FTC Intervenes in BASFs Proposed $5.1 Billion Acquisition of Ciba Holding Inc.

BASF has settled Federal Trade Commission charges that its proposed $5.1 billion acquisition of rival chemical manufacturer Ciba Holding Inc. would be anticompetitive and violate federal law by reducing competition in the worldwide markets for two high performance pigments. Under the terms of a consent order allowing the transaction to proceed, the FTC requires BASF to sell all assets, including the intellectual property related to the two pigments, bismuth vanadate and indanthrone blue, to a Commission-approved buyer within six months.

“High performance pigments are used to provide color to a large number of products across the U.S. economy, including cars, building materials, construction equipment, inks, and plastics,” said Acting FTC Bureau of Competition Director David P. Wales. “The Commission’s action today preserves the competition that would have been lost with this transaction and ensures that consumers do not pay higher prices.”

BASF, headquartered in Ludwigshafen, Germany, is the world’s leading chemical company, manufacturing plastics, agricultural products, fine chemicals, and high performance pigments. Ciba, based in Basel, Switzerland, is a leading supplier of chemicals used to provide color performance and care for plastics, coatings, textiles, paper, and home and personal care products. On September 15, 2008, the companies announced an agreement and plan of merger under which BASF would acquire all of Ciba’s outstanding stock for approximately $5.1 billion.

Pigments are small particles used to impart color to a range of products, including inks, coatings, plastics, and fibers. Bismuth vanadate, which imparts a brilliant yellow coloration with a green tint, and indanthrone blue, which imparts a blue coloration with a red tint, are both high performance pigments. High performance pigments offer superior durability and light-fastness compared to other types of chemical pigments. This makes them particularly suited for products exposed to sunlight and weather, such as automotive coatings. There are no viable substitutes for these two pigments in the applications for which they are used.

The Commission’s complaint alleges that the worldwide markets for both pigments are highly concentrated. A combined BASF/Ciba would control 60 percent of bismuth vanadate sales, and the proposed transaction would reduce the number of significant manufacturers from four to three in that market. In the indanthrone blue market, BASF and Ciba are two of only three significant suppliers, with a combined market share of more than 50 percent. By eliminating competition between BASF and Ciba, the proposed transaction would allow the combined firm to exercise unilateral market power, the FTC contends, and also would increase the likelihood of coordinated interaction with the remaining firms in each market.

Entry into either relevant market is not likely to be timely or sufficient to counteract the anticompetitive effects of BASF’s acquisition of Ciba. The Commission estimates that it would take well over two years for a new entrant to become competitive in either relevant market.

The proposed consent order is designed to remedy the anticompetitive impact of the proposed transaction in the two markets. Under the terms of the order, BASF is required to divest the assets used to research, develop, manufacture, and sell the products to a Commission-approved buyer or buyers that will enable the acquirer to replace the competition lost as a result of the transaction.

Specifically, the consent order requires BASF to divest Ciba’s bismuth vanadate production assets in Europe, or provides a means by which – at the acquirer’s option – production can be relocated to the acquirer’s production facilities. Similarly, the order requires BASF to use Ciba’s indanthrone blue production assets to produce pigments for the acquirer at Ciba facilities until the acquirer is prepared to shift Ciba’s indanthrone blue production to its own facilities. The order also requires BASF to divest tangible assets and intellectual property used to make both products.

In addition, the consent order requires BASF to provide other relief to the acquirer, such as supply agreements and protections for confidential information, and to facilitate the hiring of key employees. The order also allows the FTC to appoint an interim monitor to ensure that BASF complies with all of its obligations. Finally, the FTC may appoint a divestiture trustee to sell the relevant assets if BASF fails to sell them within six months after the consent agreement is accepted by the Commission for public comment.

The Commission vote to accept the complaint and proposed consent order and place copies on the public record 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 now on the Commission’s Web site at http://www.ftc.gov/os/caselist/0810265/index.shtm.

The proposed consent order will be subject to public comment for 30 days, beginning today and continuing through May 1, 2009, 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, DC 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. To file a public comment electronically, please click on the following hyperlink:
http://www.ftc.gov/os/2009/04/090402basfcomment.pdf and follow the instructions at that site.

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 $16,000.

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, DC 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 383, 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. 081-0265)
(BASF.final.wpd)