Bendix Corporation

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IN THE MATTER OF THE BENDIX CORPORATION CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF SEe. 5 OF THE FEDERAL TRADE COMMISSION ACT AND SEC. 7 OF THE CLAYTON ACT Docket C-3042. Complaint. Sept. 2:'1 980-Decision. Sept. 23. 1980 This consent order requires, among other things, a Southfield, Mich. industrial firm engaged in four major business segments: automotive, aerospace-electronics, forestry and industrial-energy, to divest itself of the Warner & Swasey Rotating Toolholdcr Business and the Bendix Crush-Form Grinder Business within one year of the effective date of the order to a Commission-approved firm. Further, the order requires Bendix to maintain the businesses as viable business entities. and prohibits any diminishing of their value prior to their divestiture. The order also places a ten-year ban on the purchase of any concerns engaged in the rotating tool holder market or in the external cylindrical grinding machine market without prior Commission approval. Appearances For the Commission: Robert Doyle and Richard Rosen. For the respondent: Abe Krash, Arnold Porter Washington, D. COMPLAINT The Federal Trade Commission, having reason to believe that the respondent, The Bendix Corporation ("Bendix ), a corporation subject to the jurisdiction of the Commission, has made a tender offer and has entered into a merger agreement either of which, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 UB.C. 18 and Section 5 of the Federal Trade Commission Act, as amended, 15 U. G 45; that said agreement constitutes a violation of Section 5 of the Federal Trade Commission Act, as amended; and that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows:

DEFINITIONS 1. For purposes of this Complaint, the following definitions apply: (a) "Machine tool" means a stationary, power-driven machine n!'f .lia \.unr.

352 Complaint falling within codes 3541 and 3542 of the 1972 Standard Industrial Classification Manual, used to cut or form metal (b) "Rotating toolholder" means a device in which a cutting tool is secured to a machine tool for purposes of cutting excess material in the form of chips from a metal workpiece by rotation of the cutting tool against the workpiece.

(c) "External cylindrical grinding machine" means a machine tool used for shaping a cylindrical metal workpiece by bringing the exterior of the workpiece into contact with a rotating abrasive wheel called a grinding wheel, in order to remove excess metal (d) "Computer numerical control unit" means an electronic unit that directs the operation of a machine tool through a series of coded instructions from a programmed computer system, and does not include programmable controllers.

(e) "Numerically controlled machine tool" means a machine tool that is operated by instruction provided by a computer numerical control unit.

THE BENDIX CORPORATION 2. Bendix is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware with its principal executive offces at Bendix Center, Southfield, Michigan. 3. Bendix is a publicly traded company (NYSE) which in 1979 had sales of $3.8 bilion and net assets of $2.3 bilion. Bendix and its subsidiaries are engaged in four major business segments: automotive, aerospace-electronics, forest products, and industrial-energy. 4. At all times relevant herein, Bendix has been and is now engaged in commerce within the meaning of the Clayton Act, as amended, and is a corporation whose business is in or affecting commerce within the meaning of the Federal Trade Commission Act as amended.

II.

THE WARNER & SWASEY COMPANY 5. The Warner & Swasey Company ("Warner & Swasey ) is a corporation organized, existing and doing business under and by virtue of the laws of the State of Ohio with its principal executive offces at 11000 Cedar Ave., Cleveland, Ohio. 6. Warner & Swasey is a publicly traded company (NYSE) which Complaint - 9& F, $223 milion.in 1978 had sales of $245 millon and net assets of Warner & Swasey is one of the largest producers of machine tools in the United States.

7. At all times relevant herein, Warner & Swasey has been and is now engaged in commerce within the meaning of the Clayton Act, as amended. and is a corporation whose business is in or affecting commerce within the meaning of the Federal Trade Commission Act as amended.

IV.

ACQUISITION 8. On December 11, 1979, Bendix and Warner & Swasey entered into an agreement providing for the merger of the two companies. Pursuant to the agreement, on December 13, 1979, Bendix offered to purchase up to 45 percent of Warner & Swasey s common stock. Following the tender offer, according to the agreement, Warner & Swasey wiJ be merged into a subsidiary of Bendix with Warner & Swasey common stock being exchanged for Bendix preferred stock. The entire transaction is valued at approximately $300 milion. TRADE AND COMMERCE 9. The relevant geographic market is the United States as a whole.

