US regulator to block Ardagh's $1.7-bn purchase of Saint-Gobain's glass container unit
02 July 2013
The US regulator plans to block Ireland's Ardagh Group's $1.7-billion proposed acquisition of Compagnie de Saint-Gobain's North American glass container unit Verallia North America on the grounds that the deal would reduce competition in the US market for beer and liquor bottles.
The US Federal Trade Commission (FTC) yesterday filed an administrative complaint seeking to block the merger on the grounds that the transaction would result in the merged company and rival Owens-Illinois Inc controlling more than 75 per cent of the US markets for glass containers for beer and liquor.
''If Ardagh is allowed to acquire Saint-Gobain, it would eliminate beneficial competition that has led to lower prices for beer and spirits bottles,'' said Norman Armstrong, Jr., deputy director of the FTC. ''This combination would lead to higher costs for brewers and distillers and less innovation in the glass container industry. Ultimately, this transaction will result in higher prices for consumers.''
Luxembourg-based Ardagh, is a global leader in glass and metal packaging solutions, producing packaging for most of the world's leading food, beverage and consumer care brands.
Ardagh entered the US glass container market in 2012 by acquiring Anchor Glass Container Corporation, the longstanding third-largest US glass manufacturer, and Leone Industries, a small, single-plant glassmaker.
The proposed acquisition would be Ardagh's third US glass acquisition in little more than a year.
With revenues of $1.6 billion and operating profit of $171 million in 2012, Verallia North America is the second-largest glass container manufacturer in the US, behind Owens-Illinois.
Based in Muncie, Indiana, Verallia North America produces approximately 9 billion containers annually from its 13 facilities located throughout the US and employs approximately 4,400 people.
In January, French construction material giant Saint-Gobain had said it would sell Verallia North America to Ardagh as part of its plan to exit from the low-margin business. (See: Saint-Gobain to sell North American glass container operation to Ardagh Group for $1.7 bn)
The FTC said that the proposed acquisition would combine the second-largest manufacturer of glass containers (Saint-Gobain) and the third-largest (Ardagh).
According to the complaint, each year, Americans use more than 18 billion glass beer and spirits containers. Three manufacturers, including Ardagh and Saint-Gobain, produce the overwhelming majority of these glass containers. Together, these three dominate the approximately $5 billion US glass container industry.
The complaint alleges that the acquisition will have anti-competitive effects in the markets for glass bottles for beer and glass bottles for spirits and will increase concentration in those markets to levels that are presumptively illegal. These markets are mature and characterised by low growth with significant barriers to entry and expansion.
The FTC alleges that brewers and distillers do not view other packaging materials as interchangeable for glass bottles because of commercial constraints, such as consumer preferences and brand identity.
The FTC goes on to say that the existence of other packaging materials has not prevented the Three Majors from shifting cost increases to customers and raising prices in recent years. The regulator points out that glass bottle prices have increased substantially more than plastic bottles and aluminum cans.