MergerMarket
General Cable/Prysmian likely to face EC scrutiny on horizontal overlaps
08 DEC 2017
Focus on Prysmian’s leading position increase
Market changes could reduce impact of past cartels
Prysmian’s [BIT:PRY] acquisition of General Cable [NYSE:BGC] is likely to face horizontal overlap scrutiny by the European Commission (EC), a source familiar with the matter and a sector lawyer said.
The companies announced on 4 December that they have entered into a definitive merger agreement under which Prysmian will acquire General Cable for USD 30.00/ share in cash.
The deal will need approval by EU and US competition agencies, according to a regulatory filing.
The parties are confident that since horizontal overlaps are very marginal, the deal will get EC clearance “very easily,” a second source said.
Unilateral effects stemming from a potential strengthening of Prysmian’s market position are likely to be the focus of an EC review, the lawyer said. The companies’ cartel history will also prompt the EC to zoom in on coordinated effects, although these could be mitigated by market changes, he said.
Prysmian Group is a world leader in the energy and telecom cables and systems industry. The Italian company derives 67% of its revenue from Europe, 15% from NorthAm, 12% from APAC and 6% from LatAm.
Kentucky-based General Cable is a global player in the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products. It derives 59% of its revenue from North America and is also present in Europe (23%) and Latam (18%).
The investigation’s relevant markets will be cables in all their forms and shapes, the second source said.
Prysmian and France’s Nexans [EPA: NEX] have a strong position in cable markets in Europe, the lawyer noted. General Cable is smaller but has increased its presence over the past few years, so it should be regarded as a meaningful competitor to Prysmian, he added.
In Draka/Prysmian (2011) the EC zoomed in on optical fibre and general wire, where both Prysmian and General Cable are active. Prysmian was found to be leading both markets in the EEA. The Italian company had 20%-30% share of wiring against General Cable’s 5%-10% share of the same market. The decision did not specify General Cable’s share of optical fibre, though listing it among Prysmian’s competitors.
However, even a 10% increase in Prysmian’s share following the deal could be relevant, the lawyer noted, as the Italian company has up to 60%-70% share in some markets. The EC used several different parameters in defining markets in previous decisions, the lawyer said, including end use (communications, energy) and voltage.
Prysmian operates in underground and submarine cables and systems for power transmission and distribution, special cables for applications in many different industries and medium and low voltage cables for the construction and infrastructure sectors. For the telecommunications industry, the group manufactures cables and accessories for voice, video and data transmission, offering a range of optical fibres, optical and copper cables and connectivity systems.
Cartels and coordinated effects
The EC is likely to take a close look at coordinated effects due to the companies’ past involvement in cartels in the sector, the lawyer said. But changes in the market - in particular the entry of Asian players - could convince the EC that similar behaviour is unlikely to occur again, he said. However, the second source played down any potential impact of “closed cartel investigations” on the merger review, noting that there was no mention of cartel behaviour in Draka/Prysmian, for example.
In 2014, Prysmian and General Cable’s subsidiary Silec were among the 11 companies held liable by the EC for a cartel aimed at restricting competition for high voltage underground and submarine power cable projects.
The producers had agreed on market and customer allocation, the EC found. The cartel included Japanese and Korean producers refraining from competing for projects in the EEA, thus staying out of the European companies' home territory.
In clearing a deal in the sector earlier this year, NKT’s [CPH: NKT] acquisition by ABB [VTX: ABBN], the EC spelt out that a coordinated effects assessment had been important “given the history of collusion in the industry”. However, the EC’s investigation revealed that “the recent and successful entry of competitors from Asia, such as LS Cables and Sumitomo, were helping to drive and ensure competition in the high voltage cable and power cable accessories markets”.
General Cable’s Spanish subsidiary Grupo General Cable Sistemas was recently fined - together with other nine cable companies - by the Spanish competition authority and a business association for involvement in one or more of five cartels.
Both Prysmian and General Cable appealed the EC's decision to the EU General Court.
Prysmian was not able to be reached for comment. General Cable declined to comment.