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In a case that could determine the future of fix-it-first antitrust remedies, Libbey Inc. and the Federal Trade Commission squared off Monday in federal court in Washington, D.C., over the glass maker’s $277 million acquisition of Newell Rubbermaid Inc.’s Anchor Hocking unit. At issue: How far companies can go in restructuring deals to resolve FTC objections. Lawyers said few courts have addressed whether companies may try to improve their litigating position by changing terms of the deal to exclude specific businesses that trigger antitrust alarms. Most fix-it-first proposals instead involve selling the contested assets to a third party already in the market. “If a court says it will consider a fix-it-first proposal like this as adequate, then that would be a signal to the business community that you have freedom to come up with more solutions,” one antitrust lawyer said. A court decision permitting fix-it-first solutions also could influence whether the FTC adopts a friendlier attitude toward this approach. Sources said senior FTC officials have been questioning whether the agency’s long-standing objection to fix-it-first solutions should remain in place. Sources said the agency is leaning toward altering the policy, though no decision has been made. The current case began June 18 when Libbey agreed to buy Anchor for $332 million in cash. The FTC objected, voting Dec. 18 to block the deal because the combined company would control about 77 percent of the market for glasses sold to food service outlets. Libbey responded Jan. 3 by telling the FTC it would restructure the deal to exclude Anchor’s food service business. It then argued that the agency should approve the deal because the acquisition would not affect Libbey’s market share in the food service sector. The antitrust agency labeled the restructuring a “sham,” filing suit Jan. 14 to stop the deal. It argued that Newell would have to outsource production of the food service line because all the plants used to produce the product were being sold to Libbey. The FTC also argued that nothing prevents Newell from exiting the food service glassware business once the Libbey sale is completed. Libbey responded to the suit Jan. 22 by restructuring the acquisition to exclude the food service business. Company officials said they expected to be able to complete the deal in the near term. The FTC, however, did not drop the case and Libbey instead wound up Monday before U.S. District Judge Reggie B. Walton, who conducted a four-hour mini-trial in the case. Walton said he expects to issue a ruling in mid-March. At the hearing, neither side presented witnesses. Rather the judge heard from FTC lawyer Richard Liebeskind and Libbey lawyer James Kearney, a partner at Latham & Watkins in New York. Liebeskind said it does not matter if Libbey and Newell have restructured the deal to exclude food service. Rather, the judge must be satisfied that the new deal will not harm competition in food service. “No court has allowed a merger after changing circumstances until it is satisfied that competition is protected,” he said. The FTC lawyer said it is impossible for the judge to conclude that competition is protected in this case. Liebeskind said the restructured proposal calls for Newell to outsource production of the food service line to a plant in Buga, Colombia, which is the midst of an increasingly violent civil war. “Why are they going to the middle of a civil war to buy this stuff?” asked Liebeskind, who added that the turmoil meant Newell could not guarantee a steady supply of its product to customers. He also questioned how Newell would be competitive because it agreed to pay more for glasses from Colombia than it currently costs to produce them at Anchor Hocking. Also, the contract does not require Newell to buy any glasses from the factory, which means it is free to exit the business at any time. “The merger as restructured would inevitably lead to higher prices,” Liebeskind said. Kearney countered that Newell could be a stronger competitor in the food service post-deal because it would combine the Anchor food service line with a Rubbermaid line of plastic products sold to restaurants. This Rubbermaid Commercial Products division has a direct sales force that would push the product with restaurants. Anchor Hocking markets glassware now only through distributors. Higher per-item manufacturing costs with the Colombia factory would be offset by eliminating administrative overlap, he said. “The fundamental structural question is the only one before you,” Kearney said. “Can you outsource? The answer is yes, you can.” Kearney said even if the judge has qualms about the merger he should not issue a preliminary injunction. Instead, the companies should be permitted to close the deal as the FTC conducts the administrative trial. If the FTC concludes there is a problem, it could order the divestiture of plants and the molds needed to produce the glassware, he said. Libbey needs a quick ruling. Kearney said Libbey is spending $100,000 per month to keep the financing plan for the deal in place. Also the company cannot delay past April a larger refinancing that is contingent on knowing whether this deal will be completed, he said. “If the financing is gone, this deal is dead,” he said. Copyright (c)2002 TDD, LLC. All rights reserved.

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