[Federal Register Volume 75, Number 87 (Thursday, May 6, 2010)]
[Notices]
[Pages 24973-24990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10474]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Baker Hughes Inc., et al.
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Hold Separate Stipulation and Order, and Competitive Impact Statement
have been filed with the United States District Court for the District
of Columbia in United States v.
[[Page 24974]]
Baker Hughes Inc., et al., Civil Action No. 1:10-cv-00659. On April 27,
2010, the United States filed a Complaint alleging that the proposed
acquisition by Baker Hughes, Inc. (``Baker Hughes'') of BJ Services
Company (``BJ'') would violate Section 7 of the Clayton Act, 15 U.S.C.
18, by substantially lessening competition in the market for vessel
stimulation services in the United States Gulf of Mexico. The proposed
Final Judgment, filed the same time as the Complaint, requires the
Defendants to create a new competitor for vessel stimulation services
by divesting their interests in two specially equipped stimulation
vessels, Baker Hughes' HR Hughes and BJ's Blue Ray, as well as certain
other tangible and intangible assets.
Copies of the Complaint, proposed Final Judgment, 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 Donna Kooperstein, Chief, Transportation, Energy and Agriculture
Section, Antitrust Division, Department of Justice, Washington, DC
20530, (telephone: 202-307-6349).
Patricia A. Brink,
Deputy Director of Operations and Civil Enforcement.
United States District Court for the District of Columbia
United States of America, Antitrust Division, 450 5th Street
NW., Suite 8000, Washington, DC 20530, Plaintiff, v. Baker Hughes
Incorporated, 2929 Allen Parkway, Suite 2100, Houston, Texas 77019,
and BJ Services Company, 4601 Westway Park Blvd., Houston, Texas
77041, Defendants.
Case: 1:10-cv-00659
Assigned to: Kessler, Gladys
Assign. Date: 04/27/2010
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 action against Baker Hughes Incorporated (``Baker Hughes'') and
BJ Services Company (``BJ Services'') to enjoin Baker Hughes' proposed
merger with BJ Services, and to obtain other equitable relief. The
United States complains and alleges as follows:
I. Nature of the Action
1. Baker Hughes' merger with BJ Services would combine two of only
four companies that compete with specially equipped vessels to provide
oil and gas companies with pumping services (``vessel stimulation
services'') necessary to enable and stimulate oil and gas production in
the U.S. Gulf of Mexico (``Gulf''). These vessel stimulation services
are used in the vast majority of offshore wells in the Gulf.
2. Baker Hughes and BJ Services compete head-to-head to provide
vessel stimulation services in the Gulf, each with two vessels. This
competition will be lost if this transaction is allowed to proceed. The
merged firm, and the two other firms providing vessel stimulation
services in the Gulf, will likely compete less aggressively, leading to
higher prices and a reduction in service quality.
3. Absent the merger, Baker Hughes and BJ Services each need two
vessels in the Gulf to compete effectively. With this transaction, the
merged firm gains the incentive and ability to remove one or more
stimulation vessels from the region in order to reduce the available
supply of vessels and raise the price of vessel stimulation services in
the Gulf. This will cause customers to pay more for vessel stimulation
services.
4. Accordingly, the proposed merger would substantially lessen
competition for vessel stimulation services in the Gulf and violates
Section 7 of the Clayton Act, as amended, 15 U.S.C. 18.
II. The Parties and the Transaction
5. Baker Hughes is a Delaware corporation headquartered in Houston.
A major supplier of products and services for drilling, formation
evaluation, completion and production to the worldwide oil and natural
gas industry, Baker Hughes reported total revenues of approximately
$9.7 billion in 2009. Baker Hughes supports its two stimulation vessels
in the Gulf with facilities in Louisiana and Texas.
6. BJ Services is a Delaware corporation headquartered in Houston.
Also a leading worldwide provider of products and services to the
oilfield industry, BJ Services reported revenues of $4.1 billion for
fiscal year 2009. It supports its two stimulation vessels in the Gulf
with facilities in Louisiana and Texas.
7. Baker Hughes proposes to acquire 100% of BJ Services' stock in
exchange for newly issued shares of Baker Hughes stock and cash, valued
at approximately $5.5 billion at the time the merger agreement was
signed.
III. Jurisdiction and Venue
8. This action is filed by the United States under Section 15 of
the Clayton Act, as amended, 15 U.S.C. 25, which invests the Court with
jurisdiction to prevent and restrain violations of Section 7 of the
Clayton Act, as amended, 15 U.S.C. 18.
9. Baker Hughes and BJ Services provide vessel stimulation services
in the flow of interstate commerce and their activities in the
development and sale of these services substantially affect interstate
commerce. This Court has subject matter jurisdiction over this action
pursuant to Section 15 of the Clayton Act, 15 U.S.C. 25, and 28 U.S.C.
1331, 1337(a), and 1345.
10. The defendants have consented to venue and personal
jurisdiction in this judicial district.
IV. Trade and Commerce
A. Background
1. Overview of Drilling and Completion Process
11. Offshore development of oil and natural gas resources in the
Gulf involves several stages. An oil and gas company leases the
exploration rights to a specific block from a state or the federal
government, determines that it is seismically and economically feasible
to drill for oil or gas in that block, and drills an exploratory well.
Wells in the Gulf may be located in inland waters (generally 50 feet or
less), on the shelf (50 to 1000 feet), in deepwater (1000 feet or
greater), and in ultradeepwater (greater than 3500 feet of water).
12. After drilling the exploratory well, if the oil and gas company
decides to extract the oil and natural gas, the well must be
``completed,'' or prepared for production. The completion process is
designed to enable and control the flow of oil and gas from the
formation through the wellbore and to the surface.
13. During the completion process the oil and gas company installs
cement casing that lines the wellbore and tubing through which the oil
and gas will flow. Completion tools, such as packers, are installed at
the bottom of the well to create a seal. Explosives punch holes through
the casing into the formation so that the oil and gas can flow from the
formation into the wellbore. Wells in the Gulf also generally require
sand
[[Page 24975]]
control and stimulation services, described in greater detail below,
which involve the installation of equipment and the pumping of fluids
and other proppants downhole under high pressure, as part of the
completion process.
14. Drilling and completing a well is extremely costly,
particularly in deepwater. It can take months or longer to drill and
complete an offshore well. The daily costs for the drilling rig and
other assets often exceed $100,000 for wells on the shelf and may be as
much as $1 million or more for wells in deepwater. A drilling rig and
other assets remain at the drilling site while stimulation services are
performed and throughout the completion process.
2. Sand Control and Stimulation Services
15. Due to the soft rock formations in the Gulf, nearly all wells
require some form of sand control to prevent the formation sand from
entering the wellbore and interfering with the flow of oil. Some wells
also require a stimulation service known as acidizing, in which acid is
pumped into the formation to repair damage on existing wells. Each
reservoir of oil and gas deposits may require a customized sand control
or stimulation service (referred to here interchangeably or
collectively as ``stimulation services'') because it may have distinct
rock formation, depth, temperature, pressure, and other
characteristics.
16. There are a number of types of sand control and stimulation
services. In a ``gravel pack,'' screens, packers and other equipment,
known as ``sand control tools,'' are installed downhole in the
production zone of the wellbore. A slurry of coarse sand mixed with
brine is then pumped downhole at a pressure that does not fracture the
formation. Because the diameter of the sand pumped downhole is larger
than the diameter of the sand in the formation, these larger ``pumped''
grains of sand and the sand control screen serve as a two stage filter
to block the formation sand from entering the wellbore. Another type of
sand control, called a ``high-rate water pack,'' is similar to a gravel
pack except that it uses a different type of fluid and the pumping
takes place at a pressure that will create minor fractures in
formation.
17. The most common form of sand control service performed offshore
in the Gulf is a ``frac pack.'' After installation of the sand control
tools, viscous fluids are pumped into the well under pressure high
enough to produce fractures in the formation thirty feet or more from
the wellbore. Various substances called proppants (such as sand,
bauxite or other materials) are then pumped into the cracks to prop
them open to facilitate the flow of oil or gas. Frac packs are highly
effective in stimulating oil and gas production as well as preventing
sand from migrating into the well. Performance of a frac pack is a
complex engineering job that requires large amounts of fluid and
proppants to be pumped under high pressure.
18. Stimulation vessels, on which pumps and other equipment are
installed, perform most stimulation services in the Gulf. Oil and gas
companies need the pumping portion of the job, performed by the
stimulation vessel, to be completed promptly after the installation of
the downhole sand control tools. Stimulation services represent a very
small percentage of the total cost of completing a well. However, no
other completion work can be performed if the vessel is late or
unavailable, and any ``down time'' at the well site is extremely costly
due to huge daily rig and other costs.
19. Stimulation vessels in the Gulf are designed for the specific
purpose of performing stimulation services. The vessels are typically
well over 200 feet in length and are equipped with high pressure pumps,
blenders, and storage tanks to hold large quantities of fluid and
proppant. Critical vessel specifications include its storage capacity
and the horsepower and barrels per minute at which it can pump. A
vessel is also equipped with a computer controlled system, called a
dynamic positioning or DP system, that maintains a ship's position by
using the vessel's own propellers and thrusters. These dynamic
positioning systems are installed so that the vessels do not need to
hold position by using anchors and chains or by being tied to the rig.
20. Stimulation service providers typically lease vessels under
multi-year contracts from shipbuilders that design, construct or modify
a vessel to meet the provider's specific criteria. Capital costs for
the vessel and equipment can exceed $30 million, and the contracts have
day rates that often exceed $20,000 per day.
21. To operate in the Gulf, a stimulation service vessel must
comply with a federal law known as the ``Jones Act.'' That Act requires
that a vessel be built in the United States, bear a United States flag,
and be staffed with a United States crew. Only a limited number of
stimulation service vessels worldwide, in addition to those presently
located in the Gulf, are Jones Act compliant, and these vessels are all
operated by the same four firms that provide vessel stimulation service
in the Gulf.
