Hitachi Rail receives green light for the $1.8 billion acquisition of Thales’ railway signalling business

Compass Lexecon advised Hitachi Rail during review of its acquisition of Thales Ground Transportation Systems (“Thales GTS”), the railway signalling business of Thales. The merger was approved, with the acceptance of remedies, by the European Commission and the UK CMA, and without conditions by other national competition authorities, including the Canadian Competition Bureau.

Situation

Hitachi Rail and Thales GTS (“the Parties”) are two global suppliers of signalling systems for mainline and urban railway networks. In August 2021, Hitachi announced the $1.8 billion (€1.7 billion) acquisition of Thales GTS. In this context, Hitachi Rail contacted Compass Lexecon to provide economic support in preparation of and during merger proceedings across the globe, including in Europe, the UK, and Canada.

Our Role

Compass Lexecon set up a multi-jurisdictional team to assist Hitachi Rail with the merger filings across the globe.

The Compass Lexecon team was involved starting with the pre-notification phases in several jurisdictions, including proceedings by the European Commission and the UK CMA. Our team assisted Hitachi Rail in preparing the merger notifications by assessing market shares and closeness of competition between the Parties in markets in which their activities overlapped, including interlockings, automated train protection wayside systems and communications-based train control (“CBTC”).

Our assessment was based on a detailed “bottom-up approach”. With the help of the Parties, the Compass Lexecon team sought to identify (i) all projects that were attributed in the markets of interest in the recent years, (ii) which suppliers participated in the corresponding tenders, and (iii) which suppliers ultimately won the projects. This in-depth analysis allowed calculating market sizes and market shares. It was also used to perform a bidding data analysis, which aimed to assess whether Hitachi Rail and Thales GTS were close competitors. These analyses established that in many markets the merger would not raise competitive concerns, because Hitachi Rail and Thales GTS had limited market shares or because they had limited direct competitive interactions.

During the proceedings, the Compass Lexecon team also supported the Parties in answering multiple Requests for Information (“RFIs”) issued by competition authorities. Efficient exchanges with the competition authorities helped discarding concerns on most of the markets with an overlap, and concentrating the investigations on those few markets in which remedies were deemed necessary. Compass Lexecon also assisted with submissions, and made an oral presentation, in relation to the CMA’s adverse provisional finding in relation to CBTC, which the CMA subsequently dropped. To overcome the authorities’ remaining concerns, Hitachi Rail offered to divest its mainline signalling business in France, Germany and the UK. The merger was cleared based on those commitments by the UK CMA and European Commission in October 2023. The merger was also reviewed by eleven other competition authorities around the world, which cleared the transaction unconditionally.

Our Impact

Our analyses of the Parties’ market shares and bidding data shed light on the existing competitive situation despite a lack of robust public data. They showed that in practice, Hitachi Rail and Thales GTS had significant competitive interactions in only a limited number of markets, thereby taking away any competitive concerns in many of the scrutinised relevant product and geographic markets.

The Compass Lexecon team also played a pivotal role in ensuring consistency across jurisdictions. Given their global nature, some product markets ended up being examined in parallel by different competition authorities. In this circumstance, our multi-jurisdictional team ensured that the different authorities were systematically provided with the same analyses and could base their assessments on similar market data. To that end, our team performed all its analyses in a centralised way and put in place a continuous coordination between the different proceedings. This involved ensuring that any adjustment to the data, triggered by exchanges with a given competition authority, was reflected in our centralised analyses, and that updated results were then timely passed on to other authorities.

The Team

The Compass Lexecon team was headed by experts David Sevy (EU proceedings), Neil Dryden (UK proceedings) and Mark Israel (North America proceedings). They were supported by Jeremiah Juts, Celia Ruiz, Hippolyte Brosse and Antoine Golovtchenko (for EU work); by Cecilia Nardini, Wojciech Pawlak, Sander Heinsalu, Valentina Vimercati, Hyung-Joong Kim, Sowmya Sridhar, Kaamal Randhawa and Kitti Perger (for UK work); and by Steve Peterson, Giorgi Giozov, and Román Acosta (for North America work).

They worked together with a team from law firm Clifford Chance, led by David Tayar and Clémence Carlier in France and partners Greg Olsen and Jennifer Storey in the UK. The Compass Lexecon team also worked closely with Thales’ external counsel from BDGS Associés led by Maria Trabucchi and from Cleary Gottlieb Steen & Hamilton led by Jackie Holland and John Messent.