Brussels, 15/03/2000 (Agence Europe) - After the decision by the European Commission to ban the merger between the Swedish heavy vehicle manufacturers Volvo and Scania (see yesterday's EUROPE, p.8), Volvo suspended the acquisition of Scania shares and is studying other possible alliances. European Competition Commissioner Mario Monti defended the Commission's decision against alleged partiality stressing the lack of competition on the Scandinavian market. This is the twelfth time in ten years that the Commission has banned a merger.
"Together with Scania, we had the ambition to build an EU-based company with the best conceivable prospects to compete globally with the large players in the industry. I regret that the EU Commission, through today's decision, is stopping these plans for reasons that seem to go against the basic concept of the common market", declared Volvo President Leif Johansson, in a press release. Last Sunday, the Social-Democrats in power in Sweden had adopted a motion calling on the Commission to be "fair", considering that "in order to promote growth, it must be possible to create large companies in small companies by merger-acquisition". The Social Democrats spoke of the European single market, "conceived, among other things, to allow the constitution of large industrial groups able to keep up with competition on the global market".
In his comments to the press on the Commission decision, Commissioner Monti felt, however, that the Volvo/Scania case "shows there is a series of sectors in which the single market is not complete and where the market remains national". In answer to questions on the merger of Daimler/Kässboher bus manufacturing activities, previously authorised by the Commission, Mario Monti said he was not using double standards. "Circumstances were different. In this case there are no other possible suppliers whereas in Germany there were other sources of supply", the Commissioner made clear. Volvo had accused the Commission of partiality and felt that the case should be evaluated on the European market and not only on the Scandinavian market (see EUROPE of 9 March, p.14). Commissioner Monti felt in this case also that the circumstances are different because many road haulage companies and bus companies in Scandinavia are small and medium-sized companies which remain at a local scale.
As briefly indicated in yesterday's EUROPE, the European Commission banned the Scania/Volvo merger because it noted that the concentration would bring about market dominance: i) for heavy trucks in Sweden, Norway, Finland and Ireland; ii) for touring coaches in Finland and the United Kingdom; iii) for inter-city coaches in Sweden, Denmark, Norway and Finland; iv) for town buses in Sweden, Denmark, Norway, Finland and Ireland. Volvo/Scania have held up to 90% of the Swedish heavy vehicle market and of the Finish and Irish urban bus market, as well as around 50% of the British coach market and Irish HGV market, states the Commission in its press release. The effect would be that "any competitor who wanted to challenge the merged entity would have to make large investments over a significant period of time to build up the necessary critical mass of installed vehicles in the relevant markets". For the Commission, the commitments taken on 21 February and 7 March by Volvo would not be sufficient to allow competitors to gain a sustainable foothold on the Scandinavian market to compete with a group that would be the second largest worldwide in the trucks and bus sector.
The Commission felt that: i) the commitments concerning the opening of dealer and after-sales service networks are "unlikely to have any significant effect on reducing the combined merged company's market share" and would not guarantee that the current dealers would begin to sell the products of competitive companies; ii) the commitment to encourage the Swedish government to modify specific safety standards concerning the cabs of HGV only comes under the government itself; iii) the later commitments (after 21 February) were presented outside the legal time limit.
While acknowledging that the last "complex" commitments have not been studied in detail, the Commission assures in its press release that, "they would not in an obvious and clear-cut way remove all the identified competition concerns". According to information provided by Volvo, the Commission mainly called on the group to make a clear separation from its dealer activities and not to use the make Scania on the truck markets of Norway, Finland, Denmark and Ireland.
Volvo will keep 45.5% of Scania capital that it has already acquired and should, by 20 March, transfer the remaining shares proposed during the public offering. The Swedish manufacturer has around EUR 3.5 billion allowing it to envisage large scale operations with other makes, such as German Mann or American Navistar. Volkswagen or Fiat, on the other hand, could be interested in taking over Scania. As the Volvo and Scania merger is blocked, "Industrially, Scania may now continue developing its affairs independently", noted Scania President Leif Ostling, who regretted the uncertainty into which the group has been plunged.