ANALYSIS OF PROPOSED CONSENT ORDER

ANALYSIS OF PROPOSED CONSENT ORDER

TO AID PUBLIC COMMENT

The Federal Trade Commission ("Commission") has accepted, subject to final approval, an Agreement Containing Consent Order ("Agreement") from Federal-Mogul Corporation (“Federal-Mogul”) and T&N plc (“T&N”).

The proposed Consent Order has been placed on the public record for sixty (60) days for reception of comments by interested persons. Comments received during this period will become part of the public record. After sixty (60) days, the Commission will again review the Agreement and the comments received and will decide whether it should withdraw from the Agreement or make final the Agreement's proposed Order.

Both Federal-Mogul, a Michigan corporation, and T&N, a corporation organized under the laws of the United Kingdom, design, manufacture and sell fluid film or "plain" thinwall bearings ("thinwall bearings"). These are bearings that do not have roller or ball elements, but have a surface coating of oil which reduces friction. Among the thinwall bearings Federal-Mogul and T&N manufacture and sell are thinwall bearings for use in automobile and light truck engines (“light duty engine bearings”) and thinwall bearings for use in heavy truck and heavy equipment engines (“heavy duty engine bearings”). Both Federal-Mogul and T&N sell light duty and heavy duty engine bearings to original equipment manufacturers (“OEMs”), which buy bearings and use them to manufacture engines, and to aftermarket companies, which buy bearings and use them to repair or service engines after the engines’ warranty periods have expired. Federal- Mogul and T&N are the largest competitors in the manufacture and sale of thinwall bearings to OEMs and the aftermarket in the United States. On October 16, 1997, Federal-Mogul notified T&N of Federal-Mogul’s intention to commence a cash tender offer to acquire 100 percent of the voting securities of T&N for approximately $2.4 billion.

The Proposed Complaint

The proposed complaint alleges that the proposed acquisition may substantially lessen competition in the development, manufacture, and sale of (1) thinwall bearings, (2) light duty engine bearings sold to OEMs, (3) heavy duty engine bearings sold to OEMs, and (4) engine bearings sold to the aftermarket. The proposed complaint also alleges that the relevant geographic market for evaluating the acquisition’s effect on the thinwall bearings market is the world. Every engine has a unique set of bearings which, with few exceptions, cannot be used in any other engine. The bearings are engineered in terms of materials, shapes and sizes to meet the bearing performance demands of a particular engine. While engines built for the United States market have different performance characteristics from engines built for other markets, and require bearings engineered for those performance requirements, engine manufacturers in the United States are willing to buy engine bearings from anywhere in the world if the bearings meet the performance requirements for the United States market.

The proposed complaint alleges that Federal-Mogul and T&N are the two leading producers in the four different bearings markets. The complaint further alleges that the proposed transaction would give Federal-Mogul the ability to unilaterally exercise market power and that the transaction could also substantially increase the likelihood of collusion or coordinated anticompetitive conduct between Federal-Mogul and the other remaining bearings producers.

The proposed complaint alleges that entry into the four alleged markets would not be timely, likely, or sufficient to deter or offset the adverse effects of the acquisition on competition in these markets. Entry into the markets to sell engine bearings to OEM customers requires developing appropriate bearings and precision manufacturing capabilities and extensive testing before sales can be made. This process, from development to the completion of testing, would take substantially more than two years. In the aftermarket, the entrant would have to develop a broad product line to compete with Federal-Mogul and T&N, which would take more than two years, and a new entrant would be at a significant cost disadvantage to the incumbent firms.

The Proposed Order

The proposed Order would remedy the alleged violation by preserving the competition that would otherwise be lost as a result of Federal-Mogul’s acquisition of T&N. The proposed Order requires Federal-Mogul to divest the thinwall bearing business of T&N, which includes the assets and plants that T&N now uses to make thinwall bearings, as well as the assets, including intellectual property, that T&N now uses to develop and design new bearings to meet the bearings needs of engines that OEMs will develop in the future. To insure that the divested thinwall bearing business would be in the same position that T&N had been in terms of research, the proposed Order specifically identities the individuals in T&N who worked on bearings research and development and requires Federal-Mogul and T&N to assign those personnel to the business to be divested. In addition, certain employees who are believed to be particularly important to the future research success of the divested T&N thinwall business will be given incentives to remain with the divested thinwall business. Finally, certain assets relating the aftermarket sales of bearings in North America, including the brand names under which T&N has sold bearings, must be included in the divestiture.

The proposed Order also addresses a relationship that T&N’s thinwall bearings business had with Daido Metals (“Daido”), a Japanese bearing producer. For a number of years, T&N had cooperative technology exchange arrangements with Daido, as well as a joint venture to produce bearings at Bellefontaine, Ohio. In the past, these arrangements between T&N and Daido may have allowed the two companies together to compete better against other bearings producers and to meet their customers’ needs for high quality, low cost, sophisticated bearings, better than either company could on its own. To allow for the continuation of cooperation between Daido and the divested T&N bearings business, the proposed Order prohibits Federal-Mogul from entering into such arrangements with Daido for a period of five years. In addition, because certain individuals at T&N are believed to be important to maintaining the cooperative relationships between T&N and Daido, these individuals are given incentives under the proposed Order to stay with the divested T&N thinwall bearings business. The purpose of these provisions is not to force the divested T&N thinwall bearing business or Daido to form any particular cooperative arrangements, but to allow any efficient cooperation between the two firms to continue as if T&N had not been acquired by Federal-Mogul.

The proposed Order also identifies certain assets related to dry bearings or polymer bearings that are to be included in the divestiture. Dry or polymer bearings are bearings that do not rely on a film of oil, but instead on a polymer coating, to reduce friction. These bearings are produced at T&N plants that also produce thinwall bearings, and the inclusion of these bearings in the assets to be divested may be important to the viability of the T&N plants to be divested. Absent the specific references to polymer bearings, the identification of the plants to be divested would require the divestiture of the manufacturing lines for these dry or polymer bearings that are contained in the named plants. However, Federal-Mogul wishes to include these products by name in the proposed Order, to insure the German Federal Cartel Office that the dry bearing products listed will be divested. The German Federal Cartel Office has raised concerns about a product overlap between Federal-Mogul and T&N in dry bearings that would adversely impact competition in dry bearings in Germany. By including these products in the Commission’s proposed Order, Federal-Mogul avoids having to enter into a separate divestiture procedure, relating to the same plants, to satisfy the Federal Cartel Office.

The proposed Order requires that Federal-Mogul divest the identified assets within six months after the proposed Order becomes final. If Federal-Mogul does not divest the assets within that time period, the proposed Order provides for the appointment of a trustee to divest the assets.

The purpose of this analysis is to facilitate public comment on the proposed Order. This analysis is not intended to constitute an official interpretation of the Agreement or the proposed Order or in any way to modify the terms of the Agreement or the proposed Order.