Analysis of the Complaint and Proposed Consent Order to Aid Public Comment

The Dow Chemical Company and Union Carbide Corporation

File No. 9910301, Docket No. C-3999

I. Introduction

The Federal Trade Commission (“Commission”) has accepted for public comment a

Decision and Order (“Order”), pursuant to an Agreement Containing Consent Orders (“Consent

Agreement”), against The Dow Chemical Company (“Dow”) and Union Carbide Corporation

(“Carbide”) (collectively “Respondents”). The Order is intended to resolve anticompetitive

effects stemming from the proposed merger of Dow and Carbide (the “Merger”). As described

below, the Order seeks to remedy anticompetitive effects of the merger in polyethylene,

ethyleneamines, ethanolamines and methyldiethanolamine (“MDEA”). The Order remedies those

anticompetitive effects by requiring Respondents to divest and license certain intellectual property

and other assets relating to polyethylene to BP Amoco plc (“BP”); to divest Dow’s worldwide

businesses in ethyleneamines to Huntsman International LLC (“Huntsman”); and to divest Dow’s

worldwide ethanolamines business and its MDEA business in the United States and Canada to

Ineos Group plc (“Ineos”). The Commission has also issued an Order to Maintain Assets that

requires Respondents to preserve the businesses they are required to divest as a viable,

competitive, and ongoing operation until the divestiture is achieved.

The Order, if finally issued by the Commission, would settle charges that the Merger may

have substantially lessened competition in the markets for polyethylene and polyethylene

technology, ethyleneamines, ethanolamines and MDEA. The Commission has reason to believe

that the Merger would violate Section 7 of the Clayton Act and Section 5 of the Federal Trade

Commission Act. The proposed complaint, described below, relates the basis for this belief.

II. Description of the Parties and the Proposed Merger

Dow, headquartered in Midland, Michigan, is a large, worldwide chemical company, with

particular strength in polyethylene, the world’s most widely used plastic, and in key technologies

relating to the manufacture of polyethylene. Carbide, headquartered in Danbury, Connecticut, is

also a large, worldwide chemical company, and a leading developer and licensor of polyethylene

process technology.

Pursuant to a merger agreement dated August 8, 1999, Dow and Carbide propose to

merge in a transaction pursuant to which Carbide shareholders would exchange their shares for

shares of Dow.

III. The Proposed Complaint

According to the Commission’s proposed complaint, the merger would substantially

reduce competition in four lines of commerce: linear low density polyethylene (“LLDPE”) in the

United States and Canada, and related technology (both metallocene catalysts and reactor

processes) worldwide; the worldwide market for metallocene catalysts for use in producing
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 In a differentiated product market, the merger of firms whose products are closer

substitutes is more likely to result in a significant lessening of competition, because sales that (premerger) one of the merging parties would have lost to the other, in the event of a price increase,

would now be retained by the merged firm. U.S. Dep’t of Justice & Federal Trade Comm’n,

Horizontal Merger Guidelines § 2.21; FTC v. Swedish Match, slip op. 33-34 (D.D.C. Dec. 14,

2000) (Civ. No. 00-1501 TFH).

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LLDPE; the worldwide market for LLDPE reactor process technology; the worldwide market for

ethyleneamines; the worldwide market for ethanolamines; and the market for branded MDEA in

the United States and Canada.

A. Count One: Polyethylene

The proposed complaint alleges that the merger would substantially reduce competition in

polyethylene. Three interrelated polyethylene markets are affected by the merger: (1) LLDPE in

the United States and Canada; (2) metallocene catalysts for LLDPE production worldwide; and

(3) LLDPE reactor process technology worldwide. As alleged in the proposed complaint and

described below, the reduction or elimination of competition in metallocene catalyst technology,

resulting from the merger, in turn reduces competition in LLDPE itself and in LLDPE reactor

process technology. The reduction in competition in LLDPE process technology in turn further

reduces competition in LLDPE.

