[Federal Register Volume 66, Number 249 (Friday, December 28, 2001)]
[Notices]
[Pages 67255-67256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31912]


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FEDERAL TRADE COMMISSION

[File No. 021 0002]


INA-Holding Schaeffler KG, et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before January 22, 2002.

ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Comments filed in electronic form should be 
directed to: [email protected], as prescribed below.

FOR FURTHER INFORMATION CONTACT: Nick Koberstein, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2743.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and section 2.34 
of the Commission's rules of practice, 16 CFR 2.34, notice is hereby 
given that the above-captioned 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 thirty (30) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for December 21, 2001), on the World Wide Web, at ``http://
www.ftc.gov/os/2001/12/index.htm.'' A paper copy can be obtained from 
the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue, 
NW., Washington, DC 20580, either in person or by calling (202) 326-
2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Comments filed in paper form should 
be directed to: FTC/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains 
nonpublic information, it must be filed in paper form, and the first 
page of the document must be clearly labeled ``confidential.'' Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form (in ASCII format, WordPerfect, or Microsoft Word) as 
part of or as an attachment to email messages directed to the following 
email box: [email protected]. Such comments will be considered 
by the Commission and will be available for inspection and copying at 
its principal office in accordance with section 4.9(b)(6)(ii) of the 
Commission's rules of practice, 16 CFR 4.9(b)(6)(ii)).

Analysis of Agreement Containing Consent Orders To Aid Public 
Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from INA-Holding Schaeffler KG (``INA'') and FAG 
Kugelfischer Georg Schafer AG (``FAG''), which is designed to remedy 
the anticompetitive effects resulting from INA's acquisition of FAG. 
Under the terms of the Consent Agreement, INA and FAG will be required 
to divest FAG's cartridge ball screw support bearing (``CBSSB'') 
business. FAG's CBSSB business will be divested to Aktiebolaget SKF 
(``SKF''), and will take place no later than twenty (20) business days 
from the date on which INA begins its acquisition of FAG.
    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
proposed Consent Agreement and the comments received, and will decide 
whether it should withdraw from the proposed Consent Agreement or make 
final the Decision and Order.
    Pursuant to a cash tender offer announced on September 13, 2001, 
INA proposes to acquire all of the outstanding shares of FAG. The total 
value of the transaction is approximately $650 million. The 
Commission's Complaint alleges that the proposed acquisition, if 
consummated, would violate section 7 of the Clayton Act, as amended, 15 
U.S.C. 18, and section 5 of the Federal Trade Commission Act, as 
amended, 15 U.S.C. 45, in the worldwide market for the research, 
development, manufacture and sale of CBSSBs.
    FAG and INA are the only two suppliers of CBSSBs in the world. 
CBSSBs are critical components in many industrial machine tools, and 
are utilized by machine tool original equipment manufacturers 
(``OEMs'') around the world. Machine tools are machines that are used 
in the production of other equipment, and include grinding machines, 
milling machines, and laser drilling and cutting systems. Machine tool 
OEMs utilize CBSSBs to reduce the friction associated with the rotation 
of a rolling screw. This rotation is used to control linear motion for 
accurate positioning, and is vital to the proper functioning of certain 
machine tools. Although other types of bearings can be used to 
accomplish this purpose, CBSSBs are easier, less expensive, and less 
time intensive to use than the potential alternatives. CBSSBs also 
allow end users of machine tools to replace the bearings easily, 
quickly and without incurring substantial cost. Moreover, once a 
machine tool is designed with CBSSBs, the process of switching to an 
alternative type of bearing would require a costly and time consuming 
redesign of the tool. For these reasons, it is highly unlikely that 
OEMs, or end users, would switch from CBSSBs to alternative 
technologies even if CBSSB prices increased significantly.
    The global market for CBSSBs is highly concentrated. If the 
proposed acquisition is consummated, the combined firm would monopolize 
the worldwide market for CBSSBs. Prior to the acquisition, INA and FAG 
frequently competed against each other for CBSSB business, and this 
competition benefitted CBSSB customers. By eliminating competition 
between the two competitors in this highly concentrated market, the 
proposed acquisition would allow the combined firm to exercise market 
power unilaterally, thereby increasing the likelihood that purchasers 
of CBSSBs would be forced to pay higher prices and that innovation, 
service levels, and product quality in this market would decrease.
    There are significant impediments to new entry into the CBSSB 
market. A new entrant into the CBSSB market would need to undertake the 
difficult, expensive and time-consuming process of researching and 
developing a line of CBSSB products, acquiring the necessary production 
assets, and developing the expertise needed to

