Valeo looks to sell parts of business in order to meet EU competition demands

12 July 2017

12 July 2017

Vehicle parts supplier Valeo is looking to sell its hydraulic actuator business in order to gain approval for its planned takeover of clutch manufacturer FTE Automotive.

The company has started talks with Italian company Raicam, in a move it hopes will allow it to gain European Commission clearance for the FTE deal, which was announced in 2016. The clutch manufacturer’s acquisition will cost Valeo €819 million and will create a large clutch and hydraulic parts company for the automotive supply chain.

A statement released by Valeo comments: ′In the context of Valeo’s acquisition of FTE, the European Commission has expressed doubts on the passive hydraulic actuator market in light of the European Commission Merger Regulation. Valeo is therefore considering the divestment of its passive hydraulic actuator business with a view to obtain the approval of the FTE acquisition by the European Commission.

′Against this background, Valeo initiated discussions with the Italian car-part supplier, Raicam, specialised in clutch and braking systems for both the original equipment (OE) market and the replacement market (aftermarket). These discussions have led to a solid acquisition project, which is subject to prior consultation with works councils, and which requires approval by European Commission within the framework of its review of the FTE project.

′The acquisition of FTE remains subject to the prior formal approval of the European Commission. If Valeo obtains clearance of the FTE transaction, the contemplated divestment could be finalized in the last quarter of 2017.’

The move highlights the mergers and acquisitions market in the vehicle parts supply chain, with many companies looking to buy rivals or partners, creating a larger company that could then control and dominate the market. One such example in the UK is in the parts supply, or motor factor, market. In October 2016, the owner of Euro Car Parts, US-based LKQ, announced the acquisition of Andrew Page, another large factor chain in the UK. After the deal was announced, the UK Government stated it would look into the purchase and decide what action to take.

The Competition and Markets Authority (CMA) said that LKQ needed to come up with proposals to resolve the competition concerns. The acquisition means that the US company now has over 300 branch locations in the UK, twice as much as its nearest competitor. However, the company stated that both Euro Car Parts and Andrew Page will be run as separate businesses, with different managing directors and company structures.

This is not enough for the CMA, which, in May 2017, announced that concerns had not been addressed and the merger is to be referred for a ′phase two’ investigation. The results of this are expected at the end of the year, at which point it will be decided whether the purchase can go ahead and what action needs to be taken if it does, in the interest of a competitive market.