Fresenius AG; Fresenius USA, Inc.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 961-0053]

Fresenius AG; Fresenius USA, 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 or deceptive acts or practices and unfair methods of

competition, this consent agreement, accepted subject to final

Commission approval, would require, among other things, the Walnut

Creek, California-based subsidiary of Fresenius AG to divest its

Lewisberry, Pennsylvania hemodialysis concentrate plant to Di-Chem,

Inc. The consent agreement settles antitrust concerns stemming from

Fresenius' proposed acquisition of National Medical Care, Inc. (NMC)

from W.R. Grace & Co. Fresenius is one of the world's leading producers

of kidney dialysis equipment, and NMC is the largest dialysis services

company in the United States. The draft complaint alleges that

Fresenius' acquisition of NMC would produce a firm with a market share

of approximately 45-50 percent of the hemodialysis concentrate market.

DATES: Comments must be received on or before September 30, 1996.

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, Federal Trade

Commission, 6th and Pennsylvania Avenue, NW., S-3627, Washington, DC

20850. (202) 326-2949.

Robert Tovsky, Federal Trade Commission, 6th and Pennsylvania

Avenue, NW, S-3627, Washington, DC 20850. (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 the proposed acquisition by Fresenius AG of National

Medical Care, Inc. from W.R. Grace & Co., and it now appearing that

Fresenius AG and Fresenius USA, Inc. (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 without providing advance written

notification to the Commission, and providing for other relief:

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

duly authorized officers and attorneys, and counsel for the Commission

that:

i. Proposed respondent Fresenius AG is a corporation organized,

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

with its office and principal place of business located at Borkenberg

14, 61440 Oberursel/Ts, Bad Homburg, Germany.

ii. Proposed respondent Fresenius USA, Inc. is a corporation

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

of Massachusetts with its principal place of business located at 2637

Shadelands Drive, Walnut Creek, California 94598.

iii. Proposed respondents admit all the jurisdictional facts set

forth in the draft of complaint.

iv. Proposed respondents waive:

(1) Any further procedural steps;

(2) The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law;

(3) All rights to seek judicial review or otherwise to challenge or

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

and

(4) Any claim under the Equal Access to Justice Act.

[[Page 40221]]

5. Proposed respondents shall submit, within thirty (30) days of

the date this agreement is signed by proposed respondents, an initial

report signed by the proposed respondents setting forth in detail the

manner in which the proposed respondents will comply with Paragraph II

of the order when and if entered. Such report will not become part of

the public record unless and until the accompanying order is made final

by the Commission and the required divestiture accomplished.

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

proceeding 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.

7. 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.

8. 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 Sec. 2.34 of the Commission's

Rules, the Commission may, without further notice to the 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 and to cease and desist in disposition of the

proceeding and (2) make information public with respect thereto. When

so entered, the order to divest 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' 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.

9. 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 that 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. ``Respondents'' or ``Fresenius'' means Fresenius AG and

Fresenius USA, Inc., their directors, officers, employees, agents and

representatives, their predecessors, successors, and assigns; their

subsidiaries, divisions, and groups and affiliates controlled by

Fresenius, and the respective directors, officers, employees, agents,

representatives, successors and assigns of each; their domestic and

foreign parents, and the subsidiaries, divisions, and groups and

affiliates controlled by any other domestic or foreign parent, and the

respective directors, officers, employees, agents, representatives,

successors and assigns of each.

B. ``NMC'' means National Medical Care, Inc., its directors,

officers, employees, agents and representatives, its predecessors,

successors, and assigns; its subsidiaries, divisions, and groups and

affiliates controlled by NMC, and the respective directors, officers,

employees, agents, representatives, successors and assigns of each; its

domestic and foreign parents, including W.R. Grace & Co., and the

subsidiaries, divisions, and groups and affiliates controlled by any

other domestic or foreign parent, and the respective directors,

officers, employees, agents, representatives, successors and assigns of

each.

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

D. ``NMC Acquisition'' means the acquisition by Fresenius AG of NMC

that is the subject of an Agreement and Plan of Reorganization entered

into on or about February 4, 1996.

E. ``Hemodialysis Concentrate'' means the acid portion of the

dialysate solution used in hemodialysis treatment of End Stage Renal

Disease to carry waste materials from the patient's blood during the

treatment.

