[Federal Register Volume 83, Number 215 (Tuesday, November 6, 2018)]
[Notices]
[Pages 55533-55540]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24206]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 171 0068]


Linde AG and Praxair, Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

-----------------------------------------------------------------------

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

DATES: Comments must be received on or before November 21, 2018.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write: ``Linde AG and Praxair, 
Inc.; File No. 1710068'' on your comment, and file your comment online 
at https://ftcpublic.commentworks.com/ftc/praxairlindedivest/ by 
following the instructions on the web-based form. If you prefer to file 
your comment on paper, write ``Linde AG and Praxair, Inc.; File No. 
1710068'' on your comment and on the envelope, and mail your comment to 
the following address: Federal Trade Commission, Office of the 
Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex D), 
Washington, DC 20580, or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Constitution Center, 
400 7th Street SW, 5th Floor, Suite 5610 (Annex D), Washington, DC 
20024.

FOR FURTHER INFORMATION CONTACT: Jordan S. Andrew (202-326-3678), 
Bureau of Competition, 600 Pennsylvania Avenue NW, Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 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 October 22, 2018), on

[[Page 55534]]

the World Wide Web, at https://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before November 21, 
2018. Write ``Linde AG and Praxair, Inc.; File No. 1710068'' on your 
comment. Your comment--including your name and your state--will be 
placed on the public record of this proceeding, including, to the 
extent practicable, on the public Commission website, at https://www.ftc.gov/policy/public-comments.
    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/praxairlindedivest/ by following the instructions on the web-based 
form. If this Notice appears at http://www.regulations.gov/#!home, you 
also may file a comment through that website.
    If you prefer to file your comment on paper, write ``Linde AG and 
Praxair, Inc.; File No. 1710068'' on your comment and on the envelope, 
and mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite 
CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Because your comment will be placed on the publicly accessible FTC 
website at https://www.ftc.gov, you are solely responsible for making 
sure that your comment does not include any sensitive or confidential 
information. In particular, your comment should not include any 
sensitive personal information, such as your or anyone else's Social 
Security number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. You are also 
solely responsible for making sure that your comment does not include 
any sensitive health information, such as medical records or other 
individually identifiable health information. In addition, your comment 
should not include any ``trade secret or any commercial or financial 
information which . . . is privileged or confidential''--as provided by 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 
16 CFR 4.10(a)(2)--including in particular competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular, 
the written request for confidential treatment that accompanies the 
comment must include the factual and legal basis for the request, and 
must identify the specific portions of the comment to be withheld from 
the public record. See FTC Rule 4.9(c). Your comment will be kept 
confidential only if the General Counsel grants your request in 
accordance with the law and the public interest. Once your comment has 
been posted on the public FTC website--as legally required by FTC Rule 
4.9(b)--we cannot redact or remove your comment from the FTC website, 
unless you submit a confidentiality request that meets the requirements 
for such treatment under FTC Rule 4.9(c), and the General Counsel 
grants that request.
    Visit the FTC website at http://www.ftc.gov to read this Notice and 
the news release describing it. The FTC Act and other laws that the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding, as appropriate. The Commission 
will consider all timely and responsive public comments that it 
receives on or before November 21, 2018. For information on the 
Commission's privacy policy, including routine uses permitted by the 
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.

Analysis of Proposed Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') designed to remedy the anticompetitive effects resulting 
from the proposed merger of Praxair, Inc. (``Praxair'') and Linde AG 
(``Linde'').
    Pursuant to the Consent Agreement, Linde will divest the following 
assets to Messer Group GmbH (``Messer''): Thirty-two air separation 
units (``ASUs''); sixteen carbon dioxide facilities; source contracts 
for nearly one billion cubic feet of helium, twelve helium transfill 
stations, and a helium purification facility; one liquid hydrogen 
production facility, as well as equipment, contracts, and related 
assets. Linde also will divest assets related to its excimer laser gas 
business to Messer.
    Separately, Linde will divest five facilities that produce hydrogen 
and carbon monoxide (``HyCO'') for on-site customers, along with 
Linde's hydrogen pipeline in the Gulf Coast and related customer 
contracts, to Matheson Tri-Gas, Inc. (``Matheson''). Lastly, Linde will 
divest two additional HyCO plants to their respective owners. Linde 
will divest its HyCO plant in Clear Lake, Texas to Celanese Corporation 
(``Celanese'') and its HyCO plant in La Porte, Texas to LyondellBasell 
Industries N.V. (``LyondellBasell'').
    Praxair and Linde have agreed to divest the required facilities and 
assets to the aforementioned buyers, or to alternative Commission-
approved buyers, within 120 days after signing the Consent Agreement. 
Praxair and Linde will hold their businesses separate until they have 
accomplished the divestitures to Messer and Matheson. The divestiture 
of these facilities and related assets will preserve the competition 
between Praxair and Linde that the proposed merger would otherwise 
eliminate.
    The proposed Consent Agreement will be on the public record for 
thirty days, so that interested persons may submit comments. Comments 
that the Commission receives during this period will become part of the 
public record. After thirty days, the Commission will again review the 
proposed Consent Agreement and the comments received, and will decide 
whether it should withdraw from the proposed Consent Agreement, modify 
it, or make final the accompanying Decision and Order.

