Atlas Copco AB and Desoutter Brothers (Holdings) PLC: A report on the proposed merger

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Summary

Background

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.

The markets involved

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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