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From Antitrust Law Daily, December 11, 2014

Automotive supplier's acquisition of rubber products maker conditionally approved

By Jeffrey May, J.D.

Germany-based automotive supplier/tire manufacturer Continental AG has agreed to divest the North American commercial vehicle air springs business of Veyance Technologies, Inc. in order to proceed with its planned acquisition of the engineered rubber products manufacturer. Today, the U.S. Department of Justice filed a complaint in the federal district court in Washington, D.C. to block the proposed $1.8 billion transaction. At the same time, a proposed final judgment was filed with the court, which would settle the Justice Department's competitive concerns. The parties have entered into a hold-separate agreement pending the divestiture (U.S. v. Continental AG, Case 1:14-cv-02087).

According to the complaint, without the divestiture, the proposed acquisition would have reduced the number of suppliers of air springs to North American commercial vehicle manufacturers from three to two. Commercial vehicle air springs are rubber components used in trucks, trailers, and buses to provide stability to the suspension system, keep the tires in contact with the road, and provide comfort and reduced driver fatigue in cabins and seats.

There are three types of commercial air springs, and the government suggested that each type was a separate market. The government noted, however, that “the products may be aggregated for analytical convenience into a single relevant product market for the purpose of assigning market shares and evaluating the competitive impact of the acquisition.” Ultimately, the government alleged likely injury in two relevant markets: (1) air springs for original equipment manufacturers; and (2) air springs for the aftermarket. The relevant geographic market was limited to North America.

The Justice Department alleged that Continental and Veyance competed aggressively for sales of commercial air springs. Elimination of that competition allegedly would result in higher prices and decreased quality of service and would increase the likelihood that the two remaining suppliers would coordinate pricing.

The Justice Department also had concerns that the proposed acquisition would reduce competition in the market for automotive air conditioning barrier hose, which is used to carry refrigerant in automotive air conditioning systems. Veyance manufactures barrier hose. Continental manufactures hose assemblies that incorporate barrier hose supplied by a third party. These concerns have been resolved because Continental has waived the exclusivity requirement in a supply agreement with the only significant firm that competes with Veyance in the manufacture and sale of barrier hose in North America. Thus, the supplier now may sell air conditioning hose products to any third party.

Canada Competition Bureau reaction. Canada's Competition Bureau issued a No Action Letter today regarding the proposed acquisition. In a statement released today, the Competition Bureau said that the settlement with the Justice Department would adequately resolve the Bureau’s concerns related to the manufacture of air springs for commercial vehicles.

Attorneys: Suzanne Morris for U.S. Department of Justice. Bruce McColluch (Freshfields Bruckhaus Deringer LLP) for Continental AG. E. Marcellus Williamson (Latham & Watkins LLP) for Veyance Technologies, Inc.

Companies: Continental AG; Veyance Technologies, Inc.

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