FTC Backs Dow, Union Carbide Merger with Conditions
Dow Jones Newswires, 6th February 2001

By MARK WIGFIELD

WASHINGTON -- The Federal Trade Commission has conditionally approved the $7.39 billion merger of Dow Chemical Co. (DOW) and Union Carbide Corp. (UK), some 18 months after the companies first announced the deal that will create the second largest diversified chemicals firm in the world.

But the company has agreed to sell the recipe for a key ingredient in widely used plastic products, such as trash bags and sealable food pouches, to BP Amoco PLC (BP), Dow's partner in developing the substance.

The FTC will also require Dow to sell other products to Huntsman Chemical Corp. of Salt Lake City, including a natural gas treatment used by refiners and a family of chemicals used in oil treatments, epoxies, paper, personal care products and fungicides.

"This merger would have significantly reduced competition in the development of new consumer plastic products and technology," said Molly Boast, acting director of the FTC's Competition Bureau. The FTC's order "is intended to preserve competition in this and several other chemical markets over the long-term, benefitting consumers with better products at lower prices."

A spokeswoman for Dow Chemical said the company is "very pleased. We will be working to complete the merger as quickly as possible."

The FTC found that the merger would substantially reduce competition in four lines: technology and catalysts used to make strong, tear resistant plastic films; two families of chemicals used for everything from fungicides to personal care products; and a powerful solvent used by refineries, natural gas plants and others to removed unwanted compounds from natural gas.

Dow and Union Carbide are leading developers of technology used to make the fastest-growing type of the world's most widely used plastic, polyethylene. BP Amoco is the other significant manufacturer using so-called "linear low-density polyethylene, or LLDPE.

But prior to announcing the merger, Dow had joined with BP to commercialize a more advanced manufacturing process using metallocene catalysts. Exxon had entered into an agreement with Carbide to do the same thing.

After announcing the merger, Dow dropped out of its partnership with BP, raising fears of reduced competition in the polyethylene market because the most advanced processes would be in the hands of one venture.

Approval of the deal was held up for some time over this issue, says Linda Varoli, senior analyst at the New York-based research firm Merger Insight Inc.

"One company controlling the only two technologies for this process would have been too much for regulators to take," she said. Varoli believes Dow may have tried to negotiate a good price for its stake in the BP venture, slowing the approval process.

Other analysts said that approval was complicated by complex intellectual property issues surrounding the production processes, a relatively new twist in antitrust review of the chemical industry.

Dow will divest its global ethanolamine business to Ineos PLC (U.INS). The family of chemicals is used in personal care products, herbicides, oil and gas refining, pharmaceuticals and fabric softeners.

Based in Midland, Mich., Dow is the largest producer of chemicals in the nation and Union Carbide, based in Danbury, Conn., is the third. The merged firm will be called Dow Carbide.