Ireland's Ardagh offers to sell four US plants to ease FTC concerns

Irish glass and metal packaging firm Ardagh Group, which is currently defending its acquisition of Saint-Gobain's North American glass container unit Verallia North America (VNA), yesterday offered to sell four US plants in order to address US regulatory concerns over the proposed $1.7-billion VNA acquisition.

In January, French construction material giant Saint-Gobain said it would sell Verallia North America to Ardagh as part of its plan to exit from the low-margin business. (See: Saint-Gobain to sell North American glass container operation to Ardagh Group for $1.7 bn)

The US Federal Trade Commission (FTC) in July filed an administrative complaint seeking to block the merger on the grounds that the transaction would result in the merged company and rival Owens-Illinois Inc controlling more than 75 per cent of the US markets for glass containers for beer and liquor.

The FTC said that 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, these three dominate the approximately $5 billion US glass container industry.

The complaint alleges that the acquisition will have anti-competitive 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 characterised by low growth with significant barriers to entry and expansion.   

''If Ardagh is allowed to acquire Saint-Gobain, it would eliminate beneficial competition that has led to lower prices for beer and spirits bottles,'' Norman Armstrong, Jr., deputy director of the FTC had said in the complaint.  ''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.''

A hearing on the complaint is due to begin on 2 December.

Ardagh yesterday said that if the FTC allowed the deal to go ahead, it would sell four glass container manufacturing plants as a standalone business to a single buyer and added that it is currently in negotiations with a number of potential qualified buyers, each of whom is well capitalised and owns and operates other industrial businesses in the US.

The plants to be sold are Ardagh's manufacturing facility in Jacksonville, Florida,  and Warner Robins, Georgia and the plants currently operated by VNA at Dolton, Illinois  and Wilson, North Carolina.

The manufacturing capacity of these plants is equivalent to more than 100 per cent of Ardagh's existing beer business and more than 100 per cent of VNA's existing spirits business.

Ardagh said that if the sale to a single buyer would create a "strong, viable competitor for the manufacture and sale of glass containers in the US."

Luxembourg-based Ardagh, is a global leader in glass and metal packaging solutions, producing packaging for most of the world's leading food, beverage and consumer care brands.

Ardagh entered the US glass container market in 2012 by acquiring Anchor Glass Container Corporation, the longstanding third-largest US glass manufacturer, and Leone Industries, a small, single-plant glassmaker.

The proposed acquisition would be Ardagh's third US glass acquisition in little more than a year.

With revenues of $1.6 billion and operating profit of $171 million in 2012, VNA is the second-largest glass container manufacturer in the US, behind Owens-Illinois.

Based in Muncie, Indiana, VNA produces approximately 9 billion containers annually from its 13 facilities located throughout the US and employs approximately 4,400 people.