[Federal Register: April 9, 2008 (Volume 73, Number 69)]
[Notices]
[Page 19250-19259]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09ap08-80]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Altivity Packaging LLC and Graphic Packaging
International, Inc.; Proposed Final Judgment and Competitive Impact
Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a Complaint, proposed Final
Judgment, Asset Preservation Stipulation and Order, and Competitive
Impact Statement have been filed with the United States District Court
for the District of Columbia in United States v. Altivity Packaging LLC
and Graphic Packaging International, Inc., Civ. Action No. 08-00400. On
March 5, 2008, the United States filed a Complaint alleging that the
proposed merger between Altivity Packaging LLC (``Altivity'') and
Graphic Packaging International, Inc. would violate section 7 of the
Clayton Act, 15 U.S.C. 18. The Complaint alleges that the acquisition
would substantially reduce competition for the production,
distribution, and sale of coated recycled boxboard (``CRB'') in the
United States. Specifically, the Complaint alleges that the merger
would enhance the merged firm's ability and incentive to reduce their
combined CRB output and anticompetitively raise CRB prices in the
United States. The proposed Final Judgment, filed at the same time as
the Complaint, requires the parties to divest two Altivity CRB mills in
Wasbash, Indiana and Philadelphia, Pennsylvania. If divestiture of the
Philadelphia mill is not accomplished, the proposed settlement requires
the sale of Altivity's Santa Clara, California CRB mill in the
alternative. A Competitive Impact Statement filed by the United States
describes the Complaint, the proposed Final Judgment, and the remedies
available to private litigants who may have been injured by the alleged
violation.
Copies of the Complaint, proposed Final Judgment, Asset
Preservation Stipulation and Order, and Competitive Impact Statement
are available for inspection at the Department of Justice, Antitrust
Division, Antitrust Documents Group, 325 7th Street, NW., Room 215,
Washington, DC 20530 (telephone: 202-514-2481), on the Internet at
http://www.usdoj.gov/atr, and at the Office of the Clerk of the United
States District Court for the District of Columbia. Copies of these
materials may be obtained from the Antitrust Division upon request and
payment of the copying fee set by Department of Justice regulations.
Public comment is invited within sixty (60) days of the date of
this notice. Such comments, and responses thereto, will be published in
the Federal Register and filed with the Court. Comments should be
directed to Joshua Soven, Chief, Litigation I Section, Antitrust
Division, Department of Justice, 1401 H Street, NW., Suite 4000,
Washington, DC 20530 (202-307-0001).
J. Robert Kramer II,
Director of Operations, Antitrust Division.
The United States District Court for the District of Columbia
United States of America, Plaintiff, v. Altivity Packaging LLC,
1500 Nicholas Blvd., Elk Grove Village, IL 60007, and Graphic Packaging
International, Inc., 814 Livingston Court, Marietta, GA 30067,
Defendants.
Case: I:08-cv-00400.
Assigned to: Sullivan, Emmet G.
Assign. Date: 3/5/2008.
Description: Antitrust.
Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, brings this civil action to
enjoin the proposed merger of Graphic Packaging International, Inc.
(``Graphic'') and Altivity Packaging, LLC (``Altivity''). The United
States alleges as follows:
I. Nature of the Action
1. On July 10, 2007, Altivity and Graphic announced plans to
combine their businesses in a transaction valued at $1.75 billion.
Altivity and Graphic are respectively the first and fourth largest
producers of coated recycled boxboard (``CRB'') in the United States
and Canada (hereinafter, ``North America''). CRB is a type of
paperboard used to make folding cartons used in consumer and commercial
packaging, such as cereal boxes. Both companies are also major
integrated producers of folding cartons made from CRB (hereinafter,
``CRB folding cartons''). The total annual volume of CRB supplied to
the packaging industry in North America is valued at approximately $1.6
billion.
2. The proposed merger of Graphic and Altivity would create a
single firm in control of approximately 42 percent of the total supply
of CRB in North America and would likely result in increased prices of
CRB. The resulting increases in CRB prices would have the further
effect of increasing the prices of CRB folding cartons.
3. Unless the transaction is enjoined, the proposed merger of
Graphic and Altivity would likely substantially lessen competition in
the supply of CRB in North America, 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 amended, 15 U.S.C. 25, to prevent and restrain
Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. 18.
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.
5. Graphic and Altivity produce and sell CRB and CRB folding
cartons in the flow of interstate commerce, and their production and
sale of CRB and CRB
[[Page 19251]]
folding cartons substantially affect interstate commerce. Defendants
have consented to venue and personal jurisdiction in this judicial
district.
III. The Defendants
6. Altivity, a Delaware limited liability company headquartered in
Elk Grove Village, Illinois, is the largest CRB producer in North
America. Altivity is also a major North American producer (or
``converter'') of folding cartons made from CRB and other types of
paperboard. Altivity owns and operates five paperboard mills that
produce CRB and 24 folding carton converting plants in North America.
Altivity's CRB mills have a combined annual production capacity of
approximately 722,000 tons, or about 27 percent of total North American
CRB supply. In 2006, Altivity had total sales of approximately $2
billion, including approximately $660 million in North American sales
of CRB and CRB folding cartons.
7. Graphic, the fourth-largest CRB producer in North America, is
incorporated in Delaware and has its principal place of business in
Marietta, Georgia. In North America, Graphic owns and operates one CRB
paperboard mill, the single largest CRB mill in North America, as well
as 19 folding carton converting plants that produce folding cartons
from CRB and other types of paperboard. Graphic's CRB mill has a total
annual production capacity of approximately 390,000 tons, or about 15
percent of total North American CRB supply. In 2006, Graphic's total
sales were approximately $2.4 billion, including approximately $357
million in North American sales of CRB and CRB folding cartons.
8. Graphic also is the largest North American producer of coated
unbleached kraft (``CUK''), another type of paperboard. Graphic
operates two CUK mills with a total annual production capacity of
approximately 1.3 million tons, or about 55 percent of total North
American CUK supply. In 2006, Graphic had approximately $1 billion in
North American sales of CUK and CUK folding cartons.
IV. Relevant Market
A. Relevant Product Market
9. CRB is a type of paperboard (often called a ``substrate'' in the
packaging industry) made from recycled paper. CRB is manufactured by
forming and building up multiple layers (or ``plys'') of recycled
fiber, and then applying a clay coating to the top layer. The clay-
coated top layer provides CRB with a smooth surface for good graphics
printability. The bottom layer is left in the natural color of the
recycled fiber, typically a greyish or brownish hue, depending on the
type of fiber used (grey, if recycled newsprint is used; brown, if
recycled corrugated boxes are used). CRB is an intermediary product
that undergoes conversion into folding cartons.
10. CRB is the preferred paperboard substrate for a wide range of
relatively low-cost folding carton applications, including dry food
cartons such as cereal boxes. CRB typically is the single largest cost
component of such folding cartons, accounting for as much as 65 percent
of the cost of the folding carton.
11. Uncoated recycled boxboard (``URB'') is a lower-grade and
lower-cost paperboard compared to CR13. Major uses of URB are in the
construction industry (as backing for gypsum wallboard) and in making
paperboard cores and tubes (such as industrial cores for winding rolls
of paper and other flexible materials, commercial mailing tubes, and
tubes for paper towels and toilet paper rolls). URB is not a close
substitute for CRB in folding carton applications because it lacks the
smooth coated surface needed for good graphics printability.
12. CUK is a clay-coated paperboard made from virgin wood pulp
rather than recycled paper, and has a brown-colored back. CUK has
greater strength and wet-resistance than CRB and is more expensive than
CRB on a price per ton basis. The large majority of CUK produced in
North America is used to make beverage carriers (beer and soft-drink
cartons) and refrigerated and frozen food packaging, where it is valued
for its high strength and wet-resistance properties. Graphic is the
larger of the only two North American CUK producers. Altivity does not
produce CUK.