22. Stimulation service providers have their own experienced crews
to operate a vessel's pumping and stimulation equipment. Stimulation
service providers also rely extensively on technical support from
engineers and scientists, who customize the stimulation job for the
specific formation and conduct research to improve, develop and test
stimulation services, fluids, sand control tools and other equipment.
23. Each of the four firms currently providing vessel stimulation
services in the Gulf operates two stimulation vessels in that region.
The companies bid both for annual or multi-year contracts, in which
they often compete to be designated as a customer's primary supplier,
as well as for specific jobs. For greater assurance that a vessel will
be available when needed, customers completing wells in the deepwater
often require that a vessel stimulation provider have two vessels in
its fleet. Even when designated a customer's primary supplier, a
stimulation service provider may not have a vessel available at the
precise time that a customer needs the work. In that case, the customer
will not wait for that supplier's vessel to be available because the
downtime on the rig is so costly, but will call another provider of
vessel stimulation services in the Gulf.
B. Relevant Market
24. The provision of vessel stimulation services for wells located
in the Gulf is a line of commerce and a relevant market within the
meaning of Section 7 of the Clayton Act.
25. Oil and gas companies have no economical alternatives to sand
control or stimulation services and need these services on the great
majority of offshore wells in the Gulf. While some offshore stimulation
services, such as acidizing, simple gravel pack or water pack
operations, may be provided by pumps that are mounted on skids rather
than vessels, these skid-mounted pumps cannot perform most stimulation
services in the Gulf. Skid-mounted pumps are not feasible for
stimulation services such as frac packs, which require high horsepower
and significant storage. Nearly all frac pack jobs in the Gulf must be
done with vessels. Logistical and safety concerns also cause some
customers to prefer vessels even when skid-mounted pumps are
technically capable of performing a particular job. The relevant
product is vessel stimulation services.
26. Oil and gas companies procuring vessel stimulation services for
wells located in the Gulf require a provider to have stimulation
service vessels capable
[[Page 24976]]
of providing the service in the region as well as facilities,
engineers, sales and other staff to support the operation. The relevant
geographic region is the Gulf. This region is defined based on the
locations of customers.
27. A small but significant, non-transitory increase in the price
of vessel stimulation services for wells located in the Gulf would not
cause oil and gas company customers to turn to skid-mounted pumps or to
any other type of service, or to vessel stimulation services provided
outside the Gulf, or to otherwise reduce purchases of vessel
stimulation services, in volumes sufficient to make such a price
increase unprofitable.
C. Market Participants
28. The four vessel stimulation service providers in the Gulf are
now the only significant vessel stimulation service providers operating
anywhere in the world and the only providers with vessels that comply
with the Jones Act. Thus, there are no other providers of vessel
stimulation service to which an oil and gas company in the Gulf could
turn if faced with a small but significant, non-transitory increase in
the price of vessel stimulation services in the Gulf.
V. Likely Anticompetitive Effects of the Transaction
29. Baker Hughes' merger with BJ Services would leave only three
firms to perform vessel stimulation services in the Gulf. Based on 2008
revenues for vessel stimulation services in the Gulf, BJ Services
accounted for approximately twenty percent of all vessel stimulation
service revenues and Baker Hughes accounted for approximately fifteen
percent. The other two firms providing vessel stimulation services in
the Gulf accounted for all other revenues. Using a measure of market
concentration called the Herfindahl-Hirschman Index (``HHI'') (defined
and explained in Appendix A), the transaction will increase the HHI by
over 500 points, resulting in a post-merger HHI of approximately 3300
points.
30. This transaction will eliminate the head-to-head competition
between Baker Hughes and BJ Services to provide vessel stimulation
services in the Gulf. Baker Hughes and BJ Services have competed on
price, terms of sale and service quality, and have spurred each other's
efforts to develop and improve products, performance and technology.
Customers have benefitted from this competition.
31. Baker Hughes and BJ Services are relatively close substitutes
in the provision of vessel stimulation services. They charge similar
prices for similar types of jobs and provide vessel stimulation
services in the same water depths and at many of the same geological
locations. Baker Hughes and BJ Services have ranked first and second in
terms of numerous customers' total annual expenditures on vessel
stimulation services in the Gulf.
32. The merger would remove the constraint the parties impose on
each other's pricing. Post merger, Baker Hughes will likely find it
profitable to raise the price of vessel stimulation services. Customers
now differentiate among vessel stimulation service providers on the
basis of reputation, service quality, equipment, and other factors.
Those customers that viewed Baker Hughes and BJ Services as their first
and second choices for vessel stimulation services will lose their
next-best alternative for these services. The merged firm will have the
incentive and ability to raise its price, since it will now capture
some of the sales that would have been lost to BJ Services had Baker
Hughes raised price pre-merger. The value of these diverted sales is
likely to be high because both firms currently earn high price-variable
cost margins. Baker Hughes' incentive to raise price post-merger will
likely be recognized by the two other firms providing vessel
stimulation services in the Gulf, leading them to bid less
aggressively. As a result, customers will likely experience higher
prices for vessel stimulation services and a reduction in service
quality.
33. This transaction is also likely to reduce the number of
stimulation vessels in the Gulf, leading to higher prices for vessel
stimulation services. Absent the transaction, neither Baker Hughes nor
BJ Services would have the incentive to move any of its stimulation
vessels out of the Gulf because a firm needs two vessels in the region
to compete effectively. By consolidating the firms' four vessels under
one company's ownership, the transaction may present a profitable
opportunity to remove one or two vessels from the Gulf, an opportunity
Baker Hughes had recognized. With fewer vessels committed to provide
service in the Gulf, utilization of the remaining vessels will likely
increase, along with the likelihood that a vessel will be unavailable
at any particular time. As a consequence, given customers' need for
vessels to arrive at a precise time, firms providing vessel stimulation
services in the Gulf will likely be able to increase prices.
34. The proposed transaction, therefore, is likely to lessen
competition substantially in the provision of vessel stimulation
services in the Gulf.
VI. Entry
35. Successful entry into the provision of vessel stimulation
services in the Gulf is difficult, costly and time consuming. A
provider of vessel stimulation services must obtain or build
stimulation service vessels that are Jones Act compliant, and develop a
reputation and establish its reliability before an oil and gas company
will consider using its products or services. A problem with the vessel
stimulation service not only causes delay, which is extremely costly;
it can also damage the well, jeopardizing the customer's investment and
its access to the oil-producing formation. With so much at stake,
customers may require that the provider of vessel stimulation services
demonstrate a track record of several years or undergo lengthy and
expensive qualification inspections before being included in bids.
36. Most customers in the Gulf also require that a stimulation
service provider have two capable vessels to ensure that a vessel is
available to perform their work at the precise time required even if
one of the provider's vessels is out of service or busy on another job.
Building even one stimulation vessel for the Gulf takes a long time and
requires large capital expenditures.
37. A provider of vessel stimulation services in the Gulf must
support its operation with onshore facilities, such as technology
centers. A strong technical team, including experienced engineers and
scientists, is also essential.
38. A provider of vessel stimulation services may have a difficult
time growing its business if it does not also offer a line of sand
control tools. Many customers prefer obtaining sand control tools from
the same company that provides the vessel stimulation service. This
reduces the number of companies with which a customer must deal, often
results in a discount in the price of the services and products, and
also eliminates the possibility of ``finger-pointing'' between the
providers in the event that there is a problem or delay with the sand
control tools or stimulation services. All four providers of vessel
stimulation services in the Gulf sell sand control tools in addition to
stimulation services.
39. For these reasons, entry by an additional vessel stimulation
service provider would not be timely, likely, and sufficient to prevent
the substantial lessening of competition caused by the
[[Page 24977]]
elimination of BJ Services as an independent competitor.
VII. The Proposed Merger Violates Section 7 of the Clayton Act
40. Each and every allegation in paragraphs 1 through 39 of this
Complaint is here realleged with the same force and effect as though
said paragraphs were here set forth in full.
41. The proposed merger of BJ Services by Baker Hughes is likely to
lessen competition substantially in violation of Section 7 of the
Clayton Act in the provision of vessel stimulation services in the
Gulf.
42. Baker Hughes's merger of BJ Services likely will have the
following effects:
a. Actual and potential competition between Baker Hughes and BJ
Services in the provision of vessel stimulation services in the Gulf
will be eliminated;
b. Competition generally in the provision of vessel stimulation
services in the Gulf will be lessened substantially; and
c. Prices paid by customers for vessel stimulation services in the
Gulf will likely increase.
43. Unless restrained, the proposed merger will violate Section 7
of the Clayton Act, as amended, 15 U.S.C. 18.
VIII. Requested Relief
44. Plaintiff requests that this Court:
a. Adjudge and decree Baker Hughes' proposed merger with BJ
Services to be unlawful and in violation of Section 7 of the Clayton
Act, as amended, 15 U.S.C. 18;
b. Preliminarily and permanently enjoin and restrain Defendants and
all persons acting on their behalf from consummating the proposed
merger of BJ Services, or from entering into or carrying out any other
agreement, plan, or understanding by which Baker Hughes would acquire,
be acquired by, or merge with BJ Services;
c. Award the United States its costs for this action; and
d. Award the United States such other and further relief as the
Court deems just and proper.
Dated: April 27, 2010.
Respectfully submitted,
/s/--------------------------------------------------------------------
Christine A. Varney,
Assistant Attorney General, DC Bar # 411654.
/s/--------------------------------------------------------------------
Molly S. Boast,
Deputy Assistant Attorney General.
/s/--------------------------------------------------------------------
Donna N. Kooperstein,
Chief, Transportation, Energy & Agriculture Section.
