[Federal Register Volume 65, Number 178 (Wednesday, September 13, 2000)]
[Notices]
[Pages 55271-55282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20625]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States of America v. Ingersoll-Dresser Pump Co., Et Al.;
Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. section 16(b) through (h), that a proposed
Final Judgment, Hold Separate Stipulation and Order, and Competitive
Impact Statement have been filed with the United States District Court
for the District of Columbia in United States v. Ingersoll-Dresser Pump
Co., Ingersoll-Rand Co., and Flowserve Corp., Civil Action No. 00-1818.
On July 28, 2000, the United States filed a Complaint alleging that the
proposed acquisition by Flowserve of Ingersoll-Dresser Pump Company
would violate section 7 of the Clayton Act, 15 U.S.C. 18. The proposed
Final Judgment, filed at the same time as the Complaint, requires the
defendants to divest certain pump lines and manufacturing and repair
facilities. Copies of the Complaint, proposed Final Judgment, and
Competitive Impact Statement are available for inspection at the
Department of Justice in Washington, DC in Suite 2000, 325 Seventh
Street, NW., and at the Office of the Clerk of the United States
District Court for the District of Columbia.
Public comment is invited within 60 days of the date of this
notice. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to Gail Kursh, Chief, Health Care Task Force, 325 Seventh Street, NW.,
Room 404, Antitrust Division, Department of Justice, Washington, DC
20530 (telephone: (202) 307-5799).
Constance K. Robinson,
Director of Operation and Merger Enforcement.
Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, brings this civil action to
enjoin preliminarily and permanently the proposed acquisition by
Flowserve Corporation (``Flowserve'') of Ingersoll-Dresser Pump Company
(``IDP''), pursuant to a Purchase Agreement entered into by the
defendants and dated February 9, 2000. The United States alleges as
follows:
1. Unless it is enjoined, Flowserve's proposed acquisition of IDP
will reduce the already small number of firms that compete on bids to
sell certain costly, specialized and highly engineered pumps used in
oil refineries and electrical generating facilities in the United
States, in violation of Section 7 of the Clayton Act, as amended, 15
U.S.C. 18. Such a reduction in competition is likely to result in
higher prices and reduced selection for those pumps.
I. Jurisdiction and Venue
2. This complaint is filed and this action is instituted under
Section 15 of the Clayton Act, as amended, 15 U.S.C. 25, to prevent and
restrain defendants from violating Section 7 of the Clayton Act, as
amended, 15 U.S.C. 18.
3. Each of the defendants is engaged in interstate commerce and in
activities substantially affecting interstate commerce. This Court has
subject matter jurisdiction over this action, and jurisdiction over the
parties, pursuant to Section 12 of the Clayton Act, 15 U.S.C. 22, and
28 U.S.C. 1331, 1337(a) and 1345.
4. Each of the defendants has consented to personal jurisdiction in
the District of Columbia. Venue is proper in this District pursuant to
15 U.S.C. 22, and 28 U.S.C. 1391(c).
II. The Defendants
5. Flowserve is a New York corporation with its principal executive
offices in Irving, Texas. Flowserve manufactures and sells a broad
array of pumps, valves and seals used in a wide variety of
manufacturing and processing industries, and provides parts and service
for pumps, in the United States and abroad. Flowserve has total annual
sales of over $1 billion and maintains offices and facilities at
approximately 25 locations in the United States.
6. Ingersoll-Rand is a New Jersey corporation with its principal
executive offices in Woodcliff Lake, New Jersey. Ingersoll-Rand is a
general partner in, and controls, IDP.
7. ID is a Delaware general partnership, headquartered in Liberty
Corner, New Jersey. IDP manufactures and sells a broad array of pumps,
and provides service and parts for such pumps, in the United States and
abroad. IDP is one of the world's largest pump manufacturers, with
annual sales of over $875 million. IDP maintains offices and facilities
at approximately 27 locations in the United States.
III. Background
8. Flowserve and IDP each manufacture and sell for use in the
United States two categories of specialized, highly engineered pumps
known as ``API 610 pumps'' and ``power plant pumps.'' API 610 pumps are
used in the oil and gas industry, including in oil refineries, and
power plant pumps are used in electrical generating facilities or
``power plants.''
9. API 610 pumps are specialized, rugged, highly engineered pumps
that generally perform critical functions in an oil refinery, including
the movement of erosive, corrosive, hot and flammable petroleum-based
liquids under high pressure. API 610 pumps are designed, built, tested
and shipped in accordance with comprehensive standards of the American
Petroleum Institute.
10. Power plant pumps are specialized, highly engineered pumps that
perform critical functions in the steam cycle of a power plant. (The
steam cycle consists of a boiler or steam generator that feeds steam to
a steam turbine that drives an electricity-producing generator.) The
three basic categories of power plant pumps are: (1) ``Circulating
water pumps,'' which deliver cooling water to condensers that condense
the spent steam that has passed through a steam turbine; (2)
``condensate pumps,'' which extract the
[[Page 55272]]
condensed steam; and (3) ``boiler feed pumps,'' which move the
condensed steam (now very hot water) back into the boiler or steam
generator to make new steam.
11. Each manufacturer of API 610 and power plant pump lines offers
its lines in an array of different models and sizes. The pumps within a
line differ with respect to capacity and capabilities, including, for
example, the number of stages, speed, efficiency, bearing type, suction
and discharge pressure, head, temperature range, vapor pressure, rated
gallons per minute, impeller diameter, suction nozzle size, discharge
nozzle size, metallurgical properties, and motor type and size.
12. API 610 pumps and power plant pumps are sold pursuant to bids,
which are based on extensive specifications from the customer. For each
pump application in a given oil refinery or power plant project, the
manufacturer selects a model and size pump and accessories to bid, and
makes additional modifications to try to meet the customer's
specifications.
13. The match between the requirements of a particular pump
application, and the optimum operating range of the pump a manufacturer
proposes to use for that application, is referred to as the ``fit'' of
the proposed pump. A manufacturer's ability to provide an economically
priced API 610 or power plant pump with a good fit is largely a
function of the breadth of that manufacturer's lines of pumps and
accessories.
14. Customers evaluate the competing bids, in part, on the basis of
their compliance with the technical specifications that the customer
had provided. For example, in addition to a manufacturer's proposed
price for the required pumps, a customer may also consider how the fit
of the pumps that that manufacturer proposes to use will affect the
long-term operating costs of the oil refinery or power plant.
15. Customers also evaluate the commercial terms of the competing
proposals, including each manufacturer's proposed price and proposed
delivery dates. Delivery dates are an important aspect of the
competition among API 610 and power plant pump manufacturers because
the amount of time a manufacturer will require to deliver the pumps
(which can vary from several months to over a year) may significantly
affect the construction schedule for the project.
16. A customer that is undertaking an oil refinery or power plant
construction project can avoid costly construction delays, or costly
down-time in the operation of the refinery or power plant, by selecting
a manufacturer that will be able to respond quickly to requests for
technical information or design changes during the design phase of the
project; to requests for technical assistance, modifications or repairs
during the construction or commissioning phases of the project; and to
requests for service or repairs during the operating life of the pumps.
17. For those reasons, customers that are planning oil refinery or
power plant construction projects in the United States seek to obtain
the API 610 or power plant pumps from a manufacturer that has a
substantial presence in the United States, including engineering
expertise, reputation and practical operating experience with the
pump's application in similar facilities in the United States; parts
availability in the United States; and a substantial network of service
and repair facilities in the United States.
IV. Trade and Commerce
A. Relevant Product Markets
18. The combined technical and commercial needs of the customer
differ markedly for each API 610 pump or power plant pump bid. A small
but significant increase in the price of a product that meets the bid
specifications would not cause a significant number of customers in the
United States to substitute other products that do not meet those bid
specifications.
