The Associated Octel Company Limited; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 991 0288]

The Associated Octel Company Limited; 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 November 19, 1999.

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

Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: William Baer, FTC/H-374, 600

Pennsylvania, Ave., NW, Washington, DC 20580. (202) 326-2932.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(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 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 September

7, 1999), 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, 600 Pennsylvania Avenue, NW., Washington,

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

Public comment is invited. Comments should be directed to: FTC/

Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW,

Washington, DC 20580. Two paper copies of each comment should be filed,

and should be accompanied, if possible, by a 3\1/2\ inch diskette

containing an electronic copy of the comment. 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 of Proposed Consent Order To Aid Public Comment

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

to final approval, an agreement containing a proposed Consent Order

from The Associated Octel Company Limited (``Octel''), which is

designed to resolve competitive concerns arising out of Octel's

proposed acquisition of Oboadler Company Limited (``Oboadler''). Under

the terms of the agreement, Octel will be required, among other things,

to supply lead antiknock compounds to Oboadler's current U.S.

distributor, Allchem Industries, Inc., for resale in the United States.

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

sixty (60) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

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proposed Consent Order and the comments received, and will decide

whether it should withdraw from the proposed Consent Order or make

final the proposed Order.

Pursuant to a Share Purchase Agreement dated June 1, 1999, Octel

has agreed to acquire 100 percent of the share capital of Oboadler for

approximately $100 million. Oboadler controls three operating companies

that, collectively, are engaged in the business of manufacturing and

selling lead antiknock compounds: Alcor Chemie AG, Alcor Chemie

Vertriebs AG, and Novoktan GmbH. The proposed Complaint alleges that

the acquisition of Oboadler, if consummated, would violate Section 7 of

the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal

Trade Commission Act, as amended, 15 U.S.C. 45, in the world market for

lead antiknock compounds.

Lead antiknock compounds are gasoline additives that contain

tetraethyl lead. The product is used to increase the octane rating of

gasoline, and thereby eliminate engine knock during the combustion

cycle and improve fuel efficiency. Worldwide use of lead antiknocks has

declined substantially since the early 1970's, and a continuing decline

in demand is forecast. Driven by public health concerns, nations around

the world are requiring refiners to adopt alternative methods of

increasing the octane level of gasoline. Currently in the United

States, lead antiknock compounds are added to aviation fuel for piston

engine aircraft, and to certain motor gasoline for racing cars.

The proposed Complaint alleges that the world market for the

manufacture and sale of lead antiknock compounds is highly

concentrated. Octel and Oboadler are two of only three firms in the

world that manufacture lead antiknock compounds. In the United States,

lead antiknock compounds manufactured by Octel are distributed by two

firms: Octel America Inc. (a subsidiary of Octel) and Ethyl Corporation

(``Ethyl'').\1\ In the United States, lead antiknock compounds

manufactured by Oboadler are distributed by Allchem Industries, Inc.

(``Allchem'').

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\1\ See The Associated Octel Company Limited and Great Lakes

Chemical Corporation, FTC Docket No. C-3815 (1998) (Commission order

requiring, inter alia, that Octel supply Ethyl with whatever volumes

of lead antiknock compounds Ethyl requires for resale to U.S.

customers).

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The proposed Complaint further alleges that entry into the market

would not be timely, likely and sufficient to deter or counteract the

adverse competitive effects of the acquisition on competition. Entry is

unlikely to occur because of the length of time and expense necessary

to construct production facilities, environmental regulations, and

ongoing decline in worldwide demand for lead antiknock compounds, and

the cost of environmental remediation at the manufacturing site when,

due to decline in demand, production is no longer commercially

practicable.

According to the proposed Complaint, the effect of the proposed

acquisition may be substantially to lessen competition by, among other

things, eliminating direct actual competition between Octel and

Oboadler in the relevant market, increasing the likelihood of

coordinated interaction between the remaining competitors in the

relevant market, and increasing the likelihood that consumers of lead

antiknock compounds will be forced to pay higher prices.

The proposed Consent Order is designed to protect U.S. consumers of

lead antiknock compounds from the exercise of market power resulting

from Octel's proposed acquisition. The foundation for the Consent Order

is a long-term supply agreement that Octel has entered into with

Allchem, Oboadler's U.S. distributor.\2\ The Supply Agreement provides

that Octel shall provide Allchem with unlimited quantities of lead

antiknock compounds for resale to customers in the United States.

Further, Allchem shall have the sole right to determine the customers

in the U.S. to whom the product will be resold, as well as the terms

and conditions of such resale.

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\2\ Agreement for the Supply of Tetra Ethyl Lead Additive dated

July 19, 1999, as amended by the Supplemental Agreement for the

Supply of Tetra Ethyl Lead Additive dated July 30, 1999 (hereinafter

collectively referred to as the ``Supply Agreement''). The Supply

Agreement goes into effect when Octel acquires Oboadler.

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The proposed Consent Order requires Octel to supply product to

Allchem for fifteen years in accordance with the terms and conditions

of the Supply Agreement, and subject to the termination provision

thereof.\3\ (Paragraph II) In addition, Octel is prohibited from

modifying certain key terms of the Supply Agreement except with the

prior approval of the Commission.\4\ (Paragraph III)

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\3\ At any time after year ten, Octel can terminate the Supply

Agreement provided that Octel has ceased to manufacture lead

antiknocks and has exited from the worldwide lead antiknocks

business.

\4\ The purpose of this provision is to prevent Octel and

Allchem from modifying the Supply Agreement in a manner that is

beneficial to each of them but harmful to U.S. consumers. To take an

extreme example, the Commission would likely disapprove a proposed

modification in which Allchem received a cash payment in return for

surrendering its right to purchase and resell lead antiknocks.

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The wholesale price to be charged to Allchem for lead antiknock

compounds is the product of negotiations between Octel and Allchem. If

the wholesale price is too high (relative to the price at which

Allchem, absent the acquisition, could have obtained product from

Oboadler), then prices to U.S. consumers may likewise be supra-

competitive. The proposed remedy relies upon Allchem's incentive to

negotiate the lowest possible price. The Supply Agreement negotiated by

the parties, should it take effect, will afford Allchem a reduction in

the wholesale price of lead antiknock compounds (relative to Allchem's

existing agreement with Oboadler).

The purpose of this analysis is to facilitate public comment on the

proposed Order, and it is not intended to constitute an official

interpretation of the agreement and proposed Order or to modify their

terms in any way.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 99-24308 Filed 9-17-99; 8:45 am]

BILLING CODE 6750-01-M