[Federal Register Volume 84, Number 146 (Tuesday, July 30, 2019)]
[Notices]
[Pages 36923-36926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16152]


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FEDERAL TRADE COMMISSION

[File No. 171 0125]


Quaker Chemical Corporation and Global Houghton Ltd.; Analysis of 
Agreement Containing Consent Orders To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement; Request for Comment.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair methods of competition. 
The attached Analysis of Agreement Containing Consent Orders 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 August 29, 2019.

ADDRESSES: Interested parties may file comments online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write: ``Quaker Chemical 
Corporation and Global Houghton Ltd.; File No. 171 0125'' on your 
comment, and file your comment online at https://www.regulations.gov by 
following the instructions on the web-based form. If you prefer to file 
your comment on paper, 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: Terry Thomas (202-326-3218), Bureau of 
Competition, Federal Trade Commission, 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 July 23, 2019), on 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 August 29, 2019. 
Write ``Quaker Chemical Corporation and Global Houghton Ltd.; File No. 
171 0125'' 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 https://www.regulations.gov website.
    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 through the https://www.regulations.gov website.
    If you prefer to file your comment on paper, write ``Quaker 
Chemical Corporation and Global Houghton Ltd.; File No. 171 0125'' 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 
website at https://www.regulations.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

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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 August 29, 2019. 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 Agreement Containing Consent Orders To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment, subject to final approval, an Agreement Containing 
Consent Orders (``Consent Agreement'') from Quaker Chemical Corporation 
(``Quaker''), Global Houghton LTD. (``Houghton''), Gulf Houghton 
Lubricants LTD., and AMAS Holding SPF (collectively, the 
``Respondents''). The Consent Agreement would remedy the 
anticompetitive effects that likely would result from Quaker's proposed 
acquisition of Houghton (``Transaction'').
    Absent a remedy, the Transaction would threaten to harm competition 
in the manufacture and sale of: (1) Aluminum hot rolling oils 
(``AHRO'') and associated technical support in North America; and (2) 
steel cold rolling oils (``SCRO'') and associated technical support in 
North America. In particular, the Commission's Complaint alleges that 
the Transaction, if consummated, would violate Section 7 of the Clayton 
Act, as amended, 15 U.S.C. 18, and that the asset purchase agreement 
constitutes a violation of Section 5 of the Federal Trade Commission 
Act, as amended, 15 U.S.C. 45, by substantially lessening competition 
in the manufacture and sale of AHRO and SCRO in an area no greater than 
North America.
    The Consent Agreement addresses the Commission's concerns by, among 
other things, requiring Quaker to divest Houghton's North American AHRO 
and SCRO product lines to Total S.A. (``Total''), a multination oil and 
gas company headquartered in France. Quaker must also divest the 
intellectual property associated with Houghton's AHRO and SCRO, and 
adjacent products including steel cleaners and AHRO compatible 
hydraulic fluids.
    The Commission has placed the proposed Consent Agreement on the 
public record for 30 days to solicit comments from interested persons. 
Comments received during this period will become part of the public 
record. After 30 days, the Commission will again review the proposed 
Consent Agreement and any comments received, and will decide whether it 
should withdraw from the Consent Agreement, modify it, or make it 
final.

II. The Respondents

    Respondent Quaker, a publicly traded company, is a global supplier 
of specialty process chemicals, lubricants, greases, and other metal 
processing products. Headquartered in Conshohocken, Pennsylvania, 
Quaker's 2018 revenues were $868 million.
    Respondent Houghton is a global supplier of advanced metalworking 
fluids and services. It serves the automotive, aerospace, metals, 
mining, machinery, and beverage industries. Houghton is headquartered 
in Valley Forge, Pennsylvania.

