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Complaint Counsel's Post-Trial Reply Finding of Fact and Conclusions Of PUBLIC UNITED STATES OF AMERICA BEFORE THE FEDERAL TRADE COMMISSION 09 17 2018 OFFICE OF ADMINISTRATIVE LAW JUDGES 592217 In the Matter of ~ETARV Tronox Limited a corporation, ORIGINAL National Industrialization Company PUBLIC (TASNEE) a corporation, Docket No. 9377 National Titanium Dioxide Company Limited (Cristal) a corporation, And Cristal USA Inc. a corporation. COMPLAINT COUNSEL’S POST-TRIAL REPLY FINDINGS OF FACT AND CONCLUSIONS OF LAW Dominic Vote Robert Tovsky Deputy Assistant Director Cem Akleman Peggy Bayer Femenella Charles A. Loughlin Alicia Burns-Wright Chief Trial Counsel Steven Dahm EricEdmondson Federal Trade Commission Eric Elmore Bureau of Competition Sean Hughto 600 Pennsylvania Ave., NW Janet Kim Washington, DC 20580 Joonsuk Lee Telephone: (202) 326-3505 Meredith Levert Email: [email protected] David Morris JonNathan RohanPai Blake Risenmay KristianRogers Lily Rudy CeceliaWaldeck Attorneys Dated: September 17, 2018 PUBLIC TABLE OF CONTENTS I. Response to Proposed Findings Regarding "THE PARTIES, THE TRANSACTION, AND THE PROCEEDING"................................................................. 1 II. Response to Proposed Findings Regarding "BACKGROUND ON THE TIO2 INDUSTRY" ..................................................................................................................... 28 III. Response to Proposed Findings Regarding "THE TRONOX-CRISTAL ACQUISITION WILL GENERATE SIGNIFICANT OUTPUT-ENHANCING AND COST-SAVING SYNERGIES". ............................................................................. 72 IV. Response to Proposed Findings Regarding "THE RELEVANT GEOGRAPHIC MARKET IS BROADER THAN NORTH AMERICA, AND IS GLOBAL". .............. 191 V. Response to Proposed Findings Regarding "THE RELEVANT PRODUCT MARKET INCLUDES ALL RUTILE TIO2, WHETHER FROM THE SULFATE PROCESS OR CHLORIDE PROCESS". .................................................... 256 VI. Response to Proposed Findings Regarding "POST-MERGER MARKET CONCENTRATION IS TOO LOW TO RAISE THE PROSPECT OF ANTI- COMPETITIVE EFFECTS"........................................................................................... 330 VII. Response to Proposed Findings Regarding "THE TIO2 INDUSTRY IS DYNAMIC AND FIERCELY COMPETITIVE". ......................................................... 341 VIII. Response to Proposed Findings Regarding "THE PROPOSED TRANSACTION WILL NOT LEAD TO UNILATERAL ANTI-COMPETITIVE EFFECTS". .............. 409 IX. Response to Proposed Findings Regarding "THE TRONOX-CRISTAL ACQUISITION DOES NOT INCREASE THE LIKELIHOOD OF COORDINATED EFFECTS IN THE TIO2 INDUSTRY". .......................................... 505 Complaint Counsel's Responses to Respondents' Proposed Conclusions of Law ...................... 522 i PUBLIC PROPOSED FINDINGS OF FACT I. THE PARTIES, THE TRANSACTION, AND THE PROCEEDING. A. The Parties a. Tronox 1. Tronox, Ltd. is a public company traded on the New York Stock Exchange (TRX). (Arndt, Tr. 13551; PX0001-004). Tronox’s global corporate headquarters are in Stamford, Connecticut. (Mei, Tr. 31432; PX0001-004). Tronox is registered to do business under the laws of Australia. (PX0001-004). Response to Proposed Finding No. 1 Complaint Counsel has no specific response. 2. Tronox is a global producer of titanium dioxide (“TiO2”) pigment and titanium- bearing mineral sands. (RX1014; PX9053-010, -012). Tronox has global operations in North America, Europe, South Africa, and Australia, and serves customers around the world. (PX9053- 012). Tronox’s mines, feedstock facilities, and TiO2 pigment facilities are located in the United States, Australia, South Africa, and the Netherlands. (Mei, Tr. 3149-51). Tronox has a research and development facility in Oklahoma City, Oklahoma. (Engle, Tr. 2437). Response to Proposed Finding No. 2 Complaint Counsel has no specific response. 3. Tronox was spun off of Kerr-McGee in 2005. (PX0001-004). Kerr McGee “is the predecessor to Tronox.” (Dean, Tr. 2919-20). In 1988, Kerr-McGee had one plant in Hamilton, Mississippi, which was much smaller than it is today. (Romano, Tr. 2219-20). In 1992, Kerr- McGee and Minproc built the Kwinana plant in Australia as a joint venture. (Romano, Tr. 2219- 20). Around 1990, Kerr-McGee licensed its chloride technology to a company called Tiofine to convert their sulfate process facility at Botlek to a chloride process facility. (Dean, Tr. 2951-2952). Tiofine later sold the Botlek facility to Kemira in the 1990s. (Dean, Tr. 2951-52) In the early 2000s, Tronox acquired two facilities from Kemira: Botlek in the Netherlands and two other plants in Savannah, Georgia. (Romano, Tr. 2219-20; Dean, Tr. 2950). 