Hoechst AG, et al.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 991 0071]

Hoechst AG, 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 January 6, 2000.

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

Room 159, 600 Pennsylvania Ave., NW, Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Richard Parker or Elizabeth Jex, FTC/

H-374, 600 Pennsylvania Ave., NW, Washington, D.C. 20580. (202) 326-

2574 or 326-3273.

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 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 thirty (30) 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 December 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,

D.C. 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, D.C. 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

provisionally an agreement containing a proposed consent order from

Hoechst AG (``Hoechst'') and Rhone-Poulenc S.A. (``RP'') under which RP

would be required: (1) To divest the assets relating to RP's direct

thrombin inhibitor drug Revasc; and (2) to divest its interest in

Rhodia, its specialty chemicals subsidiary which produces cellulose

acetate, to a level of 5% or less and to sequester that interest

pending its divestiture, thereby preserving competition in the

manufacture, marketing, and sale of cellulose acetate thermoplastics.

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

thirty (30) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After thirty (30) 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

Consent Order.

In a proposed merger agreement, Hoechst and RP will combine most of

their respective businesses through an exchange offer by RP for all of

Hoechst's outstanding shares, with Hoechst shareholders receiving one

RP share for each 1.33 outstanding Hoechst shares. Thereafter, the

merged entity will be renamed Aventis S.A. (``Aventis''). The proposed

complaint alleges that the proposed merger, if consummated, would

constitute a 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 markets for: (1) Cellulose acetate; and (2) direct thrombin

inhibitors. The proposed Consent Order would remedy the alleged

violations by replacing the lost competition that would result from the

merger.

Cellulose Acetate

Cellulose acetate is a thermoplastic that is used to produce, among

other products, cigarette filters, tool handles, tapes and films. In

applications where it is used, there are no cost effective substitutes.

U.S. consumers purchase approximate $1 billion worth of cellulose

acetate yearly.

The market for cellulose acetate is highly concentrated. Three

companies currently produce cellulose acetate in the United States: (1)

Eastman Chemical Company (``Eastman''); (2) Primester, a joint venture

whose shares are owned 50% by Eastman and 50% by Rhodia (a specialty

chemicals company that is itself 67% owned by RP); and (3) Celanese

Limited (``Celanese''), until recently a wholly-owned subsidiary of

Hoechst. Celanese controls approximately 46% of U.S. production

capacity, Eastman owns approximately 44% of U.S. production capacity,

and Primester holds the remaining 10%. Eastman and Rhodia are each

entitled to one-half of the production of Primester. Rhodia currently

sells cellulose acetate only outside the United States; thus Celanese

and Eastman are the only companies currently selling cellulose acetate

in the United States.

There are significant barriers to entry into the cellulose acetate

market. In order to enter the market, a firm must incur substantial

sunk costs to build a dedicated production facility. Moreover,

reductions in the demand for this material and its limited growth

potential create disincentives to new entry.

The merger of RP and Hoechst will increase the likelihood of

coordinated interaction in the market for cellulose acetate. The Kuwait

Petroleum Company (``PC'') will hold significant interests in Celanese

and Aventis after the merger. Because the remaining shareholders of

Celanese and Aventis are (and will remain) widely diversified, KPC

currently owns a controlling interest in Celanese, and will acquire

working control (defined as 10% or more interest in a corporation whose

stock is widely held) of Aventis. These shareholdings could permit KPC

to

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coordinate the activities of Celanese and, through Aventis, Rhodia and

Primester after the merger. In addition, Aventis' indirect holding,

through Rhodia, of 50% of the Primester joint venture with Easement may

facilitate coordination between the KPC-controlled entities and

Easement following the merger. For these reasons, the proposed

transaction could create conditions that increase the likelihood of

collusion in the cellulose acetate market.