/s/--------------------------------------------------------------------
William H. Stallings,
Assistant Chief, Transportation, Energy & Agriculture Section.
/s/--------------------------------------------------------------------
Patricia A. Brink,
Deputy Director, Office of Operations.
/s/--------------------------------------------------------------------
Angela L. Hughes,
DC Bar # 303420.
Susan L. Edelheit,
DC Bar # 250720,
Michelle Livingston,
DC Bar #461268,
Kathleen S. O'Neill,
John M. Snyder,
John W. Elias,
James A. Ryan,
Joseph Chandra Mazumdar,
Trial Attorneys U.S. Department of Justice Antitrust Division
Transportation, Energy & Agriculture Section, 450 Fifth Street, NW.,
Suite 8000, Washington, DC 20530, Telephone: (202) 307-6410, Fax No.
(202) 307-2784, [email protected].
Appendix A
Definition of HHI
The term ``HHI'' means the Herfindahl-Hirschman Index, a commonly
accepted measure of market concentration. The HHI is calculated by
squaring the market share of each firm competing in the market and then
summing the resulting numbers. For example, for a market consisting of
four firms with shares of 30, 30, 20, and 20%, the HHI is 2,600 (30\2\
+ 30\2\ + 20\2\ + 20\2\ = 2,600). The HHI takes into account the
relative size distribution of the firms in a market. It approaches zero
when a market is occupied by a large number of firms of relatively
equal size and reaches its maximum of 10,000 points when a market is
controlled by a single firm. 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 markets in which the HHI
is in excess of 1,800 points are considered to be highly concentrated.
See Horizontal Merger Guidelines ] 1.51 (revised Apr. 8, 1997).
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 Department of Justice and
the Federal Trade Commission. See id.
United States District Court for the District of Columbia
United States of America, Plaintiff, v. Baker Hughes
Incorporated and BJ Services Company, Defendants.
Civil Action No.:
Filed:
Judge:
Date Stamped:
Proposed Final Judgment
Whereas, Plaintiff United States of America (``United States'')
filed its Complaint on April 27, 2010, the United States and defendants
Baker Hughes Incorporated and BJ Services Company, 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 fact or law;
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 or assets by 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 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 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 assets.
B. ``Baker Hughes'' means defendant Baker Hughes Incorporated, a
Delaware corporation headquartered in Houston, Texas, its successors
and assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships and joint ventures, and their directors, officers,
managers, agents, and employees.
C. ``BJ'' or ``BJ Services'' means defendant BJ Services Company, a
Delaware corporation headquartered in
[[Page 24978]]
Houston, Texas, its successors and assigns, and its subsidiaries,
divisions, groups, affiliates, partnerships and joint ventures, and
their directors, officers, managers, agents, and employees.
D. ``Blue Ray'' means the marine stimulation vessel named the Blue
Ray currently leased and operated by BJ in the Gulf, and any equipment
installed on or used to operate the Blue Ray as of March 1, 2010.
E. ``BrineStar Intangible Assets'' means Patent Application Nos.
12/030,614 and 12/365,673 and associated Intangible Assets primarily
used in connection with the design, development, testing, production,
quality control, marketing, servicing, sale, installation, or
distribution of BJ's BrineStar and BrineStar II products.
F. ``Diamond Fraq Intangible Assets'' means Patent Nos. 7,052,901;
7,343,972; 7,595,284; 7,645,724; 7,655,603; 7,347,266; 7,615,517;
7,530,393; 7,550,413; 7,543,644; 7,544,643; 7,527,102; 7,527,103; and
associated Intangible Assets primarily used in connection with the
design, development, testing, production, quality control, marketing,
servicing, sale, installation, or distribution of Baker Hughes' Diamond
Fraq products.
G. ``Divestiture Assets'' means the real property and Tangible and
Intangible Assets listed in Schedules A through C. Divestiture Assets
shall not be interpreted to include (a) any equipment installed on
stimulation vessels other than the Blue Ray or HR Hughes; (b) BJ
Services' ownership or leasehold interest in skids or non-vessel based
pumping equipment; or (c) the Tangible or Intangible Assets primarily
used in connection with the design, development, testing, production,
quality control, marketing, servicing, sale, installation, or
distribution of Baker Hughes' Sand Control Tools or BJ Services'
Stimulation Fluids other than (i) those BJ Stimulation Fluids assets
specifically set forth in Schedule C and (ii) any information, data, or
documents relating to any Divestiture Assets.
H. ``Gulf'' means the United States Gulf of Mexico.
I. ``HR Hughes'' means the marine stimulation vessel named the HR
Hughes currently leased and operated by Baker Hughes in the Gulf, and
any equipment installed on or used to operate the HR Hughes as of March
1, 2010.
J. ``Intangible Asset'' means any asset other than a Tangible
Asset, including, but not limited to:
(1) Patents or patent applications, licenses and sublicenses,
copyrights, trademarks, trade secrets, trade names, service marks, and
service names, but excluding the following trade names: BJ, Baker Oil
Tools, and Baker Hughes.
(2) Know-how, including recipes, formulas, machine settings,
drawings, blueprints, designs, design protocols, design tools,
simulation capability, specifications for materials, specifications for
parts and devices,
(3) Computer software (e.g. vessel communication and remote
monitoring software), databases (e.g. databases containing technical
job histories) and related documentation;
(4) Procedures and processes related to operations, quality
assurance and control, and health, safety and environment;
(5) Data concerning historic and current research and development,
including, but not limited to, designs of experiments, and the results
of successful and unsuccessful designs and experiments;
(6) All contractual rights; and
(7) All authorizations, permits, licenses, registrations, or other
forms of permission, consent, or authority issued, granted, or
otherwise made available by or under the authority of any governmental
authority.
K. ``Latest Generation MST Intangible Assets'' means Patent Nos.
7,490,669; 7,543,647; 6,397,949; 6,722,440; 7,124,824; 7,198,109;
7,201,232; 7,152,678; RE40648; 6,405,800; 7,021,389; 7,150,326;
7,497,265, and associated Intangible Assets primarily used in
connection with the design, development, testing, production, quality
control, marketing, servicing, sale, installation, or distribution of
BJ's Multi-Zone Single Trip Well Completion System.
L. ``Relevant Employees'' means the employees listed in Schedule D.
M. ``Sand Control Tools'' means those tools used or installed in
connection with the performance of Stimulation Services at or below the
zones in which hydrocarbons are located; including but not limited to,
the components of sump packer assemblies, frac pack assemblies, and
high rate water pack assemblies; screens; fluid loss valves; blank
pipe; isolation tubing; production seals; and service tools.
N. ``Stimulation Fluids'' means acids, proppants, gels, or other
fluids or additives used to provide Stimulation Services.
O. ``Stimulation Services'' means acidizing, gravel packs, frac
packs, high rate water packs, or hydraulic fracturing services
performed from vessels or skid-mounted pumping equipment.
P. ``Tangible Asset'' means any physical asset (excluding real
property or marine stimulation vessels not specifically identified as
part of the Divestiture Assets), including, but not limited to:
(1) All machinery, equipment, hardware, spare parts, tools, dies,
jigs, molds, patterns, gauges, fixtures (including production
fixtures), business machines, computer hardware, other information
technology assets, furniture, laboratories, supplies, materials,
vehicles, spare parts in respect of any of the foregoing and other
tangible personal property;
(2) Improvements, fixed assets, and fixtures pertaining to the real
property identified as part of the Divestiture Assets;
(3) All inventories, raw materials, work-in-process, finished
goods, supplies, stock, parts, packaging materials and other
accessories related thereto; and
(4) Business records including financial records, accounting and
credit records, tax records, governmental licenses and permits, bid
records, customer lists, customer contracts, supplier contracts,
service agreements; operations records including vessel logs,
calendars, and schedules; job records, research and development
records, health, environment and safety records, repair and performance
records, training records, and all manuals and technical information
Defendants provide to their own employees, customers, suppliers, agents
or licensees.
Q. ``Transaction'' means Baker Hughes' proposed merger with BJ
Services, which was the subject of Hart-Scott-Rodino Report No. 2009-
0748, filed with the Federal Trade Commission and the U.S. Department
of Justice on September 14, 2009.
III. Applicability
A. This Final Judgment applies to Baker Hughes and BJ Services, 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 VI 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 Assets, they shall require the acquirer 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.
C. Defendants shall require, as a condition of the sale of the
Divestiture Assets, that the Acquirer agree to be bound by Section XI
of this Final Judgment.
[[Page 24979]]
IV. Divestitures
A. Defendants are ordered and directed, within sixty (60) 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 Assets in a manner
consistent with this Final Judgment to an Acquirer acceptable to the
United States, in its sole discretion. The United States, in its sole
discretion, may agree to one or more extensions of this time period not
to exceed sixty (60) calendar days in total, and shall notify the Court
in such circumstances. Defendants agree to divest the Divestiture
Assets as expeditiously as possible.
B. In accomplishing the divestitures ordered by this Final
Judgment, Defendants promptly shall make known widely the availability
of the Divestiture Assets. Defendants shall inform any person making
inquiry regarding a possible purchase of the Divestiture Assets 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 Assets 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 permit prospective Acquirers of the Divestiture
Assets to have reasonable access to personnel and to make inspections
of the physical facilities associated with the Divestiture Assets;
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.
D. Defendants shall warrant to the Acquirer that each asset will be
operational on the date of sale. Defendants shall maintain and enforce
all intellectual property rights licensed to the Acquirer pursuant to
the proposed Final Judgment.
E. Defendants shall not take any action that will impede in any way
the permitting, operation, use, or divestiture of the Divestiture
Assets.
F. Defendants shall warrant to the Acquirer that there are no
material defects in the environmental, zoning or other permits
pertaining to the operation of each asset, and that following the sale
of the Divestiture Assets, Defendants will not undertake, directly or
indirectly, any challenges to the environmental, zoning, or other
permits relating to the operation of the Divestiture Assets.
