EUROPEAN COMMISSION DG Competition

Case M.7972 - ITW / EF&C

Only the English text is available and authentic.

REGULATION (EC) No 139/2004

MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION

Date: 14/06/2016

In electronic form on the EUR-Lex website under document

number 32016M7972

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: COMP-MERGER-REGISTRY@ec.europa.eu.

EUROPEAN COMMISSION

Brussels, 14.06.2016

C(2016) 3769 final

To the notifying party:

Dear Sir/Madam,

Subject: Case M.7972 – ITW / EF&C

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 10.05.2016, the European Commission received notification of a proposed

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

Illinois Tool Works Inc. ("ITW", USA) will acquire within the meaning of Article 3(1)(b)

of the Merger Regulation sole control of the Engineered Fasteners & Components

("EF&C") Business unit of ZF TRW Automotive Holdings Corp. ("TRW", Germany), a

wholly owned subsidiary of ZF Friedrichshafen AG, Germany, by way of purchase of

shares and assets. ITW is hereinafter referred to as the "Notifying Party", and ITW and

EF&C are collectively referred to as the "Parties".

1. THE PARTIES

(2) ITW, headquartered in Illinois, USA, is a global manufacturer of a diversified

range of industrial products and equipments. Its Automotive OEM business

manufactures plastic and metal fasteners and other plastic components (pressure release

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").

PUBLIC VERSION

MERGER PROCEDURE

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omitted has been replaced by ranges of figures or a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.

2

valves, acoustic baffles and nozzle chains),3 as well as other body, powertrain and

braking parts.

(3) EF&C, headquartered in Enkenbach, Germany, manufactures plastic fasteners and

other plastic interior components, which it supplies globally to OEMs and Tier 1

customers.

2. THE CONCENTRATION

(4) The proposed transaction (the “Transaction”) involves the acquisition of sole

control of EF&C by ITW by way of a series of asset disposals and equity sales among

TRW's wholly-owned subsidiaries that comprise EF&C. The Transaction therefore

constitutes a concentration within the meaning of Article 3(1)(b) of the Merger

Regulation.

3. EU DIMENSION

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

more than EUR 5 000 million4 [ITW: EUR 12 082 million, EF&C: EUR […]].

However, they do not both have an EU-wide turnover in excess of EUR 250 million

[ITW: EUR […], EF&C: EUR […]]. The notified operation therefore does not have

Community dimension within the meaning of Article 1 of the Merger Regulation, but it

was referred to the Commission pursuant to Article 4(5) of the Regulation.

4. RELEVANT MARKETS

(6) The Parties' activities overlap in relation to the manufacture and supply of plastic

fasteners and pressure release valves (“PRVs”) for passenger and light commercial

vehicles for Original Equipment Manufacturers (“OEMs”) and Tier 1 suppliers within

the EEA. The Parties do not produce components for heavy vehicles and do not sell to

the independent aftermarket.

4.1. Relevant product market

(7) Fasteners are diversified components designed to satisfy a fastening need. Metal

fasteners are produced by either stamping or cold forming technology, while plastic

fasteners are manufactured using injection moulding machines and tools. EF&C does

not manufacture metal fasteners. With regard to their application, the Parties distinguish

the following types of fasteners5: (i) plugs: used to close holes in the car body; (ii) trim

fasteners: clips designed to join two pieces of fabric or material together; (iii) pipe

fasteners: used to protect and fix pipes enabling them to remain safely in place; and (iv)

wire harness fasteners: designed to secure routing and fastening of wire harness

3 Within ITW’s Automotive business, PRVs, acoustic baffles and nozzle chains are referred to as

“adjacencies” to fasteners. They are not fastening products but are plastic components made in the

same facilities using the same technology and equipment and are purchased by the same group of

customers.

4 Turnover calculated in accordance with Article 5 of the Merger Regulation and the Commission

Consolidated Jurisdictional Notice (OJ C 95, 16.4.2008, p. 1).

5 EF&C categorizes its plastic fasteners in this way. By contrast, ITW does not use such categorization

in its ordinary course of business.

3

systems while protecting them against water, excessive heat and dust. This

categorization was confirmed in the market investigation by both competitors and

customers.

Figure 1: Examples of different types of fasteners based on their application

Source: Form CO

(8) PRVs are composed of a frame and flaps and used to release air in a vehicle such

as when a door is closed or to release “used” air in an air conditioning system. They are

also necessary to optimize the defrosting of windows and help to regulate the

temperature in the car.

