THE E’FFECYEVENESS 0F RELIEF ;

EEECREES iN AMEMERGER CASES

Thesis far the Segree of Ph; Ex -

MECHEGANSTATEEENNERSEW ' ‘

KENNETH? e3 ELZENGA;
1957

 

 
 
 
 
  

“1‘! LD l; 'Jllllal'rr'ru. 1.3.3 Kg. }

‘ LIBRARY
Michig: :3 8:,
University f

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This is to certifg that the

thesis entitled

THE EFFECTIVENESS OF RELIEF DEGREES
IN ANTIMERGER CASES.

presented by

KENNETH GERALD ELZINGA

has been accepted towards fulfillment
of the requirements for

Ph. D. degree in Economics

[Oat gig/3a flfjmé
am pm

Date September ll, 1967

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ABSTRACT

THE EFFECTIVENESS OF RELIEF DEGREES
IN ANTIMERGER CASES

by Kenneth G. Elzinga

The federal government's enviable and, at times,
surprising record of victories,in antimerger cases neces-
sitates-the enactment of relief. Relief is simply-the»
action designed to prevent or undo the unlawful effects of
a merger. The problem in-this thesis is to evaluate the:
effectiveness of the relief.decrees obtained in antimerger
cases-and identify any obstacles to the formulation of
satisfactory relief. This, then, is an economic-study of
what has happened after a merger case has been found either
in violation of the law or the respondents have submitted
to a consent decree.

The study rests on the notion that an effective anti-
merger statute requires effective relief;.that failure to
secure effective relief will lead to two results: first,
competition will not be restored in those markets where
antimerger cases have been brought and, second, the law will
not be a bar to those potential mergers which might have a
deleterious effect on competition.

A theory of relief is presented in the thesis which
enables one to predict effective relief from observing

three phenomena: the independence of the divested firm,

 

 

 

 

 

 

 

 

Kenneth G. Elzingal

its Viability, and the time span required to secure relief.
From this theory a methodology is developed which allows
the classification of actual relief decrees according to
how they meet certain criteria. ‘These criteria are out-
lined in the thesis.

A sample.of antimerger cases is drawn, 39 in all,
and using the above methodology, are classifiedas to their
relief effectiveness. The data used to enable-this classi—
fication are taken primarily from docket files and com-
pliance reports at the Federal Trade Commission and.
pleading files at the Department of Justice, Antitrust
Division.,

The sample cases are then placed on a continuum to
draw them together and give an overview of antimerger
relief. The continuum has A categorieszw Successful,
Sufficient, Deficient, and Unsuccessful relief. Of the 39
cases, the-A categories have 6, A, 8, and 21 occupants
respectively. Thus, about three-fourths of the sample
cases are Deficient or Unsuccessful in their relief by the
standards used. For the purist who is concerned about the

time span required to secure relief, a second continuum is

 

developed. By adding this time standard, more than three—
fourths of the sample cases are found in the category of.
Unsuccessful relief.

Specific obstacles to the securing of effective:

relief are cited and supported with examples from the

 

 

 

 

 

 

Kenneth G. Elzinga

sample cases and other antimerger actions. These obstacles
include the problem of physically restoring a firm after.it-
has been absorbed into another, the problem of deciding
what part or parts of the acquired firm to divest, and the
problem of selecting an appropriate buyer. Special-
attention is paid to the-government’s propensity to substi—
tute marketing orders in lieu of structural relief. The-
marketing orders.have distinguished themselves for being
ineffective, difficult and/or costly-to-enforce, and
generally protective in nature—-as.well as being repugnant,
to the concept of antitrust.

Three public policy measures are discussed.’ The-
first-deals with facilitating structural relief after a
merger is found to have violated the law. The second deals
with stopping anticompetitive mergers before they are even.
consummated. And the last considers the possibility of
requiring companies planning to merge to first notify the:

government of their intentions.

 

 

 

 

 

 

 

THE EFFECTIVENESS OF RELIEF
DEGREES IN ANTIMERGER CASES

B
y\b

(0’

Kenneth G 3” Elzinga

A THESIS

Submitted to
Michigan StateUniversity
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY
Department of Economics_

1967

 

 

 

{Ark-.5

 

TO KABE

iii

 

 

 

 

 

ACKNOWLEDGMENTS-

 

I shall dispense with the usual paragraph stating
what is obvious: that I have freely availed myself of
the labors of numerous people, and it is impossible to
acknowledge them all. There are, however, some individuals
and organizations I would like to single out for a word of
appreciation.

I owe a special debt to the Federal Trade Commission,
not only for providing me with an office during my research
stay in Washington, but for cooperating with me while I
was there in ways "far beyond the call of duty." Of all
those at the Commission who were kind and helpful to me, I'
should like.to mention four: Mr. Carl Batter of the.
Compliance Division, and Miss Mary Ann Comps, Mr. Tom
Hogarty, and Dr. Willard Mueller, of the Bureau of Economics.
I might add that the FTC's library stands out asva place for
research in antitrust. At the Antitrust Division of the;
Department of Justice, the staff-in the Legal Records'
Section was helpful to me, and I'm grateful for the use of
the Divisionfls library. Special thanks are extended to

those who provided me with my financial support:. the Ford

 

Foundation and the Department of-Economics at Michigan

State University.

iv

 

 

In a very meaningful sense, there are several professors
I could mention whose endeavors have contributed to this:
thesis. I shall mention only two. Professor Thomas Moore,
provided assistance and encouragement during my research and
read the manuscript. I'm grateful to him for his criticisms.
To Professor Walter Adams goes a special word of appreciation.
He not only wrestled with the obscurities of my early drafts
but also was the source of considerable guidance in my
thinking about the relief problem in-antitrust. Indeed my~
debt to him goes beyond this thesis-efor-during my graduate -
studies he has often been a valued mentor, counselor, and-

provocateur.

 

My wife possesses virtues of patience and under-
standing. For displaying these towards me, as well as being
a source of encouragement, I'm grateful. But of course, for

what follows, I must assume responsibility.

 

 

 

 

TABLE OF CONTENTS

DEDICATION . . . . . . . . . . . . . . . . . .

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . .

LIST OF

APPENDICES . . . . . . . . .-. . . .~. . .

INTRODUCTION . . . . . . . . . . .3. . . . . . . .

Chapter
I.

MERGERS . . . . . . . . . . ... . . . . .

Introduction~
Definition of Terms
The Theory of-Mergers
Mergers and Economic-Analysis
Mergers and Monopoly
Obstacles to Monopolization by Merger
Overcoming the Obstacles
American Experience with Mergers and
MonOpoly '
Mergers and Promoters
The Promotion of Mergers Today
Mergers and Managers
Managerial Incentives to Merge
Mergers for Investment
Private Advantages of External Growth,
External Growth and Economic PrOSperity
Mergers and Efficiency‘
The Tenuous Relationship of Mergers and
Economies of Scale
Mergers and Taxes
Mergers for Sellers
Mergers and Their Control by Law
Mergers and Freedom of Contract
Mergers and Free Markets:
The Control of Mergers and Internal
Expansion
Mergers and Their Protection
Conclusion

vi

Page
iii
iv
ix

 

 

 

 

Chapter Page
II. THE ENFORCEMENT OF THE ANTIMERGER LAW . . . . . 38

Introduction
The Original Section 7
The Failure of the Original Section 7
The Amended Section 7
The Mechanics of Antimerger Enforcement
The Remedies
The Scope of Antimerger Relief
Guidelines for Antimerger Relief
The Standards of Enforcement
The Determination of a Relevant Market
The Structure of the Relevant Market
Additional Standards of_Enforcement
Conclusion

III. THE EFFECTIVENESS OF CELLER-KEFAUVER RELIEF . . 58

The Theory of Effective Relief
The MethodOlogy of Pure,Relief
The Test of Survival
The Methodology Rejected
The Methodology of This Study
The Sample
The Continuums;
Exhibit II
The SUCCESSFUL Relief Category
The SUFFICIENT Category
The DEFICIENT Category
The UNSUCCESSFUL Category
Conclusions from Exhibit.II
Exhibit III.
Average Time Spans
Conclusions

IV. THE REASONS FOR INEFFECTIVE RELIEF . . . . . .' 78

A Short Prelude on the Relief Problem
Specific Problems hiAntimerger Relief.
Asset Restoration
The Time Factor
The Problem of the Partial Divestiture'
The Handling of Improvements
The Buyer Problem
Finding Any Buyer
Finding the Right Buyer
The Marketing Order~
The Future Ban
The Environment of Antimerger Enforcement

Conclusions

 

vii

 

 

 

Chapter Page
V. PUBLIC_POLICY IMPLICATIONS . . . . . . . . . . 138

Introduction
The Cost of Violating Section 7
The Cost of Litigation
The Cost of Divestiture
The Profitability of Violating Section 7
Section 7 Violation and Market Entry
Implications for Public Policy
Facilitating Structural Relief
The'Spin-Off.
The Spin -Off and Taxation
Preliminary Injunctions
Granting a Preliminary Injunction
The Strategy of Opposing Preliminary
Injunctions:
In Support of Preliminary.Injunctions
Facilitating Preliminary Relief:
Premerger Notification
Premerger Notification Legislation
Drafting a Notification Statute
Other Objections to Notification

VI. CONCLUSION . . . . . . . . . . . . . . . . . . 180

The "Real" Impact of Section 7
The "Real" Impact and the FortuneJSOO
The "Real" Impact and the Dairy Industry
The "Real" Impact and the Cement Industry
The "Real" Impact Upon-Past-Violators
The "Real" Impact and Diversification
Section 7 and Aggregate Concentration
The Rising Tide of Aggregate Concentration
Mergers and Aggregate Concentration
The Future of Relief:
The Judicial Front
Encouraging Developments with the
Judiciary
An Old Story Repeated
The Administrative Front
The Commission!s Rulemaking Policy
A Concluding Note on the Market as a Force
for Relief

BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . 205

APPENDICES O 0 O O O O O O 0 O O O O O O O O O O 0 O O 223

viii

 

 

 

 

LIST OF APPENDICES-

Appendix Page
A. The Sample Cases . . . . . . . . . . . . . . . 223

B. Aggregate Complaint and Divestiture Values
from Chapter III . . . . . . . ._. . . . . . 278
. 280

C. Average Time Spans . . . . . . . . . . .,. ._

ix

 

 

,, mum, I

 

INTRODUCTION

Almost a decade ago, writing on the federal anti-
merger law and a recent Supreme Court interpretation of
that statute, Harbeson raised the question: Has the
Clayton Act, Specifically its antimerger provision, been
the "sleeping giant of antitrust?"1

Today there are many who would answer that question
in the affirmative. From legal periodicals, economics
journals, and the business press one might readily conclude
that the "giant" is, for better or for worse, very much
"awake." The federal antimerger law, as amended in 1950,
has now been subjected to sufficient judicial scrutiny to
yield

. a feeling among many antitrust lawyers that

the rules now established by the courts give Section
7 such broad SCOpe that the extent of its application
to conventional horizontal and vertical mergers will
in large part depend upon work-allocation and policy
decision in the Antitrust Division and the Federal
Trade Commission.2

In other words there seems to be the general impres—
sion in both the legal and business communities that the
present antimerger law has become a "stronger" law than
anyone would have predicted, that the government agencies
enforcing the antimerger law have ample precedent to emerge

victorious from any antimerger suit they bring, that any

firm's decision to merge hinges not so much on the question

 

 

 

 

of "is it legal" but rather ”will it be prosecuted," and
finally that this law offers new hope for those who have
long argued the wisdom of a strict application of the anti—
trust laws to interfirm collusion and consolidation.3
The government's enviable and, at times, surprising
record of victories in antimerger suits necessitates the
enactment of relief. In nonetechnical terms, relief is
simply the action designed to prevent or undo the unlawful
effects of a merger, i.e. an action to maintain or bring
about a state of compliance with the law. In a litigated
case, relief follows the finding that a merger either will
or has violated the law. When the respondent elects to
settle the suit by a consent decree, the relief is simply
that action, flowing from the settlement, which will satisfy
the government that the purposes of the statute are being
met.
The relief that has been obtained by the government
in antimerger cases is the object of study in this thesis.
In short this is an economic study of the "back—side" of
the antimerger law——what has happened after a merger case
has been found in violation of the law or the respondents
have decided to no longer fight the suit and instead submit
to a consent decree. At the outset I stress that this is
not another attempt to evaluate the develOping case law
and the standards of legality under Section 7. For the
most part these will assume the position of a "given" in

this analysis and will be commented upon only in an ancillary

 

 

 

 

 

 

 

 

 

sense. The main concern will be with the economic effec—
tiveness of relief in these cases and the obstacles to the
formulation of satisfactory relief.

The study rests on the logical notion that an effec—
tive antimerger statute requires effective relief; that,
if mergers which violate the standards of the law are not
subjected to meaningful relief, two results will follow:
first, competition will not be restored in those markets
where antimerger cases have been brought and, second, the
law will not be a bar to those potential mergers which might
have a deleterious effect on competition. Or as Justice
Jackson put it, a court victory san§_effective relief means
the government "has won a lawsuit and lost a cause."4

There has been a rather prodigious commentary on the
legal and economic aspects of the developing case law under
the federal antimerger statute; the literature is quite
exhaustive-—and exhausting. But the question of adequate
relief has been a neglected area of critical discussion.
While some of the legal questions relating to the relief
problem have been explored,5 economic analyses of the
relief problem in antimerger enforcement have been con-
spicuously absent. What follows is an effort to fill the
lacuna.

