[Federal Register Volume 61, Number 149 (Thursday, August 1, 1996)]
[Notices]
[Pages 40220-40225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19594]
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FEDERAL TRADE COMMISSION
[File No. 961-0053]
Fresenius AG; Fresenius USA, Inc.; Proposed Consent Agreement
With Analysis To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair or deceptive acts or practices and unfair methods of
competition, this consent agreement, accepted subject to final
Commission approval, would require, among other things, the Walnut
Creek, California-based subsidiary of Fresenius AG to divest its
Lewisberry, Pennsylvania hemodialysis concentrate plant to Di-Chem,
Inc. The consent agreement settles antitrust concerns stemming from
Fresenius' proposed acquisition of National Medical Care, Inc. (NMC)
from W.R. Grace & Co. Fresenius is one of the world's leading producers
of kidney dialysis equipment, and NMC is the largest dialysis services
company in the United States. The draft complaint alleges that
Fresenius' acquisition of NMC would produce a firm with a market share
of approximately 45-50 percent of the hemodialysis concentrate market.
DATES: Comments must be received on or before September 30, 1996.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Howard Morse, Federal Trade
Commission, 6th and Pennsylvania Avenue, NW., S-3627, Washington, DC
20850. (202) 326-2949.
Robert Tovsky, Federal Trade Commission, 6th and Pennsylvania
Avenue, NW, S-3627, Washington, DC 20850. (202) 326-2949.
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 following 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. Public comment is invited. Such
comments or views will be considered by the Commission and will be
available for inspection and copying at its 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)).
Agreement Containing Consent Order
The Federal Trade Commission (``Commission''), having initiated an
investigation of the proposed acquisition by Fresenius AG of National
Medical Care, Inc. from W.R. Grace & Co., and it now appearing that
Fresenius AG and Fresenius USA, Inc. (hereinafter sometimes referred to
as ``proposed respondents'') are willing to enter into an agreement
containing an order to divest certain assets, and to cease and desist
from making certain acquisitions without providing advance written
notification to the Commission, and providing for other relief:
It is Hereby agreed by and between proposed respondents, by their
duly authorized officers and attorneys, and counsel for the Commission
that:
i. Proposed respondent Fresenius AG is a corporation organized,
existing and doing business under and by virtue of the laws of Germany
with its office and principal place of business located at Borkenberg
14, 61440 Oberursel/Ts, Bad Homburg, Germany.
ii. Proposed respondent Fresenius USA, Inc. is a corporation
organized, existing and doing business under and by virtue of the laws
of Massachusetts with its principal place of business located at 2637
Shadelands Drive, Walnut Creek, California 94598.
iii. Proposed respondents admit all the jurisdictional facts set
forth in the draft of complaint.
iv. Proposed respondents waive:
(1) Any further procedural steps;
(2) The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
(3) All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement;
and
(4) Any claim under the Equal Access to Justice Act.
[[Page 40221]]
5. Proposed respondents shall submit, within thirty (30) days of
the date this agreement is signed by proposed respondents, an initial
report signed by the proposed respondents setting forth in detail the
manner in which the proposed respondents will comply with Paragraph II
of the order when and if entered. Such report will not become part of
the public record unless and until the accompanying order is made final
by the Commission and the required divestiture accomplished.
6. This agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this
agreement is accepted by the Commission it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this agreement and so notify the proposed respondents, in which
event it will take such action as it may consider appropriate, or issue
and serve its complaint (in such form as the circumstances may require)
and decision, in disposition of the proceeding.
7. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondents that the law has been
violated as alleged in the draft of complaint, or that the facts as
alleged in the draft complaint, other than jurisdictional facts, are
true.
8. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Sec. 2.34 of the Commission's
Rules, the Commission may, without further notice to the proposed
respondents, (1) issue its complaint corresponding in form and
substance with the draft of complaint and its decision containing the
following order to divest and to cease and desist in disposition of the
proceeding and (2) make information public with respect thereto. When
so entered, the order to divest shall have the same force and effect
and may be altered, modified or set aside in the same manner and within
the same time provided by statute for other orders. The order shall
become final upon service. Delivery by the United States Postal Service
of the complaint and decision containing the agreed-to order to
proposed respondents' addresses as stated in this agreement shall
constitute service. Proposed respondents waive any right they may have
to any other manner of service. The complaint may be used in construing
the terms of the order, and no agreement, understanding,
representation, or interpretation not contained in the order or the
agreement may be used to vary or contradict the terms of the order.