19. Each bid for API 610 pumps and power plant pumps for
installation in oil refineries and power generation plants in the
United States is a line of commerce and relevant product market under
Section 7 of the Clayton Act.
B. Relevant Geographic Market
20. Those competitors that could constrain Flowserve and IDP from
raising prices on bids for API 610 pumps and power plant pumps for
installation in oil refineries and power generation plants,
respectively, in the United States are API 610 and power plant pump
manufacturers with a substantial physical presence in the United
States.
21. Customers installing these pumps in the United States prefer
domestic pump suppliers because reputation is important, as is the
ability to provide quick and reliable servicing with parts availability
and to avoid shipping costs and delays. In addition, with minor
exceptions, only domestic manufacturers have an installed base of pumps
in the United States, thus allowing customers to more readily observe
and evaluate the operation and reliability of the pump in comparable
applications. Moreover, pumps manufactured abroad may cost more than
comparable pumps manufactured in the United States.
22. The relevant geographic market for analyzing the proposed
acquisition under Section 7 of the Clayton Act is the United States.
V. Market Structure and Anticompetitive Effects
23. Based on capabilities and bidding history, there are only four
credible competitors, including Flowserve and IDP, that might bid on a
large majority of bids for API 610 pumps for oil refinery projects in
the United States.
24. Based on capabilities and bidding history, there are only four
credible competitors, including Flowserve and IDP, that might bid on a
large majority of bids for circulating water pumps for power plant
construction projects in the United States.
25. Based on capabilities and bidding history, there are only three
credible competitors, including Flowserve and IDP, that might bid on a
large majority of bids for condensate pumps for power plant
construction projects in the United States.
26. Based on capabilities and bidding history, there are only four
credible competitors, including Flowserve and IDP, that might bid on a
large majority of bids for boiler feed pumps for power plant
construction projects in the United States.
27. Although each bidder for API 610 pumps and power plant pumps
may be familiar with its competitors, it does not know with any degree
of certainty the commercial or technical terms of its competitors' bids
prior to submitting its own bid. That uncertainty restrains bidders'
pricing. By eliminating IDP, one of Flowserve's few, significant
competitors. Flowserve would be able to increase its bid without
increasing the probability it would lose the bid. Similarly, the few
remaining bidders could also increase their bids without increasing
their risk losing. Thus, the acquisition of IDP by Flowserve creates an
incentive for each bidder to bid a higher amount than it would have
were IDP still a competitor.
28. Due to the broad range of pumps IDP and Flowserve offer, their
overall expertise in meeting the API 610 and power plan pump needs of
customers, the fit offered by their pumps, their ability to meet
delivery time frames, their aftermarket parts and service availability,
and other technical and commercial factors, IDP and Flowserve are
frequently perceived by each other,
[[Page 55273]]
by other bidders, and by customers as being close or strong competitors
and having a significant probability of winning a given bid.
29. The magnitude of the anticompetitive effect from the proposed
acquisition will be greater the more that IDP and Flowserve view each
other as close or strong competitors, and other rivals view IDP as a
major competitive factor.
30. United States' oil refineries and power generators have
benefitted from this competition through lower prices and greater
choice. The combination of IDP and Flowserve will eliminate this
competition, and the customers' benefits from this competition.
VI. The Likely Anticompetitive Effects of the Proposed Acquisition Will
Not Be Eliminated by Entry
31. Substantial, timely entry of additional competitors is unlikely
and, therefore, will not restrain any price increases caused by the
elimination of IDP as a bidder.
32. Entry by a firm that does not currently manufacture API 610
pumps or power plant pumps would be extraordinarily difficult, costly,
time consuming and financially risky; hence, such entry is highly
unlikely.
33. To compete effectively, a new firm would need to offer an array
of API 610 or power plant pump models. The design, production and
testing of a single model of such a pump can take several years, and
would require the expenditure of substantial sunk costs, as would the
establishment of an engineering, parts and service network. To develop
an array of pumps would further increase that time and cost.
34. Timely, substantial entry by an existing manufacturer of API
610 or power plant pumps that does not currently sell those pumps for
installation in United States' oil refineries or power plants is
unlikely. Such a firm could not effectively compete for sales of API
610 or power plant pumps unless it first established, in the United
States, a substantial contingent of engineering personnel; a local
availability of spare parts; and a substantial network of service and
repair facilities. Moreover, many oil refineries and power plants will
not purchase pumps from a supplier that has not demonstrated, in the
United States, the reliability and efficiency of its pumps and the
expertise of its engineers in the particular use for which the pump is
being sought. This process can take years and the expenditure of
substantial sunk costs.
VII. Violation Alleged
35. Flowserve's acquisition of IDP may substantially lessen
competition on a significant number of bids for the sale of API 610
pumps used in oil refineries in the United States and power plant pumps
used in power plants in the United States, in violation of Section 7 of
the Clayton Act, 15 U.S.C. 18.
36. The acquisition will have the following effects, among others:
(a) Actual and potential competition between IDP and Flowserve will
be eliminated;
(b) Competition generally in the manufacture, marketing and sale of
API 610 pumps and power plant pumps will be lessened substantially; and
(c) Prices of API 610 pumps and power plant pumps will increase,
and innovation in the development of these pumps will decrease.
VIII. Requested Relief
Wherefore, plaintiff, the United States of America, requests a
judgment:
(a) That the proposed acquisition of IDP by Flowserve be adjudged
and decreed to be unlawful and in violation of Section 7 of the Clayton
Act, 15 U.S.C. 18;
(b) That defendants and all persons acting on their behalf be
preliminarily and permanently restrained and enjoined from implementing
the February 9, 2000 Purchase Agreement or any other agreement of like
intent or effect;
(c) That plaintiff be awarded its costs of this action; and
(d) That plaintiff be granted such other and further relief as the
Court may deem proper.
Respectfully submitted,
Joel I. Klein,
Assistant Attorney General.
Donna E. Patterson,
Deputy Assistant Attorney General.
Constance K. Robinson,
Director of Operations and Merger Enforcement.
Gail Kursh,
Chief, Health Care Task Force.
David C. Jordan,
Assistant Chief, Health Care Task Force.
Arnold C. Celnicker,
Georgia Bar No. 118050.
Steven Brodsky,
D.C. Bar No. 91470.
Justin M. Dempsey,
D.C. Bar No. 425976.
Trial Attorneys, U.S. Department of Justice, Antitrust Division, 325
7th Street, N.W., Suite 400, Washington, DC 20530, (202) 305-7498.
Hold Separate Stipulation and Order
It is hereby stipulated and agreed by and between the undersigned
parties, subject to approval and entry by the Court, that:
I. Definitions
As used in this Hold Separate Stipulation and Order.
A. ``Acquirer(s)'' means the entity or entities to whom defendants
divest the Divestiture Assets.
B. ``Divestiture Assets'' means the ``Divestiture Plant,''
``Divestiture Pump Lines,'' and ``Divestiture Repair Facilities,'' as
defined below.
C. ``Divestiture Plant'' means Flowserve's pump plant in Tulsa,
Oklahoma, including manufacturing equipment, tooling and fixed assets,
personal property, inventory, office furniture, materials, supplies,
and other tangible property used in connection with the manufacturer of
the SCE, VLT, VMT and HQ pump lines; manufacturing equipment and
tooling dedicated to the production of the J and CGT pump lines and
located in IDP's pump plant in Phillipsburg, New Jersey, all contracts,
agreements, leases, commitments, certifications, and understandings,
relating to the Divestiture Plant, including supply agreements; and all
licenses, permits and authorizations issued by any governmental
organization relating to the Divestiture Plant.
