Eaton Yale & Towne, Inc.

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IN THE MA'I'TER 0.' EATON YALE & TOWNE, INC. AN ITS SUCCESSOR IN NAME, EATON CORPORATION CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLA110N OF SEC. 7 OF THE CLAYTON ACT Docket 882(j. Complaint, Dec. 1970-Deci:",,io' , May, 1975 Consent order requiring a Cleveland, Ohio, manufacturer of engine valves and valve lifters, among other things to divest itself of the assets acquired in 1969, of the McQuay-Norrs Manufacturing Co. v.'within 24 months. The order further requires respondent to supply, for a period of two years, on reasonable terms and conditions, any or all requirements the divested firm may have for automotive engine valves, valve lifters, camshaft bearings, thermostats and tire valve 878 Complaint Appearances For the Commission: K. Keith Thurmn, Jame. C. Egan, Jr. and James C. Hamill, Jr.

For the respondent: John T. Laughlin, Victor E. Grimm., Robert T. John"Jn, Jr. and William. R. Carny, Bell, Boyd, Lloyd, Iladdn & Bums Chieago, Ill.

COMPLAINT The Federal Trade Commission having reason to believe that Eaton Yale & Towne Inc., a corporation subject to the jurisdiction of the Commssion, has acquired the stock of MeQuay-Norrs Manufacturng Co. a corporation, in violation of Section 7 of the Clayton Act (15 U. 918), hereby issues this Complaint, puruant to Section 11 of that Act (I5 U. C. 921), stating its charges in that respect as follows: Definitions 1. For the purose of this complaint, the following definitions shall apply:

(a) "Automotive valve train products" are defined as engine valves valve springs, valve guides, valve lifters, valve seals, valve keepers valve seat inserts, push rods, rocker and parts, roto caps, roto ar assemblies and camshafts.

(b) " Automotive engine pars" are valve train products, engine sleeve bearings, pistons and pins, piston rings, and water pumps. (c) A "reboxer" is defined as a manufacturer of one or more lines of automotive parts who purchases for resale under its own brand automotive parts that it does not manufacture. A reboxer competes at the manufacturers' functional level.

(d) The "independent aftermarket" is defined to include all sales by manufacturers of automotive pars direct to wholesalers or retailers for replaeement use. It exeludes sales by vehiele manufaeturers or engine manufacturers directly to vehicle dealers. II. Eaton Yale & Towne Ine.

2. Respondent Eaton Yale & Towne Ine., (hereafter "EYT), is now and was at the time of merger, an Ohio eorpration with its principal offee and place of business located at 100 Erieview Pl:r, Cleveland Ohio.

3. In 1968, EYT had sales of $89.8 millon, and assets of $622. million. In that year it was the l1lth largest industrial eorpration in 880 FEDERAL TRAm: COMMISSION DECISIONS Complaint 85 F.

the nation. In 1969, its sales exceeded $I billon and assets inereased to $735.5 milion which made it the Both largest industrial corporation. 4. EYT's four most important product lines, which eontributed an aggregate of approximately 63 percent of net sales durng 196 are (a) Motor Vehicle Pars and Aeeessories (29 percent); (b) Industrial Trucks, Tractors, Trailers and Staekers (15 percent); (e) Miseellaneous Machinery (10 percent); and (d) Meehanieal Power Transmission Equipment (9 percent).

5. Among the motor vehicle pars and aeeessories EYT manufactures are engine valves, hydraulic valve lifters and valve seat inserts. EYT is one of the nation s two largest producers of engine valves and valve lifters. It is one of only two companies manufacturing sodium filed engine valves in the United States. EYT' s valve division is one of only four basic manufaeturers of engine valves for the automotive replaeement market (hereafter sometimes "aftermarket"), excluding engine manufacturers. The other three engine valve manufacturers sell directly in the independent aftermarket, whereas." prior to acquiring MeQuay, EYT did not sell automotive valve trai products directly the independent aftermarket. EYT is also a substantial supplier of engine valves to the automotive original equipment market. In 1967 ;YT shipped $27.8 milion of engine valves, aeeounting for 34.4 percent of total industry shipments of engine valves for passenger ear, trucks and buses. EYT's shipments in 1967 of engine valves for replaeement use were in excess of $1.6 milion, accounting for over 20 percent of such shipments.

6. EYT, through its Dole Valve Division, is the leading seller of automotive thermostats in the independent aftermket, aeeounting for 23 percent of 1967 sales. EYT also sells seve,.l other product lines in the independent aftermarket including tire repair items, ai conditioners and pars, and filler caps.

