Cummins Inc. — Combination C-2022/11/981

COMPETITION COMMISSION OF INDIA 14th March 2023 Notice in relation to the acquisition of sole control of Meritor Inc. by Cummins Inc. CORAM: Ms. Sangeeta Verma Acting Chairperson Mr. Bhagwant Singh Bishnoi Member Order under Section 31(1) of the Competition Act, 2002 1. On 2nd November 2022, the Competition Commission of India (Commission) received a notice (Notice) given by Cummins Inc. (Cummins/Acquirer) pursuant to the execution of Agreement and the Plan of Merger between Cummins and Meritor Inc. (Meritor) on 21st February 2022 (Agreement). The Notice was given in relation to the Combination consisting of the acquisition of sole control of Meritor by Cummins by way of reverse triangular merger where Rose NewCo Inc. (RNC), a company newly incorporated by Cummins, merges with and into Meritor; and Meritor survives as the directly wholly owned subsidiary of Cummins. The Combination was closed on 3rd August 2022, and Notice has been given post-consummation of the Combination.

2. The Commission, vide its communication dated 16th November 2022, issued under Regulation 14(3) of the Competition Commission of India (Procedure in regard to transaction of business relating to combinations) Regulations, 2011, required the notifying party to remove defects in the Notice and furnish certain information relevant for the purpose of assessment of the Combination. The notifying party furnished its responses vide submissions dated 6th December 2022, 12th December 2022, 18th January 2023 and 6th February 2023.

3. Cummins is claimed to be a global supplier that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, after treatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products.

4. Meritor is claimed to be a global supplier of axles, brakes, and other modules and components to OEMs and the aftermarket for the commercial vehicle, transportation and industrial sectors. Its principal products are axles, drivelines, brakes, and suspension systems.

5. It has been submitted that the automotive components industry encompasses, inter alia, engine, axles, brakes and clutches. While at the broadest level, the Parties are engaged in the manufacturing and supply of automotive components in India, in practice their product portfolios have different functions and are focused on distinct aspects of the vehicle. However, Meritor and Cummins are engaged in trading of clutches in India. Both Meritor and Cummins only source clutches from third parties and are only engaged in their marketing. One of the roles of a clutch is to temporarily interrupt the power flow between the engine and transmission to allow a gear shift. The combined market shares of Cummins and Meritor for clutches is in range of [5- 10] % with incremental market share being [0-5] %. Further, the product segment is characterized by the presence of other players: Amalgamations REPCO, Setco Autosystems, Valeo, Tata Motors, Aisin Seiki, Vortex Engineering and FCC Clutch India.

6. With regard to complementarity between activities of Cummins and Meritor, it has been submitted that the products of Cummins and Meritor, respectively do not exhibit an economic complementary relationship. In practice and in terms of end-use, products of Meritor and Cummins are technically compatible i.e. they can be used by an Original Equipment Manufacturers (OEM) for the same automobile. This assertion on technical compatibility would stand true for various other automotive components that are used in an automotive by an OEM. Such compatibility or mere use of two products cohesively does not by itself indicate that these products exhibit an economic complementary relationship, given the value of one product is not dependent on or impacted by the value of the other both from, a demand side and supply side perspective. The OEM selects the Original Equipment Supplier (OES) whose engine, brakes or axles should be utilized by raising request for proposals (RFPs). Neither do OEMs raise RFPs of engines and brakes/axles as a bundle, nor do consumers purchase these together. OEMs, which are the primary customers of these products, purchase different automotive components separately and at different times. In the Parties’ experience, driveline components are procured separately by a separate team, pursuant to a separate process to non-driveline components such as brakes. Similarly, engines are procured separately to axles and other driveline products. Further, in the driveline of a vehicle, propeller shafts and transmission are critical components that connect the axles and/or engines. However, neither Party manufactures/sells propeller shafts in India.

7. With regard to complementarity between activities of Cummins and Meritor, it has been further submitted that Meritor’s individual market share for manufacture of axles and brakes in India is in the range of [5-10]% and [10-15]%, respectively. Further, market share of Cummins for engines is in the range of [5-10] %. Upon further delineation of axles, and brakes, the estimated market share of Meritor for narrower segment i.e. commercial vehicles >7.5 tonnage is in the range of [20-25]% and [25-30]%, respectively. Similarly, the estimated market share of Cummins for engines at narrower delineation i.e. commercial vehicles >7.5 tonnage is in the range of [25-30]%.

8. The Commission decides to leave the issue of complementarity between activities of Cummins and Meritor open, as it is observed that the Combination is not likely to cause an appreciable adverse effect on competition irrespective of precise determination of issue. Similarly, precise delineation of the relevant market is left open.

9. Considering the material on record, including the details provided in the Notice and the assessment of the Combination based on factors stated in Section 20(4) of the Act, the Commission is of the opinion that the Combination is not likely to have any appreciable adverse effect on competition in India in any of the relevant market(s), and therefore, the Commission hereby approves the Combination under Section 31(1) of the Act.

10. This order is without prejudice to any proceeding that may be initiated against Cummins under Section 43A of the Act.

11. This order may be revoked if, at any time, the information provided by the notifying parties is found to be incorrect.

12. It is made clear that nothing contained in this order shall be deemed to be confidential, as the same has been used for the purposes of the Act in terms of the provisions contained in Section 57 of the Act.

13. The Secretary is directed to communicate to the notifying parties accordingly.