[Federal Register Volume 65, Number 195 (Friday, October 6, 2000)]
[Notices]
[Pages 59846-59848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-25661]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 001 0098]


Manheim Auctions, Inc., Cox Enterprises, Inc., ADT Automotive 
Holdings, Inc., and Tyco International, Ltd.; Analysis to Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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

SUMMARY: The consent agreement in this matter settles alleged violated 
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 October 31, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Avenue, NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: John B. Kirkwood, FTC Northwest 
Region, 915 Second Avenue, Suite 2896, Seattle, Washington 98174, (206) 
220-4484.

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 above-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 thirty (30) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for October 2, 2000), on the World Wide Web, at ``http://www.ftc.gov/
os/2000/09/index.htm.'' A paper copy can be obtained from the FTC 
Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. 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)).

Analysis of the Complaint and Proposed Consent Order To Aid Public 
Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment an Agreement Containing Consent Order (``proposed 
order'') with Manheim Auctions, Inc. (``Manheim''), Tyco International, 
Ltd. (``Tyco''), ADT Automotive Holdings, Inc. (``ADT''), and Cox 
Enterprises, Inc. (``Cox'') (collectively ``Proposed Respondents''). 
The proposed order seeks to remedy the anticompetitive effects of 
Manheim's proposed acquisition of ADT's wholesale motor vehicle 
auctions by requiring Manheim to divest eight of the acquired ADT 
auctions in locations where Manheim already owns auctions and its 
ownership of these acquired auctions would likely injure competition. 
Moreover, the proposed order seeks to remedy the anticompetitive 
effects of Manheim's 1996 acquisition of an auction in the Phoenix, 
Arizona area by requiring Manheim to divest one of its Phoenix-area 
auctions.

II. Description of the Parties and the Proposed Acquisition

    Manheim, a Delaware corporation, is a wholly-owned subsidiary of 
Cox and is the largest auto auction company in the United States. 
Manheim operates 65 auctions nationwide and reported sales of 4.1 
million vehicles in 1999. Manheim has acquired 55 auctions in the last 
10 years. ADT, a Delaware corporation, is a wholly owned subsidiary of 
Tyco and is the third-largest auction company in the United States. ADT 
operates 28 auctions

[[Page 59847]]

nationwide and reported sales of 1.3 million automobiles in 1999.
    By the terms of a Stock Purchase Agreement dated January 13, 2000, 
Manheim will acquire all of ADT's outstanding voting stock for 
approximately $1 billion.
    In a separate transaction that occurred in 1996, Manheim acquired 
JM Family Enterprises, Inc., its sole competitor in the provision of 
wholesale motor vehicle auction services in the greater metropolitan 
area of Phoenix, Arizona.

III. The Proposed Complaint

    The proposed complaint alleges that the relevant line of commerce 
(i.e., the product market) in which to analyze this transaction is the 
provision of wholesale motor vehicle auction services (``WMVA 
services'') by major vehicle auctioneers. These services include 
marshaling motor vehicles before auctions, preparing condition reports, 
reconditioning the motor vehicles, promoting and marketing auctions to 
potential buyers, auctioning motor vehicles, and reporting the results 
of those auctions.
    Major wholesale auctions serve automakers and large institutional 
lessors that sell large quantities of used motor vehicles. They are 
equipped with advanced computer systems and technology that allow them 
to deal with larger customers than the smaller wholesale auto auctions 
can handle. Moreover, this technological sophistication and the 
resulting benefits and services simultaneously attract a large number 
of buyers and sellers to each auction. These attributes distinguish 
major wholesale auction services from the broader market, which 
consists of services provided by small, independent wholesale auctions 
that serve regional customers. Typically, major wholesale auctions 
serve a trade area consisting of a large city and the surrounding 
metropolitan area.
    The proposed complaint further alleges that Manheim's proposed 
acquisition of ADT, if consummated, may substantially lessen 
competition in violation of Section 7 of the Clayton Act, as amended, 
15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as 
amended, 15 U.S.C. 45, in the following trade areas (i.e., the 
geographic markets): (a) The greater metropolitan area of Kansas City, 
Missouri; (b) the Colorado Front Range, which includes the greater 
metropolitan areas of Denver and Colorado Springs; (c) the greater 
metropolitan area of Atlanta, Georgia; (d) the greater metropolitan 
area of San Francisco, California; (e) the greater metropolitan area of 
Seattle, Washington; and (f) the I-4 Corridor of Florida, which 
includes the greater metropolitan areas of Tampa, Orlando, and Daytona 
Beach. The acquisition would substantially increase concentration and 
create a monopoly in the provision of WMVA services, as evidenced by 
post-acquisition Herfindahl-Hirschman Indices (``HHIs'') of 10,000 in 
each of these geographic markets. After the proposed acquisition, 
Manheim would have the ability to unilaterally increase prices charged 
for WMVA services and to substantially decrease the quality and range 
of services offered to auction customers in these areas.
    The proposed complaint also alleges that in 1996 Manheim acquired 
JM Family Enterprises, Inc., its sole competitor in the provision of 
WMVA services in the greater Phoenix, Arizona area. The effect of that 
acquisition, which also resulted in an HHI of 10,000, may have been to 
substantially lessen competition and create a monopoly in violation of 
Section 7 of the Clayton Act and Section 5 of the Federal Trade 
Commission Act. Manheim may have both unilaterally increased prices 
charged for WMVA services and reduced the quality and range of services 
offered to auction customers in the greater Phoenix area.
    The proposed complaint further alleges that new entry into the 
relevant geographic markets will not likely, timely or sufficient to 
prevent or counteract these anticompetitive effects. Building an 
auction requires substantial amounts of capital and entails significant 
assumption of risk. Other companies have recently required more than 
two years to complete construction of major auctions. Moreover, even if 
built, a competing auction would not likely provide significant 
competition to an existing firm. Because of the large capital 
investment required, major auctions must sell a high volume of motor 
vehicles to be profitable, while sellers are reluctant to use the 
services of an auction that does not have an existing base of strong 
buyers and buyers are reluctant to attend an auction that does not have 
a significant number of participating sellers. Consequently, existing 
auctions possess a considerable first-mover advantage over new 
entrants. Thus, even if a competitor entered the market, it might not 
attract enough business to restore competition. In the Phoenix area, no 
new competitors have entered since 1996.

