[Federal Register Volume 60, Number 243 (Tuesday, December 19, 1995)]
[Notices]
[Pages 65328-65338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30834]
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FEDERAL TRADE COMMISSION
[File No. 951 0072]
Devro International PLC; Proposed Consent Agreement With Analysis
to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: This consent agreement, accepted subject to final Commission
approval, settles alleged violations of
[[Page 65329]]
federal law prohibiting unfair or deceptive acts and practices and
unfair methods of competition allegedly arising from the acquisition by
Devro International of Teepak International. Devro and Teepak are the
two largest producers of collagen sausage casings (the skins into which
various meat products are stuffed before being cooked or smoked) in the
United States. The consent agreement, among other things, would require
Devro to divest Devro North America, the assets it uses to manufacture
and distribute collagen sausage casings in the United States and
Canada. The assets to be divested include a manufacturing plant in
Somerville, New Jersey, and a finishing plant in Ontario, Canada. The
divestiture would have to be completed within three months of the date
the order becomes final, and the assets would have to be sold to a
buyer (1) that does not already produce collagen sausage casings for
sale in the United States, and (2) that is approved by the Commission.
If the divestiture is not completed on time, the consent agreement
would permit the Commission to appoint a trustee to complete it.
DATES: Comments must be received on or before February 20, 1996.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, Sixth Street and Pennsylvania Avenue, NW., Washington, DC
20580.
FOR FURTHER INFORMATION CONTACT: William Baer, FTC/H-374, Washington,
DC 20580 (202) 326-2932; Ronald Rowe, FTC/S-2602, Washington, DC 20580
(202) 326-2610; or Joseph Brownman, FTC/S-2108, Washington, DC 20580
(202) 326-2950.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 2.34 of the
Commission's Rules of Practice (16 CFR 2.34), notice is hereby given
that the following consent agreement containing a consent order to
cease and desist, having been filed with and accepted, subject to final
approval, by the Commission, has been placed on the public record for a
period of sixty (60) days. Public comment is invited. Such comments or
views will be considered by the Commission and will be available for
inspection and copying at its principal office in accordance with
Sec. 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR
4.9(b)(6)(ii)).
Agreement Containing Consent Order
The Federal Trade Commission (``Commission''), having initiated an
investigation of the proposed acquisition by Devro International plc
and Devro Inc. of the outstanding voting securities of Teepak
International, Inc. and it now appearing that Devro International plc
and Devro Inc. (hereinafter sometimes referred to as the ``Proposed
Respondents'') are willing to enter into an agreement containing an
order to divest certain assets and providing for other relief:
It is hereby agreed by and between the Proposed Respondents, by
their duly authorized officers and attorneys, and counsel for the
Commission, that:
1. Proposed Respondent Devro International plc is a corporation
organized, existing, and doing business under and by virtue of the laws
of Scotland, with its office and principal place of business at
Moodiesburn, Chryston, G69 OJE, Scotland.
2. Proposed Respondent Devro Inc. is a corporation organized,
existing, and doing business under and by virtue of the laws of the
State of Delaware with its office and principal place of business at
Southside Avenue, Somerville, New Jersey.
3. Teepak International, Inc. is a corporation organized, existing,
and doing business under and by virtue of the laws of the State of
Delaware, with its office and principal place of business at Three
Westbrook Corporate Center, Suite 1000, Westchester, Illinois 60153.
4. Proposed Respondents admit all the jurisdictional facts set
forth in the draft of complaint here attached.
5. Proposed Respondents waive:
a. any further procedural steps;
b. the requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
c. all rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this Agreement;
and
d. any claim under the Equal Access to Justice Act.
6. Proposed Respondents shall submit, within five (5) days of the
date this Agreement is signed by Proposed Respondents, an initial
compliance report, as contemplated by Rules 2.33 and 4.9(b)(7) of the
Commission's Rules of Practice and Procedure, 16 C.F.R. 2.33 and
4.9(b)(7), duly signed by the Proposed Respondents, setting forth in
precise detail the manner in which Proposed Respondents will comply
with Parts II and III of the proposed consent order, when and if
entered, the Agreement to Condition Acquisition, and the Agreement to
Hold Separate. Among other things, the report shall include:
a. A full and complete description of Proposed Respondents'
compliance and planned compliance with the terms and conditions of the
Agreement to Hold Separate, including:
(1) The names, telephone numbers, and business affiliations of the
persons that Proposed Respondents intend to appoint, or are considering
appointing, or have appointed, as members of the Management Team,
pursuant to Paragraph 4 (a) of the Agreement to Hold Separate;
(2) the name(s), telephone number(s), and business affiliation(s)
of the person(s) that Proposed Respondents intend to appoint, are
considering appointing, or have appointed, as independent auditor/
manager, pursuant to Paragraph 4 (b) of the Agreement To Hold Separate;
and
(3) copies of all written communications, internal memoranda, and
reports and recommendations concerning the terms of the Agreement to
Hold Separate.
b. A full and complete description of Proposed Respondents'
compliance and planned compliance with the terms and conditions of the
Agreement to Condition Acquisition, including:
(1) The resolution, or draft resolution, that Devro International
plc will present to its shareholders;
(2) the date that Devro International plc anticipates that its
shareholders will vote on the resolution;
(3) the date that Devro International plc anticipates learning the
outcome of the vote by the shareholders on the resolution; and
(4) copies of all written communications, internal memoranda, and
reports and recommendations concerning the terms of the Agreement to
Condition Acquisition.
c. A full and complete description of the efforts planned or
underway to comply with the terms and conditions of the proposed order,
including:
(1) A list of the firms to which Proposed Respondents (i) have
offered, and (ii) intend to offer, the Assets To Be Divested;
(2) the names and telephone numbers of the representatives of the
firms listed in response to part c. (1) of this Paragraph that Proposed
Respondents have already contacted to offer the Assets To Be Divested;
(3) the names, addresses, telephone numbers and business
affiliations of at least three (3) potential trustees that would be
acceptable to Proposed Respondents should the appointment of a trustee
be deemed appropriate by the Commission;
(4) the procedures that Proposed Respondents will employ in finding
a
[[Page 65330]]
proposed acquirer of the Assets To Be Divested;
(5) all criteria that Proposed Respondents will employ for choosing
a proposed acquirer of the Assets To Be Divested in the event that
offers for these assets are made by more than one firm;
(6) a full and complete description of all of the Assets To Be
Divested;
(7) all descriptions, characterizations, and explanations of the
Assets To Be Divested that may already have been provided, or that
Proposed Respondents intend to provide, to potential acquirers;
(8) a full and complete description of the financial condition and
potential viability as an independent business of the Assets To Be
Divested;
(9) all descriptions, characterizations, and explanations of the
financial condition and potential viability as an independent business
of the Assets To Be Divested that may already have been provided, or
that Proposed Respondents intend to provide, to potential acquirers;
and
(10) copies of all written communications, internal memoranda, and
reports and recommendations concerning divestiture.
7. This Agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this
Agreement is accepted by the Commission it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this Agreement and so notify the Proposed Respondents, in which
event it will take such action as it may consider appropriate, or issue
and serve its complaint (in such form as the circumstances may require)
and decision, in disposition of the proceeding.
8. This Agreement is for settlement purposes only and does not
constitute an admission by the Proposed Respondents that the law has
been violated as alleged in the draft of complaint here attached, or
that the facts as alleged in the draft complaint, other than
jurisdictional facts, are true.
