[Federal Register Volume 59, Number 11 (Tuesday, January 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1038]
[[Page Unknown]]
[Federal Register: January 18, 1994]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Baroid Corp., Baroid Drilling Fluids, Inc., DB
Stratabit (USA) Inc., and Dresser Industries, Inc.; Proposed Final
Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16 (b)-(h), that a proposed Final Judgment and
Competitive Impact Statement have been filed with the United States
District Court for the District of Columbia in United States of America
v. Baroid Corporation; Baroid Drilling Fluids, Inc.; DB Stratabit (USA)
Inc.; and Dresser Industries Inc.
The Complaint of the United States in this case alleges that the
merger of Dresser Industries, Inc. (``Dresser'') and Baroid Corporation
(``Baroid'') may substantially lessen competition in the United States
in the manufacture and sale of drilling fluids and in the manufacture
and sale of diamond drill bits in violation of section 7 of the Clayton
Act. Both products are used to drill oil and gas wells. Drilling
fluids, a mixture of natural and synthetic chemical compounds, are used
at petrocarbon drilling sites to improve the function of the drill bit
and other drilling tools in the well, including cooling and lubricating
the drill bit and controlling downhole pressures. Diamond drill bits
cut through rock and other formations during drilling operations.
Dresser, through its 64% partnership interest in M-I Drilling
Fluids Co., and Baroid, through its wholly-owned subsidiary, Baroid
Drilling Fluids, Inc., are two of the three major U.S. producers of
drilling fluids. In addition, Dresser's Security Division and Baroid's
wholly-owned subsidiary, DB Stratabit (USA) Inc., manufacture diamond
drill bits for sale in the United States. They are two of the five
major competitors in the U.S. diamond drill bit market.
The proposed Final Judgment requires defendants to divest all of
their direct and indirect ownership and control of either Dresser's or
Baroid's drilling fluid business by June 1, 1994. In addition,
Defendants must, by July 1, 1994, divest Baroid's diamond bit business,
which includes a manufacturing facility, certain equipment, a
nonexclusive license of patents and other intellectual property to
manufacture and sell steel-bodied diamond drill bits worldwide, except
in the People's Republic of China, and a nonexclusive license to
manufacture and sell matrix diamond bits in the United States. If
defendants do not complete the respective divestitures by the allotted
time, a trustee or trustees will be appointed to conduct either or both
of the divestitures.
Public comment on the proposed Final Judgment is invited within the
statutory 60-day comment period. Such comments, and responses thereto,
will be published in the Federal Register and filed with the Court.
Comments should be directed to Roger W. Fones, Chief, Transportation,
Energy, and Agriculture Section, Antitrust Division, room 9104,
Judiciary Center Building, 555 4th Street NW., Washington, DC 20001
(202-307-6351).
Joseph H. Widmar,
Director of Operations, Antitrust Division.
Stipulation
Judge Sporkin
In the matter of United States of America, Plaintiff; v. Baroid
Corp., Baroid Drilling Fluids, Inc., DB Stratabit (USA) Inc., and
Dresser Industries, Inc., Defendants. [Civil Action No. 93-2621;
Filed: December 23, 1993.]
It is stipulated by and between the undersigned parties, by their
respective attorneys, that:
1. The Court has jurisdiction over the subject matter of this
action and over each of the parties thereto, and venue of this action
is proper in the District of Columbia;
2. The parties consent that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon motion of any
party or upon the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act (15
U.S.C. 16), and without further notice to any party or other
proceedings, provided that plaintiff has not withdrawn consent, which
it may do at any time before the entry of the proposed Final Judgment
by serving notice thereof on Defendants and by filing that notice with
the Court;
3. The parties shall abide by and comply with the provisions of the
Final Judgment pending its entry, and shall, from the date of the
filing of this Stipulation, comply with all the terms and provisions
thereof as though the same were in full force and effect as an order of
the Court;
4. In the event Plaintiff withdraws its consent or if the proposed
Final Judgment is not entered pursuant to this Stipulation, this
Stipulation shall be of no effect whatever, and the making of this
Stipulation shall be without prejudice to any party in this or any
other proceeding.
Dated: December 23, 1993.
For Plaintiff United States of America:
Anne K. Bingaman,
Assistant Attorney General.
Constance K. Robinson,
Deputy Director of Operations.
Roger W. Fones,
Chief, Transportation, Energy & Agriculture Section, U.S. Department of
Justice, Antitrust Division
Angela L. Hughes,
Denise L. Diaz,
Theodore R. Bolema,
Attorneys, U.S. Department of Justice, Antitrust Division, room 9104,
555 4th Street, NW., Washington, DC 20001, 202/307-6410.
For Defendant Dresser Industries, Inc.: Akin, Gump, Strauss,
Hauer, & Feld, L.L.P.
Paul B. Hewitt,
A Member of the Firm.
1333 New Hampshire Avenue, NW., Suite 100, Washington, DC 20036,
(202) 887-4000.
For Defendants Baroid Corporation, D8 Stratabit (USA) Inc., and
Baroid Drilling Fluids, Inc.: Kirkland & Ellis.
Tefft W. Smith,
A Member of the Firm.
200 E. Randolph Dr., Chicago, Illinois 60601, (312) 861-2000.
Stipulation Approved for Filing.
Done this ________ day of ________, 199____.
----------------------------------------------------------------------
United States District Judge.
Final Judgment
[Civil Action No. 93-2621; Filed: December 23, 1993]
Judge Sporkin
In the matter of United States of America, Plaintiff; v. Baroid
Corp., Baroid Drilling Fluids, Inc., DB Stratabit (USA) Inc., and
Dresser Industries, Inc., Defendants.
Whereas, plaintiff, United States of America, having filed its
Complaint herein on December 23, 1993, and plaintiff and defendants, by
their respective attorneys, having consented to the entry of this Final
Judgment without trial or adjudication of any issue of act or law
herein and without this Final Judgment constituting any evidence
against or an admission by any party with respect to any such issue;
And Whereas, defendants have agreed to be bound by the provisions
of this Final Judgment pending its approval by the Court;
And Whereas, prompt and certain divestiture is the essence of this
agreement, and defendants have represented to plaintiff that the
divestiture required below can and will be made and that defendants
will later raise no claims of hardship or difficulty as grounds for
asking the Court to modify any of the divestiture provisions contained
below;
Now, Therefore, before the taking of any testimony and without
trial or adjudication of any issue of fact or law herein, and upon
consent of the parties hereto, it is hereby
Ordered, Adjudged and Decreed as follows:
I
Jurisdiction
The Court has jurisdiction over the subject matter of this action
and over each of the parties hereto. The Complaint states a claim upon
which relief may be granted against defendants under section 7 of the
Clayton Act, as amended (15 U.S.C. 18).
II
Definitions
As used in this Final Judgment:
A. ``Baroid'' means defendant Baroid Corporation; each division,
subsidiary, or affiliate thereof, excluding Dresser, and each officer,
director, employee, attorney, agent, or other person acting for or on
behalf of any of them.
B. ``Baroid Drilling'' means defendant Baroid Drilling Fluids,
Inc., which is a wholly owned subsidiary of Baroid; each division,
subsidiary, or affiliate thereof, excluding Dresser, and each officer,
director, employee, attorney, agent or other person acting for or on
behalf of any of them.
C. ``DBS'' means defendant DB Stratabit (USA) Inc., which is a
wholly owned subsidiary of Baroid; each division, subsidiary, or
affiliate thereof, excluding Dresser, and each officer, director,
employee, attorney, agent or other person acting for or on behalf of
any of them.
D. ``Dresser'' means defendant Dresser Industries, Inc.; each
division, subsidiary, or affiliate thereof, excluding Baroid, and each
officer, director, employee, attorney, agent, or other person acting
for or on behalf of any of them.
E. ``Baroid's Diamond Bit Business'' means all assets owned or
controlled by Baroid, including all assets owned or controlled by DBS,
that are or have been used in the United States to research, develop,
test, manufacture, service, or market its diamond drill bits. Baroid's
diamond bit business includes all real property, material, equipment,
supplies, customer lists, contracts and accounts relating to the
manufacture and sale of diamond drill bits in the United States.
