Mustad International Group NV and Mustad Connecticut, Inc.; Proposed Consent Agreement With Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 931-0121]

Mustad International Group NV and Mustad Connecticut, Inc.;

Proposed Consent Agreement With Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

require a Bulle, Switzerland-based company and its Bloomfield,

Connecticut-based subsidiary to divest assets or technology in its

manufacture and sale of roll horseshoe nails.

DATES: Comments must be received on or before October 16, 1995.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Howard Morse, Bureau of Competition, Federal Trade Commission, S-3627,

6th Street & Pennsylvania Ave. NW., Washington, DC 20580. (202) 326-

2949.

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 following 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. 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)).

Agreement Containing Consent Order

The Federal Trade Commission (``Commission'') having initiated an

investigation of acquisitions by Mustad Connecticut, Inc. (``Mustad

Connecticut'') and Mustad International Group NV (``Mustad Group'') of

the horseshoe nail assets of Capewell Manufacturing Company, the assets

of Cooper Horseshoe Nail Co., Ltd., a majority interest in Emcoclavos

S.A., and the horseshoe nail assets of Sterward Engineering Company,

Ltd., and it now appearing that Mustad Connecticut and Mustad Group,

hereinafter sometimes referred to as ``proposed respondents,'' are

willing to enter into an agreement containing an order to divest

certain assets and to cease and desist from making certain

acquisitions, and providing for other relief.

It is hereby agreed by and between proposed respondents, by their

duly authorized officers and attorney, and counsel for the Commission

that:

1. Proposed respondent Mustad Connecticut, a wholly owned

subsidiary of Mustad International Group NV, is a corporation

organized, existing and doing business under and by virtue of the laws

of the State of Connecticut, with its principal place of business at

1395 Blue Hills Avenue, Bloomfield, Connecticut 06002.

2. Proposed respondent Mustad Group is a corporation organized,

existing, and doing business under and by virtue of the laws of the

Netherlands Antilles with its principal place of business at St.

Pierhalsteeg 5, NL-1012 GL Amsterdam.

3. Proposed respondents admit all the jurisdictional facts set

forth in the draft of complaint.

4. Proposed respondents waive:

(a) any further procedural steps;

(b) the requirement that the Commission's decision contain a

statement of findings of fact and conclusions of laws;

(c) all rights to seek judicial review or otherwise to challenge or

contest the validity of the order entered pursuant to this agreement;

and

(d) any claim under the Equal Access to Justice Act.

5. This agreement shall not become part of the public record of the

proceedings unless and until it is accepted by the Commission. If this

agreement is accepted by the Commission it, together with the draft of

complaint contemplated thereby, will be placed on the public record for

a period of sixty (60) days and information in respect thereto publicly

released. The Commission thereafter may either withdraw its acceptance

of this agreement and so notify the proposed respondents, in which

event it will take such action as it may consider appropriate, or issue

and serve its complaint (in such form as the circumstances may require)

and decision, in disposition of the proceeding.

6. This agreement is for settlement purposes only and does not

constitute an admission by proposed respondents that the law has been

violated as alleged in the draft of complaint, or that the facts as

alleged in the draft complaint, other than jurisdictional facts, are

true.

7. This agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Section 2.34 of the

Commission's Rules, the Commission may, without further notice to

proposed respondents, (1) issue its complaint corresponding in form and

substance with the draft of complaint and its decision containing the

following order to divest, license, and cease and desist in disposition

of the proceeding, and (2) make information public with respect

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thereto. When so entered, the order shall have the same force and

effect and may be altered, modified, or set aside in the same manner

and within the same time provided by statute for other orders. The

order shall become final upon service. Delivery by the United States

Postal Service of the complaint and decision containing the agreed-to

order to proposed respondents' or to their counsel's addresses as

stated in this agreement shall constitute service. Proposed respondents

waive any right they may have to any other manner of service. The

complaint may be used in construing the terms of the order, and no

agreement, understanding, representation, or interpretation not

contained in the order or the agreement may be used to vary or

contradict the terms of the order.

8. Proposed respondents have read the proposed complaint and order

contemplated hereby. Proposed respondents understand that once the

order has been issued, they will be required to file one or more

compliance reports showing they have fully complied with the order.

Proposed respondents further understand that they may be liable for

civil penalties in the amount provided by law for each violation of the

order after it becomes final.

Order

I

It is ordered that, as used in this order, the following

definitions shall apply:

A. ``Mustad Connecticut'' means Mustad Connecticut, Inc., a wholly

owned subsidiary of Mustad International Group NV, its predecessors,

subsidiaries, divisions, and groups and affiliates controlled by Mustad

Connecticut, their successors and assigns, and their directors,

officers, employees, agents and representatives.

