Linde AG and The BOC Group PLC; Analysis of Agreement Containing Consent Order To Aid Public Comment, 41443-41446 [E6-11624]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 71, Number 140 (Friday, July 21, 2006)]
[Notices]
[Pages 41443-41446]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-11624]


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FEDERAL TRADE COMMISSION

[File No. 061 0114]


Linde AG and The BOC Group PLC; Analysis of Agreement Containing 
Consent Order 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 and the terms of the consent order--embodied in the consent

[[Page 41444]]

agreement--that would settle these allegations.

DATES: Comments must be received on or before August 16, 2006.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Linde AG and BOC, File No. 061 0114,'' to 
facilitate the organization of comments. A comment filed in paper form 
should include this reference both in the text and on the envelope, and 
should be mailed or delivered to the following address: Federal Trade 
Commission/Office of the Secretary, Room 135-H, 600 Pennsylvania 
Avenue, NW., Washington, DC 20580. Comments containing confidential 
material must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with Commission Rule 4.9(c). 16 CFR 
4.9(c) (2005).\1\ The FTC is requesting that any comment filed in paper 
form be sent by courier or overnight service, if possible, because U.S. 
postal mail in the Washington area and at the Commission is subject to 
delay due to heightened security precautions. Comments that do not 
contain any nonpublic information may instead be filed in electronic 
form as part of or as an attachment to e-mail messages directed to the 
following e-mail box: consentagreement@ftc.gov.
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at https://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at https://
www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Sean G. Dillon, Bureau of Competition, 
600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-3575.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission 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 July 18, 2006), on the World Wide Web, at https://www.ftc.gov/os/
2006/07/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted from 
Linde AG (``Linde''), subject to final approval, an Agreement 
Containing Consent Orders (``Consent Agreement''), which is designed to 
remedy the anticompetitive effects resulting from Linde's acquisition 
of the entire share capital of The BOC Group plc (``BOC'').
    Under the terms of the Consent Agreement, Linde is required to 
divest air separation units (``ASUs'') and related assets currently 
owned and operated by Linde in the following eight locations in which 
the proposed acquisition would lessen competition: (1) Canton, Ohio; 
(2) Dayton, Ohio; (3) Madison, Wisconsin; (4) Waukesha, Wisconsin; (5) 
Carrollton, Georgia; (6) Jefferson, Georgia; (7) Rockhill, South 
Carolina; and (8) Bozrah, Connecticut. The Consent Agreement also 
requires Linde to divest bulk refined helium assets, including helium 
source contracts, ancillary distribution assets, and customer 
contracts, to Taiyo Nippon Sanso Corporation (``Nippon Sanso'').
    The proposed Consent Agreement has been placed on the public record 
for 30 days to solicit comments from interested persons. Comments 
received during this period will become part of the public record. 
After 30 days, the Commission will again review the proposed Consent 
Agreement, and will decide whether it should withdraw from the proposed 
Consent Agreement or make it final.
    Pursuant to a tender offer and agreement dated March 6, 2006, Linde 
announced its intention to acquire the entire share capital of BOC for 
an aggregate purchase price of approximately $14.4 billion. 
Consummation of this transaction is subject to acceptance of the offer 
by a sufficient number of the shareholders of BOC. The Commission's 
complaint alleges the facts described below and that the proposed 
acquisition, if consummated, would violate Section 7 of the Clayton 
Act, as amended, 15 U.S.C. 18, and Section 5 of the FTC Act, as 
amended, 15 U.S.C. 45, by lessening competition in the market for bulk 
refined helium worldwide, and certain regional markets in the United 
States for liquid oxygen and liquid nitrogen.

II. The Parties

    Linde is a global supplier of industrial and medical gases and 
related equipment. Linde LLC is the parent corporation of the United 
States subsidiary that manufactures and sells a variety of industrial 
gases, including oxygen, nitrogen, argon, helium, and many other 
industrial and speciality gases for use in a variety of industries, 
including the medical, welding, and metal production fields. Linde is 
the fifth-largest industrial gas supplier in the United States with 11 
liquid atmospheric gas producing plants in the United States, most of 
which are concentrated in the Midwest, Northeast, and Southeast.
    BOC is the world's second-largest industrial gas supplier, and the 
fourth-largest supplier in the United States. BOC operates 23 liquid 
atmospheric gas producing plants in the United States, many of which 
are concentrated in the Midwest, Northeast, and Southeast regions, as 
well as the West and Gulf Coast regions.

