By Michael Degan, Fluid Power Journal Editor
The European Commission, the European Union’s executive arm, has launched an investigation into Danfoss’s proposed acquisition of Eaton’s hydraulics business.
In a Sept. 21 press release, the commission cited concerns that the acquisition could lead to less market competition and higher prices for customers.
“Danfoss and Eaton are both strong players in hydraulic components globally,” Executive Vice-President Margrethe Vestager, in charge of competition policy, said in the statement. “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 are both leading manufacturers of hydraulic components globally and the merger would remove one of the main competitors,” the commission’s press release said.
Both companies are headquartered in Europe – Danfoss in Denmark and Eaton in Ireland.
According to the statement, “The commission’s initial market investigation identified a number of preliminary concerns in relation to the combination of the companies’ hydraulic components businesses for mobile machinery.”
An Eaton spokesperson said the investigation is a routine part of an acquisition.
“The review of the transaction by the European Commission has entered its second phase,” Camie Melton Hanily, marketing and communications global director for Eaton’s hydraulics business, told Fluid Power Journal. “This is a normal and customary part of the regulatory review process during which the parties will provide the European Commission with the information it needs to review the transaction. Our current expectation is that the transaction is on track to close early next year,” Hanily said.
Danfoss is likewise unconcerned about the investigation.
“This second-phase review is a normal customary part of the regulatory review process during which the parties will provide the European Commission with additional information it needs to review the transaction,” Eric Alström, president of Danfoss Power Solutions, told Fluid Power Journal. “This review process is expected and is a part of our planning towards the closing of the acquisition.”
The commission said it is concerned that the transaction will lead to fewer suppliers and higher prices for certain hydraulic components, including hydraulic steering units, electrohydraulic steering valves, and orbital motors.
For each of these components, the acquisition could lead to “high combined market shares in already concentrated markets, where limited credible alternative suppliers to the companies are present,” the statement said. “The commission is, however, also continuing to investigate the effects of the acquisition on other hydraulic components.
“The initial market investigation suggests customers would not have sufficient buyer power to counteract any risk of price increases.”
The investigation will probe “the effects of the proposed transaction to determine whether it is likely to significantly reduce effective competition,” the commission said in the statement.
The commission will take a decision by Feb. 3, the press released said.