B. ``Mustad Group'' means Mustad International Group NV, its

predecessors, subsidiaries, divisions, and groups and affiliates

controlled by Mustad Group, their successors and assigns, and their

directors, officers, employees, agents and representatives.

C. ``Respondents'' or ``Mustad'' means Mustad Connecticut and

Mustad Group.

D. ``Acquisitions'' means the acquisitions by Mustad of the assets

of Cooper Horseshoe Nail Co., Ltd.; stock of Emcoclavos S.A.; and

assets of Sterward Engineering Company, Ltd.

E. ``Capewell'' means substantially all assets of Capewell

Horsenails, Inc., including assets, properties, business and goodwill,

tangible and intangible, used in the manufacture and sale of Rolled

Horseshoe Nails, including the following:

1. Machinery, fixtures, equipment, vehicles, transportation

facilities, furniture, tools and other tangible personal property;

2. Customer lists, vendor lists, catalogs, sales promotion

literature, advertising materials, research materials, technical

information, management information systems, software, inventions,

trade secrets, intellectual property, patents, technology, know-how,

specifications, designs, drawings, processes and quality control data;

3. Inventory of nails produced by Capewell;

4. Rights, titles and interests in and to the contracts entered

into in the ordinary course of business with customers (together with

associated bid and performance bonds), suppliers, sales

representatives, distributors, agents, personal property lessors,

personal property lessees, licensors, licensees, consignors and

consignees;

5. Rights under warranties and guarantees, express or implied;

6. Books, record, files; and

7. Items of prepaid expense.

F. ``Commission'' means the Federal Trade Commission.

G. ``Rolled Horseshoe Nails'' means horseshoe nails that are

produced by the rolling process of drawing the shank of the nail

through a series of dies.

H. ``Functioning Nail Machine'' means a fully functioning and

operational machine that has produced at least 800 pounds per week of

City Head No. 5 Rolled Horseshoe Nails during the preceding year, or

the equivalent production of other types and sizes of nails, including

tooling used in the maintenance or operation of such nail machines, and

capable of producing Rolled Horseshoe Nails in at least the following

sizes: city head 5, city head 6, slim blade 5, regular head 5, and race

nail 3\1/2\.

I. ``Spare Nail Machine'' means a functioning or non-functioning

machine suitable for use in providing spare and replacement parts for

the Functioning Nail Machines.

J. ``Nail Machine'' means a Functioning Nail Machine or Spare Nail

Machine.

K. ``Technology and Know-how'' means all of Mustad's drawings,

blueprints, patents, specifications, tests, and other documentation,

and all information contained therein or available to Mustad personnel

relating to the design, and the production methods, processes and

systems used in the production of Rolled Horseshoe Nails.

II

It is further ordered that:

A. Mustad shall divest, absolutely and in good faith, by May 15,

1996, either (i) Capewell as an ongoing business, or (ii) four (4)

Functioning Nail Machines and one (1) Spare Nail Machine and shall

grant a perpetual non-exclusive license of the Technology and Know-how

to the acquirer.

B. The divestiture and granting of the license shall be made only

to an acquirer that receives the prior approval of the Commission and

only in a manner that receives the prior approval of the Commission.

The purpose of the divestiture and licensing is to create an

independent competitor in the production and sale of Rolled Horseshoe

Nails and to remedy the lessening of competition in the United States

resulting from the Acquisitions as alleged in the Commission's

complaint. Mustad shall divest such other ancillary assets and effect

such other arrangements as are reasonably necessary for the acquirer to

be viable, and competitive.

C. If Mustad divests the Functioning Nail Machines and Spare Nail

Machine, then upon reasonable notice from the acquirer to respondents,

respondents shall provide such assistance to the acquirer as is

reasonably necessary to enable the acquirer to produce Rolled Horseshoe

Nails in substantially the same manner and quality employed or achieved

by the respondent prior to divestiture. Such assistance shall include

reasonable consultation with knowledgeable employees and training for a

period of time sufficient to satisfy the acquirer's management that its

personnel are appropriately trained in the production of rolled

horseshoe nails. Respondents shall convey all know-how necessary to

produce rolled horseshoe nails in substantially the same manner and

quality employed or achieved by respondent prior to divestiture.

However, respondents shall not be required to continue providing such

assistance for more than one (1) year from the date of divestiture.

Respondents shall charge the acquirer its own direct costs for

providing such assistance.

