Quaker Chemical Corporation and Global Houghton Ltd.; Analysis of Agreement Containing Consent Orders To Aid Public Comment

 
CONTENT
Federal Register, Volume 84 Issue 146 (Tuesday, July 30, 2019)
[Federal Register Volume 84, Number 146 (Tuesday, July 30, 2019)]
[Notices]
[Pages 36923-36926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16152]
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FEDERAL TRADE COMMISSION
[File No. 171 0125]
Quaker Chemical Corporation and Global Houghton Ltd.; Analysis of
Agreement Containing Consent Orders To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement; Request for Comment.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair methods of competition.
The attached Analysis of Agreement Containing Consent Orders to Aid
Public Comment describes both the allegations in the complaint and the
terms of the consent orders--embodied in the consent agreement--that
would settle these allegations.
DATES: Comments must be received on or before August 29, 2019.
ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write: ``Quaker Chemical
Corporation and Global Houghton Ltd.; File No. 171 0125'' on your
comment, and file your comment online at https://www.regulations.gov by
following the instructions on the web-based form. If you prefer to file
your comment on paper, mail your comment to the following address:
Federal Trade Commission, Office of the Secretary, 600 Pennsylvania
Avenue NW, Suite CC-5610 (Annex D), Washington, DC 20580, or deliver
your comment to the following address: Federal Trade Commission, Office
of the Secretary, Constitution Center, 400 7th Street SW, 5th Floor,
Suite 5610 (Annex D), Washington, DC 20024.
FOR FURTHER INFORMATION CONTACT: Terry Thomas (202-326-3218), Bureau of
Competition, Federal Trade Commission, 600 Pennsylvania Avenue NW,
Washington, DC 20580.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 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 23, 2019), on the World Wide Web, at
https://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before August 29, 2019.
Write ``Quaker Chemical Corporation and Global Houghton Ltd.; File No.
171 0125'' on your comment. Your comment--including your name and your
state--will be placed on the public record of this proceeding,
including, to the extent practicable, on the https://www.regulations.gov website.
    Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online through the https://www.regulations.gov website.
    If you prefer to file your comment on paper, write ``Quaker
Chemical Corporation and Global Houghton Ltd.; File No. 171 0125'' on
your comment and on the envelope, and mail your comment to the
following address: Federal Trade Commission, Office of the Secretary,
600 Pennsylvania Avenue NW, Suite CC-5610 (Annex D), Washington, DC
20580; or deliver your comment to the following address: Federal Trade
Commission, Office of the Secretary, Constitution Center, 400 7th
Street SW, 5th Floor, Suite 5610 (Annex D), Washington, DC 20024. If
possible, submit your paper comment to the Commission by courier or
overnight service.
    Because your comment will be placed on the publicly accessible
website at https://www.regulations.gov, you are solely responsible for
making sure that your comment does not include any sensitive or
confidential information. In particular, your comment should not
include any sensitive personal information, such as your or anyone
else'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. You are also solely responsible for making sure that your
comment does not include any sensitive health information, such as
medical records or other individually identifiable health information.
In addition, your comment should not include any ``trade secret or any
commercial or financial information which . . . is privileged or
confidential''--as provided by Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--including in
particular competitively sensitive information such as costs, sales
statistics, inventories, formulas, patterns, devices, manufacturing
processes, or customer names.
    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). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request, and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on the public FTC website--as legally required by FTC Rule
4.9(b)--we cannot redact or
[[Page 36924]]
remove your comment from the FTC website, unless you submit a
confidentiality request that meets the requirements for such treatment
under FTC Rule 4.9(c), and the General Counsel grants that request.
