Mergers: EC clears acquisition of Morpho Detection by Smiths, subject to conditions
The EC has cleared under the EU Merger Regulation the proposed acquisition of Morpho Detection, the threat detection equipment business of Safran of France, by Smiths of the UK. The clearance is conditional on the divestiture of Morpho Detection's explosive trace detection business.
Both Smiths and Morpho Detection develop and manufacture threat detection equipment, in particular explosive trace detectors. Explosive trace detectors are used in:
- airports for the screening of baggage and passengers: within the EU such detectors have to comply with technical specifications and minimum performance requirements determined by European legislation. The number of certified or approved suppliers is thus limited.
- other facilities, such as at ports and borders, critical infrastructure, and by the military and emergency response services: although the use of explosive trace detectors outside the aviation industry is generally not subject to European regulation, the number of suppliers competing globally with Smiths and Morpho Detection is also limited.
The Commission's investigation
The Commission had concerns that the merged entity would have faced insufficient competitive pressure from the remaining players in the European market for the supply of explosive trace detectors to airports and in the worldwide market for the supply of explosive trace detectors to other end-users. Following the takeover there was a risk of price rises and less innovation for explosive trace detectors.
Smiths and Morpho Detection also develop and manufacture hold baggage explosive detection systems, which are used mostly in airports to screen baggage checked in to be carried in the hold of the aircraft. However, the Commission considers that the merged entity would still face competitive pressure from a sufficient number of players active in this market in the European Economic Area.
The Commission also found that there will be sufficient competition for cabin baggage explosive detection systems, which both Smiths and Morpho Detection, as well as several other competitors, are currently developing. New developments in these detection systems aim to speed up airport checkpoints for passengers.
To address the Commission's competition concerns, Smiths offered to divest Morpho Detection's global explosive trace detectors business. The divestment will fully remove the overlap for explosive trace detectors resulting from the merger as initially notified.
The purchaser of the divested explosive trace detector business will be able to replace Morpho Detection on the market. It will exert the same level of competitive constraint on Smiths with regard to both the supply of explosive trace detectors to airports in Europe and to the supply of non-aviation customers worldwide.
These commitments address all competition concerns identified by the Commission. The Commission's decision to approve the transaction is conditional upon full implementation of the commitments.
Companies and products
Morpho Detection, a subsidiary of the French Safran Group, develops and manufactures equipment for detecting and identifying explosive, radiological and nuclear threats, as well as narcotics and contraband. Morpho Detection's products are particularly suitable for the screening of baggage and passengers at airports.
Smiths, through its Smiths Detection division, also develops and manufactures threat detection equipment.
The transaction would combine the portfolio of two of the main global providers of threat detection equipment.
Merger control rules and procedure
The transaction was notified to the Commission on 23 November 2016.
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II). This deadline is extended to 35 working days in case remedies are submitted by the parties, such as in this case.
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