This study will begin with a short section on the
"what" and ”why" of mergers. A short synopsis on the theory

of mergers is offered pointing to why mergers are

 

--——-r3- .

 

 

 

 

consummated, when they are consummated, and why some are
(or should be) outlawed.

In Chapter II the law on mergers will be outlined.

The relevant law for the purpose of this study is the 1950
Celler—Kefauver amendment to Section 7 of the Clayton Act.
The factors leading to the passage of this amendment, its
legislative history, the mechanics of its enforcement,

the remedies available under the law, and the standards

of enforcement found in the new Section 7 will be summarized
as necessary background to the understanding of the relief
problem.

The following two chapters are the heart of the study.
Chapter III outlines the methodology of the economic analy—
sis of relief; the sample cases drawn for study are pre—
sented and the sample is rated and evaluated.

The reasons for ineffective relief are found in
Chapter IV. These are drawn from both the history of the
relief problem in antitrust law and from Specific instances
in recent antimerger cases.

The public policy implications of the study are
explored in Chapter V. Various measures have been proposed
to make relief more effective; these are considered there.
This chapter also contains a short digression on the eco—
nomic costs of violating Section 7 and what this might

indicate for Section 7 enforcement.

 

 

 

 

Chapter VI, the conclusion, will contain a summary

of the study and some final thoughts on the real impact

of relief in antimerger cases.

 

 

 

FOOTNOTES

INTRODUCTION

1Robert H. Harbeson, "The Clayton Act: Sleeping
Giant of-Antitrust?" AER, A8 (March, 1958), pp. 92-104.

2Analysis, The Supreme Court's Merger Opinions,"
BNA Antitrust and Trade Regulation Repert, No. 162,
p. B-A.

3For example see: Paul W. Cook, "Merger Law and
Big Business: A Look Ahead," New York University_Law
Review, 40 (October, 1965), pp. 710-72“; Sidney Fish,
"Antitrust Landmark Cases," Journal of Commerce, June
21, 1965, p. 3; Milton Handler, "Mergers" in "Recent Anti—
trust Developments," Michigan Law Review, 63 (November,
1964), pp. 67-78; "The Government Always Wins," editorial
in WSJ, June 16, 1966, p. 16.

 

 

 

 

”International Salt Co. vu'U. S., 332 U.S. 392 at
401 (19A7).

 

5See: Thomas F. Daly, "Current Trends in Relief
under Clayton Act Section 7," Dickinson Law Review, 70
(Fall, 1965), pp. 1—49; Robert B. Duke, "Scope of Relief
Under Section 7 of the Clayton Act," Columbia Law Review,
63 (November, 1963), pp. 1192-1211; William T. Kerr,
"Divestiture of Illegally Held Assets: Observations on
its Scope, Objective, and Limitations," Michigan Law
Review, 64 (June, 1966), pp. 1574-1599.

 

III?

 

 

CHAPTER I

MERGERS

"The main objective of growth through
acquisition in a few cases seems to be
to permit executives to fly bigger
DC—3's."l

Introduction

 

The union of two companies by merger is not unlike
the union of two peOple by marriage. Both peOple and
companies of widely varying types join forces together
and both unions are entered for a variety of reasons.
Though many firms and many couples unite voluntarily,
others are, to some degree, coerced into their bonds.
Similarly, marriage, either corporate or personal, has no
definite outcome. For some it will be a union of bliss;
for others it will end (or even continue) unhappily.

In this chapter a brief background account on the
merger of business firms will be presented. The chapter's
purpose is to introduce the subject of mergers, for such an
introduction is a necessary condition to understanding the

central topic of this study.

Definition of Terms

There are many terms suggestive of the combining of

one business enterprise with another. The term "merger"

 

 

has already been used. Others which come to mind are:
acquisition, amalgamation, combination, consolidation,

and take—over. This multiplicity of terms stems primarily
from the multiplicity of ways in which two firms can be
joined. For tax, legal, and financial reasons, the actual
form and manner in which a union is consummated varies.

In its well—known report on mergers, the Federal Trade
Commission noted:

The form of organization used in acquisition and
mergers seems to follow no definite pattern but to
vary in accordance with what appears to the promoters
to be the best procedure in relation to the particular
combination of conditions involved. A new company
may be incorporated by joint effort to function as
the acquiring firm; the acquirer, without change in
name or corporate organization, may take over the
stock or assets, in whole or in part, of another
corporation; the acquirer may merely change its name,
its form of organization, or its capital structure,
in order to take over another corporation; the acquirer
may organize a new subsidiary to purchase the stock or
assets of another firm; the acquiring corporation may
have an existing subsidiary purchase another corpora—
tion; or other procedures may be followed when they
will more satisfactorily meet the requirements at
hand.2

Important as these tax—legal—financial distinctions are to
the companies involved in a transaction of this sort, they
are of little concern here.

In the United States the union of two business firms
is most generally referred to as a merger or an acquisition
and in this study these terms will predominate. The term
"merger" seems to imply the union of companies of similar

size while an "acquisition" suggests that the acquiring

firm is larger than the acquired firm. But for the purposes

 

 

 

of this study any differences between these two terms will
be overlooked. "Merger" and "acquisition" will be used in

a generic sense as encompassing the several forms in which

two or more previously independent business entities come
under one corporate center of control.3
Using these terms synonymously is not unusual, even
within the business community. In fact, perhaps the
crucial difference between "acquisition" and "merger" is
psychological. One source suggests that when a company

approaches another it wants to buy, it talks merger to

them but talks acquisition with its own board of directors

 

and stockholders. It's not unusual to see why:
. managements find comfort in the merging

of mutual interests. Being acquired connotes
being had!

The Theory of Mergers5

 

More important than how mergers are consummated is
why_they are consummated. When an announcement of two
firms merging is made for public consumption, the reasons
offered generally include such edible platitudes as ”to
enable us to expand operations" or "to operate more effi—
ciently" or "to more effectively meet competition." Note
that all of these would indicate the public to be the true
beneficiary: the implication being that the public will
now receive more goods, produced with fewer resources, and

sold at a lower price.

 

 

 

 

 

 

lO

Mergers and Economic Analysis

But these assertations neither answer nor demonstrate
h9w_the public is to obtain these benefits. Economic
analysis on the other hand does shed some light on this
business practice, for the phenomenon of merging has solid
grounding in economic theory.

Economic analysis would lead to the following pre—
diction about merging: assuming rational economic behavior
on the part of managers, the merger route to expansion
would be followed when, ceteris paribus, it increases the
value of the enterprise by more than the cost of the acqui—
sition and increases it to a greater extent than would be
possible by either building the facilities or taking some
alternative action-—like doing nothing. In more obvious

parlance, mergers are made for money!

Mergers and Mongpoly

But economic theory goes much deeper than just saying
mergers are made for money. Economic theory enables one to
predict a tendency for horizontal mergers to occur, to pre—
dict under what institutional circumstances they are more
likely to occur, and it has something to say about the
effect of allowing this consolidation of competitors to take
place.

It is a corollary of economic analysis that industry
profits are maximized (or losses minimized) when output is

produced at a rate which equalizes marginal revenue with

 

 

 

 

ll

marginal cost.6 Consequently firms in an industry would
find it to their economic advantage to forego independent

action and instead CQOperate in operating at this rate of

maximum short—run gain.

Obstacles to MonOpolization by Merger

But there are well—known obstacles in the path of an
industry's attempt to rationalize its production by some
cartel-like policy of cooperation. First, the firms in the
industry might be unable to determine that rate of output
which maximizes short—run profits. Second, they might be
unable satisfactorily to assign the necessary production
quotas and divide the profits among themselves. Third, the
lure of the monopoly profits could attract new resources to
the industry; gage some barrier to entry and, given the
other difficulties, the established firms might be reluctant
to cooperate for this reason. Fourth, the incentive to
remain outside a cartel or the incentive to cheat as a
member of a cartel, probably more than any other factor,
hampers attempts to rationalize the industry rate of pro—

7

duction. And, finally, such arrangements might be illegal.

Overcoming the Obstacles

Economic analysis enables us to predict that some form
of cooperation to obtain these monopoly gains is more

likely to occur the more readily the established firms in

an industry are able to overcome these formidable obstacles.

For example, an industry into which new entry has been

 

 

 

 

12

forbidden by the government and where the existing firms are
few in number would be a likely candidate for rationaliza—
tion. But without government protection, a group of inde—
pendent firms would probably not be able to form a cartel
capable of securing monopoly profits for any long period of
time. There are too many weaknesses in the cartel form of
industry organization.

If loose-knit business coalitions are susceptible to
failure, one would predict another type of coalition to be
sought which might be more successful. Coalition by merging
offers such a possibility. Whenever rivals can be acquired
for less than the capitalized earnings which would come
from their being skillfully operated as part of a consoli—
dated firm with great market power, such consolidations
will be made if the financial-legal institutions of the
economy so allow.

Again, as with cartels, one would not predict ration—
alization via merging to occur unless some barrier to entry
was possible. And merging can make this possible since the
merging form of rationalizing an industry has two inherent
advantages over the cartel. First, the consolidated firm
isbetter able to exclude or hinder newcomers than its
loose—knit counterpart.8 And, second, a tight coalition

has fewer administrative problems than its loose counter—

part.

 

 

 

"t

 

 

13

American Experience with
Mergers and Monopoly‘

This tendency to rationalize an industry Via merger,
which would be predicted by economic analysis, manifested
itself in the U.S. as soon as the legal—financial institu—
tions permitted.9 When capital markets were developed,
state incorporation laws allowed greater capitalizations
and wider areas of operation, and the federal law looked
askance on cartelization but did not blink at consolida—

a merger movement was ushered into the American indus—
0

tion,
trial scene which transformed its structure radically.l

Writing about this first great merger movement, Nelson's

research led him to conclude:
It transformed many industries, formerly characterized
by many small and medium sized firms, into those in
which one or a few very large enterprises occupied
leading positions. . . . The huge turn—of—the—century
merger wave produced U.S. Steel, American Tobacco,
International Harvester, duPont, Corn Products,
Anaconda Copper, and American Smelting and Refining,
to name only a few. Its effect on American industry
was widespread and enduring.

Verily, the first merger movement validated what would be
predicted from economic analysis about horizontal mergers.
The inability to secure permanent barriers to entry, coupled
with the probably recalcitrance of some firms to join the
consolidation,meantthat the merger route would seldom end
in complete monopolization. But, given the opportunity,
firms would combine) the incentive for doing so being

monopoly profits. In his survey article on mergers, Markham

concluded:

 

 

 

 

 

14

In the steel, tobacco products, petroleum refining,
sugar refining, nonferrous metal smelting, shoe
machinery, typewriter, and other industries, it is
quite clear that mergers transformed oligopolistic
or competitive markets into markets dominated by
partial monopolists frequently controlling over

50 per cent of total output. In short, the aim

of such mergers clearly must have been monopoly,
although it was never perfectly achieved and rarely
if ever displaced anything resembling perfect com—
petition.

This is not to imply in any way that all mergers have
as their goal or even their hope the securing of monopoly
profits. Far from it. But suffice it to say that mergers
have led to the securing of considerable market power in
some industries and, without some legal obstacle, there will
remain a tendency for industries to be rationalized through
consolidation.

To be able to "explain" all mergers as attempts to
alter the location and elasticity of the acquiring firm's
demand curve would be handy—-but it would be incorrect. To
be sure, establishing this "pressure" for horizontal con—
solidation is certainly an important contribution to under—
standing the merger phenomenon. But, as was indicated in
the introduction to this chapter, mergers do not lend them—
selves to any one raison d'etre except that they take place

for money. And one way they can "make money" is via the

rationalization of an industry. But there are other ways

as well.

 

 

 

f L?!

 

 

 

 

l5

Mergers and Promoters

 

The heavy demand for securities during most of the
first merger movement provided a new type of entrepreneur
on the financial scene--the promoter of mergers. Noting
the high degree of Speculation in asset values and the
opportunity to float additional securities on already
existing assets when offered in a ”new package," promoters
were quick to lecture prospective stock buyers on the
expected monOpoly gains from their consolidations. In many
cases the monOpoly gains failed to materialize; the net
result of these endeavors was the sale of considerable water
made possible by imperfect knowledge on the part of the
buyers.

Thus, one stimulus to mergers, distinct from any
desire to rationalize an industry, is the desire to obtain
private financial gain——even to the detriment of the firms
involved. While this method achieved great notoriety
during the financial manipulations of the past, the stimulus
itself is still present. Imperfect knowledge by buyers in
the capital market can still enable this sort of promoting

to occur though certainly not on the scale once possible.

The Promotion of Mergers Today

This stimulus to effectuate mergers for promoter's
profits manifests itself today in the large number of pri-
vate firms, investment houses, business brokers, and other

financial institutions interested in promoting business

 

 

 

 

 

l6

unions. Fortunately, these firms whose business is corporate

marriage promotion cannot long survive if their promotions
are done only to their gain and to the detriment of the

joined companies.