II. The Transaction

    On June 1, 2017, Linde and Praxair entered into an agreement and 
plan of merger, in a transaction valued at approximately $80 billion. 
Pursuant to the terms of their agreement, the parties will initiate a 
stock-for-stock exchange to form a new company under the Linde name 
with headquarters split between Danbury, Connecticut and Munich, 
Germany. The Commission's Complaint alleges that the proposed merger, 
if consummated, would violate Section 7 of the Clayton Act, as amended, 
15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as 
amended, 15 U.S.C. 45, by substantially lessening competition in the 
United States in markets for bulk liquid oxygen; bulk liquid nitrogen; 
bulk liquid argon; bulk liquid carbon dioxide; bulk liquid

[[Page 55535]]

hydrogen; bulk refined helium; on-site hydrogen; on-site carbon 
monoxide; and excimer laser gases.

III. The Parties

    Praxair is an international industrial gas and surface technology 
company headquartered in Danbury, Connecticut. The company primarily 
serves industrial and specialty gas customers in manufacturing, metals, 
and chemicals industries. Praxair is the third-largest industrial gas 
supplier globally by revenue. In the United States, Praxair owns forty-
one ASUs and twenty-eight carbon dioxide facilities. In 2017, Praxair's 
revenue totaled approximately $11.4 billion, about $5 billion of which 
derived from business in the United States.
    Linde, headquartered in Munich, Germany, is a global supplier of 
industrial gases, homecare respiratory services, and engineering 
services to customers in the healthcare, chemicals, and energy 
industries. Linde is the second-largest global industrial gas supplier 
worldwide. In the United States, Linde owns thirty-two ASUs and thirty-
five carbon dioxide facilities. In 2017, Linde generated approximately 
$20.2 billion in total revenue. Linde's 2017 U.S. revenue totaled 
approximately $4.4 billion, of which about $2.5 billion derived from 
its LinCare home healthcare business.

IV. The Relevant Markets for Bulk Liquid Oxygen, Bulk Liquid Nitrogen, 
and Bulk Liquid Argon

    Oxygen, nitrogen, and argon are ``atmospheric gases,'' present in 
the Earth's atmosphere in varying amounts. Industrial gas suppliers 
like Linde and Praxair produce atmospheric gases for a range of 
customer applications and industries, such as oil and gas, steelmaking, 
health care, and food manufacturing. Oxygen, nitrogen, and argon are 
three of the most widely used atmospheric industrial gases. Each 
atmospheric gas has specific properties that make it uniquely suited 
for its respective applications. For most of these applications, there 
is no substitute for oxygen, nitrogen, or argon.
    Suppliers distribute atmospheric gases to customers in different 
forms and methods, depending on the volume of gas that the customer 
requires. Customers that require extremely large volumes receive 
atmospheric gases from on-site ASUs located at their facilities, or via 
pipelines connecting ASUs to customer sites. Bulk customers require gas 
volumes that are substantial, but not large enough to justify on-site 
or pipeline gas delivery. For bulk customers, suppliers typically 
transport bulk liquid oxygen, bulk liquid nitrogen, or bulk liquid 
argon in cryogenic trailers that hold the gas in liquid form. The 
liquid form is more condensed than the gaseous form, and therefore 
easier to transport and store in large quantities. Bulk liquid gases 
are then stored in tanks located at customer sites. From there, 
customers can use the product in its liquid form, or convert it back to 
its gaseous form before use. Small-volume customers purchase nitrogen, 
oxygen, or argon in cylinders containing the product in gaseous form. 
Typically, smaller customers receive gas cylinders from distributors 
that purchase products from industrial gas suppliers in bulk liquid 
form. It is impractical for bulk liquid oxygen, bulk liquid nitrogen, 
or bulk liquid argon customers to switch distribution methods, as their 
demand is too great to satisfy efficiently with cylinders, but too 
small to justify the expense of on-site or pipeline delivery.
    For atmospheric gases, the ratio of the product's value to its 
transportation costs largely determines the relevant geographic market. 
Due to the relatively low sales prices of bulk liquid oxygen and bulk 
liquid nitrogen and the significant freight costs associated with 
transporting them, these gases can ship, economically, a maximum 
distance of approximately 100 to 250 miles from the ASU that produces 
the gas. Therefore, it is appropriate to analyze the competitive 
effects of the proposed merger in regional geographic markets for bulk 
liquid oxygen and bulk liquid nitrogen. The relevant geographic markets 
in which to analyze the effects of the proposed merger upon bulk liquid 
oxygen and bulk liquid nitrogen are the following regions: (1) The 
Northeast; (2) the Mid-Atlantic; (3) Upstate and Western New York; (4) 
the Carolinas; (5) Northern Florida and Surrounding Areas; (6) Atlanta 
and Surrounding Areas; (7) the Pacific Northwest; (8) Northern 
California; (9) Southern California; (10) Arkansas and Surrounding 
Areas; (11) Northern Texas and Surrounding Areas; (12) Southern Texas; 
(13) the Central Gulf Coast; (14) the Eastern Midwest; (15) Greater 
Chicago; (16) Missouri and Surrounding Areas; and (17) Puerto Rico. 
Because bulk liquid argon is rarer and more expensive than bulk liquid 
oxygen and bulk liquid nitrogen, suppliers can transport it 
economically much greater distances. Therefore, the relevant geographic 
area in which to analyze the effects of the proposed merger on the bulk 
liquid argon market is the United States.
    Each of the relevant markets for bulk liquid oxygen and bulk liquid 
nitrogen would become significantly more concentrated following the 
proposed merger. The proposed merger would consolidate two of the 
leading suppliers of bulk liquid oxygen and bulk liquid nitrogen in 
each of these areas. For bulk liquid argon, there are five significant 
suppliers in the United States. Praxair is the second-largest domestic 
producer of bulk liquid argon. The proposed merger would eliminate one 
of the largest suppliers and substantially increase concentration in 
the U.S. bulk liquid argon market, creating a highly concentrated 
market.

