United States v. Georgia-Pacific Corp.; Proposed Consent Judgments

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. Georgia-Pacific Corp.; Proposed Consent

Judgments

Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.

Sec. 16(c)-(h), the United States publishes below the comment received

on the proposed final judgment in United States v. Georgia-Pacific

Corp., Civil Action No. 96-164, filed in the United States District

Court for the District of Delaware, together with the United States'

response to that comment.

Copies of the comment and response to comment are available for

inspection and copying in Room 207 of the U.S. Department of Justice,

Antitrust Division, 325 7th Street, N.W., Washington, D.C. 20530

(telephone: (202) 514-2481), and at the office of the Clerk of the

United States District Court for the District of Delaware. Copies of

these materials may be obtained upon request and payment of a copying

fee.

Constance K. Robinson,

Director of Operations.

June 7, 1996.

Morgan A. Chivers,

Chairman of the Board and Chief Operating Officer, Continental

Gypsum Company, 265 Distribution Street, Port Newark, New Jersey

07114

Re: United States v. Georgia-Pacific Corporation, Civil Action No.

96-164 (D. Del., March 29, 1996)

Dear Mr. Chivers: This letter responds to your letters dated

April 30, 1996 and May 21, 1996 commenting on the proposed Final

Judgment in the above-referenced antitrust case, which challenges

the acquisition of the gypsum business of Domtar Inc. (``Domtar'')

by Georgia-Pacific Corporation (``GP''). The Complaint alleges that

the acquisition violates Section 7 of the Clayton Act, 15 U.S.C.

Sec. 18, because its effects may be to lessen substantially

competition in the production and sale of gypsum board in the

Northeast Region of the United States. As defined in the Complaint,

the Northeast Region encompasses the twelve eastern seaboard states

from Maine through Virginia and Washington, D.C. Under the proposed

Final Judgment, GP is required to divest to one or more purchasers

its Buchanan, New York and Wilmington, Delaware gypsum board plants

and related tangible and intangible assets. GP must accomplish the

divestitures within 150 calendar days after the date on which the

proposed Final Judgment was filed (March 29, 1996).

In your April 30 letter, you noted that Continental Gypsum

Company is a small independent gypsum board manufacturer which

commenced production on August 23, 1995 and did not obtain expected

levels of production and sales until April 1996. You expressed two

concerns about the provisions on the proposed Final Judgment. One

concern arises from the requirement that GP ``use all reasonable

efforts to maintain and increase sales of gypsum board'' at the

Buchanan and Wilmington plants until the divestitures of these

facilities have been accomplished. GP also is required to ``maintain

at 1995 or previously approved levels, whichever are higher,

promotional, advertising, sales, marketing and merchandising

support'' for gypsum board sales at these two plants. You believe

that complying with these provisions could have a ``predatory''

effect on Continental and possibly force Continental out of the

market, particularly if demand stays the same or falls in 1996.

We do not believe these provisions will have an adverse effect

on competition in the gypsum wallboard market. The provision were

intended to prevent GP from taking any actions that might jeopardize

the competitive viability of the Buchanan and Wilmington plants

pending divestiture. To ensure continued viability, GP must use all

``reasonable efforts'' to maintain sales at existing levels or to

increase sales during the divestiture period. This requirement

imposes no greater obligation on GP than could reasonably be

expected if the plants were not candidates for divestiture.

Moreover, Continental could reasonably anticipate that any

prospective purchaser would operate the Buchanan and Wilmington

plants in a similar manner after the divestiture period. Thus, any

loss of sales by Continental from operating the plants in the manner

required by the proposed Final Judgment would result from

competitive, not anticompetitive, forces.

Your second concern arises from the requirement that GP, at the

option of the purchaser or purchasers, enter into a supply contract

for gypsum rock and/or gypsum linerboard paper sufficient to meet

all or part of the capacity requirements of the Buchanan and

Wilmington plants over a period up to ten (10) years. The proposed

final Judgment expressly provides that the terms and conditions of

any such supply contract ``must be related reasonably to market

conditions for gypsum rock and/or gypsum linerboard paper.'' You

noted that Continental currently purchases some of its paper

requirements from GP and that it views GP as a potential source of

its gypsum rock requirements. You are concerned that the supply

contracts provided for in the Final Judgment will ``seriously

restrict'' Continental's ability to source these vital raw

materials.