Polyethylene is the world’s most widely used plastic, and LLDPE is the fastest growing

type of polyethylene. LLDPE is particularly well suited for applications that require both

flexibility and strength. One of the most significant uses of LLDPE is in making trash bags, and

LLDPE is used to make bags out of plastic films that are strong, thin and puncture resistant. Dow

and Carbide are leading producers of LLDPE in the United States and Canada, and throughout

the world. 

The proposed complaint alleges that LLDPE is a differentiated product, and that Dow and

Carbide are among the LLDPE producers that have succeeded in developing specialty, high

performance polymers demanded by significant users of LLDPE (notably makers of branded trash

bags and cast stretch film).1 Dow has historically led the industry in production and sale of

premium LLDPE polymers tailored to deliver performance characteristics demanded by many

LLDPE users, and has been able to sell premium LLDPE at premium prices.

Polyethylene is made in polymerization reactions in the presence of a catalyst. Both the

reactor technology and the catalyst technology are patented, and both Dow and Carbide are

leading developers of reactor technology. Carbide’s reactor technology, called “Unipol,” is the

world’s most widely licensed polyethylene process technology. The other significant licensed

LLDPE technology is “Innovene,” owned by BP. Both Unipol and Innovene make polyethylene

in a process in which ethylene is in a gaseous form during polymerization (“gas phase”). Dow’s

reactor technology, which Dow does not license, polymerizes ethylene in solution. The large
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 The Commission can, under Section 5 of the FTC Act, 15 U.S.C. § 45, infer that facially

independent actions or agreements nonetheless constitute intertwined events that should be

considered together for the purpose of evaluating whether their effect constitutes a violation of

the Act. SKF Industries, Inc., 94 F.T.C. 6, 95 (1979). The proposed complaint alleges that

Dow’s decision to enter into the merger agreement with Carbide, and its decisions (1) to allow the

Dow/BP joint development agreement to expire by its terms and (2) not to license its metallocene

technology to BP, are sufficiently related to consider together in examining the effects of the

merger.

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majority of LLDPE reactor capacity is gas phase rather than solution.

Dow and Exxon Mobil Corp. (“Exxon”) have succeeded in developing and

commercializing “metallocene” catalysts, which represent a significant advance over conventional

LLDPE catalysts. The proposed complaint alleges that, if metallocene catalysts were generally

available to LLDPE producers, those producers likely would be able to erode Dow’s position as

the world’s leading producer of premium LLDPE polymers.

Both Dow and Exxon entered into joint ventures with the leading gas technology firms

(BP and Carbide, respectively) to develop and commercialize metallocene catalysts for use in gas

reactors. Both the Dow/BP joint development program and the Exxon/Carbide joint venture,

Univation Technologies LLC (“Univation”), succeeded in adapting metallocene catalysts for use

in gas reactors; both sought to license that technology to other gas-process LLDPE producers;

and both indeed sold licenses to metallocene catalysts for gas reactors. 

In 1999, however, Dow entered into an agreement to merge with Carbide, which would

result in Dow becoming a partner with Exxon in Univation. As alleged in the proposed

complaint, at or about the time Dow entered into the merger agreement with Carbide, Dow

determined that it would not continue its joint development program with BP, and that it would

not license its metallocene catalyst to BP (with rights to sublicense), thereby effectively

terminating any ability by BP to license metallocene catalysts in competition with Univation (in

which Dow would, as a result of the merger, succeed to Carbide’s interest).

The proposed complaint alleges that each of the polyethylene markets would be highly

concentrated as a result of the merger. The proposed complaint further alleges that Dow and

Carbide are direct and significant actual competitors in the market for LLDPE in the United

States and Canada; that Dow and Carbide (through Univation) are direct and significant actual

competitors in the market for metallocene catalyst technology worldwide; and that Dow and

Carbide are actual and potential competitors in the market for LLDPE process technology

worldwide. The proposed complaint further alleges that, as part of its course of dealing in

connection with the merger, Dow’s actions terminating the Dow/BP joint development program

and refusing to license metallocene catalysts to BP significantly reduced competition in LLDPE

process technology by impairing BP’s ability to compete in that market.2

 The proposed complaint

also alleges that entry into the relevant markets would not be timely, likely, or sufficient to deter
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or offset adverse effects of the acquisition on competition.