Mergers and Managers

 

There is another interesting hypothesis about mergers
which is indirectly related to the promoter—profit stimulus.
In the heyday of watered stocks, the promoter made his
money in the form of a short—term capital gain. He did not
consider himself a manager of the consolidated-firm in any
meaningful sense, nor did he plan to be a long—term stock-
holder. But it was in his private interest to promote
mergers.

The modern counterpart to such promotions may be the

management of the large corporation. Here again considera-

 

tions of corporate profits and loss may become of secondary

 

importance as the desire to enhance private managerial gain,
either pecuniary or non—pecuniary, becomes primary. Is it
not possible that these private managerial goals might be
best met via the merger route?

This is neither the time nor the place to discuss the
possible conflicts between sales maximization and profit
maximization or possible conflicts between divergent goals
of the firm and goals of its management.13 This can only
lead into a tangential discourse on the theory of the firm.

Suffice it to say but two things.

 

 

 

r.
n.
A

 

 

l7

Managerial Incentives to Merge

 

First, to the extent that managerial salaries are tied
to "business size"124 and management is motivated to increase
the size of its salaries, one would predict mergers to take
place.15 To the extent that managerial aspirations are
tied to being associated with large, growing, prestigious
firms, one would also predict mergers to take place. For,
without question, mergers are a very quick route to corporate
growth.

Second, that managerial aspirations may be so inclined
is still an Open issue. Baumol, commenting on his observa—
tions of, and experiences with, contemporary corporate life
concluded that

. in talking to business executives one may
easily come to believe that growth of thelgirm is
the main preoccupation of top management.

Two recent studies from one of the bastions of
behavioral—firm—theorizing support the hypothesis that
mergers can serve the private interests of managers and are
consummated for this reason; that corporate growth, in and
of itself, can be a goal of the firm; and that this mana-
gerial desire for growth can manifest itself in mergers
which do not further the interests of stockholders.17

Merging can not only meet private managerial goals of
the acquiring firm but could also dovetail nicely with pri—
vate managerial goals of the acquired firm. This could be

an important stimulus to mergers. One neglected British

author put it this way:

 

 

 

 

 

 

 

 

 

 

 

 

l8

. (in some cases) control over the assets of a
company can be obtained by obtaining control of the
administration of a company. . . . By dealing with
and taking over the position of the existing con—
trollers of the company, the prospective purchaser
may be able to acquire control over the assets for
considerably less than the full value of the
assets. . . . The existing controllers are there—
fore frequently in a position to pass control .

on terms which secure to themselves the whole or a
diSproportionate part of the consideration passing
from the purchaser.1

These favorable ”terms" might be in the form of good manage—
ment positions with the new company, lucrative stock options,
or even outright cash bonuses.

The implications of this line of reasoning do not call
for a rejection of the neo—classical profit maximizing
calculus as a tool for predicting firm behavior. It is
included only to suggest that of the various stimuli that
can cause mergers, the managerial desire ”to fly bigger

DC—3's" can be, and no doubt has been, one of them.

Mergers for Investment

 

" ”mergers for pro—

Aside from "mergers for monopoly,
moters," and "mergers for managers," one firm may acquire
another (or others) solely for rational investment reasons.
For, in a most meaningful sense, an acquisition decision
by the acquiring firm is a decision to invest. One firm
sees an opportunity to acquire another with the expectation,
perhaps based only on faith in synergism, of making sub-
stantial earnings on the purchase.

Weston reports investment motives to be of great

importance in the acquisition decisions of companies. In

 

 

 

 

 

 

 

 

 

 

 

 

 

l9

one—half of the cases examined, acquisitions were in
response to a decision to invest in a new plant, a new

product, or a new product organization.19

Private Advantages of External Growth

These investment decisions often lead to an acquisi-
tion instead of internal expansion since, ceteris paribus,
acquisitions normally take less time, involve less un—
certainty, and are easier to finance. And of course
buying rather than building offers the additional advantage
of eliminating a rival in the process!

This suggests an explanation for many of the diversi-

 

 

 

 

 

 

 

 

 

 

fication acquisitions which have been made since World War
II. To the extent that larger diversified firms have lower
capitalization rates expressed in their earnings-stock

price ratios, and smaller more specialized firms have higher l

 

 

 

 

 

 

 

 

 

 

 

 

 

 

rates, and to the extent that the recorded income of the l

latter, if acquired by the former, will be capitalized by j

 

 

the market at the acquiring firm's rate, the acquisition

 

will add more to the market value of the acquirer than the
cost of acquiring the Specialized firm. Therefore, one
would predict such acquisitions to be made——and they have

been.20

Probably the majority of the post—war acquisitions
can be best eXplained as decisions to invest. They are
business transactions of a rather conventional sort——mani—

festations of an opportunity to diversify, to become

 

20

vertically integrated, to move into a new geographic market,

or round out a product line.

External Growth and Economic
Prosperity

 

 

Support for the notion that mergers are strongly
induced by investment considerations comes from their core
relation with business indicators; prosperity in the busi-
ness sector is positively correlated with merger activity.
Weston correlated merger activity with three business
indicators and found their correlation with industrial

stock prices to be significant.21 Nelson found mergers to

 

respond positively and with regularity to the business
cycle.22 Mueller studied merger rates in a particular
industry, the dairy industry-—one heavily hit by merger
activity, and found a tight statistical association between
mergers and industrial stock prices.

To the extent that stock prices are a reliable indi— :

 

 

 

 

 

 

cator of business expectations, one would predict rising
stock prices to be associated with business expansion plans.
And since the merger route is often the advantageous
eXpansion course for a business enterprise, ". . . prOSperity
accelerates mergers because it accelerates business expan—

sion."24

L
m
A

 

 

21

Mergers and Efficiency

Merging companies are prone to ascribe increases in
efficiency as the prime impetus in their union. And this
may be the case. But to attribute economies of scale as
the stimulus to many mergers is an assertion resting on a
wobbly foundation. Of course, almost ggy_statement on
economies of scale rests on an unsteady base since the
theory, and a fortiori the measurement, of firm Optimality

25

is still an unsatisfactory notion in economics.

 

The Tenuous Relationship of Mergers
and Economies of Scale

Certainly acquiring another firm does not directly
increase production economies of scale in the sense of
causing a move to a lower point on the firm's average cost
curve. Nor does an acquisition increase economies of
scale in the sense of replacing an existing plant with one
having a lower average cost curve. In any meaningful
sense of the term, a merger can contribute to economies of
scale only in the sense that the combined firm can obtain
factors of production, marketing services, or capital,
cheaper than before the merger. And this is desirable only
if the lower prices do not stem from an increase in the
firm's monopsony power.

Consequently, the economies—of-scale—by—merger argument
must rest on some rather subtle ground—-for the economies

must be of the multi-plant variety rather than the more

 

 

 

22

efficient plant size breed. It is worthy to note that
merger scholars have not been impressed by obvious signs
of economies of scale in their studies. Nelson noted even
in the first merger movement, where so many of the mergers
were horizontal and should have been more susceptible to
economies of scale, that these mergers occurred in such a
variety of industries which had such divergent production
processes that the scale economies argument "is hard to
believe."26 Heflebower judged purported economies from

27 There are no data in Weston's study

merger as "tenuous."
to lead one to conclude that economies of scale were a
prime motive for, or result of, merging.28 Markham, while
accenting the "complex and diverse" causes of mergers never
stresses economies of scale as a central cause, choosing
instead to wave mainly the flags of promoter profits, market

29

control, and ordinary investment decisions. Nor do

economies of scale find a soft spot anywhere in Stigler's

3O

contribution. After studying acquisitions of unrelated
lines, Gort concluded that diversification decisions
stimulated by expected economies of scale "are not very
frequent."31
This is certainly not to say that mergers have not
made some firms more efficient. No doubt there have been
many cases where vertical acquisitions have enabled an
acquiring firm to plan its production more systematically;

where acquiring a new product line, readily marketable

with existing products, has reduced total marketing costs;

 

 

 

 

 

 

 

 

23

or where acquiring "new" management has had valuable
synergistic effects on firm efficiency. But the relevant
issues are: how often does this happen and is there an
alternative way to secure these same economies? The avail—
able evidence can only produce skepticism on the magnitude
and frequency of these economies. If mergers were really
prompted by cost-cutting considerations, one would predict
their frequency to be inverse to the level of business
activity, i.e. most frequent during business contractions.
But this has not been the case. As to whether there is

an alternative way to secure these economies, other than

by merging, will be discussed later in this chapter.

Mergers and Taxes

The federal tax structure also lends encouragement
to mergers, particularly from the seller's point of View.
Both the federal income tax and estate tax are relevant
here.

The stockholders of a successful, closely held company
pay a personal income tax on their dividend income. They
have the Option of selling out and paying a capital gains
tax of up to twenty—five per cent on any gain over their
original investment. But an attractive option to these
stockholders is to exchange their stock for stock in a listed
company at a rate equal to their firm's fair market value.
This involves no taxable gain or loss. If these stockholders

have any inclination to exit, selling out via stock exchange

._._..__. ‘.__ .m‘ .-__. ._.—.— I
.. .

 

L
a.
l

 

 

 

2A

to a listed firm would be the likely route; selling the
firm as a new entrant is less likely.

Pending estate taxes offer another incentive to be
acquired if the firm is closely held by an aging owner.
This stimulus is reinforced by the uncertainty of the value
the Treasury will place on the business for estate tax
purposes.32

To a lesser extent, the reorganization provisions of
the federal Revenue Code promote acquisitions from the view—
point of the acquiring company. This is particularly the
case when the acquiring firm plans on liquidating its

33

acquisition within two years. Another tax impetus to the
acquisition route occurs when a firm has a tax loss carry—
over. At such times a firm may seek to acquire profitable
enterprises then applying the loss carryover against the

3A

consolidated taxable income.

Mergers for Sellers

 

To look at acquisitions only from the side of the
acquiring firm's stimulus would be incomplete. The coin has
another side. Many an acquisition has been consummated at
the initiation of the selling firm. It was just shown how
the federal tax structure could encourage firms to disappear
by being acquired. But these tax reasons aside, there are a
host of other reasons why businesses might seek out pur—
chasers. Owners may wish to retire. There might be disen—

sion among the present management or ownership. Or the firm

L
N
i

 

 

25

might receive an offer it knows to be considerably more

than the firm is worth!
Interestingly, Mace and Montgomery, in their excellent

contribution to merger scholarship, had this observation on

selling out:

In most, but not all, of the cases studied the
one single factor which characterized the decisions
to sell was fear: fear about the future; fear that
the product line was outmoded; fear that while
company—rich although cash poor, the capital accumu—
lated in a lifetime would be lost; fear that tech—
nology once reasonably simple was beyond the
management's capacity to cope with; fear that key
people were becoming dissatisfied with salary
compensation and would leave to join enterprises
where capital participation was possible.3

In testimony before a Senate subcommittee, the chair—
man of the board of Burlington Industries said that of all
the mergers Burlington had consummated, about one—half
36 The

came at the initiation of the companies acquired.

president of Borden also indicated this had been the case
37

in Borden's extensive acquisition efforts.
Mergers and Their Control by Law
It is a basic tenet of free enterprise capitalism
that resources are best allocated by allowing the members
of the economy to pursue their own individual economic
advantage. Two necessary conditions for this pursuit of
individual advantage are freedom of contract and sanctity

of contract. Consequently, in free societies, one finds

considerable emphasis placed on the right to enter con-

tracts and the right to have them enforced.

 

Al ‘14;
‘7‘-

 

 

 

 

1K1; '

 

 

26

Mergers and Freedom of Contract

Mergers are but one manifestation of people pursuing
their own self—interest. And contracts are the legal
vehicles for consummating mergers. Consequently, any law
prohibiting the consummation of mergers would violate the
freedom of contract and alter the allocation of resources.
Similarly, a law against those mergers already consummated
would violate the sanctity of the merger contract and, by
dissolving the merger, alter the allocation of resources.

Therefore, a prima facie case exists against barring
mergers, for such a law violates two "freedoms." The burden
of proof then is on the advocate of an antimerger law. He
must show two things: first, that mergers egg interfere
with free markets, thereby hindering others in their pursuit
of gain and causing a resultant misallocation of resources;
second, that those mergers which have such effects can be

distinguished from those which are harmless or beneficial.

Mergers and Free Markets
Economic theory demonstrates analytically that pursuit
of private gain in free markets leads to an efficient
allocation of resources. Yet this same analysis, which so
strongly supports a policy of free markets, also calls for
a policy of limited intervention in some markets. For it
is only when markets are fgeg, when individuals on either

side have numerous alternatives, that the market system

L
m
l

 

 

27

works. It is because of this orientation toward free
markets that economic theory argues against some mergers.

Economic theory argues particularly for limiting
horizontal mergers. For horizontal mergers eliminate com—
petitors and since competition is, in a very crucial sense,
a function of the number of competitors in a market, the
logical extension of horizontal merging can be monOpoly
power.

Consider the United State's first and second merger
movements. As was indicated earlier, the first movement
was characterized in several important industries by hori—
zontal mergers aimed at dominating the industry, i.e.
mergers for monopoly power. At the time of the first move—
ment, there was no effective law against monopolizing.

