Antitrust Lawyer Blog Commentary on Current Developments

FTC Challenges Jarden Corp.’s Proposed Acquisition of K2 Incorporated

On August 9, 2007, the Federal Trade Commission announced a complaint challenging Jarden Corporation’s (Jarden) proposed $1.2 billion acquisition of sporting equipment manufacturer K2 Incorporated (K2).

FTC alleges that the deal would be anticompetitive and detrimental to consumers of monofilament fishing line. Monofilament fishing line is the most widely-used and least expensive type of fishing line, and while other specialized types of fishing line, including braided and fluorocarbon, appear to be growing in popularity, the vast majority of fishing line purchases in the United States are of monofilament line.

Under the terms of a consent order resolving the FTC’s charges and allowing the transaction to proceed, the companies will sell the assets of four popular types of monofilament line, all of which are owned by K2: Cajun Line, Omniflex, Outcast, and Supreme.
On April 24, 2007, Jarden and K2 entered into an agreement under which Jarden would acquire K2 for approximately $1.2 billion. According to the FTC, the transaction as originally structured would violate Section 7 of the Clayton Act and Section 5 of the FTC Act by lessening competition in the U.S. market for the research, development, manufacture, and sale of monofilament fishing line. Jarden possesses a very large share of the monofilament fishing line market, and K2 is its most significant competitor. The Commission contends that the proposed acquisition would give Jarden the ability and incentive to raise prices and take other unilateral actions that would cause competitive harm to consumers. It also would eliminate actual and direct competition in the relevant market between Jarden and K2.

The Commission contends that without the remedies put in place by the consent order, the transaction would likely enable Jarden to profit by raising price above pre-merger levels, as well as by reducing Jarden’s incentives to innovate and develop new products. Finally, the complaint states that any entry into the monofilament fishing line market is unlikely to counteract the likely anticompetitive impact of the proposed transaction.

The FTC’s consent order is designed to remedy the competitive harm that would result from the acquisstion as proposed. The consent agreement preserves competition by requiring the divestiture of assets related to K2’s Cajun Line, Omniflex, Outcast, and Supreme monofilament fishing line products to W.C. Bradley/Zebco (Zebco) within 15 days after the acquisition is consummated. Zebco is a well-qualified buyer of the assets to be divested. Zebco already possesses a strong distribution network in place, is a significant market participant, and encompasses a knowledgeable sales force with existing relationships with fishing tackle retailers.

The order contains several terms designed to ensure Zebco’s success in maintaining competition in the monofilament fishing line market. First, it requires Jarden and K2 to take steps to ensure that confidential information related to the divested assets will not be used by Jarden. Next, it provides Zebco with the opportunity to hire certain staff that encompass the experience in dealing with the four product lines to be divested. Finally, it will require that certain staff who were substantially involved in the research, development, or marketing of the divested assets be precluded from working on competitive fishing line products at Jarden for two years. The consent order also includes a separate order to maintain assets that requires the companies to keep the assets to be divested viable, marketable, and competitive pending their transfer to Zebco.

Robert Doyle
(202) 589-1834
rdoyle@dbmlawgroup.com