UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of

Quexco Incorporated, a corporation.

File No. 981-0327

COMPLAINT

The Federal Trade Commission ("Commission"), having reason to believe that respondent Quexco Incorporated ("Quexco"), a corporation subject to the jurisdiction of the Commission, has entered into an agreement to acquire certain assets of Pacific Dunlop Limited ("Pacific Dunlop"), an entity subject to the jurisdiction of the Commission, in violation of the provisions of Section 7 of the Clayton Act, as amended, 15 U.S.C.  18, and Section 5 of the Federal Trade Commission Act ("FTC Act"), as amended, 15 U.S.C.  45, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its Complaint, stating its charges as follows:

I. THE RESPONDENT

1. Respondent Quexco is a corporation organized, existing and doing business under and by virtue of the laws of Delaware, with its office and principal place of business at 2777 Stemmons Freeway, Suite 1800, Dallas, Texas, 75207. In 1997, Quexco had worldwide lead sales of approximately $219 million.

II. JURISDICTION

2. At all times relevant here, Respondent has been, and is now, a corporation as "corporation" is defined in Section 4 of the FTC Act, 15 U.S.C.  44; and at all times relevant herein, the respondent has been, and is now, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C.  12, and in Section 4 of the FTC Act, 15 U.S.C.  44.

III. THE PROPOSED ACQUISITION

3. On or about July 5, 1998, Quexco and Pacific Dunlop entered into an agreement by which Respondent agreed to acquire Pacific Dunlop GNB Corporation ("GNB") from Pacific Dunlop. GNB is a corporation organized, existing and doing business under and by virtue of the laws of Delaware with its office and principal place of business located at 375 Northridge Road, #100, Atlanta, Georgia, 30350. GNB is a wholly owned subsidiary of Pacific Dunlop.

IV. THE RELEVANT MARKETS

A. Relevant Product Markets

4. The smelting and refining of lead, including both primary and secondary lead, is one relevant line of commerce within which to analyze the competitive effects of the proposed transaction.

5. The recycling of "junkers," also referred to as junk or spent batteries and other materials containing lead into smelted and refined lead is another relevant line of commerce within which to analyze the competitive effects of the proposed transaction.

6. The processing of lead bearing materials involves first smelting the lead and then refining it. Lead is smelted and refined from both new ore and from recycled lead products. Lead that is smelted and refined from lead bearing ore is called primary lead. Lead that is smelted and refined from recycled lead products is called secondary lead. For most applications primary and secondary lead are substitutes for one another.

7. Because of environmental dangers, the use of lead in many applications has been discontinued. However, lead continues to be used in the manufacture of lead-acid rechargeable batteries. Most of the lead smelted and refined in North America is used in the production of lead-acid rechargeable batteries.

8. Rechargeable batteries are used for a wide range of applications, including starting, lighting, and ignition batteries for motor vehicles, backup power sources for telecommunications and other industrial power uses, and operating power sources for electrical equipment such as golf carts and industrial equipment such as fork lifts. For these types of applications, lead-acid battery technology, which relies on a combination of lead and sulphuric acid in the battery, is the only economical rechargeable battery technology available. Manufacturers of lead-acid rechargeable batteries would continue to use lead for their batteries even if the price of lead rose by a small but significant and non-transitory amount. The only way to produce lead for use in rechargeable batteries is by smelting and refining either primary or secondary lead.

9. Rechargeable batteries eventually wear out, after rechargeable batteries are recharged for a number of times the batteries can no longer be satisfactorily recharged. Such worn out batteries are referred to as junk or spent batteries. Because they contain lead, as well as acid, the disposal of junk or spent rechargeable batteries is regulated by laws concerning the disposal of toxic materials. The only economic way in which to dispose of junk or spent batteries is to recycle the batteries into smelted and refined lead.

B. Relevant Geographic Market

10. The relevant geographic area in which to analyze the effects of the proposed acquisition in the relevant lines of commerce is the state of California.

