[Federal Register Volume 73, Number 201 (Thursday, October 16, 2008)]
[Notices]
[Pages 61498-61510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-24293]
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Part III
Department of Justice
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Antitrust Division
United States v. The Manitowoc Company, Inc., et al. Proposed Final
Judgment and Competitive Impact Statement; Notice
Federal Register / Vol. 73, No. 201 / Thursday, October 16, 2008 /
Notices
[[Page 61498]]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. The Manitowoc Company, Inc., et al.; Proposed
Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that a proposed Final
Judgment, Stipulation and Competitive Impact Statement have been filed
with the United States District Court for the District of Columbia in
United States v. The Manitowoc Company, Inc., et al., Civil Action No.
1:08-cv-01704. On October 6, 2008, the United States filed a Complaint
alleging that the proposed acquisition by The Manitowoc Company, Inc.
(``Manitowoc'') of Enodis plc would violate Section 7 of the Clayton
Act, 15 U.S.C. Sec. 18, by substantially lessening competition in the
United States in the manufacture, development, distribution, and sale
of commercial cube ice machines. The proposed Final Judgment, filed the
same day as the Complaint, requires Manitowoc to divest Enodis's entire
business engaged in the development, production, distribution, and sale
of ice machines, ice machine parts, and related equipment in the United
States.
Copies of the Complaint, proposed Final Judgment, Stipulation, and
Competitive Impact Statement are available for inspection at the
Department of Justice, Antitrust Division, Antitrust Documents Group,
450 Fifth Street, NW, Suite 1010, Washington, DC 20530 (telephone: 202
514-2481), on the Department of Justice's Web site at http://www.usdoj.gov/atr, and at the Office of the Clerk of the United States
District Court for the District of Columbia. Copies of these materials
may be obtained from the Antitrust Division upon request and payment of
the copying fee set by Department of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to Maribeth Petrizzi, Chief, Litigation II Section, Antitrust Division,
Department of Justice, Washington, DC 20530, (telephone: 202-307-0924).
J. Robert Kramer, II
Director of Operations.
United States District Court for the District of Columbia
United States of America, Department of Justice, Antitrust
Division, 1401 H Street, NW., Suite 3000, Washington, D.C. 20530,
Plaintiff, v. The Manitowoc Company, Inc., 2400 South 44th Street,
Manitowoc, Wisconsin 54221; ENODIS PLC, 175 High Holborn, London,
England WCIV 7AA; and Enodis Corporation, 2227 Welbilt Boulevard,
New Port Richey, Florida, 34655, Defendants
Case No.: Deck Type: Antitrust Case: 1:08-cv-01704, Assigned to:
Kennedy, Henry H., Assign. Date: 10/6/2008, Description: Antitrust
Complaint
The United States of America (``United States''), acting under the
direction of the Attorney General of the United States, brings this
civil antitrust action against defendants The Manitowoc Company, Inc.
(``Manitowoc''), Enodis plc, and Enodis Corporation (Enodis plc and
Enodis Corporation will hereinafter be collectively referred to as
``Enodis'') to enjoin Manitowoc's proposed acquisition of Enodis plc
and to obtain other relief. The United States complains and alleges as
follows:
I. Nature of the Action
1. On June 30, 2008, Manitowoc offered to acquire Enodis plc for
328 pence in cash per share, in a transaction valued at 27 billion
(including assumed debt). The acquisition is structured as a Scheme of
Arrangement under the laws of the United Kingdom. The directors of
Enodis plc unanimously recommended that its shareholders vote in favor
of accepting Manitowoc's offer, and a majority of the shareholders did
so.
2. Manitowoc manufactures and sells commercial ice machines in the
United States under the Manitowoc brand, and its ice machines are the
most widely sold in the United States. Enodis manufactures and sells
commercial ice machines under two brands in the United States, Scotsman
and Ice-O-Matic (collectively, the ``Enodis brands''); Scotsman and
Ice-O-Matic machines are the second and fourth most widely sold,
respectively.
3. In the United States, Manitowoc's proposed acquisition of Enodis
would reduce the number of manufacturers that sell commercial ice
machines producing cubed ice from three to two and would create a
company with approximately 70 percent of the U.S. sales of commercial
cube ice machines. Unless the proposed acquisition is enjoined,
competition for commercial cube ice machines will be substantially
reduced. The proposed acquisition likely would result in higher prices,
lower quality, and less innovation in the commercial cube ice machine
market.
4. The United States brings this action to prevent the proposed
acquisition of Enodis by Manitowoc because that acquisition would
substantially lessen competition in the development, production,
distribution, and sale of commercial cube ice machines in the United
States in violation of Section 7 of the Clayton Act, 15 U.S.C. Sec.
18.
II. Parties to the Proposed Transaction
5. Defendant Manitowoc is a Wisconsin corporation with its
principal place of business in Manitowoc, Wisconsin. It is a global
industrial equipment company that manufacturers commercial ice machines
and related equipment, refrigeration equipment, cranes, and ships and
other water vessels.
6. In 2007, Manitowoc reported total sales of approximately $4
billion. Manitowoc's sales of commercial ice machines and related
equipment in the United States were approximately $152 million in 2007.
Sales of commercial ice machines making cube ice accounted for over 70
percent of this total.
7. Enodis is a corporation registered in the United Kingdom and
Wales with its principal place of business in London, England. Enodis
Corporation, a wholly owned subsidiary of Enodis plc, is a Delaware
corporation with its headquarters in New Port Richey, Florida. Through
its global food service equipment group, Enodis designs, manufactures,
and sells cooking, food storage and preparation equipment, and ice
machines and related equipment.
8. Enodis plc's revenues for its 2007 fiscal year were $1.6
billion. North American sales accounted for approximately 70 percent of
Enodis plc's total revenue. In its fiscal year 2007, Enodis plc's sales
of commercial ice machines and related equipment in the United States
were approximately $153 million. Sales of commercial ice machines
making cube ice accounted for about 60 percent of this total.
III. Jurisdiction and Venue
9. The United States brings this action under Section 15 of the
Clayton Act, as amended, 15 U.S.C. Sec. 25, to prevent and restrain
Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. Sec.
18.
10. Defendants develop, produce, distribute, and sell commercial
ice machines and other products in the flow of interstate commerce.
Defendants' activities in the development, production, distribution,
and sale of these products substantially affect interstate commerce.
This Court has
[[Page 61499]]
subject matter jurisdiction over this action pursuant to Section 12 of
the Clayton Act, 15 U.S.C. Sec. 22, and 28 U.S.C. Sec. 1331, 1337(a),
and 1345.
11. Defendants sell commercial ice machines and other products, and
have consented to venue and personal jurisdiction, in this judicial
district. Venue is proper under 15 U.S.C. Sec. 22 and 28 U.S.C. Sec.
1391(c).
IV. Trade and Commerce
A. The Relevant Product Market
12. Restaurants, convenience stores, hotels, and other businesses
need significant volumes of ice. These businesses usually meet their
needs by using commercial ice-making machines located at their places
of business. These machines make ice by a continuous cycle of
condensation and expansion of a refrigerant through a network of
tubing. As the refrigerant converts from a compressed liquid state to
become a gas, heat is drawn from a component called an evaporator.
Water running over the evaporator surface freezes to form ice that is
then harvested by processes specific to the type of ice produced by the
machine.
13. The type of ice machine purchased by a customer depends on the
type and volume of ice needed. Commercial ice machines are designed to
produce either hard ice or soft ice. Hard ice melts slowly and has a
higher density and less surface area than soft ice. Hard ice is most
often shaped as cubes or dice, half-cubes or half-dice, octagons, or
crescent cubes, and is commonly referred to as cube ice. Most customers
that serve ice in beverages prefer cube ice because it melts slowly and
thus minimizes deterioration in the flavor of the beverage. Soft ice
refers to small nuggets or flakes of ice that have a lower density and
more surface area than cube ice and, therefore, melt more quickly than
cube ice. Soft ice is used in hospitals, which demand a safe, chewable
ice for their patients, by grocery stores or other establishments to
display seafood produce, and other perishable food, and for industrial
cooling applications. The prices of commercial ice machines producing
soft ice are often 15 to 20 percent higher than prices of ice machines
that produce comparable quantities of cube ice per day.