[[Page 67256]]

successfully design, manufacture, and market these products. It would 
take a new entrant over two years to accomplish these steps and achieve 
a significant market impact. Additionally, new entry into the CBSSB 
market is unlikely to occur because the costs of entering the market 
and producing CBSSBs are high relative to the limited sales 
opportunities available to new entrants.
    The Consent Agreement effectively remedies the acquisition's 
anticompetitive effects in the worldwide market for CBSSBs by requiring 
INA and FAG to divest FAG's CBSSB business. This business consists of, 
among other things, FAG's specialized tooling equipment, technical 
drawings, advertising and training materials, customer lists, and other 
assets used in the research, development, manufacturing, quality 
assurance, marketing, customer support and sale of CBSSBs (collectively 
``CBSSB Assets''). Pursuant to the Consent Agreement, INA and FAG are 
required to divest the CBSSB Assets to SKF within twenty (20) business 
days from the date on which INA begins its acquisition of FAG. If the 
Commission determines that SKF is not an acceptable buyer or that the 
manner of the divestiture is not acceptable, INA and FAG must rescind 
the sale to SKF within three (3) business days, and divest the CBSSB 
Assets to a Commission-approved buyer within three (3) months. If INA 
and FAG have not divested the CBSSB Assets within the time and in the 
manner required by the Consent Agreement, the Commission may appoint a 
trustee to divest these assets and any additional FAG machinery that 
the trustee deems appropriate, subject to Commission approval.
    The Commission's goal in evaluating possible purchasers of divested 
assets is to maintain the competitive environment that existed prior to 
the acquisition. A proposed buyer of divested assets must not itself 
present competitive problems. The Commission is satisfied that SKF is a 
well-qualified acquirer of the divested assets. SKF is a publicly-
traded Swedish corporation and the largest supplier of ball and roller 
bearings worldwide. SKF has been active in the bearings industry since 
1907, and currently has production sites in 22 countries around the 
world and sales activities in almost every country in the world. SKF is 
also a current producer of ball screw support bearings, the product 
from which CBSSBs were originally derived. Thus, SKF has the necessary 
industry expertise to manufacture and sell CBSSBs, and its entry into 
the CBSSB market will effectively replace the competition being 
eliminated by INA's acquisition of FAG. Furthermore, SKF does not pose 
separate competitive issues as the acquirer of the divested assets.
    The Consent Agreement includes a number of provisions that are 
designed to ensure that the divestiture of the CBSSB Assets is 
successful. The Consent Agreement requires that, for a period of six 
(6) months, INA and FAG provide SKF with personnel, assistance, and 
training at no cost to SKF. This provision will ensure that SKF is able 
to effectively manufacture and market CBSSBs of the same quality as 
those currently produced by FAG. Additionally, if requested by SKF, INA 
and FAG are required to provide transitional manufacturing services at 
variable cost to SKF for up to six (6) months. This will ensure that 
SKF is able to serve customers in the CBSSB market without delay. In 
order to further facilitate SKF's entry into the CBSSB market, the 
Consent Agreement also prohibits INA and FAG from using any catalog 
numbers currently used by FAG to identify its CBSSBs.
    To preserve the competitive viability and independence of the CBSSB 
Assets pending divestiture, the Consent Agreement includes an Order to 
Maintain Assets. This Order contains a number of provisions designed to 
ensure that the viability, competitiveness, and marketability of the 
CBSSB Assets and other FAG machinery are not diminished. The Order to 
Maintain Assets also provides that the Commission may appoint one or 
more monitors to ensure that INA and FAG expeditiously comply with 
their obligations under the Consent Agreement.
    In order to ensure that the Commission remains informed about the 
status of the pending divestiture, and about efforts being made to 
accomplish the divestiture, the Consent Agreement requires INA and FAG 
to file an initial status report with the Commission within ten (10) 
days of the date the Consent Agreement is executed, and additional 
reports every thirty (30) days thereafter until the Commission's 
Decision and Order becomes final. Once the Commission's Order becomes 
final, INA and FAG have sixty (60) days within which to submit a 
verified written report detailing the manner in which they have 
complied, or intend to comply, with the Commission's Order. This 
reporting requirement continues until INA and FAG have fully complied 
with the Commission's Order.
    In addition to the divestiture outlined above, the Commission's 
Order also addresses potential competitive issues raised by a possible 
future joint venture between FAG and NTN Corporation of Japan 
(``NTN''), another large producer of bearings worldwide. Although no 
joint activities have taken place to date, a preliminary agreement 
between FAG and NTN indicates that a wide range of possible joint 
marketing, joint production and joint sales activities are contemplated 
by the joint venture between the two companies. INA has publicly 
asserted that it welcomes the alliance with NTN and is prepared to 
continue this cooperation with NTN after INA's acquisition of FAG. 
Given that this scenario creates the possibility of a future global 
three-firm alliance, and given that such joint venture activities may 
not otherwise trigger Hart-Scott-Rodino reporting requirements, the 
Commission's Order requires INA and FAG to provide prior notice to the 
Commission before entering into any such joint venture activities with 
NTN affecting North America. This requirement will give the Commission 
an opportunity to review such activities for potential competitive harm 
before they take place.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and it is not intended to constitute an official 
interpretation of the Consent Agreement or to modify its terms in any 
way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 01-31912 Filed 12-27-01; 8:45 am]
BILLING CODE 6750-01-P