[Federal Register Volume 65, Number 55 (Tuesday, March 21, 2000)]
[Notices]
[Pages 15156-15159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6988]
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FEDERAL TRADE COMMISSION
[File No. 991 0237]
Rhodia, et al.; 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 April 13, 2000.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Robert Tovsky, FTC/S-3105, 600
Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-2634.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and section 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 March 14, 2000), on the World Wide Web, at ``http://www.ftc.gov/
ftc/formal.htm.'' A paper copy can be obtained from the FTC Public
Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, Washington, DC
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, DC 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)).
[[Page 15157]]
Analysis to Aid Public Comment
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an Agreement Containing Consent Orders (``Consent
Agreement'') from Rhodia, Donau Chemie AG (``Donau''), and Albright &
Wilson PLC (``A&W'') (collectively ``respondents''). The Consent
Agreement is intended to resolve anticompetitive effects stemming from
Rhodia's proposed acquisition of A&W. The Consent Agreement includes a
proposed Decision and Order (the ``Order''), that would require Rhodia
to divest A&W's pure phosphoric acid business to Potash Corp. of
Saskatchewan (``PCS''). For the last several years, A&W and PCS have
been partners in a phosphates manufacturing joint venture (the ``Joint
Venture''), which includes, among other assets, a pure phosphoric acid
production facility in Aurora, North Carolina, and in phosphates
manufacturing plant in Cincinnati, Ohio. The Consent Agreement also
includes an Order to Maintain Assets that requires respondents to
preserve the assets they are required to divest as a viable,
competitive, and ongoing operation until the divestiture is achieved.
The Order, if finally issued by the Commission, would settle
charges that Rhodia's proposed acquisition of A&W may have
substantially lessened competition in the United States market for pure
phosphoric acid. The Commission has reason to believe that Rhodia's
proposed acquisition of A&W would have violated section 7 of the
Clayton Act and section 5 of the Federal 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 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
Consent Agreement or make final the proposed Order.
According to the Commission's proposed complaint, the relevant line
of commerce in which to analyze the effects of Rhodia's proposed
acquisition of A&W is pure phosphoric acid, and the relevant geographic
market is the United States. Pure phosphoric acid is used as an input
into a wide variety of consumer of industrial products, ranging from
cola beverages to cleaning compounds and metal treatments. The proposed
complaint alleges that the pure phosphoric acid market in the United
States already is highly concentrated, and that the proposed
acquisition of A&W by Rhodia would increase concentration in that
market, as measured by the Herfindahl-Hirschman Index, by over 600
points, to a level close to 3000. The Commission's complaint further
notes that Rhodia and A&W currently employ the low-cost solvent
extraction process to produce pure phosphoric acid.
The proposed complaint also alleges that entry into the relevant
market would not be timely, likely, or sufficient to deter or offset
adverse effects of the acquisition on competition. Entry is difficult
in this market because of the length of time it would take to build new
construction facilities and enter the market; and because of the large
minimum efficient scale of new production facilities, which would
require a new entrant to sell large volumes of pure phosphoric acid
into the North American market, driving down market prices to a level
that would render new entry unprofitable. Significant expansion by
smaller producers also is unlikely.
The proposed complaint alleges that Rhodia's proposed acquisition
of A&W would lessen competition by making coordinated interaction among
the remaining producers more likely. The complaint describes how
Rhodia's documents project that the combination of Rhodia and Albright
& Wilson would lead to higher prices for pure phosphoric acid.
The proposed Order is designed to remedy the anticompetitive
effects of the acquisition in the United States market for pure
phosphoric acid, as alleged in the complaint, by requiring the
divestiture to PCS of A&W's United States pure phosphoric acid
business, including A&W's interest in the Joint Venture, as well as
joint venture manufacturing assets, including the Aurora pure
phosphoric acid plant and the Cincinnati plant. The Order would also
require respondents to provide PCS with technology A&W has developed
for manufacturing pure phosphoric acid and for using it in certain
applications. PCS would be able to use that technology to build pure
phosphoric acid plant both within and outside of the United States, and
to license the technology to other firms that sought to build pure
phosphoric acid plants. The proposed Order would also require
respondents to divest other assets related to A&W's pure phosphoric
acid business, including customer lists, contracts, and other
intangible assets. The proposed divestiture does not require
divestiture of A&W's pure phosphoric acid plant in Mexico, which does
not export pure phosphoric acid to customers in the United States.
