On October 23, 2008, the Federal Trade Commission (“FTC”) challenged CCS Corporation’s (“CCS”) proposed $85 billion acquisition of Newpark Environmental Services (“Newpark”), a division of Newpark Resources, Inc.
The FTC alleged that the proposed transaction would have combined two of only three providers of waste disposal services to the offshore oil and natural gas exploration and production (“E&P”) industry in the Louisiana Gulf Coast region, specifically the ports of Fourchon, Venice, Morgan City, and Intracoastal City, Louisiana. In these relevant markets, Newpark and CCS are the only firms that provide these services and the proposed transaction would have created a duopoly. In addition, CCS and Newpark are the first and second choices for many large customers. According to the FTC, this would have resulted in higher prices and reduction of quality in services.
E&P waste, which may be toxic, is all of the earth and rock displaced from drilling, drilling fluids, and produced water during the drilling and production of petroleum. The handling of this waste requires the utilization of specialized techniques and facilities that these two firms provide.
The FTC alleged that the merging parties could not make out a failing firm defense because the parties could not show that either firm would be unable to meet its financial obligations, they had made efforts to find alternative buyers, or absent the transaction that either would exit the business.
Interestingly, on October 15, 2008, CCS sent a letter to the FTC staff announcing that it was “shutting down operations in the Gulf Coast.” According to the FTC, CCS’s claim that it would exit the business if it could not acquire Newpark was made only after the antitrust review process was well underway and it appeared the Commission might challenge the acquisition. The FTC alleges that nothing in CCS’s business files supports the argument that CCS’s Gulf Coast business is not viable, or that CCS’s survival depends on the acquisition of Newpark.
The Commission vote to issue the administrative complaint was 4-0. The parties to the merger eventually abandoned the transaction.