The proposed complaint alleges that Respondents’ merger would eliminate actual or

potential, direct, and substantial competition between Respondents in the relevant markets. 

Elimination of this competition would likely result in increased prices for LLDPE polymers,

metallocene technology licenses and LLDPE process technology licenses; and lessened innovation

in each of these markets. Specifically, by eliminating BP as an alternative source of metallocene

catalysts for Dow’s competitors (the majority of which use gas phase LLDPE reactor

technology), and by acquiring Carbide’s interest in Univation, Dow would be in a position to

impede the development, licensing and use of metallocene catalysts and thereby benefit Dow’s

own polyethylene business. The merger (and the related termination of the BP/Dow joint

development agreement) would also lessen BP’s ability to compete with Univation in polyethylene

process technology, and thereby further impair competition in polyethylene. 

B. Count Two: Ethyleneamines

Ethyleneamines are a family of chemicals containing at least one ethylene and one amine

molecule and are used in a broad variety of applications, including lubricating oil additives,

chelating agents, wet-strength resins, epoxy curing agents, surfactants, personal care products,

pulp and paper products, and fungicides. Dow and Carbide are the only producers of

ethyleneamines in the United States and Canada, and together sold approximately $170 million

worth of ethyleneamines in 1999. There are no cost-effective substitutes for ethyleneamines in the

end-uses for which they are used.

Dow and Carbide compete in the United States and Canada in the production and sale of

ethyleneamines, and also compete outside the United States and Canada. The proposed complaint

alleges that the United States and Canada constitute a properly defined geographic market, and

that the world also constitutes a properly defined geographic market. Whether the market is

defined as the United States and Canada (in which Dow and Carbide are the only producers) or

the world (in which the market is highly concentrated, and Dow and Carbide combined would

have more than 50% of worldwide capacity), the merger would result in a highly concentrated

market, and concentration would increase substantially. The proposed complaint alleges that

entry would not be timely, likely or sufficient to constrain an anticompetitive price increase or

reduction in output.

C. Count Three: Ethanolamines

Ethanolamines are a family of chemicals, comprising monoethanolamine (“MEA”),

diethanolamine (“DEA”), and triethanolamine (“TEA”), made by reacting ethylene oxide and

ammonia. Ethanolamines are used in a broad variety of applications, including the production of

ethyleneamines, and in surfactants, personal care products, herbicides, oil and gas refining

applications, pharmaceuticals and fabric softeners. The proposed complaint alleges that there are

no cost-effective substitutes for ethanolamines in the end-uses for which they are used, and that
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the proper geographic market to analyze the effect of the merger on the sale of ethanolamines is

the United States and Canada.

Carbide and Dow are the largest and third largest producers, respectively, of

ethanolamines in the United States and Canada. As a result of the merger, proposed Respondents

would have more than 60% of sales in the relevant market, and two firms would have more than

90%. The proposed complaint alleges that entry would be unlikely to remedy the likely

anticompetitive effects of the merger.

D. Count Four: MDEA-Based Gas Treating Products

Methyldiethanolamine (“MDEA”) is a powerful solvent used in gas treating to remove

unwanted compounds from gas streams. MDEA is used in oil refineries, natural gas plants,

ammonia plants and other facilities that handle hydrocarbon gases. While some MDEA is sold

alone, a substantial portion of the MDEA sold in the United States and Canada is sold blended

with additives and other chemicals, including ethanolamines, and is sold on a branded basis. 

Branded MDEA is often sold bundled with engineering services relating to gas treating.

