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Dec 21, 2005

EU fines Bayer, Chemtura for cartel activities

Europe's competition authority has fined Bayer 58.9 million euros ($70.01 million) and Chemtura 13.6 million euros for running a rubber chemicals cartel, the European Commission said on Wednesday. Bayer and other chemical companies were raided in September 2002 on suspicion of price fixing in the rubber chemicals market. The German firm had already set aside 50 million euros in provisions to the EU investigation a year later.
Bayer and Chemtura of the United States have also been embroiled in cartel cases concerning rubber chemicals in the United States. They pleaded guilty last year, and were fined $66 million and $50 million.
In the latest decision from the European competition authority, General Quimica and Repsol of Spain were also fined a combined 3.38 million euros. Flexsys, a Belgium-based joint venture between Dutch chemical group Akzo Nobel and Solutia was also implicated, but it received no fine because it had provided information to the probe.
"With this latest decision, I am sending a very strong message to company boards that cartels will not be tolerated, and to shareholders that they should look carefully at how their companies are being run," EU Competition Commissioner Neelie Kroes said in a statement.
The Commission added that it had "firm and convincing evidence" of the existence of a cartel during the years 1996-2001, but had also seen indications of collusion dating back to the 1970s.

Reference: IP/05/1656 Date: 21/12/2005
EU Commission; Brussels, 21st December 2005

Competition: Commission fines four firms €75.86 million for rubber chemical cartel

The European Commission has fined four undertakings €75.86 million for operating a cartel in the rubber chemicals market, in clear violation of EC Treaty competition rules which forbid cartels and other restrictive business practices (Article 81). Flexsys, Bayer and Crompton (now Chemtura) (including Crompton Europe and Uniroyal Chemical Company) agreed to exchange information about prices and/or raise prices of certain rubber chemicals (antioxidants, antiozonants and primary accelerators) in the EEA and world-wide markets at least from 1996 to 2001. General Quimica participated to this agreements in 1999 and 2000. Rubber chemicals are synthetic or organic chemicals that improve the production and the characteristics of rubber products, used in a wide range of application, the most important of which is tyres for cars and other vehicles. In 2001, the EEA market value was estimated at about €200 million and the world-wide value at €1.5 billion. The level of the fines confirms the Commission's determination to crack down hard on firms that take part in cartels. This is the fifth Commission decision in 2005 against hard core cartels.

Competition Commissioner Neelie Kroes said "Cartels are a scourge. I will ensure that cartels will continue to be tracked down, prosecuted and punished, With this latest decision, I am sending a very strong message to company boards that cartels will not be tolerated, and to shareholders that they should look carefully at how their companies are being run. "

The investigation into the rubber chemicals sector began following an application for conditional immunity from fines by Flexsys in April 2002. Subsequently, the Commission carried out inspections at the premises of Bayer, Crompton Europe and General Quimica in September 2002. Crompton (now Chemtura), Bayer and General Quimica applied for leniency, on 8 October 2002, 24 October 2002 and 7 June 2004, respectively.

Whilst there are a number of indications that collusive activities within the rubber chemicals industry were already taking place at least occasionally in the 1970s, the Commission only has sufficiently firm and convincing evidence of the existence of the cartel for the period covering the years 1996-2001.

Explicit statements
The essence of this infringement can be seen in the description made by one of the participants "there was a contact among competitors from at least the mid 1990's, before, during and after every price increase for rubber chemicals or at least an attempt to have such contact."
An employee of the same company, referring to the 1998 price increase, recalled it "as the most orchestrated and collusive 'agreement' he ever made".

Fines
The Commission regards this as a very serious infringement. In fixing the amount of the fines, the Commission took account of the size of the market in the countries affected by the cartel, the length of time the cartel had been operating, the relative weight of the firms involved and their global dimension.
The cooperation offered by some companies that provided useful information for the exposure of the infringement was rewarded in accordance with the Commission's leniency notice (see IP/02/247 and MEMO/02/23). As mentioned above, Flexsys was given full immunity, and the other firms had their fines reduced in return for the information they provided.
Repsol YPF SA and Repsol Quimica SA, although they did not participate themselves in the arrangements in question, are nevertheless held responsible for the conduct of their wholly owned subsidiary General Quimica.

Action for damages
Any person or firm affected by anti-competitive behaviour as described in this case may bring the matter before the courts of the Member States and seek damages, submitting elements of the published decision as evidence that the behaviour took place and was illegal. Even though the Commission has fined the companies concerned, damages may be awarded without being reduced on account of the Commission fine. A Green Paper on private enforcement has just been published (see IP/05/1634 and MEMO/05/489).

For more information on the Commission's action against cartels, see MEMO/05/493.

Fines imposed and reductions granted by the Commission:

Name
Reduction of fine
%
Fine (€ million)

Flexsys NV
100
0

Bayer AG
20
58.88

Crompton Europe Ltd. +Crompton Manufacturing Company, Inc. (former Uniroyal Chemical Company, Inc.) + Chemtura Corporation (former Crompton Corporation)
50
13.60

General Quimica SA+ Repsol QuimicaSA + Repsol YPF SA
10
3.38

TOTAL
75.86

Bloomberg News, DECEMBER 19, 2005

EU fines likely for Bayer and Chemtura

By Matthew Newman

European Union regulators plan to fine Bayer and Chemtura this week for fixing prices of rubber chemicals, according to four people with firsthand knowledge of the investigation.

The regulators' decision, which follows investigations in the United States and Europe, will be announced on Wednesday, according to an EU document obtained by Bloomberg News. The EU investigation was prompted by information from Flexsys, a joint venture between Solutia of the United States and Akzo Nobel of the Netherlands, said the people, who asked not to be identified.