III. The Proposed Acquisition

    The Commission's Complaint alleges that a relevant product market 
in which to analyze the Transaction is the manufacture and sale of AHRO 
and associated technical support services. AHRO is a mixture of water, 
oil, and additives, custom-formulated to lubricate each individual 
rolling mill. AHRO is necessary to allow manufacturers to operate hot 
rolling mills for aluminum sheet production. There is no substitute 
product for AHRO; lubricants for rolling other metals or for other 
rolling processes will not work for aluminum hot rolling.
    The associated technical support services are appropriately 
included in this product market, as AHRO suppliers provide these 
services as an integral component of the physical product. There is no 
separate charge for these services. Technical support services begin 
with the formulation of the oil and continue throughout the life of the 
supply relationship, including necessary modifications to the 
formulation and contamination monitoring in both the trial phase and 
during active production. Technical support services from the AHRO 
supplier are essential to the ongoing performance of the mill, and 
there is no substitute for these services as provided in conjunction 
with AHRO.
    The Commission's Complaint also alleges that an area no greater 
than North America is a relevant geographic market in which to analyze 
the effects of the Transaction. U.S. AHRO customers do not obtain 
supply from outside North America. Rolling oil suppliers typically 
supply their customers by truck and station technical support personnel 
at or near their customers' mills to ensure timely supply and rapid 
service. At the mill, customers blend the oil with the mill's own water 
supply to create the final emulsion. Given the large volumes of rolling 
oil required to run a mill, and the need for timely re-supply, shipping 
AHRO from outside North America would be cost- and supply-prohibitive.
    The relevant market for AHRO and associated technical support 
services in North America is highly concentrated. Quaker and Houghton 
are the only two companies that commercially supply AHRO in North 
America. Thus, post-transaction, Quaker will be the monopoly AHRO 
supply option for third parties in North America.
    Timely, sufficient entry is unlikely to alleviate any potential 
competitive harm in the market for AHRO and associated technical 
support services. Consistent with the Commission's allegations in the 
2010 AEA Investors/Houghton (``Houghton/D.A. Stuart'') complaint 
(Docket No. C-4297), entry is difficult in this market. Formulating 
AHRO and providing technical support services require specialized 
knowledge that is not widely available. Even the few AHRO customers 
with in-house supply capabilities are unable to supply fully their own 
mills given the shortage of qualified scientists to develop and real-
time modify rolling oil formulations and support their use in mill 
operations. Large, well-established customers of AHRO are unaware of 
potential entrants that could enter the market and supply AHRO.
    Customer acceptance is also a significant entry barrier. Customers 
are reluctant to switch AHRO suppliers because AHRO is so critical to 
aluminum sheet rolling. Aluminum manufacturers place great weight on 
the AHRO suppliers' experience and reputation. They likely would be 
unwilling to chance a supplier that lacks the parties' established 
reputations and decades of experience given the risk of catastrophic 
effects should the supplier's product or support capabilities fall 
short. There are significant time commitments and costs associated with 
switching to a new AHRO supplier. Given that AHRO is a relatively small 
cost component in the production of aluminum coil, it is unlikely that 
a small significant sustained price increase would justify a

[[Page 36925]]

lengthy trial process for a new entrant without a proven track record.
    The Commission's Complaint also alleges that a relevant product 
market in which to analyze the Transaction is the manufacture and sale 
of SCRO and associated technical support. SCRO includes sheet cold 
rolling oils, pickle oils, and tin plate rolling oils (``TPRO''). Steel 
manufacturers use SCRO to reduce friction and prevent metal-to-metal 
contact between surfaces of the mill's rollers and the steel during the 
cold rolling process for steel sheet of any width or gauge, for any 
further processing (e.g., tinplating or coating with another substance, 
e.g., zinc, aluminum, or paint), and for any end-use (e.g., can bodies, 
can ends, and other closures for food and beverages, household 
appliances, such as washers and dryers, automobile or truck parts, or 
building and construction products). Like other rolling oils, SCRO is a 
mixture of water, oil, and additives for lubrication and corrosion 
protection. SCRO producers customize the product for each individual 
rolling mill, and there are no substitutes for SCRO. Lubricants 
designed for other mills, metals, or rolling processes could damage 
mill equipment and render the processed steel unusable.
    As with AHRO, SCRO suppliers provide essential technical support 
services as part of the supply of the lubricant (i.e., without a 
separate charge). The provision of these technical services is an 
essential component of the SCRO supply relationship.
    As with AHRO, North America is the relevant geographic market for 
SCRO. Staff's investigation did not reveal evidence that any mill in 
the United States received SCRO products and services from suppliers 
outside North America.
    Steel manufacturers in the United States primarily use SCRO made 
with animal fat in their mills. Because animal fat will congeal under 
typical tanker truck conditions, SCRO suppliers must deliver it via 
heated tanker trucks. This heating requirement adds to transportation 
costs, making imports of animal fat-based SCRO cost-prohibitive.
    The animal fat-based composition of SCRO used in the United States 
also limits customers' choices for supply. Steel mills in the United 
States typically are older and have relatively smaller tanks that 
require frequent drainage. As a result, it is not economical for U.S. 
steel mills to use vegetable oil based (commonly referred to as 
synthetic oil) that is more advanced but higher cost. European steel 
mills, which are generally newer and have larger tanks, use this 
synthetic SCRO. Given the greater cost of synthetic SCRO and the costs 
of shipping, U.S. steel manufacturers are unlikely to turn to overseas 
SCRO suppliers in response to a small significant sustained price 
increase.
    As in the market for AHRO, Quaker and Houghton are the two dominant 
suppliers of SCRO and associated technical support services in North 
America. Although fringe competitors participate in this market, to the 
extent that customers need both SCRO and related support and technical 
services combined, the merger may present as an effective merger-to-
monopoly.

