ANALYSIS TO AID PUBLIC COMMENT ON THE PROPOSED CONSENT ORDER
The Federal Trade Commission ("Commission") has accepted for public comment an agreement containing a proposed Consent Order from Lafarge, S.A., and Lafarge Corporation (collectively "Lafarge"), which is designed to remedy the anticompetitive effects resulting from Lafarge's acquisition of Holnam, Inc.'s ("Holnam"), Seattle, Washington, cement plant and related assets. Under the terms of the consent agreement, Lafarge's purchase price for Holnam's assets cannot be affected by the quantity of cement produced or sold by Lafarge in any market in the states of Washington or Oregon.
The agreement containing the proposed Consent Order has been placed on the public record for 60 days so that the Commission may receive comments from interested persons. Comments received during this period will become part of the public record. After 60 days, the Commission will again review the proposed Consent Order and the comments received, and will decide whether it should withdraw from the proposed Consent Order or make final the proposed Order.
On February 4, 1998, Lafarge and Holnam signed a Letter of Intent setting out the principal elements of a proposed transaction, whereby Lafarge would acquire Holnam's Seattle cement plant and related assets. According to the Commission's draft complaint that the Commission intends to issue, the acquisition, if consummated, may substantially lessen competition in the portland cement market in the Puget Sound area of the state of Washington, and would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. §18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. §45.
Lafarge and Holnam, along with Lone Star Northwest, Ash Grove Cement Company and CBR Cement Corp., sell portland cement in the Puget Sound area. Portland cement, the essential binding ingredient in concrete, is a construction raw material that users mix with water and aggregates (crushed stone, sand, or gravel) to form concrete. Portland cement is a closely controlled chemical combination of calcium (normally from limestone), silicon, aluminum, iron and small amounts of other ingredients. It is made by quarrying, crushing and grinding the raw materials, burning them in huge kilns at extremely high temperatures and grinding the resulting marble-size pellets (called "clinker") with gypsum into an extremely fine, usually gray, powder. Portland cement produced by one manufacturer is virtually indistinguishable from that manufactured by another.
The Puget Sound area of the state of Washington consists of the portion of Washington state south from the Canadian border to the area just south of the state capital of Olympia (roughly halfway between Seattle and Portland, Oregon) and east from the Pacific Ocean to the Cascade mountains, plus two adjacent counties just east of the Cascade Mountains. Its commercial center is the city of Seattle, The counties in this market west of the Cascades are Clallum, Grays Harbor, Island, Jefferson, King, Kitsap, Mason, Pierce, San Juan, Skagit, Snohomish, Thurston and Whatcom, and the two counties east of the Cascade mountains are Chelan and Kittitas.
Absent the proposed acquisition, Holnam would likely have increased the amount of cement it supplied to the Puget Sound market, which would likely have resulted in a decrease in the price of cement. As originally structured, the proposed acquisition would likely have prevented this increase in supply because it contained a contractual provision that imposed a significant cost penalty on Lafarge for quantities of cement produced at the Holnam cement plant in excess of 85% of the plant's capacity. The proposed acquisition thus would have given Lafarge the incentive to restrict the output of cement at the Holnam plant in order to avoid the additional contractual cost. This would have prevented any increase in the supply of cement to the market and thus avoided the expected price decrease.
The proposed Consent Order would eliminate the contractual penalty provision. Therefore, Lafarge would no longer have this incentive to limit the amount of cement that it supplies to the Puget Sound area portland cement market.
By accepting the proposed Consent Order, the Commission anticipates that the competitive problems alleged in the draft complaint will be resolved. The purpose of this analysis is to aid public comment on the proposed Order. It is not intended to constitute an official interpretation of the agreement and proposed Order or to modify in any way their terms.