```
[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]

-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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
```