10. The relevant product markets are:

(a) The manufacture and sale of computer numerical control units and submarkets thereof;

(b) The manufacture and sale of numerically controlled machine tools and submarkets thereof;

(c) The manufacture and sale of external cylindrical grinding machines and submarkets thereof;

(d) The manufacture and sale of rotating toolholders and submarkets thereof.

11. Concentration in the manufacture and sale of the relevant products is high.

12. Barriers to entry into the manufacture and sale of the relevant products are high.

13. Bendix is and for many years has been a significant supplier of computer numerical control units to actual and potential competi- 352 Complaint tors of Warner & Swasey and other producers of numerically controlled machine tools.

14. Warner & Swasey is a significant purchaser of computer numerical control units.

15. The market for computer numerical control units in the United States in 1978 was approximately $105 million. 16. Bendix and Warner & Swasey are and for many years have been substantial and actual competitors in the sale of external cylindrical grinding machines.

17. In 1978, the United States market for external cylindrical grinding machines was approximately $110 mjJion. 18. Bendix and Warner & Swasey are and for many years have been substantial and actual competitors in the sale of rotating toolholders.

19. In 1979, the United States market for rotating toolholders was approximately $35 milion.

VI.

EFFECTS OF THE ACQUISITION 20. The effects of the proposed acquisition may be substantially to lessen competition or tend to create a monopoly in the relevant markets enumerated in Paragraphs 9 and 10 of this complaint in the following ways, among others:

(a) actual and potential producers of computer numerical control units other than Bendix may be foreclosed from sellng to a significant purchaser of computer numerical control units; (b) actual and potential machine tool producers other than Warner & Swasey may be foreclosed from a significant source of supply of computer numerical control units; (c) barriers to entry into each of the relevant markets wjJ be raised;

(d) substantial actual and potential competition between Bendix and Warner & Swasey and other firms in the manufacture and sale of external cylindrical grinding machines will be eliminated; (e) concentration in the manufacture and sale of external cylindrical grinding machines wil be increased to the detriment of actual and potential competition, and the possibilties for eventual deconcentration may be diminished;

(I) substantial actual and potential competition between Bendix and Warner & Swasey and other firms in the manufacture and sale ofrotating toolholders will be eliminated; Decision and Order 96.. 1'. (g) concentration in the manufacture and sale of rotating toolholders wil be increased to the detriment of actual and potential competition, and the possibilties for eventual deconcentration may be diminished.

VII.

VIOLATIONS CHARGED 21. The proposed acquisition set forth in Paragraph 8, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.sC. 18, and would violate Section 5 of the Federal Trade Commission Act, as amended, 15 U. G 45.

22. The merger agreement described in Paragraph 8 violates Section 5 of the Federal Trade Commission Act, as amended, 15 U.8.G 45.

Commissioners Pitofsky and Bailey did not participate. DECISION AND ORDER The Federal Trade Commission having initiated an investigation of the proposed acquisition of The Warner & Swasey Company (hereinafter "Warner & Swasey ) by The Bendix Corporation (hereinafter "Bendix ), and Bendix having been furnished thereafter with a copy of a draft of complaint which the Bureau of Competition proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge Bendix with violations of the Federal Trade Commission Act and the Clayton Act; and Bendix, its attorneys, and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by Bendix of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by Bendix 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 considered the matter and having determined that it had reason to believe that Bendix has violated the said Acts, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the procedure prescribed in Section 2. 34 of its Rules, the Commission JJC.l-. Uta vunr.

352 Decision and Order hereby issues its complaint, makes the following jurisdictional findings and enters the following order: - 1. Bendix is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware with its principal executive offces at Bendix Center, in the City of Southfield, State of Michigan.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of Bendix, and the proceeding is in the public interest.

ORDER It is ordered, That the following definitions shall apply herein: (1) "Machine Tool" means a stationary, power-driven machine fallng within codes 3541 and 3.542 of the 1972 Standard Industrial Classification Manual, used to cut or form metal (2) "Rotating Toolholder" means a device in which a cutting tool is secured to a machine tool for purposes of cutting excess material in the form of chips from a metal workpiece by rotation of the cutting tool against the workpiece.

