[Federal Register Volume 75, Number 20 (Monday, February 1, 2010)]
[Notices]
[Pages 5132-5144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-1961]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Cameron International Corp., et al.; Proposed
Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Stipulation and Competitive Impact Statement have been filed with the
United States District Court for the District of Columbia in United
States v. Cameron Int'l Corp., et al., No. 09-cv-02165-RMC. On November
17, 2009, the United States filed a Complaint alleging that the
proposed acquisition by Cameron International Corporation (``Cameron'')
of NATCO Group Inc. (``NATCO'') would violate Section 7 of the Clayton
Act, 15 U.S.C. 18. The proposed Final Judgment, filed the same time as
the Complaint, requires Cameron to divest certain tangible and
intangible assets related to the development, production, sale, repair,
and service of customized electrostatic desalters used in the
downstream oil refining industry, an option to purchase either
Cameron's or NATCO's pilot plant, and a license to NATCO's intellectual
property and other assets primarily used in or necessary to the
development, production, sale, repair, or service of downstream
refinery desalters that utilize dual frequency transformers and AC/DC
power supplies.
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 Maribeth Petrizzi, Chief, Litigation II Section, Antitrust Division,
U.S. Department of Justice, 450 Fifth Street, NW., Suite 8700,
Washington, DC 20530 (telephone: 202-307-0924).
Patricia A. Brink,
Deputy Director of Operations and Civil Enforcement.
United States of America, Antitrust Division, 450 5th Street,
NW., Suite 8700, Washington, DC 20530, Plaintiff, v. Cameron
International Corporation, 1333 West Loop South, Suite 1700,
Houston, TX 77027, and NATCO Group Inc., 11210 Equity Drive, Suite
100, Houston, TX 77041, Defendants.
Case No.: Case: 1:09-cv-02165.
Assigned To: Bates, John D.
Assign Date: 11/17/2009.
Description: Antitrust.
Complaint
The United States of America (``United States''), acting under the
direction of the Attorney General of the United States, brings this
civil antitrust action against defendants Cameron International
Corporation (``Cameron'') and NATCO Group Inc. (``NATCO'') to enjoin
Cameron's proposed acquisition
[[Page 5133]]
of NATCO, to remedy the harm to competition caused by Cameron's
acquisition of certain assets from Chicago Bridge & Iron N.V.
(``CB&I''), and to obtain other equitable relief. United States
complains and alleges as follows:
I. Nature of the Action
1. On June 1, 2009, Cameron and NATCO entered into an Agreement and
Plan of Merger pursuant to which Cameron agreed to acquire NATCO in an
all-stock transaction. On November 18, 2009, NATCO intends to hold a
meeting for shareholders to vote on whether to approve the transaction.
2. Cameron is a worldwide provider of products, systems, and
services used at or near oil or gas wells (upstream) and in refineries
(downstream); of valves, auxiliary equipment, and flow measurement
systems used in oil and gas drilling, production, transportation, and
refining markets; and of compression products, systems, and services to
the oil, gas, and process industries. Cameron is the leading U.S.
supplier of customized electrostatic desalters used in the oil refining
industry (hereafter, ``refinery desalters'').
3. NATCO is a worldwide provider of equipment, systems, and
services used to separate oil, gas, and water within a production
stream and to remove contaminants. It also sells equipment used in
downstream refinery and petrochemical facilities around the world to
improve processing and separation. After Cameron, NATCO is the next
most significant U.S. supplier of refinery desalters.
4. In the United States, Cameron's proposed acquisition of NATCO
would reduce from three to two the number of companies that bid on
refinery desalter projects and would give Cameron virtual monopoly
power in the U.S. refinery desalter market. Unless the proposed
acquisition is enjoined, competition for the supply of refinery
desalters will be substantially reduced in the United States. The
proposed acquisition likely would result in higher prices, less
favorable terms of sale, and less innovation in the U.S. refinery
desalter market.
5. On October 7, 2005, Cameron, through Petreco International,
Inc., and CB&I, through Howe Baker Engineers Ltd. (``Howe Baker''),
entered into an agreement for the sale of assets of the desalting,
dehydration, distillate treating, and gas oil separation equipment
business of Howe Baker (hereafter, the ``Howe Baker assets'') for $8.25
million. Cameron acquired the Howe Baker assets in late 2005.
6. In the United States, Cameron's acquisition of the Howe Baker
assets reduced from two to one the number of sellers of refinery
desalters in the United States and created a monopoly in the U.S.
refinery desalter market. After Cameron acquired the Howe Baker assets,
NATCO entered the market for refinery desalters.
7. The United States brings this action to prevent the proposed
acquisition of NATCO by Cameron because that acquisition would
substantially lessen competition in the development, production, and
sale of refinery desalters in the United States in violation of Section
7 of the Clayton Act, 15 U.S.C. 18 and to remedy the loss of
competition caused by Cameron's acquisition of the Howe Baker assets
because that acquisition substantially lessened competition in the
development, production, and sale of refinery desalters in the United
States also in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
II. The Parties
8. Cameron is incorporated in Delaware and has its principal place
of business in Houston, Texas. In 2008, Cameron reported total sales of
approximately $5.85 billion, and its sales of refinery desalters in the
United States were approximately $10.2 million in 2008.
9. NATCO also is incorporated in Delaware and has its principal
place of business in Houston, Texas. NATCO reported 2008 revenues of
$657 million, and its sales of refinery desalters in the United States
were approximately $10.55 million.
III. Jurisdiction and Venue
10. The United States brings this action under Section 15 of the
Clayton Act, 15 U.S.C. 4 and 25, as amended, to prevent and restrain
defendants from violating Section 7 of the Clayton Act, 15 U.S.C. 18.
11. Defendants develop, produce, and sell refinery desalters and
other products in the flow of interstate commerce. Defendants'
activities in the development, production, and sale of these products
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.
12. Defendants have consented to venue and personal jurisdiction in
this judicial district.
IV. Trade and Commerce
A. The Relevant Product Market
13. When oil is produced ``upstream'' at a production well head, it
may be mixed with water, dissolved salt, and other impurities including
solids. Upstream, a variety of separation equipment is used to remove
such impurities from the oil, and electrostatic separation equipment
sometimes is required to meet transportation specifications. If
electrostatic separation equipment is required upstream, water
typically is specified to be removed to a volume of about one percent.
Outside of the United States, producers sometimes also must use
electrostatic equipment upstream to remove salt to levels of
approximately two to ten pounds per thousand barrels prior to
transport, but more often salt is not removed upstream.
14. In the United States, refinery desalters are used to remove
salt from crude oil ``downstream'' at the oil refining stage of
production. Prior to introduction of the crude into the refinery
desalter, fresh water is mixed into the incoming crude at a volume of
about three to ten percent in order to dissolve the salt. Separation of
the resulting salt-water mixture from the oil results in removal of
salt to levels of no more than two pounds of salt per thousand barrels,
and often significantly less, and of water to levels of approximately
0.2 to 0.5 percent by volume. Desalting is a critical initial stage of
the refining process.
