United States v. ZF Friedrichshafen AG, et al.; Proposed Final Judgment and Competitive Impact Statement |
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Topics: Wabco, ZF Friedrichshafen
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Daniel J. Monahan, Jr.
Department of Justice
31 January 2020
[Federal Register Volume 85, Number 21 (Friday, January 31, 2020)]
[Notices]
[Pages 5707-5719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01759]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. ZF Friedrichshafen AG, 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 of America v. ZF Friedrichshafen AG, et al., Civil Action No.
1:20-cv-00182. On January 23, 2020, the United States filed a Complaint
alleging that ZF Friedrichshafen AG's proposed acquisition of WABCO
Holdings, Inc. would violate Section 7 of the Clayton Act, 15 U.S.C.
18. The proposed Final Judgment, filed at the same time as the
Complaint, requires Defendants to divest WABCO's R.H. Sheppard Co.,
Inc. subsidiary, along with certain related WABCO assets.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection on the Antitrust
Division's website at http://www.justice.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, including the name of the submitter, and
responses thereto, will be posted on the Antitrust Division's website,
filed with the Court, and, under certain circumstances, published in
the Federal Register. Comments should be directed to John Read, Acting
Chief, Defense, Industrials, and Aerospace Section, Antitrust Division,
Department of Justice, 450 Fifth Street NW, Suite 8700, Washington, DC
20530 (telephone: 202-307-0468).
Amy Fitzpatrick,
Counsel to the Senior, Director of Investigations and Litigation.
United States District Court for the District of Columbia
United States of America, U.S. Department of Justice, Antitrust
Division, 450 Fifth Street NW, Suite 8700, Washington, DC 20530,
Plaintiff, v. ZF Friedrichshafen A.G., Lowentaler Strasse 20, 88046
Friedrichshafen, Germany, and WABCO Holdings, Inc., 1220 Pacific
Drive, Auburn Hills, MI 48326, Defendants.
Civil Action No.: 1:20-cv-00182
Judge: Hon. Ketanji B. Jackson
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 ZF Friedrichshafen AG
(``ZF'') and WABCO Holdings, Inc. (``WABCO'') to enjoin the proposed
merger of ZF and WABCO. The United States complains and alleges as
follows:
I. Nature of the Action
1. Pursuant to an agreement and plan of merger dated March 28,
2019, ZF and WABCO propose to merge in a transaction that would unite
two of the leading global suppliers of components used in the
manufacture of large commercial vehicles (``LCVs''), which include
commercial trucks and buses.
2. ZF and WABCO are the only suppliers of steering gears for use in
LCVs in North America. Steering gears are an essential part of the
steering systems used to direct the front wheels of LCVs. They are also
a key component of advanced driver-assisted steering systems that
provide safer, more efficient vehicle operation, and could ultimately
be developed to enable autonomous operation of LCVs. The proposed
merger would eliminate competition between ZF and WABCO and likely
create a monopoly for LCV steering gears in North America.
3. As a result, the proposed transaction likely would substantially
lessen competition in the market for the design, manufacture, and sale
of LCV steering gears in North America in violation of Section 7 of the
Clayton Act, 15 U.S.C. 18.
II. The Defendants and the Transaction
4. ZF is a German company headquartered in Friedrichshafen,
Germany. It has 149,000 employees in 40 countries, and had annual sales
of $36.9 billion in 2018, $9.6 billion of which were in the United
States. ZF's North American business historically focused on the
production and sale of transmissions to passenger and light vehicle
manufacturers, but in 2015, ZF acquired a leading U.S. steering systems
manufacturer, TRW, Inc. ZF's U.S. headquarters are in Livonia,
Michigan.
5. WABCO is a Delaware corporation with a North American
headquarters in Auburn Hills, Michigan, and a global headquarters in
Bern, Switzerland. WABCO descends from the original Westinghouse Air
Brake Company formed in 1869. It has 16,000 employees in 40 countries,
and had annual sales in 2018 of $3.8 billion, $850 million of which
were in the United States. WABCO's North American business historically
focused on commercial vehicle air brake and air suspension components,
but in 2017, WABCO acquired a leading U.S. commercial vehicle steering
component company, R.H. Sheppard Co., Inc.
6. On March 28, 2019, pursuant to an agreement and plan of merger,
ZF agreed to acquire WABCO in a deal valued at approximately $7
billion.
III. Jurisdiction and Venue
7. The United States brings this action under Section 15 of the
Clayton Act, 15 U.S.C. 25, as amended, to prevent and restrain
Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. 18.
8. Defendants design, manufacture, and sell LCV steering gears in
the United States that are used on LCVs in service throughout the
United States. Defendants' activities in the design, manufacture, and
sale of these products
[[Page 5708]]
therefore 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.
9. Defendants have consented to venue and personal jurisdiction in
this judicial district. Venue is therefore proper in this district
under Section 12 of the Clayton Act, 15 U.S.C. 22, and under 28 U.S.C.
1391(c).
IV. LCV Steering Gears
A. Background
10. Steering system components work together to direct a vehicle,
and include steering gears, steering pumps, pitman arms, steering
columns, steering linkages, and electronic steering controls. Steering
equipment suitable for LCVs is sophisticated and highly engineered,
especially the key component: Steering gears. LCVs include all trucks,
buses, and off-road vehicles that weigh over 19,501 pounds (defined as
Class 6-8 vehicles by the United States Department of Transportation
(49 CFR 565.15)).
11. Steering gears are located below the steering column (which is
attached to the steering wheel) and translate direction to the steering
linkage. Steering gears for LCVs have a complex hydraulic power
recirculating ball gear. Steering gears must be tuned carefully to
operate within the specifications of the individual LCV's design and
performance requirements, and must work together with the entire system
of steering equipment. An example of an LCV steering gear system is
pictured below:
[GRAPHIC] [TIFF OMITTED] TN31JA20.011
12. Advanced LCV steering gears also include what is known as a
torque overlay. A torque overlay adds hardware that enables the
steering gear to quickly and independently direct the vehicle without
the input of the steering column, and allows for advanced driver
assistance system (``ADAS'') steering features. ADAS technology in
general includes features such as lane keeping assist, adaptive cruise
control, automated emergency braking, blind spot detection, and other
similar features. For ADAS steering features, torque overlay steering
gears work with sensors and electronic controls that detect the
environment around the vehicle and then work with the steering hardware
to keep the vehicle on the correct path and avoid collisions. Within
the last five years, truck and bus manufacturers have begun to use
steering-related ADAS features, and both Defendants are actively
engaged in research and development to improve steering-related ADAS
features for eventual use in autonomous trucks and buses. In the
future, steering-related ADAS features may be developed to the point
where they can be combined with
[[Page 5709]]
other ADAS technology related to braking and powertrain control,
enabling the potential for fully autonomous operation of commercial
vehicles. LCV steering gears will continue to be a key component as
future ADAS technology is developed.
13. Truck and bus manufacturers are the primary customers for LCV
steering gears. These customers incorporate LCV steering gears into the
vehicle's final assembly, and then sell to end-use customers. Other LCV
steering gear customers include manufacturers of commercial vehicles
for off-road, military, mining, and agriculture uses. Typically,
customers purchase LCV steering gears separately from other steering
components, although they also may choose to purchase a whole steering
system. In some cases, another entity may buy the LCV steering gear
from one of the merging parties and then integrate it into a whole
steering system that it sells to truck or bus manufacturers. Customers
generally buy steering gears either based on pre-established price
lists or after a competitive bidding process.
14. The annual size of the North American market for LCV steering
gears is approximately $220 million.