(3) "Warner & Swasey Rotating Toolholder Business" means that part of the Balas Division of Warner & Swasey presently owned or operated by Warner & Swasey for the manufacture of rotating toolholders and includes aJl assets, properties, titles to property, interests, rights, and privileges of whatever nature, tangible and intangible, including, but not limited to, aJl real property, buildings, machinery, equipment, tools, raw materials, inventory, customer lists, trade names, patents, patent applications, trademarks and all other property of whatever description that are unique to, or necessary for, the manufacture of rotating tool holders and which are currently in existence, together with all additions, replacements, and improvements hereafter made by Warner & Swasey or Bendix prior to divestiture.

(4) "External Cylindrical Grinding Machine" means a machine tool used for shaping a cylindrical metal workpiece by bringing the exterior of the workpiece into contact with a rotating abrasive wheel called a grinding wheel, in order to remove excess metal (5) "Bendix Crush Form Grinder Business" means that part of the Automation and Measurement Division of Bendix presently owned or operated by Bendix for the manufacture of crush form grinding machines and includes all assets, properties, titles to property, interests, rights, and privileges of whatever nature, tangible and 358 EDERAL TRADE COMMISSION DECISIONS Decisien - and Order 96.F. intangible, including, but not limited to, all real property, buildings machinery, equipment, tools, raw materials, inventory, customer lists, trade names, patents, patent applications, trademarks (excluding the trade name and trademark "Bendix ), and all other property of whatever description that are unique to, or necessary for, the manufacture of crush form grinding machines and which are currently in existence together with all additions, replacements, and improvements hereafter made by Bendix prior to divestiture. (6) "Computer Numerical Control Unit" means an electronic unit that directs the operation of a machine tool through a series of coded instructions from a programmed computer system, and does not include programmable controllers.

(7) "Numerically Controlled Machine Tool" means a machine tool that is operated by instruction provided by a computer numerical control unit.

(8) "Bendix" means The Bendix Corporation and any successor to the business of The Bendix Corporation.

(9) "Warner and Swasey" means The Warner & Swasey Company and any successor to the business of The Warner & Swasey Company.

It is further ordered, That Bendix, its offcers, directors, agents representatives and employees shall:

(1) Within twelve (12) months from the date this order becomes final, divest absolutely, or cause Warner & Swasey to divest absolutely, to an acquirer which meets with the prior approval of the Federal Trade Commission, the Warner & Swasey Rotating Toolholder Business, as a viable going business of the acquirer; and (2) Within twelve (12) months from the date this order becomes final, divest absolutely, to an acquirer which meets with the prior approval of the Federal Trade Commission, the Bendix Crush Form Grinder Business, as a viable going business of the acquirer. It is further ordered That, pending the divestiture of the Warner & Swasey Rotating Toolholder Business and the Bendix Crush Form Grinder Business required by Paragraph II of this order, Bendix shall not take any action (other than sales of products in the ordinary course of business), without the consent of the Federal Trade Commission, to diminish the value of the Warner & Swasey BENDIX CORP. 359 352 Decl...ion -and" Order Rotating Toolholder Business or the Bendix Crush Form Grinder Business.

It is further ordered That, without the prior approval of the Federal Trade Commission:

(1) For the two (2) years following the date this order becomes final Bcndix shall not equip with its computer numerical control units more than ten (10) percent of thc numerically controlled machine tools manufactured by Warner & Swasey; and (2) In the third and fourth years following the date this order becomes final, Bendix shall not equip with its computer numerical control units more than twenty-five (25) percent of the numerically controlled machine tools manufactured by Warner & Swasey. It is further ordered That:

(1) Bendix shall treat in confidence and not transfer or reveal to Warner & Swasey information1 which any other customer for computer numerical control units transmits to Bendix, and designates as proprietary, for such period as the customer shall specify; provided, that Bendix shall not have any such obligation if the proprietary information (a) has already been transmitted to Bendix and Warner & Swasey by a party other than the customer, (b) is developed by Bendix or Warner & Swasey independently, (c) is already available to the general public, or (d) becomes available to the general public through no act or fault of Bendix; (2) Warner & Swasey shall treat in confidence and not transfer or reveal to Bendix information which any other supplier of computer numerical control units transmits to Warner & Swasey, and designates as proprietary, for such period as the supplier shall specify; provided, that Warner & Swasey, shall not have any obligation if the proprietary information (a) has already been transmitted to Bendix or Warner & Swasey by a party other than the supplier, (b) is developed by Bendix or Warner & Swasey independently, (c) is already available to the general public, or (d) becomes available to the general public through no act or fault of Warner & Swasey; and (3) Bendix shall enter into an agreement in writing with each of its customers for computer numerical control units, and Warner & Swasey shall enter into an agreement in writing with each of its suppliers of computer numerical control units, embodying the Decisfon and Ordcr 96 FTC. undertakings of confidentiality set forth in subparagraphs (1) and (2) of this Paragraph.

It is further ordered, That, for a period of ten (10) years following the date this order becomes final:

(1) Bendix shall maintain its business in computer numerical control units as an organization and profit center separate from the machine tool business of Warner & Swasey; and (2) In order to assure the availability of Bendix as a significant supplier of computer numerical control units to actual and potential competitors of Warner & Swasey and other manufacturers of numericaJly controlled machine tools, Bendix shall not offer or sell computer numerical control units to Warner & Swasey on preferential terms regarding price, delivery, service, or any other terms or conditions of sale; nor shall Bendix offer or sell new computer numerical control units to Warner & Swasey, nor offer to develop new computer numerical control units for Warner & Swasey, on a basis inconsistent with Bendix' business practices with respect to other customers for computer numerical control units. VII It is further ordered, That Bendix shall announce generally to the trade the provisions of Paragraphs V and VI, and shall deliver a copy of this order to each of its customers for computer numerical control units and to each of Warner & Swasey s suppliers of computer numerical control units.

VII It is further ordered, That Bendix shall cease and desist, for a period of ten (10) years from the date this Order becomes final, from acquiring, directly or indirectly, through subsidiaries or otherwise, without the prior approval of the Federal Trade Commission, the whole or any part of the stock, share capital, or assets (other than products acquired for use or resale in the ordinary course of Bendix business) of any corporate or noncorporate concern organized in the United States and engaged in, or the assets of which are utilized in, the manufacture or sale in the United States of (a) rotating toolholders;

(b) external cylindrical grinding machines; or ,, .u", ..u.. '--''-....u .

352 Dccision and Order (c) numerically controlled machine tools; provided, that nothing in this Paragraph shall prohibit Bendix from acquiring the stock, share capital, or assets of any corporate or noncorporate concern engaged in the manufacture of numerically controlled machine tools, whose assets devoted to the manufacture of numerically controlled machine tools at the end of the year preceding such acquisition, or whose sales thereof during the year preceding such acquisition, were not in excess of ten million dollars ($10 000 000).

It is further ordered That Bendix shall, within ninety (90) days from the date this order becomes final. and every ninety (90) days thereafter until Bendix has accomplished the divestitures required by Paragraph II of this order, submit in writing to the Federal Trade Commission a report setting forth in detail the manner and form in which Bendix intends to comply or has complied with Paragraphs II and III of this order. All such reports shall include a summary of contacts or negotiations with respect to the sale of the Warner & Swasey Rotating Toolholder Business or the Bendix Crush Form Grinder Business, the identities of all parties to such contacts or negotiations, and copies of all written communications to and from such parties.

It is further ordered, That annually on the anniversary of the date this order becomes final, for a period of ten (10) years, Bendix shall submit in writing to the Federal Trade Commission a verified report setting forth in detail the manner and form in which Bendix intends to comply or has complied with Paragraphs IV, V, VI, VII, and VII of this order.

It is further ordered, That Bendix notify the Federal Trade Commission at least thirty (30) days prior to any proposed change in Bendix which may affect compliance obligations arising out of the order, such as dissolution, assignment or sale resulting in the emergence of a successor corporation or the creation or dissolution of subsidiaries.

Commissioners Pitofsky and Bailey did not participate. 336- 3'15 0 - 81 - 24 362 FEm;RAL TRAm; COMMISSION DECISIONS Complaint 96-