After extensive investigations, the Competition and Markets Authority (CMA) has expressed its concerns about a proposed €1.7 billion purchase by Hitachi Rail of Thales SA’s Ground Transportation (GTS) business.

Hitachi Rail Ltd (Hitachi) and Thales SA Ground Transportation (Thales GTS) are both global suppliers of signalling systems for railway networks. To answer the Competition and Markets Authority’s concerns and allow the merger to go ahead, Hitachi Rail has offered to sell part of its mainline signalling business.

The reasoning behind the Authority’s concerns is that the merger would result in a lack of competition in the supply of the digital mainline signalling systems that are finding increasing use on the UK’s main railway networks. Both Thales and Hitachi are well placed to supply these systems, but if the merger was approved it would leave few credible competitors.

Hitachi has offered to sell its existing mainline signalling business in the United Kingdom, France, and Germany, but the purchaser would need to be approved by the independent Inquiry Group, and Hitachi’s key customers in those countries would each need to agree to the transfer of the relevant signalling contracts.

The Group considers that Hitachi’s proposal is an effective and proportionate remedy that will maintain competition and ensure its customers are not adversely affected by the merger.

After the Group released its initial provisional findings, fresh evidence was submitted that removed any concerns the Group had regarding the supply of Communications Based Train Control (CBTC) signalling systems; these are used on urban rail network including London Underground. London Underground is the UK’s only urban rail network with definite plans to carry out new CBTC projects, and although Thales is an important supplier for these projects, TfL’s requirements are unlikely to be met by Hitachi.

Compared with most other metro systems, the task of renewing signalling systems on the London Underground poses special challenges because of its size, complexity, and age of the network. A successful bidder would be expected to have successfully delivered CBTC projects on similar, very large and complex networks. In their investigations, the Group did not consider that Hitachi could reach the required level of experience by the time that TfL issues its next major signalling tenders.

Further information about the investigation by the Competition and Markets Authority into the merger can be found here.

Stuart McIntosh, chair of the independent Inquiry Group, said: “Effective signalling is vital for safe and reliable rail travel, which is why it has been important for us to review this merger thoroughly before reaching a final decision.

“We have concluded that the merger will not reduce competition to provide CBTC signalling systems, and in particular those required on the underground network in London.

“The picture is not the same for digital mainline signalling. To address our concerns here, Hitachi is selling part of its existing mainline signalling business to an independent purchaser. This will protect competition, which is key to keeping costs down, maintaining high quality of service and promoting innovation.”