily available and demand is growing strongly. They also say that barriers to expansion are particularly low. Some third parties disagreed with this argument, due to the importance of brand development and potential difficulties in accessing routes to market. Weighing the evidence that has been made available to us, specially the balance of customer evidence, it seems that at the present time the main potential barrier to entry and expansion, namely distribution access, is not a major restriction on choice of supplier. The parties have provided some examples of recent entry.

32. Third, only three organisations have raised concerns with the transaction, out of

the 91 third parties that were contacted. 33. The parties have claimed that their customers have buyer power, but have not

supplied us with conclusive evidence of this. On the other hand, we have only received concerns regarding the transaction from a small number of customers, and their concerns were not particularly strong. Balancing the evidence that has been made available to us, at the present time it appears likely that the largest customers will retain significant buyer power after the proposed acquisition, while catalogue price transparency will help maintain the position of the smaller distributors.

5

34. Therefore, the evidence does not suggest substantial lessening of competition deriving from the transaction in this area.

Electrical testing and measurement instruments

35. In this area, parties' activities overlap in multi-function testers, insulation

measuring instruments, earth testers, appliance and machinery testers and clampmeters. There are two categories in which the transaction creates or increases a share of supply of 25 per cent in the UK or EC based on the parties' figures (see Tables 3 and 4). These are:

• Earth testers - UK combined share of supply [25-35] per cent (increment [5-15]

per cent); EC share of supply [5-15] per cent (increment [<5] per cent); and • Clampmeters - UK combined share of supply [30-40] per cent (increment [1-10]

per cent); EC combined share [20-30] per cent (increment [<5] per cent).

In all other product categories the increment was nil or very small. 36. Danaher's 2005-2007 business plan, however, indicates a UK 2004 share of

supply of [30-50] per cent across all product categories, and this overall figure is consistent with estimates provided to us by competitors. Nevertheless, the parties clarified that these figures refer to wholesalers only, and that in non-wholesale supply channels their shares are much lower – around [1-10] to [5-15] per cent.

37. However, even if the high shares of supply suggested by the third parties are

taken as the basis for the assessment, there are a number of factors that suggest that this transaction would not cause a substantial lessening of competition.

38. First, a sufficient number of large alternative suppliers remain in the UK and the

EC – albeit some of them with rather small shares of supply – who will represent a competitive constraint to the merged entity. This view is supported by comments made by a number of customers.

39. Second, as with power quality analysers, the parties argue that there are no

substantial barriers to entry because the relevant technology is readily available and demand is growing strongly. They also say that barriers to expansion are particularly low. Some third parties disagreed with this argument, due to the importance of brand development and to potential difficulties in accessing routes to market. Taking into account all the evidence that has been made available to us, especially the balance of customer evidence, it seems that at the present time the main potential barrier to entry and expansion, namely distribution access, is not a major restriction on choice of supplier. The parties have provided some examples of recent entry.

40. The parties have claimed that their customers have buyer power, but have not

supplied us with conclusive evidence of this. On the other hand, we have only received concerns regarding the transaction from a small number of customers, and their concerns were not particularly strong. Balancing the evidence that has been made available to us, it appears likely that the largest customers will retain

6

significant buyer power after the proposed acquisition, while catalogue price transparency will help maintain the position of the smaller distributors.

41. Finally, as is the case with power quality analysers, only three organisations have raised concerns with the transaction, out of the 91 third parties that were contacted.

42. We also had some specific complaints pertaining to particular products within the

range of electrical testing and measurement instruments. One competitor raised concern about the supply of multimeters - Danaher was alleged to have threatened to withhold supply of multimeters in order to force customers to take other Danaher products. However, these concerns have not been raised by any customers themselves (from the 64 customers that have been contacted) and Danaher has never received any representations about such a practice.

43. In conclusion, the evidence does not suggest substantial lessening of competition

deriving from the transaction in this area.

Other products 44. One third party also complained that the parties' combined shares of supply in

probes (current measurement accessories) would be high. However, this does not seem to be a cause for concern; the parties' estimate their combined share at [10-20] per cent, with three competitors having [10-20] per cent share of supply each, and one competitor having [15-25] per cent. Furthermore, probes are highly commoditised products, and are interchangeable between the products of other suppliers.

45. In conclusion, the evidence does not suggest substantial lessening of competition

deriving from the transaction in this area.

VERTICAL ISSUES 46. There is no evidence to suggest that significant vertical issues arise in this case.

THIRD PARTY VIEWS 47. During these investigations, 64 customers and 27 competitors were contacted.

We received a very small number of replies: only three competitors and five customers actually made comments on the transaction. In addition we received one unsolicited response.

48. The majority of customers who have expressed a view say they are unconcerned

by the transaction. A small number of competitors have expressed some concern, mainly about the share of supply that the merged entity will have. There were a few more substantive responses that prompted more detailed evidence-gathering on specific points such as entry and buyer power and which, in addition to concern on some points, also put forward detailed evidence on why the merger will not harm competition.

7

ASSESSMENT

49. Within the UK (and EC), the parties overlap in the supply of products falling within

the broad categories of power quality analysers and electrical testing and measuring instruments.

50. Within power quality analysers, the parties both supply, in the UK, hand-held and

portable power quality analysers and stationary permanent power quality monitoring systems (in the EC the parties overlap in all the product sectors). It has been difficult to reconcile the parties' share of supply figures with those of third parties.

51. Within electrical testing and measuring instruments, figures suggest that the

merger will give rise to high shares of supply, in the UK and EC, at least in earth testers and clampmeters. As it is the case with power quality analysers, the comments of third parties would suggest that the shares of supply in other segments may be higher than the merging parties believe to be the case.

52. Nevertheless, there are a number of factors that lead the OFT to conclude that the

merger will not have a significant adverse impact on competition in the UK. These are that: a number of large alternative suppliers remain in the market; the main entry challenge, concerning distribution access, could be overcome; the largest customers will retain significant buyer power; and catalogue price transparency will help maintain the position of the smaller distributors.

53. Consequently, the OFT does not believe that it is or may be the case that the

merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

54. This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

8

TABLE 1 ESTIMATED SHARES OF SUPPLY ( PER CENT) - UK / 2003

POWER QUALITY ANALYSERS

Han

d-he

ld

pow

er q

ualit

y an

alys

ers

Port

able

pow

er

qual

ity

anal

yser

s

Sta

tion

ary

wid

e-ba

nd

pow

er

anal

yser

s

Sta

tion

ary

perm

anen

t po

wer

qua

lity

mon

itor

ing

syst

ems

Dig

ital

fau

lt

reco

rder

s

All

pow

er

qual

ity

Danaher [1-10] [1-10] [<5] [30-40] [1-10]

LEM [1-10] [1-10] [1-10] [<5] [<5]

Combined [10-20] [5-15] [1-10] [<5] [30-40] [5-15]

Siemens [15-25] [5-15] [5-15]

Areva [15-25] [5-15] [5-15]

Ametek [5-15] [15-25] [1-10]

ABB [5-15] [1-10] [1-10]

PML [<5] [5-15] [1-10]

Dranetz [1-10] [15-25] [1-10]

Schneider [1-10] [<5]

Enetics [<5] [<5] [1-10] [<5]

Hioki [1-10] [1-10] [<5]

Unipower [1-10] [<5] [<5]

Voltech [35-45] [<5]

Circutor [<5] [<5] [<5] [<5]

Dewetron [<5] [<5] [<5]

ElComponent [5-15] [<5]

GMC [<5] [1-10] [<5]

Hawk [<5] [1-10] [<5]

HT Italia [1-10] [1-10] [<5]

Megger [1-10] [1-10] [<5]

Yokogawa [<5] [<5] [15-25] [<5]

Acksen [<5] [<5] [5-15] [<5]

Amprobe [1-10] [<5]

Chauvin Arnoux [1-10] [<5]

ElControl [<5] [<5] [<5]

GE [5-15] [<5]

Prova [<5] [<5]

Seltel [5-15] [<5]

VaTech [1-10] [<5]

Zimmer [5-15] [<5]

Metrel [<5] [<5]

Ideal [<5] [<5]

Alphatek [<5] [<5]

Kyoritsu [<5] [<5] Source: the parties (submission of 24 May 2005). In some products, the sum of all competitors' shares of supply is slightly greater than 100 due to rounding up of numbers.

9

Source: parties (initial submission of 18 March 2005). In some products, the sum of all competitors' shares of supply is slightly greater than 100 due to rounding up of numbers.

TABLE 2 ESTIMATED SHARES OF SUPPLY ( PER CENT) – EC / 2003

POWER QUALITY ANALYSERS

Han

d-he

ld

pow

er q

ualit

y an

alys

ers

Port

able

po

wer

qua

lity

anal

yser

s

Sta

tion

ary

wid

e-ba

nd

pow

er

anal

yser

s

Sta

tion

ary

perm

anen

t po

wer

qua

lity

mon

itor

ing

syst

ems

Dig

ital

fau

lt

reco

rder

s

All

Pow

er

Qua

lity

Danaher [5-15] [<5] [<5] [<5] [1-10] [<5]

LEM [1-10] [15-25] [10-20] [1-10] [1-10] [1-10]

Combined [10-20] [15-25] [10-20] [1-10] [10-20] [5-15]

GMC [5-15] [5-15] 0 [<5] 0 [<5]

Amprobe [1-10] 0 0 0 0 [<5]

Chauvin Arnoux [<5] [5-15] 0 0 0 [<5]

Siemens 0 0 0 [10-20] * [5-15]

Dranetz [1-10] [10-20] 0 0 0 [1-10]

Others [45-55] [25-35] [75-85] [65-75] [75-85] [55-65]

10

TABLE 3 ESTIMATED SHARES OF SUPPLY ( PER CENT) - UK / 2003

ELECTRIC TESTING AND MEASUREMENT

Mul

ti-f

unct

ion

Tes

ters

Insu

lation

M

easu

ring

Inst

r.