Unlike the first movement, the second did not result
in industry domination by any one firm. Instead it ended

in the oligOpolization of several key industries. While

 

monopolization was by that time barred by the Sherman Anti—
trust Act, there was no legal restraint on the oligopoliza—
tion of an industry through merging. Consequently, a handful
of firms in these industries undertook extensive merger
programs which wrought high structural concentration.38

This experience of American industrial history indi—
cates the need for some sort of antimerger legislation.
Clearly mergers for monopoly are undesirable. And while

oligopoly is a weaker form of monOpoly, it is no substitute

for free markets. Had the United States, since the industrial

 

 

28

revolution, prohibited many of these mergers, it would now
possess an industrial structure far less concentrated than
presently exists.

Of course, not only horizontal mergers can lead to
market power. Vertical acquisitions can also do this
under certain circumstances, namely when the acquiring
firm already possesses market power somewhere in the verti—
cal chain. When this is.the case, vertical acquisitions
can lead to market foreclosure-—remaining non—integrated
firms being cut off from a source of supply or from a
customer for reasons not directly related to their own
efficiency. Vertical integration can provide the leverage

for an anticompetitive price policy designed to discipline

39 Vertical acquisi-

or eliminate the non—integrated firm.
tions are related to horizontal ones in that both can
eliminate alternatives; and the existence of alternatives
is the keystone to a free market.

While market extension and product extension acquisi-
tions do not eliminate competition between direct rivals,
the impact upon free markets of continual merging of even
this sort can be deleterious. As Markham put it:

The merger of two actual competitors may sub—
stantially injure competition in existence today,
while the merger of two potential competitors may
substantially injure competition expected tomorrow.
When two firms produce the same product but in different

geographic markets, each firm lives under the threat of

the other entering his market and competing therein. A

,1"

m
A

 

29

market extension acquisition eliminates this threat. The~
analagous loss of potential competition possible by a
product extension acquisition is obvious.

Just as there is a need for limiting the freedom to
merge when it leads to or results in market power, there is
reason for impinging on this freedom if the impetus and
result are promoters' profits or private managerial gains-—
in the sense of "mergers for promoters" or "mergers for
managers" as outlined earlier in this chapter. The existence

of the former is made possible only through imperfections

in the capital market and will cause a subOptimal allocation
of resources. Similarly, the existence of the latter, with
managers making decisions on a different basis than cost—
revenue considerations, can also lead to a suboptimal allo— .“
cation of resources. Clearly, these stimuli run counter

to economic policy and any mergers based on them should be

checked.

 

And what of efficiency and investment reasons for ‘h
merging? Without doubt, it is in society's interest to
allow, even protect, the right to merge for efficiency
gains. But, as was indicated earlier, one must be skeptical
of how often this occurs.
While the effect of a firm's investment decision to
eXpand by acquisition may seem innocuous enough, here again
one must look behind the decision as one advantageous to

the firm and consider in addition possible effects of this

 

 

30

decision on competition. Business expansion on the surface
is a desirable thing. But expanding by merger, in and of
itself, does not stimulate competition. And as has been

(perhaps tediously) indicated, it can frustrate competition.

The Control of Mergers and
Internal Expansion'

 

It is important to consider the effect on competition
of the alternative to expansion by acquisition, namely
building. Expanding by building new facilities not only
does not eliminate a rival—~it adds capacity to the industry
and, one might hope, downward pressure on prices. In
addition, expansion by building provides a better market
test of allocative optimality than eXpansion by acquiring——
since building means that the firm has either had to go
into the capital market and compete for funds or has been
efficient enough to generate them internally.M1

All too often companies try and leave the impression
that if the merger route to expansion is closed to them,
they will have no alternative way to grow. This is clearly
nonsense. One of the most dramatic examples of this is
found in the proposed Bethlehem—Youngstown merger. Arthur
B. Homer, president of Bethlehem Steel, had the temerity to
tell a Senate subcommittee:

To forbid the proposed Bethlehem-Youngstown merger
would mean that Bethlehem, which today has no
productive capacity in the midcontinent area,
would in effect be prevented from entering the

markets in that area in competition with the many
large steel companies there.u2

._..‘._ ._.-fia—a — _ ._ . . _.

”._. ..

 

 

31

After the proposed merger was enjoined on the ground that
it would eliminate substantial competition in the midwest
steel market, Bethlehem began plans for the construction
of a huge steel producing complex, costing four hundred

“3

million dollars, at Burns Harbor, Indiana. This was built

to serve the supposedly unenterable midwest area. In addi— A

tion, following the decision barring this merger, Bethlehem's

Lackawanna works at Buffalo, New York, which had served the

midwest markets, came in for sixty-one million dollars

worth of modernizationtLlLl 2
Similarly, in cases where companies have been ordered l

by law to sell acquired facilities, it has not been uncommon

for these firms to adOpt the building route to retain their

market position after the merger route to expansion was

blocked and negated.

Mergers and Their Protection

 

_.‘._.—.-._._._._......_-_. ._. . .

Until now it may seem that the case for even allowing L
mergers is, from society's viewpoint, fairly weak. But
there is a very vital reason for not limiting this business .
practice too rigidly. This reason is related to the last
merger incentive considered-—"mergers for sellers."
To be acquired is an important method of exiting from
an industry. Financially, it is far better than exiting
via bankruptcy. To eliminate this possibility of selling
out to a going firm would severely limit the exit market.

Since a totally "new" buyer for a going firm might be

 

 

32

difficult to find, and if it were unlawful to contract a
sale with a going firm, the risk of doing business would
increase. And an increase in risk can only serve to dampen
entry. In short, the ability to exit from an industry
must be protected to enhance the ease of entry. There is
little doubt that an entrepreneur would be more reluctant
to enter a particular industry knowing that if he is
unsuccessful he will be unable to salvage his investment
by selling out to an existing firm.

Therefore, if the enforcement of a prohibition on
mergers were to become too "strict," this would serve to
lessen competition. As Adelman put it:

The ability to sell a business is much like the
ability to sell any other investment-~it is an
inducement to attempt success, and an insurance

against failure. Hence the formatiOn of new
business firms . . . is increased by maintaining

a market for going businesses.

Manne presented another interesting argument for pro—
tecting this right to merge. He argued that the option of
merging provides to the stockholders, unable to effectuate
a takeover, a protection against inefficient management.

If the inefficiency of management is reflected in low
stock prices, the firm becomes a likely acquisition candif
date to a firm with sounder management. Preserving this

"market for corporate control" by allowing this inefficient

firm to be acquired protects stockholders with non—

A6

controlling interests.

 

 

 

33

W
Earlier, the statement was made that the case for
limiting mergers must rest on two demonstrable premises:
(1) that some mergers hindered the operation of free
markets and (2) that these mergers can be singled out.

Few would disagree that the first premise is readily demon-
strable. The second, the actual selection of undesirable
mergers, involves far more controversy. But even here the

argument does not center around the notion of whether the

undesirable mergers can be singled out or not. Nearly

everyone agrees—fin principle——that they can. The disagree—
ment commences when an ”undesirable" merger is selected in
practice! For while the combatants may agree that selection
is possible, the standards they would employ for singling

out deleterious mergers might vary widely.“7 While it is
beyond the scope of this study to elaborate on this issue,
the next chapter will consider the standards which have
been adopted in attacking mergers.

It is only fair to point out what is probably already
obvious. This study rests on the notion that prohibiting
some mergers is desirable economic policy; that doing so
can be an important step in preventing restraints of trade.
Furthermore the study rests on the notion that, while the
cost to society of any particular merger cannot be precisely

calculated, the problem of barring economically undesirable

mergers is not insurmountable.

 

NJ

 

 

FOOTNOTES

CHAPTER I

lMyles L. Mace and George G. Montgomery, Management
Problems of Corporate Acquisitions (Boston: Division of
Research,fGraduate School of Business Administration,
Harvard University, 1962), pp. 9—10.

2Report on Corporate Mergers and Acquisitions,
Federal Trade Commission (1955), p. 87.

3These two terms also will encompass the five struc—
tural categories of business combinations. These are:
1) horizontal mergers, the merging of competitors; 2) verti—
cal mergers, the merging of companies in a buyer—seller
relationship; 3) product extension mergers, the merging of
companies producing products which do not compete directly
but are functionally related in production or marketing;
4) market extension mergers, the merging of companies pro?
ducing closely related products but in different geographic
markets; 5) conglomerate mergers, the merging of companies
not having any of the above relationships.

“Mace and Montgomery, op. cit., pp. 3—4, underlining
mine.

5In this chapter, my debt to the following three
sources will be obvious: Donald Dewey, Mondpoly in Economics
and Law (Chicago: Rand McNally & Co., 19597; chaps. Ilev;
R.B. Heflebower, "Corporate Mergers: Policy and Economic
Analysis," QJE, 77 (November, 1963), pp. 537-558; George:
J. Stigler,_“Monopoly and Oligopoly by Merger,” AER
Proceedings, A0 (May, 1950), pp. 23—34.

6Maximization also requires that marginal costs be’
increasing.

7See Dewey, op. cit., pp. 7—24, for a lucid discussion
of cartel theory.

8Ibid., p. 27.

gstigler, op. cit., p. 28.

lOStigler, loc. cit., pp. 27—31; Jesse Markham, "Survey
of the Evidence and Findings on Mergers," Business Concen—
tration and Price Policy, Conference of the Universities—
National Bureau for Economic Research (Princeton: Princeton
University Press, 1955), pp. 154—167; Ralph L. Nelson, Merger
Movements in American Industry,gl895—l956 (Princeton:
Princeton University Press, 1959), p. 5.

3A

 

 

 

 

’35

11Nelson, ibid., pp. 5 and 3“.

12Markham, op. cit., p. 158; see also Nelson, ibid.,
pp. 100-103.

13But see: Kenneth E. Boulding, "Present Position of
the Theory of the Firm," Linear Programming and the Theory
of the Firm, ed. K.E. Boulding and William A. Spivey (New
York: Macmillan Co., 1960), pp. l—l7; Fritz Machlup,
"Theories of the Firm: Marginalist, Behavioral,Managerial,"
AER, 57 (March, 1967), pp. 1—33; A.G. Papandreou, "Some
BEEIC Problems in the Theory of the Firm," Survey of Con-

tem orar Economics, ed. B.F. Haley (Homewood, Ill.: R.D.
Irwin, 19525, Vol. II, pp. 183—219.

l”As measured by corporate sales or assets.

15McGuire, et. al., found executive compensation more
closely tied to sales than to profits. See J.W. McGuire,
J. S. Y. Chiu, and A. U. Elbing, "Executive Incomes, Sales
and Profits,” AER, 52 (September, 1962), pp. 751—761.

16William Baumol, "On the Theory of the Expansion of
the Firm," AER, 52 (December, 1963), p. 1078.

17John Bossons, Kalman J. Cohen, and Samuel R. Reid,

I "Mergers for Whom——Managers or Stockholders?," Carnegie
Institute of Technology Workshop on Capital Market Equili—

‘ brating Processes, Working Paper #14 (mimeo) April, 1966;
Kalman J. Cohen and Samuel R. Reid, "Bank Mergers for Whom——
Managers, Stockholders, or the Public?," Carnegie Institute
of Technology Workshop on Capital Market Equilibrating
Processes, Working Paper #10 (mimeo) April, 1966.

18M. A. Weinberg, Take—Overs and Amalgamations
(London: Sweet & Maxwell, 1963), p. .

ng. Fred Weston, The Role of Mergers in the Growth
of Large Firms (Berkeley: Univ. of Calif. Press, 1953)5
p. 73 as adapted from J. Keith Butters, John Lintner, and
William L. Cary, Effects of Taxation: Corporate Mergers
(Cambridge: Harvard University Press, 195I7.

20See Heflebower, op. cit., p. 55A; the lower ratio
for the large diversified firm reflects the greater
liquidity of holding shares in the large firm and the
greater certainty of its income stream due to its diversi-
fication.

 

 

 

 

 

 

 

36

21Weston, op. cit., p. 80.

22Nelson, op. cit., pp. 106-124; see also George
D. McCarthy, Acquisitions and Mergers (New York: The
Ronald Press Co., 1963), pp. 3-5.

23Testimony of Willard Mueller in U.S., Congress,
Senate, Subcommittee on Antitrust & Monopoly, Hearings,

Economic Concentration, Pt. 2, 89th Cong., lst Sess.,
March—April, 1965, p. 506.

24lbid., p. 507.

25See Joel Dean and Winfield Smith, "Relationships
between Profitability and Size," The Corporate Merger,
ed. William Alberts and Joel Segall(Chicago: Univ. of

Chicago Press, 1966), pp. 10-11; and Dewey, op. cit.,
pp. 30-31.

26Nelson, op. cit., pp. lO3—1OA.

27Hef1ebower, op. cit., p. 556.
28Weston, op. cit., pp. 62—85, esp. p. 81.
29Markham, op. cit., pp. 180—181.

0
3 Stigler, loco cit.

 

31Michael Gort, "Diversification, Mergers, and
Profits," in Alberts & Segall (eds.) The Corporate Merger,
op. cit., p. 33.

