Air Products and Chemicals, Inc.; Analysis of Proposed Agreement Containing Consent Orders to Aid Public Comment, 56538-56540 [2010-23132]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 75, Number 179 (Thursday, September 16, 2010)]
[Notices]
[Pages 56538-56540]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-23132]


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FEDERAL TRADE COMMISSION

[File No. 101 0093]


Air Products and Chemicals, Inc.; Analysis of Proposed Agreement 
Containing Consent Orders 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 
agreement -- that would settle these allegations.

DATES: Comments must be received on or before October 12, 2010.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to``Air 
Products, Inc., File No. 101 0093'' to facilitate the organization of 
comments. Please note that your comment -- including your name and your 
state -- will be placed on the public record of this proceeding, 
including on the publicly accessible FTC website, at (https://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as an individual's Social Security 
Number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential. . . .,'' as provided in 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and Commission Rule 
4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing material for which 
confidential treatment is requested must be filed in paper form, must 
be clearly labeled ``Confidential,'' and must comply with FTC Rule 
4.9(c), 16 CFR 4.9(c).\1\
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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 FTC Rule 4.9(c), 16 CFR 
4.9(c).
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    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
in electronic form. Comments filed in electronic form should be 
submitted by using the following weblink: (https://ftcpublic.commentworks.com/ftc/airproducts) and following the 
instructions on the web-based form. To ensure that the Commission 
considers an electronic comment, you must file it on the web-based form 
at the weblink: (https://ftcpublic.commentworks.com/ftc/airproducts). 
If this Notice appears at (https://www.regulations.gov/search/index.jsp), you may also file an electronic comment through that 
website. The Commission will consider all comments that regulations.gov 
forwards to it. You may also visit the FTC website at (https://www.ftc.gov/) to read the Notice and the news release describing it.
    A comment filed in paper form should include the ``Air Products, 
Inc., File No. 101 0093'' 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 H-135 (Annex 
D), 600 Pennsylvania Avenue, NW, Washington, DC 20580. 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.
    The Federal Trade Commission Act (``FTC Act'') and other laws the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding as appropriate. The Commission will 
consider all timely and responsive public comments that it receives, 
whether filed in paper or electronic form. Comments received will be 
available to the public on the FTC website, to the extent practicable, 
at (https://www.ftc.gov/os/publiccomments.shtm). As a matter of 
discretion, the Commission makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC website. 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.shtm).

FOR FURTHER INFORMATION CONTACT: Gregory P. Luib (202-326-3249), Bureau 
of Competition, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580.

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 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 September 9, 2010), on the World Wide Web, at (https://www.ftc.gov/os/actions.shtm). A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, Washington, 
D.C. 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 Air 
Products and Chemicals, Inc. (``Air Products''), subject to final 
approval, an Agreement Containing Consent Orders (``Consent 
Agreement''), which is designed to remedy the anticompetitive effects 
resulting from Air Products' proposed acquisition of Airgas, Inc. 
(``Airgas''). Under the terms of the

[[Page 56539]]

Consent Agreement, Air Products is required, among other things, to 
divest 15 air separation units (``ASUs'') and related assets currently 
owned and operated by Airgas in the following locations: (1) Bozrah, 
Connecticut; (2) Carrollton, Kentucky; (3) Canton, Ohio; (4) Dayton, 
Ohio; (5) New Carlisle, Indiana; (6) Madison, Wisconsin; (7) Waukesha, 
Wisconsin; (8) Carrollton, Georgia; (9) Jefferson, Georgia; (10) 
Gaston, South Carolina (2 ASUs); (11) Rock Hill, South Carolina; (12) 
Chester, Virginia; (13) Mulberry, Arkansas; and (14) Lawton, Oklahoma. 
With the divestiture of these ASUs and related assets, the competition 
that would otherwise be eliminated through the proposed acquisition of 
Airgas by Air Products will be fully preserved.
    The proposed Consent Agreement has been placed on the public record 
for thirty days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission will again review the proposed 
Consent Agreement and the comments received, and will decide whether it 
should withdraw from the proposed Consent Agreement, modify it, or make 
final the accompanying Decision and Order (``Order'').
    On February 11, 2010, Air Products announced its intention to 
acquire all of the outstanding shares of Airgas pursuant to an all-cash 
tender offer for an aggregate purchase price of approximately $7.0 
billion. Consummation of this transaction is subject to acceptance of 
the offer by a sufficient number of the shareholders of Airgas. Airgas 
has repeatedly recommended that its shareholders not tender their 
shares, and a sufficient number of shares have not been tendered to 
date. It could be several months or more until the proposed acquisition 
is consummated, if it is consummated at all.
    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. Sec.  18, and Section 5 of 
the Federal Trade Commission Act, as amended, 15 U.S.C. Sec.  45, by 
lessening competition in certain regional markets in the United States 
for the manufacture and sale of bulk liquid oxygen and bulk liquid 
nitrogen.

II. The Parties

    Air Products is a global supplier of industrial, medical, and 
specialty gases for use in a variety of industries, including health 
care, technology, and energy. Air Products is the second-largest 
industrial gas supplier in the United States with 32 liquid atmospheric 
gas-producing plants throughout the United States.
    Airgas is the fifth-largest industrial gas supplier in the United 
States. Airgas operates 16 liquid atmospheric gas-producing plants in 
the United States, most of which are concentrated in the Eastern United 
States. Airgas also is the largest U.S. distributor of packaged 
industrial, medical, and specialty gases and hardgoods, such as welding 
equipment and supplies.

