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From Antitrust Law Daily, April 9, 2013

Justice Department Requires Divestitures to Preserve Competition Among Oil and Gas Well Service Providers

By Jeffrey May, J.D.

Ecolab Inc.—a self-described "global leader in water, hygiene and energy technologies and services"—has resolved Department of Justice Antitrust Division concerns over its proposed acquisition of oil and gas industry service provider Permian Mud Service, Inc. The Justice Department filed a complaint in the federal district court in Washington, D.C. on April 8, alleging that Ecolab's acquisition of Permian would combine the two leading providers of production chemical management services for deepwater oil and gas wells (deepwater PCMS) in the U.S. Gulf of Mexico. Under the terms of a proposed consent decree, Ecolab Inc. and Permian agreed to divest assets used by Permian's subsidiary, Champion Technologies Inc., to provide production chemical management services in the Gulf of Mexico (U.S. v. Ecolab Inc., Case 1:13-cv-00444).

The government alleges that Permian's wholly owned subsidiary, Champion Technologies, Inc., and Ecolab's wholly-owned subsidiary, Nalco Company, are the two largest suppliers of deepwater PCMS in the Gulf and vigorously compete head-to-head to win the business of oil and gas exploration and production companies (E&P companies). E&P companies rely on the services of deepwater PCMS providers to facilitate the safe and efficient production of oil and gas from deepwater wells in the Gulf.

The government defined the relevant product market as the market for the provision of deepwater PCMS in U.S. Gulf of Mexico. The market is highly concentrated, with Champion's holding a 34 percent share and Nalco holding a 38 percent share based on 2012 revenues, according to the Justice Department.

The government alleged that without the divestitures, the transaction would have: substantially lessened competition in the market for deepwater PCMS in the Gulf; increased prices for deepwater PCMS in the Gulf; decreased quality of deepwater PCMS services in the Gulf; and diminished innovation in the deepwater PCMS market in the Gulf.

The proposed consent decree, if approved by the court, would require the companies to divest to Clariant Corporation and its affiliate, Clariant International, assets Champion has been using to provide deepwater production chemical management services in the Gulf, including the patent for Champion's best-selling production chemical in the deepwater Gulf, exclusive licenses to all other production chemicals used by Champion in the U.S. Gulf of Mexico for use in that region, and the option to buy additional assets, including Champion's deepwater production chemical blending and distribution facility in Broussard, Louisiana, and related equipment. Clariant Corporation is the U.S. affiliate of Swiss-based Clariant International Ltd., the fourth largest provider of production chemical management services globally.

Ecolab expects to complete the Champion acquisition within the next several days, according to an April 8 company statement. The deal is valued at more than $2 billion.

Attorneys: Katherine A. Celeste, Department of Justice, for plaintiff. John H. Lyons (Skadden, Arps, Slate Meagher & Flom LLP) for Ecolab Inc.

Companies: Champion Technologies, Inc.; Clariant Corporation; Ecolab Inc.; Permian Mud Service, Inc.

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