The proposed complaint alleges that MDEA-based gas treating products constitute a

relevant product market and that the United States and Canada constitute a relevant geographic

market. As alleged in the proposed complaint, because of the high cost associated with failure of

gas treating products, customers that purchase MDEA-based gas treating products would be

unlikely to substitute commodity MDEA in the event of a small but significant, nontransitory price

increase of MDEA-based gas treating products. Dow and Carbide are the two largest sellers of

MDEA-based gas treating products. As a result of the merger, Respondents would have

approximately 60% of the relevant market, and three firms would have approximately 90% of that

market. The proposed complaint alleges that entry is unlikely to counteract the competition lost

by the merger.

IV. Terms of the Agreement Containing Consent Order

The proposed Order is designed to remedy the anticompetitive effects of the merger in the

markets alleged in the proposed complaint, as described below.

A. Polyethylene

The proposed Order would remedy the anticompetitive effects of the merger by

(1) allowing BP to develop and license metallocene catalysts to the majority of LLDPE producers

worldwide, i.e., those that make LLDPE in gas phase reactors, without being subject to patent

claims by Dow, Univation or Exxon; and (2) enabling Exxon to develop and license metallocene

catalysts and Unipol reactor process technology independently of Dow, should Dow’s

participation in Univation frustrate Exxon’s interest in developing and licensing that technology.
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 That Divestiture and License Agreement is confidential and is not being placed on the

public record. However, that Agreement may not contradict the terms of the proposed Order.

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Section VI of the proposed Order would enable BP to develop and license metallocene

catalysts by (1) divesting to BP Dow’s interest in the intellectual property developed jointly by

Dow and BP, to which BP’s rights were uncertain as a result of Dow’s decision to terminate the

joint development effort without resolving the ownership of those rights; (2) divesting Dow’s

remaining intellectual property (and related assets) specific to the gas phase process; (3) licensing

Dow’s metallocene catalyst technology to BP, with the right to sublicense that technology; and

(4) licensing to BP, with rights to sublicense, Exxon patents controlled by Univation that

otherwise would expose BP’s efforts to develop, commercialize and license metallocene catalysts

to infringement suit brought by Exxon or Univation. The divestiture and license would be made

pursuant to a Divestiture and License Agreement executed by Dow and BP, which agreement is

incorporated in and made part of the proposed Order.3

The purpose of the divestiture and license of intellectual property and related assets to BP

is to enable BP to compete with Univation in developing, commercializing and licensing

metallocene technology, remedying the anticompetitive effect in the market for metallocene

catalyst technology. Moreover, by allowing BP to offer metallocene catalysts in connection with

licenses of its Innovene gas phase reactor technology, the proposed Order is intended to preserve

the viability of that technology as an alternative to Carbide’s Unipol technology (which, through

Univation, can offer metallocene technology). By preserving competition in both metallocene

catalyst technology and LLDPE reactor process technology, the proposed order would allow BP

licensees (or future licensees) in the United States and Canada to obtain metallocene catalysts

from a source not controlled by Dow, thereby preserving metallocenes as a threat to Dow’s

premium polymer business, and providing a reactor process technology solution (including

metallocenes) independent of Respondents.

Section VII of the proposed Order enables Exxon to retain rights, including the right to

sublicense, in all Univation technology and in Carbide’s Unipol process should the Univation

venture be dissolved or should Dow come to control the Univation venture. The grant of this

right to Exxon provides additional remedy to the anticompetitive effects alleged in the proposed

complaint by allowing Exxon to develop and license the Unipol process independently of Dow,

should Dow seek to impede Univation’s licensing business for the benefit of Dow’s polyethylene

business. 

