DOJ’s Approval of Continental AG’s Acquisition of Veyance Requires Remedy of a Vertical Concern

On December 11, 2015, the Department of Justice (“DOJ”) approved Continental AG’s $1.8 billion acquisition of Veyance Technologies with conditions.   The settlement agreements requires Continental to divest the North American commercial vehicle air springs business of Veyance and to waive an exclusivity requirement in its supply agreement to resolve a vertical antitrust concern.

The Antitrust Division was concerned that the merger of rivals in the supply of new and replacement air springs for commercial vehicles in North America would have eliminated one of only three significant suppliers of air springs.  Commercial vehicle air springs are 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.

The Antitrust Division was concerned that the creation of a virtual duopoly would have facilitated anticompetitive coordination between the two remaining suppliers and risked price increases and reductions in the quality of service by limiting availability or delivery options to original equipment manufacturers.  Similarly, the Antitrust Division was concerned that the proposed acquisition would have reduced the number of significant suppliers of replacement air springs to commercial vehicle owners, which likely would have lessened competition in the North American aftermarket for commercial vehicle air springs.

In addition to the DOJ’s horizontal competition concern relating to commercial vehicle air springs, the DOJ was concerned that the proposed acquisition would reduce competition in the market for automotive air conditioning barrier hose (“barrier hose”), which is used to carry refrigerant in automotive air conditioning systems.  Veyance manufactures barrier hose, while Continental manufactures hose assemblies that incorporate barrier hose supplied by a third party.  Because Continental had an exclusive supply agreement with the only significant firm that competes with Veyance in the manufacture and sale of barrier hose in North America, the proposed acquisition raised additional competitive concerns.

The Antitrust Division cooperated closely with Canadian, Brazilian, and Mexican antitrust agencies  in coordinating the antitrust analyses and the formulation of remedies.

Under the terms of the DOJ’s consent decree, Continental was required to divest Veyance’s North American air springs business, which included air spring manufacturing and assembly facilities in San Luis Potosi, Mexico; research, development, engineering, and administrative assets in Fairlawn, Ohio; and certain other tangible and intangible assets.  Continental was also required to waive the exclusivity requirement in its supply agreement, so its supplier could sell air conditioning hose products to any third party.

Lessons Learned

This case is noteworthy because it further illustrates how the Antitrust Division closely cooperates with other antitrust agencies around the world with respect to the analyses and the formation of remedies.  In addition, this case illustrates that the Antitrust Division is not solely focused on traditional horizontal antitrust concerns.  When it is appropriate, the Antitrust Division will require behavioral remedies to resolve vertical antitrust concerns.  In this particular case, the Antitrust Division was concerned about Continental AG’s  exclusive supply agreement with Veyance’s only significant competitor in the manufacture of barrier hoses.  Therefore, the Division required Continental AG to waive the exclusivity provision in an effort to protect competition in the supply of automobile air conditioning barrier hoses.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com