United States v. Altivity Packaging LLC and Graphic Packaging International, Inc.; Proposed Final Judgment and Competitive Impact Statement, 19250-19259 [E8-7235]

Agencies

• Antitrust Division
• Department of Justice

[Federal Register Volume 73, Number 69 (Wednesday, April 9, 2008)]
[Notices]
[Pages 19250-19259]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-7235]


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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 
https://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.
---------------------------------------------------------------------------

    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 No