The Competition Bureau recently issued position statements in two cross-border merger cases that illustrate important facets of its merger review process. After an extensive review of a transaction involving two lumber companies, the bureau, together with its US antitrust counterparts, issued guidance on best practices in cooperation in cross-border merger reviews. The lumber transaction embodied these best practices. The bureau's review of a merger between two aluminium foil and semi-rigid aluminum container makers is also noteworthy for its statements regarding the treatment of private label and branded goods. This update outlines the implications of these transactions.
Tennessee-based Louisiana-Pacific Corporation (LP) recently abandoned its proposed acquisition of Canadian competitor Ainsworth Lumber Co Ltd. The decision came several days after announcements by the US Department of Justice (DOJ) and the bureau that they each considered the transaction to be likely to substantially lessen competition of the sale of oriented strand board (OSB). The bureau and the DOJ collaborated and shared information during the review of the proposed merger.
The bureau, DOJ and Federal Trade Commission have long coordinated reviews of cross-border mergers. This experience is reflected in the recently published Best Practices on Cooperation in Merger Investigations, issued by the agencies in late March. According to the publication, the collaborative effort aims not only to increase the efficiency of the merger review process and reduce the burden placed on merging parties, but also to encourage the agencies to use consistent analysis and reach similar outcomes. The positions taken by the bureau and the DOJ in this case case confirm that they have met their objectives.
On September 4 2013 LP and Ainsworth entered into an agreement where LP agreed to acquire all of Ainsworth's outstanding common shares. Both parties are large manufacturers of OSB. According to the agencies, the merged entity would have controlled approximately 60% of the OSB market in Western Canada, 63% in the Pacific Northwest region of the United States and 55% in the Upper Midwest of the United States.
The bureau analysed whether the merged entity would gain enough market power to substantially reduce the competitiveness of the OSB industry in British Columbia.
It first considered whether existing competitors in the OSB industry would be able to restrain the merged entity from raising the price of OSB in British Columbia. At the time of the merger review, there were only four OSB producers – including Ainsworth and LP – with mills located in British Columbia. The bureau concluded that the remaining competitors did not have enough market power and could not expand their operations fast enough to constrain a material price increase on OSB. The bureau discounted the market power of competiting mills outside British Columbia because they faced higher freight costs, putting them at a disadvantage over the parties' mills in the province.
The bureau then examined whether new competitors could enter into the OSB industry in British Columbia to reduce the potential market harm that the merger may cause. It concluded that the likelihood of a timely and sufficient entry was low due to high barriers to entry and expansion, such as obtaining environmental approval to build a new mill and negotiating a long-term supply contract with fibre suppliers.
The bureau concluded that the proposed acquisition was likely to result in a substantial lessening of competition in the OSB industry in British Columbia. Concurrently, the DOJ raised similar concerns, stating that the merged entity would raise the price of OSB in the Pacific Northwest and Upper Midwest of the United States, and was likely to substantially lessen competition in these regions.
On November 15 2013 Reynolds Consumer Products, Inc agreed to acquire the North American division of Novelis Foil Products for US$35 million. Six months later, on May 26 2014, the bureau approved the acquisition by issuing a no action letter to Reynolds and announcing that the merger was unlikely to cause a substantial lessening or prevention of competition.
Both parties manufacture and supply aluminium foil wrap and semi-rigid aluminium containers. Novelis operates two manufacturing plants and three distribution facilities in Canada, while Reynolds manufactures in the United States and distributes to Canada through its two Canadian distribution facilities.
The bureau conducted separate analysis for aluminium foil wrap and semi-rigid aluminium containers.
The bureau held that the merger would not affect the level of competition in the aluminium foil wrap market sufficiently to warrant an application under Section 92 of the Competition Act (Canada). Using information submitted by the parties and from third parties, such as major grocery stores, the bureau examined whether branded aluminium foil and private label aluminium foil were in the same product market and suggested that they may not be. However, the bureau determined that Reynolds' presence in Canada did not have a noticeable impact on the price at which Novelis supplied aluminium foil wrap to Canadian retailers. As a result, the bureau determined that it did not need to reach a definitive conclusion on the question of whether branded and private label aluminium foil were in the same product market. This approach highlights the highly evidence-based approach being adopted by the bureau, as traditionally branded and private label goods have been routinely considered to be part of the same market.
When assessing the level of competition in the semi-rigid aluminium containers market, the bureau looked at the number of existing competitors and their respective market share. It concluded that enough players remained in the market to reduce any potential market harm that the merger may cause. The bureau also determined that there were low barriers to entry for US-based competitors aiming to enter the Canadian market. Therefore, given the strong presence of the remaining competitors and the low barriers to entry, it was determined that the merger was unlikely to result in a substantial lessening of competition in the semi-rigid aluminum containers market.
For further information on this topic please contact Kevin Ackhurstat Norton Rose Fulbright Canada LLP by telephone (+1 416 216 4000), fax (+1 416 216 3930) or email (email@example.com).The Norton Rose Fulbright Canada website can be accessed at www.nortonrosefulbright.com/ca.
Lucy Liu, summer student, assisted in the preparation of this update.