FTC: Rhodia divestiture will "preserve competition" in US

07 December 1999 20:40  [Source: ICIS news]

HOUSTON (CNI)--The US Federal Trade Commission (FTC) said Tuesday its proposed settlement with Hoechst and Rhone-Poulenc regarding their upcoming merger will preserve competition in the US cellulose acetate market among Celanese, Rhodia and Eastman.

Earlier Tuesday, the FTC gave preliminary approval to the merger between the two companies on the condition that Aventis - the entity to be created upon completion of the merger - divest its holding of Rhone-Poulenc specialty chemical subsidiary Rhodia to a level of 5% or less of total outstanding shares.

The proposed order also would require the companies to refrain from participating in or influencing the decisions or conduct of Rhodia and prohibit them from receiving confidential business information concerning Rhodia's cellulose acetate business.

US consumers purchase about $1bn ($970m) worth of cellulose acetate on an annual basis. According to the FTC, the market for cellulose acetate is "highly concentrated" with three major producers in the US: Eastman Chemical; Primester, a joint venture between Eastman and Rhodia; and, Celanese Limited, which until recently was a wholly-owned subsidiary of Hoechst.

Celanese controls about 46% of US production capacity while Eastman controls around 44% and Primester the remaining 10%. Rhodia currently sells cellulose acetate only outside the US making Celanese and Eastman the only firms currently selling cellulose acetate in the US.

The FTC says "there are significant barriers to entry into the cellulose acetate market." To enter the market, a firm must incur "substantial sunk costs to build a dedicated production facility," according to the FTC. And reductions in the demand for this material and its limited growth potential create disincentives to new entry, the FTC notes.

In addressing the European Commission's competitive concerns, Hoechst spun off Celanese to Hoechst shareholders and Rhone-Poulenc will have to divest its holding in Rhodia.

The FTC has also alleged that the merger of Rhone-Poulenc and Hoechst would increase the likelihood of coordinated interaction in the cellulose acetate market. The agency noted that the Kuwait Petroleum Company (KPC) will hold a significant interest in Celanese and Aventis after the merger and the shareholdings could permit KPC to coordinate the activities of Celanese and, through Aventis, Rhodia and Primester after the merger.

In addition, Aventis' indirect holding, through Rhodia, of 50% of the Primester joint venture with Eastman, may facilitate coordination between the KPC-controlled entities and Eastman following the merger, the FTC said.

By: Mary Ann Tawasha
+1 713 525 2653

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