13. Solid bleached sulfate (``SBS'') is another type of paperboard
made from virgin wood pulp. Produced from bleached white pulp, SBS is
the most expensive and highest grade of paperboard used in the folding
carton industry. SBS has a bright white finish on both sides, in
contrast to CUK's brown back and CRB's grey or brown back. SBS affords
the best printing surface of the paperboard grades, and is thus
preferred despite its higher cost when superior printability is
required. Consequently, SBS is often used to make cartons for higher-
priced consumer goods, such as pharmaceuticals, cosmetics, and health
and beauty products. When appropriately coated, SBS is also used in
certain types of packaging that comes into direct contact with food,
again due to manufacturer and consumer preferences for its white
appearance. Neither Graphic nor Altivity produces SBS.
14. Because of the price and performance distinctions between CRB
and the other folding carton substrates, few customers of CRB and CRB
folding cartons consider URB, CUK, or SBS to be economical substitutes
for CRB. Further, even where another substrate can provide acceptable
performance at a similar price, few customers will switch from their
existing substrate to an alternative substrate because doing so is time
consuming, costly, and risky. The customer must first qualify the
alternative substrate, and switching often requires modification of
folding carton converting equipment and end-users' packaging lines.
Customers of CRB and CRB folding cartons likely would not switch to
URB, CUK, SBS, or any other potential substitutes in response to a
small but significant and non-transitory increase in CRB prices to an
extent that would make such a price increase unprofitable. Accordingly,
CRB constitutes a relevant product market within the meaning of the
Clayton Act.
15. Based on relative price and performance for some customers, CUK
is the next closest substitute for CRB, and any switching by CRB
customers to another substrate in response to a small but significant
and non-transitory increase in CRB prices would primarily be to CUK. As
alleged in paragraph 14, switching by some customers to CUK would not
be sufficient to make a CRB price increase unprofitable, for reasons
including that the two producers of CUK are currently operating at
near-capacity. If such switching to CUK would constrain a CRB price
increase, however, CRB and CUK would constitute a relevant product
market within the meaning of the Clayton Act, and the relevant market
would be no larger than CRB and CUK.
B. Relevant Geographic Market
16. North America is a relevant geographic market for the supply of
CRB, and for the supply of CRB and CUK, within the meaning of the
Clayton Act. Due to relatively high transportation costs, unfavorable
currency exchange rates, and other cost and marketing disadvantages to
importing foreign CRB, CUK, or potential substitutes for CRB or CUK
into North America, a small but significant increase in the prices of
CRB produced in North America would not likely cause foreign suppliers
to increase North American sales in sufficient volumes to make such a
price increase unprofitable.
[[Page 19252]]
V. Anticompetitive Effects
17. Since 2005, the North American CRB market has experienced
significant producer consolidations, including CRB mill closures that
have caused the removal of hundreds of thousands of tons of CRB
production capacity. As a result, the market has become highly
concentrated, with Altivity and Graphic becoming the first and fourth
largest of only four major producers. The recent producer
consolidations and capacity reductions in North America have resulted
in high capacity utilization rates by the remaining producers, and have
significantly constrained the market supply of CRB.
18. If the proposed merger of Graphic and Altivity is permitted to
occur, the North American CRB market would become substantially more
concentrated. The combination of Graphic and Altivity would control
approximately 42 percent of total North American CRB supply. The market
would have only three major competitors controlling a collective market
share of approximately 86 percent. Using a standard concentration
measure called the Herfindahl-Herschman Index (or ``HHI,'' defined and
explained in Appendix A), the proposed merger would substantially raise
market concentration in a highly concentrated market, producing an HHI
increase of approximately 788 and a post-merger HHI of approximately
2745.
19. Even if the relevant product market were broader than CRB and
included CUK, the proposed merger of Graphic and Altivity would also
substantially increase concentration in the North American market. The
merger would produce a single firm controlling approximately 49 percent
of total North American supply of CRB and CUK, combining Graphic's 35
percent and Altivity's 14 percent. The four remaining major competitors
would have a collective market share of approximately 94 percent. The
merger would substantially raise market concentration in a highly
concentrated market, producing an HHI increase of approximately 991 and
a post-merger HHI of approximately 3155.
20. The proposed merger would produce a further substantial
consolidation of the North American CRB market and eliminate
significant head-to-head competition between Graphic and Altivity,
substantially lessening competition and likely causing higher CRB
prices than there would be without the merger. These CR13 price
increases are also likely to cause increases in the prices of CRB
folding cartons.
21. Producers of CUK are not likely to defeat an increase in the
price of CRB after the merger of Graphic and Altivity. Graphic produces
more than half of the CUK sold in North America, and would not have an
incentive to undermine a post-merger increase in the price of CRB. The
only other North American CUK producer is operating at nearly full
capacity and would not increase its sales of CUK or other potential
substitutes for CRB by an amount sufficient to undermine a post-merger
increase in CRB prices.
VI. Absence of Countervailing Factors
22. Supply responses from competitors or potential competitors will
not prevent the likely anticompetitive effects of the proposed merger.
Existing North American CRB producers face capacity and other
operational limitations that would constrain them from significantly
expanding output in response to a post-merger Graphic-Altivity increase
in the price of CRB. Further, to the extent that they have any
additional capacity to produce more CRB, these producers would likely
support a Graphic-Altivity price increase by raising their own prices.
23. Foreign producers import into North America small quantities of
CRB and potential substitutes for CRB. The ability of foreign
paperboard producers to expand imports into North America is limited by
their commitments to home and other markets that are more profitable
than North America, as well as significant transportation, currency
exchange, and other disadvantages and competitive constraints to
importing into North America. Thus, the potential for expansion of
foreign supply, by itself or in combination with other supply
responses, would not likely be sufficient to constrain a small but
significant and non-transitory North American CRB price increase.
24. New entry into the production and sale of CRB or CUK is costly
and time consuming. Among other things, entry would require investments
of over $100 million and two years or more to construct and install
production equipment and facilities. New entry is not likely to occur
on a timely or sufficient basis in response to a small but significant
and non-transitory post-merger CRB price increase in North America.
25. The anticompetitive effects of the proposed Graphic-Altivity
merger are not likely to be eliminated or mitigated by any efficiencies
that may be achieved by the merger.
VII. Violation Alleged
26. The United States hereby incorporates paragraphs 1 through 25.
27. The proposed merger of Graphic and Altivity would likely
substantially lessen competition in interstate trade and commerce, in
violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18, and
would likely have the following effects, among others:
(a) Actual and potential competition between Graphic and Altivity
for CRB sales would be eliminated; and
(b) Competition generally in the North American market for CRB (or
in a North American market for CRB and CUK) would be substantially
lessened.
Prayer for Relief
The United States requests:
1. That the proposed acquisition be adjudged to violate section 7
of the Clayton Act, 15 U.S.C. 18;
2. That the Defendants be permanently enjoined and restrained from
carrying out the proposed merger or from entering into or carrying out
any other agreement, understanding, or plan by which Graphic would
acquire, be acquired by, or merge with, any of the other Defendants;
3. That the United States be awarded costs of this action; and
4. That the United States have such other relief as the Court may
deem just and proper.
Respectfully submitted,
Thomas O. Barnett,
(DC Bar No. 426840)
Assistant Attorney General,
Deborah A. Garza,
(DC Bar No. 395259)
Deputy Assistant Attorney General.
J. Robert Kramer II,
Director of Operations.
Joshua H. Soven, Chief,
(DC Bar No. 436633)
Joseph M. Miller,
Assistant Chief,
(DC Bar No. 439965)
Litigation I Section,
joshua.soven@usdoj.gov.
(202) 307-0827.
Dated: March 5, 2008.