V. The Relevant Markets for Bulk Liquid Carbon Dioxide

    Carbon dioxide is a ``process gas,'' which means that it is 
captured as a by-product of other manufacturing processes, such as 
ethanol, ammonia, and hydrogen. Crude carbon dioxide also derives from 
natural sources, such as natural gas wells. Suppliers convert and 
distill crude carbon dioxide into final liquid form using a cryogenic 
process at plants often located near carbon dioxide gas sources. The 
most common applications for liquid carbon dioxide are in food and 
beverage production. For example, customers commonly use carbon dioxide 
in processes to carbonate beverages and chill or freeze food. For the 
majority of its applications, liquid carbon dioxide has no viable 
substitutes.
    Suppliers deliver liquid carbon dioxide to customers in bulk 
trailers or rail cars. Most customers store liquid carbon dioxide in 
tanks located at their manufacturing facilities. Customers would not 
switch to cylinder delivery because bulk delivery is far cheaper, and 
they would have to manage significantly more deliveries to meet their 
needs. In addition, customers would not consider self-sourcing liquid 
carbon dioxide unless the cost increased significantly more than ten 
percent, because of the costs to build necessary infrastructure and the 
limited sources of carbon dioxide available.
    Due to the significant freight costs associated with transporting 
liquid carbon dioxide relative to its sales price, suppliers can only 
ship liquid carbon dioxide economically up to 250 miles by truck. In 
areas with few or no carbon dioxide sources, liquid carbon dioxide is 
shipped as much as 750 miles by rail. Therefore, it is appropriate to 
analyze the competitive effects of the proposed merger in regional 
geographic markets for bulk liquid carbon dioxide. For bulk liquid 
carbon dioxide, the relevant geographic markets in which to analyze the 
effects of the proposed merger include the following regions: (1)

[[Page 55536]]

Northern California; (2) Southern California; (3) the Southeast; (4) 
the Mid-Atlantic; (5) the Rocky Mountains; (6) the Plains; (7) Southern 
Texas; (8) the Eastern Midwest; and (9) Greater Chicago.
    The proposed merger would combine the largest and third-largest 
suppliers of bulk liquid carbon dioxide in the United States. In each 
relevant geographic market for bulk liquid carbon dioxide, the merged 
firm would control a high share of capacity. Further, Linde and Praxair 
are the two closest suppliers for numerous customers across multiple 
relevant geographic markets, and the merger would eliminate a close 
constraint on pricing of bulk liquid carbon dioxide.

VI. The Relevant Market for Bulk Refined Helium

    Both Linde and Praxair are suppliers of bulk refined helium. Bulk 
refined helium has specific properties that make it uniquely suited for 
its applications. For example, because helium has the lowest boiling 
point of any element, liquid helium is valuable as a cooling agent in 
superconductivity for medical applications, such as magnetic resonance 
imaging (``MRI''), and certain manufacturing applications. For most 
applications, there is no substitute for bulk refined helium, and 
customers are unlikely to switch to another gas or product, even if the 
price of bulk refined helium increased by five to ten percent.
    Suppliers distribute refined helium to customers in cylinder form 
or bulk form, depending on the customers' volume requirements. 
Customers that require large volumes of refined helium generally 
purchase the gas in bulk form. Suppliers often package bulk refined 
helium in containers called ``dewars,'' and then distribute the product 
in liquid form to customers. For customers that require helium in its 
gaseous state, suppliers can convert bulk refined helium from liquid to 
gaseous form. Suppliers distribute bulk quantities of gaseous helium in 
high-pressure ``tube trailers.'' Customers obtain helium in bulk form 
because it is the most cost-effective way to purchase the high volume 
of refined helium that they require. Accordingly, customers would not 
switch distribution methods for their purchases of refined helium, even 
if the prices of bulk refined helium distributed by one method 
increased by five to ten percent.
    Helium is a rare and expensive gas that can be, and is, transported 
economically on a worldwide basis. Capacity and demand for helium 
produced abroad influences the capacity and demand for helium produced 
domestically. Suppliers source helium primarily from a few large 
sources, and ship helium from those sources to customers around the 
world. Therefore, it is appropriate to analyze the competitive effects 
of the proposed merger using a worldwide market for bulk refined 
helium.
    The market for bulk refined helium is highly concentrated. Linde 
and Praxair are two of only five companies in the world with access to 
significant quantities of bulk refined helium. The proposed transaction 
combines the largest and third-largest bulk refined helium suppliers in 
the world. Post-merger, the combined entity would control two-fifths of 
the global helium supply.