Figure 2: Examples of PRVs used in light vehicles

Source: Form CO

The Notifying Party's view

(9) The Notifying Party submits that the relevant product market can be defined as

broadly as encompassing all automotive fasteners and adjacencies because OEMs

demand different fastening solutions and purchase a range of different fasteners from the

same suppliers. In addition, plastic fasteners and adjacencies are manufactured with the

same technology.

(10) Alternatively, the Notifying Party submits that the relevant product market can be

defined more narrowly, including only plastic and stamped metal fasteners and

adjacencies because of the high level of demand- and supply-side substitutability.

(11) In any event, in the Notifying Party´s view, the product market should not be

defined more narrowly than the overlapping products, namely plastic fasteners and

PRVs.

4

5

The Commission's assessment

(12) According to the Commission's practice, separate relevant product markets exist for

each individual automotive component.6 The Commission has previously identified

separate relevant product markets depending on the channel into which the components

are sold,7 as well as on the type of vehicle they are intended for.8 The Parties are not

active on the independent aftermarket and manufacture components only for light

vehicles.

(13) The Commission has previously considered that fasteners constitute a separate

relevant product market,9 it has however not reached a conclusion on whether there is a

separate product market for automotive fasteners.10

(14) In the present case, the Commission considers it inappropriate to define the market

as broadly as to encompass all automotive fasteners and adjacencies or alternatively

plastic and stamped metal fasteners and adjacencies. Indeed, plastic and metal

components are manufactured not just with different materials but using different

technologies. Therefore, there is no supply-side substitutability with regard to the two

types of products. In addition, certain applications demand such technical requirements11

that cannot be fulfilled by plastic components, hence the material of the component is

already determined in the request for quotation (“RFQ”).

(15) On the other hand, there are indications that plastic fasteners and PRVs may belong

to the same relevant product market. First, there is some supply-side substitution as

these components are manufactured with the same raw material, using the same

technology. The injection moulding machines can be used for the production of a wide

range of products, as only the tooling is specific, therefore the suppliers can easily

expand their production from one type of plastic product to another. Competitors have

confirmed that even if they do not currently manufacture all of the overlapping products,

they would be technically able to do so.12 Second, OEMs invite the same suppliers to

bid for the production of plastic components and sometimes issue tenders on a portfolio

level.13

6 See cases COMP/M.6714 U-Shin / Valeo CAM (2013); COMP/M.6083 Fiat / GM / VM Motori JV

(2011); COMP/M.6045 JCI / CRH (2011); COMP/M.5930 JCI / Michel Thierry Group (2010);

COMP/M.4524 Nemak / Hydro Castings (2007).

7 Sales through the OEM/OES channel and to the independent aftermarket constitute separate relevant

product markets.

8 Components for passenger cars and light commercial vehicles (below 6 tonnes) and for heavy

commercial vehicles constitute separate relevant product markets.

9 See case COMP/M.7593 Alcoa / RTI International Metals (2015).

10 See cases COMP/M.5570 Platinum Equity Group / Delphi Corporation (2009); IV/M.721 Textron /

Valois (1996).

11 Plastic components cannot be used in some circumstances such as when subjected to high temperature

(e.g. in the engine).

12 Minutes of conference calls with competitors from 12, 17, 19 and 20 May 2016.

13 Minutes of conference calls with customers from 17 and 20 May 2016 and with competitors from 12

and 19 May 2016.

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(16) The question however, whether the relevant product market should be defined even

more narrowly, on a product by product basis, can be left open, as the Transaction does

not raise serious doubts as to its compatibility with the internal market regardless of

whether this distinction is made.

4.2. Relevant geographic markets

The Notifying Party's view

(17) The Notifying Party submits that the relevant market is at least regional –

encompassing the EEA and neighbouring countries (such as Turkey, Russia, Uzbekistan,

Serbia, Kazakhstan, Belarus, and Ukraine) – but might be global in scope. This is due to

low transportation costs, the lack of regulatory barriers, and the global presence of

suppliers as well as customers.

The Commission's assessment

(18) In previous decisions, the Commission concluded that the relevant geographic

market for sales to "OEMs" is at least EEA-wide.14

(19) In the present case the Commission considers that the relevant geographic market

cannot be defined as broadly as worldwide in scope. Although the customers and

suppliers are mostly global companies, and some OEMs have a global sourcing strategy,

the market investigation confirmed that the demand has a local component. It is

important that the supplier´s manufacturing facility is in the same region as the car

production plant.15 However, due to the relatively low transportation costs of these small

components and the fact that fasteners and PRVs do not have to be supplied just in

sequence, the plants do not necessarily have to be in the close vicinity of each other.

