FTC Approves FMC-Solutia Phosphorus Venture - With Conditions
The deal will alter the landscape in the tightly knit phosphate chemical business. It will establish Belgium's Societe Chimique Prayon-Rupel SA (Prayon) as a major factor in the US market, and open the door to pure phosphoric acid imports from Emaphos SA, a new Moroccan producer that had made Solutia its sole US distributor.
The Astaris merger was announced last year, after Solutia's 1998 decision to seek strategic alternatives for its $300 million phosphate business. Solutia upgraded its manufacturing to improve business profitability in 1998 and 1999. FMC restructured its phosphate business in 1997 and took a $224 million writedown for phosphorus chemicals and process additive assets at the end of the year.
Both companies believe the world market for phosphorous chemicals will grow increasingly competitive as companies continue to consolidate. They expect Astaris to achieve efficiencies and cost savings through optimization of production and logistics, developing wet process acid capability, and reducing administrative and overhead costs.
Astaris
What will the new company look like?
Under the terms of a consent order with the Federal Trade Commission, the new business will divest certain assets. Within 30 days of its formation, it will sell the former FMC phosphorus pentasulfide business in Lawrence, KS, to Peak Investments, LLC (Kansas City, MO). Phosphorus pentasulfide acts as a detergent in motor oils and is also used (to a lesser extent) in pesticides.
On October 1, 2000, it will sell part of the former Solutia Augusta, GA, phosphates plant to Belgium's Prayon. FMC and Solutia agreed to maintain both units as viable and competitive concerns until completion of the transactions.
Astaris will incorporate FMC manufacturing sites in Carteret, NJ; Lawrence, KS (phosphoric acid and phosphates); Green River, WY (phosphate plant only); Kemmerer, WY; and Pocatello and Dry Valley, ID.
It will also include Solutia phosphorous derivatives plants in Carondelet (St. Louis), MO; Ontario, CA; Augusta, GA; and the phosphorous chemical operations of plants in Trenton, MI; Sauget, IL; and Sao Jose dos Campos, Brazil (which Solutia leases from Monsanto). Solutia will also transfer its interest in the Fosbrasil joint venture producing purified phosphoric acid to the new company.
FMC will retain its stake in FMC Foret SA, an increasingly profitable Spanish subsidiary that produces hydrogen peroxide, tanning chemicals, and a broad range of products in addition to phosphates.
Solutia will retain its 40% interest in its purified phosphoric acid (PPA) joint venture with Monsanto in Soda Springs, ID. Astaris, however, will assume FMC/NuWest's contract to buy all the unit's PPA output.
The new company will have extensive product lines:
FMC says it will take a charge against second quarter results for the formation of Astaris and related chemical business restructuring. It expects to receive an initial dividend that could exceed $100 million when the company begins operations.
Antitrust
The FTC claimed the original plans for the joint venture could have "substantially lessened competition" for pure phosphoric acid (PPA) and phosphorus pentasulfide. FMC and Solution, it notes, compete in both PPA and a broad range of phosphate salts.
PPA. The commission characterizes today's PPA market as highly concentrated. US producers, it notes, tend to retaliate against aggressive bidding by targeting one another's accounts. This deters competition, and is one reason US PPA prices rank among the highest in the world.
It also points out that Solutia's agreement to act as PPA distributor for Emaphos SA, a new Moroccan producer, effectively precludes the company from competing in the United States.
FTC's solution is for Solutia to transfer its Augusta facility to Prayon, which it describes as the world's leading and lowest-cost PPA producer. In addition to the plant, Solutia must provide Prayon with production technology, customer lists, and certain contracts.
Prayon, which operates two PPA solvent-extraction plants in Belgium, is also a partner in Emaphos. The FTC demands that Solutia remove any restrictions of Emaphos sales to US customers.
Phosphorus pentasulfide. On the phosphorus pentasulfide side, the proposed joint venture would leave only two producers, Astaris and Rhodia. Since the latter plans to exit the market, the deal would create a monopoly.
The transfer of the Lawrence plant (which is part of a larger facility) to Peak will also include technology, customer lists, and contracts. FTC requires a trustee to monitor the relationship between Peak and the surrounding Lawrence facility for two years. The trustee will ensure Peak receives the services and facilities it needs to remain competitive.
FTC reserves the right to reject the manner of divestiture and Prayon or Peak as purchasers. In that case, Astaris will have five months to find another company to buy the plant. If it cannot, a trustee will be appointed to oversee the process.
FTC plans to publish a summary of the consent agreement in the Federal Register. It is also available on the FTC Web site (http://www.ftc.gov). The public can comment on the agreement until May 8, 2000.
Address comments to: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue, NW, Washington, DC 20580.
By Alan S. Brown