This document is scheduled to be published in the Federal Register on 01/16/2018 and available online at https://federalregist1er .gov/d/2018-00578, and on FDsys.gov DEPARTMENT OF JUSTICE Antitrust Division United States v. Vulcan Materials Company, SPO Partners II, L.P., and Aggregates USA, LLC, Proposed Final Judgment and Competitive Impact Statement Notice is hereby given pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment, Stipulation, and Competitive Impact Statement have been filed with the United States District Court for the District of Columbia in United States of America v. Vulcan Materials Company, SPO Partners, II, L.P, and Aggregates USA, LLC, Civil Action No. 1:17-cv-02761. On December 22, 2017, the United States and the State of Tennessee filed a Complaint alleging that Vulcan Material Company’s proposed acquisition of Aggregates USA, LLC would violate Section 7 of the Clayton Act, 15 U.S.C. 18. The proposed Final Judgment, filed at the same time as the Complaint, requires Defendants to divest all of Aggregates USA’s active quarries, plants, and yards in the Knoxville, Tennessee, Tri-Cities, Tennessee, and Abingdon, Virginia areas. These divestitures include seventeen Aggregates USA facilities. Copies of the Complaint, proposed Final Judgment, and Competitive Impact Statement are available for inspection on the Antitrust Division’s website at http://www.justice.gov/atr and at the Office of the Clerk of the United States District Court for the District of Columbia. Copies of these materials may be obtained from the Antitrust Division upon request and payment of the copying fee set by Department of Justice regulations. Public comment is invited within 60 days of the date of this notice. Such comments, including the name of the submitter, and responses thereto, will be posted on the Antitrust Division’s website, filed with the Court, and, under certain circumstances, published in the 2 Federal Register. Comments should be directed to Maribeth Petrizzi, Chief, Defense, Industrials, and Aerospace Section, Antitrust Division, Department of Justice, 450 Fifth Street N.W., Suite 8700, Washington, DC 20530 (telephone: (202) 307-0924). Patricia A. Brink, Director of Civil Enforcement. 3 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA UNITED STATES OF AMERICA United States Department of Justice Antitrust Division 450 Fifth Street, N.W., Suite 8700 Washington, D.C. 20530, and STATE OF TENNESSEE Attorney General’s Office 500 Charlotte Avenue Nashville, Tennessee 37202, Plaintiffs, Civil Action No: 1:17-cv-02761 v. Judge: Amit Mehta VULCAN MATERIALS COMPANY 1200 Urban Center Drive Birmingham, Alabama 35242, SPO PARTNERS II, L.P. 591 Redwood Highway, Suite 3215 Mill Valley, California 94941, and AGGREGATES USA, LLC 3300 Cahaba Road, Suite 320 Birmingham, Alabama 35223, Defendants. COMPLAINT Plaintiffs, the United States of America (“United States”), acting under the direction of the Attorney General of the United States, and the State of Tennessee, acting by and through the 4 Attorney General of Tennessee, bring this civil antitrust action against Defendants to enjoin Vulcan Materials Company’s (“Vulcan”) proposed acquisition of Aggregates USA, LLC (“Aggregates USA”) from SPO Partners II, L.P. (“SPO Partners”). Plaintiffs complain and allege as follows: I. INTRODUCTION 1. Vulcan’s proposed acquisition of Aggregate USA’s quarries would secure Vulcan’s control over the supply of coarse aggregate necessary to complete various construction projects in parts of east Tennessee and southwest Virginia. Coarse aggregate is one of the primary materials used to build, pave, and repair roads and is used widely in other types of construction. Coarse aggregate is an essential input in asphalt concrete, which is used to pave roads, and ready mix concrete, which is used to create bridges and is a structural element of many buildings. Coarse aggregate is also needed for other phases of construction, such as the base layer of rock that provides a foundation for paved roads and large buildings. Vulcan currently supplies coarse aggregate in east Tennessee and southwest Virginia and already holds a significant market share in each region. 2. Vulcan and Aggregates USA are the primary suppliers of coarse aggregate for projects in parts of east Tennessee and southwest Virginia, together supplying nearly all of the coarse aggregate purchased directly by the Tennessee and Virginia Departments of Transportation (“DOT”) or purchased by contractors for use in Tennessee and Virginia DOT projects. Vulcan and Aggregates USA are also the two leading suppliers of coarse aggregate used in private construction projects in parts of east Tennessee and southwest Virginia. The proposed acquisition would eliminate the head-to-head competition between Vulcan and 5 Aggregates USA. As a result, prices for coarse aggregate would likely increase significantly if the acquisition is consummated. 