B. Relevant Markets
1. Product Market: LCV Steering Gears
15. LCV steering gears must be durable and powerful enough to move
large trucks or buses that utilize hydraulic steering systems without
electronic power-assisted steering, because electronic power-assisted
steering is not used on LCVs. This distinguishes LCV steering gears
from lighter and simpler electronic steering gears used for smaller
vehicles such as passenger cars. The quality and usefulness of an LCV
steering gear is defined by several special characteristics, the most
important of which are size, weight, torque required to move, and
sensitivity, which relates to the ability of the gear to respond
quickly and accurately to the driver or inputs from electronic
controls.
16. There are no other steering methods or technologies that can
accomplish the required functions of LCV steering gears. Truck and bus
manufacturers require the highly-capable LCV steering gears discussed
above because the lives and safety of drivers and other motorists,
pedestrians, and property depend on the unfailing performance of an LCV
steering gear to direct the vehicle. Other steering gears are less
capable, and are therefore not a substitute for LCV steering gears
purchased for use in LCVs in North America.
17. For the foregoing reasons, customers will not substitute less-
capable steering gears, or any other product, for LCV steering gears in
response to a small but significant and non-transitory increase in the
price of LCV steering gears. Accordingly, LCV steering gears are a
relevant product market and line of commerce under Section 7 of the
Clayton Act, 15 U.S.C. 18.
2. Geographic Market: North America
18. LCV steering gears used in North America require a different
design and alignment than those used outside North America. This is
because of distinct truck and bus design differences, such as those
related to higher weight and power, and a common configuration in which
the cab is located behind the axles rather than over them. Because of
these differences, truck and bus manufacturers strongly prefer LCV
steering gears that have performed successfully on North American
commercial vehicles, and have been unwilling to purchase steering gears
used only in foreign markets. Customers also require their steering
gear manufacturers to have an established North American presence for
sales, service, and aftermarket support. Having an installed North
American base helps customers to ensure that both in-house and third-
party service technicians have experience with the relevant steering
gears and have an existing spare parts inventory when gears need to be
repaired or replaced. In the face of a small but significant and non-
transitory price increase by North American producers of LCV steering
gears, customers, therefore, are unlikely to turn to manufacturers
located outside North America and who produce LCV steering gears solely
for markets outside North America.
19. North America, therefore, is a relevant geographic market
within the meaning of Section 7 of the Clayton Act, 15 U.S.C. 18.
C. Anticompetitive Effects of the Proposed Transaction
20. ZF and WABCO are the only firms that design, manufacture, and
sell LCV steering gears in North America. After its acquisition of TRW
in 2015, ZF became the leading North American firm selling steering
systems and components for commercial vehicles. In the market for LCV
steering gears in North America, it is estimated to have a 54 percent
market share. WABCO is the only other market participant and has an
estimated 46 percent market share. WABCO sells LCV steering gears
through its wholly-owned R.H. Sheppard subsidiary, which it acquired in
2017. The merger would give the combined firm a monopoly over LCV
steering gears in North America, leaving North American customers
without a sufficient competitive alternative for this critical
component.
21. ZF and WABCO compete for sales of LCV steering gears on the
basis of price, quality, service, innovation, and contractual terms
such as delivery times. This competition has resulted in lower prices,
higher quality, better service, and shorter delivery times. Competition
between ZF and WABCO has also fostered innovation, leading to LCV
steering gears with higher reliability and the innovative features such
as torque overlay that are expected to be integral to the development
of future ADAS technology, including features for autonomous LCVs. The
combination of ZF and WABCO would eliminate this competition and its
future benefits to truck and bus manufacturers and end-use customers.
Post-transaction, the merged firm likely would have the incentive and
ability to increase prices, lower quality or service, offer less
favorable contractual terms, and reduce research and development
efforts that would otherwise lead to innovative and high-quality
products.
22. The proposed merger, therefore, likely would substantially
lessen competition in the design, manufacture, and sale of LCV steering
gears in North America in violation of Section 7 of the Clayton Act, 15
U.S.C. 18.
D. Difficulty of Entry
23. Sufficient, timely entry of additional competitors into the
market for LCV steering gears in North America is unlikely. Truck and
bus manufacturers have shown little interest in buying steering gears
and other components from anyone other than the only two established
suppliers, ZF and WABCO, because of their proven performance and North
American presence.
24. Production facilities and sales and service infrastructure for
LCV steering gears require a substantial investment in both capital
equipment and human resources. To be competitively viable, a new
entrant would need to construct a factory to produce a range of
steering components, establish production lines capable of
manufacturing the components, and build assembly lines and establish or
acquire access to testing equipment and facilities.
25. A new entrant also would need to retain engineering and
research
[[Page 5710]]
personnel to design, test, and troubleshoot the detailed manufacturing
process necessary to produce LCV steering gears acceptable to North
American customers. Any new LCV steering gears also would require
extensive customer testing and qualification before they would be used
by North American truck and bus manufacturers or accepted by end users.
Moreover, because LCV steering gears now being designed and developed
by ZF and WABCO are undergoing continuous technological improvement and
innovation for use in the development of ADAS features, any new entrant
would need to acquire equivalent expertise and proprietary technologies
to enable steering-related ADAS features to be efficiently incorporated
into the advanced electronic control components of future North
American LCVs.
26. Finally, because customers prefer to use LCV steering gear
manufacturers with an existing installed base to ensure efficient and
quality service by customers' in-house or third-party service centers,
a new entrant lacking an installed base would be at a severe
disadvantage.
27. As a result of the barriers described above, entry into the
market for LCV steering gears would not be timely, likely, or
sufficient to defeat the anticompetitive effects likely to result from
the merger of ZF and WABCO.
V. Violations Alleged
28. The merger of ZF and WABCO likely would substantially lessen
competition in the design, manufacture, and sale of LCV steering gears
in the United States in violation of Section 7 of the Clayton Act, 15
U.S.C. 18.
29. Unless enjoined, the merger likely would have the following
anticompetitive effects, among others, related to the relevant market:
(a) Actual and potential competition between ZF and WABCO would be
eliminated;
(b) competition likely would be substantially lessened; and
(c) prices likely would increase, quality and the level of service
would decrease, innovation would decrease, and contractual terms likely
would be less favorable to customers.
VI. Request for Relief
30. The United States requests that this Court:
(a) Adjudge and decree that ZF's merger with WABCO would be
unlawful and violate Section 7 of the Clayton Act, 15 U.S.C. 18;
(b) preliminarily and permanently enjoin and restrain Defendants
and all persons acting on their behalf from consummating the proposed
merger of ZF and WABCO, or from entering into or carrying out any other
contract, agreement, plan, or understanding, the effect of which would
be to combine ZF and WABCO;
(c) award the United States its costs for this action; and
(d) award the United States such other and further relief as the
Court deems just and proper.
Dated: January 23, 2020.
Respectfully submitted,
FOR PLAINTIFF UNITED STATES:
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Makan Delrahim (DC Bar #457795)
Assistant Attorney General
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Bernard A. Nigro, Jr., (DC Bar #412357)
Principal Deputy Assistant Attorney General
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Kathleen S. O'Neill,
Senior Director of Investigations & Litigation
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John R. Read,
Acting Chief, Defense, Industrials, and Aerospace Section
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David E. Altschuler, (DC Bar #983023)
Assistant Chief, Defense, Industrials, and Aerospace Section
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Daniel J. Monahan, Jr.,*
James K. Foster,
Janet A. Nash (DC Bar #1044309)
Attorneys for the United States, U.S. Department of Justice,
Antitrust Division, Defense, Industrials, and Aerospace Section, 450
Fifth Street NW, Suite 8700, Washington, DC 20530, Telephone: (202)
598-8774, Facsimile: (202) 514-9033, Email:
daniel.monahan@usdoj.gov.
