Ball Corporation and Rexam PLC; Analysis To Aid Public Comment, 45498-45501 [2016-16687]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 81, Number 135 (Thursday, July 14, 2016)]
[Notices]
[Pages 45498-45501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16687]


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FEDERAL TRADE COMMISSION

[File No. 151 0088]


Ball Corporation and Rexam PLC; Analysis 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 to Aid Public Comment describes both the 
allegations in the complaint and the terms of the consent order--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before July 28, 2016.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/ballrexamconsent online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``In the Matter of Ball 
Corporation and Rexam PLC, File No. 151 0088--Consent Agreement'' on 
your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/ballrexamconsent by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``In the Matter of Ball Corporation and Rexam PLC, File 
No. 151 0088--Consent Agreement'' on your comment and on the envelope, 
and mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite 
CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Michael Lovinger (202-326-2539), 
Bureau of Competition, 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 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing consent order 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 June 28, 2016), on the World Wide Web, at 
https://www.ftc.gov/os/actions.shtm.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before July 28, 2016. 
Write ``In the Matter of Ball Corporation and Rexam PLC, File No. 151 
0088--Consent Agreement'' 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

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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 comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/ballrexamconsent by following the instructions on the web-based 
form. 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 ``In the Matter of Ball 
Corporation and Rexam PLC, File No. 151 0088--Consent Agreement'' on 
your comment and on the envelope, and mail your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 
20580, or deliver your comment to the following address: Federal Trade 
Commission, Office of the Secretary, Constitution Center, 400 7th 
Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024. 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 July 28, 2016. You can find more information, 
including routine uses permitted by the Privacy Act, in the 
Commission's privacy policy, at https://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction and Background

    Pursuant to an agreement dated February 19, 2015 (the 
``Acquisition''), Ball Corporation (``Ball'') seeks to acquire Rexam 
PLC (``Rexam'') in a transaction valued at approximately [pound]5.4 
billion, or $8.4 billion, at the time the Acquisition was announced. In 
order to preserve competition that would be lessened as a result of the 
proposed Acquisition, the Federal Trade Commission (``Commission'') has 
accepted for public comment, subject to final approval, an Agreement 
Containing Consent Order (``Consent Agreement'') from Ball and Rexam. 
The Commission has also issued a Complaint and Decision & Order, and 
has assigned a Monitor Trustee to oversee compliance with the Consent 
Agreement.
    The Commission's Complaint alleges that the proposed Acquisition, 
if consummated, would violate 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, by lessening competition in the markets for 
standard 12-ounce aluminum beverage cans (``Standard Cans'') and 
specialty aluminum beverage cans (``Specialty Cans'') in the United 
States. The Consent Agreement would remedy the alleged violations by 
restoring the competition that would be lost as a result of the 
proposed Acquisition.
    Under the terms of the proposed Consent Agreement, Ball and Rexam 
are required to divest seven aluminum can body plants, one aluminum can 
end plant, and other innovation and support functions in order to 
preserve competition in the relevant markets in the United States. 
These manufacturing plants account for the majority of Rexam's sales in 
the United States. Ball and Rexam have agreed to divest these and 
additional assets around the world to Ardagh Group S.A. (``Ardagh'') in 
a transaction entered into on April 22, 2016 and valued at $3.42 
billion, including assumption of liabilities.
    The proposed 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 part of the public record. 
After 30 days, the Commission will again review the proposed Consent 
Agreement and any comments received, and decide whether the Consent 
Agreement should be withdrawn, modified, or made final.

II. The Parties

    Ball, an Indiana corporation headquartered in Broomfield, CO, is 
the largest manufacturer of aluminum beverage cans in the both the 
United States and the world. In 2015, Ball had total sales of $8.0 
billion, 74% of which were derived from its worldwide metal beverage 
container business. Approximately 16% of Ball's revenues come from its 
worldwide sales of metal food and household containers, and 
approximately 10% from its U.S. aerospace business. In 2015, Ball had 
approximately $2.7 billion in sales of aluminum beverage cans in the 
United States.
    Rexam is the second-largest manufacturer of aluminum beverage cans 
in North America and the world. Rexam is a United Kingdom company 
headquartered in London. Rexam manufactures only aluminum beverage 
containers today, after selling its plastic packaging business in 2011 
and its glass manufacturing business in 2005. In 2015, Rexam had total 
aluminum beverage container sales of about $5.7 billion, with 
approximately $1.75 billion coming from the United States.
    Ardagh, headquartered in Luxembourg, is one of the world's largest 
producers of glass bottles for the beverage industry and metal cans for 
the food industry. Ardagh does not currently produce aluminum cans for 
the beverage industry, but it serves many of the same customers as Ball 
and Rexam through its glass bottle business. In 2015, Ardagh had sales 
of approximately $5.9 billion, with approximately $3.6 billion coming 
from glass packaging and $2.3 billion from metal food packaging.

