[Federal Register Volume 82, Number 85 (Thursday, May 4, 2017)]
[Notices]
[Pages 20889-20892]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08965]


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FEDERAL TRADE COMMISSION

[File No. 161 0221; Docket No. C-4615]


Emerson Electric Co. and Pentair plc; 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 methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the complaint and the terms of the consent orders--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before May 30, 2017.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/emersonelectricconsent online or on 
paper, by following the instructions in the Request for Comment part of 
the SUPPLEMENTARY INFORMATION section below. Write ``In the Matter of 
Emerson Electric Co. and Pentair plc, File No. 161 0221'' on your 
comment and file your comment online at https://ftcpublic.commentworks.com/ftc/emersonelectricconsent by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``In the Matter of Emerson Electric Co. and Pentair 
plc, File No. 161 0221'' on your comment and on the envelope, and mail 
your comment to the following address: Federal Trade Commission, Office 
of the Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), 
Washington, DC 20580, or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Constitution Center, 
400 7th Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 
20024.

FOR FURTHER INFORMATION CONTACT: Jonathan Platt (212-607-2819) or Ryan 
Harsch (212-607-2805), FTC, Northeast Region, One Bowling Green, Suite 
318, New York, NY 10004.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing 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

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complaint. An electronic copy of the full text of the consent agreement 
package can be obtained from the FTC Home Page (for April 28, 2017), on 
the World Wide Web, at http://www.ftc.gov/os/actions.shtm.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before May 30, 2017. 
Write ``In the Matter of Emerson Electric Co. and Pentair plc, File No. 
161 0221'' on your comment. Your comment--including your name and your 
state--will be placed on the public record of this proceeding, 
including, to the extent practicable, on the public Commission Web 
site, at https://www.ftc.gov/policy/public-comments. As a matter of 
discretion, the Commission tries to remove individuals' home contact 
information from comments before placing them on the Commission Web 
site.
    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/emersonelectricconsent by following the instructions on the web-
based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you file your comment on paper, write ``In the Matter of Emerson 
Electric Co. and Pentair plc, File No. 161 0221'' on your comment and 
on the envelope, and mail it to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite 
CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex 
D), Washington, DC. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Because your comment will be placed on the publicly accessible FTC 
Web site at www.ftc.gov, you are solely responsible for making sure 
that your comment does not include any sensitive or confidential 
information. In particular, your comment should not include any 
sensitive personal information, such as your or anyone else's Social 
Security number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. You are also 
solely responsible for making sure that your comment does not include 
any sensitive health information, such as medical records or other 
individually identifiable health information. In addition, your comment 
should not include any ``trade secret or any commercial or financial 
information which . . . is privileged or confidential''--as provided by 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 
16 CFR 4.10(a)(2)--including in particular competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    Once your comment has been posted on the public FTC Web site--as 
legally required by FTC Rule 4.9(b)--we cannot redact or remove your 
comment from the FTC Web site, unless you submit a confidentiality 
request that meets the requirements for such treatment under FTC Rule 
4.9(c), and the General Counsel grants that request in accordance with 
the law and the public interest. Comments containing material for which 
confidential treatment is requested must be filed in paper form, must 
be clearly labeled ``Confidential,'' and must comply with FTC Rule 
4.9(c). In particular, the written request for confidential treatment 
that accompanies the comment must include the factual and legal basis 
for the request, and must identify the specific portions of the comment 
to be withheld from the public record. See FTC Rule 4.9(c).
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before May 30, 2017. You can find more information, 
including routine uses permitted by the Privacy Act, in the 
Commission's privacy policy, at https://www.ftc.gov/site-information/privacy-policy.

