FTC Moves to Block CCSs Proposed Acquisition of Rival Newpark Environmental Services

The Federal Trade Commission today announced a unanimous vote to issue an administrative complaint challenging the proposed $85 million acquisition of Newpark Environmental Services by CCS Corporation, and to authorize staff to file a complaint in federal district court seeking a temporary restraining order and preliminary injunction to preserve the competitive status quo, pending an administrative trial on the merits.

According to the complaint, the transaction would violate the federal antitrust laws by consolidating two of the most significant providers of waste disposal services to the offshore oil and natural gas exploration and production (E&P) industry in the Gulf Coast region of the United States, and result in higher prices and reduced service levels for the merging companies’ customers. In response to the FTC’s concerns regarding the proposed transaction, on October 15, 2008, CCS sent a letter informing the Commission staff that it was shutting down its operations in the Gulf Coast.

“There is ample evidence that this transaction would allow CCS to eliminate its primary and closest competitor and that the merging parties’ customers would face higher prices and diminished service as a result,” said David P. Wales, Acting Director of the FTC’s Bureau of Competition. “CCS’s last-minute threats to shut down its entire Gulf Coast business if the merger is challenged are mere pretext and cannot justify this anticompetitive transaction.”

Headquartered in Calgary, Alberta, CCS Corporation is a leading provider of integrated services to oil and gas companies in Canada and the United States. CCS is owned by Red Sky Holdings LP. CCS provides a range of services to companies throughout North America, including waste disposal, hydrocarbon storage, and crude oil recovery and recycling. The company’s U.S. waste disposal business was acquired through the purchase of ETT in February 2006. ETT, later renamed CCS Energy Services, serves oil and gas companies in the Gulf of Mexico and coastal Louisiana. Within two months of acquiring ETT, CCS announced plans to acquire a new state-of-the-art salt cavern exploration and production waste disposal facility in Weeks Island, Louisiana, that would greatly enhance its competitive position in the marketplace.

Newpark Resources Inc., headquartered in The Woodlands, Texas, provides a variety of products and services to E&P companies, including drilling fluids, mineral processing, and oilfield waste disposal services in the U.S. Gulf Coast, West Texas, and Rocky Mountains. Newpark Environmental Services, a division of Newpark Resources, is a leading provider of such offshore E&P waste disposal services in the Gulf Coast region, operating marine transfer stations, processing facilities, and disposal sites along the coasts of Texas and Louisiana.

Both CCS and Newpark provide offshore E&P waste disposal services along the Louisiana Gulf Coast. E&P waste is generated during the drilling and production of oil and gas, and includes earth and rock displaced from drilling, drilling fluids, and produced water. Because these wastes are toxic, they must be handled and disposed of according to applicable environmental laws, using specialized techniques and facilities.

On April 16, 2008, CCS and Newpark signed a membership purchase agreement, under which Newpark agreed to sell the U.S. operations of Newpark Environmental Services to CCS. The purchase price is $85 million in cash.

According to the Commission’s complaint, CCS’s proposed acquisition of Newpark threatens to eliminate competition between the only two significant providers of offshore E&P waste disposal services to the major oil and gas companies operating in the Louisiana Gulf Coast region – specifically at the ports of Fourchon, Venice, Morgan City, and Intracoastal City, Louisiana. Newpark, CCS, and U.S. Liquids of Louisiana are the only firms that provide offshore E&P waste disposal services in these markets, which are highly concentrated. Thus, the proposed transaction would result in a duopoly in the relevant markets.

The FTC contends the proposed acquisition would violate of Section 7 of the Clayton Act and Section 5 of the FTC Act. According to the complaint, the transaction would eliminate vigorous head-to-head competition between CCS and Newpark that has led to lower prices and enhanced services. The FTC alleges that the proposed acquisition increases the likelihood that CCS would raise prices or reduce the quality of its services on its own, especially to those customers that prefer its waste disposal methods. Additionally, with only two firms remaining in the market and the presence of market conditions conducive to competitor coordination, the proposed acquisition threatens to increase the likelihood of coordinated interaction between the two remaining firms.

As set forth in the Commission’s complaint, on October 15, 2008, CCS sent a letter to the FTC staff announcing that it was “shutting down operations in the Gulf Coast.” According to the FTC, CCS’s new claim that it would exit the business if it could not acquire Newpark was made only after the antitrust review process was well underway and it appeared the Commission might challenge the acquisition. The FTC alleges that nothing in CCS’s business files supports the argument that CCS’s Gulf Coast business is not viable, or that CCS’s survival depends on the acquisition of Newpark.

The Commission vote to issue the administrative complaint was 4-0. The vote authorizing the staff to seek a temporary restraining order and preliminary injunction blocking the transaction pending the administrative trial also was 4-0. The complaint will be filed by the FTC in the U.S. District Court for the Southern District of Texas by October 23, 2008. It will be available on the FTC’s Web site as a link to this press release upon filing. The administrative complaint is available now on the FTC’s Web site as a link to this press release.

NOTE: The Commission issues or files a 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. The complaint is not a finding or ruling that the named parties have violated the law.

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.

(FTC File No.: 081-0170)
(Newpark.final.wpd)