IV. Terms of the Agreement Containing Consent Order

    The proposed order is designed to remedy the alleged 
anticompetitive effects of the proposed acquisition. Under the terms of 
the proposed order, the Proposed Respondents must divest to ADESA eight 
of the acquired ADT auctions and one Manheim auction that currently 
operate in the geographic markets described above.
    The Commission's goal in evaluating possible purchasers of divested 
assets is to maintain the competitive environment that existed prior to 
the acquisition. A proposed buyer of divested assets must not itself 
present competitive problems.
    The Commission is satisfied that ADESA is a well-qualified acquirer 
of the divested assets. Based in Indianapolis, Indiana, ADESA is a 
large chain with 30 auction sites throughout the United States. ADESA 
possesses the necessary industry expertise to replace the competition 
that existed prior to the proposed acquisition in the divestiture 
markets. Furthermore, ADESA poses no separate competitive issues as the 
acquirer of the divested assets.
    The proposed order requires that Proposed Respondents divest the 
nine auctions to ADESA, in accordance with an agreement between Manheim 
and ADESA, within 3 months after Manheim acquires ADT. If, at the time 
the Commission decides to make the proposed order final, the Commission 
notifies the Proposed Respondents that ADESA is not an acceptable 
acquirer, or that the agreement with ADESA is not an acceptable manner 
of divestiture, then Proposed Respondents must immediately rescind the 
transaction and divest the auction, within 6 months after the proposed 
order becomes final, to an acquirer approved by the Commission.
    The proposed order also includes a provision requiring Proposed 
Respondents to use their best efforts to maintain the auctions as they 
would in the ordinary course of business until the divestiture occurs. 
Moreover, the proposed order prohibits Proposed Respondents from 
soliciting and hiring employees away from the divested auctions for a 
period of one year after the divestitures occur.
    Additionally, for a period of 10 years after the proposed order 
becomes final, Proposed Respondents must provide written notice to the 
Commission prior to acquiring any interest in any wholesale auction 
facility. Furthermore, Proposed Respondents must provide the Commission 
with a report of compliance with the proposed order within 30 days 
after the proposed order becomes final and every 30 days thereafter 
until they have complied with their divestiture obligations. 
Respondents are also required to provide annual reports during the term

[[Page 59848]]

of the proposed order. For Manheim and Cox, the term of the proposed 
order is 10 years; for ADT and Tyco, the term ends when the eight ADT 
auctions are transferred to Manheim.
    In the event that Proposed Respondents fail to divest the required 
auctions within the time allotted, the proposed order enables the 
Commission to appoint a trustee to divest any assets necessary to 
satisfy the requirements of the proposed order. Appointment of a 
trustee is in addition to civil penalties and other relief available 
from Proposed Respondents for non-compliance with any provision of the 
proposed order.

V. Opportunity for Public Comment

    The proposed order has been placed on the public record for 30 days 
for receipt of comments by interested persons. Comments received during 
this period will become part of the public record. After 30 days, the 
Commission will again review the proposed order and the comments 
received and will decide whether it should withdraw from the proposed 
order of make it final. By accepting the proposed order subject to 
final approval, the Commission anticipates that the competitive 
problems alleged in the proposed complaint will be resolved. The 
purpose of this analysis is to invite public comment on the proposed 
order, including the proposed divestitures, to aid the Commission in 
its determination of whether to make the proposed order final. This 
analysis is not intended to constitute an official interpretation of 
the proposed order, nor is it intended to modify the terms of the 
proposed order in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 00-25661 Filed 10-5-00; 8:45 am]
BILLING CODE 6750-01-M