Ardagh Group S.A., Saint-Gobain Containers, Inc., and Compagnie de Saint-Gobain; Analysis of Agreement Containing Consent Orders To Aid Public Comment, 22136-22142 [2014-08951]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 79, Number 76 (Monday, April 21, 2014)]
[Notices]
[Pages 22136-22142]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08951]


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FEDERAL TRADE COMMISSION

[Docket No. 9356]


Ardagh Group S.A., Saint-Gobain Containers, Inc., and Compagnie 
de Saint-Gobain; Analysis of Agreement Containing Consent Orders To Aid 
Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair methods of competition. 
The attached Analysis of Agreement Containing Consent Orders to Aid 
Public Comment describes both the allegations in the complaint and the 
terms of the consent orders--embodied in the consent agreement--that 
would settle these allegations.

DATES: Comments must be received on or before May 12, 2014.

ADDRESSES: Interested parties may file comments at https://ftcpublic.commentworks.com/ftc/ardaghstgobainconsent online or on 
paper, by following the instructions in the Request for Comments part 
of the SUPPLEMENTARY INFORMATION section below. Write ``Ardagh Group 
S.A and Saint-Gobain Containers, Inc. and Compagnie de Saint-Gobain,--
Consent Agreement; Docket No. 9356'' on your comment and file your 
comment online at https://ftcpublic.commentworks.com/ftc/ardaghstgobainconsent by following the instructions on the web-based 
form. If you prefer to file your comment on paper, mail or deliver your 
comments to the following address: Federal Trade Commission, Office of 
the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., 
Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Catharine Moscatelli, Bureau of 
Competition, (202-326-2749), 600 Pennsylvania Avenue NW., Washington, 
DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 3.25(f),16 CFR 
Sec.  3.25(f), notice is hereby given that the above-captioned consent 
agreement containing consent orders to cease and desist, having been 
filed with and accepted, subject to final approval, by the Commission, 
has been placed on the public record for a period of thirty (30) days. 
The following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for April 10, 2014), on the World Wide Web, at 
https://www.ftc.gov/os/actions.shtm. A paper copy can be obtained from 
the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue NW., 
Washington, DC 20580, either in person or by calling (202) 326-2222.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before May 12, 2014. 
Write ``Ardagh Group S.A and Saint-Gobain Containers, Inc. and 
Compagnie de Saint-Gobain,--Consent Agreement; Docket No. 9356'' on 
your comment. Your comment--including your name and your state--will be 
placed on the public record of this proceeding, including, to the 
extent practicable, on the public Commission Web site, at https://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the 
Commission tries to remove individuals' home contact information from 
comments before placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which . . . is privileged or confidential,'' as discussed in Section 
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). In particular, do not include competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comment online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/ardaghstgobainconsent by following the instructions on the web-
based forms. If this Notice appears at https://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you file your comment on paper, write ``Ardagh Group S.A and 
Saint-Gobain Containers, Inc. and Compagnie de Saint-Gobain,--Consent 
Agreement; Docket No. 9356'' on your comment and on the envelope, and 
mail or deliver it to the following address: Federal Trade Commission, 
Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue 
NW., Washington, DC 20580. If possible, submit your paper comment to 
the Commission by courier or overnight service.
    Visit the Commission Web site at https://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before May 12, 2014. You can find more information, 
including routine uses

[[Page 22137]]

permitted by the Privacy Act, in the Commission's privacy policy, at 
https://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Orders To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') with Ardagh Group S.A. (``Ardagh''). The purpose of the 
Consent Agreement is to remedy the anticompetitive effects of Ardagh's 
proposed acquisition of Saint-Gobain Containers, Inc. (``Saint-
Gobain'') from Compagnie de Saint-Gobain. Under the terms of the 
Consent Agreement, Ardagh must divest six of its nine United States 
glass container manufacturing plants to an acquirer approved by the 
Commission. The Consent Agreement provides the acquirer the 
manufacturing plants and other tangible and intangible assets it needs 
to effectively compete in the markets for the manufacture and sale of 
glass containers to both beer brewers and spirits distillers in the 
United States. Ardagh must complete the divestiture within six months 
of the date it signs the Consent Agreement.
    On January 17, 2013, Ardagh agreed to acquire Saint-Gobain from its 
French parent company, Compagnie de Saint-Gobain, for approximately 
$1.7 billion. This acquisition would concentrate most of the $5 billion 
U.S. glass container industry in two major competitors--Owens-Illinois, 
Inc. (``O-I'') and the combined Ardagh/Saint-Gobain. These two major 
competitors would also control the vast majority of glass containers 
sold to beer brewers and spirits distillers in the United States. On 
June 28, 2013, the Commission issued an administrative complaint 
alleging that the acquisition, if consummated, may substantially lessen 
competition in the markets for the manufacture and sale of glass 
containers to brewers and distillers in the United States in violation 
of Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 
5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45.
    The Consent Agreement has been placed on the public record for 30 
days to solicit comments from interested persons. Comments received 
during this period will become a part of the public record. After 30 
days, the Commission will review the Consent Agreement and comments 
received, and decide whether it should withdraw, modify, or make the 
Consent Agreement final.

