Eastern District Of Virginia Overrules Objections To Proposed Divestiture Of Doorskin Manufacturing Plant
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  • Eastern District Of Virginia Overrules Objections To Proposed Divestiture Of Doorskin Manufacturing Plant

    01/22/2025
    On December 13, 2024, Judge Robert E. Payne of the Eastern District of Virginia, in a long-running private action that had previously found a consummated merger to be unlawful, overruled defendant’s objections to the required divestiture of one of the molded interior doorskin manufacturing plants it had acquired.  Steves & Sons, Inc. v. Jeld-Wen, Inc., No. 3:16-cv-545 (E.D. Va. Dec. 13, 2024).

    This case began nearly a decade ago when plaintiff filed a lawsuit alleging that defendant’s acquisition of CMI, one of two direct competitors in the interior molded doorskin manufacturing market, violated Section 7 of the Clayton Act.  Prior to this lawsuit, the Department of Justice (“DOJ”) investigated the merger but closed it without action, in part because defendant represented to the DOJ that it would honor its prior supply agreements with third parties.  Plaintiff did not initially object to the merger on the basis of this representation.  Shortly after the merger was consummated, defendant’s only remaining doorskin manufacturer competitor withdrew from the doorskin market.  Defendant allegedly increased its prices in violation of the parties’ supply agreement.  After receiving a complaint from plaintiff, the DOJ initiated a second investigation.  However, the DOJ closed the second investigation without further action.

    Plaintiff filed its lawsuit shortly after DOJ closed its investigation and specifically requested that defendant be required to divest the Towanda, Pennsylvania manufacturing plant it had acquired.  In 2018, the Court found the merger had significantly reduced competition.  Plaintiff was awarded damages, and the Court ordered the divestiture of Towanda.  On appeal, the Fourth Circuit affirmed the divestiture and the appointment of a Special Master to oversee the sale of Towanda.  After several rounds of failed bidding for the Towanda plant between 2021 and 2024, the Special Master recommended a $115 million bid from Woodgrain, a millwork manufacturer.  In October 2024, the Special Master submitted its Recommendation of the Special Master Regarding Offers to Purchase the Divestiture Assets (“R&R”) to the Court.  Defendant posed three objections to the R&R.

    First, defendant argued that the divesture of Towanda was no longer necessary.  Defendant claimed market conditions had changed significantly since the 2018 divestiture order because plaintiff had since developed a new manufacturing facility set to open in early 2025.  The Court rejected this objection, noting that it was not one of the two grounds that the Fourth Circuit permitted for defendant to object to the R&R: failure to locate a satisfactory buyer and whether that buyer would serve the public interest. 

    Second, defendant objected to Towanda’s sale to Woodgrain, arguing that Woodgrain was an inadequate buyer and that the sale would harm the public interest by increasing costs.  The Court found most of defendant’s arguments to rehash its objections to the divestiture itself and rejected them.  However, it examined whether Woodgrain’s acquisition would increase production costs.  The Court concluded that the key issue was not whether Woodgrain could operate Towanda more efficiently than defendant, but whether Woodgrain could operate Towanda more efficiently than another bidder.  The Court considered Woodgrain’s previous ownership of the facility and determined that it was better suited than other potential purchasers.  The Court also rejected the claim that Woodgrain could not profitably operate Towanda due to plaintiff’s new facility, as the capacity limitations of the new facility would still require plaintiff to purchase millions of doorskins from other manufacturers.

    Third, defendant objected by arguing that Woodgrain’s $115 million bid was an unfair price.  In its claim, defendant primarily relied on its own expert witness who approximated Towanda’s worth at 2.3 to 5.5 times the bid price.  However, plaintiff’s expert witness emphasized the unique circumstances of this novel forced sale, noting that the variance in the two valuations was likely due to uncertainties among bidders, including the complex role plaintiff played in bringing a private action for divestiture, the potential legal and regulatory hurdles, and reputational damage.  The Court noted the changing market conditions, circumstances, and events that occurred throughout the lengthy bidding process predictably reduced Towanda’s value.  Considering the unique circumstances of this divestiture, the Court concluded that Woodgrain’s bid was within a reasonable range of the current market conditions.  Having rejected each of defendant’s three contentions, the Court overruled defendant’s objections and adopted the Special Master’s R&R.

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