*Lead Attorney to be Noticed
United States District Court for the District of Columbia
United States of America, Plaintiff, v. ZF Friedrichshafen AG,
and WABCO Holdings, Inc., Defendants.
Civil Action No.: 1:20-cv-00182
Judge: Hon. Ketanji B. Jackson
[Proposed] Final Judgment
Whereas, Plaintiff, United States of America, filed its Complaint
on January 23, 2020, the United States and Defendants, ZF
Friedrichshafen AG and WABCO Holdings, Inc., by their respective
attorneys, have consented to the entry of this Final Judgment without
trial or adjudication of any issue of fact or law and without this
Final Judgment constituting any evidence against or admission by any
party regarding any issue of fact or law;
And whereas, Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
And whereas, the essence of this Final Judgment is the prompt and
certain divestiture of certain rights or assets by Defendants to assure
that competition is not substantially lessened;
And whereas, Defendants agree 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 not later raise any 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
The Court has jurisdiction over the subject matter of and each of
the parties to this action. The Complaint states a claim upon which
relief may be granted against Defendants under Section 7 of the Clayton
Act, as amended (15 U.S.C. 18).
II. Definitions
As used in this Final Judgment:
A. ``Acquirer'' means the entity to whom Defendants divest the
Divestiture Assets.
B. ``ZF'' means ZF Friedrichshafen AG, a German corporation with
its headquarters in Friedrichshafen, Germany; its successors and
assigns; and its subsidiaries, divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
C. ``WABCO'' means WABCO Holdings, Inc., a Delaware corporation
with its headquarters in Auburn Hills, Michigan; its successors and
assigns; and its subsidiaries, divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
D. ``R.H. Sheppard'' means R.H. Sheppard Co., Inc., a Pennsylvania
corporation with its headquarters in Hanover, Pennsylvania; its
successors and assigns; and its subsidiaries, divisions, groups,
affiliates, partnerships, and joint ventures, and their directors,
officers, managers, agents, and employees. R.H. Sheppard is a wholly-
owned subsidiary of WABCO.
E. ``Divestiture Assets'' means all of Defendants' rights, title,
and interests in and to (i) R.H. Sheppard, and (ii) all other WABCO
property and assets, tangible and intangible, wherever located, related
to or used in connection
[[Page 5711]]
with R.H. Sheppard (except for assets primarily used for human
resources, legal, or other general or administrative support
functions), including but not limited to:
1. The manufacturing and support facilities located at 101
Philadelphia Street, Hanover, Pennsylvania, 17331 (the ``Hanover
Facility'');
2. The manufacturing and support facilities located at 1400
Stafford-Umberger Drive, Wytheville, Virginia, 24382 (the ``Wytheville
Facility'');
3. All tangible assets, including, but not limited to: Research and
development activities; all manufacturing equipment, tooling and fixed
assets, personal property, inventory, office furniture, materials,
supplies, and all other tangible property and assets; all licenses,
permits, certifications, and authorizations issued by any governmental
organization; all contracts, teaming arrangements, agreements, leases,
commitments, certifications, and understandings, including supply
agreements and development and production contracts; all customer
lists, contracts, accounts, and credit records; all repair and
performance records and all other records; and
4. All intangible assets, including, but not limited to: All
patents; licenses and sublicenses; intellectual property; copyrights;
trademarks; trade names; service marks; service names (excluding any
trademark, trade name, service mark, or service name containing the
name ``WABCO''); technical information; computer software (including
software developed by third parties), 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; all manuals and technical information WABCO provides to its
own employees, customers, suppliers, agents, or licensees; and all
research data concerning historic and current research and development
efforts, including, but not limited to, designs of experiments, and the
results of successful and unsuccessful designs and experiments.
F. ``Relevant Employees'' means all employees of (i) R.H. Sheppard,
and (ii) all additional WABCO employees, wherever located, involved in
the design, manufacture, or sale of large commercial vehicle (LCV)
steering gears (except for employees primarily engaged in human
resources, legal, or other general or administrative support
functions).
G. ``Regulatory Approvals'' means (i) any approvals or clearances
pursuant to filings with the Committee on Foreign Investment in the
United States (``CFIUS''), or under antitrust or competition laws
required for the Transaction to proceed; and (ii) any approvals or
clearances pursuant to filings with CFIUS, or under antitrust,
competition, or other U.S. or international laws required for
Acquirer's acquisition of the Divestiture Assets to proceed.
H. ``Transaction'' means the proposed acquisition of WABCO by ZF.
III. Applicability
A. This Final Judgment applies to ZF and WABCO, as defined above,
and all other persons in active concert or participation with any of
them who receive actual notice of this Final Judgment by personal
service or otherwise.
B. If, prior to complying with Section IV and Section 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, Defendants shall require the purchaser
to be bound by the provisions of this Final Judgment. Defendants need
not obtain such an agreement from the Acquirer of the Divestiture
Assets divested pursuant to this Final Judgment.
IV. Divestitures
A. Defendants are ordered and directed, within the later of ninety
(90) calendar days after the filing of the Complaint in this matter, or
thirty (30) calendar days after Regulatory Approvals have been
received, to divest the Divestiture Assets in a manner consistent with
this Final Judgment to an Acquirer acceptable to the United States, in
its sole discretion. The United States, in its sole discretion, may
agree to one or more extensions of this time period not to exceed sixty
(60) calendar days in total, and shall notify the Court in such
circumstances. Defendants agree to 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 information or documents subject to the
attorney-client privilege or work-product doctrine. Defendants shall
make available such information to the United States at the same time
that such information is made available to any other person.
C. Defendants shall provide the Acquirer and the United States with
reasonable access to Relevant Employees and with organization charts
and information relating to Relevant Employees, including name, job
title, past experience relating to the Divestiture Assets,
responsibilities, training and educational history, relevant
certifications, and to the extent permissible by law, job performance
evaluations, and current salary and benefits information, to enable the
Acquirer to make offers of employment. Upon request, Defendants shall
make Relevant Employees available for interviews with the Acquirer
during normal business hours at a mutually agreeable location and will
not interfere with efforts by the Acquirer to employ Relevant
Employees, such as by offering to increase the salary or benefits of
Relevant Employees other than as part of a company-wide increase in
salary or benefits granted in the ordinary course of business.
D. For any Relevant Employees who elect employment with the
Acquirer, Defendants shall waive all noncompete and nondisclosure
agreements, vest all unvested pension and other equity rights, and
provide all other benefits to which the Relevant Employees would
generally be provided if transferred to a buyer of an ongoing business.
For a period of twelve (12) months from the filing of the Complaint in
this matter, Defendants may not solicit to hire, or hire, any Relevant
Employee who was hired by the Acquirer, unless (1) the individual is
terminated or laid off by the Acquirer or (2) the Acquirer agrees in
writing that Defendants may solicit or hire that individual. Nothing in
Paragraphs IV(C) and (D) shall prohibit Defendants from maintaining any
reasonable restrictions on the disclosure by any Relevant Employee who
accepts an offer of employment with the Acquirer of the Defendant's
proprietary non-public information that is (1) not otherwise required
to be disclosed by this Final Judgment, (2) related solely to
Defendants' businesses and clients, and (3) unrelated to the
Divestiture Assets.
[[Page 5712]]
E. Defendants shall permit prospective Acquirers of the Divestiture
Assets to have reasonable access to make inspections of the physical
facilities of 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.
F. Defendants shall warrant to the Acquirer that the Divestiture
Assets will be operational on the date of sale.
