UPDATE 1-Ireland's Ardagh in talks with U.S. on Verallia deal

Tue Dec 17, 2013 2:15pm EST

* Ardagh proposes divesting six plants

* U.S. FTC says considering the proposal

* Dispute began in July

By Diane Bartz

WASHINGTON, Dec 17 (Reuters) - Irish packaging company Ardagh Group SA 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, according to court documents.

The U.S. Federal Trade Commission has filed a complaint against Ardagh, saying the deal for Verallia North America, a rival glass bottle manufacturer, is illegal, but the two sides seem to be finding common ground.

An FTC judge postponed a Tuesday pre-hearing conference, saying that the "parties are actively involved in settlement negotiations." A second hearing, which had been scheduled for Thursday, was postponed until April.

Ardagh offered on Dec. 11 to sell six plants that make beer and liquor bottles, which it acquired in 2012, Ardagh and the FTC said in a joint motion made public on Tuesday.

"Complaint counsel (FTC) is not prepared to recommend the settlement proposal to the commission at this time, but believes the proposed divestitures (unlike the previous proposals) could, if the appropriate conditions are met, lead to a recommendation that the commission accept a consent settlement agreement," the two sides said in the document.

The deal, if it happens, will be a big victory for the FTC because of the size of Ardagh's divestiture, said antitrust expert Allen Grunes of the law firm Geyer Gorey LLP.

"This signals that a negotiated resolution is happening," said Grunes. "They're (the FTC) doing everything but saying yes."

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.

Saint-Gobain, which is selling Verallia, appeared optimistic. "We've made considerable progress with the FTC so far. We're confident, we're working with Ardagh to address the FTC's concerns, and we're not talking about a plan B," said a spokeswoman for Saint-Gobain.

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 FTC, 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 Inc, 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.

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.

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