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From Antitrust Law Daily, December 17, 2018

ALJ finds in favor of FTC in Tronox/Cristal merger dispute

By Jody Coultas, J.D.

FTC Chief Administrative Law Judge (ALJ) D. Michael Chappell has issued an initial decision upholding FTC allegations challenging the merger of the two top suppliers of chloride process titanium dioxide (TiO2), the FTC announced today. Judge Chappell concluded that the FTC met its prima facie case by establishing a presumption of liability showing that the acquisition will lead to undue concentration in the TiO2 market in North America and a likelihood of coordinated, anticompetitive effects (In the Matter of Tronox Ltd., FTC File No. 171 0085).

Connecticut-based Tronox Limited, the world’s largest fully integrated seller and marketer of TiO2, proposed acquiring competitor, Cristal USA, Inc., the second largest, in 2017. TiO2 is a white pigment used in a wide variety of products, including paint, industrial coatings, plastic, and paper. The $2.4 billion merger was promoted as "procompetitive" because it would purportedly increase the global supply of titanium dioxide, enhance competition, and benefit consumers. In addition, the resultant more vertically integrated company would, it was claimed, be better able to compete with global market leaders by producing more quality titanium dioxide at a lower cost.

The FTC filed an administrative complaint in December 2017, objecting to the merger for its potential to significantly reduce competition in the North American market for chloride process titanium dioxide. In addition to issuing an administrative complaint challenging the transaction, the FTC authorized agency staff to seek a temporary restraining order and preliminary injunction in federal court, if necessary to maintain the status quo pending an administrative trial on the merits.

On July 10, while waiting for the ALJ decision, the FTC filed a separate petition in federal court seeking a temporary restraining order and a preliminary injunction. The federal district court in Washington, D.C. granted the FTC a preliminary injunction preventing Tronox Limited and Cristal from merging their TiO2 business. The court explained that the proposed transaction was likely to substantially lessen competition in the North American chloride-process titanium dioxide market and that a preliminary injunction was in the public interest.

The ALJ Judge stated that "[t]he evidence proves that the planned Acquisition may substantially lessen competition in the relevant market for the sale of chloride TiO2 in North America in violation of Section 7 of the Clayton Act and Section 5 of the FTC Act." Judge Chappell concluded that the proposed acquisition would create a highly concentrated market and increase the likelihood of coordinated conduct among the remaining firms.

There was insufficient evidence to support Tronox’s and Cristal’s argument that entry or expansion by Chinese producers was likely or would counteract the likely anticompetitive effects of the acquisition. "Respondents have failed to rebut this proof, including by failing to demonstrate that entry or expansion would be timely, likely, and sufficient to counteract the likely anticompetitive effects of the Acquisition, or to demonstrate cognizable synergies or efficiencies that might justify the likely anticompetitive effects of the Acquisition," Judge Chappell wrote. Tronox and Cristal also failed to demonstrate cognizable efficiencies.

An order included with the Initial Decision would require the respondents to terminate the proposed acquisition agreement and cease taking any direct or indirect actions to consummate it; to return all confidential information to each other; and to certify final compliance within 15 days of the order becoming final.

Tronox response. "Although Tronox is disappointed by the ALJ’s decision, we continue to believe this output-enhancing combination will benefit TiO2 consumers in the U.S. and around the world," said Jeffry N. Quinn, president and chief executive officer of Tronox. "We look forward to working with the FTC staff on the proposed remedy, and we appreciate that we are now able, if necessary, to request approval of the remedy from the FTC Commissioners," Quinn continued in a prepared statement. "As the owner of Ashtabula, INEOS would be a strong competitor with the expertise to increase output and efficiency, bringing a new energy to the TiO2 industry in a way that would benefit consumers."

The statement noted that regulators in eight non-U.S. jurisdictions, including the European Union, have approved Tronox’s proposed acquisition of Cristal.

Attorneys: Blake Risenmay for the FTC. Michael F. Williams (Kirkland & Ellis LLP) for Tronox Ltd. James L. Cooper (Arnold & Porter Kaye Scholer LLP) for National Industrialization Co., National Titanium Dioxide Co. and Cristal USA, Inc.

Companies: Tronox Ltd.; National Industrialization Co.; National Titanium Dioxide Co.; Cristal USA, Inc.

MainStory: TopStory AcquisitionsMergers Antitrust FederalTradeCommissionNews

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