Markets Wired

The Federal Trade Commission today issued a complaint charging that Carlyle Partners IV, L.P.’s (Carlyle) proposed acquisition of the world-wide sodium silicate and silicas business of INEOS Group Limited (INEOS) would be anticompetitive and in violation of the antitrust laws. Carlyle owns PQ Corporation (PQ), and the transaction as proposed would therefore combine PQ – the largest sodium silicate producer and seller in the highly concentrated Midwest region of the United States – with INEOS, its third-largest competitor.

To remedy the alleged anticompetitive effects of the transaction, the companies have entered into a consent agreement with the Commission that requires them to sell PQ’s sodium silicate plant and businesses in Utica, Illinois, to an FTC-approved buyer. The order also requires the companies to license all of the intellectual property related to sodium silicate product at the Utica plant.

“The consent agreement underscores that even when the to-be-acquired firm is relatively small, the Commission has concerns when the market is highly concentrated and characterized by an absence of strong competition,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition.

The Relevant Product Market

Both PQ and INEOS participate in the sodium silicate market world-wide, and PQ is the largest sodium silicate producer in the United States. Sodium silicate has a variety of direct uses and also is used in the production of downstream silicate derivatives, also known as silicas. It is typically sold in an aqueous solution that is 65 percent water; sodium silicate markets exhibit strong regional characteristics because of high transportation costs relative to the value of the product. Because there are no close chemical substitutes for sodium silicate, the FTC contends that other products do not constrain its pricing.

The Commission’s Complaint

According to the Commission’s complaint, the proposed acquisition would be anticompetitive and violate Section 5 of the FTC Act and Section 7 of the Clayton Act as amended, in that it would combine the largest firm in the Midwest U.S. sodium silicate market, PQ, with the third-largest firm in that market, INEOS. Currently PQ has 50 percent of the market and INEOS has 12 percent of the market. The FTC contends that in addition to reducing direct competition between the two companies, the proposed acquisition could lead to coordination among competing firms in the sodium silicate market.

The Midwest market for sodium silicate already is conducive to such coordination due to several structural features, including the facts that sodium silicate is a homogenous product, pricing information is readily available, and competitors recognize that the market is essentially a duopoly in which the top two firms, PQ and Occidental, operate interdependently. Based on concentration levels and competitive concerns, the complaint states that the acquisition could make coordinated interaction between the competing firms more likely, leading to higher prices for sodium silicate. Finally, the complaint alleges that entry into the relevant market would not be timely, likely, or sufficient to deter the acquisition’s anticompetitive impacts.

Terms of the Consent Order

The Commission’s consent order is designed to remedy the alleged anticompetitive effects of the acquisition. The order requires Carlyle to divest PQ’s sodium silicate plant in Utica, Illinois, to Oak Hill Acquisition Company, LLC (Oak Hill), or another FTC-approved buyer if Oak Hill is later found to be an unacceptable acquirer, within five days of acquiring INEOS. Oak Hill is a new firm created for the purpose of acquiring the Utica plant. However, its principal owner has been involved in many industrial investments over the past 25 years in the chemical, software, telecom, construction, real estate, and energy areas.

The consent order contains several other terms to ensure that the sale of the Utica plant to Oak Hill is successful and that competition continues within the market. For example, in addition to allowing the Commission to require Carlyle to find another buyer if Oak Hill is found to be unacceptable, it requires Carlyle and INEOS to make available to any buyer the necessary personnel, assistance, and training to enable it to successfully operate the Utica plant for two years after its sale.

In addition, the companies must enter into an employee services agreement covering certain union employees at the Utica plant to ensure that they can keep their jobs after the sale. Next, the order allows the FTC to appoint an interim monitor to ensure that the companies comply with their obligations following the divestiture, as well as a divestiture trustee if PQ fails to comply fully with the terms of the order. Finally, the order requires the companies to notify the FTC of any change in their corporate structures that may affect compliance with its terms. The order will expire in 10 years.

The Commission vote to accept the complaint and proposed consent order was 4-0. The FTC will publish an announcement regarding the agreement in the Federal Register shortly.

The agreement will be subject to public comment for 30 days, beginning today and continuing through July 29, 2008, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions. Comments also can be filed electronically using the Commission’s Web site.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the Commission’s complaint, consent order, and analysis to aid public comment are available from the FTC’s web site at http://www.ftc.gov and the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(INEOS.final)
(FTC File No. 071-0203)