G. Defendants shall not take any action that will impede in any way
the permitting, operation, or divestiture of the Divestiture Assets.
H. Defendants must make best efforts to assign, subcontract, or
otherwise transfer all contracts related to the Divestiture Assets,
including all supply and sales contracts, to Acquirer. Defendants must
not interfere with any negotiations between Acquirer and a contracting
party.
I. At the option of the Acquirer, Defendants shall enter into a
supply contract for the assembly of active steering electronic control
units sufficient to meet all or part of the Acquirer's needs for a
period of up to six (6) months. Upon Acquirer's request, the United
States, in its sole discretion, may approve one or more extensions of
any such agreement for a total of up to an additional six (6) months.
The terms and conditions of any contractual arrangement meant to
satisfy this provision must be reasonably related to market conditions
for such assembly.
J. At the option of the Acquirer, Defendants shall enter into a
transition services agreement for back office, human resource, and
information technology services and support for the Divestiture Assets
for a period of up to twelve (12) months. The United States, in its
sole discretion, may approve one or more extensions of this agreement
for a total of up to an additional six (6) months. If the Acquirer
seeks an extension of the term of this transition services agreement,
Defendants shall notify the United States in writing at least three (3)
months prior to the date the transition services contract expires. 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. The
employee(s) of Defendants tasked with providing these transition
services shall not share any competitively sensitive information of the
Acquirer with any other employee of Defendants.
K. Defendants shall warrant to the Acquirer (1) that there are no
material defects in the environmental, zoning, or other permits
relating to the operation of the Divestiture Assets, and (2) that
following the sale of the Divestiture Assets, Defendants will not
undertake, directly or indirectly, any challenges to the environmental,
zoning, or other permits relating to the operation of the Divestiture
Assets.
L. Unless the United States otherwise consents in writing, the
divestiture pursuant to Section IV or by Divestiture 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 as part of a viable,
ongoing business of the design, manufacture, and sale of LCV steering
gears. If any of the terms of an agreement between Defendants and the
Acquirer to effectuate the divestiture required by the Final Judgment
varies from the terms of this Final Judgment then, to the extent that
Defendants cannot fully comply with both terms, this Final Judgment
shall determine Defendants' obligations. The divestitures, whether
pursuant to Section IV or Section V of this Final Judgment,
(1) shall be made to an Acquirer that, in the United States'
sole judgment, has the intent and capability (including the
necessary managerial, operational, technical, and financial
capability) of competing effectively in the business of the design,
manufacture, and sale of LCV steering gears; and
(2) shall be accomplished so as to satisfy the United States, in
its sole discretion, that none of the terms of any agreement between
an Acquirer and Defendants give Defendants the ability unreasonably
to raise the Acquirer's costs, to lower the Acquirer's efficiency,
or otherwise to interfere in the ability of the Acquirer to compete
effectively.
V. Appointment of Divestiture Trustee
A. If Defendants have not divested the Divestiture Assets within
the time period specified in Paragraph IV(A), Defendants shall notify
the United States of that fact in writing. Upon application of the
United States, the Court shall appoint a Divestiture Trustee selected
by the United States and approved by the Court to effect the
divestiture of the Divestiture Assets.
B. After the appointment of a Divestiture Trustee becomes
effective, only the Divestiture Trustee shall have the right to sell
the Divestiture Assets. The Divestiture Trustee shall have the power
and authority to accomplish the divestiture to an Acquirer acceptable
to the United States, in its sole discretion, at such price and on such
terms as are then obtainable upon reasonable effort by the Divestiture
Trustee, subject to the provisions of Sections IV, V, and VI of this
Final Judgment, and shall have such other powers as the Court deems
appropriate. Subject to Paragraph V(D) of this Final Judgment, the
Divestiture Trustee may hire at the cost and expense of Defendants any
agents or consultants, including, but not limited to, investment
bankers, attorneys, and accountants, who shall be solely accountable to
the Divestiture Trustee, reasonably necessary in the Divestiture
Trustee's judgment to assist in the divestiture. Any such agents or
consultants shall serve on such terms and conditions as the United
States approves, including confidentiality requirements and conflict of
interest certifications.
C. Defendants shall not object to a sale by the Divestiture Trustee
on any ground other than the Divestiture Trustee's malfeasance. Any
such objections by Defendants must be conveyed in writing to the United
States and the Divestiture Trustee within ten (10) calendar days after
the Divestiture Trustee has provided the notice required under Section
VI.
D. The Divestiture Trustee shall serve at the cost and expense of
Defendants pursuant to a written agreement, on such terms and
conditions as the United States approves, including confidentiality
requirements and conflict of interest certifications. The Divestiture
Trustee shall account for all monies derived from the sale of the
Divestiture Assets sold by the Divestiture Trustee and all costs and
expenses so incurred. After approval by the Court of the Divestiture
Trustee's accounting, including fees for any of its services yet unpaid
and those of any agents and consultants retained by the Divestiture
Trustee, all remaining money shall be paid to Defendants and the trust
shall then be terminated. The compensation of the Divestiture Trustee
and any agents and consultants retained by the Divestiture Trustee
shall be reasonable in light of the value of the Divestiture Assets and
based on a fee arrangement that provides the Divestiture Trustee with
incentives based on the price and terms of the divestiture and the
speed with which it is accomplished, but the timeliness of the
divestiture is paramount. If the Divestiture Trustee and Defendants are
unable to reach agreement on the Divestiture Trustee's or any agents'
or consultants' compensation or other terms and conditions of
engagement within fourteen (14) calendar days of
[[Page 5713]]
the appointment of the Divestiture Trustee, the United States may, in
its sole discretion, take appropriate action, including making a
recommendation to the Court. The Divestiture Trustee shall, within
three (3) business days of hiring any other agents or consultants,
provide written notice of such hiring and the rate of compensation to
Defendants and the United States.
E. Defendants shall use their best efforts to assist the
Divestiture Trustee in accomplishing the required divestiture. The
Divestiture Trustee and any agents or consultants retained by the
Divestiture Trustee shall have full and complete access to the
personnel, books, records, and facilities of the business to be
divested, and Defendants shall provide or develop financial and other
information relevant to such business as the Divestiture Trustee may
reasonably request, subject to reasonable protection for trade secrets;
other confidential research, development, or commercial information; or
any applicable privileges. Defendants shall take no action to interfere
with or to impede the Divestiture Trustee's accomplishment of the
divestiture.
F. After its appointment, the Divestiture Trustee shall file
monthly reports with the United States setting forth the Divestiture
Trustee's efforts to accomplish the divestiture ordered under this
Final Judgment. Such reports shall include the name, address, and
telephone number of each person who, during the preceding month, made
an offer to acquire, expressed an interest in acquiring, entered into
negotiations to acquire, or was contacted or made an inquiry about
acquiring, any interest in the Divestiture Assets and shall describe in
detail each contact with any such person. The Divestiture Trustee shall
maintain full records of all efforts made to divest the Divestiture
Assets.
G. If the Divestiture Trustee has not accomplished the divestiture
ordered under this Final Judgment within six months after its
appointment, the Divestiture Trustee shall promptly file with the Court
a report setting forth (1) the Divestiture Trustee's efforts to
accomplish the required divestiture; (2) the reasons, in the
Divestiture Trustee's judgment, why the required divestiture has not
been accomplished; and (3) the Divestiture Trustee's recommendations.
To the extent such reports contain information that the Divestiture
Trustee deems confidential, such reports shall not be filed in the
public docket of the Court. The Divestiture 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
Divestiture Trustee's appointment by a period requested by the United
States.
