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The eBearing News
January 21, 2004
FAG Definitively Abandons SNFA Acquisition
copyright © 2004 eBearing Inc.
FAG Kugelfischer AG (FAG, Germany, a division of INA Schaeffler Group) announced its two-year,
on-again, off-again effort to acquire French aerospace bearing manufacturer SNFA is off again,
this time for good.
In a short statement, INA/FAG said effective January 16, 2004, it "has given up its intention to acquire
the French rolling bearing manufacturer SNFA."
The decision follows a December 19, 2003 briefing by the European Commission in which the EC communicated
a strongly worded series of objections to INA regarding the acquisition. In particular, the EC
stated its concern that combining the two largest machine tool bearing suppliers would give INA a "dominant
position" over SKF and others on the supply side, while at the same time customers would be, "unlikely
to exert a sufficient check on INA's pricing strategy."
The saga began in early 2002 when FAG, then in the process of being acquired by INA, began private negotiations to
acquire SNFA. Although rumors were widespread, the deal came to light only as the INA acquisition was
winding up and FAG was obligated to publicly disclose details about its operations and acquisition
targets. At the time, FAG was using the SNFA acquisition to justify an additional €1 per share valuation.
• article: FAG confirms negotiations 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 pants 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.
But by mid-December 2002, facing strong anti-competitive complaints from other bearing manufacturers
and guaranteed rejection by the Bundeskartellamt -- the German Cartel Office -- FAG withdrew its
acquisition plan.
At the time, eBearing spoke to representatives of the Bundeskartellamt and France's Conseil de la Concurrence.
Both indicated they would reject the SNFA acquisition on anti-competitive grounds. FAG has disputed this,
acknowledging the Bundeskartellamt's position but telling eBearing FAG had "no indication"
the Conseil de la Concurrence was planning to reject the deal.
After withdrawing the proposal, FAG told eBearing it had not given up its pursuit of
SNFA, saying only, "Unfortunately, FAG is not in a position at present to comment on the status of
its relationship with SNFA."
Nine months later, in September 2003, INA/FAG did indeed take another run at SNFA, with a new approach.
• article: FAG restarts SNFA takeover action
INA/FAG notified the European Commission that it was again seeking to acquire SNFA, this time partnering
with American International Group (AIG, USA), an insurance company. As presented to the EC, the acquisition
did not involve INA and AIG, but FAG and Verrazano Equity Investments Corp., an AIG operation set up solely
for this transaction.
While an American insurance company with no interest in the bearing industry might seem out of place involved
in a German-French bearing company acquisition, the effect was to fundamentally change the approval mechanism.
Specifically, with AIG involved, EU rules required that the venue for evaluating and approving the acquisition
shift from the individual government bodies -- Bundeskartellamt and Conseil de la Concurrence -- to the
European Commission.
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.
Immediately, however, the EC began receiving what it told eBearing was a "storm" of complaints from
other bearing companies. Several European analysts derided the revamped deal with AIG as "venue shopping"
and "misusing" the EU's merger evaluation system.
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 small number of merger and acquisition approvals are subjected
to a second, tougher, "Phase 2" or "Article 8" investigation.
Announcing its Phase 1 review results, the EC found enough troubling information to ask for
a Phase 2 review, rather than approve the acquisition outright as many had expected. The EC also seemed to
dismiss AIG's involvement out of hand, saying only, "AIG has no presence in this industrial sector."
Prior to the EC's decision to call for 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."
• article: INA/FAG acquisition of SNFA stalled by EC inquiry
• EC press release and notification of Phase 2 investigation
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 -- specifically, SKF and NSK.
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 stated its second major concern
as, "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."
After the December 19 briefing and with the Phase 2 investigation still underway -- the provisional
deadline is March 5, 2004 -- INA/FAG withdrew the deal and will no longer pursue SNFA.
INA/FAG said, "the European Commission had indicated that approval of the transaction would likely be
conditional on significant commitments, which are not acceptable to FAG. The company therefore decided
to refrain from further activities in this matter."
Holding to its assertion SNFA would be set up as a competitor, INA/FAG concluded, "Throughout the
process, the parties has emphasized that SNFA would continue to operate in the market as an independent
company. Nevertheless, the European Commission had raised concerns about the potential creation of
a dominant position in the special bearing sector."
Update: January 23, 2004
The European Commission weighed in with a comment on INA's action, saying,
German bearings manufacturer INA Holding Schaeffler KG (INA) has informed the European Commission that
it and US international insurance company American International Group (AIG) no longer intend to proceed
with the joint acquisition of SNFA, Europe's second-largest maker of precision anti-friction bearings.
The Commission had objected to the deal on the grounds that it would have conferred a dominant position to
INA on the market for precision angular contact ball bearings (ACBBs) sold to European machine tool/spindle
manufacturers. INA already owns FAG, the leading precision anti-friction bearings maker in Europe.
The EC wrapped up by saying, "In view of its strong concerns communicated to INA and AIG in a statement
of objections on 19 December 2003, the Commission welcomes the decision to abandon the deal."
• European Commission press release (PDF format):
Commission welcomes INA/AIG's decision to abandon
their planned acquisition of French bearings maker SNFA
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- by Bruce A. Carr
from individual research,
tips and commercial sources.
Bruce Carr edited this content.
Copyrighted material; unauthorized reproduction prohibited.
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