FEDERAL TRADE COMMISSION / DEPARTMENT OF JUSTICE UPDATE
Antitrust Division Requires Divestiture of Tin Mill as Remedy for Mittal’s Acquisition of Arcelor
- On August 1, the Department of Justice filed its proposed final judgment and competitive impact statement, concluding its investigation of Mittal Steel’s purchase of Arcelor. As reported earlier, in May the Antitrust Division had reached an agreement with Mittal permitting its purchase of Arcelor to go forward in exchange for Mittal to agreeing to divest Dofasco if further investigation indicated that there was a problem with the transaction. As part of the initial hostile bid for Arcelor, Mittal had indicated that it wished to divest Dofasco to ThyssenKrupp, which had lost a bidding war for Dofasco to Arcelor in January. In response, Arcelor attempted to write the transaction to acquire Dofasco in such a way as to make divestiture impossible, thus trapping Mittal with a competitive problem. Later, Arcelor accepted Mittal’s offer.
The complaint indicates that the relevant market is the market for tin steel products in the Eastern United States. Currently, Mittal controls approximately 44% of the market, whereas Arcelor has 2% and Dofasco has 4%. Another, unnamed company made up the remaining portion of the market. Although there is another tin mill in the Western United States, this tin mill does not usually produce products that compete with tin products in the Eastern United States, because the transportation costs are prohibitive. In addition, anti-dumping restrictions and self-regulation by foreign importers restrict the ability of imports to counter any increase in price.
As part of the agreement, Mittal has to divest Dofasco, currently owned by Arcelor, which has a tin mill located in Hamilton, Ontario. If, however, Mittal is unable to extricate itself from the contract arranged by Arcelor, then the Department of Justice will notify Mittal within 90 days of whether Mittal will divest Mittal's Sparrows Point facility located near Baltimore, Maryland, or Mittal's Weirton facility located in Weirton, West Virginia. Mittal has 120 days to conclude the deal, although this time period can be extended by up to 60 days.
The consent decree is interesting in that it provides for multiple contingencies. In addition, the fact that the Antitrust Division gave itself the right to determine which plant must be sold if Mittal cannot sell Dofasco to ThyssenKrupp is unusual, as it indicates either 1) the Division wishes to force Mittal to maintain both plants, as it cannot be certain of which one it will keep or 2) the Division is still investigating the market for tin, and will make a determination, if need be, which plant would alleviate the competitive problems more effectively. Finally, the consent decree continues the Antitrust Division’s history of narrowly defining metal markets based both on type of metal and geographic region.
FTC Chairman Deborah Majoras Indicates Hesitation on Requiring Net Neutrality
- On August 21 FTC Chairman Deborah Majoras addressed the Progress and Freedom Foundation, an organization generally skeptical of government regulation of technology, in Aspen Colorado. In her address, Chairman Majoras indicated that she had asked the FTC's Internet Access Task Force to investigate net neutrality and what stance the FTC should take on the issue.
Specifically, the Internet Access Task Force will look into whether paying for faster access will result in larger companies obtaining an advantage over smaller companies and whether the broadband providers could leverage the fees to give their own content providers an advantage over competing content providers. Chairman Majoras noted that Madison River, a DSL provider which also sold telephone services, had blocked access to Vonage's competing telephone services over the internet, resulting in a $15,000 fine.
Before the FTC would indicate its support for legislation mandating net neutrality, however, Chairman Majoras indicated that the proponents would need to show 1) demonstrated harm, 2) the regulatory costs, 3) why market forces would not prevent inappropriate leveraging, and 4) why existing regulatory oversight was not sufficient. Chairman Majoras, however, indicated initial skepticism that the FTC would favor legislation. "I, too, support a highly competitive Internet environment. I just question the starting assumption that government regulation, rather than the market itself under existing laws, will provide the best solution to a problem." She stated that Madison River represented the only case where a broadband provider had leveraged its power as a service provider to favor its content, and that caution should be used before making policy on a single violation.
