991 0281

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

________________________________________________

)

In the Matter of )

)

RHI AG, ) Docket No. C-4005

a corporation. )

________________________________________________)

COMPLAINT

The Federal Trade Commission (“Commission”), having reason to believe that RHI AG

has agreed to acquire Global Industrial Technologies, Inc., both corporations subject to the

jurisdiction of the Commission, in violation of Section 7 of the Clayton Act, as amended, 15

U.S.C. § 18, and Section 5 of the Federal Trade Commission Act ("FTC Act"), as amended, 15

U.S.C. § 45; and it appearing to the Commission that a proceeding in respect thereof would be in

the public interest, hereby issues its Complaint, stating its charges as follows:

I. RESPONDENT

1. Respondent RHI AG (“RHI”) is a corporation organized, existing and doing

business under and by virtue of the laws of Austria with its principal executive offices located at

Mommsengasse 35, A-1040 Vienna, Austria. 

2. Respondent is engaged in, among other things, the research, development,

manufacture, sale, and distribution of refractory bricks used in structures and equipment related to

the production of steel.

3. For purposes of this proceeding, Respondent is, and at all times relevant herein has

been, engaged in commerce as “commerce” is defined in Section 1 of the Clayton Act, as

amended, 15 U.S.C. § 12, and is a corporation whose business is in or affecting commerce as

“commerce” is defined in Section 4 of the FTC Act, as amended, 15 U.S.C. § 44.
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II. THE ACQUIRED COMPANY

4. Global Industrial Technologies, Inc. (“Global”) is a corporation organized, existing

and doing business under and by virtue of the laws of Delaware with its office and principal place

of business located at 2121 San Jacinto Street, Suite 2500 Dallas, Texas, 75201. 

5. Global is engaged in, among other things, the research, development, manufacture,

sale, and distribution of refractory bricks used in structures and equipment related to the

production of steel.

6. For purposes of this proceeding, Global is, and at all times relevant herein has

been, engaged in commerce as “commerce” is defined in Section 1 of the Clayton Act, as

amended, 15 U.S.C. § 12, and is a corporation whose business is in or affecting commerce as

“commerce” is defined in Section 4 of the FTC Act, as amended, 15 U.S.C. § 44.

III. THE ACQUISITION

7. Pursuant to an Agreement and Plan of Merger dated July 12, 1999, RHI will

acquire, by a cash tender offer, all of the outstanding shares of Global at a price of $13 per share,

valued at approximately $300 million.

IV. REFRACTORY BRICKS FOR STEEL PRODUCTION

8. Refractory bricks for steel production include, among other things, basic refractory

bricks and high-alumina refractory bricks. Basic refractory bricks for steel production include

magnesia-carbon (“mag-carbon”) refractory bricks for basic oxygen furnaces (“BOFs”), magcarbon refractory bricks for electric arc furnaces (“EAFs”), mag-carbon refractory bricks for BOF

steel ladles, and magnesia-chrome (“mag-chrome”) refractory bricks for steel degassers. Highalumina refractory bricks used in steel production include high-alumina refractory bricks for BOF

steel ladles, and high-alumina refractory bricks for torpedo cars. 

9. Mag-carbon refractory bricks for BOFs are non-metallic insulating bricks and

shapes composed predominantly of magnesia and containing at least 8% carbon. Mag-carbon

refractory bricks for BOFs are designed and manufactured to withstand the extreme temperature

and mechanical and chemical pressures that exist in BOFs during the steel-making process. 

Specifically, in addition to its heat-resistant qualities, magnesia is resistant to slag–a non-acidic

(“basic”) substance formed by chemical action during the high-temperature steel-making

process–and has low vulnerability to chemical attack by iron oxide and alkalies, all by-products of

the steel-making process. Carbon prevents slag from entering the pores of the brick, further

improving the ability of the mag-carbon refractory brick to withstand chemical attack from the
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slag. Mag-carbon bricks for BOFs are manufactured into specific sizes and shapes unique to

BOFs, further strengthening the refractory and improving its ability to withstand heat as well as

chemical and mechanical attack, and ultimately enabling the steel-making process to take place by

protecting the BOF from these extreme pressures.

