FTC Requires Divestiture of Electronic Autoparts Catalog To Preserve Competition in the Automotive Aftermarket

The Federal Trade Commission today announced a settlement resolving competitive concerns arising from the proposed merger of the two leading providers of management information systems and electronic parts catalogs for the automotive parts aftermarket. According to the FTC, absent relief, the proposed acquisition of Triad Systems Corporation ("Triad") by Cooperative Computing, Inc. ("CCI") would have substantially lessened competition in the development and sale of electronic parts catalogs and likely resulted in increased prices and reduced services in violation of antitrust laws. In order to resolve the agency’s concerns, the proposed settlement would require CCI, upon completing its merger with Triad, to divest, through an exclusive, royalty-free, and perpetual license, its electronic parts catalog to MacDonald Computer Systems or another Commission-approved buyer.

CCI is a privately-held business based in Austin, Texas, with annual sales of approximately $43 million. The company offers a portfolio of software products that assist auto parts distributors and jobbers to track their parts inventory. CCI has developed and marketed with its software a proprietary database of auto parts for domestic and foreign automobiles.

Triad, a Livermore, California-based public company, has annual sales of approximately $175 million, including approximately $90 million attributable to sales to the automotive parts aftermarket. Triad offers a portfolio of applications software that allows automotive parts distributors and jobbers to efficiently manage their businesses. Triad also develops and sells a proprietary database of auto parts for domestic and foreign automobiles.

CCI commenced a cash tender offer for Triad in October 1996 for $9.25 per share, or approximately $181 million. Prior to completion of the tender offer, Hicks, Muse, Tate & Furst, a Dallas-based investment firm, proposes to acquire control of CCI and partially fund the tender offer through debt financing from Chase Manhattan Bank for a total value in excess of $300 million.

According to the FTC’s proposed complaint, CCI and Triad are two of only three firms that develop and sell electronic parts catalogs. These databases index and list more than a million new automotive replacement parts and are used primarily by independent warehouse distributors and jobbers providing parts to mechanics and other installers. The firms have offered the electronic parts catalog either as a stand alone product or integrated into their management information systems ("MIS"), a computer system used by warehouse distributors and jobbers to manage their inventory of the hundreds of thousands of automotive parts that they sell. An electronic catalog quickly and efficiently determines, with make, model and year of automobile information, which automotive part number, and hence, which automotive part is needed for a particular automobile.

According to the Commission’s proposed complaint, there are no economic substitutes for electronic parts catalogs, whether the catalog is offered as a stand alone product or integrated into an MIS system. Paper catalogs, the only theoretical alternative, are inadequate substitutes because paper catalogs are cumbersome and time consuming to use, according to the complaint.

The FTC’s complaint alleges that CCI and Triad are the dominant providers of MIS systems integrated with an electronic catalog, together controlling approximately seventy percent of the market. The FTC also alleges that de novo entry or fringe expansion which would be sufficient to deter or defeat reductions in competition resulting from the merger would not be timely or likely.

In order to resolve the antitrust concerns and maintain competition in this market, the proposed settlement would require CCI to divest its electronic parts catalog to MacDonald Computer Systems. MacDonald is a California-based, privately-held company, that has developed and sold MIS systems to the automotive parts aftermarket for many years, most recently integrated with an electronic parts catalog licensed from Triad. The proposed consent order would specifically require CCI to divest, through an exclusive, royalty-free and perpetual license with the right to sublicense and to transfer or assign, its PartFinder® electronic catalog database, its J-CON® application program interface, and support software and documentation. The purpose of this divestiture would be to ensure the continued use of the CCI catalog as independent competition to the products of the merged company.

The proposed order also would require the company to offer MacDonald updates for the electronic catalog for two years and technical assistance for one year. CCI also would have to maintain the viability and marketability of the electronic catalog pending the required divestiture.

If CCI fails to divest its electronic parts catalog to MacDonald, it would be required under the proposed order to divest to a Commission-approved acquirer within 60 days after the date on which the consent order is made final. The proposed order also provides for the appointment of a trustee to accomplish that divestiture if CCI has not completed the license to MacDonald in a timely manner.

The Commission vote to approve the proposed consent agreement was 5-0. An analysis of the proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment for a 60-day comment period, after which the Commission will decide whether to make it final. Comments on the proposed agreement and the prospective acquirer of the assets should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580. The public comment period encompasses all aspects of the proposed order, including public comment with respect to the suitability of MacDonald as a proposed licensee.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, proposed consent agreement, and an analysis to assist public comment, are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov; the consents are available by calling 202-326-3627. In addition, FTC documents are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 971-0013)