Source: https://www.justice.gov/atr/case-document/revised-competitive-impact-statement-0
Timestamp: 2019-04-23 16:06:46+00:00

Document:
The United States, pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act ("Tunney Act"), 15 U.S.C. §§ 16(b)-(h), files this Revised Competitive Impact Statement relating to the proposed Amended Final Judgment submitted for entry in this civil antitrust proceeding.
In early July 2003, Alcan Inc. ("Alcan") publicly announced that it would soon begin a tender offer for shares of Pechiney, S.A. ("Pechiney"), a transaction formally endorsed by Pechiney's board of directors on August 30, 2003. On September 29, 2003, the United States filed a civil antitrust suit alleging that Alcan's proposed acquisition of Pechiney would violate Section 7 of the Clayton Act, 15 U.S.C. § 18. The Complaint alleged that a combination of Alcan and Pechiney would substantially lessen competition in the development, production, and sale of brazing sheet in North America. Pechiney and Alcan are, respectively, the second and fourth largest competitors in the sale of brazing sheet in North America. The acquisition would result in a single firm  Alcan  with a market share of over 40 percent, and the industry's two largest firms having a combined share of over 80 percent, of North American sales of brazing sheet. The Complaint alleged that the attendant reduction in competition in that highly concentrated market would lead to an increase in brazing sheet prices and a reduction in product quality and innovation to the detriment of North American consumers. Accordingly, the prayer for relief in the Complaint sought: (1) a judgment that the proposed acquisition would violate Section 7 of the Clayton Act, and (2) a permanent injunction that would prevent Alcan from acquiring control of, or otherwise combining its assets with, Pechiney.
At the same time the Complaint was filed, the United States filed a proposed settlement that would allow Alcan to acquire Pechiney, but require defendants to divest Pechiney's entire North American brazing sheet business in such a way as to preserve competition in North America. According to the terms of the settlement, defendants were required to divest Pechiney's brazing sheet business(1) to a person acceptable to the United States, in its sole discretion, within 120 calendar days after Alcan receives preliminary notification from the responsible French stock market regulatory agency that Alcan's tender offer for shares of Pechiney has been successful, or within five (5) days after notice of entry of the Final Judgment, whichever was later. The United States, in its sole discretion, could extend the time period for the divestiture one or more times, not to exceed a total of 60 days past the initial divestiture deadline. If defendants did not complete the ordered divestiture within the prescribed time period, then the United States could nominate, and the Court would appoint, a trustee with sole authority to divest Pechiney's brazing sheet business.
In accordance with the Tunney Act, the United States published the proposed settlement, the public comments, and the government's responses in the Federal Register. See 68 Fed. Reg. 70287 (Dec. 17, 2003) and 69 Fed. Reg. 18930 (April 6, 2004).
The new settlement consists of an Amended Final Judgment and an Amended Hold Separate Stipulation and Order. The Amended Final Judgment would preserve competition in the sale of brazing sheet in North America by requiring defendants to divest either Alcan's or Pechiney's brazing sheet business to a person acceptable to the United States, in its sole discretion, within 180 calendar days after filing of the proposed Amended Final Judgment, or the Court's entry of the Amended Final Judgment, whichever is later. Because the Amended Final Judgment permits a divestiture option that the parties did not mention or contemplate in the initial settlement, interested persons should be provided notice of, and an opportunity to comment upon, the Amended Final Judgment. Accordingly, the parties have stipulated that the proposed Amended Final Judgment may be entered by the Court after compliance with the Tunney Act. Entry of the proposed Amended Final Judgment would terminate this action, except that the Court would retain jurisdiction to construe, modify, or enforce the provisions of the proposed Amended Final Judgment and to punish violations thereof.