14. In response to a small but significant post-acquisition
increase in the price of commercial machines producing cube ice,
customers would not switch to machines that make soft ice in sufficient
numbers so as to make such a price increase unprofitable.
15. Customers vary greatly with respect to their daily needs of
cubed ice, and they require machines having an appropriate range of
capacity to meet those needs. A significant and distinct segment of
cube ice machine customers, including sit-down and fast-food
restaurants, bars, and convenience stores, purchase commercial machines
capable of producing between approximately 300 pounds to 2,000 pounds
of cube ice per day (hereinafter, ``commercial cube ice machines'').
16. Although customers can purchase units that produce between
approximately 50 and 300 pounds of ice per day, these machines are not
able to meet the needs of the large majority of commercial cube ice
machine customers. Few customers are likely to meet their needs by
purchasing two or more smaller machines because it would be cost-
prohibitive to do so. Similarly, large units that produce over 2,000
pounds of ice per day are not substitutes for commercial cube ice
machines and are used by customers that need extremely large volumes of
ice, such as convention centers, sports arenas, or bagged-ice
producers. Because of the attributes of commercial cube ice machines, a
small but significant post-acquisition increase in the prices of
commercial cube ice machines would not cause customers to switch to
other ice machines in sufficient numbers so as to make such a price
increase unprofitable.
17. Accordingly, the development, production, distribution, and
sale of commercial cube ice machines is a line of commerce and a
relevant product market within the meaning of Section 7 of the Clayton
Act.
B. The Relevant Geographic Market
18. Commercial ice machines are complex and break down more
frequently than other types of food service equipment, and customers
often need quick access to replacement machines, parts, and service.
Sales of commercial cube ice machines in the United States by
manufacturers are primarily made to distributors that supply equipment
dealers and repair companies who sell to end-users. In addition, these
distributors typically train service representatives regarding repair
and maintenance of the commercial ice machines, as well as manage
warranty claims. In order to be a competitive supplier of commercial
cube ice machines within the United States, manufacturers must have an
established network of local distribution, service, and support.
19. A small but significant increase in the prices of commercial
cube-ice machines would not cause a sufficient number of customers in
the United States to turn to manufacturers of commercial cube ice
machines that do not have an established a network of local
distribution, service, and support in the United States. As a result,
such manufacturers would not be able to constrain such an increase.
20. Accordingly, the United States is a relevant geographic market
within the meaning of Section 7 of the Clayton Act.
C. Competitive Effects
1. Concentration
21. The market for commercial cube ice machines is highly
concentrated. Manitowoc and Enodis are the two largest manufacturers of
commercial cube ice machines in the United States. Only one other
company has demonstrated the ability to produce commercial cube ice
machines of the same quality and with similar features as the Manitowoc
and Enodis machines and has an established a network of local
distribution, service, and support in the United States.
22. Manitowoc accounts for approximately 40 percent of the sales of
commercial cube ice machines in the United States. Enodis accounts for
approximately 30 percent of the sales of commercial cube ice machines
in the United States.
23. The market for commercial cube ice machines would become
substantially more concentrated if Manitowoc were to acquire Enodis.
Combined, Manitowoc and Enodis would account for approximately 70
percent of the sales of commercial cube ice machines in the United
States. Using a measure of market concentration called the Herfindahl-
Hirschman Index (``HHP'), which is explained in Appendix A, the
proposed transaction would increase the HHI in the market for
commercial cube ice machines by approximately 2,400 points to a post-
acquisition level of approximately 5,800. This is well in excess of
levels that raise significant antitrust concerns.
2. The Proposed Transaction Would Harm Competition in the Market for
Commercial Cube Ice Machines.
24. The vigorous and aggressive competition between Manitowoc and
Enodis in the development, production, distribution, and sale of
commercial cube ice machines has benefitted customers. Manitowoc and
Enodis compete directly on price, quality, and innovation. Although
commercial cube ice machine offerings are differentiated, many
commercial cube ice machine customers view the Manitowoc and
[[Page 61500]]
Scotsman brands as close substitutes for one another.
25. The proposed acquisition would eliminate the competition
between Manitowoc and Enodis and reduce the number of significant
manufacturers of commercial cube ice machines in the United States from
three to two. Post-merger, Manitowoc would profit by unilaterally
raising the price (or reducing quality and innovation) of one or more
of the brands it would own. Although Manitowoc could lose some sales in
that brand or brands as a result of such a price increase (or decline
in quality and innovation), many sales would be diverted to one of the
other brands under its ownership. Capturing such diverted sales would
make a post-merger price increase (or reduction in quality and
innovation) profitable, when it would not have been profitable before
the merger.
26. The response of other commercial cube ice machines
manufacturers in the United States would not be sufficient to constrain
a unilateral exercise of market power by Manitowoc after the
acquisition because, they do not have the incentive or the ability,
individually or collectively, to do so.
27. Therefore, the proposed acquisition would enable Manitowoc to
exercise market power unilaterally, lessen competition in the
development, production, distribution, and sale of commercial cube ice
machines in the United States, and lead to higher prices, lower
quality, and less innovation for the ultimate consumers of commercial
cube ice machines, in violation of Section 7 of the Clayton Act.
V. Entry
28. Successful entry or expansion into the development, production,
distribution, and sale of commercial cube ice machines would be
difficult, time-consuming, and costly. Firms attempting to enter or
expand into the commercial cube ice machine market face a combination
of distribution, reputation, and technology-related barriers to entry.
29. Customers need quick access to replacement ice machines and
parts, and, as a result, the three significant commercial cube ice
machine competitors each have a nationwide network of local
distributors. These distributors maintain sizeable inventories at
locations across the United States so as to meet individual customer
demands.
30. Developing a nationwide distribution network would be difficult
and time consuming. Finding good distributors would be difficult
because each of the current three commercial cube ice machine
competitors has contracted exclusively with a large majority of the
sizeable and reputable distributors across the United States, and an
existing or potential distributor likely would not agree to distribute
a commercial ice machine unless it could be assured of a sufficient
volume of sales of machines and parts to make a profit on the inventory
and other investments it must make. Further, distributors must build
relationships with the food service equipment dealers, air-conditioning
and refrigeration repair companies, and others that sell commercial ice
machines to end-users. Building such relationships would take a
significant amount of time and effort.
31. Reputation or brand recognition is another barrier to entry.
Because commercial cube ice machines are so important to customers'
operations, customers are reluctant to purchase machines from a company
that has not established a reputation for making high-quality, durable
machines. Establishing a track record of reliable performance takes
years.
32. The technology involved in developing and manufacturing a
commercial cube ice machine is a third significant entry barrier. The
three current competitors produce--and customers expect and demand--
commercial cube ice machines that last seven to ten years, that
consistently produce ice that is clear and pure under conditions of
varying water chemistries and air and water temperatures, and that meet
federal and state energy regulations. Designing and manufacturing
commercial cube ice machines that have these characteristics and are
comparable in quality to the machines of the three current competitors
would take years, even for firms that already produce other types of
ice machines.
33. Therefore, entry or expansion by any other firm into the
commercial cube ice machine market would not be timely, likely, or
sufficient to defeat an anticompetitive price increase in the event
that Manitowoc acquires Enodis.
VI. Violations Alleged
34. The proposed acquisition of Enodis by Manitowoc would
substantially lessen competition and tend to create a monopoly in
interstate trade and commerce in violation of Section 7 of the Clayton
Act, 15 U.S.C. Sec. 18.
35. Unless restrained, the transaction will have the following
anticompetitive effects, among others:
a. Actual and potential competition between Manitowoc and Enodis in
the development, production, distribution, and sale of commercial cube
ice machines in the United States will be eliminated;
b. Competition generally in the development, production,
distribution, and sale of commercial cube ice machines in the United
States will be substantially lessened; and
c. Prices for commercial cube ice machines in the United States
likely will increase, the quality of commercial cube ice machines in
the United States likely will decline, and innovation relating to
commercial cube ice machines in the United States likely will decline.
VII. Request for Relief
36. Plaintiff requests that:
a. Manitowoc's proposed acquisition of Enodis be adjudged and
decreed to be unlawful and in violation of Section 7 of the Clayton
Act, 15 U.S.C. Sec. 18;
b. Defendants and all persons acting on their behalf be permanently
enjoined and restrained from consummating the proposed acquisition or
from entering into or carrying out any contract, agreement, plan, or
understanding, the effect of which would be to combine Manitowoc with
the operations of Enodis;
c. Plaintiff be awarded its costs for this action; and
d. Plaintiff receive such other and further relief as the Court
deems just and proper.
