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Omya purchase under scrutiny

October 3, 2005

Staff Report

Plans by the Swiss parent company of Omya Inc. to acquire a calcium carbonate rival has hit a snag, with the European Commission opening an in-depth inquiry into the purchase.

The European Commission has opened an investigation into Omya's pending purchase of a dozen calcium carbonate plants from J.M. Huber Corp., of Edison, N.J.

The purchase includes manufacturing plants in the U.S., Canada, Europe, Russia and South America.

Omya's North American operations are headquartered in Proctor.

Huber's precipitated calcium carbonate plants are built on paper mill sites to provide a ready supply of calcium carbonate used in paper production.

According to the Commission's Web site, the case was referred to by the Finnish Competition Authority which considered the deal to have ramifications for European competition.

The Commission said it will investigate the markets for all carbonate materials supplied to the paper industry and not just those produced on-site.

The Commission has 90 days or until January 26 to make a final decision on whether the merger would significantly impede competition within the European Economic Area or a significant part of it.

"The markets supplying the European paper industry are complex and concentrated. Were competition to be reduced in this sector, it would result in increased costs for a wide range of European businesses. We therefore need to assess this transaction in detail so as to ensure that the supply of the minerals essential to the paper industry remains competitive," Commissioner Neelie Kroes said in a statement.

Omya is a family-owned company that sells a range of industrial minerals to the paper industry including the synthetic PCC and the natural ground marble calcium carbonate.

Calcium carbonate has a variety of uses in the paper industry, acting as filling agents which reduce the need for tree pulp and as coating agents giving the finished product the right color, desired opacity and printing quality.

J.M. Huber intends to sell all of its on-site PCC production plants to Omya, six of which are in the European Economic Area. Most of Omya's mineral production is transported to its customers but some, like PCC, is made on-site at the customer's paper mill.

Omya already has four on-site PCC production plants, of which two are in the European Economic Area.

Omya AG of Oftringen, Switzerland announced in February that it would acquire all of J.M. Huber's precipitated calcium carbonate operations in the United States, Brazil, Finland, Sweden, Canada, Portugal, France and Russia. The three U.S. plants are located in Pennsylvania, Kentucky and Tennessee.

No purchase price was disclosed.

If completed, Omya will have 17 precipitated calcium carbonate plants worldwide and the company's first PCC plants in the U.S.

Omya's specialty is ground calcium carbonate, or GCC, with more than 100 plants in 30 countries, including its largest North American plant in Florence and a quarry in Middlebury.

The difference between ground and precipitated calcium carbonate is in the manufacturing process and in the product applications.

The Commission said that its initial seven-week investigation indicated that not only are the markets concentrated with high barriers to entry, but also that some customers use PCC and GCC interchangeably. The Commission also found that Omya is already the number one supplier of GCC to the European Economic Area's paper industry and that not all on-site production is always consumed by the host paper mill but that some of it is sold and transported to other paper mills.

The Commission said that it takes the view that there is a serious risk that effective competition will be impaired in these concentrated and complex markets, and that a closer analysis is necessary.

James Reddy, Omya's executive vice president for North American operations, expressed confidence that the deal would receive approval. While the Commission indicated it was taking a broader review of the acquisition, Reddy said that the focus of the investigation is on the acquisition of Huber's three Finnish plants.

We believe there is no competitive disadvantage and the deal should go through as negotiated by us and Huber," Reddy said.

Omya is a worldwide producer of industrial minerals derived from calcium carbonate, talc and dolomite, as well as a global distributor of chemical products, serving industrial clients in the paper, paint, plastics and chemical industries.

Founded in 1884 by the husband and wife team of Gottfried Pluss and Emma Staufer, Omya (formerly Pluss-Staufer) is owned by the Schachenmann family. The company employs 5,000 workers in more than 50 countries.

J.M. Huber Corporation of Edison, N.J, is a privately held multinational supplier of engineered materials, natural resources and technology-based services to customers spanning industries from paper and energy to plastics and construction. The company has annual sales in excess of $1 billion.