Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Auto parts suppliers to make divestiture to settle FTC charges, (May 5, 2015)

By Linda O’Brien, J.D., LL.M.

Two of the world’s largest auto parts suppliers, ZF Friedrichshafen AG and TRW Automotive Holdings Corp., have agreed to divest TRW’s linkage and suspension business in North America and Europe to settle FTC charges that their proposed $12.4 billion merger would likely harm competition in the North American market for heavy vehicle tie rods, the Commission announced today (In re Matter of ZF Friedrichshafen AG, File No. 141-0235).

ZF and TRW are two of only three North American suppliers of heavy vehicle tie rods. A tie rod is a rigid connector that links a vehicle’s wheels with the steering control mechanism. In this case, the tie rods are designed for vehicles weighing at least six tons. Because the tie rods are heavy, it is not economical to ship them over long distances. As a result, customers in North America predominantly buy from suppliers that have production facilities in the United States, Canada, and Mexico and do not consider suppliers outside of North America as viable options.

The FTC complaint alleges that the merger would eliminate direct competition between ZF and TRW and that reducing the number of competitors from three to two would increase the likelihood of coordinated interaction between a combined ZF/TRW and its only other competitor for heavy vehicle tie rods in North America.

Under the terms of the proposed consent agreement with the FTC, the combined company is required to divest TRW’s North American and European linkage and suspension business for heavy and light vehicles (which includes heavy vehicle tie rods). The business includes five manufacturing plants in Michigan, Canada, the Czech Republic, and Germany, and leased space in a research and development lab in Germany. At the divestiture buyer’s request, ZF must provide transition services for logistical and administrative support as well as transitional supply agreements for key manufacturing inputs needed to fulfill existing customer contracts.

The proposed consent agreement also includes an Order to Maintain Assets to preserve the assets until they are divested. A monitor will ensure that the merging parties comply with their obligations under both the consent agreement and the Order to Maintain Assets

The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment through June 5. Interested parties may submit comments electronically.

Companies: ZF Friedrichshafen AG; TRW Automotive Holdings Corp.

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