Resolving Anticompetitive Concerns, FTC Clears General Electrics Acquisition of AGFAs Nondestructive Testing Business

The Federal Trade Commission has negotiated a settlement to resolve antitrust concerns arising from General Electric Company’s (GE) proposed acquisition of Agfa-Gevaert N.V.’s (Agfa) nondestructive testing (NDT) business. Under the terms of the proposed consent order, GE has agreed to divest its Panametrics ultrasonic NDT business to R/D Tech, Inc. (R/D Tech). The proposed transaction, which previously received conditional clearance from the European Commission, was announced in January of this year and is valued at approximately $437 million.
GE, through its Panametrics subsidiary, and Agfa, through its Krautkramer subsidiary, are the two largest suppliers of ultrasonic NDT equipment in the United States. Ultrasonic NDT equipment includes, among other things, 1) portable flaw detectors; 2) corrosion thickness gages; and 3) precision thickness gages. Such equipment is used to inspect the tolerance of materials without damaging them or impairing their future usefulness. Manufacturers and end users in a variety of industries use ultrasonic NDT equipment for quality-control purposes.

Parties to the Transaction

GE is a diversified technology and services company headquartered in Fairfield, Connecticut. GE is made up of a broad range of primary business units, each with its own number of divisions. GE Aircraft Engines, the business unit that proposes to acquire Agfa’s NDT assets, is the world's leading manufacturer of jet engines for military and civil aircraft. Another business unit of GE, GE Power Systems, offers ultrasonic NDT equipment through the NDT Division of Panametrics, Inc. With its headquarters and manufacturing operations in Waltham, Massachusetts, Panametrics researches, designs, manufactures, and sells ultrasonic NDT equipment and systems.

Headquartered in Mortsel, Belgium, Agfa is one of the world’s leading imaging companies. Agfa researches, develops, produces, and sells a wide variety of NDT equipment through its Krautkramer, Pantak, Seifert, and RADView subsidiaries. Agfa offers a complete range of ultrasonic NDT equipment, including portable and stationary instruments, customized testing machines and accessories, as well as application solutions, training and service.

The Commission’s Complaint

According to the FTC’s complaint, the transaction as proposed would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act. The U.S. markets for portable flaw detectors, corrosion thickness gages, and precision thickness gages are all highly concentrated. If the proposed acquisition is consummated, GE’s market share in each of these markets would exceed 70 percent. In addition, for many customers, GE and Agfa are the top two choices when considering a supplier of portable flaw detectors, corrosion thickness gages, or precision thickness gages. By eliminating competition between these two leading suppliers, the proposed acquisition would allow GE to exercise market power, increasing the likelihood that the purchasers of these products would be forced to pay higher prices and that innovation in these markets would decrease. Finally, according to the FTC, new entry into the relevant markets would be difficult and not likely to replace the competition lost through the transaction in a timely manner.

The Proposed Consent Order

The proposed consent order remedies the anticompetitive effects of the proposed transaction in the U.S. markets for the research, development, manufacture, and sale of portable flaw detectors, corrosion thickness gages, and precision thickness gages. Under the terms of the proposed order, GE is required to divest its worldwide Panametrics ultrasonic NDT business to R/D Tech. The divestiture must occur no later than 20 days after GE consummates its acquisition of Agfa’s NDT assets. If the FTC determines that R/D Tech is not an acceptable buyer, or that the manner of the divestiture is not acceptable, GE must unwind the sale and divest the Panametrics ultrasonic business to another Commission-approved buyer within 90 days. If GE fails to accomplish the divestiture in the time or manner required, the FTC may appoint a trustee to accomplish this sale.

The trustee would have the power and authority to accomplish the divestiture in 12 months, subject to any necessary extensions.

The proposed order also contains several provisions designed to ensure that the divestiture of the Panametrics ultrasonic NDT business is successful. First, for one year after the divestiture, GE would be prohibited from soliciting or inducing any employees or agents of the ultrasonic NDT equipment business involved in the divestiture to end their employment with R/D Tech. In addition, the proposed order requires that, post-divestiture, GE employees with access to confidential information related to the divested business sign a confidentiality agreement under which they will have to maintain confidential business information as strictly confidential, including the non-disclosure of such information to other GE employees. Finally, the proposed order allows the FTC to appoint an interim monitor, if necessary, to ensure that GE complies with all of its obligations under the proposed consent agreement.

Further, the proposed order contains a separate order to maintain assets, under which GE is required to maintain the viability, marketability, and competitiveness of the Panametrics ultrasonic NDT business pending its divestiture to R/D Tech. Lastly, to ensure that the FTC is informed about the status of the business to be divested and efforts to accomplish the divestiture, the proposed order requires GE to file periodic reports with the Commission until the divestiture is accomplished.

The Commission vote to accept the proposed consent order and place a copy on the public record was 3-0-2, with Chairman Timothy J. Muris not participating and Commissioner Pamela Jones Harbour recused. The proposed consent order will be subject to public comment for 30 days, until January 20, 2004, after which the Commission will determine whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

The investigation and settlement of this matter were coordinated closely with the European Commission, under the terms of the 1991 EC/U.S. enforcement cooperation agreement and in the spirit of the 2002 Best Practices on Co-operation in Merger Investigations, with the cooperation of the parties to the transaction. The EC adopted its decision in this matter on December 5, 2003.

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 order, and an analysis to aid public comment are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.