Alcan launched a tender offer for shares of Pechiney, a transaction valued at over $4.6 billion. The tender offer, publicly announced in early July 2003 and approved in August by Pechiney's board of directors, was expected to be completed in early December 2003. At the time of the tender offer, Alcan's acquisition of Pechiney would have combined, respectively, the fourth and second largest competitors in the sale of brazing sheet in North America, and substantially lessened competition in this already highly concentrated market.
The acquisition would have combined Alcan, a low-cost new entrant and pricing maverick, with Pechiney, a large industry incumbent. The deal would have eliminated Alcan's incentive to expand its sales quickly by reducing its brazing sheet prices and increase its sales at the expense of larger rivals such as Pechiney, and end the current intense competitive rivalry in developing, producing, and selling brazing sheet in North America. This competition, which promised to intensify in the next few years as Alcan completed qualifying its brazing sheet for more applications with other North American customers, had already produced significant improvements in brazing sheet quality, durability, and reliability, and highly competitive prices and contractual terms for this material. The transaction would have reduced the number of significant competitors in the sale of brazing sheet in North America from four to three, and substantially increased the prospect of future tacit or explicit post-merger coordination between these firms to increase prices of brazing sheet to the detriment of consumers. Other North American competitors in the sale of brazing sheet had neither the production capacity nor competitive incentive, individually or collectively, to discipline a small but significant post-merger unilateral or cooperative price increase in brazing sheet.
New entry into the development, production, and sale of brazing sheet in North America is difficult. To produce brazing sheet, a firm must have an aluminum hot rolling mill (which costs at least $80 million and takes at least three years to construct). Even after acquiring an aluminum hot rolling mill, a new firm can begin selling brazing sheet to customers only after it has made an additional substantial investment in developing and mastering alloy-making technology, successfully "qualified" its products with prospective customers by completing a series of time-consuming tests of brazing sheet materials and sample heat exchange components, and finally, acquired some actual experience producing brazing sheet that meets the exacting specifications of risk-averse parts makers.(6) These so-called "sunk" entry costs(7) are very large relative to the size of the North American market for brazing sheet, and there is a very high risk that a new entrant may not receive any profits from its entry. In these circumstances, it is unlikely that, after a combination of Alcan and Pechiney, new entry into the brazing sheet market in North America would occur so rapidly and be of such magnitude that it would effectively constrain a cooperative or unilateral post-merger exercise of market power by incumbent producers of brazing sheet.
The proposed Amended Final Judgment will preserve competition in the sale of brazing sheet in North America by requiring defendants to sell either Alcan's or Pechiney's brazing sheet business to an acquirer acceptable to the United States within 180 calendar days after the filing of the Amended Final Judgment or within five (5) days after notice of entry of the Amended Final Judgment, whichever is later. The United States may extend this time period for divestiture one or more times, for a total time not to exceed 60 days. Defendants must use their best efforts to divest either Alcan's or Pechiney's brazing sheet business as expeditiously as possible, and until the ordered divestiture takes place, defendants must cooperate with any prospective purchasers of whichever business is then available for sale.
If defendants do not accomplish the ordered divestiture within the prescribed time period, the United States will nominate, and the Court will appoint, a trustee to assume sole power and authority to divest Pechiney's brazing sheet business. Defendants must cooperate fully with the trustee's efforts to divest Pechiney's brazing sheet business to an acquirer acceptable to the United States and periodically report to the United States on their divestiture efforts.
If a trustee is appointed, defendants will pay all costs and expenses of the trustee. The trustee's commission will be structured so as to provide an incentive for the trustee based on the price obtained and the speed with which the divestiture is completed. After his or her appointment becomes effective, the trustee will file monthly reports with the parties and the Court, setting forth the trustee's efforts to accomplish the divestiture. At the end of six months, if the divestiture has not been accomplished, the trustee and the parties will make recommendations to the Court, which shall enter such orders as appropriate to carry out the purpose of the trust, including, without limitation, extending the trust and the term of the trustee's appointment.
