Tennessee-based Louisiana-Pacific Corporation
(LP) recently abandoned its proposed acquisition
of Canadian competitor Ainsworth Lumber Co. Ltd.
(Ainsworth). The decision came several days after
an announcement by U.S. Department of Justice
(DOJ) and an announcement by the Canadian Competition
Bureau (Bureau) that they each considered the
transaction would likely substantially lessen competition of the
sale of oriented strand board (OSB). The Bureau
and DOJ collaborated and shared information during the review of
the proposed merger.
The Bureau, DOJ and the Federal Trade Commission have long
coordinated reviews of cross-border mergers. This experience is
reflected in the recently published Best Practices on Cooperation in Merger
Investigations, issued by the agencies in late March.
According to the publication, the collaborative effort aims to not
only increase the efficiency of the merger review process and
reduce the burdens placed on merging parties, but also to encourage
the agencies to use consistent analysis and reach similar outcomes.
The recent positions the Bureau and the DOJ took in the
LP/Ainsworth case support that they have met their objectives.
On September 4, 2013, LP and Ainsworth entered into an agreement
where LP agreed to acquire all the outstanding common shares of
Ainsworth. Both parties are large manufacturers of OSB, and
according to the agencies the merged entity would have controlled
approximately 60% of the OSB market in Western Canada, 63% in the
Pacific Northwest region of the U.S. and 55% in the Upper Midwest
of the U.S.
The Bureau's analysis
The Bureau analyzed whether the merged entity would gain enough
market power to substantially reduce the competitiveness of the OSB
industry in British Columbia.
It first considered whether existing competitors in the OSB
industry would be able to restrain the merged entity from raising
the price of OSB in British Columbia. At the time of the merger
review, there were only four OSB producers – including
Ainsworth and LP- that also had mills located in British Columbia.
The Bureau concluded that the remaining competitors did not have
enough market power nor could they expand their operations fast
enough to constrain a material price increase on OSB. The Bureau
discounted the market power of competitors with mills outside of
British Columbia because they faced higher freight costs , putting
them at a disadvantage over the parties' mills that are in
The Bureau then examined whether new competitors could enter
into the OSB industry in British Columbia to reduce the potential
market harm the merger may cause. It concluded that the likelihood
of a timely and sufficient entry is low due to high barriers to
entry and expansion , such as obtaining environmental approvals to
build a new mill and negotiating a long-term supply contract with
The Bureau concluded that the proposed acquisition would have
likely resulted in a substantial lessening of competition in the
OSB industry in British Columbia. Concurrently, the DOJ raised
similar concerns, stating that the merged entity would raise the
price of OSB in the Pacific Northwest and Upper Midwest of the
U.S., and would likely lessen competition in these regions
The author wishes to thank Lucy Liu, summer student, for her
assistance in preparing this legal update.
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