9. Proposed respondents have read the proposed complaint and order
contemplated hereby. Proposed respondents understand that once the
order has been issued, they will be required to file one or more
compliance reports showing that they have fully complied with the
order. Proposed respondents further understand that they may be liable
for civil penalties in the amount provided by law for each violation of
the order after it becomes final.
Order
I
It is ordered that, as used in this Order, the following
definitions shall apply:
A. ``Respondents'' or ``Fresenius'' means Fresenius AG and
Fresenius USA, Inc., their directors, officers, employees, agents and
representatives, their predecessors, successors, and assigns; their
subsidiaries, divisions, and groups and affiliates controlled by
Fresenius, and the respective directors, officers, employees, agents,
representatives, successors and assigns of each; their domestic and
foreign parents, and the subsidiaries, divisions, and groups and
affiliates controlled by any other domestic or foreign parent, and the
respective directors, officers, employees, agents, representatives,
successors and assigns of each.
B. ``NMC'' means National Medical Care, Inc., its directors,
officers, employees, agents and representatives, its predecessors,
successors, and assigns; its subsidiaries, divisions, and groups and
affiliates controlled by NMC, and the respective directors, officers,
employees, agents, representatives, successors and assigns of each; its
domestic and foreign parents, including W.R. Grace & Co., and the
subsidiaries, divisions, and groups and affiliates controlled by any
other domestic or foreign parent, and the respective directors,
officers, employees, agents, representatives, successors and assigns of
each.
C. ``Commission'' means the Federal Trade Commission.
D. ``NMC Acquisition'' means the acquisition by Fresenius AG of NMC
that is the subject of an Agreement and Plan of Reorganization entered
into on or about February 4, 1996.
E. ``Hemodialysis Concentrate'' means the acid portion of the
dialysate solution used in hemodialysis treatment of End Stage Renal
Disease to carry waste materials from the patient's blood during the
treatment.
F. ``Assets and Businesses'' means assets, properties, businesses,
and goodwill, tangible and intangible, including, without limitation,
the following:
1. All plant facilities, machinery, fixtures, equipment, vehicles,
transportation and storage facilities, furniture, tools, supplies,
stores, spare parts, and other tangible personal property;
2. All customer lists, vendor lists, catalogs, sales promotion
literature, advertising materials, research materials, technical
information, dedicated management information systems, information
contained in management information systems, rights to software,
trademarks, patents and patent rights, inventions, trade secrets,
technology, know-how, ongoing research and development, specifications,
designs, drawings, processes and quality control data;
3. Raw material and finished product inventories and goods in
process;
4. All right, title and interest in and to real property, together
with appurtenances, licenses, and permits;
5. All right, title, and interest in and to the contracts entered
into in the ordinary course of business with customers (other than
contracts in which Hemodialysis Concentrate is sold as part of a
package of products), suppliers, sales representatives, distributors,
agents, personal property lessors, personal property lessees,
licensors, licensees, consignors and consignees;
6. All rights under warranties and guarantees, express or implied;
7. All separately maintained, as well as relevant portions of not
separately maintained, books, records and files; and
8. All items of prepaid expense.
G. ``Hemodialysis Business to Be Divested'' means the Fresenius
Lewisberry, Pennsylvania Hemodialysis Manufacturing Facility, and any
additional Fresenius Hemodialysis Concentrate Assets and Businesses (as
defined) as are necessary to assure the Viability and Competitiveness
of the Hemodialysis Business to Be Divested in the manufacture,
marketing or distribution of Hemodialysis Concentrate.
H. ``Viability and Competitiveness'' means that the Hemodialysis
Concentrate Business to Be Divested is capable of functioning
independently and competitively in the Hemodialysis Concentrate
business in substantially
[[Page 40222]]
the same manner achieved by Fresenius prior to the divestiture.
II
It is further ordered that:
A. Respondents shall, absolutely and in good faith, divest the
Hemodialysis Business to Be Divested to Di-Chem, Inc. (``Di-Chem''),
within 10 business days of either (i) the date this Order is made
final, or (ii) the closing of the NMC Acquisition, whichever is later,
pursuant to and in accordance with the May 17, 1996 agreement between
Fresenius USA, Inc. and Di-Chem (``Divestiture Agreement''). If the
terms of such Divestiture Agreement are changed or supplemented in any
way, notice of such changes or supplementations must be provided to the
Commission, and any material changes or supplementations may be made
only with the prior approval of the Commission. In the event that the
Divestiture Agreement is terminated through no fault of Respondents,
Respondents shall divest the Hemodialysis Business to Be Divested
within four (4) months of either (i) the date this Order is made final,
or (ii) the closing of the NMC Acquisition, whichever is later, and
Respondents shall also effect such additional arrangements so as to
assure the Viability and Competitiveness of the Hemodialysis Business
to Be Divested. Respondents shall divest the Hemodialysis Business to
Be Divested to an acquirer that receives the prior approval of the
Commission and only in a manner that receives the prior approval of the
Commission.
