FTC Challenges Ardagh Group, S.A.’s Proposed Acquisition of Rival Glass-Container Manufacturer Saint-Gobain Containers, Inc.

The Federal Trade Commission challenged Ardagh Group, S.A.’s proposed $1.7 billion acquisition of Saint-Gobain Containers, Inc., alleging that it will reduce competition and result in the two firms – the merged firm and its only remaining significant competitor, Owens-Illinois – controlling in excess of 75 percent of the U.S. markets for glass containers for beer and spirits customers, resulting in higher prices for those customers.

The FTC issued an administrative complaint against the two companies, alleging that the acquisition would violate U.S. antitrust law. The agency also authorized staff to seek a temporary restraining order and preliminary injunction, if and when necessary to prevent consummation of the acquisition pending the administrative trial on the merits.

“If Ardagh is allowed to acquire Saint-Gobain, it would eliminate beneficial competition that has led to lower prices for beer and spirits bottles,” said Norman Armstrong, Jr., Deputy Director of the FTC’s Bureau of Competition.  “This combination would lead to higher costs for brewers and distillers and less innovation in the glass container industry.  Ultimately, this transaction will result in higher prices for consumers.”

Ardagh, a European glass and metal company, entered the U.S. glass container market in 2012 by acquiring Anchor Glass Container Corporation, the longstanding third-largest U.S. glass manufacturer, and Leone Industries, a small, single-plant glassmaker.  The proposed acquisition would be Ardagh’s third U.S. glass acquisition in little more than a year.

The proposed acquisition would combine the second-largest manufacturer of glass containers (Saint-Gobain) and the third-largest (Ardagh). According to the complaint, each year, Americans use more than 18 billion glass beer and spirits containers. Three manufacturers, including Ardagh and Saint-Gobain, produce the overwhelming majority of these glass containers. Together, “Three Majors” dominate the approximately $5 billion U.S. glass container industry. The complaint alleges that the acquisition will have anticompetitive effects in the markets for glass bottles for beer and glass bottles for spirits and will increase concentration in those markets to levels that are presumptively illegal.  These markets are mature and characterized by low growth with significant barriers to entry and expansion.

The complaint alleges that brewers and distillers do not view other packaging materials as interchangeable for glass bottles because of commercial constraints, such as consumer preferences and brand identity. Glass promotes a premium or distinctive brand image; enables brewers and distillers to convey a premium image by associating the quality appearance of the glass with their product identity; protects beer and spirits by guarding against oxygen invasion for a longer shelf life; maintains the true taste of the beer or spirits; is chemically inert and does not leach chemicals into the beer and spirits; and is 100% recyclable.

According to the complaint, the existence of other packaging materials has not prevented the Three Majors from shifting cost increases to customers and raising prices in recent years. The complaint points out that glass bottle prices have increased substantially more than plastic bottles and aluminum cans.

The complaint alleges that glass container competitors possess a wealth of information about each other and the glass container industry, and that reducing the number of major competitors from three to two will make it substantially easier for the remaining two competitors to coordinate with one another to achieve supracompetitive prices or other anticompetitive outcomes.  Moreover, the complaint also alleges that the proposed acquisition would eliminate head-to-head competition between the two firms, depriving brewers and distillers of the substantial benefits they have reaped from the firm’s rivalry.The Commission vote to issue the administrative complaint and to authorize staff to seek a temporary restraining order and preliminary injunction in federal district court was 3-1, with Commissioner Joshua D. Wright voting no. The evidentiary hearing is scheduled to begin before an administrative law judge at the FTC on December 2, 2013.

NOTE: The Commission issues an administrative 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 issuance of the administrative complaint marks the beginning of a proceeding in which the allegations will be tried in a formal hearing before an administrative law judge.

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, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20001.  To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.