From Antitrust Law Daily, July 1, 2013

FTC challenges glass container manufacturer’s acquisition of competitor

By John W. Arden, J.D., LL.M.

The Federal Trade Commission has challenged Ardaugh Group S.A.’s proposed $1.7 billion acquisition of Saint-Gobain Containers, Inc., alleging that the merger would reduce competition and result in two firms—the merged firm and Owens-Illinois—controlling more than 75 percent of the U.S. market for beer and spirits glass containers, resulting in higher prices for customer. The FTC issued an administrative complaint against Ardaugh and Saint-Gobain, alleging that the acquisition would violate U.S. antitrust laws.

The agency also authorized its staff to seek a temporary restraining order and preliminary injunction if necessary to prevent consummation of the acquisition pending an administrative trial on the merits.

The proposed acquisition would combine the second and third largest manufacturers of glass containers (Saint-Gobain and Ardaugh, respectively) in the $5 billion U.S. glass container industry, the FTC reported. Together, Saint-Gobain, Ardaugh, and Owens-Illinois produce the overwhelming majority of the 18 million glass beer and spirit containers used by Americans each year. Thus, the acquisition would have anticompetitive effects in the markets for glass bottles for beer and glass bottles for spirits and would increase concentration in those markets to levels that are presumptively illegal, the complaint alleged. These markets are mature and characterized by low growth and significant barriers to entry, the FTC said.

Glass bottles are not viewed as interchangeable with other packaging materials because of commercial constraints, such as consumer preference and brand identity, the complaint alleged. Glass promotes a premium or distinctive brand image, enables brewers and distillers to convey a premium image by associating the quality appearance of the glass with their product identity, protects beer and spirits by guarding against oxygen invasion, encourages a longer shelf life, maintains the true taste of the beer or spirits, does not leach chemicals in beer and spirits, and is 100 per cent recyclable. These advantages have allowed glass bottle prices to increase substantially more than plastic bottles or aluminum cans.

The complaint claims that glass container competitors possess a wealth of information about each other and the industry; that reducing the major competitors from three to two would make it substantially easier for the remaining competitors to coordinate with one another to achieve supracompetitive prices or anticompetitive outcomes; and that eliminating head-to-head competition between the two merging companies would deprive customers of the significant benefits of the firms’ rivalry.

The FTC charges that the agreement and plan of merger constitutes an unfair method of competition in violation of Section 5 of the FTC Act and that the acquisition may substantially lessen competition in violation of Section 7 of the Clayton Act and amounts to an unfair method of competition in violation of Section 5 of the FTC Act.

The contemplated relief included (1) if the acquisition is consummated, divestiture or reconstitution of all associated and necessary assets to restore two or more distinct, viable, and independent businesses in the relevant market; (2) a prohibition against any transaction between Ardaugh and Saint-Gobain that combines their businesses in the relevant markets; (3) a requirement that Ardaugh and Saint-Gobain provide prior notice to the FTC of their acquisitions, mergers, and other combinations; and (4) a requirement to file periodic compliance reports with the Commission.

The Commission voted 3-1 to issue the administrative complaint and to authorize staff to seek a temporary restraining order and preliminary injunction in federal district court. Commissioner Joshua D. Wright cast the negative vote. An evidentiary hearing is scheduled to begin before an administrative law judge at the FTC on December 2, 2013.

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