Weeun Wang,
Kent Brown,
Michael K. Hammaker (DC Bar No. 233684),
Jon B. Jacobs (DC Bar No. 412249),
Karl D. Knutsen,
Justin M. Dempsey (DC Bar No. 425976),
David C. Kelly,
Barry L. Creech,
Rebecca Perlmutter,
Richard D. Mosier (DC Bar No. 492489),
Scott I. Fitzgerald,
Michael T. Koenig,
Paul J. Torzilli,
Trial Attorneys,
U.S. Department of Justice,
Antitrust Division,
[[Page 19253]]
Litigation I Section,
1401 H Street, NW., Suite 4000,
Washington, DC 20530,
weeun.wang@usdoj.gov.
(202) 307-3952.
Appendix A
Herfindahl-Hirschman Index
``HHI'' means the Herfindahl-Hirschman Index, a commonly
accepted measure of market concentration. It is calculated by
squaring the market share of each firm competing in the market and
then summing the resulting numbers. For example, for a market
consisting of four firms with shares of 30%, 30%, 20%, and 20%, the
HHI is 2600 (302 + 302 +202 + 202 = 2600). The HHI takes into
account the relative size distribution of the firms in a market and
approaches zero when a market consists of a large number of small
firms. The HHI increases both as the number of firms in the market
decreases and as the disparity in size between those firms
increases.
Markets in which the HHI is between 1000 and 1800 points are
considered to be moderately concentrated, and those in which the HHI
is in excess of 1800 points are considered to be highly
concentrated. See Horizontal Merger Guidelines 1.51 (revised Apr. 8,
1997). Transactions that increase the HHI by more than 100 points in
concentrated markets presumptively raise antitrust concerns under
the guidelines issued by the U.S. Department of Justice and Federal
Trade Commission. See id.
The United States District Court for the District of Columbia
United States of America, Plaintiff, v. Altivity Packaging, LLC
and Graphic Packaging International, Inc., Defendants.
Case: I:08-cv-00400.
Assigned To: Sullivan, Emmet G.
Assign. Date: 3/5/2008.
Description: Antitrust.
Final Judgment
Whereas, Plaintiff, United States of America, filed its
Complaint on March 5, 2008, and Plaintiff and Defendants, Altivity
Packaging, LLC (``Altivity'') and Graphic Packaging International,
Inc. (``Graphic''), by their respective attorneys, have consented to
the entry of this Final Judgment without trial or adjudication of
any issue of fact or law, and without this Final Judgment
constituting any evidence against or admission by any party
regarding any issue of fact or law;
And whereas, Defendants agree to be bound by the provisions of
this Final Judgment pending its approval by the Court;
And whereas, the essence of this Final Judgment is the prompt
and certain divestiture of certain rights or assets by Defendants to
assure that competition is not substantially lessened;
And whereas, the United States requires Defendants to make
certain divestitures for the purpose of remedying the loss of
competition alleged in the Complaint;
And whereas, Defendants have represented to the United States
that the divestitures required below can and will be made and that
Defendants will later raise no claim of hardship or difficulty as
grounds for asking the Court to modify any of the divestiture
provisions contained below;
Now therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ordered, adjudged, and decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of and each
of the parties to this action. The Complaint states a claim upon
which relief may be granted against Defendants under Section 7 of
the Clayton Act, as amended, 15 U.S.C.18.
II. Definitions
As used in this Final Judgment:
A. ``Acquirer'' or ``Acquirers'' means the entity or entities to
whom one or more Divestiture Mills are divested pursuant to this
Final Judgment.
B. ``Altivity'' means Defendant Altivity Packaging, LLC, a
Delaware limited liability company with its headquarters in Elk
Grove Village, Illinois, its direct and indirect parents, private
equity owners or partners, successors, assigns, subsidiaries,
divisions, groups, affiliates, partnerships, joint ventures, and
their directors, officers, managers, agents, and employees.
C. ``Graphic'' means Defendant Graphic Packaging International,
Inc., a Delaware corporation with its headquarters in Marietta,
Georgia, its direct and indirect parents, successors, assigns,
subsidiaries, divisions, groups, affiliates, partnerships, joint
ventures, and their directors, officers, managers, agents, and
employees.
D. ``CRB'' means coated recycled boxboard.
E. ``Divestiture Mills'' means Altivity's CRB mill located at
455 Factory Street, Wabash, Indiana 46992 (the ``Wabash Mill''),
including all Mill Assets relating to the Wabash Mill and Altivity's
CRB mill located at 5000 Flat Rock Road, Philadelphia, Pennsylvania
19127 (the ``Philadelphia Mill''), including all Mill Assets
relating to the Philadelphia Mill.
F. ``Mill Assets'' means:
(1) All tangible assets used in, devoted to, or necessary to the
operations of a Divestiture Mill, including but not limited to all
such assets relating to research and development activities,
manufacturing equipment, tooling and fixed assets, real property
(leased or owned), personal property, inventory, CRB reserves,
information technology systems, office furniture, materials,
supplies, docking facilities, on-or off-site warehouses or storage
facilities; all licenses, permits and authorizations issued by any
governmental organization; all contracts, agreements, leases
(including renewal rights), commitments, certifications, and
understandings, including supply agreements; customer lists,
accounts, and credit records; all interests in, and contracts
relating to, power generation; all repair and performance records
and all other records; and
(2) all intangible assets used in, devoted to, or necessary to
the operations of a Divestiture Mill, including but not limited to
all contractual rights, patents, licenses and sublicenses,
intellectual property, technical information, computer software and
related documentation, know-how, trade secrets, drawings,
blueprints, designs, design protocols, specifications for materials,
specifications for parts and devices, safety procedures for the
handling of materials and substances, quality assurance and control
procedures, environmental studies or assessments, design tools and
simulation capability, all manuals and technical information
provided to the employees, customers, suppliers, agents or
licensees, and all research data concerning historic and current
research and development efforts, including, but not limited to
designs of experiments, and results of successful and unsuccessful
designs and experiments.
G. ``Alternative Asset'' means that Altivity's CRB mill located
at 2600 De La Cruz Blvd, Santa Clara, California 95050 (the ``Santa
Clara Mill''), including all Mill Assets relating to the Santa Clara
Mill, is deemed a Divestiture Mill if the conditions set forth in
Section V(A)(2) of this Final Judgment are satisfied.
III. Applicability
A. This Final Judgment applies to Defendants, as defined above,
and all other persons in active concert or participation with
Defendants who receive actual notice of this Final Judgment by
personal service or otherwise.
B. If, prior to complying with sections IV and V of this Final
Judgment, Defendants sell or otherwise dispose of all or
substantially all of their assets that include the Divestiture
Mills, they shall require, as a condition of the sale or other
disposition, that the purchaser or purchasers agree to be bound by
the provisions of this Final Judgment. Defendants need not obtain
such an agreement from an Acquirer under this Final Judgment.
IV. Divestitures
A. Defendants are ordered and directed, within 120 calendar days
after the filing of the Complaint in this matter, or five (5) days
after notice of the entry of this Final Judgment by the Court,
whichever is later, to divest the Wabash Mill and the Philadelphia
Mill in a manner consistent with this Final Judgment to an Acquirer
or Acquirers approved by the United States in its sole discretion.
The United States, in its sole discretion, may agree to one or more
extensions of this time period not to exceed sixty (60) days in
total, and shall notify the Court in such circumstances. Defendants
agree to use their best efforts to divest the Wabash and
Philadelphia Mills as expeditiously as possible.
B. Defendants promptly shall make known, by usual and customary
means, the availability of the Wabash and Philadelphia Mills to be
divested pursuant to section IV(A) of this Final Judgment.
