[Federal Register: March 19, 1998 (Volume 63, Number 53)]
[Notices]               
[Page 13410-13412]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19mr98-61]

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FEDERAL TRADE COMMISSION

[File No. 981-0011]

 
Federal-Mogul Corporation, et al.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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[[Page 13411]]

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 May 18, 1998.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Joseph Krauss, FTC/H-386, Washington, 
D.C. 20580. (202) 326-2713.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 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 sixty (60) 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 6, 1998), on the World Wide Web, at ``http://www.ftc.gov/os/
actions97.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, N.W., 
Washington, D.C. 20580, either in person or by calling (202) 326-3627. 
Public comment is invited. Such comments or views 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 Proposed Consent Order to Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order 
(``Agreement'') from Federal-Mogul Corporation (``Federal-Mogul'') and 
T&N plc (``T&N'').
    The proposed Consent Order has been placed on the public record for 
sixty (60) days for reception of comments by interested persons. 
Comments received during this period will become part of the public 
record. After sixty (60) days, the Commission will again review the 
Agreement and the comments received and will decide whether it should 
withdraw from the Agreement or make final the Agreement's proposed 
Order.
    Both Federal-Mogul, a Michigan corporation, and T&N, a corporation 
organized under the laws of the United Kingdom, design, manufacture and 
sell fluid film or ``plain'' thinwall bearings (``thinwall bearings''). 
These are bearings that do not have roller or ball elements, but have a 
surface coating of oil which reduces friction. Among the thinwall 
bearings Federal-Mogul and T&N manufacture and sell are thinwall 
bearings for use in automobile and light truck engines (``light duty 
engine bearings'') and thinwall bearings for use in heavy truck and 
heavy equipment engines (``heavy duty engine bearings''). Both Federal-
Mogul and T&N sell light duty and heavy duty engine bearings to 
original equipment manufacturers (``OEMs''), which buy bearings and use 
them to manufacture engines, and to aftermarket companies, which buy 
bearings and use them to repair or service engines after the engines' 
warranty periods have expired. Federal-Mogul and T&N are the largest 
competitors in the manufacture and sale of thinwall bearings to OEMs 
and the aftermarket in the United States. On October 16, 1997, Federal-
Mogul notified T&N of Federal-Mogul's intention to commence a cash 
tender offer to acquire 100 percent of the voting securities of T&N for 
approximately $2.4 billion.

The Proposed Complaint

    The proposed complaint alleges that the proposed acquisition may 
substantially lessen competition in the development, manufacture, and 
sale of (1) thinwall bearings, (2) light duty engine bearings sold to 
OEMs, (3) heavy duty engine bearings sold to OEMs, and (4) engine 
bearings sold to the aftermarket. The proposed complaint also alleges 
that the relevant geographic market for evaluating the acquisition's 
effect on the thinwall bearings market is the world. Every engine has a 
unique set of bearings which, with few exceptions, cannot be used in 
any other engine. The bearings are engineered in terms of materials, 
shapes and sizes to meet the bearing performance demands of a 
particular engine. While engines built for the United States market 
have different performance characteristics from engines built for other 
markets, and require bearings engineered for those performance 
requirements, engine manufacturers in the United States are willing to 
buy engine bearings from anywhere in the world if the bearings meet the 
performance requirements for the United States market.
    The proposed complaint alleges that Federal-Mogul and T&N are the 
two leading producers in the four different bearings markets. The 
complaint further alleges that the proposed transaction would give 
Federal-Mogul the ability to unilaterally exercise market power and 
that the transaction could also substantially increase the likelihood 
of collusion or coordinated anticompetitive conduct between Federal-
Mogul and the other remaining bearings producers.
    The proposed complaint alleges that entry into the four alleged 
markets would not be timely, likely, or sufficient to deter or offset 
the adverse effects of the acquisition on competition in these markets. 
Entry into the markets to sell engine bearings to OEM customers 
requires developing appropriate bearings and precision manufacturing 
capabilities and extensive testing before sales can be made. This 
process, from development to the completion of testing, would take 
substantially more than two years. In the aftermarket, the entrant 
would have to develop a broad product line to compete with Federal-
Mogul and T&N, which would take more than two years, and a new entrant 
would be at a significant cost disadvantage to the incumbent firms.

