ANALYSIS OF AGREEMENT
CONTAINING CONSENT ORDERS
The Federal Trade Commission ("Commission") has accepted, subject to final approval, an Agreement Containing Consent Orders ("Consent Agreement") from Metso Oyj ("Metso") and Svedala Industri AB ("Svedala"), which is designed to remedy the anticompetitive effects resulting from Metso's acquisition of Svedala. Under the terms of the Consent Agreement, Metso and Svedala will be required to divest Metso's global primary gyratory crusher and grinding mills businesses and Svedala's global cone crusher and jaw crusher businesses. The three crusher businesses will be divested to Sandvik AB ("Sandvik"). The grinding mill business will be divested to Outokumpu Oyj ("Outokumpu"). Both divestitures will take place no later than twenty (20) days from the date Metso consummates its acquisition of Svedala.
The proposed Consent Agreement has been placed on the public record for thirty (30) days for the reception of comments by interested persons. Comments received during this period will become part of the public record. After thirty (30) days, the Commission will again review the proposed Consent Agreement and the comments received, and will decide whether it should withdraw from the proposed Consent Agreement or make final the Decision and Order.
Pursuant to a cash tender offer announced on June 21, 2000, Metso proposes to acquire all of the issued and outstanding shares and convertible debentures of Svedala. The total value of the transaction is approximately $1.6 billion. The Commission's complaint alleges that the proposed acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, in the global markets for the research, development, manufacture and sale of: (1) cone crushers; (2) jaw crushers; (3) primary gyratory crushers; and (4) grinding mills.
Metso, through its Metso Minerals (formerly known as Nordberg) subsidiary, and Svedala, are the two largest suppliers of rock processing equipment in the world. Rock processing equipment includes, among other products: (1) cone crushers; (2) jaw crushers; (3) primary gyratory crushers; and (4) grinding mills. Rock processing equipment is used by both aggregate and mineral producers to crush and pulverize large rock formations in order to manufacture aggregates and retrieve minerals. Aggregate and mineral producers use a series of different types of rock processing equipment in a circuit to crush the rock into the desired size, shape and form. Customers of these products state that they purchase the type and size of rock processing equipment that is optimal for their circuit and, because of the unique performance characteristics of each type and size of equipment, there is little opportunity to switch to alternative equipment.
The global markets for cone crushers, jaw crushers, primary gyratory crushers and grinding mills are highly concentrated. If the proposed acquisition is consummated, Metso's market share would exceed 50 percent in each of the global markets for: (1) cone crushers; (2) jaw crushers; (3) primary gyratory crushers; and (4) grinding mills. In some of these markets, Metso and Svedala are the largest and second largest suppliers. If the acquisition is consummated, Metso would have a market share many times higher than its next-closest competitor.
Metso and Svedala regularly bid against each other for rock processing equipment. By eliminating competition between these two leading suppliers, the proposed acquisition would allow Metso to exercise market power unilaterally for certain bids, thereby increasing the likelihood that purchasers of cone crushers, jaw crushers, primary gyratory crushers and grinding mills would be forced to pay higher prices and that innovation in these markets would decrease. Metso's proposed acquisition of Svedala would also increase the likelihood that the remaining suppliers of cone crushers, jaw crushers, primary gyratory crushers and grinding mills could collude to the detriment of customers in the relevant markets.
Significant impediments to new entry exist in each of the global markets for cone crushers, jaw crushers, primary gyratory crushers and grinding mills. First, a supplier must design and develop a prototype of the particular type of rock processing equipment, which requires significant amounts of money and time. After a new prototype is developed, suppliers devote additional money and time to testing the prototype at a customer's mine or quarry. The testing stage often lasts as long as two years because many flaws cannot be detected until the equipment has been in continuous operation for a significant period of time. It is imperative that the rock processing equipment that suppliers offer to customers have a track record of reliability and high performance because failure of such equipment would substantially decrease or halt production at a site, costing the customer thousands of dollars an hour in production losses. The steps involved in developing a prototype, testing it, and gaining customer acceptance for a new piece of equipment are difficult, expensive and time-consuming. For these reasons, new entry into the markets for cone crushers, jaw crushers, primary gyratory crushers and grinding mills would not be accomplished in a timely manner or be likely to occur at all even if prices increased substantially after the proposed acquisition.
