[Federal Register: October 23, 2003 (Volume 68, Number 205)]
[Notices]
[Page 60691-60694]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23oc03-46]
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FEDERAL TRADE COMMISSION
[File No. 031 0152]
GenCorp Inc.; 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 November 13, 2003.
ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H, 600 Pennsylvania Avenue, NW.,
[[Page 60692]]
Washington, DC 20580. Comments filed in electronic form should be directed to: consentagreement@ftc.gov, as prescribed in the
Supplementary Information section.
FOR FURTHER INFORMATION CONTACT: Jonathan Klarfeld, FTC, Bureau of
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202)
326-3187.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), 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 October 15, 2003), on the World Wide Web, at ``http://www.ftc.gov/os/2003/10/index.htm.
'' A paper copy can be obtained from the FTC
Public Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW.,
Washington, DC 20580, either in person or by calling (202) 326-2222.
Public comments are invited, and may be filed with the Commission
in either paper or electronic form. Comments filed in paper form should
be directed to: FTC/Office of the Secretary, Room 159-H, 600
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains
nonpublic information, it must be filed in paper form, and the first
page of the document must be clearly labeled ``confidential.'' Comments
that do not contain any nonpublic information may instead be filed in
electronic form (in ASCII format, WordPerfect, or Microsoft Word) as
part of or as an attachment to email messages directed to the following email box: consentagreement@ftc.gov. Such comments 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 Agreement Containing Consent Orders To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an Agreement Containing Consent Orders (``Consent
Agreement'') from GenCorp Inc. (``GenCorp''), which is designed to
remedy the anticompetitive effects resulting from GenCorp's acquisition
of the propulsion business of Atlantic Research Corporation (``ARC''),
a subsidiary of Sequa Corporation (``the Acquisition''). The Consent
Agreement includes a proposed Decision and Order (``Order'') that would
require GenCorp to divest ARC's in-space liquid propulsion business
within six (6) months after the date the Acquisition is consummated.
The Consent Agreement also includes an Order to Hold Separate and
Maintain Assets that requires GenCorp to preserve the ARC in-space
liquid propulsion business as a viable, competitive, and ongoing
operation until the divestiture is achieved.
The proposed Consent Agreement has been placed on the public record
for thirty (30) days for receipt 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 Agreement and the comments received and will decide
whether it should withdraw from the Consent Agreement or make final the
Consent Agreement's proposed Order.
On May 2, 2003, Aerojet-General Corporation (``Aerojet''), a
subsidiary of GenCorp, entered into an asset purchase agreement with
ARC (which was subsequently amended on August 29, 2003) to acquire
substantially all of the assets of ARC, as well as the shares of ARC UK
Limited, for $133 million in cash. The Commission's Complaint alleges
that the Acquisition, if consummated, would violate Section 7 of the
Clayton Act, as amended, 15 U.S.C. 18, and section 5 of the Federal
Trade Commission Act, as amended, 15 U.S.C. 45, by lessening
competition in the U.S. markets for the research, development,
manufacture and sale of monopropellant thrusters, bipropellant apogee
thrusters, dual mode apogee thrusters, and bipropellant attitude
control thrusters--four different types of in-space propulsion
thrusters.
II. The Parties
GenCorp is a technology-based manufacturing company headquartered
in Rancho Cordova, California. Its businesses are concentrated in three
areas: aerospace and defense, fine chemicals and automotive. Through
its Aerojet subsidiary, GenCorp researches, develops, manufactures and
sells propulsion products and systems for space and defense
applications, as well as armament systems for precision tactical weapon
systems. Aerojet produces a full range of in-space propulsion thrusters
at its facility located in Redmond, Washington.
Sequa Corporation (``Sequa'') is a diversified industrial company
that produces a broad range of products through operating units in five
business segments: aerospace, propulsion, metal coating, specialty
chemicals and other products. The propulsion segment of Sequa's
business consists of the ARC business. ARC, headquartered in
Gainesville, Virginia, is a leading supplier of liquid and solid fuel
propulsion products and systems for military, commercial and civil
applications. ARC produces a full range of in-space propulsion
thrusters at its liquid propulsion facilities in Niagara, New York, and
Westcott in the United Kingdom.
III. The In-Space Propulsion Markets
In-space propulsion thrusters (which are, essentially, engines) are
used to maneuver spacecraft, such as satellites and interplanetary
vehicles, through space after a launch vehicle delivers them to the
upper atmosphere. In-space propulsion thrusters are essential
components of in-space propulsion systems, which include valves, fuel
tanks, fuel lines and other parts necessary to generate the thrust
needed to move spacecraft in space.
In-space propulsion thrusters are used primarily to either place
spacecraft into their intended orbits, or maintain their proper
position while in orbit. The process of transferring a spacecraft to
its intended orbit after it has been dropped off by a launch vehicle is
referred to as ``apogee insertion,'' and the space propulsion thrusters
that perform apogee insertion are known as ``apogee thrusters.'' Apogee
thrusters typically generate between 90 pounds and 140 pounds of force.