D. ``Divestiture Pump Lines'' means Flowserve's SCE, VLT, VMT, HQ,
HX and WX (excluding the 93 inch size of the WX) pump lines, including
parts for said lines, and IDP's and J and CGT pump lines, including
parts for said lines, and also including all customer lists, contracts,
accounts, credit records, repair and performance records and all other
records relating to said pump lines; and all intangible assets used in
the development, production, servicing and sale of Divestiture Pump
Lines, including, but not limited to all patents, licenses and
sublicenses, intellectual property, copyrights, trademarks, trade
names, service marks, service names (excluding names and marks that
relate to the corporate owner of said pump lines such as ``Flowserve''
and ``IDP,'' and predecessor acquired companies), technical
information, computer software and related documentation, know-how,
trade secrets, drawings, blueprints, designs, design protocols,
specifications for materials, specifications for parts and devices,
safety procedures for the handling of materials and substances, quality
assurance and control procedures, molds, patterns and design tools,
manuals and technical information defendants provide to their own
employees, customers, suppliers, agents or licensees, and research and
[[Page 55274]]
development activities and data concerning historic and current
research and development efforts including, but not limited to, designs
of possible modifications or improvements, relating to said pump lines.
E. ``Divestiture Repair Facilities'' means the IDP service centers
in Batavia, Illinois and La Mirada, California, including production,
repair and service equipment at said facilities.
F. ``Flowserve'' means defendant FLOWSERVE CORPORATION, a New York
corporation with its headquarters in Irving, Texas, its successors and
assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships and joint ventures, and their directors, officers,
managers, agents, and employees.
G. ``IDP'' means defendant INGERSOLL-DRESSER PUMP COMPANY, a
Delaware general partnership with its headquarters in Liberty Corner,
New Jersey, its successors and assigns, subsidiaries, divisions,
groups, affiliates, partnerships and joint ventures, and their
directors, officers, managers, agents, and employees.
H. ``Tulsa Plant'' means Flowserve's pump plant in Tulsa, Oklahoma,
including manufacturing equipment, tooling and fixed assets, personal
property, inventory, office furniture, materials, supplies, and other
tangible property used in connection with the manufacture of the SCE,
VLT, VMT and HQ pump lines; and excluding dedicated manufacturing
equipment and tooling inventory, materials and supplies not used in
connection with the manufacture of the SCE, VLT, VMT and HQ pump lines.
II. Objectives
The proposed Final Judgment filed in this case is meant to ensure
defendants' prompt divestitures Assets for the purpose of establishing
one or more viable competitors in the production and sale of certain
types of centrifugal pumps used in oil refineries (hereinafter ``API
pumps'') and certain power plant pumps used in combined cycle, co-
generation and solid fuel power plants (hereinafter ``power plant
pumps'') in order to remedy the effects that the United States alleges
would otherwise result from Flowserve's acquisition of IDP. This Hold
Separate Stipulation and Order ensures, prior to such divestitures,
that the Divestiture Assets remain independent, economically viable,
and ongoing business assets that will remain independent and
uninfluenced by defendants except as stated herein, and that
competition is maintained during the pendency of the ordered
divestitures.
III. Jurisdiction and Venue
The Court has jurisdiction over the subject matter of this action
and over each of the parties hereto, and venue of this action is proper
in the United States District Court for the District of Columbia.
IV. Compliance with and Entry of Final Judgment
A. The parties stipulate that a Final Judgment in the form attached
hereto as Exhibit A may be filed with and entered by the Court, upon
the 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 the United States has not withdrawn
its 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.
B. Defendants shall abide by and comply with the provisions of the
proposed Final Judgment, pending the Judgment's entry by the Court, or
until expiration of time for all appeals of any Court ruling declining
entry of the proposed Final Judgment, and shall, from the date of the
signing of this Hold Separate Stipulation and Order by the parties,
comply with all the terms and provisions of the proposed Final Judgment
as though the same were in full force and effect as an order of the
Court.
C. Defendants shall not consummate the transaction sought to be
enjoined by the Complaint herein before the Court has signed this Hold
Separate Stipulation and Order.
D. This Hold Separate Stipulation and Order shall apply with equal
force and effect to any amended proposed Final Judgment agreed upon in
writing by the parties and submitted to the Court.
E. In the event (1) the United States has withdrawn its consent, as
provided in Section IV(A) above, or (2) the proposed Final Judgment is
not entered pursuant to this Hold Separate Stipulation and Order, the
time has expired for all appeals of any Court ruling declining entry of
the proposed Final Judgment, and the Court has not otherwise ordered
continued compliance with the terms and provisions of the proposed
Final Judgment, or (3) Flowserve fails to acquire IDP and certifies to
the United States in writing that Flowserve will not seek to acquire
IDP without first filing a new pre-merger notification under the Hart-
Scott-Rodino Act, then the parties are released from all further
obligations under this Hold Separate Stipulation and Order, and the
making of this Hold Separate Stipulation and Order shall be without
prejudice to any party in this or any other proceeding.
F. Defendants represent that the divestitures ordered in the
proposed Final Judgment can and will be made, and that defendants will
later raise no claim of mistake, hardship or difficulty of compliance
as grounds for asking the Court to modify any of the provisions
contained therein.
V. Hold Separate Provisions
Until the divestitures required by the proposed Final Judgment have
been accomplished:
A. Defendants shall preserve, maintain, and continue to operate the
Tulsa Plant as an independent, ongoing, economically viable competitive
business unit, with management and operations of the Tulsa Plant held
entirely separate, distinct and apart from those of defendants' other
operations. Defendants shall not coordinate its production, marketing,
or terms of sale of any products with those produced by the Tulsa Plant
except as necessary to effectuate the terms of the Hold Separate
Stipulation and Order and the proposed Final Judgment. Within twenty
(20) days after the entry of the Hold Separate Stipulation and Order,
defendants will inform the United States of the steps defendants have
taken to comply with this Hold Separate Stipulation and Order.
B. Defendants shall take all steps necessary to ensure that (1) the
Tulsa Plant will be maintained and operated as an independent, ongoing,
economically viable and active competitive buisness unit in the API
pumps and power plant pumps businesses; (2) management of the Tulsa
Plant will not be influenced by defendants except to the extent
required herein; and (3) the books, records, competitively sensitive
sales, marketing and pricing information, and decision-making
concerning production, distribution or sales of products from the Tulsa
Plant will be kept separate and apart from defendant Flowserve's other
operations.
C. Defendants shall use all reasonable efforts to maintain the
increase the sales and revenues of the Divestiture Pump Lines.
Defendants shall not alter the commissions, incentives or compensation
of sales personnel in any way that might negatively impact sales of the
Divestiture Pump Lines.
D. Defendants shall provide sufficient working capital and lines
and sources of credit to continue to maintain the Tulsa
[[Page 55275]]
Plant as an economically viable and competitive, ongoing business unit,
consistent with the requirements of Sections V (A) and (B).
E. Defendants shall take all steps necessary to ensure that the
Tulsa Plant is fully maintained in operable condition at no less than
its current capacity and sales, and shall maintain and adhere to normal
repair and maintenance schedules for the Tulsa Plant.
F. Defendants shall not, except as part of a divestiture approved
by the United States in accordance with the terms of the proposed Final
Judgment, remove, sell, lease, assign, transfer, pledge or otherwise
dispose of any of the Divestiture Assets.
G. Defendants shall maintain, in accordance with sound accounting
principles, separate, accurate and complete financial ledgers, books
and records that report on a periodic basis, such as the last business
day of every month, consistent with past practices, the assets,
liabilities, expenses, revenues and income of the Divestiture Assets.
H. Defendants' employees with primary responsibility for the
production and sale of the Divestiture Pump Lines at the Tulsa Plant
shall not be transferred or reassigned to other areas within the
company except for transfers initiated by employees. Defendant shall
provide the United States with ten (10) calendar days notice of such
transfer.
