00-365. RHI AG; Analysis To Aid Public Comment  

  • [Federal Register Volume 65, Number 5 (Friday, January 7, 2000)]
    [Notices]
    [Pages 1157-1159]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 00-365]
    
    
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    FEDERAL TRADE COMMISSION
    
    [File No. 991 0281]
    
    
    RHI AG; Analysis To Aid Public Comment
    
    AGENCY: Federal Trade Commission.
    
    ACTION: Proposed consent agreement.
    
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    SUMMARY: The consent agreement in this matter settles alleged 
    violations of federal law prohibiting unfair or deceptive acts or 
    practices or unfair methods of competition. The attached Analysis to 
    Aid Public Comment describes both the allegations in the draft 
    complaint that accompanies the consent agreement and the terms of the 
    consent order--embodied in the consent agreement--that would settle 
    these allegations.
    
    DATES: Comments must be received on or before January 31, 2000.
    
    ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
    Room 159, 600 Pennsylvania Ave., NW, Washington, D.C. 20580.
    
    FOR FURTHER INFORMATION CONTACT: Richard Parker or Morris Bloom, FTC/H-
    374, 600 Pennsylvania Ave., NW, Washington, D.C. 20580. (202) 326-2574 
    or 326-2707.
    
    SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
    Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
    Commission's Rules of Practice (16 CFR 2.34), notice is hereby given 
    that the above-captioned consent agreement containing a consent order 
    to cease and desist, having been filed with and accepted, subject to 
    final approval, by the Commission, has been placed on the public record 
    for a period of thirty (30) days. The following Analysis to Aid Public 
    Comment describes the terms of the consent agreement, and the 
    allegations in the complaint. An electronic copy of the full text of 
    the consent agreement package can be obtained from the FTC Home Page 
    (for December 30, 1999), on the World Wide Web, at ``http://
    www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the 
    FTC Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, 
    Washington, D.C. 20580, either in person or by calling (202) 326-3627.
        Public comment is invited. Comments should be directed to: FTC/
    Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW, 
    Washington, D.C. 20580. Two paper copies of each comment should be 
    filed, and should be accompanied, if possible, by a 3\1/2\ inch 
    diskette containing an electronic copy of the comment. Such comments or 
    views will be considered by the Commission and will be available for 
    inspection and copying at its principal office in accordance with 
    Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
    4.9(b)(6)(ii)).
    
    Analysis of Proposed Consent Order To Aid Public Comment
    
        The Federal Trade Commission (``Commission'') has accepted, subject 
    to final approval, an Agreement Containing Consent Order 
    (``Agreement'') from RHI AG (``RHI'' or ``respondent'') to resolve 
    competitive concerns relating to the refractories industry arising out 
    of RHI's proposed acquisition of Global Industrial Technologies, Inc. 
    (``Global''). Under the Agreement, RHI would divest two refractories 
    manufacturing plants located in North America and certain assets 
    relating to refractory products currently produced at a third North 
    American manufacturing plant. The proposed Order requires that the 
    assets be divested to another refractories producer, Resco Products, 
    Inc. (``Resco''), a company that produces refractories but does not 
    compete in the affected markets at the present time, or to another 
    buyer approved by the Commission.
        The proposed Order has been placed on the public record for thirty 
    (30) days for reception of comments by interested persons. Comments 
    received during this period will become part of the public record. 
    After thirty (30) days, the Commission will review the Agreement and 
    comments received and decide whether to withdraw its acceptance of the 
    Agreement or make final the Agreement's proposed Order.
        Refractories are brick- and cement-like products made from certain 
    natural minerals and materials that are used to line and protect 
    furnaces in many industries--including the steel, aluminum, cement and 
    glass industries--that involve the heating or containment of solids, 
    liquids, or gases at high temperatures. Refractories are consumable 
    products, and wear down as a result of being subjected to intense 
    temperatures as well as chemical and mechanical pressures.
        The proposed complaint alleges that the acquisition, if 
    consummated, would violate Section 7 of the Clayton Act, 15 U.S.C. 18, 
    as amended, and Section 5 of the Federal Trade Commission Act (``FTC 
    Act''), 15 U.S.C. 45, as amended, in the following markets: (1) The 
    North American market for magnesia-carbon bricks for basic oxygen 
    furnaces (``BOFs''); (2) the North American market for magnesia-carbon 
    bricks for electric arc furnaces (``EAFs''); (3) the North American 
    market for magnesia-carbon bricks for steel ladles used with BOFs; (4) 
    the North American market for magnesia-chrome bricks for steel 
    degassers; (5) the North American market for high-alumina bricks for 
    steel
    