7. By virtue of its position as a substantial supplier of engine valves to the original equipment market, its reputation as a manufacturer of high quality engine pars, its financial resources, and its knowledge of the aftermarket gained through the sale of several other products in the independent aftermarket, EYT wa." prior to Oet. 31, 1969, one of the most likely potential entrats into the sale of engine valves and other valve train products directly in the independent aftermrket. 8. By virue of its position as a likely entrant into the sale of valve train products in the independent aftermarket, EYT was also one of the most likely potential entrants into the sale of automotive engine pars other than valve train products in the independent aftermarket. 9. At all times relevant herein EYT sold and shipped its products EATON CORPORATION 881 878 Complaint throughout the United States and was and is now engaged in eommeree as "commerce" is defined in the Clayton Aet. II. McQuay-Norrs Manufacturng Co. 10. Prior to its merger into EYT on Oct. :n, 1969, MeQuay-Norrs Manufacturing Co. (hereafter "MeQuay ) was a Delaware corporation with its principal office and place of business located at 2.120 Marconi A v., St. Louis, Mo.

11. MeQuay was engaged principally as a manufacturer and reboxer in the sale of engine, chassis and automatic transmission parts for automobiles, truck, tractors and industrial uses. Substantial sales were made to original equipment manufacturers, but the greater par of MeQuay s sales were made in the independent aftermarket. In 196 McQuay had sales of $32.9 million and assets of $22.1 millon. 12. MeQuay was a leading seller of engine pars in the independent aftermarket. In 1967 it sold $13.3 millon of engine pars in the independent aftermarket. In that year it aeeounted for 10.7 percent of the sale of engine parts in the independent aftermarket and was the 5th largest seller of such parts in the independent aftermarket. 13. MeQuay was a leading seller in the independent aftermrket of the 5 product lines which eomprise the engine parts market. In 1967 MeQuay s sales of valve train products in the aftermarket were $3. milion, which represented approximately 6 percent of the tota aftermarket sales of valve train products. In that year MeQuay was the third largest seller of valve tran products in the 1967 independent aftermarket. MeQuay aeeounted for 11 percent of tota valve trdin product sales in the independent aftermarket. 14. In 1967, McQuay was a substantial manufaeturr and seller automotive engine pars in the independent aftermarket. With sales of $1.7 million, it ranked 5th in the country in sales of piston rings; with sales of $: 9 milion, 4th in the sale of engine sleeve bearings; with sales of $2.9 million, 3rd in the sale of water pumps; and with sales of $1.1 milion, 5th in the sale of pistons and pins. 15. MeQuay as a reboxer was a signcant purchaser of automotive engine valves and valve lifters. In 1967, its purchases of automotive engine valves were approximately $1 millon and valve lifters were approximately $.3 millon. The purchases of automotive engine valves represented 12.3 percent of all shipments made by automotive engine valve manufacturers for replaeement use.

16. At all times relevant herein McQuay sold and shipped its products throughout the United States and engaged in eommeree as commerce" is defined in the Clayton Aet.

Complaint 85 F.

IV. Trade and Commerce 17. The aftermarket for automotive engine parts consists of two submarkets: sales by engine manufacturers to vehicle dealers and sales by engine manufacturers and other manufacturers or reboxers to distributors, wholesalers, rebuilders and direct buying retailers. Engine manufacturers sell replaeement engine parts almost entirely to vehicle dealers. Reboxers and manufacturers of engine pars, other than engine manufaeturers, aeeount for almost all thc sales in the independent aftermarket and do not sell any engine pars directly to vehicle dealers.

18. The sale of automotive engine pars in the independent aftermarket is substantial, with 1967 shipments of such pars amounting to $124.4 millon.

19. Sales of each of the product lines which eomprise the sale of engine parts in the independent aftermarket are also substantial. In 1967, sales in the independent aftermarket of valve train products were in excess of $32 millon, sales of piston rings were $30.6 million, sales of engine sleeve bearngs were $3.'2 milion, sales of water pumps were $15.6 milion and sales of pistons and pins were $14.2 million. 20. Sales of each of the five automotive engine pars product lines in the aftermarket exceeded sales of each such product lines in the independent aftermarket. In 1967, total sales of valve train products in the entire aftermarket were in excess of $5.5 milion compared to sales in excess of $32 millon in the independent aftermket. 21. Coneentration in the sale of engine parts in the independent aftermarket is high. In 1967, the 5 largest sellers of engine parts in the independent aftermarket aeeounted for 69 percent of total sales in that market.