III. The Products and Structure of the Markets

    Both Air Products and Airgas 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 viable substitute for the use of oxygen 
or nitrogen. Accordingly, 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.
    There are three primary and distinct methods of distributing oxygen 
and nitrogen: (1) in packaged form (typically delivered in gaseous 
cylinders or liquid dewars); (2) in bulk liquid form; and (3) in 
gaseous form via on-site ASUs or pipelines connecting customers to 
nearby ASUs. Customers choose a distribution method based on the volume 
of gas required. Customers who use bulk liquid oxygen or 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, bulk liquid oxygen and 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 
regional geographic markets for bulk liquid oxygen and nitrogen. The 
relevant geographic markets in which to analyze the effects of the 
proposed acquisition are (1) the Northeast (including Connecticut, 
Maine, Massachusetts, New Hampshire, Eastern New York, Rhode Island, 
and Vermont), (2) the Eastern Midwest (including Eastern Indiana, 
Northern Kentucky, Southeastern Michigan, Ohio, Western Pennsylvania, 
and Northern West Virginia), (3) the Chicago-Milwaukee metropolitan 
area (including the area 150 miles around Chicago), (4) the Southeast 
(including part of Alabama, all of Georgia, North Carolina, and South 
Carolina, part of Tennessee, and Southern Virginia), and (5) Oklahoma 
and surrounding areas (including Western Arkansas, Southeastern Kansas, 
Southwestern Missouri, Oklahoma, and Northeastern Texas). Because the 
boundaries of the relevant geographic markets at issue are largely 
determined by the proximity of overlapping ASUs, those geographic 
markets with a greater number of proximate, overlapping ASUs - for 
example, the Southeast market - tend to be larger in size than those 
markets with fewer such ASUs - for example, the Chicago-Milwaukee 
market.
    The markets for bulk liquid oxygen and nitrogen are highly 
concentrated. In all but the Oklahoma market, Air Products and Airgas 
are two of only five companies supplying bulk liquid oxygen and 
nitrogen to customers. In the Oklahoma market, Air Products is the 
largest supplier, and the parties are two of only six suppliers of bulk 
liquid oxygen and nitrogen.

IV. Effects of the Acquisition

    In each of the relevant markets, as a result of the proposed 
acquisition, a significant competitor would be eliminated, and a small 
number of viable competitors would remain. 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.
    The proposed acquisition also would eliminate direct and 
substantial competition between Air Products and Airgas in these areas, 
provide Air Products with a larger base of sales on which to enjoy the 
benefit of a unilateral price increase, and eliminate a competitor to 
which customers otherwise could have diverted their sales in markets 
where alternative sources of supply are already limited. The proposed 
acquisition, therefore, likely would allow Air Products to exercise 
market power unilaterally, increasing the likelihood that purchasers of 
bulk liquid oxygen or bulk liquid nitrogen would be forced to pay 
higher prices in these areas.

[[Page 56540]]

V. Entry

    Significant impediments to new entry exist in the markets for bulk 
liquid oxygen and nitrogen. In order to be competitively viable in the 
relevant 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 50 million dollars, most of which are 
sunk costs and cannot be recovered. Although an ASU can 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 proposed acquisition. It is even more difficult and 
time-consuming for a potential new entrant 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 
secure enough customers to justify constructing a new ASU in any of the 
affected markets, the new entrant may still need to rely on incumbent 
suppliers 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 
bulk liquid oxygen and nitrogen markets to defeat a likely price 
increase caused by the proposed acquisition.

VI. The Consent Agreement

    The proposed Consent Agreement remedies the acquisition's likely 
anticompetitive effects in the markets for bulk liquid oxygen and bulk 
liquid nitrogen. Pursuant to the Consent Agreement, Air Products will 
divest all of the Airgas business and assets relating to the 
manufacture or sale of bulk liquid oxygen and nitrogen in the 
identified geographic markets. The Consent Agreement provides that Air 
Products must find a buyer for the ASUs, at no minimum price, that is 
acceptable to the Commission, no later than four months from the date 
on which Air Products consummates its acquisition of Airgas. If Air 
Products is unable to consummate the acquisition by February 15, 2011, 
however, the Commission, in its discretion, may require Air Products to 
seek prior approval of a buyer before Air Products can close any 
transaction with Airgas. This provision provides the Commission an 
opportunity to evaluate the continued availability of acceptable 
purchasers - if, for example, economic conditions were to deteriorate 
significantly - if the closing of the Air Products-Airgas transaction 
takes place after February 15, 2011.
    Any 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. There 
are a number of parties interested in purchasing the ASUs and related 
assets to be divested that have the expertise, experience, and 
financial viability to successfully purchase and manage these assets 
and retain the current level of competition in the relevant markets. 
The Commission is therefore satisfied that sufficient potential buyers 
for the divested bulk liquid oxygen and nitrogen assets currently 
exist.
    If the Commission determines that Air Products has not provided an 
acceptable buyer for the ASUs within the required 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 Consent Agreement also contains an Order to Hold Separate and 
Maintain Assets, which 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 purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and it is not intended to constitute an 
official interpretation of the proposed Consent Agreement or to modify 
its terms in any way.
    By direction of the Commission.

Donald S. Clark
Secretary.
[FR Doc. 2010-23132 Filed 9-15-10; 7:50 am]
BILLING CODE 6750-01-S