FTC Challenges Owens Cornings Acquisition of Saint Gobain Assets

The Federal Trade Commission today announced a complaint challenging Owens Corning’s proposed acquisition of the glass fiber reinforcements and composite fabric assets of Compagnie de Saint Gobain (Saint Gobain), charging that the deal would lead to reduced competition in the North American market for continuous filament mat (CFM) products. Under the terms of a consent order resolving the Commission’s charges and allowing the deal to proceed, Owens Corning must divest its North American CFM business – along with related licenses and intellectual property – to AGY Holding Company within 10 days of completing its acquisition of the Saint Gobain assets.

“Owens Corning and Saint Gobain are direct and significant competitors in the North American market for continuous filament mat products,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “Absent the relief provided by the Commission’s consent order announced today, the combined entity would have control of more than 90 percent of the CFM market in the United States.”

The Transaction and Relevant Product Market

Owens Corning and Saint Gobain originally planned to combine their respective glass fiber reinforcement businesses in a new entity called Owens Corning Vetrotex Reinforcements. However, in response to antitrust concerns, the companies restructured the deal and entered into an agreement in which Owens Corning will acquire Saint Gobain’s glass fiber reinforcements and composite fabric business assets worldwide, with several important exclusions. First, Owens Corning will not acquire Saint Gobain’s glass fiber reinforcement assets in the United States. Next, certain assets in Europe will be divested under an agreement between the parties and the European Commission (EC). Owens Corning will still acquire Saint Gobain’s CFM assets, including the CFM production facility in Besana, Italy.

The Commission’s consent order addresses the competitive concerns in the North American CFM market raised by the acquisition. A unique glass fiber reinforcement product, CFM is an input in the production of non-electrical laminate, marine parts and accessories, and other products where its strength and durability make it the most cost-effective material to use. CFM increases the mechanical performance – such as stiffness and strength – of products, as well as their resistence to chemicals.

The Commission’s Complaint

According to the Commission’s complaint, Owens Corning’s acquisition of the Saint Gobain glass fiber reinforcements and composite fabric assets would violate Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended, by substantially lessening competition in the North American market for the development, manufacture, and sale of CFM and related technology. The FTC contends that the market for CFM is highly concentrated and that for many years Owens Corning and Saint Gobain have been the primary competitors in the CFM market, with the two companies accounting for more than 90 percent of the CFM sold in North America.

Specifically, the complaint alleges that the proposed transaction would reduce competition by eliminating direct competition between Owens Corning and Saint Gobain in the relevant market. In addition, entry into the market by a new competitor would not be timely, likely, or sufficient to deter or offset the anticompetitive effects of the acquisition.

Terms of the Consent Order

The FTC’s consent order is designed to remedy the competitive harm that otherwise would result from Owens Corning’s acquisition of the Saint Gobain assets. Under the terms of the order, within 10 days after acquiring certain worldwide glass fiber reinforcements and composite fabric assets from Saint Gobain, Owens Corning must divest its U.S. CFM business to AGY. Based in Aiken, South Carolina, AGY develops, manufactures, and markets a wide range of glass fiber yarn and reinforcement materials. Accordingly, the FTC believes it is well-positioned to compete effectively with the new joint venture in the CFM business.

Specifically, the order requires Owens Corning to divest its Huntingdon CFM facility to AGY and to divest the Marbles Furnace located in Anderson, South Carolina, which currently supplies the Huntingdon facility with glass fiber marbles used in the production of CFM. In addition, Owens Corning is required to grant AGY two licenses, the first for intellectual property related to the production, marketing, and distribution of CFM, and the second to the furnace technology used in Owens Corning’s Guelph and Battice facilities related to CFM. The goal is to provide AGY with the assets and know-how needed to produce and sell CFM products.

Finally, the order allows the parties to enter into transition agreements over the short term, including an agreement for the supply of raw materials for the production of Marbles. It also precludes Owens Corning and Saint Gobain from entering into any agreement that would reduce the value of the assets still owned by Saint Gobain.

International Cooperation

The EC and Mexico's Federal Competition Commission also are reviewing, or have already reviewed, this proposed transaction. Throughout the course of their respective investigations, FTC staff and their counterparts in those authorities communicated and cooperated with each other under the terms of their respective bilateral cooperation agreements and, in the case of the EC, the 2002 Best Practices on Cooperation in Merger Investigations.

The Commission vote approving the issuance of the complaint and consent order was 5-0. The order will be subject to public comment for 30 days, until November 26, 2007, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.