Siemens/Vodafone pact OK'd with divestitures [B]

Siemens/Vodafone pact OK'd with divestitures [B]
From BRIDGENEWS GLOBAL MARKETS, April 9th, 2001

Washington, April 9 (BridgeNews) – Regulators at the Federal Trade
Commission late Friday announced approval of Siemen's AG $9 billion purchase of
Atecs Mannesmann AG, provided some sections of the companies are sold to
Northrup Grumman Corp. FTC cited concerns about competition in the postal
automation market. — Cecile T. Kohrs, BridgeNews * * *
The following is the text of today's announcement. BridgeStation links to
company data have been inserted at the end: FTC Accepts Divestiture to Preserve Competition in the Market for Postal
Automation Systems
The Federal Trade Commission has accepted a consent order to remedy the likely
anticompetitive effects stemming from the proposed acquisition by Siemens AG
("Siemens") of certain voting securities of Atecs Mannesmann AG ("Atecs") from
Vodafone Group Plc ("Vodafone") for approximately $9 billion. Siemens and
Vodafone, through its Dematic subsidiary, are the two leading world-wide
suppliers of postal automation systems. These systems are purchased by public
postal services throughout the world, including the United States Postal
Service ("USPS"). Under the terms of the proposed order, Siemens and Vodafone
will be required to divest Vodafone's Mannesmann Dematic Postal Automation
business ("MDPA business") to Northrop Grumman Corp. ("Northrop") no later than
ten days from the date Siemens consummates its acquisition of Atecs.
Public postal services throughout the world purchase postal automation systems
to process letter mail and flat mail, which includes over-sized envelopes,
catalogs, and magazines. These highly integrated systems are able to cancel
stamps or meter marks, read addresses using optical character recognition
technology, translate addresses into destination barcodes, and use these
barcodes to sort mail by country, state, city and/or street. Postal automation
systems reduce the amount of labor needed to reliably handle the millions of
pieces of mail received daily by public postal services.
"The proposed settlement will ensure continued competition in the $1 billion
market for postal automation systems" said Molly S. Boast, Acting Director of
the FTC's Bureau of Competition. "Northrop is a strong and viable purchaser,
committed to expanding MDPA's presence in the market and serving important
customers like the USPS."
Headquartered in Munich, Germany, Siemens is a world leader in electrical
engineering and electronics. Siemens, through its ElectroCom division, is also
the world's leading supplier of postal automation systems, with over 14,000
machines deployed or on order in over 30 countries.
Vodafone is the second largest company in the United Kingdom and the world's
largest supplier of mobile telecommunications services. In early 2000, Vodafone
acquired Mannesmann, which was comprised of two companies: Mannesmann AG and
Atecs. Mannesmann AG is involved primarily in telecommunications. Atecs is made
up of five operating subsidiaries: (1) Dematic; (2) Rexroth; (3) Demag
Kraus-Maffei; (4) VDO; and (5) Sachs. VDO and Sachs are involved in the
manufacture and sale of automotive products, while Dematic, Rexroth and Demag
Kraus-Maffei are involved in various automation and industrial equipment
businesses.
According to the FTC, Siemens and Dematic regularly bid against each other for
significant public postal contracts, and they supply postal automation systems
to virtually all of the major public postal services in the world, including
the USPS. The postal automation systems market is highly concentrated, the
FTC's complaint states, and the proposed acquisition would allow Siemens to
purchase its closest competitor. After the acquisition, the complaint alleges,
Siemens would control approximately 50% of the world-wide postal automation
systems market.
In addition, according to the FTC, there are significant impediments to new
entry into the postal automation systems market. Customers require highly
sophisticated and reliable systems in order to process the large volume of mail
they handle daily. Consequently, customers do not consider new suppliers of
postal automation systems unless they first establish a track record of
successfully delivering smaller component parts. A supplier must then develop a
competitive system and have the resources to participate in the very lengthy
competitions typical in this market. These steps are difficult, expensive and
time-consuming. For this reason, new entry into the market for postal
automation systems would not be accomplished in a timely manner or be likely to
occur at all even if prices increased substantially after the proposed
acquisition.
According to the complaint, the effects of the acquisition, if consummated, may
be substantially to lessen competition and to tend to create a monopoly in the
relevant market in the following ways, among others:
by eliminating actual, direct, and substantial competition between Siemens and
Vodafone in the relevant market;
by increasing the likelihood that Siemens will unilaterally exercise market
power in the relevant market;
by increasing the likelihood of coordinated interaction in the relevant market;
by increasing the likelihood that customers of postal automation systems would
be forced to pay higher prices; and
by increasing the likelihood that innovation and service levels would be
reduced in the relevant market.
The proposed order effectively remedies the acquisition's anticompetitive
effects in the market for postal automation systems by requiring the parties to
divest Vodafone's postal automation business to a Commission-approved acquirer.
Siemens and Vodafone would be required to divest the MDPA business to Northrop,
no later than ten days after the proposed acquisition of Atecs is consummated.
The proposed order contains several provisions designed to ensure that the
divestiture of the MDPA business is successful. The proposed order also
requires Siemens and Vodafone to provide incentives to certain employees to
continue in their positions until the divestiture is accomplished. Under
certain circumstances, Siemens would be required to provide additional
incentives to key employees to accept employment, and remain employed, by the
acquirer. For a period of one year from the date the divestiture of the MDPA
business is accomplished, Siemens and Vodafone would be prohibited from
soliciting or inducing any employees or agents of the MDPA business to
terminate their employment with MDPA. In addition, for a period of four months
following the date the divestiture is accomplished, Siemens and Vodafone would
be prohibited from hiring any employees or agents of MDPA. Further, the
proposed agreement would prohibit Siemens and Vodafone from soliciting MDPA
customers for a period of two years from the date Siemens signs its divestiture
agreement with the acquirer of the MDPA business. Finally, Siemens will not be
permitted to disclose to any person or use any information it obtains relating
to the MDPA business.
The proposed order also contains limited technology licensing and other
contract-related requirements designed to assure the uninterrupted development
and supply to the USPS of certain new technologies, and a number of
recordkeeping and reporting requirements designed to assist the FTC in
monitoring compliance with its terms.
l
An announcement regarding the proposed consent agreement will be published in
the Federal Register shortly. It will be subject to public comment for 30 days,
until May 9, 2001, after which the Commission will decide whether to make it
final. Comments should be addressed to the FTC, Office of the Secretary, 600
Pennsylvania Avenue, N.W., Washington, D.C. 20580. The Commission vote to place
the complaint and proposed settlement on the public record was 5-0.
End
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Copyright 2001 Bridge Information Systems Inc. All rights reserved.BRIDGENEWS GLOBAL MARKETS, 09th April 2001