[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Notices]
[Pages 33538-33539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16445]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Georgia-Pacific Corp.; Proposed Consent 
Judgments

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
Sec. 16(c)-(h), the United States publishes below the comment received 
on the proposed final judgment in United States v. Georgia-Pacific 
Corp., Civil Action No. 96-164, filed in the United States District 
Court for the District of Delaware, together with the United States' 
response to that comment.
    Copies of the comment and response to comment are available for 
inspection and copying in Room 207 of the U.S. Department of Justice, 
Antitrust Division, 325 7th Street, N.W., Washington, D.C. 20530 
(telephone: (202) 514-2481), and at the office of the Clerk of the 
United States District Court for the District of Delaware. Copies of 
these materials may be obtained upon request and payment of a copying 
fee.
Constance K. Robinson,
Director of Operations.

June 7, 1996.

Morgan A. Chivers,
Chairman of the Board and Chief Operating Officer, Continental 
Gypsum Company, 265 Distribution Street, Port Newark, New Jersey 
07114

Re: United States v. Georgia-Pacific Corporation, Civil Action No. 
96-164 (D. Del., March 29, 1996)

    Dear Mr. Chivers: This letter responds to your letters dated 
April 30, 1996 and May 21, 1996 commenting on the proposed Final 
Judgment in the above-referenced antitrust case, which challenges 
the acquisition of the gypsum business of Domtar Inc. (``Domtar'') 
by Georgia-Pacific Corporation (``GP''). The Complaint alleges that 
the acquisition violates Section 7 of the Clayton Act, 15 U.S.C. 
Sec. 18, because its effects may be to lessen substantially 
competition in the production and sale of gypsum board in the 
Northeast Region of the United States. As defined in the Complaint, 
the Northeast Region encompasses the twelve eastern seaboard states 
from Maine through Virginia and Washington, D.C. Under the proposed 
Final Judgment, GP is required to divest to one or more purchasers 
its Buchanan, New York and Wilmington, Delaware gypsum board plants 
and related tangible and intangible assets. GP must accomplish the 
divestitures within 150 calendar days after the date on which the 
proposed Final Judgment was filed (March 29, 1996).
    In your April 30 letter, you noted that Continental Gypsum 
Company is a small independent gypsum board manufacturer which 
commenced production on August 23, 1995 and did not obtain expected 
levels of production and sales until April 1996. You expressed two 
concerns about the provisions on the proposed Final Judgment. One 
concern arises from the requirement that GP ``use all reasonable 
efforts to maintain and increase sales of gypsum board'' at the 
Buchanan and Wilmington plants until the divestitures of these 
facilities have been accomplished. GP also is required to ``maintain 
at 1995 or previously approved levels, whichever are higher, 
promotional, advertising, sales, marketing and merchandising 
support'' for gypsum board sales at these two plants. You believe 
that complying with these provisions could have a ``predatory'' 
effect on Continental and possibly force Continental out of the 
market, particularly if demand stays the same or falls in 1996.
    We do not believe these provisions will have an adverse effect 
on competition in the gypsum wallboard market. The provision were 
intended to prevent GP from taking any actions that might jeopardize 
the competitive viability of the Buchanan and Wilmington plants 
pending divestiture. To ensure continued viability, GP must use all 
``reasonable efforts'' to maintain sales at existing levels or to 
increase sales during the divestiture period. This requirement 
imposes no greater obligation on GP than could reasonably be 
expected if the plants were not candidates for divestiture. 
Moreover, Continental could reasonably anticipate that any 
prospective purchaser would operate the Buchanan and Wilmington 
plants in a similar manner after the divestiture period. Thus, any 
loss of sales by Continental from operating the plants in the manner 
required by the proposed Final Judgment would result from 
competitive, not anticompetitive, forces.
    Your second concern arises from the requirement that GP, at the 
option of the purchaser or purchasers, enter into a supply contract 
for gypsum rock and/or gypsum linerboard paper sufficient to meet 
all or part of the capacity requirements of the Buchanan and 
Wilmington plants over a period up to ten (10) years. The proposed 
final Judgment expressly provides that the terms and conditions of 
any such supply contract ``must be related reasonably to market 
conditions for gypsum rock and/or gypsum linerboard paper.'' You 
noted that Continental currently purchases some of its paper 
requirements from GP and that it views GP as a potential source of 
its gypsum rock requirements. You are concerned that the supply 
contracts provided for in the Final Judgment will ``seriously 
restrict'' Continental's ability to source these vital raw 
materials.
    We do not believe that the supply contracts mandated in the 
Final Judgment would have any adverse competitive effect on 
Continental, should a purchaser or purchasers elect to negotiate 
such contracts with GP. As an initial matter, it should be noted 
that GP currently is supplying the Buchanan and Wilmington plants 
with gypsum rock and linerboard paper and (presumbly) would continue 
to do so in the absence of the Department's challenge to the Domar 
acquisition. Thus, allowing the purchaser or purchasers of these 
facilities to contract for a long-term source of these raw materials 
from GP would not mean that the amount of such materials GP has 
available to sell to others in the industry would be any less than 
would otherwise be the case. Moreover, should GP decide to sue its 
own resources to supply gypsum rock and paper to the two Domtar 
facilities that it is acquiring in the Northeast Region--Domtar's 
Newington, New Hampshire and Camden, New Jersey plants-- the gypsum 
rock and paper that presently are being supplied to these facilities 
from third party sources would become available on the market. 
Accordingly, there is no net reduction in gypsum rock or paper 
available to the industry as a result of GP entering into supply 
contracts for the Buchanan and/or Wilmington plants, and the ability 
to enter into these contracts, if needed, should greatly facilitate 
the divestiture of the two plants. In addition, it is important to 
recognize that the supply contracts provided for in the Final 
Judgment will be the result of arms-length negotiations reflecting 
market conditions; it is unlikely, in these circumstances, that the 
purchaser or purchasers will gain undue advantage over other market 
participants as a result of these contracts.
    We appreciate you bringing your concerns about the proposed 
Final Judgment to our attention and hope that the foregoing analysis 
has helped to alleviate them. While we understand your position, we 
believe that the proposed Final Judgment offers the best feasible 
solution to the anticompetitive effects posed by GP's acquisition of 
Domtar's gypsum business in the Northeast Region. Pursuant to the 
Antitrust Procedures and Penalities Act, a copy of your letters and 
this response will be published in the Federal Register and filed 
with the Court.
        Sincerely,
J. Robert Kramer, II
Chief, Litigation II Section.