Respectfully submitted,
For Plaintiff United States of America:
Thomas O. Barnett,
Assistant Attorney General, D.C. Bar #426840.
David L. Meyer,
Deputy Assistant Attorney General, D.C. Bar #414420.
J. Robert Kramer II,
Director of Operations.
Maribeth Petrizzi,
Chief, Litigation II Section, D.C. Bar #435204.
Dorothy B. Fountain,
Assistant Chief, Litigation II Section, D.C. Bar #439469.
Helena M. Gardner,
Christine A. Hill (D.C. Bar 461048)
Attorneys, United States Department of Justice, Antitrust Division,
Litigation II Section, 1401 H Street, NW, Suite 3000, Washington,
D.C. 20530, (202) 514-8518.
Dated: October 6, 2008.
Appendix A--Herfindahl-Hirschman Index Calculations
''HHI'' means the Herfindahl-Hirschman Index, a commonly accepted
measure of market concentration. It is calculated by squaring the
market share of each firm competing in the market and then summing the
resulting
[[Page 61501]]
numbers. For example, for a market consisting of four firms with shares
of thirty, thirty, twenty, and twenty percent, the HHI is 2600 (302 +
302 + 202 + 202 = 2,600). The HHI takes into account the relative size
and distribution of the firms in a market and approaches zero when a
market consists of a large number of firms of relatively equal size.
The HHI increases both as the number of firms in the market decreases
and as the disparity in size between those firms increases.
Markets in which the HHI is between 1,000 and 1,800 points are
considered to be moderately concentrated and those in which the HHI is
in excess of 1,800 points are considered to be highly concentrated.
Transactions that increase the HHI by more than 100 points in highly
concentrated markets presumptively raise antitrust concerns under the
Horizontal Merger Guidelines issued by the U.S. Department of Justice
and the Federal Trade Commission. See Horizontal Merger Guidelines
Sec. 1.51.
United States District Court for the District of Columbia
United States of America, Plaintiff, v. the Manitowoc Company, Inc.,
Enodis Plc, and Enodis Corporation, Defendants
Civil Action No.:
Description: Antitrust
Judge:
Date Stamp:
Proposed Final Judgment
Whereas, Plaintiff, the United States of America, filed its
Complaint on October 6, 2008, the United States and defendants, The
Manitowoc Company, Inc., Enodis plc, and Enodis Corporation, by their
respective attorneys, have consented to the entry of this Final
Judgment without trial or adjudication of any issue of fact or law, and
without this Final Judgment constituting any evidence against or
admission by any party regarding any issue of law or fact;
And whereas, defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
And whereas, the essence of this Final Judgment is the prompt and
certain divestiture of certain rights and assets by the defendants to
assure that competition is not substantially lessened;
And whereas, the United States requires defendants to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Complaint;
And whereas, defendants have represented to the United States that
the divestitures required below can and will be made, and that
defendants will later raise no claim of hardship or difficulty as
grounds for asking the Court to modify any of the divestiture
provisions contained below;
Now, therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is hereby ordered, adjudged, and decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of and each of
the parties to this action. The Complaint states a claim upon which
relief may be granted against the defendants under Section 7 of the
Clayton Act, as amended (15 U.S.C. 18).
II. Definitions
As used in this Final Judgment:
A. ``Acquirer'' means the entity to whom defendants divest the
Divestiture Business.
B. ``Enodis'' means defendant Enodis plc, a corporation registered
in England and Wales with its headquarters in London, England, and
Enodis Corporation, a Delaware corporation with its headquarters in New
Port Richey, Florida, and their successors, assigns, parents,
subsidiaries, divisions, groups, affiliates, partnerships, and joint
ventures, and all of their directors, officers, managers, agents, and
employees.
C. ``Manitowoc'' means defendant The Manitowoc Company, Inc., a
Wisconsin corporation headquartered in Manitowoc, Wisconsin, its
successors, assigns, parents, subsidiaries, divisions, groups,
affiliates, partnerships, and joint ventures, and all of their
directors, officers, managers, agents, and employees.
D. ``Closing Date'' means the date on which the transfer of the
Divestiture Assets from the defendants to the Acquirer has been
completed
E. ``Divestiture Business'' means Enodis's entire business engaged
in the development, production, distribution, and sale of ice machines,
ice machine parts, and related equipment (such as ice bins, ice
dispensers, and water filtration systems) in the United States,
including, but not limited to:
(1) Enodis's facility located in Fairfax, South Carolina, which is
owned by Scotsman Group, Inc. (now known as Scotsman Group L.L.C.);
(2) Enodis's facility located in Vernon Hills, Illinois, which is
leased by Scotsman Group, Inc. (now known as Scotsman Group L.L.C.);
(3) Enodis's facility located in Denver, Colorado, which is owned
by Welbilt Corporation (now known as Enodis Corporation);
(4) Enodis's facility located in Pomona, California, which is
leased by Scotsman Group, Inc. (now known as Scotsman Group L.L.C.);
(5) All tangible assets used in the Divestiture Business,
including, but not limited to, all research and development activities;
all manufacturing equipment, tooling and fixed assets, personal
property, inventory, office furniture, materials, supplies, and other
tangible property (including replacement hardware for the Vernon Hills,
Illinois facility that defendants are required to purchase pursuant to
Section II, Paragraph E below); all licenses, permits and
authorizations issued by any governmental organization relating to the
Divestiture Business; all contracts, teaming alTangements, agreements,
leases, commitments, certifications, and understandings relating to the
Divestiture Business, including, but not limited to, supply and
distribution agreements; all customer lists, accounts, and credit
records; all repair and performance records and all other records; and
(6) All intangible assets used in the development, production,
distribution, and sale of ice machines, ice machine parts, and related
equipment, including, but not limited to, all contractual rights (to
the extent assignable), except for contracts that are not primarily for
products or services used by the Divestiture Business; all rights under
licenses, permits and authorizations issued by any governmental
organization relating to the Divestiture Business; patents, licenses
and sublicenses, intellectual property, copyrights, trademarks, trade
names (including any use of the name Scotsman or Ice-O-Matic in the
United States), service marks, service names, technical information,
computer software and related documentation (including replacement
software and related documentation that defendants are required to
purchase, and applications and data that defendants are required to
transfer to hardware, for the Vernon Hills, Illinois facility pursuant
to Section II, Paragraph E below), know-how, trade secrets, drawings,
blueprints, designs, design protocols, specifications for materials,
specifications for parts and devices, safety procedures for the
handling of materials and substances, quality assurance and control
procedures, design tools and simulation capability, all manuals and
technical information defendants provide to their own
[[Page 61502]]
employees, customers, suppliers, agents or licensees; and all research
data concerning historic and current research and development efforts
(up to the Closing Date of the divestiture required by section IV or
section V), including, but not limited to, designs of experiments, and
the results of successful and unsuccessful designs and experiments;
except that the Divestiture Business shall not include the servers,
applications, and related documentation located at the Vernon Hills,
Illinois facility that are not used primarily in the operation of the
Divestiture Business, provided that within 45 days after the filing of
the Complaint in this matter, defendants take all steps necessary
(including the purchase of replacement hardware, the purchase,
licensing, or provision of software and related documentation, and the
transfer of applications and data) to ensure that all information
technology operations used by the Divestiture Business are maintained
at levels of functionality equivalent or superior to the levels of
functionality that exist as of the filing of the Complaint in this
matter. Defendants shall also take all steps necessary to purge any
data related to the Divestiture Business from hardware and backup media
at Vernon Hills that will not be divested under this provision. The
Divestiture Business shall not include the tangible or intangible
assets comprising the Enodis facility in New Port Richey, Florida, with
the exception of the following: (1) Any software, electronically stored
information, or documents arising from research and development
activities related to the ice machine business; (2) any assets used
primarily in the operation of the ice machine business, or (3) any
assets necessary for operation of the ice machine business.
F. ``Frimont Business'' means Enodis plc's Frimont S.p.A. business,
which produces commercial ice machines for the European market and
which the European Commission has required to be divested.
