Ball runs into antitrust wall over Rexam purchase

The ball is in the European Union's court. The $6.8 billion merger between the world's two biggest can and bottle manufacturers looks like it is running afoul of European antitrust concens.

Earlier this year, the top can maker, Ball, offered to buy No. 2 manufacturer Rexam in a cash and stock deal that would create a combined company with $15 billion in sales and generate $300 million in annual cost savings. The bid was a 17% premium to Rexam's closing price the day before the offer was announced.

Ball counts companies such as Coca-Cola, Unilever, and Molson Coors among its customers, while Rexam also provides Coke with containers as well as Anheuser-Busch InBev. Each has slightly more than 20% of the global packaging market with third place Crown Holdings owning a 19% share.

Reuters reports that Morningstar analysts have estimated Rexam and Ball account for 60% of the North American beverage can supply, as much as 69% in Europe, and almost three-quarters of the market in Brazil.

Ball confirmed last Monday that EU regulators had opened a phase 2 investigation into the merger and noted that other antitrust agencies including the U.S. Federal Trade Commission and Brazil's CADE were reviewing it as well. A phase 2 investigation occurs if regulators have serious doubts about the concentration that would result in the industry.

The EU commission is particularly concerned about the impact the merger would have on the supply of beverage cans and aluminum bottles on the continent, believing there would not be sufficient competitive constraints placed on the combined companies by other existing suppliers.

Moreover, because there are high barriers to entry and expansion in the industry, it plans to closely examine the requirement that there be competition of sufficient size and scope before allowing the deal to go through. Without such a check on its business, Ball would be able to raise prices at will.

The commission has until November 25th to review the merger proposal and decide whether it will effectively reduce competition.

From the beginning, antitrust concerns were raised, and Crown Holdings was viewed as the likely winner of any assets Ball or Rexam would be required to divest. That still might not be enough, so investors should not view this deal as in the can by any means.