Justice Department Requires Divestitures in Amsted Industries Inc.’s Purchase of FM Industries

On April 18, the DOJ reached a settlement with Chicago-based Amsted Industries Incorporated in order to remedy harm to competition arising from its December 2005 acquisition of FM Industries (“FMI”). Before the acquisition could be approved Amstead had to divest certain assets. FMI formerly was a wholly owned subsidiary of Progress Rail Services Holding Corporation. The DOJ alleged that the acquisition removed Amsted’s only competitor in new end-of-car cushioning units (“EOCCs”) used in the railroad industry, resulted in higher prices, and substantially lessened competition in the market for used EOCCs.

EOCCs are hydraulic devices that protect sensitive cargos by mitigating the forces experienced by railcars during transit and coupling. Amsted is a diversified manufacturer of industrial components serving primarily the railroad, vehicular, and construction markets. Its products include a range of railroad car parts, including couplers, side frames, bolsters, draft gears and hydraulic cushioning devices. In 2005, Amsted reported sales of $2.5 billion. Amsted’s EOCC sales in the United States are made through ASF-Keystone Inc., a subsidiary of Amsted Industries, headquartered in Granite City, Illinois.

The DOJ opened an investigation after customers complained that the consummated transaction removed a significant constraint on pricing, resulting in an immediate price increase for EOCCs. According to the DOJ, the merging companies were the only two manufacturers of new EOCC units and two of only three suppliers of reconditioned EOCC units used in the railway industry. The acquisition left Amsted as the sole competitor in the market for new EOCCs and the dominant supplier in the reconditioned EOCC market.

In the DOJ’s proposed decree, Amsted was forced to divest all of the intangible and other manufacturing assets needed to produce new and reconditioned EOCCs that it acquired from FMI. Because the FMI business was discontinued as a result of the transaction and Amsted only had one facility that manufactured EOCCs, the decree required Amsted to grant a perpetual license to its own intellectual property to account for gaps in the FMI assets. The divestiture and license grant was conveyed to an approved buyer, to facilitate that company’s entry into the markets for new and reconditioned EOCCs. These divestitures would enable that company to become a viable EOCC supplier and compete with Amsted.

In addition, the consent decree prohibits Amsted from acquiring any assets of or any interest in the development, production, or sale of EOCCs in the United States that exceeds $1 million without obtaining the Antitrust Division’s approval for the next 10 years.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com