Deal Would Combine Companies' Phosphates and Phosphorus Derivatives Businesses
The Federal Trade Commission has accepted a consent order, subject to final approval, that would resolve the anticompetitive concerns associated with the proposed joint venture between FMC Corp. (FMC) and Solutia Inc. (Solutia), in which the companies plan to combine their respective phosphates and phosphorus derivatives businesses. Under the terms of the order, FMC and Solutia would be required to divest the portion of Solutia's phosphates business in Augusta, Georgia to Societe Chimique Prayon-Rupel (Prayon), and FMC's phosphorus pentasulfide business in Lawrence, Kansas to Peak Investments, LLC (Peak). The proposed agreement also contains an Order to Maintain Assets that would require the respondents to preserve the assets to be divested as viable, competitive and ongoing businesses until the transactions are completed.
"This agreement will ensure that competition in these important intermediate chemical markets is maintained," said Richard G. Parker, Director of the FTC's Bureau of Competition.
According to the FTC complaint, the joint venture proposed by FMC and Solutia may have substantially lessened competition in the U.S. market for pure phosphoric acid and phosphorus pentasulfide, in violation of Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act.
Both FMC and Solutia produce pure phosphoric acid and sell it directly to end customers. They also use this product internally to manufacture different types of phosphate salts. In its complaint, the Commission contends that FMC and Solutia currently compete with each other in the manufacture of pure phosphoric acid and its sale directly to end customers, as well as in the manufacture and sale of phosphate salts. The U.S. market for these products is already highly concentrated, the Commission contends, and the proposed joint venture would lead to significant increases in market concentration. In addition, new entry into this market by other companies is considered unlikely.
The Commission's complaint further alleges that the market for pure phosphoric acid is conducive to coordination, existing producers already set prices independent of industry operating rates, and producers target each other's competitors in retaliation against aggressive bidding as a means of deterring competition in the future. On top of this, prices for pure phosphoric acid in the United States are already among the highest in the world, a situation that would not likely change following the consummation of the proposed joint venture.
The complaint also describes how Solutia's agreement to purchase phosphoric acid from Emaphos, S.A. (Emaphos), a new producer based in Morocco, made Solutia the exclusive North American distributor for this company's pure phosphoric acid and restricted Emaphos from selling its product to end customers. Therefore, this agreement tended to reduce the impact in the U.S. market of any potential competition from Emaphos.
The FTC also analyzed the effects of the proposed joint venture in the market for the production and sale of phosphorus pentasulfide. This chemical, which is typically sold in a solid, flake form, mainly is used to make chemical additives for engine lubricating oils and, to a smaller extent, in manufacturing different types of insecticides. The only three companies making and selling this chemical in the United States are FMC, Solutia and Rhodia - a company that will soon be exiting the market. The joint venture as proposed, therefore, would create a monopoly in the production of the chemical, with new entry by competing companies unlikely in the future. Such an agreement, the Commission contends, would allow FMC and Solutia to exert unilateral market power.
Under the terms of the proposed order, competition in the markets for both pure phosphoric acid and phosphorus pentasulfide would be preserved by requiring the divestiture to Prayon of Solutia's phosphates plant in Augusta, Georgia, and the divestiture to Peak of FMC's phosphorus pentasulfide plant in Lawrence, Kansas. The order would require that the divestiture to Prayon occur within six months of its acceptance by the Commission, would ensure that FMC and Solutia provide Prayon with the technology Solutia has used to manufacture phosphates at the Augusta plant, and would require the divestiture of other assets related to the Augusta plant, such as customer lists and certain contracts.
With the acquisition of Solutia's Augusta plant, Prayon - based in Belgium - would be able to increase its presence in the United States. It is currently the world's leading and lowest-cost producer of pure phosphoric acid, operating two low-cost solvent-extraction plants to produce this product in Belgium, and is also a partner in Emaphos. Prayon's competitive position in the United States would be aided by the order's stipulation that the existing contract between Solutia and Emaphos be revised to remove all restrictions preventing Emaphos from selling pure phosphoric acid to end customers. This will, in turn, allow for increased sales from Emaphos to offset the loss of competition that would otherwise occur as a result of the joint venture.
The order would also require that the respondents divest FMC's phosphorus pentasulfide plant in Lawrence, Kansas to Peak within 30 days of the date the joint venture is formed. Technology and related asset transfers similar to those involved in the pure phosphorus divestiture package would also be required. Because Peak will operate the phosphorus pentasulfide plant in Lawrence as part of a larger site that the joint venture will continue to own, the order also contains several provisions designed to safeguard Peak's competitive position, in part by providing it with the opportunity to provide for itself the services and facilities it needs to operate its plant. Finally, the proposed order contains a provision requiring the appointment of an interim trustee who would monitor the relationship at the Lawrence plant for two years to ensure that Peak has full access to the services and facilities it needs to operate this plant.
If the Commission, when it issues the final order, notifies the respondents that it does not approve of the manner of either divestiture, of either Prayon or Peak as the purchasers of the divested assets, the respondents would have five months to divest the plant in question to a new acquirer. If the divestiture is not completed within that time, a trustee would be appointed to oversee this process.
The proposed order also contains an Order to Maintain Assets, requiring the divested assets to be maintained as viable and competitive entities until they are transferred to the acquirers. Further, the order would require the respondents to build and maintain product inventories at the Augusta and Lawrence plants consistent with regular business practices and to provide Prayon with business support and information in advance of the divestiture of the Augusta plant. The proposed order also contains routine record-keeping and reporting requirements.
A summary of the consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until May 8, 2000, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
The vote to accept the proposed consent agreement was 5-0, with the Chairman and four Commissioners issuing a joint separate statement stating their belief that the divestitures and other relief mandated by the proposed order "should restore the competition lost through the joint venture between FMC Corporation and Solutia Inc." They recognized, however, that "both divestitures are somewhat out of the ordinary." When remedying a Clayton Act Section 7 violation, the commission typically orders a complete divestiture of one merging party's assets that produce the relevant product. In this matter, however, the Commissioners noted that the divestiture to Prayon of a plant that manufactures phosphate salts but not PPA, and the divestiture to Peak of a "plant within a plant," are unique remedies.
"Due to the novelty of the relief," the Commissioners concluded, the FTC "will monitor closely the respondents' compliance with their obligations under the order and will ascertain whether the relief ordered in this case effectively restores competition in each of the markets."
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 complaint, proposed consent agreement, and an analysis of the proposed consent order to aid public comment, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 991-0218)
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