9. This Agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Sec. 2.34 of the Commission's
Rules, the Commission may, without further notice to the Proposed
Respondents, (1) issue its complaint corresponding in form and
substance with the draft of complaint here attached and its decision
containing the following order to divest in disposition of the
proceeding and (2) make information public with respect thereto. When
so entered, the order to divest shall have the same force and effect
and may be altered, modified or set aside in the same manner and within
the same time provided by statute for other orders. The order shall
become final upon service. Delivery by the U.S. Postal Service of the
complaint and decision containing the agreed-to order to the Proposed
Respondents' counsel at the address as stated in this Agreement shall
constitute service. The Proposed Respondents waive any right they may
have to any other manner of service. The complaint may be used in
construing the terms of the order, and no agreement, understanding,
representation, or interpretation not contained in the order or the
agreement may be used to vary or contradict the terms of the order.
10. The Proposed Respondents have read the proposed complaint and
order contemplated hereby. The Proposed Respondents understand that
once the order has been issued, they will be required to file one or
more compliance reports showing that they have fully complied with the
order. The Proposed Respondents further understand that they may be
liable for civil penalties in the amount provided by law for each
violation of the order after it becomes final.
11. Proposed Respondents agree to be bound by all of the terms of
the Agreement to Condition Acquisition and the Agreement to Hold
Separate, attached to this Agreement and made a part hereof as Appendix
I and Appendix II, respectively, upon acceptance by the Commission of
this Agreement Containing Consent Order for public comment.
12. Proposed Respondents agree to notify the Commission's Bureau of
Competition in writing, within twenty-four (24) hours, of the action
taken by the shareholders of Devro International plc regarding (a) the
proposed acquisition by Devro International plc of Teepak
International, Inc. (``the Acquisition''), (b) the divestiture of the
Assets To Be Divested under the terms of this Agreement Containing
Consent Order (``the Divestiture''), and (c) the unlimited
indemnification of the independent auditor/manager, retroactive as of
the date of the appointment of the auditor/manager, pursuant to the
Agreement to Condition Acquisition and the Agreement to Hold Separate
(``the Retroactive Indemnification'').
13. Subsequent to approval of this Agreement Containing Consent
Order and acceptance for public comment of the Consent Order by the
Commission and unconditional approval by the shareholders of Devro
International plc of (a) the Acquisition, (b) the Divestiture, and (c)
the Retroactive Indemnification, with written notice having been given
to the Commission's Bureau of Competition, in writing, within twenty-
four (24) hours, of the unconditional approval by the shareholders,
Devro International plc may consummate the Acquisition.
14. In the event the shareholders of Devro International plc, prior
to the expiration of the sixty (60) day public comment period, fail
unconditionally to approve (a) the Acquisition, (b) the Divestiture,
and (c) the Retroactive Indemnification, Proposed Respondents, having
no authority to consummate the Acquisition, will, within twenty-four
(24) hours of the failure of the shareholders of Devro International
plc unconditionally to approve (a) the Acquisition, (b) the
Divestiture, and (c) the Retroactive Indemnification, notify the
Commission of such failure and withdraw any Hart-Scott-Rodino Premerger
Notification and Report Form that may have been filed under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. 18a. After
such timely notification and withdrawal, pursuant to the terms of this
Paragraph, the Commission will not issue the following divestiture
order.
Order
I
It is ordered That, as used in this Order, the following
definitions shall apply:
A. ``Devro International plc'' means that company and its
predecessors, subsidiaries, divisions, groups and affiliates controlled
by Devro International plc, and its respective directors, officers,
employees, agents, and representatives, and the respective successors
and assigns of each.
B. ``Devro Inc.'' means that company and its predecessors,
subsidiaries, divisions, groups and affiliates controlled by Devro Inc.
and its respective directors, officers, employees, agents, and
representatives, and the respective successors and assigns of each.
C. ``Devro Canada'' means DCI Devro Canada Inc., and its
predecessors, subsidiaries, divisions, groups and affiliates controlled
by DCI Devro Canada Inc. and its respective directors, officers,
employees, agents, and
[[Page 65331]]
representatives, and the respective successors and assigns of each.
D. ``Teepak'' means Teepak International, Inc., and its
predecessors, subsidiaries, divisions, groups and affiliates controlled
by Teepak International, Inc. and its respective directors, officers,
employees, agents, and representatives, and the respective successors
and assigns of each. The definition of ``Teepak'' specifically excludes
Devro International plc, Devro Inc., and Devro Canada. For purposes of
Parts VII and VIII of this Order, after the Acquisition, Teepak will be
regarded as part of Respondent Devro International plc.
E. ``Respondents'' means Devro International plc and Devro Inc.
F. ``Acquisition'' means the proposed acquisition by Devro
International plc of the outstanding voting securities of Teepak
International, Inc.
G. ``Assets To Be Divested'' means:
1. All assets related to the collagen sausage casings business of
Devro Inc. and Devro Canada, including, but not limited to:
a. All production and finishing facilities, plant, and equipment of
Devro Inc., including the plant located at Somerville, New Jersey, and,
wherever located, all machinery, fixtures, equipment, kitchen
facilities, laboratory testing equipment and facilities, research and
development facilities and programs, vehicles, transportation
facilities, furniture, tools and other tangible personal property,
customer lists, vendor lists, catalogs, sales promotion literature,
advertising materials, technical information, and management
information systems;
b. All production and finishing facilities, plant, and equipment of
Devro Canada, including the plant located in Markham, Ontario, Canada,
and, wherever located, and to the extent they exist, all machinery,
fixtures, equipment, kitchen facilities, laboratory testing equipment
and facilities, research and development facilities and programs,
vehicles, transportation facilities, furniture, tools and other
tangible personal property, customer lists, vendor lists, catalogs,
sales promotion literature, advertising materials, technical
information, and management information systems;
c. All intellectual property, including product and process
patents, patent rights, patent improvements, process improvements,
trademarks, service marks, copyrights, technology, knowhow, basic
research, trade secrets, goodwill, or trademarks that Devro Inc. or
Devro Canada use, license, have rights to, or otherwise have an
interest in; provided, however, that Devro International may retain all
rights to the trademark Devro, tradename ``Devro'', and the
stylized letter ``D'';
d. All Devro Inc. and Devro Canada inventory and storage capacity;
e. All rights, titles, and interest in and to real property owned
or leased by Devro Inc. and Devro Canada, together with all
appurtenances, licenses, and permits;
f. All rights, titles, and interests in and to contracts entered
into in the ordinary course of business between Devro Inc. and Devro
Canada with customers, suppliers, sales representatives, distributors,
agents, personal property lessors, personal property lessees,
licensors, licensees, consignors, and consignees;
g. All rights of Devro Inc. and Devro Canada, under warranties and
guarantees, express or implied;
h. All books, records, and files of Devro Inc. and Devro Canada;
i. All items of prepaid expense to Devro Inc. and Devro Canada; and
2. From Devro International plc:
a. On a non-exclusive basis, with no right to sub-license to a
third party, all rights to any information or intellectual property
relating to Devro International (but not any information or
intellectual property of Teepak in existence at the time of the
Acquisition) in development or already developed by Devro International
at the time of the divestiture, plus all enhancements, improvements or
perfections thereof within twenty-four (24) months of the divestiture,
including information or intellectual property relating to product and
process patents, patent rights, patent improvements, technology,
knowhow, basic research, or trade secrets regarding any research and
development programs or activities, wherever located, to the extent
that such information or intellectual property relate to the
manufacture, finishing, distribution, or sale of collagen sausage
casings; and
b. All additional tangible and intangible assets of Devro
International, wherever located, reasonably necessary to enable the
acquirer of the Assets To Be Divested to manufacture, finish,
distribute, and market collagen sausage casings in substantially the
same manner, quality, and quantity achieved by Devro Inc. and Devro
Canada prior to the divestiture, other than any tangible or intangible
assets of Teepak in existence at the time of the Acquisition.