VII. The Relevant Market for Bulk Liquid Hydrogen

    Hydrogen is a non-atmospheric gas produced as a by-product of other 
processes, including natural gas extraction and petrochemical 
production. Most crude hydrogen comes from third-party feedstocks. 
Industrial gas suppliers purify and liquefy crude hydrogen before 
distributing it to customers. Customers use liquid hydrogen for a range 
of applications across several industries. For example, liquid hydrogen 
has applications in space programs as a primary rocket fuel and as a 
propellant for nuclear powered rockets and space vehicles, in 
hydrogenation and clean energy storage, and as an active ingredient in 
chemical manufacturing processes.
    Customers that require very large quantities of hydrogen on a 
regular basis typically receive the gas via an on-site plant or 
pipeline. For customers that require a small amount of hydrogen, 
cylinders are most economical. Customers that require more hydrogen 
than can be practicably supplied with cylinders, but not enough volume 
to justify the costs of on-site or pipeline delivery, typically receive 
bulk liquid delivery. For most applications, there are no viable 
economic alternatives to bulk liquid hydrogen. Further, because 
distribution methods depend on volume requirements, customers cannot 
switch to cylinders or on-site distribution if bulk prices were to 
increase.
    The relevant geographic market for bulk liquid hydrogen is 
national. The value of bulk liquid hydrogen relative to the cost of 
transportation is the primary factor in defining the relevant 
geographic market. Liquid hydrogen's high value and limited production 
allows suppliers to transport it over long distances economically and 
more efficiently than hydrogen in bulk gaseous form.
    Linde and Praxair are two of just four main suppliers of bulk 
liquid hydrogen in the United States. The U.S. bulk liquid hydrogen 
market is highly concentrated, and Praxair is the largest producer of 
bulk liquid hydrogen in the United States. The proposed merger would 
remove one of the few bulk liquid hydrogen suppliers from the market.

VIII. The Relevant Market For HyCO

    HyCO is the industry term for the on-site provision of hydrogen and 
carbon monoxide gas. The same chemical process produces both gases, so 
one gas is always the by-product of the other. Plants that produce 
hydrogen and carbon monoxide create a mixture called synthesis gas (or 
``syngas''), which producers separate into its constituent parts using 
a cryogenic process.
    HyCO includes separate product markets for on-site hydrogen and 
carbon monoxide, because the two gases are not substitutes for each 
other. For most applications, there are no viable substitutes for 
hydrogen or carbon monoxide. Likewise, customers cannot substitute bulk 
delivery for on-site supply of hydrogen or carbon monoxide, and so on-
site supply of these gases is a distinct product market, as well.
    There are three main types of HyCO plants: (1) The steam methane 
reformer (``SMR''); (2) the partial oxidation plant (``POX''); and (3) 
the autothermal reformation plant (``ATR''). Each plant type produces 
different proportions of hydrogen and carbon monoxide. SMRs produce the 
highest proportion of hydrogen relative to carbon monoxide. POX and ATR 
plants produce these gases in more equal proportions. For most on-site 
hydrogen customers, suppliers build on-site SMRs; however, for 
customers that need on-site carbon monoxide, suppliers will typically 
construct POX or ATR plants. On-site HyCO customers usually conduct a 
competitive bidding process several years in advance of a plant's 
opening. This bidding process is the source of most competition in the 
HyCO market. The customer and winning bidder typically enter into long-
term contracts that lock-in prices and other terms.
    The majority of HyCO plants in the United States are SMRs built for 
oil and petrochemical companies that only require hydrogen. Carbon 
monoxide customers are few in number, but large in size and gas needs--
most are chemical companies that produce acetic acid, polyurethane, and 
other compounds. HyCO plants are expensive, costing from $30 million to 
over $400