III. Standard Cans

    The first relevant line of commerce in which to analyze the 
Acquisition is standard 12-ounce aluminum beverage cans (``Standard 
Cans''). Approximately 3 out of every 4 beverage cans sold in the 
United States today are Standard Cans, which are found, for instance, 
in a 12-pack of carbonated soft drinks or beer. Beverage producers 
purchase Standard Cans because of their superior

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shelf life, filling efficiency, recyclability, compact storage, and 
relatively low cost.
    Other packaging substrates, such as plastic bottles and glass 
bottles, do not serve as competitive constraints to Standard Cans. 
Beverage producers sell their products in different types of containers 
in order to meet consumer demand, and could not substitute other 
container types for Standard Cans without risking a loss in sales. 
Beverage producers have also invested substantial sums of money in 
specialized filling lines that are designed to fill either aluminum 
cans, plastic bottles, or glass bottles, and cannot switch from one 
container type to another. As a result, beverage producers negotiate 
for Standard Cans independently from plastic bottles and glass bottles, 
and do not shift volumes between Standard Cans and other packaging 
substrates in response to fluctuations in their relative prices.
    The relevant geographic markets in which to analyze competition for 
Standard Cans are regional. Beverage producers incur significant 
freight costs from shipping empty cans to their filling plants. For 
this reason, manufacturers of Standard Cans have built a network of 
plants throughout the United States to meet regional customer demand 
and minimize shipping costs. Although aluminum can manufacturers often 
ship Standard Cans several hundred miles and win bids when they are not 
the closest supplier, it is not common or cost-effective for Standard 
Cans to ship cross-country. As a result, the Complaint identifies three 
regional markets in the United States in which substantial competition 
exists between Ball and Rexam for the sale of Standard Cans: (1) The 
South/Southeast; (2) the Midwest; and (3) the West Coast, consisting 
primarily of California.
    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.'' \2\ Absent the 
proposed remedy, the Acquisition would increase HHIs for Standard Cans 
by 1,712 points to 4,874 in the South/Southeast; by 2,201 points to 
5,050 in the Midwest; and by 1,673 points to 4,680 on the West Coast. 
As a result, there is a presumption that the proposed merger of Ball 
and Rexam would substantially lessen competition in each of the 
regional markets for Standard Cans.
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    \2\ 2010 U.S. Department of Justice and Federal Trade Commission 
Horizontal Merger Guidelines Sec.  5.3.
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IV. Specialty Cans