F. ``Assets and Businesses'' means assets, properties, businesses,

and goodwill, tangible and intangible, including, without limitation,

the following:

1. All plant facilities, machinery, fixtures, equipment, vehicles,

transportation and storage facilities, furniture, tools, supplies,

stores, spare parts, and other tangible personal property;

2. All customer lists, vendor lists, catalogs, sales promotion

literature, advertising materials, research materials, technical

information, dedicated management information systems, information

contained in management information systems, rights to software,

trademarks, patents and patent rights, inventions, trade secrets,

technology, know-how, ongoing research and development, specifications,

designs, drawings, processes and quality control data;

3. Raw material and finished product inventories and goods in

process;

4. All right, title and interest in and to real property, together

with appurtenances, licenses, and permits;

5. All right, title, and interest in and to the contracts entered

into in the ordinary course of business with customers (other than

contracts in which Hemodialysis Concentrate is sold as part of a

package of products), suppliers, sales representatives, distributors,

agents, personal property lessors, personal property lessees,

licensors, licensees, consignors and consignees;

6. All rights under warranties and guarantees, express or implied;

7. All separately maintained, as well as relevant portions of not

separately maintained, books, records and files; and

8. All items of prepaid expense.

G. ``Hemodialysis Business to Be Divested'' means the Fresenius

Lewisberry, Pennsylvania Hemodialysis Manufacturing Facility, and any

additional Fresenius Hemodialysis Concentrate Assets and Businesses (as

defined) as are necessary to assure the Viability and Competitiveness

of the Hemodialysis Business to Be Divested in the manufacture,

marketing or distribution of Hemodialysis Concentrate.

H. ``Viability and Competitiveness'' means that the Hemodialysis

Concentrate Business to Be Divested is capable of functioning

independently and competitively in the Hemodialysis Concentrate

business in substantially

[[Page 40222]]

the same manner achieved by Fresenius prior to the divestiture.

II

It is further ordered that:

A. Respondents shall, absolutely and in good faith, divest the

Hemodialysis Business to Be Divested to Di-Chem, Inc. (``Di-Chem''),

within 10 business days of either (i) the date this Order is made

final, or (ii) the closing of the NMC Acquisition, whichever is later,

pursuant to and in accordance with the May 17, 1996 agreement between

Fresenius USA, Inc. and Di-Chem (``Divestiture Agreement''). If the

terms of such Divestiture Agreement are changed or supplemented in any

way, notice of such changes or supplementations must be provided to the

Commission, and any material changes or supplementations may be made

only with the prior approval of the Commission. In the event that the

Divestiture Agreement is terminated through no fault of Respondents,

Respondents shall divest the Hemodialysis Business to Be Divested

within four (4) months of either (i) the date this Order is made final,

or (ii) the closing of the NMC Acquisition, whichever is later, and

Respondents shall also effect such additional arrangements so as to

assure the Viability and Competitiveness of the Hemodialysis Business

to Be Divested. Respondents shall divest the Hemodialysis Business to

Be Divested 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 is to enable the acquirer to compete

in the manufacture and sale of Hemodialysis Concentrate in the United

States and to remedy the lessening of competition resulting from the

NMC Acquisition as alleged in the Commission's Complaint.

B. Pending divestiture of the Hemodialysis Business to Be Divested,

Respondents shall take such actions as are necessary to maintain the

marketability, viability and competitiveness of the Hemodialysis

Business to Be Divested, including, but not limited to, taking

necessary steps to ensure that the Lewisberry plant is capable of, and

has been approved for, commercial production, and to prevent

destruction, removal, wasting, deterioration or impairment of the

Hemodialysis Business to Be Divested, other than ordinary wear and

tear.

III

It is further ordered that:

A. If Respondents have not divested the Hemodialysis Business to Be

Divested within four (4) months of either (i) the date this Order

becomes final, or (ii) the closing of the NMC Acquisition, whichever is

later, the Commission may appoint a trustee to divest the Hemodialysis

Business to Be Divested pursuant to Paragraph II of this Order. In the

event that the Commission or the Attorney General brings an action

pursuant to Sec. 5(l) of the Federal Trade Commission Act, 15 U.S.C.

Sec. 45(l), or any other statute enforced by the Commission,

Respondents 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

Sec. 5(l) of the Federal Trade Commission Act, or any other statute

enforced by the Commission, for any failure by the Respondents to

comply with this Order. The Commission shall select the trustee under

this Paragraph, subject to the consent of Respondents, which consent

shall not be unreasonably withheld. The trustee shall be a person with

experience and expertise in acquisitions, divestitures, and licensing.

If Respondents have not opposed, in writing, including the reasons for

opposing, the selection of any proposed trustee within ten (10) days

after notice by the staff of the Commission to Respondents of the

identity of any proposed trustee, Respondents shall be deemed to have

consented to the selection of the proposed trustee.