On September 15, 1999, the parties entered into undertakings with

the Antitrust Directorate of the European Commission (``EC'') to

resolve competitive concerns raised by the proposed merger of Hoechst

and RP to form Aventis. Among other conditions, the EC undertakings

required Hoechst to spin off Celanese and required RP to divest its

holding in Rhodia. Pursuant to those undertakings, Hoechst spun off the

Celanese division to Hoechst shareholders on October 26, 1999. To date,

RP has not divested Rhodia, and the EC undertakings did not require RP

to divest Rhodia prior to the formation of Aventis.

The proposed Consent Order is designed to supplement the EC

undertakings by preserving interim competition among Celanese, Rhodia

and Eastman in the cellulose acetate market in the United States

pending Aventis' divestiture of Rhodia. The proposed Consent Order

requires the parties to divest their holding of Rhodia to a level of 5%

or less of total outstanding shares within three months of the date the

consent agreement is accepted by the Commission for public comment. In

the case of shares held in escrow as collateral for RP debt

obligations, the shares must be divested within six months of the end

of the exchange period for those shares. The proposed Consent Order

also requires the parties to refrain from participating in the

decisions of, seeking to influence the conduct of, or receiving

confidential business information concerning Rhodia's cellulose acetate

business.

Direct Thrombin Inhibitors

Direct thrombin inhibitors are used in the treatment of various

blood clotting diseases. While certain other products may also be used

for the treatment of blood clotting diseases, direct thrombin

inhibitors are both more effective and safer than any available

alternatives. U.S. sales of direct thrombin inhibitors currently total

only approximately $15 million, but have the potential to increase

significantly in the future.

Hoechst sells the only direct thrombin inhibitor currently on the

U.S. market, Refludan. RP is in the final stages of developing its

direct thrombin inhibitor, Revasc, which is licensed from Novartis AG

(``Novartis'') in 1998. RP plans to submit its New Drug Application for

Revasc to the Food and Drug Administration for approval shortly.

Available evidence indicates the RP and Hoechst are each other's

closest competitors in the direct thrombin inhibitor market. Each party

priced its products in relation to those of the other and based its

product development strategy on the other's development and position in

the market. Other companies currently developing direct thrombin

inhibitors are years behind Hoechst and RP.

The planned merger is likely to create anticompetitive effects in

the direct thrombin inhibitor market by eliminating the actual, direct,

and substantial competition between Hoechst and RP that would otherwise

continue to exist. In addition, the proposed transaction reduces

potential competition and innovation competition among researchers and

developers of direct thrombin inhibitor products by eliminating a

significant competitor and increasing the barriers to entry to others

by, among other results, combining RP and Hoechst's portfolios of

patents and patent applications.

To resolve these anticompetitive concerns, the proposed Consent

Order is designed to transfer all of RP's rights in the direct thrombin

inhibitor Revasc to Novartis or an independent third party. Novartis

(the original licensor) holds a contractual right of prior approval for

any transfer of RP's rights in Revasc to any third party. Thus, while

other companies have expressed interest in acquiring the rights to

Revasc, none may do so without the prior approval of Novartis. The

proposed Consent Order requires the parties to return RP's rights in

Revasc to Novartis or to sublicense all such rights to another company,

subject to Novartis's contractual right of approval. The proposed

Consent Order would also require the parties to enter into a short-term

service contract with the acquirer of the Revasc rights in order to

ensure the continued performance of development work on Revasc. Should

RP be unable to divest Revasc during the allotted time period, the

proposed Consent Order permits the appointment of a trustee to divest

either RP's Revasc assets or the North American rights to Hoechst's own

drug, Refludan. Further, in order to prevent any interim harm to assets

related to Revasc, the parties have signed a trustee agreement and an

Interim Trustee has been approved by the Commission. The proposed

Consent Order would provide for the immediate involvement of the

Interim Trustee to ensure the continued development and viability of

Revasc as an independent competitor to Hoechst's Refludan.

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

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

official interpretation of the agreement and proposed Consent Order or

to modify their terms in any way.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 99-32893 Filed 12-17-99; 8:45 am]

BILLING CODE 6750-01-M