Ball wins Brazilian approval of proposed $8.2bn Rexam deal

Ball Corporation has won Brazilian approval of its proposed £5.4bn ($8.2bn) acquisition of Rexam.

The tribunal of Brazil’s competition watchdog, the Administrative Council for Economic Defense (CADE) approved the merger last week on condition it adopts structural and behavioural measures settled in a Merger Control Agreement.

Speaking at the Tribunal’s judgment session on December 9, Commissioner for the case, Gilvandro Araújo said the deal would ‘tie-up of the two biggest producers of metal beverage cans in the country’ but certain plants will have to be divested.

The ACC also settled the transfer of current contracts related to the unities to be sold to the eventual plants’ buyer.

Ball and Rexam will also have to sign contracts for can ends supply with the assets buyer.

Last month, Ball offered to sell more than $1.58bn worth of assets to appease EU antitrust regulators for its acquisition of Rexam.

It allegedly submitted a request to divest four factories in Germany, three in the UK, one each in Spain, France, the Netherlands and Austria and is in discussions with antitrust authorities in the US to divest assets in that country.

The EU competition authority is scheduled to make a decision on the deal by January 22 after concerns the deal may reduce competition in the beverage can and aluminium bottle manufacturing industry.

Nine of the plants make cans and two of them can ends.

Rexam and Ball are the first and second largest beverage can manufacturers in the European Economic Area (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.

If the acquisition went ahead, the combined company would have 60% of the beverage can market in North America, 69% in Europe and 74% in Brazil.

While beverage packaging isn’t a typical, rapidly evolving, high-technology market, technological change is occurring. Coupled with shifting consumer de-mand (often driven by powerful beverage company marketing efforts), and considerable (and increasing) buyer power, historical beverage packaging market shares may have little predictive value going forward.

The markets in which Ball and Rexam operate are dominated by a few large customers, who are themselves direct competitors in the upstream market-place. These companies have shown a remarkable willingness and ability to invest in competing packaging supply capacity and to exert their substantial buyer power to discipline prices.

For this same reason, complaints leveled against the proposed merger by these beverage giants - which are as much competitors as they are customers of the merging companies - should be viewed with skepticism.

Finally, the merger should generate significant managerial and overhead efficiencies, and the merged firm’s expanded geographic footprint would allow it to service larger geographic areas for its customers, thus lowering transaction costs and increasing its value to these customers.

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