Judge Blocks Billion Dollar Merger of Pigment Firms

WASHINGTON (CN) – A federal judge has blocked the billion dollar merger of two industrial pigment companies saying a federal agency’s complaint alleging the union would harm consumers could survive a bench trial.

Tronox Limited had agreed to merge with Cristal, also known as the National Titanium Dioxide Company, and its TiO2 business last year for over $1.6 billion dollars.

The two companies produce a pigment used to add whiteness, opacity and brightness to products and is found in “nearly all” pigments in the United States and Canada, according to the 48-page opinion published on Wednesday.

While the European Union, China, Saudi Arabia and other countries had approved the merger, the Federal Trade Commission filed a complaint against it and is awaiting a ruling from an administrative law judge which held a trial during May of this year.

But Thursday’s ruling put an injunction in place blocking the merger until the other court makes their decision.

“The FTC’s evidence credibly suggests that the merger will greatly increase concentration in an already concentrated market, and that it will create incentives for the remaining industry participants to engage in strategic withholding of TiO2 supplies to maintain higher prices,” wrote U.S. District Judge Trevor McFadden, pointing to FTC evidence suggesting the merger would turn the current five producers of the chemical into four companies with the top two holding 73 percent of the market.

McFadden also agreed with the agency’s suggestion that the merger would specifically lead to anti competitive actions like output withholding. He used testimony from an August evidentiary hearing that suggested such price controlling might already be in effect such as a 2015 earnings call where Tronox executives said they could, if prices drop, “[manage] our production so that inventories get reduced to normal or below normal levels. And when that happens, prices will rise.”

“If there was surplus supply in the market we slow down our production,” the company said.

“There is, of course, nothing improper about a firm making independent production decisions to maximize profits,” McFadden wrote. “But a core purpose of antitrust law is to scrutinize mergers that may make it easier for firms to collectively reduce output, and indeed, to prevent mergers that are likely to do so.”

Tonox said they were disappointed with the judge’s ruling and shot back against claims that it would lead to anti competitive activity.

“I believe we convincingly demonstrated that the FTC’s objections to the Cristal transaction are entirely misplaced and this highly synergistic transaction will significantly increase production of TiO2 to the benefit of customers in North America and around the world,” said Jeffry Quinn, president and chief executive officer of Tronox.

Quinn said the company will appeal the decision.

“We intend to be as transparent and open as possible and will be forthcoming with our chosen course of action at the appropriate time,” he said.

The administrative law judge’s decision is expected “soon,” according to the opinion.

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