15. Compared to upstream electrostatic separation equipment,
refinery desalters remove water and salt to lower specified levels and
must produce cleaner effluent water. Refinery desalters handle higher
oil volumes than upstream electrostatic separation equipment because
refinery capacity typically is much greater than output at a single
production wellhead. Unlike most upstream electrostatic separation
equipment, refinery desalters often must remove solids; must handle oil
that has been pre-heated to approximately 230 to 300 degrees, which
changes the electrical properties of oil; must handle water droplets of
a much smaller size and tighter emulsions of oil and water; and must be
able to perform effectively with blends of incoming crudes and changing
feedstocks. Both upstream electrostatic separation equipment and
refinery desalters are used in conjunction with chemicals that enhance
their performance, but optimizing chemical usage for refinery desalters
is much more difficult than optimizing chemical usage upstream.
[[Page 5134]]
16. Refinery desalters consist of a steel pressure vessel with an
external transformer and controller as well as a set of ``internals''
that include electrodes. Inside the desalter pressure vessel, high-
voltage electrical charges cause water droplets containing dissolved
salt to coalesce into larger and larger droplets. As water droplets
reach a critical size, they sink to the bottom of the vessel because
water is more dense than oil. Oil is removed from the top of the vessel
for further processing in the refinery; waste water is removed from the
vessel bottom. Solids that sink to the bottom of the vessel also are
removed. When incoming oil has especially high salt content and/or is
particularly dense, refineries may have to use two successive refinery
desalter units (or, in rare cases, three units) to meet their salt
removal requirements.
17. Refineries vary widely in processing capacity. In addition, the
characteristics of feedstock oil purchased by refineries vary across
refineries and within refineries over time in terms of density, the
blends of crudes mixed together, electrical properties, salt content,
and the amount of other impurities. Refineries also differ in the
levels of salt and entrained water that they specify may remain in the
oil. As a result, refinery desalters are custom-designed to be able to
remove salt and water from different crude feedstocks to different
customer-specified levels, and to handle different customer-specified
volumes. Further, some customers demanding refinery desalters require
only new internals to replace worn-out internals, to accommodate a
capacity expansion, or to handle a new type of crude feedstock, whereas
other customers require a complete system including the pressure vessel
and internals.
18. Chemicals frequently are added to enhance the separation of oil
from the water containing salt in refinery desalters. However,
chemicals alone cannot remove salt to desired levels, and the cost of
adding chemicals to achieve a given level of salt removal is
significantly higher than the cost of purchasing and operating a
refinery desalter to achieve a similar level of salt removal.
19. Refinery desalters are sold pursuant to bids, which are based
on technical specifications from the customer and include commercial
terms. Suppliers of refinery desalters use patented and/or proprietary
technology and know-how--including expertise gained through years or
decades of trial and error and experience with prior installations--to
custom-design refinery desalters that satisfy technical specifications.
20. Refineries (and the firms that they consult) evaluate competing
bids based on their compliance with technical specifications and
commercial considerations such as price, delivery schedule, and terms
of sale. The combined technical and commercial needs of the customer
differ for each refinery desalter project.
21. A small but significant post-acquisition increase in refinery
desalter prices would not cause customers to substitute upstream
electrostatic equipment (or any other type of equipment) or to utilize
a chemicals-only solution with sufficient frequency so as to make such
price increases unprofitable. Accordingly, refinery desalters are a
line of commerce and relevant product market within the meaning of
Section 7 of the Clayton Act.
B. The Relevant Geographic Market
22. Those competitors that could constrain Cameron from raising
prices on bids for refinery desalters in the United States typically
are suppliers with a substantial physical United States presence,
including sales, technical, and support personnel and parts
distribution.
23. Refineries prefer such suppliers because, during the design,
bid, execution, and installation phases of a desalter project,
customers interact with suppliers to address design recommendations and
changes, track construction progress, and ensure successful
installation. Further, customers purchasing refinery desalters can
avoid costly delays or downtime in refinery operations by selecting a
desalter supplier that is able to respond to requests for service or
replacement parts during the operating life of the desalter.
24. A small but significant increase in the price of refinery
desalters would not cause a sufficient number of customers in the
United States to turn to manufacturers of refinery desalters that do
not have a substantial physical presence in the United States so as to
make such a price increase unprofitable. Accordingly, the United States
is a relevant geographic market within the meaning of Section 7 of the
Clayton Act.
C. Competitive Effects
1. The Proposed Acquisition of NATCO by Cameron
25. The proposed acquisition of NATCO by Cameron would
substantially lessen competition in the U.S. refinery desalter market.
The competition between Cameron and NATCO in the development,
production, and sale of refinery desalters has benefitted customers.
Cameron and NATCO compete directly on price, terms of sale, and
technology. For many oil refineries, NATCO is the preferred alternative
to Cameron. The proposed acquisition would eliminate Cameron's most
significant competitor in the sale of refinery desalters in the United
States.
26. Only three competitors, including Cameron and NATCO, have sold
refinery desalters in the United States since 2007. The third company
often does not submit bids on U.S. refinery desalter projects and has
sold just one refinery desalter in the United States, which occurred in
2008.
27. Most desalter sales are competitive, with the customer seeking
alternative bidders. When sales are competitive, each bidder may be
aware of its competitors, but it does not know the technical or
commercial terms of its competitors' bids prior to submitting its own
bid. That uncertainty restrains each bidder's pricing.
28. Cameron's acquisition of NATCO would eliminate many customers'
preferred alternative to Cameron and reduce from three to two--or for
some bids, reduce from two to one--the number of bidders. Post-
acquisition, Cameron would gain the incentive and ability to profitably
raise its bid prices significantly above pre-acquisition levels.
29. The response of the remaining refinery desalter manufacturer
would not be sufficient to constrain a unilateral exercise of market
power by Cameron after the acquisition. Cameron would be aware that
many customers strongly prefer it as a supplier, allowing it to raise
prices above pre-acquisition levels. The sole remaining bidder would
have an incentive to increase its bid price in response. Thus, the
acquisition of NATCO by Cameron creates an incentive for Cameron and
the remaining bidder to bid a higher amount than each otherwise would
if NATCO were still a competitor. Likewise, elimination of NATCO as a
competitor would reduce the remaining bidders' incentives to offer
quick delivery or other terms of sale attractive to customers and to
invest in certain technology improvements, such as NATCO's dual
frequency technology.
30. Therefore, the proposed acquisition would substantially lessen
competition in the development, production, and sale of refinery
desalters in the United States and lead to higher prices, less
favorable terms of sale, and less innovation in the refinery
[[Page 5135]]
desalter market, in violation of Section 7 of the Clayton Act.
2. The Acquisition of the Howe Baker Assets
31. When Cameron acquired the Howe Baker assets in 2005, Cameron
accounted for approximately 75 percent of refinery desalter sales in
the United States, and CB&I accounted for approximately 25 percent of
such sales, between 2003 and 2005. Through its purchase of the Howe
Baker assets, Cameron willfully acquired a monopoly in refinery
desalter sales.
32. The acquisition of the Howe Baker assets by Cameron
substantially lessened competition in the U.S. refinery desalter
market. Competition between Cameron and CB&I in the development,
production, and sale of refinery desalters benefitted customers.
Cameron and CB&I competed directly on price, terms of sale, and
technology. The acquisition eliminated Cameron's then only competitor
in the sale of refinery desalters in the United States and gave Cameron
the market power to raise prices, offer less favorable terms of sale,
and invest less in technology.
33. Through its purchase of the Howe Baker assets, Cameron
substantially lessened competition and willfully acquired a monopoly in
the development, production, and sale of refinery desalters in the
United States, in violation of Section 7 of the Clayton Act.