II. The Parties

    Ardagh, headquartered in Luxembourg, is a global leader in glass 
and metal packaging. Ardagh entered the United States glass container 
industry through two 2012 acquisitions--first acquiring a single-plant 
glass container manufacturer, Leone Industries, and then an eight-plant 
manufacturer, Anchor Glass Container Corporation (``Anchor''). Through 
the Anchor acquisition, Ardagh became the third-largest glass container 
manufacturer in the country, supplying glass containers for beer, 
spirits, non-alcoholic beverages, and food. Ardagh's nine glass 
container manufacturing plants are located in seven U.S. states.
    Saint-Gobain is a wholly-owned U.S. subsidiary of Compagnie de 
Saint-Gobain, a French company which, among other businesses, 
manufactures and sells glass containers throughout the world. In the 
United States, Saint-Gobain is the second-largest glass container 
manufacturer, supplying beer, spirits, wine, non-alcoholic beverages, 
and food containers. Saint-Gobain operates 13 glass container 
manufacturing plants located in 11 U.S. states. Saint-Gobain, operates 
under the name ``Verallia North America'' or ``VNA.''

III. The Manufacture and Sale of Glass Containers to Brewers and 
Distillers in the United States

    Absent the remedy, Ardagh's acquisition would harm competition in 
two relevant lines of commerce: the manufacture and sale of glass 
containers to (1) beer brewers, and (2) spirits distillers in the 
United States. Currently, only three firms--Owens-Illinois, Inc., 
Saint-Gobain, and Ardagh--manufacture and sell most glass containers to 
brewers and distillers in the United States. Collectively, these three 
firms control approximately 85 percent of the United States glass 
container market for brewers, and approximately 77 percent of the 
market for distillers.
    The Commission often calculates the Herfindahl-Hirschman Index 
(``HHI'') to assess market concentration. Under the Federal Trade 
Commission and Department of Justice Horizontal Merger Guidelines, 
markets with an HHI above 2,500 are generally classified as ``highly 
concentrated,'' and acquisitions ``resulting in highly concentrated 
markets that involve an increase in the HHI of more than 200 points 
will be presumed to be likely to enhance market power.'' In this case, 
both relevant product markets are already concentrated and the 
acquisition would increase the HHIs substantially. Absent the proposed 
remedy, the acquisition would increase the HHI by 782 points to 3,657 
for glass beer containers, and by 1,072 points to 3,138 for glass 
spirits containers. With the proposed remedy, however, Ardagh's 
acquisition of Saint-Gobain will result in no increase in HHI in the 
glass container market for beer brewers and a 33 point HHI increase in 
the glass container market for distillers.
    The relevant product markets in which to analyze the effects of the 
acquisition do not include other packaging materials, such as aluminum 
cans for beer or plastic bottles for spirits for several reasons. 
First, Ardagh and Saint-Gobain routinely identify each other and O-I as 
their most direct competitors, focusing their business strategies, 
market analysis, and pricing on glass container competition. Indeed, 
glass container pricing is not responsive to the pricing of other types 
of containers. Second, although brewers and distillers use aluminum and 
plastic packaging, respectively, for their products, these customers 
solicit and evaluate glass container bids independently of their can 
and plastic procurement efforts. Third, brewers and distillers demand 
glass so that they may maintain a premium image and brand equity and 
meet their consumers' expectations. Thus, brewers and distillers cannot 
easily or quickly substitute their glass container purchases with other 
packaging materials without jeopardizing the sale of their own 
products. Finally, Ardagh and Saint-Gobain distinguish glass containers 
from containers made with other materials based on qualities including 
oxygen impermeability, chemical inertness, and glass' ability to be 
recycled.
    The United States is the appropriate geographic market in which to 
evaluate the likely competitive effects of the acquisition. Ardagh and 
Saint-Gobain each maintain geographically diverse networks of plants 
that manufacture and sell glass containers to brewers and distillers 
throughout the country. Most U.S. brewers and distillers have similar 
competitive glass container alternatives from which to choose, 
regardless of their geographic location. The relevant geographic market 
is no broader than the United States because product weight and 
logistics constraints limit brewers' and distillers' ability to 
purchase significant volumes of glass containers from outside the 
country.

IV. Effects of the Acquisition

    Absent relief, the acquisition would result in an effective duopoly 
likely to

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cause significant competitive harm in the markets for the manufacture 
and sale of glass containers to brewers and distillers. The glass 
container industry is a highly consolidated, stable industry, with low 
growth rates and high barriers to entry. The acquisition would increase 
the ease and likelihood of anticompetitive coordination between the 
only two remaining major suppliers. The acquisition would also 
eliminate direct competition between Ardagh and Saint-Gobain. Thus, the 
acquisition would likely result in higher prices and a reduction in 
services and other benefits to brewers and distillers.

V. Entry

    Entry into the markets for the manufacture and sale of glass 
containers to brewers and distillers would not be timely, likely, or 
sufficient in magnitude, character, and scope to deter or counteract 
the likely competitive harm from the acquisition. The glass container 
industry in the United States enjoys significant barriers to entry and 
expansion including the high cost of building glass manufacturing 
plants, high fixed operating costs, the need for substantial 
technological and manufacturing expertise, and long-term customer 
contracts. For these reasons, entry by a new market participant or 
expansion by an existing one, would not deter the likely 
anticompetitive effects from the acquisition.

