ABB AB et al.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 9910040]

ABB AB 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 March 22, 1999.

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

Room 159, 600 Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Pamela Taylor or Ann Malester, FTC/S-

2308, 601 Pa. Ave., N.W., Washington, D.C. 20580, (202) 326-2237 or

326-2820.

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 January 8, 1999), 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, 600 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 a proposed

Consent Order from ABB AB and ABB AG (hereinafter collectively

``ABB''), which is designed to remedy the anticompetitive effects

resulting from ABB's acquisition of Elsag Bailey Process Automation

N.V. (``Elsag Bailey''). Under the terms of the agreement, ABB will

be required to divest the Analytical Division of Elsag Bailey's

Applied Automation, Inc. subsidiary, which is involved in the

manufacture and sale of process gas chromatographs and the research

and development of process mass spectrometers, to a Commission-

approved buyer within six (6) months. If the sale of these assets is

not made within six (6) months, the Commission may appoint a trustee

to divest Elsag Bailey's entire Applied Automation, Inc. subsidiary.

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

proposed Consent Order and the comments received and will decide

whether it should withdraw from the proposed Consent Order or make

final the proposed Order.

Pursuant to an October 26, 1998 cash tender offer, ABB agreed to

acquire 100% of the issued and outstanding voting securities of

Elsag Bailey for $1.1 billion. The proposed Complaint alleges that

the acquisition, if consummated, would violate Section 7 of the

Clayton Act, as amended, 15 U.S.C. Sec. 18, and Section 5 of the

Federal Trade Commission Act, as amended, 15 U.S.C. Sec. 45, in the

markets for process gas chromatographs and process mass

spectrometers.

Process gas chromatographs are analytical instruments used in

process manufacturing applications to measure the chemical

composition of a gas or a liquid by separating a sample into its

individual components through selective chemical interaction or

solubility, and measuring the separated components using a detector.

ABB and Elsag Bailey are the world's two leading suppliers of

process gas chromatographs.

ABB is also one of the world's leading suppliers of process mass

spectrometers. Process mass spectrometers are analytical instruments

used in process manufacturing applications to determine the chemical

composition of a gas or vapor stream by taking a sample, ionizing

the sample, separating the ions for a particular atomic or molecular

species by their mass to charge ration and measuring the

concentrations using a detector. While Elsag Bailey does not

currently manufacture process mass spectrometers, it is involved in

the research and development of a process mass spectrometer which it

plans to begin manufacturing and selling in 1999. Thus, Elsag Bailey

is an actual potential competitor in the market for process mass

spectrometers.

The worldwide process gas chromatograph market is highly

concentrated, and the proposed acquisition would substantially

increase concentration in that market. The acquisition would result

in a Herfindahl-Hirschman Index (``HHI'') of 4,764 points, which is

an increase of 2,310 points over the pre-acquisition HHI level. The

combined firm would have a market share of almost 70%. By

eliminating competition between the top two competitors in this

highly concentrated market, the proposed acquisition would allow ABB

to unilaterally exercise market power, thereby increasing the

likelihood that process gas chromatograph customers would be forced

to pay higher prices and that innovation in the process gas

chromatograph market would decrease.

The worldwide process mass spectrometer market is also highly

concentrated, with a pre-acquisition HHI of 4,150. Although Elsag

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Bailey does not currently manufacture and sell process mass

spectrometers, it is involved in the research and development of a

new mass spectrometer product, which it plans to introduce in 1999.

It appears that the introduction of this product would result in

increased competition in the process mass spectrometer market,

leading to lower prices and increased innovation. ABB's proposed

acquisition of Elsag Bailey would eliminate this significant source

of future competition and leave the process mass spectrometer market

highly concentrated for the foreseeable future.

Substantial barriers to new entry exist in the process gas

chromatograph and process mass spectrometer markets. A new entrant

into either of these markets would need to undertake the difficult,

expensive and time-consuming process of developing and testing a

product, establishing a track record for product quality, and

developing a service and support network. Because of the difficulty

of accomplishing these tasks, new entry into either the process gas

chromatograph or process mass spectrometer market, other than Elsag

Bailey's imminent introduction of a process mass spectrometer, could

not be accomplished in a timely manner and is therefore unlikely to

deter or counteract the anticompetitive effects resulting from the

transaction.

The proposed Consent Order effectively remedies the

acquisition's anticompetitive effects in the process gas

chromatograph and process mass spectrometer markets by requiring ABB

to divest the assets of the Analytical Division of Elsag Bailey's

Applied Automation, Inc. subsidiary. Pursuant to the Consent

Agreement, ABB is required to divest these assets no later than six

(6) months from the date ABB signs the Consent Agreement. In the

event that ABB fails to divest the assets of the Analytical Division

within this six-month time frame, the Consent Agreement contains a

``crown jewel'' provision which allows the Commission to appoint a

trustee to divest Elsag Bailey's entire Applied Automation, Inc.

subsidiary.

In order to ensure that the acquirer of the divested assets has

access to all of the employees currently involved in Elsag Bailey's

process gas chromatograph and process mass spectrometer businesses,

the Consent Agreement requires ABB to provide financial incentives

for these individuals to accept employment with the acquirer. The

Order also requires ABB to provide the Commission a report of

compliance with the divestiture provisions of the Order within

thirty (30) days following the date the Order becomes final, and

every thirty (30) days thereafter until ABB has completed the

required divestiture. Finally, an Agreement to Hold Separate signed

by ABB requires that the Applied Automation Assets, which includes

the Analytical Division Assets, be operated independently of ABB

until the divestiture required by the Order is completed.

The purpose of this analysis is to facilitate public comment on the

proposed Order, and it is not intended to constitute an official

interpretation of the agreement and proposed Order or to modify in any

way their terms.

By Direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 99-1179 Filed 1-19-99; 8:45 am]

BILLING CODE 6750-01-M