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides that any person who has been injured as a result of conduct prohibited by the antitrust laws may bring suit in federal court to recover three times the damages the person has suffered, as well as costs and reasonable attorneys' fees. Entry of the proposed Amended Final Judgment will neither impair nor assist the bringing of any private antitrust damage action. Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C. § 16(a), the proposed Amended Final Judgment has no prima facie effect in any subsequent private lawsuit that may be brought against defendants.
The parties have stipulated that the proposed Amended Final Judgment may be entered by the Court after compliance with the provisions of the Tunney Act, provided that the United States has not withdrawn its consent. The Tunney Act conditions entry of the decree upon the Court's determination that the proposed Amended Final Judgment is in the public interest.
The proposed Amended Final Judgment provides that the Court retains jurisdiction over this action, and the parties may apply to the Court for any order necessary or appropriate for the modification, interpretation, or enforcement of the Amended Final Judgment.
Before filing its Complaint, the United States considered, as an alternative to the initial proposed Final Judgment, pursuing a full trial on the merits, seeking preliminary and permanent injunctions against Alcan's acquisition of Pechiney. However, the United States was satisfied that the divestiture of Pechiney's brazing sheet business, as proposed in the initial Final Judgment, would preserve and ensure continued competition in the relevant market, and hence, prevent Alcan's acquisition of Pechiney from having any adverse competitive effects.
The Amended Final Judgment, which would permit defendants to divest either Alcan's or Pechiney's brazing sheet business, provides a remedy that is more flexible, but no less protective of continued competition, than the relief proposed in the initial Final Judgment. However, in addition to permitting defendants to sell the Alcan brazing sheet business, the Amended Final Judgment may permit defendants a few more months to accomplish the ordered divestiture.(8) Before agreeing to file an amended settlement, the United States seriously considered whether defendants  or for that matter, a Court-appointed trustee  could complete a divestiture of Pechiney's brazing sheet business more quickly than the divestiture deadline established in the Amended Final Judgment. The government concluded that there was a high probability that defendants would divest Alcan's brazing sheet business, as part of their overall corporate reogranization, before they (or a Court-appointed trustee) could sell Pechiney's brazing sheet business. For that reason, the government was willing to amend the original settlement to allow defendants the option to divest Alcan's brazing sheet business. The United States, however, is firmly committed to seeking the appointment of a trustee to divest Pechiney's brazing sheet business if defendants fail to complete the ordered divestiture by the deadline set forth in the Amended Final Judgment. See Amended Final Judgment, § IV.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. (CCH) ¶ 61,508, at 71,980 (W.D. Mo. May 17, 1977).
The proposed Amended Final Judgment, therefore, should not be reviewed under a standard of whether it is certain to eliminate every anticompetitive effect of a particular practice or whether it mandates certainty of free competition in the future. Court approval of a final judgment requires a standard more flexible and less strict than the standard required for a finding of liability. "[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is 'within the reaches of public interest.'" United States v. Am. Telephone & Telegraph Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting Gillette, 406 F. Supp. at 716), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even though the court would have imposed a greater remedy).
There are no determinative materials or documents within the meaning of the Tunney Act that were considered by the United States in formulating the proposed Amended Final Judgment.
1. Pechiney's brazing sheet business, as defined in Section II(E) of the proposed Final Judgment (and Amended Final Judgment), includes all tangible and intangible assets of Pechiney's Ravenswood, West Virginia, aluminum rolling mill and the engineering facilities, wherever located, that provide research and development support for any product produced at the Ravenswood plant.
2. Alcan's brazing sheet business consists of two aluminum rolling mills, which are located in Oswego, New York, and Fairmont, West Virginia. See Amended Final Judgment, § II (F).
