Agency Disputes Closed Mergers

A federal antitrust agency, in a rare move, sought Wednesday to undo two acquisitions completed two years ago by a Santa Ana software company.

The Federal Trade Commission said the acquisitions gave MSC.Software Corp. a monopoly on specialized engineering software used in the automotive and aerospace industries. The company fiercely disputed the claim, which could ultimately force it to shed businesses that helped generate as much as 39% of its $178 million in sales last year.

FTC officials said the action signals stepped-up scrutiny of small mergers and acquisitions.

While acknowledging that the FTC has seldom attempted to take apart mergers once they have been completed, these actions “are going to become increasingly common,” said Joseph J. Simons, director of the FTC’s bureau of competition.

The agency’s heightened scrutiny follows changes earlier this year to the Hart-Scott-Rodino Antitrust Improvement Act, subjecting larger deals to regulatory review before they can be completed. Under the changes, mergers and acquisitions valued at $50 million or more are subject to regulatory review--up from $15 million.

“The higher threshold means that more deals no longer have to be filed with us, so we won’t see them when they’re proposed,” Simons said. “So now we’ll review more transactions after they close.”

Companies, he said, must assume the risk that they will be required to “unscramble the eggs” and divest whatever assets are necessary to restore competition.

MSC’s stock lost 41 cents Wednesday to close at $14 on the New York Stock Exchange. The stock has gained 78% this year.

MSC’s chairman, Frank Perna Jr., called the FTC’s action “without foundation” and suggested the agency had a hidden agenda: “The FTC is not happy with the higher threshold, so it says it needs to be more involved with smaller acquisitions.”

In MSC’s case, the agency in its complaint said the company had gained about 90% of the market for so-called Nastran engineering software by 1999, then cornered the entire market by acquiring two major competitors. It bought Universal Analytics Inc. for $8.4 million and then Computerized Structural Analysis & Research Corp. for nearly $10 million.

The acquisitions enhanced MSC’s power to raise prices and to withhold or delay product development, the agency contended in its complaint. But neither the FTC complaint nor Simons provided specific examples.

Nastran engineering software, developed by the National Aeronautics and Space Administration, is used to simulate a variety of conditions for aerospace and auto designs. Its analyses of such items as stress on wingspans can improve product development, reduce the need for building prototypes and shorten the time to market new products.

NASA released the software’s programming details into the public domain to allow broader use and commercial development. The FTC said that MSC and the two companies it bought were the only ones to license the software program and enhance it.

The FTC claims the Nastran market accounted for $60 million to $70 million of MSC’s $178 million in revenue last year. The company said that sales of Nastran software, excluding services such as training, amounted to about $30 million last year.

Simons would not say how the matter came to the FTC’s attention, but he noted that complaints from customers, competitors or stories in trade publications typically prompt investigations. MSC said the agency first began seeking information about 16 months ago.

Perna, the company’s chairman, disputed the FTC’s claim that MSC has a monopoly.

“This [Nastran] is no more a market than Oreo cookies is a market,” he said. “There’s a cookie market, but is there an Oreo cookie market?”

Joanne Keates, an MSC spokeswoman, said other companies make simulation software that competes with Nastran, adding that the sales of simulation engineering total about $300 million a year, excluding such services as training. MSC, the market leader, accounts for about 10% of the total, she said.

“There’s a fiercely competitive market for simulation software with large, strong U.S. and foreign companies,” she said. She also noted that the company hasn’t raised Nastran prices since 1998.