FTC Accord in Dow/Sentrachem Merger To Maintain Competition in Market for Chelating Chemicals

The Federal Trade Commission announced today that it has reached a settlement agreement with The Dow Chemical Company that would allow Dow to complete its proposed $500 million tender offer for Sentrachem Limited, a South African chemical company that operates in the U.S. through its wholly-owned subsidiary, Hampshire Chemical Company. According to the FTC, Dow's proposed acquisition of Sentrachem would combine two of only three U.S. producers of chelating agents (also known as chelants). Chelants are used in cleaners, pulp and paper, water treatment, photography, agriculture, food and pharmaceuticals to neutralize and inactivate metal ions. The proposed settlement is designed to maintain competition in the market for these chemicals by requiring Dow to divest Hampshire's chelant business to Akzo Nobel N.V., a Dutch chemical company that is a leading European producer of chelants.

The Dow Chemical Company, based in Midland, Michigan, produces chemicals, plastics, and agricultural and consumer products. Dow manufactures chelants through its Chemical Division in Freeport, Texas. Hampshire produces chelants in Nashua, New Hampshire, and Deer Park, Texas, and chelant intermediates in Lima, Ohio. According to the FTC, Dow and Hampshire are the two largest domestic chelant producers and together would control over 70 percent of approximately $140 million in North American sales, absent the divestiture.

The proposed FTC complaint detailing the charges in the case alleges that the merger may substantially lessen competition in the research, development, manufacture, and sale of chelants and would likely lead to a unilateral price increase for this product. Entry into the chelant market would not be timely, likely, or sufficient to deter or offset the adverse effects of the acquisition on competition, the FTC said, because a new entrant would have to build both a chelant plant and a plant to produce hydrogen cyanide ("HCN"), a key input in the production of chelants. The agency alleged that this would take several years and entail large fixed, and mostly sunk, costs. In order to recoup its investment, a new entrant would need to obtain a market share at least as large as that held by any of the current domestic producers, which would be difficult because of the significant amount of chelant sales that are subject to long term supply agreements, the Commission said.

The proposed consent agreement would preserve the competition that otherwise would be lost. The proposal would require Dow, simultaneously with its acquisition of Sentrachem, to divest Hampshire's chelant business to Akzo, which currently imports small volumes of chelants into the United States. Akzo would acquire Hampshire assets used in the production of chelants, including intellectual property and customer information, Hampshire's Lima, Ohio facility, and its contract for the supply of HCN at Lima. Once it acquired the Hampshire chelant business, Akzo would build additional chelant capacity at the Lima facility, which would curtail the need for inefficient, hazardous HCN shipments from Lima to Hampshire facilities in Nashua, New Hampshire, and Deer Park, Texas. The proposed order would set milestones for the construction of the additional chelant capacity at Lima. If the milestones are not met, Dow would have to reacquire the Hampshire chelant business from Akzo and then divest the entire Hampshire business unit, which includes other Hampshire businesses and facilities in New Hampshire and Texas. Dow would be required to maintain the viability and marketability of the Hampshire business unit in the interim.

The proposed order also would require Dow to toll manufacture chelants for Akzo from Hampshire's New Hampshire and Texas facilities while Akzo builds additional chelant capacity at Lima. In addition, Dow would be required to maintain the confidentiality of the Hampshire chelant business by creating a firewall between it and Dow's competing chelant business.

The Commission vote to announce this proposed consent agreement for a 60-day public comment period was 4-0.

A summary of the agreement will be published shortly in the Federal Register. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000 per violation.

Copies of the complaint, proposed consent agreement, and an analysis of the agreement to assist the public in commenting are available on the FTC's web site at http://www.ftc.gov and also from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. Consent agreements subject to public comments also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 971-0105)