[Federal Register Volume 65, Number 205 (Monday, October 23, 2000)]
[Notices]
[Pages 63253-63254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27159]



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FEDERAL TRADE COMMISSION

[File No. 001 0208]


Tyco International, Ltd.; 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 November 16, 2000.

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

FOR FURTHER INFORMATION CONTACT: Richard Parker or Ann Malester, FTC/H-
374, 600 Pennsylvania Ave., NW., Washington, DC 20580. (202) 326-2574 
or 326-2820.

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 17, 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 Ave., 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)(5)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of Agreement Containing Consent Order to Aid Public 
Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order (``Consent 
Agreement'') from Tyco International, Ltd. (``Tyco''), which is 
designed to remedy the anticompetitive effects resulting from Tyco's 
acquisition of Mallinckrodt, Inc. Under the terms of the agreement, 
Tyco will be required to divest its endotracheal tube business within 
ten days of the date the Consent Agreement is placed on the public 
record to Hudson RCI, or to another Commission-approved buyer no later 
than six (6) months from the date Tyco signed the Consent Agreement. If 
the sale of Tyco's endotracheal tube business is not made within six 
(6) months, the Commission may appoint a trustee to divest it.
    The proposed Consent Agreement has 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 Agreement and the comments received, and will decide 
whether it should withdraw from the proposed Consent Agreement or make 
final the Decision & Order.
    Pursuant to a July 28, 2000 Agreement and Plan of Merger, Tyco 
agreed to acquire Mallinckrodt in a stock-for-stock transaction valued 
at approximately $4.2 billion. The Commission's Complaint alleges that 
the acquisition, if consummated, would violate 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 market for 
endotracheal tubes.
    Tyco, through its Kendall Division, and Mallinckrodt are the 
largest providers of endotracheal tubes in the United States. 
Endotracheal tubes are devices that are inserted through the nose or 
mouth into the trachea to provide oxygen or anesthesia. Hospitals and 
emergency personnel use endotracheal tubes to maintain a secure airway 
during surgical procedures and emergency situations.
    The United States endotracheal tube market is highly concentrated, 
and the proposed acquisition would produce a firm controlling 
proximately 86% of the market. Mallinckrodt is the largest supplier of 
endotracheal tubes, claiming that its products are used in 70% of the 
surgical procedures performed in the United States each year. Tyco is 
the next largest supplier. Both companies have product lines consisting 
of over one hundred different types of endotracheal tubes and related 
accessories, and have long track records of customer acceptance. As the 
two largest suppliers in the market, Tyco and Mallinckrodt frequently 
bid against each other for important hospital group purchasing 
organization contracts. Tyco and Mallinckrodt are the only two firms 
that have won contracts to supply members of the largest and most 
important group purchasing organizations. By eliminating competition 
between the two most significant competitors in this highly 
concentrated market, the proposed acquisition would allow the combined 
Tyco/Mallinckrodt to exercise market power unilaterally, thereby 
increasing the likelihood that purchasers of endotracheal tubes would 
be forced to pay higher prices and that innovation and service levels 
in the market would decrease.
    Substantial barriers to new entry exist in the endotracheal tube 
market. Effective new entry would require the development of a full 
line of endotracheal tube products, obtaining approvals from the Food 
and Drug Administration, procurement of several million dollars' worth 
of specialized manufacturing equipment, and the establishment of a 
sales and marketing force. Entry is further hampered by the fact that 
endotracheal tubes are critically important to customers, though 
relatively inexpensive, so customers would be reluctant to consider 
new, unproven products even in the face of higher prices. In light of 
the fact that the endotracheal tube market is relatively small compared 
to the costs that a new entrant would have to incur, new entry is not 
likely to occur. Additionally, new entry into the endotracheal tube 
market is made more unlikely because of long-term hospital group 
purchasing organization contracts that may reduce the amount of sales 
opportunities available to new entrants. Because of the difficulty of 
accomplishing these tasks, new entry into the United States 
endotracheal tube market is unlikely to deter or counteract the 
anticompetitive effects resulting from the transaction.
    The Consent Agreement effectively remedies the acquisition's 
anticompetitive effects in the United States endotracheal tube market 
by requiring Tyco to divest its Sheridan line of endotracheal tube 
products.

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Pursuant to the Consent Agreement, Tyco is required to divest the 
Sheridan Line to Hudson RCI within ten days of the date the Commission 
places the Order on the public record. If the divestiture to Hudson RCI 
is not accomplished, Tyco must divest the Sheridan Line to a 
Commission-approved acquirer within six months. Should Tyco fail to do 
so, the Commission may appoint a trustee to divest the business.
    The Consent Agreement includes a number of provisions that are 
designed to ensure that the transition of Tyco's endotracheal tube 
business to the acquirer is successful. The Consent Agreement requires 
Tyco to provide incentives to certain key employees to accept 
employment, and remain employed, by the acquirer. Tyco employees who 
had been involved with selling the Sheridan endtracheal tube line are 
prohibited from selling the Mallinckrodt endotracheal tube products for 
a period of one year. Tyco is also prohibited from inducing key 
hospital group purchasing organizations from terminating their 
contracts with the acquirer for a period of two years. Finally, Tyco 
employees involved with the endotracheal tube business are prohibited 
from disclosing any confidential information to employees involved with 
the Mallinckrodt line.
    In order to ensure that the Commission remains informed about the 
status of the Tyco endotracheal tube business pending divestiture, and 
about efforts being made to accomplish the divestiture, the Consent 
Agreement requires Tyco to report to the Commission within 30 days, and 
every thirty days thereafter until the divestiture is accomplished. In 
addition, Tyco is required to report to the Commission every 60 days 
regarding its obligations to provide transitional services and 
facilities management.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and it is not intended to constitute an official 
interpretation of the Consent Agreement or to modify in any way its 
terms.

    By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 00-27159 Filed 10-20-00; 8:45 am]
BILLING CODE 6750-01-M