Bayer set aside $50 million in provisions in 2003 for risks related to the EU investigation. The company last year agreed with U.S. authorities to pay $4.7 million for antitrust violations related to rubber chemicals, which are used to make plastic furniture, hoses, tires, belts and footwear.

"The question is how big the fine is," said Peter Braendle, a fund manager at Swissca Portfolio Management in Zurich. "You'd hope that the provisions were taken at a sufficient level."

The European Commission, the EU's antitrust enforcer in Brussels, can fine companies accused of violating competition rules as much as 10 percent of their annual sales. It typically opts for 2 percent to 3 percent of sales. The largest EU cartel fine was Euro 462 million, or $555 million, levied against Roche Holding in 2001 for its role in fixing the price of vitamins. A spokesman for the commission, Jonathan Todd, declined to comment.

In August, two former Bayer executives were indicted on charges that they had participated in a global conspiracy to fix the price of rubber chemicals. About $1 billion of rubber chemicals is sold in the United States each year to improve the durability and elasticity of rubber products, the U.S. Justice Department said in August. Bayer, the No. 2 chemical maker in Germany, after BASF, agreed to pay a $66 million fine in July 2004 for its role in the conspiracy. Two former Bayer executives have pleaded guilty to price-fixing.

In the U.S. investigation, Chemtura, formerly known as Crompton, and two of its former executives pleaded guilty last year to participating in the conspiracy to fix prices on rubber chemicals. Chemtura, a maker of rubber and plastic additives based in Middlebury, Connecticut, paid a $50 million fine. It had previously said it was cooperating with the EU investigation.

Bayer said its headquarters in Leverkusen, Germany, was raided by commission officials in September 2002. Flexsys also said at the time that it had been raided. Ralf Hermann, a Bayer spokesman, said the company had no comment.

Solutia, a bankrupt maker of nylon carpet fibers and plastics, said in a November filing with the U.S. Securities and Exchange Commission that it was being investigated for "past commercial practices in the rubber chemicals industry" by antitrust authorities in the United States, Europe and Canada.

The company "has been fully cooperating with the authorities and will continue to do so in the ongoing investigation," it said. Flexsys will be granted full immunity from the EU charges because it tipped off EU investigators, the people with knowledge of the matter said. Chemtura and Bayer will also be granted leniency, which will lead to reductions in the fine, because they cooperated, the people said.

The regulator may also fine Repsol YPF, a Madrid-based oil company, the people with knowledge of the matter said. The EU will not charge two Slovakian companies, Duslo and Istrochem, because it lacks evidence, these people said. Representatives of Duslo, Istrochem and Repsol were not available for comment.

Dec. 6; 2005, Bloomberg

Bayer, Lanxess Set Aside EU336 Million for U.S. Case

Bayer AG, Germany's biggest health- care company, and Lanxess AG, the chemicals arm it spun off in January, set aside 336 million euros ($396 million) to settle civil claims that they colluded to fix U.S. rubber prices.
Bayer, based in Leverkusen, Germany, set aside 275 million euros in the fourth quarter to settle some of the civil complaints and said in a statement to the Frankfurt stock exchange today that more charges may come as a result of a U.S. government probe as well as additional civil lawsuits.
The German company, along with rivals BASF AG and Chemtura Corp., has come under investigation for its alleged role in a cartel that set the prices of products used to make tires, conveyer belts and gaskets. The company is also collaborating with a U.S. Justice Department investigation into the price collusion.
``Bayer was clumsy,'' said Peter Braendle, who helps manage $42 billion at Swissca Portfolio Management in Zurich and owns Bayer shares. ``They should know that in the U.S. they take rigorous steps against price fixing.'' Even so, this ``doesn't change the long-term earnings potential,'' he said.
Bayer shares fell 7 cents, or 0.2 percent, to 34.69 euros, while Lanxess declined 4 cents, or 0.1 percent, to 27.49 euros at 12:17 p.m. in Frankfurt.

`Not Dramatic'
Today's provisions are for liabilities related to anti- competitive behavior at Bayer's former rubber business, now run by Lanxess, and its plastics unit. Bayer said it has reached agreements with several plaintiff groups seeking damages in the case. In its third-quarter earnings report, the company said the civil actions involve allegations of price collusion for polymers used in the plastics industry.
Bayer is emerging from the biggest shakeup in the company's 142-year history following the 2001 withdrawal of its Lipobay anti-cholesterol drug, also known as Baycol, which was linked to a serious muscle-wasting disease and several deaths. So far, it has settled more than 3,000 Lipobay cases for a total $1.1 billion.

More Provisions
Proceedings are pending against Bayer before the European Commission and the U.S. and Canadian antitrust authorities in connection with price collusion allegations.
Last year, the company reached agreements with the U.S. Department of Justice to pay fines of $66 million and $4.7 million for antitrust violations related to rubber chemicals, and agreed to pay $33 million in fines related to polyols used to make a range of plastic materials. It booked $50 million in provisions in 2003 for risks related to the EU probe.
Bayer said today it couldn't take provisions for the whole litigation at once because it's difficult to quantify how much it may have to pay as a result of the various U.S. court cases. The company may have to set aside more money in amounts that may be ``of material importance,'' Bayer said.
Lanxess, for its part, set aside 61 million euros for potential damages. In the spinoff agreement, the company agreed to cover 30 percent of the liabilities, up to a maximum 100 million euros. Lanxess won't pay more than 50 million euros a year to Bayer as part of the accord.