H. If the United States determines that the Divestiture Trustee has
ceased to act or failed to act diligently or in a reasonably cost-
effective manner, the United States may recommend the Court appoint a
substitute Divestiture Trustee.
VI. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
divestiture agreement, Defendants or the Divestiture 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 Section V of this Final Judgment. If the Divestiture
Trustee is responsible, it shall similarly notify Defendants. The
notice shall set forth the details of the proposed divestiture and list
the name, address, and telephone number of each person not previously
identified who offered or expressed an interest in or desire to acquire
any ownership interest in the Divestiture Assets, together with full
details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from Defendants,
the proposed Acquirer, any other third party, or the Divestiture
Trustee, if applicable, additional information concerning the proposed
divestiture, the proposed Acquirer, and any other potential Acquirer.
Defendants and the Divestiture Trustee shall furnish any additional
information requested within fifteen (15) calendar days of the receipt
of the request, unless the parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from Defendants, the
proposed Acquirer, any third party, and the Divestiture Trustee,
whichever is later, the United States shall provide written notice to
Defendants and the Divestiture Trustee, if there is one, stating
whether or not, in its sole discretion, it objects to the Acquirer or
any other aspect of 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 Paragraph 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 IV or Section V shall not be consummated. Upon objection by
Defendants under Paragraph 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 Section V of this Final Judgment.
VIII. Hold Separate
Until the divestiture required by this Final Judgment has been
accomplished, Defendants shall take all steps necessary to comply with
the Hold Separate Stipulation and Order entered by the Court.
Defendants shall take no action that would jeopardize the divestiture
ordered by the 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 Section V,
Defendants shall deliver to the United States an affidavit, signed by
each defendant's Chief Financial Officer and General Counsel, which
shall describe the fact and manner of Defendants' compliance with
Section IV or Section 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 and complete the sale of 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
limitation on information, shall be made within fourteen (14) calendar
days of receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this
[[Page 5714]]
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 any related orders such as any Hold Separate
Stipulation and Order, 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, including agents 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 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 response 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
Section X shall be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, except in the course of legal proceedings to which the United
States is a party (including grand jury proceedings), for the purpose
of securing compliance with this Final Judgment, or as otherwise
required by law.
D. If at the time that Defendants furnish information or documents
to the United States, Defendants represent and identify in writing the
material in any such information or documents to which a claim of
protection may be asserted under Rule 26(c)(1)(G) of the Federal Rules
of Civil Procedure, and Defendants mark each pertinent page of such
material, ``Subject to claim of protection under Rule 26(c)(1)(G) of
the Federal Rules of Civil Procedure,'' then the United States shall
give Defendants ten (10) calendar days' notice prior to divulging such
material in any legal proceeding (other than a grand jury proceeding).
XI. No Reacquisition
Defendants may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment.
XII. Retention of Jurisdiction
The Court retains jurisdiction to enable any party to this Final
Judgment to apply to the Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XIII. Enforcement of Final Judgment
A. The United States retains and reserves all rights to enforce the
provisions of this Final Judgment, including the right to seek an order
of contempt from the Court. Defendants agree that in any civil contempt
action, any motion to show cause, or any similar action brought by the
United States regarding an alleged violation of this Final Judgment,
the United States may establish a violation of the Final Judgment and
the appropriateness of any remedy therefor by a preponderance of the
evidence, and Defendants waive any argument that a different standard
of proof should apply.
B. This Final Judgment should be interpreted to give full effect to
the procompetitive purposes of the antitrust laws and to restore all
competition the United States alleged was harmed by the challenged
conduct. Defendants agree that they may be held in contempt of, and
that the Court may enforce, any provision of this Final Judgment that,
as interpreted by the Court in light of these procompetitive principles
and applying ordinary tools of interpretation, is stated specifically
and in reasonable detail, whether or not it is clear and unambiguous on
its face. In any such interpretation, the terms of this Final Judgment
should not be construed against either party as the drafter.
C. In any enforcement proceeding in which the Court finds that
Defendants have violated this Final Judgment, the United States may
apply to the Court for a one-time extension of this Final Judgment,
together with other relief as may be appropriate. In connection with
any successful effort by the United States to enforce this Final
Judgment against a Defendant, whether litigated or resolved before
litigation, that Defendant agrees to reimburse the United States for
the fees and expenses of its attorneys, as well as any other costs
including experts' fees, incurred in connection with that enforcement
effort, including in the investigation of the potential violation.
D. For a period of four (4) years following the expiration of the
Final Judgment, if the United States has evidence that a Defendant
violated this Final Judgment before it expired, the United States may
file an action against that Defendant in this Court requesting that the
Court order (1) Defendant to comply with the terms of this Final
Judgment for an additional term of at least four years following the
filing of the enforcement action under this Section, (2) any
appropriate contempt remedies, (3) any additional relief needed to
ensure the Defendant complies with the terms of the Final Judgment, and
(4) fees or expenses as called for in Paragraph XIII(C).
XIV. Expiration of Final Judgment
Unless the Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry, except that after
five (5) years from the date of its entry, this Final Judgment may be
terminated upon notice by the United States to the Court and Defendants
that the divestitures have been completed and that the continuation of
the Final Judgment no longer is necessary or in the public interest.
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, any
comments thereon, and the United States' responses to comments. Based
upon the record before the Court, which includes the Competitive Impact
Statement and any comments and responses to comments
[[Page 5715]]
filed with the Court, entry of this Final Judgment is in the public
interest.
Date:------------------------------------------------------------------
[Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. 16]
-----------------------------------------------------------------------
United States District Judge
United States District Court for the District of Columbia
United States of America, Plaintiff, v. ZF Friedrichshafen AG,
and WABCO Holdings, Inc., Defendants.
Civil Action No.: 1:20-cv-00182
Judge: Hon. Ketanji B. Jackson
Competitive Impact Statement
The United States of America, under Section 2(b) of the Antitrust
Procedures and Penalties Act, 15 U.S.C. 16(b)-(h) (the ``APPA'' or
``Tunney Act''), 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
On March 28, 2019, Defendant ZF Friedrichshafen AG (``ZF'') agreed
to acquire Defendant WABCO Holdings, Inc. (``WABCO'') in a transaction
that would unite two of the leading global suppliers of large
commercial vehicle (``LCV'') components. The United States filed a
civil antitrust Complaint on January 23, 2020, seeking to enjoin the
proposed acquisition. The Complaint alleges that the likely effect of
this acquisition would be to substantially lessen competition for the
design, manufacture, and sale of LCV steering gears in North America,
in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
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 address the anticompetitive
effects of the acquisition. Under the proposed Final Judgment, which is
explained more fully below, the Defendants are required to divest
WABCO's wholly-owned subsidiary R.H. Sheppard Co., Inc. (``R.H.
Sheppard'') and other WABCO assets related to LCV steering gears. Under
the terms of the Hold Separate, the Defendants will take certain steps
to ensure that R.H. Sheppard is operated as a competitively
independent, economically viable, and ongoing business concern, which
will remain independent and uninfluenced by ZF, and that competition is
maintained during the pendency of the required divestiture.
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment will terminate this action, except that the
Court will retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
II. Description of Events Giving Rise to the Alleged Violation
A. The Defendants and the Proposed Transaction
ZF is a German company headquartered in Friedrichshafen, Germany.
It has 149,000 employees in 40 countries, and had annual sales of $36.9
billion in 2018, $9.6 billion of which were in the United States. ZF's
North American business historically focused on the production and sale
of transmissions to passenger and light vehicle manufacturers, but in
2015, ZF acquired a leading U.S. steering systems manufacturer, TRW,
Inc. ZF's U.S. headquarters are in Livonia, Michigan.
