[Federal Register Volume 65, Number 5 (Friday, January 7, 2000)]
[Notices]
[Pages 1157-1159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-365]


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FEDERAL TRADE COMMISSION

[File No. 991 0281]


RHI AG; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before January 31, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Richard Parker or Morris Bloom, FTC/H-
374, 600 Pennsylvania Ave., NW, Washington, D.C. 20580. (202) 326-2574 
or 326-2707.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
Commission's Rules of Practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for December 30, 1999), on the World Wide Web, at ``http://
www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the 
FTC Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, 
Washington, D.C. 20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW, 
Washington, D.C. 20580. Two paper copies of each comment should be 
filed, and should be accompanied, if possible, by a 3\1/2\ inch 
diskette containing an electronic copy of the comment. Such comments or 
views will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order 
(``Agreement'') from RHI AG (``RHI'' or ``respondent'') to resolve 
competitive concerns relating to the refractories industry arising out 
of RHI's proposed acquisition of Global Industrial Technologies, Inc. 
(``Global''). Under the Agreement, RHI would divest two refractories 
manufacturing plants located in North America and certain assets 
relating to refractory products currently produced at a third North 
American manufacturing plant. The proposed Order requires that the 
assets be divested to another refractories producer, Resco Products, 
Inc. (``Resco''), a company that produces refractories but does not 
compete in the affected markets at the present time, or to another 
buyer approved by the Commission.
    The proposed Order has been placed on the public record for thirty 
(30) days for reception of comments by interested persons. Comments 
received during this period will become part of the public record. 
After thirty (30) days, the Commission will review the Agreement and 
comments received and decide whether to withdraw its acceptance of the 
Agreement or make final the Agreement's proposed Order.
    Refractories are brick- and cement-like products made from certain 
natural minerals and materials that are used to line and protect 
furnaces in many industries--including the steel, aluminum, cement and 
glass industries--that involve the heating or containment of solids, 
liquids, or gases at high temperatures. Refractories are consumable 
products, and wear down as a result of being subjected to intense 
temperatures as well as chemical and mechanical pressures.
    The proposed complaint alleges that the acquisition, if 
consummated, would violate Section 7 of the Clayton Act, 15 U.S.C. 18, 
as amended, and Section 5 of the Federal Trade Commission Act (``FTC 
Act''), 15 U.S.C. 45, as amended, in the following markets: (1) The 
North American market for magnesia-carbon bricks for basic oxygen 
furnaces (``BOFs''); (2) the North American market for magnesia-carbon 
bricks for electric arc furnaces (``EAFs''); (3) the North American 
market for magnesia-carbon bricks for steel ladles used with BOFs; (4) 
the North American market for magnesia-chrome bricks for steel 
degassers; (5) the North American market for high-alumina bricks for 
steel

[[Page 1158]]