The Proposed Order

    The proposed Order would remedy the alleged violation by preserving 
the competition that would otherwise be lost as a result of Federal-
Mogul's acquisition of T&N. The proposed Order requires Federal-Mogul 
to divest the thinwall bearing business of T&N, which includes the 
assets and plants that T&N now uses to make thinwall bearings, as well 
as the assets, including intellectual property, that T&N now uses to 
develop and design new bearings to meet the bearings needs of engines 
that OEMs will develop in the future. To insure that the divested 
thinwall bearing business would be in the same position that T&N had 
been in terms of research, the proposed Order specifically identifies 
the individuals in T&N who worked on bearings research and development 
and requires Federal-Mogul and T&N to assign those personnel to the 
business to be divested. In addition, certain employees who are 
believed to be particularly important to the future research success of 
the divested T&N thinwall business will be given incentives to remain 
with the divested thinwall business. Finally, certain assets relating 
the aftermarket

[[Page 13412]]

sales of bearings in North America, including the brand names under 
which T&N has sold bearings, must be included in the divestiture.
    The proposed Order also addresses a relationship that T&N's 
thinwall bearings business had with Daido Metals (``Daido''), a 
Japanese bearing producer. For a number of years, T&N had cooperative 
technology exchange arrangements with Daido, as well as a joint venture 
to produce bearings at Bellefontaine, Ohio. In the past, these 
arrangements between T&N and Daido may have allowed the two companies 
together to compete better against other bearings producers and to meet 
their customers' needs for high quality, low cost, sophisticated 
bearings, better than either company could on its own. To allow for the 
continuation of cooperation between Daido and the divested T&N bearings 
business, the proposed Order prohibits Federal-Mogul from entering into 
such arrangements with Daido for a period of five years. In addition, 
because certain individuals at T&N are believed to be important to 
maintaining the cooperative relationships between T&N and Daido, these 
individuals are given incentives under the proposed Order to stay with 
the divested T&N thinwall bearings business. The purpose of these 
provisions is not to force the divested T&N thinwall bearing business 
or Daido to form any particular cooperative arrangements, but to allow 
any efficient cooperation between the two firms to continue as if T&N 
had not been acquired by Federal-Mogul.
    The proposed Order also identifies certain assets related to dry 
bearings or polymer bearings that are to be included in the 
divestiture. Dry or polymer bearings are bearings that do not rely on a 
film of oil, but instead on a polymer coating, to reduce friction. 
These bearings are produced at T&N plants that also produce thinwall 
bearings, and the inclusion of these bearings in the assets to be 
divested may be important to the viability of the T&N plants to be 
divested. Absent the specific references to polymer bearings, the 
identification of the plants to be divested would require the 
divestiture of the manufacturing lines for these dry or polymer 
bearings that are contained in the named plants. However, Federal-Mogul 
wishes to include these products by name in the proposed Order, to 
insure the German Federal Cartel Office that the dry bearing products 
listed will be divested. The German Federal Cartel Office has raised 
concerns about a product overlap between Federal-Mogul and T&N in dry 
bearings that would adversely impact competition in dry bearings in 
Germany. By including these products in the Commission's proposed 
Order, Federal-Mogul avoids having to enter into a separate divestiture 
procedure, relating to the same plants, to satisfy the Federal Cartel 
Office.
    The proposed Order requires that Federal-Mogul divest the 
identified assets within six months after the proposed Order becomes 
final. If Federal-Mogul does not divest the assets within that time 
period, the proposed Order provides for the appointment of a trustee to 
divest the assets.
    The purpose of this analysis is to facilitate public comment on the 
proposed Order. This analysis is not intended to constitute an official 
interpretation of the Agreement or the proposed Order or in any way to 
modify the terms of the Agreement or the proposed Order.

    By direction of the Commission, Commissioner Azcuenaga not 
participating.
Donald S. Clark,
Secretary.
[FR Doc. 98-7115 Filed 3-18-98; 8:45 am]
BILLING CODE 6750-01-M