    The second relevant line of commerce in which to analyze the 
Acquisition is an assortment of specialty aluminum beverage cans 
(``Specialty Cans''), which come in a variety of dimensions that differ 
from Standard Cans. Specialty Cans include 7.5-ounce and 8-ounce slim 
cans, which are narrower and shorter than Standard Cans; 12-ounce sleek 
cans, which are narrower and taller than standard 12-ounce cans; 16-
ounce cans, which have the same diameter as Standard Cans but are 
taller; 24-ounce cans, which are wider and taller than Standard Cans; 
and other aluminum cans in non-standard shapes and sizes. Specialty Can 
sales have been growing as beverage producers seek to package their 
products in new shapes and sizes to reach different consumers and 
consumption occasions.
    Beverage producers package in different types of Specialty Cans for 
different reasons. For example, carbonated soft drink producers package 
some of their products in 7.5-ounce slim cans specifically to reach 
consumers who want a smaller portion in an attractive, sub-100 calorie 
package. Popular with producers of flavored malt beverages are 8-ounce 
slim cans. Energy drink producers package in 16-ounce and other 
``sleek'' cans in order to differentiate their products and convey a 
premium image in ways that cannot be achieved by using Standard Cans. 
Some tea and energy drink producers further differentiate their 
products and convey value by packaging in large 24-ounce cans.
    Although one type of Specialty Can is not typically a substitute 
for another, it is appropriate to group or cluster the different 
Specialty Cans together for the purposes of market definition analysis 
because each of the products in the assortment is offered under similar 
competitive conditions. As such, grouping the many different types of 
Specialty Cans into a single cluster enables a more efficient 
evaluation of competitive effects.
    Beverage producers would not substitute Standard Cans, glass 
bottles, plastic bottles, or other container types for Specialty Cans 
in sufficient quantities to defeat a hypothetical, small but 
significant and non-transitory increase in the price of Specialty Cans. 
Beverage producers package in specific shapes and sizes of Specialty 
Cans to maximize sales and attract certain customers who would not 
purchase their products in a different package type. Moreover, beverage 
producers have made substantial investments in infrastructure that are 
used to fill Specialty Cans and that cannot be used to fill PET bottles 
or glass bottles.
    The relevant geographic market in which to analyze Specialty Cans 
is the United States. A national market is appropriate because each 
Specialty Can type is produced at only a small number of locations 
nationwide, and Specialty Cans are shipped over much longer distances 
than Standard Cans, often over 1,000 miles. Specialty Cans of 
particular shapes and sizes are produced at only a few locations in the 
United States because their volumes are only a small fraction of the 
volume of Standard Cans, and it is not cost-effective to spread such 
small volumes across a large number of plants.
    Ball and Rexam are the two largest suppliers of Specialty Cans in 
the United States with shares of approximately 56% and 21%, 
respectively, across all Specialty Can sizes. Absent the proposed 
remedy, the Acquisition would increase HHIs for Specialty Cans by 2,284 
points to 6,267 in the United States. As a result, there is a 
presumption that the proposed merger of Ball and Rexam would 
substantially lessen competition in the national market for Specialty 
Cans.

V. Effects of the Acquisition

    Absent relief, the Acquisition would likely cause significant 
competitive harm in the markets for the manufacture and sale of 
Standard Cans and Specialty Cans to beverage producers. The Acquisition 
would eliminate substantial direct competition between Ball and Rexam 
for the sale of Standard Cans and Specialty Cans. In individual 
contract negotiations with Ball and Rexam, beverage producers have been 
able to secure better prices and other terms by switching, or 
threatening to switch, their business from one supplier to the other. 
In some of these negotiations, no other suppliers besides Ball and 
Rexam have submitted a bid, and beverage producers have therefore 
depended on the competition between Ball and Rexam to obtain a contract 
with favorable terms. The Acquisition would also increase the ease and 
likelihood of anticompetitive coordination between the only two 
remaining independent beverage can suppliers, Ball and Crown Holdings, 
Inc. Thus, the Acquisition would likely result in higher prices and a 
reduction in quality, selection, service, and innovation.

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VI. Entry

    Entry in the manufacture of Standard Cans and Specialty Cans would 
not be timely, likely, or sufficient in magnitude, character, and scope 
to deter or counteract the likely competitive harm from the 
Acquisition. Considerable entry barriers exist in the manufacture of 
Standard Cans and Specialty Cans, including, but not limited to, 
substantial capital costs needed to construct a new aluminum can plant 
and significant volume requirements necessary to run a plant 
efficiently. For Standard Cans, a consistent decline in demand has 
created a further disincentive to entry, which has led to a steady 
removal of capacity for over 20 years. With respect to Specialty Cans, 
a new entrant would be at a significant disadvantage if it were to 
construct new Specialty Can lines compared to incumbent suppliers (led 
by Ball and Rexam) that can convert Standard Can lines to Specialty Can 
production at lower cost.
    The threat of vertical integration by beverage producers is also 
unlikely to deter or counteract the competitive harm from the 
Acquisition. A single beverage can plant requires an annual production 
volume in the billions of cans to run profitably, which would preclude 
all but the very largest beverage producers from contemplating vertical 
integration. Moreover, it is difficult for even the largest beverage 
producers to make a credible threat of vertical integration because 
their filling plants are spread throughout the United States in a way 
that they could never fully supply internally. As a result, even a 
large, vertically integrated beverage producer would have to continue 
buying at least some beverage cans from existing suppliers, but at a 
higher price since it would receive a smaller volume discount, which 
would further disincentivize vertical integration. Coupled with the 
significant capital costs and technical requirements needed to build a 
new beverage can plant, vertical integration would not be a credible 
threat for the vast majority of beverage producers.