B. Ethyleneamines

The provisions of Section II of the proposed Order would remedy the anticompetitive

effects in the markets for ethyleneamines, as alleged in Count Two of the proposed complaint, by

requiring proposed Respondents to divest Dow’s global ethyleneamines business to Huntsman, a

worldwide producer of chemicals and plastics, including ethylene derivatives. Huntsman does not

today produce ethyleneamines.
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If the Commission, at the time that it makes the proposed Order final, notifies

Respondents that it does not approve of the proposed divestiture to Huntsman, or the manner of

the divestiture, the proposed Order provides that Respondents would rescind the sale to

Huntsman and divest Dow’s global ethyleneamines business within six months to an acquirer

approved by the Commission and in a manner approved by the Commission. If Respondents did

not complete the divestiture in that period, a trustee would be appointed who, upon Commission

approval, would have the authority to divest Dow’s global ethyleneamines business to a

Commission-approved acquirer.

C. Ethanolamines

The provisions of Section III of the proposed Order would remedy the anticompetitive

effects in the markets for ethanolamines, as alleged in Count Three of the proposed complaint, by

requiring proposed Respondents to divest Dow’s global ethanolamines business to Ineos, a

producer of ethylene derivatives and other chemicals, which does not today produce

ethanolamines.

If the Commission, at the time that it makes the proposed Order final, notifies

Respondents that it does not approve of the proposed divestiture to Ineos, or the manner of the

divestiture, the proposed Order provides that Respondents would rescind the sale to Ineos and

divest Dow’s global ethanolamines business within six months to an acquirer approved by the

Commission and in a manner approved by the Commission. If Respondents did not complete the

divestiture in that period, a trustee would be appointed who, upon Commission approval, would

have the authority to divest Dow’s global ethanolamines business to a Commission-approved

acquirer.

D. MDEA-Based Gas Treating Products

The provisions of Section IV of the proposed Order would remedy the anticompetitive

effects in the markets for MDEA-based gas treating products, as alleged in Count Four of the

proposed complaint, by requiring proposed Respondents to divest Dow’s “Gas Spec” MDEA

business to Ineos. 

If the Commission, at the time that it makes the proposed Order final, notifies

Respondents that it does not approve of the proposed divestiture to Ineos, or the manner of the

divestiture, the proposed Order provides that Respondents would rescind the sale to Ineos and

divest Dow’s Gas Spec MDEA business within six months to an acquirer approved by the

Commission and in a manner approved by the Commission. If Respondents did not complete the

divestiture in that period, a trustee would be appointed who, upon Commission approval, would

have the authority to divest Dow’s Gas Spec MDEA business to a Commission-approved

acquirer.
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E. Other Provisions of the Proposed Order

The proposed Order requires Respondents to provide the Commission with an initial

report setting forth in detail the manner in which Respondents will comply with the provisions

relating to the divestiture of assets. The proposed Order further requires Respondents to provide

the Commission with a report of compliance with the Order within thirty (30) days following the

date the Order becomes final and every thirty (30) days thereafter until they have complied with

the terms of the Order.

F. The Order To Maintain Assets

Respondents have also agreed to the entry of an Order to Maintain Assets, which has been

entered by the Commission and is effective immediately. The Order to Maintain Assets requires

Respondents to preserve the ethyleneamine, ethanolamine and MDEA businesses that they are

required to divest as viable and competitive businesses and conduct the businesses in the ordinary

course of business until those businesses are divested to the Commission-approved acquirer. The

Order to Maintain Assets also requires Respondents to preserve and maintain the polyethylene

assets to be divested and licensed to BP.

V. Opportunity for Public Comment

The proposed Order has been placed on the public record for thirty (30) days for receipt

of comments by interested persons. Comments received during this period will become part of

the public record. After thirty days, the Commission will again review the proposed Order and

the comments received and will decide whether it should withdraw from the proposed Order or

make it final. By accepting the proposed Order subject to final approval, the Commission

anticipates that the competitive problems alleged in the proposed complaint will be resolved. The

purpose of this analysis is to invite public comment on the proposed Order, including the

proposed divestiture, to aid the Commission in its determination of whether to make the proposed

Order final. This analysis is not intended to constitute an official interpretation of the proposed

Order, nor is it intended to modify the terms of the proposed Order in any way.