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Judge Blocks $1.6B Pigment Merger, for Now

By George Khoury, Esq. on September 14, 2018 | Last updated on March 21, 2019

While you may have not even known this industry even existed, the FTC is concerned that a pigment maker's merger with another pigment maker worth an estimated $1.67 billion violates antitrust law. The pigment in question is used to color paints and plastics and other products white, and provide opacity.

And unfortunately for Tronox and National Titanium Dioxide Company (a.k.a. Cristal), the two pigment makers, a recent ruling from the D.C. District Court doesn't bode well. The FTC sought injunctive relief to prevent the merger from going forward because it had already been approved in the EU, China, Saudi Arabia, and elsewhere, and the company was proceeding to consummate. The district court agreed with the FTC and approved the injunction pending the full resolution of the FTC's own pending approval process for the merger.

Component Competition

According to the FTC, and the district court, the combination of these two pigment manufacturers would create an even further limitation on competition in the market. As the court noted, in a somewhat-heavily redacted opinion, actual consumers of these pigments, other manufacturers, explained that the only leverage they have sometimes is telling Tronox or Cristal about the other's offer and asking the other to meet or beat it.

For Tronox's main point of rebuttal against the FTC's claims that the merger would result in decreased competition, it held up the potential for large scale entry of the Chinese and other pigment makers into the U.S. market. However, as the court explained, those market participants currently don't even make up 1% of the U.S. market share.

Administrative Burden

Perhaps one of the more curious aspects of this case is the fact that the actual ruling on whether the merger will go forward is in the hands of an FTC ALJ. The administrative law hearing on the matter is done, everything is under submission, and an administrative ruling is expected this year.

The federal court injunction only became necessary for the FTC to pursue after the EU regulatory hurdles were cleared, as prior to then, there was no imminent threat of the merger going through. Even more curiously, given this procedural posture, it is reported that Tronox will appeal this ruling. Which could lead to a complex web of litigation if the ALJ does not rule in their favor and the company must appeal that decision as well.

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