11. Refined lead has a relatively low value to weight ratio. Customers who need to purchase lead for use in the manufacturing of batteries find it most economical to purchase the lead close to their battery manufacturing plants. Firms that manufacture batteries in California find it economical to purchase lead only from smelters in the state of California.

12. Spent batteries have a relatively low value to weight ratio. Customers that need to dispose of junk or spent batteries find it most economical to dispose of the batteries close to where the junk or spent batteries are acquired. Firms that seek to dispose of junk or spent batteries in California find it economical to dispose of the junk or spent batteries only at smelters in the state of California that recycle junk or spent batteries.

V. MARKET STRUCTURE

13. There are two smelters in California from which smelted and refined lead can be purchased and to which junk or spent batteries can be disposed of for recycling. One is the smelter owned and operated by GNB at Vernon, California. The other is the smelter owned and operated by Quexco, through its subsidiary, RSR Corporation ("RSR"), in City of Industry, California. There are no lead smelters outside the state of California to which manufacturers located in California can turn to for a supply of lead which can economically supply customers in California. As measured by either current sales to customers in California, or capacity available for the smelting and refining of lead, the relevant markets are highly concentrated, whether measured by the Herfindahl-Hirschman Index (or "HHI") or by concentration ratios.

14. There are two secondary smelters in California which recycle junk or spent batteries and other materials containing lead into smelted and refined lead. One is the smelter owned and operated by GNB at Vernon, California. The other is the smelter owned and operated by Quexco, through RSR, in City of Industry, California. There are no other locations in the state of California which recycle junk or spent batteries and other materials containing lead. There are no secondary lead smelters outside the state of California which can economically compete for sales of recycling services to customers in California for recycling lead. As measured by either current sales of services to customers in California, or capacity available for the recycling of lead, the relevant markets are highly concentrated, whether measured by the Herfindahl-Hirschman Index (or "HHI") or by concentration ratios.

VII. ENTRY CONDITIONS

15. Entry into the smelting and refining of lead in California requires more than two years. Entry into the smelting and refining of lead in California is difficult and would not be likely, timely, or sufficient to prevent anticompetitive effects in the relevant markets.

16. Entry into the smelting and refining of lead requires permits. Lead is considered a toxic substance and lead smelters are regulated under the Resource Conservation & Recovery Act ("RCRA"). Because lead is considered toxic, community opposition to the granting of permits for, and the construction of, a new lead smelter can be expected. It would take over two years to obtain the necessary permits to begin construction of a new lead smelter in California. Community opposition may prevent the construction of a new lead smelter in California.

VIII. ACTUAL COMPETITION

17. Quexco and Pacific Dunlop are actual competitors in the relevant lines of commerce in the relevant area.

IX. EFFECTS OF THE PROPOSED MERGER ON COMPETITION

18. The effect of the Acquisition, if consummated, may be substantially to lessen competition and to tend to create a monopoly in the relevant markets in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C.  18, and Section 5 of the FTC Act, as amended, 15 U.S.C.  45, in the following ways, among others:

A. By eliminating actual, direct, and substantial competition between Quexco and Pacific Dunlop in the relevant markets;


B. By creating a monopoly in the the relevant markets;


C. By increasing the likelihood that Quexco will unilaterally exercise market power in the relevant markets;


C. By increasing the likelihood that customers of lead would be forced to pay higher prices; and


D. By increasing the likelihood that customers of lead recycling services would be forced to pay higher prices.

X. VIOLATIONS CHARGED

19. The proposed acquisition by Quexco of certain assets of Pacific Dunlop, including GNB, violates Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C.  45, and would, if consummated, violate Section 7 of the Clayton Act, as amended, 15 U.S.C.  18, and Section 5 of the FTC Act, as amended, 15 U.S.C.  45.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this ____________ day of ________________, 1999, issues its Complaint against said respondent.

By the Commission.

Donald S. Clark
Secretary

SEAL: