[Federal Register Volume 67, Number 49 (Wednesday, March 13, 2002)]
[Notices]
[Pages 11339-11341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5966]



[[Page 11339]]

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FEDERAL TRADE COMMISSION

[File No. 011 0117]


Deutsche Gelatine-Fabriken Stoess AG, 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 April 8, 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: James Holden, Jr., Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2963.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec. 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 March 7, 2002), on the World Wide Web, at http://www.ftc.gov/os/2002/03/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 e-mail messages directed to the 
following e-mail 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 Sec. 4.9(b)(6)(ii) 
of the Commission's rules of practice, 16 CFR 4.9(b)(6)(ii)).

Analysis of Agreement Containing Consent Order To Aid Public 
Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order (``Consent 
Agreement'') from Deutsche Gelatine-Fabriken Stoess AG (``DGF Stoess'') 
and Goodman Fielder Limited (``Goodman Fielder'') which is designed to 
remedy the anticompetitive effects resulting from Goodman Fielder's 
sale of its gelatin business to DGF Stoess. Under the terms of the 
Consent Agreement, DGF Stoess will not be allowed to acquire Goodman 
Fielder's entire gelatin business as initially proposed; rather, 
Goodman Fielder will retain its United States and Argentine gelatin 
assets, which, collectively, represent approximately 40 percent of the 
original proposed acquisition. Moreover, Goodman Fielder will face 
limitations on any subsequent divestiture of those retained assets, 
including requirements that Goodman Fielder seek prior approval from 
the Commission or provide prior notice to the Commission, depending on 
certain relevant considerations.
    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 purchase agreement dated February 14, 2001, DGF 
Stoess proposed to acquire Goodman Fielder's entire worldwide gelatin 
business (the ``Proposed Acquisition''). The total value of the 
Proposed Acquisition is approximately $170 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 United States market for the manufacture and sale of pigskin 
and beef hide gelatin.

II. The Parties

    Headquartered in Eberbach, Germany, DGF Stoess is the largest 
supplier of pigskin and beef hide gelatin in the United States and the 
world. DGF Stoess produces pigskin and beef hide gelatin at seven 
manufacturing plants worldwide. Two of the plants are located in the 
United States (Kind & Knox, in Sioux City, Iowa, and Dynagel, in 
Calumet City, Illinois), one plant is in Brazil, one plant is in 
Sweden, and three plants are in Germany.
    Goodman Fielder is a diversified food products company based in 
Sydney, Australia. Through its Leiner Davis Gelatin subsidiary, and 
other related subsidiaries, Goodman Fielder is the second largest 
supplier of pigskin and beef hide gelatin in the United States and the 
world. Goodman Fielder owns and operates eight gelatin manufacturing 
plants of varying sizes worldwide--one each in the United States 
(Davenport, Iowa), Mexico, South Africa, Australia, New Zealand and 
Argentina, and two in Brazil. Of Goodman Fielder's gelatin 
manufacturing facilities, only the plants in the United States and 
South America compete for gelatin sales in the U.S. market.

III. The Pigskin and Beef Hide Gelatin Market

    Pigskin and beef hide gelatins are versatile products obtained from 
the partial hydrolysis of collagen, a protein that is the principal 
constituent of pigskins and beef hides. Pigskin and beef hide gelatins 
have many functions and are a critical component of a wide variety of 
products, particularly in the food industry (in products such as 
gelatin desserts, marshmallows, gummy candies and other confections) 
and the pharmaceutical industry (in products such as soft and hard 
capsules and tablet coatings). Although other types of products (e.g., 
starch, carrageenan, pectin, etc.) can provide some of the qualities of 
gelatin, no other product provides the full range of performance of 
gelatin, or is sufficiently cost-effective to replace gelatin in edible 
and pharmaceutical applications.

[[Page 11340]]

    If the Proposed Acquisition were to be consummated, DGF Stoess 
would have a U.S. market share of over 50 percent of pigskin and beef 
hide gelatin sales and would be more than two and one-half times the 
size of its nearest competitor. Prior to the acquisition, DGF Stoess 
and Goodman Fielder (through its Leiner Davis Gelatin subsidiary) 
competed vigorously against each other for gelatin business, and this 
competition benefitted gelatin customers. By eliminating competition 
between the two largest gelatin suppliers, and creating a firm with a 
market share of over 50 percent, the Proposed Acquisition would allow 
the combined firm to exercise market power unilaterally, as well as 
increasing the likelihood of coordinated interaction among gelatin 
manufacturers. As a result, the Proposed Acquisition would increase the 
likelihood that purchasers of pigskin and beef hide gelatin 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 both expansion by existing 
manufacturers, as well as new entry, in the pigskin and beef hide 
gelatin market. First, the gelatin industry is operating at or very 
near full capacity, as is required for the efficient operation of 
gelatin manufacturing facilities. Second, even under normal conditions, 
the raw materials for pigskin and beef hide gelatin production are a 
finite resource often in short supply. Third, recent outbreaks of foot 
and mouth disease and ``mad cow'' disease around the world have further 
limited the normally tight supply of raw materials for the gelatin 
industry, thus diminishing the likelihood of significant and timely 
expansion. Finally, even if raw materials were available, significant 
capacity expansions (beyond the limited available excess capacity) can 
take years to complete, and more modest expansions are generally viewed 
as economically inefficient.
    New entry is an even more remote possibility because a new entrant, 
beyond facing the same limited raw material supply, would need to build 
a plant--a difficult, expensive and time-consuming process. It would 
take a new entrant over two years to accomplish the necessary steps for 
entry and achieve a significant market impact. Indeed, because many 
gelatin customers impose stringent supplier qualification requirements 
that (even if all goes well) can take years to complete, a new entrant 
is highly unlikely to achieve a significant market impact within two 
years. New entry also is unlikely because the costs of building a new 
plant and entering the market are high relative to the limited sales 
opportunities available to new entrants.