H. ``Excluded Assets'' means the following entities: Devro Limited,
Devro Holdings Limited, Devro Pty Limited, Devro BV, Devro Asia
Limited, Devro GmbH, and Devro KK, and Teepak and its tangible and
intangible assets in existence at the time of the Acquisition. The term
``Excluded Assets'' does not include (that is, the following assets are
not Excluded Assets) specifically identifiable tangible and intangible
assets of these excluded entities (other than those of Teepak at the
time of the divestiture) related to the manufacture and finishing of
collagen sausage casings.
I. ``Commission'' means the Federal Trade Commission.
II
It is further ordered That:
A. Within three (3) months of the date the order becomes final,
Respondents shall divest, absolutely and in good faith, at no minimum
price, the Assets To Be Divested.
B. The purpose of the divestiture of the Assets To Be Divested is
to ensure the continued use of the Assets To Be Divested as a viable,
competitive, and independent business, in the same business in which
the Assets To Be Divested are engaged at the time of the Acquisition,
and to remedy the lessening of competition resulting from the
Acquisition as alleged in the Commission's Complaint.
C. The proposed acquirer shall not be a firm that has been engaged
in the manufacture of collagen sausage casings for sale, other than to
itself, in the United States.
D. The Assets To Be Divested shall be divested only to an acquirer
that receives the prior approval of the Commission and only in a manner
that receives the prior approval of the Commission.
III
It is further ordered That:
A. If Respondents have not divested the Assets To Be Divested,
absolutely and in good faith, with the Commission's prior approval,
within three (3) months of the date this Order becomes final, the
Commission may appoint a trustee to divest the Assets To Be Divested.
In the event that the Commission or the Attorney General brings an
action pursuant to section 5(l) of the Federal Trade Commission Act, 15
U.S.C. 45(l), or any other statute enforced by the Commission,
Respondents shall consent to the appointment of a trustee in such
action. Neither the appointment of a trustee nor a decision not to
appoint a trustee under this Paragraph shall preclude the Commission or
the Attorney General from seeking civil penalties or any other relief
available to it, including a court-appointed trustee, pursuant to
section 5(l) of the Federal Trade Commission Act, or any other statute
enforced by the
[[Page 65332]]
Commission, for any failure by Respondents to comply with this Order.
B. If a trustee is appointed by the Commission or a court pursuant
to Paragraph III. A. of this Order, Respondents shall consent to the
following terms and conditions regarding the trustee's powers, duties,
authority, and responsibilities:
1. The Commission shall select the trustee, subject to the consent
of Respondents, which consent shall not be unreasonably withheld. The
trustee shall be a person with experience and expertise in acquisitions
and divestitures. If Respondents have not opposed, in writing,
including the reasons for opposing, the selection of any proposed
trustee within ten (10) days after notice by the staff of the
Commission to Respondents of the identity of any proposed trustee,
Respondents shall be deemed to have consented to the selection of the
proposed trustee.
2. Subject to the prior approval of the Commission, and consistent
with the provisions of Paragraphs II. B.-D. of this Order, the trustee
shall have the exclusive power and authority to divest the Assets To Be
Divested.
3. Within ten (10) days after appointment of the trustee,
Respondents shall execute a trust agreement that, subject to the prior
approval of the Commission and, in the case of a court-appointed
trustee, of the court, transfers to the trustee all rights and powers
necessary to permit the trustee to effect the divestiture required by
this Order.
4. The trustee shall have six (6) months from the date the
Commission approves the trust agreement described in Paragraph III. B.
3. to accomplish the divestiture, which shall be subject to the prior
approval of the Commission. If, however, at the end of the six-month
period, the trustee has submitted a plan of divestiture or believes
that divestiture can be achieved within a reasonable time, the
divestiture period may be extended by the Commission, or, in the case
of a court-appointed trustee, by the court; provided, however, the
Commission may extend this period only two (2) times for up to an
additional twelve (12) months each time.
5. The trustee shall, to the extent not prohibited by United States
or Canadian law, have full and complete access to the personnel, books,
records and facilities related to the Assets To Be Divested or to any
other relevant information, as the trustee may reasonably request.
Respondents shall develop such financial or other information as such
trustee may request and shall cooperate with the trustee. Respondents
shall take no action to interfere with or impede the trustee's
accomplishment of the divestiture. Any delays in divestiture caused by
Respondents shall extend the time for divestiture under this Paragraph
in an amount equal to the delay, as determined by the Commission or,
for a court-appointed trustee, by the court.
6. The trustee shall use his or her best efforts to negotiate the
most favorable price and terms available in each contract that is
submitted to the Commission, subject to Respondents' absolute and
unconditional obligation to divest at no minimum price. The divestiture
shall be made in the manner and to the acquirer as set out in Part II
of this Order; provided, however, if the trustee receives bona fide
offers from more than one acquiring entity, and if the Commission
determines to approve more than one such acquiring entity, the trustee
shall divest to the acquiring entity or entities selected by
Respondents from among those approved by the Commission.
7. The trustee shall serve, without bond or other security, at the
cost and expense of Respondents, on such reasonable and customary terms
and conditions as the Commission or a court may set. The trustee shall
have the authority to employ, at the cost and expense of Respondents,
and at reasonable fees, such consultants, accountants, attorneys,
investment bankers, business brokers, appraisers, and other
representatives and assistants as are necessary to carry out the
trustee's duties and responsibilities. The trustee shall account for
all monies derived from the divestiture and all expenses incurred.
After approval by the Commission and, in the case of a court-appointed
trustee, by the court, of the account of the trustee, including fees
for his or her services, all remaining monies shall be paid at the
direction of the Respondents, and the trustee's power shall be
terminated. The trustee's compensation shall be based at least in
significant part on a commission arrangement contingent on the
trustee's divesting the Assets To Be Divested.
8. Respondents shall indemnify the trustee and hold the trustee
harmless against any losses, claims, damages, liabilities, or expenses
arising out of, or in connection with, the performance of the trustee's
duties, including all reasonable fees of counsel and other expenses
incurred in connection with the preparation for, or defense of any
claim, whether or not resulting in any liability, except to the extent
that such liabilities, losses, damages, claims, or expenses result from
misfeasance, gross negligence, willful or wanton acts, or bad faith by
the trustee.
9. If the trustee ceases to act or fails to act diligently, a
substitute trustee shall be appointed in the same manner as provided in
Paragraph III. A. of this Order.
10. In the event the trustee is unable to divest the Assets To Be
Divested, the trustee may divest such additional assets of Respondent
Devro International, other than the Excluded Assets, as may be
reasonably necessary to enable the trustee to divest the Assets To Be
Divested.