Defendants shall inform any person making inquiry that the
divestitures are pursuant to this Final Judgment and provide that
person with a copy of this Final Judgment. Unless the United States
otherwise consents in writing, Defendants shall offer to furnish to
all prospective Acquirers, subject to customary confidentiality
assurances, all information and documents relating to the
divestitures that customarily are provided in a due
[[Page 19254]]
diligence process except such information or documents subject to
the attorney client or work product privilege. Defendants shall make
available such information to the United States at the same time
that such information is made available to any other person.
C. Unless the United States otherwise consents in writing,
Defendants shall provide an Acquirer and the United States
information relating to Defendants' personnel involved in
management, production, operations, or sales activities of a
Divestiture Mill to enable an Acquirer to make offers of employment.
Defendants will not prevent or interfere with any efforts by an
Acquirer to employ any of Defendants' officers, directors, or
employees having any executive, management, production, operations,
sales, or other responsibilities relating to a Divestiture Mill, and
if requested, will release any such person from any non-compete
agreement with Defendants.
D. Unless the United States otherwise consents in writing,
Defendants shall permit prospective Acquirers of a Divestiture Mill
to have reasonable access to personnel and to make inspections of
all relevant physical facilities; access to any and all
environmental, zoning, and other permit documents and information;
and access to any and all financial, operational, and other
documents and information customarily provided as part of a due
diligence process, provided that Defendants only need to comply with
this provision as to the Alternative Asset in the event that the
Alternative Asset is to be divested pursuant to section V(A) of this
Final Judgment.
E. Defendants shall warrant to an Acquirer of a Divestiture Mill
that the Divestiture Mill and all related Mill Assets will be
operational on the date of sale.
F. Defendants shall not take any action that will impede in any
way the permitting, operation, or divestiture of a Divestiture Mill
or any related Mill Assets.
G. At the option of an Acquirer and upon approval by the United
States, in its sole discretion, Defendants shall enter into a
transition services agreement based upon commercially reasonable
terms and conditions. Such an agreement may not exceed twelve (12)
months from the date of divestiture. Transition services may include
information technology support, information technology licensing,
computer operations, data processing, logistics support, and such
other services as reasonably necessary to operate a Divestiture Mill
or related Mill Assets.
H. Defendants shall warrant to an Acquirer that there are no
material defects in the environmental, zoning, or other permits
pertaining to the operation of a Divestiture Mill or related Mill
Assets, and shall enter into a contractual commitment with the
Acquirer that following the sale of a Divestiture Mill, Defendants
will not undertake, directly or indirectly, any challenges to the
environmental, zoning, or other permits relating to the operation of
a Divestiture Mill or any related Mill Assets.
I. Unless the United States otherwise consents in writing, any
divestiture pursuant to Section IV, or by trustee appointed pursuant
to Section V. of this Final Judgment, shall include a Divestiture
Mill and all related Mill Assets, and shall be accomplished in such
a way as to satisfy the United States, in its sole discretion, that
the Divestiture Mill can and will be used by an Acquirer as a
viable, ongoing business engaged in producing, distributing, and
selling CRB, that the Divestiture Mill will remain viable, and that
the divestiture of such assets will remedy the competitive harm
alleged in the Complaint. The divestitures, whether pursuant to
Section IV or Section V of this Final Judgment,
(1) Shall be made to an Acquirer or Acquirers that, in the
United States' sole judgment, have the intent and capability
(including the necessary managerial, operational, technical, and
financial capability) to compete effectively in the production,
distribution, and sale of CRB;
(2) shall be accomplished so as to satisfy the United States, in
its sole discretion, that none of the terms or conditions of any
agreement between an Acquirer and Defendants would give Defendants
an ability to unreasonably raise the Acquirer's costs, to lower an
Acquirer's efficiency, or otherwise to interfere with the ability of
an Acquirer to compete effectively in the production, distribution,
and sale of CRB; and
(3) may be required by the United States, in its sole
discretion, to be accomplished by sale of all divestiture assets to
a single Acquirer.
J. As part of a divestiture, and at the option of an Acquirer,
Defendants may negotiate a transitional supply agreement or
agreements to supply CRB to Defendants' folding carton plants
previously supplied by a Divestiture Mill purchased by the Acquirer.
Any such agreement shall be subject to the approval of the United
States in its sole discretion, shall be on commercially reasonable
terms, and shall have a term no longer than three (3) years. The
volume requirements during the first year of any such agreement may
be up to 100 percent of the 2007 volumes supplied by the particular
Divestiture Mill to Altivity's folding carton plants, no more than
75 percent during the second year, and no more than 50 percent
during the third year.
V. Appointment of Trustee
A. If Defendants have not accomplished the divestitures ordered
by Section IV(A) of this Final Judgment within the time period
specified in Section IV(A), Defendants shall notify the United
States and provide the pertinent facts in writing. Thereafter, upon
application of the United States, the Court shall appoint a trustee
selected by the United States and approved by the Court to
accomplish divestitures in the following manner.
(1) If Defendants have not divested one or both of the
Divestiture Mills within the time period specified in Section IV(A),
the United States shall seek appointment of a trustee to ensure
divestiture of the Wabash Mill and the Philadelphia Mill or the
Alternative Asset.
(2) If, at the time of the trustee's appointment, the
Philadelphia Mill has not been divested, the trustee shall seek to
divest the Philadelphia Mill within 120 calendar days thereafter. If
the Philadelphia Mill has not been divested during this 120-day
period, the trustee shall divest the Philadelphia Mill or the
Alternative Asset within 90 calendar days thereafter.
(3) The United States, in its sole discretion, may allow the
trustee one or more extensions of the time periods specified in this
Section, not to exceed sixty (60) days in total, and shall notify
the Court in such circumstances.
B. After the appointment of a trustee becomes effective, only
the trustee shall have the right to sell the Divestiture Mills. The
trustee shall have the power and authority to accomplish the
divestitures to an Acquirer or Acquirers acceptable to the United
States at such price and on such terms as are then obtainable upon
reasonable effort by the trustee, subject to the provisions of
Sections IV, V, and VI of this Final Judgment, and shall have such
other powers as this Court deems appropriate. Subject to Section
V(D) of this Final Judgment, the trustee may hire at the cost and
expense of Defendants any investment bankers, attorneys, or other
agents, who shall be solely accountable to the trustee, reasonably
necessary in the trustee's judgment to assist in the divestitures.
C. Defendants shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. Any such objection by
Defendants must be conveyed in writing to the United States and the
trustee within ten (10) calendar days after the trustee has provided
the notice required under Section VI.
D. The trustee shall serve at the cost and expense of
Defendants, on such terms and conditions as the United States
approves, and shall account for all monies derived from divestitures
effected by the trustee and all costs and expenses so incurred.
After approval by the Court of the trustee's accounting, including
fees for its services and those of any professionals and agents
retained by the trustee, all remaining money shall be paid to
Defendants and the trust shall then be terminated. The compensation
of the trustee and any professionals and agents retained by the
trustee shall be reasonable in light of the value of divestiture
assets and based on a fee arrangement providing the trustee with an
incentive based on the price and terms of the divestitures and the
speed with which it is accomplished, but timeliness is paramount.
E. Defendants shall use their best efforts to assist the trustee
in accomplishing the required divestitures. The trustee and any
consultants, accountants, attorneys, and other persons retained by
the trustee shall have full and complete access to the personnel,
books, records, and facilities of the business to be divested, and
Defendants shall develop financial and other information relevant to
such business as the trustee may reasonably request, subject to
reasonable protection for trade secrets or other confidential
research, development, or commercial information. Defendants shall
take no action to interfere with or to impede the trustee's
accomplishment of the divestitures.
