Competition Bureau statement regarding National Oilwell Varco's acquisition of Robbins & Myers
OTTAWA, February 28, 2013 — This statement summarizes the approach taken by the Competition Bureau in its review of the proposed acquisition by National Oilwell Varco, Inc. (National) of Robbins & Myers Inc. (R&M), which was announced on August 9, 2012.
On February 18, 2013, the Bureau issued a No Action Letter (NAL) to National and R&M indicating that the Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act in respect of the proposed transaction.Footnote 1 Both companies sell products and services primarily to companies in the oil and gas development and extraction industry. The Bureau's review focused on the effects of the merger on those products and services where National and R&M compete with one another. These products include motor components and pumps used in oil and gas extraction, blowout preventers and controls, pressure control equipment, and wellhead and fracturing components. In spite of significant post-merger market shares in several markets, the Bureau concluded that the merger was unlikely to result in a substantial lessening or prevention of competition for a number of reasons, including moderate to low barriers to entry, effective remaining competition, and countervailing power held by large customers.
On August 9, 2012, National and R&M announced that they had entered into an agreement whereby National would acquire all of the issued and outstanding shares of R&M. The Bureau's review focused on whether the proposed transaction would provide National with the market power to increase prices to its customers, predominantly exploration and production companies and oilfield service companies. In conducting its review, the Bureau contacted numerous market participants, including major customers of National and R&M, in order to gather information regarding the potential competitive effects of the proposed transaction. The Bureau also worked closely with the U.S. Department of Justice, Antitrust Division.
National and R&M are both involved in many business segments supporting the oil and gas industry. The Bureau focused on those business activities where the companies had competing operations. This resulted in the Bureau identifying seven product categories for further analysis, according to distinct end uses. They were:
- Power sections for mud motors, which are used for assisting drilling operations;
- Progressing cavity pumps for oil and gas extraction, which are used to increase the flow of oil or water from a production well;
- Progressing cavity pumps for industrial operations, which are used to provide consistent flow for viscous materials;
- Blowout preventers for surface applications, which are used to seal, control and monitor oil and gas wells;
- Blowout preventer control systems, which are used to activate blowout preventers;
- Pressure control equipment used to regulate oil and gas pressures in a production system; and
- Wellheads and fracturing equipment components.
Even within the product categories described above, there is considerable product differentiation, which may suggest narrower product markets. However, the Bureau considered that even if the product categories were segmented further, its conclusions would not materially change.
Based on the available information, the Bureau considered that the relevant geographic market for each of the product categories was likely North America. In some instances, it was not necessary to reach a firm conclusion on the precise definition of certain relevant markets because it was clear that the scope of the market would not materially change the conclusion of the analysis.
Based on a preliminary review, the parties were found to hold high combined market shares in a number of markets. Due to the lack of reliable third party data from which to confirm market share estimates as well as concerns raised by market participants about limited effective remaining competition in some markets, the Bureau undertook a more in-depth review of the transaction.
In particular, the Bureau examined the nature and extent of barriers to entry in each market. The Bureau considered that while the level of technical expertise to manufacture and support the various products was high, for many products this did not represent a significant impediment to entry, even when looked at in combination with other potential barriers.Footnote 2 The Bureau reached this determination based on several factors, including evidence of recent entry, the ability of near competitors to shift production to the products in question or expand into the geographic market, and the fact that sunk costs appeared to be relatively low. Also, the Bureau found evidence that barriers to entry in certain markets were in decline due to recent or upcoming patent expirations and increased product commoditization.
The Bureau noted that in each market there were a number of large, effective competitors that would remain following the merger which would further diminish the likelihood of the merged entity exercising market power post-transaction. Also, many of National and R&M's customers are large sophisticated oil and gas companies that possess a degree of countervailing power, and for certain products were considered capable of sponsoring entry or expansion by smaller companies.
The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.
This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.
However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.
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