We do not believe that the supply contracts mandated in the

Final Judgment would have any adverse competitive effect on

Continental, should a purchaser or purchasers elect to negotiate

such contracts with GP. As an initial matter, it should be noted

that GP currently is supplying the Buchanan and Wilmington plants

with gypsum rock and linerboard paper and (presumbly) would continue

to do so in the absence of the Department's challenge to the Domar

acquisition. Thus, allowing the purchaser or purchasers of these

facilities to contract for a long-term source of these raw materials

from GP would not mean that the amount of such materials GP has

available to sell to others in the industry would be any less than

would otherwise be the case. Moreover, should GP decide to sue its

own resources to supply gypsum rock and paper to the two Domtar

facilities that it is acquiring in the Northeast Region--Domtar's

Newington, New Hampshire and Camden, New Jersey plants-- the gypsum

rock and paper that presently are being supplied to these facilities

from third party sources would become available on the market.

Accordingly, there is no net reduction in gypsum rock or paper

available to the industry as a result of GP entering into supply

contracts for the Buchanan and/or Wilmington plants, and the ability

to enter into these contracts, if needed, should greatly facilitate

the divestiture of the two plants. In addition, it is important to

recognize that the supply contracts provided for in the Final

Judgment will be the result of arms-length negotiations reflecting

market conditions; it is unlikely, in these circumstances, that the

purchaser or purchasers will gain undue advantage over other market

participants as a result of these contracts.

We appreciate you bringing your concerns about the proposed

Final Judgment to our attention and hope that the foregoing analysis

has helped to alleviate them. While we understand your position, we

believe that the proposed Final Judgment offers the best feasible

solution to the anticompetitive effects posed by GP's acquisition of

Domtar's gypsum business in the Northeast Region. Pursuant to the

Antitrust Procedures and Penalities Act, a copy of your letters and

this response will be published in the Federal Register and filed

with the Court.

Sincerely,

J. Robert Kramer, II

Chief, Litigation II Section.

May 21, 1996.

Mr. J. Robert Kramer,

Litigation II Section, Antitrust Division, U.S. Department of

Justice, 1401 H St., N.W., Suite 3000, Washington D.C. 20530.

Re: U.S.A. v. Georgia Pacific Corporation Civil Action No.: 96-164.

Dear Mr. Kramer: This letter shall serve as additional comments

of the Continental Gypsum Company comment letter to you of April 30,

1996:

In the April 30, 1996 letter we expressed our fear that the

Final Judgment mandate that Georgia Pacific maintain or increase

sales and production to 1995 levels would cause predatory actions by

Georgia Pacific against

[[Page 33539]]

Continental Gypsum Company, that now appears to be the case

In the past 45 days we have had extreme pressure to lower

pricing levels to distributors in our prime market area. While the

pricing at our outer sales regions i.e., Maryland, Virginia,

Delaware, western Pennsylvania, have been relatively strong, the New

Jersey and Metropolitan New York are off significantly. In each and

every case, we find we must meet a Georgia Pacific price to maintain

a reasonable level of business. Continental Gypsum is clearly being

targeted by Georgia Pacific. Further, it is our opinion that Georgia

Pacific has been caused to such action by reason of the Final

Judgment mandate that they maintain a level of business that totally

ignores consideration that a new competitor (Continental Gypsum) is

now in the market.

The allegations that are made here can be documented and will be

documented at your request.

Again, I would request that you give consideration to our

recommendation to amend the Final Judgment as proposed in our April

30, letter. For Continental Gypsum to remain viable we must have

some relief from this matter.

Respectfully,

Morgan A. Chivers,

Chairman of the Board & C.O.O.

Rhyne Simpson, Jr.,

President.

April 30, 1996.

Mr. J. Robert Kramer,

Litigation II Section, Antitrust Division, U.S. Department of

Justice, 1401 H St., N.W., Suite 3000, Washington, D.C. 20530.

Re: U.S.A. v. Georgia Pacific Corporation Civil Action No.: 96-164.

Dear Mr. Kramer: The following are the comments of Continental

Gypsum Company relating to the above referenced case:

Background

Continental Gypsum Company is the only small independent

manufacturer of gypsum wallboard in the United States. The Company

was formed January 26, 1995 to lease the former Atlantic Gypsum

Company facility located at Port Newark, New Jersey. The plant had

been idled for approximately six years as a result of bankruptcy and

foreclosure proceedings. The founders of Continental Gypsum are

Morgan A. Chivers and Rhyne Simpson, Jr. both of whom are its major

stockholders. About thirty (30) percent of the outstanding stock is

owned by wallboard distributors and applicators from the region.