V. Entry
34. Substantial, timely entry of additional competitors is unlikely
and, therefore, will not prevent the harm to competition caused by
elimination of NATCO as a bidder.
35. A small number of companies have sold refinery desalters
outside the United States, but these companies have no relevant,
substantial U.S. presence. Given the small size of the U.S. refinery
desalter market, they are unlikely to invest in establishing the
personnel and parts distribution presence required to compete
effectively in the United States. When NATCO entered the U.S. refinery
desalter market in 2007, it had made numerous sales of refinery
desalters outside the United States. However, NATCO was uniquely
motivated and well-situated to enter the market because of its status
as a worldwide leader in electrostatic technology and because it
already had a relevant, substantial U.S. presence in other products.
36. Firms attempting to enter into the development, production, and
sale of refinery desalters in the United States face a combination of
barriers to entry. The technology and expertise involved in developing
and producing refinery desalters capable of handling U.S. crude
feedstocks is a significant entry barrier. To develop the technical
expertise necessary to produce a reliable refinery desalter, it is not
sufficient that a producer be successful in meeting customer
specifications for separation equipment sold upstream at the production
wellhead. For many years, NATCO has been the leading supplier of
electrostatic dehydrators sold upstream. Nonetheless, NATCO technical
personnel have spent approximately three years improving their
understanding of the nuances of refinery desalters to meet the needs of
U.S. customers.
37. The crude feedstock purchased by U.S. refineries has grown
heavier and more difficult to process over time as lighter crude
sources are being depleted. In recent years, several U.S. refinery
customers have needed to upgrade existing refining desalters in order
to process heavier feedstocks than the refinery desalters were
initially designed to handle. Similar upgrades are likely to be a
source of refinery desalter demand in the United States in the years
ahead. As a result, NATCO has invested in research to develop and
improve technologies specifically aimed at processing heavy crude oils.
To compete effectively in the U.S. refinery desalter market, a supplier
must offer a product capable of processing heavy crude oils, which
contributes to the technical and expertise-related barrier to entry
facing potential entrants.
38. Establishing a reputation for successful performance and/or
gaining customer confidence is a second significant barrier to entry.
If a refinery desalter is not performing up to specification in terms
of removing salt and water from oil, removing oil from produced water,
or removing solids, refinery equipment can be damaged, a customer may
run afoul of environmental waste water regulations, and refinery
operations may even need to be shut down to carry out repairs. As a
result of these costly consequences of poor refinery desalter
performance, U.S. oil refineries are reluctant to purchase a refinery
desalter from a supplier that does not have either a reputation and
track record of successful performance on crude oil comparable to the
crude oil the customer expects to treat or a significant new technology
that the customer is satisfied will work on its expected crude.
39. Establishing a reputation for successful performance and/or
gaining customer confidence in a significant new technology can take
years and the expenditure of substantial sunk costs. Since 2007, NATCO
has had several employees and consultants partly or fully devoted to
developing relationships with U.S. refineries. It has also invested
significant funds in developing and improving its latest electrostatic
technology and making other improvements related to refinery desalters.
40. Financial scale is an additional barrier to entry. Customers
prefer suppliers able to stand financially behind a multi-million
dollar order, and to respond quickly and effectively to a request for
service or parts and to meet warrantee obligations years after the
initial sale. A supplier of refinery desalters therefore must be able
to prove that it is financially sound and has sales far in excess of
the price of a refinery desalter.
41. For these reasons, entry or expansion by any other firm into
the U.S. refinery desalter market would not be timely, likely, and
sufficient to defeat the substantial lessening of competition that
would result if Cameron acquires NATCO.
VI. Violations Alleged
First Cause of Action
Violation of Section 7 of the Clayton Act: Proposed Acquisition of
NATCO
42. The United States incorporates the allegations of paragraphs 1
through 41 above.
43. The proposed acquisition of NATCO by Cameron would
substantially lessen competition and tend to create a monopoly in
interstate trade and commerce in violation of Section 7 of the Clayton
Act, 15 U.S.C. 18.
44. Unless restrained, the transaction will have the following
anticompetitive effects, among others:
a. Actual and potential competition between Cameron and NATCO in
the development, production, and sale of refinery desalters in the
United States will be eliminated;
b. Competition generally in the development, production, and sale
of refinery desalters in the United States will be substantially
lessened; and
c. Prices for refinery desalters in the United States likely will
increase, the terms of sale to customers in the United States likely
will be less favorable, and innovation relating to refinery desalters
in the United States likely will decline.
[[Page 5136]]
Second Cause of Action
Violation of Section 7 of the Clayton Act: Acquisition of Howe Baker
Assets
45. The United States incorporates the allegations of paragraphs 1
through 41 above.
46. The acquisition of the Howe Baker assets by Cameron
substantially lessened competition and created a monopoly in interstate
trade and commerce, in violation of Section 7 of the Clayton Act, 15
U.S.C. 18.
47. The transaction had the following anticompetitive effects,
among others:
a. Actual and potential competition between Cameron and CB&I in the
development, production, and sale of refinery desalters in the United
States was eliminated; and
b. Competition generally in the development, production, and sale
of refinery desalters in the United States was substantially lessened,
and Cameron acquired a monopoly.
VII. Request for Relief
48. Plaintiff requests that this Court:
a. Adjudge and decree Cameron's proposed acquisition of NATCO to be
unlawful and in violation of Section 7 of the Clayton Act, 15 U.S.C.
18;
b. Adjudge and decree Cameron's acquisition of the Howe Baker
assets to be unlawful and in violation of Section 7 of the Clayton Act,
15 U.S.C. 18;
c. Preliminarily and permanently enjoin and restrain defendants and
all persons acting on their behalf from consummating the proposed
acquisition of NATCO by Cameron or from entering into or carrying out
any contract, agreement, plan, or understanding, the effect of which
would be to combine Cameron with the operations of NATCO;
d. Compel Cameron to divest the Howe Baker assets and to take any
further actions necessary to restore the U.S. refinery desalter market
to the competitive position that existed prior to the acquisition of
the Howe Baker assets by Cameron;
e. Award the United States its costs for this action; and
f. award the United States such other and further relief as the
Court deems just and proper.
Dated: November 17, 2009.
Respectfully submitted for Plaintiff United States of America.
Christine A. Varney,
Assistant Attorney General.
Molly S. Boast,
Deputy Assistant Attorney General.
Patricia A. Brink,
Deputy Director of Operations.
Maribeth Petrizzi,
Chief, Litigation II Section, DC Bar #435204.
Dorothy B. Fountain,
Assistant Chief, Litigation II Section, DC Bar #439469.
Christine A. Hill,
DC Bar#461048.
James K. Foster.
Warren A. Rosborough,
DC Bar#495063.
Alexander G. Krulic,
DC Bar#490070.
Attorneys, United States Department of Justice, Antitrust Division,
Litigation II Section, 450 Fifth Street NW., Suite 8700, Washington,
DC 20530. (202) 305-2738.
United States of America, Plaintiff, v. Cameron International
Corporation, and NATCO Group Inc., Defendants.
Case No.: 1:09-cv-02165.
Deck Type: Antitrust.
Date Stamp: November 17, 2009.
Judge: Bates, John D.
