The Federal Trade Commission voted on Oct. 23 to challenge CCS Corp.’s proposed $85 million acquisition of Newpark Environmental Services Inc.’s US operations, claiming it to be an antitrust violation.
Commissioners authorized FTC’s staff to file a complaint in federal court seeking a temporary restraining order and preliminary injunction to block the cash transaction, which the two companies announced in April after an earlier proposed sale to Trinity TLM Acquisitions LLC fell through.
Newpark Environmental Services is based in Metairie, La. and is a subsidiary of Newpark Resources Inc., which has its headquarters in The Woodlands, Tex., north of Houston. CCS is based in Calgary and is owned by Red Sky Holdings LP.
The two companies both provide offshore oil and gas exploration and production waste disposal services along the Louisiana Gulf Coast, according to the FTC.
It added that, in response to concerns the federal agency raised, CCS sent a letter Oct. 15 informing the commission that it would have to shut down its Gulf Coast operations and leave the area if it could not acquire Newpark’s US environmental services operations.
The agency said CCS made that claim only after the antitrust review process was well under way and it appeared that the commission would challenge the transaction. It said that nothing in CCS’s business files supports the argument that the company’s Gulf Coast business is not viable or that CCS’s survival depends on the acquisition of Newpark Environmental Service’s US operations.
“There is ample evidence that this transaction would allow CCS to eliminate its primary and closest competitor and that the merging parties’ customers would face higher prices and diminished service as a result. CCS’s last-minute threats to shut down its entire Gulf Coast business if the merger is challenged are mere pretext and cannot justify this anticompetitive transaction,” said David P. Wales, acting director of the FTC’s Bureau of Competition.
The FTC’s complaint contends that the proposed transaction would violate Section 7 of the Clayton Act and Section 5 of the FTC Act by eliminating vigorous direct competition between CCS and Newpark Environmental Service which has led to lower prices and better service for their customers. The companies are the only major offshore production waste disposal services operating in the ports of Fourchon, Venice, Morgan City, and Intracoastal City, La., it noted.
FTC alleged that the proposed acquisition makes it more likely that CCS would raise prices or reduce the quality of its services on its own, especially to customers who prefer its waste disposal methods. Additionally, with only two firms remaining and the presence of market conditions conducive to competitor coordination, the FTC said, the proposed transaction threatens to make coordinated interaction between the two companies more likely.
Newpark studies options
In a statement following the FTC’s announcement, Newpark Resources said it disagrees with the agency’s conclusions and is evaluating its options. It said that it would provide more information regarding the transaction’s status during the company’s third-quarter conference call Oct. 31.
“In light of public statements released by the FTC, CCS is currently reviewing whatever legal remedies may be available,” a spokeswoman for Newpark Resources wrote OGJ in an e-mail dated Oct. 23. “Until we receive all anticipated communication from the FTC, we are unable to comment further,” she said.
In its latest 10-Q filing with the US Securities and Exchange Commission for the 3 months ending June 30, Newpark Resources said it decided to consider selling its environmental services operations in 2007 following a company-wide review of its operations. The company said it continues to operate two business segments: fluids systems and engineering, which serve the oil and gas business, and mats and integrated services, which has utilities, municipalities, and government sectors as its customers.
It said it initially agreed to sell its US environmental services business to Trinity TLM Acquisitions in October 2007 for $81.5 million in cash, plus potentially another $8 million which could be earned under a 5-year earn-out provision. Trinity terminated the agreement in April 2008 when it could not get the necessary financing due to tightening credit markets, Newpark Resources said. Newpark reached an agreement to sell the operations to CCS for $85 million cash soon afterwards.
FTC said the complaint would be filed in US District Court for the Southern District of Texas by Oct. 23, and would be posted online at the FTC’s web site.
