Probe

EU starts probe into Arsenal acquisition of DSM unit

EU antitrust regulators on Thursday opened a probe into a U.S private equity fund's purchase of Dutch chemical producer DSM Special Products BV, saying they feared the deal could lead to food and drink companies paying higher prices for ingredients.

Royal DSM NV agreed to sell off its specialist food chemicals unit to New York-based Arsenal Capital Partners for an undisclosed price in March.

But the European Commission says it is worried that Arsenal's control of another chemical company, Velsicol of Illinois, could cause antitrust problems because the deal would give Arsenal very high market shares in Europe for benzoic acid and sodium benzoate.

The combination joins the only two European producers of these chemicals and shrinks the number of world producers from four to three. Both chemicals are antimicrobial preservatives used to lengthen the shelf life of food, drinks, animal feed and pharmaceuticals.

Benzoic acid is also used to make chemicals for paint and personal health care goods. It is also a key ingredient for benzoate plasticizers used to make PVC. Regulators fear that Arsenal could use its control over benzoic acid supplies to also control the plasticizer market.

Sodium benzoate is sold to the car industry and is used in personal care and household cleaning products as well as fireworks.

EU Competition Commissioner Neelie Kroes said these chemicals were basic inputs for the food and drink industry and were a key part of many industrial producers' supply chain.

"They are therefore essential to consumers and the competitiveness of European industry, which would be harmed by a reduction of competition that could lead to price increases in the sector," she said.

Regulators have until Dec. 11 to examine the deal before taking a final decision to approve or block it. It rarely stops deals, preferring to ask companies to solve antitrust issues by selling off units or making changes to the way they do business.

DSM Special Products had sales of €101 million (US$150 million) last year and a small operating profit. Royal DSM said selling off the unit was the first part of its plan to focus on life sciences and material sciences.

Arsenal plans to rename the company Genovique Specialties BV with headquarters in Sittard, Holland.

(Published by Herald Tribune - august 7, 2008)