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Antitrust Division
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[Federal Register: February 7, 2000 (Volume 65, Number 25)]
[Notices]
[Page 5891-5894]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe00-111]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Imetal, DBK Minerals, Inc., English China Clays,
PLC, and English China Clays, Inc.; Civil Action No. 99-1018
(GK)(D.D.C.); Response to Public Comments
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a Public Comment and the
Response of the United States have been filed with the United States
District Court for the District of Columbia in United States v. Imetal,
DBK Minerals, Inc., English China Clays, PLC, and English China Clays,
Inc., Civil Action No. 99-1018 (GK)(D.D.C., filed April 26, 1999). On
April 26, 1999, the United States filed a Compliant alleging that the
proposed acquisition of English China Clays by Imetal would violate
Section 7 of the Clayton Act, 15 U.S.C. 18. The proposed Final
Judgment, filed at the same time
[[Page 5892]]
as the Complaint, permits Imetal to acquire English China Clays, but
requires that Imetal divest specified assets used in the manufacture
and sale of kaolin, calcined kaolin, paper-grade ground calcium
carbonate, and fused silica.
Public comment was invited within the statutory 60-day comment
period. The one Comment received, and the Response thereto, have been
filed with the Court and are hereby published in the Federal Register.
Copies of the Complaint, Hold Separate Stipulation and Order, proposed
Final Judgment, Competitive Impact Statement, Public Comment and the
Response of the United States are available for inspection in Room 215
of the Antitrust Division, Department of Justice, 325 7th Street, N.W.,
Washington, D.C. 20530 (telephone: 202-514-2481) and at the Office of
the Clerk of the United States District Court for the District of
Columbia, 333 Constitution Avenue, N.W., Washington, D.C.
Copies of any of these materials may be obtained upon request and
payment of a copying fee.
Constance K. Robinson,
Director of Operations & Merger Enforcement, Antitrust Division.
United States' Response to Comment Filed by Paper, Allied-
Industrial, Chemical and Energy Workers International Union
(``PACE'')
The United States of America hereby files with the Court the single
written comment that it received in this case, and its response
thereto, and states:
1. The Complaint in this case, the proposed Final Judgment, and the
Hold Separate Stipulation and Order (``Stipulation'') were filed on
April 26, 1999. The United States' Competitive Impact Statement was
filed on May 24, 1999.
2. Pursuant to 15 U.S.C. 16(b), the proposed Final Judgment,
Stipulation, and Competitive Impact Statement were published in the
Federal Register on June 11, 1999 (64 FR 31624-38).
3. Pursuant to 15 U.S.C. 16(c), a summary of the terms of the
proposed Final Judgment and the Competitive Impact Statement were
published in The Washington Post, a newspaper of general circulation in
the District of Columbia, during the period May 27, 1999 through June
2, 1999.
4. The 60-day comment period specified in 15 U.S.C. 16(b) ended on
August 10, 1999. The United States received a single written comment on
the proposed settlement, from the Paper, Allied-Industrial, Chemical
and Energy Workers International Union (``PACE''), on August 10, 1999.
A copy of that comment is attached as Exhibit 1.
5. Pursuant to 15 U.S.C. 16(d), the United States has considered
and responded to that comment. A copy of the United States' response is
attached as Exhibit 2.
6. The United States is making arrangements to have PACE's comment
and the United States' response thereto published in the Federal
Register, pursuant to 15 U.S.C. 16(d). As soon as that publication has
been effected, the United States will notify the Court that it has
complied with the requirements of the Antitrust Procedures and
Penalties Act (``APPA''), 15 U.S.C. 16(b)-(d), and that the Court may
then enter the proposed Final Judgment after it determines that the
Judgment serves the public interest.
Dated: January 14, 2000.
Respectfully submitted,
Patricia G. Chick, D.C. Bar #266403, U.S. Department of Justice,
Antitrust Division, 1401 H Street, N.W. Suite 3000, Washington, D.C.
