UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION
In the Matter of
RHODIA, a corporation,
DONAU CHEMIE AG, a corporation, and
ALBRIGHT & WILSON PLC, a corporation.
Docket No. C-3930
The Federal Trade Commission ("Commission"), having reason to believe that
Rhodia has entered into an agreement to acquire Albright & Wilson PLC, a wholly-owned
subsidiary of Donau Chemie AG, and that the acquisition, if consummated, would result in a
violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, and
Section 7 of the Clayton Act, 15 U.S.C. § 18, and it appearing to the Commission that a
proceeding in respect thereof would be in the public interest, hereby issues its
complaint, stating its charges as follows:
A. THE RESPONDENTS
1. Respondent Rhodia is a corporation organized, existing, and doing business under and
by virtue of the laws of France, with its executive offices located at 26, quai Alphonse
Le Gallo, 92512 Boulogne-Billancourt Cédex, France. Rhodia, among other things, engages
in the development, manufacture and sale of pure phosphoric acid and phosphate salts,
primarily in Europe and North America.
2. Respondent Donau Chemie AG is a corporation organized, existing and doing business
under and by virtue of the laws of Austria, with its office and principal place of
business located at Am Heumarkt 10, A-1037, Vienna, Austria. In April 1999, Donau acquired
Albright & Wilson through a cash tender offer valued at approximately $720 million.
3. Respondent Albright & Wilson PLC is a corporation organized, existing and doing
business under and by virtue of the laws of the United Kingdom, with its office and
principal place of business located at 210-222 Hagley Road West, Oldbury, West Midlands,
B68 ONN, England. Albright & Wilson, among other things,
engages in the worldwide development, manufacture and sale of pure phosphoric acid and
4. At all times relevant herein, Respondents Rhodia, Donau
and Albright & Wilson have been and are now engaged in commerce, as
"commerce" is defined in Section 1 of the Clayton Act, 15 U.S.C. § 12, and are
corporations whose business is in or affecting commerce as "commerce" is defined
in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44.
B. THE PROPOSED ACQUISITIONS
5. On March 30, 1999, Rhodia and Donau executed two
agreements, including a Heads of Agreement and a Call Option Agreement. Pursuant to these
agreements, Donau acquired, through a cash tender offer supported by Rhodia, all of the
outstanding voting securities of Albright & Wilson, and granted Rhodia an option to
acquire from Donau the ownership of the Albright & Wilson voting securities. Rhodia
currently intends to exercise its option to acquire Albright & Wilson, for an
aggregate exercise price exceeding $700 million.
C. RELEVANT MARKET
6. The relevant line of commerce in which to analyze the
effects of Rhodia's proposed acquisition of Albright & Wilson is the manufacture,
marketing and sale of pure phosphoric acid. There are no economic substitutes for pure
7. Pure phosphoric acid is a syrupy tribasic acid that is
used in a wide variety of applications. It is used in food applications, such as cola
beverages and pet food, and in technical applications, such as cleaning compounds, metal
surface treatments, and water treatment products. Pure phosphoric acid is sold directly to
end users, and also is used as an input to create phosphate salts, such as sodium
8. Pure phosphoric acid is produced in the United States
primarily by two different methods. The older method is the thermal process, in which
producers add water to elemental phosphorus. The newer method is the solvent extraction
process, in which producers use solvents to remove impurities from impure, or
"green," phosphoric acid. The solvent extraction process has a cost advantage
over the thermal process because it is much less energy-intensive.
9. A small but significant and non-transitory price
increase would not affect the current level of consumption of pure phosphoric acid in any
of the significant end-use applications.
10. The relevant geographic market in which to analyze the
effects of Rhodia's proposed acquisition of Albright & Wilson is the United States.
The level of imports of pure phosphoric acid has been small compared to the overall
market, and has not been highly responsive to changes in United States prices. In fact,
prices in the United States have historically been much higher than prices in other parts
of the world.
11. There are several reasons why imports of pure
phosphoric acid into the United States have been limited. One reason is that
transportation costs account for a significant portion of the delivered cost of phosphoric
acid. Another reason is that many of the overseas producers employ the older, higher-cost
thermal process to produce pure phosphoric acid. Other reasons why imports have been
limited include access to distribution and the cost of terminal storage for product
imported from overseas. In addition, agreements between producers in the United States and
various overseas producers have had the effect of limiting the level of competition from
these overseas producers.
12. The overseas producers that have been most active in
making sales of pure phosphoric acid in the United States have been those that employ the
solvent extraction process. Nevertheless, the level of sales by these companies has been
low. Moreover, these overseas producers of pure phosphoric acid have faced significant
duties that have limited their ability to sell pure phosphoric acid in the United States.
These duties have increased costs for the overseas producers, and also have chilled sales
by the overseas producers in the United States.