Eart

h Tes

ters

Phas

e Seq

uenc

e In

dica

tors

Res

idua

l Cur

rent

D

evic

es

App

lianc

e an

d M

achi

nery

Tes

ters

Vol

tage

/Con

tinu

ity

Mul

tim

eter

s

Cla

mpm

eter

s

Cab

le L

ocat

ors

T&

M S

oftw

are

All

Tes

t an

d M

easu

rem

ent

Danaher [15-25]

[15-25] [5-15] [5-15]

[40-50] [5-15]

[20-30]

[30-40]

[20-30]

[15-25] [15-25]

LEM [<5] [<5] [15-25] [<5] [1-10] [<5]

Combined [15-25]

[20-30]

[25-35] [5-15]

[40-50] [5-15]

[20-30]

[30-40]

[30-40]

[15-25] [20-30]

Seaward [10-20] [5-15] [5-15]

[55-65] [1-10] [10-20]

Megger [10-20]

[20-30]

[25-35]

[30-40]

[10-20] [<5] [1-10] [5-15]

[25-35]

[15-25] [5-15]

ISO-Tech [1-10] [<5] [5-15] [<5] [1-10] [20-30]

[20-30] [5-15]

Chauvin Arnoux [1-10] [1-10] [1-10] [10-20] [<5] [<5] [1-10] [1-10] [1-10] [5-15]

[10-20] [1-10]

Alphatek [1-10] [<5] [<5] [<5] [<5] [1-10] [<5] [<5] [5-15] [<5]

Amprobe [<5] [<5] [<5] [<5] [<5] [<5] [1-10] [1-10] [<5] [15-25] [<5] [<5]

Martindale [1-10] [1-10] [<5] [15-25] [<5] [1-10] [<5] [<5]

Conrad [<5] [<5] [<5] [1-10] [<5] [<5] [<5]

GMC [<5] [<5] [<5] [<5] [<5] [<5] [<5] [<5] [<5] [1-10] [<5]

HT Italia [1-10] [<5] [<5] [<5] [<5] [<5] [<5] [1-10] [<5]

Kewtech [1-10] [<5] [<5] [5-15] [<5] [<5] [<5] [1-10] [<5]

Metrel [<5] [<5] [<5] [<5] [<5] [<5] [1-10] [<5]

Benning [<5] [5-15] [<5] [<5] [<5]

Farnell Tenma [<5] [<5] [<5]

Kyoritsu [<5] [<5] [<5] [<5] [1-10] [<5]

Steinel [5-15] [<5] [<5]

Yokogawa [<5] [<5] [<5] [<5] [<5]

Edgcumbe [25-35] [<5]

Escort [<5] [<5]

Metrix [<5] [<5] [<5]

Hioki [<5] [<5]

A T Instruments [<5] [<5]

Others [<5] [5-15] [10-20] [<5] [<5] [<5]

Source: the parties (submission of 24 May 2005). In some products, the sum of all competitors' shares of supply is slightly greater than 100 due to rounding up of numbers.

11

12

Table 4 Estimated shares of supply ( per cent) - EC / 2003

Electric testing and measurement

Mul

ti-fu

nctio

n te

ster

s

Insu

latio

n m

easu

ring

inst

rum

ents

Eart

h te

ster

s

Phas

e se

quen

ce

indi

cato

rs

Res

idua

l cur

rent

de

vice

s

App

lianc

e an

d m

achi

nery

tes

ters

Vol

tage

/ c

ontin

uity

Mul

timet

ers

Cla

mpm

eter

s

Cab

le lo

cato

rs

T&

M s

oftw

are

All

elec

tric

tes

t an

d m

easu

rem

ent

Danaher [10-20]

[10-20]

[<5] [20-30]

[20-30]

[15-25]

[25-35]

[25-35]

[15-25]

[<5] [10-20]

[10-20]

LEM [<5] [<5] [1-10]

0 0 [<5] 0 [<5] [<5] 0 0 [<5]

Combined [15-25]

[15-25]

[5-15]

[20-30]

[20-30]

[15-25]

[25-35]

[25-35]

[20-30]

[<5] [10-20]

[10-20]

GMC [5-15]

[5-15]

[5-15]

[1-10]

0 [15-25]

[<5] [1-10]

[1-10]

[<5] [10-20]

[1-10]

Chauvin Arnoux [1-10]

[5-15]

[10-20]

[1-10]

0 [<5] [1-10]

[1-10]

[5-15]

[<5] [1-10]

[1-10]

Amprobe [<5] [<5] [1-10]

[5-15]

[10-20]

[<5] [<5] [<5] [<5] [<5] [<5] [<5]

Conrad 0 [<5] 0 [<5] [<5] [<5] [1-10]

[1-10]

[<5] 0 0 [<5]

Benning 0 0 0 0 0 [<5] [<5] [<5] [<5] 0 [<5] [<5]

Others [55-65]

[45-55]

[50-60]

[35-45]

[45-55]

[40-50]

[40-50]

[45-55]

[45-55]

[90-100]

[50-60]

[55-65]

Source: parties (initial submission of 18 March 2005). In some products, the sum of all competitors' shares of supply is slightly greater than 100 due to rounding up of numbers.