32John Lintner and Keith Butters, "Effects of Taxes
on Concentration,” in Business Concentration and Price
Policy, op. cit., pp. 268—274. The authors clearly indi—
cate that tax considerations have not been a major impetus .
to mergers, concluding that tax considerations often tend V
to accelerate a sale as opposed to causing a sale.

33

 

 

\
McCarthy, op. cit., pp. 1A—15. \

l
3“Ibid., p. 13. \

35Mace and Montgomery, op. cit., p. 33.
36U.S., Congress, Senate, Subcommittee on Antitrust

& Monopoly, Report, Corporate Mergers and Acquisitions,
85th Cong., lst Sess., March, 1957, p. 37.

 

 

37

37Ihid., p. 39.

38This is developed in more detail by George Stigler,
op. cit., pp. 31-33.

39Walter Adams and Joel B. Dirlam, "Steel Imports
and Vertical Oligopoly Power," AER, 54 (September, 1964),
pp. 626—655.

quesse Markham, "Merger Policy Under the New Sec—
tion 7: A Six Year Appraisal, " Virginia Law Review, A3
(May, 1957), p. A97.

 

ulOn the rationale of antimerger legislation, see
Walter Adams and Joel B. Dirlam, "Brown Shoe: In Step with
Antitrust," Washipgton Univ. Law Quarterly, 1963 (April,
1963), pp. 159—162.

MZAS quoted in Joseph W. Burns, A Study of the
Antitrust Laws (New York: Central Book Co., 1958), p. 296.

 

MBWSJ, August 2“, 1965, p. 15.
“MWSJ, June 15, 196A, p. 3.

”5M. A. Adelman, "Small Business—~A Matter of
Definition, " A. B. A. Proceedings,,Section of Antitrust Law, ’>
16 (I960), 28— 29.

 

M6Henry G. Manne, "Mergers and the Market for Corpor-
ate Control," JPE, 73 (April, 1965), pp. 110-120.

uYFor example compare: Heflebower, loc. cit. and
George Stigler, "Mergers and Preventive Antitrust Policy,”
Univ. of Penn. Law Review, 104 (November, 1955), pp. 176-
18A and Report of the Attorney General's National Committee
to Study the Antitrust Laws (Washington, D.C.: U.S.
Government Printing Office, 1955), chap. III.

 

 

 

 

 

CHAPTER II
THE ENFORCEMENT OF THE ANTIMERGER LAW

"Who is the dumb guy in charge of the
Antitrust Division? They approved the
Studebaker—Packer merger and won't approve
the Bethlehem—Youngstown merger. I don't
get it. How dumb can you get?"
—-Letter to Department of Justice
Introduction

In Chapter I, the reasons mergers occur and the
impact of mergers upon competition were examined. From
this examination, the rationale for an antimerger law was
established. The focus of attention now turns to the
enforcement of such a law. The sections in this chapter
describing the mechanics of antimerger enforcement and the
remedies applicable to violations of an antimerger law
provide a necessary background for the detailed examina-
tion of antimerger relief that is to follow in Chapters
III and IV.

To complete this chapter, the judicial standards of
enforcement which.emanate from the developing antimerger
case law are presented. While an acquaintance with this
material is important in understanding the central issue

of this thesis, the reader who is well versed in antitrust

law need only skim, if not skip over, this chapter.

38

 

 

 

 

——’—i

39

The Original Section 7
The magnitude of the first merger movement, and the
inability of the Sherman Act to deter monopolization, led
Congress to single out for curtailment certain trade prac—
tices which had as their effect the promulgation of monopoly.
The manifestation of this concern was.the drafting and
passage of the Clayton Act in 191“.1
The purpose of this act was
. without amending the Sherman Act . . .
to supplement that act by denouncing and
making unlawful certain trade practices which,
while not covered by that act because not
amounting to restraint of commerce or monopoly
in themselves, yet constitute elementp tending
ultimately to violations of that act.
Section 7 of that act dealt with mergers and provided
(in part) as follows:
. . . no corporation engaged in commerce shall
acquire, directly or indirectly, the whole or
any part of the stock or other share capital of
another corporation engaged also in commerce
where the effect of such acquisition may be to
substantially lessen competition between the
corporation whose stock is so acquired and the
corporation making the acquisition . . . or~
tend to cpeate a monopoly of any line of
commerce.
The goal of this law was to stop anticompetitive mergers
in their incipiency-—on the theory it was better to crush

eggs than wrestle snakes.

The Failure of the Original Section 7
It is one of the well—established, oft-documented

conclusions of antitrust scholarship that the inept drafting

 

 

 

 

 

 

 

 

40

of the above law coupled with an unsympathetic judiciary
produced another fiasco in the annals of antitrust.” For,
under the original Section 7, the actual challenging of a
merger was-a rare occurrence. The Antitrust Division
played a "minor role in the administration of Section 7"
prior to its amendment in 1950. From 1914 to 1950, it
filed only £93; complaints and had but one settled in its
favor, that being a case where the Sherman Act was also
violated.5 The Federal Trade Commission tried harder, but~
it too was without much success. From 1927 to 1950, the
FTC filed 31 complaints obtaining only 5 orders.6

In part, the law was weakened by the unintentional

(?!) omission of asset acquisitions from the law; note that

 

the law referred only to stock acquisitions.‘ Consequently,
one legal detour was to consummate an acquisition via the
purchase of assets rather than stock. Of course, this'
alone weakened the law considerably.

But the actual coup de grace was administered by the

 

courts. In 1926 the Supreme Court held that the Federal
Trade Commission had no jurisdiction in a ppppk acquisition,
if the merging companies could exchange their shares before
the Commission filed its complaint.7 A year later, the
Court removed the possibility of the Commission ever
ordering a merger to be undone after its consummation by
declaring that only courts have such equity powers.8 In

193A, the emasculation of the law was completed by the

 

 

 

 

 

 

 

 

 

Al

Court's decision that FTC jurisdiction was lost even if the
stock were converted into assets gfpep a Commission com—
plaint, so long as the conversion took place before the
cease—and—desist order!9 In addition, the standards of
illegality adopted by the courts (and at times the Commis—
sion) were such that the law was no more stringent than the

Sherman-Act!lO

The Agended Section 7
For twenty—nine years the FTC tried to have the asset
loophole plugged. At least twenty bills failed to accom-
plish this. It was for thirty—six years that this ineffec—
tive piece of legislation remained untouched by Congressional
hands. Finally, after a legislative process that can only
cause one to look more favorably upon benevolent dictator—
ships as the optimum form of government, the inadequate
Section 7 was amended.ll
The new law was based on the premise that industrial
concentration was increasing with concomitant deleterious
effects on our competitive system, and that the Sherman Act
and Clayton Act were ineffective in deterring this. Since
the asset loophole and the judicial standards of illegality
seemed to be the central weaknesses in the old Section 7,
Congress enacted this revision:
. . . no corporation engaged in commerce
shall acquire, directly or indirectly, the
whole or any part of the stock or other:

share capital and no corporation subject
to the jurisdiction of the Federal Trade

 

 

 

 

 

42

Commission shall acquire the whole or any
part of the assets of another corporation
engaged also in commerce, where in any
line of commerce in any section of the
country, the effect of such acquisition
may be substantially.to lessen competE-
tion or to tend to create a monopoly. 3

Note that the bill now included asset acquisitions. And,
equally if not more important, the thrust of enforcement
shifted from the relationship of the merging firms pp

competitors to analysis of the markets affected by the

merger.

The Mechanics of Antimerger Enforcement ‘

Most antimerger cases are begun by the Antitrust W!

Division of the Department of Justice or the Federal Trade fl
Commission, both agencies having concurrent jurisdiction. f

over this law. Private suits may also be filed, either for

injunctive relief against an acquisition or to collect y
treble damages if a private party believes itself monetarily I A
injured as the result of an unlawful acquisition. Only i.
those antimerger suits filed by the aforementioned govern— !

ment agencies are of concern in this study.

Both of these government enforcement agencies contin—
ually gather information which might point to unlawful
acquisitions. And both are able to institute an inquiry
into a merger-—either being proposed or already consummated——

should their leads indicate the possibility of a Section 7
Should an inquiry point to a likely Section 7

violation.

 

 

 

 

 

 

 

 

—: i

43

violation, a formal complaint is filed against the
acquisition.

The complaint, of course, does not have the weight
of a finding of law; it represents only a formal charge by
an enforcement agency. The respondent may attempt to show
that the facts as set forth in the complaint are either
incorrect, or that the facts do not support the conclusion
of law drawn in the complaint.

A complaint by the Antitrust Division is filed in
the appropriate district court. An FTC complaint is first
heard by one of the Commission's hearing examiners who acts
in an independent judicial capacity. If the initial
decision of the trial judge or hearing examiner is contested
by either party, it may be appealed. A district court
opinion may be appealed by either party directly to the
Supreme Court. An order of a hearing examiner may be
appealed either by the respondent or by the Commission staff
to the Commission level. An order of the Commission for the
respondent is a terminal order. But a Commission order
against the respondent may be taken to the court of appeals
whose decision may in turn be appealed to the Supreme Court.

The trial process may be eliminated or shortened
through a consent settlement between the government and the
respondent. The consent settlement might be reached before
a formal trial or it might be reached during trial. In an

Antitrust Division suit, the consent settlement must be

 

 

 

 

AA

approved by the court; the Commission must approve a
consent settlement negotiated by FTC staff.lu

Note too that both agencies have procedures for the
advance clearance of mergers. :There is no statutory
authority giving either agency the.power to.issue binding
clearances but for practical purposes an advance, if

granted, gives reasonable security against future govern-

ment~prosecution.

The Remedies
The Federal Trade Commission receives its power to

remedy unlawful acquisitions from Section 11 of the Clayton
Act as amended, under which the Commission may issue orders

. . . requiring such persons to cease and

desist from such violations, and divest

itself of the stock, or other such capital,

or assets, held . . . contrary to the

provisions of section 7.
Section 15 of the same act affords district courts
"jurisdiction to prevent and restrain violations of
(Section 7)" and the Department of Justice the power to

"institute proceedings in equity to prevent and restrain

such violations."16

The Scope of Antimerger Relief
The scope of remedial powers accorded the federal
courts are broad, reinforced heavily by the Supreme Court's
second duPont—GM decision, a decision concerned explicitly

with merger relief. The Court held:

 

 

 

 

 

*7—

A5

Congress would not be deemed to have
restricted the broad remedial powers of'
courts of equity without explicit language
doing so in terms, or some.other strong

indication of intent.

While the above decision represented clear precedent for
broad judicial discretion in forming relief under Section
15, the Court did not then clarify the scope of relief
available to the Federal Trade Commission in its anti-
merger cases.

Remember that in 1927 the Court had held that the
FTC was without power to dissolve an unlawful acquisition;
that such power was a judicial, not an administrative

remedy.l8 But since that time there has been a definite

judicial trend toward giving administrative agencies powers

previously associated only with the judiciary. Presently

 

Justice Stone's dissent in Kodak seems to be the law: in

 

1963 the Supreme Court assured the FTC of its broad remedial

 

 

powers in Section 7 proceedings by stating:

 

 

Congress in 1950 clearly intended to remove
all question concerning the FTC'S remedial
power over corporate acquisitions . . .

 

It will be apparent from the relief orders to be examined

that the opportunity to formulate relief in broad and

 

varying fashion has not gone unnoticed or unused by those

drafting such relief in antimerger cases.

 

Guidelines for Antimerger Relief

This broad discretion in formulating relief orders

affords two opposing possibilities: relief might be

 

 

 

 

 

 

A6

creatively and conscientiously drafted or relief might

become an economic lacuna.

Recognizing the danger of

offering such broad discretion, the Supreme Court has

suggested.some rather efficacious guidelines:

1.

The relief available
is still a question mark.
appears that treble damage
Section 7, they can not be

deterrence to mergers.

Since the Clayton Act is a civil statute, relief
decrees are not to be punitive. "Courts are not
authorized in civil proceedings to punish anti-

trustnyiolators, and relief must not be puni-

tive.

But economic hardship is not to thwart effective
relief for the central issue is the elimination
of a potential or actual restraint of trade.
"Those who violate the Act may not reap the
benefit of their violations and avoid an undoing
of their unlawful projecg on the plea of hard-
ship and inconvenience." 2

In Spite of the breadth of relief powers,
divestiture is to be the prime remedy in anti—
merger cases. "(Divestiture) is simple,
relatively easy to administer, and sure. It»
should always be in the forefront of-a court's

 

mind whep a violation of Section 7 has been
found."2

And the government is to have the benefit of
the doubt in relief formulations. "(Since) the

suit has been a futile exercise if the government
proves a violation but fails to secure a remedy
adequate to redress it . . . once the government
has successfully borne the considerable burden
of establishing a violation of law, all doubts

as to the remedy are to be resolved in its

favor."
in private treble damage suits

Suffice it to say that, while it
suits are available under

relied upon as a source of

26

___l *-
—__. _. . _
———_—._ _ -.—-.-._—.-_«_.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A7

The Standards of Enforcement
The determining of guilt or innocence under the new-
Section 7 centers around the relevant market affected by

the merger. This is logical since the law is concerned’

with anticompetitive effects in some line of cemmerce in

some section of the country. Any "substantial" lessening-

of competition can be determined only in terms of some

relevant market.