(20) The question of whether the relevant geographic market should comprise only the

EEA or the neighbouring countries as well can be left open, as the Transaction does not

raise serious doubts as to its compatibility with the internal market regardless of whether

this distinction is made.

5. COMPETITIVE ASSESSMENT

Non-Coordinated Horizontal Effects

5.1. Market structure

(21) The Notifying Party submits that there is no industry-wide standard or publicly

available data to calculate the total size of the relevant product market and the market

shares of the suppliers present. As a result, estimates are generated based on a number of

factors. The Notifying Party relies in particular on its current real penetration in existing

models; tear downs of models; analysis of RFQs; intelligence from customer visits and

14 See cases COMP/M.6640 Delphi/FCI MVL (2012); COMP/M.6470 TE/Deutsch (2012).

15 Minutes of conference calls with customers from 13,17, 19, 20 and 25 May and with competitors

from 12, 17, 19 and 20 May 2016.

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moulding the product is by nature product specific, however the tools are not

particularly costly and they are sometimes financed or owned by OEMs.

(27) Second, the Notifying Party submits that shares in terms of individual products are

not reflective of market power: while the Parties have high shares in some products,

penetration varies significantly across customers, which shows that alternatives are

available to customers.

(28) Third, the market for the supply of overlap products is highly competitive:

suppliers compete in tenders which are primarily organised on a product-by-product

basis.

(29) Fourth, customers are sophisticated and have strong buyer power. They expect

suppliers to make regular price decreases, they conduct market tests to find out whether

better alternatives are available and threaten to switch suppliers or engage in other types

of retaliatory conduct (e.g. by putting the supplier on a "new business hold") if they are

faced with what they consider to be unjustified price increases.

5.3. The Commission's assessment

(30) The Commission has carried out a market investigation among customers and

competitors to assess whether the Transaction would lead to the removal of an important

competitive constraint, which would not be outweighed by the entry or expansion of

other companies and by customers' buyer power. As the exact product market definition

was left open, the Commission has assessed the conditions of competition with respect

to the individual products and has found no significant differences between them in this

respect.

(31) The Parties face competition from a number of other suppliers with respect to each

of the overlap products. While indeed the various suppliers' share in a customer's total

purchases of the products varied significantly across customers (in line with the Parties'

argument regarding differences in the degree of penetration), the majority of customers

surveyed indicated ARaymond, HellermannTyton, Stanley Engineered Fastening, Nifco,

and Piolax as the main suppliers of the various categories of plastic fasteners, alongside

ITW.17 In addition to the suppliers listed in Table 2, customers mentioned Springfix,

Revifa, SBE, Gruppo Fontana, Gruppo Agrati, Da-Tor, Caillaou, Ahlberg, Voestalpine,

Kemmerich, Grosshaus, Pöppelmann as suppliers of fasteners.18 As regards PRVs, the

Parties' main competitors are Wegu, Carbody and US Farathane. Nifco, Denso and

Sanden were also named by some customers among their suppliers.19

(32) In addition, the Parties are not seen as each other's closest competitors on the

market. This is confirmed by the fact that their presence differs significantly not only

with regard to their supply to each individual customer20 but also as regards their supply

of different products. Furthermore, EF&C does not manufacture metal fasteners, which

17 Minutes of conference calls with customers from 13, 17, 20 May 2016.

18 Minutes of conference calls with customers from 13, 17, 20 May 2016.

19 Minutes of conference call with a customer from 13 May 2016.

20 ITW's main customers of fasteners are, in decreasing order, FCA, Volkswagen, Renault and BMW. The

majority of EF&C's fastener sales go to Volkswagen, BMW, Ford and Hyundai.

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excludes it from tenders for fasteners for certain applications, as well as for portfolios

including metal fastening solutions. In addition, EF&C is perceived by some customers

and competitors as having become less competitive in recent years.21

(33) While their sales shares with respect to different customers or types of products

differ, the suppliers mentioned in the paragraph 35 are similar in terms of technical

capabilities and can produce both standardized products, purchased "off-the-shelf", and

products that cater to an individual OEM's specific requirements.22

(34) Automotive OEMs differ in their approaches to the design of fasteners and PRVs.