Baroid's diamond bit business includes a nonexclusive license to
manufacture and sell matrix diamond bits in the United States and a
nonexclusive license to manufacture and sell steel-bodied diamond bits
anywhere in the world, except The People's Republic of China, using all
intellectual property, including all patents, copyrights, copyright
registrations and applications, trademarks, trademark registrations and
applications, trade names or commercial names, know-how, computer
software programs, and all other tangible and intangible assets,
rights, and other benefits, presently owned, licensed, possessed, or
used by Baroid in the research, development, testing, manufacture,
servicing, or marketing of matrix or steel-bodied diamond bits.
Research and development of diamond drill bits includes, but is not
limited to, engineering support relating to the analysis and testing of
a diamond drill bit's design, application, and components in order to
enhance the bit's performance or to create a new diamond bit. The
nonexclusive licenses granted herein need not be transferable (either
by assignment or sublicense), except in connection with the sale of all
or substantially all of Baroid's diamond bit business. Baroid's diamond
bit business also includes all data from research and development
projects relating to matrix and/or steel-bodied drill bits undertaken
by Baroid at any time up to and including the date of the divestiture
required by section V of this Final Judgment, including the research
and development projects currently being conducted by Baroid that
relate to new Thermally Stable Polycrystalline diamond bits, new
impregnated bits, anti-balling features, air drilling, Polycrystalline
Diamond Compact Bit research, surface set bit, LX bits, and BiCenter
bits. Baroid's diamond bit business does not include data from the bit
dynamics research project Baroid is conducting in conjunction with
Royal Dutch Shell. Baroid's diamond bit business also includes
equipment owned or controlled by Baroid that has been used in the
United States to research, develop, and test Baroid's diamond drill
bits and materials for those bits. This equipment includes, but is not
limited to, each of the following items or the functional equivalent
thereof: CAD/CAM System Software; Stereoscope; Optical Microscope;
Light Microscope; DEC Station 3100; Stereo Microscope; Rockwell
Hardness Testing equipment; and Surface Grinder. In addition, included
in Baroid's diamond bit business is the right for two years to have
access to, at defendants' variable cost, the following equipment
located in Belgium: Coordinate Measurement Machine; Finite Elements
Package; Atmospheric Drilling Machine; Single Cutter Tester; Flow
Visualization Loop with High Speed Carriers; Lab Furnace under
Controlled Atmosphere; and High Speed Data Acquisition System. The
defendants shall pay the cost of shipping up to three diamond drill
bits per calendar quarter to Belgium. Also included in Baroid's diamond
bit business is a hard copy and copy of all computer tapes or discs
containing any data in the possession of Baroid at any time up to and
including the date of the divestiture required by section V of this
Final Judgment, such as bit records or off-set well information, which
record the performance anywhere in the world of any matrix or steel-
bodied diamond bits manufactured or sold by Baroid or any other
producer of diamond drill bits.
Baroid's diamond bit business includes its diamond drill bit
manufacturing facilities in Houston, Texas, and all equipment,
supplies, data, documents and inventories (other than Baroid's
inventory of diamonds and diamond drill bits held for sale) contained
therein, as well as equipment owned or controlled by Baroid on
September 7, 1993 that has been used in the United States by Baroid to
manufacture matrix diamond bits. The equipment in the Houston facility
includes, but is not limited to, the following: LS Bonding Units,
Kuraki CNC Mills, Okuma CNC Lathe, Yuasa Lathe, Axelson Lathe,
Timemaster Lathe, and Bryant Grinder. The equipment formerly used by
Baroid to manufacture matrix diamond bits includes, but is not limited
to, the following: Norton Lathe, 18'' Kohema Lathe, 20'' Kohema Lathe,
Yuasa Lathe, Allain Mill, Bridgeport Mill, Vanier Mill, Cincinnati Mill
with 90 degree Volstrohead, Blast-It-All Sandblaster, Kelco
Sandlblaster, Positioner (welding), Southbend Oven, Lochhead Haggerty
Furnace and Control Panel, Sunbean Furnace and Control Panel,
Powermatic Band Saw, Two 360 degree Layout Chucks, Two Surface Tables,
Matrix Powder Mixer, Micrometers, Height Gauges, Scales, and various
measuring equipment and welding equipment. Baroid's diamond bit
business shall not include any rights, including trademarks and service
marks, associated with the use of the trade names or commercial names
of Stratabit, DB Stratabit Inc., DBS, Diamond Boart, or any derivative
thereof; provided, however, that in the marketing of its diamond drill
bits the purchaser of Baroid's diamond bit business will possess the
right for two years following the date of divestiture to identify its
diamond drill bits as being manufactured pursuant to a license from
DBS.
F. ``Diamond drill bits'' means natural diamond drill bits and
polycrystalline diamond compact drill bits. Diamond drill bits do not
include coring bits.
G. ``Drilling fluid'' means a mixture of natural and synthetic
chemical compounds used at petrocarbon drilling sites to cool and
lubricate the drill bit, clean the hole bottom, carry cuttings to the
surface, seal porous well formations, control downhole pressures, and
improve the function of the drilling string and tools in the hole.
H. ``Drilling fluid business'' means either one of the following:
(1) Dresser's interest in M-I Drilling Fluids Co.; or (2) all assets of
Baroid Drilling and any other assets that Baroid owns or has an
interest in that are used to research, develop, test, produce,
manufacture, service, or market, domestically or internationally,
drilling fluids, including, but not limited to, all barite, bentonite,
and other mineral mines; chemical plants; mineral grinding and
processing plants; other real property; material; equipment; supplies;
customer lists; contracts and accounts; patents; copyrights; copyright
registrations and applications; trademarks; trademark registrations and
applications; trade names or commercial names; know-how; computer
software programs; and all other tangible and intangible assets,
rights, and other benefits, presently owned, licensed, possessed, or
used by Baroid in the research, development, testing, production,
manufacture, servicing or marketing of drilling fluids.
I. ``Matrix diamond bits'' means diamond drill bits comprised of a
body made of a tungsten carbide matrix and cutters brazed onto the bit
body or cast into or around the cutting element of the matrix material.
J. ``Steel-bodied diamond bits'' means diamond drill bits comprised
of a body made of steel and cutters attached to the bit body by an
interference fit or a braze process.
K. ``Person'' means any natural person, corporation, association,
firm, partnership, or other business or legal entity.
III
Applicability
A. The provisions of this Final Judgment shall apply to the
defendants, to their successors and assigns, to their subsidiaries,
affiliates, directors, officers, managers, agents, and employees, and
to all other persons in active concert or participation with any of
them who shall have received actual notice of this Final Judgment by
personal service or otherwise.
B. Defendants shall require, as a condition of the sale or other
disposition of all or substantially all of their assets or stock, or of
the assets required to be divested herein, that the acquiring party
agree to be bound by the provisions of this Final Judgment.
C. Nothing herein shall suggest that any portion of this Final
Judgment is or has been created for the benefit of any third party, and
nothing herein shall be construed to provide any rights to any third
party.
IV
Divestiture of Drilling Fluid Business
A. Defendants are hereby ordered and directed to divest all of
their direct and indirect ownership and control of the drilling fluid
business to a purchaser prior to June 1, 1994.
B. If defendants have not accomplished the required divestiture
prior to June 1, 1994, plaintiff may, in its sole discretion, extend
this time period for an additional period of time not to exceed one
month.
C. Defendants agree to take all reasonable steps to accomplish
quickly said divestiture. In carrying out their obligation to divest
the drilling fluid business, defendants may divest these operations
alone, or may divest along with these operations any other assets of
Baroid or Dresser.
