Competition Bureau statement regarding the acquisition of Novelis’ North American foil products business by Reynolds

OTTAWA, June 2, 2014 — This statement summarizes the approach taken by the Competition Bureau in its review of the proposed acquisition by Reynolds Consumer Products, Inc. (Reynolds) of the Novelis Foil Products North America division (NFP) of Novelis Inc. and Novelis Corporation, pursuant to an agreement dated November 15, 2013. The business that is being acquired relates to the manufacturing and supply of aluminum foil wrap and semi-rigid aluminum containers intended for use in various applications relating to food.

On May 26, 2014, the Bureau issued a No Action Letter to Reynolds indicating that the Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act (Act) in respect of the transaction.Footnote 1

Background

Reynolds and NFP both manufacture and supply aluminum foil wrap and semi-rigid aluminum containers used for packaging, storing, preparing or presenting food to retailers, distributors, foodservice companies and food processor companies. In Canada, NFP has two plants and three distribution facilities, while Reynolds’ manufacturing plants are located in the U.S., with two distribution facilities in Canada.

The Bureau’s review focused on the key areas of overlap between the parties, namely the supply of aluminum foil wrap to Canadian retailers, specifically grocers and mass merchants, as well as the supply of semi-rigid aluminum containers, such as pie plates, to foodservice and food processor companies.

Supply of aluminum foil wrap to retailers

Both Reynolds and NFP supply branded and private label aluminum foil wrap to retailers in Canada.

Based on information collected by the Bureau, including from most major grocers and mass merchants, NFP’s Alcan brand is the leading brand of aluminum foil wrap in Canada. The Reynolds brand is the only other brand of aluminum foil wrap widely recognized in Canada, even though it is sold by only a few Canadian retailers.

In determining the relevant product market, the Bureau assessed the degree of substitutability between aluminum foil wrap and other forms of food wrap, such as plastic wrap and waxed paper. The Bureau determined that aluminum foil wrap is used by consumers for a number of applications where plastic wrap and waxed paper cannot be used. For instance, aluminum foil wrap can be used in the oven or on the barbecue, while plastic wrap and waxed paper cannot be used in this way. Accordingly, the Bureau found that other forms of food wrap are not substitutable for aluminum foil wrap.

The Bureau also considered whether there might be separate product markets for branded aluminum foil wrap and private label aluminum foil wrap. While both types of aluminum foil wrap are generally used by consumers for the same purposes, certain factors, such as relative differences in retail prices and consumer preferences, suggested that branded aluminum foil wrap and private label aluminum foil wrap may be in separate product markets. However, it was not necessary to determine conclusively whether branded aluminum foil wrap and private label aluminum foil wrap are in the same or separate relevant product markets. Based on the information collected, including from the parties and third parties, the Bureau determined that Reynolds’ presence in Canada did not have a noticeable impact on the price at which NFP supplied aluminum foil wrap (whether branded or private label) to Canadian retailers.

It was unnecessary for the Bureau to determine the relevant geographic market for the purpose of evaluating the proposed transaction, as it concluded that the transaction would not raise competition concerns in any possible relevant geographic market in Canada.

For these reasons, among others, it was determined that the transaction is unlikely to result in a substantial lessening or prevention of competition for the supply of aluminum foil wrap to Canadian retailers.

Supply of aluminum containers to food processors and food service companies

NFP manufactures and supplies semi-rigid aluminum containers to foodservice and food processor companies in Canada, either directly or through distributors. Reynolds and other competitors manufacture these products outside of Canada and distribute them to Canadian customers through various means, including through direct distribution, through distribution facilities located in Canada or through Canadian brokers and distributors.

To assess the closeness of competition among the parties, the Bureau considered the various types of containers supplied by each party and determined that although they supply a number of overlapping containers, there likely are no containers for which they are the only suppliers, and only a small number of containers for which there is only one other competitor. In most cases, many competitors existed. Further, there are no significant barriers for competitors to expand their product offerings in Canada. Competitors can expand their product offerings simply by investing in a new die to use on existing pressing machines. As a result, it was not necessary to determine conclusively the relevant product market.

Certain customers who purchase relatively small volumes of semi-rigid aluminum containers indicated that the merging parties may be their only suppliers due to their presence in Canada, and they referenced a related potential difficulty to economically purchase semi-rigid aluminum containers from U.S. suppliers. After careful consideration of these concerns, the Bureau determined that, even if the geographic market were defined as either Canada or Western Canada and Eastern Canada, the barriers are low for U.S.-based competitors to expand into Canada in order to service these customers more economically by setting up distribution centres, as Reynolds has done, or by using a third-party broker or distributor with facilities located within Canada. As such, it was not necessary to determine conclusively the geographic market for the supply of semi-rigid aluminum containers to food processors and food service companies.

Due to the presence of remaining competitors and low barriers to expansion, it was determined that the transaction is unlikely to result in a substantial lessening or prevention of competition for the sale of semi-rigid aluminum containers to food processors and food service companies.

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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