3. The states of Tennessee and Virginia spend hundreds of millions of dollars on new construction and road maintenance projects each year. Without competing suppliers for the necessary inputs for road construction and other building projects, individuals, the states of Tennessee and Virginia, as well as federal and state taxpayers, would pay the price for Vulcan’s control over these important markets. In light of these market conditions, Vulcan’s acquisition of Aggregates USA’s quarries would cause significant anticompetitive effects in the markets for coarse aggregate in parts of east Tennessee and southwest Virginia. Therefore, the proposed acquisition violates Section 7 of the Clayton Act, 15 U.S.C. § 18, and should be enjoined. II. THE PARTIES AND THE PROPOSED TRANSACTION 4. Defendant Vulcan is incorporated in New Jersey with its headquarters in Birmingham, Alabama. Vulcan produces and sells coarse aggregate for the construction industry in 20 states as well as the District of Columbia. Vulcan also produces coarse aggregate in Mexico, which it distributes and sells at numerous terminals and yards along the Gulf Coast of the United States. In 2016, Vulcan reported net sales of $3.5 billion. 5. Defendant SPO Partners is a Delaware limited partnership headquartered in Mill Valley, California. With more than $7 billion in assets under management, SPO Partners invests in a wide range of industries, including industrial materials, media, telecommunications, energy, power and real estate. SPO Partners acquired Aggregates USA in 2010. 6. Defendant Aggregates USA is headquartered in Birmingham, Alabama. Aggregates USA produces and sells coarse aggregate in four states: Florida, Georgia, Tennessee and Virginia. In 2016, Aggregates USA reported net sales of approximately $124 million. 6 7. On May 25, 2017, Vulcan announced a definitive agreement with SPO Partners to acquire Aggregates USA for approximately $900 million. The primary assets acquired are Aggregates USA’s 13 active quarries, including nine quarries in east Tennessee and one quarry in southwest Virginia, the equipment used to operate those quarries, and several inactive quarries in east Tennessee. III. JURISDICTION AND VENUE 8. The United States brings this action pursuant to Section 15 of the Clayton Act, 15 U.S.C. §§ 4 and 25, as amended, to prevent and restrain Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. § 18. 9. The State of Tennessee brings this action under Section 16 of the Clayton Act, 15 U.S.C. § 26, to prevent and restrain Vulcan and Aggregates USA from violating Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18. The State of Tennessee, by and through the Attorney General of Tennessee, brings this action as parens patriae on behalf of the citizens, general welfare, and the general economy of the State of Tennessee. 10. Defendants produce and sell coarse aggregate in the flow of interstate commerce. Defendants’ activity in the production and sale of coarse aggregate substantially affects interstate commerce. The Court has subject matter jurisdiction over this action pursuant to Section 15 of the Clayton Act, 15 U.S.C. § 25, and 28 U.S.C. §§ 1331, 1337(a), and 1345. 11. Defendants have consented to venue and personal jurisdiction in this judicial district. Venue is therefore proper in this district under Section 12 of the Clayton Act, 15 U.S.C. § 22, and 28 U.S.C. § 1391(c). 7 IV. TRADE AND COMMERCE A. Coarse Aggregate is an Essential Input for Many Construction Projects 12. Coarse aggregate is a category of material used for construction projects and in various industrial processes. Produced in quarries, mines, and gravel pits, coarse aggregate is predominantly limestone, granite, or trap rock. Different types and sizes of rock are needed to meet different specifications for use in asphalt concrete, ready mix concrete, industrial processes, and other products. Asphalt concrete consists of approximately 95 percent coarse aggregate, and ready mix concrete is made of up of approximately 75 percent coarse aggregate. Coarse aggregate thus is an integral input for road and other construction projects. 13. For each construction project, a customer establishes specifications that must be met for each application for which coarse aggregate is used. For example, state DOTs, including the Tennessee and Virginia DOTs, set specifications for coarse aggregate used to produce asphalt concrete, ready mix concrete, and road base for state DOT projects. State DOTs specify characteristics such as hardness and durability, size, polish value, and a variety of other characteristics. The specifications are intended to ensure the longevity and safety of the projects that use coarse aggregate. 14. For Tennessee and Virginia DOT projects, to ensure that the stone for an application meets proper specifications, the respective DOTs qualify quarries according to the end uses of the coarse aggregate. In addition, the Tennessee and Virginia DOTs test the coarse aggregate at various points: at the quarry before it is shipped; when the coarse aggregate is sent to the purchaser to produce an end product such as asphalt concrete; and after the end product has been produced. Many cities, counties, commercial entities, and individuals in Tennessee and 8 Virginia use their respective state DOT-qualified coarse aggregate specifications when building roads, bridges, and other construction projects in order to optimize longevity. B. Transportation is a Significant Component of the Cost of Coarse Aggregate 15. Coarse aggregate is priced by the ton and is a relatively inexpensive product, with prices typically ranging from approximately five to twenty dollars per ton. A variety of approaches are used to price coarse aggregate. For small volumes, coarse aggregate often is sold according to a posted price. For large volumes, customers typically either negotiate prices for a particular job or seek bids from multiple coarse aggregate suppliers. 