Attitude control thrusters are used to provide gentle pushes that
allow spacecraft to control their angular position while in orbit so
that sensors, transponders or other hardware on the spacecraft are
properly oriented with respect to the Earth (or other target) to
perform their functions. Attitude control thrusters can also perform a
function called ``station-keeping,'' which refers to a spacecraft's
ability to maintain its position in an assigned orbital slot, in its
proper orientation. Because attitude control and station-keeping
functions require only small, short bursts of thrust to perform,
attitude control thrusters typically produce five pounds of thrust or
less.
There are two primary types of in-space propulsion thrusters:
monopropellant thrusters and
[[Page 60693]]
bipropellant thrusters. The primary difference between these two types
of thrusters is that monopropellant thrusters utilize a single liquid
fuel source (typically hydrazine), whereas bipropellant thrusters
operate using a combination of both a liquid fuel (typically
monomethylhydrazine) and an oxidizer. Monopropellant thrusters are
well-suited for pulsed operations of short duration, making them ideal
for attitude control and station-keeping. As such, monopropellant
thrusters typically produce less than a pound to about 5 pounds of
thrust (although for particular applications, some monopropellant
thrusters are designed to produce as much as 140 pounds of thrust).
A bipropellant in-space propulsion system typically consists of
separate attitude control and apogee thrusters. As with other apogee
thrusters, bipropellant apogee thrusters generally produce thrust that
ranges between 90 to 140 pounds of force. Bipropellant attitude control
thrusters provide thrusts comparable to monopropellant thrusters, which
are usually 5 pounds of force or less. Bipropellant in-space propulsion
systems are more fuel efficient, as well as more expensive, than
monopropellant propulsion systems.
Dual mode apogee thrusters are specialized bipropellant apogee
thrusters that operate using hydrazine, the same fuel used by
monopropellant thrusters, in combination with an oxidizer. A dual mode
propulsion system affords spacecraft manufacturers the option of using
monopropellant thrusters and a bipropellant apogee thruster on a single
spacecraft without having to use two separate fuel systems. As a
result, a spacecraft can attain the benefit of using highly reliable
and accurate monopropellant thrusters for attitude control while at the
same time utilizing bipropellant apogee thrusters. Dual mode apogee
thrusters are more fuel efficient, as well as more expensive, than
traditional bipropellant apogee thrusters.
The determination by customers of the appropriate type of
propulsion thruster to put on a satellite or spacecraft is based on the
satellite's or spacecraft's mission and encompasses a variety of
factors. Those factors can include the nature of the mission, the
length of the mission, the orbit(s) in which the spacecraft will
operate, the mass and volume of the spacecraft itself, the launch
vehicle it will be placed on, other equipment that will be on the
spacecraft, and the price of the thrusters. An engineering decision is
made, based on all of these factors, as to which type of propulsion
thruster(s) is best suited for a particular satellite or spacecraft.
Although the price of an in-space propulsion thruster is a factor that
customers take into consideration when selecting an in-space propulsion
thruster, it is rarely the most important factor. For these reasons,
customers for one type of in-space propulsion thruster--monopropellant,
bipropellant apogee, dual mode apogee, or bipropellant attitude
control--would not be likely to switch to any of the other types of
thrusters for use on a particular satellite or spacecraft, if the price
of the first type of thruster were to increase by five to ten percent.
The relevant geographic market for each in-space propulsion market
is the United States. Although there are a handful of foreign suppliers
of in-space propulsion thrusters, they are not effective competitors in
the U.S. in-space propulsion markets. The principal reason for this is
that U.S. export regulations, in particular the International Traffic
in Arms Regulations, make it very burdensome and time consuming for
U.S. commercial, civil and defense customers to procure foreign
thrusters, making foreign suppliers an unattractive option. In
addition, on many U.S. Department of Defense as well as other U.S.
governmental spacecraft programs, foreign-supplied thrusters are not an
option at all due to national security issues. Accordingly, for the
vast majority of in-space propulsion applications, only U.S.
manufacturers are effective competitors.
The U.S. markets for the research, development, manufacture and
sale of monopropellant, bipropellant apogee, and dual mode apogee
thrusters are all highly concentrated. Aerojet and ARC are the only
viable suppliers of these thrusters to commercial, civil and defense
customers in the United States for most programs. Even for customers
where other suppliers (such as foreign manufacturers) are potential
options, Aerojet and ARC are each other's closest competitors and the
other suppliers are substantially less attractive options. Prior to the
acquisition, Aerojet and ARC frequently competed against each other for
U.S. monopropellant, bipropellant apogee, and dual mode apogee thruster
business, and this competition benefitted customers of these products.
By eliminating competition between the only two viable competitors for
most customers and by far the two best options for other customers in
these highly concentrated markets, the proposed acquisition would
create a virtual monopoly in each of these markets. As a result, the
combined firm would be able to exercise market power unilaterally. It
is thus likely that as a result of the acquisition purchasers of
monopropellant, bipropellant apogee and dual mode apogee thrusters
would be forced to pay higher prices and that innovation, service
levels, and product quality in these markets would decrease.
The U.S. market for the research, development, manufacture and sale
of bipropellant attitude control thrusters is also highly concentrated.
