Antitrust Law Daily FTC challenges merger of hydrogen peroxide producers Evonik and PeroxyChem
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Friday, August 2, 2019

FTC challenges merger of hydrogen peroxide producers Evonik and PeroxyChem

By Peter Reap, J.D., LL.M.

Proposed combination would substantially reduce competition in certain regional U.S. markets for the commodity chemical, the agency charges.

Alleging that the merger of two hydrogen peroxide producers would substantially reduce competition in the Pacific Northwest and the Southern and Central United States for the production and sale of the chemical, the FTC today authorized an action to block Evonik Industries AG’s proposed $625 million acquisition of PeroxyChem Holding Company. The FTC issued an administrative complaint and filed a request for a temporary restraining order and preliminary injunction in the federal district court in the District of Columbia to maintain the status quo pending an administrative trial on the merits, the agency announced (In the Matter of RAG-Stiftung, FTC File No. 191 0029).

Evonik and PeroxyChem are two of only five hydrogen peroxide producers in North America according to the FTC’s complaint. Hydrogen peroxide is a commodity chemical used for oxidation, disinfection, and bleaching. Most hydrogen peroxide produced in North America is sold to pulp and paper customers for bleaching pulp and de-inking recycled paper, and is also used to sterilize food and beverage packaging, and in chemical synthesis, fracking, water treatment, and electronics. For most end uses, there are no effective substitutes, the complaint alleges. Because of high transportation costs, customers prefer nearby suppliers.

The complaint alleges that the acquisition would harm competition in at least two ways. First, it would increase the likelihood of coordination in a market "already vulnerable to coordination, functioning as an oligopoly, and with a long history of price-fixing." Also, the market is highly concentrated, with significant transparency among rival firms, and long-term, stable customer-supplier relationships, low elasticity of demand, and a history of strong interdependent behavior, the complaint states. Further, several hydrogen peroxide suppliers previously admitted to illegally fixing prices at a time when there were six major suppliers in North America.

Second, the acquisition would eliminate significant head-to-head competition between Evonik and PeroxyChem in the Pacific Northwest, where it would leave only one other hydrogen peroxide producer, and in the Southern and Central United States, where it would leave three other producers. Post-Acquisition, Evonik would control more than half of the market, based on capacity and sales, for the production and sale of hydrogen peroxide in the Pacific Northwest. The complaint alleges that customers have benefitted from competition between Evonik and PeroxyChem in the form of lower prices. New competitors or expansion by existing firms is unlikely to be timely or sufficient to offset anticompetitive harm, due to the massive investment necessary to build a new hydrogen peroxide plant.

The complaint alleges that the proposed acquisition is an unfair method of competition, in violation of the FTC Act, and is likely to substantially lessen competition, in violation of the Clayton Act. Moreover, Evonik and PeroxyChem cannot show cognizable, merger-specific efficiencies that would offset the likely and substantial competitive harm resulting from the Acquisition, the agency contends.

The administrative trial is scheduled to begin on Jan. 22, 2020.

Announcement of the deal. Evonik announced the agreement with One Equity Partners to acquire US-based PeroxyChem for US $625 million in late 2018. "PeroxyChem will significantly strengthen our growth segment Resource Efficiency," said Christian Kullmann, Chairman of the Executive Board of Evonik.

Companies: Evonik Industries AG; PeroxyChem Holding Company

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