Source: http://www.justice.gov/atr/cases/f227100/227104.htm
Timestamp: 2014-04-16 17:03:59
Document Index: 126491222

Matched Legal Cases: ['§ 18', '§ 18', '§ 25', '§ 1331', '§ 18', '§ 18']

Complaint : U.S. v. Abitibi-Consolidated Inc. and Bowater Incorporated
formats: this web page (for browsing content), PDF (comparable to original document formatting), and WordPerfect. To view the PDF you will need Acrobat Reader, which may be downloaded from the Adobe site. For an official signed copy, please contact the Antitrust Documents Group. THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, Department of Justice
Antitrust Division	1401 H Street, NW, Suite 4000	Washington, DC 20530, Plaintiff,
v. ABITIBI-CONSOLIDATED INC.
1155 Metcalfe Street	Suite 800	Montréal, QC H3B 5H2
Canada	and
55 E. Camperdown Way	Greenville, SC 29601,
| CASE NO:
CASE: 1:07-cv-01912
JUDGE: Collyer, Rosemary M. DECK TYPE: Antitrust
DATE STAMPED: 10/23/2007
The United States of America, acting under the direction of the Acting Attorney General
of the United States, brings this civil action to enjoin the proposed merger of Defendants Abitibi-Consolidated Inc. ("Abitibi") and Bowater Incorporated ("Bowater"). The United States alleges
as follows: I. NATURE OF THE ACTION
1. On January 29, 2007, Abitibi and Bowater announced plans to merge into a new
company to be called AbitibiBowater Inc. in a transaction valued at $1.6 billion. 2. Abitibi and Bowater are the two largest newsprint producers in North America. The combination of these two firms will create a newsprint producer three times larger than the
next largest North American newsprint producer. After the merger, the combined firm will have
the incentive and ability to withdraw capacity and raise newsprint prices in the North American
newsprint market.
3. Unless the proposed transaction is enjoined, Defendants' merger will substantially
lessen competition in the production and sale of newsprint, in violation of Section 7 of the
Clayton Act, 15 U.S.C. § 18. II. JURISDICTION AND VENUE
4. The United States brings this action under Section 15 of the Clayton Act, as
Clayton Act, 15 U.S.C. § 18. 5. Both Defendants produce and sell newsprint in the flow of interstate commerce. Defendants' production and sale of newsprint substantially affect interstate commerce. This
Court has subject matter jurisdiction over this action pursuant to Section 15 of the Clayton Act,
15 U.S.C. § 25 and 28 U.S.C. §§ 1331, 1337(a), and 1345.
6. Defendants have consented to venue and personal jurisdiction in this judicial
III. DEFENDANTS TO THE PROPOSED TRANSACTION
7. Abitibi, the largest newsprint supplier in North America, is a Canadian
corporation with its principal place of business in Montréal, Quebec, Canada. Abitibi produces
and sells newsprint to customers around the world. Abitibi owns and operates, either solely or
with other firms, eleven paper mills in the United States and Canada that currently produce
newsprint, as well as one mill in the United Kingdom. In 2006, Abitibi's total sales were
approximately $4.85 billion, including approximately $1.7 billion in aggregate North American
newsprint sales. 8. Bowater, the second-largest newsprint supplier in North America, is incorporated
in Delaware with its principal place of business in Greenville, South Carolina. Bowater owns
and operates, either solely or with other firms, eight paper mills in the United States and Canada
that currently produce newsprint, as well as one mill in South Korea. In 2006, Bowater's total
sales were approximately $3.53 billion, including approximately $1.1 billion in aggregate North
American newsprint sales.
A.	The Relevant Market
Product Market: Newsprint
9. Newsprint is the lowest grade of uncoated groundwood paper (i.e., paper
manufactured from mechanically processed pulp). In 2006, approximately 9.745 million metric
tonnes of newsprint were sold in North America. Newspaper publishers purchase more than 80
percent of the available newsprint supply to print newspapers. Some newsprint also is used in
the production of direct mail and newspaper inserts. 10. Newspaper publishers have no close substitutes for newsprint to use for printing
newspapers. Newsprint is generally the least expensive paper grade. In addition, publishers'
newspaper presses are optimized for newsprint and cannot be modified to use other paper grades
without incurring significant costs.
11. Newsprint used for other purposes constitutes only a small share of total sales. While a small but significant increase in the price of newsprint may cause some customers for
these other uses to switch to other grades of groundwood paper or otherwise reduce their
consumption of newsprint, those losses would not be sufficient to make such a price increase
unprofitable. 12. For these reasons, demand for newsprint is highly inelastic with respect to
changes in price. Accordingly, the production and sale of newsprint is a distinct line of
commerce and a relevant product market within the meaning of the Clayton Act.
Geographic Market: North America
13. The relevant geographic market for the sale of newsprint is no smaller than the
United States and Canada ("North America"). Newsprint can be transported within the United
States and Canada at a sufficiently low cost and in such a timely and reliable manner that an
attempt to increase price anticompetitively in any smaller region of the United States or North
America would prove unprofitable. In the event of such an attempted price increase, customers
could readily and economically shift their purchases to newsprint producers throughout North
14. The relevant geographic market is no broader than North America. Foreign
imports account for approximately two percent of North American newsprint consumption. Transportation costs of importing newsprint are relatively high, and customers are concerned
about the reliability of foreign newsprint supply. Consequently, a small but significant increase
in the price of newsprint will not likely cause customers to purchase sufficient volumes of
additional newsprint from outside of North America to make such a price increase unprofitable.
