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Hitachi Ltd’s acquisition of the Thales Ground Transportation business could be prohibited, the UK Competition & Markets Authority said on Thursday, as it would ‘substantially’ weaken competition in the rail system market.
The UK watchdog said that, if the Tokyo-based conglomerate’s deal goes ahead, there would be fewer credible bidders for digital mainline signalling tenders.
This could raise costs for Network Rail and negatively impact the digitalisation of the UK’s rail network.
The inquiry group also said the transaction might reduce the already limited number of global suppliers able to challenge Thales SA, thus stifling competition for future urban signalling tenders in the UK.
Network Rail has plans to upgrade much of the UK’s rail signalling system over the next decade. Transport for London is also expected to begin replacing the signalling systems on two of London’s main underground lines.
The CMA said it has provisionally concluded that the merger would reduce choice, options, and competition in markets ‘where there are only very few competitors’, with worse outcomes for UK-based providers and taxpayers.
‘UK railway networks spend millions of pounds each year maintaining and upgrading signalling systems which ensure transport networks run smoothly and passengers remain safe. Healthy competition in this market is essential to support innovation as well as to keep costs down,’ said Stuart McIntosh, chair of the inquiry group.
‘Should the merger go ahead, it would reduce the number of signalling suppliers in what is already a highly concentrated industry, and the resulting loss of competition could leave transport networks and passengers worse off.’
The CAM will now consult on its provisional findings, and look for potential remedies. These could range from requiring Hitachi or Thales to sell parts of their existing businesses, to prohibiting the merger altogether.
Thales first entered an agreement to sell its Ground Transportation Systems business to Hitachi’s Rail unit back in August 2021, for an enterprise value of €1.66 billion.
In December 2022, the UK CMA referred the proposed acquisition to a phase two investigation. At the time, it warned that the move ‘could eliminate a credible competitor’ from Network Rail’s new tendering process for mainline signalling.
Hitachi shares closed 0.3% lower at JP¥8,475.00 in Tokyo on Thursday. Thales shares were trading 0.2% lower at €128.50 in Paris.
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