I. Defendants shall appoint persons to oversee the Divestiture
Assets, subject to the approval of the United States, and who will be
responsible for defendants' compliance with this section. These persons
shall have complete managerial responsibility for the Divestiture
Assets, subject to the provisions of this proposed Final Judgment. In
the event such a person(s) is unable to perform his duties, defendants
shall appoint, subject to the approval of the United States, a
replacement within ten (10) working days. Should defendants fail to
appoint a replacement acceptable to the United States within this time
period, the United States shall appoint a replacement at the expense of
the defendants.
J. Defendants shall take no action that would interfere with the
ability of any trustee appointed pursuant to the proposed Final
Judgment to complete the divestiture pursuant to the Final Judgment to
Acquirer(s) acceptable to the United States.
K. This Hold Separate Stipulation and Order shall remain in effect
until consummation of the divestitures required by the proposed Final
Judgment or until further order of the Court.
Dated: July 28, 2000
Respectifully submitted,
For Plaintiff, United States of America:
Arnold C. Celnicker,
Georgia Bar No. 118050, U.S. Department of Justice, Antitrust
Division, 325 7th Street, N.W., Suite 400, Washington, DC 20530,
(202) 305-7498.
For Defendant, Ingersoll-Dresser Pump Company:
David I. Gelfand,
D.C. Bar No. 416596,
Mark W. Nelson,
D.C. Bar No. 442461, Cleary, Gottlieb, Steen & Hamilton, 2000
Pennsylvania Ave., N.W., Washington, D.C. 20006-1801, (202) 974-
1500.
For Defendant, Flowserve Corporation:
Stephen J. Marzen,
D.C. Bar No. 413164, Shearman & Sterling, 801 Pennsylvania Ave.,
N.W., Suite 900, Washington, D.C. 20004-2604, (202) 508-8174.
For Defendant, Ingersoll-Rand Company:
David I. Gelfand,
D.C. Bar No. 416596, Mark W. Nelson,
D.C. Bar No. 442461, Cleary Gottlieb, Steen & Hamilton, 2000
Pennsylvania Ave., N.W., Washington, D.C. 20006-1801, (202) 974-
1500.
Order
It Is So Ordered by the Court, this 28th day of July, 2000.
Judge Ellen S. Huvelle, for
Judge Jackson, United States District Judge.
Final Judgment
Whereas, plaintiff, United States of America, filed its Compliant
on July 28, 2000, plaintiff and defendants by their respective
attorneys, have consented to the entity of this Final Judgment without
trial or adjudication of any issue of fact or law, and within this
Final Judgment constituting any evidence against or admission by any
party regarding any issue of fact or law
And Whereas, defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
And Whereas, the essense of this Final Judgment is the prompt and
certain divestiture of certain rights or assets by the defendants to
assure that competition is not substantially lessened.
And Whereas, plaintiff requires defendants to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Complaint;
And Whereas, defendants have represented to the United States that
the divestitures required below can and will be made and that
defendants will later raise no claim of hardship or difficulty as
grounds for asking the Court to modify any of the divestiture
provisions contained below;
Now Therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is Ordered, Adjudged and Decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of, and each of
the parties to, this action. 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. ``Acquirer(s)'' means the entity or entities to whom defendants
divest the Divestiture Assets.
B. ``Flowserve'' means defendant Flowserve Corporation, a New York
corporation with its headquarters in Irving, Texas, its successors and
assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships and joint ventures, and their directors, officers,
managers, agents, and employees.
C. ``IDP'' means defendant Ingersoll-Dresser Pump Company, a
Delaware general partnership with its headquarters in Liberty Corner,
New Jersey, its successors and assigns, subsidiaries, divisions,
groups, affiliates, partnerships and joint ventures, and their
directors, officers, managers, agents, and employees.
D. ``I-R'' means defendant Ingersoll-Rand Company, a New Jersey
corporation with its principal executive offices in Woodcliff Lake, New
Jersey, its successors and assigns, subsidiaries, divisions, groups,
affiliates, partnerships and joint ventures, and their directors,
officers, managers, agents, and employees.
E. ``Divestiture Assets'' means the ``Divestiture Plant,''
``Divestiture Pump Lines,'' and ``Divestiture Repair Facilities,'' as
defined below.
F. ``Divestiture Plant'' means Flowserve's pump plant in Tulsa,
Oklahoma, including manufacturing equipment, tooling and fixed assets,
personal property, inventory, office furniture, materials, supplies,
and other tangible property used in connection with the manufacture of
the SCE, VLT, VMT and HQ pump lines; manufacturing equipment and
tooling dedicated to the production of the J and CGT pump liens and
located in IDP's pump plant in Phillipsburg, New Jersey; all contracts,
agreements, leases, commitments, certifications, and understandings,
relating to the Divestiture Plant, including supply
[[Page 55276]]
agreements; and all licenses, permits and authorizations issued by any
governmental organization relating to the Divestiture Plant.
G. ``Divestiture Pump Lines'' means Flowserve's SCE, VLT, VMT, HQ,
HX and WX (excluding the 93 inch size of the WX) pump lines, including
parts for said lines, and IDP's J and CGT pump lines, including parts
for said lines; and also including all customer lists, contracts,
accounts, credit records, repair and performance records and all other
records relating to said pump lines; and all intangible assets used in
the development, production, servicing and sale of Divestiture Pump
Lines, including, but not limited to all patents, licenses, and
sublicenses, intellectual property, copyrights, trademarks, trade
names, service marks, service names (excluding names and marks that
relate to the corporate owner of said pump lines such as ``Flowserve,''
``I-R'' and ``IDP,'' and predecessor acquired companies), technical
information, computer software and related documentation, know-how,
trade secrets, drawings, blueprints, designs, design protocols,
specifications for materials, specifications for parts and devices,
safety procedures for the handling of materials and substances, quality
assurance and control procedures, molds, patterns and design tools,
manuals and technical information defendants provide to their own
employees, customers, suppliers, agents or licensees, and research and
development activities and data concerning historic and current
research and development efforts, including, but not limited to,
designs of possible modifications or improvements, relating to said
pump lines.
H. ``Divestiture Repair Facilities'' means the IDP service centers
in Batavia, Illinois and La Mirada, California, including production,
repair and service equipment at said facilities.
III. Applicability
A. This Final Judgment applies to IDP, I-R and Flowserve, as
defined above, and all other persons in active concert or participation
with any of them who receive 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 of lesser
business units that include the Divestiture Assets, that the
Acquirer(s) agrees to be bound by the provisions of this Final
Judgment.
IV. Divestitures
A. Defendants are ordered and directed to divest, in a manner
consistent with this Final Judgment, to an Acquirer(s) acceptable to
the United States in its sole discretion:
1. A perpetual, royalty-free, assignable, transferable license(s)
to manufacture the Divestiture Pump Lines, including the exclusive
right to sell the Divestiture Pump Lines for installation within the
United States and a nonexclusive right to sell the Divestiture Pump
Lines for installation in the rest of the world; provided, however,
that Flowserve may continue to sell the SCE pump line and parts to its
alliance customers Shell and Mobil for a period up to ten (10) years
from entry of this Final Judgment for installation within the United
States, and Flowserve may continue to sell parts for the J and VLT pump
lines to its alliance customers Shell and Mobil for a period up to five
(5) years from entry of this Final Judgment for installation within the
United States; and
2. The Divestiture Plant and the Divestiture Repair Facilities.
B. Defendants must make the above divestitures within one hundred
fifty (150) calendar days after the filing of the Complaint in this
matter, or five (5) days after notice of the entry of this Final
Judgment by the Court, whichever is later. The United States, in its
sole discretion, may agree to an extension of this period of up to
thirty (30) days, and shall notify the Court in such circumstance.
