US regulators fear that Ardagh's €1.3 billion takeover of rival glass bottle manufacturer Verallia North America will cut competition and result in higher prices for beers and spirits if it is allowed to succeed.

The US Federal Trade Commission (FTC) is going to court to block Irish-owned Ardagh's $1.7 billion (€1.3 billion) acquisition of Verallia, a US-based division of French manufacturer St Gobain, agreed earlier this year.

In an affidavit filed with the federal courts, the FTC warns that the deal will cut the number of big players in the market for beer and spirit bottles to two from three, making it easier for the remaining pair to co-ordinate on price and other terms “to achieve supra-competitive prices or other anti-competitive outcomes”.

Norman Armstrong, deputy director of the commission’s Bureau of Competition, said that the deal would lead to higher costs for brewers and distillers in the US and less innovation in the industry. “Ultimately, this transaction will result in higher prices for consumers,” he warned.

'Vigorously defend'
Ardagh pledged to "vigorously defend" the deal in court while working with the commission to resolve its concerns. The group said it was disappointed with the FTC's action.

“We believe that the transaction will benefit glass container customers and is fully consistent with the anti-trust laws,” it added in a statement.

The FTC's affidavit points out that Ardagh, Verallia and Owens-Illinois constitute the "three majors" that dominate the $5 billion a-year market for beer and liquor bottles in the US.

Merging Verallia and Ardagh, the second and third largest respectively, would concentrate more than 75 per cent of the market in just two players’ hands. The commission claims that the merging companies’ own internal documents suggest that the deal would create a duopoly.

Along with the risk that the transaction would make it easier for the two remaining players to co-ordinate on price and other terms, the regulator argues that it would eliminate head-to-head competition between Ardagh and Verallia that has helped lower prices for brewers and distillers.

The FTC says that, as it stands, the three big players already have “a wealth of information” about their markets and each other, including production capacity, profitability and the identity of each other’s customers.

Barrier to entry
The FTC also argues that the barriers to new entrants are high – it costs about $150 million to build a glass bottle manufacturing plant. At the same time, other materials cannot be substituted for it, as glass bottles suit brewers' and distillers' particular needs.

The commission has issued an administrative complaint against both Ardagh and St Gobain, a standard step taken in cases where the regulator wants to block a deal. It will also seek a temporary court order preventing the parties from going ahead with the the deal.