Proposed Final Judgment
Whereas, Plaintiff, United States of America, filed its Complaint
on November 17, 2009, the United States and defendants, Cameron
International Corporation (``Cameron'') and NATCO Group Inc.
(``NATCO''), 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 the defendants to
assure that competition is not substantially lessened;
And whereas, the United States requires defendants to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Complaint;
And whereas, defendants have represented to the United States that
the divestitures required below can and will be made and that
defendants will later raise no claim of hardship or difficulty as
grounds for asking the Court to modify any of the divestiture
provisions contained below;
Now therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is 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, 15 U.S.C. 18, as amended.
II. Definitions
As used in this Final Judgment:
A. ``Acquirer'' or ``Acquirers'' mean the entity or entities to
whom defendants shall divest the Divestiture Assets.
B. ``Cameron'' means defendant Cameron International Corporation, a
Delaware corporation with its headquarters in Houston, Texas, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships and joint ventures, and all of their
directors, officers, managers, agents, and employees.
C. ``NATCO'' means defendant NATCO Group Inc., a Delaware
corporation with its headquarters in Houston, Texas, its successors and
assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships and joint ventures, and all of their directors, officers,
managers, agents, and employees.
D. ``Closing Date'' means the date upon which each transfer of the
Divestiture Assets from the defendants to the Acquirer or Acquirers
takes place.
E. ``Dual Frequency Products'' means downstream refinery desalters
that utilize dual frequency transformers and AC/DC power supplies.
F. ``Dual Frequency Technology'' means any and all intellectual
property, data, drawings, ideas, designs, concepts, know-how,
procedures, processes, and any other assets primarily used in or
necessary to the development, production, sale, repair, or service of
Dual Frequency Products owned or controlled by defendants as of the
time of the Closing Date.
G. ``EDGE Business'' means the desalter and dehydrator assets
purchased by Petreco International, Inc. from Howe Baker Engineers
Ltd., a wholly owned subsidiary of Chicago Bridge & Iron N.V., pursuant
to an Asset Purchase Agreement dated October 7, 2005, and any additions
or improvements to such assets made through the Closing Date. The EDGE
Business includes all inventory specifically related to the EDGE
Business as of the Closing Date.
H. ``Pilot plant'' means equipment used to evaluate and simulate
performance of desalter technologies on oil samples.
I. ``Refinery desalter'' means customized electrostatic desalters
used in the downstream oil refining industry.
J. ``Divestiture Assets'' means:
[[Page 5137]]
1. All tangible assets primarily used in the EDGE Business,
including, but not limited to, the inventory of spare parts for the
EDGE Business; engineering drawings and documents related to all prior
sales; all licenses, permits, and authorizations issued by any
governmental organization relating to the EDGE Business; all contracts,
teaming arrangements, agreements, leases, commitments, certifications,
and understandings, relating principally to the EDGE Business,
including supply agreements; all customer lists, contracts, accounts,
and credit records; all repair and performance records and all other
records relating to the EDGE Business;
2. All intangible assets primarily used in the EDGE Business,
including, but not limited to, the EDGE Desalter Installation Database
and any accompanying design information; the unregistered trademarks
``Edge'' and ``EDGE''; all data concerning installations or pilot
testing; the EDGE Desalter Sizing Software Program and related
documentation; any other intellectual property including patents and
patent applications, licenses and sublicenses, copyrights, trademarks,
trade names, service marks, service names, slogans, domain names,
logos, and trade dress related to the EDGE Business; any other
technical information, software and related documentation, know-how,
trade secrets, drawings, blueprints, designs, design protocols,
specifications for materials, specifications for parts and devices,
safety procedures for the handling of materials and substances, quality
assurance and control procedures, design tools and simulation
capability, manuals and technical information used principally for the
EDGE Business; all repair, performance, financial, and operational
records, and all other records relating to the EDGE Business; and all
research data concerning historic and current research and development
efforts relating to the EDGE Business, including, but not limited to,
designs of experiments, and the results of successful and unsuccessful
designs and experiments;
3. At the Acquirer's option, Cameron's pilot plant located in
Houston, Texas or NATCO's pilot plant located in Tulsa, Oklahoma;
4. A fully paid-up, non-exclusive, worldwide, non-sublicensable
(except to subcontractors of the Acquirer solely for the purpose of
having Dual Frequency Products made for the Acquirer) license to the
Dual Frequency Technology for the development, production, sale,
repair, and service of refinery desalters. This license shall be
transferable two years after divestiture of the Divestiture Assets.
Defendants shall retain the right and discretion to file and prosecute
patent applications and maintain patents in the United States relating
to any Dual Frequency Technology developed by defendants prior to the
Closing Date, and any such patent shall be considered part of the Dual
Frequency Technology and be licensed to the Acquirer. Any improvements
or modifications to the Dual Frequency Technology (whether or not
patentable) developed by either the defendants or the Acquirer shall be
owned solely by such party.
III. Applicability
A. This Final Judgment applies to Cameron and NATCO, as defined
above, and all other persons in active concert or participation with
either of them who receive actual notice of this Final Judgment by
personal service or otherwise.
B. If, prior to complying with Section IV and V of this Final
Judgment, defendants sell or otherwise dispose of all or substantially
all of their assets or of lesser business units that include the
Divestiture Assets, they shall require the purchaser or purchasers to
be bound by the provisions of this Final Judgment. Defendants need not
obtain such an agreement from the Acquirer or Acquirers of the assets
divested pursuant to this Final Judgment.
IV. Divestitures
A. Defendants are ordered and directed, within ninety (90) 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 or Acquirers
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 use
their best efforts to divest the Divestiture Assets as expeditiously as
possible.
B. In accomplishing the divestiture ordered by this Final Judgment,
defendants promptly shall make known, by usual and customary means, the
availability of the Divestiture Assets. Defendants shall inform any
person making an 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 provide the Acquirers or Acquirers and the
United States information relating to the personnel involved in the
development, production, sale, repair, and service of refinery
desalters to enable them to make offers of employment. Defendants shall
not interfere with any negotiations by the Acquirer or Acquirers to
employ any defendant employee whose primary responsibility is
development, production, sale, repair, and service of refinery
desalters.
D. Defendants shall permit prospective Acquirers of the Divestiture
Assets to have reasonable access to personnel and to make inspections
of the physical facilities used for 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.
E. Defendants shall warrant to the Acquirer or Acquirers that each
asset will be operational on the date of sale.
F. Defendants shall not take any action that will impede in any way
the permitting, operation, or divestiture of the Divestiture Assets.
G. At the option of the Acquirer or Acquirers, defendants shall
enter into a transition services agreement sufficient to meet all or
part of the Acquirers' needs for assistance in matters relating to the
utilization of the Divestiture Assets (including, but not limited to,
the use of EDGE Desalter Sizing Software Program and the interpretation
of test and field data) for a period of at least six (6) months. The
terms and conditions of any contractual arrangement meant to satisfy
this provision must be reasonably related to the market value of the
expertise of the personnel providing any needed assistance.
H. Defendants shall warrant to the Acquirer or Acquirers 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
[[Page 5138]]
permits relating to the operation of the Divestiture Assets.