VI. The Consent Agreement

    The proposed Consent Agreement remedies the competitive concerns 
raised by the acquisition by requiring Ardagh to divest six of its nine 
glass container manufacturing plants in the United States to an 
acquirer within six months of executing the Consent Agreement. In 
addition, the Consent Agreement requires Ardagh to transfer all 
customer contracts currently serviced at those six plants to an 
acquirer through an agreement approved by the Commission.
    Under the proposed Consent Agreement, Ardagh will divest six of the 
manufacturing plants that it acquired when it purchased Anchor in 2012, 
along with Anchor's corporate headquarters, mold and engineering 
facilities. The six plants produce glass containers for brewers and 
distillers and are located in: Elmira, NY; Jacksonville, FL; Warner 
Robins, GA; Henryetta, OK; Lawrenceburg, IN; and Shakopee, MN. Anchor's 
corporate headquarters, mold and engineering facilities are located in 
Tampa, FL, Zanesville, OH, and Streator, IL, respectively. Other assets 
that Ardagh will divest include customer contracts, molds, intellectual 
property, inventory, accounts receivable, government licenses and 
permits, and business records. In addition, the Consent Agreement 
limits Ardagh's use of, and access to, confidential business 
information pertaining to the divestiture assets.
    Through the proposed Consent Agreement, the acquirer of these 
assets will be the third-largest glass container manufacturer in the 
United States. These assets replicate the amount of glass containers 
for beer and spirits that the third largest supplier offers today. The 
acquirer will own plants that span a broad geographic footprint, offer 
a well-balanced product mix, and have flexible manufacturing 
capabilities. Its presence will preserve the three-way competition that 
currently exists in the relevant markets and moderate the potential for 
coordination.
    Ardagh must complete the divestiture within six months of signing 
the Consent Agreement. Pending divestiture, Ardagh is obligated to hold 
the divestiture assets separate and to maintain the viability, 
marketability and competitiveness of the assets. With the hold separate 
in place, the divested assets, under the direction of an experienced 
senior management team, will be in a position to compete in the glass 
industry, independent from Ardagh. A hold separate monitor will 
supervise the management of the divestiture assets until Ardagh 
completes the divestiture.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement, and is not intended to constitute an 
official interpretation of the proposed Decision and Order or to modify 
its terms in any way.

Statement of the Federal Trade Commission \2\
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    \2\ Chairwoman Ramirez and Commissioners Brill and Ohlhausen 
join in this statement.
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    In June 2013, the Commission issued a complaint alleging that 
Ardagh Group, S.A.'s proposed $1.7 billion acquisition of Saint-Gobain 
Containers, Inc. would reduce competition in the U.S. markets for glass 
containers for beer and spirits. Specifically, the Commission alleges 
that the acquisition would have eliminated head-to-head competition 
between the parties and resulted in a near duopoly in markets already 
vulnerable to coordination. If the Commission had not challenged the 
deal, the merged firm and its only remaining significant competitor, 
Owens-Illinois would have controlled more than 75 percent of the 
relevant markets. The Commission staff developed evidence to prove at 
trial that the acquisition would likely have substantially lessened 
competition in violation of Section 7 of the Clayton Act. After the 
start of litigation, the parties chose to settle the matter by 
divesting six of the nine U.S. plants currently owned by Ardagh. The 
Commission has now accepted the proposed consent order for public 
comment and believes it addresses the competitive issues here, as well 
as the widespread customer concerns expressed by brewers and distillers 
who depend on a steady and competitively-priced supply of glass 
containers. We outline below our concerns with this deal and the 
benefits of the proposed consent.
    The 2010 Merger Guidelines explain that the Commission will likely 
challenge a transaction where ``(1) the merger would significantly 
increase concentration and lead to a moderately or highly concentrated 
market; (2) that market shows signs of vulnerability to coordinated 
conduct . . . ; and (3) the Agencies have a credible basis on which to 
conclude that the merger may enhance that vulnerability.'' \3\ We have 
reason to believe each of these factors is present here. The 
transaction would have dramatically increased concentration in already 
highly-concentrated markets. The glass container markets for beer and 
spirits are vulnerable to post-acquisition coordination, exhibiting 
features such as low demand growth, tight capacity, high and stable 
market shares, and high barriers to entry that typify markets that have 
experienced coordination. The existing three major glass manufacturers 
already have access to a wealth of information about the markets and 
each other, including plant-by-plant production capabilities, 
profitability, the identities of each other's customers, and details 
regarding each other's contracts and negotiations with customers. 
Customers, industry analysts, public statements, and distributors all 
serve as conduits for market information. The Commission found evidence 
that companies in this industry understand their shared incentives to 
keep capacity tight, avoid price wars, and follow a ``price over 
volume'' strategy. We believe this transaction would have made it 
easier for the remaining two dominant manufacturers to coordinate with 
one another on price and non-price terms to