III

It is further ordered that, pending divestiture of Capewell or the

Functioning Nail Machines and Spare Nail Machine pursuant to Paragraphs

II.A., Mustad shall take such action as is necessary to maintain the

viability and marketability of the Nail Machines to be divested and

shall not cause or permit the destruction, removal,

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wasting, deterioriation or impairment of such Nail Machines, except for

ordinary wear and tear that does not affect the viability and

marketability of the Nail Machines.

IV

It is further order that:

A. If respondents have not completed the divestiture required by

paragraph II.A. by May 15, 1996, the Commission may appoint a trustee

to divest four (4) Functioning Nail Machines, one (1) Spare Nail

Machine, and license the Technology and Know-how. In the event the

Commission or the Attorney General brings an action pursuant to

Sec. 5(1) of the Federal Trade Commission Act, 15 U.S.C. Sec. 45(1), or

any other statute enforced by the Commission, Mustad shall consent to

the appointment of a trustee in such action. Neither the appointment of

a trustee nor a decision not to appoint a trustee under this Paragraph

shall preclude the Commission or the Attorney General from seeking

civil penalties or any other relief available to it, including a court-

appointed trustee, pursuant to Section 5(1) of the Federal Trade

Commission Act, or any other statute enforced by the Commission, for

any failure by Mustad to comply with this order.

B. If a trustee is appointed by the Commission or a court pursuant

to Paragraph IV.A. of this order, Mustad shall consent to the following

terms and conditions regarding the trustee's powers, duties,

authorities, and responsibilities:

(1) The Commission shall select the trustee, subject to the consent

of Mustad, which consent shall not be unreasonably withheld. The

trustee shall be a person with experience and expertise in acquisitions

and divestitures. If Mustad has not opposed the selection of a proposed

trustee within fifteen (15) days after notice by the Commission's staff

to Mustad of the identity of the proposed trustee, Mustad shall be

deemed to have consented to the selection of the proposed trustee.

(2) Subject to the prior approval of the Commission, the trustee

shall have the exclusive power and authority to divest the Nail

Machines and grant a license for the Technology and Know-how and to

make any further arrangements that may be reasonably necessary to

maintain the viability and competitiveness of the business.

(3) The trustee shall have twelve (12) months from the date the

Commission approves the trust agreement described in Paragraph IV.B.8

to accomplish the divestiture, which shall be subject to the prior

approval of the Commission. If, however, at the end of the twelve-month

period, the trustee has submitted a plan of divestiture or believes

that the divestiture can be accomplished within a reasonable time, the

divestiture period may be extended by the Commission or, in the case of

a court-appointed trustee, by the court, provided, however, that the

Commission may extend this period only two (2) times and for a total

period not to exceed two (2) years.

(4) The trustee shall have full and complete access to the

personnel, books, records, and facilities related to the Nail Machines,

or to any other relevant information, as the trustee may reasonably

request. Respondents shall provide such financial or other information

as such trustee may reasonably request and shall cooperate with the

trustee. Mustad shall take no action to interfere with or impede the

trustee's accomplishment of the divestiture and licensing. Any delays

in divestiture caused by Mustad shall extend the time for divestiture

under Paragraph IV.B.3 in an amount equal to the delay, as determined

by the Commission or, for a court-appointed trustee, by the court.

(5) Subject to Mustad's absolute and unconditional obligation to

divest and license at no minimum price, and the purpose of the

divestiture and licensing as stated in Paragraph II of this order, the

trustee shall use his or her best efforts to negotiate the most

favorable price and terms available in each contract that is submitted

to the Commission. The divestiture shall be made in the manner set out

in Paragraph III of this order, provided, however, if the trustee

receives bona fide offers from more than one acquiring entity, and if

the Commission determines to approve more than one such acquiring

entity, the trustee shall divest to the acquiring entity or entities

selected by Mustad from among those approved by the Commission.

(6) The trustee shall serve, without bond or other security, at the

cost and expense of Mustad, on such reasonable and customary terms and

conditions as the Commission or, in the case of a court-appointed

trustee, the court may set. The trustee shall have authority to employ,

at the cost and expense of Mustad, such consultants, accountants,

attorneys, investment bankers, business brokers, appraisers, and other

representatives and assistants as are reasonably necessary and at

reasonable cost to carry out the trustee's duties and responsibilities.

The trustee shall account for all monies derived from the divestiture

and licensing and all expenses incurred. After approval by the

Commission and, in the case of a court-appointed trustee, by the court,

of the account of the trustee, including fees for his or her services,

all remaining monies shall be paid at the direction of Mustad and the

trustee's power shall be terminated. The trustee's compensation shall

be based in significant part on a reasonable commission arrangement

contingent on the trustee's divesting the Nail Machines and licensing

the technology and know-how.

(7) Mustad shall indemnify the trustee and hold the trustee

harmless against any losses, claims, damages, liabilities, or expenses

arising out of, or in connection with, the performance of the

trusteeship, including all reasonable fees of counsel and other

expenses incurred in connection with the preparation for, or defense of

any claim, whether or not resulting in any liability, except to the

extent that such liabilities, losses, damages, claims, or expenses

result from misfeasance, negligence, willful or wanton acts, or bad

faith by the trustee.

(8) Within ten (10) days after appointment of the trustee, and

subject to the prior approval of the Commission and, in the case of a

court-appointed trustee, of the court, Mustad shall execute a trust

agreement that transfers to the trustee all rights and powers necessary

to permit the trustee to effect the divestiture and licensing required

by this order.

(9) If the trustee ceases to act or fails to act diligently, a

substitute trustee shall be appointed in the same manner as provided in

Paragraph IV.A. of this order.

(10) The Commission or, in the case of a court-appointed trustee,

the court may on its own initiative or at the request of the trustee

issue such additional orders or directions as may be necessary or

appropriate to accomplish the divestiture and licensing required by

this order.

(11) The trustee shall have no obligation or authority to operate

or maintain the Nail Machines.

(12) The trustee shall report in writing to Mustad and to the

Commission every sixty (60) days concerning the trustee's efforts to

accomplish the divestiture and licensing.

V

It is further ordered that:

A. Within sixty (60) days after the date this order becomes final

and every sixty (60) days thereafter until Mustad has fully complied

with the provisions of Paragraph II or IV of this order, Mustad shall

submit to the Commission a verified written report setting forth in

detail the manner and form in which it intends to comply, is complying,

and has complied with those provisions.

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Mustad shall include in its compliance reports, among other things that

are required from time to time, a full description of the efforts being

made to comply with Paragraphs II and IV of the order, including a

description of all substantive contacts or negotiations for the

divestiture and licensing and the identity of all parties contacted.

Mustad also shall include in its compliance reports copies of all

written communications to and from such parties, all internal

memoranda, and all reports and recommendations concerning divestiture.

B. One year from the year that this order becomes final, annually

for the next nine (9) years on the anniversary of the date on which

this order becomes final, and at such other times as the Commission may

require, Mustad shall file with the Commission a verified written

report setting forth in detail the manner and form in which it has

complied and is complying with Paragraph VI of this order.

It is further ordered that, for a period of ten (10) years from the

date this order becomes final, respondent shall not, without providing

advance written notification to the Commission, directly or indirectly,

through subsidiaries, partnerships, or otherwise:

A. Acquire any stock, share capital, equity or other interest in

any concern, corporate or non-corporate, presently engaged in, within

the two years preceding such acquisition engaged in, or in the process

of attempting to engage in producing or selling horseshoe nails in the

United States; or

B. Acquire any assets used for, or previously used for (and still

suitable for use for) the production of horseshoe nails from any

concern, corporate or non-corporate, presently engaged in, within the

past two years engaged in, or in the process of attempting to engage in

producing or selling horseshoe nails in the United States.

Said notification shall be given on the Notification and Report

Form set forth in the Appendix to Part 803 of Title 16 of the Code of

Federal Regulations as amended (hereinafter referred to as ``the

Notification''). Respondent shall provide to the Commission at least

thirty days prior to acquiring any such interest (hereinafter referred

to as the ``first waiting period''), both the Notification and

supplemental information either in respondent's possession or

reasonably available to respondent. Such supplemental information shall

include a copy of the proposed acquisition agreement; the names of the

principal representatives of respondent and of the firm respondent

desires to acquire who negotiated the acquisition agreement; and any

management or strategic plans discussing the proposed acquisition. If,

within the first waiting period, representatives of the Commission make

a written request for additional information, respondent shall not

consummate the acquisition until twenty days after submitting such

additional information. Early termination of the waiting periods in

this paragraph may be requested and, where appropriate, granted in the

same manner as is applicable under the requirements and provisions of

the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C.

Sec. 18a.

VII

It is further ordered that, for the purposes of determining or

securing compliance with this order, and subject to any legally

recognized privilege, upon written request, Mustad reasonably shall

permit any duly authorized representatives of the Commission:

A. Access, during office hours and in the presence of counsel, to

inspect and copy all books, ledgers, accounts, correspondence,

memoranda and other records and documents in the possession or under

the control of Mustad relating to any matters contained in this order;

and

B. Upon five (5) days notice to Mustad, and without restraint or

interference from Mustad, to interview officers or employees of Mustad,

who may have counsel present, regarding such matters.