    [[Page 1158]]
    
    ladles used with BOFs; and (6) the North American market for high-
    alumina bricks for torpedo cars used in steel making.
        The proposed complaint alleges that each of the relevant markets is 
    highly concentrated. Specifically, the proposed complaint alleges that 
    RHI and Global control approximately 95 percent of the $30 million 
    North American market for magnesia-carbon refractory bricks for BOFs. 
    The proposed acquisition thus represents a virtual merger to monopoly 
    in magnesia-carbon bricks for BOFs. The proposed complaint also alleges 
    that RHI and Global control approximately 65 percent of the $58 million 
    North American market for magnesia-carbon refractory bricks for EAFs; 
    approximately 40 percent of the $100 million North American market for 
    magnesia-carbon bricks for steel ladles used with BOFs; approximately 
    46 percent of the $5 million North American market for magnesia-chrome 
    bricks for steel degassers; approximately 70 percent of the $50 million 
    North American market for high-alumina bricks for steel ladles used 
    with BOFs; and approximately 52 percent of the $23.5 million North 
    American market for high-alumina bricks for torpedo cars.
        The proposed complaint further alleges that the effect of the 
    acquisition may be to substantially lessen competition and to tend to 
    create a monopoly by, among other things, eliminating actual, direct 
    and substantial competition between RHI and Global in each of the 
    relevant markets identified above. The proposed complaint further 
    alleges that the effect of the acquisition may be to substantially 
    lessen competition and to tend to create a monopoly by increasing the 
    level of concentration in each of these relevant markets and by 
    increasing the likelihood that the firm created by the merger of RHI 
    and Global will unilaterally exercise market power in each of these 
    relevant markets, that purchasers of these products will be forced to 
    pay higher prices, that technical and sales service will decline, and 
    that innovation in the development of these products will decline.
        The proposed complaint further alleges that entry into the relevant 
    markets requires significant sunk costs and would not be timely, likely 
    and sufficient to deter or offset reductions in competition resulting 
    from the proposed acquisition. Development of the specialized 
    refractories described above, including determination of the proper 
    chemical composition and manufacturing techniques, is time consuming 
    and requires an extremely high level of expertise. In addition, 
    customers in the steel industry increasingly require that their 
    suppliers of refractories be able to supply the full line of 
    refractories for particular applications, such as BOFs, EAFs and steel 
    ladles. Thus, a new entrant would have to be able to assume the costs 
    and expertise necessary to develop and supply both magnesia-carbon and 
    high-alumina bricks.
        Furthermore, because the refractory bricks at issue are used to 
    control processes and substances at extremely high temperatures, the 
    failure of the products can be catastrophic, sometimes causing the loss 
    of human life. Consequently, customers are extremely resistant to 
    change, and any new entrant would have to undergo months of laboratory 
    testing, followed by extended periods (sometimes taking several years) 
    of field testing, prior to acceptance of product for use in BOF and EAF 
    steel making applications.
        The proposed Order is designed to remedy the anticompetitive 
    effects of the acquisition in the relevant markets, as alleged in the 
    complaint, by requiring the divestiture to Resco of: (a) Global's 
    Hammond, Indiana refractories plant, which produces magnesia-carbon 
    bricks for BOFs, EAFs and steel ladles, and related equipment, 
    machinery and intellectual property (including formulas, mixes, presses 
    and molds) and customer lists and contracts; (b) Global's Marelan, 
    Quebec plant, which produces magnesia-chrome bricks for steel 
    degassers, and related equipment, machinery and intellectual property 
    (including formulas, mixes, presses and molds) and customer lists and 
    contracts; and (c) all rights, title and interest in and to specific 
    assets relating to the production of high-alumina bricks for BOF steel 
    ladles and torpedo cars, which are currently produced by RHI at its 
    Farber, Missouri plant, including intellectual property, customer lists 
    and contracts, formulas, mixes and molds. The proposed Order requires 
    the divestiture to take place no later than forty-five (45) days after 
    the date the Commission accepts the Agreement for public comment.
        The proposed Order also provides for a magnesite supply contract 
    between Resco and respondent. Currently, Global is one of only two U.S. 
    producers of high purity magnesite, a necessary ingredient of magnesia-
    carbon and magnesia-chrome bricks, and currently supplies other 
    refractory producers with the material for the production of 
    refractories. In order to ensure that Resco has a continuing supply of 
    high purity magnesite with which it can make the relevant products, and 
    to prevent the possibility that customers might require re-
    qualification in the event that the acquirer is forced to obtain an 
    alternate source of supply of this raw material, the proposed Order 
    provides that respondent enter into a one year high purity magnesite 
    supply contract, renewable for two additional one year terms at Resco's 
    option, with most favored nation pricing. The arrangement is intended 
    to be of sufficient duration to give Resco time to assimilate the 
    relevant products into its own line of refractory products, to perfect 
    the production processes, and to test other sources of high purity 
    magnesite without jeopardizing customer contracts in the meantime.
        Thus, the proposed Order is designed to promote the viability and 
    competitiveness of the divested businesses by placing the businesses in 
    the hands of a company with extensive expertise in the refractories 
    industry, expertise in related refractories applications, and 
    additional economies resulting from shared research and development, 
    overhead and production. The proposed Order is structured to help 
    assure the success of Resco in operating the divested businesses by 
    providing Resco with the assets required for it to successfully compete 
    in the relevant markets: magnesia-carbon, magnesia-chrome and high-
    alumina formulas that are well-known, well-respected and already proven 
    in the marketplace; supply contracts with customers; technical 
    assistance and training; production assets; and raw materials supply 
    contracts to ensure the continued and consistent ability to produce the 
    products.
        If the Commission determines that Resco is not an acceptable buyer, 
    or that the agreement between Resco and respondent is not an acceptable 
    form of divestiture, the proposed Order provides that respondent shall 
    rescind the Resco agreement and any divestiture to Resco, and divest 
    the identified assets, including RHI's Farber, Missouri plant and 
    fixtures, at the purchaser's option, to an acquirer that receives the 
    prior approval of the Commission. In such an event, the proposed Order 
    also contains provisions designed to ensure that such an acquirer has 
    the benefit, at its option, of all of the raw materials, contracts and 
    technical assistance relating to the businesses to be divested.
        The proposed Order also provides that if respondent fails to divest 
    the assets to be divested as required by the proposed Order, the 
    Commission may appoint a Divestiture Trustee to divest the business 
    along with any assets related to the business that are necessary to 
    effect the purposes of the proposed Order.
    