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achieve supracompetitive prices or other anticompetitive outcomes.
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    \3\ U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger 
Guidelines Sec.  7.1 (2010) [hereinafter 2010 Horizontal Merger 
Guidelines], available at https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf.
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    As noted in the 2010 Merger Guidelines, the Commission will also 
likely challenge a transaction producing harmful unilateral effects. 
For instance, this could occur where the merged firm would no longer 
have to negotiate against other competitors for customer supply 
contracts, or where the transaction would eliminate a competitor that 
otherwise could have expanded output in response to a price 
increase.\4\ The Commission charges that Ardagh's acquisition of Saint-
Gobain would have eliminated head-to-head competition between the two 
merging firms, which are the second- and third-largest U.S. glass 
container manufacturers in the relevant product markets. Brewers and 
distillers have reaped substantial benefits from the rivalry between 
the two, often playing one against the other in supply negotiations.
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    \4\ See 2010 Horizontal Merger Guidelines Sec. Sec.  6, 6.2-6.3.
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    Once a prima facie showing of competitive harm is made, the 
Commission will consider evidence from the parties of verifiable, 
merger-specific efficiencies that could offset this harm.\5\ In highly 
concentrated markets with high barriers to entry, as here, the parties 
can rebut the evidence of harm only with evidence of ``extraordinary 
efficiencies.'' \6\ Efficiencies represent an important aspect of the 
Commission's merger analysis, with a recent study showing that over a 
ten-year period 37 of 48 closed investigations involved internal staff 
memoranda examining efficiencies.\7\ Similarly, a recent survey 
analyzing evidence considered by Commission staff prior to issuing 
second requests concluded that staff credited parties' detailed 
efficiency claims ``[i]n most cases,'' even if they proved insufficient 
to offset competitive concerns about the transaction.\8\
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    \5\ See id. Sec.  10.
    \6\ Fed. Trade Comm'n v. Heinz, 246 F.3d 708, 720 (D.C. Cir. 
2001); In re Polypore Int'l, Inc., Initial Decision, No. 9327, 2010 
WL 866178, at *184-85 (FTC Mar. 1, 2010).
    \7\ Malcolm B. Coate & Andrew J. Heimert, Merger Efficiencies at 
the Federal Trade Commission: 1997-2007 14 n.31 (2009), available at 
https://www.ftc.gov/sites/default/files/documents/reports/merger-efficiencies-federal-trade-commission-1997%E2%80%932007/0902mergerefficiencies.pdf.
    \8\ Darren S. Tucker, A Survey of Evidence Leading to Second 
Requests at the FTC, 78 Antitrust L.J. 591, 602 (2013).
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    In this matter, many of Ardagh's proffered synergies were not 
merger-specific and could have been achieved absent the acquisition. 
For instance, the parties claimed the merger would allow them to reduce 
overhead within the Saint-Gobain organization. However, this claim 
related to the staffing of the current Saint-Gobain organization alone 
and is separate from any additional savings to be reaped from 
eliminating staff positions made redundant by the combination of Ardagh 
and Saint-Gobain. Thus, the claim is not merger specific. In addition, 
Ardagh made broad claims of additional operational efficiencies, and 
likely would have achieved some. However, the parties put forward 
insufficient evidence showing that the level of synergies that could be 
substantiated and verified would outweigh the clear evidence of 
consumer harm.
    For these reasons, we respectfully disagree with Commissioner 
Wright's conclusion that there is no reason to believe the transaction 
violates Section 7 of the Clayton Act. We also disagree with 
Commissioner Wright's suggestion that the Commission imposed an unduly 
high evidentiary standard in analyzing the parties' efficiency claims 
here and believe he overlooks several important points in his analysis. 
We are mindful of our responsibility to weigh appropriately all 
evidence relevant to a transaction and, moreover, understand our burden 
of proof before a trier of fact.
    Commissioner Wright expresses concern that competitive effects are 
estimated whereas efficiencies must be ``proven,'' potentially creating 
a ``dangerous asymmetry'' from a consumer welfare perspective.\9\ We 
disagree. Both competitive effects and efficiencies analyses involve 
some degree of estimation. This is a necessary consequence of the 
Clayton Act's role as an incipiency statute. In addition, while 
competitive effects data and information tends to be available from a 
variety of sources, the data and information feeding efficiencies 
calculations come almost entirely from the merging parties. Indeed, the 
2010 Merger Guidelines observe that ``[e]fficiencies are difficult to 
verify and quantify, in part because much of the information relating 
to efficiencies is uniquely in the possession of the merging firms.'' 
\10\ The need for independent verification of this party data animates 
the requirement that, to be cognizable, efficiencies must be 
substantiated and verifiable.
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    \9\ Dissenting Statement of Commissioner Wright at 5.
    \10\ 2010 Horizontal Merger Guidelines Sec.  10.
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    Courts have repeatedly emphasized that, ``while reliance on the 
estimation and judgment of experienced executives about costs may be 
perfectly sensible as a business matter, the lack of a verifiable 
method of factual analysis resulting in the cost estimates renders them 
not cognizable.'' \11\ This is for good reason. Indeed, ``if this were 
not so, then the efficiencies defense might well swallow the whole of 
Section 7 of the Clayton Act.'' \12\ The merger analysis the Commission 
undertook in this case is thus entirely consistent with the 2010 
Horizontal Merger Guidelines and established case law.
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    \11\ United States v. H&R Block, Inc., 833 F. Supp. 2d 36, 46 
(D.D.C. 2011); see also 2010 Horizontal Merger Guidelines Sec.  10 
(noting that it is ``incumbent upon the merging firms to 
substantiate efficiency claims so that the Agencies can verify 
[them] by reasonable means.'').
    \12\ H&R Block, 833 F. Supp. 2d at 46.
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    Finally, we also believe the proposed consent order addresses the 
competitive concerns we have identified. The proposed order requires 
Ardagh to sell six manufacturing plants and related assets to a single 
buyer within six months, thereby creating an independent third 
competitor that fully replaces the competition that would have been 
lost in both the beer and spirits glass container markets had the 
merger proceeded unchallenged. In sum, we have ample reason to believe 
that the proposed merger was anticompetitive and without appropriate 
efficiency justification, and that the proposed remedy will maintain 
competition in the market for glass containers for beer and spirits. We 
commend and thank Commission staff for their hard work on this matter.