[[Page 55537]]

million, depending on size and type. The industrial gas supplier 
usually absorbs the cost of building the plant, and then yields the 
return from a long-term (fifteen to twenty year) supply contract with 
the customer. HyCO is a critical input for its customers' products, and 
HyCO plants often integrate into customers' production sites. 
Accordingly, HyCO customers require suppliers to have engineering and 
operational expertise, as well as a demonstrated history and reputation 
of successfully operating HyCO plants.
    Relevant geographic markets for on-site hydrogen and carbon 
monoxide are national. HyCO suppliers are generally able to serve 
customers in all areas of the country. The Gulf Coast region is a 
distinct submarket within the broader national markets for on-site 
hydrogen and carbon monoxide, as it has the highest concentration of 
HyCO customers anywhere in the United States. There, hydrogen pipelines 
serve multiple customers from a single HyCO plant or serve as backup. 
Hydrogen pipelines allow HyCO suppliers to offer customers lower prices 
than they could with a dedicated on-site plant at the customer's 
location. Consequently, HyCO suppliers are only competitive in areas of 
the Gulf Coast where they have hydrogen pipeline networks.
    U.S. markets for on-site hydrogen and carbon monoxide are highly 
concentrated. Praxair is a market leader, and Linde represents one of a 
limited number of viable alternative HyCO suppliers. The proposed 
merger would remove one of the few HyCO suppliers from the market.

IX. The Relevant Market for Excimer Laser Gases

    Excimer laser gases are a subset of specialty gases commonly used 
to serve customers in the electronics industry, such as semiconductor 
or liquid crystal display manufacturers. Excimer lasers use gas 
mixtures, typically containing multiple noble gases (e.g., neon, 
krypton, or xenon) and, occasionally, a halogen gas (e.g., fluorine or 
chlorine). Suppliers of excimer laser gases produce or source noble and 
halogen gases worldwide, then purify and blend these gases into 
products that they distribute to customers in cylinders. Neon comprises 
95 to 99 percent of most excimer laser gases, with other rare and 
halogen gases making up the remainder. Neon, krypton, and xenon are 
present in the air in extremely small amounts, and industrial gas 
companies produce them only at very large ASUs with specialized 
equipment to capture these trace gases.
    The semiconductor industry is the main customer base for excimer 
laser gases in the United States. Excimer laser gases generate 
ultraviolet light in excimer lasers, a component of photolithography 
machines. In addition, excimer laser gases have applications in 
annealing processes to produce display screens and for medical 
ablation, a minimally invasive process that cuts human tissue with 
minimal scarring (e.g., LASIK vision surgery).
    The relevant geographic market for excimer laser gases is at least 
as broad as the United States. U.S. suppliers ship excimer laser gases 
to customer sites around the country and the world. Suppliers source 
excimer laser gas inputs, such as neon, domestically and 
internationally. Although international customers may not distinguish 
between excimer laser gases produced domestically or abroad, U.S. 
excimer laser gas customers prefer suppliers that have domestic 
production facilities and sources of neon.
    Before supplying excimer laser gases to customers, suppliers must 
complete qualification processes with both laser manufacturers and 
individual customers to ensure that their excimer laser gases meet 
purity, quality, and other specifications. Each qualification takes 
three to eighteen months, and costs at least $125,000. Customers cannot 
switch from excimer laser gases to another product because there is no 
substitute that produces the same wavelength of light, and switching to 
another supplier often requires additional qualifications, resources, 
and time.
    The market for excimer laser gases in the United States is highly 
concentrated. Linde and Praxair have a combined share of approximately 
70 percent in this market, and the proposed merger would reduce the 
number of domestic suppliers from four to three.

X. Effects of the Acquisition

    The proposed merger would eliminate direct and substantial 
competition between Praxair and Linde in each of the relevant markets, 
provide the merged firm with an enhanced ability to increase prices 
unilaterally, and eliminate a competitor for gas customers in markets 
where alternative sources of supply are limited. The proposed merger, 
therefore, likely would allow the merged firm to exercise market power 
unilaterally, increasing the likelihood that purchasers of bulk liquid 
oxygen, bulk liquid nitrogen, bulk liquid argon, bulk liquid carbon 
dioxide, bulk liquid hydrogen, bulk refined helium, on-site hydrogen, 
on-site carbon monoxide, and excimer laser gases would pay higher 
prices in the relevant areas.
    The proposed merger would also enhance the likelihood of collusion 
or coordinated action among remaining firms in these relevant markets, 
because the merger would eliminate a significant competitor from each 
market, leaving a small number of viable competitors. In addition, 
certain market conditions, such as the relative homogeneity of 
suppliers and products, and the transparency of detailed market 
information, are conducive to coordination among competing suppliers. 
These conditions also enhance the ability of competitors engaged in a 
coordinated scheme to detect and punish deviations from the scheme.

