FTC Settlement Over Saint-Gobain Acquisition of Carborundum to Remedy Lessening of Competition in Three Markets

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The Federal Trade Commission has negotiated a settlement with the French firm, Compagnie de Saint-Gobain, and its U.S. subsidiary, Saint-Gobain/Norton Industrial Ceramics Corporation, of Worcester, Massachusetts, to resolve charges that the firm's acquisition of The Carborundum Company from the British Petroleum Company likely would lead to monopolies or near-monopolies, and thus raise prices, for three products used in industrial furnaces and home appliances.

The FTC alleged that the acquisition would:

  • give Saint-Gobain a monopoly in the United States in the market for fused cast refractories, which are used by glass manufacturers to line the furnaces where they melt raw materials;
  • give Saint-Gobain a near-monopoly in the United States for hot surface igniters, which are used as ignition sources in gas appliances; and
  • allow Saint-Gobain to raise prices unilaterally or otherwise exert market power in the U.S. market for silicon carbide refractory bricks, which are used in lining aluminum smelters and other industrial furnaces.

The proposed consent agreement to settle these charges is designed to restore competition in these markets by requiring Saint-Gobain to divest businesses and associated assets in each of the markets to firms that will run them in competition with Saint-Gobain. Specifically, the consent agreement would require Saint Gobain to divest Carborundum's New York-based Monofrax fused cast refractories business, Puerto Rico-based hot surface igniter business, and New Jersey-based silicon carbide refractories business.

"If we are to keep U.S. businesses competitive, it is essential that we preserve competition for the industrial products that are used by domestic manufacturers to produce consumer goods," said William J. Baer, Director of the FTC Bureau of Competition. "Unless we modify anticompetitive mergers such as this, U.S. firms would face unjustified price increases that they no doubt would pass on to consumers."

The Carborundum Company is based in Niagara Falls, New York, and is part of British Petroleum's BP Chemicals subsidiary.

According to the FTC complaint detailing the charges in this case, Saint-Gobain and Carborundum are substantial and direct competitors in the markets at issue, and they either are the only two competitors or face little competition from other firms, current or potential. The threat of competition from other firms would not deter Saint-Gobain from raising prices after the acquisition, the FTC alleged. For example, in the $45 million fused cast refractories market, where Saint-Gobain and Carborundum are the only two U.S. competitors, it would require a large capital investment and take several years for a new entrant to develop a product and construct a plant, and many more years for the company to complete the extensive life-cycle product testing required to compete.

Hot surface igniters, also a $45 million U.S. market, are similarly concentrated with Saint-Gobain and Carborundum together accounting for nearly all of the sales, the complaint states. A Japanese company, Kyocera, has been attempting to develop a commercially-viable hot surface igniter for U.S. sales for several years but has achieved only minimal success, the FTC said. Even if the market were defined broadly to include all ignition sources for the gas appliances in which hot surface igniters primarily are used, Saint-Gobain and Carborundum would have close to 80 percent of the sales.

Regarding the $15 million silicon carbide refractory brick market, the FTC complaint states that imports are minimal and that Carborundum and Saint-Gobain account for most of the U.S. sales. There is no adequate substitute for silicon carbide bricks, the complaint alleges, because they have excellent heat and oxidation resistance. Therefore, aluminum, steel and copper manufacturers that use the product would not find a substitute even in the event of a significant price increase, the FTC alleged. Nor would new entry be timely enough to constrain Saint-Gobain from acting anticompetitively, the FTC charged.

The proposed consent agreement to settle these charges would permit the acquisition but require Saint-Gobain promptly to complete certain divestitures designed to restore competition. Specifically, the settlement would require the company to divest Carborundum's Monofrax fused cast refractories business, Carborundum's worldwide hot surface igniters business, and Car- borundum's U.S. silicon carbide refractories business to one or more companies approved by the Commission. In addition, Saint- Gobain would be required to divest associated assets and busi- nesses, and to make any arrangements necessary to assure that the divested businesses can be operated independently and competitively.

In lieu of the Commission-required divestitures, the proposed order would allow Saint-Gobain to propose alternative divestiture arrangements for the fused cast refactories business and to propose a technology licensing agreement for its silicon carbide refractory brick business. Such alternative solutions are subject to approval by the Commission in its sole discretion, in light of whether the alternative remedies will preserve competition in the relevant markets.

In addition, the order requires that the businesses to be divested be held separate pending the divestitures or licensing alternatives, in order to preserve all of the assets and businesses to be divested. Finally, the order provides that if Saint-Gobain does not accomplish the required divestitures, the Commission may appoint a trustee or trustees to implement them.

The Commission vote to announce the proposed consent for public comment was 5-0. The proposed consent agreement will be published in the Federal Register and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the Office of the Secretary, FTC, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 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 $10,000.

Copies of the complaint and consent, and an analysis to assist the public in commenting on the consent, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 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 news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov


(FTC File No. 951 0096)