VIII

It is further ordered that Mustad shall notify the Commission at

least thirty (30) days prior to any proposed change in Mustad, such as

dissolution, assignment, or sale resulting in the emergence of a

successor, the creation or dissolution of subsidiaries, or any other

change that may affect compliance obligations arising out of this

order.

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted, subject

to final approval, and Agreement Containing Consent Order

(``Agreement'') from Mustad International Group NV (``Mustad''), a

Netherlands Antilles firm, and Mustad Connecticut, Inc., a Connecticut

company.

The proposed 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.

Mustad has consummated a series of acquisitions, beginning in July

1985 through January 1993. The proposed complaint alleges that the

effect of the acquisitions was to substantially lessen competition and

to give Mustad a virtual monopoly in the market for rolled horseshoe

nails, which allowed Mustad to raise prices by as much as 50-75% on the

most popular, large volume sizes of horseshoe nails in the United

States.

The complaint alleges that Mustad acquired Capewell Manufacturing

Company (``Capewell''), Cooper Horseshoe Nail Co., Ltd. (``Cooper''),

and Emcoclavos S.A. (``Emcoclavos'') and acquired a horseshoe nail

machine from Sterward Engineering Company, Ltd. (``Sterward''). Cooper

and Emcoclavos were direct competitors of Mustad and Sterward was a

potential competitor to Mustad. The complaint also alleges that Mustad

entered into non-compete agreements with Cooper and Sterward for a

period of at least twenty years. The complaint also alleges that Mustad

destroyed saleable rolled horseshoe nail machines in order to prevent

potential competitors from producing horseshoe nails.

The proposed complaint alleges that the Mustad's acquisitions of

Cooper, Emcoclavos and Sterward violated Section 7 of the Clayton Act,

as amended, 15 U.S.C. Sec. 18, and Section of the Federal Trade

Commission Act, as amended, 15 U.S.C. Sec. 45; that the Sterward non-

compete agreement violates Section 5 of the Federal Trade Commission

Act, as amended, 15 U.S.C. Sec. 45; and that Mustad, in making its

acquisitions of Capewell, Cooper, and Emcoclavos, in destroying

machinery, and in entering the non-compete agreements, attempted to

monopolize and did monopolize the market for rolled horseshoe nails in

violation of Section 5 of the Federal Trade Commission Act, as amended,

15 U.S.C. Sec. 45.

The complaint alleges that rolled horseshoe nails are a relevant

line of commerce that differ from other types of nails used by farriers

(the people who shoe horses). Rolled horseshoe nails are not reasonably

interchangeable with forged nails.

The complaint alleges that Mustad gained a virtual monopoly, nearly

a 90% share of sales of rolled horseshoe nails in the world, as a

result of its acquisitions of Cooper, Emcoclavos, and

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Sterward. Prior to each acquisition, the rolled horseshoe nail market

was highly concentrated and concentration increased substantially

following each acquisition. The complaint alleges that entry into the

production and sale of rolled horseshoe nails would be difficult and

time consuming--taking well in excess of two years, entailing

significant sunk costs, and requiring technical expertise.

The proposed Order would remedy the alleged violations by replacing

the lost competition that has resulted from the acquisitions. The

proposed Order would require Mustad to divest either (1) Capewell as an

ongoing business, or (2) four fully functioning horseshoe nail

machines, one spare nail machine, and grant a perpetual non-exclusive

license to technology and know-how. In order to ensure that the

acquirer of machinery would be able to quickly begin production at the

same level of quality as exists currently, Mustad would be required to

provide training and technical assistance to the acquirer for up to one

year.

The proposed Order provides that Mustad shall divest Capewell or

the machinery no later than May 15, 1996. If Mustad does not complete

the required divestiture during the allotted time period, then a

trustee may be appointed to divest the machinery within twelve months.

The time period for the trustee to complete the divestiture may be

extended twice.

The proposed Order requires Mustad to submit a report of compliance

with the proposed Order's divestiture requirements within sixty (60)

days following the date the proposed Order becomes final, and every

sixty (60) days thereafter until Mustad has completed the divestiture.

Finally, the proposed Order prohibits Mustad from acquiring any

interest in any other company engaged in, or attempting to engage in,

the production or sale of horseshoe nails without giving prior notice

to the Commission and observing certain waiting periods for a period of

ten years.

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.

Benjamin I. Berman,

Acting Secretary.

[FR Doc. 95-20142 Filed 8-14-95; 8:45 am]

BILLING CODE 6750-01-M