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July 10, 2001


The opinion of the court was delivered by: Urbina, District Judge,


Accepting the Consent Decree and Entering Final Judgment

I. Introduction

II. Procedural History

On May 3, 2000, the United States filed a complaint pursuant to Title 15 U.S.C. § 25, alleging that the proposed merger between Alcoa, Inc. and Reynolds Metal Co. would, if consummated, violate Section 7 of the Clayton Act, 15 U.S.C. § 18 et seq. Specifically, the government alleged that unless restrained, the merger would eliminate actual and potential competition between Alcoa and Reynolds; substantially lessen competition in the production and sale of aluminum; and increase prices and decrease the amounts of smelter grade and chemical grade alumina. See Compl. at 910.

On May 12, 2000, shortly after the filing of the complaint, the parties moved for a "hold separate stipulation order" as well as a "conditional and provisional final judgment," which the court entered on the same day. Four days later, on May 16, 2000, after consulting with both parties via telephone conference, the court vacated the conditional and provisional final judgment so as to allow the parties to satisfy all the relevant provisions of Title 15 U.S.C. § 16(b). This section requires that the following documents be filed with the court and published in the Federal Register: a report pursuant to 15 U.S.C. § 16(g); a competitive impact statement; a response to public comments; and a certificate of compliance with provisions of the Antitrust Procedures and Penalties Act (or "Tunney Act"). Having complied with these provisions, the United States now moves for acceptance of the consent decree and entry of final judgment.

III. Background

Alcoa, Inc. is the largest aluminum company in the world. See Compl. ¶ 1; Competitive Impact Statement ("CIS") at 3. In 1999, Alcoa had revenues of more than $16 billion. See CIS at 3. Alcoa engages in all states of aluminum production, including mining raw aluminum ore ("bauxite"), refining bauxite into alumina powder, smelting alumina into metal ingots, and turning the metal ingots into end products. See id. Alcoa owns alumina factories in Western Australia, Brazil, Spain, the U.S. Virginia Islands, and Texas. See id. Alcoa also manages the operations of and has ownership interests in three alumina refinery joint ventures in Suriname, Brazil and Jamaica. See id.

Reynolds Metal Co. is the second largest aluminum company in the United States and the third largest in the world. See Compl. ¶ 1; CIS at 4. In 1999, Reynolds had revenues of more than $4.6 billion. See CIS at 4. Reynolds engages in all stages of aluminum production and, like Alcoa, owns interests in facilities around the world. See id. On August 18, 1999, Alcoa and Reynolds agreed that Alcoa would acquire Reynolds by exchanging each outstanding share of Reynolds common stock for 1.06 shares of Alcoa common stock, a transaction valued at $5 billion. See Compl. ¶ 8. This merger would create a single, fully integrated company engaged in all stages of aluminum production.

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 ...

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