The Consent Agreement effectively remedies the acquisition's anticompetitive effects in the global markets for cone crushers, jaw crushers, primary gyratory crushers and grinding mills by requiring Metso to divest its worldwide primary gyratory crusher and grinding mill businesses and by requiring Svedala to divest its worldwide cone crusher and jaw crusher businesses. Pursuant to the Consent Agreement, the three crusher businesses will be divested to Sandvik. The grinding mill business will be divested to Outokumpu. Both divestitures will take place no later than twenty (20) days from the date Metso consummates its acquisition. If the Commission determines that Sandvik or Outokumpu is not an acceptable buyer or that the manner of either divestiture is not acceptable, Metso and Svedala must unwind the sale(s) and divest the crusher businesses or the grinding mill business to a Commission-approved buyer. Should they fail to do so, the Commission may appoint a trustee to divest the crusher businesses or the grinding mill business.
The Commission's goal in evaluating possible purchasers of divested assets is to maintain the competitive environment that existed prior to the acquisition. A proposed buyer of divested assets must not itself present competitive problems. The Commission is satisfied that both Sandvik and Outokumpu are well-qualified acquirers of the divested assets. Sandvik is a publicly-traded Swedish corporation and a leading global supplier of drilling and excavation machinery, equipment and tools for mining and construction industries. Outokumpu is a diversified Finnish metals corporation involved primarily in the mining, production and fabrication of steel, chromium, zinc, copper and nickel. Both Sandvik and Outokumpu have the necessary industry expertise to replace the competition that existed prior to the proposed acquisition. Furthermore, Sandvik and Outokumpu do not pose separate competitive issues as acquirers of the divested assets.
The Consent Agreement contains several provisions designed to ensure that the divestitures of the crusher businesses and the grinding mill business are successful. The Consent Agreement requires Metso and Svedala to provide incentives to all of the employees that Sandvik and Outokumpu want to hire to continue in their positions until the divestitures are accomplished. For a period of one (1) year from the date the divestitures of the businesses are accomplished, Metso and Svedala are prohibited from soliciting or inducing any employees or agents of the rock processing equipment businesses involved in the divestitures to terminate their employment with Sandvik or Outokumpu. Furthermore, in order to enable Sandvik and Outokumpu to develop and manufacture rock processing equipment in the same manner and quality achieved by Metso and Svedala, the Consent Agreement requires Metso and Svedala for a period of one (1) year to provide technical assistance and training at cost to Sandvik and Outokumpu.
Metso and Svedala are also required to provide transitional manufacturing services for the production of jaw crushers to enable Sandvik to deliver jaw crushers to customers without delay. The transitional manufacturing provision only covers the production of jaw crushers because Svedala currently manufactures a substantial portion of its jaw crushers in its Brazilian facility, which will not be divested. Svedala also manufactures some jaw crushers at its Swedish facility which will be divested under the proposed Consent Agreement. Less than 24 months ago, Svedala manufactured all of its jaw crushers in the Swedish facility. Thus, the primary production assets for the manufacture of jaw crushers already exist in the Swedish facility. Sandvik will also manufacture all of its jaw crushers at the Swedish facility. The Commission will appoint an Interim Monitor to oversee the transfer of Svedala's jaw crusher assets located in Brazil and to insure compliance with the transitional manufacturing agreement. The Interim Monitor has the requisite capability and applicable business knowledge to supervise the proper transfer of divested assets and monitor the critical manufacturing and supply activities of Metso and Svedala. Thus, the transitional manufacturing agreement, in conjunction with the Interim Monitor, provides a guarantee to Sandvik that its production of jaw crushers will be seamless and uninterrupted after the divestiture.
In order to ensure that the Commission remains informed about the status of the crushing businesses and the grinding mill business pending divestiture, and about the efforts being made to accomplish the divestitures, the Consent Agreement requires Metso and Svedala to file reports with the Commission within thirty (30) days of the date they sign the Consent Agreement, and periodically thereafter, until the divestitures are accomplished.
The purpose of this analysis is to facilitate public comment on the Consent Agreement, and it is not intended to constitute an official interpretation of the Consent Agreement or to modify in any way its terms.