The fix is (not) in: lessons from the Ardagh case

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The FTC recently accepted a proposed settlement that would end its litigation to prevent Ardagh Group SA’s proposed acquisition of Saint-Gobain Containers, Inc. from reducing competition in the glass container industry. The proposed consent agreement requires Ardagh to divest six of its nine U.S. glass container-manufacturing plants, along with its headquarters, mold facility, and engineering facility, well as customer contracts, molds, and intellectual property. These six plants and related assets will make the buyer the third-largest glass bottle manufacturer in the United States. The settlement cures the competitive concerns raised by the proposed merger, which otherwise would have resulted in harm to buyers of glass beer and spirits containers.

This was a hard-fought case, with significant preparation on both sides. While that alone is not unusual in modern-day Section 7 litigation, the case is noteworthy because of the parties’ attempt to “litigate the fix” by restructuring the deal after the Commission challenged the acquisition in court.

On Sept. 18, Ardagh filed its opposition brief in the district court and, for the first time, publicly announced its intention to restructure the transaction by divesting four glass plants and offering contract extensions to certain customers. At the Sept. 24 pretrial conference before the federal judge, Ardagh argued that such a divestiture—two of its plants and two of Saint-Gobain’s—would fix any competitive concern arising from the merger, and provide the Commission with effective relief. Yet Ardagh had not identified a buyer for the assets and discovery had already closed. Consequently, the federal judge ruled that it would be “premature and precipitous” for her to hear any evidence related to the proposed four-plant divestiture package.

This ruling reinforces the Commission’s approach to designing effective remedies for problematic mergers, the goal of which is to preserve or restore competition in the affected markets. Parties may present a divestiture proposal at any point in the process, including post-complaint. But the proposed package of assets to be divested must give a potential buyer everything it needs to operate the assets as a viable business that can effectively and immediately compete with incumbents so that the merger does not substantially lessen competition. Without a buyer in hand, if the proposed set of assets has not been operated as an ongoing business in the past, Commission staff will need time to evaluate the proposal to check whether a potential buyer could operate the assets in a way that preserves the competitive dynamics in the market. Part of that test is a check that interested and approvable buyers exist.

The package of assets contained in the proposed settlement has all the features that the proposal Ardagh sought to litigate lacked. It contains a package of six glass plants, which replicates nearly 100 percent of the parties’ current beer and spirits volume. These six plants, along with the auxiliary mold and engineering facilities, had been operated as an ongoing business by the former Anchor Glass Container Corporation before Ardagh purchased the company in 2012. The divested business will have a diverse mix of products, customers, and plant locations, and with the hold separate order in place, will be ready to compete for contracts right away. The assets will be run by an experienced leadership team who managed the same assets while they were under Ardagh and Anchor Glass ownership. Commission staff has vetted the package of assets with industry participants, and is confident that there are interested and capable firms to buy the assets. Based on this information, the Commission is assured that the plants and assets contained in the proposed divestiture will give a prospective buyer what it needs to effectively and immediately compete to supply glass containers to the exacting customers in this market.

The Ardagh case serves as an important reminder that the Commission is willing to litigate if necessary to obtain an effective remedy. It will accept only a settlement that provides an effective remedy to the competitive concerns that are likely to ensue from a proposed merger. Ending the litigation without an effective remedy would not meet the Commission’s goal in enforcing Section 7: to prevent mergers that would likely substantially lessen competition. The proposed order announced last week is one step closer to achieving that goal on behalf of glass container customers in the U.S.

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