Relevant Document:Press ReleaseTakeaways
- In an unusual move, Tronox and Cristal will continue working with FTC staff and the commissioners regarding a proposed settlement, even as the agency’s administrative law judge, or ALJ, issued an initial decision finding the companies’ transaction anticompetitive. Advocating for such a settlement after an ALJ issues a decision is rare, according to multiple antitrust practitioners who spoke to Reorg M&A.
- While Tronox states that it has continued discussing the remedy proposal with FTC staff, it is unclear whether the parties can bypass a potentially prohibitive final decision by the ALJ, according to several antitrust practitioners.
- The companies last week filed a motion with the ALJ seeking permission to take the case out of Part 3 proceedings in order to present a divestiture buyer directly to the FTC’s commissioners. According to a former FTC attorney, the commissioners would still want “all the facts” from the ALJ and FTC staff when considering the remedy proposal. But the companies may still see benefits regardless in speaking directly with the commissioners.
- “It feels political to me for sure,” said Chris Sagers, a professor specializing in antitrust at the Cleveland-Marshall College of Law. The merging companies are likely eager to get their case in front of the Republican-led and Trump-appointed FTC commissioners, Sager said.
In an unusual move, Tronox and Cristal will continue working with FTC staff and the commissioners regarding a proposed settlement, even as the agency’s administrative law judge, or ALJ, issued an initial decision finding the companies’ transaction anticompetitive. Advocating for such a settlement after an ALJ issues a decision is rare, according to multiple antitrust practitioners who spoke to Reorg M&A.
Tronox
announced last week that it had filed a motion with the ALJ seeking permission to take the case out of the ALJ proceedings so that the company could present a divestiture buyer to the FTC’s commissioners for facilities that produce titanium dioxide, a product which caused the FTC’s case team to challenge the company’s Cristal buyout before the ALJ this past summer. In conjunction with this request, the company also asked that the Honorable D. Michael Chappell, the judge overseeing the case, send his recommendation to the commissioners for approval of the divestiture buyer.
According to a
follow-up statement yesterday from Tronox, Chappell issued his initial decision that the Cristal deal “may substantially lessen competition” for the sale of titanium dioxide in North America. An FTC spokesperson told Reorg M&A yesterday that the agency expects today to post on its website the judge’s initial decision, after having gone through it to make any necessary redactions.
Tronox CEO Jeffry N. Quinn also said in the statement that the company is “now able, if necessary,” to put its remedy proposal before the FTC’s commissioners. In the meantime, the merging parties and the proposed divestiture buyer, INEOS, “continue to work with FTC staff” in discussions about the remedy proposal.
While Tronox states that it has continued discussing the remedy proposal with FTC staff, whether the parties can bypass a potentially prohibitive final decision by the ALJ’s Chappell is unclear, according to several antitrust practitioners.
“The question is: could the parties jointly go around Judge Chappell?” said one former FTC attorney, who declined to be named for this story. “This looks like it’s an effort to jump a level in the process. I suspect that will hit all manner of friction on the way down.”
Unless and until the case leaves adjudicative proceedings, the outcome of any remedy discussions between the parties and staff likely serves merely to contribute to Chappell’s ultimate opinion in the case under Part 3 rules. “All of this just gets thrown in Chappell’s decision,” according to the former FTC attorney. “Judge Chappell has in the past been pretty open to looking at things, and he’s more fact-building for a decision.”
According to the former FTC attorney, the scenario would change if the matter leaves adjudication. There’s “flexibility” for FTC staff to pull its complaint out of the ALJ and “effectuate things” at a staff level.
According to a second former FTC attorney, however, any conditional approval - whether the case leaves or remains in adjudication - would still need to come from the FTC’s five commissioners. “If you go through the Part 3 rules, they changed the rules so that any dispositive decision is made by the commission,” said this second former FTC attorney, who also declined to be named for this story. “They’re not fleshed out, and it’s not entirely clear when it’s appropriate to file [a remedy proposal] with the commission versus the ALJ. But anything that the ALJ advises will be sent up to the commission anyway.”
As Reorg M&A
previously reported, Part 3 rules prevent the commissioners from discussing the case with either FTC staff or the merging parties while it remains in adjudication. The second former FTC attorney had opined that the companies’ motion may have been a play to put the remedy before the commissioners - who had not yet taken their spots at the time of the deal’s challenge - in spite of the case team’s stance against it.
According to the second former FTC attorney, the commissioners would still want “all the facts” from the ALJ and FTC staff when considering the remedy proposal. But the companies may still see benefits regardless in speaking directly with the commissioners. “While it’s really fact-dependent, it’s not inconceivable that you can try to find an issue from the case that works in your favor that some commissioners will jump on,” said the second former FTC attorney.
Conditional approval from the commissioners would prove difficult for the companies if staff don’t find merits in the remedy proposal, according to the first former FTC attorney. The attorney opined that issues likely exist in the INEOS divestiture proposal with which FTC staff has misgivings. “It’s likely not a clean divestiture - there’s likely at least some aspect of the problem business that’s not included in the sale. Otherwise, staff would be on board.”
FTC staff generally see their role as “to effectuate the commissioners’ decision,” according to the first former FTC attorney. But the companies will see a much higher chance of success before the commissioners if staff backs their proposal, said this attorney. “If not, it’s going to be a bit of a Hail Mary for the companies to get the commission on board.”
Chris Sagers, a professor specializing in antitrust at the Cleveland-Marshall College of Law, said the merging companies are likely eager to get their case in front of the Republican-led and Trump-appointed FTC commissioners. “It feels political to me for sure,” he said.
Additionally, in recent years there has been growing political opposition to the FTC’s Part 3 process. In contrast to the DOJ, which is required to file merger-related lawsuits in federal court, the FTC can opt for Part 3 administrative litigation. Sagers said he thinks the opposition to Part 3 litigation is overstated, because both agencies have roughly the same track record for merger cases. If the FTC were abusing the Part 3 process, a significantly higher percentage of its rulings would be overturned on appeal, Sagers noted.
Nonetheless, opposition to Part 3 has “gotten pretty hot recently,” and Tronox may be seeking to use this “wave of hostility” toward the ALJ process to put pressure on the FTC and to get sympathy from the commissioners, said Sagers. “They are trying to develop an extra-legal or non-legal argument to get some relief,” he said.
Sagers also said that government agencies tend to be protective of their own legal and regulatory scope, which means that even a Republican-led FTC might not be sympathetic to criticism of the Part 3 process. “I would expect they will not get a majority to reverse,” he said about the companies.
Neither Tronox nor Cristal responded to requests for comment.
--Matt Tracy and Ryan Lynch