D. MARKET STRUCTURE
13. The United States market for pure phosphoric acid is
highly concentrated. Four manufacturers, including Rhodia, Albright & Wilson, FMC and
Solutia, currently account for approximately 95% of the local production capacity that can
supply United States customers, and 95% of sales of pure phosphoric acid. Albright &
Wilson's share of direct sales to customers is close to 28%, and Rhodia's share is
approximately 11%. The proposed acquisition would increase the Herfindahl-Hirschman Index
for United States sales of pure phosphoric acid by over 630 points, from over 2300 to over
14. Rhodia produces pure phosphoric acid using the solvent
extraction process at a plant in Geismar, Louisiana, which has an annual capacity of
approximately 100,000 metric tons. It produces pure phosphoric acid via the thermal
process at plants in Nashville, Tennessee and Morrisville, Pennsylvania. The Nashville
plant has an annual capacity of over 38,000 metric tons and the Morrisville plant has an
annual capacity of over 100,000 metric tons. Rhodia utilizes the production capacity of
the Geismar plant at a much higher rate than the two thermal acid plants. Rhodia also
produces phosphate salts in several different plants. Rhodia sells purified phosphoric
acid directly to end-customers, and also uses it in the manufacture of phosphate salts.
15. In 1998, Rhodia had total sales to customers in the
United States of over 50 million pounds of pure phosphoric acid. Rhodia also consumes
large amounts of pure phosphoric acid internally in the manufacture of phosphate salts.
16. Albright & Wilson produces pure phosphoric acid
via the solvent extraction process at one plant in the United States, in Aurora, North
Carolina, which is part of a joint venture with Potash Corporation of Saskatchewan
("PCS"). The capacity of this plant is approximately 155,000 metric tons per
year. It produces pure phosphoric acid via the thermal acid process at a plant in
Charleston, South Carolina, which has a capacity of approximately 14,000 metric tons per
year. Albright & Wilson also produces pure phosphoric acid at a plant in Mexico, which
has a capacity of approximately 180,000 metric tons per year. A&W utilizes the
production capacity of the Aurora plant at a higher rate than the capacity of the
Charleston thermal acid plant.
17. In 1998, Albright & Wilson had total sales to
customers in the United States of over 150 million pounds of pure phosphoric acid. Its
North American sales of pure phosphoric acid totaled over 400 million pounds. Albright
& Wilson also consumed large amounts of its pure phosphoric acid production
internally, to produce a wide range of phosphate salts.
18. Besides Rhodia, Albright & Wilson, FMC and
Solutia, two other companies that produce pure phosphoric acid in North America for sale
in the United States are Earth Sciences and Simplot. Earth Sciences and Simplot have each
been producing pure phosphoric acid for the last two to three years, using processes to
manufacture pure phosphoric acid different from the other North American producers. Both
of these companies have very limited production capacity and sales compared to the other
four producers, and are unlikely to grow their sales substantially in the foreseeable
E. CONDITIONS OF ENTRY
19. De novo entry or fringe expansion into the
relevant market would require a substantial sunk investment and a significant period of
time, such that new entry would be neither timely, likely, nor sufficient.
20. The minimum viable scale of a pure phosphoric acid
production facility likely precludes new entry. The prevailing pure phosphoric acid
technology demands large-scale production, relative to market size, in order to operate
efficiently. This technology has but a single use -- the production of pure phosphoric
acid. It can not economically be shifted toward another use. Therefore, all returns on
investment must be derived from pure phosphoric acid sales. Because economic entry would
require that a new producer capture a significant market share from existing producers,
and because the costs of such entry would be sunk, such entry is inherently risky.
F. MARKET CHARACTERISTICS THAT FACILITATE COORDINATED
21. The characteristics of the market for pure phosphoric
acid facilitate coordinated interaction among producers, to the detriment of the
purchasers of this product. Among such characteristics are:
- The United States market for pure phosphoric acid is highly
- Pure phosphoric acid is a highly homogeneous product that
is purchased primarily on the basis of price;
- Reliable pricing information is available from customers,
and from other producers due to the practice of publicly announcing price increases in
advance of their implementation;
- There is a strong tendency toward coordination among
producers of pure phosphoric acid. Producers recognize the market to be an oligopoly in
which competitive rivalry is low; and
- Producers tend to refrain from bidding against their
competitors at accounts that they recognize to be important to the other producers, and,
furthermore, undertake strategic retaliation at specific accounts as a means to discipline
and deter future competition.
G. EFFECTS OF THE PROPOSED ACQUISITION
22. The effect of the acquisition may be substantially to
lessen competition and to tend to create a monopoly in the relevant market 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:
- It will substantially increase concentration in the market
for pure phosphoric acid;
- It will significantly enhance the likelihood of coordinated
interaction in the relevant market among the competitors in the manufacture and sale of
pure phosphoric acid;
- It will increase the likelihood that purchasers of pure
phosphoric acid in the relevant geographic market will be forced to pay higher prices. In
fact, Rhodia's documents project higher pure phosphoric acid prices as a result of the
proposed acquisition of Albright & Wilson.
H. VIOLATIONS CHARGED
23. The acquisition agreements between Rhodia and Donau,
as described in Paragraph 5, violate Section 5 of the FTC Act, as amended, 15
24. The acquisition of Albright & Wilson by Rhodia, if
consummated, would violate Section 5 of the Federal Trade Commission Act, as amended, 15
U.S.C. § 45, and Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18.
WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade
Commission on this thirteenth day of March, 2000, issues its complaint against said
By the Commission, Commissioner Thompson dissenting.
Seal Donald S. Clark