    Visit the FTC website at http://www.ftc.gov to read this Notice and
the news release describing it. The FTC Act and other laws that 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 on or before August 29, 2019. For information on the
Commission's privacy policy, including routine uses permitted by the
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
Analysis of Agreement Containing Consent Orders To Aid Public Comment
I. Introduction
    The Federal Trade Commission (``Commission'') has accepted for
public comment, subject to final approval, an Agreement Containing
Consent Orders (``Consent Agreement'') from Quaker Chemical Corporation
(``Quaker''), Global Houghton LTD. (``Houghton''), Gulf Houghton
Lubricants LTD., and AMAS Holding SPF (collectively, the
``Respondents''). The Consent Agreement would remedy the
anticompetitive effects that likely would result from Quaker's proposed
acquisition of Houghton (``Transaction'').
    Absent a remedy, the Transaction would threaten to harm competition
in the manufacture and sale of: (1) Aluminum hot rolling oils
(``AHRO'') and associated technical support in North America; and (2)
steel cold rolling oils (``SCRO'') and associated technical support in
North America. In particular, the Commission's Complaint alleges that
the Transaction, if consummated, would violate Section 7 of the Clayton
Act, as amended, 15 U.S.C. 18, and that the asset purchase agreement
constitutes a violation of Section 5 of the Federal Trade Commission
Act, as amended, 15 U.S.C. 45, by substantially lessening competition
in the manufacture and sale of AHRO and SCRO in an area no greater than
North America.
    The Consent Agreement addresses the Commission's concerns by, among
other things, requiring Quaker to divest Houghton's North American AHRO
and SCRO product lines to Total S.A. (``Total''), a multination oil and
gas company headquartered in France. Quaker must also divest the
intellectual property associated with Houghton's AHRO and SCRO, and
adjacent products including steel cleaners and AHRO compatible
hydraulic fluids.
    The Commission has placed the proposed Consent Agreement 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 any comments received, and will decide whether it
should withdraw from the Consent Agreement, modify it, or make it
final.
II. The Respondents
    Respondent Quaker, a publicly traded company, is a global supplier
of specialty process chemicals, lubricants, greases, and other metal
processing products. Headquartered in Conshohocken, Pennsylvania,
Quaker's 2018 revenues were $868 million.
    Respondent Houghton is a global supplier of advanced metalworking
fluids and services. It serves the automotive, aerospace, metals,
mining, machinery, and beverage industries. Houghton is headquartered
in Valley Forge, Pennsylvania.
III. The Proposed Acquisition
    The Commission's Complaint alleges that a relevant product market
in which to analyze the Transaction is the manufacture and sale of AHRO
and associated technical support services. AHRO is a mixture of water,
oil, and additives, custom-formulated to lubricate each individual
rolling mill. AHRO is necessary to allow manufacturers to operate hot
rolling mills for aluminum sheet production. There is no substitute
product for AHRO; lubricants for rolling other metals or for other
rolling processes will not work for aluminum hot rolling.
    The associated technical support services are appropriately
included in this product market, as AHRO suppliers provide these
services as an integral component of the physical product. There is no
separate charge for these services. Technical support services begin
with the formulation of the oil and continue throughout the life of the
supply relationship, including necessary modifications to the
formulation and contamination monitoring in both the trial phase and
during active production. Technical support services from the AHRO
supplier are essential to the ongoing performance of the mill, and
there is no substitute for these services as provided in conjunction
with AHRO.
    The Commission's Complaint also alleges that an area no greater
than North America is a relevant geographic market in which to analyze
the effects of the Transaction. U.S. AHRO customers do not obtain
supply from outside North America. Rolling oil suppliers typically
supply their customers by truck and station technical support personnel
at or near their customers' mills to ensure timely supply and rapid
service. At the mill, customers blend the oil with the mill's own water
supply to create the final emulsion. Given the large volumes of rolling
oil required to run a mill, and the need for timely re-supply, shipping
AHRO from outside North America would be cost- and supply-prohibitive.
    The relevant market for AHRO and associated technical support
services in North America is highly concentrated. Quaker and Houghton
are the only two companies that commercially supply AHRO in North
America. Thus, post-transaction, Quaker will be the monopoly AHRO
supply option for third parties in North America.