XI. Entry

    New entry into the relevant markets would not occur in a timely 
manner sufficient to deter or counteract the likely adverse competitive 
effects of the proposed merger. Entry into the bulk liquid oxygen, 
nitrogen, and argon markets is costly, difficult, and unlikely because 
of, among other things, the time and cost required to construct the 
ASUs that produce these products. Constructing an ASU at a scale 
sufficient to be viable in the market would cost at least $30 to $100 
million, most of which are sunk costs. Moreover, it is not economically 
justifiable to build an ASU unless a significant amount of the plant's 
capacity has been pre-sold prior to construction, either to an on-site 
customer or to customers with commitments under contract. Such pre-sale 
opportunities occur infrequently and unpredictably and can take several 
years to secure.
    Entry into the bulk liquid carbon dioxide market would also not be 
timely, likely, or sufficient to deter or counteract the adverse 
competitive effects of the proposed merger. Constructing a plant 
capable of producing bulk liquid carbon dioxide would cost at least $5 
to $30 million. In addition, successful entry into the bulk liquid 
carbon dioxide market requires access to raw carbon dioxide supply 
sources, which are typically unavailable due to long-term contracts 
with incumbent liquid carbon dioxide suppliers.
    New entry into the bulk liquid hydrogen market is unlikely to be 
timely or sufficient to counteract the proposed transaction's likely 
anticompetitive effects. Liquid hydrogen production facilities require 
years to construct and considerable capital to finance. Further, 
customers require liquid hydrogen suppliers to have backup supply and 
be

[[Page 55538]]

able to deliver product to their sites. A firm is more likely to 
succeed if it has a portfolio of diversified liquid hydrogen sources, 
as well as a reliable distribution network, which would require 
substantial time, resources, and investments to obtain.
    Timely, sufficient entry into the bulk refined helium market is 
extremely unlikely, if not impossible. The most significant impediment 
to entry is securing a source of refined helium. A new entrant would 
need to secure multiple sources of refined helium, acquire necessary 
transportation and storage equipment, and establish a distribution 
infrastructure. Market incumbents secure all available sources of 
refined helium in long-term contracts. A new entrant would need to 
locate a new source of crude helium and build a refinery. In addition, 
an entrant would need to invest tens of millions of dollars to acquire 
necessary infrastructure and distribution assets, including transfills, 
cryogenic storage trailers, high-pressure tube trailers, and liquid 
dewars capable of transporting helium from the refinery to customers. 
Given the substantial costs and challenges of entering the bulk refined 
helium market, new entry sufficient to counteract the competitive 
effects of the proposed merger would not occur in a timely manner.
    Entry into the HyCO market requires engineering expertise, 
experience in designing and operating the various types of HyCO plants, 
significant capital resources, and a proven record of success with HyCO 
customers. It would take several years and substantial investments for 
a new entrant to develop the expertise, experience, reputation, and 
credibility necessary to compete in the HyCO market. A new HyCO 
facility costs $30 to $300 million, depending on the plant size and 
product mix. Further, in the Gulf Coast, a hydrogen pipeline is an 
added barrier to enter the HyCO market. Existing pipelines are scarce 
in this region, and building a new pipeline requires substantial time 
and resources that few firms have. Finally, opportunities to compete 
for new or existing HyCO customers are limited, as HyCO supply 
contracts are long-term, and customers invariably award contracts to 
proven suppliers.
    New entry sufficient to deter or avert the proposed merger's 
anticompetitive effects in the market for excimer laser gases is 
unlikely to occur. The principal barrier to new entry is sourcing neon, 
which accounts for just 0.0018 percent of the Earth's atmosphere. 
Suppliers can produce neon efficiently only at the largest ASUs, which 
must have a neon gas column. Such an ASU would take several years and 
cost hundreds of million dollars to construct. In addition, an entrant 
would have to produce or otherwise secure other input gases, as well as 
supply, logistics, and distribution infrastructure and employees. An 
entrant would also have to construct a facility to blend excimer laser 
gases. Finally, an entrant would have to qualify its products with 
laser manufacturers and customers, which involves testing gas blends at 
a customer plants. The costs of entry would be difficult to justify, as 
the total U.S. excimer laser gas market is only around $40 million.

