Companies Are Leading Sellers of X-ray Nondestructive Testing and Inspection Equipment; GE Required to Divest InVisions YXLON Subsidiary Within Six Months to Approved Buyer
In an action taken to ensure continued competition in the highly specialized U.S. market for x-ray nondestructive testing (NDT) and inspection equipment, the Federal Trade Commission today announced a consent agreement that will conditionally allow General Electric Company’s $900 million acquisition of InVision Technologies, Inc., while requiring GE to divest InVision’s YXLON NDT subsidiary to a Commission-approved buyer within six months. GE and InVision are the two leading U.S. producers and sellers of x-ray NDT and inspection equipment, which is used for a wide range of purposes including inspection of aircraft and automobile components.
“The consent agreement announced today will protect competition in the specialized x-ray testing and inspection market in the United States,” said Susan A. Creighton, Director of the FTC’s Bureau of Competition. “GE and InVision are the dominant suppliers and closest competitors in the manufacture and sale of this equipment, and absent the agreement, competition would be irreparably harmed. Given the international aspects of this business, we appreciate the close cooperation of our enforcement colleagues in Germany and the United Kingdom in resolving this matter.”
Parties to the Proposed Transaction
GE is a diversified technology and services company headquartered in Fairfield, Connecticut. GE Infrastructure, the company’s unit that is acquiring InVision, oversees operations of GE’s security and sensing, water technologies, and automation enterprises. Another GE unit, GE Inspection Technologies, designs, manufactures, and sells various NDT and inspection equipment under the Seifert, Pantak, Krautkramer, and Hocking brand names.
The company’s NDT and inspection products serve customers in the aerospace, energy, petrochemical, and automotive industries.
InVision, headquartered in Newark, California, is the leading supplier of explosive detection systems (EDS) to the U.S. government for civil aviation security. Its EDS devices are used at airports to screen checked passenger baggage. InVision also offers industrial NDT and inspection equipment through its YXLON subsidiary. YXLON, headquartered in Hamburg, Germany, was purchased by InVision in 2003, and designs and sells x-ray NDT and inspection equipment for use in the aerospace, automotive, and petrochemical industries, among others.
X-Ray NDT and Inspection Equipment
GE’s proposed acquisition of InVision specifically raises concerns in the U.S. markets for the development, manufacture, and sale of x-ray NDT and inspection equipment of three types: 1) standard x-ray cabinets; 2) x-ray NDT inspection systems equipped with automated defect recognition software (ADR-capable x-ray systems); and 3) x-ray generators capable of producing energy levels higher than 350 kilovolts (high-energy x-ray generators). Each of these types of equipment is discussed briefly below.
Standard x-ray cabinets are x-ray NDT and inspection systems with generic configurations that are sold at uniform prices. They are multi-purpose systems capable of inspecting a variety of products as diverse as, for example, turbine engine parts, plastics, metal die-castings, and ceramics.
ADR-capable x-ray systems use ADR software that completely automates the inspection process. Unlike traditional systems, ADR-capable systems eliminate the need to make subjective human decisions about the objects under inspection. The benefits of such systems include improved inspection quality, increased efficiency of operation, and decreased labor costs.
High-energy x-ray generators are components of x-ray NDT and inspection systems that generate the power needed to produce an x-ray beam and display an x-ray image. Such x-ray generators produce power levels sufficient for x-rays to penetrate dense materials, such as steel, that no other type of x-ray generator can.
The Commission’s Complaint
According to the Commission’s complaint, GE’s acquisition of InVision’s YXLON subsidiary would be anticompetitive and in violation of Section 5 of the FTC Act and the Clayton Act, as amended. GE and InVision are the two leading suppliers of x-ray NDT and inspection equipment in the United States, including: 1) standard x-ray cabinets; 2) ADR-capable x-ray systems; and 3) high-energy x-ray generators – and the U.S. markets for these products are all highly concentrated.
Significant impediments to new entry exist in the U.S. market for x-ray NDT and inspection
equipment that limit the ability of a new firm to compete. These impediments include the high cost of developing x-ray NDT and inspection equipment and establishing a broad service and support network. Customers typically only buy x-ray NDT and inspection equipment from suppliers with reliable local service and support networks, such as GE and InVision, to ensure a quick and effective response to any support needs that arise. Further, customers value suppliers with a good reputation in the industry and are reluctant to switch to a new company that does not have a proven track record of producing quality x-ray NDT and inspection equipment. Accordingly, the FTC contends that entry would not be timely enough to alleviate the alleged anticompetitive effects of the proposed acquisition.
According to the complaint, with no timely possibility for new entrants, GE’s acquisition of InVision would allow the former to exercise unilateral market power, increasing the likelihood that x-ray NDT and inspection equipment buyers would face higher prices and reducing existing incentives to improve product quality or pursue further innovation in these markets.
Terms of the Commission Order
The order announced today remedies the alleged anticompetitive impacts of GE’s acquisition of InVision in the relevant product markets. Under the terms of the order, GE is required to divest InVision’s YXLON NDT business to a Commission-approved buyer within six months of signing the consent agreement with the FTC. If GE fails to make the divestiture within the time required, the Commission can appoint a divestiture trustee to oversee the sale and transfer of these assets within six months. The consent agreement contains specific terms providing the trustee with the power to accomplish the divestiture, including the requirement that GE provide the trustee with access to necessary relevant information.
In addition, the consent agreement contains an order to hold separate and maintain assets that requires GE to maintain the viability of the YXLON NDT business as a competitive entity until the divestiture is completed. The hold separate order provides that the Commission can appoint a hold separate trustee to monitor GE’s compliance with the consent agreement. Accordingly, the Commission has selected Hartmut G. Grossmann to fill this position. Finally, the consent agreement contains monitoring and reporting terms to ensure that the companies comply with its terms.
The Commission vote to accept the consent agreement and to place a copy on the public record was 3-0-2, with Commissioner Pamela Jones Harbour recused and Commissioner Jon Leibowitz not participating. The order will be subject to public comment for 30 days, until October 14, 2004, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.
This matter has also been subject to review by foreign enforcement authorities. The Commission’s investigation and settlement of this matter benefitted from close coordination with Germany’s Federal Cartel Office under the terms of the 1976 Agreement between Germany and the United States Relating to Mutual Cooperation Regarding Restrictive Business Practices and with the United Kingdom’s Office of Fair Trading under the terms of the Organisation for Economic Co-operation and Development’s 1995 Recommendation Concerning Co-operation between Member Countries on Anticompetitive Practices Affecting International Trade.
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, proposed consent order, and an analysis to aid public comment are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: email@example.com; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
(FTC File No. 041-0106)
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