Defendants agree to use their best efforts to divest the Divestiture
Assets as expeditiously as possible.
C. In accomplishing the divestitures ordered by this Final
Judgment, defendants promptly shall make known, by usual and customary
means, the availability of the Divestiture Assets. Defendants shall
inform any person making inquiry regarding a possible purchase of the
Divestiture Assets that they are being divested pursuant to this Final
Judgment and provide that person with a copy of this Final Judgment.
Defendants shall offer to furnish to all prospective Acquirers, subject
to customary confidentiality assurances, all information and documents
relating to the Divestiture Assets customarily provided in a due
diligence process except such information or documents subject to the
attorney-client or work-product privilege. Defendants shall make
available such information to the United States at the same time that
such information is made available to any other person.
D. Defendants shall provide the Acquirer(s) and the United States
information relating to the personnel whose primary responsibilities
include the production, development and sale of the Divestiture Pump
Lines to enable the Acquirer(s) to make offers of employment.
Defendants will not interfere with any negotiations by the Acquirer(s)
to employ any defendant employee whose primary responsibility is the
production, development and sale of the Divestiture Pump Lines.
E. Defendants shall permit prospective Acquirer(s) of the
Divestiture Assets to have reasonable access to personnel and to make
inspections of the physical facilities of the Divestiture Plant; to
have access to any and all environmental, zoning, and other permit
documents and information; and to have access to any and all financial,
operational, or other documents and information customarily provided as
part of a due diligence process.
F. Defendants shall warrant to all Acquirer(s) of the Divestiture
Assets that each asset will be operational on the date of sale.
G. Defendants shall take no action that will impede in any way the
permitting, operation, or divestiture of the Divestiture Assets.
H. Defendants shall warrant to the Acquirer(s) of the Divestiture
Assets that there are no material defects in the environmental, zoning
or other permits pertaining to the operation of each asset, and that
following the sale of the Divestiture Assets, defendants will not
undertake, directly or indirectly, any challenges to the environmental,
zoning, or other permits relating to the operation of the Divestiture
Assets.
I. Unless the United States otherwise consents in writing, the
divestitures pursuant to Section IV, or by trustee appointed pursuant
to Section V, of this Final Judgment, shall include the entire
Divestiture Assets, and shall be accomplished in such a way as to
satisfy the United States, in its sole discretion, that the Divestiture
Assets can and will be used by the Acquirer(s) as part of a viable,
ongoing business of manufacturing and selling the Divestiture Pump
Lines to customers, including those in the petroleum and power
generation industries in the United States. Divestiture of the
Divestiture Assets may be made to one or more Acquirers, provided that
in each instance it is demonstrated to the sole satisfaction of the
United States that the Divestiture Assets will remain viable and the
divestiture of such assets will remedy the competitive harm alleged in
the Complaint. The
[[Page 55277]]
divestitures, whether pursuant to Section IV or Section V of this Final
Judgment.
1. Shall be made to an Acquirer(s) that, in the United States's
sole judgment, has the intent and capability (including the necessary
managerial, operational, technical and financial capability) of
competing effectively in the business of manufacturing and selling the
Divestiture Pump Lines to customers, including those in the petroleum
and power generation industries in the United States; and
2. Shall be accomplished so as to satisfy the United States, in its
sole discretion, that none of the terms of any agreement between an
Acquirer(s) and IDP or Flowserve give IDP or Flowserve the ability
unreasonably to raise the Acquirer's costs, to lower the Acquirer's
efficiency, or otherwise to interfere in the ability of the Acquirer(s)
to compete effectively.
V. Appointment of Trustee
A. If defendants have not divested the Divestiture Assets within
the time specified in Section IV(B), defendants shall notify the United
States of that fact in writing. Upon application of the United States,
the Court shall appoint a trustee selected by the United States and
approved by the Court to effect the divestitures of the Divestiture
Assets.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestitures to an Acquirer(s) acceptable to the United States at such
price and on such terms as are then obtainable upon reasonable effort
by the trustee, subject to the provisions of Section IV, V, and VI of
this Final Judgment, and shall have such other powers as this Court
deems appropriate. Subject to Section V(D) of this Final Judgment, the
trustee may hire, at the cost and expense of defendants, any investment
bankers, attorneys, and other agents, who shall be solely accountable
to the trustee, and reasonably necessary in the trustee's judgment to
assist in the divestitures.
C. Defendants shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. Any such objections by
defendants must be conveyed in writing to the United States and the
trustee within ten (10) calendar days after the trustee has provided
the notice required under Section VI.
D. The trustee shall serve at the cost and expenses of defendants,
on such terms and conditions as the plaintiff approved, and shall
account for all monies derived from the sale of the assets sold by the
trustee and all costs and expenses so incurred. After approval by the
Court of the trustee's accounting, including fees for its services and
those of any professionals and agents retained by the trustee, all
remaining money shall be paid to defendants and the trust shall then be
terminated. The compensation of the trustee and any professionals and
agents retained by the trustee shall be reasonable in light of the
value of the Divestiture Assets and based on a fee arrangement
providing the trustee with an incentive based on the price and terms of
the divestitures and the speed with which they are accomplished, but
timeliness is paramount.
E. Defendants shall use their best efforts to assist the trustee in
accomplishing the required divestitures. The trustee and any
consultants, accountants, attorneys, and other persons retained by the
trustee shall have full and complete access to the personnel, books,
records, and facilities of the business to be divested, and defendants
shall develop financial and other information relevant to such business
as the trustee may reasonably request, subject to reasonable protection
for trade secrets or other confidential research, development, or
commercial information. Defendants shall take no action to interfere
with or to impede the trustee's accomplishment of the divestitures.
F. After its appointment, the trustee shall file monthly reports
with the United States and the Court setting forth the trustee's
efforts to accomplish the divestitures ordered under this Final
Judgment. 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
month, 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 interest in the Divestiture Assets, and
shall describe in detail each contact with any such person. The trustee
shall maintain full records of all efforts made to divest the
Divestiture Assets.
G. If the trustee has not accomplished such divestitures within six
months after its appointment, the trustee shall promptly file with the
Court a report setting forth (1) the trustee's efforts to accomplish
the required divestitures, (2) the reasons, in the trustee's judgment,
why the required divestitures have not been accomplished, and (3) the
trustee's recommendations. 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 plaintiff, who shall have the
right to make additional recommendations consistent with the purpose of
the trust. The Court thereafter shall enter such orders as it deems
appropriate to carry out the purpose of the Final Judgment, which may,
if necessary, include extending the trust and the term of the trustee's
appointment by a period requested by the United States.
VI. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
divestiture agreement, defendants or the trustee, whichever is then
responsible for effecting the divestitures required herein, shall
notify the United States of any proposed divestitures required by
Section IV or V of this Final Judgment. If the trustee is responsible,
it shall similarly notify defendants. The notice shall set forth the
details of the proposed divestitures and list the name, address, and
telephone number of each person not previously identified who offered
or expressed an interest in or desire to acquire any ownership interest
in the Divestiture Assets, together with full details of same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from defendants,
the proposed Acquirer(s), any other third party, or the trustee, if
applicable, additional information concerning the proposed divestiture,
the proposed Acquirer(s), and any other potential Acquirer(s).
Defendants and the trustee shall furnish any additional information
requested within fifteen (15) calendar days of the receipt of the
request, unless the parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from defendants, the
proposed Acquirer(s), any third party, and the trustee, whichever is
later, the United States shall provide written notice to defendants and
the trustee, if there is one, stating whether it objects to the
proposed divestitures. If the United States provides written notice
that it does not object, the divestitures may be consummated, subject
only to defendants' limited right to object to the sale under Section
V(C) of this Final Judgment. Absent written notice that the United
States does not object to the proposed Acquirer(s) or upon objection by
the United States, a divestiture
[[Page 55278]]
proposed under Section IV or Section V shall not be consummated. Upon
objection by defendants under Section V(C), a divestiture proposed
under Section V shall not be consummated unless approved by the Court.
