[Federal Register Volume 85, Number 41 (Monday, March 2, 2020)]
[Notices]
[Pages 12300-12302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04182]
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FEDERAL TRADE COMMISSION
[File No. 191 0087]
FXI Holdings and Innocor; Analysis of Agreement Containing
Consent Order To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement; request for comment.
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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 of Agreement Containing Consent Order to Aid
Public Comment describes both the allegations in the complaint 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 1, 2020.
ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Please write: ``FXI Holdings
and Innocor; File No. 191 0087'' on your comment, and file your comment
online at https://www.regulations.gov by following the instructions on
the web-based form. If you prefer to file your comment on paper, please
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: Llewellyn Davis (202-326-3394), Bureau
of Competition, Federal Trade Commission, 600 Pennsylvania Avenue NW,
Washington, DC 20580.
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 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 of Agreement Containing Consent Order 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 website (for
February 21, 2020), at this web address: https://www.ftc.gov/news-events/commission-actions.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before April 1, 2020.
Write ``FXI Holdings and Innocor; File No. 191 0087'' 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 https://www.regulations.gov website.
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 through the https://www.regulations.gov website.
If you prefer to file your comment on paper, write ``FXI Holdings
and Innocor; File No. 191 0087'' 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. If possible, submit your paper comment to the
Commission by courier or overnight service.
Because your comment will be placed on the publicly accessible
website at https://www.regulations.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 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.
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). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on the public FTC website--as legally required by FTC Rule
4.9(b)--we cannot redact or remove your comment from the FTC website,
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.
Visit the FTC website at http://www.ftc.gov to read this Notice and
the
[[Page 12301]]
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 April 1, 2020. For information on the
Commission's privacy policy, including routine uses permitted by the
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
Analysis of Agreement Containing Consent Order To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted from One
Rock Capital Partners II, LP (``One Rock Capital''), FXI Holdings, Inc.
(``FXI''), Bain Capital Fund XI, LP (``Bain''), and Innocor Inc.
(``Innocor''), subject to final approval, an Agreement Containing
Consent Order (``Consent Agreement'') designed to remedy the
anticompetitive effects that would likely result from FXI's proposed
acquisition of Innocor. The proposed Decision and Order (``Order'')
contained in the Consent Agreement requires FXI and Innocor to divest
three polyurethane foam pouring plants to Future Foam, Inc. (``Future
Foam'').
The proposed Consent Agreement has been placed on the public record
for thirty days for receipt of comments by interested persons. Comments
received during this period will become part of the public record.
After 30 days, the Commission will review the comments received and
decide whether it should withdraw, modify, or make the Consent
Agreement final.
On March 4, 2019, FXI and Innocor signed an Agreement and Plan of
Merger by which FXI's parent company, One Rock Capital, would acquire
100% of the voting securities of Innocor for approximately $850 million
(the ``Acquisition''). The proposed Acquisition would combine two
leading producers of polyurethane foam 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 FTC Act, as amended, 15 U.S.C. 45, by
substantially lessening competition in several regional markets across
the United States for low-density conventional polyurethane foam
(``Low-Density Foam''). The proposed Consent Agreement would remedy the
alleged violations by preserving the competition that otherwise would
be lost in this market as a result of the proposed Acquisition.
II. The Parties
Headquartered in Media, Pennsylvania, FXI is a polyurethane foam
producer, providing a full range of polyurethane foam products
including conventional, visco, and high resiliency foam. Polyurethane
foam is used in a variety of end-uses, including home furnishing,
packaging, and automotive applications. FXI operates foam-pouring
facilities across the United States, including in the Pacific
Northwest, the Midwest States, and Mississippi.
Innocor, headquartered in Red Bank, New Jersey, also produces a
full range of polyurethane foam products including conventional, visco,
and high resiliency foam for home furnishing, packaging, and other end
uses. Like FXI, Innocor operates foam-pouring facilities across the
United States, including in the Pacific Northwest, the Midwest States,
and Mississippi.
III. The Relevant Product and Market Structure
The relevant product market in which to assess the competitive
effects of the proposed acquisition is Low-Density Foam for home
furnishing uses. Polyurethane foam consists of various grades and
densities with different properties and end uses. Both FXI and Innocor
sell Low-Density Foam, commonly referred to as ``light and white,'' to
furniture manufacturers directly or through third party fabricators.
When used in home furnishing products, such as mattresses, mattress
toppers, pet beds, pillows, chairs, and couches, Low-Density Foam
serves as padding or cushioning. There are no reasonably
interchangeable substitutes for Low-Density Foam in home furnishing
applications.
Regional geographic markets are appropriate to assess the
competitive effects of the proposed Acquisition because of the
importance of proximity to producers. Low-Density Foam is bulky, and
involves shipping a large volume of air, so the cost of shipping is
high relative to the value of the product. These high shipping costs
limit the ability of distant producers to compete against local
suppliers and result in regional competition. Foam producers like FXI
and Innocor operate regional pouring facilities that service customers
in the surrounding areas. In this matter, there are three relevant
geographic markets for Low-Density Foam: The Pacific Northwest, the
Midwest States, and Mississippi. The Pacific Northwest includes Oregon,
Washington. The Midwest States include Indiana, Michigan, and Ohio.