WABCO is a Delaware corporation with a North American headquarters
in Auburn Hills, Michigan, and a global headquarters in Bern,
Switzerland. WABCO descends from the original Westinghouse Air Brake
Company formed in 1869. It has 16,000 employees in 40 countries, and
had annual sales in 2018 of $3.8 billion, $850 million of which were in
the United States. WABCO's North American business historically focused
on commercial vehicle air brake and air suspension components, but in
2017, WABCO acquired a leading U.S. commercial vehicle steering
component company, R.H. Sheppard.
On March 28, 2019, pursuant to an agreement and plan of merger, ZF
agreed to acquire WABCO in a deal valued at approximately $7 billion.
B. The Competitive Effects of the Transaction
1. Background on LCV Steering Gears
Steering system components work together to direct a vehicle, and
include steering gears, steering pumps, pitman arms, steering columns,
steering linkages, and electronic steering controls. Steering equipment
suitable for LCVs is sophisticated and highly engineered, especially
the key component: Steering gears. LCVs include all trucks, buses, and
off-road vehicles that weigh over 19,501 pounds (defined as Class 6-8
vehicles by the United States Department of Transportation (49 CFR
565.15)).
Steering gears are located below the steering column (which is
attached to the steering wheel) and translate direction to the steering
linkage. Steering gears for LCVs have a complex hydraulic power
recirculating ball gear. Steering gears must be tuned carefully to
operate within the specifications of the individual LCV's design and
performance requirements, and must work together with the entire system
of steering equipment.
Advanced LCV steering gears also include what is known as a torque
overlay. A torque overlay adds hardware that enables the steering gear
to quickly and independently direct the vehicle without the input of
the steering column, and allows for advanced driver assistance system
(``ADAS'') steering features. ADAS technology in general includes
features such as lane keeping assist, adaptive cruise control,
automated emergency braking, blind spot detection, and other similar
features. For ADAS steering features, torque overlay steering gears
work with sensors and electronic controls that detect the environment
around the vehicle and then work with the steering hardware to keep the
vehicle on the correct path and avoid collisions. Within the last five
years, truck and bus manufacturers have begun to use steering-related
ADAS features, and both Defendants are actively engaged in research and
development to improve steering-related ADAS features for eventual use
in autonomous trucks and buses. In the future, steering-related ADAS
features may be developed to the point where they can be combined with
other ADAS technology related to braking and powertrain control,
enabling the potential for fully autonomous operation of commercial
vehicles. LCV steering gears will continue to be a key component as
future ADAS technology is developed.
Truck and bus manufacturers are the primary customers for LCV
steering gears. These customers incorporate LCV steering gears into the
vehicle's final assembly, and then sell to end-use customers. Other LCV
steering gear customers include manufacturers of commercial vehicles
for off-road, military, mining, and agriculture uses. Typically,
customers purchase LCV steering gears separately from other steering
components, although they also may choose to purchase a whole steering
system. In some cases, another entity may buy the LCV steering gear
from one of the merging parties and then integrate it into a whole
steering system that it sells to truck or bus manufacturers. Customers
generally buy steering gears either based on pre-
[[Page 5716]]
established price lists or after a competitive bidding process. The
annual size of the North American market for LCV steering gears is
approximately $220 million.
2. Relevant Product Market: LCV Steering Gears
As alleged in the Complaint, LCV steering gears must be durable and
powerful enough to move large trucks or buses that utilize hydraulic
steering systems without electronic power-assisted steering, because
electronic power-assisted steering is not used on LCVs. This
distinguishes LCV steering gears from lighter and simpler electronic
steering gears used for smaller vehicles such as passenger cars. The
quality and usefulness of an LCV steering gear is defined by several
special characteristics, the most important of which are size, weight,
torque required to move, and sensitivity, which relates to the ability
of the gear to respond quickly and accurately to the driver or inputs
from electronic controls.
The Complaint alleges that there are no other steering methods or
technologies that can accomplish the required functions of LCV steering
gears. Truck and bus manufacturers require the highly-capable LCV
steering gears discussed above, because the lives and safety of drivers
and other motorists, pedestrians, and property depend on the unfailing
performance of an LCV steering gear to direct the vehicle. Other
steering gears are less capable, and are therefore not a substitute for
LCV steering gears purchased for use in LCVs in North America.
For the foregoing reasons, according to the Complaint, customers
will not substitute less-capable steering gears, or any other product,
for LCV steering gears in response to a small but significant and non-
transitory increase in the price of LCV steering gears. The Complaint,
therefore, alleges that LCV steering gears are a relevant product
market and line of commerce under Section 7 of the Clayton Act, 15
U.S.C. 18.
3. Relevant Geographic Market: North America
As alleged in the Complaint, LCV steering gears used in North
America require a different design and alignment than those used
outside North America. This is because of distinct truck and bus design
differences, such as those related to higher weight and power, and a
common configuration in which the cab is located behind the axles
rather than over them. Because of these differences, the Complaint
alleges that truck and bus manufacturers strongly prefer LCV steering
gears that have performed successfully on North American commercial
vehicles, and have been unwilling to purchase steering gears used only
in foreign markets. Customers also require their steering gear
manufacturers to have an established North American presence for sales,
service, and aftermarket support. Having an installed North American
base helps customers to ensure that both in-house and third-party
service technicians have experience with the relevant steering gears
and have an existing spare parts inventory when gears need to be
repaired or replaced. According to the Complaint, in the face of a
small but significant and non-transitory price increase by North
American producers of LCV steering gears, customers are unlikely to
turn to manufacturers located outside North America and who produce LCV
steering gears solely for markets outside North America. The Complaint
therefore alleges that North America is a relevant geographic market
within the meaning of Section 7 of the Clayton Act, 15 U.S.C. 18.
4. Anticompetitive Effects of the Proposed Transaction
As alleged in the Complaint, ZF and WABCO are the only firms that
design, manufacture, and sell LCV steering gears in North America.
After its acquisition of TRW in 2015, ZF became the leading North
American firm selling steering systems and components for commercial
vehicles. In the market for LCV steering gears in North America, it is
estimated to have a 54 percent market share. WABCO is the only other
market participant and has an estimated 46 percent market share. WABCO
sells LCV steering gears through its wholly-owned R.H. Sheppard
subsidiary, which it acquired in 2017. The Complaint alleges that the
merger would give the combined firm a monopoly over LCV steering gears
in North America, leaving North American customers without a sufficient
competitive alternative for this critical component.
According to the Complaint, ZF and WABCO compete for sales of LCV
steering gears on the basis of price, quality, service, innovation, and
contractual terms such as delivery times. This competition has resulted
in lower prices, higher quality, better service, and shorter delivery
times. Competition between ZF and WABCO has also fostered innovation,
leading to LCV steering gears with higher reliability and the
innovative features such as torque overlay that are expected to be
integral to the development of future ADAS technology, including
features for autonomous LCVs. The Complaint alleges that the
combination of ZF and WABCO would eliminate this competition and its
future benefits to truck and bus manufacturers and end-use customers.
Post-transaction, the merged firm likely would have the incentive and
ability to increase prices, lower quality or service, offer less
favorable contractual terms, and reduce research and development
efforts that would otherwise lead to innovative and high-quality
products.
According to the Complaint, the proposed merger, therefore, likely
would substantially lessen competition in the design, manufacture, and
sale of LCV steering gears in North America in violation of Section 7
of the Clayton Act, 15 U.S.C. 18.