III. Liquid Oxygen and Liquid Nitrogen

    Both Linde and BOC own and operate ASUs in the United States that 
produce liquid atmospheric gases, including liquid oxygen and liquid 
nitrogen. Each gas has specific properties that make it uniquely suited 
for the applications in which it is used. For most of these 
applications, there is no substitute for the use of oxygen or nitrogen. 
Customers would not switch to another gas or product even if the price 
of liquid oxygen or liquid nitrogen increased by five to ten percent.

[[Page 41445]]

    There are three distinct methods of distributing oxygen and 
nitrogen: in cylinders, in liquid form, and through on-site ASUs or 
pipelines. Customers choose a distribution method based on the volume 
of gas required. Customers who use liquid oxygen or liquid nitrogen 
require volumes of these gases that are too large to purchase 
economically in cylinders, but too small to justify the expense of an 
on-site ASU or pipeline. Thus, even if the price of liquid oxygen or 
liquid nitrogen increased by five to ten percent, customers would not 
switch to another method of distribution.
    Due to high transportation costs, liquid oxygen and liquid nitrogen 
may only be purchased economically from a supplier with an ASU located 
within 150 to 250 miles of the customer. Therefore, it is appropriate 
to analyze the competitive effects of the proposed acquisition in local 
geographic markets for liquid oxygen and liquid nitrogen. The relevant 
geographic markets in which to analyze the effects of the proposed 
acquisition are the Northeast, the Chicago-Milwaukee Metropolitan Area, 
the Eastern Midwest, and the Southeast.
    The markets for liquid oxygen and liquid nitrogen are highly 
concentrated. In each of the relevant geographic markets, Linde and BOC 
are two of only five companies supplying liquid oxygen and liquid 
nitrogen to customers. As a result of the proposed acquisition, a 
significant competitor would be eliminated, and a small number of 
viable competitors would remain. In addition, certain market 
conditions, including the relative homogeneity of the firms and 
products involved and availability of detailed market information, are 
conducive to the firms reaching terms of coordination and detecting and 
punishing deviations from those terms. Therefore, the proposed 
acquisition would enhance the likelihood of collusion or coordinated 
action between or among the remaining firms in each market. 
Furthermore, by eliminating direct competition between these two 
suppliers in these areas, the proposed acquisition likely would allow 
Linde to exercise market power unilaterally, thereby increasing the 
likelihood that purchasers of liquid oxygen or liquid nitrogen would be 
forced to pay higher prices in these areas. The proposed acquisition 
provides Linde a larger base of sales on which to enjoy the benefit of 
a unilateral price increase and also eliminates a competitor to which 
customers otherwise could have diverted their sales in markets where 
alternative sources of supply likely are already limited. In addition, 
in certain geographic markets, Linde and BOC are the two closest 
competitors to a significant number of customers.
    Significant impediments to new entry exist in the markets for 
liquid oxygen and liquid nitrogen. In order to be cost competitive in 
these markets, an ASU must produce at least 250 to 300 tons per day of 
liquid product. The cost to construct a plant sufficiently large to be 
cost effective can be 30 to 40 million dollars, most of which are sunk 
costs and cannot be recovered. Although an ASU can theoretically be 
constructed within two years, it is not economically justifiable to 
build an ASU before contracting to sell a substantial portion of the 
plant's capacity, either to an on-site customer or to liquid customers. 
On-site customers normally sign long-term contracts. Because such 
opportunities to contract with these customers are rare, it is 
uncertain whether such an opportunity would arise in the near future in 
any of the areas affected by the acquisition. It is even more difficult 
and time-consuming for a potential new entrant to try to contract with 
enough liquid gas customers to justify building a new ASU. These 
customers are generally locked into contracts with existing suppliers 
that typically last between five and seven years. Even if the new 
entrant were able to contract with enough customers to justify 
constructing a new ASU in any of the affected markets, the new entrant 
may still need to rely on suppliers already in the market to obtain 
liquid gases to service the new entrant's customers while the ASU was 
constructed. Given the difficulties of entry, it is unlikely that new 
entry could be accomplished in a timely manner in the liquid oxygen and 
liquid nitrogen markets to defeat a likely price increase caused by the 
acquisition.

