Monday, January 26, 2009

FTC Conditionally Clears Dow Chemical's Takeover of Rohm & Haas

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Dow Chemical Company on January 23 entered into a proposed agreement with the FTC that would enable it to proceed with its planned $18.8 billion takeover of rival chemical manufacturer Rohm & Haas Company.

The agency challenged the transaction on the ground that it would be anticompetitive and would violate federal antitrust law. Under the terms of a proposed consent order that would allow the acquisition to go forward, Dow would be required to sell a range of assets to an FTC-approved acquirer, including its acrylic monomer, hollow sphere particle, and acrylic latex polymer businesses. Dow also would have to put procedures in place to ensure that it would not have access to competitively sensitive non-public information regarding any businesses it acquires from Rohm & Haas.

FTC Complaint

The Commission's complaint against Dow alleged that the company's proposed acquisition of Rohm & Haas would reduce competition in the North American markets for the research, development, manufacture, and sale of certain acrylic monomers—including glacial acrylic acid, butyl acrylate, and ethyl acrylate—as well as hollow sphere particles and acrylic latex polymers. Each of these products is made from crude acrylic acid.

Glacial acrylic acid is used in the production of super-absorbent polymers found in personal care and hygiene products. Butyl acrylate and ethyl acrylate are acrylate esters from which the latex polymers used in paints, architectural coatings, and pressure-sensitive adhesives are created. Hollow sphere particles are a type of specialty polymer used in the manufacture of coated paper to provide gloss, brightness, and opacity. Acrylic latex polymer for traffic paint is a quick-drying polymer used to mark highway traffic lines.

According to the FTC, all of these markets are already highly concentrated, and the acquisition as proposed would lead to fewer competitors in each market. Furthermore, the complaint stated, given that Dow and Rohm & Haas are currently the only two suppliers in the markets for hollow sphere particles and acrylic latex polymer for traffic paint, the proposed transaction would amount to a merger to monopoly.

The FTC claimed that the proposed pact would eliminate direct and substantial competition between the companies in the relevant market and increase Dow's ability to exercise market power unilaterally. It was also alleged that the combination would increase the likelihood of coordinated interaction for acrylic acid, buyl acrylate, and ethyl acrylate. It was unlikely that these anticompetitive effects would be counteracted by new entry or fringe expansion into the relevant markets, the agency added.

Proposed Consent Order Terms

The proposed consent order would require Dow to divest a single part of its acrylic monomer and polymer research and development and production assets to a Commission-approved buyer. These assets would include production facilities in Texas, Louisiana, Illinois, and California, along with research and development groups in West Virginia and North
Carolina. The divestitures would include all of the technology related to these businesses. The order also would require Dow to license any intellectual property to the acquirer that is not directly related to, but is used in, those businesses and to provide certain input processes and transition services to the acquirer for a short time.

The consent order would remedy the competitive impact in the markets for hollow sphere particles and acrylic latex polymer for traffic paint by requiring Dow to sell intellectual property primarily used to make these products and to license certain other intellectual
property. Dow also would be required to supply hollow sphere particles and acrylic latex polymer for traffic paint to the acquirer at its manufacturing cost, until the buyer can develop its own manufacturing processes.

The order would require Dow to put procedures in place to ensure that it does not have access to any competitively sensitive information obtained from the businesses and facilities to be divested, or to use any information it already has in an anticompetitive matter.

Further, the order would allow the FTC to appoint an interim monitor to ensure that Dow complies with its obligations. If Dow does not sell the assets it is required to divest within 240 days of when the consent order is accepted for public comment or 240 days from the acquisition date, whichever is later, a Commission-appointed divestiture trustee would be permitted to sell the assets on its behalf. Finally, the order contains reporting and record keeping requirements to ensure Dow’s compliance with its terms.

Further information, including a news release, appears here on the FTC website.

European Commission Approval

The European Commission (EC) already approved outright the deal originally proposed by the companies. According to a January 9 statement by the EC, the companies' combination would not significantly impede effective competition within the European Economic area, despite an overlap in their activities in a large number of product markets, as well as the creation of numerous vertical links between upstream and downstream product markets where one or both was present.

Focusing on two areas of overlap that it deemed most significant—(1) crude acrylic acid and its derivatives and (2) ion exchange resins—the EC's investigation of the deal found that the merged entity would continue to face a number of effective competitors in each market.

There was no risk of market foreclosure in the markets for products in the value chain where crude acrylic acid and its derivatives were used, the EC concluded. Moreover, the combination would not be harmful to exchange resin customers, notwithstanding the merged entity's relatively high market share, as Dow Chemical and Rohm & Haas are not presently each other's closest competitor in those markets

Canadian Competition Bureau

On January 23, the Canadian Competition Bureau announced that commitments made by Dow Chemical Company to the Bureau and to U.S. antitrust authorities resolved the Bureau’s competition concerns with the acquisition. Among the assets Dow agreed to divest were intellectual property rights relating to the marketing and sale of the divested products in Canada.

"After an extensive review of this transaction and given Dow Chemical’s divestitures and other commitments to the Bureau, the parties have remedied our concerns," said Melanie Aitken, Interim Commissioner of Competition.

The Bureau had concluded that the merger would likely result in a substantial lessening or prevention of competition in Canada for the supply of acrylic acid products, acrylic latex polymer products, and hollow sphere particle products. Both Dow and Rohm and Haas are large suppliers of these chemicals in Canada and the Bureau was concerned about the impact of the merger, including the potential for higher prices.

An announcement appears here on the Competition Bureau's website.

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