FTC Acts to keep Collagen Sausage Casing Prices Competitive

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Devro International PLC, based in Scotland, has agreed to divest the assets it uses to produce collagen sausage casings for sale in the United States, to settle Federal Trade Commission charges that Devro's acquisition of Illinois-based Teepak International, Inc. would violate federal antitrust laws. The FTC acted after alleging that the $135 million acquisition, which would combine the nation's top two producers of collagen sausage casings, would raise prices for the casings in part because it would eliminate a key competitor. According to the FTC, the market is such that, absent the settlement, another firm could not be expected to move into the business quickly enough to prevent the combination of Devro and Teepak from producing higher prices or reduced service. The divestiture provision in the settlement is designed to replace the competition that otherwise would be lost because of the allegedly unlawful acquisition.

Devro International's sole product, and that of its Somerville, New Jersey-based U.S. subsidiary Devro, Inc., is collagen sausage casings. Teepak, headquartered in Westchester, Illinois, manufactures a full line of collagen and non-collagen synthetic sausage casings. The two firms are among only four firms worldwide that produce collagen sausage casings for sale in the United States; Devro International and Devro, Inc., had combined sales of $169.5 million in 1994, and Teepak had $60.9 million. Sausage casings are the skins into which various meat products are stuffed before being cooked or smoked.

According to the FTC complaint detailing the charges in the case, collagen and non-collagen sausage casings are not substitutes for one another. The complaint also states that it would take at least seven years for a new manufacturer, beginning from scratch, to begin producing collagen sausage casings on its own. Thus, the proposed acquisition would violate federal antitrust laws by substantially reducing competition in the U.S. and world markets for all-collagen and edible-collagen sausage casings by:

  • eliminating direct competition between Devro and Teepak;
  • increasing the likelihood that Devro would unilaterally exercise market power; and
  • increasing the likelihood of, or facilitating, collusion or coordinated interaction.

Under the proposed consent agreement to settle these charges, announced for a public-comment period before the Commission determines whether to make it binding, Devro International would be permitted to acquire Teepak so long as it divests Devro North America, the assets it uses to manufacture and distribute collage sausage casings in the United States and Canada. This includes a manufacturing plant in Somerville and a finishing plant in Ontario, Canada. The divestiture would have to be completed within three months of the date the order is made binding, and Devro would be required to sell Devro North America to a buyer that does not already produce collagen sausage casings for sale in the United States. As another condition, the Commission must approve Devro's proposed buyer.

Pending divestiture, Devro must maintain the marketability and viability of Devro North America, and it must operate Devro North America independently of Teepak, in order to maintain competition. Another ancillary agreement addresses shareholder-approval requirements that Devro must satisfy before it can complete the acquisition and divestiture. If the divestiture were not completed on time, the settlement would permit the FTC to appoint a trustee to complete it.

The Commission vote to accept the proposed consent agreement for public comment was 5-0. Commissioner Mary L. Azcuenaga issued a concurring statement in which she said she has reservations about excluding some incumbent firms as potential acquirers. "Attempts to define in advance the field of eligible acquirers under a divestiture order are unnecessary, at best, potentially inefficient and possibly even anticompetitive," she said.

The proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.

Copies of the complaint, the proposed consent agreement, the Agreement to Condition Acquisition, the Hold Separate Agreement, an analysis of the agreement to assist the public in commenting and Commissioner Azcuenaga's statement, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov

(FTC File No. 951 0072)

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