The Federal Trade Commission today announced a complaint challenging Jarden Corporation’s (Jarden) proposed $1.2 billion acquisition of sporting equipment manufacturer K2 Incorporated (K2), alleging that the deal would be anticompetitive and detrimental to consumers of monofilament fishing line, the most widely used type of fishing line in the United States. Under the terms of a consent order resolving the FTC’s charges and allowing the transaction to proceed, the companies will sell the assets related to four popular types of monofilament line, all of which are owned by K2: Cajun Line, Omniflex, Outcast, and Supreme.
“As originally structured, Jarden’s acquisition of K2 would have eliminated competition between the two most significant suppliers of monofilament fishing line in the U.S., ” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “The order’s terms will maintain that competition, ensuring that consumers will continue to benefit from product innovations and lower prices.”
The Transaction and Relevant Product Market
On April 24, 2007, Jarden and K2 entered into an agreement under which Jarden would acquire K2 for approximately $1.2 billion. According to the FTC, the transaction as originally structured would violate Section 7 of the Clayton Act and Section 5 of the FTC Act by lessening competition in the U.S. market for the research, development, manufacture, and sale of monofilament fishing line.
Monofilament fishing line is the most widely-used and least expensive type of fishing line. While other specialized types of fishing line, including braided (or super line) and fluorocarbon, appear to be growing in popularity, especially among avid anglers, the vast majority of fishing line purchases in the United States are of monofilament line.
The Commission’s Complaint
According to the Commission’s complaint, Jarden has a very large share of the monofilament fishing line market, and K2 is its most significant competitor. The Commission contends that the proposed acquisition would give Jarden the ability and incentive to raise prices and take other unilateral actions that would cause competitive harm to consumers. It also would eliminate actual and direct competition in the relevant market between Jarden and K2.
Further, the Commission contends that without the remedies put in place by the consent order, the transaction likely would cause significant anticompetitive harm by enabling Jarden to profit by raising price above pre-merger levels, as well as by reducing Jarden’s incentives to innovate and develop new products. Finally, the complaint states that any entry into the monofilament fishing line market is unlikely to counteract the likely anticompetitive impact of the proposed transaction.
Terms of the FTC Order
The FTC’s consent order is designed to remedy the competitive harm that would result from Jarden’s acquisition of K2, as proposed. The consent agreement preserves competition by requiring the divestiture of assets related to K2’s Cajun Line, Omniflex, Outcast, and Supreme monofilament fishing line products to W.C. Bradley/Zebco (Zebco) within 15 days after the acquisition is consummated. Zebco is a well-qualified buyer of the assets to be divested. Zebco already has a strong distribution network in place, is a significant market participant, and has a knowledgeable sales force with existing relationships with fishing tackle retailers.
The order contains several terms designed to ensure Zebco’s success in maintaining competition in the monofilament fishing line market. First, it requires Jarden and K2 to take steps to ensure that confidential information related to the divested assets will not be used by Jarden. Next, it provides Zebco with the opportunity to hire certain staff who have experience dealing with the four product lines to be divested. Finally, it will require that certain staff who were substantially involved in the research, development, or marketing of the divested assets be precluded from working on competitive fishing line products at Jarden for two years.
The consent order also includes a separate order to maintain assets that requires the companies to keep the assets to be divested viable, marketable, and competitive pending their transfer to Zebco.
The Commission vote approving the issuance of the complaint and consent order was 5-0. The order will be subject to public comment for 30 days, until September 7, 2007, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to [email protected], or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.