G. Defendants shall take all necessary steps to accomplish the
transfer of all interests the Defendants have in the HR Hughes, the
Blue Ray, and any other Divestiture Asset in which the Defendants have
an ownership or leasehold interest, including, but not limited to,
obtaining authorization from Edison Chouest Offshore and Hornbeck
Offshore Services LLC to assign Defendants' leasehold interests in the
HR Hughes and the Blue Ray, respectively. Defendants agree to take all
necessary steps, including paying all costs, to install the same
communication, stimulation and instrumentation control software on the
HR Hughes that is on the Blue Ray, or vice versa, at the preference of
the Acquirer. Defendants will provide to the Acquirer copies of all
manuals and training materials relating to the communication,
stimulation and instrumentation control software on the HR Hughes and
the Blue Ray and rights to training or service under any agreements
Defendants have with third parties.
H. Except for assets discussed in IV G. above, Defendants shall use
commercially reasonable efforts to obtain any necessary consent to
assign contractual rights that are included in the Divestiture Assets,
including, but not limited to, contractual rights to provide
Stimulation Services, Sand Control Tools, or Stimulation Fluids for
wells located in the Gulf, and contractual rights to purchase any
inputs or components to those Services, Tools, or Fluids.
I. Where the Acquirer has the option to acquire specific facilities
but chooses not to exercise that option:
(1) Defendants shall bear the expense of relocating to the location
of the Acquirer's choice Tangible Assets that are part of the
Divestiture Assets from any of those facilities.
(2) If the Acquirer chooses not to purchase the entire Completion
Tool Technology Center of BJ (see Schedule B), Defendants shall, at the
option of the Acquirer, make structural changes, at Defendants'
expense, to Building E at the Completion Tool Technology Center, or to
another location of the Acquirer's choosing, to enable the Acquirer to
conduct testing of sand control tools. The structural changes will
include the construction of up to two test cells that will be the
equivalent in size, capabilities, technology, and rating of the test
cells currently located at the Completion Tool Technology Center. Until
the test cells are completed, and upon two business days notice, the
purchaser will have the right to exclusive use, at no charge, of
Building A at the Completion Tool Technology Center (in which test
cells are currently located) for up to 14 days in any calendar month.
(3) If the Acquirer chooses not to purchase BJ's Southpark facility
in Lafayette, Louisiana, Defendants shall add to the Completion Tool
Technology Center, or to another location of the Acquirer's choosing, a
sand control laboratory equivalent to Defendant Baker Hughes' sand
control laboratory at its Lafayette Supercenter.
J. Unless the United States otherwise consents in writing, the
divestiture pursuant to Section IV, or by the trustee appointed
pursuant to Section VI, of the Final Judgment, shall include all of the
Divestiture Assets, and the divestiture shall be accomplished in such a
way as to satisfy the United States, in its sole discretion, that the
Divestiture Assets can and will be used by the Acquirer as part of a
viable, ongoing business engaged in the design, development,
production, marketing, servicing, distribution, and sale of the
Stimulation Services, Sand Control Tools, and Stimulation Fluids for
wells located in the Gulf, and that such divestiture will remedy the
competitive harm alleged in the Complaint. The divestiture, whether
pursuant to Section IV or Section VI of this Final Judgment:
(1) Shall be made to an Acquirer that, in the United States' sole
judgment, has the intent and capability (including the necessary
managerial, operational, technical and financial capability) of
competing effectively as a supplier of Stimulation Services, Sand
Control Tools, and Stimulation Fluids for customers in the Gulf; and
(2) 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.
V. Right To Hire
A. To enable the Acquirer to make offers of employment, Defendants
shall provide the Acquirer and the United States with organization
charts and information relating to Relevant Employees, including name,
job title,
[[Page 24980]]
responsibilities as of March 1, 2010, training and educational history,
relevant certifications, and, to the extent permissible by law, job
performance evaluations, and current salary and benefits information.
B. Upon request, Defendants shall make Relevant Employees available
for interviews with the Acquirer during normal business hours at a
mutually agreeable location and will not interfere with any
negotiations by the Acquirer to employ Relevant Employees. Interference
with respect to this paragraph includes, but is not limited to,
offering to increase the salary or benefits of Relevant Employees other
than as a part of a company-wide increase in salary or benefits granted
in the ordinary course of business.
C. For Relevant Employees who elect employment by the Acquirer,
Defendants shall waive all noncompete agreements and all nondisclosure
agreements, except as specified in V D. below, vest all unvested
pension and other equity rights, and provide all benefits to which the
Relevant Employees would generally be provided if transferred to a
buyer of an ongoing business.
D. Nothing in this Section shall prohibit Defendants from
maintaining any reasonable restrictions on the disclosure by an
employee who accepts an offer of employment with the Acquirer of the
Defendants' proprietary non-public information that is (1) not
otherwise required to be disclosed by this Final Judgment, (2) related
solely to the Defendants' businesses and clients, and (3) unrelated to
the Divestiture Assets.
VI. Appointment of Trustee
A. If Defendants have not divested the Divestiture Assets within
the time period specified in Section IVA. of this Final Judgment,
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 and approved by the Court to effect the
divestiture of the Divestiture Assets.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Assets. 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 VI D. of this Final Judgment, the
trustee may hire at the cost and expense of Defendants any investment
bankers, attorneys, accountants 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. Any such objections by
Defendants 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 VII.
D. The trustee shall serve at the cost and expense of Defendants,
on such terms and conditions as the United States approves. The trustee
shall account for all monies derived from the sale of the assets sold
by the trustee and all costs and expenses so incurred. After payment of
fees for the trustee's services and those of investment bankers,
attorneys, accountants or other agents retained by it, all remaining
money shall be paid to Defendants. After the trustee submits its final
report, including the final accounting, to the court, 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 Assets 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. Defendants shall
expeditiously reach agreement with the trustee on the trustee's fee
arrangement.
E. Defendants shall use their best efforts to assist the trustee in
accomplishing the required divestitures. 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 Divestiture Assets, and Defendants shall
develop financial and other information relevant to the Divestiture
Assets 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, delay, or impede the trustee's accomplishment of the
divestitures.
F. After its appointment, the trustee shall file monthly reports
with the United States setting forth the trustee's efforts to
accomplish the divestitures ordered under this Final Judgment. 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 Assets, 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 Assets.
G. If the trustee has not accomplished the divestitures ordered
under this Final Judgment within six (6) months after his or her
appointment, the trustee shall promptly file with the Court a report
setting forth: (1) The trustee's efforts to accomplish the required
divestitures; (2) the reasons, in the trustee's judgment, why the
required divestitures have 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.
VII. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
divestiture agreement, Defendants shall notify the United States of any
proposed divestiture required by Section IV of this Final Judgment.
Within two (2) business days following execution of a definitive
divestiture agreement, the trustee shall notify the United States and
Defendants of any proposed divestiture required by Section VI of this
Final Judgment. The notice provided to the United States 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 Assets, 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.
[[Page 24981]]
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 forty-five (45) calendar days after receipt of the notice
or within thirty (30) 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 VI 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 VI shall not
be consummated. Upon objection by Defendants under Section VI C., a
divestiture proposed under Section VI shall not be consummated unless
approved by the Court.
VIII. Financing
Defendants shall not finance all or any part of any purchase made
pursuant to Section IV or VI of this Final Judgment.
IX. Hold Separate
Until the divestitures required by this Final Judgment have 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 divestitures
ordered by this Court.
X. 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 divestitures have been completed under Section IV or VI, Defendants
shall deliver to the United States an affidavit as to the fact and
manner of their compliance with Section IV or VI 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
Assets, 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 Assets, 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 limitations 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 IX 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 Assets until one year after such
divestiture has been completed.
XI. Conditions Placed Upon the Acquirer
A. For five years from the entry of this Final Judgment, unless
such transaction is otherwise subject to the reporting and waiting
period requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, 15 U.S.C. 18a (the ``HSR Act''), the Acquirer,
without providing advance notification to the Antitrust Division, shall
not directly or indirectly sell any of the Divestiture Assets or any
interest (including, but not limited to, any financial, security, loan,
equity, or management interest) in any of the Divestiture Assets to
Halliburton Company or Schlumberger Ltd. Such notification shall be
provided to the Antitrust Division in the same format as, and per the
instructions relating to the Notification and Report Form set forth in
the Appendix to Part 803 of Title 16 of the Code of Federal Regulations
as amended. Notification shall be provided at least thirty (30)
calendar days prior to completion of any such transaction, and shall
include, beyond what may be required by the applicable instructions,
the names of the principal representatives of the parties to the
agreement who negotiated the agreement, and any management or strategic
plans discussing the proposed transaction. If within the 30-day period
after notification, representatives of the Antitrust Division make a
written request for additional information, the Acquirer shall not
consummate the proposed transaction or agreement until thirty (30)
calendar days after submitting all such additional information. Early
termination of the waiting periods in this paragraph may be requested
and, where appropriate, granted in the same manner as is applicable
under the requirements and provisions of the HSR Act and rules
promulgated thereunder. This Section shall be broadly construed and any
ambiguity or uncertainty regarding the filing of notice under this
Section shall be resolved in favor of filing notice.
B. The Acquirer shall not move the HR Hughes or the Blue Ray out of
the Gulf for two years from the entry of this Final Judgment without
the prior written consent of the Antitrust Division.
XII. 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, 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, 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
[[Page 24982]]
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), 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).
XIII. No Reacquisition
Defendants may not reacquire an ownership interest in any part of
the Divestiture Assets during the term of this Final Judgment.
