By Peter Reap, J.D., LL.M.
In an opinion issued under seal, district court declines to halt the combination that the agency claimed would substantially reduce competition in certain regional U.S. markets for the commodity chemical.
The FTC’s motion for a preliminary injunction blocking the merger of hydrogen peroxide producers Evonik Industries AG and PeroxyChem Holding Company has been denied by the federal district court in Washington D.C. The reasons for the denial were set forth in the court’s accompanying opinion issued under seal because it likely contains "competitively sensitive information" of the defendants and third parties. The FTC had argued that the merger would substantially reduce competition in the Pacific Northwest and the Southern and Central United States for the production and sale of the chemical. Separately, the Canada Competition Bureau reached a deal with Evonik to address concerns that the acquisition would harm competition in Western Canada’s hydrogen peroxide market (FTC v. Rag-Stiftung, FTC File No. 191 0029, January 24, 2020, Kelly, T.).
The parties were ordered to meet and confer and file proposed redactions to the opinion by January 29, leading to the court’s release of a redacted version of the opinion shortly thereafter.
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 alleged. Because of high transportation costs, customers prefer nearby suppliers.
The complaint alleged that the proposed $625 million 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." 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.
The complaint contended that the proposed acquisition was an unfair method of competition, in violation of the FTC Act, and was likely to substantially lessen competition, in violation of the Clayton Act. Moreover, Evonik and PeroxyChem could not show cognizable, merger-specific efficiencies that would offset the likely and substantial competitive harm resulting from the Acquisition, according to the agency.
Upon learning of the court’s decision, Ian Conner, director of the FTC’s Bureau of Competition, said in a statement: "The court’s ruling is disappointing and we will be considering our options"
Canada Competition Bureau. The Canada Competition Bureau concluded that Evonik’s acquisition of PeroxyChem was likely to result in a substantial lessening of competition in the supply of hydrogen peroxide in Western Canada. To remedy this concern, Evonik agreed to sell PeroxyChem’s hydrogen peroxide manufacturing facility located in Prince George, British Columbia and related assets to a buyer acceptable to the Commissioner of Competition. United Initiators was approved as an acceptable buyer.
This case is No. 1:19-cv-02337-TJK.
Attorneys: James Edward Rhilinger, III for FTC. Andrew J. Ewalt (Freshfields Bruckhaus Deringer LLP) for RAG-Stiftung., Evonik Industries AG and Evonik Corp.
Companies: RAG-Stiftung; Evonik Industries AG; Evonik Corp.; PeroxyChem Holding Company
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