    Timely, sufficient entry is unlikely to alleviate any potential
competitive harm in the market for AHRO and associated technical
support services. Consistent with the Commission's allegations in the
2010 AEA Investors/Houghton (``Houghton/D.A. Stuart'') complaint
(Docket No. C-4297), entry is difficult in this market. Formulating
AHRO and providing technical support services require specialized
knowledge that is not widely available. Even the few AHRO customers
with in-house supply capabilities are unable to supply fully their own
mills given the shortage of qualified scientists to develop and real-
time modify rolling oil formulations and support their use in mill
operations. Large, well-established customers of AHRO are unaware of
potential entrants that could enter the market and supply AHRO.
    Customer acceptance is also a significant entry barrier. Customers
are reluctant to switch AHRO suppliers because AHRO is so critical to
aluminum sheet rolling. Aluminum manufacturers place great weight on
the AHRO suppliers' experience and reputation. They likely would be
unwilling to chance a supplier that lacks the parties' established
reputations and decades of experience given the risk of catastrophic
effects should the supplier's product or support capabilities fall
short. There are significant time commitments and costs associated with
switching to a new AHRO supplier. Given that AHRO is a relatively small
cost component in the production of aluminum coil, it is unlikely that
a small significant sustained price increase would justify a
[[Page 36925]]
lengthy trial process for a new entrant without a proven track record.
    The Commission's Complaint also alleges that a relevant product
market in which to analyze the Transaction is the manufacture and sale
of SCRO and associated technical support. SCRO includes sheet cold
rolling oils, pickle oils, and tin plate rolling oils (``TPRO''). Steel
manufacturers use SCRO to reduce friction and prevent metal-to-metal
contact between surfaces of the mill's rollers and the steel during the
cold rolling process for steel sheet of any width or gauge, for any
further processing (e.g., tinplating or coating with another substance,
e.g., zinc, aluminum, or paint), and for any end-use (e.g., can bodies,
can ends, and other closures for food and beverages, household
appliances, such as washers and dryers, automobile or truck parts, or
building and construction products). Like other rolling oils, SCRO is a
mixture of water, oil, and additives for lubrication and corrosion
protection. SCRO producers customize the product for each individual
rolling mill, and there are no substitutes for SCRO. Lubricants
designed for other mills, metals, or rolling processes could damage
mill equipment and render the processed steel unusable.
    As with AHRO, SCRO suppliers provide essential technical support
services as part of the supply of the lubricant (i.e., without a
separate charge). The provision of these technical services is an
essential component of the SCRO supply relationship.
    As with AHRO, North America is the relevant geographic market for
SCRO. Staff's investigation did not reveal evidence that any mill in
the United States received SCRO products and services from suppliers
outside North America.
    Steel manufacturers in the United States primarily use SCRO made
with animal fat in their mills. Because animal fat will congeal under
typical tanker truck conditions, SCRO suppliers must deliver it via
heated tanker trucks. This heating requirement adds to transportation
costs, making imports of animal fat-based SCRO cost-prohibitive.
    The animal fat-based composition of SCRO used in the United States
also limits customers' choices for supply. Steel mills in the United
States typically are older and have relatively smaller tanks that
require frequent drainage. As a result, it is not economical for U.S.
steel mills to use vegetable oil based (commonly referred to as
synthetic oil) that is more advanced but higher cost. European steel
mills, which are generally newer and have larger tanks, use this
synthetic SCRO. Given the greater cost of synthetic SCRO and the costs
of shipping, U.S. steel manufacturers are unlikely to turn to overseas
SCRO suppliers in response to a small significant sustained price
increase.
    As in the market for AHRO, Quaker and Houghton are the two dominant
suppliers of SCRO and associated technical support services in North
America. Although fringe competitors participate in this market, to the
extent that customers need both SCRO and related support and technical
services combined, the merger may present as an effective merger-to-
monopoly.