16. In areas where coarse aggregate is locally available, it is transported from quarries to customers by truck. Truck transportation is expensive and, for construction projects located more than a few miles from a quarry, transportation costs can become a significant portion of the total cost of coarse aggregate. C. Relevant Markets 1. State DOT-Qualified Coarse Aggregate is a Relevant Product Market 17. Within the broad category of coarse aggregate, different types and sizes of stone are used for different purposes. For instance, coarse aggregate qualified for use as road base may not be the same size and type of rock as coarse aggregate qualified for use in asphalt concrete. Accordingly, they are not interchangeable for one another and demand for each is separate. Thus, each type and size of coarse aggregate likely is a separate line of commerce and a relevant product market within the meaning of Section 7 of the Clayton Act. 18. State DOT-qualified coarse aggregate is coarse aggregate qualified by the state DOT for use in road construction in that particular state. State DOT-qualified coarse aggregate meets particular standards for size, physical composition, functional characteristics, end uses, 9 and availability. A customer whose job specifies state DOT-qualified coarse aggregate cannot substitute non-DOT-qualified coarse aggregate or other materials, including coarse aggregate qualified by a different state DOT. 19. Although numerous narrower product markets exist, the competitive dynamic for most types of state DOT-qualified coarse aggregate is nearly identical, as a quarry can typically produce all, or nearly all, types of state DOT-qualified coarse aggregate for a particular state. Therefore, most types of state DOT-qualified coarse aggregate for a particular state may be combined for analytical convenience into a single relevant product market for the purpose of evaluating the competitive impact of the acquisition. 20. A small but significant increase in the price of state DOT-qualified coarse aggregate would not cause a sufficient number of customers to substitute to another type of coarse aggregate or another material so as to make such a price increase unprofitable. Accordingly, the production and sale of Tennessee DOT-qualified coarse aggregate and Virginia DOT-qualified coarse aggregate (hereinafter “DOT-qualified coarse aggregate”) are distinct lines of commerce and relevant product markets within the meaning of Section 7 of the Clayton Act. 2. The Relevant Geographic Markets are Local 21. Coarse aggregate is a relatively low-cost product that is bulky and heavy. As a result, the cost of transporting coarse aggregate is high as compared to the value of the product. 22. When customers seek price quotes or bids, the distance from the quarry to the project site or plant location will have a considerable impact on the selection of a supplier, due to the high cost of transporting coarse aggregate relative to the low value of the product. Suppliers know the importance of transportation cost to a potential customer’s selection of a coarse 10 aggregate supplier; they know the locations of their competitors, and they often will factor the cost of transportation from other suppliers into the price or bid that they submit. 23. The primary factor that determines the area a supplier can serve is the location of competing quarries. When quoting prices or submitting bids, coarse aggregate suppliers will account for the location of the project site or plant, the cost of transporting coarse aggregate to the project site or plant, and the locations of the competitors that might bid on a job. Therefore, depending on the location of the project site or plant, suppliers are able to adjust their bids to account for the distance other competitors are from a job. a. The Knoxville area is a Relevant Geographic Market 24. Vulcan owns and operates eleven quarries that serve Knox, Loudon, Jefferson, and Grainger Counties in Tennessee as well as portions of surrounding counties (hereinafter referred to as the “Knoxville area”). Customers with plants or jobs in the Knoxville area may, depending on the location of their plant or job sites, also economically procure Tennessee DOT- qualified coarse aggregate from four quarries operated by Aggregates USA. Other more distant quarries cannot compete successfully on a regular basis for customers with plants or jobs in the Knoxville area because they are too far away and transportation costs are too great. 25. A small but significant post-acquisition increase in the price of Tennessee DOT- qualified coarse aggregate to customers with plants or job sites in the Knoxville area would not cause those customers to procure coarse aggregate from suppliers other than Vulcan and Aggregates USA in sufficient quantities so as to make such a price increase unprofitable. Accordingly, the Knoxville area is a relevant geographic market for the production and sale of Tennessee DOT-qualified coarse aggregate within the meaning of Section 7 of the Clayton Act. b. The Tri-Cities area is a Relevant Geographic Market