FTC Clears Dow/Union Carbide Merger With Conditions

The Federal Trade Commission has accepted for public comment a proposed consent order that would remedy the likely anticompetitive effects of the proposed merger of The Dow Chemical Company ("Dow") and Union Carbide Corporation ("Carbide"). Under the terms of the order, Dow would be required to divest and license intellectual property that is critical to the production of linear low-density polyethylene ("LLDPE") - a key ingredient in premium plastic products such as trash bags, stretch film and sealable food pouches - to BP Amoco plc ("BP"), its former partner in developing this technology. Dow would also be required to divest to identified up-front buyers its ethyleneamines, ethanolamines and methyldiethanolamine ("MDEA")-based gas treating products businesses.

"This merger would have significantly reduced competition in the development of new consumer plastic products and technology," said Molly Boast, Acting Director of the FTC's Bureau of Competition. "The Commission's order is intended to preserve competition in this and several other chemical markets over the long term, benefitting consumers with better products at lower prices."

According to the Commission's complaint, the merger would substantially reduce competition in four lines of commerce: LLDPE and related technology (both metallocene catalysts and reactor processes); ethyleneamines; ethanolamines; and branded MDEA.

LLDPE

Polyethylene is the world's most widely used plastic, and LLDPE is the fastest-growing type of polyethylene. LLDPE is particularly well suited for applications that require both flexibility and strength, such as in trash bags, where manufacturers seek to make bags out of plastic films that are strong, thin, tear resistant and puncture resistant. Dow and Carbide are leading producers of LLDPE in the United States and Canada and throughout the world, and are among the few LLDPE producers that have succeeded in developing specialty, high-performance polymers demanded by significant users of LLDPE.

Polyethylene is made in polymerization reactions in the presence of a catalyst. Both the reactor technology and the catalyst technology are patented, and both Dow and Carbide are leading developers of reactor technology. Carbide's reactor technology, called Unipol, is the world's most widely licensed polyethylene process technology. The other significant licensed LLDPE process technology is Innovene, owned by BP. Both Unipol and Innovene make polyethylene in a process in which ethylene is in a gaseous form during polymerization (gas phase). Dow's reactor technology, which Dow does not license, polymerizes ethylene in solution. The large majority of LLDPE reactor capacity is gas phase rather than solution.

Dow and Exxon-Mobil Corp. ("Exxon") have succeeded in developing and commercializing metallocene catalysts, which represent a significant advance over conventional LLDPE catalysts. The proposed complaint alleges that if metallocene catalysts were generally available to LLDPE producers those producers likely would be able to erode Dow's position as the world's leading producer of premium LLDPE polymers.

Both Dow and Exxon entered into joint efforts with the leading gas technology firms (BP and Carbide, respectively) to develop and commercialize metallocene catalysts for use in gas reactors. Both the Dow/BP joint development program and the Exxon/Carbide joint venture, Univation Technologies LLC (Univation) succeeded in adapting metallocene catalysts for use in gas reactors; both sought to license that technology to other gas-process LLDPE producers; and both sold licenses to metallocene catalysts for gas reactors.

In 1999, however, Dow entered into an agreement to merge with Carbide, which would result in Dow becoming a partner with Exxon in Univation. At or about the time Dow entered into the merger agreement with Carbide, Dow discontinued its joint development program with BP and decided not to license its metallocene catalyst to BP, thereby effectively ending any ability by BP to license metallocene catalysts in competition with Univation.

The proposed complaint alleges that the merger would substantially reduce competition in three interrelated polyethylene markets: 1) metallocene catalyst technology for LLDPE production worldwide; 2) LLDPE reactor process technology worldwide; and 3).LLDPE in the United States and Canada. As alleged in the proposed complaint and described below, the reduction or elimination of competition in metallocene catalyst technology resulting from the merger, in turn reduces competition in LLDPE reactor process technology and in LLDPE itself.

The proposed order would remedy the anticompetitive effects of the merger by 1) allowing BP to develop and license metallocene catalysts to the majority of LLDPE producers worldwide, i.e., those that make LLDPE in gas-phase reactors, without being subject to patent claims by Dow, Univation or Exxon; and 2) enabling Exxon to develop and license metallocene catalysts and Unipol reactor process technology independently of Dow, should Dow's participation in Univation frustrate Exxon's interest in developing and licensing that technology. The purpose of the divestiture and license of intellectual property and related assets to BP is to enable BP to compete with Univation in developing, commercializing and licensing metallocene technology, remedying the anticompetitive effect in the market for metallocene catalyst technology.

