[Federal Register Volume 62, Number 246 (Tuesday, December 23, 1997)]
[Notices]
[Pages 67074-67076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33439]
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FEDERAL TRADE COMMISSION
[File No. 971-0087]
CUC International Inc.; HFS Incorporated; Analysis To Aid Public
Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint that accompanies the consent agreement and the terms of the
consent order--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before February 23, 1998.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.
FOR FURTHER INFORMATION CONTACT:
William Baer, Federal Trade Commission, 6th & Pennsylvania Ave., NW, H-
374, Washington, DC 20580. (202) 326-2932. Jacqueline K. Mendel,
Federal Trade Commission, 6th & Pennsylvania Ave., NW, S-2308,
Washington, DC 20580. (202) 326-2603.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby
given that the about-captioned consent agreement containing a consent
order to cease and desist, having been filed with and accepted, subject
to final approval, by the Commission, has been placed on the public
record for a period of sixty (60) days. The following Analysis to Aid
Public Comment describes the terms of the consent agreement, and the
allegations in the accompanying complaint. An electronic copy of the
full text of the consent agreement package can be obtained from the
Commission Actions section of the FTC Home Page (for December 17,
1997), on the World Wide Web, at ``http://www.ftc.gov/os/
actions97.htm.'' A paper copy can be obtained from the FTC Public
Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, N.W.,
Washington, D.C. 20580, either in person or by calling (202) 326-3627.
Public comment is invited. Such comments or views will be considered by
the Commission and will be available for inspection and copying at its
[[Page 67075]]
principal office in accordance with Section 4.9(b)(6)(ii) of the
Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).
Analysis of Proposed Consent Order to Aid Public Comment
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an agreement containing a proposed Consent Order
from CUC International Inc. (``CUC'') and HFS Incorporated (``HFS'')
(collectively, ``the Parties'') under which the Parties would be
required to divest Interval International Inc. (``Interval''), one of
two worldwide full-service timeshare exchange service companies, to
Interval Acquisition Corporation (``IAC''). IAC is controlled by a
venture capital firm, Willis Stein & Partners, L.P., and includes
Interval's current management. The buying group also includes Marriott
Ownership Resorts, Inc., a subsidiary of Marriott International, Inc.,
Hyatt Vacation Ownership Resorts, Inc., and Carlson Companies, Inc. If
the sale of Interval is not made to the Willis Stein buying group, the
Parties are required to divest Resort Condominiums International, Inc.
(``RCI''), the other worldwide full-service timeshare exchange service
company, currently owned by HFS. The agreement is designed to remedy
the anticompetitive efforts resulting from CUC's acquisition of HFS.
The proposed Consent Order has been placed on the public record for
sixty (60) days for reception of comments by interested persons. Public
comment is invited regarding all aspects of the agreement including the
proposed divestiture of Interval to IAC. 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. If the Commission decides
after the public comment period that IAC is not an acceptable acquirer,
the Parties have 120 days to divest either Interval or RCI to another
Commission-approved buyer.
The proposed complaint alleges that the proposed acquisition, if
consummated, would constitute a violation of Section 7 of the Clayton
Act, as amended, 15 U.S.C. Sec. 18, and Section 5 of the FTC Act, as
amended, 15 U.S.C. Sec. 45, in the market for the worldwide sale of
timeshare exchanges services.
The relevant market in which to analyze the effects of the proposed
transaction is the sale of timeshare exchange services on a worldwide
basis. An important benefit of timeshare ownership (also known as
vacation ownership) is the right to exchange the use of that unit for
another comparable unit at a different resort property (or at the same
resort for another time period). The owner of a particular resort unit
relies on the timeshare exchange company to provide the exchange
properties and to process the exchange. Exchange companies grade and
rate time periods as well as property quality.
CUC's acquisition of HFS will result in a virtual monopoly in the
market for full-service timeshare exchanges. As a result, timeshare
resort developers and owners would not have the same exchange
opportunities if they did not use the services of the merged company.
Therefore, after the acquisition, CUC would have the ability to
increase prices for the sale of timeshare exchange services to both
groups of customers, as well as decrease the level of services
provided.
Further, timely entry in the market for the sale of timeshare
exchange services on the scale necessary to offset the competitive harm
resulting from the combination of CUC and HFS is highly unlikely
because there are significant network externalities that lead to high
entry barriers. Like telephones, fax machines and automated teller
machines, membership in a timeshare exchange requires other people with
whom to interact. The owner of an interest in a timeshare resort would
have no reason to join a timeshare exchange that had no other members.
And the more members (i.e., potential exchange partners) that belong to
an exchange, the more attractive the exchange becomes to other
potential market participants. Attaining the critical mass required to
be a viable competitor would take many years because timeshare
developers consider joining a timeshare exchange only if it includes
other quality resorts. Timeshare owners, in turn, want to affiliate
with exchanges that give them the broadest timeshare vacation choices.
Thus, a new timeshare exchange would not enter effectively unless it
could provide consumers a level of timeshare vacation choices
comparable to those offered by RCI or Interval.
Developing a timeshare exchange comparable to RCI and Interval
would be a difficult endeavor. First, most resorts sign exclusive,
multi-year contracts with one timeshare exchange. The lengthy terms of
these contracts effectively prevent new entrants from securing a
sufficient base of resorts to become competitive. Second, individual
resorts would be reluctant to leave the established exchanges and
affiliate with a new exchange that did not offer a catalog of
opportunities comparable to that of the existing exchanges. Timeshare
exchange affiliation is an important sales tool for timeshare resort
developers, who must offer an array of exchange opportunities that is
competitive with those offered by other developers. Finally, there are
significant supply side economies of scale associated with the
sophisticated computer systems necessary to operate the exchanges.
No significant efficiencies would result from the merger of RCI and
Interval. Although consumers might receive some marginal benefit from
dealing with an exchange with additional properties listed, that
benefit does not outweigh the substantial loss of competition between
the two exchanges. Customers did not perceive any additional benefit
from the merger of the two exchanges. Moreover, the fact that Interval
is a strong competitor even though it is smaller than RCI suggests that
both firms have already achieved the requisite network externalities
and that a merger would not provide any significant incremental
benefit.
The proposed Consent Order would remedy the alleged violations by
replacing the lost competition that would result from the acquisition.
Under the proposed Consent Order, the Parties are required to divest
Interval to IAC within ten days CUC's acquisition of HFS. In the event
that the Parties do not satisfy that requirement, they must divest RCI,
the larger timeshare exchange service, within six months of signing the
consent agreement. The Commission may appoint a trustee to divest RCI
if the Parties do not do so. In the event that the Commission decides
to reject IAC as the acquirer of Interval when making the order final
after the public comment period, the Parties must rescind the
divestiture to IAC, and would have 120 days to divest either Interval
or RCI to a Commission-approved acquirer.
The Commission has not required a hold separate agreement in this
case because: (1) The proposed Order contemplates a short divestiture
time period and (2) the Order contains crown jewel provisions that
would substitute a larger asset package if the Parties fail to
accomplish the divestiture required under the Order.
Under the provisions of the proposed Order, the Parties are
required to provide the Commission with a report of compliance with the
divestiture provisions of the Order within thirty (30) days following
the date this Order becomes final, and every thirty (30) days
[[Page 67076]]
thereafter until the required divestiture is completed.
The purpose of this analysis is to facilitate public comment on the
proposed Order, and it is not intended to constitute interpretation of
the agreement and proposed Order or to modify in any way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 97-33439 Filed 12-22-97; 8:45 am]
BILLING CODE 6750-01-M
