Degussa Aktiengesellschaft, et al.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 971-0118]

Degussa Aktiengesellschaft, et al.; Analysis To Aid Public

Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before June 2, 1998.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

Joseph Krauss, FTC/H-386, Washington, D.C. 20580. (202) 326-2713.

SUPPLEMENTARY INFORMATION: Pursuant to Section 69(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for March 30, 1998), on the World Wide Web, at ``http://www.ftc.gov/

os/actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, N.W.,

Washington, DC 20580, either in person or by calling (202) 326-3627.

Public comment is invited. Such comments or views will be considered by

the Commission and will be available for inspection and copying at its

principal office in accordance with Section 4.9(b)(6)(ii) of the

Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis To Aid Public Comment on the Provisionally Accepted

Consent Order

The Federal Trade Commission (``Commission'') has accepted, subject

to final approval, an Agreement Containing Consent Order from Degussa

Aktiengesellschaft and Degussa Corporation (collectively ``Degussa'').

The proposed Order is designed to remedy anticompetitive effects

stemming from a proposed transaction between Degussa and E.I. du Pont

de Nemours & Co. (``DuPont''). On July 30, 1997, representatives of

Degussa and DuPont signed a Letter of Intent setting out the elements

of a proposed transaction whereby Degussa would require, inter alia,

the assets of DuPont's worldwide hydrogen peroxide business, including

its North American production facilities in Memphis, Tennessee;

Maitland, Ontario; and Gibbons, Alberta, in exchange for $325 million.

The parties have since proposed a modified transaction, whereby Degussa

will acquire only DuPont's production facility in Gibbons, Alberta, and

DuPont will retain its facilities in Memphis, Tennessee, and Maitland,

Ontario.

The Agreement Containing Consent Order, if finally accepted by the

Commission, would settle charges that the acquisition, as originally

proposed, may have substantially lessened competition in the North

American hydrogen peroxide market. The Commission has reason to believe

that Degussa's original proposal to acquire DuPont's hydrogen perxide

business, if consummated, would have violated Section 7 of the Clayton

Act and Section 5 of the Federal Trade Commission Act. The proposed

complaint, described below, relates the basis for this belief.

The proposed Order has been placed on the public record for sixty

(60) days for reception of comments from interested persons. After

sixty (60) days the Commission will again review the Agreement and the

comments received and will decide whether it should withdraw from the

Agreement or make final the Agreement's proposed Order.

The Proposed Complaint

According to the Commission's proposed complaint, Degussa

Aktiengesellschaft is a German corporation with worldwide sales

exceeding $8.7 billion in 1997, which is engaged in, inter alia, the

development and manufacture of chemicals, pharmaceutical specialties,

and precious metals. Degussa Corporation, a wholly-owned subsidiary of

Degussa A.G., manufactures and distributes widely diverse products in

the markets for chemicals, pigments, metals, and dental materials in

the United States, Canada, and Mexico. Among these products is hydrogen

peroxide. In 1996, Degussa has sales in excess of $2.3 billion, to

which sales of hydrogen peroxide contributed $65 million. DuPont is a

publicly-traded corporation with reported revenues in 1996 of $43.8

billion and net income of $3.6 billion. DuPont is one of the largest

chemical companies in the world, operating about 175 manufacturing and

processing facilities in approximately 70 countries. DuPont is engaged

in diverse businesses, including chemicals, fibers, films, polymers,

petroleum, agricultural products, biotechnology, and pharmaceuticals.

In 1996, DuPont posted sales of hydrogen peroxide of $156 million in

North America.

According to the proposed complaint, the relevant line of commerce

in which to analyze the effects of Degussa's proposed acquisition of

Dupont's hydrogen peroxide production assets is the market for hydrogen

peroxide, and the relevant geographic market is North America. The

Commission's proposed complaint further alleges that the North American

market for hydrogen peroxide is highly concentrated, and that the

originally proposed acquisition would have increased concentration, as

measured by the Herfindahl-Hirschman Index, by close to 600 points, to

a level of over 2500. With the acquisition as modified, in which

Degussa would acquire only DuPont's Gibbons plant, the level of the HHI

would actually decrease. The proposed complaint charges that 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 to deter or

counteract anticompetitive effects of the originally proposed

acquisition.

The proposed complaint alleges that the acquisition, as originally

proposed, would likely lead to a substantial lessening of competition

in the North American hydrogen peroxide market. The acquisition would

substantially increase concentration in a market that is already highly

concentrated. The increased concentration would enable the firms

remaining in the market to engage more successfully and more completely

in coordinated interaction. The complaint cites several bases for this

conclusion. Significantly, there is a long history of collusion, both

tacit and express, among the firms that would remain after the proposed

acquisition, involving hydrogen peroxide and its derivative products.

In addition, evidence demonstrates that competitive information in the

North American hydrogen peroxide market is sufficiently available to

allow producers to engage in coordinated interaction. Practices

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such as public announcement of price increases, and the use of meeting

competition clauses in contracts, serve to make competitive information

available. There is also evidence of a strong degree of mutual

interdependence among hydrogen peroxide producers, and evidence of

market tendencies toward coordination and forbearance. For example,

sales of hydrogen peroxide among producers are made with some

frequency, and in some cases appear to be intended to avoid competitive

conflicts. Finally, the complaint also cites projections in documents

that prices would be higher after the acquisition than they otherwise

would have been.

The Proposed Order

The proposed Order contains a provision that requires Degussa to

obtain the prior approval of the Commission of an acquisition of either

of the two plants that DuPont would retain. In addition, it contains a

provision that requires Degussa to provide prior notification to the

Commission before consummating an acquisition of any other North

American hydrogen peroxide production facilities, unless such

acquisition must be reported under the Hart-Scott-Rodino Antitrust

Improvement Act of 1976, 15 U.S.C. 18a (``HSR''). This provision

specifically requires that Degussa comply with HSR-like premerger

notification and waiting periods.

In accord with the Commission's Statement of Policy Concerning

Prior Approval and Prior Notice Provisions, 60 FR 39,745 (Aug. 3,

1995), reprinted in 4 Trade Reg. Rep. (CCH) para. 13,241, the prior

approval provision ensures that the Commission will have the

appropriate mechanism with which to review the originally proposed

acquisition, which appeared likely to have anticompetitive effects. The

prior notice provision, in addition, ensures that the Commission will

obtain notification of hydrogen peroxide acquisitions by Degussa,

including potential acquisitions in Canada, that may raise antitrust

concerns but would not be reportable under HSR. The prior approval and

prior notification provisions therefore afford the Commission ample

opportunity to guard against such potentially anticompetitive

acquisitions.

The purpose of this analysis is to invite public comment concerning

the proposed order. This analysis is not intended to constitute an

official interpretation of the agreement and order or to modify their

terms in any way.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 98-8764 Filed 4-2-98; 8:45 am]

BILLING CODE 6750-01-M