FTC Accepts Divestiture to Preserve Competition in the Market for Postal Automation Systems

The Federal Trade Commission has accepted a consent order to remedy the likely anticompetitive effects stemming from the proposed acquisition by Siemens AG ("Siemens") of certain voting securities of Atecs Mannesmann AG ("Atecs") from Vodafone Group Plc ("Vodafone") for approximately $9 billion. Siemens and Vodafone, through its Dematic subsidiary, are the two leading world-wide suppliers of postal automation systems. These systems are purchased by public postal services throughout the world, including the United States Postal Service ("USPS"). Under the terms of the proposed order, Siemens and Vodafone will be required to divest Vodafone's Mannesmann Dematic Postal Automation business ("MDPA business") to Northrop Grumman Corp. ("Northrop") no later than ten days from the date Siemens consummates its acquisition of Atecs.

Public postal services throughout the world purchase postal automation systems to process letter mail and flat mail, which includes over-sized envelopes, catalogs, and magazines. These highly integrated systems are able to cancel stamps or meter marks, read addresses using optical character recognition technology, translate addresses into destination barcodes, and use these barcodes to sort mail by country, state, city and/or street. Postal automation systems reduce the amount of labor needed to reliably handle the millions of pieces of mail received daily by public postal services.

"The proposed settlement will ensure continued competition in the $1 billion market for postal automation systems" said Molly S. Boast, Acting Director of the FTC's Bureau of Competition. "Northrop is a strong and viable purchaser, committed to expanding MDPA's presence in the market and serving important customers like the USPS."

Headquartered in Munich, Germany, Siemens is a world leader in electrical engineering and electronics. Siemens, through its ElectroCom division, is also the world's leading supplier of postal automation systems, with over 14,000 machines deployed or on order in over 30 countries.

Vodafone is the second largest company in the United Kingdom and the world's largest supplier of mobile telecommunications services. In early 2000, Vodafone acquired Mannesmann, which was comprised of two companies: Mannesmann AG and Atecs. Mannesmann AG is involved primarily in telecommunications. Atecs is made up of five operating subsidiaries: (1) Dematic; (2) Rexroth; (3) Demag Kraus-Maffei; (4) VDO; and (5) Sachs. VDO and Sachs are involved in the manufacture and sale of automotive products, while Dematic, Rexroth and Demag Kraus-Maffei are involved in various automation and industrial equipment businesses.

According to the FTC, Siemens and Dematic regularly bid against each other for significant public postal contracts, and they supply postal automation systems to virtually all of the major public postal services in the world, including the USPS. The postal automation systems market is highly concentrated, the FTC's complaint states, and the proposed acquisition would allow Siemens to purchase its closest competitor. After the acquisition, the complaint alleges, Siemens would control approximately 50% of the world-wide postal automation systems market.

In addition, according to the FTC, there are significant impediments to new entry into the postal automation systems market. Customers require highly sophisticated and reliable systems in order to process the large volume of mail they handle daily. Consequently, customers do not consider new suppliers of postal automation systems unless they first establish a track record of successfully delivering smaller component parts. A supplier must then develop a competitive system and have the resources to participate in the very lengthy competitions typical in this market.

These steps are difficult, expensive and time-consuming. For this reason, new entry into the market for postal automation systems would not be accomplished in a timely manner or be likely to occur at all even if prices increased substantially after the proposed acquisition.

According to the complaint, the effects of the acquisition, if consummated, may be substantially to lessen competition and to tend to create a monopoly in the relevant market in the following ways, among others:

1. by eliminating actual, direct, and substantial competition between Siemens and Vodafone in the relevant market;
2. by increasing the likelihood that Siemens will unilaterally exercise market power in the relevant market;
3. by increasing the likelihood of coordinated interaction in the relevant market;
4. by increasing the likelihood that customers of postal automation systems would be forced to pay higher prices; and
5. by increasing the likelihood that innovation and service levels would be reduced in the relevant market.

The proposed order effectively remedies the acquisition's anticompetitive effects in the market for postal automation systems by requiring the parties to divest Vodafone's postal automation business to a Commission-approved acquirer. Siemens and Vodafone would be required to divest the MDPA business to Northrop, no later than ten days after the proposed acquisition of Atecs is consummated.

The proposed order contains several provisions designed to ensure that the divestiture of the MDPA business is successful. The proposed order also requires Siemens and Vodafone to provide incentives to certain employees to continue in their positions until the divestiture is accomplished. Under certain circumstances, Siemens would be required to provide additional incentives to key employees to accept employment, and remain employed, by the acquirer. For a period of one year from the date the divestiture of the MDPA business is accomplished, Siemens and Vodafone would be prohibited from soliciting or inducing any employees or agents of the MDPA business to terminate their employment with MDPA. In addition, for a period of four months following the date the divestiture is accomplished, Siemens and Vodafone would be prohibited from hiring any employees or agents of MDPA. Further, the proposed agreement would prohibit Siemens and Vodafone from soliciting MDPA customers for a period of two years from the date Siemens signs its divestiture agreement with the acquirer of the MDPA business. Finally, Siemens will not be permitted to disclose to any person or use any information it obtains relating to the MDPA business.

The proposed order also contains limited technology licensing and other contract-related requirements designed to assure the uninterrupted development and supply to the USPS of certain new technologies, and a number of recordkeeping and reporting requirements designed to assist the FTC in monitoring compliance with its terms.

An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. It will be subject to public comment for 30 days, until May 9, 2001, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The Commission vote to place the complaint and proposed settlement on the public record was 5-0.

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 of the agreement to aid in 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, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD 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.

Howard Shapiro

Office of Public Affairs

202-326-2176

Yolanda R. Gruendel

Bureau of Competition

202-326-2971

(FTC File No.: 001-0212)