Thermo Electron Corporation; Analysis of Agreement Containing Consent Orders to Aid Public Comment, 65817-65819 [E6-18917]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 71, Number 217 (Thursday, November 9, 2006)]
[Notices]
[Pages 65817-65819]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-18917]


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FEDERAL TRADE COMMISSION

[File No. 061 0187]


Thermo Electron Corporation; Analysis of Agreement Containing 
Consent Orders to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before November 15, 2006.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Thermo Electron Corp., File No. 061 0187,'' 
to facilitate the organization of comments. A comment filed in paper 
form should include this reference both in the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission/Office of the Secretary, Room 135-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. Comments containing 
confidential material must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with Commission Rule 4.9(c). 
16 CFR 4.9(c) (2005).\1\ The FTC is requesting that any comment filed 
in paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions. Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form as part of or as an attachment to e-mail messages 
directed to the following e-mail box: consentagreement@ftc.gov.
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at www.ftc.gov. As a matter of discretion, the FTC makes 
every effort to remove home contact information for individuals from 
the public comments it receives before placing those comments on the 
FTC Web site. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at https://
www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Richard H. Cunningham, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2214.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for October 17, 2006), on the World Wide Web, at https://www.ftc.gov/
os/2006/10/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Thermo Electron Corporation (``Thermo''). The purpose 
of the Consent Agreement is to remedy the anticompetitive effects 
resulting from Thermo's acquisition of Fisher Scientific International 
Inc. (``Fisher''). Under the terms of the Consent Agreement, Thermo is 
required to divest Genevac Limited and Genevac, Inc. (hereinafter 
referred to together as ``Genevac''), which together comprise the 
entirety of Fisher's centrifugal vacuum evaporator (``CVE'') business, 
within five months after the date Thermo signed the Consent Agreement.
    The Consent Agreement has been placed on the public record for 
thirty days to solicit comments from interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission will again review the Consent 
Agreement and the comments received, and will decide whether it should 
withdraw from the Consent Agreement or make it final.
    Pursuant to an Agreement and Plan of Merger dated May 7, 2006, 
Thermo proposes to acquire Fisher in a transaction valued at 
approximately $12.8 billion. The Commission's complaint alleges that 
the proposed acquisition, if consummated, would violate Section 7 of 
the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal 
Trade Commission Act, as amended, 15 U.S.C. 45, by lessening 
competition in the market for high-performance CVEs.

II. The Parties

    Headquartered in Waltham, Massachusetts, Thermo is one of the 
largest and most diversified suppliers of analytical instruments in the 
world. Founded in 1956, the company now employs 11,000 people worldwide 
with offices in thirty countries. Thermo owns many well-known 
laboratory equipment brands and sells high-performance CVEs under its 
Savant Speedvac brand.

[[Page 65818]]

Thermo's 2005 worldwide revenue was $2.6 billion and its North American 
sales were approximately $1.2 billion.
    Fisher is headquartered in Hampton, New Hampshire. Founded in 1902 
to supply equipment and consumables to laboratories, Fisher today 
employs 19,500 people worldwide, 13,000 of those in the United States. 
The company is divided into three segments: biopharma services, 
scientific equipment and products, and distribution. Fisher has many 
well-known laboratory equipment and instrument brands and sells its CVE 
products under the Genevac brand. Through its distribution operations, 
Fisher sells approximately 600,000 scientific and laboratory products 
and serves over 350,000 customers worldwide. Fisher's 2005 worldwide 
revenue was $5.6 billion, of which $4.1 billion was achieved in the 
United States.