XIV. 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.
XV. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XVI. 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. 16, including making copies available to the
public of this Final Judgment, the Competitive Impact Statement, and
any comments thereon and the United States' responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and responses 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
Schedule A
Stimulation Services
BJ Services Assets
1. BJ Tangible Assets and Real Property:
a. BJ's ownership and leasehold interest in the Blue Ray.
b. At the option of the Acquirer, BJ's ownership and leasehold
interest in one or more of the following facilities:
i. BJ's Crowley facility at West Highway 90 and Roller Road in
Crowley, Louisiana 70526.
ii. BJ's Sales Offices at 1515 Poydras Street, Suite 2000, New
Orleans, Louisiana 70508;
iii. BJ's Sales Offices at 5005 Mitchelldale Street, Suite 250,
Houston, Texas 77092.
c. All Tangible Assets owned, leased or licensed by BJ that are
used in connection with the design, development, testing, production,
quality control, marketing, servicing, sale, installation, or provision
of Stimulation Services for wells located in the Gulf.
2. BJ Intangible Assets:
a. All Intangible Assets owned, leased or licensed by BJ that are
used in connection with the design, development, testing, production,
quality control, marketing, servicing, sale, installation, or provision
of Stimulation Services for wells located in the Gulf.
b. Exclusions:
i. Excluded from this Schedule A is BJ's proprietary communication,
stimulation, or instrumentation control software used in connection
with the operation of the Blue Ray, provided that, if the Acquirer
elects pursuant to Section IV G. to have Defendants install the same
communication, stimulation and instrumentation control software on the
HR Hughes that is installed on the Blue Ray, Defendants shall provide
to Acquirer a non-exclusive right to such software, including,
(1) A worldwide, royalty-free, non-exclusive, perpetual,
transferable license to all patents, trademarks, trade secrets, and
other Intangible Assets in which Defendants assert intellectual
property rights; such license shall grant the Acquirer the right (a) to
make, have made, use, sell or offer for sale, copy, create derivative
works, modify, improve, display, perform, and enhance the licensed
Intangible Assets; and (b) to own any Intangible Assets the Acquirer
generates pursuant to this license; and (c) to have end-user customers
of the Acquirer enjoy the benefit of the Intangible Assets provided by
the Acquirer pursuant to this license; and
(2) a right to obtain copies of, assignment of, or other effective
transfer of all other Intangible Assets.
Baker Hughes Assets
1. Baker Hughes Tangible Assets and Real Property:
a. Baker Hughes' ownership and leasehold interest in the HR Hughes.
b. Baker Hughes' ownership and leasehold interest in the marine
vessel stimulation dock facility located at Port Fourchon, Louisiana.
c. Baker Hughes' ownership and leasehold interest in any mooring
buoy(s) located in or around Port Fourchon, Louisiana.
d. At the option of the Acquirer, Baker Hughes' ownership and
leasehold interest in skids and non-vessel based pumping equipment that
are used to perform Stimulation Services in the Gulf.
e. All Tangible Assets owned, leased or licensed by Baker Hughes
that are used in connection with the assets, facilities and real
property identified in 1(a)-1(d).
2. Baker Hughes Intangible Assets:
a. All Intangible Assets owned, leased or licensed by Baker Hughes
that are primarily used in connection with or necessary for the use of
the assets, facilities and real property identified in 1(a)-1(d).
b. With respect to Intangible Assets that are not included in
paragraph 2(a) but that are used in connection with the assets,
facilities and real property identified in 1(a)-1(d), Defendants shall
provide to Acquirer a non-exclusive right to such Intangible Assets for
the design, development, testing, production, quality control,
marketing, servicing, sale, installation, and provision of Stimulation
Services, including:
i. A worldwide, royalty-free, non-exclusive, perpetual,
transferable license to all patents, trademarks, trade secrets, and
other Intangible Assets in which Defendants assert intellectual
property rights; such license shall grant the Acquirer the right (a) to
make, have made, use, sell or offer for sale, copy, create derivative
works, modify, improve, display, perform, and enhance the licensed
Intangible Assets; (b) to own any Intangible Assets the Acquirer
generates pursuant to this license; and (c) to have end-user customers
of the
[[Page 24983]]
Acquirer enjoy the benefit of Stimulation Services provided by the
Acquirer pursuant to this license; and
ii. A right to obtain copies of, assignment of, or other effective
transfer of all other Intangible Assets.
Schedule B
Sand Control Tools
BJ Services Assets
1. BJ Tangible Assets and Real Property:
a. At the option of the Acquirer, BJ's ownership and leasehold
interest in one of the following:
i. The entire Completion Tool Technology Center located at 16610
Aldine Westfield, Houston, Texas 77073;
ii. A portion of the Completion Tool Technology Center located at
16610 Aldine Westfield, Houston, Texas 77073 consisting of the real
property associated with Buildings D and E; or
iii. A portion of the Completion Tool Technology Center located at
16610 Aldine Westfield, Houston, Texas 77073 consisting of the real
property associated with Building E.
b. At the option of the Acquirer, BJ's ownership and leasehold
interest in the Southpark facility located at 203 Commission Blvd.,
Lafayette, Louisiana 70508.
c. At the option of the Acquirer, all Tangible Assets owned, leased
or licensed by BJ that are used in connection with the design,
development, testing, production, quality control, marketing,
servicing, sale, installation, or distribution of Sand Control Tools
for wells located in the Gulf, except that Defendants have the right to
retain one-half of the inventory of each of BJ's MST-related service
tools and parts, and one-half of the inventory of BJ's MST-related
consummables, located in the Gulf as of March 1, 2010.
2. BJ Intangible Assets:
a. All Intangible Assets owned, leased or licensed by BJ that are
used in connection with the design, development, testing, production,
quality control, marketing, servicing, sale, installation, or
distribution of Sand Control Tools for wells located in the Gulf.
b. Exclusions:
i. Excluded from this Schedule B are the Latest Generation MST
Intangible Assets, provided that Defendants shall provide to Acquirer a
non-exclusive right to the Latest Generation MST Intangible Assets for
the design, development, testing, production, quality control,
marketing, servicing, sale, installation, and distribution of Sand
Control Tools, including,
(1) A worldwide, royalty-free, non-exclusive, perpetual,
transferable license to all patents, trademarks, trade secrets, and
other Intangible Assets in which Defendants assert intellectual
property rights; such license shall grant the Acquirer the right (a) to
make, have made, use, sell or offer for sale, copy, create derivative
works, modify, improve, display, perform, and enhance the licensed
Intangible Assets; (b) to own any Intangible Assets the Acquirer
generates pursuant to this license; and (c) to have end-user customers
of the Acquirer enjoy the benefit of Sand Control Tools provided by the
Acquirer pursuant to this license; and
(2) a right to obtain copies of, assignment of, or other effective
transfer of all other Intangible Assets (e.g. data, drawings, and other
materials in BJ's drawing vault and engineering design request files).
Schedule C
Stimulation Fluids
Baker Hughes Asset
1. Baker Hughes Tangible Assets:
a. All Tangible Assets owned, leased or licensed by Baker Hughes
that are used in connection with the design, development, testing,
production, quality control, marketing, servicing, sale, installation,
or distribution of Stimulation Fluids for wells located in the Gulf.
2. Baker Hughes Intangible Assets:
a. All Intangible Assets owned, leased or licensed by Baker Hughes
that are primarily used in connection with or necessary for Baker
Hughes' design, development, testing, production, quality control,
marketing, servicing, sale, installation, or distribution of
Stimulation Fluids for wells located in the Gulf, but not including the
Diamond Fraq Intangible Assets.
b. With respect to Intangible Assets that are not included in
paragraph 2(a) but that are used in connection with the design,
development, testing, production, quality control, marketing,
servicing, sale, installation, or distribution of Stimulation Fluids
for wells located in the Gulf (including but not limited to the Diamond
Fraq Intangible Assets), Defendants shall provide to Acquirer a non-
exclusive right to such Intangible Assets for the design, development,
testing, production, quality control, marketing, servicing, sale,
installation, and distribution of Stimulation Fluids, including,
i. A worldwide, royalty-free, non-exclusive, perpetual,
transferable license to all patents, trademarks, trade secrets, and
other Intangible Assets in which Defendants assert intellectual
property rights; such license shall grant the Acquirer the right (a) to
make, have made, use, sell or offer for sale, copy, create derivative
works, modify, improve, display, perform, and enhance the licensed
Intangible Assets; (b) to own any Intangible Assets the Acquirer
generates pursuant to this license; and (c) to have end-user customers
of the Acquirer enjoy the benefit of Stimulation Fluids provided by the
Acquirer pursuant to this license, and;
ii. A right to obtain copies of, assignment of, or other effective
transfer of all other Intangible Assets (e.g., lab reports, lab
notebooks, project books, mixing manuals, and technical papers).
BJ Services Assets
1. BJ Tangible Assets:
a. At the option of the Acquirer, Defendant BJ's ownership and
leasehold interest in any trucks and tanks used by BJ to transport
Stimulation Fluids for sale, distribution or installation for wells
located in the Gulf.
2. BJ Intangible Assets:
a. With respect to the BrineStar Intangible Assets, Defendants
shall convey to Acquirer a non-exclusive right to the BrineStar
Intangible Assets for the design, development, testing, production,
quality control, marketing, servicing, sale, installation, and
distribution of Stimulation Fluids, including,
i. A worldwide, royalty-free, non-exclusive, perpetual,
transferable license to all patents, trademarks, trade secrets, and
other Intangible Assets in which Defendants assert intellectual
property rights; such license shall grant the Acquirer the right (a) to
make, have made, use, sell or offer for sale, copy, create derivative
works, modify, improve, display, perform, and enhance the licensed
Intangible Assets; (b) to own any Intangible Assets the Acquirer
generates pursuant to this license; and (c) to have end-user customers
of the Acquirer enjoy the benefit of Stimulation Fluids provided by the
Acquirer pursuant to this license, and;
ii. A right to obtain copies of, assignment of, or other effective
transfer of all other Intangible Assets (e.g. data, files, and other
materials in BJ's drawing vault and engineering design request files).
