M&A is Okay but Reducing Competition Will Bring High Prices to Fruition

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Commodities, M&A Activity

Sorry for the rhyming. I’m in one of those moods…

Buried in the bowels of it’s Sunday edition, the Wall Street Journal had an article on how Rio Tinto Alcan became the subject of an anti-trust investigation filed by the European Commission. According to the article, the EC “charges Alcan with having abused its dominant position by ‘tying its dominant aluminum smelting technology with handling equipment sold by Alcan’s subsidiary ECL.’ ” It’s a major accusation as the punishment for Alcan, if found guilty, could be 10% of company revenues. The EC believes Rio Tinto Alcan has acted uncompetitively because the concern is that as the biggest aluminum producer in the world, Alcan and as owner of ECL, a major producer of equipment used in the aluminum industry, innovation would be stifled. Specifically, the EC has accused Rio Tinto Alcan of monopolistic behavior.

Bloomberg had a more in depth analysis pointing to the contracts Alcan has with several customers to share aluminum smelting technology. In the contracts, Alcan prevents companies from purchasing pot tending assemblies from other manufacturers besides ECL, its wholly owned subsidiary.

A couple of weeks ago we wrote about the correlation between high commodity (in this case metals) prices and the number of M&A transactions within the sector. Let’s hope the trust busters will be watching these transactions closely becauses the risk is only going to increase as metals industries continue to consolidate.

–Lisa Reisman

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