United States of America vs. Aluminum Company of America and Alumax Inc.; Public Comments and Plaintiff's Response

DEPARTMENT OF JUSTICE

Antitrust Division

United States of America vs. Aluminum Company of America and

Alumax Inc.; Public Comments and Plaintiff's Response

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. 16(b)-(h), that the Public Comments and

Plaintiff's Response have been filed with the United States District

Court of the District of Columbia in United States v. Aluminum Company

of America and Alumax, Inc., Civ. Action No. 9801497 (PLF).

On June 15, 1998, the United States filed a civil antitrust

Complaint alleging that the proposed acquisition of Alumax Inc.

(``Alumax'') by Aluminum Company of America (``Alcoa'') would violate

Section 7 of the Clayton Act, 15 U.S.C. 18. The Complaint alleged that

Alumax and Alcoa are the two largest of the three producers of aluminum

cast plate (``cast plate'') in the world. Alcoa's proposed acquisition

of Alumax would have combined under single ownership almost 90% of the

cast plate manufacturing business in the world. As a result, the

proposed acquisition would substantially lessen competition in the

manufacture and sale of cast plate world wide in violation of Section 7

of the Clayton Act.

Public comment was invited within the statutory 60-day comment

period. The one comment received, and the response thereto, is hereby

published in the Federal Register and filed with the Court. Copies of

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

fee.

Constance K. Robinson,

Director of Operations, Antitrust Division.

Pursuant to the requirements of the Antitrust Procedures and

Penalties Act (``APPA''), 15 U.S.C. 16(b)-(h) (``Tunney Act''), the

United States hereby responds to the single public comment received

regarding the proposed Final Judgment in this case.

[[Page 54159]]

I

Background

On June 15, 1998, the United States Department of Justice (``the

Department'') filed the Complaint in this matter. The Compliant alleges

that the proposed acquisition of Alumax Inc. (``Alumax'') by Aluminum

Company of America (``Alcoa'') would violate Section 7 of the Clayton

Act, 15 U.S.C. 18. The Complaint alleges that Alumax and Alcoa are the

two largest of the three producers of aluminum cast plate (``cast

plate'') in the world. Alcoa's proposed acquisition of Alumax would

have combined under single ownership almost 90% of the cast plate

manufacturing business in the world. As a result, the proposed

acquisition would substantially lessen competition in the manufacture

and sale of cast plate world wide in violation of Section 7 of the

Clayton Act. 15 U.S.C. 18.

Simultaneously with the filing of the Complaint, the plaintiff

filed the proposed Final Judgment and a Stipulation signed by all the

parties that allows for entry of the Final Judgment following

compliance with the Tunney Act. A Competitive Impact Statement

(``CIS'') was also filed, and subsequently published in the Federal

Register on July 1, 1998. The CIS explains in detail the provisions of

the proposed Final Judgment, the nature and purposes of these

proceedings, and the transaction giving rise to the alleged violation.

As the Complaint and the CIS explained, the merger as originally

proposed was likely to reduce or eliminate competition between Alcoa

and Alumax in the worldwide market for production and sale of aluminum

cast plate (``cast plate''). Alcoa and Alumax are the two largest of

three firms that compete in this market. The proposed Final Judgment is

intended to prevent the expected lessening of competition the merger

could cause in that market.

As a remedy to competitive harm in the cast plate market, the

Department and Alcoa and Alumax agreed to a divestiture of Alcoa's

division that manufactures and sells cast plate. This divestiture is

intended to protect consumers by ensuring continued vigorous

competition among three firms in the market.

The 60-day comment period for public comments expired on August 30,

1998. As of September 11, 1998, plaintiff had received comments from

one person.\1\ The comment came from General Motors Corporation

(``General Motors''), a self-described worldwide consumer of aluminum

products.

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\1\ The comment is attached. The Department plans to publish

promptly the comment and this response in the Federal Register. The

Department will provide the Court with a certificate of compliance

with the requirements of the Tunney Act and file a motion for entry

of final judgment once publication takes place.

