FTC Sues to Block Oldcastle Architecturals Proposed Acquisition of the Pavestone Companies

The Federal Trade Commission has filed suit to block Oldcastle Architectural, Inc.’s proposed acquisition of the interests and assets of the rival Pavestone companies, charging that the $540 million acquisition would greatly reduce competition for drycast concrete hardscape products sold to national home centers, such as The Home Depot, Lowe’s, and Wal-Mart in nearly 300 metropolitan areas in 40 states and the District of Columbia.

The FTC’s administrative complaint alleges that a combined Oldcastle/Pavestone would harm consumers by creating a company that would control as much as 90 percent or more of sales to national home centers, and would be the only drycast concrete hardscape manufacturing firm capable of supplying these products from plants throughout the country.

“Consumers purchasing these hardscape products for use in their patios, walkways, gardens, and other outdoor projects benefit from the close competition between Oldcastle and Pavestone,” said Acting Bureau of Competition Director David P. Wales. “The Commission’s action seeks to preserve that competition and ensure consumers are not forced to pay higher prices and purchase lower quality products as a result of this merger.”

Headquartered in Atlanta, Georgia, Oldcastle Architectural, Inc. is wholly owned by Oldcastle, Inc., and is an indirect subsidiary of CRH plc, the international parent of a group of companies engaged in the manufacture and supply of a wide range of building materials. Robert Schlegel, an individual, is the ultimate parent of the Pavestone companies, including Pavestone Company, LP. Pavestone’s headquarters are in Dallas, Texas.

Both Oldcastle and Pavestone manufacture and sell drycast concrete hardscapes, which are landscaping products that include interlocking concrete pavers, segmented retaining wall blocks, and other drycast concrete patio products. They typically are bought by consumers at local home centers for do-it-yourself outdoor projects such as walkways, patios, and garden walls. Drycast concrete hardscapes sold at national home centers are designed to be easy to use, requiring little, if any, expertise or specialized equipment.

According to the FTC, unless blocked, the acquisition would reduce competition in the manufacture and sale of drycast concrete hardscapes to national home centers in nearly 300 metropolitan areas throughout the continental United States. Because drycast concrete products are heavy and expensive to ship, Oldcastle and Pavestone each operate many plants throughout the country to supply local outlets of the national home centers. The FTC asserts that generally it is not cost-effective or competitively viable to transport these products more than 200 miles from a manufacturing plant to national home centers. Thus, Oldcastle and Pavestone typically bid to supply home center stores located within 200 miles of each of their plants, resulting in regional competition among suppliers of drycast concrete hardscape products.

According to the administrative complaint, as the only firms with plants throughout the country, Oldcastle and Pavestone are able to provide a broad range of drycast concrete hardscapes, offer a large number of exclusive and innovative products, and provide an array of support services such as category management, inventory management, marketing aids, and customer training to national home centers. In addition, Oldcastle and Pavestone offer discounts and other marketing and advertising allowances based on national sales volumes. As a result, Oldcastle and Pavestone together account for as much as 90 percent or more of drycast concrete hardscapes sales to national home centers.

The FTC charges the proposed acquisition would result in increased prices and reduced quality, innovation, and services related to these products in the relevant geographic markets. By eliminating the unique competition between Oldcastle and Pavestone, the proposed acquisition would reduce the leverage national home centers now have to negotiate for lower prices and better products, and regional manufacturers would be unable to replicate the current market competition. According to the Commission, the elimination of Pavestone as a competitor would allow Oldcastle unilaterally to increase prices and reduce quality, innovation, and services to national home centers. This ultimately will harm consumers by raising their home improvement costs. The complaint states that entry into the national home center markets would be unlikely to deter or counteract the anticompetitive effects of the transaction.

In its administrative complaint, the Commission also charges that the acquisition would result in anticompetitive effects in the manufacture and sale of drycast concrete pavers and segmented retaining wall blocks to commercial customers, including contractors, dealers, and distributors, in the areas of Dallas, Houston, and San Antonio, Texas. According to the FTC, if allowed to merge, Oldcastle and Pavestone would be the dominant supplier of drycast concrete pavers and segmented retaining wall blocks to these customers, accounting for more than 75 percent of sales in the state of Texas.

According to the administrative complaint, after the acquisition the combined Oldcastle/Pavestone unilaterally would be able to increase prices and reduce quality, innovation, and services to commercial customers in the Dallas, Houston, and San Antonio areas. The complaint states that entry into the Texas commercial markets would be unlikely to deter or counteract the anticompetitive effects of the transaction.

The Commission vote to issue the administrative complaint was 4-0. Also by a vote of
4-0, the Commission has authorized the staff to file a complaint in the U.S. District Court for the
District of Columbia seeking a temporary restraining order and a preliminary injunction to preserve the competitive status quo pending an administrative trial on the merits.

Issuing a complaint is the first step in the administrative trial process. The administrative proceeding is governed by Part 3 of the Commission’s Rules of Practice, as amended by the final interim rule revisions that became effective on January 13, 2009. Pursuant to the amended Rules of Practice, the evidentiary hearing is scheduled to occur on June 15, 2009, and the Commission will issue its final decision within approximately 100 days of the initial decision.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that a defendant has violated the law.

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 383, 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.

(FTC File No. 081-0148)
(Oldcastle.final.wpd)