11. The Commission or, in the case of a court-appointed trustee,
the court, may on its own initiative or at the request of the trustee
issue such additional orders or directions as may be necessary or
appropriate to accomplish the divestiture required by this Order.
12. The trustee shall have no obligation or authority to operate or
maintain the Assets To Be Divested.
13. The trustee shall report in writing to Respondents and the
Commission every sixty (60) days concerning the trustee's efforts to
accomplish divestiture.
IV
It is further ordered That:
A. Upon reasonable notice to Respondents from the acquirer approved
by the Commission pursuant to this Order, Respondents shall provide
such assistance to the acquirer as is reasonably necessary to enable
the acquirer to manufacture, finish, distribute and market collagen
sausage casings in substantially the same manner, quality, and quantity
achieved by Devro Inc. and Devro Canada prior to the divestiture. Such
assistance shall include reasonable consultation with knowledgeable
employees of Respondents and training at the acquirer's facility for a
period of time sufficient to ensure that the acquirer's personnel are
appropriately trained in the manufacture, finishing, distribution, and
marketing of collagen sausage casings in the manner carried on by Devro
Inc. and Devro Canada prior to the divestiture. Respondents, however,
shall not be required to continue providing such assistance for more
than two (2) years from the date of the divestiture. Respondents may
charge the acquirer at a rate no greater than their direct costs for
providing such technical assistance.
B. Respondents shall facilitate and not interfere with the hiring
by the acquirer approved by the Commission of employees of Devro Inc.
and Devro
[[Page 65333]]
Canada who may desire to undertake employment.
C. Pending divestiture of the Assets To Be Divested, Respondents
shall take such actions as are reasonably necessary to maintain the
viability and marketability of the Assets To Be Divested and to prevent
their destruction, removal, wasting, deterioration or impairment of any
kind, except for ordinary wear and tear.
V
It is further ordered That Respondents shall continue to comply
with all terms of the Agreement to Hold Separate attached to this Order
and made a part hereof as Appendix II. Said Agreement shall remain in
force and effect until the Assets To Be Divested have been divested as
required by this Order.
VI
It is further ordered That:
Within thirty (30) days after the date this Order becomes final and
every thirty (30) days thereafter until Respondents have fully complied
with the provisions of Parts II, III, and IV of this Order, Respondents
shall submit to the Commission a verified written report setting forth
in detail the manner and form in which they intend to comply, are
complying, or have complied with this Order. Respondents shall include
in their compliance reports, among other things that are required from
time to time, a full description of the efforts being made to comply
with the Order, and their compliance with the terms and conditions of
the Agreement To Condition Acquisition and the Agreement To Hold
Separate, and set forth the monthly sales of Devro Inc. and Devro
Canada during the preceding two months and compared to the monthly
sales during the same months in the preceding calendar year.
Respondents shall include in their compliance reports copies of all
written communications, internal memoranda, and reports and
recommendations concerning divestiture and the manner in which the
Assets To Be Divested are being held separate.
VII
It is further ordered That, for the purpose of determining or
securing compliance with this Order, and subject to any legally
recognized privilege, upon written request and reasonable notice, each
Respondent shall permit any duly authorized representative of the
Commission:
A. Access, during office hours and in the presence of counsel, to
inspect and copy all books, ledgers, accounts, correspondence,
memoranda and other records and documents in the possession or under
the control of Respondent relating to any matters contained in this
Order; and
B. Upon five (5) days' notice to the appropriate Respondent, and
without restraint or interference, to interview officers, directors, or
employees of the Respondent, who may have counsel present.
VIII
It is further ordered That Respondents shall notify the Commission
at least thirty (30) days prior to any proposed change in the corporate
respondents such as dissolution, assignment, sale resulting in the
emergence of a successor corporation, or the creation or dissolution of
subsidiaries or any other change in the corporations that may affect
compliance obligations arising out of the Order.
Appendix I
Agreement To Condition Acquisition on Shareholder Approval of
Divestiture and Retroactive Indemnification
This Agreement To Condition Acquisition on Shareholder Approval
of Divestiture and Retroactive Indemnification (``Agreement To
Condition Acquisition'') is by and between Devro International plc,
a corporation organized, existing, and doing business under and by
virtue of the laws of Scotland, with its office and principal place
of business at Moodiesburn, Chryston, Scotland; Devro Inc., a
corporation organized, existing, and doing business under and by
virtue of the laws of the State of Delaware with its office and
principal place of business at Somerville, New Jersey; and the
Federal Trade Commission (``Commission''), an independent agency of
the United States Government, established under the Federal Trade
Commission Act of 1914, 15 U.S.C. 41, et seq.
Whereas Devro International plc entered into an agreement with
Hillside Industries Incorporated for Devro International plc to
acquire the outstanding voting securities of Teepak International
Inc. (``Teepak''), a Delaware corporation (hereinafter ``the
Acquisition'');
Whereas Devro International plc and Devro Inc. manufacture,
finish, distribute, and sell collagen sausage casings, and DCI Devro
Canada Inc. (``Devro Canada'') finishes, distributes, and sells
collagen sausage casings;
Whereas Teepak, with principal offices located at Westchester,
Illinois, among other things, also manufactures, finishes,
distributes, and sells collagen sausage casings;
Whereas the Commission is investigating the Acquisition to
determine whether it would violate any statute enforced by the
Commission;
Whereas Devro International plc and Devro Inc. are willing (a)
to enter into an Agreement Containing Consent Order requiring them
to divest certain Assets To Be Divested, as defined in Part I of the
proposed Consent Order of the Agreement Containing Consent Order,
which include the collagen sausage casings business of Devro Inc.,
Devro Canada, and assets of Devro International plc related thereto
(hereinafter ``the Divestiture''); (b) to enter into an Agreement To
Hold Separate requiring that the Assets To Be Divested be held
separate and apart from the remainder of the assets of Devro
International pending their divestiture; and (c) to arrange and
provide for the unlimited indemnification for the independent
auditor/manager, retroactive as of the date of the appointment of
the auditor/manager, pursuant to this Agreement To Condition
Acquisition and the Agreement To Hold Separate (hereinafter ``the
Retroactive Indemnification'');
Whereas if the Commission accepts the attached Agreement
Containing Consent Order, which would require the divestiture of the
Assets To Be Divested, the Commission is required to place the
Consent Order on the public record for a period of at least sixty
(60) days and may subsequently withdraw such acceptance pursuant to
the provisions of Rule 2.34 of the Commission's Rules of Practice
and Procedure, 16 C.F.R. 2.34;
Whereas the Commission is advised and concerned that, under the
applicable law of the United Kingdom, Devro International will be
unable to commit to, or be bound by, certain of the terms of the
Agreement Containing Consent Order and the Agreement To Hold
Separate unless and until those terms are approved by the
shareholders of Devro International plc;