IV. Bulk Refined Helium

    Both Linde and BOC are suppliers of bulk refined helium. Bulk 
refined helium has specific properties that make it uniquely suited for 
the applications in which it is used. For most of these applications, 
there is no substitute for bulk refined helium. Customers likely would 
not switch to another gas or product even if the price of bulk refined 
helium increased by five to ten percent.
    Refined helium is available to customers in two distinct 
distribution methods: Cylinder form or bulk form. Customers choose a 
distribution method based on the volume of gas required. Bulk form is 
generally used by customers that require large volumes of refined 
helium. In bulk form, refined helium may be packaged into containers 
known as ``dewars'' and then distributed in liquid form to customers. 
Refined helium may also be converted into gaseous form and distributed 
in high-pressure ``tube trailers'' in bulk quantities to customers. 
Bulk refined helium customers obtain helium in bulk form (liquid dewars 
or gaseous tube trailers) because it is the most cost-effective method 
of purchasing the volume of refined helium they require. Therefore, 
customers would not switch to purchasing refined helium via another 
method of distribution even if the prices of bulk refined helium 
distributed by one method increased by five to ten percent.
    Refined helium is a rare and expensive gas. Because of its high 
value, refined helium can be, and is, transported economically on a 
worldwide basis. Because helium is transported globally, foreign helium 
capacity and demand impact the demand and pricing for domestically-
produced helium. Therefore, it is appropriate to analyze the 
competitive effects of the proposed acquisition using a worldwide 
market for bulk refined helium.
    The market for bulk refined helium is highly concentrated. Linde 
and BOC are two of only five companies in the world with access to 
refined bulk helium; BOC is the second-largest supplier, and a combined 
Linde/BOC would become the largest. While Linde is currently the 
smallest of the five, it has substantial new reserves coming on line in 
the near future, and already is an aggressive participant in the market 
for refined bulk helium. In addition, certain market conditions, 
including the relative homogeneity of the firms and products involved 
and availability of detailed market information, are conducive to the 
firms reaching terms of coordination and detecting and punishing 
deviations from those terms. The Commission's complaint charges that 
the proposed acquisition would enhance the likelihood of collusion or 
coordinated action among the remaining firms in the market.
    There are substantial barriers to entry in the bulk refined helium 
market. The most significant impediment to entry is securing a source 
of refined helium. There are no sources of refined helium available 
that are not committed to market incumbents in long term contracts. A 
new entrant would need to locate a new source of crude helium and build 
a refinery. In addition, tens of millions of dollars would be needed to 
acquire the necessary infrastructure and ancillary distribution assets, 
including transfill facilities, cryogenic storage trailers, high-
pressure tube trailers and

[[Page 41446]]

liquid dewars, capable of transporting helium from the refinery to 
customers. While the costs of entering are high, opportunities to 
recoup these costs are comparatively limited. As with other industrial 
gases, helium is sold pursuant to long-term contracts, so only a 
fraction of the market is available at a given time. Given the 
difficulties of entering the market, it is unlikely that new entry 
sufficient to counteract the competitive impact of the proposed 
acquisition would occur in a timely manner in the market for bulk 
refined helium.