In fact, ARC is the only firm with recent sales of bipropellant
attitude control thrusters to U.S. customers. For many customers,
including the vast majority of U.S. governmental customers, ARC
essentially has a monopoly position in the bipropellant attitude
control thruster market. Although Aerojet does not currently produce
bipropellant attitude control thrusters, it has substantial existing
expertise and technology in this area, has produced these thrusters in
the recent past, and is a likely potential entrant into the market.
Aerojet's acquisition of the ARC in-space liquid propulsion business
eliminates the most likely potential competitor in this market and for
many customers, including the vast majority of U.S. governmental
customers, leaves the market with a single supplier for the foreseeable
future.
There are significant impediments to new entry into each in-space
propulsion market. A new entrant into any one of these markets would
need to undertake the difficult, expensive and time-consuming process
of researching and developing a viable in-space propulsion thruster,
acquiring the necessary production and testing assets, obtaining the
appropriate environmental permits, and developing the expertise needed
to successfully design, manufacture, and market these products.
Finally, a new entrant would need to establish what is commonly
referred to as ``heritage'' for each new thruster, which is a
successful track record of use in space. It would take a new entrant
over two years to accomplish these steps and achieve a significant
market impact. Additionally, new entry into the in-space propulsion
market is unlikely to occur because the sunk costs and economies of
scale necessary to enter the market and effectively produce in-space
propulsion thrusters are extremely high relative to the limited sales
opportunities available to new entrants.
IV. The Consent Agreement
The Consent Agreement effectively remedies the acquisition's
anticompetitive effects by requiring GenCorp to divest ARC's in-space
liquid
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propulsion business. This business consists of, among other things,
ARC's Niagara and Westcott production facilities, specialized
manufacturing and testing equipment, technical drawings, advertising
and training materials, customer lists, intellectual property and other
assets at the Niagara and Westcott facilities used in the research,
development, manufacturing, testing, marketing, customer support and
sale of monopropellant, bipropellant apogee, dual mode apogee, and
bipropellant attitude control thrusters (collectively ``ARC In-Space
Liquid Propulsion Assets''). Pursuant to the Consent Agreement, GenCorp
is required to divest the ARC In-Space Liquid Propulsion Assets to a
buyer, at no minimum price, within six (6) months from the date of the
Acquisition. The acquirer of the ARC In-Space Liquid Propulsion Assets
must receive the prior approval of the Commission.
If GenCorp has not divested the ARC In-Space Liquid Propulsion
Assets within the time and in the manner required by the Consent
Agreement, the Commission may appoint a trustee to divest these assets,
subject to Commission approval. The trustee will have the exclusive
power and authority to accomplish the divestiture within six (6)
months, subject to any necessary extensions by the Commission. The
Consent Agreement requires GenCorp to provide the trustee with access
to information related to the ARC in-space liquid propulsion business
as necessary to fulfill his or her obligations.
The proposed Order to Hold Separate and Maintain Assets that is
also included in the Consent Agreement requires that GenCorp hold
separate and maintain the viability of the ARC In-Space Liquid
Propulsion Assets as a viable and competitive operation until the
business is transferred to the Commission-approved acquirer.
Furthermore, it contains measures designed to ensure that no material
confidential information is exchanged between GenCorp and the ARC in-
space liquid propulsion business (except as otherwise provided in the
Order or in the Order to Hold Separate and Maintain Assets) and
provisions designed to prevent interim harm to competition in each in-
space propulsion market pending divestiture. The Order to Hold Separate
and Maintain Assets provides for the Commission to appoint a Hold
Separate Trustee who is charged with the duty of monitoring GenCorp's
compliance with the Order to Hold Separate and Maintain Assets.
Pursuant to that Order, the Commission has appointed Charles L. Wilkins
of KPMG LLP as Hold Separate Trustee to oversee the In-Space Liquid
Propulsion Assets prior to their divestiture and to ensure that GenCorp
complies with its obligations under the Consent Agreement regarding the
In-Space Liquid Propulsion Assets. Mr. Wilkins has more than 35 years
of experience both inside the aerospace and defense industry and as a
professional advisor. He has held several key management positions in
the aerospace and defense industry, including senior corporate auditor,
controller and chief financial officer, and during his professional
consulting career has assisted most of the larger defense contractors
in the United States in a wide array of services including litigation
and dispute resolution, compliance matters and profit maximization.
The proposed Order requires GenCorp to provide the Commission,
within thirty (30) days from the date the Order becomes final, a
verified written report setting forth in detail the manner and form in
which GenCorp intends to comply, is complying, and has complied with
the provisions relating to the proposed Order and the Order to Hold
Separate and Maintain Assets. The proposed Order further requires
GenCorp to provide the Commission with a report of compliance with the
Order every thirty (30) days after the date of that initial compliance
report until the divestiture has been completed.
The purpose of this analysis is to facilitate public comment on the
Consent Agreement, and it is not intended to constitute an official
interpretation of the Consent Agreement, the proposed Decision and
Order, or the Order to Hold Separate and Maintain Assets, or to modify
their terms in any way.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 03-26750 Filed 10-22-03; 8:45 am]
BILLING CODE 6750-01-P