Whereas the Commission is advised that, under the applicable law
of the United Kingdom, Devro International plc will not be able to
seek shareholder approval for (a) the Divestiture or (b) the
Retroactive Indemnification, until after all of the terms of the
Agreement Containing Consent Order, the Agreement To Hold Separate,
and this Agreement To Condition Acquisition are made known to the
shareholders of Devro International plc, which can only happen after
the Commission accepts the Agreement Containing Consent Order for
public comment, and the Agreement To Hold Separate and the Agreement
To Condition Acquisition;
Whereas the Commission will not accept for public comment an
Agreement Containing Consent Order or an Agreement to Hold Separate
that is not binding on the Proposed Respondents;
Whereas the undersigned officials of Devro International plc and
Devro Inc. and their attorneys at this time are authorized to make
the following binding commitments:
1. Devro International plc and Devro Inc. will seek shareholder
approval for, at the same time, as part of a single package, and as
a mutually contingent matter, (a) the Acquisition, (b) the
Divestiture, and (c) the Retroactive Indemnification;
2. the shareholder approval will be sought, and if
unconditionally obtained, (a) the Acquisition, (b) the Divestiture,
and (c) the Retroactive Indemnification will be fully authorized, no
less than seven (7) days prior to the completion of the sixty (60)
day public comment period during which the
[[Page 65334]]
Agreement Containing Consent Order will have been placed on the public
record;
3. Devro International plc and Devro Inc. will advise the
Commission's Bureau of Competition in writing, within twenty-four
(24) hours, of all actions taken by the shareholders in connection
with the effort to obtain approval for (a) the Acquisition, (b) the
Divestiture, and (c) the Retroactive Indemnification; and
4. Devro International plc, Devro Inc., and all entities
controlled by either of them will not acquire, directly or
indirectly, Teepak or any of its assets without unconditional
shareholder approvals having been obtained and fully authorized for
(a) the Divestiture and (b) the Retroactive Indemnification;
Whereas Devro International plc represents to the Commission
that (1) the directors of Devro International plc will officially
recommend to the shareholders of Devro International plc that they
approve (a) the Acquisition, (b) the Divestiture, and (c) the
Retroactive Indemnification; (2) Devro International plc will use
its best efforts to obtain shareholder approval for (a) the
Acquisition, (b) the Divestiture, and (c) the Retroactive
Indemnification; (3) in light of (1) and (2) above, it would be
highly unusual if the shareholders of Devro International plc were
to reject (a) the Acquisition, (b) the Divestiture, and (c) the
Retroactive Indemnification; and (4) Devro International plc fully
expects the shareholders of Devro International plc to approve (a)
the Acquisition, (b) the Divestiture, and (c) the Retroactive
Indemnification;
Whereas shareholder approval of (a) the Acquisition, (b) the
Divestiture, and (c) the Retroactive Indemnification will be
presented to the shareholders for their approval as part of a single
resolution, to be voted upon as a package only, and Devro
International plc and Devro Inc. will not be authorized to
consummate the Acquisition unless and until they are also authorized
(a) to make the Divestiture and (b) to grant the Retroactive
Indemnification;
Whereas shareholder approval for (a) the Acquisition, (b) the
Divestiture, and (c) the Retroactive Indemnification will be sought,
and determined, prior to the time that the Commission will consider
whether to accept the final Agreement Containing Consent Order under
the Commission's Rules;
Whereas the Commission is concerned that if an agreement is not
reached regarding the nature and timing of the shareholder approval
and the commitment on the part of Devro International and Devro Inc.
not to consummate the acquisition unless and until the requisite
shareholder approvals are obtained, appropriate divestiture
resulting from any proceeding challenging the Acquisition might not
be possible or might produce a less than effective remedy;
Whereas the Commission is concerned that if the Acquisition is
consummated, it will be necessary to preserve the Commission's
ability to require the Divestiture and the continued viability and
competitiveness of the Assets To Be Divested;
Whereas Devro International plc and Devro Inc.'s entering into
this Agreement shall in no way be construed as an admission by them
that the Acquisition is illegal;
Whereas Devro International plc and Devro Inc. understand that
no act or transaction contemplated by this Agreement shall be deemed
immune or exempt from the provisions of the antitrust laws or the
Federal Trade Commission Act by reason of anything contained in this
Agreement;
Now, therefore, the parties agree, upon understanding that the
Commission has not yet determined whether the Acquisition will be
challenged, and in consideration of the Commission's agreement that,
unless the Commission determines to reject the Consent Order, it
will not seek further relief from Devro International plc or Devro
Inc. with respect to the Acquisition, except that the Commission may
exercise any and all rights to enforce this Agreement, the Agreement
to Hold Separate, and the Consent Order to which this Agreement is
annexed and made a part thereof, as follows:
1. The Acquisition by Devro International plc or Devro Inc. of
Teepak is contingent upon shareholder approval.
2. Devro International plc and Devro Inc. will not seek
shareholder approval for the Acquisition without, at the same time,
and as part of the same package, also seeking mutually contingent
shareholder approval for (a) the Divestiture and (b) the Retroactive
Indemnification.
3. Unconditional shareholder approval will be sought, and if
obtained, be fully authorized, no less than seven (7) days prior to
the completion of the sixty (60) day public comment period during
which the Agreement Containing Consent Order will have been placed
on the public record.
4. In no event will Devro International plc or Devro Inc. or any
entity controlled by either acquire, directly or indirectly, Teepak
or any of its assets without unconditional shareholder approvals
having been obtained and fully authorized for (a) the Divestiture
and (b) the Retroactive Indemnification.
5. Unless and until unconditional shareholder approval is
obtained for (a) the Acquisition, (b) the Divestiture, and (c) the
Retroactive Indemnification, Devro International plc and Devro Inc.,
or any entity controlled by either, will not acquire, directly or
indirectly, Teepak or any of its assets.
6. At such time as the shareholders of Devro International may
unconditionally approve (a) the Acquisition, (b) the Divestiture,
and (c) the Retroactive Indemnification, Devro International and
Devro Inc., by and through their authorized representatives, shall
notify the Commission's Bureau of Competition, in writing, within
twenty-four (24) hours, of the action taken.
7. Devro International and Devro Inc., by and through their
signatories, warrant that they are fully authorized to enter into
the terms of this Agreement to Condition Acquisition and to bind
Devro International plc and Devro Inc. to all of its terms and
conditions.
8. This Agreement shall be binding when approved by the
Commission.
Appendix II
Agreement to Hold Separate
This Agreement to Hold Separate (``Agreement'') is by and
between Devro International plc, a corporation organized, existing,
and doing business under and by virtue of the laws of Scotland, with
its office and principal place of business at Moodiesburn, Chryston,
Scotland; Devro Inc., a corporation organized, existing, and doing
business under and by virtue of the laws of the State of Delaware
with its office and principal place of business at Somerville, New
Jersey; and the Federal Trade Commission (``Commission''), an
independent agency of the United States Government, established
under the Federal Trade Commission Act of 1914, 15 U.S.C. 41, et
seq.
