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

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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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

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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