REG - Competition and Mkts - Merger Update: Hitachi / Thales

Alstom SAAnnouncement

23/08/2023 08:45

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RNS Number : 1955K  Competition and Markets Authority  23 August 2023

CMA updates scope of concerns in rail signalling merger

Updated provisional findings have been issued by the CMA in its investigation
of Hitachi's proposed takeover of Thales GTS

In June, the Competition and Markets Authority (CMA) published its Phase 2
provisional findings which set out that Hitachi's €1.7 billion proposed
acquisition of the Thales' Ground Transportation (GTS) business raised
competition concerns in relation to both digital mainline and urban signalling
rail systems. The publication of the provisional findings initiated a period
of consultation in which the CMA invited responses to the findings from
interested parties and continued to gather further evidence.

Having carefully considered the new evidence, together with the wide range of
information gathered previously, the independent CMA Inquiry Group has updated
its initial findings and reached the provisional conclusion that the merger
would not result in a substantial lessening of competition (SLC) in the supply
of Communications Based Train Control (CBTC) signalling systems in the UK.
Today's update does not change the CMA's provisional assessment that the
merger is likely to lead to an SLC regarding the supply of digital mainline
signalling.

Transport for London (TfL), which oversees London Underground, is the main
customer for CBTC signalling systems in the UK and its current suppliers are
Thales and Siemens. Hitachi has not previously supplied signalling systems to
the London Underground. The CMA's assessment focused on the likely competition
to resignal the Bakerloo and Piccadilly Lines, two of the main lines on the
London Underground. In its original provisional findings, the Inquiry Group
had considered evidence which indicated that Hitachi was one of a limited
number of suppliers with the capabilities to challenge Thales and Siemens in
these future tenders. The Inquiry Group provisionally found that the merger
would therefore result in a substantial lessening of competition in this
market.

The new evidence obtained by the CMA, following the responses to the
provisional findings, now supports the provisional conclusion that Hitachi
would not be a credible bidder to supply CBTC signalling systems to the London
Underground in the near to medium term.

Resignalling lines on the London Underground is regarded as being particularly
complex and challenging compared to most other metro systems. TfL attaches
particular importance to proven experience and capabilities when appointing
signalling suppliers. Most of Hitachi's relevant CBTC projects have yet to be
completed and are smaller and less complex than the upcoming Piccadilly and
Bakerloo line projects. Therefore, given the likely time frame of the
tendering process, Hitachi is unlikely to demonstrate the ability to meet
TfL's requirements for the Piccadilly and Bakerloo line projects.

Having tested this new evidence thoroughly, the CMA has updated its
provisional findings and now considers that Hitachi will not be a significant
competitor to Thales in relation to future CBTC projects in the London
Underground, and that the merger is unlikely to result in an SLC in the supply
of CBTC signalling systems in the UK.

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

"Effective competition in the urban and digital mainline signalling markets is
essential for ensuring the UK's rail transport systems are efficient and
reliable for passengers who rely on these services.

"Having reviewed the additional evidence, which indicates that Hitachi is
unlikely to be a credible bidder for signalling projects on the London
Underground in the foreseeable future, we have provisionally concluded that
the merger would not harm competition in the supply of these systems in the
UK.

"That said, our provisional view that this merger raises concerns in the
supply of digital mainline signalling in Great Britain, is not affected by
today's announcement."

The CMA's investigation continues, and it remains due to issue its final
report by 6 October 2023. For more information, visit the Hitachi / Thales
case page (https://www.gov.uk/cma-cases/hitachi-slash-thales-merger-inquiry) .

Note to editors:

1.   Hitachi Rail Ltd (Hitachi) and Thales SA's Ground Transportation
business (Thales) are two of the leading global suppliers of signalling
systems for mainline and urban railway networks (alongside Siemens and
Alstom).

2.   Digital Communications Based Train Control (CBTC) signalling is the
most common signalling technology used for urban metros such as the London
Underground.

3.   Both Hitachi and Thales are active in urban signalling in the UK and
worldwide, with Hitachi installing a system on the Glasgow Subway and Thales
installing various systems on the London Underground.

4.   In relation to mainline signalling, the Inquiry Group provisionally
considers that should the merger go ahead, there would be fewer credible
bidders remaining for digital mainline signalling tenders, which could raise
costs for Network Rail and negatively impact the digitalisation of the UK's
rail network. More details can be found in our June press release
(https://www.gov.uk/government/news/merger-could-mean-network-rail-and-tfl-lose-out-on-digital-signalling-options)
.

5.   There is now a one-week consultation period on the addendum to the
provisional findings, during which time anyone may make submissions to the
CMA. Submissions should be made to Hitachi.Thales@cma.gov.uk
(mailto:Hitachi.Thales@cma.gov.uk)  and received by 31 August 2023.

6.   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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