F. After its appointment, the trustee shall file monthly reports
with the United States and the Court setting forth the trustee's
efforts to accomplish the divestitures ordered
[[Page 19255]]
under this Final Judgment. To the extent such reports contain
information that the trustee deems confidential, such reports shall
not be filed in the public docket of the Court. Such reports shall
include the name, address, and telephone number of each person who,
during the preceding month, made an offer to acquire, expressed an
interest in acquiring, entered into negotiations to acquire, or was
contacted or made an inquiry about acquiring the Divestiture Mills,
and shall describe in detail each contact with any such person. The
trustee shall maintain full records of all efforts made to effect
the divestitures.
G. If the trustee has not accomplished the divestitures within
seven (7) months after its appointment, and any extension pursuant
to Section V(A)(3) of this Final Judgment, the trustee shall
promptly file with the Court a report setting forth: (1) The
trustee's efforts to accomplish the required divestitures; (2) the
reasons, in the trustee's judgment, why the required divestitures
have not been accomplished; and (3) the trustee's recommendations.
To the extent such report contains information that the trustee
deems confidential, such report shall not be filed in the public
docket of the Court. The trustee shall at the same time furnish such
report to the United States, which shall have the right to make
additional recommendations consistent with the purpose of the trust.
The Court thereafter shall enter such orders as it shall deem
appropriate to carry out the purpose of this Final Judgment, which
may, if necessary, include extending the trust and the term of the
trustee's appointment by a period requested by the United States.
VI. Notice of Proposed Divestitures
A. Within two (2) business days following execution of a
definitive divestiture agreement, Defendants or the trustee,
whichever is then responsible for effecting the divestitures
required herein, shall notify the United States of any proposed
divestitures required by Section IV or V of this Final Judgment. If
the trustee is responsible, it shall similarly notify Defendants.
The notice shall set forth the details of the proposed divestitures
and list the name, address, and telephone number of each person not
previously identified who offered or expressed an interest in or
desire to acquire any ownership interest in the Divestiture Mills,
together with full details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from
Defendants, the proposed Acquirer, any other third party, or the
trustee, if applicable, additional information concerning the
proposed divestitures, the proposed Acquirer, and any other
potential Acquirer. Defendants and the trustee shall furnish any
additional information requested within fifteen (15) calendar days
of the receipt of the request, unless the parties shall otherwise
agree.
C. Within thirty (30) calendar days after receipt of the notice,
or within twenty (20) calendar days after the United States has been
provided the additional information requested from Defendants, the
proposed Acquirer, any third party, or the trustee, whichever is
later, the United States shall provide written notice to Defendants
and the trustee, if there is one, stating whether or not it approves
or objects to the proposed divestitures. If the United States
provides written notice that it does not object, the divestitures
may be consummated, subject only to Defendants' limited right to
object to the sale under Section V(C) of this Final Judgment. Absent
written notice that the United States does not object to the
proposed Acquirer or upon objection by the United States, a
divestiture proposed under Section IV or Section V shall not be
consummated. Upon objection by Defendants under Section V(C), a
divestiture proposed under Section V shall not be consummated unless
approved by the Court. Notwithstanding the foregoing provisions of
this Section VI, the United States, in its sole discretion, may
withhold its approval or objection to the proposed divestiture of a
single Divestiture Mill until such time as the United States
concludes that it can approve an Acquirer or Acquirers for both
Divestiture Mills consistent with the terms of the Final Judgment.
VII. Financing
Defendants shall not finance all or any part of any purchase
made pursuant to Section IV or V of this Final Judgment.
VIII. Asset Preservation
Until the divestitures required by this Final Judgment have been
accomplished, Defendants shall take all steps necessary to comply
with the Asset Preservation Stipulation and Order entered by this
Court. Defendants shall take no action that would jeopardize the
divestitures ordered by this Court.
IX. Affidavits
A. Within twenty (20) calendar days of the filing of the
Complaint in this matter, and every thirty (30) calendar days
thereafter until the divestitures have been completed under Section
IV or V, Defendants shall deliver to the United States an affidavit
as to the fact and manner of its compliance with Section IV or V of
this Final Judgment. Each such affidavit shall include the name,
address, and telephone number of each person who, during the
preceding thirty (30) calendar days, made an offer to acquire,
expressed an interest in acquiring, entered into negotiations to
acquire, or was contacted or made an inquiry about acquiring, any
interest in a Divestiture Mill, and shall describe in detail each
contact with any such person during that period. Each such affidavit
shall also include a description of the efforts Defendants have
taken to solicit buyers for the Divestiture Mills, and to provide
required information to any prospective Acquirer, including the
limitations, if any, on such information. Assuming the information
set forth in the affidavit is true and complete, any objection by
the United States to information provided by Defendants, including
limitations on the information, shall be made within fourteen (14)
calendar days of receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the
Complaint in this matter, Defendants shall deliver to the United
States an affidavit that describes in reasonable detail all actions
Defendants have taken and all steps they have implemented on an
ongoing basis to comply with Section VIII of this Final Judgment.
Defendants shall deliver to the United States an affidavit
describing any changes to the efforts and actions outlined in
Defendants' earlier affidavits filed pursuant to this section within
fifteen (15) calendar days after the change is implemented.
C. Defendants shall keep all records of all efforts made to
preserve and divest the Divestiture Mills until one year after such
divestitures have been completed.
X. Compliance Inspection
A. For the purposes of determining or securing compliance with
this Final Judgment, or of determining whether this Final Judgment
should be modified or vacated, and subject to any legally recognized
privilege, from time to time duly authorized representatives of the
United States Department of Justice, including consultants and other
persons retained by the United States, shall, upon written request
of a duly authorized representative of the Assistant Attorney
General in charge of the Antitrust Division, and on reasonable
notice to Defendants, be permitted:
(1) Access during Defendants' office hours to inspect and copy,
or at the United States's option, to require Defendants to provide
electronic or hard copies of, all books, ledgers, accounts, records,
data, and documents in the possession, custody, or control of
Defendants, relating to any matters contained in this Final
Judgment; and
(2) to interview, either informally or on the record,
Defendants' officers, employees, or agents, who may have their
individual counsel present, regarding such matters. The interviews
shall be subject to the reasonable convenience of the interviewee
and without restraint or interference by Defendants.
B. Upon the written request of a duly authorized representative
of the Assistant Attorney General in charge of the Antitrust
Division, Defendants shall submit written reports or responses to
written interrogatories, under oath if requested, relating to any of
the matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person
other than an authorized representative of the executive branch of
the United States, except in the course of legal proceedings to
which the United States is a party (including grand jury
proceedings), or for the purpose of securing compliance with this
Final Judgment, or as otherwise required by law.
D. If, at the time information or documents are furnished by
Defendants to the United States, Defendants represent and identify
in writing the material in any such information or documents to
which a claim of protection may be asserted under Rule 26(c)(1)(G)
of the Federal Rules of Civil Procedure, and Defendants mark each
pertinent page of such material, ``Subject to claim of protection
under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure,''
then the United States shall give Defendants ten (10) calendar days
[[Page 19256]]
notice prior to divulging such material in any legal proceeding
(other than a grand jury proceeding).
XI. Notification of Future Transactions
A. Unless such transaction is otherwise subject to the reporting
and waiting period requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, 15 U.S.C.18a (the ``HSR
Act''), Defendants, without providing advance notification to the
Antitrust Division of the United States Department of Justice
(``DOJ''), shall not directly or indirectly acquire any assets of or
any interest, including any financial, security, loan, equity or
management interest, in any CRB mill or producer in North America
during the term of this Final Judgment if the value of such
acquisition exceeds $2,000,000.
B. Such notification shall be provided to the DOJ in the same
format as, and per the instructions relating to the Notification and
Report Form set forth in the Appendix to Part 803 Title 16 of the
Code of Federal Regulations as amended, except that the information
requested in Items 5 through 9 of the instructions must be provided
only with respect to CRB. Notification shall be provided at least
thirty (30) calendar days prior to acquiring any such interest, and
shall include, beyond what may be required by the applicable
instructions, the names of the principal representatives of the
parties to the agreement who negotiated the agreement, and any
management or strategic plans discussing the proposed transaction.