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

to Paragraph III.A of this Order, Respondents shall consent to the

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

authority, and responsibilities:

1. Subject to the prior approval of the Commission and consistent

with the provisions of Paragraph II of this Order, the trustee shall

have the exclusive power and authority to divest the Hemodialysis

Business to Be Divested.

2. Within ten (10) days after the appointment of the trustee,

Respondents shall execute a trust agreement that, subject to the prior

approval of the Commission, and in the case of a court-appointed

trustee, of the court, transfers to the trustee all rights and powers

necessary to permit the trustee to effect the divestiture required by

this Order.

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

trust agreement described in this Paragraph III.B is approved by the

Commission to accomplish the divestiture of the Hemodialysis Business

to Be Divested, which shall be subject to the prior approval of the

Commission. If, however, at the end of this twelve (12) month period,

the trustee has submitted a plan of divestiture or believes that

divestiture can be achieved 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.

4. The trustee shall have full and complete access to the

personnel, books, records and facilities related to the Hemodialysis

Business to Be Divested and to any other relevant information as the

trustee may reasonably request. Respondents shall develop such

financial or other information as the trustee may reasonably request

and shall cooperate with the trustee. Respondents shall take no action

to interfere with or impede the trustee's accomplishment of the

divestiture. Any delays in divestiture caused by Respondents shall

extend the time for divestiture under this Paragraph in an amount equal

to the delay, as determined by the Commission or, for a court-appointed

trustee, by the court.

5. 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, subject to Respondents' absolute and

unconditional obligation to divest at no minimum price. The divestiture

shall be made in the manner and to an acquirer as set out in Paragraph

II 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

Respondents from among those approved by the Commission.

6. The trustee shall serve without bond or other security at the

cost and expense of Respondents, and on such reasonable and customary

terms and conditions as the Commission or a court may set. The trustee

shall have the authority to employ, at the cost and expense of

Respondents, such consultants, accountants, attorneys, investment

bankers, business brokers, appraisers, and other representatives and

assistants as are reasonably necessary to carry out the trustee's

duties and responsibilities. The trustee shall account for all monies

derived from the divestiture 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

[[Page 40223]]

shall be paid at the direction of the Respondents, and the trustee's

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

least in significant part on a commission arrangement contingent on the

trustee's divesting the Hemodialysis Business to Be Divested.

7. Respondents 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 duties of

the trustee, 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, gross negligence, willful or wanton acts, or

bad faith by the trustee.

8. 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 III.A of this Order.

9. 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 required by this Order.

10. The trustee shall have no obligation or authority to operate or

maintain the Hemodialysis Business to Be Divested.

11. The trustee shall report in writing to Respondents and the

Commission every thirty (30) days concerning efforts to accomplish the

divestiture.

IV

It is further ordered that:

A. Within twenty (20) days after the date this Order becomes final

and every thirty (30) days thereafter until Respondents have fully

complied with the provisions of Paragraphs II and III of this Order,

Respondents shall submit to the Commission a verified written report

setting forth in detail the manner and form in which they intend to

comply, are complying, and have complied with this Order. Respondents

shall include in their compliance reports, among other things that are

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

made to comply with Paragraph II of the Order, including a description

of all substantive contacts or negotiations for the divestiture and the

identity of all parties contacted. Respondents shall include in their

compliance reports copies of all written communications to and from

such parties, all internal memoranda, and all reports and

recommendations concerning divestiture.

V

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

date this Order becomes final, Respondents shall cease and desist from

acquiring, without Prior Notification to the Commission (as defined

below), directly or indirectly, through subsidiaries or otherwise, any

assets for manufacturing Hemodialysis Concentrate or any Hemodialysis

Concentrate manufacturing facility, that have been employed in

Hemodialysis Concentrate manufacturing in the United States within one

(1) year of the date of an offer by Fresenius to purchase the assets,

or any interest in a Hemodialysis Concentrate manufacturing facility in

the United States, or any interest in any individual, firm,

partnership, corporation or other legal or business entity that

directly or indirectly owns or operates a Hemodialysis Concentrate

manufacturing facility in the United States. Provided, however, that

this Paragraph V shall not be deemed to require Prior Notification to

the Commission for (i) the construction of new facilities by Fresenius,

(ii) the acquisition of new or used equipment in the ordinary course of

business from a person other than the acquirer of the Hemodialysis

Business to Be Divested, or any other present producer of Hemodialysis

Concentrate; or (iii) the purchase or lease by Fresenius of a facility

that has not been operated as a Hemodialysis Concentrate manufacturing

facility at any time during the year immediately prior to the purchase

or lease by Fresenius.

