U.S. v. Archer-Daniels-Midland Co.
| Decision Date | 22 July 2003 |
| Docket Number | No. CIV.A.02-1768 JDB.,CIV.A.02-1768 JDB. |
| Parties | UNITED STATES of America, Plaintiff, v. ARCHER-DANIELS-MIDLAND COMPANY, and Minnesota Corn Processors, LLC, Defendants. |
| Court | U.S. District Court — District of Columbia |
Paul B. Hewitt, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, for Archer-Daniels-Midland Co. Neil W. Imus, Vinson & Elkins, LLP, Washington, DC, for Minnesota Corn Processors, LLC.
The United States of America (the "government") brings this case against Archer-Daniels-Midland Company ("ADM") and Minnesota Corn Processors, LLC ("MCP") for antitrust violations arising out of the merger of those two companies. The government alleges that the transaction would substantially lessen competition in the highly concentrated markets for corn syrup and high fructose corn syrup ("HFCS"). Presently before the Court is the government's motion for entry of a proposed Final Judgment agreed upon by the parties. For the reasons stated below, the Court will grant the motion.
ADM is a Delaware corporation with its principal offices in Decatur, Illinois. Competitive Impact Statement ("CIS") at 3. ADM is engaged in the processing and sale of agricultural products, including corn syrup and HFCS, which are produced at domestic plants in Iowa and Illinois. Id. In 2001, ADM had corn syrup sales of approximately $66 million and HFCS sales of approximately $480 million. Id.
MCP is a Colorado limited liability corporation with its principal offices in Minnesota. Id. MCP is involved in the agricultural processing and marketing business, and has corn syrup and HFCS processing facilities in Minnesota and Nebraska. Id. MCP's 2001 sales of corn syrup were approximately $56 million, and its HFCS sales totaled approximately $153 million. Id.
MCP sells its corn sweetener products through a joint venture with Corn Products International ("CPI"). Id. The joint venture, known as CornProductsMCP Sweeteners LLC ("CPMCP"), is the exclusive outlet for MCP's and CPI's corn syrup and HFCS products. Id.
On July 11, 2002, ADM and MCP entered into an agreement under which ADM would acquire MCP. Id. at 3-4.
Corn syrup and HFCS are both manufactured by wet mill processing of corn. Id. at 4. Wet mill processing involves soaking and grinding kernels to produce a starch slurry, followed by the addition of enzymes to convert the starch slurry to sugars such as dextrose and fructose. Id.
Corn syrup is used as a sweetener in the preparation of various food products, including confectionary, bakery, and dairy products, salad dressings, condiments, jams and jellies, lunch meats, canned foods, and vegetables. Id. Specific applications require different grades of corn syrup with different sweetening effect, and corn wet millers that manufacture corn syrup make most or all of the various grades of corn syrup. Id.
There are two grades of HFCS — HFCS 42 and HFCS 55 — with the numbers referring to the percentage of fructose in the product. Id. HFCS 42 is used as a sweetener in jams, jellies, baked goods, canned goods, dairy products, and some beverages. Id. HFCS 55 is used mainly to sweeten soft drinks. Id.
Corn syrup, HFCS 42, and HFCS 55 are each distinct products without practical substitutes, differing from all other sweeteners and each other in their physical characteristics, means of production, uses, and pricing. Id. Although they are functionally interchangeable with sugar in many applications, they are much less expensive and therefore are sweeteners of choice for many uses. Id. at 4-5; Compl. ¶ 13. Very few purchasers of corn syrup, HFCS 42, and HFCS 55 would switch to other sweeteners in response to a small but significant increase in price. Compl. ¶ 14.
The corn syrup and HFCS markets in the United States and Canada are highly concentrated. In fact, there are just five firms involved in the manufacture and sale of corn syrup, HFCS 42, and HFCS 55 in the United States and Canada (which the government maintains is the relevant market). CIS at 5. ADM accounts for 10% of all corn syrup manufacturing capacity, 33% of all HFCS 42 manufacturing capacity, and 25% of all HFCS 55 manufacturing capacity. Id. MCP, though CPMCP, accounts for more than 20% of all corn syrup manufacturing capacity, more than 15% of all HFCS 42 manufacturing capacity, and more than 15% of all HFCS 55 manufacturing capacity. Id.