V. The Consent Agreement

A. Liquid Oxygen and Liquid Nitrogen
    The proposed Consent Agreement remedies the acquisition's likely 
anticompetitive effects in the markets for liquid oxygen and liquid 
nitrogen. Pursuant to the Consent Agreement, Linde will divest all of 
its merchant liquid oxygen and nitrogen producing business in the 
identified geographic markets. Thus, Linde will divest the eight ASUs 
listed in Section I to a single purchaser that will operate the ASUs as 
a going concern. The Consent Agreement provides that Linde must find a 
buyer for the ASUs, at no minimum price, that is acceptable to the 
Commission, no later than six months from the date the Consent 
Agreement becomes final. If the Commission determines that Linde has 
not provided an acceptable buyer for the ASUs within this time period, 
or that the manner of the divestiture is not acceptable, the Commission 
may appoint a trustee to divest the assets. The trustee would have the 
exclusive power and authority to accomplish the divestiture.
    The acquirer of the divested assets must receive the prior approval 
of the Commission. The Commission's goal in evaluating possible 
purchasers of divested assets is to maintain the competitive 
environment that existed prior to the acquisition. A proposed acquirer 
of divested assets must not itself present competitive problems. 
Numerous entities are interested in purchasing the divested ASUs, 
including industrial gas suppliers that currently have a regional 
presence in the industry, but do not compete in the areas affected by 
the acquisition, as well as entities in related fields that are 
interested in entering the production and sale of industrial gases. The 
Commission is therefore satisfied that sufficient potential buyers for 
the divested liquid oxygen and liquid nitrogen assets exist.
    The Consent Agreement also contains an Agreement to Hold Separate 
and Maintain Assets. This will serve to protect the viability, 
marketability, and competitiveness of the divestiture asset package 
until the assets are divested to a buyer approved by the Commission. 
The Agreement to Hold Separate and Maintain Assets became effective on 
the date the Commission accepted the Consent Agreement for placement on 
the public record and will remain in effect until Linde successfully 
divests the divestiture asset package according to the terms of the 
Decision and Order.
    The Commission has appointed Richard Klein to oversee the 
management of the divestiture asset package until the divestiture is 
complete, and for a brief transition period after the sale. Mr. Klein 
has approximately 23 years experience as the Chief Executive Officer of 
a global specialty chemicals manufacturer, and is well-respected in the 
industry. In order to ensure that the Commission remains informed about 
the status of the proposed divestitures, the proposed Consent Agreement 
requires the parties to file periodic reports with the Commission until 
the divestiture is accomplished.
B. Bulk Refined Helium
    The Consent Agreement resolves the proposed acquisition's likely 
anticompetitive effects in the bulk refined helium market by requiring 
Linde to divest bulk refined helium assets, including helium source 
contracts, ancillary distribution assets, and customer contracts, to 
Nippon Sanso no later than ten days after the acquisition. A buyer 
upfront remedy was required in this market because the helium assets to 
be divested do not constitute a stand-alone business and require key 
third-party consents for their transfer under the Order.
    Nippon Sanso is particularly well-positioned to compete 
successfully with the divested helium assets. Nippon Sanso is the 
largest industrial and speciality gas company in Japan, and is the 
sixth-largest industrial gas company in the world. Matheson Tri-Gas, 
Nippon Sanso's U.S. subsidiary, is the sixth-largest industrial gas 
supplier in the United States. Although it lacks helium sourcing 
contracts, Nippon Sanso is one of the world's largest helium 
distributors, selling helium to end-users in the United States and 
Japan. (Nippon Sanso, however, does not have current access to bulk 
refined helium.) Having access to the helium sourcing contracts and 
other ancillary helium assets will provide Nippon Sanso the ability to 
grow its helium business in the U.S., European, and Asian markets. 
Nippon Sanso should be successful in restoring the competition that 
likely would be lost if the proposed Linde/BOC transaction were to 
proceed unremedied.
    If the Commission determines that Nippon Sanso is not an acceptable 
purchaser, or the manner of the divestiture is not acceptable, the 
parties must unwind the sale to Nippon Sanso and divest the bulk 
refined helium assets within six months of the date the Order becomes 
final to another Commission-approved acquirer. If the parties fail to 
divest within six months, the Commission may appoint a trustee to 
divest the bulk refined helium assets.
    The Consent Agreement also contains an Order to Maintain Assets. 
This will serve to ensure that the helium assets are protected and 
divested in substantially the same condition existing at the time the 
Consent Agreement was signed. The Order to Maintain Assets became 
effective on the date the Commission accepted the Consent Agreement for 
placement on the public record and will remain in effect until Linde 
successfully divests the helium assets according to the terms of the 
Decision and Order.
    The Commission has also appointed Mr. Klein to oversee the 
transition in ownership of the divested helium assets to Nippon Sanso 
and to ensure Linde's and BOC's compliance with all of the provisions 
of the proposed Consent Agreement. In order to ensure that the 
Commission remains informed about the status of the proposed 
divestitures, the proposed Consent Agreement requires Mr. Klein to file 
reports with the Commission periodically until the divestiture is 
accomplished.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and it is not intended to constitute an official 
interpretation of the proposed Decision and Order or the Agreement to 
Hold Separate, or to modify their terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E6-11624 Filed 7-20-06; 8:45 am]
BILLING CODE 6750-01-P