10. Mag-carbon refractory bricks for EAFs are non-metallic insulating bricks and

shapes composed predominantly of magnesia and containing at least 8% carbon. Mag-carbon

refractory bricks for EAFs are designed and manufactured to withstand the extreme temperature

and mechanical and chemical pressures that exist in EAFs during the steel-making process, and

possess the same chemical properties as mag-carbon bricks for BOFs that make them especially

suited to resist the slag and other by-products of the steel-making process. Mag-carbon bricks for

EAFs are manufactured into specific sizes and shapes unique to EAFs, further strengthening the

refractory and improving its ability to withstand heat as well as chemical and mechanical attack,

and ultimately enabling the steel- making process to take place by protecting the EAF from these

extreme pressures.

11. BOF steel ladles are used to collect and transport molten steel from the BOF to the

area of the steel plant where the molten steel is poured into molds. Slag is less dense than steel,

and collects in a BOF steel ladle above the molten steel (the “slag line”). For the same reasons

mag-carbon bricks are used to line BOFs and EAFs, mag-carbon bricks are used to line the area

of a BOF steel ladle above the slag line in order to protect the ladle itself from the corrosiveness

of the slag. Mag-carbon refractory bricks for BOF steel ladles are manufactured into specific

sizes and shapes unique to BOF steel ladles.

12. Steel degassers are refractory-lined chambers used to rid molten steel of oxygen

and hydrogen that is absorbed during the steel-making process. The steel degassing process

causes violent turbulence in the chamber. This turbulence requires the utilization of refractories

with high resistance to mechanical wear, and, because of the presence of slag, high resistance to

the corrosiveness of the slag. Mag-chrome refractory bricks for steel degassers are specifically

designed to withstand the pressures that exist within the degasser chamber. Mag-chrome

refractory bricks for steel degassers are manufactured into specific sizes and shapes unique to

steel degassers. 

13. High-alumina refractory bricks are designed to protect the BOF steel ladle below

the slag line from the corrosive forces of molten steel, which is chemically acidic in nature. Highalumina refractory bricks for BOF steel ladles are manufactured into specific sizes and shapes

unique to BOF steel ladles.

14. Torpedo cars are used to transport molten iron from a blast furnace to a BOF to

further the steel-making process. Molten iron is chemically acidic in nature, with little basic slag. 

High-alumina refractory bricks are designed to protect the torpedo cars from the corrosive forces

of molten iron. High-alumina refractory bricks for torpedo cars are manufactured into specific

sizes and shapes unique to torpedo cars.
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V. THE RELEVANT MARKETS

15. One relevant line of commerce within which to analyze the likely effects of the

proposed Acquisition is the research, development, manufacture and sale of mag-carbon

refractory bricks for BOFs. There are no economic substitutes for mag-carbon bricks for BOFs

to which customers would switch in response to a small but significant price increase in magcarbon bricks for BOFs.

16. Another relevant line of commerce within which to analyze the likely effects of the

proposed Acquisition is the research, development, manufacture and sale of mag-carbon bricks

for EAFs. There are no economic substitutes for mag-carbon bricks for EAFs to which customers

would switch in response to a small but significant price increase in mag-carbon bricks for EAFs.

17. Another relevant line of commerce within which to analyze the likely effects of the

proposed Acquisition is the research, development, manufacture and sale of mag-carbon

refractory bricks for BOF steel ladles. There are no economic substitutes for mag-carbon bricks

for BOF steel ladles to which customers would switch in response to a small but significant price

increase in mag-carbon bricks for BOF steel ladles.

18. Another relevant line of commerce within which to analyze the likely effects of the

proposed Acquisition is the research, development, manufacture and sale of mag-chrome

refractory bricks for steel degassers. There are no economic substitutes for mag-chrome

refractory bricks for steel degassers to which customers would switch in response to a small but

significant price increase in mag-chrome refractory bricks for steel degassers.

19. Another relevant line of commerce within which to analyze the likely effects of the

proposed Acquisition is the research, development, manufacture and sale of high-alumina

refractory bricks for BOF steel ladles. There are no economic substitutes for high-alumina

refractory bricks for BOF steel ladles to which customers would switch in response to a small but

significant price increase in high-alumina refractory bricks for BOF steel ladles.

