FTC Challenges Proposed Merger Between Rival Glass Bottle Manufacturers | Practical Law

FTC Challenges Proposed Merger Between Rival Glass Bottle Manufacturers | Practical Law

The FTC filed a complaint challenging Ardagh Group, S.A.'s proposed $1.7 billion acquisition of Saint-Gobain Containers, Inc.

FTC Challenges Proposed Merger Between Rival Glass Bottle Manufacturers

Practical Law Legal Update 4-533-0965 (Approx. 3 pages)

FTC Challenges Proposed Merger Between Rival Glass Bottle Manufacturers

by Practical Law Antitrust
Published on 03 Jul 2013USA (National/Federal)
The FTC filed a complaint challenging Ardagh Group, S.A.'s proposed $1.7 billion acquisition of Saint-Gobain Containers, Inc.
On July 1, 2013, the Federal Trade Commission (FTC) announced that it filed a complaint challenging Ardagh Group, S.A.'s proposed $1.7 billion acquisition of Saint-Gobain Containers, Inc. The FTC alleged that the acquisition, agreed to on January 17, 2013, would violate Section 5 of the FTC Act and Section 7 of the Clayton Act by significantly reducing competition in the US markets for glass containers for beer and spirits.
The Complaint alleged that, while there were a number of fringe competitors, Ardagh, Saint-Gobain and another firm were the three major bottle manufacturers in the relevant markets. The FTC's HHI calculations for both markets exceeded the presumptively illegal limits set out in the Horizontal Merger Guidelines. Specifically, in the beer bottle market, the HHI would increase by 781 to 3,665.8, and, in the spirit bottle market, the HHI would increase by 1,069.3 to 3,249.1. Additionally, the FTC alleged that post-acquisition, the remaining two major manufacturers would control over 75% of those markets.
The FTC based its coordinated effects allegations on the transparency of the glass container industry. According to the Complaint, the three major competitors have access to information about each other's plant production capacity, profitability and customers, which could result in even easier coordination among the two remaining manufacturers post-acquisition.
Additionally, the FTC alleged that the acquisition will eliminate the direct competition between Ardagh and Saint-Gobain, resulting in anticompetitive effects, such as:
  • Increased prices.
  • Diminished innovation.
  • Reduced output.
The FTC also alleged that entry would not be timely, likely or sufficient to mitigate the anticompetitive effects of the acquisition because of significant barriers to entry in the glass bottle markets, including:
  • Large capital costs to build a glass plant.
  • Environmental permits.
  • High fixed costs.
  • Existing long-term contracts that foreclose a large portion of the market.
  • Specific manufacturing knowledge that is not easily transferred from other industries.
  • Molding technologies and extensive mold libraries already in place at existing manufacturers.
The FTC voted 3-1 to issue the complaint, with Commissioner Wright voting no.
Court documents: