ANALYSIS OF PROPOSED CONSENT ORDER TO AID PUBLIC COMMENT

The Federal Trade Commission ("Commission") has accepted, subject to final approval, an Agreement Containing Consent Orders ("Consent Agreement") and Decision & Order from Precision Castparts Corp. ("PCC") and Wyman-Gordon Company ("Wyman-Gordon") designed to remedy the anticompetitive effects resulting from PCC's acquisition of all of the voting securities of Wyman-Gordon. Under the terms of the Consent Agreement, PCC and Wyman-Gordon will be required to divest the following assets that are involved in the development, manufacture and sale of titanium, stainless steel and nickel-based superalloy aerospace investment cast components: (1) Wyman-Gordon's titanium foundry located in Albany, Oregon; and (2) Wyman-Gordon's Large Cast Parts foundry located in Groton, Connecticut.

The proposed Consent Agreement and Decision & Order have been placed on the public record for thirty (30) days for reception of comments by interested persons. Comments received during this period will become part of the public record. After thirty (30) days, the Commission will again review the proposed Consent Order and the comments received, and will decide whether it should withdraw from the proposed Consent Agreement or make final the proposed Decision & Order.

Pursuant to a May 17, 1999 cash tender offer, PCC agreed to acquire 100% of the voting securities of Wyman-Gordon for approximately $721 million. The proposed Complaint alleges that this agreement violates Section 5 of the FTC Act, as amended, 15 U.S.C. § 18, and the acquisition of Wyman-Gordon by PCC, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 45, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 18, in the markets for titanium, large stainless steel, and large nickel-based superalloy aerospace investment cast structural components.

Investment casting is a method of manufacturing metal components whereby a wax model of the metal component is dipped into a ceramic slurry which dries to form a ceramic shell. The wax is then melted out using a special furnace, leaving a cavity within the ceramic shell into which molten metal is poured. Once the metal cools, the ceramic shell is removed, producing dimensionally precise metal components. Aerospace investment cast structural components are components that are used primarily in aerospace jet engine and aerospace airframe applications and are manufactured using a variety of metal alloys, including titanium, stainless steel, and nickel-based superalloy. PCC and Wyman-Gordon are two of the world's leading suppliers of titanium, stainless steel, and nickel-based superalloy aerospace investment cast structural components. While each of these metals, and others including aluminum, can be used in many aerospace applications, for a particular application, one metal is typically far superior to the alternatives based on cost, weight, and strength considerations. Therefore, based on design specifications and performance characteristics, a component produced from a particular metal is not a reasonable competitive alternative for an investment cast aerospace structural component manufactured using a different metal.

Metal aerospace structural components can also be produced utilizing other methods of manufacturing, such as forging and fabrication. While these other methods of manufacturing are alternatives to investment casting, the investment casting process provides the most cost-effective method of producing the required components for those aerospace applications where investment castings are currently used. In view of this cost distinction, other methods of manufacturing are not reasonable competitive alternatives for the production of titanium, stainless steel, and nickel-based superalloy aerospace investment cast structural components.

Titanium, large stainless steel, and large nickel-based superalloy investment cast structural aerospace components are each relevant markets. The worldwide market for titanium aerospace investment cast structural components is highly concentrated, and the proposed acquisition would substantially increase concentration in the market. PCC and Wyman-Gordon are two of only four viable suppliers of titanium aerospace investment cast structural components, and one of the remaining two competitors is significantly smaller than the other three.

The worldwide market for large (greater than 24 inches in diameter) stainless steel aerospace investment cast structural components is also highly concentrated, and the acquisition would substantially increase concentration in this market. PCC and Wyman-Gordon are two of only six viable suppliers of large stainless steel aerospace investment cast structural components.

The worldwide market for large (greater than 24 inches in diameter) nickel-based superalloy aerospace investment cast structural components is also highly concentrated, and the acquisition would substantially increase concentration in this market. PCC and Wyman-Gordon are two of only four viable suppliers of large nickel-based superalloy aerospace investment cast structural components.

By eliminating competition between PCC and Wyman-Gordon in these highly concentrated markets, the proposed acquisition would have allowed PCC to unilaterally exercise market power, and would have enhanced the likelihood of coordinated interaction among the remaining firms in these markets, thereby increasing the likelihood that: (1) consumers of titanium, large stainless steel, and large nickel-based superalloy aerospace investment cast components would be forced to pay higher prices; and (2) innovation in these markets would decrease.