20530, Telephone: (202) 307-0946, Facsimile: (202) 514-9033,
Attorney for Plaintiff the United States.
The Cuneo Law Group, P.C.
August 10, 1999.
Mr. J. Robert Kramer, II
Chief, Litigation II Section Antitrust Division United States
Department of Justice
Re: United States v. Imetal, DBK Minerals, Inc., English China
Clays, PLC, and English China Clays, Inc., Civil No. 99-1018
(D.D.C.)
Dear Mr. Kramer:
Pursuant to the Antitrust Procedures and Penalties Act, 15
U.S.C. Sec. 16(b)-(h), the Paper, Allied--Industrial, Chemical and
Energy Workers International Union (``PACE'') urges the Antitrust
Division of the Department of Justice to give ``due consideration''
to these comments and to ``withdraw its consent to the proposed
Final Judgment'' in this case. Competitive Impact Statement
(``CIS'') at 11.
Summary
Without remedial action, the Imetal/English China Clays
(``ECC'') merger will produce a combination of the only two
producers in the Southeastern United States of ground calcium
carbonate (``GCC'') in slurry form for the paper industry, a key
ingredient in paper-making. The Antitrust Division has already found
that this combination will raise prices and reduce output. According
to the Antitrust Division's Complaint in this case: ``If the
acquisition were permitted, Imetal would * * * have an interest in
all of the paper grade GCC production capacity in the Southeastern
United States'' Complaint at 2 (emphasis added) The Complaint goes
on to state; ``[D]ue to the dominant position Imetal would have with
respect to paper-grade GCC sold in the Southeastern United States *
* * the threat of unilateral price increases * * * as a result of
this acquisition is particularly high.'' Id. Left unchecked, the
merger could well combine duopolists into monopolist.
Under the proposed consent decree, Imetal/ECC must spin off
certain assets in the hope that another firm will have sufficient
economic incentives to enter the market. Such speculative hopes will
not substitute for adequate law enforcement. The Antitrust
Division's proposed consent decree would allow the replacement of
two existing competitors with a single more powerful competitor--and
a competitor to be created, maybe. The replacement of two existing
competitors with a monopolist and a potential competitor clearly
violates Section 7 of the Clayton Act. Moreover, the CIS does not
come close to providing enough information to evaluate whether it is
in any sense realistic to expect that an effective second competitor
will emerge.
Analysis
PACE came into being in January 1999 through the merger of the
Oil, Chemical and Atomic Workers International Union and the United
Paperworkers International Union. The antitrust interests of PACE in
this transition are twofold. First, as a union of 330,00 members,
PACE has a direct and substantial interest in the preservation of
competitive market conditions. Because a monopolistic output
restriction will constrict supply as well as raise prices, unions
such as PACE, who are concerned about full employment, have a direct
interest in preservation of competitive conditions in the paper
industry. PACE represents approximately 125,000 workers in the
forest products and paper industry who could be adversely affected
by any monopoly constriction of supply. Part, but by no means all,
of this concern stems from the fact that PACE Local 3-0516
represents approximately 140 employees at the Imetal-controlled
Georgia Marble dry processing facility in Sylacauga, Alabama.
Second, PACE and its members are purchasers of paper and paper
supplies throughout the United States, including the Southeast, and
therefore have a consumer interest in the preservation of a free and
open market of all of the ingredients in the paper-making process.
As relevant here, the essential facts are as follows: GCC begins
as calcium carbonate, which is found in marble or limestone
deposits. Paper-making requires the brightest white GCC. High bright
deposits are scarce, and some of the best are located in the
Sylacauga area.
Once quarried, GCC is dry-processed through a series of
screening and grinding steps into particles. Dry-processed GCC is
then wet-processed and sold in slurry form to the paper-making
industry. See generally CIS at 6. There are no ready substitutes.
According to the CIS: ``A small but significant increase in the
price of GCC would not cause a significant number of paper customers
currently purchasing GCC for coating applications to substitute
other products.'' Id.; Complaint at 6.