5. Difficulty of Entry
The Complaint alleges that sufficient, timely entry of additional
competitors into the market for LCV steering gears in North America is
unlikely. Truck and bus manufacturers have shown little interest in
buying steering gears and other components from anyone other than the
only two established suppliers, ZF and WABCO, because of these
companies' proven performance and North American presence.
According to the Complaint, production facilities and sales and
service infrastructure for LCV steering gears require a substantial
investment in both capital equipment and human resources. To be
competitively viable, a new entrant would need to construct a factory
to produce a range of steering components, establish production lines
capable of manufacturing the components, and build assembly lines and
establish or acquire access to testing equipment and facilities.
A new entrant also would need to retain engineering and research
personnel to design, test, and troubleshoot the detailed manufacturing
process necessary to produce LCV steering gears acceptable to North
American customers. Any new LCV steering gears also would require
extensive customer testing and qualification before they would be used
by North American truck and bus manufacturers or accepted by end users.
Moreover, because LCV steering gears now being designed and developed
by ZF and WABCO are undergoing continuous technological improvement and
innovation for use in the development of ADAS features, any new entrant
would need to acquire equivalent expertise and proprietary technologies
to enable steering-related ADAS features to be efficiently incorporated
into the advanced
[[Page 5717]]
electronic control components of future North American LCVs. Finally,
because customers prefer to use LCV steering gear manufacturers with an
existing installed base to ensure efficient and quality service by
customers' in-house or third-party service centers, a new entrant
lacking an installed base would be at a severe disadvantage. The
Complaint alleges that as a result of all of these barriers, entry
would be costly and time-consuming.
The Complaint alleges that as a result of the barriers described
above, entry into the market for LCV steering gears would not be
timely, likely, or sufficient to defeat the anticompetitive effects
likely to result from the merger of ZF and WABCO.
III. Explanation of the Proposed Final Judgment
The divestiture required by the proposed Final Judgment will remedy
the loss of competition alleged in the Complaint by establishing an
independent and economically viable competitor in the market for LCV
steering gears in North America. Paragraph IV(A) of the proposed Final
Judgment requires the Defendants, within the later of ninety (90)
calendar days after the filing of the Complaint in this matter or
thirty (30) calendar days after Regulatory Approvals have been
received, to divest the entirety of WABCO's subsidiary R.H. Sheppard,
as well as related WABCO assets, to an Acquirer acceptable to the
United States it its sole discretion.\1\ Paragraph IV(L) of the
proposed Final Judgment requires that the Divestiture Assets must be
divested in such a way as to satisfy the United States in its sole
discretion that they can and will be operated by the purchaser as a
viable, ongoing business that can compete effectively in the design,
manufacture, and sale of LCV steering gears. Defendants must take all
reasonable steps necessary to accomplish the divestiture quickly and
must cooperate with prospective purchasers.
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\1\ Paragraph II(G) of the proposed Final Judgment defines
Regulatory Approvals as ``(i) any approvals or clearances pursuant
to filings with the Committee on Foreign Investment in the United
States (``CFIUS''), or under antitrust or competition laws required
for the Transaction to proceed; and (ii) any approvals or clearances
pursuant to filings with CFIUS, or under antitrust, competition, or
other U.S. or international laws required for Acquirer's acquisition
of the Divestiture Assets to proceed.''
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If the Defendants do not accomplish the divestiture within the
period prescribed in the proposed Final Judgment, Section V of the
proposed Final Judgment provides that the Court will appoint a
divestiture trustee selected by the United States to effect the
divestiture. If a divestiture trustee is appointed, the proposed Final
Judgment provides that the Defendants will pay all costs and expenses
of the trustee. The divestiture trustee's commission will be structured
so as to provide an incentive for the trustee based on the price
obtained and the speed with which the divestiture is accomplished.
After the divestiture trustee's appointment becomes effective, the
trustee will provide periodic reports to the United States setting
forth his or her efforts to accomplish the divestiture. At the end of
six months, if the divestiture has not been accomplished, the
divestiture trustee and the United States will make recommendations to
the Court, which will enter such orders as appropriate, in order to
carry out the purpose of the trust, including by extending the trust or
the term of the divestiture trustee's appointment.
The proposed Final Judgment contains several provisions to
facilitate the immediate use of the Divestiture Assets by the Acquirer.
Paragraph IV(I) of the proposed Final Judgment requires Defendants, at
the Acquirer's option, to enter into a supply contract for the assembly
of active steering electronic control units sufficient to meet all or
part of the Acquirer's needs for a period of up to six (6) months. Upon
Acquirer's request, the United States, in its sole discretion, may
approve one or more extensions of any such agreement for a total of up
to an additional six (6) months. In addition, Paragraph IV(J) of the
proposed Final Judgment requires Defendants, at the Acquirer's option,
to enter into a transition services agreement for back office, human
resource, and information technology services and support for the
Divestiture Assets for a period of up to twelve (12) months. The
paragraph further provides that the United States, in its sole
discretion, may approve one or more extensions for a total of up to an
additional six (6) months if the Defendants notify the United States in
writing at least three (3) months prior to the date the transition
services contract expires. Finally, Paragraph IV(J) provides that
employees of the Defendants tasked with providing any transition
services must not share any competitively sensitive information of the
Acquirer with any other employee of the Defendants.
The proposed Final Judgment also contains provisions intended to
facilitate the Acquirer's efforts to hire the employees involved in the
R.H. Sheppard business, including any additional WABCO employees,
wherever located, involved in the design, manufacture, or sale of LCV
steering gears. Paragraph IV(C) of the proposed Final Judgment requires
the Defendants to provide the Acquirer with organization charts and
information relating to these employees and make them available for
interviews, and provides that Defendants will not interfere with any
negotiations by the Acquirer to hire them. In addition, Paragraph IV(D)
provides that for employees who elect employment with the Acquirer, the
Defendants, subject to exceptions, shall waive all noncompete and
nondisclosure agreements, vest all unvested pension and other equity
rights, and provide all benefits to which the employees would generally
be provided if transferred to a buyer of an ongoing business. The
paragraph further provides that, for a period of 12 months from the
filing of the Complaint, the Defendants may not solicit to hire, or
hire any such person who was hired by the Acquirer, unless such
individual is terminated or laid off by the Acquirer or the Acquirer
agrees in writing that Defendants may solicit or hire that individual.
The proposed Final Judgment also contains provisions designed to
promote compliance and make the enforcement of the Final Judgment as
effective as possible. Paragraph XIII(A) provides that the United
States retains and reserves all rights to enforce the provisions of the
proposed Final Judgment, including its rights to seek an order of
contempt from the Court. Under the terms of this paragraph, the
Defendants have agreed that in any civil contempt action, any motion to
show cause, or any similar action brought by the United States
regarding an alleged violation of the Final Judgment, the United States
may establish the violation and the appropriateness of any remedy by a
preponderance of the evidence and that the Defendants have waived any
argument that a different standard of proof should apply. This
provision aligns the standard for compliance obligations with the
standard of proof that applies to the underlying offense that the
compliance commitments address.
Paragraph XIII(B) provides additional clarification regarding the
interpretation of the provisions of the proposed Final Judgment. The
proposed Final Judgment was drafted to restore competition that would
otherwise be harmed by the transaction. The Defendants agree that they
will abide by the proposed Final Judgment, and that they may be held in
contempt of this Court for failing to comply with any provision of the
proposed Final Judgment that is stated specifically and in reasonable
detail, as
[[Page 5718]]
interpreted in light of this procompetitive purpose.