III. High-Performance CVEs

    High-performance CVEs apply heat, vacuum, and centrifugal force to 
rapidly remove solvents from samples suspended in solution in the wells 
of microtiter plates or test tubes, while preventing any molecular 
degradation or cross-contamination of the samples. High-performance 
CVEs are used primarily in combinatorial chemistry laboratories, which 
develop processes to simultaneously synthesize large collections of 
potentially biologically-active molecules, a process called parallel 
synthesis. The collections of molecules then can be tested for activity 
against identified targets as potential drug candidates during the 
early stages of the drug discovery process. In academic laboratories, 
high-performance CVEs are used to aid in the creation of chemical 
libraries of potentially biologically-active molecules for research 
purposes. High-performance CVEs typically cost between $25,000 and 
$100,000, depending on features and throughput capabilities.
    CVEs are available in both high-performance and lower-performance 
models. High-performance CVEs differ from their lower-performance 
counterparts in a number of significant respects. High-performance CVEs 
can process hundreds of samples at a time and include advanced control 
and monitoring capabilities to prevent cross contamination between 
samples or degradation of the molecules as they are evaporated. They 
also are compatible with corrosive and environmentally sensitive 
solvents, such as hydrochloric acid and acetonitrile. In addition, 
high-performance models offer sophisticated programing capabilities. 
All of these features are considered useful and necessary by high-
performance CVE purchasers because they enhance the efficiency of their 
work and reduce the likelihood of sample loss, degradation, and 
contamination. High-performance CVE purchasers do not consider lower-
performance CVEs to be viable alternatives because of the high value of 
the samples, which in many cases take a week or more to synthesize and 
can represent the entire quantity of the compound that the scientist 
has developed. The repercussions of a sample loss or degradation 
resulting from a failure of the CVE are simply too great to justify the 
use of lower performance CVEs in these applications.
    Besides the use of CVEs, there are also other methods available for 
removing solvents and drying samples, such as freeze drying and 
nitrogen blowdown. These technologies, however, have many limitations 
as compared to high-performance CVEs. Freeze drying, also called 
lyophilisation, is an effective technique for drying samples suspended 
in aqueous solvents. Lyophilisation is far less effective, however, 
with solvents that are not water-based and can be significantly more 
time consuming than high-performance CVEs when evaporating a large 
number of samples. Nitrogen blowdown equipment, which circulates 
nitrogen--a very dry gas--across the samples' surface to evaporate the 
solvent, does not capture the evaporated solvent and does not maintain 
a constant temperature during evaporation. These drawbacks, among 
others, prevent the alternative technologies from being viable 
alternatives to high-performance CVEs.
    The United States is the relevant geographic market in which to 
analyze the effects of Thermo's proposed acquisition of Fisher in the 
market for high-performance CVEs. Firms that lack significant U.S. 
business operations cannot compete meaningfully in the United States. 
Successful participation in the U.S. high-performance CVE market 
requires substantial domestic, even local service and support. Because 
many purchasers use their high-performance CVEs daily, breakdowns may 
halt work in the lab. Such delay is costly, so customers demand 
reliable equipment and, in the event of a breakdown, that required 
service, support, and replacement parts be readily available. Thus, 
establishing a reputation for high quality products and strong after-
sales support is necessary to gain acceptance among customers and 
succeed in the U.S. high-performance CVE market.

IV. Competitive Effects and Entry Conditions

    Thermo and Fisher are the only two significant suppliers in the 
approximately $10 million U.S. high-performance CVE market. Thermo and 
Fisher account for approximately 30 percent and 70 percent of the 
market, respectively, and compete directly on price, service, and 
product innovations. The evidence gathered in the Commission's 
investigation demonstrates that customers receive lower prices and 
other economic benefits, such as favorable service or payment terms, as 
a result of the competition between Thermo and Fisher. Indeed, many 
customers fear that the proposed transaction would allow the merged 
entity to increase prices of high-performance CVE's considerably, as 
they would have no alternative but to go along with a price increase 
imposed by the combined Thermo/Fisher. The evidence also shows that the 
parties compete on the basis of product performance, features, and 
innovation resulting in product improvements, such as enhanced vacuum 
and monitoring capabilities. If the proposed transaction were 
consummated, Thermo would obtain a virtual monopoly in the U.S. high-
performance CVE market.
    Martin Christ GmbH (``Martin Christ''), which is based in Germany, 
also offers high-performance CVEs. Martin Christ currently is not a 
significant competitor in the United States, however, and is not 
expected to be in the future. Martin Christ has had minimal sales of 
its high-performance CVE products in the United States during the last 
three years, and its sales are not likely to increase sufficiently to 
restore the lost competition.
    Entry into the relevant market that would be sufficient to deter or 
counteract the anticompetitive effects of proposed transaction is 
unlikely to occur in a timely manner, as there are significant 
impediments to entry and expansion. First, a firm would have to design, 
develop, and test a product with functionality and reliability nearly 
equivalent to the products offered by incumbent models, while designing 
around, or obtaining licenses to, any intellectual property protecting 
the features and design of the incumbent high-performance CVEs. Second, 
if a prospective entrant does not have a pre-existing sales force 
directly selling related products, it also would have to establish a 
distribution channel by building a sales force and initiating a 
marketing effort sufficient to convince customers to buy its new high-

[[Page 65819]]

performance CVE. Third, because high-performance CVEs are used 
regularly to perform critical laboratory functions, a new entrant must 
build a reputation for product quality and reliability and for 
responsive service in order to succeed. Finally, even if an entrant 
could overcome these barriers to entry, the relatively small high-
performance CVE market, and correspondingly limited profit 
opportunities available to a new entrant, likely are insufficient to 
justify the investment necessary to enter the high-performance CVE 
market.

V. The Consent Agreement

    The Consent Agreement effectively remedies the anticompetitive 
effects that are likely to occur as a result of the proposed 
transaction on the high-performance CVE market by requiring Thermo to 
divest Genevac, Fisher's stand alone CVE subsidiary. Pursuant to the 
Consent Agreement, Thermo is required to divest Genevac to a 
Commission-approved buyer, at no minimum price, within five months 
after the date Thermo signed the Consent Agreement. The Commission's 
goal in evaluating and approving purchasers of divested assets is to 
ensure that the competitive environment that existed prior to the 
acquisition is maintained. A proposed acquirer of divested assets must 
not itself present competitive problems.
    Should Thermo fail to accomplish the divestiture within the time 
and in the manner required by the Consent Agreement, the Commission may 
appoint a trustee to divest the assets. If approved, the trustee would 
have the exclusive power and authority to accomplish the divestiture 
within six months of being appointed, subject to any necessary 
extensions by the Commission. The Consent Agreement requires Thermo to 
provide the trustee with access to information related to the Genevac 
business as necessary to fulfill his or her obligations.
    The Order to Hold Separate and Maintain Assets (``Hold Separate 
Order'') that is included in the Consent Agreement requires that Thermo 
hold separate and maintain the viability of Genevac as a competitive 
operation until the business is transferred to the Commission-approved 
acquirer. Furthermore, it contains measures designed to ensure that no 
material confidential information is exchanged between Thermo and 
Genevac (except as otherwise provided in the Consent Agreement) and 
provisions designed to prevent interim harm to competition in the high-
performance CVE market.
    The Hold Separate Order provides that the Commission may appoint a 
Hold Separate Trustee who is charged with the duty of monitoring 
Thermo's compliance with the Consent Agreement. Pursuant to that order, 
the Commission has appointed Harry Cole as Hold Separate Trustee to 
oversee Genevac prior to its divestiture and to ensure that Thermo 
complies with its obligations under the Consent Agreement. Mr. Cole was 
employed by Genevac from its incorporation in 1990 until 2005 and held 
numerous production, service, sales, and management positions, 
including serving as General Manager of Genevac with plenary 
responsibility for Genevac's performance. Mr. Cole's extensive 
background in the CVE market and intimate knowledge of Genevac uniquely 
qualify him to serve as the Hold Separate Trustee. The Hold Separate 
Order will become effective upon the date the Commission accepts the 
Consent Agreement for placement on the public record and will remain in 
effect until Thermo divests Genevac to a Commission-approved buyer. In 
the event that Thermo does not divest Genevac within the five-month 
time period, the Consent Agreement allows the Commission to appoint a 
trustee to divest Genevac.
    The Consent Agreement contains several further provisions designed 
to help ensure that the divestiture of Genevac is successful. First, 
because a few of Genevac's lower-performance CVEs are currently sold 
through Fisher's catalog, the Consent Agreement requires Themo, at the 
acquirer's option, to enter into a distribution agreement with the 
acquirer for Genevac's products to continue to be sold via the Fisher 
catalog, ensuring that Thermo cannot diminish Genevac's competitiveness 
by disrupting Genevac's distribution channels. Second, so that key 
Genevac employees stay with Genevac through the divestiture process, 
the Consent Agreement requires Thermo to implement and fund a retention 
plan for key employees. Third, the Consent Agreement prohibits Thermo 
from soliciting Genevac employees for at least a year after the 
divestiture of Genevac. For key Genevac employees, including its 
management and head of research and development, this prohibition is 
extended to two years.
    In order to ensure that the Commission remains informed about the 
status of the Genevac business pending divestiture, and about the 
efforts being made to accomplish the divestiture, the Consent Agreement 
requires Thermo to file periodic reports with the Commission until the 
divestiture is accomplished.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and it is not intended to constitute an official 
interpretation of the Decision and Order or the Hold Separate Order, or 
to modify their terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
 [FR Doc. E6-18917 Filed 11-8-06; 8:45 am]
BILLING CODE 6750-01-P