If within the 30-day period after notification, representatives of
the DOJ make a written request for additional information,
defendants shall not consummate the proposed transaction or
agreement until thirty (30) calendar days after submitting all such
additional information. Early termination of the waiting periods in
this paragraph may be requested and, where appropriate, granted in
the same manner as is applicable under the requirements and
provisions of the HSR Act and rules promulgated thereunder. This
section shall be broadly construed and any ambiguity or uncertainty
regarding the filing of notice under this section shall be resolved
in favor of filing notice.
XII. No Reacquisition
Defendants may not reacquire any part of the Divestiture Mills
or related Mill Assets during the term of this Final Judgment.
XIII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this
Final Judgment to apply to this Court at any time for further orders
and directions as may be necessary or appropriate to carry out or
construe this Final Judgment, to modify any of its provisions, to
enforce compliance, and to punish violations of its provisions.
XIV. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XV. Public Interest Determination
Entry of this Final Judgment is in the public interest. The
parties have complied with the requirements of the Antitrust
Procedures and Penalties Act, 15 U.S.C. 16, including making copies
available to the public of this Final Judgment, the Competitive
Impact Statement, and any comments thereon and the United States's
responses to comments. Based upon the record before the Court, which
includes the Competitive Impact Statement and any comments and
response to comments filed with the Court, entry of this Final
Judgment is in the public interest.
Date:------------------------------------------------------------------
Court approval subject to procedures of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16.
-----------------------------------------------------------------------
United States District Judge
The United States District Court for the District of Columbia
United States of America, Plaintiff, v. Altivity Packaging, LLC
and Graphic Packaging International, Inc., Defendants.
Case: I:08-cv-00400.
Assigned to: Sullivan, Emmet G.
Assign. Date: 3/5/2008.
Description: Antitrust.
Competitive Impact Statement
Plaintiff United States of America (``United States''), pursuant
to Section 2(b) of the Antitrust Procedures and Penalties Act
(``APPA'' or ``Tunney Act''), 15 U.S.C. 16(b)-(h), files this
Competitive Impact Statement relating to the proposed Final Judgment
submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On March 5, 2008, the United States filed a civil antitrust
complaint seeking to enjoin the proposed merger of Altivity
Packaging, LLC (``Altivity'') and Graphic Packaging International,
Inc (``Graphic''). The Complaint alleges that the likely effect of
the merger would be to lessen competition substantially in the
production and sale of coated recycled boxboard (``CRB'') in North
America in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
This loss of competition likely would result in higher CRB prices in
the United States. At the same time the Complaint was filed, the
United States also filed an Asset Preservation Stipulation and Order
(``Stipulation'') and a proposed Final Judgment, which are designed
to eliminate the anticompetitive effects of the merger.
Under the proposed Final Judgment, which is explained more fully
in Section III, Defendants are required to divest two Altivity mills
that manufacture CRB. Until the Altivity CRB mills are sold and
operated under new ownership, Defendants must ensure that the mills
and related assets are operated as ongoing, economically viable, and
competitive assets.
The United States and Defendants have stipulated that the
proposed Final Judgment may be entered after compliance with the
APPA. Entry of the proposed Final Judgment would terminate this
action, except that the Court would retain jurisdiction to construe,
modify, or enforce the provisions of the proposed Final Judgment and
to punish violations thereof.
II. Events Giving Rise to the Alleged Violation
A. Defendants and the Proposed Transaction
On July 10, 2007, Altivity and Graphic announced plans to
combine their businesses in a transaction valued at $1.75 billion.
Altivity and Graphic are, respectively, the first and fourth largest
producers of coated recycled boxboard (``CRB'') in the United States
and Canada (hereinafter, ``North America''). CRB is a type of
paperboard used to make folding cartons used in consumer and
commercial packaging, such as cereal boxes. Both companies are also
major producers (or ``converters'') of folding cartons made from
CRB. The total annual volume of CRB supplied to the packaging
industry in North America is valued at approximately $1.6 billion.
The proposed merger would have created a single firm in control of
approximately 42 percent of the total supply of CRB in North
America.
Altivity, a Delaware limited liability company headquartered in
Elk Grove Village, Illinois, is the largest CRB producer in North
America. Altivity is also a major North American converter of
folding cartons made from CRB and other types of paperboard.
Altivity owns and operates five paperboard mills that produce CRB
and 24 folding carton converting plants in North America. Altivity's
CRB mills have a combined annual production capacity of
approximately 722,000 tons, or about 27 percent of total North
American CRB supply. In 2006, Altivity had total sales of
approximately $2 billion, including approximately $660 million in
North American sales of CRB and folding cartons made from CRB.
Graphic, the fourth-largest CRB producer in North America, is
incorporated in Delaware and has its principal place of business in
Marietta, Georgia. Graphic owns and operates one CRB paperboard mill
and 19 folding carton converting plants that produce folding cartons
from CRB and other types of paperboard. Graphic's CRB mill has a
total annual production capacity of approximately 390,000 tons, or
about 15 percent of total North American CRB supply. In 2006,
Graphic's total sales were approximately $2.4 billion, including
approximately $357 million in North American sales of CRB and
folding cartons made from CRB.
Graphic also is the largest North American producer of coated
unbleached kraft (``CUK''), another type of paperboard. Graphic
operates two CUK mills with a total annual production capacity of
approximately 1.3 million tons, or about 55 percent of total North
American CUK supply. In 2006, Graphic had approximately $1 billion
in North American sales of folding cartons made from CUK.
B. Competitive Effects of the Proposed Merger
1. CRB Is the Relevant Product Market
The Complaint alleges that the production and sale of CRB is a
relevant product market within the meaning of Section 7 of the
[[Page 19257]]
Clayton Act. CRB is a type of paperboard made from recycled paper.
CRB is manufactured by forming and building up multiple layers (or
``plys'') of recycled fiber, and then applying a clay coating to the
top layer. The clay-coated top layer provides CRB with a smooth
surface for good graphics printability. The bottom layer is left in
the natural color of the recycled fiber, typically a greyish or
brownish hue, depending on the type of fiber used (grey, if recycled
newsprint is used; brown, if recycled corrugated boxes are used).
CRB is an intermediary product (often called a ``substrate'' in
the packaging industry) that undergoes conversion into folding
cartons. CRB is the preferred paperboard substrate for a wide range
of relatively low-cost folding carton applications, including dry
food cartons such as cereal boxes. CRB typically is the single
largest cost component of such folding cartons, accounting for as
much as 65 percent of the cost of the folding carton.
In folding carton applications where CRB is used, other types of
paperboard are not close substitutes for CRB. Uncoated recycled
boxboard (``URB'') is a lower-grade and lower-cost paperboard than
CRB; it lacks the smooth coated surface that provides for good
graphics printability needed in most folding carton applications.\1\
Coated unbleached kraft (``CUK'') is a clay-coated paperboard made
from virgin wood pulp rather than recycled paper, and has a brown-
colored back. CUK has greater strength and wet-resistance than CRB
and is more expensive than CRB on a price per ton basis.\2\ Solid
bleached sulfate (``SBS'') is another type of paperboard made from
virgin wood pulp. Produced from bleached white pulp, SBS is the most
expensive and highest grade of paperboard used in the folding carton
industry.\3\
---------------------------------------------------------------------------
\1\ URB is used in the construction industry to make products
such as backing for gypsum wallboard. URB is also used to produce
paperboard cores and tubes, such as industrial cores for winding
paper and other flexible materials, commercial mailing tubes, and
tubes for paper towels and toilet paper rolls.
