ABB, one of the world's leading manufacturers of analytical instruments used in process manufacturing applications, has agreed to divest certain assets it would acquire in its $1.1 billion purchase of Elsag Bailey Process Automation N.V., to settle Federal Trade Commission charges that the acquisition would violate antitrust laws.
Under the terms of the proposed agreement, ABB would be required to divest the Analytical Division of Elsag Bailey's Applied Automation, Inc. subsidiary, which is involved in the manufacture and sale of process gas chromatographs and the research and development of a process mass spectrometer, to a Commission-approved buyer within six months. If the sale of these assets is not made within six months, the FTC may appoint a trustee to divest Elsag Bailey's entire Applied Automation, Inc. subsidiary.
"The Commission's complaint in this matter demonstrates its commitment to preserving competition in the market for process gas chromatographs and process mass spectrometers," said William J. Baer, Director of the FTC's Bureau of Competition. "Both of these analytical instruments are necessary for petrochemical refining, pharmaceutical and chemical manufacturing, and pulp and paper processing."
Process gas chromatographs are analytical instruments used in process manufacturing applications to measure the chemical composition of a gas or a liquid by separating a sample into its individual components through selective chemical interaction or solubility, and measuring the separated components using a detector. ABB and Elsag Bailey are the world's two leading suppliers of process gas chromatographs.
ABB, which is comprised of Sweden-based ABB AB and Switzerland-based ABB AG, is also one of the world's leading suppliers of process mass spectrometers. Process mass spectrometers are analytical instruments used in process manufacturing applications to determine the chemical composition of a gas or vapor stream through a complex ionization, separation and measurement procedure. While Elsag Bailey, which is headquartered in the Netherlands, does not currently manufacture process mass spectrometers, its Applied Automation, Inc. subsidiary is involved in the research and development of a process mass spectrometer that it plans to begin manufacturing and selling in 1999. Thus, Elsag Bailey is an actual potential competitor in the market for process mass spectrometers.
According to the FTC's complaint, the worldwide process gas chromatograph market is highly concentrated, and the proposed acquisition would substantially increase concentration in that market. The proposed acquisition would combine the two leading firms marketing process gas chromatographs worldwide, resulting in a combined market share of almost 70 percent. By eliminating competition between the top two competitors in this highly concentrated market, the proposed acquisition would allow ABB to unilaterally exercise market power, thereby increasing the likelihood that process gas chromatograph customers would be forced to pay higher prices and that innovation in the process gas chromatograph market would decrease.
The agency's complaint also alleges that the worldwide process mass spectrometer market is highly concentrated. Although Elsag Bailey does not currently manufacture and sell process mass spectrometers, it is involved in the research and development of a new mass spectrometer product, which it plans to introduce in 1999. It appears that the introduction of this product would result in increased competition in the process mass spectrometer market, leading to lower prices and increased innovation. ABB's proposed acquisition of Elsag Bailey would eliminate this significant source of future competition and leave the process mass spectrometer market highly concentrated for the foreseeable future.
The Commission believes the proposed consent order would effectively remedy the acquisition's anticompetitive effects in the process gas chromatograph and process mass spectrometer markets by requiring ABB to divest the assets of the Analytical Division of Elsag Bailey's Applied Automation, Inc. subsidiary. In the event that ABB fails to divest the assets of the Analytical Division within six months, the consent agreement contains a "crown jewel" provision which would allow the Commission to appoint a trustee to divest Elsag Bailey's entire Applied Automation, Inc. subsidiary.
In order to ensure that the acquirer of the divested assets has access to all of the employees currently involved in Elsag Bailey's process gas chromatograph and process mass spectrometer businesses, the consent agreement requires ABB to provide financial incentives for these individuals to accept employment with the acquirer. The proposed consent order also contains an Agreement to Hold Separate signed by ABB that would require that the Applied Automation Assets, which include the Analytical Division Assets, be operated independently of ABB until the divestiture required by the order is completed.
The Commission vote to accept the proposed consent order for public comment was 4-0.
An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 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, 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, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); 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. 991 0040)