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Wednesday, September 27, 2017

Justice Department Requires Divestiture of SGL's U.S. Graphite Electrodes Business in Order for SDK to Proceed with Its Acquisition of SGL's Global Graphite Electrodes Business

Divestitures Will Preserve Competition in the Manufacture and Sale of Large Ultra-High Power Graphite Electrodes to U.S. Electric Arc Furnace Steel Mills

Showa Denko K.K. (SDK) will be required to divest SGL Carbon SE’s (SGL) entire U.S. graphite electrodes business in order for SDK to proceed with its proposed $264.5 million acquisition of SGL’s global graphite electrodes business, the Department of Justice announced today. 

The Justice Department’s Antitrust Division filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to block the proposed transaction.  At the same time, the Department filed a proposed settlement that, if approved by the court, would resolve the Department’s competitive concerns.

“The acquisition, as originally proposed, would have eliminated one of the three major suppliers of large ultra-high power graphite electrodes to U.S. electric arc furnace steel mills, leaving these mills with limited choices for this important product,” said Acting Assistant Attorney General Andrew Finch of the Justice Department’s Antitrust Division.  “Today’s settlement will ensure that U.S. electric arc furnace mill operators continue to benefit from robust competition for this critical input in the steelmaking process.”   

According to the department’s complaint, SDK and SGL manufacture and sell large ultra-high power graphite electrodes, which are used to generate sufficient heat to melt scrap metal in electric arc furnaces.  The complaint alleges that SDK and SGL are two of the three leading suppliers of large ultra-high power graphite electrodes to U.S. electric arc furnace steel mills, and that the two firms together have a combined market share of approximately 56 percent.  According to the complaint, the loss of competition between SDK and SGL would likely result in higher prices and lower quality of delivery and service to U.S. electric arc furnace customers.

Under the terms of the proposed settlement, SDK must divest SGL’s entire U.S. graphite electrodes business, including its manufacturing facilities in Ozark, Arkansas and Hickman, Kentucky, to Tokai Carbon Co., Ltd., or an alternate acquirer approved by the United States.  The department said that the divestiture will remedy the acquisition’s anticompetitive effects by providing the acquirer with the domestic manufacturing presence and robust local service capabilities that U.S. electric arc furnace steel mills prefer.

SDK, a Japanese corporation headquartered in Tokyo, is one of Japan’s leading chemical companies with operations in approximately 14 countries.  In 2016, SDK’s global revenues were $5.8 billion, with approximately $85 million derived from its U.S. graphite electrodes business.

SGL, a German corporation headquartered in Wiesbaden, Germany, is a leading manufacturer of carbon-based products with operations in 34 countries.  In 2016, SGL’s global revenues were approximately $885 million, with approximately $58.6 million derived from its U.S. graphite electrodes business.  

As required by the Tunney Act, the proposed consent decree, along with the department’s competitive impact statement, will be published in the Federal Register.  Any person may submit written comments concerning the proposed settlement within 60 days of its publication to Maribeth Petrizzi, Chief, Litigation II Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 8700, Washington, D.C. 20530.  At the conclusion of the 60-day comment period, the court may enter the final judgment upon a finding that it serves the public interest.

Updated October 3, 2017