Earlier this year, Imetal, SA, a large French company, made a
cash tender offer of U.S. $1.24 billion to acquire English China
Clays, PLC. Both companies have U.S. revenues in the hundreds of
millions of dollars.
[[Page 5893]]
Imetal owns an American company, DBK Minerals, Inc., which owns
Georgia Marble. Georgia Marble owns vast GCC reserves in Sylacauga,
and owns and operates a facility to dry process GCC there. Georgia
Marble is also a 50% partner in Alabama Carbonates, L.P., which wet
processes GCC at a facility located next door to Georgia Marble's
dry processing facility.
The acquired company, English China Clays, PLC, is a British
firm that owns an American subsidiary, English China Clays, Inc.
(referred to collectively as ``ECC''). ECC owns and operates a fully
integrated GCC mining and processing facility across the street from
the Georgia Marble/Alabama Carbonates facilities in Sylacauga.
According to the Justice Department, Imetal and ECC are the only
two suppliers of GCC to paper mills in the Southeastern United
States. It bears repeating that the CIS makes clear that GCC is a
product market unto itself: ``A small but significant increase in
the price of GCC would not cause a significant number of paper
customers currently purchasing GCC for coating applications to
substitute other products.'' CIS at 6.
The CIS also makes clear that GCC in the Southeastern United
States is a geographic market: ``Because of high transportation
costs, sales of GCC tend to be regional rather than nationwide.''
Id. at 7. The Antitrust Division's Complaint charges that the
``development, production, and sale of GCC for paper coating
applications is a line of commerce and a relevant product market''
and the thirteen Southeastern states comprise ``a relevant
geographic market'' within the meaning of Section 7 of the Clayton
Act. Complaint, paras. 22, 28-30.
If the merger were left unchallenged, it would reduce a duopoly
to a significantly enhanced competitor and a joint venture--Alabama
Carbonates--at the mercy of the significantly enhanced competitor.
Reserves of sufficient quality are ``scarce'' and ``may be
unavailable in the Southeast.'' For this and other reasons, ``new
entry is unlikely to occur.'' Complaint para. 42.
It is axiomatic that reduction from two viable, active
competitors to a monopoly in a particular geographic and regional
market clearly violates Section 7 of the Clayton Act, 15 U.S.C.
Sec. 18, because the merger's impact ``may be substantially to
lessen competition or to create a monopoly.'' Under the Herfindahl-
Hirschmann Index (``HHI''), the minimum pre-merger HHI of a two-firm
market is 5,000, over two and a half times 1800, the HHI index the
Merger Guidelines call ``highly concentrated.'' After any merger,
the HHI could be as high as 10,000, the maximum HHI possible. U.S.
Department of Justice and Federal Trade Commission. Horizontal
Merger Guidelines Sec. 1.51 (1997).
How does the Antitrust Division propose to remedy this clear
competitive problem? By replacing a duopoly with a monopoly and a
potential competitor that the Antitrust Division apparently hopes
will enter. The proposed Final Judgment requires a number of steps
that the Antitrust Division apparently hopes will become the
predicate for further entry by another competitor.
The proposed Final Judgment requires: (1) that Georgia Marble
dives its interest in the Alabama Carbonates wet-processing
facility; and (2) that Imetal/Georgia Marble and/or ECC divest
sufficient GCC reserves for Alabama Carbonates to operate at its
maximum stated contractual capacity for 30 years. The divestiture of
reserves is designed to reduce Alabama Carbonates' dependence on
Georgia Marble's reserves and dry processing facilities.
The theory of the proposed Final Judgment is, apparently, that
access to these divested reserves is the ``minimum'' that will be
sufficient for Alabama Carbonates ``to consider making the required
investments in processing facilities.'' CICS at 15 (emphasis
supplied). In order to effectuate the hoped-for transition, the
proposed Final Judgment requires defendants to provide Alabama
Carbonates with feedstock for a period of up to three years.
The proposed relief is plainly insufficient under the Clayton
Act, the merger Guidelines, and the rule of common sense.
