FTC Accepts Consent Agreement Allowing Rhodia, Donau Chemie AG to Acquire Albright & Wilson, Protecting Competition in the Market for Pure Phosphoric Acid

The Federal Trade Commission has reached a proposed settlement agreement with Rhodia, Donau Chemie AG (Rhodia) and Albright & Wilson PLC (A&W) that, subject to final approval, would allow Rhodia's proposed acquisition of A&W while addressing anticompetitive concerns the Commission has identified surrounding the transaction. Under the terms of the proposed consent, Rhodia would be required to divest to Potash Corp. of Saskatchewan (PCS), A&W's pure phosphoric acid business in the U.S. Over the past several years, A&W and PCS have been partners in a phosphate manufacturing joint venture that includes, among other assets, a pure phosphoric acid production facility in Aurora, North Carolina.

"This agreement, once finalized by the Commission, will ensure that competition in the highly concentrated market for pure phosphoric acid is maintained following the completion of the proposed acquisition," said the FTC's Director of the Bureau of Competition Richard Parker.

PCS, based in Saskatoon, Saskatchewan, is the world's third-largest producer of agricultural grade phosphoric acid, which is used as fertilizer. PCS also produces other fertilizer materials such as nitrogen and potash. A publicly traded Canadian company, it had an operating income of $446 million and a net income of $261 million in 1998, based on sales totaling $2.3 billion. In addition to operating the joint venture's pure phosphoric acid plant in Aurora, PCS also owns and operates an adjacent phosphoric acid plant that provides the feedstock for the joint venture's plant.

According to the Commission's complaint, Rhodia's acquisition of A&W as originally proposed would substantially lessen competition in the U.S. market for pure phosphoric acid, a chemical used to produce a wide variety of consumer and industrial products, ranging from cola beverages to cleaning materials and metal treatments. The complaint further alleges that the market for pure phosphoric acid in the United States is highly concentrated, and that the proposed acquisition would increase market concentration significantly. In its complaint, the Commission noted that Rhodia and A&W are the only two major domestic producers of pure phosphoric acid that currently use the low-cost solvent extraction process.

In addition, according to the complaint, entry into pure phosphoric acid production would not be timely, likely or sufficient to deter or offset the adverse effects of the acquisition on competition. Entry would be difficult, the Commission contends, due to the length of time it would take to build new production facilities, and due to the large plant scale required to be a cost efficient producer of pure phosphoric acid. Significant expansion by smaller producers is also unlikely, according to the complaint.

Finally, the complaint alleges that the proposed acquisition would reduce competition by making coordinated interaction among the remaining producers of pure phosphoric acid more likely, leading to higher prices in the future.

To address and remedy these anticompetitive concerns, the Commission's agreement with the companies would require the divestiture to PCS of A&W's pure phosphoric acid business in the United States, including A&W's interest in the joint venture, as well as the joint venture manufacturing assets, including the Aurora pure phosphoric acid plant and a Cincinnati phosphates plant. The order would also require the companies to provide PCS with technology that A&W has developed for manufacturing pure phosphoric acid and for using it in certain applications. PCS would then be able to use that technology to build pure phosphoric acid plants both within and outside the United States, and to license the technology to other firms that want to build similar plants. Finally, under the terms of the proposed order, Rhodia and A&W would be required to divest other assets related to the pure phosphoric acid business, including customer lists, contracts and other assets, to ensure that PCS obtains a viable ongoing business.

If, at the time that the order is accepted for public comment, the Commission notifies Rhodia and A&W that it does not approve of the proposed divestiture to PCS (or the manner of the divestiture), the order provides that the companies would have 120 days to divest A&W's pure phosphoric acid business to a different acquirer approved by the Commission. If the divestiture is not completed in that time, a Commission-appointed trustee would be designated.

The proposed agreement contains an Order to Maintain Assets that would require that Rhodia and A&W preserve the A&W assets as a viable and competitive operation until their divestiture to the Commission-approved acquirer. Under this provision, the companies also would be required to maintain a sufficient inventory of pure phosphoric acid to ensure that there is no shortage of supply during the time that the business is being transferred to the acquirer. The proposed order also contains routine record-keeping and reporting requirements to ensure compliance with its provisions.

The order would not require the divestiture of A&W's pure phosphoric acid plant in Mexico, which does not export pure phosphoric acid to customers in the United States. The pure phosphoric acid produced by this plant is used primarily in home laundry detergents in Mexico, an application that no longer exists in the United States.

The Commission vote to accept the proposed consent agreement was 4-1, with Commissioner Mozelle Thompson dissenting and issuing a separate statement that cited his disagreement with the majority's complaint, which "narrowly defines the relevant market for pure phosphoric acid...as within the boundaries of the United States." Commissioner Thompson stressed that geographic market definition must consist of an analysis that goes beyond current shipment patterns, and that "Mexican capacity could be used to supply customers in the United States." The consequence of defining a narrow geographic market in this case, he said, is that the Commission failed to evaluate fully its divestiture options, including additionally ordering Rhodia to divest Albright & Wilson's Mexican PPA plant. Commissioner Thompson stated that such a failure "permits Rhodia to acquire additional North American capacity and perhaps ensures that the PPA market will act noncompetitively in the future."

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.

A summary of the consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until April 13, 2000, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

Copies of the complaint, proposed consent agreement 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, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone at 202-326-2710.

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(FTC File No. 991-0237)