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

HitachiAnnouncement

09/12/2022 08:15

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20221209:nRSI1949Ja&default-theme=true

RNS Number : 1949J  Competition and Markets Authority  09 December 2022

Rail signalling deal could push up fares for passengers

Hitachi's anticipated purchase of Thales' rail infrastructure business could
lead to higher fares in future, the CMA has found.

Signalling systems are used across mainline rail and urban metro routes - such
as the London Underground - to control the movement of trains, supporting the
safety and reliability of services. Hitachi Rail Ltd (Hitachi) and Thales SA's
Ground Transportation Business (Thales) are both large global suppliers of
signalling systems for both mainline and urban tracks. Hitachi announced a
€1.7 billion deal to acquire the Thales Ground Transportation Business in
August 2021.

The supply of mainline signalling in Great Britain is currently undergoing
significant change. A recent market study carried out by the Office of Rail
and Road
(https://www.orr.gov.uk/search-news/path-towards-greater-competition-and-value-railway-signalling)
(ORR) found that supply of mainline signalling in Great Britain suffered from
a lack of competition, with the market essentially being limited to only two
suppliers - Siemens and Alstom. ORR made a number of recommendations intended
to increase competition from alternative suppliers, such as Hitachi and
Thales.

The principal UK customer for mainline signalling, Network Rail is putting in
place a new tendering process for its next major signalling procurement (the
Train Control Systems Framework) to implement these 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.

The Competition and Markets Authority (CMA) is concerned that the deal between
Hitachi and Thales could eliminate a credible competitor from the new
tendering process for mainline signalling, just when both firms are expected
to offer much-needed additional competition.

In urban signalling, Thales has a strong position within the UK market, as the
largest provider of Communication Based Train Control (CBTC) signalling
projects for Transport for London (TfL) services. While Hitachi has a much
smaller position in the UK at present, it is one of a limited number of rivals
with the capabilities to challenge Thales for these projects in future.

The resulting loss of competition across both mainline and urban signalling
markets could increase costs for Network Rail and TfL and have an adverse
knock-on effect on taxpayers and passengers.

Hitachi now has an opportunity to submit proposals to resolve the CMA's
concerns or the deal will face a more thorough Phase 2 investigation.

Colin Raftery, Senior Mergers Director at the CMA, said:

"Network Rail currently spends close to £1 billion annually on mainline rail
signalling - and this is expected to increase in future, as equipment needs to
be replaced and the UK transitions to digital signalling.

"The cost of signalling, and its critical role in the safe and efficient
running of our railways, makes it important that we ensure that future tenders
can deliver value for money.

"This deal involves two of the main competitors for future mainline rail and
urban metro signalling projects, so the loss of competition could risk higher
costs and lower quality services, which would ultimately come at the expense
of taxpayers and passengers."

For more information, visit the Hitachi / Thales case page
(https://www.gov.uk/cma-cases/hitachi-slash-thales-merger-inquiry) .

NOTES TO EDITORS

1.   The Office of Rail and Road published a final report following their
market study into rail signalling systems
(https://www.orr.gov.uk/monitoring-regulation/rail/competition/market-monitoring/market-study-supply-signalling-systems-november-2020)
in November 2021. ORR found that UK mainline rail signalling markets are
highly consolidated, with high barriers to entry. Further information on the
report can also be found in the ORR's blog
(https://www.orr.gov.uk/search-news/path-towards-greater-competition-and-value-railway-signalling)
.

a.   The CMA's competition concerns relate to the provision of: Automatic
train protection systems compliant with the European Train Control System
(ETCS) standard, and interlockings, both of which are installed along mainline
railway lines.

b.   Operation and control systems, which are IT solutions designed to
ensure the overall management of mainline rail networks.

c.   Communication Based Train Control (CBTC) metro signalling systems,
which are used across London Underground.

2.   Given the use of CBTC signalling systems across all of London's metro
lines, the CMA focused part of its investigation on the capital and how
Hitachi and Thales will compete for signalling systems there in the future.

3.   Hitachi and Thales have until 16 December to submit proposals to
address the CMA's competition concerns. The CMA would then have until 23
December to consider whether to accept these in principle or refer the deal
for an in-depth phase 2 investigation.

4.   All enquiries from journalists should be directed to the CMA press
office by email on press@cma.gov.uk or by phone on 020 3738 6460.

5.   All enquiries from the general public should be directed to the CMA's
General Enquiries team on general.enquiries@cma.gov.uk or 020 3738 6000.

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  MERTLBRTMTMMMFT