A&W's Mexican plant produces pure phosphoric acid used primarily in
home laundry detergents in Mexico, an application that no longer exists
in the United States.
PCS, based in Saskatoon, Saskatchewan, is the world's third-largest
producer of phosphoric acid for fertilizer. It also produces other
fertilizer materials such as nitrogen and potash. PCS entered the
phosphates business in 1995, through its acquisition of Texasgulf. A
publicly-traded Canadian company, PCS in 1998 had an operating income
of $446 million and a net income of $261 million on sales of $2.3
billion. PCS mines phosphate rock at Aurora, North Carolina, and also
produces ``green'' phosphoric acid at that site. Slightly over 10% of
PCS's green acid production at Aurora is used as a feedstock for the
manufacture of pure phosphoric acid.
If the Commission, at the time that it accepts the Order for public
comment, notifies respondent that it does not approve of the proposed
divestiture to PCS, or the manner of the divesture, the proposed Order
provides that respondents would have 120 days to divest the A&W pure
phosphoric acid business to a different acquirer. If respondents did
not complete the divestiture in that period, a trustee would be
appointed.
The proposed Order to Maintain Assets that is also included in the
Consent Agreement requires that respondents preserve the A&W assets
they are required to divest as a viable and competitive operation until
those assets are transferred to the Commission-approved acquirer. It
requires that respondents to maintain the viability and competitiveness
of the assets, and to conduct the A&W pure phosphoric acid business in
the ordinary course of business. Furthermore, the Order to Maintain
Assets includes an obligation on respondents to build and maintain a
sufficient inventory of pure phosphoric acid to ensure there is no
shortage of supply during the period that the business is being
transferred to the Commission-approved acquirer. The Order to Maintain
Assets also requires respondents to provide necessary support services
and maintain an adequate workforce for the A&W pure phosphoric acid
business.
The Consent Agreement requires respondents to provide the
Commission, within thirty (30) days of the date the Agreement is
signed, with an initial report setting forth in detail the manner
[[Page 15158]]
in which respondents will comply with the provisions relating to the
divestiture of assets. The proposed Order further requires respondents
to provide the Commission with a report of compliance with the Order
within thirty (30) days following the date the Order becomes final and
every thirty (30) days thereafter until they have complied with the
terms of the Order.
The purpose of this analysis is to facilitate public comment on the
proposed Consent Agreement and the proposed Order. This analysis is not
intended to constitute an official interpretation of the Consent
Agreement or the proposed Order or in any way to modify the terms of
the Consent Agreement or the proposed Order.
By direction of the Commission.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner Mozelle W. Thompson
In the matter of Rhodia, staff has presented to the Commission a
complaint and consent order that would settle the section 7, Clayton
Act and section 5, Federal Trade Commission Act concerns raised by
Rhodia's acquisition of Albright & Wilson plc from Donau Chemie AG. The
proposed complaint narrowly defines the relevant market for pure
phosphoric acid (PPA) as within the boundaries of the United States.
For the following reasons, I disagree.
The North American PPA market has operated in an oligopolistic
manner for the past twenty years or more. The major North American
competitors have successfully engineered the highest PPA prices in the
world through a variety of actions, including signaling prices,
retaliating selectively to enforce high prices, controlling imports
through agreements with a foreign supplier, and eliminating domestic
competitors through acquisition. Rhodia, a significant member of the
North American oligopoly, now proposes to acquire Albright & Wilson. I
believe such an acquisition would allow Rhodia to:
(1) Reinforce its world-wide dominant position among phosphates
producers;
(2) Protect PPA prices and market share in North America; and
(3) Position itself to have the capacity to enforce market
discipline in the North American market.
Evidence of Rhodia's view of the acquisition's impact on the North
American market alone leads me to believe that the geographic scope of
the PPA product extends to all of North America, thus including
Albright & Wilson's Mexican plant in the market. Other evidence,
however, also demonstrates that North America is the relevant market.