Schedule D
Relevant Employees
1. Relevant Employees means:
a. All BJ employees whose job responsibilities as of March 1, 2010
included the design, development, testing, production, quality control,
[[Page 24984]]
marketing, servicing, sale, and/or provision of Stimulation Services
for wells in the Gulf; but not including the vessel-based crews of
stimulation vessels other than the Blue Ray;
b. All Baker Hughes employees whose job responsibilities as of
March 1, 2010 included the provision of Stimulation Services using the
HR Hughes and/or skid-based equipment for wells located in the Gulf;
including all vessel-based and skid-based crews and related land-based
support personnel;
c. All BJ employees whose job responsibilities as of March 1, 2010
included the design, development, testing, production, quality control,
marketing, servicing, sale, installation, and/or distribution of Sand
Control Tools for wells located in the Gulf; and
d. All Baker Hughes employees whose job responsibilities as of
March 1, 2010 included the design, development, testing, production,
quality control, marketing, servicing, sale, installation, and/or
distribution of Stimulation Fluids for wells located in the Gulf.
2. Relevant Employees otherwise described in this Schedule D shall
not include:
a. All Baker Hughes employees who, as of March 1, 2010, had a title
of Vice President or higher;
b. A maximum of four BJ employees, to be selected by Defendants and
identified to the United States and to the Acquirer, whose
responsibilities are primarily related to the research and development
of the Latest Generation MST Intangible Assets;
c. A maximum of one Baker Hughes employee, to be selected by
Defendants and identified to the United States and to the Acquirer,
whose responsibilities are primarily related to the research and
development of Baker Hughes' Diamond Fraq Intangible Assets; and the
individual who on March 1, 2010 held the position at BJ of Gulf Coast
Region Sales Manager.
United States District Court for the District of Columbia
United States of America, Plaintiff, v. Baker Hughes
Incorporated and BJ Services Company, Defendants.
Civil Action No.:
Case: 1:10-cv-00659
Assigned to: Kessler, Gladys
Assign. Date: 04/27/2010
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. 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
Defendants Baker Hughes Incorporated (``Baker Hughes'') and BJ
Services Company (``BJ Services'' or ``BJ'') entered into a merger
agreement pursuant to which Baker Hughes would acquire 100% of BJ's
stock for Baker Hughes stock then valued at approximately $5.5 billion.
The United States today filed a civil antitrust Complaint seeking to
enjoin the proposed transaction because its likely effect would be to
lessen competition substantially for vessel stimulation services in the
United States Gulf of Mexico (``Gulf'') in violation of Section 7 of
the Clayton Act, as amended, 15 U.S.C. 18. This loss of competition
would likely result in higher prices and reduced service quality in the
Gulf vessel stimulation services market.
At the same time the Complaint was filed, the United States also
filed a Hold Separate Stipulation and Order (``Hold Separate'') and a
proposed Final Judgment, which are designed to eliminate the
anticompetitive effects of the proposed merger. Under the proposed
Final Judgment, the terms of which are explained more fully below,
Defendants are required to create a new competitor for vessel
stimulation services by divesting their interests in two specially-
equipped stimulation vessels, Baker Hughes' HR Hughes and BJ's Blue
Ray, and other assets used to support their offshore stimulation
services operations, including Baker Hughes' dock facilities at Port
Fourchon, Louisiana, Baker Hughes' Gulf stimulation fluids assets, and
BJ's sand control tools assets. Also included in the divestiture
package is an expansive right to hire key personnel from both
companies.
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 Final Judgment and to punish violations thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Defendants and the Industry
Baker Hughes is a major supplier of products and services for
drilling, formation evaluation, completion, and production to the
worldwide oil and natural gas industry. In 2009, Baker Hughes reported
total revenues of approximately $9.7 billion. BJ Services is also a
leading worldwide provider of products and services to the oil and gas
industry. BJ Services reported revenues of $4.1 billion for the 2009
fiscal year.
Oil and gas companies lease offshore exploration rights from the
state or federal government. After drilling a well to evaluate the
formation, the company decides if it will be profitable to produce oil
from that well. If so, the well will be ``completed,'' or prepared for
production. The completion process is designed to enable and control
the flow of oil and gas from the formation through the wellbore and to
the surface.
Due to the soft rock formations in the Gulf, virtually all wells
require stimulation services as part of the completion process. These
services generally encompass sand control, which is designed to prevent
formation sand from clogging the well and enhance oil and gas
production. Most stimulation services on the shelf (less than 1000 feet
water depth) and virtually all stimulation services in deepwater are
performed by specially-equipped stimulation vessels.\1\ Stimulation
vessels are typically well over 200 feet in length and are equipped
with high pressure pumps, blenders, storage tanks and other equipment
necessary to provide these services. To operate in the Gulf, a
stimulation vessel must comply with a federal law known as the ``Jones
Act,'' which requires vessels to be U.S. flagged, U.S. built, and U.S.
crewed.
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\1\ While some offshore stimulation services are performed by
pumps that are mounted on skids rather than vessels, skid-mounted
pumps are not feasible for most stimulation services in the Gulf.
Even when a job could technically be performed by skid-mounted
equipment, oil and gas companies often use a vessel due to safety
and logistical concerns.
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Baker Hughes and BJ Services are two of only four firms in the Gulf
that supply stimulation services with vessels to offshore oil and gas
wells. The other two firms are Schlumberger and Halliburton. These four
companies are the only significant vessel stimulation service providers
in the world, and operate the only Jones Act compliant stimulation
vessels. Each of these companies provides stimulation services in the
Gulf with two stimulation vessels. Baker Hughes supplies stimulation
services in the Gulf with the HR Hughes and the RC Baker, and BJ
utilizes the Blue Dolphin and the Blue Ray.
Drilling and completing a well is extremely costly, particularly in
deepwater, and the demand for stimulation vessel services is inelastic
[[Page 24985]]
and time-sensitive. The daily costs for the drilling rig and other
assets often exceed $100,000 for wells on the shelf, and may be $1
million or more for wells in deepwater. These assets remain at the
drilling site while vessel stimulation services are performed and
throughout the completion process. If a stimulation vessel is not
available at the precise time its services are needed, the oil and gas
company will incur the very high costs associated with the rig and
other supporting assets while it waits for a vessel to arrive at the
well site. To avoid this, many oil and gas customers in the Gulf
require a vessel stimulation service provider to maintain two vessels
in its fleet for greater assurance that a vessel will be available when
needed.
Oil and gas companies in the Gulf obtain pricing for vessel
stimulation services in two basic ways. They solicit bids for specific
wells or projects, and they enter into annual or multi-year contracts
that generally establish a discount off of list prices published by the
stimulation service provider. Some oil and gas companies prefer to use
one approach or the other, but most employ a combination of the two.
Under the project approach, the pricing for a specific well or project
may be established months or days before the stimulation service is
provided. Under the contract approach, the discounts are generally
established long before the stimulation service is rendered and are not
tied to a particular well or project.\2\ Generally, both approaches
involve a bidding process in which the technical capabilities,
reputation, and prices of multiple vessel stimulation service providers
are evaluated, and preferred providers are chosen.
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\2\ Generally, these contracts do not guarantee vessel
stimulation service providers a certain amount of stimulation
services business, nor do they guarantee oil and gas customers the
availability of a vessel for particular jobs or projects. They
merely establish discounts that customers may invoke when they call
on the supplier to provide services.
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Demand for vessel stimulation services in the Gulf rises and falls
with overall drilling levels and seasonal variation. During periods of
sustained high demand, stimulation vessels are busier, and operators
are forced to pay higher prices to ensure vessel availability, utilize
less preferred suppliers, or even incur expensive rig-costs while
waiting for a vessel.\3\
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\3\ During even generally ``slow'' seasons, vessels may be
occupied with other jobs at the precise times a customer requires
their services. Having available capacity ``most of the month'' is
of little value to a customer whose operations require a vessel's
services on a specific day.
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B. The Market for Vessel Stimulation Services in the Gulf of Mexico
The United States has alleged in the Complaint that the provision
of vessel stimulation services for wells located in the Gulf is a line
of commerce and a relevant market within the meaning of Section 7 of
the Clayton Act.
Oil and gas companies have no economical alternatives to sand
control or stimulation services and need these services for the great
majority of offshore wells in the Gulf. While some offshore stimulation
services may be performed by pumps that are mounted on skids rather
than vessels, skid-mounted pumping equipment is not feasible for most
stimulation services in the Gulf, including frac packs--the most
commonly used stimulation service in the Gulf--which require high
horsepower and significant fluid and proppant storage. Oil and gas
companies procuring these vessel stimulation services for wells located
in the Gulf require a provider to have stimulation service vessels
capable of providing the service in the region as well as the
facilities, engineers, sales and other staff necessary to support the
vessels. The relevant geographic region is the Gulf. This region is
defined based on the locations of customers.
A small but significant, non-transitory increase in the price of
vessel stimulation services for wells located in the Gulf would not
cause customers to turn to skid-mounted pumps or to any other type of
service, or to vessel simulation services provided outside the Gulf, or
to otherwise reduce purchases of vessel stimulation services, in
volumes sufficient to make such a price increase unprofitable.
C. The Anticompetitive Effects of the Proposed Transaction
1. The Market Is Highly Concentrated
The market for vessel stimulation services in the Gulf is highly
concentrated, with just four firms competing to perform these services.