IV. The Consent Agreement

    The Commission initiated its investigation of the Proposed 
Acquisition shortly after being notified of the transaction in March 
2001. In response to competitive concerns raised by the Commission 
which came to light during the course of the Commission's 
investigation, DGF Stoess and Goodman Fielder proposed to divest one of 
Goodman Fielder's gelatin plants--a large pigskin gelatin plant located 
in Davenport, Iowa. After careful consideration, that proposal was 
ultimately deemed insufficient to remedy the anticompetitive effects of 
the Proposed Acquisition. On January 15, 2002, the Commission 
authorized its staff to seek a preliminary injunction in federal 
district court preventing DGF Stoess and Goodman Fielder from 
consummating the Proposed Acquisition. The Consent Agreement arose out 
of subsequent discussions between the Commission, DGF Stoess and 
Goodman Fielder. In those discussions, the parties proposed to amend 
the Purchase Agreement such that Goodman Fielder would not sell its 
entire gelatin business to DGF Stoess, but rather would retain two of 
its plants--a pigskin gelatin manufacturing plant in Davenport, Iowa, 
and a beef hide gelatin plant located in Santa Fe, Argentina--along 
with all of the ancillary assets and infrastructure (e.g., production 
personnel, sales operations, etc.) required to operate those plants 
together as an ongoing business.
    The parties' proposal, as reflected in the Consent Agreement, 
effectively remedies the Proposed Acquisition's anticompetitive effects 
in the United States market for pigskin and beef hide gelatin. By 
retaining two substantial gelatin plants in Davenport and Santa Fe, 
Goodman Fielder will have virtually the same U.S. presence as did DGF 
Stoess before the acquisition, and the concentration level of the U.S. 
market for pigskin and beef hide gelatin will remain nearly unchanged 
by the transaction. In addition, the package of assets retained by 
Goodman Fielder, a pigskin gelatin plant in the United States and a 
beef hide gelatin plant in Argentina, provides geographic scope and 
product diversity characteristic of the most competitive market 
participants.
    Although Goodman Fielder's retention of the U.S. and Argentine 
plants largely remedies the anticompetitive effects of the Proposed 
Acquisition, some competitive questions remain because Goodman Fielder 
has expressed a desire to exit the gelatin business. Accordingly, the 
Commission has required additional provisions in the Consent Agreement 
in case Goodman Fielder chooses to dispose of the retained assets, to 
address three specific concerns. First, and most obviously, a 
subsequent sale of the retained assets to DGF Stoess would be 
problematic because such a sale would simply effectuate a two-step 
version of the Proposed Acquisition--a transaction that the Commission 
already believes to be anticompetitive. Second, a subsequent sale of 
the retained assets to SKW, the third leading supplier worldwide of 
pigskin and beef hide gelatin, would raise many of the same competitive 
issues raised by a sale of those assets to DGF Stoess. Third, any sale 
by Goodman Fielder that would split up the retained assets would raise 
a competitive concern, because it would eliminate the product and 
geographic diversity of the gelatin business retained by Goodman 
Fielder and likely would diminish the competitive significance of those 
assets in the U.S. market.
    To address these problems, the proposed Consent Agreement provides 
that: (1) DGF Stoess may not buy any of the gelatin assets retained by 
Goodman Fielder without prior approval from the Commission; (2) Goodman 
Fielder may not sell any of the retained gelatin assets to DGF or SKW, 
or sell less than the complete package of retained assets to anyone, 
without prior approval from the Commission; and (3) Goodman Fielder 
must provide the Commission with prior notice of any other sale of the 
retained assets. The prior approval requirements ensure that the 
Commission will be able to address the three specific issues raised 
above. The prior notice requirement guarantees the Commission the 
benefits of the Hart-Scott-Rodino framework in evaluating all other 
possible sales of the retained assets, including those that might 
otherwise be unreportable. In short, the Consent Agreement preserves 
the current competitive situation, allows DGF Stoess and Goodman 
Fielder to complete a modified version of their transaction that does 
not harm competition, and provides Goodman Fielder with ongoing 
flexibility with respect to a disposition of the retained assets, even 
if market conditions change in the near future.
    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.


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    By direction of the Commission, Chairman Muris not 
participating.
Donald S. Clark,
Secretary.

[FR Doc. 02-5966 Filed 3-12-02; 8:45 am]
BILLING CODE 6750-01-P