The purpose of the divestiture is to enable the acquirer to compete
in the manufacture and sale of Hemodialysis Concentrate in the United
States and to remedy the lessening of competition resulting from the
NMC Acquisition as alleged in the Commission's Complaint.
B. Pending divestiture of the Hemodialysis Business to Be Divested,
Respondents shall take such actions as are necessary to maintain the
marketability, viability and competitiveness of the Hemodialysis
Business to Be Divested, including, but not limited to, taking
necessary steps to ensure that the Lewisberry plant is capable of, and
has been approved for, commercial production, and to prevent
destruction, removal, wasting, deterioration or impairment of the
Hemodialysis Business to Be Divested, other than ordinary wear and
tear.
III
It is further ordered that:
A. If Respondents have not divested the Hemodialysis Business to Be
Divested within four (4) months of either (i) the date this Order
becomes final, or (ii) the closing of the NMC Acquisition, whichever is
later, the Commission may appoint a trustee to divest the Hemodialysis
Business to Be Divested pursuant to Paragraph II of this Order. In the
event that the Commission or the Attorney General brings an action
pursuant to Sec. 5(l) of the Federal Trade Commission Act, 15 U.S.C.
Sec. 45(l), or any other statute enforced by the Commission,
Respondents shall consent to the appointment of a trustee in such
action. Neither the appointment of a trustee nor a decision not to
appoint a trustee under this Paragraph shall preclude the Commission or
the Attorney General from seeking civil penalties or any other relief
available to it, including a court-appointed trustee, pursuant to
Sec. 5(l) of the Federal Trade Commission Act, or any other statute
enforced by the Commission, for any failure by the Respondents to
comply with this Order. The Commission shall select the trustee under
this Paragraph, subject to the consent of Respondents, which consent
shall not be unreasonably withheld. The trustee shall be a person with
experience and expertise in acquisitions, divestitures, and licensing.
If Respondents have not opposed, in writing, including the reasons for
opposing, the selection of any proposed trustee within ten (10) days
after notice by the staff of the Commission to Respondents of the
identity of any proposed trustee, Respondents shall be deemed to have
consented to the selection of the proposed trustee.
B. If a trustee is appointed by the Commission or a court pursuant
to Paragraph III.A of this Order, Respondents shall consent to the
following terms and conditions regarding the trustee's powers, duties,
authority, and responsibilities:
1. Subject to the prior approval of the Commission and consistent
with the provisions of Paragraph II of this Order, the trustee shall
have the exclusive power and authority to divest the Hemodialysis
Business to Be Divested.
2. Within ten (10) days after the appointment of the trustee,
Respondents shall execute a trust agreement that, subject to the prior
approval of the Commission, and in the case of a court-appointed
trustee, of the court, transfers to the trustee all rights and powers
necessary to permit the trustee to effect the divestiture required by
this Order.
3. The trustee shall have twelve (12) months from the date the
trust agreement described in this Paragraph III.B is approved by the
Commission to accomplish the divestiture of the Hemodialysis Business
to Be Divested, which shall be subject to the prior approval of the
Commission. If, however, at the end of this twelve (12) month period,
the trustee has submitted a plan of divestiture or believes that
divestiture can be achieved within a reasonable time, the divestiture
period may be extended by the Commission, or, in the case of a court-
appointed trustee, by the court.
4. The trustee shall have full and complete access to the
personnel, books, records and facilities related to the Hemodialysis
Business to Be Divested and to any other relevant information as the
trustee may reasonably request. Respondents shall develop such
financial or other information as the trustee may reasonably request
and shall cooperate with the trustee. Respondents shall take no action
to interfere with or impede the trustee's accomplishment of the
divestiture. Any delays in divestiture caused by Respondents shall
extend the time for divestiture under this Paragraph in an amount equal
to the delay, as determined by the Commission or, for a court-appointed
trustee, by the court.