IV. Effects of the Transaction

    The proposed transaction would be a merger to monopoly in the 
market for AHRO and associated technical support services. Staff's 
investigation has revealed no evidence to suggest that the likely 
competitive effects of this combination are meaningfully different from 
those of the Houghton/D.A. Stuart transaction remedied by the 
Commission in 2010. In addition, customers worry that the proposed 
transaction would consolidate all AHRO technical expertise within one 
company. Today, Quaker and Houghton compete on their technical support 
service capabilities, including their availability, responsiveness, and 
expertise in anticipating, preventing, diagnosing, and addressing 
problems related to their lubricants in order to ensure smooth 
operations and high quality aluminum sheet. The parties' support 
service technicians must thoroughly understand the design of each mill, 
the products made there, and the interaction between the rolling oil, 
substrate, and rollers. When problems arise today, they create an 
opportunity for a competitor to challenge the incumbent supplier as the 
customer seeks a solution and/or a superior product as quickly as 
possible to get operations back on track. Post-merger, customers will 
have only one support team--Quaker's--to turn to in the event of 
operational issues, and will lose the advantage of a possible switch to 
encourage investment in troubleshooting.
    The Transaction presents similar concerns for customers of SCRO and 
associated technical support services. Notwithstanding the presence of 
a few fringe suppliers, SCRO customers fear that the deal may result in 
higher prices, lower service levels, reduced innovation, and supply 
availability challenges. Like AHRO customers, SCRO customers face 
meaningful barriers to switching suppliers, including lengthy trial 
periods, downtime, and long waits for customer approval.
    Quaker and Houghton also compete on the quality of their technical 
support services and expertise. Customers rely on their SCRO suppliers 
to troubleshoot and address operational issues as they arise. When the 
incumbent supplier cannot resolve problems to the customer's 
satisfaction, the customer may turn to a competing supplier to propose 
an alternative solution. Post-merger, Quaker will no longer face 
Houghton as a competitive threat to keep its service levels sharp; 
competition from fringe SCRO suppliers may not be sufficient to protect 
customers.
    Customers have also raised concerns that the proposed merger would 
eliminate their only SCRO alternative in the event of supply challenges 
or emergencies. If a supply disruption occurs, SCRO customers must 
either turn to an alternative supplier or idle their mills at great 
expense. Steel manufacturers take comfort in the availability of 
multiple potential SCRO suppliers to ensure that they can access this 
essential input in times of shortages. The proposed transaction would 
eliminate the most promising alternative supply option for SCRO 
customers, and may deprive them of any viable alternative at all.
    A prospective entrant into the SCRO market faces similar barriers 
to those that render entry unlikely for AHRO, including technical 
expertise and reputational hurdles. Entry is difficult even for a 
supplier that operates in other fluid-based markets.

V. The Proposed Consent Agreement

    The proposed order requires a divestiture to Total. Total's 
business includes oil and gas exploration, refining, and marketing as 
well as chemical manufacturing. Total had annual revenues in 2018 of 
approximately $210 billion. The divestiture to Total would replicate 
Houghton's competitive presence in the AHRO and SCRO markets in North 
America by creating a viable, effective, and independent competitor. 
The order requires Quaker to divest certain products, transfer key 
employees, and provide transition services and toll manufacturing. The 
term of the proposed order is ten years. The order also requires Quaker 
to supply the divested products to Total for a transitional period 
while transferring the manufacturing technology to Total.
    To remedy harm in the market for AHRO, Quaker will divest to Total: 
(1) Houghton's formulations, intellectual property, including patent 
for non-oleic

[[Page 36926]]

acid formula, trade secrets, including know-how for its AHRO; (2) 
customer contracts for North America; (3) key Houghton employees that 
are responsible for the commercial and technical aspects of the AHRO 
business; and (4) adjacent products including fire resistant hydraulic 
fluids.
    To remedy harm in the market for SCRO, which includes sheet cold 
rolling oil, TPRO, and pickle oil, Quaker will divest to Total: (1) 
Houghton's formulations, trade secrets and intellectual property, 
including know-how for sheet cold rolling oils, TPRO, and pickle oil; 
(2) customer contracts for North America; (3) key Houghton employees 
that are responsible for the commercial and technical aspects of the 
SCRO business; and (4) SCRO and TPRO cleaners.

    By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2019-16152 Filed 7-29-19; 8:45 am]
 BILLING CODE 6750-01-P