XII. The Consent Agreement

    The proposed Consent Agreement aims to eliminate the competitive 
concerns that the proposed merger raises in each relevant market. It 
requires Linde to divest to Messer all thirty-two of its U.S. ASUs, 
along with related equipment, supply contracts, technology, and 
goodwill, in the seventeen bulk liquid oxygen and nitrogen markets at 
issue in this matter. With the divestitures, the merger will not 
increase concentration in any market for bulk liquid nitrogen, oxygen, 
or argon. As part of the divestiture, Messer will acquire all of 
Linde's customer contracts and bulk tanks located at the customer 
locations.
    The proposed Consent Agreement also requires Linde to divest to 
Messer sixteen carbon dioxide facilities, including production plants 
and all associated rail depots. Linde will divest all existing 
contracts with customers supplied by the respective carbon dioxide 
facilities. Additionally, all assets used to support the distribution 
of bulk liquid carbon dioxide will be part of the divestiture, 
including trailers, tractors, and rail cars.
    Linde must also divest to Messer its entire bulk liquid hydrogen 
business, which includes Linde's liquid hydrogen production facility in 
Magog, Quebec, source agreements, and four hydrogen transfills. Linde 
will divest all assets related to the bulk liquid hydrogen business 
including, among other things, employee contracts and information, 
customer and supply contracts, leases, distribution trailers, and 
equipment necessary to distribute bulk liquid hydrogen.
    The proposed Consent Agreement requires Linde to divest to Messer 
all of Linde's U.S. bulk refined helium business, as well as global 
helium sourcing contracts, which, when combined with divestitures in 
other jurisdictions, are equal to Praxair's current worldwide helium 
capacity. In addition, Linde will divest its entire network of helium 
transfills across the United States. All of Linde's helium customer 
contracts in the United States, Canada, Brazil, Colombia, and Chile are 
included in the divestiture. The proposed Consent Agreement also 
provides Messer with the requisite number of dewars, tube trailers, and 
helium ISO containers to serve its helium customers worldwide.
    The proposed Consent Agreement also requires Linde to divest to 
Matheson five on-site hydrogen SMRs to Matheson, along with Linde's 
hydrogen pipeline in the Gulf Coast and all relevant customer 
contracts. The proposed divestiture includes Linde's SMR facilities in 
Anacortes, Washington; Lemont, Illinois; Lima, Ohio; McIntosh, Alabama; 
and Saraland, Alabama. The SMR assets also include Linde's Remote 
Operating Center in La Porte, Texas, the ``control center'' for Linde's 
on-site hydrogen business. In addition, Linde will divest its POX 
plants in Clear Lake, Texas, and La Porte, Texas, back to their 
customers, Celanese and LyondellBasell, respectively. This divestiture 
will resolve the competitive issues that these customers would 
otherwise face post-merger, as they will be able operate the facilities 
themselves or contract with one of the firms with a nearby hydrogen 
pipeline.
    To address competitive concerns in the market for excimer laser 
gases, the proposed Consent Agreement also requires Linde to divest to 
Messer all of Linde's customer contracts, intellectual property, and 
key Linde staff to sustain business operations and customer 
relationships. Neon-producing ASUs will also be included in the asset 
package. To ensure a seamless transfer, Linde has agreed to supply its 
finished excimer laser gas products to Messer for a period of three 
years (with possible extensions of time). This supply agreement will 
give Messer sufficient time to construct or renovate a facility and 
obtain OEM and customer certification. The proposed Decision and Order 
also requires Linde to underwrite the cost of building Messer's new 
facility. If Messer does not commence construction of the plant within 
one year, then Linde must rescind its sale of the excimer laser gas 
business to Messer and divest it to a Commission-approved acquirer.
    Linde and Praxair have agreed to divest the required facilities, 
together with all related equipment, customer and supply contracts, 
technology, and goodwill, to one or more Commission-approved buyers 
within four months of consummating the proposed merger. All acquirers 
of divested assets must receive

[[Page 55539]]

the prior approval of the Commission. The Commission's goal in 
evaluating possible purchasers of divested assets is to maintain the 
competitive environment that existed prior to the acquisition.
    The proposed Consent Agreement incorporates an Order to Hold 
Separate and Maintain Assets (``Order to Hold Separate'') to ensure 
that Linde and Praxair (1) continue to operate separately until the 
divestitures to Messer and Matheson have been completed and (2) 
continue to maintain all assets until the required divestitures have 
been completed. The Order to Hold Separate appoints Grant Thornton LLP 
as monitor to oversee compliance with all the obligations and 
responsibilities under the proposed Decision and Order and requires 
Linde to execute an agreement conferring upon the monitor all of the 
rights, powers, and authorities necessary to permit the monitor to 
ensure the continued health and competitiveness of the divested 
businesses. Further, if the parties fail to divest the assets as 
required within the time specified, the Commission may appoint a 
divestiture trustee to divest the assets in a manner consistent with 
the proposed Decision and Order and subject to Commission approval.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and it is not intended to constitute an 
official interpretation of the proposed Consent Agreement or to modify 
its terms in any way.

    By direction of the Commission, Commissioner Chopra dissenting.
Donald S. Clark,
Secretary.

Statement of Commissioner Rohit Chopra

    Today, the FTC is proposing to impose conditions on a merger 
between Praxair, Inc. (NYSE: PX) and Linde AG (FWB: LIN), the world's 
second- and third-largest industrial gas suppliers. While these firms 
may not be household names, they provide inputs to an enormous number 
of industrial and consumer products throughout our economy. The merger 
would be clearly anticompetitive in violation of the Clayton Act, with 
a high likelihood of harming manufacturers of a wide range of 
industrial and consumer products.
    The Commission is proposing to order substantial divestitures 
across multiple lines of businesses. Notably, Linde is divesting the 
vast majority of its U.S. industrial gas business to a joint venture 
between Messer Group GmbH and CVC Capital Partners, a private equity 
firm. Separately, Linde will also divest other assets to Matheson Tri-
Gas, Inc. While the divestitures go a long way to address the 
anticompetitive concerns, the decision to approve this remedy was still 
a close call.
    The transaction, as originally structured, does not appear to have 
any significant merger-specific efficiencies that would guarantee 
benefits to customers. However, the proposed order requires substantial 
divestitures that might preserve or even increase competition in some 
product markets. But even with the proposed remedies, this transaction 
is not without risks to competition. In particular, I would have 
preferred to include additional protections for the public to safeguard 
against risks often posed by the private equity buyer interest in the 
divested assets, as well as the level of debt financing and investment 
horizons involved.