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II

Response to the Public Comment

General Motors believes that the Department's decision to allow the

Alcoa/Alumax transaction to go forward subject only to the divestiture

of Alcoa's cast plate division was based on an overly narrow view of

competition. General Motors believes that the Department should have

challenged the transaction's competitive impact on a product market it

calls ``integrated aluminum production,'' i.e., all aspects of Alcoa

and Alumax's aluminum businesses, including mining, refining, smelting,

hot rolling, cold rolling, extruding, forging, casting and other

processes. General Motors claims that Alcoa now owns, as a result of

its acquisition of Alumax, a dominant share of the assets used for

integrated aluminum production all around the world. General Motors is

concerned that consumers will suffer at the hands of Alcoa's dominance,

which will not be curbed by the other worldwide aluminum producers.

The Department of Justice Antitrust Division's review of mergers is

governed by the Clayton and Sherman Acts, judicial precedent, and the

Horizontal Merger Guidelines issued jointly by the Department and the

Federal Trade Commission in 1992 (and slightly revised in 1997). The

first step is defining a relevant product and geographic market. In its

investigation into the many different aspects of the two companies'

aluminum businesses, the Department determined that what General Motors

calls integrated aluminum production actually consists of numerous

separate product markets with varying geographic dimensions--some are

local, some are worldwide. The Department then assessed the competitive

implications of the loss of an independent Alumax in those markets in

which the merging firms actually compete with each other. After a

thorough investigation, the Department determined that the only product

market adversely affected by the proposed acquisition was the worldwide

manufacture and sale of cast plate. Accordingly, the Department brought

its case on that basis, and obtained as relief a divestiture designed

to remedy the competitive harm posed by the proposed acquisition in

that market.

III

The Legal Standard Governing the Court's Public Interest Determination

Once the United States moves for entry of the proposed Final

Judgment, the Tunney Act directs the Court to determine whether entry

of the proposed Final Judgment ``is in the public interest.'' 15 U.S.C.

16(e). In making that determination, the ``court's function is not to

determine whether the resulting array of rights and liabilities is one

that will best serve society, but only to confirm that the resulting

settlement is within the reaches of the public interest.'' United

States v. Western Elec. Co., 993 F.2d at 1576.\2\ The Court should

evaluate the relief set forth in the proposed Final Judgment and should

enter the Judgment if it falls within the government's ``rather broad

discretion to settle with the defendant within the reaches of the

public interest.'' Microsoft, 56 F.3d at 1461; accord United States v.

Associated Milk Producers, 534 F.2d 113, 117-18 (8th Cir. 1976), cert.

denied, 429 U.S. 940 (1976).

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\2\ The Western Electric decision concerned a consensual

modification of an existing antitrust decree. The Court of Appeals

assumed that the Tunney Act was applicable.

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Because it argues for a different case than the one that the

Department brought, and does not address the relief ordered by the

proposed Final Judgment, General Motors' comment raises issues not

relevant to this Tunney Act proceeding. The Tunney Act does not

contemplate a judicial reevaluation of the government's determination

of which violations to allege in the Complaint. The government's

decision not to bring a particular case based on the facts and law

before it at a particular time, like any other decision not to

prosecute, ``involves a complicated balancing of a number of factors

which are peculiarly within [the government's] expertise.'' Heckler v.

Chaney, 470 U.S. 821, 831 (1985). Thus, the Court may not look beyond

the Complaint `'to evaluate claims that the government did not make and

to inquire as to why they were not made.'' United States v. Microsoft,

56 F.3d 1448, 1459 (D.C. Cir. 1995); see also Milk Producers, 534 F.3d

at 117-18.

Simarily, the government has wide discretion within the reaches of

the public interest to resolve potential litigation. E.G., Western

Elec., 993 F.2d at 1577; AT&T, 552 F. Supp. at 1521. The Supreme Court

has recognized that a government antitrust consent decree is

[[Page 54160]]

a contract between the parties to settle their disputes and

differences, United States v. ITT Continental Baking Co., 420 U.S. 223,

235-38 (1975); United States v. ITT Continental Baking Co., 420 U.S.

223, 235-38 (1975); United States v. Armour & Co., 402 U.S. 673, 681-82

(1971), ``and normally embodies a compromise; in exchange for the

saving of cost and elimination of risk, the parties each give up

something they might have won had they proceeded with the litigation.''

Armour, 402 U.S. at 681. This Judgment has the virtue of bringing the

public certain benefits and protection without the uncertainty and

expense of protracted litigation. Id; Microsoft, 56 F.3d at 1459.

Finally, the entry of a governmental antitrust decree forecloses no

private party from seeking and obtaining approriate antitrust remedies.

