Completed acquisition of sole control of Astrium N.V. by European Aeronautic Defence and space company, EADS N.V.

No. ast01

A report under S125(4) of the Fair Trading Act 1973 on the advice of the Chairman of the OFT given on 15 July 2003, to the Secretary of State for Trade and Industry under Section 76 of the Act

JURISDICTION

The merger falls for consideration under the EC Merger Regulation (ECMR) and was notified to the European Commission on 21 November 2002.  A subsequent amendment to the transaction was notified on 16 April 2003.  Although the Commission has sole jurisdiction to investigate the competition aspects of the merger under the ECMR, Member States may exercise a residual power under Article 21(3) of the ECMR to take 'appropriate measures to protect legitimate interests other than those taken into consideration by this Regulation'.  Article 21(3) says that public (or national) security shall be regarded as a legitimate interest.  The merger satisfies the assets test of the FTA.  You may therefore make a reference to the CC under section 64(1) of the FTA to address public security concerns arising from the merger (see note 1).

THE PARTIES

European Aeronautic Defence and Space Company, EADS N.V. (EADS) is jointly controlled by DaimlerChrysler, Lagardere and the French State via EADS Participations B.V.  EADS is incorporated under Dutch law and consists of five business units (Airbus, Military Transport, Aeronautics, Space Systems and Defence & Civil Systems).  It is active in the research, design, development, procurement, manufacture, modification, assembly, integration, testing, marketing, supply and servicing of a variety of aircraft and military systems.  EADS has not submitted its turnover figures.

Astrium N.V. (Astrium) was, prior to the merger, a joint venture, jointly controlled by EADS and BAE SYSTEMS (BAES), and operating in the satellite manufacturing market.  Astrium was formed, after clearance from the European Commission in 2000, out of the merger of the space businesses of Matra Marconi Space and DaimlerChrysler Aerospace (see note 2).  Astrium's principal activities are the design, development, manufacture and supply of space systems, including satellites and their payloads, sub-systems for launchers and manned space flight vehicles, ground stations, and other sub-systems and technologies.  In the year ending December 2001, Astrium's worldwide turnover was 1,910.6m euros and its Community-wide turnover was 1,731.7m euros.

THE TRANSACTION

On 30 January 2003, EADS and BAES entered into a share purchase agreement by which BAES and EADS each agreed to inject 84m euros into Astrium and EADS agreed to subsequently purchase the entire interest of BAES in Astrium for 84m euros.  With permission of the European Commission, the transaction was implemented on 7 May 2003 and the Commission granted clearance on 26 May 2003.

ASSESSMENT OF NATIONAL SECURITY ISSUES

The MoD has made representations that the merger might adversely affect the public interest on national security grounds.  The MoD has identified two main areas of concern arising from this merger: the maintenance of strategic UK capabilities and the protection of classified information.

Undertakings in lieu

The test in the FTA relates to the effect of the merger on the public interest. (As you know, national security is a specified public interest consideration under the Enterprise Act.) The MoD has identified national security concerns arising from the transaction which relate to the maintenance of a strategic capability and the protection of classified information.

The draft FTA undertakings (pdf file 85 kb) are intended to remedy or prevent the particular effects adverse to the public interest identified by the MoD.  Specifically, the undertakings seek to address the two areas of concern identified above.  They include provision for a compliance regime consisting of the appointment by EADS of a 'Compliance Officer' for the purposes of facilitating, overseeing and reporting to the MoD on compliance with the undertakings.

EADS has confirmed that it is willing to sign the FTA undertakings in the form attached.

Conclusions on national security considerations

The OFT is not expert in national security matters and must therefore rely heavily on the representations made by the MoD.  The MoD is 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.  I have therefore concluded that the transaction should be referred to the CC for further investigation unless the parties provide FTA undertakings in lieu of reference.

CONCLUSIONS

It appears that this transaction raises national security concerns.  FTA undertakings (in lieu of reference) have been prepared to deal with the security concerns of the MoD.  It remains open to you to make a reference to the CC on such public interest grounds, or to accept undertakings in lieu of such a reference.  The MoD believes that FTA undertakings in lieu of a reference to the CC are the most effective means of remedying its national security concerns.

Following discussions with OFT officials, EADS has confirmed that it is 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, or in a modified version, if found appropriate following public consultation.

I therefore recommend that you accept the draft undertakings (pdf file 85 kb) in lieu of a reference, but that before doing so, you publish them for consultation.

NOTES

1. This merger is considered under the FTA, not the Enterprise Act 2002, as it was notified before 20 June 2003.  National security is a public interest criterion under the merger provisions of the Enterprise Act.

2. COMP/M. 1636 – MMS / DASA / ASTRIUM

Full text of decision - EADS / Astrium (pdf 84 kb)

Back to top