I. Unless the United States otherwise consents in writing, the
divestiture pursuant to Section IV, or by trustee appointed pursuant to
Section V, of this Final Judgment, shall include the entire Divestiture
Assets, and 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 or Acquirers as part of viable,
ongoing businesses for the development, production, sale, repair, and
service of refinery desalters. Divestiture of the Divestiture Assets
may be made to one or more Acquirers, provided that the Divestiture
Assets listed in paragraphs II(J)(1) and (2), above, are divested to
the same Acquirer, that all the assets listed in paragraphs II(J)(3)
and (4), above, are divested to the same Acquirer, and that in each
instance the divestitures, whether pursuant to Section IV or Section V
of this Final Judgment:
1. Shall remedy the harm alleged in the Complaint;
2. Shall be made to an Acquirer or Acquirers that, in the United
States's sole judgment, have the intent and capability (including the
necessary managerial, operational, technical, and financial capability)
of competing effectively for the development, production, sale, repair,
and service of refinery desalters; and
3. Shall be accomplished so as to satisfy the United States, in its
sole discretion, that none of the terms of any agreement between the
Acquirer or Acquirers and defendants gives defendants the ability
unreasonably to raise the Acquirers' costs, to lower the Acquirers'
efficiency, or otherwise to interfere in the ability of the Acquirers
to compete effectively.
V. Appointment of Trustee
A. If defendants have not divested the Divestiture Assets within
the time period specified in Section IV(A), defendants shall notify the
United States of that fact in writing. Upon application of the United
States, the Court shall appoint a trustee selected by the United States
and approved by the Court to effect the sale 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 one or more Acquirers acceptable to the United States at
such price and on such terms as are then obtainable upon reasonable
effort by the trustee, subject to the provisions of Sections IV, V, and
VI of this Final Judgment, and shall have such other powers as this
Court deems appropriate. Subject to Section V(D) of this Final
Judgment, the trustee may hire at the cost and expense of defendants
any investment bankers, attorneys, or other agents, who shall be solely
accountable to the trustee, reasonably necessary in the trustee's
judgment to assist in the divestiture.
C. Defendants shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. 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 VI.
D. The trustee shall serve at the cost and expense of defendants,
on such terms and conditions as the United States approves, and shall
account for all monies derived from the sale of the assets sold by the
trustee and all costs and expenses so incurred. After approval by the
Court of the trustee's accounting, including fees for its services and
those of any professionals and agents retained by the trustee, all
remaining money shall be paid to defendants and the trust shall then be
terminated. The compensation of the trustee and any professionals and
agents retained by the trustee shall be reasonable in light of the
value of the Divestiture 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.
E. Defendants shall use their best efforts to assist the trustee in
accomplishing the required divestiture. The trustee and any
consultants, accountants, attorneys, and other persons retained by the
trustee shall have full and complete access to the personnel, books,
records, and facilities of the business to be divested, and defendants
shall develop financial and other information relevant to such business
as the trustee may reasonably request, subject to reasonable protection
for trade secret or other confidential research, development, or
commercial information. Defendants shall take no action to interfere
with or to impede the trustee's accomplishment of the divestiture.
F. After its appointment, the trustee shall file monthly reports
with the United States and the Court setting forth the trustee's
efforts to accomplish the divestiture ordered under this Final
Judgment. To the extent such reports contain information that the
trustee deems confidential, such reports shall not be filed in the
public docket of the Court. Such reports shall include the name,
address, and telephone number of each person who, during the preceding
month, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any interest in the Divestiture 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 divestiture ordered
under this Final Judgment within six (6) months after its appointment,
the trustee shall promptly file with the Court a report setting forth:
(1) The trustee's efforts to accomplish the required divestiture; (2)
the reasons, in the trustee's judgment, why the required divestiture
has not been accomplished; and (3) the trustee's recommendations. To
the extent such reports contain information that the trustee deems
confidential, such reports shall not be filed in the public docket of
the Court. The trustee shall at the same time furnish such report to
the United States which shall have the right to make additional
recommendations consistent with the purpose of the trust. The Court
thereafter shall enter such orders as it shall deem appropriate to
carry out the purpose of the Final Judgment, which may, if necessary,
include extending the trust and the term of the trustee's appointment
by a period requested by the United States.
VI. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
divestiture agreement, defendants or the trustee, whichever is then
responsible for effecting the divestiture required herein, shall notify
the United States of any proposed divestiture required by Section IV or
V of this Final Judgment. If the trustee is responsible, it shall
similarly notify the defendants. The notice shall set forth the details
of the proposed divestiture and list the name, address, and telephone
number of each person not previously identified who offered or
expressed an interest in or desire to acquire any ownership interest in
the Divestiture 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 or Acquirers, any other third party, or the
trustee, if applicable, additional information concerning the proposed
divestiture, the proposed Acquirer or Acquirers, and any other
potential
[[Page 5139]]
Acquirer. Defendants and the trustee shall furnish any additional
information requested within fifteen (15) calendar days of the receipt
of the request, unless the parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from defendants, the
Acquirer or Acquirers or any proposed Acquirer, any third party, and
the trustee, whichever is later, the United States shall provide
written notice to defendants and the trustee stating whether or not it
objects to the proposed divestiture. If the United States provides
written notice that it does not object, the divestiture may be
consummated, subject only to defendants' limited right to object to the
sale under Section V(C) of this Final Judgment. Absent written notice
that the United States does not object to the proposed Acquirer(s) or
upon objection by the United States, a divestiture proposed under
Section V shall not be consummated. Upon objection by defendants under
Section V(C), a divestiture proposed under Section V shall not be
consummated unless approved by the Court.
VII. Financing
Defendants shall not finance all or any part of any purchase made
pursuant to Section IV or V of this Final Judgment.
VIII. Hold Separate Stipulation and Order
Until the divestiture required by this Final Judgment has been
accomplished, defendants shall take all steps necessary to comply with
the Hold Separate Stipulation and Order entered by this Court.
Defendants shall take no action that would jeopardize the divestiture
ordered by this Court.
IX. Affidavits
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter, and every thirty (30) calendar days thereafter until
the divestiture has been completed under Section IV or V, defendants
shall deliver to the United States an affidavit as to the fact and
manner of its compliance with Section IV or V of this Final Judgment.
Each such affidavit shall include the name, address, and telephone
number of each person who, during the preceding thirty (30) calendar
days, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any interest in the Divestiture 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 the information, shall be made within fourteen
(14) calendar days of receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, defendants shall deliver to the United States an
affidavit that describes in reasonable detail all actions defendants
have taken and all steps defendants have implemented on an ongoing
basis to comply with Section VIII of this Final Judgment. Defendants
shall deliver to the United States an affidavit describing any changes
to the efforts and actions outlined in defendants' earlier affidavits
filed pursuant to this section within fifteen (15) calendar days after
the change is implemented.
C. Defendants shall keep all records of all efforts made to
preserve and divest the Divestiture Assets until one year after such
divestiture has been completed.
X. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time authorized representatives of the United States
Department of Justice Antitrust Division (``United States''), 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 contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, except in the course of legal proceedings to which the United
States is a party (including grand jury proceedings), or for the
purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D. If at the time information or documents are furnished by
defendants to the United States, defendants represent and identify in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(1)(G) of the
Federal Rules of Civil Procedure, and defendants mark each pertinent
page of such material, ``Subject to claim of protection under Rule
26(c)(1)(G) of the Federal Rules of Civil Procedure,'' then the United
States shall give defendants ten (10) calendar days notice prior to
divulging such material in any legal proceeding (other than a grand
jury proceeding).
