FTC Intervenes in Hexions Proposed Acquisition of Huntsman Corp.

Hexion LLC has agreed to settle Federal Trade Commission charges that its proposed $10.6 billion acquisition of rival chemical manufacturer Huntsman Corporation would violate antitrust laws by substantially lessening competition in the North American markets for various end-use markets for specialty epoxy resins and the market for methyl diisocanate (also known as diphenylmethane diisocyanate and commonly called MDI). The settlement requires that Hexion divest its specialty epoxy business and institute procedures to ensure that the MDI business it acquires will not have access to competitively sensitive non-public information obtained by its formaldehyde division.

Under the terms of the Commission’s order, Hexion’s specialty epoxy business will be divested to Spolek Pro Chemickou A Hunti Vyrobu (Spolek or Spolchemie), or another Commission-approved buyer. A restriction on sharing certain information has been included because prior to the acquisition, Hexion sold formaldehyde to Huntsman to make MDI. Following the acquisition, Hexion will produce MDI and also will sell formaldehyde to two other MDI competitors. The order will prohibit Hexion from obtaining nonpublic information from MDI competitors that could be used to coordinate prices and other activities over time.

“Hexion and Huntsman are leading competitors in markets for high-performance and specialty chemicals used in aerospace, power generation, and wind turbine applications,” said David P. Wales, Acting Director of the FTC’s Bureau of Competition. “The Commission’s action today ensures that the transaction will not lead to a reduction in competition or higher prices for these important products.”

According to the Commission’s complaint, the proposed transaction would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended, as it would lead to reduced competition for specialty epoxy resins in the various application specific markets in North America by eliminating direct competition between Hexion and Huntsman, and increasing the likelihood of the exercise of unilateral market power. Regarding MDI, the complaint charges that the likelihood of coordinated interaction among competitors would increase after the consummation of the deal.

Specialty epoxy resins are value-added, high-performance epoxy resins including, but not limited to, blends, formulations, advanced resins, and multi-functional resins. They are used with curing agents, modifiers, and other ingredients in demanding applications that require enhanced performance. Examples include aerospace composites, wind turbine blades, and electric power generation applications. The relevant geographic market for this transaction is North America. Specialty epoxy resins sold into each application segment constitute a distinct end-use market.

MDI is a chemical used in a range of applications, including construction insulation, refrigeration, and composite wood products. An essential ingredient in making MDI is formaldehyde, which gives MDI useful characteristics such as desirable insulating and mechanical properties, while allowing users to avoid the toxic properties of pure formaldehyde. The relevant geographic market for MDI also is North America.

The Commission’s complaint states that the North American markets for both specialty epoxy resins and MDI are highly concentrated, and Hexion and Huntsman have been the primary competitors in the specialty epoxy resin market for many years. Together, the two companies account for between 60 and 90 percent of sales in the various North American markets for specialty epoxy resins; each had close to $1 billion in specialty epoxy resins sales in 2007.

There are only four U.S. producers of MDI: Huntsman, Dow Chemical, BASF, and Bayer. Hexion currently provides formaldehyde to all MDI producers except for Dow Chemical and receives competitively sensitive information from each of them except Dow Chemical. This information includes production forecasts, demand forecasts, regular forecast updates, projected long-term forecasts, and other information such as the schedules for periodic MDI production facilities provided by Hexion. The complaint alleges that the $2 billion North American market for MDI and the formaldehyde used in its production is highly concentrated.

The consent order is designed to remedy the alleged anticompetitive impacts of the transaction as proposed. Under its terms, Hexion is required to divest its specialty epoxy resins business, and related assets, including plants in Stuttgart, Germany; Duisburg, Germany; parts of Norco, Louisiana; Bedford Park, Illinois; and Houston, Texas, to Spolek within 10 days of Hexion’s acquisition of Huntsman.

The Commission contends the sale of these assets will provide Spolek with all the assets and know-how necessary to compete in the research, development, production, and sale of specialty epoxy resins. Like Hexion, after the divestiture, Spolek will participate in both the commodity and specialty epoxy resin markets, positioning it to compete effectively in the marketplace.

In addition, the order requires Hexion to put procedures in place to ensure that its acquired MDI business does not have either direct or indirect access to competitively sensitive non-public information obtained from its formaldehyde division. The order also prohibits Hexion from using any competitively sensitive non-public information obtained from its competitors in anticompetitive ways.

The Commission vote to accept the complaint and consent order for public comment was 4-0. The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The complaint, consent order, and an analysis to aid public comment can be found on the Commission’s Web site at www.ftc.gov/os/caselist/0710212/index.shtm.

The agreement will be subject to public comment for 30 days, beginning today and continuing through October 31, 2008, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

International Cooperation

The European Commission’s Competition Directorate (EC), Canada’s Competition Bureau, and Mexico’s Federal Competition Commission also are reviewing or already have reviewed this proposed merger. Throughout the course of their respective investigations, FTC staff and their counterparts in those authorities communicated and cooperated with each other under the terms of their respective bilateral cooperation agreements and, in the case of the EC, the 2002 Best Practices on Cooperation in Merger Investigations.

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 documents related to this matter are available from the FTC's Web site at http://www.ftc.gov and the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(FTC File No. 071-0212)
(Huntsman-Hexion.final)