Analysis of Agreement Containing Consent Orders To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Emerson Electric Co. (``Emerson'') and Pentair plc 
(``Pentair'') (collectively, the ``Respondents'') that is designed to 
remedy the anticompetitive effects that would likely result from 
Emerson's proposed acquisition of Pentair's valves and controls 
business.
    Pursuant to a Share Purchase Agreement, dated as of August 18, 
2016, Emerson proposes to acquire the equity interests of certain 
subsidiaries of Pentair in exchange for cash considerations of 
approximately $3.15 billion (the ``Acquisition''). The proposed 
Acquisition would combine the two largest suppliers of switchboxes, 
which are industrial valve control products, in the United States. 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, by substantially lessening competition in the 
United States market for switchboxes.
    The proposed Decision and Order (``Order'') requires Emerson to 
divest Pentair's switchbox manufacturer subsidiary, Westlock Controls 
Corporation (``Westlock''), to Crane Co. (``Crane'') no later than ten 
days after the Acquisition is consummated. The divestiture requires 
Emerson to transfer to Crane all of the facilities, personnel, 
confidential information, and intellectual property associated with the 
design, manufacture, and sale of Westlock's products, which will allow 
Crane to effectively compete in the switchbox market.
    The Commission has placed the Consent Agreement on the public 
record for 30 days to solicit comments from interested persons. 
Comments received during this period will become part of the public 
record. After 30 days, the Commission will again review the Consent 
Agreement, along with any comments received, and decide whether it 
should withdraw from the Consent Agreement, modify it, or make the 
Order final.

II. The Respondents

    Emerson, headquartered in St. Louis, Missouri, is a diversified 
global manufacturing company that provides a variety of products and 
services for the industrial, commercial, and consumer markets. Through 
its Automated Solutions segment, Emerson is a leading manufacturer of 
industrial equipment and instrumentation, including valves, actuators, 
regulators, and switchboxes, which it sells to customers in, among 
others, the oil and gas, refining, chemical, and power generation 
industries.
    Pentair, headquartered in London, United Kingdom, with a main U.S. 
office located in Minneapolis,

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Minnesota, is a global water, fluid, thermal management, and equipment 
protection company. The Pentair Valves & Controls business manufactures 
valves, fittings, actuators, and controls, including switchboxes, for a 
broad array of industrial markets.

III. The Relevant Markets

    The relevant product market at issue in this transaction is 
switchboxes. Switchboxes are devices that monitor and control isolation 
(or ``on/off'') valves, which control the flow of liquids or gases 
through pipes in industrial applications, including the oil and gas, 
chemical, petrochemical, and power generation industries. Switchboxes 
consist of a hard outer case, which often is made of explosion-proof 
material, containing switches and other electrical components that 
detect the position of a valve--that is, whether it is open or closed--
and communicate that position via a visual display and/or digital 
signals to the facility's workers and control room. Switchboxes are 
ancillary components that are typically bundled together with a valve, 
an actuator (a device that physically opens and closes a valve), and 
other control products into an ``automated'' isolation valve, which can 
open and close automatically without manual intervention. Because 
switchboxes perform a unique and essential role in the efficient and 
safe operation of industrial plants and facilities, there currently are 
no practical alternatives to switchboxes.
    The United States is the relevant geographic market in which to 
assess the competitive effects of the Acquisition. The United States 
operates distinctly compared to international markets. Unlike 
international markets, the domestic market relies heavily on 
distributors, so competition takes place at both the distributor and 
customer level. Moreover, customers in the United States have distinct 
brand preferences for leading switchbox brands. Because switchboxes are 
frequently used under hazardous conditions in which safety is critical, 
brand reputation and product reliability are very important to 
customers. As a result, U.S. customers are unlikely to turn to brands 
that are not well established in the United States in response to a 
small but significant non-transitory increase in price.
    Pentair's ``Westlock'' and Emerson's ``TopWorx'' switchbox 
businesses are the two largest suppliers of switchboxes in the United 
States, with a combined market share of approximately 60%. Other than 
Westlock and TopWorx, there are few suppliers with appreciable market 
shares. Each of these suppliers has substantially smaller market shares 
than either Westlock or TopWorx. In addition, there is a fringe of 
small manufacturers with very small market shares. The switchboxes 
produced by these smaller suppliers are not widely accepted by 
customers in the United States. The Acquisition would substantially 
increase concentration levels in the U.S. switchbox market and would 
result in a highly concentrated market. Under the Horizontal Merger 
Guidelines, the increase in concentration would presumptively create or 
enhance market power.

