Markets Wired

Two of the largest suppliers of gases, American Air Liquide Holdings, Inc. and Airgas, Inc., have agreed to divest certain production and distribution assets to settle Federal Trade Commission charges that their proposed $13.4 billion merger likely would have harmed competition and led to higher prices in several U.S. and regional markets.

The companies will sell assets used to produce and supply seven types of industrial gas: bulk oxygen, bulk nitrogen, bulk argon, bulk nitrous oxide, bulk liquid carbon dioxide, dry ice, and packaged welding gases sold in retail stores. These gases are used in a number of industries, including oil and gas, steelmaking, health care, and food manufacturing, according to the complaint. For example, nitrous oxide, commonly known as “laughing gas,” is mainly used by dentists as an analgesic or sedative. Liquid carbon dioxide is used in food and beverage production, and its solid form, dry ice, has many applications, including shipping of frozen food and medical supplies, cooling of materials during production, and industrial blast cleaning.

According to the complaint, the proposed acquisition would eliminate direct competition between the two companies in certain markets that are already concentrated, increasing the likelihood that Air Liquide could unilaterally exercise market power. The proposed acquisition would also make it more likely that remaining competitors, if any, could collude or coordinate their actions.

It also is unlikely that new competitors would be able to enter the affected markets quickly enough or sufficiently to counteract the adverse effects of the acquisition, according to the FTC’s complaint. Among other factors, it costs millions of dollars to build facilities to produce dry ice, and bulk supplies of oxygen, nitrogen, argon, nitrous oxide, and liquid carbon dioxide. In the market for retail packaged welding gases, new competitors would need to make significant investments in infrastructure to distribute packaged welding gases to customers. These investments are unlikely to be justified by the available sales opportunities. As a result, customers would likely pay higher prices for these industrial gases in the relevant markets.

The complaint alleges that the acquisition would be anticompetitive in the following regional and nationwide markets:

• Bulk oxygen and bulk nitrogen in the Northeast; the Mid-Atlantic; the Southeast; Atlanta and surrounding areas; Arkansas and surrounding areas; Oklahoma and surrounding areas; Western Kentucky and surrounding areas; Chicago, Milwaukee, and surrounding areas; Western Ohio and surrounding areas; and Pittsburgh, Cleveland, and surrounding areas;
• Bulk argon in the United States;
• Bulk nitrous oxide in the United States and Canada;
• Bulk liquid carbon dioxide in Indiana, Kentucky, and surrounding areas;

Mississippi and surrounding areas; and the Texas Panhandle and surrounding areas;

• Dry ice in the San Francisco Bay Area; Iowa and surrounding areas; and the Texas Panhandle and surrounding areas; and
• Packaged gases for welding sold in retail stores in the Alaskan cities of Anchorage, Fairbanks, and Kenai.

Under the proposed consent agreement the companies will divest:

• Sixteen air separation units and associated assets, which are used to produce bulk oxygen, nitrogen, and argon, twelve that are owned by Air Liquide and four that are owned by Airgas;
• Two nitrous oxide plants owned by Air Liquide;
• Four facilities that produce both liquid carbon dioxide and dry ice, and two facilities that produce only liquid carbon dioxide, all owned by Air Liquide; and
• Three Airgas retail packaged welding gas stores in Alaska.

Under the proposed settlement order, Air Liquide would have to sell these assets to a Commission-approved buyer within four months after it acquires Airgas. If the company does not present a buyer that is acceptable to the FTC within this time, or does not handle the divestiture in an acceptable way, the order would allow the FTC to appoint a trustee to divest the assets. The proposed consent agreement includes an asset maintenance order to ensure that Air Liquide and Airgas continue to act independently and maintain the relevant assets until they are divested. The agreement also allows the Commission to appoint a monitor to oversee the merging parties’ compliance with their obligations under the settlement agreement. Further details about the divestitures are set forth in the analysis to aid public comment for this matter.

The Commission vote to issue the complaint and accept the proposed consent order for public comment was 3-0. The FTC will publish the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through June 14, 2016, after which the Commission will decide whether to make the proposed consent order final. Comments can be filed electronically or in paper form by following the instructions in the “Supplementary Information” section of the Federal Register notice.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. 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 up to $16,000.

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