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Under the terms of a proposed consent agreement announced today, the Federal Trade Commission would allow DSM N.V.'s (DSM) proposed $1.89 billion acquisition of Roche Holding AG's (Roche) Vitamins and Fine Chemicals division (RV&FC) to proceed, provided DSM divests its phytase business to BASF AG (BASF) within 10 days of the consummation of the transaction. DSM (with BASF) and Roche (with Novozymes) are in alliances that produce and market phytase - an enzyme added to poultry and swine feed to promote the digestibility of phosphorus and other nutrients that are vital to livestock production. According to the FTC, absent the proposed consent order, the transaction would lead to DSM being part of alliances that supply more than 90 percent of the $150 million phytase market worldwide.
"Without the divestiture required by the order, this transaction would result in a near monopoly in the market for phytase," said Susan Creighton, Director of the FTC's Bureau of Competition. "The relief ensures that competition will not be diminished as a result of the transaction."
DSM, headquartered in the Netherlands, is a $7 billion multi-national firm that is active in numerous industries, including food, pharmaceuticals, and transportation. Through its alliance with BASF, DSM is the largest phytase supplier in the world, manufacturing the product at its enzyme fermentation plant in Seclin, France, and through a manufacturing agreement with FermPro, an enzyme fermentation operation located in Kingstree, South Carolina. In 2002, the DSM/BASF alliance had global phytase sales totaling approximately $80 million.
Roche is a $21 billion global healthcare firm, with headquarters in Basel, Switzerland. The company's RV&FC division researches, develops, manufactures, and sells vitamins, carotenoids, and fine chemicals used in the animal nutrition, food, pharmaceutical, and chemical industries. Through its alliance with Novozymes, Roche is the second-largest supplier of phytase in the world, with 2002 sales of $59 million. The alliance produces its phytase products at plants in Kalundborg, Denmark, and Franklington, North Carolina.
According to the FTC's complaint, absent the relief required by the proposed consent order, DSM's purchase of RV&FC would violate Section 5 of the FTC Act and Section 7 of the Clayton Act. Specifically, the proposed acquisition would have a significant adverse effect on competition in the worldwide market for phytase.
Before the acquisition, the DSM/BASF and Novozymes/Roche alliances competed vigorously in the growing phytase market, resulting in substantial price discounting for customers. This competition also encouraged the alliances to invest in research and development designed to improve their products and to keep pace with those being developed by the other alliance. The proposed acquisition, however, would link the two previously separate alliances, allowing them to coordinate their action and eliminate competition between the only two significant participants in the worldwide phytase market. Further, it would allow DSM to exercise market power unilaterally, increasing the likelihood that phytase customers would face higher prices and reduced innovation and product quality.
Entry into the phytase market is difficult and time-consuming, according to the FTC, and is unlikely to remedy the competition lost as a result of the proposed transaction. Obstacles a new entrant likely would face include patents held by existing market participants, a long-term development process, and a federal regulatory process that can take two years or more.
The proposed consent order remedies the acquisition's alleged anticompetitive effects in the worldwide market for phytase by requiring DSM to divest its phytase business to BASF no later than 10 days after it closes its proposed purchase of RV&FC. Assets to be divested include phytase-related intellectual property, phytase scientific and regulatory material, phytase manufacturing technology, books and records, and other assets used in the research, development, manufacture, and marketing of phytase.
According to the FTC, BASF is well-positioned to acquire these assets and become an independent competitor in the phytase market. Acting as DSM's phytase alliance partner, BASF is already responsible for marketing and selling DSM's phytase enzyme, and customers already associate it with BASF, not DSM. In addition, BASF, because of its alliance with DSM, has knowledge of DSM's research, development, and manufacturing efforts related to phytase and will be able to assume these responsibilities. Finally, the FTC contends that BASF poses no separate anticompetitive concerns as a purchaser of the phytase assets.
To ensure the divestiture to BASF is successful and expeditious, the proposed order requires that DSM provide technical assistance with ongoing research projects at BASF's request for six months, while these projects are being transferred. Further, DSM is required to manufacture phytase, again at BASF's request, for up to two years to eliminate the possibility of a delay or interruption in BASF's supply of phytase. DSM also is required to provide BASF with the opportunity to enter into employment agreements with key employees and to provide financial incentives for certain employees to accept jobs with BASF. For one year, DSM is prohibited from hiring any BASF employee with phytase-related responsibilities. Finally, the proposed order establishes fire walls to prevent information relating to the DSM/BASF phytase business from being transferred to the Novozymes/Roche alliance.
The proposed consent order also contains an Order to Hold Separate and Maintain Assets to preserve the full economic viability, marketability, and independence of the phytase assets to be divested. The Hold Separate Order will ensure that the competitiveness of the divested assets is not diminished prior to their transfer to BASF. Under its terms, the FTC may appoint one or more monitors to ensure DSM expeditiously complies with its divestiture obligations.
The Commission vote to accept the proposed consent order and place a copy on the public record, to issue the Order to Hold Separate and Maintain Assets, to approve an interim monitor agreement, and to appoint an interim monitor was 5-0. The proposed consent order will be subject to public comment for 30 days, until October 23, 2003, after which the Commission will determine whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580. This settlement was coordinated closely with the European Commission which also reviewed and took enforcement action in this matter.
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.
Copies of the complaint, proposed consent order, and an analysis to aid public comment 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, DC. 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.