Competition in this market is already fragile. There are two
competitors only. Under the proposed decree, there is no guarantee
that there will even be two competitors in the future, much less two
effective competitors. The CIS has no finding, much less a
requirement, that Alabama Carbonates will actually enter the market.
There is only a hope that if it can gain access to a ``minimum'' of
reserves, Alabama Carbonates will ``consider'' making the necessary
investment to enter the market.
In contrast to the approach in this case, the Horizontal Merger
Guidelines require that entry be ``timely, likely, and sufficient in
its magnitude, character and scope to deter or counteract the
competitive effects of concern.'' Horizontal Merger Guidelines,
Sec. 3.0. In this instance, there is no finding of timeliness,
likelihood or sufficiency in the CIS. We should not give up current
competition in a highly concentrated market in exchange for a hope
of future competition.
Likelihood of competition is clearly an issue. So is
sufficiency. The CIS makes clear that access to high quality
reserves is what drives the ability to compete. Yet, under the best
circumstances, Alabama Carbonates is limited to 30 years' worth of
supply at its current contractual capacity. This artificial
limitation, to be sure, raises the question even if Alabama
Carbonates enters the market, whether it will have enough reserves
to sufficiently compete in the future if demand increases. Access to
reserves should be keyed to marketplace demand, not current
production capacity.
The Final Judgment should not permit any possibility of a
decrease in competition in such a highly concentrated market. There
can be no question that the proposed merger ``may lessen
competition'' and/or ``create a monopoly'' in violation of Section 7
of the Clayton Act. According to the CIS, ``[t]he proposed
transaction would likely result in unilateral price increases to
customers in the Southeastern United States. Entry is unlikely to
occur, and would not be timely or sufficient to defeat a post-
acquisition increase in the price of paper grade GCC.'' CIS at 10
(emphasis supplied); see Horizontal Merger Guidelines Sec. 3.0. The
CIS goes on to say:
``A de novo'' entrant would have to acquire substantial high bright
reserves in the Southeast, establish a quarry and build a processing
plant. While the quarry and plant would require considerable
expenditures of money and take substantial time, the most
significant barrier is obtaining appropriate reserves. Paper-grade
GCC requires high bright reserves, which are scarce resources and
are generally believed to be largely unavailable in the Southeast
because they were owned primarily by Georgia Marble and ECC. CIS at
10.''
There is no promise--much less a guarantee--that the decree will
preserve any competition, much less effective competition. The
Antitrust Division should require that the Imetal/ECC combination
leave existing competition intact and that there be market
conditions that maximize future competition. Access to reserves in
the future should be pegged to future market demands, not current
plant capacity. Nothing less will protect consumers.
PACE is also concerned that the transition provisions of the
proposed Final Judgment do not fully protect any fledgling
competition. Obviously, a situation in which a firm must rely upon
its competitor for supply is inherently subject to competitive
abuse. Under the transition provisions of the proposed decree,
Imetal/ECC must supply Alabama Carbonates with feedstock for a
period of up to three years.
According to the CIS: ``This provision is designed to provide
Alabama Carbonates with a reasonable transition period to make the
investment required for it to be self-sufficient in the long term.''
Id. at 16. This bald statement does not answer any of the questions
that naturally arise in a transition. Just a few of the questions
might be:
What proof exists that three years is enough time for a
potential competitor to secure financing, gain any necessary permits
(e.g., zoning or environmental permits), and actually construct a
facility?
What protections exist against the Imetal/ECC
combination's adulterating the product that it furnishes Alabama
Carbonates? How will quality of the Imetal/ECC input be monitored
and maintained? What protections exist against furnishing the
product at grossly excessive prices?
What protections exist against Imetal/ECC delaying
delivery of the necessary inputs?
What protections exist against the Imetal/ECC
combination's low-balling the price of GCC slurry so that it becomes
infeasible for Alabama Carbonates to enter?
