According to the terms of a proposed consent order announced today by the Federal Trade Commission, Federal-Mogul, one of the world's leading producers of thinwall bearings used in car, truck and heavy equipment engines, would divest the thinwall bearings assets it acquires in its $2.4 billion takeover of T&N, plc. Between them, Federal-Mogul and T&N dominate the markets for thinwall bearings sold in the United States, as well as in other countries.
"This agreement would preserve competition in the worldwide market for thinwall bearings," said William J. Baer, Director of the FTC's Bureau of Competition. "These bearings are a key component used in the engines of cars, trucks and heavy equipment. They are sold around the globe to original equipment manufacturers and in the aftermarket to those who repair these engines. Because of the scope of this acquisition, the FTC worked closely with our enforcement counterparts in the United Kingdom, Germany, France and Italy."
The proposed divestiture would settle FTC allegations that the merger of Federal-Mogul and T&N, the two leading producers in the world in four different thinwall bearings markets, would (1) increase the likelihood that Federal-Mogul would be able to unilaterally exercise market power in the four relevant markets and (2) would increase the likelihood of, or facilitate, coordinated anticompetitive conduct between Federal-Mogul and the remaining competitors in the market for heavy duty engine bearings, one of the four markets identified in the complaint.
Thinwall bearings, used to separate parts, have a surface coating of oil to prevent friction, or heat from friction, from damaging the parts. They are used in cars, trucks, heavy equipment and industrial applications. Both companies develop, manufacture, and sell thinwall bearings, including thinwall engine bearings sold to original equipment manufacturers ("OEMs") of both light duty and heavy duty vehicle engines as well as aftermarket bearings sold to service these engines after the engines are no longer covered by the original manufacturer's warranty. Every automobile and truck engine has a unique set of bearings, which must be engineered and designed to fit that particular engine and cannot be used in other engines. According to the FTC, Federal-Mogul, based in Southfield, Michigan, and T&N, headquartered in Manchester, England, have a combined market share in the United States of nearly 80 percent or more in each of the four markets identified in the complaint.
The complaint alleges that entry by a new competitor into the bearings markets would not be timely, likely, or sufficient to deter or offset the adverse effects of the proposed acquisition on competition in these markets. Entry into the markets to sell engine bearings to OEM customers requires developing appropriate bearings and precision manufacturing capabilities and also requires extensive testing before sales can be made. This process, from development to completion of testing, would take substantially more than two years, the FTC alleged. In the aftermarket, new entrants would have to develop a broad product line to compete with Federal-Mogul and T&N, which would take more than two years, and a new entrant would be at a significant cost disadvantage to the incumbent firms, the agency's complaint notes.
The proposed consent order would require Federal-Mogul to divest the thinwall bearings business of T&N, which includes the assets and plants that T&N now uses to make thinwall bearings, as well as intellectual property that T&N now uses to develop and design new bearings to meet the needs of engines that OEMs will develop in the future. To ensure that the divested thinwall bearings business would be in the same position that T&N had been in terms of research, the proposed order identifies individuals in T&N who worked on bearings research and development, and requires Federal-Mogul and T&N to assign those personnel to the businesses to be divested.
In addition, the proposed order also addresses a relationship that T&N's thinwall bearings business had with Daido Metals, a Japanese bearing producer. To allow continued cooperation between Daido and the divested T&N bearings business, the proposed order would prohibit Federal-Mogul from entering into thinwall bearings business relationships with Daido for five years.
The proposed order also identifies certain assets related to dry bearings or polymer bearings that would be included in the divestiture. These bearings, which do not rely on a film of oil to reduce friction and instead use a polymer coating, are produced at T&N plants that also produce thinwall bearings. Federal-Mogul requested that these polymer bearings products be named in the proposed order to respond to concerns raised by the German Federal Cartel Office that a merger of Federal-Mogul and T&N would adversely affect competition in dry bearings in Germany. Including these products in the FTC proposed order would eliminate the need for the company to enter into a separate consent agreement with German antitrust authorities.
The Commission vote to approve the proposed consent order was 4-0, with Commissioner Mary L. Azcuenaga not participating.
An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to 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's complaint, proposed consent order and an analysis to aid 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, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available 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. 9810011)