The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of Eaton’s hydraulics business (Eaton Hydraulics) by Danfoss. The approval is conditional on full compliance with the commitments offered by Danfoss.
“Danfoss and Eaton are both leading players in hydraulic components globally. Manufacturers of agricultural and construction machinery depend on these components for manufacturing innovative and price competitive products. Thanks to the commitments offered by the two companies, these customers will continue benefit from competitive prices and have choice of innovative products,” Executive Vice-President Margrethe Vestager, in charge of competition policy, stated.
This decision follows an in-depth investigation of the proposed acquisition which combines the activities of Danfoss and Eaton Hydraulics. Danfoss and Eaton Hydraulics are both leading global manufacturers of hydraulic components used to make hydraulic systems for various kinds of machinery. The purpose of a hydraulic system is to make a machine move, by transferring energy from the point of source, e.g., an engine, to the point of use. The proposed transaction would remove one of the main competitors in this market.
The Commission’s investigation
During its in-depth investigation, the Commission gathered extensive information and feedback from competitors and customers of the merging companies.
Following its investigation, the Commission had concerns that the transaction, as initially notified, would have harmed competition, due to the combination of both companies’ hydraulic components businesses for mobile machinery, also known as ‘mobile applications’ (for example, agricultural and construction machinery). In particular:
- The Commission found that the transaction would lead to a reduced choice in suppliers, as well as higher prices, for certain hydraulic components for mobile applications, including (i) hydraulic steering units (HSUs), (ii) electrohydraulic steering valves (ESVs), and (iv) orbital motors.
- For each of the above hydraulic components the transaction would lead to high combined market shares, in already concentrated markets, where limited credible alternative suppliers to the companies are present. Furthermore, strong entry barriers exist which would prevent the emergence of new entrants.
- The market investigation also suggested that customers faced strong difficulties in switching suppliers.
The proposed remedies
To address the Commission’s competition concerns, Danfoss offered the following commitments:
- The divestment of parts of Danfoss’ HSU, ESV and orbital motors businesses. These include Danfoss plants in Wroclaw (Poland), Parchim (Germany) and Hopkinsville (U.S.).
- The structural divestiture will be complemented by the transfer of Eaton’s production lines for medium power orbital motors (HP and VIS models), Eaton’s Series 10 production line for HSUs, and production assets for Eaton’s ESV portfolio, to the Hopkinsville plant.
- In order to enhance the competitiveness of the divestment business, and in addition to structural divestitures, Danfoss also committed to transfer additional Danfoss and Eaton technology for HSUs.
Thanks to these commitments, the divestment business will have a wide-ranging portfolio for each of the, HSUs, ESVs and orbital motors.
The commitments offered by Danfoss fully address the competition concerns raised by the proposed transaction. The Commission therefore concluded that the proposed transaction, as modified by the commitments, would no longer raise competition concerns. The Commission’s decision is conditional upon full compliance with the commitments.
On Tuesday, January 21, 2020 Danfoss announced that it has entered into an agreement to acquire Eaton’s Hydraulics business for a cash purchase price of 3.3 billion USD (approximately 3.0 billion EUR). The acquisition is fully in line with Danfoss’ strategy to strengthen its core businesses and enhance customer value.
“Today, we take a significant and transformational step in creating a global leader in mobile and industrial hydraulics. It is a once-in-a-lifetime opportunity to combine our largely complementary portfolios and geographic footprints. Eaton Hydraulics is a highly respected player in the global industry, recognized for its dedicated people and strong brands. By combining the knowledge and experience of the two businesses, our customers will benefit from unmatched expertise from a single partner. With this agreement, we continue to invest in our core hydraulics business and digital solutions to stay a strong technology partner,” says Kim Fausing, Danfoss President and CEO.
“We believe Eaton’s Hydraulics business will benefit greatly from being part of a company that has hydraulics at its core,” says Craig Arnold, Eaton Chairman and CEO. “When complete, this deal will bring together two talented teams with deep hydraulics knowledge and expertise. And Eaton’s hydraulics team will be part of a company that is committed to becoming a global leader in mobile and industrial hydraulics. The combined business will also benefit customers and distributors by offering industry-leading technology and a much broader portfolio of hydraulic solutions.”