III. Applicability
A. This Final Judgment applies to Manitowoc and Enodis, as defined
above, and all other persons in active concert or participation with
any of them who receive actual notice of this Final Judgment by
personal service or otherwise.
B. If, prior to complying with section IV and V of this Final
Judgment, defendants sell or otherwise dispose of all or substantially
all of their assets or of lesser business units that include the
Divestiture Business, they shall require the purchaser to be bound by
the provisions of this Final Judgment. Defendants need not obtain such
an agreement from the Acquirer of the assets divested pursuant to this
Final Judgment.
IV. Divestitures
A. Defendants are ordered and directed, within 150 calendar days
after the filing of the Complaint in this matter, or five (5) calendar
days after notice of the entry of this Final Judgment by the Court,
whichever is later, to divest the Divestiture Business in a manner
consistent with this Final Judgment to a single Acquirer acceptable to
the United States, in its sole discretion after consultation with the
European Commission. The United States, in its sole discretion, may
agree to one or more extensions of this tune period not to exceed sixty
(60) calendar days in total, and shall notify the Court in such
circumstances. Defendants agree to use their best efforts to divest the
Divestiture Business as expeditiously as possible.
B. In accomplishing the divestiture ordered by this Final Judgment,
defendants promptly shall make known, by usual and customary means, the
availability of the Divestiture Business. Defendants shall inform any
person making inquiry regarding a possible purchase of the Divestiture
Business that they are being divested pursuant to this Final Judgment
and provide that person with a copy of this Final Judgment. Defendants
shall offer to furnish to all prospective Acquirers, subject to
customary confidentiality assurances, all information and documents
relating to the Divestiture Business customarily provided in a due
diligence process except such information or documents subject to the
attorney-client privilege or work-product doctrine. Defendants shall
make available such information to the United States at the same time
that such information is made available to any other person.
C. Defendants shall provide the Acquirer and the United States
information relating to all personnel involved in development,
production, distribution, and sales related to the Divestiture Business
to enable the Acquirer to make offers of employment Defendants will not
interfere with any negotiations by the Acquirer to employ any employee
whose primary responsibility is development, production, distribution,
and sales related to the Divestiture Business, and will not interfere
with negotiations by the Acquirer to employ the following three Enodis
employees who work at the Vernon Hills, Illinois facility: (1) The
Senior Business Analyst and Developer; (2) the Unix Administrator and
Network Manager; and (3) the Computer Operator and Systems Specialist.
D. Defendants shall permit prospective Acquirers of the Divestiture
Business to have reasonable access to personnel and to make inspections
of the physical facilities of the Divestiture Business; access to any
and all environmental, zoning, and other permit documents and
information; and access to any and all financial, operational, or other
documents and information customarily provided as part of a due
diligence process.
E. Defendants shall warrant to the Acquirer that each asset will be
operational on the date of sale.
F. Defendants shall not take any action that will impede in any way
the permitting, operation, or divestiture of the Divestiture Business.
Defendants shall not exercise any contractual right to prevent, or
otherwise attempt in any way to impede, sales or service
representatives that represent Enodis in connection with the
Divestiture Business from representing the Acquirer in the sale or
servicing of products sold by the Divestiture Business.
G. Enodis shall warrant to the Acquirer that there are no material
defects, and Manitowoc shall warrant that it is not aware of any
material defects, in the environmental, zoning or other permits
pertaining to the operation of each asset, and that following the sale
of the Divestiture Business, defendants will not undertake, directly or
indirectly, any challenges to the environmental, zoning, or other
permits relating to the operation of the Divestiture Business
H. Notwithstanding anything to the contrary in this Final Judgment,
at the option of the Acquirer, defendants shall enter into a transition
services agreement for a limited period, with respect to information
technology and other support services that are reasonably necessary to
operate the Divestiture Business, with the scope, terms and conditions
of such agreement being subject to the approval of the United States in
its sole discretion.
I. At the option of the Acquirer, defendants shall use their best
efforts to procure the assignment of contractual rights referenced in
section II, Paragraph E(6) before the Closing Date of the divestiture
required by section IV or section V.
J. Defendants shall not interfere with any effort by the Acquirer
to negotiate a contract with any supplier of any product purchased by
the Divestiture Business as of the filing of the
[[Page 61503]]
Complaint in this matter. If requested by the Acquirer:
(1) Defendants shall provide information or documentation relating
to controllers, compressors, condensers, valves, and copper strips, or
any other product customized for the Divestiture Business by any
supplier, that are purchased by the Divestiture Business under
contracts as to which the defendants are unable to secure effective
assignment to the Acquirer or under contracts that are not primarily
for products or services used by the Divestiture Business; and
(2) If the Acquirer is unable, prior to the Closing Date of the
divestiture required by section IV or section V, to negotiate and enter
into a contract, on commercially reasonable terms with a qualified and
reliable supplier, providing for the Acquirer's supply of copper
strips, or any other product for which an alternative supplier is not
available as of the Closing Date, that have the same characteristics
(or, so long as the product allows continuation of the Divestiture
Business without disruption, having substantially the same
characteristics) and are of the same, or superior, quality as those
purchased by the Divestiture Business as of the filing of the Complaint
in this matter, defendants shall purchase any such product on behalf of
the Acquirer and resell it to the Acquirer at the price specified in
defendants' supply contract as of the date of the purchase of the
product for the Divestiture Business. This obligation shall expire upon
the earlier of (1) the Acquirer or Divestiture Business having
negotiated a contract of purchase of any such product meeting the
criteria set forth above, (2) the Acquirer notifying defendants in
writing that the Divestiture Business no longer intends to purchase any
such product under this provision, (3) the expiration of the supply
contract in accordance with the terms of that contract as they existed
as of the date of the filing of the Complaint in this matter, or (4)
one year after the date of the divestiture required under section IV or
section V Defendants shall not discuss, provide, disclose, or otherwise
make available, directly or indirectly, any information related to such
purchases and resales to any defendant personnel involved in
production, marketing, distribution, or sales of ice machines.
K. Unless the United States otherwise consents in writing, the
divestiture pursuant to section IV, or by trustee appointed pursuant to
section V, of this Final Judgment, shall include the entire Divestiture
Business, and shall be accomplished in such a way as to satisfy the
United States, in its sole discretion, that the Divestiture Business
can and will be used by the Acquirer as part of a viable, ongoing
business engaged in the development, production, distribution, and sale
of commercial cube ice machines, ice machine parts, and related
equipment in the United States. The divestitures, whether pursuant to
section IV or section V of this Final Judgment, (1) shall be made to
the acquirer of the Frimont Business; (2) shall be made to an Acquirer
that, in the United States's sole judgment, has the intent and
capability (including the necessary managerial, operational, technical
and financial capability) of competing effectively in the development,
production, distribution, and sale of commercial cube ice machines, ice
machine parts, and related equipment in the United States; and
(3) Shall be accomplished so as to satisfy the United States, in
its sole discretion, that none of the terms of any agreement between
the Acquirer and defendants give defendants the ability unreasonably to
raise the Acquirer's costs, to lower the Acquirer's efficiency, or
otherwise to interfere in the ability of the Acquirer to compete
effectively in the development, production, distribution, and sale of
commercial cube ice machines, ice machine parts, and related equipment
in the United States.
V. Appointment of Trustee
A. If defendants have not divested the Divestiture Business within
the time period specified in section IV, Paragraph A, defendants shall
notify the United States of that fact in writing. Upon application of
the United States, the Court shall appoint a trustee selected by the
United States, in consultation with the European Commission to enable
selection of a trustee acceptable to both the United States and the
European Commission, and approved by the Court to effect the
divestiture of the Divestiture Business.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Business. The
trustee shall have the power and authority to accomplish the
divestiture to an Acquirer acceptable to the United States at such
price and on such terms as are then obtainable upon reasonable effort
by the trustee, subject to the provisions of sections IV, V, and VI of
this Final Judgment, and shall have such other powers as this Court
deems appropriate. Subject to section V, Paragraph D of this Final
Judgment, the trustee may hire at the cost and expense of defendants
any investment bankers, attorneys, or other agents, who shall be solely
accountable to the trustee, reasonably necessary in the trustee's
judgment to assist in the divestiture.
