The Federal Trade Commission today announced its decision to challenge Linde AG’s proposed acquisition, announced on March 6, 2006, of The BOC Group plc for approximately $14.4 billion. The FTC’s complaint alleges that the acquisition as originally structured would have increased the likelihood that customers would be forced to pay higher prices for liquid oxygen, liquid nitrogen, and bulk refined helium in certain markets.
In settling the Commission’s charges, Linde is required to sell air separation units (ASUs) and other assets related to the production of liquid oxygen and nitrogen in eight locations across the United States. Linde is also required to sell bulk refined helium assets, including helium source contracts, distribution assets, and customer contracts to Taiyo Nippon Sanso Corporation (Nippon Sanso).
“Industrial gases such as oxygen, nitrogen and helium play a crucial role in many segments of our economy, including healthcare, oil and gas, agriculture and manufacturing,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “The Commission’s action today ensures that the transaction will not lead to a reduction in competition or higher prices for these gases.”
The FTC’s Complaint: According to the Commission’s complaint, the acquisition as proposed violated Section 7 of the Clayton Act and Section 5 of the FTC Act by eliminating a significant competitor in certain regional U.S. markets for liquid oxygen and liquid nitrogen, and the worldwide market for bulk refined helium.
The markets for liquid oxygen and liquid nitrogen are highly concentrated, as Linde and BOC are two of only five companies supplying liquid oxygen and liquid nitrogen to customers in each relevant geographic market. By eliminating direct competition between these two suppliers in these areas, the proposed transaction likely would allow the combined firm to exercise market power unilaterally, thereby increasing the prices for liquid oxygen and liquid nitrogen. Furthermore, the proposed transaction would increase the likelihood of collusion or coordinated action between the firms remaining in each market, the FTC contends.
The bulk refined helium market is also highly concentrated. Linde and BOC are two of only five suppliers in the world with access to bulk refined helium, and a combined Linde/BOC would become the largest worldwide supplier. The elimination of competition between Linde and BOC likely would cause significant harm to bulk refined helium customers worldwide by increasing the likelihood of collusion or coordinated interaction among the remaining suppliers, according to the Commission.
Finally, the complaint states that there are significant barriers to entry in the markets for liquid oxygen, liquid nitrogen and bulk refined helium, and that it is unlikely that entry would occur in a timely manner sufficient to deter or counteract the alleged anticompetitive impacts of the transaction.
The Consent Order: The FTC’s consent order is designed to remedy the competitive harm resulting from Linde’s proposed acquisition of BOC. It requires that Linde divest ASUs and related assets currently owned by Linde in eight locations: (1) Canton, Ohio; (2) Dayton, Ohio; (3) Madison, Wisconsin; (4) Waukesha, Wisconsin; (5) Carrollton, Georgia; (6) Jefferson, Georgia; (7) Rockhill, South Carolina; and (8) Bozrah, Connecticut. Under the terms of the consent order, Linde is required to divest these assets to a single buyer within six months of the date that the consent agreement becomes final. If the Commission determines that Linde has not provided it with an acceptable buyer within this time, or that the manner of the divestiture is not acceptable, the consent order would allow the Commission to appoint a trustee to divest the assets.
The consent order remedies the proposed acquisition’s likely anticompetitive effects in the bulk refined helium market by requiring Linde to divest bulk refined helium assets, including helium source contracts, ancillary distribution assets, and customer contracts, to Nippon Sanso no later than 10 days after the acquisition. If the Commission determines that Nippon Sanso is not an acceptable purchaser, or the manner of the divestiture is not acceptable, the parties must unwind the sale to Nippon Sanso and divest the bulk refined helium assets within six months of the date the order becomes final to another Commission-approved acquirer. If the parties fail to divest within six months, the Commission may appoint a trustee to divest the bulk refined helium assets.
Other Terms of the Order: The consent order contains other provisions to ensure that the divestitures are successful. First, with regard to the divestiture of the ASUs and related assets, it contains an agreement to hold separate and maintain assets that is designed to protect the viability, marketability, and competitiveness of these assets prior to their divestiture. The hold separate agreement becomes effective on the date the Commission accepts the consent agreement for public comment, and will remain in place until the asset package is divested to an appropriate buyer. The Commission has appointed Richard M. Klein as hold separate trustee to oversee the management of the ASUs and related assets until the sale is complete.
The consent order also contains an order to maintain assets with respect to the bulk refined helium assets. This will ensure that the bulk refined helium assets are protected and divested in substantially the same condition existing as of the time the consent agreement was signed. The Commission has also appointed Klein to oversee the transition in ownership of the divested helium refined assets to Nippon Sanso and to ensure Linde’s and BOC’s compliance with all of the provisions of the consent order.
International Cooperation: This matter was also reviewed by the European Commission, which recently issued its decision. Throughout the course of their respective investigations, FTC and EC staff communicated and cooperated with each other regularly under the terms of the US-EC 1991 bilateral cooperation agreements and the 2002 Best Practices on Cooperation in Merger Investigations. Their cooperation is continuing through the remedial phase of the case.
The Commission vote to approve the complaint and consent order was 5-0. The order will be subject to public comment for 30 days, until August 16, 2006, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.
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, consent order, and an analysis 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. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: email@example.com; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
Sean G. Dillon,
Bureau of Competition