15. Accordingly, North America is a relevant geographic market within the meaning
B.	Anticompetitive Effects 16. The proposed transaction likely will substantially reduce competition in the North
American newsprint market. Abitibi and Bowater are the two largest producers of newsprint in
North America and compete directly against one another to produce and sell newsprint. Abitibi
and Bowater currently own approximately 25 percent and 16 percent of capacity, respectively,
which will result in a post-merger share of over 40 percent. 17. Demand for newsprint in the North American market has declined over the last
several years at a rate of approximately 5 to 10 percent per year because of a significant decline
in demand for newspapers. As a result, North American newsprint producers have closed, idled,
or converted some of their newsprint capacity. This decline in the demand for newsprint is
projected to continue, and the resulting excess newsprint capacity will likely lead Defendants and
their competitors to close, idle, or convert more newsprint mills. 18. But for the merger, following the anticipated demand-based reductions in
capacity, neither Abitibi nor Bowater acting alone would be of sufficient size to profitably
increase the price of newsprint by reducing its own output through strategically closing, idling, or
converting its capacity. 19. The proposed transaction would combine Defendants' large share of newsprint
capacity, thereby expanding the quantity of newsprint sales over which the merged firm would
benefit from a price increase. This would provide the merged firm with an incentive to close
capacity sooner than it otherwise would to raise prices and profit from the higher margins on its
C.	Neither Supply Responses Nor Entry Will Defeat an Exercise of Market Power
20. Neither the combined firm's North American competitors, nor producers from
outside of the North American market, can, individually or collectively, increase their newsprint
sales to North American customers to make a price increase by the merged firm unprofitable.
Additionally, entry by a new competitor would not be timely, likely, or sufficient to defeat an
exercise of market power by the merged firm. The merged firm will therefore have both the
incentive and the ability to impose an anticompetitive price increase.
21. While some North American newsprint competitors currently have some limited
excess capacity, that capacity will be reduced by the closure or conversion of unprofitable
newsprint mills or machines in response to falling demand for newsprint. Once this newsprint
capacity exits the market, the merged firm then will be able profitably to exercise market power.
22. North American newsprint competitors would not defeat an anticompetitive price
increase by restarting their closed or idled newsprint capacity in response to such a price increase.
The increased revenue from restarting a machine or mill would not outweigh the start-up costs,
particularly in a declining market. 23. Producers currently manufacturing other coated and uncoated grades of paper are
not likely to switch to producing newsprint in response to a price increase. Declining demand for
newsprint has caused several producers to invest substantial capital to convert machines that had
previously been producing newsprint to machines that produce grades of paper that return higher
margins. These producers would not find it profitable to switch back to newsprint to defeat an
exercise of market power by the merged firm.
24. North American newsprint producers currently export some of their newsprint. Some of these newsprint exports likely would be directed back to the North American market in
response to a price increase. However, this repatriation of newsprint will be insufficient, even in
combination with other competitive responses, to discipline an exercise of market power by the
combined firm. Abitibi and Bowater collectively produce over 65 percent of the newsprint
exported from North America and would have no incentive to repatriate such exports. In
addition, most of the remaining exports by North American producers are sold pursuant to long-term sales arrangements and relationships and therefore are unlikely to be repatriated in response
to a price increase in North America. 25. Successful entry into the manufacturing and distribution of newsprint is difficult,
time consuming, and costly. New entry requires investing hundreds of millions of dollars in
equipment and facilities, extensive environmental permitting, and the establishment of a reliable
distribution system and work force. Particularly given that demand for newsprint is declining in
North America, a new entrant would not find it profitable to build a new newsprint mill in
response to a price increase, and could not do so within two years. 26. Accordingly, neither entry nor industry supply responses to a price increase for
newsprint in North America will deter the likely exercise of market power by the combined firm.
27. The likely effect of the proposed merger of Abitibi and Bowater may be
substantially to lessen competition in interstate trade and commerce in violation of Section 7 of
the Clayton Act, 15 U.S.C. Section § 18.
28. Unless restrained, the proposed transaction likely will have the following effects,
among others: competition likely will be lessened substantially in the production and sale
of newsprint in North America; actual and potential competition between Abitibi and Bowater in the
production and sale of newsprint in North America will be eliminated; and
prices charged for newsprint in North America likely will increase.
31.	The United States requests that:
the proposed transaction be adjudged and decreed to be unlawful and in
violation of Section 7 of the Clayton Act, 15 U.S.C. § 18;
Defendants and all persons acting on their behalf be permanently enjoined
and restrained from consummating the proposed transaction or from
entering into or carrying out any contract, agreement, understanding, or
plan, the effect of which would be to combine the businesses or assets of
Defendants; Plaintiff be awarded its costs for this action; and
Plaintiff receive such other and further relief as the Court may deem just
_______________/s/________________ Deborah A. Garza (DC Bar No. 395259)
_______________/s/________________ James J. O'Connell (DC Bar No. 464109)
Joseph Miller (DC Bar No. 439965)
Assistant Chief Litigation I Section
Mitchell Glende
N. Christopher Hardee (DC Bar No. 458168)
Ihan Kim
Rebecca A. Perlmutter
(202) 514-0976
DATED: October 23, 2007