C. Defendants shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance or that the Acquirer has
not been approved by the European Commission. Any objection by
defendants on the ground of the trustee's malfeasance must be conveyed
in writing to the United States and the trustee within ten (10)
calendar days after the trustee has provided the notice required under
section VI; any objection by defendants based on lack of approval from
the European Commission must be conveyed in writing to the United
States and the trustee within two (2) business days after the European
Commission notifies defendants that it does not approve of the proposed
Acquirer.
D. The trustee shall serve at the cost and expense of defendants,
on such terms and conditions as the United States approves, and shall
account for all monies derived from the sale of the assets sold by the
trustee and all costs and expenses so incurred. After approval by the
Court of the trustee's accounting, including fees for its services and
those of any professionals and agents retained by the trustee, all
remaining money shall be paid to defendants and the trust shall then be
terminated. The compensation of the trustee and any professionals and
agents retained by the trustee shall be reasonable in light of the
value of the Divestiture Business and based on a fee arrangement
providing the trustee with an incentive based on the price and terms of
the divestiture and the speed with which it is accomplished, but
timeliness is paramount.
E. Defendants shall use their best efforts to assist the trustee in
accomplishing the required divestiture. The trustee and any
consultants, accountants, attorneys, and other persons retained by the
trustee shall have full and complete access to the personnel, books,
records, and facilities of the business to be divested, and defendants
shall develop financial and other information relevant to such business
as the trustee may reasonably request, subject to reasonable protection
for trade secret or other confidential research, development, or
commercial information. Defendants shall take no action to interfere
with or to impede the trustee's accomplishment of the divestiture.
F. After its appointment, the trustee shall file monthly reports
with the United States and the Court setting forth the trustee's
efforts to accomplish the divestiture ordered under this Final
Judgment. To the extent such reports
[[Page 61504]]
contain information that the trustee deems confidential, such reports
shall not be filed in the public docket of the Court. Such reports
shall include the name, address, and telephone number of each person
who, during the preceding month, made an offer to acquire, expressed an
interest in acquiring, entered into negotiations to acquire, or was
contacted or made an inquiry about acquiring, any interest in the
Divestiture Business, and shall describe in detail each contact with
any such person. The trustee shall maintain full records of all efforts
made to divest the Divestiture Business.
G. If the trustee has not accomplished the divestiture ordered
under this Final Judgment within six (6) months after its appointment,
the trustee shall promptly file with the Court a report setting forth
(1) the trustee's efforts to accomplish the required divestiture, (2)
the reasons, in the trustee's judgment, why the required divestiture
has not been accomplished, and (3) the trustee's recommendations. To
the extent such reports contain information that the trustee deems
confidential, such reports shall not be filed in the public docket of
the Court. The trustee shall at the same time furnish such report to
the United States which shall have the right to make additional
recommendations consistent with the purpose of the trust. The Court
thereafter shall enter such orders as it shall deem appropriate to
carry out the purpose of the Final Judgment, which may, if necessary,
include extending the trust and the term of the trustee's appointment
by a period requested by the United States.
VI. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
divestiture agreement, defendants or the trustee, whichever is then
responsible for effecting the divestiture required herein, shall notify
the United States of any proposed divestiture required by Section IV or
V of this Final Judgment. If the trustee is responsible, it shall
similarly notify defendants. The notice shall set forth the details of
the proposed divestiture and list the name, address, and telephone
number of each person not previously identified who offered or
expressed an interest in or desire to acquire any ownership interest in
the Divestiture Business, together with full details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from defendants,
the proposed Acquirer, any other third party, or the trustee, if
applicable, additional information concerning the proposed divestiture,
the proposed Acquirer, and any other potential Acquirer. Defendants and
the trustee shall furnish any additional information requested within
fifteen (15) calendar days of the receipt of the request, unless the
parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from defendants, the
proposed Acquirer, any third party, and the trustee, whichever is
later, the United States shall provide written notice to defendants and
the trustee, if there is one, stating whether or not it objects to the
proposed divestiture. If the United States provides written notice that
it does not object, the divestiture may be consummated, subject only to
defendants' limited right to object to the sale under Section V,
Paragraph C of this Final Judgment. Absent written notice that the
United States does not object to the proposed Acquirer or upon
objection by the United States, a divestiture proposed under section IV
or section V shall not be consummated. Upon objection by defendants
under section V, Paragraph C, a divestiture proposed under section V
shall not be consummated unless approved by the Court.
VII. Financing
Defendants shall not finance all or any part of any purchase made
pursuant to section IV or V of this Final Judgment.
VIII. Hold Separate
Until the divestiture required by this Final Judgment has been
accomplished, defendants shall take all steps necessary to comply with
the Hold Separate Stipulation and Order entered by this Court.
Defendants shall take no action that would jeopardize the divestiture
ordered by this Court.
IX. Affidavits
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter, and every thirty (30) calendar days thereafter until
the divestiture has been completed under section IV or V, defendants
shall deliver to the United States an affidavit as to the fact and
manner of its compliance with section IV or V of this Final Judgment.
Each such affidavit shall include the name, address, and telephone
number of each person who, during the preceding thirty (30) calendar
days, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any interest in the Divestiture Business, and
shall describe in detail each contact with any such person during that
period. Each such affidavit shall also include a description of the
efforts defendants have taken to solicit buyers for the Divestiture
Business, and to provide required information to prospective Acquirers,
including the limitations, if any, on such information. Assuming the
information set forth in the affidavit is true and complete, any
objection by the United States to information provided by defendants,
including limitation on information, shall be made within fourteen (14)
calendar days of receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, defendants shall deliver to the United States an
affidavit that describes in reasonable detail all actions defendants
have taken and all steps defendants have implemented on an ongoing
basis to comply with Section VIII of this Final Judgment. Defendants
shall deliver to the United States an affidavit describing any changes
to the efforts and actions outlined in defendants' earlier affidavits
filed pursuant to this section within fifteen (15) calendar days after
the change is implemented.
C. Defendants shall keep all records of all efforts made to
preserve and divest the Divestiture Business until one year after such
divestiture has been completed.
X. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time authorized representatives of the United States
Department of Justice Antitrust Division (``DOJ''), including
consultants and other persons retained by the United States, shall,
upon written request of an authorized representative of the Assistant
Attorney General in charge of the Antitrust Division, and on reasonable
notice to defendants, be permitted:
(1) Access during defendants' office hours to inspect and copy, or
at the option of the United States, to require defendants to provide
hard copy or electronic copies of, all books, ledgers, accounts,
records, data, and documents in the possession, custody, or control of
defendants, relating to any matters contained in this Final Judgment;
and
(2) To interview, either informally or on the record, defendants'
officers, employees, or agents, who may have their individual counsel
present,
[[Page 61505]]
regarding such matters. The interviews shall be subject to the
reasonable convenience of the interviewee and without restraint or
interference by defendants.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
defendants shall submit written reports or responses to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, except in the course of legal proceedings to which the United
States is a party (including grand jury proceedings), or for the
purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D. If at the time information or documents are furnished by
defendants to the United States, defendants represent and identify in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(1)(G) of the
Federal Rules of Civil Procedure, and defendants mark each pertinent
page of such material, ``Subject to claim of protection under Rule
26(c)(1)(G) of the Federal Rules of Civil Procedure,'' then the United
States shall give defendants ten (10) calendar days notice prior to
divulging such material in any legal proceeding (other than a grand
jury proceeding).
XI. No Reaction
Defendants may not reacquire any part of the Divestiture Business
during the term of this Final Judgment.
XII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XIII. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XIV. Public Interest Determination
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16, including making copies available to
the public of this Final Judgment, the Competitive Impact Statement,
and any comments thereon and the United States's responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and response to comments filed with
the Court, entry of this Final Judgment is in the public interest.
Date:
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16
United States District Judge
United States District Court for the District of Columbia
United States of America, Plaintiff, v. The Manitowoc Company,
Inc., Enodis PLC, and Enodis Corporation, Defendants
Civil Action No.:
Description: Antitrust
Judge:
Case: 1:08-cv-01 704
Assigned to: Kennedy, Henry H.
Assign. Date: 10/6/2008
Description: Antitrust
Competitive Impact Statement
Plaintiff United States of America (``United States''), pursuant to
Section 2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or
``Tunney Act''), 15 U.S.C. Sec. 16(b)-(h), files this Competitive
Impact Statement relating to the proposed Final Judgment submitted for
entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
Defendant The Manitowoc Company, Inc. (``Manitowoc'') and Defendant
Enodis plc entered into an agreement, dated April 14, 2008, and amended
May 27, 2008, pursuant to which Manitowoc agreed to acquire the entire
issued and to be issued ordinary share capital of Enodis plc.