In addition, Chairman Majoras warned that regulation does not always have the consequence its proponents sought. "[A]ny net neutrality or similar legislation could have the effect of entrenching existing broadband platforms and market positions, as well as adversely affecting the levels and areas of future innovation and investment in this industry."
Chairman Majoras then indicated that the market may be able to constrain any attempts to leverage positions as service providers to help their content business. "In the Internet space, consumers reign, as best I can tell. Consumers are powerful and tough customers. I ask myself whether consumers will stand for an Internet that suddenly imposes restrictions on their ability to freely explore the Internet or does not provide for the choices they want."
Finally, Chairman Majoras focused on the current role that the Federal Trade Commission, Department of Justice, and Federal Communications Commission play in enforcing the existing antitrust laws. Because the investigations are fact-intensive, the agencies are able to handle changing technological standards, and investigate industries that range from supermarkets to semi-conductors.
The speech is interesting because it indicates that Chairman Majoras does not currently see the need for legislation supporting net neutrality. "[T]hus far, proponents of net neutrality regulation have not come to us to explain where the market is failing or what anticompetitive conduct we should challenge; we are open to hearing from them." Whether the Internet Access Task Force will reach the same conclusion and what the FTC's final recommendation will be remains to be seen.
Antitrust Division Allows Sale of Contra Costa Times and San Jose Mercury News to MediaNews But Warns on Further Transactions
- Earlier this year, the Antitrust Division approved McClatchy’s purchase of Knight Ridder, subject to the requirement that it divest to Hearst Corporation the Saint Paul Pioneer Press in Minneapolis, as it was the closest competitor to McClatchy’s Minneapolis Star Tribune. Another portion of the transaction involved McClatchy's sale of the Contra Costa Times and San Jose Mercury News to MediaNews, although this was done to decrease debt, not to offset anticompetitive concerns.
However, Hearst Corporation then agreed to transfer the St. Paul Pioneer Press and the Monterey News to MediaNews in exchange for an interest in MediaNews's non-California asset. In the transaction as it is currently structured, Hearst will pay $299 million for an interest in MediaNews non-California assets, and MediaNews will then buy the St. Paul Pioneer Press and Monterey County Herald from Hearst, which Hearst purchased for $263 million. Hearst and MediaNews have also discussed collaborating other parts of the business within the Bay Area, such as newspaper delivery.
MediaNews owns the Alameda News Group, which controls the Oakland Tribune, the Tri-Valley Herald, the Daily Review, the Fremont Argus, and the San Mateo County Times, papers which serve the "East Bay area," which includes Alameda and Contra Costa counties. The main paper in the East Bay Area is the San Francisco Chronicle, owned by Hearst. The division investigated whether MediaNews' papers competed with the Contra Costa Times and the Mercury News, and whether the combination would result in any synergies that would permit the Alameda News Group to compete more effectively with the Chronicle.
The division noted in its press release that it had found that the newspapers of the Alameda News Group did not compete with the Contra Costa Times or the Mercury News. "Based on its investigation, the Division found that only a relatively small number of readers and advertisers view MediaNews' papers, on the one hand, and the Contra Costa Times and Mercury News, on the other hand, as substitutes." Although the Division allowed the merger to proceed, it also indicated that it had heard that Hearst, the owner of the San Francisco Chronicle, the leading newspaper in the East Bay Area, had publicly announced that it was considering acquiring an interest in MediaNews's non-California assets and entering into "collaborative arrangements with MediaNews involving San Francisco." The Division said that it would investigate any proposed collaborative agreement carefully, to ensure that competition levels are maintained.
Although the Division routinely releases press releases announcing the end of merger investigations, this one stands out as the Division is announcing that arrangements that fall short of a merger between the competitors may warrant investigation. The scope of the investigation may depend on the details of the interest Hearst acquires in MediaNews.
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