Accordingly, the Commission should have fully considered ordering the
sale of Albright & Wilson's interests in both of its North American PPA
plants to Potash Corporation and/or another purchaser not saddled with
the incentives and history Rhodia carries.
Shipment Decisions and the Scope of the Geographic Market
The complaint apparently limits the scope of the geographic market
because Albright & Wilson, the owner of a Mexican PPA plant and part
owner of a North Carolina plant, does not currently ship Mexican PPA
into the United States even though the evidence convinces me that the
Mexican capacity could be used to supply customers in the United
States. Although this private business decision from a multi-plant
supplier creates a shipment pattern that superficially supports finding
a United States PPA market, one principle of geographic market analysis
is that competition among geographically differentiated producers may
be linked indirectly by the customers they can economically serve.
Despite the decision not to ship PPA into the United States from
the Mexican plant, North American capacity is competitively linked--and
North American PPA suppliers compete--because the Mexican plant's PPA
is sold to customers in Mexico and Canada that U.S. domestic plants
would otherwise supply. Moreover, Albright & Wilson's joint venture
plant, as well as other competitors' U.S. plants, undoubtedly serve
customers that Albright & Wilson's Mexican plant would otherwise serve,
but for Albright & Wilson's decision concerning which of its plants
would serve which North American customers.
Divestiture Policy and the Adequacy of the Ordered Relief
As a routine starting point, the Commission's ongoing policy
concerns about merger relief generally leads us to consider requiring
the complete divestiture of either one of the merging parties'
overlapping businesses in the relevant market. This divestiture policy
limits the potential adverse market consequences by maintaining the
pre-acquisition market structure and by maximizing the potential that
the purchaser would be viable and competitive.
I am concerned that we have not adhered to this policy here, where
there is significant evidence that the market is acting
noncompetitively, as well as compelling evidence supporting a challenge
of the proposed acquisition. Rhodia is the dominant phosphates producer
in the world and it will become--even taking into account the
majority's relief--the leader in the North American PPA market. Thus,
Rhodia, through this acquisition, would gain additional North American
capacity that could be used to enforce higher prices.
Although the relief set forth in the consent order--which requires
Rhodia to sell the current Albright & Wilson joint venture interest in
the North Carolina plant--does limit the potential adverse market
impact, I still am concerned that the relief does not go far enough. In
looking forward, if we allow Rhodia to acquire the Mexican plant and
become the competitor controlling the greatest amount of capacity in
North America, it could leverage the Mexican plant's capacity to
discipline competitors' pricing. Thus, a settlement that allows Rhodia
to become the North American market leader by acquiring Albright &
Wilson's interest in either of its two North American plants should be
fully and cautiously scrutinized by the Commission to determine whether
further relief is warranted. By alleging a United States geographic
market here, the majority has unfortunately isolated itself from a full
consideration of the appropriate divestiture and, when evaluating
future possible PPA plant acquisitions, the Commission would face the
additional burden of justifying a market redefinition.
One could argue that Rhodia's ownership of the Mexican plant, while
providing it the capacity to attain the leading position in North
America, ironically may well slightly improve the market concentration
data. But the limited evidence before me suggests that the majority
neither fully explored nor evaluated the consequences of this
concentration data or the options available to the Commission. These
options include ordering the sale of all of the Albright & Wilson
assets to Potash, a North American-only competitor, or ordering the
sale of the joint venture interest in the North Carolina plant to
Potash and the Mexican plant to another independent purchaser. These
options--when evaluated with the limited information presented to the
Commission--appear no worse than allowing Rhodia to own the Mexican
plant, and, in fact, either of these options might prove superior to
the majority's relief.
Thus, by basing a complaint on a narrow United States market and
avoiding direct confrontation of the issue whether Rhodia should be
allowed
[[Page 15159]]
to purchase the Mexican plant, the majority permits Rhodia to acquire
additional North American capacity and perhaps ensures that the PPA
market will act noncompetitively in the future. In my view, the
majority's unwillingness to make a minor correction now could squander
a valuable opportunity to protect North American PPA consumers.
[FR Doc. 00-6988 Filed 3-20-00; 8:45 am]
BILLING CODE 6750-01-M