22. Coneentration within each of the five product lines comprising the engine parts market is also high. For example, in 1967, the four largest marketers of valve tran products aecounted for 64 percent of independent aftermarket sales of such prnducts. 23. Entry into the sale of engine pars in the independent aftermarket of any of the five product lines comprising the engine parts market is difficult. A successful manufacturer or reboxer must possess a reputation as a manufacturer of high qualty engine pars must have ample financial resources and must have knowledge of how to sell automotive pars in the independent aftermket. 24. Engine valves represent a signficant portion of replaeement engine parts sales. In 1967 shipments of engine valves for replaeement use totalled $8.1 million, representing 10 percent of the $80.9 milion total shipments of engine valves for passenger ears, trucks and buses. EATON CORPORATION 878 Complaint 25. Concentration in the production of engine valves is very high. In 1967, the two largest producers of engine valves aeeounted for over 80 percent of shipments both for replaeement use and total shipments. 26. The number of manufaeturers and reboxers of engine valves has remained constant for over 15 years, except that one company recently discontinued producing engine valves in the United States. 27. Engine valves represent a neeessar product in the sale of engine parts in the independent aftermarket. Engine valves aeeount for approximately 50 percent of total independent aftermarket sales of valve train products, with another 25 percent of the independent aftermarket sales of valve train products being aeeounted for by valve lifters. Without selling engine valves it is most diffeult to compete suecessfully in the sale of engine pars or valve train products in the independent aftermarket.

The Transaction 28. On or about October 31 , 1969, EYT aequied McQuay by merger of MeQuay into EYT through an exchange for each share of Me Quay common stock of 0.8 common share of EYT. At the time of the acquisition of EYT stock exchanged for McQuay was valued at approximately $25 million.

VI. Effect of the Acquisition 29. The effects of the acquisition of MeQuay by EYT may be substantially to lessen competition or tend to create a monopoly in the sale of automotive engine pars, automotive engine valves and other valve train products throughout the United States in violation of Section 7 of the Clayton Act, as amended, in the following ways among others:

(a) Substantial potential competition between EYT and MeQuay in the sale of automotive engine pars in the independent aftermket has been eliminated.

(b) Substantial potential competition between EYT and MeQuay in the sale of automotive valve tran products in the independent aftermarket has been eliminated.

(e) Entry of new manufacturers or reboxers into the sale of automotive engine parts in the independent aftermarket may inhibited or prevented.

(d) Entry of new manufacturers or reboxers into the sale of automotive valve train products in the independent aftermket may be inhibited or prevented.

(e) Competing manufacturers of automotive engine valves may be H84 FEDERAL TRADE COMMISSION DECISIONS Decision and Order 85 F. foreclosed from aeeess to a substantial segment of the independent aftermarket and may thereby be deprived of a fair opportunity to compete.

(f) Competing rehoxers of automotive enginc valves may be foreelosed from aeeess to a substantial souree of supply of engine valves, especially in periods of short supply. (g) Competing reboxers of automotive engine valves may be disadvantaged in competing in the sale of automotive engine parts in the independent aftermarket by the potential foreclosure of access to a substantial souree of supply of automotive engine valves. VII. The Violation Charged 30. The acquisition of MeQuay by EYT constitutes a violation of Seetion 7 of the Clayton Act, as amended (15 U. C. Seetion IS). DECISION AND ORDER The Commission having heretofore issued its complaint charging the respondent named in the caption hereto with violation of Section 7 of the Clayton Act, as amended, and the respondent having been served with a copy of that complaint, together with a proposed form of order; and The respondent and counsel for the Commssion having thereafter executed an agreement containing a consent order, an admission by the respondent of all the jursdictional facts set forth in the complaint, a statement that the signng of said agreement is for settement purpses only and does not constitute an admission by respondent that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission s rules; and The Commission having thereafter withdrawn this matter from adjudication in aeeordanee with Section 2.34(d) of its rules; and The Commission having considered the agreement and having provisionally accepted same, and the agreement containg consent order having thereupon been placed on the public record for a period of sixty (60) days, and having duly considered the eomrents fied thereafter pursuant to Seetion 2.34(b) of its rules, now in furher conformty with the procedure prescribed in Section 2.34(b) of its rules the Commssion hereby makes the following jursdictional findings, and enters the following order;

1. Respondent Eaton Corpration is a corporation organid existing and doing business under and by virtue of the laws of the State of Ohio, with its offee and principal place of business located in the city of Cleveland, State of Ohio.

878 Decision and Order 2. The Federal Trade Commission has jursdiction of the subject matter of this proceeding and of the respondent, and the proceeding is in the public interest.