Thus, defendants will remain liable for any illegal acts, and any

private party may challenge such conduct if and when appropriate. If

the commenting party has a basis for suing the defendants, it may do

so. The legal precedent discussed above holds that the scope of a

Tunney Act proceeding is limited to whether entry of this particular

proposed Final Judgment, agree to by the parties as settlement of this

case, is in the public interest.

IV

Conclusion

After careful consideration of the comment, the plaintiff concludes

that entry of the proposed Final Judgment will provide an effective and

appropriate remedy for the antitrust violation alleged in the Complaint

and is in the public interest. The Plaintiff has moved the Court to

enter the proposed Final Judgment after the public comment and this

Response has been published in the Federal Register, as 15 U.S.C. 16(d)

requires.

Dated this 22nd day of September, 1998.

Respectfully submitted,

Nina B. Hale,

Andrew K. Rosa,

U.S. Department of Agriculture, Antitrust Division, 325 7th Street, NW,

suite 500, Washington, DC 20530, (202) 307-6351.

Certificate of Service

I, Mary Ethel Kabisch, hereby certify that, on September 22, 1998,

I caused the foregoing document to be served on defendants Alumax Inc.

and Aluminum Company of America by having a copy mailed, first-class,

postage prepaid, to:

David Gelfand,

Cleary, Gottlieb, Steen & Hamilton, 2000 Pennsylvania Avenue, NW.,

Suite 9000, Washington, DC 20006-1801

D. Stuart Meiklejohn,

Sullivan & Cromwell, 125 Broad Street, 28th floor, New York, New York

10004-2498

Mary Ethel Kabisch

Statement of General Motors Corporation

General Motors Corporation (``GM''), speaking as a major worldwide

consumer of aluminum products in many and varied alloys, shapes and

forms would like to express its disappointment in the decision by the

Antitrust Division of the U.S. Department of Justice to allow the

Alcoa/Alumax transaction to proceed with only minimal divestitures as

outlined in the Federal Register notice published on July 1, 1998 at 63

FR 35946. The investigation and conclusions reached seemed to have

focused on the pieces while ignoring the whole. It seems misguided and

harmful to the aluminum consumer to simply evaluate the micro picture

of certain aluminum industry products without considering the macro

picture of aluminum production and how one producer, through asset

control, can have undue influence on this overall market.

Integrated aluminum production is an extremely capital intensive

process. This process includes mining, refining, smelting, hot rolling,

cold rolling, extruding, forging and other processes. Alcoa today

clearly dominates the mining of bauxite and refining of aluminum. With

the purchase of Alumax, Alcoa adds significant smelting, hot line, cold

mill, and extrusion assets to their already very impressive asset

portfolio. Conversely, with the downsizing of two major global

competitors such as Reynolds most recently and Kaiser several years

ago, the Big Four in aluminum is quickly becoming the Big One (Alcoa)

and the Smaller One (Alcan). Further, Alcoa's purchase of Alumax on the

heels of their acquisition of government controlled facilities in

Spain, Italy and Hungary accentuates their position of global dominance

in every major aluminum producing area of the world.

Our concern is the same concern that every aluminum consumer should

consider: Too many critical assets controlled by one producer, the same

producer instrumental in the April, 1994 Memorandum of Understanding.

All aluminum consumers must remember the MOU, a systematic global

scheme to cut production that resulted in 100% price increases in

primary aluminum within nine short months of the agreement.

GM recognizes that industry consolidation and corporate integration

are not always bad for the consumer. They can lead to reduced costs and

efficiencies that benefit the consumer in the form of lower prices. The

consumer realizes those lower prices, however, provided there is still

adequate current competition or the probability of new entry.

Unfortunately, the cost of entry for integrated aluminum production is

staggering. History taught us that lesson many years ago as Alcoa

reigned supreme as one of the last and most successful corporate

monopolies in North America.

Most importantly, GM sees no long-term benefits from this merger,

either for itself or for the future customers of GM cars and trucks.

Whether alone or through the joint research effort known as the

Partnership for a New Generation of Vehicles, GM would like to continue

to work closely with a fully competitive aluminum industry on increased

usage of aluminum in our vehicles. This most recent glaring example of

competitive base dilution appears deleterious to those efforts and will

force GM to re-evaluate aluminum's role as a primary metal of choice in

GM's future.

[FR Doc. 98-26976 Filed 10-7-98; 8:45 am]

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