The Federal Trade Commission has accepted a proposed consent agreement that would allow RHI AG (RHI) to acquire Global Industrial Technologies, Inc. (Global), while addressing the competitive concerns raised by the proposed transaction. Both RHI and Global are involved in the manufacture and marketing of refractories - brick and cement-like products used to line and protect industrial furnaces. Under the terms of the order, RHI would be required to divest two refractories manufacturing plants in North America, along with certain assets related to refractory products currently being produced at a third North American plant. The order would also require that these assets be divested to another refractories producer, Resco Products, Inc. (Resco), which manufactures similar refractory products but does not currently compete in the same markets as RHI and Global. In the event that the Commission does not approve the divestiture to Resco, an alternative buyer would be selected for Commission approval.
"This agreement appropriately addresses the competitive concerns raised by the proposed transaction in this highly concentrated marketplace," FTC Bureau of Competition Director Richard Parker said. "RHI and Global control approximately 95 percent of the $30 million North American market for magnesia-carbon refractory bricks for basic oxygen furnaces, and without such an agreement the transaction would reduce competition significantly in this and other related markets."
RHI and Global are currently the two leading North American manufacturers of refractories, with their products used in furnaces in the steel, aluminum, cement, glass and other industries. According to the Commission's complaint, the proposed acquisition of Global by RHI would violate Section 7 of the Clayton Act and Section 5 of the FTC Act - both of which are designed to protect consumers - based on the companies' activities in several markets related to steel production. These include: 1) the North American market for magnesia-carbon bricks for basic oxygen furnaces (BOFs); 2) the North American market for magnesia-carbon bricks for electric arc furnaces (EAFs); 3) the North American market for magnesia-carbon bricks for steel ladles used with BOFs; 4) the North American market for magnesia-chrome bricks for steel degassers; 5) the North American market for high-alumina bricks for steel ladles used with BOFs; and 6) the North American market for high-alumina bricks for torpedo cars used in steelmaking.
The Commission's complaint contends that, after the proposed merger, RHI and Global would not only hold a monopoly in the market for magnesia-carbon bricks for BOFs, but also would control approximately 65 percent of the $58 million North American market for magnesia-carbon refractory bricks for EAFs; 40 percent of the $100 million North American market for magnesia-carbon bricks for steel ladles used with BOFs; 70 percent of the $50 million North American market for high-alumina bricks for steel ladles used with BOFs; half of the $23.5 million North American market for high-alumina bricks for torpedo cars; and 46 percent of the $5 million North American market for magnesia-chrome bricks for steel degassers.
Further, the Commission's complaint alleges that the proposed acquisition would substantially lessen competition and tend to create a monopoly by, among other things, eliminating "actual, direct and substantial" competition between RHI and Global, and by increasing the likelihood that the firm created by the merger would exercise unilateral market power, leading to higher consumer prices, a decline in technical and sales service, and a decrease in overall product innovation. The complaint also alleges that the acquisition also would increase the likelihood of coordinated interaction in all markets except for magnesia-carbon refractories for BOFs.
Finally, according to the complaint, entry into these refractories markets by competing companies is not likely to occur following the proposed merger because of high start-up costs and the fact that developing a viable refractory business would be time consuming and would require a high level of expertise. A new entrant into the market also would have to assume the high costs associated with developing a supply of refractory components for use in specific industry applications and acquiring the technical expertise in the industry. The complaint also alleges that these anticompetitive effects would not be alleviated by new entry.
Under the terms of the agreement, the anticompetitive concerns associated with the proposed acquisition would be remedied by the requirement that the merged company divest to Resco: 1) Global's Hammond, Indiana, refractories plant, which produces magnesia-carbon bricks for BOFs, EAFs and steel ladles, and related equipment and machinery (including formulas, mixes, presses and molds), intellectual property, and customer lists and contracts; 2) Global's Marelan, Quebec, plant, which produces magnesia-chrome bricks for steel degassers, and related equipment, machinery (including formulas, mixes, presses and molds), intellectual property, and customer lists and contracts; and 3) all rights, title and interest in, and to, specific assets related to the production of high-alumina bricks for BOF steel ladles and torpedo cars, which are currently produced by RHI at its Farber, Missouri, plant, including intellectual property, customer lists and contracts, formulas, mixes and molds. All assets would have to be divested no later than 45 days after the date the agreement is accepted by the Commission.
The proposed order also provides for the establishment of a one-year magnesite supply contract between Resco and the merging companies, to ensure Resco's access to the high-purity magnesite needed to produce both magnesia-carbon and magnesia-chrome bricks. Global is one of only two U.S. producers of this compound. The contract would be renewable for two more one-year terms, at Resco's option.
It would also allow the Commission to appoint a divestiture trustee if the assets are not divested as required by the order, and an interim trustee to ensure that the responsibilities of RHI and Global are performed expeditiously and to resolve quickly any potential disputes between the parties.
A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment until January 31, 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 Commission vote to accept the proposed consent agreement was 4-0, with Commissioner
Thomas B. Leary recused.
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 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 991-0281)