    By direction of the Commission, Commissioner Wright dissenting.
Donald S. Clark,
Secretary.

Dissenting Statement of Commissioner Joshua D. Wright

    The Commission has voted to issue a Complaint and Decision & Order 
(``Order'') against Ardagh Group (``Ardagh'') to remedy the allegedly 
anticompetitive effects of Ardagh's proposed acquisition of Saint-
Gobain Containers Inc. and Compagnie de Saint-Gobain (jointly, ``St. 
Gobain''). I dissented from the Commission's decision because the 
evidence is insufficient to provide reason to believe Ardagh's 
acquisition will substantially lessen competition in glass containers 
manufactured and sold to beer brewers and spirits distillers in the 
United States, in violation of Section 7 of the Clayton Act. FTC staff 
and their economic expert should be commended for conducting a thorough 
investigation of this matter, working diligently to develop and analyze 
a substantial quantity of documentary and empirical evidence, and 
providing thoughtful analyses of the transaction's potential

[[Page 22140]]

competitive effects. Indeed, I agree with the Commission that there is 
evidence sufficient to give reason to believe the proposed transaction 
would likely result in unilateral price increases. After reviewing the 
record evidence, however, I concluded there is no reason to believe the 
transaction violates Section 7 of the Clayton Act because any potential 
anticompetitive effect arising from the proposed merger is outweighed 
significantly by the benefits to consumers flowing from the 
transaction's expected cognizable efficiencies. It follows, in my view, 
that the Commission should close the investigation and allow the 
parties to complete the merger without imposing a remedy.
    I write separately today to explain my reasoning for my vote in the 
matter and to highlight some important issues presented by this 
transaction relating to the burden of proof facing merging parties 
seeking to establish cognizable efficiencies.

I. Potential Anticompetitive Effects Are Small at Best Relative to 
Cognizable Efficiencies

    The Commission alleges both unilateral and coordinated price 
effects will arise from the proposed transaction. The economic logic of 
the unilateral effects theory is straightforward: If the merger 
combines the two glass manufacturers who are the most preferred for a 
set of customers, there is the potential for a price increase arising 
from the loss of competition between those two firms. This is because 
sales previously diverted to the next closest competitor in response to 
a price increase will now be internalized by the post-merger firm. When 
analyzing the potential for unilateral price effects, the 2010 Merger 
Guidelines indicate the Agencies will consider ``any reasonably 
available and reliable information,'' including ``documentary and 
testimonial evidence, win/loss reports and evidence from discount 
approval processes, customer switching patterns, and customer 
surveys.'' \1\ The Merger Guidelines also contemplate a number of 
quantitative analyses to facilitate the analysis of potential 
unilateral effects including calculating diversion ratios and the value 
of diverted sales. Where sufficient data are available, the Merger 
Guidelines indicate ``the Agencies may construct economic models 
designed to quantify the unilateral price effects resulting from the 
merger.'' \2\ In my view, the totality of record evidence supports an 
inference--though a fragile one--that the merger is likely to result in 
very modest unilateral price effects at best.
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    \1\ U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger 
Guidelines Sec.  6.1 (2010), available at https://www.justice.gov/atr/public/guidelines/hmg-2010.html [hereinafter Merger Guidelines].
    \2\ Id.
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    With respect to the potential coordinated price effects, I find 
successful coordination in this market highly unlikely.\3\ However, 
even if coordination was a more plausible concern, I am not persuaded 
record evidence is probative of the effects that would arise as a 
result of this merger. My view and analysis of the record evidence 
relied upon to assess the magnitude of any potential coordinated 
effects is that it is suspect and cannot identify price differences 
attributable to changes in post-merger incentives to coordinate that 
would result from the proposed transaction rather than other factors. 
In addition, even if coordinated effects were likely, any estimated 
expected effect would need to be discounted by a probability of 
successful coordination that is less than one.
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    \3\ Although coordinated effects may be more likely with two 
rather than three key competitors, I do not find evidence sufficient 
to conclude coordination is likely. For example, I find that prices 
are individually negotiated and not particularly transparent, and 
the incentive to cheat without detection would likely undermine a 
collusive outcome. In the ordinary course of business, competitive 
firms collect information and monitor one another's behavior. There 
is no evidence that the information collected by firms in the glass 
container market is accurate or that coordination based upon that 
information has taken place to date.
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    In summary, given the totality of the available evidence, I am 
persuaded that the proposed transaction is likely to generate, at best, 
small unilateral price effects.
    The key question in determining whether the proposed transaction is 
likely to violate Section 7 of the Clayton Act is thus whether any 
cognizable efficiencies ``likely would be sufficient to reverse the 
merger's potential to harm customers in the relevant market.'' \4\ The 
2010 Merger Guidelines and standard cost-benefit principles teach that 
efficiencies should matter most when competitive effects are small.\5\ 
The Commission's view of the record evidence is apparent in the 
Complaint, which alleges that ``nearly all'' of the efficiencies 
proffered by the parties are non-cognizable.\6\ However, my own review 
of the record evidence leads me to disagree with that conclusion. In 
fact, I find that given reasonable assumptions, cognizable efficiencies 
are likely to be substantial and more than sufficient to offset any 
anticompetitive price increase. While reasonable minds can differ with 
respect to the magnitude of cognizable efficiencies in this case, I do 
not find the allegation of zero or nearly zero efficiencies plausible. 
Indeed, my own analysis of the record evidence suggests expected 
cognizable efficiencies are up to six times greater than any likely 
unilateral price effects. The relative magnitude of the expected 
cognizable efficiencies set forth is dispositive of the matter under my 
own analysis.
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    \4\ Merger Guidelines Sec.  10.
    \5\ Merger Guidelines Sec.  10 (``In the Agencies' experience, 
efficiencies are most likely to make a difference in merger analysis 
when the likely adverse competitive effects, absent the 
efficiencies, are not great.''). It is sometimes argued, pointing to 
language in the Merger Guidelines that ``efficiencies almost never 
justify a merger to monopoly or near-monopoly,'' that the Merger 
Guidelines rule out or render the burden facing merger parties 
practically insurmountable in the case of mergers to monopoly or 
``three-to-two'' situations. In my view, this is a misreading of the 
Merger Guidelines in letter and spirit. The sentence prior notes 
that ``efficiencies are most likely to make a difference in merger 
analysis when the likely adverse competitive effects, absent the 
efficiencies, are not great.'' The Merger Guidelines' reference to 
mergers to monopoly or near-monopoly are illustrations of cases in 
which likely adverse effects might be large. The Merger Guidelines 
themselves do not rule out an efficiencies defense when a merger 
with small anticompetitive effects, with any market structure, 
generates cognizable efficiencies that are sufficient to prevent the 
merger from being anticompetitive. Nor do the Merger Guidelines 
suggest that a merger in a market with many firms that exhibits 
significant unilateral price effects should face a less serious 
burden in order to establish an efficiencies defense. The Merger 
Guidelines' more general shift toward effects over market structure 
is also consistent with this analysis and undermines the logic of a 
position that the comparison of anticompetitive harms to cognizable 
efficiencies should be conducted differently depending upon the 
number of firms in the relevant market. To the extent the Commission 
believes the judicial decisions cited in note 5 of their statement 
endorse the notion that extraordinary efficiencies are required to 
justify a merger to monopoly or duopoly even when the 
anticompetitive effects from that merger are small, this is the 
analytical equivalent of allowing the counting of the number of 
firms within a market to trump analysis of competitive effects. The 
Commission should reject that view as inconsistent with the goal of 
promoting consumer welfare.
    \6\ See, e.g. Complaint, In the Matter of Ardagh Group S.A., 
F.T.C. Docket No. 9356 (June 28, 2013), available at https://www.ftc.gov/sites/default/files/documents/cases/2013/07/130701ardaghcmpt.pdf.
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II. When is there an efficiencies defense at the FTC?