It is unlikely that the competition eliminated by the proposed acquisition would have been replaced by new entrants into the relevant markets within two years due to the substantial barriers to entry into the markets at issue. A new entrant into these markets would need to undertake the difficult, expensive, and time-consuming process of developing a new product. Moreover, a new entrant would likely have to purchase a new facility, as well as specialized investment casting equipment. A new entrant would also have to undertake the arduous task of developing the required engineering and process expertise. In addition, because of the critical nature of aerospace investment cast structural components, a new entrant would have to obtain customer and other third-party certifications and approvals before it could begin to manufacture and sell aerospace investment cast components. Finally, customers of aerospace investment cast structural components are generally reluctant to contract with suppliers that have not developed a proven reputation for quality and reliability. For these reasons, new entry into the market would in all likelihood not occur in time to deter or counteract the anticompetitive effects resulting from the acquisition.

The proposed Consent Agreement and Decision & Order effectively remedy the acquisition's anticompetitive effects in the market for titanium aerospace investment cast structural components by requiring PCC and Wyman-Gordon to divest Wyman-Gordon's titanium foundry in Albany, Oregon to a Commission-approved acquirer. Pursuant to the Consent Agreement and Decision & Order, PCC and Wyman-Gordon are required to divest the Albany titanium foundry no later than six (6) months from the date the Commission accepts the Consent Agreement and Decision & Order for public comment. In the event that PCC and Wyman-Gordon fail to divest the assets within the required time, the Commission may appoint a trustee to divest the assets. Wyman-Gordon only recently acquired control of the Albany titanium foundry and had not yet integrated the foundry into its castings operation and business. As a result, the Commission did not require that PCC and Wyman-Gordon divest Wyman-Gordon's Albany titanium foundry to a purchaser identified and approved by the Commission prior to the consummation of the Wyman-Gordon acquisition.

The proposed Consent Agreement and Decision & Order effectively remedy the acquisition's anticompetitive effects in the markets for large stainless steel and large nickel-based superalloy aerospace investment cast structural components by requiring PCC and Wyman-Gordon to divest the Wyman-Gordon's Large Cast Parts ("LCP") foundry in Groton, Connecticut to Doncasters plc, a leading international manufacturer of aerospace investment cast components. Pursuant to the Consent Agreement and Decision & Order, PCC and Wyman-Gordon are required to divest the Groton LCP foundry to Doncasters no later than 16 business days from the date the Commission accepts the Consent Agreement and Decision & Order for public comment. In the event PCC and Wyman-Gordon fail to divest the Groton LCP foundry to Doncasters within the required time, the Consent Agreement contains a "crown jewel" provision that allows the Commission to appoint a trustee to divest both Wyman-Gordon's LCP and Small Cast Parts ("SCP") foundries located in Groton, Connecticut, to an acquirer approved by the Commission.

The proposed Consent Agreement and Decision & Order require PCC and Wyman-Gordon to assist the acquirers of the divested assets so that they can compete effectively in the markets for titanium, large stainless steel, and large nickel-based superalloy aerospace investment cast components. PCC and Wyman-Gordon must provide sufficient technical assistance and advice to the acquirers in order that they may begin manufacturing and selling titanium, stainless steel, and nickel-based superalloy aerospace investment cast components. Further, at the request of a customer of titanium, stainless steel, or nickel-based superalloy aerospace investment cast components at any time during the next year, PCC and Wyman-Gordon must transfer to the Albany titanium facility, the Groton LCP foundry, or both the Groton LCP and SCP foundries, as applicable, all tooling and manufacturing know-how associated with producing a particular component identified by the customer. PCC and Wyman-Gordon must also pay (a) all costs reasonably incurred in the delivery of such tooling and manufacturing know-how; (b) fifty (50) percent of the costs reasonably incurred in conforming such tooling to substantially the same quality employed or achieved by Wyman-Gordon; and (c) fifty (50) percent of the costs related to receiving any certifications or approvals from the customer that may be required as a result of the transfer of the assets.

To ensure that the acquirers of the divested assets have the opportunity to retain all the key employees currently involved in Wyman-Gordon's titanium, large stainless steel and large nickel-based superalloy aerospace casting businesses, the Consent Agreement and Decision & Order require that PCC and Wyman-Gordon provide financial incentives to these individuals, including a bonus for certain employees for accepting employment with the acquirer. Further, the Consent Agreement and Decision & Order require PCC and Wyman-Gordon to provide to the Commission a report of compliance with the divestiture provisions of the Decision & Order within thirty (30) days following the date the Decision & Order becomes final, and every thirty (30) days until PCC and Wyman-Gordon have completed the divestitures. Finally, an Order to Hold Separate issued by the Commission requires that the Albany titanium foundry, and if necessary the Groton LCP and Groton SCP, be operated independently of PCC and Wyman-Gordon until the divestitures are completed.

The purpose of this analysis is to facilitate public comment on the Consent Agreement and Decision & Order, and it is not intended to constitute an official interpretation of the Consent Agreement and Decision & Order or to modify their terms in any way.