D. In accomplishing the divestiture ordered by this Final Judgment,
the defendants promptly shall make known in the United States and in
other major countries, by usual and customary means, the availability
of the drilling fluid business, for sale as an ongoing business. The
defendants shall notify any person making an inquiry regarding the
possible purchase of this operation that the sale is being made
pursuant to this Final Judgment and provide such person with a copy of
the Final Judgment. The defendants shall also offer to furnish to all
bona fide prospective purchasers of the drilling fluid business,
subject to customary confidentiality assurances, all pertinent
information regarding the drilling fluid business, except information
subject to attorney-client privilege or attorney work product
privilege. Defendants shall make available such information to the
plaintiff at the same time that such information is made available to
any other person. Defendants shall permit prospective purchasers of the
drilling fluid business to have access to personnel at the drilling
fluid business and to make such inspection of physical facilities and
any and all financial, operational, or other documents and information
as may be relevant to the sale of the drilling fluid business.
Defendants shall not be required to permit prospective purchasers to
have access to any documents or information relevant to the drilling
fluid business, except to the extent included in the drilling fluid
business.
E. Divestiture required by section IV of the Final Judgment shall
be accomplished in such a way as to satisfy plaintiff, in its sole
discretion, that the drilling fluid business can and will be operated
by the purchaser as a viable, ongoing business engaged in the
manufacture and sale of drilling fluids in the United States.
Divestiture shall be made to a purchaser for whom it is demonstrated to
plaintiff's satisfaction that (1) the purchase is for the purpose of
competing effectively in the manufacture and sale of drilling fluids in
the United States, and (2) the purchaser has the managerial,
operational, and financial capability to compete effectively in the
manufacture and sale of drilling fluids in the United States.
F. The defendants shall not sell the drilling fluid business to
Baker Hughes, Inc., Schlumberger Ltd., or Anchor Drilling Fluids, or
any of their affiliates of subsidiaries during the life of this decree.
The purchaser of the divested drilling fluid business shall not sell
the drilling fluid business to, or combine that business with the
drilling fluid operations of, Dresser Industries, Inc., Baker Hughes,
Inc., Schlumberger Ltd., or Anchor Drilling Fluids, or any of their
affiliates or subsidiaries during the life of this decree.
G. Except to the extent otherwise approved by plaintiff, any assets
of the drilling fluid business divested pursuant to this Final Judgment
shall be divested free and clear of all mortgages, encumbrances and
liens to Baroid or Dresser.
V
Divestiture of Baroid's Diamond Bit Business
A. Defendants are hereby ordered and directed to divest to a
purchaser prior to July 1, 1994 all of their direct and indirect
ownership and control of Baroid's diamond bit business. The obligation
to divest shall be satisfied if, by July 1, 1994, defendants enter into
a binding contract for sale of Baroid's diamond bit business to a
purchaser according to terms approved by plaintiff that is contingent
only upon compliance with the terms of this Final Judgment and that
specifies a prompt and reasonable closing date no later than September
1, 1994, and if sale is completed pursuant to the contract.
B. If defendants have not accomplished the required divestiture
prior to July 1, 1994, plaintiff may, in its sole discretion, extend
this time period for an additional period of time not to exceed three
months, if defendants request such an extension and demonstrate to
plaintiff's satisfaction that they are then engaged in negotiations
with a prospective purchaser that are likely to result in the required
divestiture but that the divestiture cannot be completed prior to July
1, 1994.
C. Defendants agree to take all reasonable steps to accomplish
quickly said divestiture. In carrying out their obligation to divest
Baroid's diamond bit business, defendants may divest these operations
alone, or may divest along with these operations any other assets of
Baroid or Dresser.
D. In accomplishing the divestiture ordered by this Final Judgment,
the defendants promptly shall make known in the United States and in
other major countries, by usual and customary means, the availability
of Baroid's diamond bit business, for sale as an ongoing business. The
defendants shall notify any person making an inquiry regarding the
possible purchase of this operation that the sale is being made
pursuant to this Final Judgment and provide such person with a copy of
the Final Judgment. The defendants shall also offer to furnish to all
bona fide prospective purchasers of Baroid's diamond bit business,
subject to customary confidentiality assurances, all pertinent
information regarding Baroid's diamond bit business, except information
subject to attorney-client privilege or attorney work product
privilege. Defendants shall make available such information to the
plaintiff at the same time that such information is made available to
any other person. Defendants shall permit prospective purchasers of
Baroid's diamond bit business to have access to personnel at Baroid's
diamond bit business and to make such inspection of physical facilities
and any and all financial, operational, or other documents and
information as may be relevant to the sale of Baroid's diamond bit
business. Defendants shall not be required to permit prospective
purchasers to have access to any documents or information relevant to
Dresser's diamond bit business, except to the extent included in
Baroid's diamond bit business.
E. Divestiture required by section V of the Final Judgment shall be
accomplished in such a way as to satisfy plaintiff, in its sole
discretion, that Baroid's diamond bit business can and will be operated
by the purchaser as a viable, ongoing business engaged in the
manufacture and sale of diamond drill bits in the United States.
Divestiture shall be made to a purchaser for whom it is demonstrated to
plaintiff's satisfaction that (1) the purchase is for the purpose of
competing effectively in the manufacture and sale of diamond drill bits
in the United States, including the ability to conduct research,
development, and testing of diamond bits, and (2) the purchaser has the
managerial, operational, and financial capability to compete
effectively in the manufacture and sale of diamond drill bits in the
United States.
F. The defendants shall not sell Baroid's diamond bit business to
Baker Hughes, Inc., Camco International, Inc., Smith International,
Inc., or any of their affiliates or subsidiaries during the life of
this decree. The purchaser of Baroid's diamond bit business shall not
sell that business to, or combine that business with the diamond drill
bit operations of, Dresser Industries, Inc., Baker Hughes, Inc., Camco,
Inc., Smith International, Inc., or any of their affiliates or
subsidiaries during the life of this decree.
G. Except to the extent otherwise approved by plaintiff, Baroid's
diamond bit business divested pursuant to this Final Judgment shall be
divested free and clear of all mortgages, encumbrances and liens to
Baroid or Dresser.
VI
Appointment of Trustee For the Drilling Fluid Business
A. If defendants have not accomplished the divestiture required by
section IV of the Final Judgment by April 29, 1994, defendants shall
notify plaintiff of that fact. Within ten (10) days of that date, or
twenty (20) days prior to the expiration of any extension granted
pursuant to Section IV(B), whichever is later, plaintiff shall provide
defendants with written notice of the names and qualifications of not
more than two (2) nominees for the position of trustee for the required
divestiture. Defendants shall notify plaintiff within ten (10) days
thereafter whether either or both of such nominees are acceptable. If
either or both of such nominees are acceptable to defendants, plaintiff
shall notify the Court of the person upon whom the parties have agreed
and the Court shall appoint that person as the trustee. If neither of
such nominees is acceptable to defendants, they shall furnish to
plaintiff, within ten (10) days after plaintiff provides the names of
its nominees, written notice of the names and qualifications of not
more than two (2) nominees for the position of trustee for the required
divestiture. If either or both of such nominees are acceptable to
plaintiff, plaintiff shall notify the Court of the person upon whom the
parties have agreed and the Court shall appoint that person as the
trustee. If neither of such nominees is acceptable to plaintiff, it
shall furnish the Court the names and qualifications of its proposed
nominees and the names and qualifications of the nominees proposed by
defendants. The Court may hear the parties as to the qualifications of
the nominees and shall appoint one of the nominees as the trustee.
B. If defendants have not accomplished the divestiture required by
section IV of this Final Judgment at the expiration of the time period
specified in section IV(A) and IV(B) of this Final Judgment, as
applicable, the appointment by the Court of the trustee shall become
effective. The trustee shall then take steps to effect divestiture of
the drilling fluid business.
C. After the trustee's appointment has become effective, only the
trustee shall have the right to sell the drilling fluid business. The
trustee shall have the power and authority to accomplish the
divestiture to a purchaser acceptable to plaintiff at such price and on
such terms as are then obtainable upon a reasonable effort by the
trustee, subject to the provisions of section VIII of this Final
Judgment, and shall have such other powers as this Court shall deem
appropriate. Defendants shall not object to a sale of the drilling
fluids business by the trustee on any grounds other than the trustee's
malfeasance. Any such objection by defendants must be conveyed in
writing to plaintiff and the trustee within fifteen (15) days after the
trustee has notified defendants of the proposed sale in accordance with
section VIII of this Final Judgment.