IV. Effects of the Transaction
    The proposed transaction would be a merger to monopoly in the
market for AHRO and associated technical support services. Staff's
investigation has revealed no evidence to suggest that the likely
competitive effects of this combination are meaningfully different from
those of the Houghton/D.A. Stuart transaction remedied by the
Commission in 2010. In addition, customers worry that the proposed
transaction would consolidate all AHRO technical expertise within one
company. Today, Quaker and Houghton compete on their technical support
service capabilities, including their availability, responsiveness, and
expertise in anticipating, preventing, diagnosing, and addressing
problems related to their lubricants in order to ensure smooth
operations and high quality aluminum sheet. The parties' support
service technicians must thoroughly understand the design of each mill,
the products made there, and the interaction between the rolling oil,
substrate, and rollers. When problems arise today, they create an
opportunity for a competitor to challenge the incumbent supplier as the
customer seeks a solution and/or a superior product as quickly as
possible to get operations back on track. Post-merger, customers will
have only one support team--Quaker's--to turn to in the event of
operational issues, and will lose the advantage of a possible switch to
encourage investment in troubleshooting.
    The Transaction presents similar concerns for customers of SCRO and
associated technical support services. Notwithstanding the presence of
a few fringe suppliers, SCRO customers fear that the deal may result in
higher prices, lower service levels, reduced innovation, and supply
availability challenges. Like AHRO customers, SCRO customers face
meaningful barriers to switching suppliers, including lengthy trial
periods, downtime, and long waits for customer approval.
    Quaker and Houghton also compete on the quality of their technical
support services and expertise. Customers rely on their SCRO suppliers
to troubleshoot and address operational issues as they arise. When the
incumbent supplier cannot resolve problems to the customer's
satisfaction, the customer may turn to a competing supplier to propose
an alternative solution. Post-merger, Quaker will no longer face
Houghton as a competitive threat to keep its service levels sharp;
competition from fringe SCRO suppliers may not be sufficient to protect
customers.
    Customers have also raised concerns that the proposed merger would
eliminate their only SCRO alternative in the event of supply challenges
or emergencies. If a supply disruption occurs, SCRO customers must
either turn to an alternative supplier or idle their mills at great
expense. Steel manufacturers take comfort in the availability of
multiple potential SCRO suppliers to ensure that they can access this
essential input in times of shortages. The proposed transaction would
eliminate the most promising alternative supply option for SCRO
customers, and may deprive them of any viable alternative at all.
    A prospective entrant into the SCRO market faces similar barriers
to those that render entry unlikely for AHRO, including technical
expertise and reputational hurdles. Entry is difficult even for a
supplier that operates in other fluid-based markets.
V. The Proposed Consent Agreement
    The proposed order requires a divestiture to Total. Total's
business includes oil and gas exploration, refining, and marketing as
well as chemical manufacturing. Total had annual revenues in 2018 of
approximately $210 billion. The divestiture to Total would replicate
Houghton's competitive presence in the AHRO and SCRO markets in North
America by creating a viable, effective, and independent competitor.
The order requires Quaker to divest certain products, transfer key
employees, and provide transition services and toll manufacturing. The
term of the proposed order is ten years. The order also requires Quaker
to supply the divested products to Total for a transitional period
while transferring the manufacturing technology to Total.
    To remedy harm in the market for AHRO, Quaker will divest to Total:
(1) Houghton's formulations, intellectual property, including patent
for non-oleic
[[Page 36926]]
acid formula, trade secrets, including know-how for its AHRO; (2)
customer contracts for North America; (3) key Houghton employees that
are responsible for the commercial and technical aspects of the AHRO
business; and (4) adjacent products including fire resistant hydraulic
fluids.
    To remedy harm in the market for SCRO, which includes sheet cold
rolling oil, TPRO, and pickle oil, Quaker will divest to Total: (1)
Houghton's formulations, trade secrets and intellectual property,
including know-how for sheet cold rolling oils, TPRO, and pickle oil;
(2) customer contracts for North America; (3) key Houghton employees
that are responsible for the commercial and technical aspects of the
SCRO business; and (4) SCRO and TPRO cleaners.
    By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2019-16152 Filed 7-29-19; 8:45 am]
 BILLING CODE 6750-01-P