Whereas Devro International plc entered into an agreement with
Hillside Industries Incorporated for Devro International plc to
acquire the outstanding voting securities of Teepak International,
Inc. (``Teepak''), a Delaware corporation (hereinafter
``Acquisition'');
Whereas Devro International plc and Devro Inc. manufacture,
finish, distribute, and sell collagen sausage casings, and DCI Devro
Canada Inc. (``Devro Canada'') finishes, distributes, and sells
collagen sausage casings;
Whereas Teepak, with principal offices located at Westchester,
Illinois, among other things, also manufactures, finishes,
distributes, and sells collagen sausage casings;
Whereas the Commission is investigating the Acquisition to
determine whether it would violate any statute enforced by the
Commission;
Whereas if the Commission accepts the attached Agreement
Containing Consent Order, which would require the divestiture of
certain Assets To Be Divested, as defined in Part I of the Consent
Order, which include the collagen sausage casings business of Devro
Inc., Devro Canada, and assets of Devro International plc related
thereto, the Commission is required to place the Consent Order on
the public record for a period of at least sixty (60) days and may
subsequently withdraw such acceptance pursuant to the provisions of
Section 2.34 of the Commission's Rules of Practice and Procedure, 16
C.F.R. 2.34;
Whereas the Commission is concerned that if an understanding is
not reached preserving the status quo ante of the Assets To Be
Divested during the period prior to the acceptance of the final
Consent Order by the Commission, after the 60-day notice period,
divestiture resulting from any proceeding challenging the
Acquisition might not be possible or might produce a less than
effective remedy;
Whereas the Commission is concerned that if the Acquisition is
consummated, it will be necessary to preserve the Commission's
ability to require the divestiture of the Assets To Be Divested and
the continued viability and competitiveness of the Assets To Be
Divested;
Whereas the purpose of this Agreement and the Consent Order is
to:
[[Page 65335]]
1. Preserve and maintain the Assets To Be Divested as a viable,
competitive and independent business engaged in the manufacture,
finishing, distribution and sale of collagen sausage casings pending
divestiture;
2. Limit the potential for interim competitive harm during the
period between the Acquisition and the required divestiture; and
3. Remedy any anticompetitive effects of the Acquisition;
Whereas Devro International plc and Devro Inc.'s entering into
this Agreement shall in no way be construed as an admission by them
that the Acquisition is illegal;
Whereas Devro International plc and Devro Inc. understand that
no act or transaction contemplated by this Agreement shall be deemed
immune or exempt from the provisions of the antitrust laws or the
Federal Trade Commission Act by reason of anything contained in this
Agreement;
Now, therefore, the parties agree, upon understanding that the
Commission has not yet determined whether the Acquisition will be
challenged, and in consideration of the Commission's agreement that,
unless the Commission determines to reject the Consent Order, it
will not seek further relief from Devro International plc or Devro
Inc. with respect to the Acquisition, except that the Commission may
exercise any and all rights to enforce this Agreement, the Agreement
to Condition Acquisition, and the Consent Order to which this
Agreement is annexed and made a part thereof, as follows:
1. Devro International plc and Devro Inc. agree to execute the
Agreement Containing Consent Order and be bound by the Consent
Order.
2. Devro International plc and Devro Inc. agree to execute and
be bound by the Agreement To Condition Acquisition.
3. Devro International plc and Devro Inc. agree that until the
earlier of the dates listed in subparagraphs 3(a) and 3(b) of this
Paragraph, they will comply with the provisions of Paragraph 4 of
this Agreement:
(a) Three (3) business days after the Commission withdraws its
acceptance of the Consent Order pursuant to the provisions of
Commission Rule 2.34, 16 C.F.R. 2.34; or
(b) The day after the divestiture required by the Consent Order
has been completed.
4. To ensure the complete independence and viability of Devro
Inc., Devro Canada, and the Assets To Be Divested, and to further
ensure that no competitive information is exchanged between Devro
International plc and Devro Inc., Devro Canada, and the persons
responsible for maintaining and operating the Assets To Be Divested,
Devro International plc shall hold Devro Inc., Devro Canada, and the
Assets To Be Divested, as defined in the Consent Order, separate and
apart from all of its other operations, on the following terms and
conditions:
(a) Devro International plc will appoint three persons to manage
and maintain the business and assets of Devro Inc., Devro Canada,
and the Assets To Be Divested. These persons (``the Management
Team'') shall agree to be bound by this Agreement and shall manage
Devro Inc., Devro Canada, and the Assets To Be Divested independent
of the management of Devro International plc's other business
operations, including those of Teepak, after Devro International plc
acquires Teepak. The persons on the Management Team shall not be
involved in any way in the manufacture, finishing, distribution, or
sale of sausage casings by Devro International plc or Teepak. The
management team shall conduct the business operations of Devro Inc.,
Devro Canada, and the Assets To Be Divested.
(b) The Management Team, in its capacity as such, shall report
directly and exclusively to an independent auditor/manager, to be
appointed by Devro International plc. The independent auditor/
manager, who shall not be an employee or agent of Devro
International plc or a person likely to be an employee or agent of
Devro International plc within two years of the divestiture, shall
have expertise in the manufacture, finishing, distribution, or sale
of collagen sausage casings. The independent auditor/manager shall
agree to be bound by this Agreement and shall have exclusive control
over the operations of Devro Inc., Devro Canada, and the Assets To
Be Divested, with responsibility for their management and
maintaining their independence. The independent auditor/manager
shall not be involved in any way in the business of manufacturing,
finishing, distribution, or sale of sausage casings by Devro
International plc or Teepak.
(c) Devro International plc shall not exercise direction or
control over, or influence directly or indirectly, the independent
auditor/manager, or the Management Team, or Devro Inc., Devro
Canada, or the Assets To Be Divested, other than as may reasonably
be necessary to assure compliance with this Agreement and with all
applicable laws.
(d) Devro International plc shall not change the composition of
the Management Team without the consent of the independent auditor/
manager.
(e) Devro International plc shall maintain the viability,
competitiveness, and marketability of the Assets To Be Divested and
shall neither cause nor permit the destruction, removal, wasting,
deterioration, or impairment of the Assets To Be Divested, except as
may occur in the ordinary course of business and except for ordinary
wear and tear, and shall not sell, transfer, encumber (other than in
the normal course of business), or otherwise impair their viability,
competitiveness, or marketability.
(f) Except for the Management Team, Devro International plc
shall not permit any Devro International plc Board Member, officer,
director, employee, or agent to be involved in the business
operations of the Assets To Be Divested.
(g) Except as required by law, and except to the extent that
necessary information is exchanged in the course of evaluating the
Acquisition, complying with requirements of the London Stock
Exchange and independent auditors, defending investigations or
defending or prosecuting litigation, negotiating agreements to
divest assets, or complying with this Agreement or the Consent
Order, Devro International plc shall not receive or have access to,
or use or continue to use, any material confidential information
about Devro Inc., Devro Canada, or the Assets To Be Divested, in
connection with the operation of Devro International plc or its
operation of the Teepak business. ``Material confidential
information'' means competitively sensitive or proprietary
information not in the public domain, including, but not limited to,
customer lists, price lists, marketing methods, patent rights,
knowhow, technologies, processes, process improvements or other
trade secrets or confidential business information.
(h) Devro International plc, Devro Inc. and Devro Canada shall
circulate to all employees of Devro Inc. and Devro Canada, and
display in a conspicuous place at Devro Inc. and Devro Canada
manufacturing facilities, notice of this Agreement to Hold Separate
and the proposed Consent Order in the form attached hereto as
Attachment A.
(i) Devro International plc shall give funds to the Management
Team for all capital expenditures relating to Devro Inc. and Devro
Canada previously planned or approved by Devro International plc to
the extent Devro Inc. does not generate sufficient cash flow to fund
such capital expenditures. The Management Team shall expend the
funds for these previously planned capital expenditures.