Manitowoc's final revised offer price was determined on June 30, 2008,
when Manitowoc outbid a competing offer or during an auction process
implemented by the Panel on Takeovers and Mergers of the United
Kingdom.
The United States filed a civil antitrust Complaint on October 6,
2008, seeking to enjoin the proposed acquisition. The Complaint alleges
that the likely effect of this acquisition would be to lessen
competition substantially in the development, production, distribution,
and sale of commercial cube ice machines in the United States in
violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18. This
loss of competition likely would result in higher prices, lower
quality, and less innovation in the commercial cube ice machine market.
At the same time the Complaint was filed, the United States also
filed a Hold Separate Stipulation and Order (``Hold Separate'') and
proposed Final Judgment, which are designed to eliminate the
anticompetitive effects of the acquisition. Under the proposed Final
Judgment, which is explained more fully below, defendants Manitowoc,
Enodis plc, and Enodis Corporation (Enodis plc and Enodis Corporation
will hereinafter be collectively referred to as ``Enodis'') are
required to divest Enodis's entire business engaged in the development,
production, distribution, and sale of ice machines, ice machine parts,
and related equipment in the United States (hereafter, the
``Divestiture Business''). Under the terms of the Hold Separate,
defendants will take certain steps to ensure that the Divestiture
Business is operated as a competitively independent, economically
viable and ongoing business that will remain independent and
uninfluenced by the consummation of the acquisition, and that
competition is maintained during the pendency of the ordered
divestiture. The United States and defendants have stipulated that the
proposed Final Judgment may be entered after compliance with the APPA.
Entry of the proposed Final Judgment would terminate this action,
except that the Court would retain jurisdiction to construe, modify, or
enforce the provisions of the proposed Final Judgment and to punish
violations thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Defendants and the Proposed Transaction
Defendant Manitowoc is a Wisconsin corporation with its principal
place of business in Manitowoc, Wisconsin. It is a global industrial
equipment company that manufacturers commercial ice machines and
related equipment, refrigeration equipment, cranes, and ships and other
water vessels. In 2007, Manitowoc reported total sales of approximately
$4 billion. Manitowoc's sales of commercial ice machines and related
equipment in the United States were approximately $152 million in 2007.
Enodis plc is a corporation registered in the United Kingdom and
Wales with its principal place of business in London, England. Enodis
Corporation, a wholly owned subsidiary of Enodis plc, is a Delaware
corporation with its
[[Page 61506]]
headquarters in New Port Richey, Florida. Through its global food
service equipment group, Enodis designs, manufactures, and sells
cooking, food storage and preparation equipment, and ice machines and
related equipment. Enodis plc's revenues for its 2007 fiscal year were
$1.6 billion. In its fiscal year 2007, Enodis plc's sales of commercial
ice machines and related equipment in the United States were
approximately $153 million.
On June 30, 2008, Manitowoc offered to acquire Enodis plc for 328
pence in cash per share, in a transaction valued at $2.7 billion
(including assumed debt). The proposed transaction, as initially agreed
to by defendants, would substantially lessen competition in the
development, production, distribution, and sale of commercial cube ice
machines in the United States. This transaction is the subject of the
Complaint and proposed Final Judgment filed by the United States on
October 6, 2008.
B. The Competitive Effects of the Transaction
1. Commercial Ice Machines Generally
Restaurants, convenience stores, hotels, and other businesses need
significant volumes of ice. These businesses usually meet their needs
by using commercial ice-making machines located at their places of
business. These machines make ice by a continuous cycle of condensation
and expansion of a refrigerant through a network of tubing. As the
refrigerant converts from a compressed liquid state to become a gas,
heat is drawn from a component called an evaporator. Water running over
the evaporator surface freezes to form ice that is then harvested by
processes specific to the type of ice produced by the machine.
2. Relevant Product Market
The type of ice machine purchased by a customer depends on the type
and volume of ice needed. Commercial ice machines are designed to
produce either hard ice or soft ice. Hard ice melts slowly and has a
higher density and less surface area than soft ice. Hard ice is most
often shaped as cubes or dice, half-cubes or half-dice, octagons, or
crescent cubes, and is commonly referred to as cube ice. Most customers
that serve ice in beverages prefer cube ice because it melts slowly and
thus minimizes deterioration in the flavor of the beverage.
Soft ice refers to small nuggets or flakes of ice that have a lower
density and more surface area than cube ice and, therefore, melt more
quickly than cube ice. Soft ice is used in hospitals, which demand a
safe, chewable ice for their patients, by grocery stores or other
establishments to display seafood, produce, and other perishable food,
and for industrial cooling applications. The prices of commercial ice
machines producing soft ice are often 15 to 20 percent higher than
prices of ice machines that produce comparable quantities of cube ice
per day.
The Complaint alleges that in response to a small but significant
post-acquisition increase in the price of commercial machines producing
cube ice, customers would not switch to machines that make soft ice in
sufficient numbers so as to make such a price increase unprofitable.
Customers vary greatly with respect to their daily needs of cubed
ice, and they require machines having an appropriate range of capacity
to meet those needs. A significant and distinct segment of cube ice
machine customers, including sit-down and fast-food restaurants, bars,
and convenience stores, purchase commercial machines capable of
producing between approximately 300 pounds to 2,000 pounds of cube ice
per day (hereinafter, ``commercial cube ice machines''). Although
customers can purchase units that produce between approximately 50 and
300 pounds of ice per day, these machines are not able to meet the
needs of the large majority of commercial cube ice machine customers.
Few customers are likely to meet their needs by purchasing two or more
smaller machines because it would be cost-prohibitive to do so.
Similarly, large units that produce over 2,000 pounds of ice per day
are not substitutes for commercial cube ice machines and are used by
customers that need extremely large volumes of ice, such as convention
centers, sports arenas, or bagged-ice producers.
The Complaint alleges that because of the attributes of commercial
cube ice machines, a small but significant post-acquisition increase in
the prices of commercial cube ice machines would not cause customers to
switch to other ice machines in sufficient numbers so as to make such a
price increase unprofitable, and, accordingly, the development,
production, distribution, and sale of commercial cube ice machines is a
line of commerce and a relevant product market:
3. Relevant Geographic Market
Commercial ice machines are complex and break down more frequently
than other types of food service equipment, and customers often need
quick access to replacement machines, parts, and service. Sales of
commercial cube ice machines in the United States by manufacturers are
primarily made to distributors that supply equipment dealers and repair
companies who sell to end-users. In addition, these distributors
typically train service representatives regarding repair and
maintenance of the commercial ice machines, as well as manage warranty
claims. In order to be a competitive supplier of commercial cube ice
machines within the United States, manufacturers must have an
established network of local distribution, service, and support.
The Complaint alleges that a small but significant increase in the
prices of commercial cube ice machines would not cause a sufficient
number of customers in the United States to turn to manufacturers of
commercial cube ice machines that do not have an established a network
of local distribution, service, and support in the United States. As a
result, such manufacturers would not be able to constrain such an
increase. Accordingly, the United States is a relevant geographic
market.
4. Competitive Effects
The market for commercial cube ice machines is highly concentrated,
and would become substantially more so if Manitowoc were to acquire
Enodis. Manitowoc and Enodis are the two largest manufacturers of
commercial cube ice machines in the United States. Manitowoc accounts
for approximately 40 percent of the sales of commercial cube ice
machines in the United States, and Enodis accounts for approximately 30
percent of such sales. Only one other company has demonstrated the
ability to produce commercial cube ice machines of the same quality and
with similar features as the Manitowoc and Enodis machines and has an
established network of local distribution, service, and support in the
United States.
Combined, Manitowoc and Enodis would account for approximately 70
percent of the sales of commercial cube ice machines in the United
States. Using a measure of market concentration called the Herfindahl-
Hirscbman Index (``HHI''), the proposed transaction would increase the
HHI in the market for commercial cube ice machines by approximately
2,400 points to a post-acquisition level of approximately 5,500. This
is well in excess of levels that raise significant antitrust concerns.