\2\ The large majority of CUK produced in North America is used
to make beverage carriers (beer and soft-drink cartons) and
refrigerated and frozen food packaging. CUK is valued for its high
strength and resistance to wetness.
\3\ SBS has a bright white finish on both sides, in contrast to
CUK's brown back and CRB's grey or brown back. SBS affords the best
printing surface of the paperboard grades, and is thus preferred
despite its higher cost when superior printability is required.
Consequently, SBS is often used to make cartons for higher-priced
consumer goods, such as pharmaceuticals, cosmetics, and health and
beauty products. When appropriately coated, SBS is also used in
certain types of packaging that come into direct contact with food,
again due to manufacturer and consumer preferences for its white
appearance.
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Because of the price and performance distinctions between CRB
and the other folding carton substrates, few customers of CRB and
CRB folding cartons consider URB, CUK, or SBS to be economical
substitutes for CRB. Further, even where another substrate can
provide acceptable performance at a similar price, few customers
will switch from their existing substrate to an alternative
substrate because doing so is time consuming, costly, and risky. The
customer must first qualify the alternative substrate, and switching
often requires modification of folding carton converting equipment
and end-users' packaging lines. Customers of CRB and CRB folding
cartons likely would not switch to URB, CUK, SBS, or any other
potential substitutes in response to a small but significant and
non-transitory increase in CRB prices to an extent that would make
such a price increase unprofitable.
Based on relative price and performance for some customers, CUK
would be the next closest substitute for CRB, and any switching by
CRB customers to another substrate in response to a small but
significant and non-transitory increase in CRB prices would
primarily be to CUK. Switching by some customers to CUK would not be
sufficient to make a CRB price increase unprofitable, for reasons
including that the two North American producers of CUK (of which
Graphic is one) are currently operating at near-capacity. However,
if such switching to CUK would constrain a CRB price increase, CRB
and CUK would constitute a relevant product market within the
meaning of the Clayton Act, and the relevant market would be no
larger than CRB and CUK.
2. North America Is a Relevant Geographic Market
As alleged in the Complaint, North America is a relevant
geographic market for the supply of CRB (and for the supply of CRB
and CUK) within the meaning of the Clayton Act. Due to relatively
high transportation costs, unfavorable currency exchange rates, and
other cost and marketing disadvantages to importing foreign CRB,
CUK, or potential substitutes for CRB or CUK into North America, a
small but significant and non-transitory increase in the prices of
CRB produced in North America would not likely cause foreign
suppliers to increase North American sales in sufficient volumes to
make such a price increase unprofitable.
3. Anticompetitive Effects of the Proposed Merger
As alleged in the Complaint, the North American CRB market is
highly concentrated. The proposed merger of Graphic and Altivity
would further increase the level of market concentration by a
substantial amount. The combination of Graphic and Altivity would
control approximately 42 percent of total North American CRB supply.
The market would have only three major competitors controlling a
collective market share of approximately 86 percent. Using a
standard concentration measure called the Herfindahl-Herschman Index
(or ``HHI''), the proposed merger would substantially raise market
concentration in a highly concentrated market, producing an HHI
increase of approximately 788 and a post-merger HHI of approximately
2745.
Further, the CRB market is currently operating at near capacity.
Because of this condition and the fact that the proposed merger
would substantially increase the capacity upon which the merged firm
would benefit from a price increase, the merger would create
incentives for a combined Graphic-Altivity to close one or more CRB
mills or to otherwise reduce CRB production capacity or output. As a
result, the North American CRB market would likely experience higher
CRB prices than would have prevailed absent the merger.
Even if the relevant product market were broader than CRB and
included CUK, the proposed merger of Graphic and Altivity would also
substantially increase concentration in the North American market.
In that event, the merger would produce a single firm controlling
approximately 49 percent of total North American supply of CRB and
CUK (combining Graphic's 35 percent and Altivity's 14 percent), and
the four major post-merger competitors would have a collective
market share of approximately 94 percent. The merger would
substantially raise market concentration in a highly concentrated
market, producing an HHI increase of approximately 991 and a post-
merger HHI of approximately 3155.
4. Neither Supply Responses Nor Entry Would Constrain Likely
Anticompetitive Effects of the Proposed Merger
The Complaint alleges that supply responses from competitors or
potential competitors would not likely prevent the anticompetitive
effects of the proposed merger of Graphic and Altivity. As stated
above, existing North American CRB producers face capacity and other
operational limitations that would constrain them from significantly
expanding output in response to a post-merger Graphic-Altivity
increase in the price of CRB. Further, to the extent that they have
any additional capacity to produce more CRB, these producers would
likely find it most profitable to react to a Graphic-Altivity price
increase by raising their own prices.
Foreign producers import into North America small quantities of
CRB, collectively accounting for approximately 90,000 tons and three
percent of total CRB sales in North America. The ability of foreign
paperboard producers to expand imports into North America is limited
by their commitments to markets that are more profitable than North
America, as well as significant transportation costs, logistical
difficulties, currency exchange differences, and other disadvantages
and competitive constraints to importing into North America. Thus,
the potential for expansion of foreign supply, by itself or in
combination with other supply responses, would not likely be
sufficient to constrain a small but significant and non-transitory
North American CRB price increase.
New entry into the production and sale of CRB or CUK is costly
and time consuming. Among other things, entry would require
investments of over $100 million and two years or more to construct
and install production equipment and facilities. New entry is not
likely to occur on a timely or sufficient basis in response to a
small but significant and non-transitory post-merger CRB price
increase in North America.
III. Explanation of the Proposed Final Judgment
The proposed Final Judgment requires the Defendants to divest
two of Altivity's CRB mills and all associated mill assets. The
mills to be divested by the Defendants are the
[[Page 19258]]
Altivity mill in Wabash, Indiana, with an annual CRB production
capacity of approximately 159,000 tons, and the Altivity mill in
Philadelphia, Pennsylvania, with an annual CRB production capacity
of approximately 125,000 tons.
If Defendants do not divest the Wabash and Philadelphia mills
within a prescribed period of time, the proposed Final Judgment
provides for the Court to appoint a trustee, upon application of the
United States, to accomplish the divestitures. If the trustee does
not divest the Wabash and Philadelphia mills within a specified time
period, the proposed Final Judgment authorizes the trustee to divest
the Wabash mill and an Altivity mill in Santa Clara, California,
with an annual CRB production capacity of 135,000 tons, in lieu of
the Philadelphia mill.
Defendants' divestiture of the Wabash and Philadelphia mills
would result in the sale of 284,000 tons of CRB production capacity,
or approximately 11 percent of total North American CRB capacity, to
a competitor or competitors of the merged firm. If a trustee is
required to sell the Wabash and Santa Clara mills, approximately
299,000 tons of CRB production capacity, or approximately 12 percent
of total North American CRB capacity, would be divested. Under the
proposed Final Judgment, the two mills may be sold to a single
buyer, or to two separate buyers, with the approval of the United
States in its sole discretion. In addition, the Defendants are
required to satisfy the United States in its sole discretion that
the divested assets will be operated as viable ongoing businesses
that will compete effectively in the North American CRB market, and
that the divestitures will successfully remedy the otherwise
anticipated anticompetitive effects of the proposed merger.
In evaluating the likely competitive effects of the proposed
merger, the United States considered market shares, costs of
production, current and historical industry capacity and
utilization, current and historical CRB market pricing, historical
and projected market demand for CRB, and the relative demand
elasticities of CRB and its next closest substitute, CUK. The United
States concluded that allowing the merger as proposed would give the
merged firm control of a sufficiently large amount of industry
capacity as to create an incentive to reduce its CRB production
capacity or output. The merged firm would have such an incentive
because its CRB capacity would have been large enough to allow it to
gain from an increase in the price of CRB by an amount that would
exceed losses associated with the contraction of capacity or output
necessary to generate such a price increase. The divestitures
required by the proposed Final Judgment would remove this incentive
by significantly reducing the merged firm's capacity and output and
placing it in the hands of a competitor or competitors. As a result,
the merged firm would not be able to recoup the losses associated
with a contraction of capacity or output.
