Aluminum production yields two products, smelter grade alumina
("SGA") and chemical grade alumina ("CGA"),*fn1 both of which
are highly concentrated markets. The government alleges that the
proposed merger will create monopoly power for Alcoa in both the
SGA and CGA markets. See Compl. ¶¶ 3-4. The government further
alleges that the creation of this monopoly power violates
Section 7 of the Clayton Act, which provides that "[n]o person
engaged in commerce . . . shall acquire, directly or indirectly,
the whole or any part of the stock or other share capital . . .
[where] the effect of such acquisition may be substantially to
lessen competition or to tend to create a monopoly." See
15 U.S.C. § 18.
According to the government, the proposed merger will combine
Alcoa's existing 29 percent of the world's SGA production with
Reynolds's 9 percent, bringing the new company's total control
of world SGA production to 38 percent. See Compl. ¶¶ 16; 19. This
percentage control of world production, in conjunction with the
highly inelastic demand and lack of existing substitutes, gives
Alcoa "the incentive and ability to exercise market power
unilaterally by reducing its output in the SGA market." See
id. ¶ 19. In addition, the government contends that natural
barriers, such as high refinery start-up costs and lengthy
building times, prevent entry into the SGA sale and production
markets. For these reasons, the government has sought to impose
certain conditions on the merger.
While the merger will have a substantial effect on the world
SGA market, its impact on the CGA market will be felt much
closer to home. In the United States, there are only five
producers of CGA currently operating, with the top four
companies accounting for more than 90 percent of the production.
See id. ¶ 30. Alcoa and Reynolds, respectively the first and
third largest producers, account for 59 percent of the U.S.
production of CGA. See id. ¶ 32. The combination of the two
companies effectively removes one of the producers from an
already highly concentrated market*fn2 and places a
substantial majority of CGA production in the hands of a single
corporation. The government alleges that because of the high
quantity of consumer goods that utilize CGA, any change in price
that results from Alcoa's market-share influence will have a
negative impact on consumers that cannot be offset by any other
foreign or domestic source. See Compl. ¶¶ 27-28.
In response to these economic concerns, the United States and
Alcoa negotiated certain matters that would allow the merger to
take place without significantly increasing the concentration in
SGA and CGA markets. See Proposed Final Judgment at 1. The
result was to have Alcoa divest some of the production plants
which it obtained in the merger, thereby creating new companies
and allowing them entry
into the markets at substantially lower costs for the express
purpose of competing with Alcoa. See CIS at 2. The parties
thus have consented to a divestment strategy and now seek to
have the court approve the agreement and enter final judgment.
See Proposed Final Judgment at 1.
The Tunney Act instructs the court to review consent judgments
proposed by the United States to "determine that the entry of
such judgment is in the public interest." See
15 U.S.C. § 16(g). In making this determination the court may consider the
(1) the competitive impact of such judgment,
including termination of alleged violation,
provision for enforcement and modification,
duration or relief sought, anticipated effects of
alternative remedies actually considered, and any
other considerations bearing upon the adequacy of
such judgment; and
(2) the impact of entry of such judgment upon the
public generally and individuals alleging specific
injury from the violations set forth in the
complaint including consideration of the public
benefit, if any, to be derived from a
determination of the issues at trial.
15 U.S.C. § 16(e)(1)-(2). Courts have consistently held that the
court should not engage in de novo review of the relief that
would best serve the public. See United States v. Microsoft
Corp., 56 F.3d 1448, 1459 (D.C.Cir. 1995); see also United
States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (holding
that "the court may not engage in an unrestricted evaluation of
what relief would best serve the public"). Rather, the court is
confined to the factors alleged in the government's complaint.
See Microsoft, 56 F.3d at 1459.
