UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
ALUMINUM COMPANY OF
- AMERICA, et al.,
Civil No: 98-CV-1497 (PLF)
Judge: Paul L. Friedman
Filed: June 18, 1998
JUNE 18 '98 3:49 PM
DISTRICT OF COLUMBIA
COMPETITIVE IMPACT STATEMENT
The United States, pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act
("APPA"), 15 U.S.C. § 16(b)-(h), files this Competitive Impact Statement relating to the
proposed Final Judgment submitted for entry in this civil antitrust proceeding.
I. NATURE AND PURPOSE OF THE PROCEEDING
On June 15, 1998, the United States filed a civil antitrust Complaint alleging that the
proposed acquisition by Aluminum Company of America ("Alcoa") of the aluminum cast plate
("cast plate") manufacturing business of Alumax Inc. ("Alumax") would violate Section 7 of the
Clayton Act, 15 U.S.C. § 18. The Complaint alleges that Alcoa and Alumax are the two largest
producers of aluminum cast plate in the world, and are each other's most significant competitor.
They compete vigorously to lower the costs of producing and selling the best quality cast plate at
the lowest prices, and to provide the best technological, marketing, and customer support
services. There is only one other producer, Alpase, and it is much smaller and not nearly as
significant. Alcoa and Alumax have proposed a transaction that will leave the already highly
concentrated aluminum cast plate business with one overwhelmingly dominant firm - Alcoa -
owning almost 90% of the cast plate manufacturing business in the world. Worldwide sales of
cast plate in 1997 were $73,884,000.
The prayer for relief in the Complaint seeks: (1) a judgment that the proposed acquisition
would violate Section 7 of the Clayton Act; and (2) a permanent injunction preventing Alcoa
from acquiring Alumax.
When the Complaint was filed, the United States also filed a proposed settlement that
would permit Alcoa to complete its acquisition of Alumax, but require a divestiture that will
preserve competition in the relevant market. This settlement consists of a Stipulation and Order,
Hold Separate Stipulation and Order, and a proposed Final Judgment.
The proposed Final Judgment orders Alcoa to divest, within one hundred and eighty
(180) calendar days after the filing of the Complaint in this matter, or five (5) days after notice of
the entry of the Final Judgment by the Court, whichever is later, the Alcoa Cast Plate Division
(as defined in the Final Judgment) to an acquirer acceptable to the Antitrust Division of the
Department of Justice ("DOJ"). "Alcoa Cast Plate Division" means all assets included within the
cast plate operation of Alcoa's Aerospace and Commercial Rolled Products Division, including
all tangible and intangible assets, and all research data concerning historic and current research
and development efforts relating to the cast plate operation.
Until such divestiture is completed, the terms of the Hold Separate Stipulation and Order
entered into by the parties apply to ensure that the Alcoa Cast Plate Division shall be maintained
as an independent competitor from Alcoa.
The plaintiff and defendants have stipulated that the proposed Final Judgment may be
entered after compliance with the APPA. Entry of the proposed Final Judgment would terminate
the action, except that the Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations thereof.
II. DESCRIPTION OF THE EVENTS GIVING RISE TO THE ALLEGED VIOLATION
A. The Defendants and the Proposed Transaction
Alcoa is a Pennsylvania corporation, with its principal offices located in Pittsburgh,
Pennsylvania. Alcoa is the world's largest integrated aluminum company, engaging in all phases
of the aluminum business — from the mining and processing of bauxite to the production of
primary aluminum and fabrication of products. In 1997, Alcoa had revenues of over $13 billion.
Alcoa produces cast plate at a facility located in Vernon, California. Alcoa's 1997 sales of cast
plate in the United States were $17,871,528.
Alumax is a Delaware corporation, headquartered in Atlanta, Georgia. In 1997, Alumax
reported total sales of about $3 billion. Its Mill Products Division produces cast plate, among
other products, in Lancaster, Pennsylvania. Alumax's sales of cast plate in the United States
On March 8, 1998, Alcoa and Alumax entered into an agreement under which Alcoa
would acquire Alumax. This transaction, which would increase concentration in the already
highly concentrated cast plate market, precipitated the government's suit.
B. Cast Plate Market
Cast plate is a flat aluminum product, ranging from eight to twelve feet long, three to five
feet wide and anywhere from one-quarter inch to thirty inches thick. Cast plate is produced by
pouring molten aluminum onto a conveyor belt in a shape slightly thicker than what is ultimately
desired. After cooling, the shape is milled to achieve its final thickness and shape. Cast plate
has metallurgic characteristics that make it uniquely suited for certain applications. The casting
process, which involves little or no pressing of the plate, produces aluminum that is free from
stresses that can cause warping. The resulting cast metal shape is stable enough for applications
that require precise dimensions and flatness, such as jigs, fixtures, and numerous tooling, mold,
machinery and equipment applications. Cast plate is used to make machinery and equipment
that manufactures end products with extremely narrow tolerances. Cast plate must be stress-free,
stable, and flat, because stress-induced warping, instability, and unevenness would cause
movement in the machinery and equipment made of cast plate, which in turn would cause the
end products manufactured on that machinery and equipment to be out of tolerance.
