REG - Competition and Mkts - Merger Update: Hitachi Rail Ltd/ Thales SA GTS

Alstom SAAnnouncement

04/10/2023 08:45

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RNS Number : 6010O  Competition and Markets Authority  04 October 2023

FOR IMMEDIATE RELEASE: 07:30AM  4 OCTOBER 2023

 

Hitachi Rail to sell part of mainline signalling business allowing merger to
proceed

 

Hitachi Rail's offer to sell part of its mainline signalling business
addresses the CMA's competition concerns regarding the merger between two
leading signalling suppliers.

 

The Competition and Markets Authority (CMA) has made its final decision in
relation to Hitachi's €1.7 billion proposed purchase of Thales Ground
Transportation (GTS) business following an in-depth investigation.

 

Signalling systems are a core part of railway infrastructure, helping to
maintain passenger safety by controlling the movement of trains and maximising
capacity on railway networks. Hitachi Rail Ltd (Hitachi) and Thales SA's
Ground Transportation business (Thales GTS) are both global suppliers of
signalling systems for mainline and urban railway networks.

 

The CMA's independent Inquiry Group concluded that the merger would give rise
to competition concerns regarding the supply of digital mainline signalling
systems which are being used increasingly on the country's main railway
networks. The Group found that Thales and Hitachi are both well placed to
supply these systems and that, should the merger go ahead, few credible
competitors would remain.

 

In response to the CMA's findings, Hitachi has offered to sell its existing
mainline signalling business in the United Kingdom, France, and Germany. The
Group will need to approve the purchaser and Hitachi's key customers in these
countries will also need to agree to the transfer of the relevant signalling
contracts. The Group considers this to be an effective and proportionate
remedy, which will preserve competition and ensure customers, such as Network
Rail, will not be negatively affected by the merger.

 

Based on new evidence that came to light after its initial provisional
findings, the Group no longer has competition concerns regarding the supply of
Communications Based Train Control (CBTC) signalling systems which are used on
urban rail networks, such as the London Underground.  The Group concluded
that, while Thales is an important supplier to the London Underground - the
only urban rail network in Great Britain with plans to carry out new CBTC
projects in the foreseeable future - Hitachi would be unlikely to meet TfL's
requirements for these projects.

 

Renewing the signalling systems on the London Underground is particularly
challenging compared to most other metro systems, given the size, complexity
and age of the network. It requires suppliers with significant expertise in
delivering CBTC projects on similar, very large, complex networks. The Group
concluded that Hitachi is unlikely to have attained the required level of
experience by the time of the next major TfL signalling tenders.

 

Stuart McIntosh, chair of the independent Inquiry Group, said: 

 

"Effective signalling is vital for safe and reliable rail travel, which is why
it has been important for us to review this merger thoroughly before reaching
a final decision.

 

"We have concluded that the merger will not reduce competition to provide CBTC
signalling systems, and in particular those required on the underground
network in London.

 

"The picture is not the same for digital mainline signalling. To address our
concerns here, Hitachi is selling part of its existing mainline signalling
business to an independent purchaser. This will protect competition, which is
key to keeping costs down, maintaining high quality of service and promoting
innovation."

 

All information relating to this merger investigation can be found on the
Hitachi / Thales case page
(https://www.gov.uk/cma-cases/hitachi-slash-thales-merger-inquiry) .

 

 

Note to editors:

1.   Digital mainline signalling is an in-cab signalling system that allows
trains to run closer together safely and to travel at their optimal speeds;
conventional mainline signalling provides information to train drivers via
colour light signals alongside the tracks. Digital Communications Based Train
Control (CBTC) signalling is the most common signalling technology used for
urban metros such as the London Underground.

2.   The supply of mainline signalling in GB is currently undergoing
significant change. A Signalling market study
(https://www.orr.gov.uk/sites/default/files/2021-11/signalling-market-study-final-report.pdf)
carried out by the British rail regulator - the Office of Rail and Road (ORR)
- found that there were two main players in the GB market for major signalling
projects, namely Siemens and Alstom, and that other firms were not able to
compete on equal terms. It also found that there has been a significant
increase in the cost of signalling. ORR made a number of recommendations
intended to increase competition from alternative suppliers, such as Hitachi
and Thales.

3.   The principal GB customer for mainline signalling, Network Rail, is
taking steps to introduce a broader range of suppliers into the GB market
leading to greater competition and increased capacity to deliver projects. It
has put in place a new tendering process for its current major signalling
procurement, Train Control Systems Framework (TCSF), to implement the ORR's
recommendations. In parallel, the introduction of digital technology will
drive one of the most significant modernisation programmes in the nearly
200-year history of Britain's railway infrastructure.

4.    Hitachi's €1.7 billion proposed acquisition of Thales GTS is also
being investigated by the European Commission.

5.   All media enquiries to the CMA should be directed to
press@cma.gov.uk  (mailto:press@cma.gov.uk) or 020 3738 6460.

 

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