    I would like to highlight some important issues presented by this 
transaction as they relate to how the Commission analyzes parties' 
efficiencies claims, and in particular, whether the burden of proof 
facing parties seeking to establish cognizable efficiencies is or 
should be meaningfully different than the burden facing the agency in 
establishing that a proposed merger is likely to substantially lessen 
competition.

[[Page 22141]]

    My view is that the burden facing the agency with respect to the 
likelihood of anticompetitive effects should be in parity to that faced 
by the parties with respect to efficiencies. I recognize that this view 
is at least superficially in tension with the 2010 Merger Guidelines, 
which appear to embrace an asymmetrical approach to analyzing harms and 
benefits. Indeed, the 2010 Merger Guidelines declare that ``the 
Agencies will not simply compare the magnitude of the cognizable 
efficiencies with the magnitude of the likely harm to competition 
absent the efficiencies.'' \7\ This tension is easily resolved in the 
instant case because the efficiencies substantially outweigh the 
potential harms, but it merits greater discussion.
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    \7\ Merger Guidelines Sec.  10.
---------------------------------------------------------------------------

    To begin with, it is important to define which issues are up for 
discussion and which are not with some precision. The issue is not 
whether the burden-shifting framework embedded within Section 7 of the 
Clayton Act is a useful way to structure economic and legal analysis of 
complex antitrust issues.\8\ It is. Nor is the pertinent question 
whether the parties properly bear the burden of proof on efficiencies. 
They do.\9\
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    \8\ See, e.g., United States v. Baker Hughes, Inc., 908 F.2d 981 
(D.C. Cir. 1990).
    \9\ See Merger Guidelines Sec.  10.
---------------------------------------------------------------------------

