Britain's Office of Fair Trading has blocked AkzoNobel's proposed acquisition of Metlac Holding, ruling that the deal would substantially reduce competition in metal coatings for beer and beverage cans in the UK.
AkzoNobel and Metlac both manufacture and supply metal packaging coatings used in food and beverage cans. Between them, the two companies supply close to half of the market for the 30-nation European Economic Area (EEA), according to the Office of Fair Trading (OFT).
This confirmed the UK Competition Commission's (CC) provisional finding last fall in the case. However, after a more detailed analysis, the commission said it did not find that the merger would result in a substantial lessening of competition in the supply of coatings for food, caps, closures, and general line metal packaging.
Britain's Office of Fair Trading has prohibited AkzoNobel from acquiring Metlac Holding because it would substantially reduce competition in metal packaging coatings for beer and beverage cans in the UK.
Nevertheless, the commission said the only remedy to guard against the substantial lessening of competition was to prohibit the transaction entirely, which includes preventing AkzoNobel from completing the exercise of its call option.
OFT is a government consumer and competition authority, similar to the U.S. Federal Trade Commission. The Competition Commission is an independent public agency that conducts in-depth inquiries into mergers, markets, and the regulation of major industries.
AkzoNobel announced in January 2012 that it planned to exercise its call option and take full control of Metlac Holding; the company intended to close the deal in the second quarter of 2012. In May 2012, however, the OFT declared that the deal could undermine competition and lead to price increases; it then referred the proposed acquisition to the Competition Commission.
In a Summary of Provisional Findings Report published Sept. 20, the commission cited concerns from a "significant proportion of large and small customers" that the merger would remove an irreplaceable competitive force that Metlac brings to the market.
Both companies manufacture and supply metal packaging coatings and metal decorating inks in the UK. The commission previously stated that the global production of metal coatings is concentrated in three large producers: AkzoNobel, PPG Industries Inc., and Valspar Corporation.
"We are disappointed and strongly disagree with the CC's final report," said Oskar Bosson, AkzoNobel's Media Officer for Specialty Chemicals and Performance Coatings, in an email.
"It is contrary to the decisions reached by a number of other competition authorities in Europe and globally. We consider the CC's conclusions to be based on a fundamentally mistaken view of the competitive effects of the proposed transaction in the supply of metal packaging coatings for beer and beverage cans in the UK.
"We are currently in the process of reviewing the content of the final report and assessing the further options available, including the possibility of an appeal to the Competition Appeal Tribunal," said Bosson.
For its competitive analysis, the commission treated AkzoNobel and Metlac as independent competitors, noting that merging them would combine two of the EEA's four main suppliers of metal packaging coatings.
The commission's provisional findings said that if both parties were to come under common ownership and control of AkzoNobel, they would control 61-70 percent of the UK's metal packaging coatings.
Combined, AkzoNobel and Metlac supply close to half of the food and beverage metal coatings in the European Economic Area.
The commission said it had received a number of third-party concerns related to the potential loss of Metlac as a competitor.
"Metlac competes strongly with AkzoNobel, the leading player, in these markets," said Roger Witcomb, chairman of both the commission and the AkzoNobel/Metlac inquiry, said at the time.
"A number of customers indicated that Metlac is a significant competitive force due to its low pricing, strong product quality, and innovation and that its removal would eliminate a significant competitive constraint to AkzoNobel and could therefore result in price increases."
Prohibition the 'Only Remedy'
The commission report concludes that the only answer is to scrap the deal entirely.
"This would be an effective remedy and would have no associated risks," the report said. "We have been unable to identify another remedy that would be similarly effective in addressing the adverse effects of the proposed transaction."
The commission also "decided that the remedy of prohibition would be a proportionate remedy, given the absence of effective alternatives, the benefits of achieving a comprehensive solution to the substantial competition problems, and the absence of any evidence that [Relevant Customer Benefits] would arise from the transaction."
Founded in 1986, Metlac is the leading company of a group that includes an R&D firm, an ink manufacturer, and a can coating business.
Metlac is an intermediate-sized producer with a strong presence in the EEA and is a major global supplier of lacquers, coatings, and linings for metal cans and packaging, producing 25,000 tons annually.
AkzoNobel Coatings International B.V. currently owns 49 percent of Metlac Holding. The remaining 51 percent is owned by members of the Bocchio family.
Metlac Holding owns 55.56 percent of its subsidiary Metlac S.p.A.; AkzoNobel owns the rest.
AkzoNobel, the world's largest paint and coatings company, inherited its stake in the holding company in 2008 when it acquired ICI.