The combination of FXI and Innocor would create the largest
supplier of Low-Density Foam in the United States. The combined firm
would have a market share above 50% in each of the Pacific Northwest,
Midwest States, and Mississippi markets. FXI and Innocor face varying
levels of competition in these regional markets. FXI and Innocor are
the only firms that pour foam in the Pacific Northwest. In the Midwest
States, FXI, Innocor, and Carpenter each have foam-pouring facilities,
while in Mississippi FXI, Innocor, Carpenter and Elite each operate
foam-pouring facilities. Future Foam does not currently pour foam in
any of these markets.
The proposed FXI/Innocor combination would result in highly
concentrated markets for Low-Density Foam to become even more
concentrated, increasing the Herfindahl-Hirschman Index (``HHI'') by
more than 1500 in three regional markets--the Pacific Northwest, the
Midwest States, and Mississippi. This increase in concentration far
exceeds the thresholds set out in the Horizontal Merger Guidelines for
raising a presumption that the Acquisition would create or enhance
market power.
IV. Effects of the Acquisition
Absent a divestiture, the proposed acquisition is likely to harm
customers of Low-Density Foam in the Pacific Northwest, Midwest States,
and Mississippi markets. FXI and Innocor compete directly against each
other for Low-Density Foam sales in each of the relevant markets, and
customers have benefited from that competition. By eliminating head-to-
head competition between FXI and Innocor, the proposed Acquisition
likely would lead to unilateral effects in the form of higher prices
and reduced innovation.
The proposed acquisition is also likely to increase the likelihood
of coordination and parallel accommodating conduct among the remaining
competitors in the relevant markets. There is a history of alleged
anticompetitive conduct within the polyurethane foam industry, raising
heightened concerns about further consolidation. The industry also
shows an existing vulnerability to coordination, including significant
awareness of interdependence among the suppliers, actions taken in
recognition of that interdependence, and sufficient transparency among
the producers to support coordination. Further consolidation is likely
to
[[Page 12302]]
increase the incentives and ability of the remaining firms to
coordinate.
V. Entry
Entry into the Low-Density Foam markets would not be timely,
likely, or sufficient in magnitude, character, and scope to deter or
counteract the anticompetitive effects of the proposed Acquisition. A
new entrant with a single pouring plant would face significant barriers
to entry, such as higher procurement costs for critical inputs,
including the various chemicals, which make up a substantial portion of
the cost of polyurethane foam. No new polyurethane foam pouring plants
have opened in the Pacific Northwest, the Midwest States or Mississippi
for many years. In fact, the number of plants in these regions has
steadily decreased as industry participants have consolidated and
closed numerous overlapping plants.
VI. The Consent Agreement
The Consent Agreement eliminates the competitive concerns raised by
the proposed Acquisition by requiring the merging parties to divest
foam-pouring plants located in Kent, Washington; Elkhart, Indiana; and
Tupelo, Mississippi to Future Foam, a privately held competitor based
in Council Bluffs, Iowa. Future Foam is a leading producer of low-
density conventional foam but currently has a limited presence in the
Pacific Northwest, Mississippi, and the Midwest States. The divestiture
package consists of the following assets and rights: FXI's Kent,
Washington polyurethane foam plant, Innocor's Elkhart, Indiana plant,
and Innocor's Tupelo, Mississippi plant, including each plant's
production facilities, warehouses, storage facilities, equipment,
offices, fabricating operations, transportation assets, and all other
related businesses, operations and assets; formulas, technologies and
other intangible rights and property relating to the facilities; and
licenses to shared intellectual property. Additionally, the Order
requires that, at the request of Future Foam, FXI must provide
transitional assistance for up to twelve months following the
divestiture date. These services include logistical and administrative
support. The Order also includes other standard terms designed to
ensure the viability of the divested business. The provisions of the
proposed Consent Agreement positions Future Foam to become an effective
competitor in the markets for Low-Density Foam in the Pacific
Northwest, the Midwest States, and Mississippi in order to maintain the
competition that currently exists.
Under the Order, FXI is required to divest the three plants no
later than 10 days from the close of its acquisition of Innocor. If the
Commission determines that Future Foam is not an acceptable acquirer,
or that the manner of the divestitures is not acceptable, the Order
requires FXI to either unwind the sale of rights and assets to Future
Foam and then divest the assets to a Commission-approved acquirer
within 120 days of the date the Order becomes final, or modify the
divestiture to Future Foam in the manner the Commission determines is
necessary to satisfy the requirements of the Order.
The Order also requires a monitor to oversee FXI's compliance with
the obligations set forth in the Order. If FXI does not fully comply
with the divestiture and other requirements of the Order, the
Commission may appoint a Divestiture Trustee to divest the three
facilities and perform FXI's other obligations consistent with the
Order. The Order also requires that FXI and One Rock Capital shall not,
without providing advance written notification to the Commission,
acquire any polyurethane foam production plant in the states of
Indiana, Michigan, Mississippi, Ohio, Oregon, and Washington for a
period of ten years from the date the Order is issued.
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 an
official interpretation of the proposed Consent Agreement and does not
modify its terms in any way.
By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2020-04182 Filed 2-28-20; 8:45 am]
BILLING CODE 6750-01-P