    The issues here are twofold. The first issue is whether the 
magnitude of the burden facing merging parties attempting to 
demonstrate cognizable efficiencies should differ from the burden the 
Commission must overcome in establishing the likelihood of 
anticompetitive effects arising from the transaction in theory. The 
second is whether the magnitudes of those burdens differ in practice. 
The Commission appears to answer the first question in the 
negative.\10\ With respect to the second question, the Commission 
points to some evidence that the Agency does in fact consider 
efficiencies claims when presented in many investigations. There is 
little dispute, however, that the Commission gives some form of 
consideration to efficiency claims; the relevant issue is over 
precisely how the Commission considers them. More specifically, must 
merging parties overcome a greater burden of proof on efficiencies in 
practice than does the FTC to satisfy its prima facie burden of 
establishing anticompetitive effects? This question, in my view, merits 
greater discussion.
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    \10\ Statement of the Commission, In the Matter of Ardagh Group 
S.A., Saint-Gobain Containers, Inc., and Compagnie de Saint-Gobain, 
File No. 131-0087 (April 11, 2014) (``We also disagree with 
Commissioner Wright's suggestion that the Commission imposed an 
unduly high evidentiary standard in analyzing the parties' 
efficiency claims'').
---------------------------------------------------------------------------

    Even when the same burden of proof is applied to anticompetitive 
effects and efficiencies, of course, reasonable minds can and often do 
differ when identifying and quantifying cognizable efficiencies as 
appears to have occurred in this case. My own analysis of cognizable 
efficiencies in this matter indicates they are significant. In my view, 
a critical issue highlighted by this case is whether, when, and to what 
extent the Commission will credit efficiencies generally, as well as 
whether the burden faced by the parties in establishing that proffered 
efficiencies are cognizable under the Merger Guidelines is higher than 
the burden of proof facing the agencies in establishing anticompetitive 
effects. After reviewing the record evidence on both anticompetitive 
effects and efficiencies in this case, my own view is that it would be 
impossible to come to the conclusions about each set forth in the 
Complaint and by the Commission--and particularly the conclusion that 
cognizable efficiencies are nearly zero--without applying asymmetric 
burdens.
    Merger analysis is by its nature a predictive enterprise. Thinking 
rigorously about probabilistic assessment of competitive harms is an 
appropriate approach from an economic perspective. However, there is 
some reason for concern that the approach applied to efficiencies is 
deterministic in practice. In other words, there is a potentially 
dangerous asymmetry from a consumer welfare perspective of an approach 
that embraces probabilistic prediction, estimation, presumption, and 
simulation of anticompetitive effects on the one hand but requires 
efficiencies to be proven on the other.
    There is ample discretion in the 2010 Merger Guidelines to allow 
for this outcome in practice. For example, the merger-specificity 
requirement could be interpreted narrowly to exclude any efficiency 
that can be recreated with any form of creative contracting. While the 
Merger Guidelines assert that Agencies ``do not insist upon a less 
restrictive alternative that is merely theoretical,'' there is little 
systematic evidence as to how this requirement is applied in practice. 
Verifiability, on the other hand, could be interpreted to impose 
stricter burden of proof than the agency is willing to accept when it 
comes to predictions, estimates, presumptions, or simulations of 
anticompetitive effects. There is little guidance as to how these 
provisions of the Merger Guidelines ought to be interpreted.\11\ 
Neither is further guidance likely forthcoming from the courts given 
how infrequently mergers are litigated. None of this, of course, is to 
say that parties should not bear these burdens in practice. 
Efficiencies, like anticompetitive effects, cannot and should not be 
presumed into existence. However, symmetrical treatment in both theory 
and practice of evidence proffered to discharge the respective burdens 
of proof facing the agencies and merging parties is necessary for 
consumer-welfare based merger policy.
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    \11\ The 2006 Merger Guidelines Commentary provides some 
guidance on efficiencies, but offer little guidance on the 
interpretation of these provisions and the type of substantiation 
required. U.S. Dep't of Justice & Fed. Trade Comm'n, Commentary on 
the Horizontal Merger Guidelines (Mar. 2006), available at https://www.justice.gov/atr/public/guidelines/215247.htm#44.
---------------------------------------------------------------------------

    There are legitimate and widespread concerns that this has not been 
the case. Academics, agency officials, and practitioners have noted 
that although efficiencies are frequently a significant part of the 
business rationale for a transaction, receiving credit for efficiencies 
in a merger review is often difficult.\12\ Professor Daniel Crane has 
analyzed the perceived asymmetries between competitive effects analysis 
and efficiencies discussed above and their implications for competition 
systems and consumer welfare.\13\ Others have pointed out that recent 
court cases reveal that ``the efficiency defense faces an impossibly 
high burden.'' \14\ Moreover, testimony from senior agency officials 
recognize the potential costs of imposing an unnecessarily high burden 
of proof to demonstrate cognizable efficiencies and states that 
symmetrical treatment of the evidence as they related to efficiencies 
versus competitive effects is warranted.
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    \12\ See, e.g., Michael B. Bernstein & Justin P. Hedge, 
Maximizing Efficiencies: Getting Credit Where Credit Is Due, 
Antitrust Source, Dec. 2012, available at https://www.americanbar.org/content/dam/aba/publishing/antitrust_source/dec12_hedge_12_20f.authcheckdam.pdf.
    \13\ Daniel A. Crane, Rethinking Merger Efficiencies, 110 Mich. 
L. Rev. 347, 386-87 (2011). Professor Crane argues that ``as a 
matter of both verbal formulation in the governing legal norms and 
observed practice of antitrust enforcement agencies and courts, the 
government is accorded greater evidentiary leniency in proving 
anticompetitive effects than the merging parties are in proving 
offsetting efficiencies,'' id. at 348, and rejects a variety of 
justifications for asymmetrical treatment of merger costs and 
benefits.
    \14\ Malcolm B. Coate, Efficiencies in Merger Analysis: An 
Institutionalist View, 13 Sup. Ct. Econ. Rev. 230 (2005).

