Commission-Approved Buyer Named for Business to be Divested Under Agreement
The Federal Trade Commission announced today a proposed settlement of antitrust concerns stemming from the $4.2 billion acquisition of Mallinckrodt, Inc. by Tyco International, Ltd. The proposed settlement would preserve competition in the U.S. market for endotracheal tubes - the principal means by which anesthesia and oxygen are administered to patients in operating and emergency room settings. According to the FTC, both Tyco and Mallinckrodt are leading suppliers of disposable medical supplies, and are head to head competitors in the $47 million market for endotracheal tubes. The proposed settlement, while permitting the acquisition, would require Tyco to divest its endotracheal tube business to Hudson RCI, a California-based company, within ten days after the FTC accepts this proposed agreement for public comment.
"This settlement preserves competition in a highly concentrated market for medical products that are critically important to the success of surgical procedures," said Richard G. Parker, Director of the FTC's Bureau of Competition.
Tyco International, Ltd. is based in Bermuda, with an operating subsidiary in Exeter, New Hampshire. Mallinckrodt is based in St. Louis, Missouri. In June of this year, the companies entered into an Agreement and Plan of Merger under which Tyco would acquire 100 percent of the voting securities of Mallinckrodt. According to the FTC, the U.S. market for endotracheal tubes is highly concentrated, with Mallinckrodt - the leading supplier - holding a 72 percent market share and Tyco accounting for approximately 14 percent of the market. The proposed acquisition would provide Tyco with a combined market share in the endotracheal tube market of over 86 percent. In addition, new entry in the U.S. endotracheal tube market requires the development of a full line of products in a number of sizes and configurations, procurement of manufacturing equipment, and establishment of production practices in conformity with U.S. Food and Drug Administration (FDA) regulations, as well as development of a track record and customer base. Because of the high costs and significant risks, new entry is unlikely, the complaint states.
According to the complaint detailing the allegations, the effects of the acquisition would be to substantially lessen competition and tend to create a monopoly in the relevant market in the following ways:
- by eliminating actual, direct and substantial competition between Tyco and Mallinckrodt in the relevant market;
- by increasing the likelihood that the combined Tyco/Mallinckrodt would increase prices of endotracheal tubes unilaterally; and
- by increasing the likelihood that innovation will be reduced in the relevant market.
The proposed consent agreement to settle these charges would require Tyco to divest its endotracheal tube business to Hudson RCI, a company with a significant presence in other respiratory care markets. If the divestiture to Hudson is not accomplished, Tyco must divest the business to a Commission-approved buyer within six months. If Tyco fails to do so, the Commission may appoint a trustee to divest the business.
The proposed agreement contains a number of provisions designed to ensure the smooth transition of Tyco's endotracheal tube business to Hudson. Tyco would be required to provide incentives to certain key employees to accept employment, and remain employed, by Hudson. In addition, Tyco would be prohibited from inducing key hospital group purchasing organizations from terminating their contracts with Hudson, for a period of two years. Further, Tyco employees involved with the endotracheal tube business would be prohibited from disclosing any confidential information to employees involved with the Mallinckrodt line.
Finally, the order contains a number of recordkeeping and reporting requirements designed to assist the FTC in monitoring compliance with its terms.
The Commission vote to accept the proposed consent agreement for public comment was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, the proposed consent agreement, and an analysis of the agreement to aid in public comment, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
Office of Public Affairs
Richard G. Parker
Bureau of Competition
Bureau of Competition
(FTC File No.: 001 0208)