Based on 2008 revenues for vessel stimulation services in the Gulf, BJ
accounted for nearly twenty percent of all vessel stimulation service
revenues and Baker Hughes accounted for nearly fifteen percent. The
other two firms providing vessel stimulation services in the Gulf
account for all other revenues. Using an accepted economic measure of
market concentration called the Herfindahl-Hirschman Index (``HHI''),
described in Appendix A to the Complaint, the premerger HHI is 2801,
making the market highly concentrated. By eliminating BJ as a
competitor, the transaction would significantly increase concentration
levels, resulting in a post-merger HHI of 3390. These high
concentration levels create an economic and legal presumption that the
proposed transaction is likely to significantly reduce competition in
the market for vessel stimulation services.
2. Baker Hughes' Acquisition of BJ Is Likely To Result in Higher Prices
for Vessel Stimulation Services in the Gulf
a. The Reduction in Bidders Is Likely To Result in Higher Prices
Absent entry of the proposed Final Judgment, the transaction would
eliminate BJ as an independent competitor and reduce, from four to
three, the number of bidders for vessel stimulation services in the
Gulf. The loss of BJ as a bidder would likely lead to increases in
prices.
Today, Baker Hughes and BJ are close competitors. BJ and Baker
Hughes not only ranked first and second the past two years in terms of
total expenditure on vessel stimulation services in the Gulf for
numerous customers, the two share many of the same characteristics with
one another. They charge similar prices for similar types of jobs and
provide vessel stimulation services in the same water depths and at
many of the same geological locations. This suggests that their
products, while differentiated in some dimensions and facing
competition from other providers, are relatively close substitutes for
one another.
Pre-merger, an attempt by Baker Hughes to raise prices would cause
disaffected customers for whom BJ is the next best alternative to shift
business to BJ. But post merger, Baker Hughes could raise prices
without concern of losing customers that viewed BJ as their next best
choice. Given the closeness between BJ's and Baker Hughes' services,
the diversion ratio between the two (the diversion ratio being the
fraction of unit sales lost by one of the firms in response to a price
increase that would be diverted to the other) is likely significant.
Where that is the case, a merger likely provides the merged firm with
the incentive to raise its prices as it recaptures sales it would have
lost had it raised price absent the merger. And where, as is also the
case here, the value of diverted sales between the merging firms is
likely high (as evidenced by the high price-variable cost margins that
both firms earn currently), a significant price increase will most
likely be profitable for the merged firm.
Moreover, as firms in the market face intermittent or recurring
capacity constraints, Halliburton and
[[Page 24986]]
Schlumberger could not likely expand supply easily or rapidly to serve
customers in response to a post-merger price increase from Baker
Hughes. In fact, Halliburton and Schlumberger would likely bid less
aggressively because they would recognize that the merger gives Baker
Hughes the incentive to raise prices.
The combination of Baker Hughes and BJ is also likely to lead to
higher prices because, absent entry of the proposed Final Judgment, the
merged firm would control four of the eight stimulation vessels in the
Gulf. The anticompetitive effect of reducing the number of vessels
controlled by its rivals would be particularly pronounced for project-
specific bids, which may be requested by customers just days or weeks
in advance. Instead of factoring in the availability of six rival
vessels for these stimulation services projects, as each of the
Defendants does currently when pricing its services, the merged firm
would confront only four potentially available vessels. Thus, not only
would the merger reduce the number of rival bidders, it would
substantially increase the likelihood that the merged firm would be the
sole supplier with available capacity on any given day. This would
allow it to exercise greater pricing power.
b. The Merger May Also Result in a Reduction in Capacity Leading to
Higher Prices
The transaction may also result in a reduction in the number of
stimulation vessels in the Gulf, which would also lead to higher
prices.\4\ Today, because each company needs two vessels to remain
competitive, neither Baker Hughes nor BJ Services has the incentive to
move any of its stimulation vessels out of the Gulf. Absent entry of
the proposed Final Judgment, the merged firm will have four vessels in
the Gulf, giving it the opportunity, which Baker Hughes recognized, to
remove one or more vessels without sacrificing the redundancy required
by customers. With fewer vessels in the Gulf, utilization of the
remaining vessels will increase, as will the likelihood that a vessel
will be unavailable at any particular time. Given the highly time-
sensitive nature of the stimulation services business in the Gulf, the
importance of these services to oil and gas production, and the fact
that these services represent a very small percentage of the overall
costs associated with drilling and completing a well, oil and gas
customers in the Gulf will likely pay higher prices to ensure a vessel
is available when needed. Moreover, in periods of high demand, reduced
vessel availability would likely mean that some oil and gas customers
would be forced to accept delays in scheduling vessel stimulation
services, resulting in significant rig expenses and opportunity costs.
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\4\ From the perspective of the merged firm, removing one or two
vessels from the Gulf may have two potential advantages over a
reduction in capacity that does not involve removing vessels. First,
removing one or two vessels might credibly demonstrate to rival
vessel stimulation providers that the merged firm will not compete
aggressively in the Gulf in the near future. Second, the reduction
in stimulation service capacity to which the merged firm would
commit by such a movement (and the associated likely price increase)
would be relatively large.
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3. The Anticompetitive Effects Are Not Likely To Be Prevented by Entry
or Repositioning
Successful entry into the provision of vessel stimulation services
in the Gulf is difficult, costly, and time consuming, requiring vessels
and an array of supporting onshore assets relating to engineering,
research and development, testing, performance, and marketing. A strong
technical team, including experienced engineers and scientists, is
essential. Additionally, customers want a supplier with a proven track
record for reliable and successful performance and may require
prospective bidders to undergo a lengthy and expensive qualification
process. Many customers also require stimulation service providers to
have two vessels as a measure of redundancy.
A provider of vessel stimulation services may have a difficult time
growing its business if it does not also offer a line of sand control
tools, increasing the difficulty of entry and competitive expansion.
Producing sand control tools requires special skills and intellectual
property. Sand control tools are installed in the well prior to
performance of the stimulation services. Many customers prefer
obtaining sand control tools from the same company that provides the
vessel stimulation services. This reduces the number of companies with
which a customer must deal, often results in a discount in the price of
the services and products, and also eliminates the possibility of
``finger-pointing'' between the providers in the event that there is a
problem or delay with the sand control tools or stimulation services.
All four providers of vessel stimulation services in the Gulf sell sand
control tools. Entry by an additional vessel stimulation service
provider would not be timely, likely, and sufficient to prevent the
substantial lessening of competition caused by the elimination of BJ
Services as an independent competitor.
It is also unlikely that a small but significant non-transitory
increase in prices on vessel stimulation services in the Gulf would
cause competitors to reposition vessels from other geographic regions.
The four companies currently servicing customers in the Gulf are the
only significant providers operating anywhere in the world and the only
providers with vessels that comply with the Jones Act. There are just
three Jones Act compliant stimulation service vessels outside of the
Gulf, and only one of them has the sophisticated dynamic positioning
capability required by customers for deepwater stimulation projects in
the Gulf. Moreover, all three vessels are under contract to provide
stimulation services internationally, and are therefore unable to
service customers in the Gulf in the near term. It is therefore
unlikely that repositioning of vessels into the Gulf would offset the
likely harm from the transaction.
III. Explanation of the Proposed Final Judgment
The divestiture required by Section IV of the proposed Final
Judgment will eliminate the anticompetitive effects of the merger in
the market for vessel stimulation services in the Gulf by establishing
a new, independent and economically viable competitor. The package of
divestiture assets includes all of the types of assets that Baker
Hughes and BJ Services currently use to compete in this market,
including: two stimulation vessels; operations, production and sales
facilities; and tangible and intangible assets relating to the
provision of stimulation services and the production and sale of sand
control tools and stimulation fluids in the Gulf. In addition, because
experienced personnel are critical to success in the vessel stimulation
services business--and will be even more important to a new entrant
seeking to secure the trust and business of risk-adverse customers--the
divestiture package provides the acquirer with an expansive right to
hire relevant personnel without interference from the merged firm.
The overriding goal of the proposed Final Judgment is to provide
the acquirer of the divestiture assets with everything needed to
replace the competition that would otherwise be lost as a result of the
transaction. Where possible, the United States favors the divestiture
of an existing business entity that has already demonstrated its
ability to compete in the relevant market. In this case, however,
neither Defendant's Gulf vessel stimulation services business operates
as a stand-alone business. Moreover, the accompanying
[[Page 24987]]
stimulation fluids and sand control tools operations are likewise
intertwined with other businesses.\5\ To ensure that the acquirer will
have all assets necessary to be an effective, long-term competitor,
while minimizing disruption to Defendants' broader operations, the
proposed Final Judgment requires divestiture of assets from each of the
merging parties' operations. The proposed Final Judgment also provides
maximum flexibility to the acquirer by providing it with the option to
buy some of the assets, depending on whether it needs such assets given
its existing operations.
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\5\ For example, BJ's research and development for stimulation
fluids for vessel stimulation services in the Gulf is intertwined
with its extensive onshore fluids business.
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The ``Divestiture Assets'' are fully described in schedules to the
proposed Final Judgment and fall into three major categories:
Stimulation Services, Sand Control Tools, and Stimulation Fluids. The
assets in these categories are described generally below.
A. Stimulation Services
The Divestiture Assets related to Defendants' provision of vessel
stimulation services in the Gulf include: (1) Two stimulation vessels--
Baker Hughes' HR Hughes and BJ's Blue Ray--and all equipment installed
on the vessels; (2) Baker Hughes' dock and mooring facilities at Port
Fourchon, Louisiana; (3) the option to acquire Baker Hughes' skids and
non-vessel pumping equipment used to perform Gulf stimulation services;
\6\ (4) tangible and intangible assets used in connection with BJ's
stimulation services for wells located in the Gulf; (5) the option to
acquire BJ's vessel operations facility in Crowley, Louisiana; and (6)
the option to acquire BJ's sales offices in New Orleans, Louisiana and
Houston, Texas.
