FTC Alleges “Global Fleets” in Challenge to Wilhelmsen’s Acquisition of Drew Marine

The Federal Trade Commission (“FTC”) recently issued an administrative complaint and amended complaint challenging the proposed acquisition of Drew Marine Group (“Drew”) by Wilhelmsen Maritime Services (“Wilhelmsen”). The FTC also filed suit in United States District Court for the District of Columbia (“District Court”), seeking a preliminary injunction to stop the deal pending the outcome of the administrative proceeding. The District Court granted the FTC’s request for a temporary restraining order.

The products at issue in this case are marine water treatment chemicals, which the FTC states include chemicals used by ships “to prevent corrosion, remove impurities, and enhance the operation of the ship – primarily, the ship’s boiler water or engine cooling water systems.” The FTC alleges a narrower market of these products sold to Global Fleets, stating that the relevant market is “the global supply of marine water treatment chemicals and services to Global Fleets.” The FTC defines Global Fleets as “owners and operators of fleets of globally-trading vessels that call in ports around the world” and alleges that these customers “seek marine water treatment chemical suppliers with global sales, delivery, and service presence.” This alleged market is similar to the markets alleged by the FTC in other recent merger cases, specifically those in which the FTC alleged price discrimination markets. For example, the FTC alleged the following relevant market in its 2015 complaint against Staples and Office Depot: “The relevant market is the sale and distribution of consumable office supplies to large B-to-B customers in the United States. Large B-to-B customers are particularly vulnerable to the proposed Merger because many have nationwide or multi-regional operations and require an office supplies vendor that can provide low pricing, high levels of service, and delivery across all of their operations.”

In this case, the FTC again focuses on the largest customers, Global Fleets, as the ones most vulnerable to the proposed merger. The FTC alleges that the Global Fleets have distinct characteristics and distinct demands that limit competition from other suppliers of marine water treatment chemicals and services. The FTC argues that Global Fleets can be targeted, because they seek suppliers with global capability, want to standardize operations across their fleet by relying on only one or two suppliers, value suppliers with proven water treatment chemicals (and are thus unlikely to risk turning to an untested supplier), and desire cost-effective water treatment “programs” or “solutions” with available technical and customer service.

The FTC alleges that Wilhelmsen would control at least 60 percent of the alleged market post-acquisition and further argues that the distinct demands of Global Fleets impose substantial entry barriers and limit the ability of other suppliers to expand or reposition. Additionally, the FTC argues that Wilhelmsen and Drew are each other’s closest competitors and that they compete aggressively on both price and non-price terms, such as technical service, network breadth and product quality and innovation.

Although the FTC alleges that Global Fleets can be targeted based on key attributes including those discussed above, the merging parties counter that “there is no basis for carving Global Fleets out of the larger market for maritime vessels and offshore platforms in which the two companies actually compete.” In Respondents’ Answer to Amended Complaint, the merging parties argue that the single alleged product market does not make sense, because there is not a set package of water treatment chemicals sold to fleets. The merging parties highlight that there are different types of water treatment chemicals, one type of water treatment chemical cannot be substituted for another, and the types of water treatment chemicals chosen vary from customer to customer and from vessel to vessel. Moreover, the merging parties indicate that Wilhelmsen and Drew do not segment customers in the normal course of business as alleged by the FTC – rather, the merging parties “consider any vessel over 1,000 gross tons (‘g.t.’) regardless of trading patterns (i.e., global, regional, or local) to be part of the global customer base for which they compete.”

The merging parties also argue that the FTC’s alleged market share of at least 60 percent is not sufficient to presume harm to competition. The merging parties highlight that other current competitors provide marine water treatment chemicals and services to Global Fleets, these competitors are not limited in their service capabilities, and Wilhelmsen’s and Drew’s lost sales divert to these other competitors more frequently than they divert to each other. Further, the merging parties argue that one of the FTC’s key attributes, worldwide operations, is not important to Global Fleets. Water treatment chemicals are sold in stackable containers that last for 20-30 days. For this reason, large vessels such as those in the alleged Global Fleets market “can easily stock enough containers to cover the periods between visits to larger ports where the FTC appears to concede there is no concern about a potential price increase.” The merging parties argue that vessels can readily purchase marine water treatment chemicals in this manner (reducing the ports in which they purchase), because they already do this for other goods that they purchase.

In sum, this case highlights that the antitrust agencies continue to focus on national or global customers requiring a purported set of products and services to define the alleged relevant market. Additionally, the arguments made by both the FTC and merging parties indicate that case-specific facts on purchasing characteristics of customers (and whether they are identifiable and observable), switching ability of customers, and pricing behavior by the merging firms continue to be key elements in defining an alleged price discrimination market.

Stephanie M. Mirrow has worked on numerous mergers and acquisitions across a broad range of industries. She previously was an economist in the Antitrust Division of the U.S. Department of Justice.