``Prior Notification to the Commission'' required by Paragraph V

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 Form''), and

shall be prepared and transmitted in accordance with the requirements

of that part, except that no filing fee will be required for any such

notification, notification shall be filed with the Secretary of the

Commission, notification need not be made to the United States

Department of Justice, and notification is required only of Fresenius

and not of any other party to the transaction. Fresenius shall provide

the Notification Form to the Commission at least thirty (30) days prior

to consummating any such transaction (hereinafter referred to as the

``first waiting period''). If, within the first waiting period,

representatives of the Commission make a written request for additional

information, Fresenius shall not consummate the transaction until

twenty (20) days after substantially complying with such request for

additional information. Early termination of the waiting periods in

this paragraph may be requested and, where appropriate, granted by

letter from the Bureau of Competition. Notwithstanding, Fresenius shall

not be required to provide Prior Notification to the Commission

pursuant to this order for a transaction for which notification is

required to be made, and has been made, pursuant to Section 7A of the

Clayton Act, 15 U.S.C. Sec. 18a.

VI

It is further ordered that until the obligations set forth in

Paragraphs II, III and V are met, Respondents shall notify the

Commission at least thirty (30) days prior to any proposed change in

the corporate Respondents such as dissolution, assignment, sale

resulting in the emergence of a successor corporation, or the creation

or dissolution of subsidiaries or any other change in the corporations

that may affect compliance obligations arising out of the Order.

VII

It is further ordered that Respondents, for the purpose of

determining or securing compliance with this Order, and subject to any

legally recognized privilege, upon written request and on five days

notice to Respondents, shall permit any duly authorized

representative(s) 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 Respondents relating to any matters contained in this

Order; and

B. Without restraint or interference from Respondents, to interview

Respondents' officers, directors, or employees, who may have counsel

present, regarding such matters.

Analysis To Aid Public Comment on the Provisionally Accepted Consent

Order

The Federal Trade Commission (``the Commission'') has accepted for

public comment, from Fresenius AG and Fresenius USA, Inc., an agreement

containing a consent order. This agreement has been placed on the

public record for sixty days for reception of comments from interested

persons.

[[Page 40224]]

Comments received during this period will become part of the public

record. After sixty 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 order.

The Commission's investigation of this matter concerns the proposed

acquisition by Fresenius of the businesses of W.R. Grace & Co. that

comprise National Medical Care, Inc. (``NMC''). The Commission's

proposed complaint alleges that Fresenius and NMC compete with each

other in hemodialysis concentrate, a chemical solution that is

necessary in hemodialysis treatment of patients with End Stage Renal

Disease, or chronic kidney failure.

The agreement containing consent order would, if finally accepted

by the Commission, settle charges that the acquisition may

substantially lessen competition in the production and sale of

hemodialysis concentrate. The Commission has reason to believe that the

acquisition agreement violates Section 5 of the Federal Trade

Commission Act and the acquisition would have anticompetitive effects

and would violate Section 7 of the Clayton Act and Section 5 of the

Federal Trade Commission Act if consummated, unless an effective remedy

eliminates such anticompetitive effects.

The Commission's Complaint alleges that hemodialysis concentrate is

a necessary product in hemodialysis treatment, and that the use of this

product would not be significantly affected by a price increase. The

Complaint further alleges that imports of hemodialysis concentrate are

small and, because of high shipping costs, would not be responsive to a

price increase in the United States. The market for hemodialysis

concentrate in the United States is highly concentrated. In addition,

the entry of other producers is unlikely. The Commission's Complaint

alleges that the proposed acquisition would lessen competition by

eliminating competition between Fresenius and NMC, and would make more

likely coordinated interaction among the remaining producers of

hemodialysis concentrate, leading to higher prices. Company planning

documents, in fact, project that ``increased consolidation'' among

concentrate producers will lead to ``stabilization'' of prices.

The proposed order accepted for public comment requires Fresenius

to divest its Lewisberry, Pennsylvania concentrate manufacturing plant

to Di-Chem, Inc. (``Di-Chem''), along with other assets. The purpose of

the proposed divestiture is to create a viable and competitive producer

of hemodialysis concentrate and thereby to remedy the lessening of

competition alleged in the complaint. Di-Chem already manufactures and

markets other dialysis products. In addition, Di-Chem's management has

substantial experience in the hemodialysis concentrate business and in

other products used in hemodialysis. Public comments regarding all

aspects of the proposed divestiture to Di-Chem will be considered along

with other comments on the proposed order.