    [[Page 1159]]
    
        The proposed Order also provides for the appointment of an Interim 
    Trustee to ensure that respondent expeditiously performs its 
    responsibilities under the proposed Order. The Interim Trustee will 
    oversee the divestiture to ensure the adequacy of the transfer, to 
    ensure that disputes between the parties will be identified and 
    resolved quickly, clearly, and impartially, and to identify possible 
    violations of the proposed Order.
        The Agreement requires respondent to provide the Commission, within 
    thirty (30) days of the date of the agreement was signed, with an 
    initial report setting forth in detail the manner in which respondent 
    will comply with the provisions relating to the divestiture of assets.
        The purpose of this analysis is to facilitate public comment on the 
    proposed Order. This analysis is not intended to constitute an official 
    interpretation of the agreement or the proposed Order or in any way to 
    modify the terms of the Agreement or the proposed Order.
    
        By direction of the Commission.
    Donald S. Clark,
    Secretary.
    [FR Doc. 00-365 Filed 1-6-00; 8:45 am]
    BILLING CODE 6750-01-M
    
    
    

Document Information

Published:
01/07/2000
Department:
Federal Trade Commission
Entry Type:
Notice
Action:
Proposed consent agreement.
Document Number:
00-365
Dates:
Comments must be received on or before January 31, 2000.
Pages:
1157-1159 (3 pages)
Docket Numbers:
File No. 991 0281
PDF File:
00-365.pdf