Divestiture Buyer Financing

    Competition enforcers, including the FTC, should always examine 
whether its merger remedies have been successful over the long term. 
The FTC's 2017 Merger Remedies study highlighted some of the lessons 
learned from past merger remedies.\1\
---------------------------------------------------------------------------

    \1\ See The FTC's Merger Remedies 2006-2012, A Report of the 
Bureaus of Competition and Economics, Federal Trade Commission, 
January 2017, available at: https://www.ftc.gov/reports/ftcs-merger-remedies-2006-2012-report-bureaus-competition-economics.
---------------------------------------------------------------------------

    When evaluating the suitability of a divestiture buyer, agencies 
must determine whether the buyer can meaningfully replace competitive 
market forces eliminated by a merger. For example, agencies need to be 
confident that the buyer possesses the know-how and technical 
capabilities to successfully operate the divested businesses. Among 
other things, the 2017 study found that the success of a divestiture 
over time depends, in part, on whether the buyer has adequate financing 
to ensure success. Given recent trends in our capital markets, we need 
to carefully scrutinize buyer financing.
    In situations like the matter before us, I approached this line of 
inquiry with several questions in mind:
    (1) Does the deal's financing structure allow the buyer to make 
significant investments to maintain and grow their business in order to 
vigorously compete? Does the buyer have adequate liquidity to be a 
nimble and opportunistic competitor?
    (2) What is the buyer's level of debt financing, compared to others 
in the industry? Have creditors protected themselves in ways that are 
aligned--or misaligned--with the goal of preserving competition?
    (3) Does the buyer's financing and governance structure create 
temptations to make asset sales that would reduce competition?
    As noted above, in this matter one of the divestiture buyers, MG 
Industries, is a new joint venture between Messer Group GmbH, a major 
industrial gas company, and CVC Capital Partners, a private equity 
firm.
    In this situation, I would have preferred terms in the proposed 
order that would have required prior notice to or approval by the 
Commission of any asset sales by MG Industries. There is past 
Commission precedent for doing so. In situations where there was a risk 
that the divestiture buyer may subsequently sell assets it acquired 
pursuant to a divestiture order, the Commission has sometimes ordered 
the divestiture buyer to agree to a prior approval provision covering 
any sale of the assets acquired for a defined period of time.
    For example, in the Koninklijke Ahold and Delhaize Group matter, 
due to concern that one of the divestiture buyers (Supervalu) might 
later transact acquired stores, the Commission required Supervalu to 
seek prior approval for any such transfer of the divested stores for a 
period of three years.\2\
---------------------------------------------------------------------------

    \2\ In the Matter of Koninklijke Ahold and Delhaize Group, C-
4588 (Consent) (July 22, 2016), available at: https://www.ftc.gov/enforcement/cases-proceedings/151-0175/koninklijke-ahold-delhaize-group.
---------------------------------------------------------------------------

    In the Nestle Holdings, Inc. and Ralston Purina Co. matter, the 
Commission required the divestiture buyer (a private equity fund) to 
seek approval by the Commission prior to the sale of certain assets 
held less than five years.\3\ The buyer would later seek permission 
from the Commission to sell assets, reducing the likelihood of needing 
to litigate an anticompetitive transaction.
---------------------------------------------------------------------------

    \3\ In the Matter of Nestle Holdings, Inc., and Ralston Purina 
Company, C-4028 (Consent) (December 11, 2001), available at: https://www.ftc.gov/enforcement/cases-proceedings/0110083/nestle-holdings-inc-ralston-purina-company.
---------------------------------------------------------------------------

Special Considerations With Financial Buyers

    Private equity funds continue to play a greater role in deal 
activity across the globe. Notably, private equity participation is 
associated with higher levels of debt financing, which can amplify both 
risk and returns on equity. At the most basic level, heavy debt

[[Page 55540]]

burdens can increase the likelihood of insolvency. Private equity 
participation is also associated with other firm behavior that can 
reduce long-term competition, including opportunistic asset sales. This 
risk may be more acute when funds purchase assets in unusual and 
distressed situations.
    Enforcers must carefully examine investors' unique incentives that 
can drive firm behavior in ways that affect competition. To assess 
these incentives, we must always actively probe the entire 
circumstances of investor involvement in a merger transaction under 
review. For example, what is the buyer's investment thesis and 
strategy? How has the investor typically realized gains out of past 
investments? Does the buyer plan to invest more of its own equity 
capital into the business or simply further rely on debt financing? 
When and how does the investor intend to exit its investment? Given all 
of this, what really is the long-term impact on competition?
    While Commission staff certainly ask many of these questions in 
their review of divestiture buyers, it will be important to ensure that 
we are conducting careful and adequate due diligence with respect to 
buyers that are heavily reliant on debt financing and where investment 
firms exert significant control.
[FR Doc. 2018-24206 Filed 11-5-18; 8:45 am]
 BILLING CODE 6750-01-P