On April 10, 2014, the Federal Trade Commission (“FTC”) announced that it will end its litigation against Ardagh Group SA’s $1.7 billion acquisition of Saint-Gobain Containers, Inc.’s U.S. bottling operations, after the former agreed to divest six of its nine glass container plants in the United States.
The case began when the FTC requested for a preliminary injunction against Ardagh’s proposed acquisition. In its request, the FTC cited the concentrated nature of the U.S. bottling industry as the primary motive for its actions. According to the FTC, there are only three major players in the U.S. glass bottling industry. Should the acquisition by Ardagh be completed, the U.S. glass bottling industry would effectively be turned into a duopoly. Under this circumstance, the market power controlled by Ardagh would effectively exceed the threshold presumed to have anti-competitive effects under the FTC’s and the Department of Justice (“DOJ”)’s guidelines for horizontal mergers.
Ardagh argued in response to the FTC’s injunction by citing the competition between plastic and glass bottles. Ardagh believed that players with high market concentration in the glass bottling industry would not necessary have the equivalent market power, because of competition from plastic bottle manufacturers. However, the FTC rejected this argument, because brewers (accounting for 58% of glass bottler’s business) and distillers (4% of business) primarily relies on glass bottles to contain their products. Should the Ardagh acquisition go through, the remaining big players in the glass bottling industry could dictate prices to brewers and distillers.
As a result, Ardagh announced that it will divest four of its bottling plants, as well as offer contract extensions to some of its customers, in an intention to settle the case. However, Ardagh made the offer to settle not to the FTC, but to the federal judge hearing the case. Since the case is brought to the judge by the FTC, the fact that the FTC did not agree to settle on Ardagh’s terms meant Ardagh’s offer to the judge was essentially meaningless, and the judge made it known as such.
This final settlement, according to the FTC, would have reduced much of the anticompetitive effects of the merger. As a general lesson, companies seeking to settle with the FTC should work directly with the agency, and should refrain from prematurely seeking a decision from the judge.