On October 30, 2007, the Competition Bureau (the Bureau) released its technical backgrounder on the approval of the pulp-and-paper merger involving Montreal-based Abitibi-Consolidated Inc. and South Carolina-based Bowater Incorporated. The merger was originally announced on January 29, 2007, and the Bureau pronounced its intention not to challenge approximately six months later, on July 24 of the same year.
The Bureau concluded there were six overlapping product markets as follows: softwood lumber (North America), market pulp (at least North America), wood chips (local or regional), roundwood/logs (local or regional), uncoated groundwood papers (UGW) (unspecified), and newsprint (Eastern Canada).
For each of the markets, with the exception of newsprint, the Bureau easily concluded there were no grounds to challenge the merger. The newsprint market, however, led to a more in-depth analysis, as combined market share surpassed the Bureau’s “safe harbour” guideline of 35% in the Eastern Canadian market. This concern was compounded by significant barriers to entry, due to the high capital investment required, declining demand, and relatively weak foreign competition. However, on balance, the Bureau concluded that competitors’ production could be recommitted to Eastern Canada in the event of price increases, and that customers had shown a willingness to switch suppliers in the past.
At the end of the day, the Bureau was not without its reservations, but did not find sufficient evidence to challenge the merger. The backgrounder did make mention, however, of the Bureau’s right to do so over the next three years.