After a rather lengthy negotiation with the Port Authority of NY&NJ,

Continental Gypsum gained occupancy of the facility on June 1, 1995.

Production commenced on August 23, 1995 and the gypsum wallboard is

marketed in the region under the trade name MoreRock. Because of

numerous engineering deficiencies with the plant equipment and the

unusually harsh winter, the plant did not obtain expected levels of

production and sales until late April 1996. (see attached shipping

report)

Comments

Continental Gypsum finds two major mandates in the Final

Judgment that are onerous and do in fact threaten the viability of

this new company. They are as follows:

IX. PRESERVATION OF ASSETS--page 14 paragraph B ``Defendant

shall use all reasonable efforts to maintain and increase sales of

gypsum board produced at its Buchanan and Wilmington plants, and

defendant shall maintain at 1995 or previously approved levels,

whichever are higher,'' * * * This mandate obviously ignores the

additional capacity that Continental Gypsum has brought to the

region. It is not possible that Continental could bring at least

270,000 MSF of supply into the market without competitors giving up

a portion of their market share. The Buchanan and Wilmington plants

are in fact situated in the heart of Continentals prime market. The

mandate that they maintain sales at 1995 levels, or higher,

basically implies that there is no room in the market for

Continental.

IV. DIVESTITURES--page 5, paragraph A. sub. (iii) ``at the

option of the purchaser or purchasers, enter into a supply contract

for gypsum rock (which may or may not include transportation) and/or

gypsum linerboard paper sufficient to meet all or part of the

capacity requirements of the Buchanan and Wilmington plants over a

period up to (10) years; `* * * Continental currently purchases some

of its linerboard paper from Georgia Pacific's Delair, N.J.

papermill. Additionally, Georgia Pacific is considered to be a

primary source of gypsum ore and in fact did quote on our ore

requirements for the 1996 calendar year. The mandate that Georgia

Pacific provide the purchaser(s) with supply contracts for the

gypsum rock and gypsum linerpaper will seriously restrict

Continentals ability to source these vital raw materials both in in

the present and in the future.

Summation

The overall thrust of the Final Judgment appears to be

concerning the concentration of supply with only a few manufactures

within the region. While the concentration of supply should be of

concern, the far more important factor influencing competitive

pricing is the fundamental law of supply relative to demand. This is

clearly evidenced by the fact that prices eroded up to $15.00/MSF

within the first three months of Continental's entry into the

market. In fact, Continental Gypsum is the only player that brings

new supply into the region. The divestiture of Buchanan and

Wilmington does nothing towards creating more supply. A more

compelling case can be made that if Continental Gypsum is forced

into closure that the consumer would be damaged far more than the

creation of change of ownership of two plants.

It is further our concern that the Final Judgment gives Georgia

Pacific license to become predatory against Continental and if

Continental is forced to closure, then the Buchanan and Wilmington

plants will have more value as a result of the divestiture mandate.

In conclusion, for the aforementioned reasons, we believe that

the Final Judgment be amended by:

(1) Rescinding the mandate that Georgia Pacific maintain 1995

levels of sales (or higher) during the 150 day divestiture period.

The only mandate should be that Georgia Pacific should not be

allowed to transfer any sales from Buchanan and Wilmington to their

other plants, namely Camden, N.J. and the Newington, N.H.

(2) Continental Gypsum should be afforded the same opportunity

to negotiate supply agreements with Georgia Pacific for the purchase

of gypsum ore and gypsum linerpaper on an equal basis of the

purchaser(s) of the Buchanan and Wilmington plants.

Thank you very much for your consideration in this matter.

Respectfully,

Morgan A. Chivers,

Chairman of the Board & C.O.O.

Rhyne Simpson, Jr.,

President.

Justin M. Dempsey.

The attached document was not able to be published in the

Federal Register. A copy can be obtained from the U.S. Department of

Justice, Legal Procedures Office at 325 7th Street, N.W., Room 215,

Washington, D.C. 20530 (telephone: 202-514-2481).

[FR Doc. 96-16445 Filed 6-26-96; 8:45 am]

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