Antitrust Law Daily Wrap Up, TOP STORY: FTC approves $25B Holcim-Lafarge cement manufacturer merger, (Jun 16, 2015)

By Linda O’Brien, J.D., LL.M.

The FTC has approved a final order, resolving charges that the $25 billion merger of cement manufacturers Holcim Ltd. and Lafarge S.A. would harm competition in 12 markets for portland cement and two markets for slag cement, the agency announced today. The order—requiring divestiture of cement plants, quarries, terminals, and other assets—allows the creation of the world’s largest cement manufacturer, with combined 2014 revenues of $35 billion and operations in more than 90 countries (In re Holcim Ltd., File No. 141-0129).

According to the FTC complaint, Holcim’s proposed acquisition of Lafarge would eliminate competition between the companies, increase the likelihood that the merged company would unilaterally exercise market power, and force consumers to pay higher prices or accept reduced service.

Under the FTC’s final order, the two companies are required to divest cement plants, quarries, terminals, and other assets in 12 states—Illinois, Iowa, Louisiana, Massachusetts, Michigan, Minnesota, Montana, New Jersey, New York, Ohio, Tennessee, Wisconsin—and several locations in Canada.

The Commission vote to approve the final order was 4-1, with Commission Joshua Wright dissenting. In a statement, the FTC explained that the proposed acquisition was likely to substantially reduce competition in the relevant markets, absent a remedy. In the Commission’s view, the proposed settlement is in the public interest by counteracting the likely anticompetitive effects of the acquisition without eliminating any efficiencies that might arise from the merger of the two companies.

The 2010 Horizontal Merger Guidelines, issued by the FTC and Department of Justice, clarify that a substantial increase in concentration caused by a merger is a significant factor in merger analysis, since highly-concentrated markets are more likely to lead to anticompetitive outcomes. In this case, the proposed merger significantly increases concentration in an already highly-concentrated market. Therefore, a presumption of competitive harm is justified under both the Guidelines and established case law, according to the agency.

However, the Commission’s investigation went beyond consideration of market concentration and application of the presumption of competitive harm and produced additional evidence that the effect of the proposed acquisition would be to substantially lessen competition. The FTC found numerous characteristics in the market that make it vulnerable to collusion and examined other market factors, such as the high barriers to entry. The evidence of the case provided the agency with sufficient reason to believe that the public interest was best served by remedying the competitive concerns set forth in the proposed consent order, the statement concluded.

In his dissent, Commissioner Wright stated that evidence was insufficient to show that the proposed transaction would likely substantially lessen competition in several of the portland cement markets identified in the FTC complaint — eastern Iowa, Memphis, Baton Rouge, Detroit, northern Michigan, and Grand Rapids. Without specific evidence substantiating a unilateral or coordinated effects theory of harm arising from the transaction, the Commission’s structural presumption alone was insufficient, he maintained.

In Wright’s view, there was no empirical economic evidence to warrant a presumption that anticompetitive coordination is likely to result from four-to-three or three-to-two mergers and such a presumption was inconsistent with modern economic theory and the analysis endorsed by the Guidelines. Thus, the FTC should refrain from imposing a remedy in those markets, the Commissioner concluded.

Companies: Holcim Ltd.; Lafarge S.A.

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