FTC Challenges Chicago Bridge's Acquisition of Pitt-Des Moines' Industrial and Water Storage Tanks Assets

The Federal Trade Commission today issued an administrative challenge to resolve competitive issues resulting from a February 2001 acquisition by Chicago Bridge & Iron Company N.V. (CB&I) of the Water Division and Engineered Construction Division of Pitt-Des Moines, Inc. (PDM).

CB&I, a Dutch company based in Amsterdam, is one of the world's leading global engineering and construction companies. PDM, based in The Woodlands, Texas, was a diversified engineering and construction company, and a distributor of a broad range of carbon steel products.

Prior to the February transaction, CB&I and PDM competed against each other as the two leading U.S. producers of large, field-erected industrial and water storage tanks and other specialized steel-plate structures. The FTC's complaint alleges that the acquisition violated federal antitrust laws by substantially lessening competition in four relevant specialty industrial storage tank markets.

If the FTC's charges are upheld at the conclusion of the administrative trial, the agency may impose an order that would re-establish two distinct and separate, viable and competing businesses engaged in the design, engineering, fabrication, construction and sale of each relevant product.

"Unlike the typical situation, this merger was consummated. Our actions here should make clear to companies and their antitrust counsel that we are quite prepared to bring action against consummated mergers," said FTC Bureau of Competition Director Joe Simons. "Antitrust counsel would be well advised to counsel their clients about the likely consequences of consummating transactions that raise substantial competitive issues, including bearing the risk of unscrambling the eggs, if necessary."

The FTC's complaint detailing the charges alleges that the acquisition significantly reduced competition in four separate markets involving the design and construction of various types of field-erected specialty industrial storage tanks in the United States:

• LNG tanks are designed to hold liquefied natural gas at cryogenic temperatures, and are often 200 feet or larger in diameter, holding 15 million gallons or more;
• LPG tanks are designed to hold large amounts of liquid petroleum gas at temperatures near -50 Fahrenheit and are as large as 200 feet in diameter;
• LIN/LOX/LAR tanks, designed to store liquid oxygen, liquid nitrogen, and liquid argon at cryogenic temperatures, are similar to LNG tanks but are smaller and typically hold 400,000 to 1 million gallons of gas; and
• Thermal vacuum chambers are large, vault-like chambers that simulate the environment of outer space and are used for testing satellites and other aerospace and defense equipment.

According to the FTC, the combination of the two companies has resulted in a monopoly in the U.S. markets for two of the more difficult and costly products to construct -- LNG tanks and thermal vacuum chambers. In addition, the combination of the two companies has resulted in a dominant firm in the U.S. markets for LPG tanks and LIN/LOX/LAR tanks. CB&I and PDM are the two largest of a small number of U.S. producers of LIN/LOX/LAR tanks and LPG tanks, and have been the dominant U.S. producers of all four types of these specialized structures for the last 25 years, having constructed virtually all of the LNG tanks, LPG tanks, and thermal vacuum chambers in the United States and most of the LIN/LOX/LAR tanks in the United States. As a specific example of the anticompetitive prospects generated by the deal, CB&I and PDM as competitors -- prior to the acquisition -- accounted for 93 of the 99 LNG tanks that were built in the U.S. since 1975.

In addition to the direct elimination of horizontal competition that the FTC charges, the acquisition likely will have vertical anticompetitive effects in the related markets for LNG liquefaction units and import terminals. The acquisition consequently will diminish price and innovation competition in these markets, according to the FTC..

The complaint alleges that the acquisition may substantially lessen competition in the following ways, among others:

• eliminating actual, direct, and substantial competition between CB&I and PDM;
• removing PDM, a low-cost producer and bidder for the relevant products;
• increasing the level of concentration in the relevant markets; and
• allowing CB&I unilaterally to exercise market power in the relevant markets through the combination of CB&I and PDM, which are the two closest competitors by virtue of their long record of timely and successful completion of these specialty projects.

In addition, the acquisition may lead to increases in prices or increased barriers to entry, or may give CB&I market power in the relevant markets, the FTC alleges.

The FTC's notice of contemplated relief recognizes that in order to re-establish competition, it may be necessary to ensure the creation of one or more viable, competitive independent entities to compete against CB&I in the manufacture and sale of any relevant product. To restore the loss of competition, CB&I would have to divest assets that are sufficient to recreate a leading competitor in each of the relevant product markets. The divestitures would be subject to FTC approval.

The Commission vote to issue the administrative complaint was 4-0, with Commissioner Sheila Anthony recused.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the named parties have violated the law. The complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing.'

Copies of the administrative complaint and notice of contemplated relief are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.