On July 18, the FTC announced that it reached a settlement that would allow Linde AG’s acquisition of the BOC Group to proceed. As is typical in merger reviews, the FTC staff focused on specific product overlaps to determine what assets needed to be divested to resolve the antitrust concerns. The Commission approved the merger so long as the companies divest two groups of assets: (1) liquid oxygen and liquid nitrogen and (2) bulk refined helium. The divestitures are required to satisfy the FTC that competition will not be harmed following the transaction. That being said, an up front buyer was required for one set of assets, while an upfront buyer was not required for the other. The consent order states that Linde will have to find FTC-approved buyer for the liquid oxygen and liquid nitrogen assets within six months, however, the FTC required Linde to divest the bulk refined helium assets to an upfront buyer, Nippon Sanso.
Interestingly, the FTC did not require up-front buyers for the liquid oxygen and liquid nitrogen assets, while requiring an upfront buyer for the bulk refined helium assets. In the recent past, the FTC used up-front buyers as a vital tool in assuring that a buyer will successfully enter and restore competition fully. Up-front buyers are typically required when the FTC is concerned about whether the proposed asset package is adequate to maintain or restore competition or whether the asset package is sufficient to attract an acceptable buyer or buyers. For some time, however, it seemed as though the FTC was always requiring up-front buyers even in routine cases. Undoubtedly, the FTC will continue to require up-front buyers in many situations, but this decision demonstrates the FTC’s willingness to approve mergers without requiring up-front buyers when they are not deemed necessary by the FTC. In those situations in which the FTC is concerned about the adequacy of the asset package or the possible lack of an acceptable buyer, the FTC will require an up-front buyer to minimize the risk that the divestiture remedy will be ineffective. When the merging parties can show that a good buyer will likely emerge, that the assets to be divested have been operated as a stand-alone business so that the buyer can maintain and restore competition after acquiring it, and that interim competition and the viability of the assets will be preserved pending divestiture, the FTC may not require an up-front buyer.
The FTC explained in its Analysis of the Order that a buyer upfront remedy was required in the helium market because the helium assets to be divested do not constitute a stand-alone business and require key third-party consents for their transfer. The FTC analysis goes into more detail on the difficulty of entering the bulk refined helium market. Evidently, there are no sources of refined helium available that are not committed to market incumbents in long term contracts. Moreover, a new entrant would need to locate a new source of crude helium and build a refinery. In addition, tens of millions of dollars would be needed to acquire the necessary infrastructure to compete, but the opportunities to recoup these costs are comparatively limited. Linde is the fifth largest industrial gas supplier in the United States and BOC, is the fourth largest industrial gas supplier in the United States. The Consent Agreement also contains an agreement to hold separate and maintain assets.
The merger investigation indicates that the FTC staff is willing to work with merging parties and does not always require an up-front buyer. Although it appears as if the FTC always requires up-front buyers in merger review of certain industries, the decision to require an up-front buyer is dependent upon the circumstances of each individual case so merging parties have the opportunity to make their case of why an up-front buyer should not be required.