D. The trustee shall serve at the cost and expense of defendants,
shall receive compensation based on a fee arrangement providing an
incentive based on the price and terms of the divestiture and the speed
with which it is accomplished, and shall serve on such other terms and
conditions as the Court may prescribe; provided, however, that the
trustee shall receive no compensation, no incur any costs or expenses,
prior to the effective date of his or her appointment. The trustee
shall account for all monies derived from a sale of the drilling fluid
business and all costs and expenses incurred in connection therewith.
After approval by the Court of the trustee's accounting, including fees
for its services, all remaining monies shall be paid to defendants and
the trust shall then be terminated.
E. Defendants shall take no action to interfere with or impede the
trustee's accomplishment of the divestiture of the drilling fluid
business and shall use their best efforts to assist the trustee in
accomplishing the required divestiture. The trustee shall have full and
complete access to the personnel, books, records, and facilities of the
drilling fluid business, and defendants shall develop such financial or
other information relevant to the drilling fluid business.
F. After its appointment becomes effective, the trustee shall file
monthly reports with the parties and the Court setting forth the
trustee's efforts to accomplish divestiture of the drilling fluid
business as contemplated under this Final Judgment; provided, however,
that to the extent such reports contain information that the trustee
deems confidential, such reports shall not be filed in the public
docket of the Court. Such reports shall include the name, address, and
telephone number of each person who, during the preceding thirty (30)
days, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any ownership interest in the drilling fluid
business, and shall describe in detail each contact with any such
person during that period. The trustee shall maintain full records of
all efforts made to divest these operations.
G. Within six months after its appointment has become effective, if
the trustee has not accomplished the divestiture required by section VI
of this Final Judgment, the trustee shall promptly file with the Court
a report setting forth (1) the trustee's efforts to accomplish the
required divestiture, (2) the reasons, in the trustee's judgment, why
the required divestiture has not been accomplished, and (3) the
trustee's recommendations; provided, however, that to the extent such
reports contain information that the trustee deems confidential, such
reports shall not be filed in the public docket of the Court. The
trustee shall at the same time furnish such report to the parties, who
shall each have the right to be heard and to make additional
recommendations consistent with the purpose of the trust. The Court
shall thereafter enter such orders as it shall deem appropriate in
order to carry out the purpose of the trust, which shall, if necessary,
include extending the trust and the term of the trustee's appointment.
VII
Appointment of Trustee for Baroid's Diamond Bit Business
A. If defendants have not accomplished the divestiture required by
section V of the Final Judgment by May 30, 1994, defendants shall
notify plaintiff of that fact. Within ten (10) days of that date, or
twenty (20) days prior to the expiration of any extension granted
pursuant to section V(B), whichever is later, plaintiff shall provide
defendants with written notice of the names and qualifications of not
more than two (2) nominees for the position of trustee for the required
divestiture. Defendants shall notify plaintiff within ten (10) days
thereafter whether either or both of such nominees are acceptable. If
either or both of such nominees are acceptable to defendants, plaintiff
shall notify the Court of the person upon whom the parties have agreed
and the Court shall appoint that person as the trustee. If neither of
such nominees is acceptable to defendants, they shall furnish to
plaintiff, within ten (10) days after plaintiff provides the names of
its nominees, written notice of the names and qualifications of not
more than two (2) nominees for the position of trustee for the required
divestiture. If either or both of such nominees are acceptable to
plaintiff, plaintiff shall notify the Court of the person upon whom the
parties have agreed and the Court shall appoint that person as the
trustee. If neither of such nominees is acceptable to plaintiff, it
shall furnish the Court the names and qualifications of its proposed
nominees and the names and qualifications of the nominees proposed by
defendants. The Court may hear the parties as to the qualifications of
the nominees and shall appoint one of the nominees as the trustee.
B. If defendants have not accomplished the divestiture required by
section V of this Final Judgment at the expiration of the time period
specified in section V(A) and V(B) of this Final Judgment, as
applicable, the appointment by the Court of the trustee shall become
effective. The trustee shall then take steps to effect divestiture of
Baroid's diamond bit business; provided, however, that the appointment
of the trustee shall not become effective if, prior to expiration of
the applicable time period, defendants have notified plaintiff pursuant
to section VIII of this Final Judgment of a proposed divestiture of
Baroid's diamond bit business and plaintiff has not filed a written
notice that it objects to said proposed divestiture. When the
appointment of the trustee becomes effective, Baroid's diamond bit
business will include a nonexclusive license to manufacture and sell
steel-bodied bits anywhere in the world, including The People's
Republic of China.
C. After the trustee's appointment has become effective, only the
trustee shall have the right to sell Baroid's diamond bit business. The
trustee shall have the power and authority to accomplish the
divestiture to a purchaser acceptable to plaintiff at such price and on
such terms as are then obtainable upon a reasonable effort by the
trustee, subject to the provisions of section VIII of this Final
Judgment, and shall have such other powers as this Court shall deem
appropriate. Defendants shall not object to a sale of Baroid's diamond
bit business by the trustee on any grounds other than the trustee's
malfeasance. Any such objection by defendants must be conveyed in
writing to plaintiff and the trustee within fifteen (15) days after the
trustee has notified defendants of the proposed sale in accordance with
section VIII of this Final Judgment.
D. The trustee shall serve at the cost and expense of defendants,
shall receive compensation based on a fee arrangement providing an
incentive based on the price and terms of the divestiture and the speed
with which it is accomplished, and shall serve on such other terms and
conditions as the Court may prescribe; provided, however, that the
trustee shall receive no compensation, nor incur any costs or expenses,
prior to the effective date of his or her appointment. The trustee
shall account for all monies derived from a sale of Baroid's diamond
bit business and all costs and expenses incurred in connection
therewith. After approval by the Court of the trustee's accounting,
including fees for its services, all remaining monies shall be paid to
defendants and the trust shall then be terminated.
E. Defendants shall take no action to interfere with or impede the
trustee's accomplishment of the divestiture and shall use their best
efforts to assist the trustee in accomplishing the required
divestiture. The trustee shall have full and complete access to the
personnel, books, records, and facilities of Baroid's diamond bit
business, and defendants shall develop such financial or other
information relevant to Baroid's diamond bit business.
F. After its appointment becomes effective, the trustee shall file
monthly reports with the parties and the Court setting forth the
trustee's efforts to accomplish divestiture of Baroid's diamond bit
business as contemplated under this Final Judgment; provided, however,
that to the extent such reports contain information that the trustee
deems confidential, such reports shall not be filed in the public
docket of the Court. Such reports shall include the name, address, and
telephone number of each person who, during the preceding thirty (30)
days, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any ownership interest in Baroid's diamond bit
business, and shall describe in detail each contact with any such
person during that period. The trustee shall maintain full records of
all efforts made to divest these operations.
G. Within six months after its appointment has become effective, if
the trustee has not accomplished the divestiture required by Section
VII of this Final Judgment, the trustee shall promptly file with the
Court a report setting forth (1) the trustee's efforts to accomplish
the required divestiture, (2) the reasons, in the trustee's judgment,
why any required divestiture have not been accomplished, and (3) the
trustee's recommendations; provided, however, that to the extent such
reports contain information that the trustee deems confidential, such
reports shall not be filed in the public docket of the Court. The
trustee shall at the same time furnish such report to the parties, who
shall each have the right to be heard and to make additional
recommendations consistent with the purpose of the trust. The Court
shall thereafter enter such orders as it shall deem appropriate in
order to carry out the purpose of the trust, which shall, if necessary,
include extending the trust and the term of the trustee's appointment.
VIII
Notification
Immediately following entry of a binding contract, contingent upon
compliance with the terms of this Final Judgment, to effect any
proposed divestiture pursuant to sections IV, V, VI, or VII of this
Final Judgment, defendants or the trustee, whichever is then
responsible for effecting the divestiture, shall notify plaintiff of
the proposed divestiture. If the trustee is responsible, it shall
similarly notify defendants. The notice shall set forth the details of
the proposed transaction and list the name, address, and telephone
number of each person not previously identified who offered to, or
expressed an interest in or desire to, acquire any ownership interest
in the business that is the subject of the binding contract, together
with full details of same. Within fifteen (15) days of receipt by
plaintiff of such notice, plaintiff may request additional information
concerning the proposed divestiture and the proposed purchaser.