XI. Notification of Future Transactions
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''),
defendants, without providing advance notification to the Antitrust
Division, shall not directly or indirectly acquire any assets of or
interest, including any financial, security, loan, equity or management
interest, in any entity that has sold, at any time in the three years
prior to the Closing Date, a downstream refinery desalter that was used
in or purchased by a customer in the United States during the term of
this Final Judgment.
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, except that the
information requested in Items 5
[[Page 5140]]
through 9 of the instructions must be provided only about refinery
desalters. Notification shall be provided at least thirty (30) calendar
days prior to acquiring any such interest, 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, defendants 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.
XII. No Reacquisition
Defendants may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment.
XIII. 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.
XIV. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XV. 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's responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and response to comments filed with
the Court, entry of this Final Judgment is in the public interest.
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. 16.
United States District Judge.
United States of America, Plaintiff, v. Cameron International
Corporation, and NATCO Group Inc., Defendants.
Case No.: 09-cv-02165.
Judge: Hon. Rosemary M. Collyer.
Deck Type: Antitrust.
Date Stamp: Filed 1/20/2010.
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 Cameron International Corporation (``Cameron'') and
NATCO Group Inc. (``NATCO'') entered into an Agreement and Plan of
Merger, dated June 1, 2009, pursuant to which Cameron agreed to acquire
NATCO in an all-stock transaction. On November 18, 2009, NATCO
shareholders voted to approve the transaction and defendants closed the
transaction that same day.
The United States filed a civil antitrust Complaint on November 17,
2009, seeking to enjoin Cameron's acquisition of NATCO. The Complaint
alleged that the acquisition likely would substantially lessen
competition for customized electrostatic desalters used in the oil
refining industry (hereinafter, ``refinery desalters'') in violation of
Section 7 of the Clayton Act, 15 U.S.C. 18. That loss of competition
likely would result in higher prices, less favorable terms of sale, and
less innovation in the U.S. refinery desalter market.
The United States's Complaint also sought to remedy the harm
resulting from Cameron's acquisition of certain refinery desalter
assets from Chicago Bridge & Iron N.V. (``CB&I'') in 2005. In that
acquisition, Cameron, through Petreco International, Inc., acquired the
desalting, dehydration, distallate treating, and gas oil separation
equipment business of Howe Baker Engineers Ltd., which was a wholly
owned subsidiary of CB&I (hereinafter, the ``Howe Baker assets'').
These assets primarily comprise the intellectual property and data
necessary to manufacture desalters and dehydrators utilizing Howe
Baker's Enhanced Deep-Grid Electrical (``EDGE'') technology, and the
trademark to the EDGE name. Cameron's acquisition of the Howe Baker
assets reduced from two to one the number of sellers of refinery
desalters in the U.S. market at that time. The Complaint alleged that
the acquisition substantially lessened competition for refinery
desalters in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
That loss of competition gave Cameron the power to raise prices, offer
less favorable terms of sale, and invest less in technology in the U.S.
refinery desalter market.
At the same time the Complaint was filed, the United States filed a
Hold Separate Stipulation and Order (``Hold Separate'') and proposed
Final Judgment, which are designed to eliminate the anticompetitive
effects of Cameron's proposed acquisition of NATCO and Cameron's
consummated acquisition of the Howe Baker assets. Under the proposed
Final Judgment, which is explained more fully below, Cameron is
required to divest the Howe Baker desalter and dehydrator assets that
it purchased from CB&I, as well as any additions to or improvements of
those assets. In addition, Cameron is required to divest a fully paid-
up, non-exclusive, worldwide, irrevocable license to NATCO's refinery
desalter technology that utilizes dual frequency transformers and AC/DC
power supplies (hereinafter, ``dual frequency technology''). Finally,
Cameron is required to divest an option to purchase either Cameron's or
NATCO's pilot plant, which is equipment used to evaluate and simulate
performance of desalter technologies on oil samples. Under the terms of
the Hold Separate, Cameron and NATCO will take certain steps to ensure
that the Howe Baker assets and the pilot plants are fully maintained in
operable condition and that Cameron and NATCO maintain and adhere to
normal repair and maintenance schedules for these assets.
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 Violations
A. The Defendants
Cameron is a worldwide provider of equipment used at or near oil or
gas wells and in refineries. It also manufactures valves and flow
measurement systems used in oil and gas drilling, production,
transportation,
[[Page 5141]]
and refining, as well as compression products, systems, and services to
the oil and gas industries. In 2008, Cameron reported total sales of
approximately $5.85 billion. Cameron is the leading U.S. supplier of
refinery desalters. Its sales of refinery desalters in the United
States were approximately $10.2 million in 2008.
NATCO is a worldwide provider of equipment used to separate oil,
gas, and water within a production stream and to remove contaminants.
It also sells equipment used in refinery and petrochemical facilities
around the world to improve processing and separation. NATCO reported
revenues of $657 million in 2008. After Cameron, NATCO is the next most
significant U.S. supplier of refinery desalters. NATCO's sales of
refinery desalters in the United States were approximately $10.55
million in 2008.
B. The Competitive Effects of the Acquisitions on the U.S. Market for
Refinery Desalters
1. Relevant Markets
Desalting is a critical initial stage of the refining process.
Refinery desalters are used to remove salt from crude oil
``downstream,'' which is the oil refining stage of production.
Refinery desalters consist of a steel pressure vessel with an
external transformer and controller and a set of ``internals,''
consisting primarily of electrostatic separation grids. In a refinery
desalter, fresh water is mixed into the incoming crude oil to dissolve
various salts. Inside the pressure vessel, high-voltage electrical
charges cause water droplets containing dissolved salts to coalesce
into larger droplets. As the water droplets reach a critical size, they
sink to the bottom of the vessel. Oil is removed from the top of the
vessel for further processing in the refinery and waste water is
removed from the vessel bottom. Solids that sink to the bottom of the
vessel also are removed.
Similarly, when oil is removed ``upstream'' from a production
wellhead, it may be mixed with water, dissolved salts, and other
impurities, including solids. A variety of separation equipment is used
at the wellhead to remove these impurities from the oil. At times,
electrostatic separation equipment is required to meet the
specifications that are necessary for the oil to be transported away
from the wellhead, with water typically removed to a volume of about
one percent. Often there are no specifications for salt removal at the
wellhead.
Compared to the electrostatic separation equipment used at the
wellhead, refinery desalters remove water and salt to lower specified
levels. For example, in a refinery desalter, separation of the water
from the oil results in the removal of salt to levels of no more than
two pounds of salt per thousand barrels, and often significantly less,
and of water to levels of approximately 0.2 to 0.5 percent by volume.
Refinery desalters must also produce cleaner effluent water than
electrostatic separation equipment used at the wellhead.