5. The trustee shall use his or her best efforts to negotiate the
most favorable price and terms available in each contract that is
submitted to the Commission, subject to Respondents' absolute and
unconditional obligation to divest at no minimum price. The divestiture
shall be made in the manner and to an acquirer as set out in Paragraph
II of this Order; provided however, if the trustee receives bona fide
offers from more than one acquiring entity, and if the Commission
determines to approve more than one such acquiring entity, the trustee
shall divest to the acquiring entity or entities selected by
Respondents from among those approved by the Commission.
6. The trustee shall serve without bond or other security at the
cost and expense of Respondents, and on such reasonable and customary
terms and conditions as the Commission or a court may set. The trustee
shall have the authority to employ, at the cost and expense of
Respondents, such consultants, accountants, attorneys, investment
bankers, business brokers, appraisers, and other representatives and
assistants as are reasonably necessary to carry out the trustee's
duties and responsibilities. The trustee shall account for all monies
derived from the divestiture and all expenses incurred. After approval
by the Commission and, in the case of a court-appointed trustee, by the
court, of the account of the trustee, including fees for his or her
services, all remaining monies
[[Page 40223]]
shall be paid at the direction of the Respondents, and the trustee's
power shall be terminated. The trustee's compensation shall be based at
least in significant part on a commission arrangement contingent on the
trustee's divesting the Hemodialysis Business to Be Divested.
7. Respondents shall indemnify the trustee and hold the trustee
harmless against any losses, claims, damages, liabilities, or expenses
arising out of, or in connection with, the performance of the duties of
the trustee, including all reasonable fees of counsel and other
expenses incurred in connection with the preparation for, or defense of
any claim, whether or not resulting in any liability, except to the
extent that such liabilities, losses, damages, claims, or expenses
result from misfeasance, gross negligence, willful or wanton acts, or
bad faith by the trustee.
8. If the trustee ceases to act or fails to act diligently, a
substitute trustee shall be appointed in the same manner as provided in
Paragraph III.A of this Order.
9. The Commission or, in the case of a court-appointed trustee, the
court, may on its own initiative or at the request of the trustee issue
such additional orders or directions as may be necessary or appropriate
to accomplish the divestiture required by this Order.
10. The trustee shall have no obligation or authority to operate or
maintain the Hemodialysis Business to Be Divested.
11. The trustee shall report in writing to Respondents and the
Commission every thirty (30) days concerning efforts to accomplish the
divestiture.
IV
It is further ordered that:
A. Within twenty (20) days after the date this Order becomes final
and every thirty (30) days thereafter until Respondents have fully
complied with the provisions of Paragraphs II and III of this Order,
Respondents shall submit to the Commission a verified written report
setting forth in detail the manner and form in which they intend to
comply, are complying, and have complied with this Order. Respondents
shall include in their compliance reports, among other things that are
required from time to time, a full description of the efforts being
made to comply with Paragraph II of the Order, including a description
of all substantive contacts or negotiations for the divestiture and the
identity of all parties contacted. Respondents shall include in their
compliance reports copies of all written communications to and from
such parties, all internal memoranda, and all reports and
recommendations concerning divestiture.
V
It is further ordered that, for a period of ten (10) years from the
date this Order becomes final, Respondents shall cease and desist from
acquiring, without Prior Notification to the Commission (as defined
below), directly or indirectly, through subsidiaries or otherwise, any
assets for manufacturing Hemodialysis Concentrate or any Hemodialysis
Concentrate manufacturing facility, that have been employed in
Hemodialysis Concentrate manufacturing in the United States within one
(1) year of the date of an offer by Fresenius to purchase the assets,
or any interest in a Hemodialysis Concentrate manufacturing facility in
the United States, or any interest in any individual, firm,
partnership, corporation or other legal or business entity that
directly or indirectly owns or operates a Hemodialysis Concentrate
manufacturing facility in the United States. Provided, however, that
this Paragraph V shall not be deemed to require Prior Notification to
the Commission for (i) the construction of new facilities by Fresenius,
(ii) the acquisition of new or used equipment in the ordinary course of
business from a person other than the acquirer of the Hemodialysis
Business to Be Divested, or any other present producer of Hemodialysis
Concentrate; or (iii) the purchase or lease by Fresenius of a facility
that has not been operated as a Hemodialysis Concentrate manufacturing
facility at any time during the year immediately prior to the purchase
or lease by Fresenius.