What protections exist against the Imetal/ECC
combination's engaging in so-called ``limit pricing''--pricing above
the competitive level but not so high as to induce entry?
In the event of a recession and a slackening of demand,
will there be sufficient incentive for Alabama Carbonates to enter?
In sum, the proposed remedy and explanation are completely
insufficient to provide any reassurance that any competition--much
less effective competition--will continue to exist. In essence, the
Antitrust Division proposes, as a result of this merger, to replace
two existing competitors with one competitor and a potential
competitor. And there is no reason
[[Page 5894]]
to believe that the transition provisions will be sufficient to
protect any new competitor that does emerge.
Far from being a reassurance, the CIS is a warning. The
Antitrust Division should oppose the merger or force a broader
divestiture, and preserve competition.
Thank you very much for your consideration of our views.
Sincerely,
Jonathan W. Cuneo, The Cuneo Law Group, P.C., 317 Massachusetts
Avenue, N.E., Suite 300, Washington, DC 20002
Attorneys for The Paper, Allied-Industrial Chemical and Energy
Workers International Union
cc: George M. Chester, Esquire, Covington & Burling, 1201
Pennsylvania Avenue, Washington, DC 20004
William R. Norfolk, Esquire, Sullivan & Cromwell, 125 Broad Street,
New York, NY 10004.
U.S. Department of Justice, Antitrust Division
January 14, 2000.
Jonathan W. Cuneo, Esquire
The Cuneo Law Group, P.C.
Re: Comment on proposed Final Judgment in United States v. Imetal,
et al., Civil No. 99 1018 (D.D.C., filed April 26, 1999)
Dear Mr. Cuneo:
This letter responds to your August 10, 1999 letter commenting
on the proposed Final Judgment in U.S. v. Imetal, et al., Civil No.
99-1018 (D.D.C., filed April 26, 1999), which is currently pending
in federal district court in the District of Columbia. The Complaint
in the case charged that Imetal's acquisition of English China Clays
(``ECC'') would substantially lessen competition in a number of
relevant markets, including in the manufacture and sale of paper-
grade ground calcium carbonate (``GCC'') in the southeastern United
States. The proposed Final Judgment would settle the case by
requiring divestitures in all the relevant markets alleged. With
respect to paper-grade GCC, the proposed Final Judgment requires
that Imetal divest its interest in the limited partnership through
which it participates in that market, and also divest substantial
reserves for the use of that entity.
In your letter, you expressed concern that the proposed Final
Judgment did not go far enough to eliminate the effects of Imetal's
acquisition of ECC in the market for paper-grade GCC in the
southeastern United States. Specifically, you characterize the
mandated divestiture as requiring Imetal to ``spin off certain
assets in the hope that another firm will have sufficient economic
incentives to enter the market,'' and resulting in ``the replacement
of two existing competitors with a single more powerful competitor--
and a competitor to be created.''
I disagree with your characterization of the market structure
that would result from the proposed Final Judgment, and thus with
the fundamental premise of your comments. Before Imetal announced
its plans to acquire ECC, there were two competitors in the
manufacture and sale of paper-grade GCC in the southeastern United
States: ECC and Alabama Carbonates. After Imetal's acquisition of
ECC, there are still the same two viable competitors in this market.
The competitive issue arose because Imetal had a 50% interest in
ECC's only competitor, Alabama Carbonates. The proposed Final
Judgment, by requiring Imetal to divest its interest in Alabama
Carbonates, ensure that the two competitors that existed before the
acquisition will continue to exist as competitors after the
acquisition. Alabama Carbonates does not need to ``enter the
market'', it is already in the market. The remedy provided for in
the proposed Final Judgment means that Imetal's acquisition of ECC
results in no change in the number of firms selling paper-grade GCC
in the southeastern United States, no change in concentration, and
no change in the HHI for that market.
