The Federal Trade Commission (FTC) on Monday, Oct. 2, accepted a proposed consent order that would resolve the antitrust issues arising from the acquisition by Manheim Auctions Inc. of ADT Automotive Holdings Inc.
The order would require Manheim to divest nine auctions in seven geographic markets, including an auction in Phoenix, where Manheim acquired a monopoly through an earlier transaction. Manheim, owned by Cox Enterprises Inc., is the country's leading operator of wholesale motor vehicle auctions. It operates 65 auctions nationwide and sold 4.1 million vehicles in 1999. ADT, a subsidiary of Tyco International Inc., is the nation's third-largest auction chain, with 28 auctions in the United States and sales of 1.3 million vehicles in 1999. Wholesale motor vehicle auctions provide a cluster of services to sellers of used vehicles, including marshaling cars, preparing condition reports, attracting potential buyers, and reporting auction results.
Unlike small auctions that serve regional customers, major wholesale auctions supply extensive and sophisticated services like advanced computer technology and complete body work to auto manufacturers, national finance companies, and other high-volume sellers of used vehicles.
According to the FTC’s complaint, Manheim's acquisition of ADT would reduce competition in the provision of major wholesale auction services in six geographic markets, in violation of the Clayton Act and the FTC Act. These geographic markets are: 1) the greater metropolitan area of Kansas City, MO; 2) the Colorado Front Range, which includes the greater metropolitan areas of Denver and Colorado Springs, CO; 3) the greater metropolitan area of Atlanta; 4) the greater metropolitan area of San Francisco; 5) the greater metropolitan area of Seattle; and 6) the I-4 Corridor of Florida, which includes the greater metropolitan areas of Tampa, Orlando and Daytona Beach, FL.
In each of these markets, the proposed acquisition would give Manheim a monopoly over major wholesale auction services and create a substantial risk of reduced service levels or higher prices. The complaint also alleges that Manheim acquired a monopoly of major auctions in Phoenix in 1996, when it acquired from JM Family Enterprises Inc., a controlling interest in its only major auction competitor there.
The FTC contends that new entry into the relevant markets would not be likely, timely or sufficient to prevent or counter the anticompetitive effects of the proposed merger. Building an auction requires substantial amounts of capital and entails significant assumption of risk. Consequently, major auctions must sell a high volume of motor vehicles to be profitable. 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.
Under the terms of the proposed consent order, Manheim and ADT would be required to divest eight ADT auctions, along with one of Manheim's major auctions in Phoenix, to ADESA Corp. Based in Indianapolis, ADESA is a large chain with 30 auction sites throughout the United States. The FTC is satisfied that ADESA has the expertise, resources and incentives to replace the competition lost due to Manheim's acquisition of ADT. Furthermore, ADESA poses no separate competitive issues as the acquirer of the divested assets.
Under the proposed order, if ADESA is not found to be an acceptable acquirer, or the agreement with ADESA does not prove to be an acceptable manner of divestiture, the companies must immediately rescind the transaction and divest the auctions to an FTC-approved buyer in an acceptable manner within six months after the order becomes final. The order requires the companies to use their best efforts to maintain the auctions as they would in the ordinary course of business until they are divested. If the companies fail to divest the required assets within the time allotted, the order would enable the FTC to appoint a trustee to divest any remaining assets to satisfy its terms.
The companies would also be prohibited from soliciting or hiring employees away from the divested auctions for one year after the divestitures occur. The companies would have to report to the FTC on their compliance with the order within 30 days of the date it is finalized and every 30 days thereafter until the proposed divestitures have been completed. Annual reports would also be required. The order would require the parties to provide written notice to the FTC before acquiring an interest in any wholesale auction facility in the relevant geographic markets. The order will terminate as to Manheim and Cox in 10 years, and as to ADT and Tyco when the eight ADT auctions are completely divested. Manheim and ADT would be subject to civil penalties and other relief if they fail to comply with any of the order's provisions. The FTC vote to accept the proposed consent agreement was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly, and will be subject to public comment for 30 days, until Oct. 31, 2000, after which the FTC will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, NW, Washington, DC 20580.