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The eBearing News
December 1, 2003
INA/FAG Acquisition of SNFA
Stalled by EC Inquiry
copyright © 2003 eBearing Inc.
FAG Kugelfischer Georg Schafer AG (Germany, a division of INA Holding KG, Germany) has been dealt another
setback in its attempted acquisition of French precision bearingmaker SNFA S.A.
The European Commission is withholding approval of the acquisition pending an in-depth investigation by
its Competition directorate. The provisional deadline for the investigation is March 5, 2004.
In its decision to launch the investigation, the EC said it, "decided to initiate proceedings in the
abovementioned case after finding that the notified concentration raises serious doubts as to its
compatibility with the common market."
An EU regulatory analyst told eBearing that the wording in the EC's investigation notification, "seems to send
a bad message for INA; their acquisition of SNFA may not be approved."
FAG began its moves to acquire SNFA back in early 2002, before FAG's acquisition by INA was complete.
The proposed acquisition actually came to light as FAG wrapped up its affairs and disclosed the details
of operations and acquisition targets to INA and its shareholders. At the time, FAG was using the SNFA
acquisition to justify an additional €1 per share valuation for the company.
• article: FAG confirms plans to acquire SNFA
SNFA -- Societe Nouvelle de Fabrication Aeronautique -- was founded in 1952, and is a manufacturer of
high-precision bearings for aerospace, machine tool, turbo pump, radar and other helicopter
and aircraft applications. SNFA employs almost 700 people at 3 plants in France, Italy and the U.K.,
with sales of just over €67 million.
INA/FAG had planned to roll SNFA's operations into its Aircraft and Super Precision division,
which includes Barden.
However, in the face of numerous competitive complaints by other bearing manufacturers and a guaranteed
rejection by the German Federal Cartel Office, or Bundeskartellamt, FAG quietly abandoned its plan
in mid-December 2002.
• article: FAG abandons acquisition of SNFA
At the time, FAG denied it had given up its pursuit of SNFA, telling eBearing only that, "Unfortunately,
FAG is not in a position at present to comment on the status of its relationship with SNFA."
Nine months later, FAG notified the European Commission that it sought to acquire SNFA, this
time with a partner, American International Group (AIG, USA), an insurance company. The actual form
of the acquisition was not with INA and AIG, however, but via FAG and Verrazano Equity Investments
Corp., an AIG operation created specifically for this transaction.
While some might characterize AIG's place in the acquisition as a "straw man," the result was
that approval authority for the acquisition was taken away from the Bundeskartellamt and French Conseil
de la Concurrence. FAG used AIG's involvement and the European Union's competition monitoring and merger approval
system to put approval in front of a different panel, with different criteria. In essence, AIG's size
forced approval jurisdiction away from local authorities and into the hands of the European Commission.
• article: FAG restarts SNFA takeover action
The move to involve AIG was seen as an obvious end-run around standard competition evaluations,
as AIG is obviously not planning to get involved in the bearing industry. But by forcing the merger
approval in front of the EC, FAG was angling for its best chance to gain approval.
The EC not only uses a much broader scope when evaluating transactions, but also has proven to be
far more lenient in granting merger/acquisition approval. Since 1990, the EC has passed more
than 99% of the major proposals put before it.
In process the EC clears the vast majority of acquisitions for approval within one month, through
a "Phase 1" or "Article 6" investigation period.
Only a very small number of merger and acquisition approvals are subjected to a second, in-depth,
"Phase 2" or "Article 8" investigation.
Announcing its Phase 1 review results, however, the EC found enough troubling information to ask for a Phase 2
review rather than approve it outright as many had expected. In addition, eBearing has been told by
several sources that the EC was pressured not only by its own Phase 1 findings but also by
strong anticompetitive complaints from "several" INA/FAG competitors. Equally importantly, in its
decision notification, the EC appeared to ignore AIG's involvement, saying only that, "AIG
has no presence in this industrial sector."
• EC press release and notification of Phase 2 investigation
In its preliminary investigation the EC was troubled by INA/FAG and SNFA's combined market strength in both
machine tool bearings and aerospace bearings. Announcing the Phase 2 investigation, the EC
said, "INA/FAG and SNFA will become by far the largest supplier of precision ball and roller bearings used
for machine tool applications -- a market where the main three/four players already account for over
two thirds of the total sales. The Commission's initial probe appears to indicate significant market entry
barriers and customers with limited buying power."
The Commission went on to say its second concern
is, "With regard to aerospace bearings, the operation would create an even stronger force by merging the first
and third largest suppliers to European aero-engine manufacturers. After the merger, INA/FAG/SNFA, on the
one hand, and SKF on the other, would supply almost 80% of the European market. Although aerospace customers
are often multinational companies with considerable buyer power, the elimination of SNFA currently raises
concerns that price competition, innovation and other aspects could suffer as a result."
Prior to the EC's decision to implement a Phase 2 investigation, Dr. Thomas Reuss, FAG's Head of Corporate
Communications, told eBearing, "under the new structure SNFA
will remain an independent player and competitor of FAG in the market, which
is emphasized by the fact that there is a financial investor with certain
minority rights. With the French authorities already having agreed to a
structure in which SNFA would be integrated into FAG, we believe to have
good reasons that this structure is even more acceptable to the European
Commission or the Bundeskartellamt."
While approval might seem doubtful at this point, as the EC notes, "The opening of the in-depth probe
-- which lasts four months -- does not prejudge the outcome of the investigation itself."
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- by Bruce A. Carr
from individual research,
tips and commercial sources.
Unauthorized reproduction is prohibited.
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eBearing.com ... for everything that moves™
Entire contents Copyright 1999-2008, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered
trademarks of eBearing Inc.
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eBearing.com ... for everything that moves™
Entire contents Copyright © 1999-2008, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered trademarks of eBearing Inc.
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