The Determination of-a Relevant Market

In its first Celler-Kefauver case, the.Supreme Court
came to grips with the relevant market question and settled
the differences between its broader.duPontecellophane

standard of "reasonable interchangeability" and its narrower

duPont—GM standard of "peculiar characteristics and uses."27

Had the Court adopted the former standard, relevant markets
for Section 7 purposes would be much broader in their scope,

and acquisitions in such markets would not as likely be

found in violation of the law. But in Brown Shoe the Court

Opted for the "peculiar characteristics" test and in so

doing strengthened the government's hand in antimerger

enforcement.2 ReSpondents clearly were not to be able to

circumvent the law by claiming the range of products com-

posing their industry to be so wide that their particular

merger would have only an imperceptible effect on compe-

tition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A8

Two years later the Court added an important footnote
to the above. Section 7 was not to be limited "to compe-

tition between identical products"; just because the.

competition

. . may be called "inter—industry compe—
tition" and is between.products with
distinctive characteristics does not auto-
matically pemove it from the reach of
Section 7. 7

Respondents clearly were not to be able to circumvent the
law by so narrowly drawing relevant markets as to show no
competitive overlap between their products.

Respondents cannot evade the law by showing pppgd
product markets and arguing that their merger is of small
consequence given the breadth of the market; nor can they
evade the law by showing narrow product markets and arguing
that their merger does not involve the union of competing
products. Given the recent posture of the courts, one can
conclude, therefore, that the government will have consid-
erable discretion in selectingthatrelevant market which
best suits its purposes for indicating anticompetitive
effects. And the courts, particularly the Supreme Court,
is likely to require a most persuasive presentation by
respondent's counsel before rejecting the government's rele—

vant market. As one would expect, this inclination of the

judiciary has not gone without notice and critical

comment.3O

 

 

 

 

 

A9

The Structure of the Relevant Market

After the relevant market has been determined, the
central thrust of antimerger analysis focuses on the

structure of that market and the-impact of the merger in

 

question upon that structure. As the Court said in Brown

Shoe:

The market share which.companies may control
by merging is one of the most important~
factors to be considered when determining
the probable effects of the combination on-
effectige competition in the relevant

market.

and in Philadelphia National Bank:
Specifically we think that a merger which.
produces a firm controlling an undue percent-
age share of the relevant market, or results
in a significant increase in the concentration
of firms in that market, is so inherently
likely to lessen competition substantially
that it must be enjoined in the absence of
evidence showing that the merger is not likely
to have anti—competitive effects. ~

In the latter decision quoted, the Supreme Court
reviewed a bank merger which yielded the merging banks over
thirty percent of the market and resulted in the largest
two banks holding over fifty percent of that market.

Mainly on the basis of these percentages, the Court drew
the conclusion that this merger would violate Section 7,
and in so doing established a benchmark: that in the
absence of mitigating circumstances, any percentages of
this magnitude would be proof of a violation.33'

Since that time, the Court has indicated that the

percentage benchmarks can be much smaller and still

 

 

 

 

 

 

 

 

 

 

 

 

 

5O

constitute a violation. In a market.experiencing many
acquisitions, a merger of the third and sixth largest firms
resulting in a combined market share of less than ten
percent of the relevant market was-sufficient.to condemn
the merger under Section 7.3Ll Less than a.month later the
Court strongly reaffirmed this position, holding that in.
another industry displaying a trend.towards.greater con—
centration, the acquisition by the tenth of the eighteenth
largest producer, which resulted in a national market share
of only four and a half percent, was not permissible under
the standards of Section 7.35

This emphasis of the.judiciary-on the structure of the
relevant market, particularly the market shares and the
historical trend of concentration in that market,-is of
signal importance. It indicates an acceptance-by the Court
of the hypothesis, grounded in economic theory, that while
competition may be a function of several factors, it is
most definitely a function of the number and size distri—
bution of the firms in the market; that without a competi—
tive market structure, the benefits of competition cannot
be expected.

The Court's hostility towards advancing concentration
in-markets brought under its Section 7 scrutiny clearly
indicates that the judiciary and the Commission are strongly
influenced by the purported Congressional intent

. . to arrest the trend toward concentration,
the tendency to monopoly, before the consumers
alternatives disappeared through merger . 6

 

 

 

 

 

 

 

 

 

 

 

 

51

Additional Standards of Enforcement

As if to emphasize that the enforcement of the new
Section was to stick to.a ppructurgl approach and not
become bogged down in the swamp of intent, conduct and:
performance standards, a key lower court judgment held:

If the merger offends the statute in any
relevant market then good motives and even
demonstrable benefits are irrelevant and
afford no defense.

To further-strengthen-the government's hand in
prosecuting Celler-Kefauver cases, the Supreme Court
emphasized that-the burden of proving an actual substantial
lessening of competition is not to be placed upon the
government agency filing the complaint. w

Congress used the words "may be substantially It;
to lessencompetition," to indicate that its p .
concern was with probabilities, not certain- V
ties . . .-Mergers with a probable anticom-

petigéve effect were to be proscribed by this- A
Act. '*

 

 

The Court has emphasized that the law is to apply to w'

all types of corporate marriages since one reason for

 

 

Celler-Kefauver was. 4

. . to bring the entire range of corporate i
amalgamations from pure stock acquisitions -
to pure assetpgacquisitions within the SCOpe !

of Section 7. r

 

 

and applies

. . . not only to mergers between actual
competitors, but also to vertical and fl
conglomerate mergers whose effect may tend l
to lessen competition .

 

 

 

 

 

 

52

Finally, apart from the actual anticompetitive conse-
quences predicted from structural analyses, the Supreme
Court has explicitly and without qualification recognized
in the law a social preference for internal growth. In
Philadelphia National Bank we find that

. osurely one premise of an antimerger

statute such as Section 7 is that corporate

growth by internal expansion is socially

preferable to growth by acqu1s1tion.
Conclusion

Celler-Kefauver enforcement has followed a struc—
tural thrust. Questions about market shares, vertical
integration, concentration, elimination of competitors,
and product differentiation have been in the forefront as
key criteria. Supplementing these structural criteria,

close.attention has been paid to anticompetitive practices .3

made ppssible by the market's structure. Such practices

 

 

as reciprocity, vertical leverage, and deep-pocket leverage, '1

made possible by the structure of a market and their use

 

made more likely by mergers within the market, have been i

 

influential factors in damning some acquisitions. A
i
As Book has so well summed it up:

. following the lead of the Supreme Court,
the Commission and the lower courts (are)
increasingly focusing on the question of where
and how competition might be lessened as the,
result of an acquisition as they, in effect,
inquired over and over: who can get hurt, l
where, how and how much? 2 !

 

 

 

 

53
FOOTNOTES
CHAPTER II

138 Stat. 731 (191A).

2U.- S., CongressionalRecord, 51:1A, p. 138A8, quoted
in David D. Martin, Mergers and fHe Clayton Act (Berkeley:
Univ. of Calif. Press, 1959), p. AA.

3A legislative history of the original Section 7 can
be found in Martin, ibid., chap. 2.

A

See for example: WilliamA. Carter, "The Clayton
Act, Original Section 7: Re-examination and Reappraisal,"
Antitrust Bulletin, 8 (March-April, 1963), pp. 187—225.

5Martin, op. cit., pp. 205 and 201.
6Martin,-ibid., p. 1A9.

7Thatcher Mfg. Co. v. FTC, 272 U. S. 55A (1926).

8FTC v. Eastman Kodak Co., 27A U. S. 619 (1927).

9Arrow-Hart & Hegeman Electric Co. v. FTC, 291 U. S.
587 (193").

10Martin, op. cit., pp. l35-1A6.
116A Stat. 1125 (1950).

12Legislative histories of amended Section 7 can be.
found in: Martin, op. cit., chap. 7; "Note, Section 7 of
the Clayton Act: A Legislative History," Columbia Law,
Review, 52 (June, 1952), pp. 766-781; Charles F. Phillips,
Jr. and George R. Hall, "Economic-and Legal Aspects of
Merger Litigation, 1951-1962," Univ. of Houston Bus1ness
Review, 10 (Fall, 1963), chap. II; MiltonHandler and
Stanley D. Robinson, "A Decade of Adminlstratlon-of the
Celler—Kefauver Antimerger Act," Columbia Law Rev1ew,
61 (April, 1961), pp. 652—678; Brown Shoe Co. v. U. S.,
370 U. S. 294 at 311-323 (1962).

136A Stat. 1125 (1950).

 

 

 

r—fl' —~. ”._.—._. ._.. .,.

 

 

 

 

 

 

 

5A

1"For outlines of Section 7 enforcement mechanics,
see: Betty Bock, Mergers and Markets (3rd ed.; New York:
The National Industrial Conference Board, July, 196A),
pp. 6—10; "Aspects of Divestiture as an Antitrust Remedy-
Comment," Fordham Law Review, 32 (October, 1963), pp.l39-
1A2; "Government Agency Profile-—the FTC," Mer ers &
Acquisitions: The Journal of Corporate Venture, 1 (Spring,
1966), pp. 76-78.

1538 Stat. 73A (191A), 15 U.S.c. 21 (196A).

l61b1d.

 

 

17U.S. v. E. I. duPont de Nemours & Co., 366 U.S.
316 at 328 (1961); see also International Salt Co. v. U. S.,
332 U.S. 392 at AOO-AOI (19A75.

l8FTC v. Eastmaanodak, loc. cit.

 

 

19For a tracing of this trend, see: Michael
Stepanek, "Implied Powers of Federal Agencies to Order
Divestiture," Notre Dame Lawyer, 3A (August, 196A), pp. 581—

 

 

 

593.

2OU.S. v. Philadelphia National Bank, 37A U.S. 321 at
3A8 (196377

ZlULS. v. duPont, op. cit., p. 326.
(lguu)22gp§. v. Crescent Amusement Co., 323 U.S. 173 at 189

23Divestiture requires the defendants to sell certain
properties, securities or assets; dissolution requires the
separation of a business into two (or more) parts; divorce—
ment is the result of divestiture. These three terms, the
"three D's" of antitrust enforcement, are for practical pur—
poses'synonomous. In this study, the term "divestiture”
will-predominate.

2”U.S. v. duPont, op. cit., p. 331.

2516101. at 323 and 33A.

 

26Thomas F. Daly, "Current Trends in Relief Under
Clayton Act Section 7," Dickinson Law Review, 70 (Fall,
1965), pp. 6—10; ”Note, Availability of Divestiture in
Private Litigation as a Remedy for Violation of Section 7,"
Minnesota Law Review, A9 (December, 196A), pp. 267-283;
"Analysis, Treble Damages Under Section 7 of the Clayton
Act,” BNA Antitrust & Trade Regulation Report, No. 227,

 

 

p. B-l.

 

 

 

 

 

 

 

 

55

27Of. U.S. v. E. I. duPont de Nemours & Co., 351
U.S. 377 at 395 (1956) with U.S. v. E. I. duPont de Nemours
& Co., 353 U.S. 586 at 593—9A (1957).

28Brown Shoe Co. v. U;§., op. cit., pp. 325—326.
Brown also served to affirm this test as used in two key
lower court government victories: ULS. v. Bethlehem Steel
Cor ., 168 F. Supp. 576 (1958) and Crown Zellerbach v. FTC,
29 F. 2d 800 (1961), cert. denied 370 U.S. 937 31962).

29U.S. v. Continental Can Co., 378 U.S. AAl at
A52-53 (196A). In this case the competing products with
distinctive characteristics were glass and metal containers.

30See Paul W. Cook, "Merger Law and Big Business: A
Look Ahead," New York University Law Review, A0 (October,
1965), pp. 710-72A and Milton Handler, "Mergers" in "Recent
Antitrust Developments," Michigan Law Review, 63 (November,
196A), pp. 67—78.

31Brown Shoe Co. v. U.S., op. cit., p. 3A3.

 

 

32U;§. v. Philadelphia National Bank, Qp. cit., p. 363.
331919., pp. 364-365.

3MQLS. v. Von's Grocery Co., 38A U.S. 270 (1966).
35pps. v. Pabst Brewing Co., 38A U.S. 5A6 (1966).
36U.S. v. Philadelphia National Bank, op, cit.,

p. 367; see also Brown Shoe Co. v. U.S., op. cit., pp. 301
and 332.

 

 

37U.S. v. Bethlehem Steel Corp., pp. cit., p. 617.
38Brown Shoe Co. v. U.S., op. cit., p. 323.
39U.S. v. Philadelphia National Bank, op. cit., p. 3A2.

uoBrown Shoe Co. v. U.S., op. cit., p. 317.

 

“1U.S. v. Philadelphia National Bank, op. cit., p. 370.

"2Betty Bock, op. cit., p. 89.

 

 

 

 

CHAPTER III

THE EFFECTIVENESS OF CELLER—KEFAUVER RELIEF

After more than a decade of case by case
interpretation, section 7 has proved a

very potent weapon against concentration.l'

The Theory of Effective Relief

The legal standards of Celler-Kefauver enforcement
have been essentially structural in their thrust as was
indicated in the last chapter. This has important impli—
cations for the type of relief which should follow anti—
merger cases. For once the structural standard is accepted
as the proper method of predicting the anticompetitive
effects of an acquisition, the type of relief required for
violations of this standard is thereby determined.