Further, refinery desalters are more complex than electrostatic
separation equipment used at the wellhead. For example, upstream
electrostatic separation equipment removes water from only one kind of
crude oil and the properties of that crude oil are known when
purchasing the equipment. In contrast, refinery desalters are designed
to be able to remove salt and water from different blends of crude
oils. The different crude oils coming into refineries typically vary in
density, the blends of crudes mixed together, electrical properties,
salt content, and the amount of other impurities. In addition, refinery
desalters handle higher oil volumes than electrostatic separation
equipment used at the wellhead because refinery capacity is often much
greater than output at a single production wellhead. And, unlike most
electrostatic separation equipment used at the wellhead, refinery
desalters often must: (1) Remove solids; (2) handle oil that has been
pre-heated to approximately 230 to 300 degrees, which changes the
electrical properties of oil; (3) handle water droplets of a much
smaller size and tighter emulsions of oil and water; and (4) be able to
perform effectively with changing feedstock crude oil. Finally,
although electrostatic separation equipment used at the wellhead and
refinery desalters each use chemicals that enhance their performance,
optimizing the use of chemicals in a refinery desalter is far more
difficult than optimizing their use at the wellhead.
A small but significant increase in the price of refinery desalters
would not cause customers to substitute electrostatic separation
equipment used at the wellhead, or any other type of equipment or
chemicals, with sufficient frequency so as to make such a price
increase unprofitable. Accordingly, the United States alleged that
refinery desalters are a relevant product market within the meaning of
Section 7 of the Clayton Act.
Refinery desalters are sold pursuant to bids, which are based on
technical specifications from the customer and include commercial
terms. Suppliers of refinery desalters use patented or proprietary
technology and know-how--including expertise gained through years of
trial and error and experience with prior installations--to custom-
design refinery desalters that satisfy customer specifications.
Refineries evaluate the competing bids based on compliance with
technical specifications and commercial considerations such as price,
delivery schedule, and terms of sale. The exact technical and
commercial needs of the customer differ for each refinery desalter
project.
Those competitors that could constrain Cameron from raising prices
on bids for refinery desalters in the United States typically are
suppliers with a substantial U.S. presence, including sales, technical,
and support personnel and parts distribution within the United States.
Refineries prefer such suppliers because, during the design, bid,
execution, and installation phases of a project, customers interact
with suppliers to address design recommendations and changes, track
construction progress, and ensure successful installation. Further,
customers purchasing refinery desalters can avoid costly delays or
downtime in refinery operations by selecting a desalter supplier that
is able to respond quickly and effectively to requests for service or
replacement parts during the operating life of the desalter.
A small but significant increase in the price of refinery desalters
in the United States would not cause a sufficient number of customers
in the United States to turn to manufacturers of refinery desalters
that do not have a substantial physical presence in the United States
so as to make such a price increase unprofitable. Accordingly, the
United States alleged that the United States is a relevant geographic
market with the meaning of Section 7 of the Clayton Act.
2. Anticompetitive Effects
The proposed acquisition of NATCO by Cameron would substantially
lessen competition in the U.S. refinery desalter market. Most new
desalter sales in the United States result from competitive bids and
customers typically seek alternative bidders. When the bidding is
competitive, each bidder may be aware of its competitors, but does not
know the technical or commercial terms of its competitors' bids prior
to submitting its own bid. That uncertainty likely restrains each
bidder's pricing.
Currently only three competitors--including Cameron and NATCO--have
sold refinery desalters in the United States since 2007. The third
competitor
[[Page 5142]]
often does not submit bids on U.S. refinery desalter projects and has
sold only one refinery desalter in the United States. Cameron's
acquisition of NATCO therefore would reduce the current number of
bidders on U.S. refinery desalter projects from three to two or, when
the third competitor does not or cannot bid, from two to one. It would
also eliminate many customers' preferred alternative to Cameron. As a
result, after acquiring NATCO, Cameron would gain the incentive and
ability to profitably raise its bid prices significantly above the
level they would be absent the acquisition. Post-acquisition, Cameron
would be aware that many customers strongly prefer it as a supplier to
the sole remaining competitor. The remaining refinery desalter
manufacturer cannot fully constrain a unilateral exercise of market
power by Cameron, and it would have the incentive to increase its bid
price in response to such an exercise of market power. The elimination
of NATCO as a competitor would also reduce the remaining bidder's
incentive to offer quick delivery or other terms of sale attractive to
customers and to invest in certain technology improvements, such as
NATCO's innovative dual frequency technology.
Entry or expansion by any other firm into the U.S. refinery
desalter market likely would not prevent the substantial lessening of
competition that would likely result if Cameron acquired NATCO. Firms
attempting to enter into the development, production, and sale of
refinery desalters in the United States face several barriers to entry.
First, the technology and expertise involved in developing and
producing refinery desalters capable of handling U.S. crude feedstocks
is difficult to obtain. Second, establishing a reputation for
successful performance and gaining customer confidence is difficult to
do and can take years and the expenditure of substantial sunk costs.
And, the small size of the U.S. refinery desalter market may deter
firms from investing in establishing the personnel and parts
distribution presence required to compete effectively in the United
States. Finally, suppliers of refinery desalters must demonstrate that
they are financially sound and will be able to respond quickly and
effectively to a request for service or parts and to meet warranty
obligations years after the sale.
Therefore, the United States alleged that Cameron's acquisition of
NATCO would substantially lessen competition in the development,
production, and sale of refinery desalters in the United States. The
acquisition would likely lead to higher prices, less favorable terms of
sale, and less innovation in the U.S. refinery desalter market, in
violation of Section 7 of the Clayton Act.
Moreover, Cameron's acquisition of the Howe Baker assets did
substantially lessen competition in the U.S. market for refinery
desalters. Competition between Cameron and CB&I benefitted customers
because Cameron and CB&I competed directly based on price, terms of
sale, and technology. In 2005, when Cameron acquired the Howe Baker
assets, Cameron and CB&I accounted for approximately 75 and 25 percent,
respectively, of refinery desalter sales in the United States.
Therefore, Cameron's acquisition of the Howe Baker assets resulted in a
reduction in the number of competitors selling refinery desalters in
the United States from two to one. As a result, Cameron gained the
power to raise prices, offer less favorable terms of sale, and invest
less in technology.
III. Explanation of the Proposed Final Judgment
The divestitures required by the proposed Final Judgment will
eliminate the anticompetitive effects that would otherwise likely
result from Cameron's acquisition of NATCO. The divestitures will also
eliminate the anticompetitive effects that resulted from Cameron's
acquisition of the Howe Baker assets. These divestitures make available
assets that will facilitate the creation of at least one additional
independent, economically viable competitor to Cameron in the U.S.
refinery desalter market.
The proposed Final Judgment requires Cameron and NATCO to divest
the following assets, among other things, within ninety (90) days after
the filing of the Complaint, or five (5) days after notice of the entry
of the Final Judgment by the Court, whichever is later: (1) The Howe
Baker desalter and dehydrator assets, including all tangible and
intangible property associated with them; (2) a license to NATCO's dual
frequency technology; and (3) an option to purchase either Cameron's or
NATCO's pilot plant. The proposed Final Judgment also requires Cameron
and NATCO to provide the Acquirer or Acquirers of the divestiture
assets information relating to personnel involved in the development,
production, sale, repair, or service of refinery desalters to enable
them to make offers of employment, and prevents Cameron and NATCO from
interfering with any negotiations by the Acquirer or Acquirers to
employ any employee whose primary responsibility is the development,
production, sale, repair, or service of refinery desalters. In
addition, at the option of the Acquirer or Acquirers, the proposed
Final Judgment requires Cameron and NATCO to provide a transition
services agreement. This agreement must be sufficient to meet all or
part of the Acquirers' needs for assistance in matters relating to the
utilization of the divestiture assets for a period of at least six
months.