Other products are not realistic substitutes for cast plate to which customers could switch
in the event of a small, but significant and non-transitory price increase. Rolled tooling plate is
not a substitute because the rolled metal shape can warp. Furthermore, it is not possible to
produce rolled plate as thick as cast plate can be made. Depending on the thickness of the shape,
rolled plate can also be significantly more expensive than cast plate.
Alcoa and Alumax are the two strongest and most significant producers of cast plate in
the world, representing almost 90% of 1997 sales. Alpase, the third competitor, is not as
significant as either Alcoa or Alumax. Aggressive competition by Alcoa and Alumax has given
customers lower prices and improved quality for cast plate products.
Successful entry into the manufacture and sale of cast plate is difficult, time-consuming
and costly. To build an efficient cast plate facility would cost in excess of $25 million, and
would require as long as four years from the time of site selection to production of commercial
quantities of cast plate. A new entrant into the cast plate business must submit its product to
customers for qualification before the entrant will be accepted as a supplier. A new entrant must
establish a reputation for good quality product and for reliability in fulfilling customer orders.
There are no other domestic or foreign firms whose entry or expansion would be likely, timely,
or sufficient to thwart an anticompetitive price increase.
C. Harm to Competition as a Consequence of the Acquisition
The proposed acquisition would likely lessen competition in the manufacture and sale of
cast plate. If Alcoa acquired the cast plate business of Alumax, it would control almost 90% of
the cast plate business in the world and likely would increase prices, reduce quality, and decrease
production of cast plate. Entry by a new company would not be timely, likely, or sufficient to
prevent harm to competition.
The Complaint alleges that the transaction would likely have the following effects,
among others: actual and potential competition between Alcoa and Alumax in the cast plate
market will be eliminated; competition generally in the sale and manufacture of cast plate
worldwide would be lessened substantially; and prices for cast plate would increase.
III. EXPLANATION OF THE PROPOSED FINAL JUDGMENT
The provisions of the proposed Final Judgment are designed to eliminate the
anticompetitive effects of the acquisition of Alumax by Alcoa.
The proposed Final Judgment provides that Alcoa must divest, within one hundred and
eighty (180) calendar days after the filing of the Complaint in this matter, or five (5) days after
notice of the entry of the Final Judgment by the Court, whichever is later, the Alcoa Cast Plate
Division to an acquirer acceptable to the DOJ. If defendants fail to divest the Alcoa Cast Plate
Division, a trustee (selected by DOJ) will be appointed.
The Final Judgment provides that Alcoa will pay all costs and expenses of the trustee.
After his or her appointment becomes effective, the trustee will file monthly reports with the
parties and the Court, setting forth the trustee's efforts to accomplish divestiture. At the end of
six months, if the divestiture has not been accomplished, the trustee and the parties will have the
opportunity to make recommendations to the Court, which shall enter such orders as appropriate
in order to carry out the purpose of the trust, including extending the trust or the term of the
Divestiture of the Alcoa Cast Plate Division preserves competition because it will restore
the cast plate market to a structure that existed prior to the acquisition and will preserve the
existence of an independent competitor. Divestiture will keep at least three producers of cast
plate in the market, which will preserve and encourage ongoing competition in the production
and sale of cast plate.
IV. REMEDIES AVAILABLE TO POTENTIAL PRIVATE LITIGANTS
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides that any person who has been
injured as a result of conduct prohibited by the antitrust laws may bring suit in federal court to
recover three times the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither impair nor assist the bringing
of any private antitrust damage action. Under the provisions of Section 5(a) of the Clayton Act,
15 U.S.C. § 16(a), the proposed Final Judgment has no prima facie effect in any subsequent
private lawsuit that may be brought against defendants.
V. PROCEDURES AVAILABLE FOR
MODIFICATION OF THE PROPOSED FINAL JUDGMENT
The United States and defendants have stipulated that the proposed Final Judgment may
be entered by the Court after compliance with the provisions of the APPA, provided that the
United States has not withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public interest.
The APPA provides a period of at least sixty days preceding the effective date of the
proposed Final Judgment within which any person may submit to the United States written
comments regarding the proposed Final Judgment. Any person who wishes to comment should
do so within sixty days of the date of publication of this Competitive Impact Statement in the
Federal Register. The United States will evaluate and respond to the comments. All comments
will be given due consideration by the Department of Justice, which remains free to withdraw its
consent to the proposed Judgment at any time prior to entry. The comments and the
response of the United States will be filed with the Court and published in the Federal Register.
Written comments should be submitted to:
Roger W. Fones
Chief, Transportation, Energy & Agriculture Section
United States Department of Justice
325 Seventh Street, N.W., Suite 500
Washington, D.C. 20004
The proposed Final Judgment provides that the Court retains jurisdiction over this action,
and the parties may apply to the Court for any order necessary or appropriate for the
modification, interpretation, or enforcement of the Final Judgment.
VI. ALTERNATIVES TO THE PROPOSED FINAL JUDGMENT
The United States considered, as an alternative to the proposed Final Judgment, a full
trial on the merits against defendants Alcoa and Alumax.