20. Another relevant line of commerce within which to analyze the likely effects of the

proposed Acquisition is the research, development, manufacture and sale of high-alumina

refractory bricks for torpedo cars. There are no economic substitutes for high-alumina refractory

bricks for torpedo cars to which customers would switch in response to a small but significant

price increase in high-alumina refractory bricks for torpedo cars.

21. For purposes of this Complaint, the relevant geographic area in which to analyze

the effects of the proposed Acquisition on competition in mag-carbon refractory bricks for BOFs,

mag-carbon refractory bricks for EAFs, mag-carbon refractory bricks for BOF steel ladles, magchrome refractory bricks for steel degassers, high-alumina refractory bricks for BOF steel ladles,
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and high-alumina refractory bricks for torpedo cars, is North America. These kinds of refractory

bricks produced outside North America are not economic substitutes because of customers’ need

for local sales and technical service support, because the delays and uncertainties inherent in longdistance shipping are unacceptable to customers in an industry that requires just-in-time delivery,

because of the high shipping costs associated with a relatively low-value, heavy product, and

because of the storage and warehousing costs that would have to be borne by customers of

product purchased from foreign sources.

VI. MARKET STRUCTURE

22. The North American market for mag-carbon refractory bricks for BOFs is highly

concentrated, whether measured by the Herfindahl-Hirschman Index (“HHI”) or other measures

of concentration. RHI and Global are the two largest sellers of mag-carbon refractory bricks for

BOFs, controlling approximately 95 percent of North American sales. The proposed Acquisition

thus represents a virtual merger to monopoly in mag-carbon bricks for BOFs.

23. The North American market for mag-carbon refractory bricks for EAFs is highly

concentrated, whether measured by the HHI or other measures of concentration. RHI and Global

are the two largest sellers of mag-carbon refractory bricks for EAFs, controlling approximately 65

percent of North American sales. The proposed Acquisition would increase concentration as

measured by the HHI by 2,000 points to over 5,100 points. 

24. The North American market for mag-carbon refractory bricks for BOF steel ladles

is highly concentrated, whether measured by the HHI or other measures of concentration. RHI

and Global are two of the largest sellers of mag-carbon refractory bricks for BOF steel ladles,

controlling approximately 40 percent of North American sales. The proposed Acquisition would

increase concentration as measured by the HHI by 750 points to more than 2,500 points.

25. The North American market for mag-chrome refractory bricks for steel degassers

is highly concentrated, whether measured by the HHI or other measures of concentration. RHI

and Global are two of the largest sellers of mag-chrome refractory bricks for steel degassers,

controlling approximately 46 percent of North American sales. The proposed Acquisition would

increase concentration as measured by the HHI by 896 points to more than 3,900 points.

26. The North American market for high-alumina refractory bricks for BOF steel

ladles is highly concentrated, whether measured by the HHI or other measures of concentration. 

RHI and Global are the two largest sellers of high-alumina refractory bricks for steel ladles,

controlling approximately 70 percent of North American sales. The proposed Acquisition would

increase concentration as measured by the HHI by 2,250 points to more than 5,200 points.

27. The North American market for high-alumina refractory bricks for torpedo cars is

highly concentrated, whether measured by the HHI or other measures of concentration. RHI and
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Global are the two largest sellers of high-alumina refractory bricks for torpedo cars, controlling

approximately 52 percent of North American sales. The proposed Acquisition would increase

concentration as measured by the HHI by 960 points to more than 3,600 points.

28. Entry into the relevant markets requires significant sunk costs and would not be

timely, likely and sufficient to deter or offset reductions in competition resulting from the

proposed Acquisition. Development of the specialized refractories described above, including

determination of the proper chemical composition, as well as manufacturing techniques to ensure,

among other things, the proper porosity, is time consuming and costly and requires an extremely

high level of expertise. Because there is a trend in the steel industry to customers’ seeking single

sources of supply for their refractory needs, a new entrant would need to have the expertise and

financial capability to be able to develop and supply a full line of refractories for BOFs, EAFs and

ladles. Furthermore, because the refractory bricks at issue are used to control processes and

substances at extremely high temperatures, the failure of the products can be catastrophic,

sometimes causing the loss of human life. Consequently, customers are extremely resistant to

change, and any new entrant would have to undergo months of laboratory testing, followed by

field testing that may take years in the case of some products, prior to acceptance of product for

use in BOF and EAF steel-making applications. 

