ANALYSIS TO AID PUBLIC
COMMENT ON The Â鶹´«Ã½ Trade Commission (“Commission”) has accepted, subject to final approval, an Agreement Containing Consent Order from Degussa Aktiengesellschaft and Degussa Corporation (collectively "Degussa"). The proposed Order is designed to remedy anticompetitive effects stemming from a proposed transaction between Degussa and E. I. du Pont de Nemours & Co. (“DuPont”). On July 30, 1997, representatives of Degussa and DuPont signed a Letter of Intent setting out the elements of a proposed transaction whereby Degussa would acquire, inter alia, the assets of DuPont’s worldwide hydrogen peroxide business, including its North American production facilities in Memphis, Tennessee; Maitland, Ontario; and Gibbons, Alberta, in exchange for $325 million. The parties have since proposed a modified transaction, whereby Degussa will acquire only DuPont’s production facility in Gibbons, Alberta, and DuPont will retain its facilities in Memphis, Tennessee, and Maitland, Ontario. The Agreement Containing Consent Order, if finally accepted by the Commission, would settle charges that the acquisition, as originally proposed, may have substantially lessened competition in the North American hydrogen peroxide market. The Commission has reason to believe that Degussa’s original proposal to acquire DuPont’s hydrogen peroxide business, if consummated, would have violated Section 7 of the Clayton Act and Section 5 of the Â鶹´«Ã½ Trade Commission Act. The proposed complaint, described below, relates the basis for this belief. The proposed Order has been placed on the public record for sixty (60) days for reception of comments from interested persons. After sixty (60) days the Commission will again review the Agreement and the comments received and will decide whether it should withdraw from the Agreement or make final the Agreement’s proposed Order. The Proposed Complaint According to the Commission’s proposed complaint, Degussa Aktiengesellschaft is a German corporation with worldwide sales exceeding $8.7 billion in 1997, which is engaged in, inter alia, the development and manufacture of chemicals, pharmaceutical specialties, and precious metals. Degussa Corporation, a wholly-owned subsidiary of Degussa A.G., manufactures and distributes widely diverse products in the markets for chemicals, pigments, metals, and dental materials in the United States, Canada, and Mexico. Among these products is hydrogen peroxide. In 1996, Degussa had sales in excess of $2.3 billion, to which sales of hydrogen peroxide contributed $65 million. DuPont is a publicly-traded corporation with reported revenues in 1996 of $43.8 billion and net income of $3.6 billion. DuPont is one of the largest chemical companies in the world, operating about 175 manufacturing and processing facilities in approximately 70 countries. DuPont is engaged in diverse businesses, including chemicals, fibers, films, polymers, petroleum, agricultural products, biotechnology, and pharmaceuticals. In 1996, DuPont posted sales of hydrogen peroxide of $156 million in North America. According to the proposed complaint, the relevant line of commerce in which to analyze the effects of Degussa’s proposed acquisition of DuPont’s hydrogen peroxide production assets is the market for hydrogen peroxide, and the relevant geographic market is North America. The Commission’s proposed complaint further alleges that the North American market for hydrogen peroxide is highly concentrated, and that the originally proposed acquisition would have increased concentration, as measured by the Herfindahl-Hirschman Index, by close to 600 points, to a level of over 2500. With the acquisition as modified, in which Degussa would acquire only DuPont’s Gibbons plant, the level of the HHI would actually decrease. The proposed complaint charges that de novo entry or fringe expansion into the relevant market would require a substantial sunk investment and a significant period of time, such that new entry would be neither timely, likely, nor sufficient to deter or counteract anticompetitive effects of the originally proposed acquisition. The proposed complaint alleges that the acquisition, as originally proposed, would likely lead to a substantial lessening of competition in the North American hydrogen peroxide market. The acquisition would substantially increase concentration in a market that is already highly concentrated. The increased concentration would enable the firms remaining in the market to engage more successfully and more completely in coordinated interaction. The complaint cites several bases for this conclusion. Significantly, there is a long history of collusion, both tacit and express, among the firms that would remain after the proposed acquisition, involving hydrogen peroxide and its derivative products. In addition, evidence demonstrates that competitive information in the North American hydrogen peroxide market is sufficiently available to allow producers to engage in coordinated interaction. Practices such as public announcement of price increases, and the use of meeting competition clauses in contracts, serve to make competitive information available. There is also evidence of a strong degree of mutual interdependence among hydrogen peroxide producers, and evidence of market tendencies toward coordination and forbearance. For example, sales of hydrogen peroxide among producers are made with some frequency, and in some cases appear to be intended to avoid competitive conflicts. Finally, the complaint also cites projections in documents that prices would be higher after the acquisition than they otherwise would have been. The Proposed Order The proposed Order contains a provision that requires Degussa to obtain the prior approval of the Commission of an acquisition of either of the two plants that DuPont would retain. In addition, it contains a provision that requires Degussa to provide prior notification to the Commission before consummating an acquisition of any other North American hydrogen peroxide production facilities, unless such acquisition must be reported under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a (“HSR”). This provision specifically requires that Degussa comply with HSR-like premerger notification and waiting periods. In accord with the Commission’s Statement of Policy Concerning Prior Approval and Prior Notice Provisions, 60 Fed. Reg. 39,745 (Aug. 3, 1995), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,241, the prior approval provision ensures that the Commission will have the appropriate mechanism with which to review the originally proposed acquisition, which appeared likely to have anticompetitive effects. The prior notice provision, in addition, ensures that the Commission will obtain notification of hydrogen peroxide acquisitions by Degussa, including potential acquisitions in Canada, that may raise antitrust concerns but would not be reportable under HSR. The prior approval and prior notification provisions therefore afford the Commission ample opportunity to guard against such potentially anticompetitive acquisitions. The purpose of this analysis is to invite public comment concerning the proposed order. This analysis is not intended to constitute an official interpretation of the agreement and order or to modify their terms in any way. |