ORDER It is ordered That Eaton Corporation, formerly known as Eaton Yale & Towne, Inc., (hereinafter "Eaton ) within a period not exceeding twenty-four (24) months from the effective da e of this order, shall divest, by sale, or by public offering or spin-off of the stock of a new corporation formed for such purpose, subject to prior approval of the Federal Trade Commssion, all assets, properties, rights and privileges tangible and intangible, including but not limited to, all plants equipment, machinery, inventory, customer lists, trade names, trademarks and good will, acquired by Eaton as a result of its merger with MeQuay- Norrs Manufacturing Co., (hereinafter "McQuay ) together with all additions and improvements to such assets and properties, but excluding:

(A) The plant, machinery, equipment, and other fixed assets and the business of the former Dura-Bond opemtion of MeQuay, which is now a par of the special products division of Eaton; and (B) The plant, machinery, equipment, and other fixed assets and the business of the former electric products division of MeQuay, which is now a part of the electric products division of Eaton. In the event that a new corporation is established as provided herein respondent shall make available to such new eorpration adequate administrative, sales and servce personnel to car on the business to be transferred to the new corporation.

It is further ordered That none of the assets, properties, rights or privileges to be divested, as described in the foregoing paragraph of this order, shall be sold or tmnsferred, directly or indiectly, to any person who is at the time of the divestiture an offeer, director employee, or agent of, or under the control or direction of, respondent or any of respondent's subsidiar or affiiate corporations, or anyone who owns or controls, directly or indirectly, more than one (I) percent of the outstanding shares of common stock of Eaton, or to anyone who is not approved in advance by the Federa Trade Commssion. Decision and Order 85 F. If respondent divests the assets, properties, rights and privileges described in Paragragh I of this order, to a new corporation or corporations, the stock of each of which is wholly owned by the Eaton Corporation, and if respondent then distributes all the stock in said corporation or corporations to the stockholders of the Eaton Corporation, in proportion to their holdings of the Eaton Corporation stock, then Paragraph II of this order shall be inapplicable, and the following Paragraphs IV and V shall take foree and effect in its stead. No person who is an officer, director, or executive employee of the Eaton Corporation, or who owns or eon trols, directly or indirectly, more than 1 percent of the stock of The Eaton Corporation, shall be an officer, director or executive employee of any new corporation or corporations described in Paragraph III or shall own or control directly or indirectly, more than 1 percent of the stock of any new corporation or corporations described in Paragraph III. Any person who must sell or dispose of a stock interest in the Eaton Corporation or the new corporation or corporations, described in Paragraph III in order to comply with Paragraph IV of this order may do so within six (f;) months after the date on which distribution of the stock of the said corporation or corporations is made to stockholders of the t aton Corporation.

It is further ordered That, pending divestiture, respondent shall not make or permit any deterioration in any of the plants, machinery, buildings, equipment or other property or assets of the company to be divested which may impai its present capaeity or market value. VII It is further ordered That respondent shall grant to the purchaser of the assets, or to the new company referred to in Par I of this order the right to purchase, on reasonable term and conditions no less favorable than those offered to any other customers performing the same distribution functions in the automotive aftermarket, for a period of two (2) years from the date of divestiture as provided in Part I of this order, or for any part of same two (2) year period, all or any par of ., ...

R78 Dccision and Order the requirements of said purchaser of automotive engine valves, valve lifters, camshaft bcarings, thermostats and tire valves, subject to the capacity of respondent to fulll such requirements. VII It is further ordered That, pending divestiture, and for five (5) years from the date of divestiture as provided in Par I of this order respond,mt shall not aequire, directly or indirectly, without the prior approval of the Commssion, the share capital or assets (other than products acquired for use or resale in the ordinary course of respondent' s business, or other than the acquisition by respondent of the share capital or assets of any eorpration not orgazed in the United States of which respondent owns more than 50 percent of the issued and outstanding share capital as of the effective date of this order) of any corporation which operates an automotive aftermarket distribution organization with annual sales of automotive engine parts within the automotive aftermarket in the United States in excess of 000; provided that nothing in this paragraph shall prohibit respondent from acquiring the share capital or assets of any corporation engaged at the time in the importation of foreign automotive engine pars into the United States. N a acquisition made by respondent shall be deemed immune or exempt from the antitrust laws by reason of anything contained in this order.

It is further urdered That respondent shall, within six (6) months after the effective date of this order, and every six (6) months thereafter, until respondent has fully complied with Par I of this order, submit to the Federal Trade Commission a detailed wrtten report of its aetions, plans and progress in complying with the provisions of Par I of the order.

With respect to Par VIII of this order, respondent shall, on the first anniversary date of the divestiture provided for in Par I of this order and on each annversar date thereafter, to and including the fifth anniversary date, submit a report, in wrting, setting forth in detai the manner and form in which respondent intends to comply, is complying and has eomplied with Par VIII of this order. It is further ordered That respondent notify the Federal Trade Commssion at least thiry (30) days prior to any proposed change in 888 I"EDERAL TRADE COMMISSION DECISIONS Order 85 the corporate respondent which may affect eomplianee obligations arising out of the order, such as dissolution, assigrents or sale resulting in the emergence of a successor corporation or the creation or dissolution of subsidiaries.