In the Matter of Rhodia, Donau Chemie AG, and

9910237

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of
RHODIA, a corporation,
DONAU CHEMIE AG, a corporation, and
ALBRIGHT & WILSON PLC, a corporation.

Docket No. C-3930

COMPLAINT

The Federal Trade Commission ("Commission"), having reason to believe that Rhodia has entered into an agreement to acquire Albright & Wilson PLC, a wholly-owned subsidiary of Donau Chemie AG, and that the acquisition, if consummated, would result in a violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, and Section 7 of the Clayton Act, 15 U.S.C. § 18, and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows:

A. THE RESPONDENTS

1. Respondent Rhodia is a corporation organized, existing, and doing business under and by virtue of the laws of France, with its executive offices located at 26, quai Alphonse Le Gallo, 92512 Boulogne-Billancourt Cédex, France. Rhodia, among other things, engages in the development, manufacture and sale of pure phosphoric acid and phosphate salts, primarily in Europe and North America.

2. Respondent Donau Chemie AG is a corporation organized, existing and doing business under and by virtue of the laws of Austria, with its office and principal place of business located at Am Heumarkt 10, A-1037, Vienna, Austria. In April 1999, Donau acquired Albright & Wilson through a cash tender offer valued at approximately $720 million.

3. Respondent Albright & Wilson PLC is a corporation organized, existing and doing business under and by virtue of the laws of the United Kingdom, with its office and principal place of business located at 210-222 Hagley Road West, Oldbury, West Midlands, B68 ONN, England. Albright & Wilson, among other things, engages in the worldwide development, manufacture and sale of pure phosphoric acid and phosphate salts.

4. At all times relevant herein, Respondents Rhodia, Donau and Albright & Wilson have been and are now engaged in commerce, as "commerce" is defined in Section 1 of the Clayton Act, 15 U.S.C. § 12, and are corporations whose business is in or affecting commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44.

B. THE PROPOSED ACQUISITIONS

5. On March 30, 1999, Rhodia and Donau executed two agreements, including a Heads of Agreement and a Call Option Agreement. Pursuant to these agreements, Donau acquired, through a cash tender offer supported by Rhodia, all of the outstanding voting securities of Albright & Wilson, and granted Rhodia an option to acquire from Donau the ownership of the Albright & Wilson voting securities. Rhodia currently intends to exercise its option to acquire Albright & Wilson, for an aggregate exercise price exceeding $700 million.

C. RELEVANT MARKET

6. The relevant line of commerce in which to analyze the effects of Rhodia's proposed acquisition of Albright & Wilson is the manufacture, marketing and sale of pure phosphoric acid. There are no economic substitutes for pure phosphoric acid.

7. Pure phosphoric acid is a syrupy tribasic acid that is used in a wide variety of applications. It is used in food applications, such as cola beverages and pet food, and in technical applications, such as cleaning compounds, metal surface treatments, and water treatment products. Pure phosphoric acid is sold directly to end users, and also is used as an input to create phosphate salts, such as sodium tripolyphosphate.

8. Pure phosphoric acid is produced in the United States primarily by two different methods. The older method is the thermal process, in which producers add water to elemental phosphorus. The newer method is the solvent extraction process, in which producers use solvents to remove impurities from impure, or "green," phosphoric acid. The solvent extraction process has a cost advantage over the thermal process because it is much less energy-intensive.

9. A small but significant and non-transitory price increase would not affect the current level of consumption of pure phosphoric acid in any of the significant end-use applications.

10. The relevant geographic market in which to analyze the effects of Rhodia's proposed acquisition of Albright & Wilson is the United States. The level of imports of pure phosphoric acid has been small compared to the overall market, and has not been highly responsive to changes in United States prices. In fact, prices in the United States have historically been much higher than prices in other parts of the world.

11. There are several reasons why imports of pure phosphoric acid into the United States have been limited. One reason is that transportation costs account for a significant portion of the delivered cost of phosphoric acid. Another reason is that many of the overseas producers employ the older, higher-cost thermal process to produce pure phosphoric acid. Other reasons why imports have been limited include access to distribution and the cost of terminal storage for product imported from overseas. In addition, agreements between producers in the United States and various overseas producers have had the effect of limiting the level of competition from these overseas producers.

12. The overseas producers that have been most active in making sales of pure phosphoric acid in the United States have been those that employ the solvent extraction process. Nevertheless, the level of sales by these companies has been low. Moreover, these overseas producers of pure phosphoric acid have faced significant duties that have limited their ability to sell pure phosphoric acid in the United States. These duties have increased costs for the overseas producers, and also have chilled sales by the overseas producers in the United States.

D. MARKET STRUCTURE

13. The United States market for pure phosphoric acid is highly concentrated. Four manufacturers, including Rhodia, Albright & Wilson, FMC and Solutia, currently account for approximately 95% of the local production capacity that can supply United States customers, and 95% of sales of pure phosphoric acid. Albright & Wilson's share of direct sales to customers is close to 28%, and Rhodia's share is approximately 11%. The proposed acquisition would increase the Herfindahl-Hirschman Index for United States sales of pure phosphoric acid by over 630 points, from over 2300 to over 2940.