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\6\ While the Complaint alleges that stimulation services
performed with pumping equipment on skids is not in the same product
market with vessel stimulation services, skid-based equipment is
included in the divestiture package to ensure that the acquirer will
be able to offer the full range of offshore stimulation services, as
all competitors do now. The divestiture package is designed to not
only preserve the competition that would be lost from the merger,
but also to ensure the viability of the acquirer.
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As explained above, all four competitors in the Gulf vessel
stimulation services market compete with two vessels because many
customers require redundancy. Thus, the divestiture package includes
two vessels. These vessels have established track records, and are
capable of performing stimulation services for virtually all wells in
the Gulf. Both vessels are outfitted with sophisticated dynamic
positioning systems (i.e., DP-2 capability), which allow the vessel to
hold its position using the vessel's own thrusters as opposed to an
anchor or chains. This capability is a critical requirement for
deepwater stimulation jobs in the Gulf, and many oil and gas customers
require stimulation service providers to maintain two deepwater-capable
vessels in the Gulf in order to be considered for such projects. Having
two deepwater-capable vessels will position the acquirer to compete for
these projects.
The divestiture package also requires divestiture of tangible and
intangible assets associated with the vessels and with BJ's provision
of stimulation services for wells located in the Gulf. These assets
will provide the acquirer with the physical tools (e.g., equipment,
inventory and business records), and the bank of knowledge and rights
(e.g., job history databases, design know-how and contractual rights)
needed to create an independent stimulation services business
equivalent to one of Defendants' current operations.
B. Sand Control Tools
The Divestiture Assets related to Defendants' production and sale
of sand control tools include: (1) Intangible assets used in connection
with BJ's sand control tools for wells located in the Gulf; (2) the
option to acquire tangible assets used in connection with BJ's sand
control tools for wells located in the Gulf; (3) the option to acquire
BJ's Southpark facility located in Lafayette, Louisiana, where BJ
conducts assembly, sales, and support for its sand control tools; and
(4) the option to acquire all or part of BJ's Completion Tool
Technology Center in Houston Texas, where BJ's sand control tools are
researched, tested, and manufactured.\7\
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\7\ BJ's Completion Tool Technology Center is located on 22
acres of land in Houston, Texas. There are five buildings on the
property, as well as associated parking lots that are reached by
three entrances. Pursuant to Schedule B of the proposed Final
Judgment, the acquirer will have the option of acquiring the entire
facility, or a portion of the property consisting of one or two
buildings.
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Baker Hughes and BJ produce and sell a full line of sand control
tools, which are used in conjunction with the provision of stimulation
services. Many oil and gas companies prefer to purchase these tools
from the same company that provides the vessel stimulation service. To
ensure that the acquirer can compete effectively in the vessel
stimulation services market (and to avoid the competitive disadvantage
that likely would result if the acquirer could not provide these
complementary products), the divestiture requires Defendants to divest
intangible assets associated with BJ's sand control tool business,
including patents, designs and other know-how.\8\ The acquirer will
also have the option to acquire the tangible assets associated with
certain of BJ's facilities, as well as BJ's tangible assets associated
with the production and sale of sand control tools, including
production and testing equipment and inventory.
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\8\ The proposed Final Judgment requires total divestiture of
intangible assets used in connection with the design, development,
testing, production, quality control, marketing, servicing, sale,
installation, or distribution of BJ's sand control tools for wells
located in the Gulf. Defendants, however, will retain BJ's patents
and other intangible assets associated with BJ's Multi-Zone Single
Trip tool--which was developed by BJ in conjunction with a customer,
and for which Baker Hughes has no comparable tool. Defendants will
provide a worldwide royalty-free non-exclusive license to the
acquirer for these patents and other intangible assets.
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C. Stimulation Fluids
The Divestiture Assets related to Defendants' production and sale
of stimulation fluids in the Gulf include: (1) Tangible and intangible
assets primarily used in connection with or necessary for Baker Hughes'
stimulation fluids for wells located in the Gulf; and (2) the option to
acquire BJ's trucks and tanks used to transport stimulation fluids in
the Gulf.
In performing vessel stimulation services in the Gulf, the
Defendants use a variety of acids, proppants, gels and other fluids and
additives which are pumped downhole under pressure to stimulate the
production of oil and gas. Although many of these fluids and additives
are manufactured by third-parties, each vessel stimulation service
provider in the Gulf has its own unique set of ``recipes'' and know-how
relating to the blending and use of these fluids. These recipes and
know-how represent an important qualitative aspect of the stimulation
services provided by the Defendants. To ensure that the acquirer will
be equipped with the necessary recipes and know-how, the divestiture
package includes intangible assets used in connection with relating to
Baker Hughes' stimulation fluids business.\9\
[[Page 24988]]
Defendants will also divest tangible assets used in connection with
Baker Hughes' stimulation fluids for wells located in the Gulf, as well
as BJ's trucks and tanks used to transport stimulation fluids in the
Gulf.
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\9\ The proposed Final Judgment requires (1) a total divestiture
(with one exception discussed below) of intangible assets that are
primarily used in connection with or necessary to the design,
development, testing, production, quality control, marketing,
servicing, sale, installation, or distribution of Baker Hughes'
stimulation fluids for wells located in the Gulf; and (2) a royalty-
free, worldwide license to all other intangible assets used in
connection with Baker Hughes' stimulation fluids for wells located
in the Gulf. The exception relates to Baker Hughes' specialized
heavyweight frac fluid--Diamond Fraq. Defendants will retain Baker
Hughes' patents and associated intangible assets primarily used in
connection with Diamond Fraq, and will provide the acquirer with a
license to those patents and assets, as well as to BJ's BrineStar/
BrineStar II heavyweight frac fluids, which use a different
technology than Diamond Fraq.
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IV. Implementation of the Final Judgment
The Divestiture Assets must be divested in such a way as to satisfy
the United States in its sole discretion that these assets can and will
be operated by the acquirer as a viable, ongoing business that can
compete effectively in the design, development, production, marketing,
servicing, distribution or sale of vessel stimulation services, sand
control tools and stimulation fluids in the Gulf. Defendants must take
all reasonable steps necessary to accomplish the divestitures quickly
and shall cooperate with prospective purchasers.
The proposed Final Judgment requires Defendants to accomplish the
divestiture within sixty (60) days after the filing of the Complaint,
or five (5) days after notice of the entry of the Final Judgment of the
Court, whichever is later. The United States, in its sole discretion,
may agree to one or more extensions of this time period not to exceed
sixty (60) calendar days in total, and shall notify the Court in such
circumstances.
In the event that Defendants do not accomplish the divestiture
within the periods prescribed in the proposed Final Judgment, the
proposed 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 Baker Hughes
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 and terms obtained and the speed with which
the divestiture is accomplished. After the trustee's appointment
becomes effective, the trustee will provide monthly reports to the
United States setting forth his or her efforts to accomplish the
divestiture. At the end of six (6) 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.
The divestiture provisions of the proposed Final Judgment will
eliminate the anticompetitive effects of the merger by enabling the
acquirer to compete with the merged firm, and with Halliburton and
Schlumberger, in the provision of vessel stimulation services in the
Gulf, including the provision of fluids and sand control tools.
The proposed Final Judgment imposes certain obligations on the
acquirer given the mobility of certain of the assets and the likelihood
that a transaction involving their sale would be below Hart-Scott-
Rodino reporting thresholds. Section XI requires the acquirer to keep
the vessels in the Gulf for two years, unless it obtains consent
otherwise from the Antitrust Division. This provision ensures that the
acquirer gains experience in the Gulf to compete effectively there.
Section XI also imposes a five-year requirement for the acquirer to
provide the Antitrust Division notice prior to the sale or transfer of
any of the divestiture assets to Halliburton or Schlumberger, should
such a transaction not otherwise meet HSR thresholds. Given the limited
number of competitors in the market today, the Antitrust Division would
likely object to either Halliburton or Schlumberger as the proposed
acquirer of the divestiture assets as such a divestiture would not
likely remedy the competitive harm alleged in the Complaint. (See
proposed Final Judgment, Sections IV J. & VII.) The notice provision
will allow the Antitrust Division to determine whether a future sale of
the divestiture assets by the acquirer to Halliburton or Schlumberger
would frustrate the proposed Final Judgment's goal of preserving
competition in the Gulf.
V. 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.
VI. 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 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: Donna N. Kooperstein,
Chief, Transportation, Energy & Agriculture Section, Antitrust
Division, 450 5th Street, NW., Suite 8000, Washington, DC 20530.
VII. 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 preventing Baker Hughes, Inc from
acquiring BJ Services. The United States is satisfied, however, that
the divestiture of the assets described in the proposed Final Judgment
will preserve competition for the design, development, and sale of
vessel stimulation services in the United States Gulf of Mexico. 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.
[[Page 24989]]
VIII. 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 sixty-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. 16(e)(1). 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. 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 (DC Cir. 1995); see generally United States v. SBC
Commc'ns, Inc., 489 F. Supp. 2d 1 (D.DC 2007) (assessing public
interest standard under the Tunney Act).\10\
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\10\ 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.DC 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).\11\ 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.DC 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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\11\ 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.DC 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 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 wrote 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
[[Page 24990]]
of Tunney Act proceedings.'' SBC Commc'ns, 489 F. Supp. 2d at 11.\12\
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\12\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.DC 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) ]
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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IX. 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: April 27, 2010
Respectfully submitted,
--/s/--
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Angela L. Hughes, (DC Bar 3034210), Trial Attorney, U.S.
Department of Justice, Antitrust Division, Transportation, Energy, and,
Agriculture, 450 5th Street, NW; Suite 8000, Washington, DC 20530,
Telephone: 202/307-6410, Facsimile: 202/307-2784, E-mail:
[email protected]
[FR Doc. 2010-10474 Filed 5-5-10; 8:45 am]
BILLING CODE P