On May 13, 2016, the FTC approved a merger American Air Liquide Holdings, Inc. and Airgas, Inc. as long as the parties divest certain production and distribution assets to settle the FTC’s allegations that their proposed merger likely would have harmed competition and led to higher prices in several U.S. and regional markets.
According to the FTC’s complaint, the deal would eliminate direct competition between the two companies in certain markets that are already concentrated, increasing the likelihood that Air Liquide could unilaterally exercise market power. The FTC’s complaint also alleged that the proposed acquisition would also make it more likely that remaining competitors, if any, could collude or coordinate their actions. The FTC also alleged that entry was not likely happen quick enough to sufficiently counteract any anticompetitive price increases. As a result, customers would likely pay higher prices for industrial gases in various regional and national markets within the United States.
The FTC complaint alleged that the acquisition would be anticompetitive in the following regional and nationwide markets:
- bulk oxygen and bulk nitrogen in the Northeast; the Mid-Atlantic; the Southeast; Atlanta and surrounding areas; Arkansas and surrounding areas; Oklahoma and surrounding areas; Western Kentucky and surrounding areas; Chicago, Milwaukee, and surrounding areas; Western Ohio and surrounding areas; and Pittsburgh, Cleveland, and surrounding areas;
- bulk argon in the United States;
- bulk nitrous oxide in the United States and Canada;
- bulk liquid carbon dioxide in Indiana, Kentucky, and surrounding areas;
- dry ice in the San Francisco Bay Area; Iowa and surrounding areas; and the Texas Panhandle and surrounding areas; and
- packaged gases for welding sold in retail stores in the Alaskan cities of Anchorage, Fairbanks, and Kenai.
Consent Order Does Not Require Upfront Buyer
Under the proposed consent agreement the companies will divest:
- Sixteen air separation units and associated assets, which are used to produce bulk oxygen, nitrogen, and argon, twelve that are owned by Air Liquide and four that are owned by Airgas;
- Two nitrous oxide plants owned by Air Liquide;
- Four facilities that produce both liquid carbon dioxide and dry ice, and two facilities that produce only liquid carbon dioxide, all owned by Air Liquide; and
- Three Airgas retail packaged welding gas stores in Alaska.
Under the proposed settlement Order, Air Liquide would have to sell these assets to a Commission-approved buyer within four months after it acquires Airgas. The FTC noted in its Analysis to Aid Public Comment that “there are a number of parties interested in purchasing the assets to be divested that have the expertise, experience, and financial viability to successfully purchase and manage these assets and retain the current level of competition in the relevant markets. The Commission is therefore satisfied that sufficient potential buyers for the divested assets in each relevant market currently exist.”
The proposed Order also states that if the company does not present a buyer that is acceptable to the FTC within this time, or does not handle the divestiture in an acceptable way, the order would allow the FTC to appoint a trustee to divest the assets. The proposed Order includes an asset maintenance order to ensure that Air Liquide and Airgas continue to act independently and maintain the relevant assets until they are divested. The proposed Order also allows the Commission to appoint a monitor to oversee the merging parties’ compliance with their obligations under the settlement agreement.
While the FTC normally requires merging parties to identify buyers of assets to be divested and execute divestiture agreements and all ancillary agreements with the divestiture buyers before the parties formally present the buyers to the FTC for approval, the Air Liquide/Airgas consent agreement indicates that the FTC is willing to approve a settlement agreement without an upfront buyer in certain situations.
The FTC normally requires upfront buyers because the FTC wants to review the qualifications of the upfront buyer and the divestiture agreement with the upfront buyer. The FTC’s upfront buyer requirement minimizes the risk that a remedy will fail to preserve competition in cases where the FTC is concerned about the adequacy of the divestiture package, the lack of acceptable buyers or the deterioration of the assets pending divestiture. Indeed, an upfront buyer is likely to be required when the parties seek to divest a package of assets rather than an ongoing business.
Though there is no ongoing business to be sold in Air Liquide/Airgas, the FTC has demonstrated that it is willing to accept a consent agreement without upfront buyer when the circumstances exist that satisfy it that potential buyers exist. Indeed, the FTC stated as much in its analysis. Here, the FTC is simply requiring Air Liquide to commit to selling a package of assets to a or multiple to-be-approved unidentified buyers within four months after the transaction is consummated. The FTC has a history of not requiring upfront buyers in the industrial chemicals industry as it approved Air Products’ acquisition of Airgas in September of 2010 without requiring an upfront buyer.
Accordingly, this recent enforcement action does not mean that the FTC is starting a new trend. The FTC will still require upfront buyers in most situations. Here, the usual concerns about the lack of qualified buyers were not present. Indeed, the FTC noted that a number of qualified buyers had expressed interest in the assets that Air Liquide would be required to divest. The FTC’s enforcement action demonstrates that in some situations merging parties can avoid the need for upfront buyers if the assets to be divested include a stand-alone business unit and/or a package of assets that are easy to sell because they will attract interest from several potential purchasers.