Defendants and/or the trustee shall furnish any additional information
requested within twenty (20) days of the receipt of the request, unless
the parties shall otherwise agree. Within thirty (30) days after
receipt of the notice or within twenty (20) days after plaintiff has
been provided the additional information requested (including any
additional information requested of persons other than defendants or
the trustee), whichever is later, plaintiff shall provide written
notice to defendants and the trustee, if there is one, stating whether
or not it objects to the proposed divestiture. If plaintiff provides
written notice to defendants and/or the trustee that it does not
object, then the divestiture may be consummated, subject only to
defendants' limited right to object to the sale under the provisions in
sections VI(C) and VII(C). Absent written notice that the plaintiff
does not object to the proposed purchaser, a divestiture proposed under
Section IV shall not be consummated. Upon objection by plaintiff, a
divestiture proposed under section V shall not be consummated. Upon
objection by plaintiff, or by defendants under the proviso in sections
VI(C) and VII(C), a divestiture proposed under section VI or VII shall
not be consummated unless approved by the Court.
IX
Affidavits
Upon filing of this Final Judgment and every thirty (30) days
thereafter until the divestitures have been completed or authority to
effect divestiture passes to the trustee pursuant to section VI or
section VII of this Final Judgment, defendants shall deliver to
plaintiff an affidavit as to the fact and manner of compliance with
sections IV and V of this Final Judgment. Each such affidavit shall
include the name, address, and telephone number of each person who, at
any time after the period covered by the last such report, made an
offer to acquire, expressed an interest in acquiring, entered into
negotiations to acquire, or was contacted or made an inquiry about
acquiring, any ownership interest in Baroid's diamond bit business or
the drilling fluid business, and shall describe in detail each contact
with any such person during that period. Defendants shall maintain full
records of all efforts made to divest these operations.
X
Financing
With prior consent of the plaintiff, defendants may finance all or
any part of any purchase made pursuant to sections IV, V, VI, or VII of
this Final Judgment.
XI
Preservation of Assets
Until the divestitures required by the Final Judgment have been
accomplished:
A. The defendants shall take all steps necessary to assure that DBS
and Baroid Drilling will be maintained as separate and independent,
economically viable, ongoing businesses with their assets (including
proprietary technology, management, operations, and books and records)
separate, distinct and apart from those of Dresser. The defendants
shall use all reasonable efforts on behalf of DBS to maintain and
increase sales of diamond drill bits, continue its current plans for
research, development, and testing of diamond drill bits, and otherwise
maintain the business as a viable and active competitor in the United
States. The defendants shall use all reasonable efforts on behalf of
Baroid Drilling and M-I Drilling Fluids Co. to maintain and increase
sales of drilling fluids, continue current plans for research,
development, and testing of drilling fluids, and otherwise maintain the
businesses as viable and active competitors in the United States.
B. The defendants shall not sell, lease, assign, transfer or
otherwise dispose of, or pledge as collateral for loans (except such
loans as are currently outstanding or replacements of substitutes
therefore), assets required to be divested pursuant to sections IV, V,
VI, or VII except that any component of such assets as is replaced in
the ordinary course of business with a newly purchased component may be
sold or otherwise disposed of, provided the newly purchased component
is so identified as a replacement component for one to be divested.
C. The defendants shall provide capital and provide and maintain
sufficient working capital to maintain DBS, including Baroid's diamond
bit business; Baroid Drilling; and M-I Drilling Fluids Co. as viable,
ongoing businesses consistent with the requirements of section XI(A).
D. The defendants shall preserve the assets required to be divested
pursuant to section IV, V, VI, and VII, except those replaced with
newly acquired assets in the ordinary course of business, in a state or
repair equal to their state of repair as of the date of this Final
Judgment, ordinary wear and tear excepted. Defendants shall preserve
the documents, books and records of DBS and Baroid's diamond bit
business until the date of divestiture of Baroid's diamond bit
business, and shall preserve the documents, books and records of Baroid
Drilling and M-I Drilling Fluids Co. until the date of divestiture of
the drilling fluids business.
E. Except in the ordinary course of business, or as is otherwise
consistent with the requirements of section XII, the defendants shall
refrain from terminating or altering one or more current employment,
salary, or benefit agreements for one or more executive, managerial,
sales, marketing, engineering, or other technical personnel of DBS,
Baroid Drilling or M-I Drilling Fluids Co., and shall refrain from
transferring any employee so employed without the prior approval of
plaintiff.
F. Defendants shall refrain from taking any action that would
jeopardize the sale of Baroid's diamond bit business or the drilling
fluid business.
XII
Employment Offers
A. Defendants are hereby enjoined and restrained until one year
following the date of divestiture from employment of, or making offers
of employment to, any person, who currently is an executive,
managerial, sales, marketing, engineering, research and development, or
other technical employee of Baroid in the United States, the
preponderance of whose duties relate to Baroid's diamond bit business
(``Baroid diamond bit employees''.) This provision, however, does not
apply to any employee who is terminated or not hired by the purchaser
of Baroid's diamond bit business. Defendants shall encourage and
facilitate employment of such employees by the purchaser, and shall
remove any impediments that exist which may deter such employees from
accepting employment with the purchaser of Baroid's diamond bit
business, including, but not limited to, the payment of all bonuses to
which such employees would otherwise have been entitled had they
remained in the employment of Baroid until the end of fiscal year 1994.
B. The purchaser of Baroid's diamond bit business shall also have
the right to hire any person who is currently a sales, marketing or
research and development employee of Baroid, the preponderance of whose
duties do not relate to Baroid's diamond bit business. Such offers of
employment and acceptances thereof, contingent upon the consummation of
the purchase of Baroid's diamond bit business, may be made prior to the
consummation of the divestiture. Defendants shall provide any
prospective purchaser with cooperation and assistance in its efforts to
determine which, if any, such Baroid employees it seeks to hire. Such
cooperation and assistance shall include making available for
consultation purposes to any prospective purchasers of Baroid's diamond
bit business all Baroid diamond bit employees, and providing
information sufficient to enable a prospective purchaser to assess the
relative performance of all Baroid sales, marketing and research and
development employees. The defendants may, prior to the time the
appointment of the trustee becomes effective pursuant to section VII,
take any lawful steps they deem appropriate to retain the services of
any Baroid employees the preponderance of whose duties do not relate to
Baroid's diamond bit business.
XIII
Compliance Inspection
For the purposes of determining or securing compliance with the
Final Judgment and subject to any legally recognized privilege, from
time to time:
A. Duly authorized representatives of the Department of Justice
shall, upon written request of the Attorney General or of the Assistant
Attorney General in charge of the Antitrust Division, and on reasonable
notice to any defendant made to its principal office, be permitted:
1. Access during office hours of such defendant to inspect and copy
all books, ledgers, accounts, correspondence, memoranda, and other
records and documents in the possession or under the control of such
defendant, who may have counsel present, relating to any matters
contained in this Final Judgment; and
2. Subject to the reasonable convenience of such defendant and
without restraint or interference from it, to interview officers,
employees, and agents of such defendant, who may have counsel present,
regarding any such matters.
B. Upon the written request of the Attorney General or of the
Assistant Attorney General in charge of the Antitrust Division made to
any defendant's principal office, such defendant shall submit such
written reports, under oath if requested, with respect to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section XIII shall be divulged by a representative of the
Department of Justice to any person other than a duly authorized
representative of the Executive Branch of the United States, except in
the course of legal proceedings to which the United States is a party
(including grand jury proceedings), or for the purpose of securing
compliance with this Final Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by any
defendant to plaintiff, such defendant represents and identifies in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(7) of the Federal
Rules of Civil Procedure, and such defendant marks each pertinent page
of such material, ``Subject to claim of protection under Rule 26(c)(7)
of the Federal Rules of Civil Procedure,'' then ten (10) days notice
shall be given by plaintiff to defendants prior to divulging such
material in any legal proceeding (other than a grand jury proceeding).
