The three LfA loans were part of a package agreed in autumn 1999 between the LfA, Lehman Brothers, the complainant and a pool of banks. Germany explained that, in 1998, the company had to face losses because the attempt to increase sales of television sets through the specialised retail channel had failed. The management therefore decided to restructure the company and to reinforce the OEM (original equipment manufacturer) business. Liquidity was needed to finance the restructuring, prefinance the production for large-scale orders and cover the losses.

The first LfA loan (‘loan 1’) amounted to EUR 2,1 million and was granted in September 1999. The interest rate was [...] %. The second loan (‘loan 2’) amounted to EUR 5,1 million and was also granted in September 1999. The interest rate was [...] %. The third loan (‘loan 3’) amounted to EUR 5,6 million, was granted in February 2000 and the interest rate was [...] %. The first two loans were granted for a duration of one year, while loan 3 was granted until 31 December 2001, i.e. for almost two years.

In September 2000, the first two loans were prolonged until 30 September 2002, i.e. by two further years, and the interest rates were increased for loan 1 to [...] %, and for loan 2 to [...] %. In December 2000, loan 3 was also prolonged until 30 September 2002 and the interest rate was increased to [...] %.

Loan 1 was secured by several collateral items such as a charge on land, the cession of receivables and a product property transfer by way of security. These collateral items were ranked below the securities granted to the pool banks, whose loans had been granted earlier. Loans 2 and 3 were not secured by any collateral. Germany explained that securities had been replaced by a higher interest rate. The actual value of securities for the LfA as a shareholder was very limited because it was likely that the shareholder loan would be treated as equivalent to a capital injection under German law (Section 30 of the Law concerning Companies with Limited Liability).

1. (a)

   Lehman Brothers first injected EUR 25 million into the firm at the end of 1999 to purchase the shares in SLT until then held by Daimler Chrysler and (ii) was lead investor in a further capital increase in February 2000 by an additional EUR 46 million for the financing of the further development of the laser business.

2. (b)

   The pool of private banks had granted Schneider AG a credit line of EUR 31 million in 1998. The agreed interest rate was [...] %. This credit line was expressly upheld in September 1999 as part of the package. In addition, the pool banks accepted a short-term exceeding of the credit line up to EUR [...]. In the same month, the pool leader increased its interest rate to [...] %. Germany explained that it had no information as to any deviation by the other pool banks from the originally agreed interest rate of [...] %.

3. (c)

   The complainant provided a shareholder loan amounting to EUR 7,7 million on the same conditions as the pool banks.

Pursuant to Article 87 of the EC Treaty, any aid granted by a Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market. In order to determine whether shareholder loans granted by a public authority constitute state aid within the meaning of Article 87 of the EC Treaty, it is necessary to consider whether in similar circumstances a market economy investor might have provided loans on conditions comparable to the ones granted by the public authority.

The Commission considers that there are strong indicators that the three loans did not constitute state aid because the market economy investor test is fulfilled. The information available to the Commission indicates that granting loans to Schneider AG with interest rates of between [...] %, [...] % and [...] % (Commission reference rate 4,76 %), later increased to [...] %, [...] % and [...] % (Commission reference rate 5,7 %), was not economically irrational in the given circumstances of 1999/2000. The trust of the market in future profits by Schneider AG, mainly through a leading position in the laser technology business, is evidenced for instance by the almost tenfold increase in the price of Schneider shares between 1998 and 2000 and by the very favourable study by the strategic investment bank Lehman Brothers, which purchased an additional [...] shares in Schneider AG during that period. In July 2000, about 50 % of the capital was held by about 40 strategic investors. Secondly, compared with the behaviour of the private shareholder Lehman Brothers, the behaviour of the LfA was much more cautious. Lehman Brothers increased the capital of Schneider AG by EUR 25 million in December 1999 and was lead investor in the EUR 46 million capital increase of February 2000. Apart from contributing about EUR 8,74 million to the February capital increase (which was already accepted as complying with the market economy investor test in the decision to initiate the procedure), the LfA provided a further EUR 12,8 million only in the form of a reimbursable loan with interest. Thirdly, the LfA interest rates were higher than the rates of the pool banks, both at the time of the original grant of the loans (September 1999 and February 2000) and at the time of the loans' prolongation (September and December 2002).

Nevertheless, some doubts persist as to the nature of the loans. Due to the role of the LfA in promoting the regional economy and on the basis of the information currently available, the Commission cannot exclude that the purpose of the investment was to bridge a difficult period for Schneider AG and to save jobs in the region. Further, it is unclear whether the higher interest rates were sufficient to compensate for the lack of collateral. Schneider AG was in a difficult financial situation at the time the loans were granted and it was not impossible that the laser technology might fail. But the question whether the increased interest rates were sufficient to counterbalance this risk is difficult to assess.

The Commission is of the opinion that the question whether the LfA loans qualified as state aid can be left open. Even if they had to be considered incompatible state aid, a negative decision ordering the aid's recovery would be without object since there is no undertaking existing any more which would have benefited, either directly or indirectly, from the alleged state aid.

The formal beneficiary of the loans was Schneider AG. SE and SLT were created only after the loans had been granted, but there is no reason to exclude that they benefited from the loans. The insolvency proceedings against the three Schneider companies were initiated in March 2002, and all three companies were liquidated. The loan debt was included in the insolvent estate.

1. (a)

   The assets owned by Schneider AG at the time of its liquidation consisted of trade marks. After a worldwide search for potential investors through an M&A consultant, the insolvency administrator sold the trade marks to the Chinese consumer electronics producer TCL for a purchase price of EUR 3,48 million. At the same time, a second consultant had been asked to value the trade marks. He received several offers which were significantly lower than that made by TCL. The Commission therefore considers that the trade marks were sold at their market price.

2. (b)

   SE's assets, consisting of the television production line and stocks, were sold by the insolvency administrator to TCL for a total purchase price of EUR 5 745 480. According to the information submitted by Germany, the insolvency administrator had conducted extensive discussions with a number of potential investors. However, there was very limited interest in purchasing a television set production line tailor-made for Schneider AG which was already several years old, and no interest at all in the stock of television sets for which no guarantee and no service could be provided. TCL made the highest bid and is therefore considered to have paid the market price.

3. (c)
   As regards SLT, the insolvency administrator had commissioned an M&A consultant who sent the purchase documentation to about 150 potential investors. In-depth discussions took place with a number of potentially interested parties. However, owing to technical problems linked to the development of the laser display technology, the actual interest turned out to be very limited. No higher bid than the one by LOS was submitted, not even when an attempt was made to sell the existing patents and the registrable patents separately. SLT's assets were sold in a two-step procedure8 to LOS for a total purchase price of EUR 6 025 000. The Commission therefore considers that the market price was paid also for the assets of SLT.

Public funding is provided by the Land of Bavaria through the BFS. It thus stems from state resources and is imputable to the State. The funding of the part of project 1 which was carried out by SLT and of project 2 provided an advantage to Schneider AG. Since consumer electronics are traded between Member States, the measure threatens to distort competition and affects trade between Member States. The subsidisation of projects 1 and 2 therefore constitutes state aid.