Justice Department Requires Divestiture of Morpho’s Explosive Trace Detection Business Before Smiths Acquisition
The Department of Justice announced today that it will require Smiths Group plc to divest Morpho Detection LLC and Morpho Detection International LLC’s global explosive trace detection (ETD) business in order for Smiths to proceed with its proposed $710 million acquisition of Morpho from Safran S.A.
The Justice Department’s Antitrust Division filed a civil antitrust lawsuit today in the U.S. District Court for the District of Columbia to block the proposed transaction. At the same time, the department filed a proposed settlement that, if approved by the court, would resolve the department’s competitive concerns.
“The acquisition, as originally proposed, would have eliminated one of only three suppliers of desktop explosive trace detection devices in the United States, and these devices play a critical role in ensuring the safe transport of passengers and cargo at our nation’s airports,” said Acting Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division. “Today’s settlement will ensure that the Transportation Security Administration and other desktop explosive trace detection purchasers continue to enjoy the benefits of vigorous competition when they purchase these vital security screening products.”
The European Commission previously announced that in order to address its competitive concerns with the acquisition, it also will require Smiths to divest Morpho’s global ETD business. The department’s Antitrust Division and the European Commission cooperated closely throughout the course of their respective investigations, with frequent contact between the agencies.
According to the department’s complaint, Smiths and Morpho are two of the leading providers of desktop ETD devices for both air passenger travel and air cargo screening at U.S. airports. Desktop ETD devices detect trace amounts of explosive residue or narcotics on hands, belongings, and cargo from a tiny sample swabbed from the object and placed inside the detector. The complaint alleges that competition between Smiths and Morpho has resulted in lower prices, better service, and more innovative desktop ETD devices.
The proposed divestiture will remedy the loss of this competition. Under the terms of the proposed settlement, Smiths must divest Morpho’s global ETD business to a buyer approved by the United States. The department believes that the divestiture of Morpho’s global ETD business, which also includes handheld and portal ETD devices, was necessary to ensure that the buyer of Morpho’s global ETD business would be a viable competitor in the provision of desktop ETD devices.
Smiths is a London-based public limited company that provides products used in an array of industries. Smith’s wholly-owned U.S. subsidiary, Smiths Detection U.S. Inc. (Smiths Detection), sells a wide range of threat and contraband detection equipment used at airports and other high-risk critical infrastructure sites. Smiths Detection, which is headquartered in Edgewood, Maryland, had approximately $730 million in annual revenues in 2015.
Safran is an aerospace and defense company based in Paris. Morpho, a division of Safran, is headquartered in Newark, California. Morpho sells threat and contraband detection equipment used at airports and other high-risk critical infrastructure sites. Morpho had approximately $325 million in annual revenues in 2015, about $65 million of which were from ETD product sales.
As required by the Tunney Act, the proposed consent decree, along with the department’s competitive impact statement, will be published in the Federal Register. Any person may submit written comments concerning the proposed settlement within 60 days of its publication to Maribeth Petrizzi, Chief, Litigation II Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 8700, Washington, D.C. 20530. At the conclusion of the 60-day comment period, the court may enter the final judgment upon a finding that it serves the public interest.