The European Union (EU) rained on America's holiday festivities Monday, announcing an antimonopoly investigation into South Carolina-based packaging firm Sonoco Products' (NYSE:SON) planned joint venture with Finland's Ahlstrom.
The joint venture is aimed at reducing costs and maximizing profits in the EU market for "cores." What are cores? Well, they go into pretty much anything that gets rolled up before it is sold to a consumer. From a roll of toilet paper to a map of France to a bundle of twine, they all get wrapped around a cardboard tube of some sort -- and that tube is called a core.
According to Sonoco, the European core market suffers from overcapacity that makes profits hard to come by. The company hopes that, by joining forces with Ahlstrom, it can bring costs down and simultaneously drop a few more cents, from each euro of revenue, down to the bottom line.
Sadly though, many American companies can attest to the EU's apparent antipathy to profits -- at least when they look likely to accrue to U.S. businesses. In recent years, everyone from Coca-Cola (NYSE:KO) to Intel (NASDAQ:INTC), from Microsoft (NASDAQ:MSFT) to General Electric (NYSE:GE), has sparred with the EU's antimonopoly regulators at one time or another. (And Hidden Gems pick Fresh Del Monte (NYSE:FDP) and Chiquita Brands (NYSE:CQB) have bones to pick with the EU on other matters.) But the EU Commission usually confines itself to cases in which profits can be characterized as "excessive" -- which is not likely the case with a commodity such as cores.
The real reason the EU Commission is interested in this joint venture, it seems, must be one of two: Back in May, the Commission began investigating Ahlstrom for anti-competitive practices in its sales of products other than cores (specifically, release liners and face stock). If the Commission is just being extra cautious with any deal in which Ahlstrom is involved, then perhaps that is only prudent.
The second possible reason, however, would be more xenophobic. The terms of the Sonoco-Ahlstrom deal initially call for a 64.5-35.5 joint venture, with Sonoco as majority partner. But the terms also suggest that the operation will become more and more American over time. Beginning in the second half of the third year of the joint venture, Ahlstrom can start requiring Sonoco to gradually buy its interest out. And by year seven, Sonoco can force Ahlstrom to sell out to Sonoco. It could be that what the EU is really up to is acting early to prevent the Americans from rolling up the European packaging market.
Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.