Under the terms of the proposed order, Fresenius must divest the

Lewisberry plant to Di- Chem within ten (10) days after the proposed

Order is made final by the Commission. If the divestiture to Di-Chem is

not accomplished, then Fresenius must divest the Lewisberry plant

within four (4) months to an acquirer that is approved by the

Commission. If Fresenius fails to accomplish the divestiture, then the

Commission may appoint a trustee to divest the Lewisberry plant, along

with ancillary assets or other arrangements that may be necessary to

assure that the Lewisberry plant is capable of being operated

independently and competitively by its acquirer. The proposed order

also requires that Fresenius provide prior notice to the Commission of

future acquisitions of either assets used to manufacture hemodialysis

concentrate or companies that produce hemodialysis concentrate.

The purpose of this analysis is to invite public comment concerning

the proposed order. This analysis is not intended to constitute an

official interpretation of the agreement and order or to modify their

terms in any way.

Donald S. Clark,

Secretary.

Dissenting Statement of Commissioner Roscoe B. Starek, III

In the Matter of Fresenius AG, et al., File No. 961 0053.

I cannot join in the Commission's decision to accept a consent

agreement for public comment in this matter. The evidence accumulated

in the investigation is not sufficient to give rise to reason to

believe that respondents' acquisition of National Medical Care, Inc.

(``NMC'') from W.R. Grace & Co. is likely to lessen competition

substantially in a United States market for hemodialysis concentrate

(``HD concentrate'').

HD concentrate consists of various salts (sodium chloride,

magnesium chloride, calcium chloride, and potassium chloride) and

dextrose in purified water, with sodium bicarbonate (i.e., baking soda)

added at a later stage. Because this easily formulated mixture does not

enter the body and therefore is not a ``drug'' for purposes of Food and

Drug Administration (``FDA'') regulation, the FDA applies to HD

concentrate the somewhat more lenient regulations applicable to medical

devices. Regulatory delay thus does not significantly constrain entry

by new firms or expansion by incumbents.

The investigation revealed that various producers of HD

concentrate--including Fresenius itself--entered quickly and easily

into the manufacture of the product, and some stated that they could

inexpensively increase their capacity to make HD concentrate by as much

as 60 percent within 30 days, without substantial investment or the

need for additional FDA approval.1 These indicia of cheap and

simple entry and expansion may explain why the delivered price of HD

concentrate has fallen continuously since the product first became

available.2

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\1\ Given the contrast between the time required for entry in

the United States and that required in Germany, it is perhaps

unsurprising that the latter nation's Bundeskartellamt concluded

that Fresenius' acquisition of a competitor in HD concentrate would

have anticompetitive effects. Entry into the German HD concentrate

business apparently takes three to five years. In the United States,

entry requires around nine months.

\2\ It is difficult to accept the proposition that ``[m]ost of

the investment in production would likely be sunk in the event that

entry were unsuccessful'' (proposed complaint, para. 13). The

equipment used in the manufacture of HD concentrate appears to be

adaptable to alternate uses, and indeed there is evidence of firms

planning to convert some HD concentrate facilities to other

purposes.

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Thus, any assessment of this acquisition's potential to increase

concentration in the market for HD concentrate--and in turn make

likelier an exercise of market power--must take into account several

strongly mitigating factors, including approximately 40 percent current

excess capacity, the aforementioned ability of manufacturers to expand

capacity speedily and at minimal cost, and the evident ability of

customers (hemodialysis clinics) to integrate into the manufacture of

HD concentrate in the event concentrate producers behave

anticompetitively. Certain customers that speculated that the

acquisition might lead to higher prices for HD concentrate appear to

have been unaware of current plans for significant entry or capacity

expansion by firms other than Fresenius and NMC. Moreover, other

customer complaints

[[Page 40225]]

seem to have been motivated by a fear that the vertical integration of

Fresenius (a manufacturer of kidney dialysis products) and NMC (an

operator of hemodialysis treatment centers, among its other businesses)

could make the merged firm a stronger competitor in dialysis treatment.

It is always tempting to accept the ``bird in the hand''

represented by a consent agreement proffered in the early stages of an

investigation, such as the one entered into (apparently without

significant resistance) by Fresenius. Nevertheless, when the evidence

on entry, expansion, and the absence of anticompetitive effects is as

clear as in this case, the issuance of a consent order is unwarranted.

I therefore dissent.

[FR Doc. 96-19594 Filed 7-31-96; 8:45 am]

BILLING CODE 6750-01-P