``Prior Notification to the Commission'' required by Paragraph V
shall be given on the Notification and Report Form set forth in the
Appendix to Part 803 of Title 16 of the Code of Federal Regulations, as
amended (hereinafter referred to as ``the Notification Form''), and
shall be prepared and transmitted in accordance with the requirements
of that part, except that no filing fee will be required for any such
notification, notification shall be filed with the Secretary of the
Commission, notification need not be made to the United States
Department of Justice, and notification is required only of Fresenius
and not of any other party to the transaction. Fresenius shall provide
the Notification Form to the Commission at least thirty (30) days prior
to consummating any such transaction (hereinafter referred to as the
``first waiting period''). If, within the first waiting period,
representatives of the Commission make a written request for additional
information, Fresenius shall not consummate the transaction until
twenty (20) days after substantially complying with such request for
additional information. Early termination of the waiting periods in
this paragraph may be requested and, where appropriate, granted by
letter from the Bureau of Competition. Notwithstanding, Fresenius shall
not be required to provide Prior Notification to the Commission
pursuant to this order for a transaction for which notification is
required to be made, and has been made, pursuant to Section 7A of the
Clayton Act, 15 U.S.C. Sec. 18a.
VI
It is further ordered that until the obligations set forth in
Paragraphs II, III and V are met, Respondents shall notify the
Commission at least thirty (30) days prior to any proposed change in
the corporate Respondents such as dissolution, assignment, sale
resulting in the emergence of a successor corporation, or the creation
or dissolution of subsidiaries or any other change in the corporations
that may affect compliance obligations arising out of the Order.
VII
It is further ordered that Respondents, for the purpose of
determining or securing compliance with this Order, and subject to any
legally recognized privilege, upon written request and on five days
notice to Respondents, shall permit any duly authorized
representative(s) of the Commission:
A. Access, during office hours and in the presence of counsel, to
inspect and copy all books, ledgers, accounts, correspondence,
memoranda and other records and documents in the possession or under
the control of Respondents relating to any matters contained in this
Order; and
B. Without restraint or interference from Respondents, to interview
Respondents' officers, directors, or employees, who may have counsel
present, regarding such matters.
Analysis To Aid Public Comment on the Provisionally Accepted Consent
Order
The Federal Trade Commission (``the Commission'') has accepted for
public comment, from Fresenius AG and Fresenius USA, Inc., an agreement
containing a consent order. This agreement has been placed on the
public record for sixty days for reception of comments from interested
persons.
[[Page 40224]]
Comments received during this period will become part of the public
record. After sixty 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 order.
The Commission's investigation of this matter concerns the proposed
acquisition by Fresenius of the businesses of W.R. Grace & Co. that
comprise National Medical Care, Inc. (``NMC''). The Commission's
proposed complaint alleges that Fresenius and NMC compete with each
other in hemodialysis concentrate, a chemical solution that is
necessary in hemodialysis treatment of patients with End Stage Renal
Disease, or chronic kidney failure.
The agreement containing consent order would, if finally accepted
by the Commission, settle charges that the acquisition may
substantially lessen competition in the production and sale of
hemodialysis concentrate. The Commission has reason to believe that the
acquisition agreement violates Section 5 of the Federal Trade
Commission Act and the acquisition would have anticompetitive effects
and would violate Section 7 of the Clayton Act and Section 5 of the
Federal Trade Commission Act if consummated, unless an effective remedy
eliminates such anticompetitive effects.
The Commission's Complaint alleges that hemodialysis concentrate is
a necessary product in hemodialysis treatment, and that the use of this
product would not be significantly affected by a price increase. The
Complaint further alleges that imports of hemodialysis concentrate are
small and, because of high shipping costs, would not be responsive to a
price increase in the United States. The market for hemodialysis
concentrate in the United States is highly concentrated. In addition,
the entry of other producers is unlikely. The Commission's Complaint
alleges that the proposed acquisition would lessen competition by
eliminating competition between Fresenius and NMC, and would make more
likely coordinated interaction among the remaining producers of
hemodialysis concentrate, leading to higher prices. Company planning
documents, in fact, project that ``increased consolidation'' among
concentrate producers will lead to ``stabilization'' of prices.
The proposed order accepted for public comment requires Fresenius
to divest its Lewisberry, Pennsylvania concentrate manufacturing plant
to Di-Chem, Inc. (``Di-Chem''), along with other assets. The purpose of
the proposed divestiture is to create a viable and competitive producer
of hemodialysis concentrate and thereby to remedy the lessening of
competition alleged in the complaint. Di-Chem already manufactures and
markets other dialysis products. In addition, Di-Chem's management has
substantial experience in the hemodialysis concentrate business and in
other products used in hemodialysis. Public comments regarding all
aspects of the proposed divestiture to Di-Chem will be considered along
with other comments on the proposed order.
