Princeton Economics Group, Inc.

FTC Challenges Carlyle Partners' Purchase of INEOS's Sodium Silicate Businesses

On June 30, 2008, the Federal Trade Commission (FTC) issued a complaint charging that the proposed acquisition of the worldwide sodium silicate and silicas business of INEOS Group Limited (INEOS) by Carlyle Partners IV, L.P. (Carlyle) would be anticompetitive and in violation of the antitrust laws. Carlyle owns PQ Corporation (PQ), and the transaction as proposed would combine PQ - the largest sodium silicate producer and seller in the highly concentrated Midwest region of the United States - with INEOS, its third-largest competitor. PEG Senior Economist Andrew E. Abere and PEG Academic Advisor Gene M. Grossman (Professor of Economics at Princeton University) served as economic consultants to the FTC on the proposed transaction.

Both PQ and INEOS participate in the sodium silicate market worldwide, and PQ is the largest sodium silicate producer in the United States. Sodium silicate has a variety of direct uses and also is used in the production of downstream silicate derivatives, also known as silicas. It is typically sold in an aqueous solution that is 65 percent water; sodium silicate markets exhibit strong regional characteristics because of high transportation costs relative to the value of the product. Because there are no close chemical substitutes for sodium silicate, the FTC contends that other products do not constrain its pricing.

According to the FTC's complaint, the proposed acquisition would be anticompetitive and violate Section 5 of the FTC Act and Section 7 of the Clayton Act as amended, in that it would combine the largest (PQ) and third-largest (INEOS) firms in the Midwest U.S. sodium silicate market. Currently PQ has 50 percent of the market and INEOS has 12 percent of the market. The FTC contends that in addition to reducing direct competition between the two companies, the proposed acquisition could lead to coordination among competing firms in the sodium silicate market.

The Midwest market for sodium silicate already is conducive to such coordination due to several structural features, including the facts that sodium silicate is a homogenous product, pricing information is readily available, and competitors recognize that the market is essentially a duopoly in which the top two firms, PQ and Occidental Chemical Company, operate interdependently. Based on concentration levels and competitive concerns, the complaint states that the acquisition could make coordinated interaction between the competing firms more likely, leading to higher prices for sodium silicate. Finally, the complaint alleges that entry into the relevant market would not be timely, likely, or sufficient to deter the acquisition's anticompetitive impacts.

To remedy the alleged anticompetitive effects of the transaction, the companies have entered into a consent agreement with the FTC that requires them to sell PQ's sodium silicate plant and businesses in Utica, Illinois, to an FTC-approved buyer. The order also requires the companies to license all of the intellectual property related to sodium silicate product at the Utica plant.