On January 6, 2020, the Commission announced that it would investigate job losses in a plant in Fürstenfeld, Austria, following the acquisition of Whirlpool’s refrigeration compressor business, Embraco, by Nidec, a Japanese manufacturer of electric motors, powertrains, and other related industrial components. The Commission had conditionally approved the transaction following an in-depth merger control investigation, allowing the creation of a leading player in the refrigeration sector.
The Commission’s clearance decision required the divestment of several plants in Austria, Slovakia, and China, which played a key role in the production of compressors for domestic and light commercial uses, the key overlap where the Commission identified concerns. To facilitate the sale of the plants and the full effectiveness of the divested business, the Commission required Nidec to commit to providing considerable financial support to the buyer for the continued operation of these plants, equivalent to the capital expenditure that Nidec would have invested in the plants absent the transaction.
On June 26, 2019, the Commission ultimately approved the acquisition of the divestment business by ESSVP IV, an investment fund managed by Special Situation Venture Partners, finding that it was a suitable purchaser in light of its business plan.
On September 10, 2019, ESSVP IV and the divested Austrian business announced closing of the divestiture transaction, and issued a press release stating that “[m]ore than EUR 33 million have been set aside to fund the development and further improvement of the design and manufacturing of the compressors produced in Austria.” This press release was followed by an announcement on October 22, 2019, stating that the compressor production lines in Austria would be shut down, resulting in the loss of around 250 employees.
After this announcement, Austrian MEP Othmar Karas submitted a formal parliamentary question to the Commission, inquiring what steps were being taken to prevent job losses, in light of Nidec’s original plan to invest in the site. In the Commission’s response, on January 6, 2020, it noted that it had commenced a comprehensive ‘fact finding’ investigation to ascertain whether the decision to close the Austrian plant was in line with the original commitments.
The Commission’s response does not explain whether there was any obligation on how ESSVP IV used the funds made available by Nidec. Additionally, the publicly available version of the commitments decision does not explain whether it prohibits ESSVP IV or Nidec to close or not to invest in the plant.
The Commission’s decision to initiate a review of ESSVP IV’s resolution to close the Austrian plant highlights the risk that merger control remedies may still entangle for merging parties long after closing of a transaction, and that these investigations may require a burdensome “comprehensive exercise, which involves gathering and analyzing data and information from different sources.”
In cases where divestitures are offered to secure approval for a deal, merging parties should carefully consider the extent to which any financial or other incentives provided to the buyer may result in fresh scrutiny in future. Remedy-related fact-finding investigations have been rare occurrences historically, particularly in cases of structural remedies. Such investigations, however, highlight the Commission’s increasing scrutiny of how remedies have ultimately affected competition, in particular, the execution of post- closing verification.