MEMORANDUM OPINION AND ORDER
Joyce Hens Green, United States District Judge
This matter now comes before the Court on the motion of plaintiff Federal Trade Commission ("FTC") for a preliminary injunction to prevent the merger of defendants Owens-Illinois, Inc. ("Owens-Illinois") and Brockway, Inc. ("Brockway"), two of the leading glass container manufacturing companies, until the conclusion of administrative proceedings by the FTC to determine whether the proposed acquisition would substantially lessen competition in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.
In consideration of the motion, defendants' opposition thereto, the three-day hearing before the Court, and for the reasons set forth below, plaintiff's motion is denied.
I. FACTUAL BACKGROUND
A. The Proposed Acquisition
Owens-Illinois, a privately held corporation based in Ohio,
produces a variety of packaging products, including glass containers (for soft drinks, beer, wine, liquor, food, pharmaceuticals, and cosmetics), plastic containers and closures, forest products, and specialty glassware (including scientific and laboratory glassware). Owens-Illinois attributed 36% of its profit in 1986 to its sale of glass containers and 23% to plastics and closures. The company has fourteen glass plants and approximately twenty plastic container plants throughout the United States. In 1986, Owens-Illinois's glass container sales were over $ 1 billion, making it the second largest domestic seller of glass containers.
The principal business of Brockway, a publicly held corporation and Owens-Illinois' main competitor in the glass container industry, is the manufacture of glass, plastic, and metal containers, as well as caps, lids, and closures for the packaging of consumer and industrial products, including food, beer, liquor, wine, soft drinks, toiletries, cosmetics, and pharmaceutical and proprietary products. Brockway is the third largest producer of glass containers in the United States, with annual sales in 1986 of $ 681 million. In 1986, Brockway derived approximately 64% of its revenue from the manufacture of glass containers, 22% from plastic, and 10 % from metal. Brockway's glass manufacturing is conducted at eleven plants nationwide, and it produces plastics at seventeen locations.
On September 23, 1987, Owens-Illinois, through BI Acquisition Corporation,
commenced a cash tender offer for all outstanding common shares of Brockway at $ 60 per share, for a total of about $ 750 million, plus an additional $ 110 million for expenses and debt retirement. The offer was scheduled to expire January 7, 1988, was then extended through February 19, 1988, and most recently through February 29, 1988.
After learning of the proposed merger, the Federal Trade Commission began investigating the acquisition for potential violations of the Clayton Act. After receiving voluminous information from Owens-Illinois, the FTC voted 3-2 on November 18, 1987 to seek a temporary restraining order and a preliminary injunction to prevent consummation of the merger. On January 11, 1988, after this action had commenced, the FTC voted 4-1 to issue an administrative complaint against the defendants.
B. The Glass Container Industry
To place this case in its proper economic context, it is important to examine briefly here the dramatic technological changes during the past fifty years in the development of packaging materials, including glass, plastic, metal, and paper. Prior to World War II, most foods and beverages were sold in glass containers and metal cans,
but today a wide variety of packaging is offered to container purchasers and to consumers.
The complete conversion of three products in particular exemplifies the dynamic changes that the packaging industry is capable of initiating and responding to. Milk, packaged in glass bottles for many years, is now sold almost entirely in paperboard containers. In the larger sizes, milk is also being packaged in plastic. The next development may be aseptic packaging that would give milk shelf-stability sufficient to alleviate the need for store refrigeration. Another dramatic historical shift in packaging was the conversion of baby food in the 1950s and continuing through the 1970s from cans to glass. And, motivated by consumer preference for nonbreakable containers, bleach containers rapidly converted in the early 1960s from glass to plastic containers.
As discussed further below, two of the most recent developments in the packaging industry have been the introduction and growing use of plastic containers with high-barrier properties, particularly the "PET" container introduced in 1977-78,
which offer many of the same advantages traditionally unique to glass -- such as impermeability to moisture and oxygen, clarity, and heat resistance -- in addition to providing package purchasers and consumers the primary attractions of plastic -- nonbreakability and lighter weight.
Customer preference for plastic packaging of some products traditionally packaged in glass continues to spur conversions in packaging. In addition to these trends away from glass, there is also some indication of growing self-manufacture by packagers, particularly with plastic and paper aseptic containers.
Based on these trends in packaging, the plastics division of Owens-Illinois has targeted glass containers as the primary opportunity for growth in plastics,
while the glass division of Owens-Illinois seeks to erode the predominance of the metal can.
Because the production of glass has markedly declined over the past several years,
Owens-Illinois characterizes the dynamics of this market as a "life and death struggle" between glass and other packaging materials.
In addition to this brief sketch of particular developments in the packaging industry, it is important to examine for a moment the present position of defendants Owens-Illinois and Brockway in the glass container business, an industry which had sales in 1986 of almost $ 5 billion. Since 1980, the glass container industry has been undergoing significant consolidation. The number of firms in the industry has decreased from 26 to its current level of 18 and, during this same time, 29 glass plants have closed. n12 The domestic glass container industry currently comprises six principal producers with four or more production facilities and a "fringe" of twelve other firms. n13
n12 Mergers and acquisitions during this period included:
1980 Ball acquired Metro-Park
1981 Diamond-Bathurst acquired National Bottle
1983 Anchor acquired Midland Glass
1983 Chattanooga Glass acquired Glass Container
1983 Foster-Forbes (later acquired by Triangle)
acquired 4 plants from Kerr
1985 Diamond-Bathurst acquired Chattanooga
1985 Diamond-Bathurst acquired Thatcher Container
1987 Ball and Incon merged
1987 Anchor acquired Diamond-Bathurst
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