Paragraph XIII(C) of the proposed Final Judgment provides that if
the Court finds in an enforcement proceeding that the Defendants have
violated the Final Judgment, the United States may apply to the Court
for a one-time extension of the Final Judgment, together with such
other relief as may be appropriate. In addition, to compensate American
taxpayers for any costs associated with investigating and enforcing
violations of the proposed Final Judgment, Paragraph XIII(C) provides
that in any successful effort by the United States to enforce the Final
Judgment against a Defendant, whether litigated or resolved before
litigation, that the Defendants will reimburse the United States for
attorneys' fees, experts' fees, and other costs incurred in connection
with any enforcement effort, including the investigation of the
potential violation.
Paragraph XIII(D) states that the United States may file an action
against a Defendant for violating the Final Judgment for up to four (4)
years after the Final Judgment has expired or been terminated. This
provision is meant to address circumstances such as when evidence that
a violation of the Final Judgment occurred during the term of the Final
Judgment is not discovered until after the Final Judgment has expired
or been terminated or when there is not sufficient time for the United
States to complete an investigation of an alleged violation until after
the Final Judgment has expired or been terminated. This provision,
therefore, makes clear that, for four years after the Final Judgment
has expired or been terminated, the United States may still challenge a
violation that occurred during the term of the Final Judgment.
Finally, Section XIV of the proposed Final Judgment provides that
the Final Judgment will expire ten years from the date of its entry,
except that after five years from the date of its entry, the Final
Judgment may be terminated upon notice by the United States to the
Court and the Defendants that the divestiture has been completed and
that the continuation of the Final Judgment is no longer necessary or
in the public interest.
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 neither impairs
nor assists 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 the Defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and the 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 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 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 U.S.
Department of Justice, which remains free to withdraw its consent to
the proposed Final Judgment at any time before the Court's entry of the
Final Judgment. The comments and the response of the United States will
be filed with the Court. In addition, comments will be posted on the
U.S. Department of Justice, Antitrust Division's internet website and,
under certain circumstances, published in the Federal Register.
Written comments should be submitted to: John R. Read, Acting
Chief, Defense, Industrials, and Aerospace Section, Antitrust Division,
U.S. 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
As an alternative to the proposed Final Judgment, the United States
considered a full trial on the merits against the Defendants. The
United States could have continued the litigation and sought
preliminary and permanent injunctions against ZF's acquisition of
WABCO. The United States is satisfied, however, that the divestiture of
assets described in the proposed Final Judgment will remedy the
anticompetitive effects alleged in the Complaint, preserving
competition for the design, manufacture, and sale of LCV steering gears
in North America. Thus, the proposed Final Judgment achieves 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 60-day comment period, after which the Court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. 16(e)(1). In making that determination,
the Court, in accordance with the statute as amended in 2004, is
required to consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) & (B). In considering these statutory factors,
the Court's inquiry is necessarily a limited one as the government is
entitled to ``broad discretion to settle with the defendant within the
reaches of the public interest.'' United States v. Microsoft Corp., 56
F.3d 1448, 1461 (D.C. Cir. 1995); United States v. U.S. Airways Grp.,
Inc., 38 F. Supp. 3d 69, 75 (D.D.C. 2014) (explaining that the
``court's inquiry is limited'' in Tunney Act settlements); United
States v. InBev
[[Page 5719]]
N.V./S.A., No. 08-1965 (JR), 2009 U.S. Dist. LEXIS 84787, at *3 (D.D.C.
Aug. 11, 2009) (noting that a 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 U.S. Court of Appeals for the District of Columbia Circuit
has held, under the APPA a court considers, among other things, the
relationship between the remedy secured and the specific allegations in
the government's complaint, whether the proposed Final Judgment is
sufficiently clear, whether its enforcement mechanisms are sufficient,
and whether it may positively harm third parties. See Microsoft, 56
F.3d at 1458-62. With respect to the adequacy of the relief secured by
the proposed Final Judgment, a court may not ``make de novo
determination of facts and issues.'' United States v. W. Elec. Co., 993
F.2d 1572, 1577 (D.C. Cir. 1993) (quotation marks omitted); see also
Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc., 152 F.
Supp. 2d 37, 40 (D.D.C. 2001); United States v. Enova Corp., 107 F.
Supp. 2d 10, 16 (D.D.C. 2000); InBev, 2009 U.S. Dist. LEXIS 84787, at
*3. Instead, ``[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.'' W.
Elec. Co., 993 F.2d at 1577 (quotation marks omitted). ``The court
should bear in mind the flexibility of the public interest inquiry: The
court's function is not to determine whether the resulting array of
rights and liabilities is one that will best serve society, but only to
confirm that the resulting settlement is within the reaches of the
public interest.'' Microsoft, 56 F.3d at 1460 (quotation marks
omitted). More demanding requirements would ``have enormous practical
consequences for the government's ability to negotiate future
settlements,'' contrary to congressional intent. Id. at 1456. ``The
Tunney Act was not intended to create a disincentive to the use of the
consent decree.'' Id.
The United States' predictions about the efficacy of the remedy are
to be afforded deference by the Court. See, e.g., Microsoft, 56 F.3d at
1461 (recognizing courts should give ``due respect to the Justice
Department's . . . view of the nature of its case''); United States v.
Iron Mountain, Inc., 217 F. Supp. 3d 146, 152-53 (D.D.C. 2016) (``In
evaluating objections to settlement agreements under the Tunney Act, a
court must be mindful that [t]he government need not prove that the
settlements will perfectly remedy the alleged antitrust harms[;] it
need only provide a factual basis for concluding that the settlements
are reasonably adequate remedies for the alleged harms.'') (internal
citations omitted); United States v. Republic Servs., Inc., 723 F.
Supp. 2d 157, 160 (D.D.C. 2010) (noting ``the deferential review to
which the government's proposed remedy is accorded''); United States v.
Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (``A
district court must accord due respect to the government's prediction
as to the effect of proposed remedies, its perception of the market
structure, and its view of the nature of the case.''). The ultimate
question is whether ``the remedies [obtained by the Final Judgment are]
so inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest.' '' Microsoft, 56 F.3d at 1461
(quoting W. Elec. Co., 900 F.2d at 309).
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 U.S. Airways,
38 F. Supp. 3d at 75 (noting that the court must simply determine
whether there is a factual foundation for the government's decisions
such that its conclusions regarding the proposed settlements are
reasonable); InBev, 2009 U.S. Dist. LEXIS 84787, at *20 (``[T]he
`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.
In its 2004 amendments to the APPA, Congress made clear its intent
to preserve the practical benefits of using consent judgments proposed
by the United States in antitrust enforcement, Pub. L. 108-237 Sec.
221, and added the unambiguous instruction that ``[n]othing in this
section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. 16(e)(2); see also U.S. Airways, 38 F. Supp. 3d
at 76 (indicating that a court is not required to hold an evidentiary
hearing or to permit intervenors as part of its review under the Tunney
Act). This language explicitly wrote into the statute what Congress
intended when it first 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
Sen. Tunney). ``A court can make its public interest determination
based on the competitive impact statement and response to public
comments alone.'' U.S. Airways, 38 F. Supp. 3d at 76 (citing Enova
Corp., 107 F. Supp. 2d at 17).
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 23, 2020
Respectfully submitted,
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Daniel J. Monahan, Jr.,*
U.S. Department of Justice, Antitrust Division, Defense,
Industrials, and Aerospace Section, 450 Fifth Street NW, Suite 8700,
Washington, DC 20530, Telephone: (202) 598-8774, Facsimile: (202)
514-9033, daniel.monahan@usdoj.gov.
*Attorney of Record
[FR Doc. 2020-01759 Filed 1-30-20; 8:45 am]
BILLING CODE 4410-11-P