Under the terms of the proposed order, Fresenius must divest the
Lewisberry plant to Di- Chem within ten (10) days after the proposed
Order is made final by the Commission. If the divestiture to Di-Chem is
not accomplished, then Fresenius must divest the Lewisberry plant
within four (4) months to an acquirer that is approved by the
Commission. If Fresenius fails to accomplish the divestiture, then the
Commission may appoint a trustee to divest the Lewisberry plant, along
with ancillary assets or other arrangements that may be necessary to
assure that the Lewisberry plant is capable of being operated
independently and competitively by its acquirer. The proposed order
also requires that Fresenius provide prior notice to the Commission of
future acquisitions of either assets used to manufacture hemodialysis
concentrate or companies that produce hemodialysis concentrate.
The purpose of this analysis is to invite public comment concerning
the proposed order. This analysis is not intended to constitute an
official interpretation of the agreement and order or to modify their
terms in any way.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner Roscoe B. Starek, III
In the Matter of Fresenius AG, et al., File No. 961 0053.
I cannot join in the Commission's decision to accept a consent
agreement for public comment in this matter. The evidence accumulated
in the investigation is not sufficient to give rise to reason to
believe that respondents' acquisition of National Medical Care, Inc.
(``NMC'') from W.R. Grace & Co. is likely to lessen competition
substantially in a United States market for hemodialysis concentrate
(``HD concentrate'').
HD concentrate consists of various salts (sodium chloride,
magnesium chloride, calcium chloride, and potassium chloride) and
dextrose in purified water, with sodium bicarbonate (i.e., baking soda)
added at a later stage. Because this easily formulated mixture does not
enter the body and therefore is not a ``drug'' for purposes of Food and
Drug Administration (``FDA'') regulation, the FDA applies to HD
concentrate the somewhat more lenient regulations applicable to medical
devices. Regulatory delay thus does not significantly constrain entry
by new firms or expansion by incumbents.
The investigation revealed that various producers of HD
concentrate--including Fresenius itself--entered quickly and easily
into the manufacture of the product, and some stated that they could
inexpensively increase their capacity to make HD concentrate by as much
as 60 percent within 30 days, without substantial investment or the
need for additional FDA approval.1 These indicia of cheap and
simple entry and expansion may explain why the delivered price of HD
concentrate has fallen continuously since the product first became
available.2
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\1\ Given the contrast between the time required for entry in
the United States and that required in Germany, it is perhaps
unsurprising that the latter nation's Bundeskartellamt concluded
that Fresenius' acquisition of a competitor in HD concentrate would
have anticompetitive effects. Entry into the German HD concentrate
business apparently takes three to five years. In the United States,
entry requires around nine months.
\2\ It is difficult to accept the proposition that ``[m]ost of
the investment in production would likely be sunk in the event that
entry were unsuccessful'' (proposed complaint, para. 13). The
equipment used in the manufacture of HD concentrate appears to be
adaptable to alternate uses, and indeed there is evidence of firms
planning to convert some HD concentrate facilities to other
purposes.
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Thus, any assessment of this acquisition's potential to increase
concentration in the market for HD concentrate--and in turn make
likelier an exercise of market power--must take into account several
strongly mitigating factors, including approximately 40 percent current
excess capacity, the aforementioned ability of manufacturers to expand
capacity speedily and at minimal cost, and the evident ability of
customers (hemodialysis clinics) to integrate into the manufacture of
HD concentrate in the event concentrate producers behave
anticompetitively. Certain customers that speculated that the
acquisition might lead to higher prices for HD concentrate appear to
have been unaware of current plans for significant entry or capacity
expansion by firms other than Fresenius and NMC. Moreover, other
customer complaints
[[Page 40225]]
seem to have been motivated by a fear that the vertical integration of
Fresenius (a manufacturer of kidney dialysis products) and NMC (an
operator of hemodialysis treatment centers, among its other businesses)
could make the merged firm a stronger competitor in dialysis treatment.
It is always tempting to accept the ``bird in the hand''
represented by a consent agreement proffered in the early stages of an
investigation, such as the one entered into (apparently without
significant resistance) by Fresenius. Nevertheless, when the evidence
on entry, expansion, and the absence of anticompetitive effects is as
clear as in this case, the issuance of a consent order is unwarranted.
I therefore dissent.
[FR Doc. 96-19594 Filed 7-31-96; 8:45 am]
BILLING CODE 6750-01-P