The vigorous and aggressive competition between Manitowoc and
Enodis in the development, production, distribution, and sale of
commercial cube ice machines has benefited customers. Manitowoc and
Enodis
[[Page 61507]]
compete directly on price, quality, and innovation. Although commercial
cube ice machine offerings are differentiated, many commercial cube ice
machine customers view the Manitowoc and Scotsman brands as close
substitutes for one another.
The proposed acquisition would eliminate the competition between
Manitowoc and Enodis and reduce the number of significant manufacturers
of commercial cube ice machines in the United States from three to two.
The Complaint alleges that post-merger, Manitowoc would profit by
unilaterally raising the price (or reducing quality and innovation) of
one or more of the brands it would own. Although Manitowoc could lose
some sales in that brand or brands as a result of such a price increase
(or decline in quality and innovation), many sales would be diverted to
one of the other brands under its ownership. Capturing such diverted
sales would make a post-merger price increase (or reduction in quality
and innovation) profitable, when it would not have been profitable
before the merger. The response of other commercial cube ice machines
manufacturers in the United States would not be sufficient to constrain
a unilateral exercise of market power by Manitowoc after the
acquisition because they do not have the incentive or the ability,
individually or collectively, to do so. Therefore, the Complaint
alleges, the proposed acquisition would enable Manitowoc to exercise
market power unilaterally, lessen competition in the development,
production, distribution, and sale of commercial cube ice machines in
the United States, and lead to higher prices, lower quality, and less
innovation for the ultimate consumers of commercial cube ice machines.
Further, successful entry or expansion into the development,
production, distribution, and sale of commercial cube ice machines
would be difficult, time-consuming, and costly. Firms attempting to
enter or expand into the commercial cube ice machine market face a
combination of distribution, reputation, and technology-related
barriers to entry.
As noted above, customers need quick access to replacement ice
machines and parts, and, as a result, the three significant commercial
cube ice machine competitors each have a nationwide network of local
distributors. These distributors maintain sizeable inventories at
locations across the United States so as meet individual customer
demands. The Complaint alleges that developing a nationwide
distribution network would be difficult and time consuming. Finding
good distributors would be difficult because each of the current three
commercial cube ice machine competitors has contracted exclusively with
a large majority of the sizeable and reputable distributors across the
United States, and an existing or potential distributor likely would
not agree to distribute a commercial ice machine unless it could be
assured of a sufficient volume of sales of machines and parts to make a
profit on the inventory and other investments it must make. Further,
distributors must build relationships with the food service equipment
dealers, air-conditioning and refrigeration repair companies, and
others that sell commercial ice machines to end-users. Building such
relationships would take a significant amount of time and effort.
The Complaint alleges that reputation or brand recognition is
another barrier to entry. Because commercial cube ice machines are so
important to customers' operations, customers are reluctant to purchase
machines from a company that has not established a reputation for
making high-quality, durable machines. Establishing a track record of
reliable performance takes years.
The Complaint alleges that the technology involved in developing
and manufacturing a commercial cube ice machine is a third significant
entry barrier. The three current competitors produce--and customers
expect and demand--commercial cube ice machines that last seven to ten
years, that consistently produce ice that is clear and pure under
conditions of varying water chemistries and air and water temperatures,
and that meet federal and state energy regulations. Designing and
manufacturing commercial cube ice machines that have these
characteristics and are comparable in quality to the machines of the
three current competitors would take years, even for firms that already
produce other types of ice machines.
The Complaint alleges that as a result of these barriers to entry,
entry or expansion by any other firm into the commercial cube ice
machine market would not be timely, likely, or sufficient to defeat an
anticompetitive price increase in the event that Manitowoc acquires
Enodis.
III. Explanation of the Proposed Final Judgment
The divestiture requirement of the proposed Final Judgment will
eliminate the likely anticompetitive effects of the acquisition in the
development, production, distribution, and sale of commercial cube ice
machines in the United States by establishing a new, independent, and
economically viable competitor. The proposed Final Judgment requires
defendants, within 150 days after the filing of the Complaint, or five
(5) days after notice of the entry of the Final Judgment by the Court,
whichever is later, to divest, as a viable ongoing business, the
Divestiture Business, which comprises Enodis's entire business engaged
in the development, production, distribution, and sale of ice machines
ice machine parts, and related equipment in the United States. The
assets must be divested in such a way as to satisfy the United States
in its sole discretion that the operations can arid will be operated by
the purchaser as a viable, ongoing business that can compete
effectively in the relevant market. Defendants must take all reasonable
steps necessary to accomplish the divestiture quickly and shall
cooperate with prospective purchasers.
In the event that defendants do not accomplish the divestiture
within the periods prescribed in the proposed Final Judgment, the Final
Judgment provides that the Court will appoint a trustee selected by the
United States to effect the divestiture. If a trustee is appointed, the
proposed Final Judgment provides that defendants will pay all costs and
expenses of the trustee. The trustee's commission will be structured so
as to provide an incentive for the trustee based on the price obtained
and the speed with which the divestiture is accomplished. After his or
her appointment becomes effective, the trustee will file monthly
reports with the Court and the United States setting forth his or her
efforts to accomplish the divestiture. At the end of six months, if the
divestiture has not been accomplished, the trustee and the United
States will make recommendations to the Court. which shall enter such
orders as appropriate, in order to carry out the purpose of the trust,
including extending the trust or the term of the trustee's appointment.
Described below are select provisions that have been included in
the proposed Final Judgment to address special circumstances that exist
in this case. Some provisions address complications arising from
certain overlaps in divestitures required by the United States and the
European Commission. Others address the fact that certain parts of the
Divestiture Business must be severed from Enodis's other operations.
Selected Provisions of the Proposed Final Judgment
Enodis has information technology assets located at a data center
within its Vernon Hills, Illinois facility that
[[Page 61508]]
supports various Enodis businesses, including the Divestiture Business.
Definition II(D) of the proposed Final Judgment addresses the need to
sever these joint information technology assets, excluding from the
list of assets that form the Divestiture Business all hardware,
software, and related documentation (``IT assets'') at this data center
that is shared between the Divestiture Business and the other Enodis
businesses. Defendants are required to divest IT assets used only by
the Divestiture Business, and to purchase replacement IT assets for
installation at Vernon Hills so that all information technology
operations used by the Divestiture Business will be maintained at
levels of functionality equivalent or superior to those which exist as
of the filing of the Complaint. Definition II(D) also requires that any
data or information related to the Divestiture Business will be purged
from hardware and backup media that will not be divested. Section IV,
Paragraph C of the proposed Final Judgment addresses the Acquirer's
right to offer employment to three Enodis employees who provide
information technology services and support to various Enodis
businesses (including the Divestiture Business) from the Vernon Hills
data center, but whose responsibilities do not relate primarily to the
Divestiture Business as of the filing of the Complaint. These three
employees are qualified to provide services and support that will
enable the Acquirer to successfully operate the Vernon Hills data
center post-divestiture.
The European Commission has required defendants to divest most of
Enodis's worldwide ice machine assets, including the Divestiture
Business. As a result of the practical difficulties of splitting
between two acquirers rights to certain intellectual property shared by
the Divestiture Business and Enodis plc's European Frimont Business,
section IV, paragraph K of the proposed Final Judgment requires
defendants to sell the Divestiture Business to the acquirer of the
Frimont Business. Because the United States and the European Commission
must approve the same acquirer, section IV, paragraph A of the proposed
Final Judgment provides that the United States will consult with the
European Commission in exercising its review of defendants' sale of the
Divestiture Business in a manner consistent with the proposed Final
Judgment, to an acquirer acceptable to the United States in its sole
discretion. As noted above, if the defendants do not divest the
Divestiture Business within the required time period, the Court, upon
application of the United States, is to appoint a trustee to complete
the divestiture. Because the European Commission also requires
selection of a trustee if the divestiture is not completed within a
certain time, section V, paragraph A of the proposed Final Judgment
provides that the United States shall select a trustee after
consultation with the European Commission to ensure selection of a
trustee acceptable to both the United States and the European
Commission.
