The Federal Trade Commission today announced a settlement, to be filed in federal court, with Mahle GmbH, a German piston manufacturer, and Metal Leve S.A., a Brazilian competitor, under which the firms will pay in excess of $5 million for failing to give federal antitrust enforcers advance notice of Mahle’s acquisition of a controlling interest in Metal Leve.
Federal law provides for civil penalties against firms that fail to file for antitrust review before going ahead with deals that meet certain thresholds. The amount to be paid is the largest civil penalty ever collected for this type of violation. A second, related agreement resolves charges that the transaction substantially reduced competition in violation of U.S. antitrust laws in markets for pistons used primarily in heavy duty diesel engines. That settlement would require a quick divestiture of Metal Leve’s U.S. piston business, including two plants in South Carolina and a research and development center in Michigan.
"Violation of the reporting requirements of the antitrust laws is a very serious matter," said William J. Baer, Director of the FTC’s Bureau of Competition. "The reporting requirements serve as a critical early warning system to alert antitrust enforcers to potentially anticompetitive mergers. This is the fifth case in the last three years in which companies have paid civil penalties in excess of $1 million for failing to abide by these requirements, a track record that makes it very clear that premerger reporting is an important obligation for all firms. Where companies violate the Act, regardless of whether they are U.S. or foreign, they can expect swift and vigorous enforcement action and stiff penalties.
"This acquisition demonstrates why Congress mandated premerger review of deals that threaten to raise prices, hurt competition or create monopolies. Absent FTC enforcement, this transaction would have raised piston prices by as much as $25 million a year. The divestiture we are requiring here will prevent a monopoly from forming and should save diesel engine manufacturers and, ultimately their consumers, millions of dollars," Baer added.
Both Mahle GmbH and Metal Leve S.A. manufacture diesel engine parts, including pistons, through U.S. subsidiaries -- Mahle, Inc., located in Morristown, Tennessee; and Metal Leve, Inc., based in Ann Arbor Michigan, respectively.
The FTC said today that its attorneys will allege in court pleadings that Mahle acquired 50.1 percent of the voting securities of Metal Leve for approximately $40 million on or before June 26, 1996, without Mahle and Metal Leve first filing the required notification and report forms with the FTC and the Department of Justice. The Hart-Scott-Rodino Act, commonly referred as the HSR Act, requires companies under certain conditions to file such a notification and then to wait a specified time while one of the two agencies reviews the transaction. The HSR Act applies to acquisitions between foreign firms as well as domestic firms, where the companies have substantial U.S. sales or assets. According to the FTC, the government will allege that both Mahle and Metal Leve knew that their deal posed serious antitrust problems and completed this transaction knowing that they were violating the HSR Act. In fact, the government will allege, both Mahle and Metal Leve considered reporting under the HSR Act as a trade-off between the costs of compliance with the Act and the potential risks of civil penalties. According to the FTC, Mahle and Metal Leve did not file the required HSR notifications until July 22, 1996, nearly a month after closing the deal, and the FTC thereafter issued requests for additional information, extending the HSR waiting period. Companies in violation of the HSR Act can be subject to civil penalties of up to $11,000 per day.
The settlement of these charges, to be filed in federal district court, provides for the maximum civil penalties allowed under law from both Mahle and Metal Leve from the date of the acquisition until the companies file an application acceptable to the FTC for divestiture of Metal Leve’s U. S. business, as required by the administrative settlement announced today. "A maximum fine is the appropriate penalty for the conduct in this case. The companies intentionally failed to file, with full knowledge of their obligations to do so," said Baer in announcing the settlement. "This is also one of only a handful of cases where the acquired as well as the acquiring firm has paid civil penalties. That is appropriate, since Metal Leve was aware of its obligation to file and voluntarily acquiesced in the violation of the HSR law. Neither it nor the buyer should be able to profit from violating the law."
According to the FTC administrative complaint, by acquiring Metal Leve, Mahle would become a monopolist in the research, development, manufacture, and sale of articulated pistons in the United States and in the research, development, manufacture, and sale of large bore two- piece pistons worldwide. Articulated pistons are two-piece pistons, up to 150 millimeters in diameter, which are used in diesel engine applications, such as Class 8 truck engines for big highway rigs. Large bore two-piece pistons are more than 150 millimeters in diameter and are used in high output diesel and natural gas engines, such as locomotive engines and stationary power generators as well as engines for various marine and industrial applications.
The complaint alleges that, prior to the acquisition, Mahle had more than a 50 percent share and Metal Leve had nearly a 45 percent share of the articulated piston market, producing a combined market share of more than 95 percent. Thus, according to the FTC, the Mahle/Metal Leve acquisition would result in a monopoly or near monopoly in the articulated pistons market.
According to the complaint, the Mahle/Metal Leve acquisition would substantially lessen competition in the large bore two-piece piston market by giving control of Metal Leve, an aggressive competitor, to Mahle, one of only two firms that together have dominated the market for large bore two-piece pistons.
The proposed administrative settlement would remedy the antitrust violation by restoring the competition lost as a result of Mahle’s acquisition. Mahle would be required to divest Metal Leve’s U.S. piston business, which includes assets used by Metal Leve for the manufacture and sale of pistons in the United States, including plants in Orangeburg and Sumter, South Carolina, and a research and development center in Ann Arbor, Michigan, as well as technology outside the United States which supports that business. Once the required divestiture has been accomplished, Metal Leve and Mahle would cease to have any rights to what was formerly the Metal Leve articulated piston technology. The divestiture would have to be completed within 10 days of the settlement becoming a final order. If that is not accomplished, then the FTC may appoint a trustee to divest the business.
A Hold Separate Agreement the FTC entered into with the companies in August 1996, requiring Metal Leve to be operated independently of Mahle on a worldwide basis and preventing any action that would reduce the value or competitiveness of Metal Leve Inc.’s business, will remain in effect until the divestiture is approved.
The administrative settlement also would prohibit Mahle or Metal Leve from acquiring any interest in any other company engaged in the manufacture or sale of articulated pistons in the United States, without prior notice to the Commission.
The Commission vote to approve the two agreements was 5-0. The agreement for civil penalties will be filed in the U.S. District Court for the District of Columbia after completion of the divestiture required by the administrative settlement. It will be filed by FTC staff attorneys appointed as special attorneys to the Attorney General on behalf of the United States. An announcement of the administrative agreement will be published in the Federal Register shortly. The administrative complaint and settlement agreement will be placed on the public record for a 60-day public comment period, after which the Commission will decide whether to it make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and 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 FTC administrative and court complaints, both settlement agreements, and an analysis of the administrative agreement to assist the public in commenting are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also can be obtained by calling 202-326- 3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 961-0085)