VII. Financing
Defendants shall not finance all or any part of any purchase made
pursuant to Section IV or V of this Final Judgment.
VIII. Hold Separate
Until the divestitures required by this Final Judgment have been
accomplished, defendants shall take all steps necessary to comply with
the Hold Separate Stipulation and Order entered by this Court.
Defendants shall take no action that would jeopardize the divestitures
ordered by this Court.
IX. Affidavits
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter, and every thirty (30) calendar days thereafter until
the divestitures have been completed under Section IV or V, defendants
shall deliver to the United States an affidavit as to the fact and
manner of its compliance with Section IV or V of this Final Judgment.
Each such affidavit shall include the name, address, and telephone
number of each person who, during the preceding thirty 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 interest in the Divestiture Assets, and shall describe
in detail each contact with any such person during that period. Each
such affidavit shall also include a description of the efforts
defendants have taken to solicit buyers for the Divestiture Assets, and
to provide required information to prospective purchasers, including
the limitations, if any, on such information. Assuming the information
set forth in the affidavit is true and complete, any objection by the
United States to information provided by defendants, including
limitation on information, shall be made within fourteen (14) days of
receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, defendants shall deliver to the United States an
affidavit that describes in reasonable detail all actions defendants
have taken and all steps defendants have implemented on an ongoing
basis to comply with Section VIII of this Final Judgment. Defendants
shall deliver to the United States an affidavit describing any changes
to the efforts and actions outlined in defendants' earlier affidavits
filed pursuant to this section within fifteen (15) calendar days after
the change is implemented.
C. Defendants shall keep all records of all efforts made to
preserve and divest the Divestiture Assets until one year after such
divestitures have been completed.
X. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time duly authorized representatives of the United States
Department of Justice, including consultants and other persons retained
by the United States, shall, upon written request of a duly authorized
representative of the Assistance Attorney General in charge of the
Antitrust Division, and on reasonable notice to defendants, be
permitted:
1. Access during defendants' office hours to inspect and copy, or
at plantiff's option demand defendants provide copies of, all books,
ledgers, accounts, records and documents in the possession or control
of defendants, who may have counsel present, relating to any matters
contained in this Final Judgment; and
2. To interview, either informally or on the record, defendants'
officers, employees, or agents, who may have their individual counsel
present, regarding such matters. The interviews shall be subject to the
interviewees' reasonable convenience and without restraint or
interference by defendants.
B. Upon the written request of the Assistant Attorney General in
charge of the Antitrust Division, defendants shall submit such written
reports, under oath if requested, relating to any of the matters
contained in this Final Judgment as may be requested.
No information or documents obtained by the means provided in this
section shall be divulged by the United States to any person other than
an 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
defendants to the United States, defendants represent and identify 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 defendants mark each pertinent page of
such material, ``Subject to claim of protection under Rule 26(c)(7) of
the Federal Rules of Civil Procedure,'' then the United States shall
give defendants ten (10) calendar days notice prior to divulging such
material in any legal proceeding (other than a grand jury proceeding).
XI. No Reacquisition
Defendants may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment.
XII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XIII. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XIV. Public Interest Determination
Entry of this Final Judgment is in the public interest.
Date: ____________________
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. 16.
----------------------------------------------------------------------
United States District Judge
Certificate of Service
I hereby certify that on this day of July 28, 2000, I caused a copy
of the Complaint, the Hold Separate Stipulation and Order and the
proposed Final Judgment to be served by U.S. First Class Mail or
overnight delivery upon:
Stephen J. Marzen, Shearman & Sterling, 801 Pennsylvania Ave., N.W.,
Suite 900, Washington, D.C. 20004-2604, (202) 508-8174, Attorney for
Flowserve Corporation
David I. Gelfand, Mark W. Nelson, Cleary, Gottlieb, Steen & Hamilton,
2000 Pennsylvania Ave., N.W., Washington, D.C. 20006-1801, (202) 974-
1500, Attorneys for Ingersoll-Dresser Pump Company and Ingersoll-Rand
Company
Arnold C. Celnicker,
Trial Attorney, Georgia Bar No. 118050, U.S. Department of Justice,
Antitrust Division, 325 7th Street, N.W., Suite 400, Washington, DC
20530, (202) 305-7498.
[[Page 55279]]
Competitive Impact Statement
The United States, pursuant to Section 2(b) of the Antitrust
Procedures and Penalties Act (``APPA''), 15 U.S.C. 16(b)-(h), files
this Competitive Impact Statement relating to the proposed Final
Judgment submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On July 28, 2000, the United States filed a civil antitrust suit
alleging that an acquisition by Flowserve Corporation (``Flowserve'')
of Ingersoll-Dresser Pump Company (``IDP'') would violate Section 7 of
the Clayton Act, 15 U.S.C. 18. The Complaint alleges that Flowserve's
proposed acquisition of IDP would reduce the already small number of
firms that compete on bids to sell certain costly, specialized and
highly engineered pumps used in oil refineries and electrical
generating facilities in the United States. According to the Complaint,
such a reduction in competition would likely result in higher prices
and reduced selection for those pumps. The prayer for relief in the
Complaint seeks a judgment that the proposed acquisition would violate
Section 7 of the Clayton Act, a permanent injunction that would prevent
Flowserve from acquiring IDP, that the United States be awarded costs,
and other relief that the Court deems just and proper.
At the same time the Complaint was filed, the United States also
filed a proposed settlement that would permit Flowserve to complete its
acquisition of IDP, yet preserve competition in the markets in which
the transaction would otherwise raise significant competitive concerns.
The settlement consists of a proposed Final Judgment and a Hold
Separate Stipulation and Order. In essence, the Hold Separate
Stipulation and Order would require Flowserve to maintain certain pump
lines, and associated production assets, as economically viable,
ongoing concerns, operated independently of Flowserve's other
businesses until the divestitures mandated by the Final Judgment have
been accomplished.
The proposed Final Judgment orders defendants to divest to one or
more acquirers a perpetual, royalty-free, assignable, transferable
license to manufacture and sell Flowserve's SCE, VLT, VMT, HQ, HX and
WX pump lines, and IDP's J and CGT pump lines; Flowserve's pump plant
in Tulsa, Oklahoma; and the IDP service centers in Batavia, Illinois
and La Mirada, California. Defendants must complete these divestitures
within 150 days after filing of the Complaint, or five days after entry
of the Final Judgment, whichever is later. If they do not complete the
divestitures within the prescribed time, the Court will appoint a
trustee to sell the assets.
The United States and defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the Antitrust
Procedures and Penalties Act, 15 U.S.C. 16 (``APPA''). Entry of the
proposed Final Judgment would terminate this action, except that the
Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Defendants and the Proposed Transaction
Flowserve is a New York corporation with its principal executive
offices in Irving, Texas. Flowserve manufactures and sells a broad
array of pumps, valves and seals used in a wide variety of
manufacturing and processing industries, and provides parts and service
for pumps, in the United States and abroad. Flowserve has total annual
sales of over $1 billion and maintains offices and facilities at
approximately 25 locations in the United States.
Ingersoll-Rand Company (``I-R'') is a New Jersey corporation with
its principal executive offices in Woodcliff Lake, New Jersey. I-R is a
general partner in, and controls IDP. IDP is a Delaware general
partnership, headquartered in Liberty Corner, New Jersey. IDP
manufactures and sells a broad array of pumps, and provides service and
parts for such pumps, in the United States and abroad. IDP is one of
the world's largest pump manufacturers, with annual sales of over $875
million. IDP maintains offices and facilities at approximately 27
locations in the United States.