3. The government understands that the reorganization was driven by business reasons unrelated to the ordered divestiture of Pechiney's brazing sheet business. To alleviate the European Community's competitive concerns about Alcan's acquisition of Pechiney, defendants previously had agreed, inter alia, to divest their interests in a massive aluminum smelter and aluminum hot rolling mill complex in Europe. Also, before acquiring Pechiney, Alcan had considered selling or otherwise disposing of its aluminum manufacturing facilities that make relatively low margin products (e.g., can stock), and focusing instead on production of higher margin products such as packaging materials and specialty metals. The United States understands that defendants believe they can meet both objectives by combining the European assets that the EC had ordered divested with Alcan's own Aluminum Rolled Products Division to create a new stand-alone firm, which would then be sold to an interested purchaser or spun off to defendants' own stockholders, in a transaction that would satisfy the divestiture requirements of the Amended Final Judgment.
4. On April 22, the parties notified the Court that they were seriously considering amending the initial settlement, and they asked the Court to refrain hearing or ruling on the proposed Judgment and a pending motion to intervene until after June 1, 2004. The Court subsequently entered a stipulated order to that effect on April 26, 2004.
5. Brazing sheet is designed for and sold to motor vehicle parts makers (and others) on an application-specific basis. Thus, it may be possible to delineate relevant markets smaller than the "all brazing sheet" market alleged in the Complaint. A producer of brazing sheet for use in one type of heat exchange component, however, generally has the ability to make and market brazing sheet suitable for use in producing other types of components for heat exchange units. According to the Merger Guidelines, if such production substitutability is "nearly universal" among the firms that make and sell brazing sheet, then it is appropriate, as a matter of convenience, to describe the relevant product market as "all brazing sheet." See Horizontal Merger Guidelines, n. 14 (1997 rev.).
6. It took Alcan over two years from when it moved its brazing sheet operations to Oswego, New York, to qualify with enough customers to make a significant sales impact.
7. The term "sunk costs" as used in this context includes the costs of acquiring tangible and intangible assets that cannot be recovered through the redeployment of these assets outside the relevant market, i.e., costs that were uniquely incurred to enter the production and sale of brazing sheet in North America and cannot be recovered upon exit from that industry.
In contrast, the Amended Final Judgment would require defendants to divest either Alcan's or Pechiney's brazing sheet business within 180 days after May 18th, or five days after entry of the decree, presumably in late October or early November 2004, a deadline that the United States may also, in its discretion, extend by an additional 60 days. At the earliest, the ordered divestiture under the Amended Final Judgment would occur several months later than the divestiture that had been ordered in the initial Final Judgment. The government concluded that, under the circumstances, such an extension of time for defendants to complete their divestiture under the Amended Final Judgment would not unreasonably delay the introduction of a viable new competitor into the North American market for sale of brazing sheet.
9. See United States v. Gillette Co., 406 F. Supp. 713, 715-16 (D. Mass. 1975) (recognizing it was not the court's duty to settle; rather, the court must only answer "whether the settlement achieved [was] within the reaches of the public interest"). A "public interest" determination can be made properly on the basis of the Competitive Impact Statement and Response to Comments filed pursuant to the Tunney Act. Although the Tunney Act authorizes the use of additional procedures, 15 U.S.C. § 16(f), those procedures are discretionary. A court need not invoke any of them unless it believes that the comments have raised significant issues and that further proceedings would aid the court in resolving those issues. See H.R. Rep. No. 93-1463, 93rd Cong., 2d Sess. 8-9 (1974), reprinted in 1974 U.S.C.C.N. 6535, 6538.
10. Cf. BNS, 858 F.2d at 463 (holding that the court's "ultimate authority under the [Tunney Act] is limited to approving or disapproving the consent decree"); Gillette, 406 F. Supp. at 716 (noting that, in this way, the court is constrained to "look at the overall picture not hypercritically, nor with a microscope, but with an artist's reducing glass"). See generally Microsoft, 56 F.3d at 1461 (discussing whether "the remedies [obtained in the decree are] so inconsonant with the allegations charged as to fall outside of the 'reaches of the public interest'").

References: § 18
 § 15
 § 16
 v. 
 v. 
 v. 
 v. 
 v. 
 § 16