1 Mr. Brennen Arndt is senior vice president of investor relations at Tronox. (Arndt, Tr. 1353). Mr. Arndt began working at Tronox in May 2012 as vice president of investor relations. (Arndt, Tr. 1353). Mr. Arndt has approximately 34 years of experience in the chemical industry. (Arndt, Tr. 1392). 2 Ms. Rose Mei is director of sales and operation planning (S&OP) and global logistics at Tronox. (Mei, Tr. 3140-41). Ms. Mei has worked at Tronox for five years, and has led global planning and logistics at Tronox since 2016. (Mei, Tr. 3140). Ms. Mei’s responsibilities include “manag[ing] the distribution network, all the warehouses around the globe, to deliver the products to our customer and to make sure we have inventory in the right place to support the requirements anytime.” (Mei, Tr. 3141). Ms. Mei has over 20 years global supply chain and logistics experience. (Mei, Tr. 3147). 1 PUBLIC Response to Proposed Finding No. 3 Complaint Counsel has no specific response to the Proposed Finding except to note that the last sentence is incomplete and misleading. The two plants in Savannah, Georgia acquired by Tronox from Kemira in the early 2000s were closed permanently in 2004 (sulfate TiO2 plant) and 2009 (chloride TiO2 plant). (CCFF ¶¶ 588-91). 4. Today, Tronox has three TiO2 facilities, three mines, two slag plants, and one synthetic rutile kiln. (PX9053-12). Tronox’s TiO2 pigment plants are located in Hamilton, Mississippi; Botlek, The Netherlands; and Kwinana, West Australia. (Mei, Tr. 3151; Romano, Tr. 2231). Tronox employs about 3,200 people worldwide. (PX9053-12). Response to Proposed Finding No. 4 Complaint Counsel has no specific response. 5. Tronox’s total production capacity is approximately 465,000 metric tons of TiO2 pigment per year. (Quinn, Tr. 2317; Engle, Tr. 2492). In 2016, TZMI, an industry analyst, reported that Tronox’s production capacity of TiO2 pigment was 236,000 tons per year for Hamilton (RX0105.0134); 152,000 tons per year for Kwinana (RX0105.0137); and 90,000 tons per year for Botlek (RX0105.0129). Response to Proposed Finding No. 5 Complaint Counsel has no specific response. 6. As of September 2017, Tronox reported that it operates its TiO2 pigment facilities at over 90% capacity utilization. (PX9053-012). Response to Proposed Finding No. 6 Complaint Counsel has no specific response. 2 PUBLIC 7. Tronox produces 91,000 metric tons of rutile and leucoxene, 220,000 metric tons of synthetic rutile, 410,000 metric tons of titanium slag, 200,00 metric tons of zircon, and 221,000 metric tons of pig iron annually. (PX9053-12). With its mines and pigment facilities, Tronox is the “[w]orld’s largest fully vertically integrated titanium mining-to-titanium dioxide value chain with 3 mineral sands mines and 3 pigment production facilities.” (PX9053-011). Response to Proposed Finding No. 7 The first sentence of the Proposed Finding is misleading, inaccurate, and not supported by the cited source (PX9053 at 012). The cited slide in a Tronox public presentation, filed with the SEC, clearly states that the cited information is for Tronox’s “Feedstock and Co-Products Nameplate Capacity” which is not necessarily the same thing as “produc[ing]” these volume “annually” (except for the unlikely situation where Tronox’s capacity utilization rates for all feedstock and co-products facilities are 100%—a claim Respondents do not make here). (PX9053 at 012 (Tronox Form 8-K with the attachment)). Moreover, the number cited for zircon (“200,00 metric tons”) is not accurate as the nameplate capacity listed in the cited slide is “220 kMT [220,000 metric tons].” (PX9053 at 012). The second sentence of the Proposed Finding is vague as to the meaning of the claim “[w]orld’s largest fully vertically integrated titanium mining-to-titanium dioxide value chain” which is not defined anywhere and not supported by any fact other than the simple fact that Tronox has “3 mineral sands mines and 3 pigment production facilities.” (PX9053 at 012). 8. Tronox went into Chapter 11 bankruptcy in January 2009 and emerged from bankruptcy in February 2011. (Romano, Tr. 2209-10). In June 2012, Tronox acquired the mineral sands division of Exxaro Resources. (Romano, Tr. 2254; Mancini, Tr. 2798). In 2017, Tronox reported annual revenue of $1.49 billion and EBITDA of $279 million. (PX9053-012). Response to Proposed Finding No. 8 The third sentence in the Proposed Finding is incomplete and misleading in that it does not clarify that the cited revenue and EBITDA figures are based on Tronox’s “LTM [last-twelve- months]” financial results through June 30, 2017, not for all of 2017. (PX9053 at 012 (September 3 PUBLIC 2017 Tronox Form 8-K) (“LTM (as of 6/30/2017) Revenue of $1,490 million and EBITDA of $279 million”)). b. Cristal 9. The National Titanium Dioxide Company Ltd. (hereinafter “Cristal”), is a privately held company registered under the laws of the Kingdom of Saudi Arabia. (RX0171.0035).
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