On February 9, 2000, Flowserve agreed to acquire IDP for about $775
million. This proposed transaction, which would combine Flowserve and
IDP and substantially lessen competition in the sale of certain types
of pumps, precipitated the government's antitrust suit.
B. The Competitive Effects of the Transaction
1. API 610 Pumps and Power Plant Pumps. The petroleum industry is a
major purchaser of pumps for hundreds of applications. The American
Petroleum Institute (``API''), the petroleum industry trade
organization, sets voluntary standards for pumps used in petroleum
applications. The standards for centrifugal pumps are API Standard 610.
A large refinery will have over a thousand pumps, and most meet API 610
standards. The standards detail not only the design of the pumps, but
also the accessories used with the pump (e.g., drivers, couplings,
mounting plates), the inspection, testing and shipment of the pumps,
and the information that must be included in bids and contracts. API
610 pumps are designed to withstand extreme conditions without leaking
because they are used to move fluids under high pressure that are
erosive, corrosive, hot and flammable. Thus, API 610 pumps are heavier
and more rugged than most other types of pumps.
Power plant pumps are specialized, highly engineered pumps that
perform critical functions in the steam cycle of a power plant. The
steam cycle consists of a boiler or steam generator that feeds steam to
a steam turbine that drives an electricity-producing generator. The
three basic categories of power plant pumps are: (1) ``circulating
water pumps,'' which deliver cooling water to condensers that condense
the spent steam that has passed through a steam turbine; (2)
``condensate pumps,'' which extract the condensed steam; and (3)
``boiler feed pumps,'' which move the condensed steam (now very hot
water) back into the boiler or steam generator to make new steam.
2. Product and Geographic Markets. Competition in the sale of API
610 and power plant pumps takes the form of bids that are submitted in
response to extensive specifications that take specialized engineers
many months to formulate, respond to, and evaluate. The specifications
for each bid differ from other bids in terms of technical product
attributes and commercial terms. The result of the bidding process
generally is a customized pump that can satisfy the most demanding of
applications, accompanied by a package of technical engineering
services and commercial terms. Because the technical and commercial
needs of the customer differ markedly for each API 610 pump or power
plant pump bid, a small but significant increase in the price of a pump
that meets the bid specifications would not cause a significant number
of customers in the United States to substitute other pumps that do not
meet those bid specifications. Therefore, each bid for API 610 pumps
and power plant pumps for installation in oil refineries and power
generation plants in the United States is a relevant product market.
Those competitors that could constrain Flowserve and IDP from
[[Page 55280]]
raising prices on bids for API 610 pumps and power plant pumps for
installation in oil refineries and power generation plants in the
United States are API 610 and power plant pump manufacturers with a
substantial physical presence in the United States. Customers
installing these pumps in the United States prefer domestic pump
suppliers because reputation is important, as is the ability to provide
quick and reliable servicing with parts availability and to avoid
shipping costs and delays. In addition, with minor exceptions, only
domestic manufacturers have an installed base of pumps in the United
States, thus allowing customers to more readily observe and evaluate
the operation and reliability of the pump in comparable applications.
Moreover, pumps manufactured abroad may cost more than comparable pumps
manufactured in the United States. The relevant geographic market for
analyzing the proposed acquisition is the United States.
3. Anticompetitive Consequences of the Acquisition. Based on
capabilities and bidding history, there are only four credible
competitors, including Flowserve and IDP, that might bid on a large
majority of bids for API 610 pumps for oil refinery projects in the
United States, and there are only three or four credible competitors,
including Flowserve and IDP, that might bid on a large majority of bids
for power plant pumps for electrical generating facilities located in
the United States. Although each bidder may be familiar with its
competitors, it does not know with any degree of certainty the
commercial or technical terms of its competitors' bids prior to
submitting its own bid. That uncertainty restrains each bidder's
pricing, so it will have a reasonable probability of winning the bid.
By eliminating IDP, one of Flowserve's few significant competitors,
Flowserve would be able to increase its bid without increasing the
probability that it would lose the bid. Similarly, the few remaining
bidders could also increase their bids without increasing their risk of
losing. Thus, the acquisition of IDP by Flowserve would create an
incentive for each bidder to bid a higher amount than it would have
were IDP still a competitor.\1\
---------------------------------------------------------------------------
\1\ Each bidder, in deciding how high to bid while facing the
uncertainty as to what its rivals will bid, balances the benefit of
receiving a higher price when it wins against the cost of a
decreased probability of winning when its bid price is raised. When
a bidder is eliminated, a given increase in a bid price by a
remaining bidder leads to a smaller decrease in the probability of
losing. This shift in the balance between the benefit and the cost
of raising the bid price makes a price increase by each remaining
bidder profitable.
---------------------------------------------------------------------------
The Complaint alleges that substantial entry by other pump
manufacturers into the sale of API 610 and power plant pumps for
installation in the United States is time-consuming, expensive and
difficult, and hence, unlikely to counteract these anticompetitive
effects.
III. Explanation of the Proposed Final Judgment
The proposed Final Judgment would preserve competition in the sale
of API 610 and power plant pumps for installation in the United States.
Within 150 days after the date the Complaint was filed, or five days
after entry of the proposed Final Judgment, whichever is later,
defendants must divest to an economically viable and effective
acquirer(s) perpetual, royalty-free, assignable, transferable licenses
to manufacture and sell Flowserve's SCE, VLT, VMT, HQ, HX and WX pump
lines; and IDP's J and CGT pump lines; Flowserve's pump plant in Tulsa,
Oklahoma; and the IDP service centers in Batavia, Illinois and La
Mirada, California. Defendants must use their best efforts to
accomplish the divestitures as expeditiously as possible. The proposed
Final Judgment requires that these assets must be divested in such a
way as to satisfy the United States, in its sole discretion, that the
assets can and will be used by the acquirer(s) to compete effectively
in the business of manufacturing and selling the divested pump lines to
customers, including those in the petroleum and power generation
industries in the United States,
Until the ordered divestitures take place, defendants must take all
reasonable steps necessary to accomplish the divestitures and cooperate
with any prospective acquirer(s). If defendants do not accomplish the
ordered divestitures within the prescribed time period, the proposed
Final Judgment provides that the Court will appoint a trustee to
complete the divestitures. If a trustee is appointed, the proposed
Final Judgment provides that defendants must pay all costs and expenses
of the trustee. The trustee's commission will be structured to provide
an incentive for the trustee based on the price obtained and the speed
with which divestitures are accomplished. After his or her appointment
becomes effective, the trustee shall serve under such other conditions
as the Court may prescribe. The trustee will file monthly reports with
the parties and the Court, setting forth the trustee's efforts to
accomplish the required divestitures. At the end of 150 days, if the
divestitures have not been accomplished, the trustee and the parties
will make recommendations to the Court, which shall enter such orders
as appropriate to accomplish the divestitures.
The relief in the proposed Final Judgment has been tailored to
ensure that the ordered divestitures maintain competition that would
have been eliminated as a result of the acquisition and to prevent the
exercise of market power after the acquisition in the markets alleged
in the Complaint.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has 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. Procedures Available for Modification of the Proposed Final Judgment
The parties 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 of the decree 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
sixty (60) days of the date of publication of this Competitive Impact
Statement in the Federal Register. The United States will evaluate and
respond to the comments. All comments will be given due consideration
by the Department of Justice, which remains free to withdraw its
consent to the proposed Final Judgment at any time prior to entry. The
comments and the response of the United States will be filed with the
Court and published in the Federal Register.