If a trustee is appointed, the proposed Final Judgment provides
that 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 accomplished. After his or her
appointment becomes effective, the trustee will file monthly reports
with the Court and the United States setting forth his or her
efforts to accomplish the divestiture. If any of the requisite
divestitures has not been accomplished at the end of the trustee's
term, the trustee and the United States will make recommendations to
the Court, which shall enter such orders as appropriate in order to
carry out the purpose of the trust, including extending the trust or
the term of the trustee's appointment.
Until the divestitures under the proposed Final Judgment have
been accomplished, Defendants are required to comply with an Asset
Preservation Stipulation and Order. Pursuant to this Stipulation and
Order, the Defendants are required to preserve, maintain, and
operate the divestiture mills as ongoing businesses, and prohibited
from taking any action that would jeopardize the divestitures
required by the proposed Final Judgment.
Finally, the proposed Final Judgment sets forth a process for
and the circumstances when Defendants must notify the United States
of future acquisitions by Defendants of a CRB mill or producer
valued in excess of $2 million. This notification requirement would
apply to transactions not otherwise subject to the reporting and
waiting period requirements under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and runs for ten years from entry of the
Final Judgment. The provision is intended to ensure that any such
acquisition does not undermine the benefits generated from the
divestitures required by the proposed Final Judgment.
IV. Remedies Available to Potential Private Litigants
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 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 Final Judgment has no prima facie
effect in any subsequent private lawsuit that may be brought against
the defendants.
V. Procedures for Modification of the Proposed Final Judgment
The United States and Defendants have stipulated that the
proposed Final Judgment may be entered by the Court after compliance
with the provisions of the APPA, provided that the United States has
not withdrawn its consent. The APPA conditions entry upon the
Court's determination that the proposed Final Judgment is in the
public interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding
the proposed Final Judgment. Any person who wishes to comment should
do so within sixty (60) days of the date of publication of this
Competitive Impact Statement in the Federal Register, or the last
date of publication in a newspaper of the summary of this
Competitive Impact Statement, whichever is later. All comments
received during this period will be considered by the Department of
Justice, which remains free to withdraw its consent to the proposed
Final Judgment at any time prior to the Court's entry of judgment.
The comments and the response of the United States will be filed
with the Court and published in the Federal Register. Written
comments should be submitted to: Joshua H. Soven, Chief, Litigation
I Section, 1401 H Street, NW., Suite 4000, Antitrust Division, U.S.
Department of Justice, Washington, DC 20530.
The proposed 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 Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against Defendants. The
United States could have sought preliminary and permanent
injunctions against the proposed merger. The United States is
satisfied, however, that the divestitures required by the proposed
Final Judgment will preserve competition in the market identified by
the United States and that such a remedy would achieve all or
substantially all of the relief the United States would have
obtained through litigation, but avoids the time, uncertainty, and
the expense of a full trial on the merits of the Complaint.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a 60-day comment period, after which the court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. 16(e)(1). In making that determination,
the court, in accordance with the statute as amended in 2004, is
required to consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
[[Page 19259]]
15 U.S.C. 16(e)(1)(A) & (B). In considering these statutory factors,
the court's inquiry is necessarily a limited one as the government
is entitled to ``broad discretion to settle with the defendant
within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see generally
United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007)
(assessing public interest standard under the Tunney Act).\4\
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\4\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns,
489 F. Supp. 2d at 11 (concluding that the 2004 amendments
``effected minimal changes'' to Tunney Act review).
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As the United States Court of Appeals for the District of
Columbia Circuit has held, under the APPA a court considers, among
other things, the relationship between the remedy secured and the
specific allegations set forth in the government's complaint,
whether the decree is sufficiently clear, whether enforcement
mechanisms are sufficient, and whether the decree may positively
harm third parties. See Microsoft, 56 F.3d at 1458-62. With respect
to the adequacy of the relief secured by the decree, a court may not
``engage in an unrestricted evaluation of what relief would best
serve the public.'' United States v. BNS, Inc., 858 F.2d 456, 462
(9th Cir. 1988) (citing United States v. Bechtel Corp., 648 F.2d
660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62;
United States v. Alcoa, Inc., 152 F. Supp. 2d 37,40 (D.D.C. 2001).
Courts have held that:
[t]he balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The
court's role in protecting the public interest is one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations
omitted).\5\ In determining whether a proposed settlement is in the
public interest, a district court ``must accord deference to the
government's predictions about the efficacy of its remedies, and may
not require that the remedies perfectly match the alleged
violations.'' SBC Commc'ns, 489 F. Supp. 2d at 17; see also
Microsoft, 56 F.3d at 1461 (noting the need for courts to be
``deferential to the government's predictions as to the effect of
the proposed remedies''); United States v. Archer-Daniels-Midland
Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court
should grant due respect to the United States' prediction as to the
effect of proposed remedies, its perception of the market structure,
and its views of the nature of the case).
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\5\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (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'').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[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.
Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations
omitted) (quoting United States v. Gillette Co., 406 F. Supp. 713,
716 (D. Mass. 1975)), 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). To meet this
standard, the United States ``need only provide a factual basis for
concluding that the settlements are reasonably adequate remedies for
the alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17.
Moreover, the court's role under the APPA is limited to
reviewing the remedy in relationship to the violations that the
United States has alleged in its Complaint, and does not authorize
the court to ``construct [its] own hypothetical case and then
evaluate the decree against that case.'' Microsoft, 56 F.3d at 1459.
Because the ``court's authority to review the decree depends
entirely on the government's exercising its prosecutorial discretion
by bringing a case in the first place,'' it follows that ``the court
is only authorized to review the decree itself,'' and not to
``effectively redraft the complaint'' to inquire into other matters
that the United States did not pursue. Id. at 1459-60. As this Court
recently confirmed in SBC Communications, courts ``cannot look
beyond the complaint in making the public interest determination
unless the complaint is drafted so narrowly as to make a mockery of
judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
In its 2004 amendments, Congress made clear its intent to
preserve the practical benefits of utilizing consent decrees in
antitrust enforcement, adding the unambiguous instruction that
``[n]othing in this section shall be construed to require the court
to conduct an evidentiary hearing or to require the court to permit
anyone to intervene.'' 15 U.S.C. 16(e)(2). The language wrote into
the statute what Congress intended when it enacted the Tunney Act in
1974, as Senator Tunney explained: ``[t]he court is nowhere
compelled to go to trial or to engage in extended proceedings which
might have the effect of vitiating the benefits of prompt and less
costly settlement through the consent decree process.'' 119 Cong.
Rec. 24,598 (1973) (statement of Senator Tunney). Rather, the
procedure for the public interest determination is left to the
discretion of the court, with the recognition that the court's
``scope of review remains sharply proscribed by precedent and the
nature of Tunney Act proceedings.'' SBC Commc'ns, 489 F. Supp. 2d at
11.\6\
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\6\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ]
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt
failure of the government to discharge its duty, the Court, in
making its public interest finding, should * * * carefully consider
the explanations of the government in the competitive impact
statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated
simply on the basis of briefs and oral arguments, that is the
approach that should be utilized.'').
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: March 5, 2008.
Respectfully submitted,
Weeun Wang, Attorney,
U.S. Department of Justice,
Antitrust Division,
Litigation I Section,
1401 H Street, NW., Suite 4000,
Washington, DC 20530,
(202) 307-3952.
[FR Doc. E8-7235 Filed 4-8-08; 8:45 am]
BILLING CODE 4410-11-M