Germans bid to scrutinise defence plan

Date: 11/06/1998

By Chris Johnstone

GERMANY's powerful cartel office has called on the European Commission to allow it to take the lead in scrutinising a joint venture between two of the country's biggest defence companies.

The cartel office wants the deal between Mannesmann's engineering, traffic technology and defence company Krauss-Maffei and defence and rail technology firm Wegmann referred back to Berlin.

Under the deal, Wegmann would have a 49&percent; stake in the new company but decisions would be taken equally.

“We are citing specific national reasons and the fact that there are competition problems in this case. That does not necessarily imply that we want to block the case, but there are problems,” said a spokesman for the cartel office.

Cases can be handed back to national authorities if a domestic market is mainly involved or if national defence or security issues are involved. Under the merger regulation, Commission officials are given an extra two weeks to weigh up such requests before ruling if, and where, an in-depth examination of the case should take place.

The Commission has said it wants to encourage mergers between European defence firms so that they can achieve the size necessary to square up to much bigger competitors from the US.

The German joint venture is aimed at making it easier for the companies to compete in Europe's overcrowded defence business. Industry analysts say that clearance of the deal could trigger a fresh round of company consolidation in the sector.

Krauss-Maffei and Wegmann are already leading partners in a consortium which won a massive order to build Multi-Role Armoured Vehicles (MRAVs) for the German, British and French armies.

The rival consortium was led by the UK's Vickers plc and included German defence company Kuka Henschel. The contract for these battlefield troop carriers was bitterly contested, with possible sales expected to top 6 billion ecu.

The Bundesrechnungshof, Germany's national accounting watchdog, cleared the contract, throwing out a complaint by the losing consortium that competition procedures had not been properly followed. Clearance from the German parliament is also necessary.

The joint venture with Wegmann is part of Mannesmann's strategy of restructuring its engineering business, which posts positively sluggish profits of only around 2&percent; of turnover. This compares poorly with dramatic growth in its telecoms activities, which has helped to boost Mannesmann's share price by 30&percent; since the start of the year.