Ball’s bid for Rexam hits EU competition hurdle

By Joseph James Whitworth contact

- Last updated on GMT

The EC said the combined entity would own two thirds of plants in Europe. Picture: Ball Corp
The EC said the combined entity would own two thirds of plants in Europe. Picture: Ball Corp

Related tags: European commission, European union

Ball Corporation’s $6.6bn (£4.3bn) proposed deal for Rexam is to be investigated by the European Commission after the agency said it had concerns it may reduce competition in the beverage can and aluminium bottle manufacturing industry.

The Commission has until 25 November to investigate in-depth the proposed acquisition and determine whether these initial concerns in the European Economic Area (EEA) are founded.

Rexam and Ball are the first and second largest beverage can manufacturers in the EEA. Ball is the largest supplier worldwide while Rexam is the second.

Customers include large and small manufacturers of beer, carbonated soft drinks, energy drinks, juices and water as well as bottlers working under contract with drinks manufacturers.

The Commission said the remaining competitors would not pose a sufficient competitive constraint.

The investigation suggests the ability to compete effectively requires a certain minimum size and a widespread network of production facilities.

“Moreover, the industry is characterised by high entry barriers because of the need to ensure sufficiently large customer orders and the significant investment required to build a plant,”​ said the European Commission.

“This makes entry and expansion difficult in a relatively short period of time. The combination of the two largest players is therefore likely to result in price increases for customers and ultimately for consumers.”

Ball Corporation statement

Ball Corporation confirmed the European Commission has initiated a Phase II review in connection with the offer to acquire Rexam. 

It said this is a standard step when the European Commission is conducting an in-depth review under merger regulation.

The transaction is still being reviewed by other antitrust agencies, including the US FTC and Brazilian CADE. 

Ball expects that all necessary regulatory clearances will be during the first half of 2016. 

Ball Corporation said it was going to acquire Rexam for $6.6bn (£4.3bn) in February this year.

The combined company will have pro forma 2014 revenue of $15bn and 22,500 employees across five continents.

Only Ball is in China, US Northeast, Florida, Benelux, Poland and Serbia.  Only Rexam is in India, US Pacific Northwest, Russia and Scandinavia.

Germany and the UK are the only two nations in Europe where Ball and Rexam operate plants.

Proposed takeover market

After the proposed takeover, their combined market shares would be very high at EEA and regional level and only two other players would remain on the market.

They are also the two suppliers with the most extensive network of plants across the EEA. After the transaction, they would own two thirds of the plants in Europe.

Ball said the combined group would achieve higher standard and specialty unit volumes creating production efficiencies and distribution capabilities in a 'highly-competitive packaging sector'.

It would be able to take advantage of a broader and balanced production facility footprint in most regions, so it could reduce manufacturing and supply chain costs.

It would also benefit from more efficient sourcing from its metals and other direct and indirect material suppliers.

Ball said the synergies created are ‘critical’ so the group is better able to compete with customers who are turning toward self-supply and to other materials such as PET and glass.

Customers already produce 20 billion cans annually in North America, said Ball.

It gave an example of Metal Container Corporation (MCC), owned by AB InBev, providing 45% of ABI’s cans in North America. 

In 2014, Ball's total consolidated net sales were US$8.6bn, with the packaging businesses responsible for 89%.

Bidco is a newly incorporated English company which is a wholly-owned subsidiary of Ball established to effect the acquisition.

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