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EU investigates $3.3bn sale of Eaton Hydraulics to Danfoss

22 September, 2020

The European Commission has opened an in-depth investigation into Eaton’s planned $3.3bn sale of its hydraulics business to Danfoss. The Commission is concerned that the proposed sale, announced earlier this year, may reduce competition in the supply of hydraulic components for mobile machinery.

Danfoss and Eaton are both strong players in hydraulic components globally,” explains Margrethe Vestager, the EU’s executive vice-president in charge of competition policy. “Manufacturers and distributors active in agricultural and construction machinery depend on access to these components at fair prices for their businesses to thrive. We have opened an in-depth investigation to assess carefully whether the transaction could lead to negative effects for competition, less choice and higher prices for European customers.”

Danfoss and Eaton both manufacture hydraulic components globally and the merger would remove one of the main competitors from the market. Typical hydraulic components include pumps, motors, valves, oil reservoirs, automation and controls components, as well as steering systems.

An initial investigation by the Commission has identified several preliminary concerns in relation to the combination of the companies’ hydraulic components businesses for mobile machinery. The Commission says it is concerned that the transaction may lead to a reduced choice in suppliers, as well as higher prices, for certain hydraulic components including hydraulic steering systems, electrohydraulic steering valves and orbital motors.

For each of these components, the transaction would lead to high combined market shares, in already concentrated markets, where there are few credible alternative suppliers. The Commission is also continuing to investigate the effects of the acquisition on other hydraulic components.

The EC’s initial investigation has also suggested that customers would not have sufficient buying power to counteract the risk of price increases.

Eaton's hydraulics portfolio includes a variety of motors

The Commission will now carry out an in-depth investigation into the effects of the proposed transaction to determine whether it is likely to significantly reduce effective competition.

The transaction was notified to the Commission on 17 August 2020. Danfoss decided not to submit commitments during the initial investigation to address the Commission's preliminary concerns. The Commission now has 90 working days, until 3 February 2021, to reach a decision. The opening of an in-depth investigation does not prejudge the outcome of the investigation.

The European Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds and to prevent concentrations that would significantly impede effective competition in the European Economic Area or any substantial part of it.

Most notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission usually has 25 working days to decide whether to grant approval or to start an in-depth investigation.

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