May 21, 1996.

Mr. J. Robert Kramer,
Litigation II Section, Antitrust Division, U.S. Department of 
Justice, 1401 H St., N.W., Suite 3000, Washington D.C. 20530.

Re: U.S.A. v. Georgia Pacific Corporation Civil Action No.: 96-164.

    Dear Mr. Kramer: This letter shall serve as additional comments 
of the Continental Gypsum Company comment letter to you of April 30, 
1996:
    In the April 30, 1996 letter we expressed our fear that the 
Final Judgment mandate that Georgia Pacific maintain or increase 
sales and production to 1995 levels would cause predatory actions by 
Georgia Pacific against

[[Page 33539]]

Continental Gypsum Company, that now appears to be the case
    In the past 45 days we have had extreme pressure to lower 
pricing levels to distributors in our prime market area. While the 
pricing at our outer sales regions i.e., Maryland, Virginia, 
Delaware, western Pennsylvania, have been relatively strong, the New 
Jersey and Metropolitan New York are off significantly. In each and 
every case, we find we must meet a Georgia Pacific price to maintain 
a reasonable level of business. Continental Gypsum is clearly being 
targeted by Georgia Pacific. Further, it is our opinion that Georgia 
Pacific has been caused to such action by reason of the Final 
Judgment mandate that they maintain a level of business that totally 
ignores consideration that a new competitor (Continental Gypsum) is 
now in the market.
    The allegations that are made here can be documented and will be 
documented at your request.
    Again, I would request that you give consideration to our 
recommendation to amend the Final Judgment as proposed in our April 
30, letter. For Continental Gypsum to remain viable we must have 
some relief from this matter.
        Respectfully,
Morgan A. Chivers,
Chairman of the Board & C.O.O.
Rhyne Simpson, Jr.,
President.

April 30, 1996.

Mr. J. Robert Kramer,
Litigation II Section, Antitrust Division, U.S. Department of 
Justice, 1401 H St., N.W., Suite 3000, Washington, D.C. 20530.

 Re: U.S.A. v. Georgia Pacific Corporation Civil Action No.: 96-164.