    Placing too high a burden on the parties to quantify 
efficiencies and to show that they are merger-specific risks 
prohibiting transactions that would be efficiency-enhancing. On the 
other hand, we are not

[[Page 22142]]

able simply to take the parties' word that the efficiencies they 
have identified will actually materialize. Ultimately, we evaluate 
evidence related to efficiencies under the same standard we apply to 
---------------------------------------------------------------------------
any other evidence of competitive effects.\15\

    \15\ Statement of Kenneth Heyer on Behalf of the United States 
Department of Justice, Antitrust Modernization Commission Hearings 
on the Treatment of Efficiencies in Merger Enforcement (Nov. 17, 
2005), available at https://govinfo.library.unt.edu/amc/commission_hearings/pdf/Statement-Heyer.pdf.
---------------------------------------------------------------------------

    The lack of guidance in analyzing and crediting efficiencies has 
led to significant uncertainty as to what standard the Agency applies 
in practice to efficiency claims and led to inconsistent applications 
of Section 10 of the Merger Guidelines, even among agency staff.\16\ In 
my view, standard microeconomic analysis should guide how we interpret 
Section 10 of the 2010 Merger Guidelines, as it does the rest of the 
antitrust law. To the extent the Merger Guidelines are interpreted or 
applied to impose asymmetric burdens upon the agencies and parties to 
establish anticompetitive effects and efficiencies, respectively, such 
interpretations do not make economic sense and are inconsistent with a 
merger policy designed to promote consumer welfare.\17\ Application of 
a more symmetric standard is unlikely to allow, as the Commission 
alludes to, the efficiencies defense to ``swallow the whole of Section 
7 of the Clayton Act.'' A cursory read of the cases is sufficient to 
put to rest any concerns that the efficiencies defense is a mortal 
threat to agency activity under the Clayton Act. The much more pressing 
concern at present is whether application of asymmetric burdens of 
proof in merger review will swallow the efficiencies defense.
---------------------------------------------------------------------------

    \16\ In a recent study examining agency analysis of efficiencies 
claims, an FTC economist and attorney found significant disparities. 
Malcolm B. Coate & Andrew J. Heimert, Merger Efficiencies at the 
Federal Trade Commission: 1997-2007 (2009), available at https://www.ftc.gov/sites/default/files/documents/reports/merger-efficiencies-federal-trade-commission-1997%E2%80%932007/0902mergerefficiencies.pdf. Coate and Heimert find that ``BE staff 
endorsed 27 percent of the claims considered, while BC accepted 
significantly fewer (8.48 percent) of the claims considered during 
the studied period.'' The disparity also applies to rejection of 
efficiencies claims. The Bureau of Economics rejected 11.9 percent 
of the claims, while the Bureau of Competition rejected a 
significantly higher 31.9 percent of claims. Id. at 26.
    \17\ For example, Professor Crane explains that ``[i]f the 
government and merging parties were held to the same standard of 
proof--preponderance of the evidence, for example--then, 
conceptually, harms and efficiencies would be given equal weight 
despite the different allocations of burdens of proof.'' In 
addition, ``[i]f probabilities of harm are easier to demonstrate on 
an individualized basis than probabilities of efficiencies, even 
though in the aggregate both harms and efficiencies are similarly 
likely in the relevant categories of cases, then merger policy will 
display a bias in favor of theories of harm even if it adopts an 
explicit symmetry principle.'' Crane, supra note 11, at 387-88.
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III. Conclusion

    There are many open and important questions with respect to the 
treatment of efficiencies at the Agencies. While the Agencies' 
analytical framework applied to diagnosing potential anticompetitive 
effects got an important update with the 2010 Merger Guidelines, there 
remains significant room for improvement with respect to the aligning 
agency analysis of efficiencies with standard principles of economic 
analysis. Primary among these important questions is whether the burden 
of proof required to establish cognizable efficiencies should be 
symmetrical to the burden the Agencies must overcome to establish 
anticompetitive effects. In my view, issues such as out-of-market 
efficiencies and the treatment of fixed costs also warrant further 
consideration.\18\
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    \18\ See, e.g., Jan M. Rybnicek & Joshua D. Wright, Outside In 
or Inside Out?: Counting Merger Efficiencies Inside and Out of the 
Relevant Market, in 2 William E. Kovacic: An Antitrust Tribute--
Liber Amicorum (2014) (forthcoming), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2411270; Judd E. Stone 
& Joshua D. Wright, The Sound of One Hand Clapping: The 2010 Merger 
Guidelines and the Challenge of Judicial Adoption, 39 Rev. Indus. 
Org. 145 (2011).
---------------------------------------------------------------------------

    For the reasons set forth in this statement, I conclude that the 
harms from the transaction are small at best and, applying a symmetric 
standard to assessing the expected benefits and harms of a merger, the 
expected cognizable efficiencies are substantially greater than the 
expected harms. Accordingly, I believe the merger as proposed would 
have benefitted consumers. As such, I cannot join my colleagues in 
supporting today's consent order because I do not have reason to 
believe the transaction violates Section 7 of the Clayton Act nor that 
a consent ordering divestiture is in the public interest.

[FR Doc. 2014-08951 Filed 4-18-14; 8:45 am]
BILLING CODE 6750-01-P