SUMMARY OF
ATLAS COPCO AB AND DESOUTTER BROTHERS (HOLDINGS) PLC: A REPORT
ON THE PROPOSED MERGER
Early in 1989 Desoutter Brothers (Holdings)
PLC (Desoutter), the United Kingdom's leading supplier of
industrial pneumatic power tools, entered into talks with
a number of interested parties about a possible merger. At
the beginning of August Desoutter accepted an offer made
by Atlas Copco AB (Atlas), a Swedish company. Atlas,
with its recently acquired American and French subsidiaries,
is by a wide margin the world's largest producer of pneumatic
tools. On 20 September 1989 the Secretary of State for Trade
and Industry asked the Commission (see Appendix 1.1) to investigate
and report whether the proposed merger would be against the
public interest.
Industrial power tools are used for a wide
range of tasks in manufacturing, construction and industrial
maintenance. The tools are generally hand-operated; typical
applications are to drill holes, fasten screws and nuts,
and cut, shape and smooth metal and wood.
Atlas and Desoutter contend that they are
competing in a broad market for industrial power tools which
includes electric, pneumatic and hydraulic tools. Even after
the merger, they argue, the Atlas group would be only one
of a number of major participants in the United Kingdom and
European markets competing with tools produced by many
European, American and Far Eastern manufacturers. While there
is a degree of competition between electric and pneumatic
tools in some sectors of the industrial tool market, we had
to take account of the circumstances in which many users
of tools prefer, or for a number of reasons including safety
are restricted to, pneumatic tools. We have therefore found
it necessary to look at the separate market for pneumatic
tools. We have also considered, and rejected, Atlas' view
that since its subsidiaries enjoy a great deal of autonomy
and carry their own ranges and brands, the merger would have
no effect on competition.
The merger would bring together the two
leading suppliers of pneumatic tools in the United Kingdom.
Our estimates suggest a combined market share of 36 per cent,
about three times as big as that of the next largest supplier,
Ingersoll-Rand. These factors are bound to cause concern
about competition.
We have therefore looked at the market segment
by segment. We were satisfied that in each case there would
be a good deal of competition from other suppliers of pneumatic
tools (including niche suppliers) and/or from electric tools.
In some segments of the market users can exert considerable
buying power. In general, competition from electric tools
seems likely to grow over time; furthermore, barriers to
entry by pneumatic tool suppliers are generally low.
On balance, we therefore do not consider
that competition in the pneumatic tool market will be reduced
to the extent that a merger may be expected to operate against
the public interest. It follows that the proposed merger
between Atlas and Desoutter should not be prevented.
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Last Revised: May 1999
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