    Dear Mr. Kramer: The following are the comments of Continental 
Gypsum Company relating to the above referenced case:

Background

    Continental Gypsum Company is the only small independent 
manufacturer of gypsum wallboard in the United States. The Company 
was formed January 26, 1995 to lease the former Atlantic Gypsum 
Company facility located at Port Newark, New Jersey. The plant had 
been idled for approximately six years as a result of bankruptcy and 
foreclosure proceedings. The founders of Continental Gypsum are 
Morgan A. Chivers and Rhyne Simpson, Jr. both of whom are its major 
stockholders. About thirty (30) percent of the outstanding stock is 
owned by wallboard distributors and applicators from the region. 
After a rather lengthy negotiation with the Port Authority of NY&NJ, 
Continental Gypsum gained occupancy of the facility on June 1, 1995. 
Production commenced on August 23, 1995 and the gypsum wallboard is 
marketed in the region under the trade name MoreRock. Because of 
numerous engineering deficiencies with the plant equipment and the 
unusually harsh winter, the plant did not obtain expected levels of 
production and sales until late April 1996. (see attached shipping 
report)

Comments

    Continental Gypsum finds two major mandates in the Final 
Judgment that are onerous and do in fact threaten the viability of 
this new company. They are as follows:
    IX. PRESERVATION OF ASSETS--page 14 paragraph B ``Defendant 
shall use all reasonable efforts to maintain and increase sales of 
gypsum board produced at its Buchanan and Wilmington plants, and 
defendant shall maintain at 1995 or previously approved levels, 
whichever are higher,'' * * * This mandate obviously ignores the 
additional capacity that Continental Gypsum has brought to the 
region. It is not possible that Continental could bring at least 
270,000 MSF of supply into the market without competitors giving up 
a portion of their market share. The Buchanan and Wilmington plants 
are in fact situated in the heart of Continentals prime market. The 
mandate that they maintain sales at 1995 levels, or higher, 
basically implies that there is no room in the market for 
Continental.
    IV. DIVESTITURES--page 5, paragraph A. sub. (iii) ``at the 
option of the purchaser or purchasers, enter into a supply contract 
for gypsum rock (which may or may not include transportation) and/or 
gypsum linerboard paper sufficient to meet all or part of the 
capacity requirements of the Buchanan and Wilmington plants over a 
period up to (10) years; `* * * Continental currently purchases some 
of its linerboard paper from Georgia Pacific's Delair, N.J. 
papermill. Additionally, Georgia Pacific is considered to be a 
primary source of gypsum ore and in fact did quote on our ore 
requirements for the 1996 calendar year. The mandate that Georgia 
Pacific provide the purchaser(s) with supply contracts for the 
gypsum rock and gypsum linerpaper will seriously restrict 
Continentals ability to source these vital raw materials both in in 
the present and in the future.

Summation

    The overall thrust of the Final Judgment appears to be 
concerning the concentration of supply with only a few manufactures 
within the region. While the concentration of supply should be of 
concern, the far more important factor influencing competitive 
pricing is the fundamental law of supply relative to demand. This is 
clearly evidenced by the fact that prices eroded up to $15.00/MSF 
within the first three months of Continental's entry into the 
market. In fact, Continental Gypsum is the only player that brings 
new supply into the region. The divestiture of Buchanan and 
Wilmington does nothing towards creating more supply. A more 
compelling case can be made that if Continental Gypsum is forced 
into closure that the consumer would be damaged far more than the 
creation of change of ownership of two plants.
    It is further our concern that the Final Judgment gives Georgia 
Pacific license to become predatory against Continental and if 
Continental is forced to closure, then the Buchanan and Wilmington 
plants will have more value as a result of the divestiture mandate.
    In conclusion, for the aforementioned reasons, we believe that 
the Final Judgment be amended by:
    (1) Rescinding the mandate that Georgia Pacific maintain 1995 
levels of sales (or higher) during the 150 day divestiture period. 
The only mandate should be that Georgia Pacific should not be 
allowed to transfer any sales from Buchanan and Wilmington to their 
other plants, namely Camden, N.J. and the Newington, N.H.
    (2) Continental Gypsum should be afforded the same opportunity 
to negotiate supply agreements with Georgia Pacific for the purchase 
of gypsum ore and gypsum linerpaper on an equal basis of the 
purchaser(s) of the Buchanan and Wilmington plants.
    Thank you very much for your consideration in this matter.
        Respectfully,
Morgan A. Chivers,
Chairman of the Board & C.O.O.
Rhyne Simpson, Jr.,
President.
Justin M. Dempsey.

    The attached document was not able to be published in the 
Federal Register. A copy can be obtained from the U.S. Department of 
Justice, Legal Procedures Office at 325 7th Street, N.W., Room 215, 
Washington, D.C. 20530 (telephone: 202-514-2481).

[FR Doc. 96-16445 Filed 6-26-96; 8:45 am]
BILLING CODE 4410-01-M