As you are aware, Alabama Carbonates has historically competed
in this market by contracting for its raw materials. Since its
inception, it has purchased the feedstock for its wet-processing
operations from its joint venturer, Georgia Marble (Imetal). With
Imetal's acquisition of ECC, however, if Alabama Carbonates were to
continue this arrangement, it would be dependent on its only
competitor for its source of supply. The proposed Final Judgment
requires Imetal to continue to provide feedstock for the Alabama
Carbonates operation, if requested, for up to three years, to permit
Alabama Carbonates a reasonable amount of time in which to become
independent of Imetal. In addition, recognizing that the company
might well decide that the optimum way to achieve that independence
is through vertical integration, and that a lack of adequate
reserves would be a substantial barrier to such integration, the
proposed Final Judgment also requires that Imetal divest substantial
reserves of GCC for use by Alabama Carbonates.
Specifically, the proposed Final Judgment requires that Imetal
divest sufficient reserves so that Alabama Carbonates will have
enough feedstock to make 500,000 tons a year of GCC for thirty
years. The United States specified this quantity of reserves in the
proposed Final Judgment because we concluded, based on our
investigation, that 500,000 tons was an efficient scale for a dry
processing plant, and that a business would need to be assured a 30-
year supply of reserves in order to justify the investment required
to build a dry processing plant. This provision is not intended to
limit Alabama Carbonates to competing at its current capacity--
rather, it provides the reserves for the company to operate
efficiently far into the future. Moreover, there is nothing in the
decree that limits in any way the company's ability to expand its
operations, including seeking additional reserves.
The United States strongly believes that the divestitures in the
proposed Final Judgment relating to paper-grade GCC and other
injunctive relief will alleviate the competitive concerns alleged in
the Complaint. The divestiture of Imetal's interest in the Alabama
Carbonates joint venture and the reserves needed to build a viable
dry processing plant ensures that there will be no reduction in the
pre-acquisition competition. The two competitors that existed before
the acquisition will continue to exist. The requirement that Imetal
divest reserves eliminates what could have been a substantial
barrier to Alabama Carbonates' continuing to compete without being
dependent on Imetal for feedstock for its operations. And finally,
the transition agreement assures that Alabama Carbonates will be
able to continue as a competitor in the short term while it takes
the steps necessary to eliminate its historical dependence on
Imetal. The term of that transition agreement was set based on the
United States' conclusion, from its investigation, that three years
would be sufficient for the joint venture to make the transition to
independence. The proposed Final Judgment does provide a mechanism
for extending that term, however, if this assumption proves
incorrect. In addition, the requirement that the terms of the
transition agreement be substantially similar to the supply
agreement that existed before the acquisition, and subject to
approval by the United States, should provide sufficient protection
against the kinds of conduct that you have expressed concern about.
Thank you for bringing your concerns to our attention. I trust
you appreciate that we have given them due consideration, and hope
this response will help alleviate them. Pursuant to the Antitrust
Procedures and Penalties Act, 15 U.S.C. Sec. 16(d), a copy of your
comment and this response will be published in the Federal Register
and filed with the Court.
Sincerely yours,
J. Robert Kramer II, Chief, Litigation II Section
Certificate of Service
I hereby certify that I caused a copy of the foregoing United
States' Response to Comment Filed by the Paper, Allied-Industrial,
Chemical and Energy Workers International Union (``PACE'') to be
served by first class mail, postage prepaid, this 14th day of
January, 2000, on:
George M. Chester, Jr., Esquire, Covington & Burling, 1201
Pennsylvania Avenue, N.W., Washington, D.C. 20004-7566, Counsel for
All Defendants
Jonathan W. Cuneo, Esquire, The Cuneo Law Group, P.C., 317
Massachusetts Avenue, N.E., Suite 300, Washington, D.C. 20002,
Counsel for PACE
Patricia G. Chick, D.C. Bar #266403, Trial Attorney, U.S. Department
of Justice, Antitrust Division, 1401 H Street, N.W., Suite 3000,
Washington, D.C. 20530, (202) 307-0946.
[FR Doc. 00-2703 Filed 2-4-00; 8:45 am]
BILLING CODE 4410-11-M