The government charges that the markets in the United States and Canada will become substantially more concentrated if ADM acquires MCP and succeeds to MCP's position in its joint venture with CPI. Id. at 5. Competition between defendants in the corn syrup and HFCS markets will be eliminated, competition generally in the industry will lessen substantially, prices for corn syrup and HFCS will increase, and the amounts produced will fall. Id. at 5-6. In addition, the government highlights that a reduction in the number of independent contractors from five to four will increase the likelihood of anticompetitive coordination among the few remaining corn wet millers. Id. at 5. Moreover, entry by a new competitor would not be likely to prevent the harms to competition, because successful entry into the manufacture and sale of corn syrup, HFCS 42, and HFCS 55 is difficult, time consuming, and costly. Id.
The government filed the complaint in this matter on September 6, 2002, alleging that the proposed acquisition of MCP by ADM violates Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18. The government also filed a Stipulation and Order between the parties, in which defendants consented to the terms of a proposed Final Judgment.
Under the proposed Final Judgment, defendants would agree to effect the dissolution of CPMCP by December 31, 2002, and provide appropriate written notice of their election to do so to the General Counsel of CPI. Further, concurrent with such written notice, defendants would, in writing, relieve CPI of any obligations to defendants or CPMCP to the full extent necessary to permit CPI to conduct independent operations in competition with defendants and CPMCP. Defendants would also refrain from selling, marketing, or pricing any products in cooperation or coordination with CPMCP or CPI, except to the extent necessary to ensure that CPMCP performed on existing contracts or commitments to its customers.
The proposed Final Judgment requires defendants to submit an affidavit 20 days after the filing of the Final Judgment, and every 30 days thereafter until the final accounting after the dissolution of CPMCP, concerning the fact and manner of compliance with the Final Judgment. The proposed Final Judgment also provides that the government may file an objection in response to the affidavits. In addition, the proposed Final Judgment provides: that defendants must maintain full records of the dissolution of CPMCP for one year; that representatives of the Department of Justice, upon written request and reasonable notice, shall be permitted to interview defendants' personnel and access defendants' records relating to matters contained in the Final Judgment; and that defendants, upon the request of an authorized representative of the Assistant Attorney General in charge of the Antitrust Division, shall be required to submit written reports relating to matters contained in the proposed Final Judgment. The proposed Final Judgment is to be effective for 10 years, absent extension, and this Court is to retain jurisdiction to modify, enforce, or issue appropriate orders concerning the Final Judgment.
Shortly after filing the proposed Final Judgment, and in accordance with Section 5(b) of the Clayton Act, Section 2 of the Antitrust Procedures and Penalties Act (codified at 15 U.S.C. §§ 16(b)-(h)), the government filed a Competitive Impact Statement ("CIS") describing the alleged antitrust concerns surrounding the ADM-MCP transaction and explaining the purpose of the proposed Final Judgment. According to the CIS, the proposed Final Judgment was designed to eliminate the anticompetitive effects resulting from the transaction and from ADM's succession to MCP's interest in the joint venture with CPI, and to preserve competition in the manufacture and sale of corn syrup and HFCS. CIS at 6. More specifically, the proposed Final Judgment was intended to accomplish three related goals: (1) to ensure, through the dissolution of CPMCP, that the acquisition does not reduce the number of independent competitors in the corn syrup and HFCS markets in the United States and Canada; (2) to ensure that CPI is permitted independently to market and sell corn syrup and HCFS; and (3) to ensure that defendants compete independently of CPMCP and CPI. Id. As the CIS emphasizes, the proposed Final Judgment will ensure that the corn syrup and HFCS markets have the same number of competitors after the ADM-MCP transaction as they did before. Id. at 7.
Pursuant to 15 U.S.C. § 16(b), the government published the Complaint, the proposed Final Judgment, and the CIS in the Federal Register, and opened a 60-day public comment period commencing November 7, 2002. See 67 Fed.Reg. 67,864 (2002). Three comments were submitted. Thereafter, the government filed its response to the public comments in this Court, appending the actual comments as exhibits. The government now moves for entry of the proposed Final Judgment pursuant to 15 U.S.C. § 16(e).
Before entering a consent judgment presented by the government, the court must "determine that the entry of such judgment is in the public interest." 15 U.S.C. § 16(e).1 In making this determination, the court "may consider":
(1) the competitive...
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