VII. EFFECTS OF THE ACQUISITION

29. The effect of the Acquisition may be substantially to lessen competition and to

tend to create a monopoly in the relevant markets in violation of Section 7 of the Clayton Act, as

amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, in the

following ways, among others:

a. It will eliminate actual, direct and substantial competition between RHI and

Global in the relevant markets for mag-carbon refractory bricks for BOFs,

mag-carbon refractory bricks for EAFs, mag-carbon refractory bricks for

BOF steel ladles, mag-chrome refractory bricks for steel degassers, highalumina refractory bricks for BOF steel ladles, and high-alumina refractory

bricks for torpedo cars;

b. It will substantially increase the level of concentration in the relevant

markets for mag-carbon refractory bricks for BOFs, mag-carbon refractory

bricks for EAFs, mag-carbon refractory bricks for BOF steel ladles, magchrome refractory bricks for steel degassers, high-alumina refractory bricks

for BOF steel ladles, and high-alumina refractory bricks for torpedo cars;

c. It will increase the likelihood that the firm created by the merger of RHI

and Global will unilaterally exercise market power in the relevant markets

for mag-carbon refractory bricks for BOFs, mag-carbon refractory bricks
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for EAFs, mag-carbon refractory bricks for BOF steel ladles, mag-chrome

refractory bricks for steel degassers, high-alumina refractory bricks for

BOF steel ladles, and high-alumina refractory bricks for torpedo cars;

d. It will increase the likelihood that purchasers of mag-carbon refractory

bricks for BOFs, mag-carbon refractory bricks for EAFs, mag-carbon

refractory bricks for BOF steel ladles, mag-chrome refractory bricks for

steel degassers, high-alumina refractory bricks for BOF steel ladles, and

high-alumina refractory bricks for torpedo cars, in the relevant geographic

market, will be forced to pay higher prices;

e. It will increase the likelihood that technical and sales services provided to

purchasers of mag-carbon refractory bricks for BOFs, mag-carbon

refractory bricks for EAFs, mag-carbon refractory bricks for BOF steel

ladles, mag-chrome refractory bricks for steel degassers, high-alumina

refractory bricks for BOF steel ladles, and high-alumina refractory bricks

for torpedo cars, in the relevant geographic market, will be reduced;

f. It will increase the likelihood that innovation in the development of magcarbon refractory bricks for BOFs, mag-carbon refractory bricks for EAFs,

mag-carbon refractory bricks for BOF steel ladles, mag-chrome refractory

bricks for steel degassers, high-alumina refractory bricks for BOF steel

ladles, and high-alumina refractory bricks for torpedo cars will be reduced;

g. It will significantly enhance the likelihood of coordinated interaction in the

relevant geographic market among the competitors in the production and

sale of mag-carbon refractory bricks for EAFs, mag-carbon refractory

bricks for steel ladles, mag-chrome refractory bricks for steel degassers,

high-alumina refractory bricks for BOF steel ladles, and high-alumina

refractory bricks for torpedo cars; and 

h. It will increase barriers to entry in the relevant markets.

30. All of the above increase the likelihood that the Acquisition would result in

increased prices or reduced services in the near future and in the long term in the relevant

markets.

VIII. VIOLATIONS CHARGED

31. The acquisition agreement between RHI and Global described in paragraph 7

violates Section 5 of the FTC Act, as amended, 15 U.S.C. § 45.
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32. The proposed Acquisition of Global by RHI, if consummated, would violate

Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as

amended, 15 U.S.C. § 45.

33. The proposed Acquisition of Global by RHI, if consummated, would allow RHI to

monopolize the United States market for mag-carbon bricks for BOFs in violation of Section 5 of

the FTC Act, as amended, 15 U.S.C. § 45.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this

twenty-first day of March, 2001, issues its Complaint against said Respondent.

By the Commission.

Donald S. Clark

Secretary

SEAL