ladles used with BOFs; and (6) the North American market for high-
alumina bricks for torpedo cars used in steel making.
    The proposed complaint alleges that each of the relevant markets is 
highly concentrated. Specifically, the proposed complaint alleges that 
RHI and Global control approximately 95 percent of the $30 million 
North American market for magnesia-carbon refractory bricks for BOFs. 
The proposed acquisition thus represents a virtual merger to monopoly 
in magnesia-carbon bricks for BOFs. The proposed complaint also alleges 
that RHI and Global control approximately 65 percent of the $58 million 
North American market for magnesia-carbon refractory bricks for EAFs; 
approximately 40 percent of the $100 million North American market for 
magnesia-carbon bricks for steel ladles used with BOFs; approximately 
46 percent of the $5 million North American market for magnesia-chrome 
bricks for steel degassers; approximately 70 percent of the $50 million 
North American market for high-alumina bricks for steel ladles used 
with BOFs; and approximately 52 percent of the $23.5 million North 
American market for high-alumina bricks for torpedo cars.
    The proposed complaint further alleges that the effect of the 
acquisition may be to substantially lessen competition and to tend to 
create a monopoly by, among other things, eliminating actual, direct 
and substantial competition between RHI and Global in each of the 
relevant markets identified above. The proposed complaint further 
alleges that the effect of the acquisition may be to substantially 
lessen competition and to tend to create a monopoly by increasing the 
level of concentration in each of these relevant markets and by 
increasing the likelihood that the firm created by the merger of RHI 
and Global will unilaterally exercise market power in each of these 
relevant markets, that purchasers of these products will be forced to 
pay higher prices, that technical and sales service will decline, and 
that innovation in the development of these products will decline.
    The proposed complaint further alleges that entry into the relevant 
markets requires significant sunk costs and would not be timely, likely 
and sufficient to deter or offset reductions in competition resulting 
from the proposed acquisition. Development of the specialized 
refractories described above, including determination of the proper 
chemical composition and manufacturing techniques, is time consuming 
and requires an extremely high level of expertise. In addition, 
customers in the steel industry increasingly require that their 
suppliers of refractories be able to supply the full line of 
refractories for particular applications, such as BOFs, EAFs and steel 
ladles. Thus, a new entrant would have to be able to assume the costs 
and expertise necessary to develop and supply both magnesia-carbon and 
high-alumina bricks.
    Furthermore, because the refractory bricks at issue are used to 
control processes and substances at extremely high temperatures, the 
failure of the products can be catastrophic, sometimes causing the loss 
of human life. Consequently, customers are extremely resistant to 
change, and any new entrant would have to undergo months of laboratory 
testing, followed by extended periods (sometimes taking several years) 
of field testing, prior to acceptance of product for use in BOF and EAF 
steel making applications.
    The proposed Order is designed to remedy the anticompetitive 
effects of the acquisition in the relevant markets, as alleged in the 
complaint, by requiring the divestiture to Resco of: (a) Global's 
Hammond, Indiana refractories plant, which produces magnesia-carbon 
bricks for BOFs, EAFs and steel ladles, and related equipment, 
machinery and intellectual property (including formulas, mixes, presses 
and molds) and customer lists and contracts; (b) Global's Marelan, 
Quebec plant, which produces magnesia-chrome bricks for steel 
degassers, and related equipment, machinery and intellectual property 
(including formulas, mixes, presses and molds) and customer lists and 
contracts; and (c) all rights, title and interest in and to specific 
assets relating to the production of high-alumina bricks for BOF steel 
ladles and torpedo cars, which are currently produced by RHI at its 
Farber, Missouri plant, including intellectual property, customer lists 
and contracts, formulas, mixes and molds. The proposed Order requires 
the divestiture to take place no later than forty-five (45) days after 
the date the Commission accepts the Agreement for public comment.
    The proposed Order also provides for a magnesite supply contract 
between Resco and respondent. Currently, Global is one of only two U.S. 
producers of high purity magnesite, a necessary ingredient of magnesia-
carbon and magnesia-chrome bricks, and currently supplies other 
refractory producers with the material for the production of 
refractories. In order to ensure that Resco has a continuing supply of 
high purity magnesite with which it can make the relevant products, and 
to prevent the possibility that customers might require re-
qualification in the event that the acquirer is forced to obtain an 
alternate source of supply of this raw material, the proposed Order 
provides that respondent enter into a one year high purity magnesite 
supply contract, renewable for two additional one year terms at Resco's 
option, with most favored nation pricing. The arrangement is intended 
to be of sufficient duration to give Resco time to assimilate the 
relevant products into its own line of refractory products, to perfect 
the production processes, and to test other sources of high purity 
magnesite without jeopardizing customer contracts in the meantime.
    Thus, the proposed Order is designed to promote the viability and 
competitiveness of the divested businesses by placing the businesses in 
the hands of a company with extensive expertise in the refractories 
industry, expertise in related refractories applications, and 
additional economies resulting from shared research and development, 
overhead and production. The proposed Order is structured to help 
assure the success of Resco in operating the divested businesses by 
providing Resco with the assets required for it to successfully compete 
in the relevant markets: magnesia-carbon, magnesia-chrome and high-
alumina formulas that are well-known, well-respected and already proven 
in the marketplace; supply contracts with customers; technical 
assistance and training; production assets; and raw materials supply 
contracts to ensure the continued and consistent ability to produce the 
products.
    If the Commission determines that Resco is not an acceptable buyer, 
or that the agreement between Resco and respondent is not an acceptable 
form of divestiture, the proposed Order provides that respondent shall 
rescind the Resco agreement and any divestiture to Resco, and divest 
the identified assets, including RHI's Farber, Missouri plant and 
fixtures, at the purchaser's option, to an acquirer that receives the 
prior approval of the Commission. In such an event, the proposed Order 
also contains provisions designed to ensure that such an acquirer has 
the benefit, at its option, of all of the raw materials, contracts and 
technical assistance relating to the businesses to be divested.
    The proposed Order also provides that if respondent fails to divest 
the assets to be divested as required by the proposed Order, the 
Commission may appoint a Divestiture Trustee to divest the business 
along with any assets related to the business that are necessary to 
effect the purposes of the proposed Order.

[[Page 1159]]

    The proposed Order also provides for the appointment of an Interim 
Trustee to ensure that respondent expeditiously performs its 
responsibilities under the proposed Order. The Interim Trustee will 
oversee the divestiture to ensure the adequacy of the transfer, to 
ensure that disputes between the parties will be identified and 
resolved quickly, clearly, and impartially, and to identify possible 
violations of the proposed Order.
    The Agreement requires respondent to provide the Commission, within 
thirty (30) days of the date of the agreement was signed, with an 
initial report setting forth in detail the manner in which respondent 
will comply with the provisions relating to the divestiture of assets.
    The purpose of this analysis is to facilitate public comment on the 
proposed Order. This analysis is not intended to constitute an official 
interpretation of the agreement or the proposed Order or in any way to 
modify the terms of the Agreement or the proposed Order.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 00-365 Filed 1-6-00; 8:45 am]
BILLING CODE 6750-01-M