IV. Effects of the Acquisition

    Absent a divestiture, the proposed Acquisition would likely harm 
competition in the U.S. switchbox market. Emerson and Pentair are each 
other's closest competitors in this market, and customers benefit from 
that competition through lower prices and increased product innovation. 
TopWorx and Westlock are the most widely used and highly regarded 
brands of switchboxes in the United States and, for many customers, are 
the only acceptable brands of switchboxes. By eliminating competition 
between Emerson and Pentair, the Acquisition likely would produce 
unilateral effects in the form of higher prices and reduced innovation.

V. Entry

    Entry into the U.S. market for switchboxes would not be timely, 
likely, or sufficient in to deter or counteract the anticompetitive 
effects of the Acquisition. The competitive strength of TopWorx and 
Westlock largely reflects their brand reputation for reliability and 
durability, which could not be quickly replicated by a new entrant. In 
addition, customers will typically only purchase switchboxes from 
approved suppliers and are reluctant to consider unproven 
manufacturers. This is because customers place a premium on safety, and 
product failure could cause costly and potentially dangerous disruption 
to critical applications. Any new entrant would need to not only 
undertake a lengthy and costly process of new product development, but 
would also need to undergo rigorous vetting, testing, and approval to 
become viable alternatives for many customers. Given the difficulty in 
overcoming these obstacles, it is unlikely that a new entrant or 
existing lower-tier competitor could effectively restore the 
competition lost through this Acquisition.

VI. The Proposed Consent Agreement

    The proposed Consent Agreement remedies the competitive concerns 
raised by the Acquisition by requiring Emerson to divest Pentair's 
Westlock subsidiary to Crane, a publicly traded manufacturer of highly 
engineered industrial products, including industrial valves. The 
proposed divestiture includes everything needed for Crane to compete 
effectively in the U.S. market for switchboxes.
    Crane, headquartered in Stamford, Connecticut, is a 162-year-old 
company with a long history as a significant competitor in the U.S. 
industrial valves market, providing it with the industry experience and 
expertise necessary to replace the competition that would be lost due 
to the Acquisition. Crane's portfolio of valves complements the 
switchbox and other valve control products that Westlock manufactures, 
but Crane does not sell any products that compete with Westlock. Crane 
has a substantial U.S. infrastructure and customer base, including many 
of the same customers as Westlock, and pre-existing relationships with 
many of Westlock's distributors. Crane is thus well positioned to 
acquire and integrate Westlock and maintain the benefits of competition 
in this market.
    Under the terms of the Order, Emerson must divest all of Westlock's 
businesses and assets to Crane, including Westlock's manufacturing 
facility located in Saddle Brook, New Jersey, and all of the 
confidential information and intellectual property related to 
Westlock's product portfolio. Emerson must also allow Crane to have 
access to and hire any Westlock employees who were engaged in the 
research, development, manufacturing, marketing, or sales of Westlock's 
products. In order to ensure that the divestiture will succeed, the 
Order requires the Respondents to enter into a one-year transitional 
services agreement with Crane for certain functions that Pentair 
performed for Westlock (such as accounts receivable, tax, legal, 
payroll, benefits, and other related functions). In order to preserve 
competition with Emerson, the Order requires Emerson to institute 
procedures that protect sensitive non-public information regarding 
Westlock's business from the Emerson business people in competing lines 
of business. It also restricts Emerson from instituting patent 
infringement suits against Crane for the Westlock switchbox product 
lines that are currently being marketed or in development.
    The Respondents must complete the divestiture no later than ten 
days after the consummation of the Acquisition. If the Commission 
determines that Crane is not an acceptable acquirer, the Order requires 
the Respondents to unwind the

[[Page 20892]]

sale and accomplish a divestiture of Westlock to another Commission-
approved acquirer within 180 days of the date the Order becomes final. 
Further, the Order allows the Commission to appoint a monitor to ensure 
that the Respondents expeditiously comply with their obligations under 
the Order and a Divestiture Trustee to accomplish the divestiture 
should the Respondents fail to comply with their divestiture 
obligations.

VII. Opportunity for Public Comment

    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement to aid the Commission in determining whether it 
should make the Consent Agreement final. This analysis is not intended 
to constitute an official interpretation of the proposed Consent 
Agreement and does not modify its terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2017-08965 Filed 5-3-17; 8:45 am]
 BILLING CODE 6750-01-P