The assets required to be divested 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 or Acquirers as viable,
ongoing businesses that can compete effectively in the development,
production, sale, repair, and service of refinery desalters in the
United States. These assets may be divested to one or more Acquirers,
provided that the assets listed in paragraphs II(J)(1) and (2) of the
proposed Final Judgment (the Howe Baker assets) are divested to the
same purchaser and that all of the assets listed in paragraphs II(J)(3)
and (4) of the proposed Final Judgment (the dual frequency license and
pilot plant option) are divested to the same purchaser. Defendants must
take all reasonable steps necessary to accomplish the divestitures
quickly and shall cooperate with prospective purchasers.
In the event that defendants do not accomplish the divestiture
within the periods prescribed in the proposed Final Judgment, the Final
Judgment provides that the Court will appoint a trustee selected by the
United States to effect the divestiture. If a trustee is appointed, the
proposed Final Judgment provides that defendants will pay all costs and
expenses of the trustee. The trustee's commission will be structured so
as to provide an incentive for the trustee based on the price and terms
obtained and the speed with which the divestiture is accomplished.
After his or her appointment becomes effective, the trustee will file
monthly reports with the Court and the United States setting forth his
or her efforts to accomplish the divestiture. At the end of six (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 that likely would result if
Cameron acquired NATCO because the Acquirer will have a license to
NATCO's innovative dual
[[Page 5143]]
frequency technology as well as an option to purchase a pilot plant to
test crude oils. Those provisions also will eliminate the
anticompetitive effects that resulted from Cameron's acquisition of the
Howe Baker assets because the Acquirer will obtain the desalter and
dehydrator assets that Cameron purchased from CB&I in 2005.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in Federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
16(a), the proposed Final Judgment has no prima facie effect in any
subsequent private lawsuit that may be brought against defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register, or the last date of
publication in a newspaper of the summary of this Competitive Impact
Statement, whichever is later. All comments received during this period
will be considered by the United States Department of Justice, which
remains free to withdraw its consent to the proposed Final Judgment at
any time prior to the Court's entry of judgment. The comments and the
response of the United States will be filed with the Court and
published in the Federal Register. Written comments should be submitted
to: Maribeth Petrizzi, Chief, Litigation II Section, Antitrust
Division, United States Department of Justice, 450 Fifth Street, NW.,
Suite 8700, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against defendants. The
United States could have continued the litigation and sought
preliminary and permanent injunctions preventing Cameron's acquisition
of NATCO and an order compelling Cameron to divest the Howe Baker
assets. The United States is satisfied, however, that the divestiture
of the assets described in the proposed Final Judgment will preserve
competition for the development, production, and sale of refinery
desalters in the United States. Thus, the proposed Final Judgment would
achieve all or substantially all of the relief the United States would
have obtained through litigation, but avoids the time, expense, and
uncertainty of a full trial on the merits of the Complaint.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a 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 in
accordance with the statute, the court 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.D.C. 2007) (assessing public
interest standard under the Tunney Act); United States v. InBev N.V./
S.A., 2009-2 Trade Cas. (CCH) ] 76,736, 2009 U.S. Dist. LEXIS 84787,
No. 08-1965 (JR), at *3 (D.D.C. Aug. 11, 2009) (noting that the court's
review of a consent judgment is limited and only inquires ``into
whether the government's determination that the proposed remedies will
cure the antitrust violations alleged in the complaint was reasonable,
and whether the mechanism to enforce the final judgment are clear and
manageable.'').
As the United States Court of Appeals for the District of Columbia
has held, under the APPA a court considers, among other things, the
relationship between the remedy secured and the specific allegations
set forth in the government's complaint, whether the decree is
sufficiently clear, whether enforcement mechanisms are sufficient, and
whether the decree may positively harm third parties. See Microsoft, 56
F.3d at 1458-62. With respect to the adequacy of the relief secured by
the decree, a court may not ``engage in an unrestricted evaluation of
what relief would best serve the public.'' United States v. BNS, Inc.,
858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel
Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d
at 1460-62; United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40
(D.D.C. 2001); InBev, 2009 U.S. Dist. LEXIS 84787, at *3. 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.
[[Page 5144]]
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\1\ In
determining whether a proposed settlement is in the public interest,
the court ``must accord deference to the government's predictions about
the efficacy of its remedies, and may not require that the remedies
perfectly match the alleged violations.'' SBC Commc'ns, 489 F. Supp. 2d
at 17; see also Microsoft, 56 F.3d at 1461 (noting the need for courts
to be ``deferential to the government's predictions as to the effect of
the proposed remedies''); United States v. Archer-Daniels-Midland Co.,
272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant
due respect to the United States's 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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\1\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest' '').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[A] proposed decree must be approved
even if it falls short of the remedy the court would impose on its own,
as long as it falls within the range of acceptability or is `within the
reaches of public interest.' '' United States v. Am. Tel. & Tel. Co.,
552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also
United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky.
1985) (approving the consent decree even though the court would have
imposed a greater remedy). Therefore, 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; see also InBev, 2009
U.S. Dist. LEXIS 84787, at *20 (``the `public interest' is not to be
measured by comparing the violations alleged in the complaint against
those the court believes could have, or even should have, been
alleged''). 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. Microsoft, 56 F.3d at 1459-60.
As this Court 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.'' 489 F. Supp. 2d at 15.
In its 2004 amendments to the Tunney Act,\2\ Congress made clear
its intent to preserve the practical benefits of utilizing consent
decrees in antitrust enforcement, stating: ``[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 of Tunney Act proceedings.'' SBC Commc'ns, 489 F. Supp. 2d
at 11.\3\
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\2\ The 2004 amendments substituted the word ``shall'' for
``may'' when directing the courts to consider the enumerated factors
and amended the list of factors to focus on competitive
considerations and 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).
\3\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ]
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt
failure of the government to discharge its duty, the Court, in
making its public interest finding, should * * * carefully consider
the explanations of the government in the competitive impact
statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated
simply on the basis of briefs and oral arguments, that is the
approach that should be utilized.'').
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: January 20, 2010.
Respectfully submitted.
Christine A. Hill,
DC Bar #461048, U.S. Department of Justice, Antitrust Division,
Litigation II Section, 450 Fifth Street, NW., Suite 8700,
Washington, DC 20530. (202) 305-2738.
Certificate of Service
I, Christine A. Hill, hereby certify that on January 20, 2010, I
caused a copy of the foregoing Competitive Impact Statement to be
served upon defendants Cameron International Corporation and NATCO
Group Inc. by mailing the documents electronically to the duly
authorized legal representatives of defendants as follows:
Counsel for Defendant Cameron International Corporation
Sean F.X. Boland, Esquire, Paul Cuomo, Esquire, Howrey LLP, 1299
Pennsylvania Avenue, NW., Washington, DC 20004. [email protected].
[email protected].
Counsel for Defendant NATCO Group Inc.
Bradley C. Weber, Esquire, Locke Lord Bissell & Liddell LLP, 2200
Ross Avenue, Suite 2200, Dallas, Texas 75201. [email protected].
Christine A. Hill, Esquire,
DC Bar #461048, United States Department of Justice, Antitrust
Division, Litigation II Section, 450 Fifth Street, NW., Suite 8700,
Washington, DC 20530. (202) 305-2738.
[FR Doc. 2010-1961 Filed 1-29-10; 8:45 am]
BILLING CODE 4410-11-P