XIV
Retention of Jurisdiction
Jurisidction is retained by this Court for the purpose of enabling
any of the parties to this Final Judgment to apply to this Court at any
time for such further orders and directions as may be necessary or
appropriate for the construction or carrying out of this Final
Judgment, for the modification of any of the provisions hereof, for the
enforcement of compliance herewith, and for the punishment of any
violations hereof.
XV
Termination
This Final Judgment will expire on the tenth anniversary of the
date of its entry.
XVI
Public Interest
Entry of this Final Judgment is in the public interest.
Dated:
----------------------------------------------------------------------
United States District Judge
Order
[Civil Action No. 93-2621 (Stanley Sporkin); Filed December 23, 1993]
In the matter of United States of America, Plaintiff, v. Baroid
Corp. et al., Defendants.
With the approval of the parties, it is hereby: Ordered, That the
proposed Final Judgment in this case, as referenced in the Stipulation
signed on the 23rd day of December, 1993 is hereby modified as follows:
Any mention in such proposed Final Judgment that the Court shall
appoint an individual to a particular position is hereby understood to
mean that the Court shall appoint said individual only if the Court
deems said individual to be suitable for the position.
In the event that the Court does not find said individual to be
suitable for the position, a new nominee shall be presented to the
Court, as set forth in the procedures found in the proposed Final
Judgment, for the Court's approval and said procedure shall be followed
until the Court finds an individual acceptable to the Court.
Date: December 23, 1993.
Stanley Sporkin,
United States District Court.
Competitive Impact Statement
[Civil Action No. 93-2621 (Stanley Sporkin); Filed: December 23, 1993]
Judge Sporkin
In the matter of United States of America, Plaintiff; v. Baroid
Corp., Baroid Drilling Fluids, Inc., DB Stratabit (USA) Inc., and
Dresser Industries Inc., Defendants.
Pursuant to section 2(b) of the Antitrust Procedures and Penalties
Act (``APPA''), 15 U.S.C. 16 (b)-(h), the United States of America
files this Competitive Impact Statement relating to the proposed Final
Judgment submitted for entry with the consent of Baroid Corporation,
Baroid Drilling Fluids, Inc., DB Stratabit (USA) Inc., and Dresser
Industries, Inc. in this civil antitrust proceeding.
I
Nature and Purpose of the Proceeding
On December 23, 1993, the United States filed a Complaint alleging
that the proposed merger of Dresser Industries, Inc. (``Dresser'') and
Baroid Corporation (``Baroid'') would violate Section 7 of the Clayton
Act (15 U.S.C. 18). The Complaint alleges that the effect of the merger
may be substantially to lessen competition in the manufacture and sale
in the United States of drilling fluids, which Dresser, through its 64
percent partnership interest in M-I Drilling Fluids, Co. (``M-I''), and
Baroid, through its wholly owned subsidiary, Baroid Drilling Fluids,
Inc. (``Baroid Drilling''), produce and sell. The Complaint also
alleges that the effect of the merger may be substantially to lessen
competition in the manufacture and sale in the United States of diamond
drill bits, which both Dresser's Security Division (``Security'') and
Baroid's wholly owned subsidiary DB Stratabit (USA) Inc. (``DBS'')
manufacture and sell. Both drilling fluids and diamond drill bits are
used by energy exploration and development companies to drill oil and
gas wells. The Complaint seeks, among other relief, a permanent
injunction preventing defendants from, in any manner, combining their
drilling fluid and diamond drill bit businesses.
On December 23, 1993, the United States and defendants filed a
stipulation by which they consented to the entry of a proposed Final
Judgment designed to eliminate the anticompetitive effects of the
merger. Under the proposed Final Judgment, as explained more fully
below, defendants would be required to sell, by June 1, 1994, either
Baroid Drilling or Dresser's interest in M-I. By July 1, 1994,
defendants would also have to divest Baroid's domestic diamond drill
bit business, including a manufacturing plant in Houston, Texas, as
well as licenses for DBS patents and technology to make and sell DBS
diamond drill bits domestically and to a significant extent throughout
the world. If defendants should fail to complete either or both of the
divestitures, a trustee appointed by the Court would be empowered to
complete them.
The United States, Dresser, and Baroid have agreed that the
proposed Final Judgment may be entered after compliance with the APPA.
Entry of the proposed Final Judgment will terminate the action, except
that the Court will retain jurisdiction to construe, modify and enforce
the Final Judgment, and to punish violations of the Final Judgment.
II
Events Giving Rise to the Alleged Violation
On September 7, 1993, Dresser and Baroid entered into a purchase
agreement under which the two companies would merge and Baroid would
become a wholly-owned subsidiary of Dresser. This acquisition would, if
unchallenged, effectively merge all of the businesses of Dresser and
Baroid, including their drilling fluid and diamond drill bit
businesses. The purchase price is approximately $900 million.
Dresser and Baroid are both large, diversified oil field service
companies that provide a wide variety of products and services
necessary to explore for and develop oil and gas reserves. Dresser
reported total 1992 sales of about $3.8 billion; Baroid's total 1992
sales were approximately $614.4 million.
The Complaint alleges that there are two markets in which Dresser
and Baroid are significant competitors. Those two markets are the
manufacture and sale in the United States of drilling fluids and the
manufacture and sale in the United States of diamond drill bits.
Both products are used by drilling operators to drill for oil and
gas. Wells are drilled using a drill pipe (or ``drill string''), which
is a heavy-walled pipe assembled end-to-end from thirty- to forty-foot
sections. The drill string is suspended from the mast of a drilling rig
and lowered gradually as the earth is penetrated. As the drill string
is rotated, the earth is cut by a drill bit,\1\ which is attached to
the end of the drill string or to a motor that is attached to the end
of the drill string. Drilling fluid is pumped under pressure through
the drill string to the drill bit at the end of the string. Drilling
fluid, a mixture of natural and synthetic chemical compounds
(principally barite and bentonite), improves the performance and
durability of the drill string and the tools in the hole by, for
example, cooling and lubricating the drill bit and controlling downhole
pressure.
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\1\There are two types of drill bits: tricone drill bits and
diamond drill bits. Tricone bits consist of three steel cones that
rotate as the bit turns. Diamond drill bits have no moving parts but
contain cutting elements made of natural or synthetic diamond
embedded in the bottom and sides of a steel or matrix body. The kind
of drill bits used in a particular drilling operation depends upon
the depth of the well, the direction of the drilling, the type of
formation through which the drill bit must cut, and the type of
drilling fluid used. Diamond drill bits provide higher penetration
rates, better durability, and require the drill string to be pulled
out of the well hole fewer times than tricone bits. Diamond bits
typically cost between three and eight times as much as tricone
bits. Where daily drilling costs are high and the geological
conditions are suitable, customers prefer to use diamond bits over
tricone bits in order to reduce drilling time and, thereby, lower
overall costs.
---------------------------------------------------------------------------
Both drilling fluids and diamond drill bits are critical products
for oil and gas exploration and development. The use of an incorrectly
formulated drilling fluid can result in a costly, dangerous hole blow-
out or the immobilization of the drill string. The percentage of total
drilling costs accounted for by drilling fluids can be as high as 10
percent. The percentage of total drilling costs accounted for by drill
bits is less, usually no more than 5 percent, but the cost of a bit
failure can be very high. Valuable drilling time is lost because the
entire drill string must be pulled out of the hole, disassembled, a new
bit attached, and the drill string reassembled and run back into the
hole.
M-I is a vertically integrated company with mining operations,
manufacturing plants, research and engineering facilities, distribution
facilities and sales and service centers located throughout the world.
M-I's worldwide, net sales of drilling fluids for fiscal year 1992 and
$383.6 million. Its domestic sales were approximately $110 million.
Baroid Drilling produces and sells drilling fluids through a
distribution network consisting of approximately 150 onshore and
offshore stockpoints and over 50 field laboratories. In 1992, Baroid
Drilling's worldwide, net sales were $331.5 million, and its domestic
sales were approximately $100 million.
