Precision Castparts Corp., et al.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 991 0240]

Precision Castparts Corp., 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 December 10, 1999.

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

Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Richard Parker or Matthew Reilly, FTC/

H-374, 600 Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-2574

or 326-2350.

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 thirty (30) 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 November 10, 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, NW,

Washington, DC 20580, either in person or by calling (202) 326-3627.

Public comment is invited. Comments should be directed to: FTC/

Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW,

Washington, DC 20580. Two paper copies of each comment should be filed,

and should be accompanied, if possible, by a 3\1/2\ inch diskette

containing an electronic copy of the comment. 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 Orders (``Consent

Agreement'') and Decision & Order from Precision Castparts Corp.

(``PCC'') and Wyman-Gordon Company (``Wyman-Gordon'') designed to

remedy the anticompetitive effects resulting from PCC's acquisition of

all of the voting securities of Wyman-Gordon. Under the terms of the

Consent Agreement, PCC and Wyman-Gordon will be required to divest the

following assets that are involved in the development, manufacture and

sale of titanium, stainless steel and nickel-based superalloy aerospace

investment cast components: (1) Wyman-Gordon's titanium foundry located

in Albany, Oregon; and (2) Wyman-Gordon's Large Cast Parts foundry

located in Groton, Connecticut.

The proposed Consent Agreement and Decision & Order have been

placed on the public record for thirty (30) days for reception of

comments by interested persons. Comments received during this period

will become part of the public record. After thirty (30) 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 Agreement or make final the proposed Decision & Order.

Pursuant to a May 17, 1999 cash tender offer, PCC agreed to acquire

100% of the voting securities of Wyman-Gordon for approximately $721

million. The proposed Complaint alleges that this agreement violates

section 5 of the FTC Act, as amended, 15 U.S.C. 18, and the acquisition

of Wyman-Gordon by PCC, if consummated, would violate Section 7 of the

Clayton Act, as amended, 15 U.S.C. 45, and Section 5 of the FTC Act, as

amended, 15 U.S.C. 18, in the markets for titanium, large stainless

steel, and large nickel-based superalloy aerospace investment cast

structural components.

Investment casting is a method of manufacturing metal components

whereby a wax model of the metal component is dipped into a ceramic

slurry which dries to form a ceramic shell. The wax is then melted out

using a special furnace, leaving a cavity within the ceramic shell into

which molten metal is poured. Once the metal cools, the ceramic shell

removed, producing dimensionally precise metal components. Aerospace

investment cast structural components are components that are used

primarily in aerospace jet engine and aerospace airframe applications

and are manufactured using a variety of metal alloys, including

titanium, stainless steel, and nickel-based superalloy. PCC and Wyman-

Gordon are two of the world's leading suppliers of titanium, stainless

steel, and nickel-based superalloy aerospace investment cast structural

components. While each of these metals, and others including aluminum,

can be used in many aerospace applications, for a particular

application, one metal is typically far superior to the alternatives

based on cost, weight, and strength considerations. Therefore, based on

design specifications and performance characteristics, a component

produced from a particular metal is not a reasonable competitive

alternative for an investment cast aerospace structural component

manufactured using a different metal.

Metal aerospace structural components can also be produced

utilizing other methods of manufacturing, such as forging and

fabrication. While these other methods of manufacturing are

alternatives to investment casting, the investment casting process

provides the most cost-effective method of producing the required

components for those aerospace applications where investment castings

are currently used. In view of this cost distinction, other methods of

manufacturing are not

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reasonable competitive alternatives for the production of titanium,

stainless steel, and nickel-based superalloy aerospace investment cast

structural components.

Titanium, large stainless steel, and large nickel-based superalloy

investment cast structural aerospace components are each relevant

markets. The worldwide market for titanium aerospace investment cast

structural components is highly concentrated, and the proposed

acquisition would substantially increase concentration in the market.

PCC and Wyman-Gordon are two of only four viable suppliers of titanium

aerospace investment cast structural components, and one of the

remaining two competitors is significantly smaller than the other

three.

The worldwide market for large (greater than 24 inches in diameter)

stainless steel aerospace investment cast structural components is also

highly concentrated, and the acquisition would substantially increase

concentration in this market. PCC and Wyman-Gordon are two of only six

viable suppliers of large stainless steel aerospace investment cast

structural components.

The worldwide market for large (greater than 24 inches in diameter)

nickel-based superalloy aerospace investment cast structural components

is also highly concentrated, and the acquisition would substantially

increase concentration in this market. PCC and Wyman-Gordon are two of

only four viable suppliers of large nickel-based superalloy aerospace

investment cast structural components.

By eliminating competition between PCC and Wyman-Gordon in these

highly concentrated markets, the proposed acquisition would have

allowed PCC to unilaterally exercise market power, and would have

enhanced the likelihood of coordinated interaction among the remaining

firms in these markets, thereby increasing the likelihood that: (1)

consumers of titanium, large stainless steel, and large nickel-based

superalloy aerospace investment cast components would be forced to pay

higher prices; and (2) innovation in these markets would decrease.