(j) The Management Team shall take all steps reasonably
necessary to optimize the profitable operations and continued
viability of Devro Inc., Devro Canada, and the Assets To Be
Divested, including, but not limited to:
(1) Paying all direct costs and indirect overheads relating to
the business of Devro Inc., Devro Canada, and the Assets To Be
Divested;
(2) Making available funds for advertising and other marketing
and promotional activities at no less than the level for the
comparable period in the preceding calendar year;
(3) Providing no less than the same level of sales commissions
or incentives for sales personnel as were provided for the
comparable period in the preceding calendar year;
(4) Maintaining the same level of resources involved in sales
and marketing as was the case in the normal course of business prior
to the Acquisition; and
(5) Expending funds sufficient to perform all reasonably
necessary routine maintenance to, and replacements of, the Assets To
Be Divested.
In the event that Devro Inc., Devro Canada, and the Assets To Be
Divested do not generate sufficient cash flow to fund the activities
reasonably necessary to optimize the profitable operations and
viability of Devro Inc., Devro Canada, and the Assets To Be
Divested, Devro International plc shall advance such sums as are
reasonably necessary to pay for same, to be repaid by the acquirer
at no interest within two (2) years.
(k) The compensation and expenses of the independent auditor/
manager shall be the responsibility of Devro International plc.
Devro Inc., Devro Canada, and the Assets To Be Divested shall not be
charged by Devro International plc with those costs and expenses.
(l) Devro International plc shall indemnify the independent
auditor/manager against any
[[Page 65336]]
losses or claims of any kind that might arise out of his or her
involvement under this Agreement, not to exceed $5 million, except
to the extent that such losses or claims result from misfeasance,
gross negligence, willful or wanton acts or bad faith; provided
however, upon shareholder approval of the unlimited indemnification
of the auditor/manager, retroactive as of the date of the
appointment of the auditor/manager, the $5 million liability
limitation shall become null and void, under the terms of the
Agreement to Condition Acquisition.
(m) If the independent auditor/manager fails to act, or ceases
to act, diligently, a substitute auditor/manager shall be appointed
by Devro International plc in the manner provided in Paragraph 4 (b)
of this Agreement.
(n) The independent auditor/manager shall have access to, and be
informed about, the names of the companies who may inquire about, or
seek or propose to buy, Devro Inc., Devro Canada, or the Assets To
Be Divested. Devro International plc may require the independent
auditor/manager to sign a confidentiality agreement prohibiting the
auditor/manager from disclosing any material confidential
information obtained as a result of his or her role as independent
auditor/manager, to anyone other than the Commission.
(o) All material transactions other than those in the ordinary
course of business, if not precluded by this Paragraph, shall be
subject to a majority vote of the Management Team. In the event of a
tie vote, the independent auditor/manager shall cast the deciding
vote.
5. Should the Federal Trade Commission seek in any proceeding to
compel Devro International plc or Devro Inc. to divest any of the
Assets To Be Divested, or any additional assets, as provided in the
Consent Order, or to seek any other injunctive or equitable relief
for any failure to comply with the Consent Order or this Agreement,
as defined in the draft complaint attached to the Agreement
Containing Consent Order, Devro International plc and Devro Inc.
shall not raise any objection based upon the expiration of the
applicable Hart-Scott-Rodino Antitrust Improvements Act waiting
period or the fact that the Commission permitted the Acquisition.
Devro International plc and Devro Inc. also waive all their rights
to contest the validity of this Agreement.
6. To the extent that this Agreement requires Devro
International plc or Devro Inc. to take, or prohibits them from
taking, certain actions that otherwise may be required or prohibited
by contract, Devro International plc and Devro Inc. shall abide by
the terms of this Agreement and the Consent Order and shall not
assert as a defense such contract requirements in a civil penalty
action brought by the Commission to enforce the terms of this
Agreement or Consent Order.
7. For the purpose of determining or securing compliance with
this Agreement, subject to any legally recognized privilege, and
upon written request with reasonable notice to counsel, Devro
International plc and Devro Inc. shall permit any duly authorized
representative or representatives of the Commission:
(a) Access during the office hours of Devro International plc
and Devro Inc., and in the presence of counsel, to inspect and copy
all books, ledgers, accounts, correspondence, memoranda, and other
records and documents in their possession or under their control
relating to compliance with this Agreement; and
(b) Upon five (5) days' notice to counsel, and without restraint
or interference from counsel, to interview officers or employees of
Devro International plc and Devro Inc., who may have counsel
present, regarding any such matters.
8. This Agreement shall not be binding until approved by the
Commission. Devro International plc and Devro Inc. acknowledge that
from the date they sign this Agreement until such time as the
Commission may approve this Agreement, they will undertake to
maintain the Assets To Be Divested in a viable condition.
9. Subsequent to acceptance for public comment of the Agreement
Containing Consent Order by the Commission and after the
unconditional approval by the shareholders of Devro International
obtained not less than seven (7) days prior to the end of the 60-day
public comment period, of (a) the Acquisition, (b) the divestiture
of the Assets To Be Divested under the terms of the Agreement
Containing Consent Order, and (c) the retroactive indemnification,
under the definitions and terms of the Agreement To Condition
Acquisition and this Agreement to Hold Separate, with written notice
having been given to the Commission's Bureau of Competition, in
writing, within twenty-four (24) hours, of the unconditional
approval by the shareholders, Devro International plc may consummate
the Acquisition.
10. This Agreement shall be binding when approved by the
Commission.
11. Devro International plc and Devro Inc., by and through their
signatories, warrant that they are fully authorized to enter into
the terms of this Agreement to Hold Separate and to bind Devro
International plc and Devro Inc. to all of its terms and conditions.
Attachment A
Important Notice
As you know, Devro International plc has entered into an agreement
with the Federal Trade Commission (FTC) in connection with the proposed
acquisition of Teepak International, Inc. Under the terms of the
agreement with the FTC, Devro International must sell Devro Inc. and
DCI Devro Canada Inc. to a third party that is acceptable to the FTC.
We anticipate that this will occur within the next several months.
The agreement with the FTC also requires that, until Devro Inc. and
Devro Canada are sold, Devro International must preserve and maintain
them as competitive and independent businesses separate from Devro
International.
To ensure that Devro Inc. and Devro Canada are kept separate from
Devro International, a three-person management team, composed of
________________, ________________, and ________________, will assume
the management of Devro Inc. and Devro Canada. This management team,
which will operate totally independently of Devro International, will
report directly and exclusively to ________________, an independent
auditor/manager.
The effect of Devro International's agreement with the FTC is that,
for all intents and purposes, Devro International will no longer be
playing any role in the management and operation of Devro Inc. and
Devro Canada. Until such time as the future owners of Devro Inc. and
Devro Canada are determined, it is the responsibility of every employee
of Devro Inc. and Devro Canada to cooperate with the new management
team and to help to preserve Devro Inc. and Devro Canada as competitive
and independent businesses.
Analysis to Aid Public Comment on the Provisionally Accepted
Consent Order
The Federal Trade Commission has accepted for public comment from
Devro International plc and its United States subsidiary, Devro Inc.
(collectively referred to as ``Devro'') an Agreement Containing Consent
Order. This agreement has been placed on the public record for sixty
(60) days for receipt of comments from interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreement and the comments received, and will decide whether it should
withdraw from the agreement or make final the consent order in the
agreement.