Dresser's Security Division has a diamond drill bit manufacturing
facility in Houston, Texas. Dresser's total 1992 worldwide sales of
diamond drill bits were about $10.4 million and its U.S. sales of that
product were about $4.7 million. Baroid produces diamond drill bits at
manufacturing facilities located in Houston, Texas, Brussels, Belgium,
and Leduc, Alberta, Canada. Baroid's 1992 worldwide sales of diamond
drill bits were approximately $40 million, and its domestic sales were
about $3.6 million. Baroid's domestic diamond drill bit operations are
handled through its DBS subsidiary.
The Complaint alleges that the manufacture and sale of drilling
fluids is a relevant product market for antitrust purposes. A small,
significant nontransitory price increase would not cause customers to
use another product instead of drilling fluid. The United States is a
relevant geographic market for the drilling fluid market within the
meaning of Section 7 of the Clayton Act. The Complaint states that this
market is highly concentrated and would become substantially more
concentrated as a result of the merger of Baroid and Dresser. Three
companies dominate the drilling fluid business in the United States,
including M-I and Baroid Drilling. Based on 1992 sales data,
M-I was the largest firm in the drilling fluid market, accounting for
about 29 percent of sales, while Baroid Drilling, the second largest
firm, accounted for about 22 percent. The merger of Dresser and Baroid
would increase the Herfindahl-Hirschman Index by about 1200 points to a
post-acquisition level of more than 2800 points. The merger of Dresser
and Baroid will diminish competition in the drilling fluid market by
enabling the remaining competitors more likely, more successfully, and
more completely to engage in coordinated interaction that harms
customers. The increase in concentration will result in higher prices
for drilling fluids, which will increase the costs of oil and gas
exploration and development in the United States.
Successful new entry into the United States drilling fluid market
is difficult and time-consuming. Moreover, the expansion of fringe
firms would be insufficient to counteract or deter a small but
significant nontransitory price increase. To gain a significant market
share, a firm must have an adequate, reliable, and independent source
of barite and bentonite and a significant research and development
capability. Because the costs to the customer of product failure are so
high, the firm must also have a reputation for providing a reliable
product and dependable service. The establishment of such a reputation
takes years and requires a significant investment of resources.
The Complaint also alleges that the manufacture and sale of diamond
drill bits is a relevant product market for antitrust purposes. A
small, significant nontransitory increase in the price of diamond drill
bits would not cause customers to use another product. The United
States is a relevant geographic market for this product market within
the meaning of section 7 of the Clayton Act. The Complaint states that
this market is concentrated, with five companies, including Dresser and
Baroid, accounting for approximately 90 percent of all diamond drill
bit sales in the United States. These five companies have established
reputations for providing dependable diamond drill bits for almost all
types of drilling operations, backed by extensive product research,
development, and testing. For a significant number of drilling
projects, only these five companies have the product quality,
performance record, and engineering support required to be considered
by customers as a supplier of diamond drill bits.
The United States diamond drill bit market would become
significantly more concentrated as a result of the merger of Dresser
and Baroid. Based on 1992 sales data, Dresser was the third largest
firm in the diamond drill bit market, accounting for about 13 percent
of sales, while Baroid, the fifth largest firm, accounted for about 10
percent. The merger of Dresser and Baroid would result in a competitor
having almost 25 percent of U.S. diamond drill bit sales, and would
increase the Herfindahl-Hirschman index by more than 250 points to a
post-acquisition level of more than 2300. As a result of the
acquisition, four firms would account for approximately 90 percent of
sales. The merger of Dresser and Baroid will diminish competition in
the United States diamond drill bit market by enabling the remaining
competitors more likely, more successfully, and more completely to
engage in coordinated interaction that harms customers. This increase
in concentration would result in higher prices for diamond drill bits,
which will increase the cost of oil and gas exploration and development
in the United States.
Entry into the United States market for diamond drill bits is
difficult, expensive, and time-consuming. To enter the diamond drill
bit market and gain a significant market share, a firm must build a
manufacturing and research and development facility, develop diamond
bits, and establish a reputation for the efficiency, durability, and
reliability of its product under actual drilling conditions in a wide
variety of different geographic and geological conditions. Because the
performance of a bit is critical to assuring the lowest possible
drilling costs, and the risk of financial loss due to bit failure is
substantial, customers are generally very reluctant to purchase bits
from a new supplier that lacks a proven performance record. It would
take several years and significant investment for a new supplier to
establish a performance record and obtain the sales that are necessary
to support the substantial engineering, technical services, and
research and development capabilities possessed by the five major
competitors in this market.
III
Explanation of the Proposed Final Judgment
The United States brought this action because the effect of the
proposed merger of Dresser and Baroid may be substantially to lessen
competition, in violation of section 7 of the Clayton Act, in the
United States for the manufacture and sale of drilling fluids and the
manufacture and sale of diamond bits. The risk to competition posed by
this transaction, however, would be substantially eliminated were
defendants to divest either Baroid Drilling or Dresser's interest in M-
I, and Baroid's diamond bit business, as defined in the proposed Final
Judgment, to a purchaser or purchasers that would operate the
businesses as active, independent, and financially viable United States
competitors in the respective product markets. To this end, the
provisions of the proposed Final Judgment are designed to accomplish
the sale of a drilling fluid business as well as the sale of Baroid's
diamond bit business and to prevent the anticompetitive effects of the
proposed acquisition.
Section IV of the proposed Final Judgment requires defendants to
divest the ``drilling fluid business'' by June 1, 1994, to a purchaser
that has the intent and capability to compete promptly and effectively
in the manufacture and sale of drilling fluids in the United States.
The ``drilling fluid business'' is defined in the proposed Final
Judgment as either Dresser's 64 percent interest in M-I, or all assets
of Baroid Drilling and any other assets that Baroid owns or has an
interest in that are used to research, develop, test, produce,
manufacture, service or market, domestically or internationally,
drilling fluids. If the divestiture has not occurred by June 1, 1994,
the United States may, in its sole discretion, extent the time period
up to one month. The proposed Final Judgment prohibits the sale by the
defendants of the drilling fluid business to their major competitors in
the drilling fluid market: Baker Hughes, Inc., Schlumberger Ltd., and
Anchor Drilling Fluids. This prohibition lasts for the life of the
decree. The purchaser of the drilling fluid business is also prohibited
from combining that business with the drilling operations of any of
those three companies or Dresser.
Section V of the proposed Final Judgment requires defendants to
divest ``Baroid's diamond bit business'' by July 1, 1994, to a
purchaser that has the intent and capability to compete promptly and
effectively in the manufacture and sale of diamond bits in the United
States. ``Baroid's diamond bit business'' is defined in the proposed
Final Judgment as the assets owned or controlled by Baroid that are or
have been used in the United States to research, develop, test,
manufacture, service or market its diamond drill bits. The assets to be
divested include Baroid's diamond bit manufacturing facility in
Houston, Texas, all equipment in that plant, and all equipment owned or
controlled by Baroid that was used to manufacture matrix diamond
bits.\2\ Baroid's diamond bit business also includes a nonexclusive
license to manufacture and sell matrix diamond bits in the United
States and a nonexclusive license to manufacture and sell steel-bodied
diamond bits anywhere in the world, except The People's Republic of
China, using all patents and other intellectual property owned or
controlled by Baroid. These licenses will allow the purchaser to be an
effective competitor in the United States diamond drill bit market. The
business divested will additionally include research and development
equipment in the Houston plant and access for two years to certain
pieces of research and development equipment in Baroid's Belgium
facility, as well as data from almost all research and development
projects relating to matrix or steel-bodied drill bits undertaken by
Baroid up to and including the date of the divestiture. Research and
development of diamond drill bits includes, but is not limited to,
engineering support relating to the analysis and testing of a diamond
drill bit's design, application, and components in order to enhance the
bit's performance or to create a new diamond bit. In addition, Baroid's
diamond bit business includes all data recording diamond bit
performance in Baroid's possession at the date of divestiture. The
purchaser also has the right for two years to market its diamond bits
as being manufactured pursuant to a license from DBS but will not have
the right to use the trade names of ``Stratabit,'' ``DB Stratabit,
Inc.,'' ``Diamont Boart,'' ``DBS,'' or any derivative thereof. The
licenses granted need not be transferable, and thus remain with the
original purchaser in perpetuity unless transferred in connection with
the sale of all or substantially all of Baroid's diamond bit business.