The structural enforcement standard requires struc-
tural relief; indeed it could not be otherwise. Adopting
the structural standard means that an anticompetitive acqui—
sition is not condemned because of the "intent” of those
making the acquisition; nor is it condemned because of some

demonstrated or predicted impact on the firms' performance.

 

It is condemned because the acquisition will (or is likely
t0) afford the acquiring firm additional market power
through its controlling a larger share of a particular

market or its gaining the ability to exert leverage in other

56

 

 

 

 

 

57

markets. Since the offense stems from a change in the
structure of a market, the relief must endeavor to change.
that structure.

Whenever an anticompetitive increment in market power
is attained by the-merger route, structural relief requires.
the restoration of the acquired firm through a divestiture
order. Only this sort of relief strikes at the very.
structure of the markets involved. Injunctive-relief, i.e.
some form of order directing the acquiring firm to behave
as if it did not gain this market power, is clearly unaccept—
able. Indeed placing such a regulatory role on the govern—
ment is repugnant to the whole concept of antitrust.

Equally repugnant would be to do nothing—~to allow the
increased market power to remain untouched. To-repeat:

if all markets prior to an anticompetitive acquisition were,
by structural standards, workably competitive and subsequent
to the acquisition are not, these standards require divesti—
ture of the acquired firm so that the markets affected are
returned to their premerger, workably competitive status.

But disgorging the acquired firm from its acquirer is
only a necessary, not a sufficient condition, for enacting
effective relief. Along with re—establishing the acquired
firm, it is also necessary that this "new" firm be made
viable; a mere shadow of its former self is not acceptable.

Indeed, re-establishing 'new" firms that are unable to stand

on their own would make any relief efforts farcical.

 

 

 

 

 

 

58

A theory of effective antimerger relief would enable
one to predict whether the harmful effects of an acquisition
would in fact be null and void, post—relief. When the
acquired firm is re—established as an independent, viable
firm such a prediction can be made.

A pure theory of effective relief might add a third
condition to the above. As long as an anticompetitive
acquisition remains consummated, the incremental market
power can be used by the acquiring firm. Consequently,
effective relief is also a function of the time required to
re-establish the independent, viable firm. The quicker the
independence and Viability relief criteria are met in a
given anticompetitive acquisition, the more satisfactory is
the relief. Relief which immediately re—established the
acquired firm as a viable independent without its acquirer
ever having the opportunity to exert his newly-gained market
power would be effective relief in its purest form. Of,
course stopping an anticompetitive acquisition before

consummation would be an example of relief par excellence.

The Methodology of Pure Relief
If the effectiveness of relief is predicted from these
three factors—~independence, viability and time——the method—
ology of a study of the effectiveness of relief under the
Celler—Kefauver antimerger law would seem quite simple. A
random sample of successful government antimerger cases

would be selected, analyzed and the relief judged effective

 

 

 

59

if the acquired firm were now operating again, if it were
viable, and.if the acquiring firm.were unable to exert its
incremental market power for any significant time period.

The test of independence would require-that the "new"

 

firm be rechartered as a "new” corporation,.free of all
interlocking directorates, financial ties and-managerial
relations with its_former parent, and not.engaged in

collusion with parent.or rivalsrvin short, that an.inde—

pendent center of initiative bere—estab’l‘i'Shed.2

The Test of Survival

 

The viability of the.new firm can best be tested by

 

its survival. An inefficient or noneviableifirm_simply
will not-survive. In-the long run, survival or death is«
its own measure. In-the short run, profits are.an indi—
cator of survival. Without profits a firm will eventually
fail, for.barring subsidization, firms cannot long operate,
at a loss.

Testing viability.by survival avoids the obvious pit—
falls of the interview method in-evaluating a firm's-via—
bility as well as the numerous difficulties found in
Judging viability by some sort of optimum size method based

3

on engineering or accounting data. Instead the profit-of

the "new" firm would be considered as the indicator of its
viability.Ll
Testing viability by survival avoids the possible,

error of predicting satisfactory relief solely from the

Wm“). ‘7‘-” r1—
. ‘ . : -4...2.: ‘ ‘ t v

 

 

 

 

 

 

IIIIIIIIIIIII7________________________——r7
60

H H

observation that the new firm has been restored-to its
"original" condition. Actually, restoration which only
mirrored the firm at the time of its acquisition could be
far from satisfactory. For if the acquisition had been
consummated some time prior to the structural relief, the
"new" firm, restored to its "original" condition, would
likely be an outmoded one, either in a technological or
marketing sense. Such a defective restoration would soon
manifest itself in unsatisfactory profits and probable
failure.

Similarly, the survival criterion requires that the
parent divest all the key elements of its acquisition. For
retaining important assets or personnel would result in

"new" firm.

unsatisfactory profit levels for the
There are some procedural problems in the methods
ology with respect to viability. How large must profits
be to constitute a viable firm? How long must the firm
survive to be considered viable? Observers might differ on
the margins and time span they considered acceptable. In
general, the trend of profits is a better indicator of
viability than some specific level of profit. If a re—
established firm has been in existence for five years with
declining profit levels each year and now earns less than

government bonds, relief has failed. If profit levels are

 

increasing or remain steady at a rate above this bond rate

for five years, this indicates the relief has been

 

 

 

 

 

—: r
61

successful by the Viability criterion. Five years from the
date of restoration seems to be a reasonable time period

to expect survival. A business failure after this time will
probably be due to factors other than weaknesses in the
relief decree.

How long can an acquisition remain consummated prior
to the unraveling, and still have the relief be judged
successful? A purist might argue: no more than one year.
Those working in antitrust, for whom the vagaries and delays
of antimerger enforcement are closer to home, might argue to
the other extreme: if the independence and viability

criteria are met, the relief has been successful.

The Methodology Reiected

 

It would seem the methodology for such a study would
flow neatly from the theory of relief. Since effective
relief is predicted from observing three phenomena——inde—
pendence, viability and time—-one would only have to take
a particular case, ascertain if the acquired firm is now
back in business for itself; if_so, study the trend or

level of its profits since restoration; and, if a purist,

 

consider how long the acquired firm remained under its
parent's tutelage before the state revoked the right of
custody.

Those familiar with research in antitrust realize

 

that the field seldom lends itself to such neat research

patterns. And, alas, antimerger relief is no exception to

 

 

 

62.

this general rule. As it turns out, relief decrees seldom
result-in-truly independent firms. And without independent
firms, and their profit statements, there can be no easy
survival tests.

Consequently, a study adhering to pure relief
standards would find almost all relief orders unsatis—
factory--since the first-criterion would not be met via thev
re—establishment of an independent center of initiative.
As,a result, survival data, in fact not even available,
would not apply to an independent firm. This leaves only
the third, and probably least important, criterion for
which data are available: the time period during which the

acquisition remained consummated.

The Methodology of This Study

 

Since the main concern in the relief problem is the
fate of the acquired assets, and since, as it turns out,
this fate takes on different forms and shapes in almost
every relief order, the data seem to dictate a case-by-case'
approach. There are two pitfalls to avoid in using this-
approach. The repetition of cases can make for dull reading.
And the emphasis on description presents the risk of
excluding a central analysis to draw the cases together.

To avoid the first pitfall the actual case descriptions
have been confined to an appendix, Appendix A, easily
accessible to the interested reader but as easily avoided by

others. And to draw the cases together,a continuum of

 

- _ ...._..._ .
.. ._.___..,____.._ ._.—nu” J.-

 

 

 

 

 

 

63

relief has been developed to give an overview of antimerger
relief. The cases to be examined will be dropped into the-
categories on the continuum; the criteria which determine
placement on the continuum are the centralizing influences

tying the cases together.

The Sample

 

The sample of merger cases to be evaluated is drawn
from the universe of all amended Section 7 cases filed by
the government since the law's inception through the
calendar year 1960, which have been settled either by consent
order or decided for the government by the end of calendar 1
year 196A. These cases can be found in Exhibit I at the end
of this chapter. Eliminated from this group were the following:

1. those cases with "regulatory" aspects, i.e., any

case dealing with the merger of banks, utilities

or cooperatives

 

 

 

2. those cases for which sufficient data were not ‘h
available to enable a classification. t

The government had filed eighty—one antimerger cases by 1960.

 

 

Forty—two of these were either still pending by 1965, were
drOpped or settled for the defendant, or were eliminated
because of data problems or regulatory aspects. Thirty-nine

cases, then, constitute the sample.

The Continuums

 

These 39 cases have been placed on two four—category
continuums. See Exhibits II and III. Exhibit II differs

from Exhibit III in one important respect. In Exhibit 11,

 

 

 

6A

only the criteria related to structure and viability are
considered in the evaluation. If the relief took place X
number of years after.the anticompetitive acquisition was
consummated, no weight is given this factor in the construc-
tion of Exhibit II.

But in Exhibit III, the time required to attain-
structural relief is taken into account in evaluating the
samplecases. In a sense then, Exhibit III is for the
purist. Including the third element of the tripartite
relief criteria, the time span from acquisition to relief,
will lower the classification of some cases. For example,
the Owens-Illinois case, DEFICIENT by the relief standards
of Exhibit II, becomes UNSUCCESSFUL in Exhibit III due to

the-lengthy time the merger remained intact.

Exhibit II

 

The SUCCESSFUL Relief Category

For a relief case to qualify for the SUCCESSFUL
category, the acquired firm must be re-established as an
independent firm, or the anticompetitive effects of the
acquisition must be stopped in their incipiency so that no
restoration is necessary. Since our concern here is with
the source of control of a bundle of assets, the criteria
for a SUCCESSFUL classification in an anticompetitive stock
acquisition is similar: the stock must be divested in such

a manner that the bundle of assets it represents is no

 

 

 

 

 

 

 

 

 

65

longer controlled by the acquirer nor sold to another
purchaser_with similar anticompetitive effects.

In this category one can sometimes obtain profit-
and loss data to check on the viability of the divested.
firm. But at times one has to rely on some other indicator
of viability such as a Dun & Bradstreet rating of financial
strength.

What constitutes an independent purchaser? For the
purposes of the SUCCESSFUL category,aapurchaser of the.
divested firm, a-satisfactcry independent, must be some.
individual, group, or corporation able to provide adequate
financing and who (or which) has (have) no ties, either in
a horizontal or vertical sense, with the industry of the
firm being acquired in compliance with the relief order.

The general principle for classification in this category.
is that-a viable center of initiative be re-established-
with no loss of-competition, actual or potential, in the
process.

I would add another requirement to this category which
would deem certain divestiture orders as less than SUCCESSFUL-
even though no loss of actual or potential competition can
be shown. Certain conglomerate divestitures present the,
case in point.

In-a very real sense eyery SUCCESSFUL structural
relief order results in'a conglomerate acquisition. For the

restoration of'a once—acquired firm requires that someone

 

 

 

 

66

buyiand own the bundle of assets acquirediin the anticom-
petitive~acquisition. 'Inrorder.togpurchaseflthist"new" firm,
the purchaser must already have assets in some (assumedly)
income—producing endeavor. .In the SUCCESSFUL category, the
purchaser does not, by definition, have monetary interests
in some.field related horizontally_or vertically to.the'
"new" firm. Therefore the purchase will be a conglomerate
one.

But some would argue there is;a significant difference.
between Individual X whose money is in,.say, paper.converting.
buying a to—be—divested brewery and Corporation XYZ, one of
the largest manufacturing corporations in the country (but!
not engaged in brewing).buying the same.to—be—divested;
brewery.. And some others would argue: 'there is no meaning—
ful difference between the two purchasers since divestiture
to either one would not affect competition inbrewing.5

I-am more impressed with the arguments against conglom—

erate divestiture to "large" corporations—-particularly in

the context of Section 7, a statute intended to arrest

 

industrial concentration. There is actually not a great

deal known about the impact on competition of large conglom—
erate firms. But_until evidence is presented which indicates
that-conglomerates do not possess leverage, sui generis, in
this study divestitures to large conglomerates will be

dropped into the SUFFICIENT category.

 

 

 

 

 

67

Brandeis' wisdom, as so often seems to be the case,
still merits attention:

Concentration of power has been shown to
be dangerous in‘a democracy, even though
that power may be used beneficently. For
instance, on our public highways we put a
limit on the size of an autotruck, no
matter how well it is run. It may have
the most skillful and considerate driver,
but its more size may make it something
which the community cannot tolerate, in
view of the other uses of the highway and
the danger inherent in its occupation t8
so large an extent by a single vehicle.

How does one delineate between conglomerate divest-
iture to the eligible independent of the SUCCESSFUL
category and the ineligible conglomerate of the SUFFICIENT
category? No easy answer can be given other than "by the
size of the conglomerate." For example, any divestiture
order which is met by restoring the acquired firm into the
conglomerate folds of an occupant of Fortuneis tOp 200
manufacturing or top 50 merchandising firms would be

SUFFICIENT.