14. Rhodia produces pure phosphoric acid using the solvent extraction process at a plant in Geismar, Louisiana, which has an annual capacity of approximately 100,000 metric tons. It produces pure phosphoric acid via the thermal process at plants in Nashville, Tennessee and Morrisville, Pennsylvania. The Nashville plant has an annual capacity of over 38,000 metric tons and the Morrisville plant has an annual capacity of over 100,000 metric tons. Rhodia utilizes the production capacity of the Geismar plant at a much higher rate than the two thermal acid plants. Rhodia also produces phosphate salts in several different plants. Rhodia sells purified phosphoric acid directly to end-customers, and also uses it in the manufacture of phosphate salts.

15. In 1998, Rhodia had total sales to customers in the United States of over 50 million pounds of pure phosphoric acid. Rhodia also consumes large amounts of pure phosphoric acid internally in the manufacture of phosphate salts.

16. Albright & Wilson produces pure phosphoric acid via the solvent extraction process at one plant in the United States, in Aurora, North Carolina, which is part of a joint venture with Potash Corporation of Saskatchewan ("PCS"). The capacity of this plant is approximately 155,000 metric tons per year. It produces pure phosphoric acid via the thermal acid process at a plant in Charleston, South Carolina, which has a capacity of approximately 14,000 metric tons per year. Albright & Wilson also produces pure phosphoric acid at a plant in Mexico, which has a capacity of approximately 180,000 metric tons per year. A&W utilizes the production capacity of the Aurora plant at a higher rate than the capacity of the Charleston thermal acid plant.

17. In 1998, Albright & Wilson had total sales to customers in the United States of over 150 million pounds of pure phosphoric acid. Its North American sales of pure phosphoric acid totaled over 400 million pounds. Albright & Wilson also consumed large amounts of its pure phosphoric acid production internally, to produce a wide range of phosphate salts.

18. Besides Rhodia, Albright & Wilson, FMC and Solutia, two other companies that produce pure phosphoric acid in North America for sale in the United States are Earth Sciences and Simplot. Earth Sciences and Simplot have each been producing pure phosphoric acid for the last two to three years, using processes to manufacture pure phosphoric acid different from the other North American producers. Both of these companies have very limited production capacity and sales compared to the other four producers, and are unlikely to grow their sales substantially in the foreseeable future.

E. CONDITIONS OF ENTRY

19. De novo entry or fringe expansion into the relevant market would require a substantial sunk investment and a significant period of time, such that new entry would be neither timely, likely, nor sufficient.

20. The minimum viable scale of a pure phosphoric acid production facility likely precludes new entry. The prevailing pure phosphoric acid technology demands large-scale production, relative to market size, in order to operate efficiently. This technology has but a single use -- the production of pure phosphoric acid. It can not economically be shifted toward another use. Therefore, all returns on investment must be derived from pure phosphoric acid sales. Because economic entry would require that a new producer capture a significant market share from existing producers, and because the costs of such entry would be sunk, such entry is inherently risky.

F. MARKET CHARACTERISTICS THAT FACILITATE COORDINATED INTERACTION

21. The characteristics of the market for pure phosphoric acid facilitate coordinated interaction among producers, to the detriment of the purchasers of this product. Among such characteristics are:

The United States market for pure phosphoric acid is highly concentrated;

Pure phosphoric acid is a highly homogeneous product that is purchased primarily on the basis of price;

Reliable pricing information is available from customers, and from other producers due to the practice of publicly announcing price increases in advance of their implementation;

There is a strong tendency toward coordination among producers of pure phosphoric acid. Producers recognize the market to be an oligopoly in which competitive rivalry is low; and

Producers tend to refrain from bidding against their competitors at accounts that they recognize to be important to the other producers, and, furthermore, undertake strategic retaliation at specific accounts as a means to discipline and deter future competition.

G. EFFECTS OF THE PROPOSED ACQUISITION

22. The effect of the acquisition may be substantially to lessen competition and to tend to create a monopoly in the relevant market in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, in the following ways, among others:

It will substantially increase concentration in the market for pure phosphoric acid;

It will significantly enhance the likelihood of coordinated interaction in the relevant market among the competitors in the manufacture and sale of pure phosphoric acid;

It will increase the likelihood that purchasers of pure phosphoric acid in the relevant geographic market will be forced to pay higher prices. In fact, Rhodia's documents project higher pure phosphoric acid prices as a result of the proposed acquisition of Albright & Wilson.

H. VIOLATIONS CHARGED

23. The acquisition agreements between Rhodia and Donau, as described in Paragraph 5, violate Section 5 of the FTC Act, as amended, 15 U.S.C.§ 45.

24. The acquisition of Albright & Wilson by Rhodia, if consummated, would violate Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this thirteenth day of March, 2000, issues its complaint against said Respondents.

By the Commission, Commissioner Thompson dissenting.

Seal Donald S. Clark
Secretary