The United States is satisfied that the divestiture of the described assets specified in the
proposed Final Judgment will encourage viable competition in the production and sale of cast
plate. The United States is satisfied that the proposed relief will prevent the acquisition from
having anticompetitive effects in this market. The divestiture of the Cast Plate Division will
restore the cast plate market to a structure that existed prior to the acquisition and will preserve
the existence of an independent competitor.
VII. STANDARD OF REVIEW UNDER THE APPA
FOR PROPOSED FINAL JUDGMENT
The APPA requires that proposed consent judgments in antitrust cases brought by the
United States be subject to a sixty-day comment period, after which the court shall determine
whether entry of the proposed Final Judgment "is in the public interest." In making that
determination, the court may consider --
(1) the competitive impact of such judgment, including termination of alleged
violations, provisions 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;
(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) (emphasis added). As the Court of Appeals for the District of Columbia
Circuit recently held, the APPA permits a court to consider, among other things, the relationship
between the remedy secured and the specific allegations set forth in the government's complaint,
whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and
whether the decree may positively harm third parties. SeeUnited States v. Microsoft, 56 F.3d
1448 (D.C. Cir. 1995).
In conducting this inquiry, "the Court is nowhere compelled to go to trial or to engage in
extended proceedings which might have the effect of vitiating the benefits of prompt and less
costly settlement through the consent decree process."1 Rather,
absent a showing of corrupt failure of the government to discharge its duty, the
Court, in making its public interest finding, should . . . carefully consider the
explanations of the government in the competitive impact statement and its
responses to comments in order to determine whether those explanations are
reasonable under the circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. ¶ 61,508, at 71,980 (W.D. Mo.
Accordingly, with respect to the adequacy of the relief secured by the decree, a court may
not "engage in an unrestricted evaluation of what relief would best serve the public." United
States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988), quotingUnited States v. Bechtel Corp.,
648 F.2d 660, 666 (9th Cir.), cert. denied, 454 U.S. 1083 (1981); see also, Microsoft, 56 F.3d
1448 (D.C. Cir.1995). Precedent requires that
[t]he balancing of competing social and political interests affected by a proposed
antitrust consent decree must be left, in the first instance, to the discretion of the
Attorney General. The court's role in protecting the public interest is one of
insuring that the government has not breached its duty to the public in consenting
to the decree. The court is required to determine not whether a particular decree is
the one that will best serve society, but whether the settlement is ‘ reaches of the public interest.' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.2
The proposed Final Judgment, therefore, should not be reviewed under a standard of
whether it is certain to eliminate every anticompetitive effect of a particular practice or whether it
mandates certainty of free competition in the future. Court approval of a final judgment requires
a standard more flexible and less strict than the standard required for a finding of liability. "[A]
proposed decree must be approved even if it falls short of the remedy the court would impose on
its own, as long as it falls within the range of acceptability or is 'within the reaches of public
interest.' (citations omitted)."3
VIII. DETERMINATIVE DOCUMENTS
There are no determinative materials or documents within the meaning of the APPA that
were considered by the United States in formulating the proposed Final Judgment.
FOR PLAINTIFF UNITED STATES OF AMERICA:
Dated: June 18, 1998
Nina B. Hale, Washington Bar # 18776
Andrew K. Rosa, Hawaii Bar # 6366
Jade Alice Eaton
U.S. Department of Justice
325 Seventh Street, N.W.,
Washington, D.C. 20004
Certificate of Service
I, hereby certify that, I have caused the copy of the foregoing Competitive Impact Statement to be served on counsel for defendants in this matter in the manner and on the date set forth below:
By first class mail, postage prepaid:
D. Stuart Meiklejohn
Sullivan & Cromwell
125 Broad Street, 28th floor
New York, NY 10004
David I. Gelfand
Cleary, Gottlieb, Steen & Hamilton
2000 Pennsylvania Avenue, N.W.
Washington, D.c. 20006
Andrew K. Rosa
Date: 18 June 1998
U.S. Department of Justice
325 Seventh Street, N.W.,
Washington, D.C. 20004
1 119 Cong. Rec. 24598 (1973). See also United States v. Gillette Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A "public interest" determination can be made properly on the basis of the Competitive Impact Statement and Response to Comments filed pursuant to the APPA. Although the APPA authorizes the use of additional procedures, 15 U.S.C. § 16(f), those procedures are discretionary. A court need not invoke any of them unless it believes that the comments have raised significant issues and that further proceedings would aid the court in resolving those issues. See H.R. 93-1463, 93rd Cong. 2d Sess. 8-9, reprinted in (1974) U.S. Code Cong. & Ad. News 6535, 6538.
2United States v. Bechtel, 648 F.2d at 666 (internal citations omitted) (emphasis added); see United States v. BNS, Inc., 858 F.2d at 463; United States v. National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D. Cal. 1978); Gillette, 406 F. Supp. at 716. See also United States v. American Cyanamid Co., 719 F.2d 558, 565 (2d Cir. 1983).
3 United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 150 (D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983), quoting Gillette, 406 F. Supp. at 716; United States v. Alcan Aluminum, Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985).