Moreover, by allowing BP to offer metallocene catalysts in connection with licenses of its Innovene gas phase reactor technology, the proposed order is intended to preserve the viability of that technology as an alternative to Carbide's Unipol technology (which, through Univation, can offer metallocene technology). By preserving competition in both metallocene catalyst technology and LLDPE reactor process technology, the proposed order would allow BP licensees (or future licensees) in the United States and Canada to obtain metallocene catalysts from a source not controlled by Dow, thereby preserving metallocenes as a threat to Dow's premium polymer business and providing a reactor-process technology solution (including metallocenes) independent of respondents.

The proposed order also would enable Exxon to retain rights, including the right to sublicense, in all Univation technology and in Carbide's Unipol process should the Univation venture be dissolved or should Dow come to control the Univation venture. The grant of this right to Exxon provides an additional remedy to the anticompetitive effects alleged in the proposed complaint, by allowing Exxon to develop and license the Unipol process independently of Dow, should Dow seek to impede Univation's licensing business for the benefit of Dow's polyethylene business.

Ethyleneamines

Ethyleneamines are a family of chemicals containing at least one ethylene and one amine molecule, and are used in a broad variety of applications, including lubricating oil additives, chelating agents, wet-strength resins, epoxy curing agents, surfactants, personal care products, pulp and paper products, and fungicides. Dow and Carbide are the only producers of ethyleneamines in the United States and Canada, and together sold approximately $170 million worth of these chemicals in 1999. The proposed order would remedy the anticompetitive effects in the markets for ethyleneamines by requiring proposed respondents to divest Dow's global ethyleneamines business to Huntsman, a worldwide producer of chemicals and plastics, including ethylene derivatives. Huntsman does not currently produce ethyleneamines.

Ethanolamines

Ethanolamines are a family of chemicals, comprising monoethanolamine (MEA), diethanolamine (DEA) and triethanolamine (TEA), made by reacting ethylene oxide and ammonia. Ethanolamines are used in a broad variety of applications, including the production of ethyleneamines, and in surfactants, personal care products, herbicides, oil and gas refining applications, pharmaceuticals and fabric softeners. Carbide and Dow are the largest and third largest producers, respectively, of ethanolamines in the United States and Canada. As a result of the merger, proposed respondents would have more than sixty percent of sales in the relevant market, and two firms would have more than ninety percent.

The proposed order would remedy the anticompetitive effects in the markets for ethanolamines by requiring proposed respondents to divest Dow's global ethanolamines business to Ineos, a producer of ethylene derivatives and other chemicals which does not currently produce ethanolamines.

MDEA-Based Gas Treating Products

MDEA is a powerful solvent used in gas treating to remove unwanted compounds from gas streams. MDEA is used in oil refineries, natural gas plants, ammonia plants and other facilities that handle hydrocarbon gases. While some MDEA is sold alone, a substantial portion of the MDEA sold in the United States and Canada is blended with additives and other chemicals, including ethanolamines, and is sold on a branded basis. Branded MDEA is often sold bundled with engineering services relating to gas treatment. As alleged in the proposed complaint, because of the high cost associated with failure of gas treating products, customers that purchase MDEA-based gas treating products would be unlikely to substitute commodity MDEA in the event of a small but significant, nontransitory price increase of MDEA-based gas treating products. Dow and Carbide are the two largest sellers of MDEA-based gas treating products. As a result of the merger, respondents would have approximately sixty percent of the relevant market, and three firms would have approximately ninety percent of that market. The proposed order would remedy the anticompetitive effects in the markets for MDEA-based gas treating products by requiring proposed respondents to divest Dow's Gas Spec MDEA business to Ineos.

The Commission vote to accept the proposed consent agreement and publish a summary in the Federal Register for public comment was 5-0. A summary of the proposed consent order will be published in the Federal Register shortly. The agreement will be subject to public comment until March 7, 2001, 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.

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, consent agreement and 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. 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 online complaint form. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.

(FTC Matter No. 9910301)