It is unlikely that the competition eliminated by the proposed

acquisition would have been replaced by new entrants into the relevant

markets within two years due to the substantial barriers to entry into

the markets at issue. A new entrant into these markets would need to

undertake the difficult, expensive, and time-consuming process of

developing a new product. Moreover, a new entrant would likely have to

purchase a new facility, as well as specialized investment casting

equipment. A new entrant would also have to undertake the arduous task

of developing the required engineering and process expertise. In

addition, because of the critical nature of aerospace investment cast

structural components, a new entrant would have to obtain customer and

other third-party certifications and approvals before it could begin to

manufacture and sell aerospace investment cast components. Finally,

customers of aerospace investment cast structural components are

generally reluctant to contract with suppliers that have not developed

a proven reputation for quality and reliability. For these reasons, new

entry into the market would in all likelihood not occur in time to

deter or counteract the anticompetitive effects resulting from the

acquisition.

The proposed Consent Agreement and Decision & Order effectively

remedy the acquisition's anticompetitive effects in the market for

titanium aerospace investment cast structural components by requiring

PCC and Wyman-Gordon to divest Wyman-Gordon's titanium foundry in

Albany, Oregon to a Commission-approved acquirer. Pursuant to the

Consent Agreement and Decision & Order, PCC and Wyman-Gordon are

required to divest the Albany titanium foundry no later than six (6)

months from the date the Commission accepts the Consent Agreement and

Decision & Order for public comment. In the event that PCC and Wyman-

Gordon fail to divest the assets within the required time, the

Commission may appoint a trustee to divest the assets. Wyman-Gordon

only recently acquired control of the Albany titanium foundry and had

not yet integrated the foundry into its castings operation and

business. As a result, the Commission did not require that PCC and

Wyman-Gordon divest Wyman-Gordon's Albany titanium foundry to a

purchaser identified and approved by the Commission prior to the

consummation of the Wyman-Gordon acquisition.

The proposed Consent Agreement and Decision & Order effectively

remedy the acquisition's anticompetitive effects in the markets for

large stainless steel and large nickel-based superalloy aerospace

investment cast structural components by requiring PCC and Wyman-Gordon

to divest the Wyman-Gordon's Large Cast parts (``LCP'') foundry in

Groton, Connecticut to Doncasters plc, a leading international

manufacturer of aerospace investment cast components. Pursuant to the

Consent Agreement and Decision & Order, PCC and Wyman-Gordon are

required to divest the Groton LCP foundry to Doncasters no later than

16 business days from the date the Commission accepts the Consent

Agreement and Decision & Order for public comment. In the event PCC and

Wyman-Gordon fail to divest the Groton LCP foundry to Doncasters within

the required time, the Consent Agreement contains a ``crown jewel''

provision that allows the Commission to appoint a trustee to divest

both Wyman-Gordon's LCP and Small Cast parts (``SCP'') foundries

located in Groton, Connecticut, to an acquirer approved by the

Commission.

The proposed Consent Agreement and Decision & Order require PCC and

Wyman-Gordon to assist the acquirers of the divested assets so that

they can compete effectively in the markets for titanium, large

stainless steel, and large nickel-based superalloy aerospace investment

cast components. PCC and Wyman-Gordon must provide sufficient technical

assistance and advice to the acquirers in order that they may begin

manufacturing and selling titanium, stainless steel, and nickel-based

superalloy aerospace investment cast components. Further, at the

request of a customer of titanium, stainless steel, or nickel-based

superalloy aerospace investment cast components at any time during the

next year, PCC and Wyman-Gordon must transfer to the Albany titanium

facility, the Groton LCP foundry, or both the Groton LCP and SCP

foundries, as applicable, all tooling and manufacturing know-how

associated with producing a particular component identified by the

customer. PCC and Wyman-Gordon must also pay (a) all costs reasonably

incurred in the delivery of such tooling and manufacturing know-how;

(b) fifty (50) percent of the costs reasonably incurred in conforming

such tooling to substantially the same quality employed or achieved by

Wyman-Gordon; and (c) fifty (50) percent of the costs related to

receiving any certifications or approvals from the customer that may be

required as a result of the transfer of the assets.

To ensure that the acquirers of the divested assets have the

opportunity to retain all the key employees currently involved in

Wyman-Gordon's titanium, large stainless steel and large nickel-based

superalloy aerospace casting businesses, the Consent Agreement and

Decision & Order require that PCC and Wyman-Gordon provide financial

incentives to these individuals, including a bonus for certain

employees for accepting employment with the acquirer. Further, the

Consent Agreement and Decision & Order require PCC and Wyman-Gordon to

provide to the Commission a report of

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compliance with the divestiture provisions of the Decision & Order

within thirty (30) days following the date the Decision & Order becomes

final, and every thirty (30) days until PCC and Wyman-Gordon have

completed the divestitures. Finally, an Order to Hold Separate issued

by the Commission requires that the Albany titanium foundry, and if

necessary the Groton LCP and Groton SCP, be operated independently of

PCC and Wyman-Gordon until the divestitures are completed.

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

Consent Agreement and Decision & Order, and it is not intended to

constitute an official interpretation of the Consent Agreement and

Decision & Order or to modify their terms in any way.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 99-29997 Filed 11-16-99; 8:45 am]

BILLING CODE 6750-01-M