Louisiana-Pacific Corporation and Ainsworth Lumber Co. Ltd. Terminate USD$1.1B Deal Due to Regulatory Hurdles
On May 14, 2014, Louisiana-Pacific Corporation (Louisiana Pacific) and Ainsworth Lumber Co. Ltd. (Ainsworth) mutually agreed to terminate their agreement in which Louisiana Pacific would acquire Ainsworth. Approximately eight months after announcing the transaction last September, the parties concluded that the Canadian and U.S. competition approvals "cannot be obtained without divestitures significantly beyond those contemplated in the Arrangement Agreement without engaging in lengthy and expensive litigation with the regulatory authorities".
Louisiana Pacific is a manufacturer of engineered wood building materials, including oriented stranded board (OSB). Louisiana Pacific has manufacturing facilities in the U.S., Canada (British Columbia, Manitoba), Chile and Brazil.
Ainsworth is also an OSB manufacturer, with four facilities in Canada (Alberta, British Columbia and Ontario).
OSB is a product that is primarily used in the construction or renovation of homes.
Likely to Substantially Lessen Competition for the supply of OSB in British Columbia and the Pacific Northwest and Upper Midwest regions of the U.S.
The Canadian Competition Bureau (Bureau) and U.S. Department of Justice (U.S. DOJ) coordinated their respective reviews of the transaction.
The Bureau concluded that the acquisition, as proposed, would have likely resulted in a substantial lessening of competition for the supply of OSB in British Columbia arising from factors such as the parties’ high post-closing market share (60%), high barriers to entry and expansion and lack of effective remaining competitors. The Bureau believed that the remaining competitors would likely not constrain the parties from charging higher prices. It also observed that information about prices, costs and annual statistics is readily available in the OSB industry, noting that this would make it easier for rivals to coordinate their behaviour. On a similar basis, the U.S. DOJ concluded that the transaction likely would have substantially lessened competition for the production of OSB sold to customers in the Pacific Northwest and Upper Midwest regions of the U.S.
Not surprisingly, Louisiana Pacific’s CEO, Curt Stevens, disagreed with the regulators:
"We believe this transaction would have led to positive outcomes for customers, employees and shareholders, and fundamentally disagree with the analysis by antitrust agencies of the competitive dynamics of our industry. Our business experience, supported by expert economic analysis, continues to be that North America is an integrated market for structural panels. We will continue to compete on a continent-wide basis but feel we have no choice but to terminate the agreement rather than accept the distraction, disruption, costs and risk of litigating this matter in both the U.S. and Canada, where the process could take upwards of a year".
This transaction highlights the risk of regulatory challenge of a complex antitrust merger. Following announcement of the transaction, the parties issued news releases indicating that they had each received information requests for additional information from both regulators (known as a "supplementary information request" from the Bureau and "second request" from the US DOJ). The parties also entered into timing agreements with the regulators agreeing that they would not consummate the acquisition before a certain date, as well as agreeing to extend the outside date for completion. Presumably, the merging parties incurred significant transaction costs and devoted significant effort and time, only to abandon the deal. Merging parties are well advised to take the risk of substantial delay (in addition to substantive factors) into account in assessing the antitrust risk associated with complex mergers.