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\2\There are two basic designs of diamond drill bits: Matrix
diamond bits and steel-bodied diamond bits. Baroid currently
manufactures only steel-bodied diamond bits, at the Houston
facility. In the past it also manufactured matrix diamond bits at
the plant. Some equipment that was used for manufacturing matrix
diamond bits is in storage.
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The divestiture requirement will be satisfied if the defendants
have entered a binding contract to sell Baroid's diamond bit business
by July 1, 1994, as long as the divestiture will be completed by
September 1, 1994. Also, if the defendants have not accomplished the
required divestiture by July 1, but demonstrate to the United States'
satisfaction that they are then engaged in negotiations with a
prospective purchaser that are likely to result in the required
divestiture, the United States may extend the time period for
divestiture up to three more months. The defendants are prohibited by
the proposed Final Judgment from selling Baroid's diamond bit business
to their major competitors in the diamond drill bit market: Baker
Hughes, Inc., Smith International, Inc., and Camco International, Inc.
That prohibition lasts for the life of the decree. The purchaser of
Baroid's diamond bit business is also prohibited from combining that
business with the diamond drill bit operations of any of those
companies or Dresser for the life of the decree.
Under the proposed Final Judgment, defendants must take all
reasonable steps necessary to accomplish both divestitures quickly, and
shall cooperate with bona fide prospective purchasers by supplying all
information relevant to the proposed sale. Should defendants fail to
complete the divestitures by the specified deadlines to purchasers
approved by the United States, the proposed Final Judgment provides for
the appointment by the Court of a trustee or trustees to accomplish
either or both of the divestitures. Section VI relates to the selection
and appointment of a trustee to sell the drilling fluid business, and
section VII relates to the selection and appointment of a trustee to
sell Baroid's diamond bit business. Following the trustee's
appointment, only to trustee will have the right to sell the assets to
be divested, and defendants will be required to pay for all of the
trustee's sale-related expenses. Should the trustee not accomplish the
divestiture it is empowered to make within six months of appointment,
the trustee and the parties will make recommendations to the Court,
which shall enter such orders as it deems appropriate to carry out the
purpose of the trust, which may include extending the trust or the term
of the trustee's appointment. If a trustee is appointed to sell
Baroid's diamond bit business, that business will include a license to
manufacture and sell Baroid's steel-bodied diamond bits anywhere in the
world, including The People's Republic of China.
Section VIII of the proposed Final Judgment requires that the
defendants or the trustee, whoever is responsible for accomplishing the
divestiture at the time, notify the United States when a binding
contract has been entered so that the United States has an opportunity
to evaluate the purchaser. This section gives the United States the
right to obtain information about the perspective purchaser. Absent
written notice that the United States does not object to the proposed
purchaser of the drilling fluid business, a divestiture of that
business under section IV cannot be consummated. Upon the United
States' objection to the purchaser of Baroid's diamond bit business
under section V, the transaction cannot be consummated. Should the
United States object to a sale of either business by the trustee, the
divestiture cannot be consummated unless approved by the Court.
Section IX of the proposed Final Judgment requires defendants to
submit monthly reports to the United States regarding its efforts to
divest the drilling fluid business and Baroid's diamond bit business,
including the status of discussions or negotiations with any person.
Section X states that defendants may finance part of all of either
divestiture with the prior consent of the United States. Under section
XI of the proposed Final Judgment, defendants must take certain steps
to ensure that, until the required divestiture has been completed,
Baroid Drilling and DBS will be held separate and apart from Dresser
and that both businesses, as well as
M-I, will be maintained as viable competitors.
The proposed Final Judgment also contains provisions designed to
ensure that the purchaser of Baroid's diamond bit business will have
the opportunity to hire a work force sufficient to maintain that
business as an effective competitor in the United States. Under section
XII of the proposed Final Judgment, defendants are required to
encourage and facilitate employment by the purchaser of all Baroid
employees in the United States, the preponderance of whose duties
relate to Baroid's diamond bit business, and will be prohibited from
employing these individuals for one year after the divestiture unless
those individuals are terminated or not hired by the purchaser. In
addition, defendants are required to assist the purchaser so that the
purchaser may determine if it would like to hire other Baroid sales,
marketing and research and development employees, the preponderance or
whose duties do not relate to Baroid's diamond drill bit business. This
assistance consists of providing information and consultation regarding
the employees' relative job duties and performance.
Finally, section XV provides that the proposed Final Judgment will
expire on the tenth anniversary of its entry by the Court.
IV
Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act (15 U.S.C. 15) provides that any
person who has just been injured as a result of conduct prohibited by
the antitrust laws may bring suit in federal court to recover three
times the damages the person has suffered, as well as costs and
reasonable attorneys' fees. Entry of the proposed Final Judgment will
neither impair nor assist the bringing of any private antitrust damage
action. Under the provisions of section 5(a) of the Clayton Act (15
U.S.C. 16(a)), the proposed Final Judgment has no prima facie effect in
any subsequent private lawsuit that may be brought against defendants.
V
Procedure Available for Modification of the Proposed Final Judgment
The United States and defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least 60 days preceding the
effective date of the proposed Final Judgment within which any person
may submit to the United States written comments regarding the proposed
Final Judgment. Any person who wishes to comment should do so within 60
days of the date of publication of this Competitive Impact Statement in
the Federal Register. The United States will evaluate the comments,
determine whether it would withdraw its consent, and respond to
comments. The comments and the response of the United States will be
filed with the Court and published in the Federal Register.
Written comments should be submitted to: Roger W. Fones, Chief
Transportation, Energy & Agriculture Section, Antitrust Division,
Judiciary Center Building, 555 4th Street, NW., room 9104, Washington,
DC 20001.
VI
Alternatives to the Proposed Final Judgment
The proposed Final Judgment requires that either Dresser's interest
in M-I or Baroid Drilling, and Baroid's diamond bit business be sold to
a purchaser or purchasers that would use the respective businesses
promptly to become viable competitors in both of the product markets
alleged in the Complaint. Thus, compliance with the proposed Final
Judgment and the completion of the divestitures required by the
Judgment would resolve the competitive concerns raised by the proposed
transaction, and assure that the respective businesses would remain
independent and active competitors to Dresser's drilling fluid and
diamond bit businesses in the United States.
Litigation is, of course, always an alternative to a consent decree
in a section 7 case. The United States rejected this alternative
because the divestitures required under the proposed Final Judgment
should prevent the merger of Dresser and Baroid from having a
significant anticompetitive effect in either of the two relevant
product markets alleged, and will provide substantially all of the
relief requested in the Complaint. The United States believes that in
the hands of appropriate purchasers, the drilling fluid business that
is divested and Baroid's diamond bit business will likely maintain
their respective competitive roles in the United States.
The United States is satisfied that the proposed Final Judgment
fully resolves the anticompetitive effects of the proposed merger
alleged in the Complaint. Although the proposed Final Judgment may not
be entered until the criteria established by the APPA (115 U.S.C. 15
(b)-(h)) have been satisfied, the public will benefit immediately from
the safeguards in the proposed Final Judgment because the defendants
have stipulated to comply with the terms of the Judgment pending its
entry by the Court.
VII
Determinative Materials and Documents
There are no materials or documents that the United States
considered to be determinative in formulating this proposed Final
Judgment. Accordingly, none are being filed with this Competitive
Impact Statement.
Dated: December 23, 1993.
Respectfully submitted,
Angela L. Hughes,
Denise L. Diaz,
Attorneys, U.S. Department of Justice, Antitrust Division, Judiciary
Center Building, room 9104, 555 Fourth Street NW., Washington, DC
20001, (202) 307-6410.
[FR Doc. 94-1038 Filed 1-14-94; 8:45 am]
BILLING CODE 4410-01-M