In this case, the government alleges that the merger would
have anticompetitive effects on both the world SGA and the
national CGA markets. See Compl. ¶ 36. Specifically, the
government has determined that both Alcoa and Reynolds own and
operate refining capacity of both SGA and CGA in the same
regions. For example, according to the government's Competitive
Impact Statement, Alcoa and Reynolds each independently own and
operate SGA refining plants in the Australian Outback and CGA
refining and production plants in Texas. See CIS at 8-9. In a
market as highly concentrated as the aluminum industry, allowing
these two companies to combine production efforts could have
serious consumer-price ramifications. See Compl. ¶¶ 18, 32. In
addition, restrictions on supply raise manufacturing costs that
would be passed almost entirely to consumers. The proposed final
judgment addresses these concerns by requiring Alcoa to divest
all of the SGA and CGA production facilities owned and operated
by Reynolds in areas where Alcoa already possessed market
influence, namely Texas and Australia. See Proposed Final
Judgment at 6.
Requiring the divestment of these assets creates market
competition for Alcoa, which, in turn, stabilizes the production
levels of both SGA and CGA and helps keep the market price
lower. See CIS at 9. Divesting these assets in a manner that
ensures the creation of viable ongoing businesses engaged in the
refining and sale of SGA and CGA will create competition for
Alcoa by reducing the time delay and significant start-up costs
of building new refining operations. See id. By requiring the
sale of existing production plants, the government ensures that
the pre-merger market competition levels remain stable and that
no firm obtains the ability to affect prices unilaterally. See
United States Response to Public Comments at 6.
Indeed, the government states that until the required
divesture, the aluminum industry was too costly for a new
company to enter. See CIS at 7. Now, with much of the cost
substantially reduced through previous investment by Reynolds,
new opportunities exist for companies looking to compete
effectively in this market. See United States Response to
Public Comments at 6. Therefore, in accordance with Title
15 U.S.C. § 16(e), the court determines that the public interest
has been served because the divesture of these assets will have
an overall positive impact on competition in the aluminum
In addition to the competitive impact of the judgment, the
court must consider the enforcement mechanisms sought in the
proposed judgment. See 15 U.S.C. § 16(e)(2). The consent
decree requires Alcoa to find and negotiate with new SGA and CGA
suppliers and allows only limited negotiations with the new
owners of the divested assets. See Proposed Final Judgment at
9. The limitations are twofold: first, the judgment allows
Alcoa, subject to restrictions, to contract with the new owners
of the divested assets for supply of SGA. See id. at 9-10.
However, the restrictions limit Alcoa's ability to exercise
control over the flow of supply from the divested asset by
limiting both the quantity and duration of the contracts until a
new supply source can be found. See CIS at 10. Second, the
final judgment requires Alcoa to contract with the purchaser of
the divested Texas production facility for a two-year supply of
bauxite.*fn3 This mechanism may create an additional
incentive for new companies to purchase the divested asset,
therefore ensuring the restoration of competition sought by the
government. See CIS at 11.
In reviewing the judgment proposed by the parties, the court
must give "due respect to the Justice Department's perception of
the market structure and its view of the nature of the case."
See United States v. Microsoft Corp., 56 F.3d 1448, 1461
(D.C.Cir. 1995). In light of this deferential standard, the
court determines that the judgment meets the requirements set
forth by the statute and is in the public interest. Further,
considering that nothing in the consent judgment prohibits or
restricts private antitrust lawsuits against Alcoa, the court
holds that the government has fulfilled its duty by submitting a
proposal that is "in the public interest," as defined by
15 U.S.C. § 16(e). See CIS at 11-12.
For the reasons set forth above, the court grants the
government's motion for entry of final judgment. An Order
directing the parties in a manner consistent with this
Memorandum Opinion is separately and contemporaneously executed
and issued this 10th day of July 2001.
Accepting the Consent Decree and Entering Final Judgment
Upon consideration of the motion by the United States for
entry of final judgment with respect to the proposed consent
decree, and for the reasons stated in the court's Memorandum
Opinion, the court hereby determines that the proposed consent
decree is in "the public interest" as contemplated by the Tunney
Act, 15 U.S.C.
§ 16(e). Accordingly, it is this 10th day of July 2001,
ORDERED that the consent decree be accepted and government's
motion for entry of final judgment be and hereby is GRANTED.