The United States has agreed to a longer-than-usual divestiture
period also because of the overlapping divestitures required by the
European Commission. Not only must an Acquirer be approved by the
Division and the European Commission, but any potential Acquirer likely
must file notices with, and obtain antitrust clearances from, multiple
European Union member countries (or file an application seeking the
jurisdiction of the European Commission) in connection with the
Acquirer's purchase of the Divestiture Business and other Enodis ice
machine business assets worldwide. section IV, paragraph A of the
proposed Final Judgment thus requires defendants to divest the
Divestiture Business within 150 calendar days after the filing of the
Complaint, or five (5) calendar days after notice of the entry of the
final judgment by the court, whichever is later.\1\
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\1\ Quick divestitures have the clear benefits of restoring
premerger competition to the marketplace as soon as possible, and of
mitigating the potential dissipation of asset value associated with
a lengthy divestiture process. Achieving these benefits are of as
much importance in this matter as in any other, and section IV,
paragraph A of the proposed Final Judgment requires defendants to
use their best efforts to divest the Divestiture Business as
expeditiously as possible. In this matter, and in most other
matters, the United States. in its sole discretion, may agree to one
or more extensions of the divestiture period not to exceed 60
calendar days in total.
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Although contracts used in the Divestiture Business generally must
be divested, certain contracts that are unassignable or are not
primarily used by the Divestiture Businesses are not required to be
divested. Section P1, paragraph J of the proposed Final Judgment
addresses the Acquirer's need to find a source for certain input
components typically purchased under such contracts. Subsection (1)
requires that defendants provide the Acquirer information or documents
relating to any product that is customized for the Divestiture Business
and purchased under any such contract so the Acquirer has the
information it may need to negotiate its own supply contract.
Subsection (2) addresses the possibility that the Acquirer may be
unable to negotiate its own contracts to purchase at commercially
reasonable terms certain products for which alternative suppliers are
not available as of the time of the divestiture. Subsection (2)
requires defendants for a prescribed period to purchase and resell any
such product to the Acquirer at the price specified in defendants'
current supply contract. To prevent the sharing of information that
could foster coordination, defendants are prohibited from disclosing,
directly or indirectly, information concerning such purchases and
resales to defendant personnel involved in production, marketing,
distribution, or sales of commercial cube ice machines. The divestiture
provisions of the proposed Final Judgment will eliminate the
anticompetitive effects of the acquisition in the development,
production, distribution, and sale of commercial cube ice machines in
the United States.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
16(a), the proposed Final Judgment has no prima facie effect in any
subsequent private lawsuit that may be brought against defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this
[[Page 61509]]
Competitive Impact Statement in the Federal Register, or the last date
of publication in a newspaper of the summary of this Competitive Impact
Statement, whichever is later. All comments received during this period
will be considered by the United States Department of Justice, which
remains free to withdraw its consent to the proposed Final Judgment at
any time prior to the Court's entry of judgment. The comments and the
response of the United States will be filed with the Court and
published in the Federal Register.
Written comments should be submitted to: Maribeth Petrizzi, Chief,
Litigation II Section, Antitrust Division, United States Department of
Justice, 1401 H St., NW., Suite 3000, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against defendants. The
United States could have continued the litigation and sought
preliminary and permanent injunctions against Manitowoc's acquisition
of Enodis plc. The United States is satisfied, however, that the
divestiture of assets described in the proposed Final Judgment will
preserve competition in the development, production, distribution, and
sale of commercial cube ice machines in the United States. Thus, the
proposed Final Judgment would achieve all or substantially all of the
relief the United States would have obtained through litigation, but
avoids the time, expense, and uncertainty of a full trial on the merits
of the Complaint, while allowing the non-problematic aspects of the
transaction to go forward.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a 60-day comment period, after which the court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. Sec. 16(e)(l). In making that
determination, the court, in accordance with the statute as amended in
2004, is required to consider:
(A) The competitive impact of such judgment, including termination
of alleged violations, provisions for enforcement and modification,
duration of relief sought, anticipated effects of alternative remedies
actually considered, whether its terms are ambiguous, and any other
competitive considerations bearing upon the adequacy of such judgment
that the court deems necessary to a determination of whether the
consent judgment is in the public interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint
including consideration of the public benefit, if any, to be derived
from a determination of the issues at trial.
15 U.S.C. Sec. 16(e)(1)(A) & (B). In considering these statutory
factors, the court's inquiry is necessarily a limited one as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see generally
United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007)
(assessing public interest standard under the Tunney Act).\2\
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\2\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns,
489 F. Supp. 2d at 11 (concluding that the 2004 amendments
``effected minimal changes'' to Tunney Act review).
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As the United States Court of Appeals for the District of Columbia
Circuit has held, under the APPA a court considers, among other things,
the relationship between the remedy secured and the specific
allegations set forth in the government's complaint, whether the decree
is sufficiently clear, whether enforcement mechanisms are sufficient,
and whether the decree may positively harm third parties. See
Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the
relief secured by the decree, a court may not ``engage in an
unrestricted evaluation of what relief would best serve the public.''
United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see
also Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc., 152
F. Supp. 2d 37,40 (D.D.C. 2001). Courts have held that:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\3\
In determining whether a proposed settlement is in the public interest,
a district court ``must accord deference to the government's
predictions about the efficacy of its remedies, and may not require
that the remedies perfectly match the alleged violations.'' SBC
Commc'ns, 489 F. Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461
(noting the need for courts to be ``deferential to the government's
predictions as to the effect of the proposed remedies''); United States
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003)
(noting that the court should grant due respect to the United States'
prediction as to the effect of proposed remedies, its perception of the
market structure, and its views of the nature of the case).
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\3\ Cf BNS, 858 F.2d at 464 (holding that the court's ``ultimate
authority under the [APPA] is limited to approving or disapproving
the consent decree''); United States v. Gillette Co., 406 F. Supp.
713, 716 (D. Mass. 1975) (noting that, in this way, the court is
constrained to ``look at the overall picture not hypercritically,
nor with a microscope, but with an artist's reducing glass''). See
generally Microsoft, 56 F.3d at 1461 (discussing whether ``the
remedies [obtained in the decree are] so inconsonant with the
allegations charged as to fall outside of the `reaches of the public
interest' '').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[A] proposed decree must be approved
even if it falls short of the remedy the court would impose on its own,
as long as it falls within the range of acceptability or is `within the
reaches of public interest.' '' United States v. Am. Tel. & Tel. Co.,
552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also
United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky.
1985) (approving the consent decree even though the court would have
imposed a greater remedy). To meet this standard, the United States
``need only provide a factual basis for
[[Page 61510]]
concluding that the settlements are reasonably adequate remedies for
the alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17.
Moreover, the court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint, and does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's
authority to review the decree depends entirely on the government's
exercising its prosecutorial discretion by bringing a case in the first
place,'' it follows that ``the court is only authorized to review the
decree itself,'' and not to ``effectively redraft the complaint'' to
inquire into other matters that the United States did not pursue. Id.
at 1459-60. As this Court recently confirmed in SBC Communications,
courts ``cannot look beyond the complaint in making the public interest
determination unless the complaint is drafted so narrowly as to make a
mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
In its 2004 amendments, Congress made clear its intent to preserve
the practical benefits of utilizing consent decrees in antitrust
enforcement, adding the unambiguous instruction that ``[n]othing in
this section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. 16(e)(2). The language written into the statute
what Congress intended when it enacted the Tunney Act in 1974, as
Senator Tunney explained: ``[T]he court is nowhere compelled to go to
trial or to engage in extended proceedings which might have the effect
of vitiating the benefits of prompt and less costly settlement through
the consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement
of Senator Tunney). Rather, the procedure for the public interest
determination is left to the discretion of the court, with the
recognition that the court's ``scope of review remains sharply
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC
Commc'ns, 489 F. Supp.2d at 11.\4\
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\4\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH)
Sec. 61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of
corrupt failure of the government to discharge its duty, the Court,
in making its public interest finding, should * * * carefully
consider the explanations of the government in the competitive
impact statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated
simply on the basis of briefs and oral arguments, that is the
approach that should be utilized.'').
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: October 6, 2008.
Respectfully submitted,
Helena M. Gardner, Esquire,
Christine Hill, Esquire
(D.C. Bar #461048), United States Department of Justice, Antitrust
Division, Litigation II Section, 1401 H Street, NW., Suite 3000,
Washington, DC 20530, (202) 514-8518.
[FR Doc. E8-24293 Filed 10-15-08; 8:45 am]
BILLING CODE 4410-11-M