Article 2
This Decision is addressed to: SCHNEIDER ELECTRIC S.A. 43-45, Boulevard Franklin Roosevelt F 92500 RUEIL-MALMAISON France Done at Brussels, 30 January 2002. For the Commission Mario Monti Member of the Commission (1) OJ L 395, 30.12.1989, p. 1. (2) OJ L 180, 9.7.1997, p. 1. (3) OJ C 86, 6.4.2004. (4) OJ C 86, 6.4.2004. (5) In this Decision, "Legrand" refers to the whole of the Legrand group as it existed at the time Schneider's offer closed. (6) OJ L 61, 2.3.1998, p. 1. (7) Parts of this text have been omitted in order to ensure that no confidential information is disclosed; these are contained in square brackets and marked with an asterisk. (8) It should be stressed that Schneider acquired its stake in Legrand by means of a public offer for the exchange of shares. Announcement of the bid before the Commission had taken its decision on the compatibility of the planned merger with the common market is allowed by Article 7(3) of the Merger Regulation; such action does not constitute an infringement of the competition rules and should not therefore be sanctioned. However, Schneider has to take the normal business consequences of its deliberate decision to go ahead with the operation in the climate of uncertainty as to the outcome of the Commission's investigation. Schneider was free to notify an agreement before announcing a bid, as other companies listed on the Paris stock exchange have done. It should also be pointed out that, after the Commission had raised serious doubts under Article 6(1)(c) of the Merger Regulation as to the compatibility of the planned merger between Schneider and Legrand, Schneider was in a position, following a dispute with Legrand's minority shareholders, to withdraw from the operation. It nevertheless decided to maintain its bid. (9) Under French law a blocking minority corresponds to 33 % of a company's capital. Taking account of a 50 % quorum for shareholders' meetings, this is equivalent to a stake of more than 16 %. (10) See points 511-516 of the incompatibility decision. (11) The Herfindhal-Hirschman Index (HHI) of market concentration is calculated by summing the squares of the individual market shares of the firms present in a given market. Under certain conditions it can be demonstrated that the Index reflects the average level of margins in an industry. The change in the Index caused by a transaction can be equated with a change in margins and is therefore a useful indicator of the potential effect of the transaction on prices. The HHI is therefore used to measure the intensity of competition on a particular market or the changes thereto caused by a transaction (see, for example, Case COMP/M.1383 - Exxon/Mobil or the Horizontal Merger Guidelines issued by the US Department of Justice and Federal Trade Commission: http://www.usdoj.gov/atr/public /guidelines/horiz_book/toc.html). The maximum Index is 10000 points (the square of 100 percentage points), and a value of over 3000 indicates a highly concentrated market where competition can be very limited. (12) See points 689-691 of the incompatibility decision. (13) See point 537 of the incompatibility decision. Schlumberger and Hager are present on this market, but only as resellers of products made by Legrand and Schneider respectively. (14) These calculations are based on an extension of the HHI (by Timothy F. Bresnahan and Steven C. Salop, "Quantifying the competitive effects of production joint ventures ", International Journal of Industrial Organisation, 1986) to take account of the existence of shareholdings between competitors. In a situation where company A holds x % of the shares in company B, company A will endeavour to maximise not just its own profits but the sum of its own profits and x % of the profits of company B. According to the reasoning developed in point 15, company A will thus gain further room for manoeuvre for increasing its prices. Introducing this profit function for company A in the calculation of the HHI, all other things being equal, gives: [modified HHI] = [standard HHI] + [Schneider's market share] x [Legrand's market share] x [Schneider's stake in Legrand]. (15) The appeal was lodged on 13 December 2001.