VII. The Proposed Consent Agreement

    The proposed Consent Agreement remedies the competitive concerns 
raised by the Acquisition by requiring Ball to divest seven beverage 
can plants and one can end plant in the United States to Ardagh. 
Divestitures of Rexam's Bishopville, SC and Olive Branch, MS can plants 
preserve competition for Standard Cans in the South/Southeastern United 
States. Divestitures of Rexam's Fremont, OH and Chicago, IL can plants 
preserve competition for Standard Cans in the Midwest. Divestiture of 
Rexam's Fairfield, CA can plant preserves competition for Standard Cans 
on the West Coast. Divestitures of Rexam's Winston-Salem, NC, 
Whitehouse, OH, and Chicago, IL can plants preserve competition in 
Specialty Cans in the United States. Finally, divestiture of Rexam's 
Valparaiso, IN can end plant ensures that Ardagh will be able to 
manufacture lids for all of its Standard Cans and Specialty Cans 
produced in the United States.
    As part of the Consent Agreement, Ball is also divesting Rexam's 
U.S. headquarters in Chicago, IL and Rexam's U.S. Technical Center in 
Elk Grove, IL to Ardagh. In addition, Ball has agreed to sell to Ardagh 
ten beverage can plants and two can end plants in Europe; two beverage 
can plants in Brazil; and other innovation and support functions in 
Germany, the United Kingdom, and Switzerland to resolve competitive 
concerns in Europe. Divestiture of the Ball and Rexam assets to a 
single, global buyer is important to preserve competition for many 
multinational customers.
    The Consent Agreement requires Ball to transfer all customer 
contracts currently serviced at the beverage can plants that are being 
divested to Ardagh. Additionally, in order to fully service the 
customer contract with Arizona Beverage Co. (``Arizona'') and to ensure 
the viability of certain divestiture assets, the Consent Agreement 
requires Ball to purchase a supply of beverage cans sufficient to 
service Arizona's requirements for the remaining duration of that 
agreement or until Ardagh enters into a separate customer agreement 
with Arizona.
    The Consent Agreement also requires Ball to provide support 
services for up to 18 months, including support for potential line 
conversions from Standard Cans to Specialty Cans, at Ardagh's request. 
In addition, Ball must provide Ardagh with a royalty-free, perpetual 
license to use patents and technologies necessary to operate the 
divested can business. Ball and Rexam must also help facilitate the 
employment of certain key employees by Ardagh.
    The Consent Agreement incorporates a proposed Order to Maintain 
Assets to ensure the continued health and competitiveness of the 
divested assets. The Consent Agreement also provides that the 
Commission may appoint a Monitor Trustee to monitor Ball and Rexam's 
compliance with their obligations pursuant to the Consent Agreement, 
and oversee the integration of the Rexam and Ball assets into Ardagh. 
The Commission has selected ING to serve as Monitor Trustee in this 
matter until integration of the divested assets is completed. The 
European Commission has also selected ING to oversee the divestiture, 
which makes the Monitor Trustee uniquely capable of monitoring the 
global transition of all assets acquired by Ardagh. The Consent 
Agreement also provides for appointment of a Divestiture Trustee to 
effectuate the divestitures if Ball fails to carry out the sale of 
assets and its related obligations.
    Through the proposed divestitures, Ardagh will become the third-
largest beverage can manufacturer in the United States and the world. 
Ardagh will own beverage can plants that span a broad geographic 
footprint, offer a well-balanced product mix, and have flexible 
manufacturing capabilities. Ardagh is an ideal buyer of the divested 
assets because it has existing long-standing relationships with key 
beverage customers through its glass bottle business, and existing 
experience with metal container manufacturing through its food can 
business. Furthermore, the fact that Ardagh does not currently produce 
aluminum beverage cans means that the divestiture will not create 
competitive issues of its own. Accordingly, Ardagh's acquisition of the 
divested assets will preserve the competition that would have otherwise 
been lost through Ball's acquisition of Rexam.
* * * * *
    The sole purpose of this Analysis is to facilitate public comment 
on the proposed Consent Order. This Analysis does not constitute an 
official interpretation of the proposed Consent Order, nor does it 
modify its terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2016-16687 Filed 7-13-16; 8:45 am]
BILLING CODE 6750-01-P