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Ireland's Ardagh in talks with U.S. on Verallia deal

Tuesday, 17 Dec 2013 | 11:38 AM ET

WASHINGTON, Dec 17 (Reuters) - Irish packaging company Ardagh Group S.A. is in settlement talks aimed at saving a proposed $1.7 billion deal to buy the U.S. business of Saint-Gobain unit Verallia in time to meet a mid-January deadline.

The Federal Trade Commission has filed a complaint against Ardagh, saying the deal for Verallia North America, a rival glass bottle manufacturer, is illegal.

An FTC judge postponed a Tuesday pre-hearing conference saying that the "parties are actively involved in settlement negotiations." Any settlement would likely involve selling assets such as bottle making plants.

If Ardagh does not close the acquisition by Jan. 13, it will have to repay in full the bond offering that backed the deal, and launch a new debt offering.

"The FTC has all the leverage right now. The parties have a drop-dead date that seems real, and they are having difficulty getting it extended," antitrust expert Allen Grunes of the law firm Geyer Gorey LLP said before the delay was announced.

Saint-Gobain, which was founded in 1665 to produce mirrors for the royal court at Versailles, struck the deal in January to sell its North American glass container operation to Ardagh. Saint-Gobain plans to exit the low-margin business to focus on higher margin building materials.

The U.S. Federal Trade Commission, which investigated the deal to determine if it was legal under antitrust law, sued to stop the transaction in July.

The companies dominate the $5 billion U.S. market for glass containers. The FTC argued that the deal would combine the second-largest U.S. glass container maker, Verallia, with the third-largest, Ardagh. The result, the FTC said, was that Ardagh and No. 2, Owens-Illinois, would make more than 75 percent of the beer and hard liquor bottles used in the United States.

Ardagh entered the U.S. glass container market in 2012 when it bought third-ranking Anchor Glass Container Corp and the much smaller Leone Industries.

Verallia North America makes jars and bottles for everything from wine to oils and vinegars, according to its website.

To salvage the deal, Ardagh previously offered to sell four plants. The capacity of the facilities - in Florida, Georgia, Illinois and North Carolina - is the equivalent of Ardagh's beer bottle business and more than Verallia's existing spirits bottle business, Ardagh said.

The FTC said in a Dec. 4 court filing that this was inadequate and that selling just four plants was "unlikely to resolve the proposed transaction's anticompetitive effects."

But, Doyle and other antitrust experts said the deal could still be saved if Ardagh acts fast. "It's not like they're stubborn and saying they will not divest anything," he said.

Potentially complicating the settlement, the FTC will likely take a harder than usual look at any company buying divested assets since the agency's recent settlement with Hertz, which bought Dollar Thrifty, ended in embarrassment.

To win FTC approval, Hertz Global Holdings Inc agreed to shed its discount brand Advantage Rent A Car. But Advantage, which was sold to Macquarie Capital, filed for bankruptcy within months.

"In light of Hertz debacle, it (FTC review of any deal) should be extremely tough," said Robert Doyle, a former deputy director in the FTC's Bureau of Competition who is now at the law firm at Doyle, Barlow and Mazard PLLC. Doyle also spoke before the settlement talks were announced.