While some OEMs prefer to rely on standardized products and to carry products over to

new platforms to the highest extent possible, others seek to use differentiated designs for

new vehicle models. In the latter case, some OEMs undertake the development of a new

design in-house, sometimes with the support of suppliers, while others entrust the

development entirely to suppliers. The main suppliers surveyed by the Commission all

have the engineering capabilities and requisite understanding of the automotive industry

to develop solutions that cater to customers' individual needs with respect to the various

categories of overlap products.

(35) Furthermore, just like the Parties, their main competitors have manufacturing

facilities in multiple countries in Europe. As described in paragraph (19) above, while

plastic fasteners and PRVs can easily be shipped across the world and certain OEMs

indeed purchase centrally for their entire global operations, the majority of customers

surveyed indicated that they prefer their supplier to be based in the same region, i.e. in

Europe.

(36) With regard to each individual product, apart from their existing competitors, the

Parties also face potential competition from suppliers of other overlap products

produced using injection moulding technology.

(37) The injection moulding technology used to manufacture plastic fasteners and PRVs

is used to produce a broad range of products, for both automotive and non-automotive

uses. While there is a relationship between the size of the moulding tool and that of the

machine, an injection machine can be utilized with many different moulding tools to

produce parts of different shape and size. The customers and competitors surveyed

unanimously confirmed that, from a technological point of view, any producer of one

type of overlap product could relatively easily expand their production to another type of

overlap product.

(38) The Commission has also analysed whether the existence of IP rights could prevent

other competitors or potential competitors from supplying the products manufactured by

the Parties. Indeed, a share of overlap products are patented. Both the Parties and their

competitors (as well as customers) own large portfolios of patents for plastic fasteners

and PRVs. However, this does not appear to be an industry where IP rights drive the

competitive process. Patents typically relate to the development of a specific product

design in response to particular RFQs; they do not cover broad concepts covering broad

fields of exclusivity and in general they can be worked around. This is consistent with

the fact that all of the main competitors of the Parties hold large portfolios of patents and

21 Minutes of conference call with a customer from 13 May 2016.

22 Minutes of conference calls with competitors from 12, 19, 20 May 2016.

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with the fact that patent infringement suits are rare in this industry. Thus, rather than

effectively preventing competition from other automotive suppliers of plastic fasteners

or PRVs, patents appear to be a way of signalling the suppliers' capacity to innovate and

to respond to customers' technical requirements and needs, and the Parties do not appear

to have a distinct advantage over their main competitors in this respect.23

(39) To conclude, the Parties face competition from a number of suppliers having

similar design and manufacturing capabilities. In addition to the competitive constraints

exercised by other suppliers, the Parties are also faced with the pressure from their

customers, who procure the fasteners and PRVs through competitive tenders and

demand periodic price reductions.

(40) OEMs and their Tier 1 suppliers organise tenders to source plastic fasteners and

PRVs. While customers sometimes group several products into a single tender, usually

they are organised at the level of individual products, which means suppliers participate

in numerous tenders every year.

(41) Following a tender, the contract is awarded for various lengths: some customers

make use of open-ended contracts, others of contracts concluded for the lifetime of a car

model, while others yet rely on yearly contracts. However, even in the case of longer

term contracts, prices are reviewed and are expected to decrease periodically. Indeed, an

annual reduction (in the range of 2-5%) is usually foreseen at the outset of the contract.24

(42) Ad-hoc negotiations of prices during the contract also take place: increases need to

be justified by objective circumstances, e.g. changes in input prices or in volumes

demanded, however negotiations usually result in price decreases. A number of

customers indicated that they conduct periodic market tests and require their supplier to

match the offers received if these are more competitive. While OEMs generally try to

avoid actually switching suppliers, negotiations resulting in price decreases are

relatively frequent in the industry.25

(43) In addition, although it is not common for customers to switch suppliers before the

end of contract, all OEMs surveyed source their fasteners and PRVs from several

suppliers, which facilitates switching and increases their power during negotiations.

This is further enabled by the common practice among OEMs to own the moulding

tools, in particular when they are used to produce OEM-specific parts.

(44) It thus appears that customers of the Parties and their competitors have significant

buyer power which permits them to countervail attempts by suppliers to increase prices,

unless objectively justified.

23 Reply to Commission's request for information of 19 May 2016, minutes of conference calls with

customers of 20 and 30 May 2016, and with competitors of 17, 20, 27 and 30 May 2016.

24 Minutes of conference calls with customers from 13, 17, 19, 20 May 2016.

25 Minutes of conference calls with customers from 13, 17, 19, 20 May 2016.

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6. CONCLUSION

(45) 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.

For the Commission

(Signed)

Margrethe VESTAGER

Member of the Commission