Completed acquisition by Alenia Marconi Systems Limited of BAe Systems (Combat and Radar Systems) Limited

No. ME/1085-02

A report under section 125(4) of the Fair Trading Act 1973 on the advice of the Director of the Legal Division of the Office of Fair Trading, given on 26 March 2002 to the Secretary of State for Trade and Industry under section 76 of the Act

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts from the advice regarding the parties, the transaction and the conclusion.

The parties

Alenia Marconi Systems Limited (AMS) is a wholly owned subsidiary of AMS NV, a joint venture between BAE SYSTEMS plc and Finmeccanica S.p.A. BAE SYSTEMS was created in 1999 when British Aerospace and GEC's Marconi Electronic Systems ('MES') merged, and took over joint control of AMS.

BAE SYSTEMS (Combat and Radar Systems) Limited (CaRS) was created by the transfer and subsequent amalgamation of certain parts of two BAE SYSTEMS subsidiaries (relating to Land and Sea Systems and Defence Systems).

Finmeccanica S.p.A. (FNM) is the holding company of a group active in the defence and aerospace sectors. The Italian State is the largest (minority) shareholder in FNM. As a result of the AMS joint venture (originally with, MES), FNM's activities in the fields of radar systems, missiles systems, naval systems, command and control systems, traffic control systems and the relevant customer support services were contributed to the AMS joint venture. BAE SYSTEMS acquired MES on 30 November 1999, thereby acquiring joint control of AMS with FNM.

BAE SYSTEMS plc (BAE SYSTEMS) is a public company incorporated in England and Wales, active in several defence and aerospace sectors. It is not controlled by any other undertaking. It is primarily active, either directly or through joint ventures, in the design, development, manufacture and service of aircraft (commercial and military), defence electronics and defence systems, space, shipbuilding and guided weapons and guided weapons systems/sub-systems. BAE SYSTEMS was created through the merger of British Aerospace and the defence electronics business MES on 30 November 1999.

The transaction

The transaction involves the acquisition on 18 December 2001 by AMS of control of CaRS.

CONCLUSIONS

Competition

The transaction will reduce the number of UK-based bidders for MoD contracts for land and naval defence electronics, although in practice MoD told us that this reduction in bidding competition occurred in 1999. The existence of alternative credible bidders for procurement contracts, the potential for MoD-sponsored entry and, more generally, the substantial buying power exercised by the MoD suggest that post-merger AMS/CaRS will continue to face substantial competitive pressure. On balance, I have therefore concluded that this transaction does not result in a substantial lessening of competition and does not warrant reference to the Competition Commission for further investigation on competition grounds.

National security

The OFT is not expert in national security matters and must, therefore, rely heavily on the representations made by the MoD. I consider the MoD to be a body having a substantial interest in the above transaction within the meaning of section 76 of the FTA.

I have no reason to doubt the representations made by the MoD on the appropriateness of the security undertakings in order to remedy or prevent the specific effects adverse to the public interest identified by it and which are briefly described above. (The full MoD submission is at Appendix 1). I have therefore concluded that the transaction should be referred to the Competition Commission for further investigation unless the parties provide FTA undertakings in lieu of reference.

It appears that this transaction raises national security concerns but not substantial competition concerns. FTA undertakings (in lieu of a reference) have been prepared to deal with the security concerns of the MoD. It remains open to you to make a reference to the Competition Commission on wider public interest grounds, or to accept undertakings in lieu of such a reference. (As you know, it is proposed that national security will fall under the Exceptional Public Interest provisions of the Enterprise Bill). The MoD believes that FTA undertakings in lieu of a reference to the Competition Commission are the most effective means of remedying its national security concerns.

Following discussions with OFT officials, the parties have confirmed that they are prepared to sign the attached draft FTA undertakings. However, this will in no way bind your decision whether to accept the proposed undertakings in their current form, nor in a modified version, if found appropriate following public consultation.

I therefore recommend that you accept the draft undertakings in lieu of a reference, but that before doing so, you should publish them for consultation.

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