[[Page 55281]]
Written comments should be submitted to: Gail Kursh, Chief, Health
Care Task Force, Antitrust Division, United States Department of
Justice, 325 7th Street, NW, Suite 400, Washington, D.C. 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against defendants
Flowserve, I-R and IDP. The United States could have continued such
litigation to seek preliminary and permanent injunctions against
Flowserve's acquisition of IDP. The United States is satisfied,
however, that defendants' divestiture of the assets described in the
proposed Final Judgment will establish, preserve and ensure a viable
competitor in the relevant markets identified by the United States. To
this end, the United States is convinced that the proposed relief, once
implemented by the Court, will prevent Flowserve's acquisition of IDP
from having adverse competitive effects.
VII. Standard of Review Under the APPA for Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a sixty-day comment
period, after which the court shall determine whether entry of the
proposed Final Judgment ``is in the public interest.'' In making that
determination, the court may consider--
(1) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration or relief sought, anticipated effects of
alternative remedies actually considered, and any other
considerations bearing upon the adequacy of such judgment;
(2) The impact of entry of such judgment upon the public
generally and individuals alleging specific injury from the
violations set forth in the complaint including consideration of the
public benefit, if any, to be derived from a determination of the
issues at trial.
15 U.S.C. 16(e) (emphasis added). As the Court of Appeals for the
District of Columbia Circuit has held, the APPA permits a court to
consider, among other things, the relationship between the remedy
secured and the specific allegations set forth in the government's
complaint, whether the decree is sufficiently clear, whether
enforcement mechanisms are sufficient, and whether the decree may
positively harm third parties. See United States v. Microsoft Corp., 56
F.3d 1448, 1458-62 (D.C. Cir. 1995).
Courts have recognized that the term `` `public interest' take[s]
meaning from the purposes of the regulatory legislation.'' NAACP v.
Federal Power Comm'n, 425 U.S. 662, 669 (1976). Since the purpose of
the antitrust laws is to preserve ``free and unfettered competition as
the rule of trade,'' Northern Pacific Railway Co. v. United States, 356
U.S. 1, 4 (1958), the focus of the ``public interest'' inquiry under
the APPA is whether the proposed Final Judgment would serve the public
interest in free and unfettered competition. United States v. American
Cyanamid Co., 719 F.2d 558, 565 (2d Cir. 1983), cert denied, 465 U.S.
1101 (1984); United States v. Waste Management, Inc., 1985-2 Trade Cas.
para. 66,651, at 63,046 (D.D.C. 1985).
In conducting this inquiry, ``the Court is nowhere compelled to go
to trial or to engage in extended proceedings which might have the
effect of vitiating the benefits of prompt and less costly settlement
through the consent decree process.'' \2\ Rather,
\2\ 119 Cong. Rec. 24598 (1973). See United States v. Gillette
Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public interest''
determination can be made properly on the basis of the Competitive
Impact Statement and Response to Comments filed pursuant to the
APPA. Although the APPA authorizes the use of additional procedures,
15 U.S.C. 16(f), those procedures are discretionary. A court need
not invoke any of them unless it believes that the comments have
raised significant issues and that further proceedings would aid the
court in resolving those issues. See H.R. 93-1463, 93rd Cong. 2d
Sess. 8-9, Reprinted in (1974) U.S.C.C.A.N. 6535, 6538.
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absent a showing or corrupt failure of the government to discharge
its duty, the Court, in making its public interest finding, should *
* * carefully consider the explanations of the government in the
competitive impact statement and its responses to comments in order
to determine whether those explanations are reasonable under the
circumstances.
United States v. Mid-American Dairymen, Inc., 1977-1 Trade Cas. (CCH)
para. 61,508, at 71,980 (W.D. Mo. 1977).
Accordingly, with respect to the adequacy of the relief secured by
the decree, a court may not ``engage in an unrestricted evaluation of
what relief would best serve the public.'' United States v. BNS, Inc.,
858 F.2d 456, 462 (9th Cir. 1988), quoting United States v. Bechtel
Corp., 648 F.2d 660, 666 (9th Cir.), cert denied, 454 U.S. 1083 (1981);
see also Microsoft, 56 F.3d 1448 (D.C. Cir. 1995). Precedent requires
that
the balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.\3\
\3\ United States v. Bechtel Corp., 648 F. 2d at 666 (citations
omitted) (emphasis added); see United States v. BNS, Inc., 858 F. 2d
at 463; United States v. National Broadcasting Co., 449 F. Supp.
1127, 1143 (C. D. Cal. 1978); United States v. Gillette Co., 406 F.
Supp. at 716. See also United States v. American Cyanamid Co., 719
F. 2d 558, 565 (2d Cir. 1983), cert. denied, 465 U.S. 1101 (1984).
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A proposed consent decree is an agreement between the parties which
is reached after exhaustive negotiations and discussions. Parties do
not hastily and thoughtlessly stipulate to a decree because, in doing
so, they
waive their right to litigate the issues involved in the case and
thus save themselves the time, expense, and inevitable risk of
litigation. Naturally, the agreement reached normally embodies a
compromise; in exchange for the saving of cost and the elimination
of risk, the parties each give up something they might have won had
they proceeded with the litigation.
United States v. Armour & Co., 402 U.S. 673, 681 (1971).
The proposed decree, therefore, should not be reviewed under a
standard of whether it is certain to eliminate every anticompetitive
effect of a particular practice or whether it mandates certainty of
free competition in the future. Court approval of a proposed final
judgment requires a standard more flexible and less strict than the
standard required for a finding of liability. ``[A] proposed decree
must be approved even if it falls short of the remedy the court would
impose on its own, as long as it falls within the range of
acceptability or is `within the reaches of public interest' (citations
omitted).\4\
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\4\ United States v. American Tel. and Tel. Co., 552 F. Supp.
131, 150 (D.D.C. 1982), aff'd sub nom. Maryland v. United States,
460 U.S. 1001 (1983) quoting United States v. Gillette Co., supra,
406 F. Supp. at 716; United States v. Alcan Aluminum, Ltd., 605 F.
Supp. 619, 622 (W.D. Ky. 1985).
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Moreover, the court's role under the Tunney Act is limited to
reviewing the remedy in relationship to the violations that the United
States has alleged in its complaint, and does not authorize the Court
to ``construct [its] own hypothetical case and then evaluate the
[[Page 55282]]
decree against that case.'' Microsoft, 56 F.3d at 1459. Since ``[t]he
court's authority to review the decree depends entirely on the
government's exercising its prosecutorial discretion by bringing a case
in the first place,'' it follows that the Court ``is only authorized to
review the decree itself,'' and not to ``effectively redraft the
complaint'' to inquire into other matters that the United States might
have but did not pursue. Id.
VIII. Determinative documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: July 31, 2000.
Respectfully submitted,
Arnold C. Celnicker,
Georgia Bar No. 118050, U.S. Department of Justice, 325 7th Street,
NW, Suite 400, Washington, D.C. 20530, (202) 514-2474.
Certificate of Service
I hereby certify that on this day of July 31, 2000, I caused a copy
of the Competitive Impact Statement to be served by U.S. First Class
Mail or overnight delivery upon:
Stephen J. Marzen, Shearman & Sterling, 801 Pennsylvania Ave., N.W.,
Suite 900, Washington, D.C. 20004-2604, (202) 508-8174, Attorney for
Flowserve Corporation
David I. Gelfand, Mark W. Nelson, Cleary, Gottlieb, Steen & Hamilton,
2000 Pennsylvania Ave., N.W., Washington, D.C. 20006-1801, (202) 974-
1500, Attorneys for Ingersoll-Dresser Pump Company and Ingersoll-Rand
Company
Arnold C. Celnicker,
Trial Attorney, Georgia Bar No. 118050, U.S. Department of Justice,
Antitrust Division, 325 7th Street, N.W., Suite 400, Washington, DC
20530, (202) 305-7498.
[FR Doc. 00-20625 Filed 9-12-00; 8:45 am]
BILLING CODE 4410-11-M