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FTC Challenges Titanium Dioxide Merger

Monday, December 11, 2017

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The U.S. Federal Trade Commission moved last week to challenge a proposed $1.67 billion merger between two major suppliers of titanium dioxide.

Tronox Limited (Stamford, Connecticut) announced in February that it intended to acquire the TiO2 business of Cristal (Jeddah, Saudi Arabia). At the time, the companies expected the deal to close by the first quarter of 2018, and said the new entity would have 11 TiO2 production facilities, with a total annual capacity of 1.3 million metric tons.

Tronox warehouse
Images courtesy of Tronox

Tronox proposed a $1.67 billion merger with Cristal, a deal that would create the largest producer of chloride titanium dioxide in the world, in February.

The acquisition gained approval from Australian regulators in August, but now faces a stumbling block in the United States in light of the FTC’s complaint, announced Tuesday (Dec. 5).

Market Background

TiO2 is a raw material widely used in the paints and coatings industry as a pigment to provide hide, durability and whiteness characteristics. Tronox is currently the world’s sixth-largest TiO2 maker. The company operates three plants in the U.S., Netherlands and Australia and employs 3,400 people worldwide. Cristal is the second-largest TiO2 producer in the world, behind the DuPont spin-off company Chemours.

Titanium dioxide

TiOis a raw material widely used in the paints and coatings industry as a pigment to provide hide, durability and whiteness characteristics.

The FTC says if the merger were to go through, the new Tronox-Cristal entity and Chemours would together control “the vast majority of chloride titanium dioxide manufacturing capacity in the North American market.” The agency asserts that the TiO2 market “is already dominated by a few large players with a history of seeking to support higher prices by restricting production.”

Proprietary technology and the cost of building titanium dioxide manufacturing facilities makes barriers to entry in the industry great; the likelihood of new players entering the market to offer further competition is not high.

Company Response

Tronox responded quickly and publicly to the challenge, arguing that the FTC’s view of the TiO2 market is limited. The company said the agency did not take into account titanium dioxide produced via the sulfate process. But the FTC said in its complaint that sulfate TiO2 generally exhibits fewer of the durability and appearance properties desired for coating formulation than chloride TiO2, and that coatings companies and other customers would be unlikely to switch to the sulfate product.

While the FTC argues that the small number of players in the TiOmarket could move to cut production and drive up prices, Tronox argues that in fact, the merger will only benefit the company if production remains at full capacity. 

The FTC’s suit is set to go to trial in May.

   

Tagged categories: Acquisitions; Government; Lawsuits; Mergers; Titanium dioxide; Tronox

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