According to the draft of complaint that the Commission intends to
issue, Devro and Teepak International, Inc. (``Teepak'') are
competitors, nationwide and worldwide, in the manufacture of collagen
sausage casings. Sausage casings are the skins into which various
sausage-meat products are stuffed before being cooked or smoked. Among
the sausage products using collagen sausage casings are beef jerkys,
small sausages, and frankfurters. Unlike other types of synthetic
sausage casings, such as fibrous sausage casings, used principally to
make salamis and hams, and cellulose sausage casings, used principally
to make skinless frankfurters, most collagen sausage casings are
edible. Edible sausage casings produce a ``bite'' to a sausage when
eaten.
The Commission's draft of complaint states that Devro entered into
an agreement with Hillside Industries, Inc.,
[[Page 65337]]
the current owners of Teepak, for Devro to acquire all of Teepak for
approximately $135 million. The Commission is concerned that the
proposed merger would eliminate substantial competition between Devro
and Teepak, increase concentration in the highly concentrated collagen
sausage casings markets, and lead to higher prices and fewer customer
services. The Commission stated it has reason to believe that the
proposed acquisition would have anticompetitive effects and be in
violation of Section 7 of the Clayton Act and Section 5 of the Federal
Trade Commission Act.
According to the Commission's draft complaint, the anticompetitive
effects of the proposed acquisition will be felt in an all-collagen
sausage casings product market as well as in an edible collagen sausage
casings product market, in both the United States and the world as a
whole. In the United States all-collagen sausage casings and edible
sausage casings markets, only four firms sell collagen sausage casings,
and Devro and Teepak are the nation's top two producers. The proposed
acquisition would increase the Herfindahl-Hirschman Index (``HHI''),
the customary measure of industry concentration, by a substantial
amount. For example, in the United States all-collagen sausage casings
market, the HHI will increase by approximately 2000 points and produce
an industry concentration of approximately 4700 points. In the United
States edible collagen sausage casings market, the HHI would increase
by approximately 3300 points and produce an industry concentration of
approximately 6800 points. In the world all-collagen and edible sausage
casings markets, the proposed acquisition would affect concentration as
measured by four-firm concentration and the HHI by very similar orders
of magnitude.
The Agreement Containing Consent Order, if finally issued by the
Commission, would settle all of the charges alleged in the Commission's
complaint. Under the terms of the proposed consent order, Devro will be
required to divest all of its collagen sausage casings business assets
in the United States and Canada (``Devro North America'') to an
acquirer acceptable to the Commission. Devro North America consists
primarily of a collagen sausage casings manufacturing plant in
Somerville, New Jersey, and a collagen sausage casings finishing plant
in Markham, Ontario, Canada. Because the Canadian and United States
facilities constitute a single operation, Devro is required to divest
the Canadian facility along with the United States plant. This will
insure that the divested assets will continue to operate as a viable,
competitive business. Devro will also be required to make available to
the acquirer of these assets, on a non-exclusive basis, any new
technology that Devro may develop related to collagen sausage casings
for a period of two (2) years following the final entry of the order.
Devro will be required to complete the required divestiture within
three (3) months of the Commission's final issuance of the consent
order. In the event Devro does not divest Devro North America to an
acquirer acceptable to the Commission in the requisite time, procedures
for the appointment of a trustee to sell the assets have been agreed to
and will be triggered.
An additional feature of the consent order accepted for public
comment is that it limits to some extent the class of potential
acquirers for Teepak that would be acceptable to the Commission. Firms
already producing collagen sausage casings for sale in the United
States are excluded as prospective acquirers of Devro North America.
The purpose of this exclusion is to preclude Devro from attempting to
divest Devro North America to a competitor where there are likely to be
further anticompetitive effects.
Accompanying the Agreement Containing Consent Order are two
ancillary agreements. The first is an Agreement to Condition
Acquisition and the second is an Agreement to Hold Separate.
The Agreement to Condition Acquisition requires that Devro may not
acquire Teepak until Devro is authorized by its shareholders to divest
Devro North America and related assets. The purpose of this agreement
is to ensure that the Commission, through the appointed trustee, will
have an enforceable divestiture remedy available should Devro acquire
Teepak and not divest Devro North America. For reasons related to
United Kingdom procedure and practice, Devro believes it cannot seek
shareholder approval for the proposed acquisition of Teepak, or for the
proposed divestiture of Devro North America, unless and until the
Commission accepts the Agreement Containing Consent Order for public
comment. Under the terms of the Agreement to Condition Acquisition,
Devro is required to seek shareholder approval of the divestiture at
the same time that it seeks shareholder approval of the acquisition,
and these approvals must be obtained unconditionally and at least 7
days before the end of the 60-day public comment period. Devro will not
be permitted to acquire Teepak unless it has shareholder approval to
divest Devro North America. Also, when the Commission decides whether
to issue the final order, the Commission will know whether the
conditions have been satisfied. If the Devro shareholders reject the
proposed resolution that, if passed, would authorize Devro to acquire
Teepak and divest Devro North America, no anticompetitive acquisition
will occur and the Commission will not issue the final consent order.
The Agreement to Hold Separate requires that Devro preserve Devro
North America's assets and operate Devro North America as a separate,
ongoing business apart from Devro and Teepak. The purpose of this
agreement is to help insure that the competitive value of Devro North
America will be maintained after Devro acquires Teepak but before the
assets are actually divested.
By accepting the consent order subject to final approval, the
Commission anticipates that the competitive problems alleged in the
complaint will be resolved. The purpose of this analysis is to invite
and facilitate public comment concerning the consent order. It is not
intended to constitute an official interpretation of the agreement and
proposed order or in any way to modify their terms.
By direction of the Commission.
Donald S. Clark,
Secretary.
Concurring Statement of Commissioner Mary L. Azcuenaga in Devro
International PLC
[File No. 951-0072]
Although I have voted to accept the proposed consent order
requiring divestiture for public comment, I have reservations about the
provision of the order that excludes some incumbent firms from
eligibility to acquire the assets to be divested.1 According to
the Notice to Aid Public Comment, the ``purpose of this exclusion is to
preclude Devro from attempting to divest Devro North American to a
competitor where there are likely to be further anticompetitive
effects.'' Since any proposed divestiture under the order must be
approved by the Commission,2 an attempt by Devro to make an
anticompetitive divestiture likely would be fruitless. In addition,
Devro would risk appointment under the order of a trustee to accomplish
[[Page 65338]]
divestiture and incurring civil penalties for failure to make a timely
divestiture.
\1\ Order Paragraph II.C of the proposed order states that the
proposed acquirer of the assets to be divested ``shall not be a firm
that has been engaged in the manufacture of collagen sausage casings
for sale, other than to itself, in the United States.''
\2\ Order Paragraph II.D.
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Attempts to define in advance the field of eligible acquirers under
a divestiture order are unnecessary, at best, potentially inefficient
and possibly even anticompetitive. It is an inefficient use of
resources to attempt to assess in advance the competitive effects of a
transaction that Devro might or might not propose (especially if the
exclusion covers more than one firm), even if the transaction-specific
information necessary to our merger analysis were available. As a
practical matter, any such exclusions will be based on something less
than an adequate factual examination of the various possible proposed
divestitures and will necessarily involve the risk of excluding firms
that might have been acceptable and even procompetitive acquirers. That
risk is unnecessary and should be unacceptable in view of the
requirement to obtain the Commission's approval before any divestiture
can take place and the availability of other sanctions for failing to
make a timely divestiture.
[FR Doc. 95-30834 Filed 12-18-95; 8:45 am]
BILLING CODE 6750-01-P