The SUFFICIENT Category

In this category are placed those cases where the
relief orders probably satisfy those charged-with-enforcing
Section 7; only the purist would loudly clamor for more.
Basically what drops a case from SUCCESSFUL to SUFFICIENT
is a degree of difference in the independence criterion.
The viability criterion for the restored firm is assumed

to be the same for either category. But in the SUFFICIENT

 

 

 

 

68

category a true independent center of-initiative has not-
been restored. Instead the unlawfully acquired firm has
been divested in one of four ways:
1. sold to a "small" horizontal competitor
2. sold as a vertical acquisition but with no-
foreclosure problems
3. sold as a market or product extension
acquisition with no obvious loss of potential
competition
4. sold as,a conglomerate acquisition-to a "very
large-firm."
There are obvious problems with the indefinite nature.
of the above. What constitutes a "small" competitor? A
vertical acquisition "with no foreclosure problems"? An W
"obvious loss of potential competition"? Unfortunately no I
quantitative answer.can be given to.these questions; for ' If
example, one cannot classify all firms with assets of less #
than X number of dollars as "small." These questions will
have to be answered in the context of particular markets. A
As a general guide, a "small" horizontal competitor '
would never be one of the ten largest, by_assets or sales,
in a relevant geographical market. Absence of vertical
foreclosure should, at a minimum, meet the requirement that-
the acquirer has-less than-ten percent of the vertical
market. No divestiture of a market or product extension

variety is SUFFICIENT where the acquirer of the "restored"

 

 

 

69

firm has ever shown any intent of making such a move

internally or is a sizable firm in the industry, financially

capable of making such a move internally.

The DEFICIENT Category

This category essentially includes those cases with

one "hole" in the relief decree. An example would be a

series of anticompetitive acquisitions in which only a
partial divestiture of the acquired firms was secured by the
government;-or where the assets were sold in such manner
that an obvious loss of potential-competition resulted. i
Also included is a case where the structural relief borders H
on SUFFICIENT but a complex marketing order, if enforced, H
leaves a "hole" in the case condemning it to a lower rung.7
In short, the DEFICIENT category is basically for
cases where the government secured structural relief, but

where it was either not fully sufficient or the assets fell

into less than desirable hands. Again, as in the previous

two categories, viability of the "restored" firm is assumed
for inclusion in this category.

The UNSUCCESSFUL Relief Category
The category of UNSUCCESSFUL cases includes the

following:
1. no relief whatsoever

2. no structural relief, only a ban on future

acquisitions

 

 

 

 

 

7O

3. insignificant or do minimus divestiture, not-
striking at the heart of the restraint

A. relief takes the form of a marketing order

5. relief is a combination of 3 and A

6. divestiture to a significant horizontal

competitor

vertical divestiture with foreclosure problems

7.
8. divestiture of a non—viable firm.

In the DEFICIENT category, "partial divestiture" was

mentioned; in this category the term "de minimus dives—

titure" was used. What differentiates a full divestiture

from a partial from a do minimus? Can a full divestiture

 

be defined as a divestiture of 75 to 100 per cent of the r
f

anticompetitive acquisition, a-partial as 75 per cent or
For the

less, and do minimus as 10 per cent or less?

—- —— 'I.....-— ._
_—___._H__._ :
fi‘.“

present time this whole issue of what constitutes a satis-

factory or unsatisfactory partial divestiture will be put

._--.- __
-_.-H.-.—

off. This is not to diminish the importance of the issue.

Indeed, the divestiture of only a "part," of only certain

selected lines of commerce from an acquired firm, is a

significant problem in antimerger relief. But its consider—

ation has been deferred to Chapter IV where it can be placed

in context with certain obstacles to effective relief.

Suffice it to say at this point that there can be structural

relief which does not fully strike at the restraint or else

does so to an insignificant degree.

 

 

 

 

71

Conclusions from Exhibit II

In a general sense, what conclusions can be drawn from

the continuum in Exhibit II? The first observation is that

relief is not an all black or white situation. There have

been successful relief decrees; there have been failures;

and some fall in between. But the next observation would

probably be that of the predominance of UNSUCCESSFUL and

DEFICIENT decrees. Of the 39 cases, a; relief orders are

UNSUCCESSFUL and 8 DEFICIENT. Approximately three—fourths
of the cases rank on the bottom two rungs.

For those cases in the sample for which data are
available, the FTC filed complaints against acquisitions
totaling $665,927,000 (19 cases); the Department of Justice .
filed complaints against acquisitions totaling $A66,028,000 A

i

(13 cases). A total of 1,131,955 dollars. ;.

The total value of asSets divested in the FTC sample - y
l
E

cases, again where the figures were available, was

$128,809,000; the comparable figure for the Department of

Justice was $199,085,000. A total of 327,89A,OOO dollars.8 i

For those cases in the sample for which the data are
available, the government issued complaints against acqui—

sitions worth 1.13 billion dollars; 327.9 million dollars

worth of assets were divested from this group. For the

curious, this is a combined "batting average" of .290.

 

 

 

 

 

72

Exhibit III

Turn now to Exhibit III. Remember that the time

criterion now has been added as a further evaluative

measure. Here those cases in which structural relief took

at least three years to be enacted from the time of the

acquisition have been dropped one rank from their classi—

fication in Exhibit II and marked with a footnote "1."

Those cases in which five years or more elapsed since the
date of consummation to the date of dissolution have been
dropped two categories and branded with the footnote "2.”
Of course there were some cases already in the UNSUCCESSFUL
category which would be further condemned by adding the

time criteria——eight in all—-but there is no lower category

inwhich todrop them.

A glance at this Exhibit provides no gray area. The

first three ranks of the continuum have been decimated, now

holding less than one quarter of the cases. The last

category is full to the brim. Of the four cases remaining

in the SUCCESSFUL—SUFFICIENT categories, three involved

acquisitions stopped in their incipiency before full consum—

mation so no divestiture was actually necessary; the other

was a stock acquisition. This points to the difficulty

of unraveling acquisitions after their consummation.

Average Time Spans
The FTC cases in the sample had an average time of

19.0 months from the acquisition to the FTC's complaint.

 

 

 

 

73

For.those Commission cases which ended with some form of~
divestiture, the average duration from—acquisition~toi

divestiture was 67.5 months!

The Department of Justice fared somewhat better. For

those cases in the sample, the average time span-from-the

acquisition to the complaint-was 10.6 months., Where the-

Antitrust Division secured some form of-divestiture in

these cases, the average_period-from the acquisition to-the

structural relief was 63.8 months!
In short, for those cases represented on the contin—
uums for which the government secured some structural relief, .

the average number of months from the acquisition to the
9

divestiture was 66.0——or five and one-half years.
Conclusion
In this chapter the_goa1 was not to reach a conclusion-

as such, but rather to present an evaluation of relief for

a selected sample of antimerger cases. The data do indicate

however that Section 7 relief, at least for this sample,
could not be branded a glowing success by the criteria of

the first continuum and could not be branded anything but a

failure by the criteria of the second. The reasons behind

relief failure will be eXplored in the following chapter.

 

 

 

 

 

 

7A
FOOTNOTES
CHAPTER III

1Thomas F. Daly, "Current Trends in Relief under
Clayton Act Section 7," Dickinson Law Review, 70 (Fall,

1965), p. 2.
2The concept of independence will be considered
again in Chapter IV.

3See Milton Friedman, Price Theor. (Chicago:
Aldine Publishing Co., 1962), pp. l36-1A7; T. R. Saving,
"Estimation of Optimum Size of Plant by the Survivor
Technique," QJE, 75 (November, 1961), pp. 569—607;
George J. Stigler, "The Economies of Scale," Journal of
Law and Economics, 1 (October, 1958), pp. 5A—57.

”I am well aware of the problems involved in defining
and measuring profit. However in a broad study of relief
success in antimerger cases, the accounting profit would

suffice to indicate a firm's viability.

5For good statements of the two divergent viewpoints,
compare: Corwin D. Edwards, "Conglomerate Bigness as a
Source of Power," Business Concentration and Price Policy,
Conference of the Universities—National Bureau for Economic
Research (Princeton: Princeton Univ. Press, 1955), pp. 331—
352 and George Stigler, "Mergers and Preventive Antitrust
Policy," Univ. of Pennsylvania Law Review, 10A (November,

1955), pp. l78-18A.
6Louis D. Brandeis, The Curse of Bigness, ed. 0. K.
Fraenkel (New York: The Viking Press, 1935), p. 80.
7The concept of the marketing order will be taken up
later in Chapter IV.

8See Appendix B.

9See Appendix C for a breakdown on these figures.

 

 

75

EXHIBIT I

Department of Justice and Federal Trade Commission Celler—Kefauver cases
rought through 1960 and either won by the government
or settled by consent by 1965.

Year of Termination

 

Case No.1 Year of Filing Defendant

l7—DJ 1955 Schenley Industries 1957
18~DJ 1955 General Shoe Corp. (now Genesco) 1955
l9-DJ 1955 Hilton Hotels Corp. 1960
20—DJ2 1955 Minute Maid Corp. 1955
21—DJ 1955 Brown Shoe Co., Inc. 1962
22—DJ 1956 American Radiator' 1960
23—DJ 1956 Continental Can-Hazel Atlas 196A
25—DJ3 1956 Maryland & Virginia Milk 1960
26—DJ 1956 Owens—Illinois 1963
27—DJ 1956 Bethlehem Steel 1958
28—DJ3 1957 El Paso Natural Gas 196A
29—DJ 1958 Lucky Lager Brewing 1958
3l—DJ2 1958 National Alfalfa 1962
33-DJ 1958 Anheuser—Busch 1960
35—DJ 1959 Jerrold Electronics ‘ 1961
36—DJ 1959 Hertz Corp. 1960
38~DJ 1959 Diebcld, Inc. ' 1963
A2—DJ2 1959 National Homes Corp. 1962
113-111“ 1959 Standard 011 of Ohio 1960
A7—DJ 1960 Gamble—Skogmo 1960
A8—DJ 1960 Maremont Automotive 1960
52—DJ 1960 Ryder System, Inc. 1961
53—DJ 1960 American Cyanamid 196A
16—FTC 195A Crown Zellerbach Co. 1962
17—FTC 1955 Farm Journal 1956
lB—FTC 1955 Union Bag & Paper Corp. 1956
l9—FTC 1955 A.G. Spalding & Brothers 1962
21—FTC 1956 Scovill Mfg. CO. 1956
22-FTC 1956 Brillo Mfg. Co. 196A
23-FTC 1956 Scott Paper Co. 196A
25—FTC 1956 The Vendo Co. 1957
26—FTC 1956 National Dairy Products Corp. 1963
27—FTc2 1956 The Borden Co. 196A
30—FTC 1956 International Paper Co. 1957
3l—FTC 1956 Gulf Oil Corp. 1960
32—FTC 1957 Automatic Canteen Co. of America 1955
33—FTC 1957 Union Carbide Corp. 1963
3A—FTC 1957 National Sugar Refining Co. 1962
37-FTC 1957 Reynolds Metal CO. _ 1962
”O—FTC 1958 Diamond Crystal Salt Co. 1960
A3—FTC2 1959 ABC Vending Corp. 196A
AA—FTC 1960 Simpson Timber Co. 1962
“7-FTC 1960 Continental Baking Co. 1962
51—FTC 1960 Minnesota Mining & Mfg. Co. 1961
5A—FTC 1960 Hooker Chemical Corp. 1961
56—FTC 1960 Leslie Salt Co. 1961

 

lCase Numbers refer to those used in the Merger Case Digest of the American Bar

gzgociation, Section of Antitrust Law, Revised Version, January 1, 196A, pp. 3-A and
—270.
\ 2These five cases were drOpped from the sample since sufficient relief data were
not available to enable their classification on the continuums.

3These two cases, though won by the government at the Supreme Court level, were
dropped from the sample for reasons outdined in the tax .

u .

This case, Standard Oil of Ohio, is included in the sample. Though ltldoes not
represent a legal victory for the government as such, since the case was dismissed,
Constitutes an economic victory since the dismissal was pursuant to a stipulation barring

Sohio's Proposed acquisition of Leonard Refineries.

 

 

 

 

 

 

 

76

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CHAPTER IV
THE REASONS FOR INEFFECTIVE RELIEF

Dissolution is not a solution; it is merely
a delusion. Current events-are making this
perfectly plain to everyone.1

A Short Prelude on the Relief Problem

To find that the government has been unable to obtain
effective relief in many of its antimerger cases is unlikely
to surprise those acquainted with the history of the relief
obtained in antimonopoly enforcement. To-them the recent
lack of success could be plausibly explained as simply an
extrapolation of an historical trend. Dewey stated that
". . . it is a commonplace in antitrust work that the govern—
ment wins the opinions and the defendants win the decrees."2
While the former has not always been the case, for the
government has suffered legal setbacks in the past, the
latter position seems well documented.

This inauspicious trend began with the government's
first important Sherman Act "victory" in the Northern
Securities case.3 The relief ordered was to dissolve the
Northern Securities holding company and separate the Great
Northern Railway Company from the Northern Pacific Railway
Company. Commenting on the effect of this decree, the

financier Hill is to have said:

78

 

 

 

79

Two certificates of stock are now issued
instead of one; they are printed in
dlfferent cglors, and that is the main
difference.

So it was the trend began.

Seven years later-the Supreme Court specifically and~
fully approved dissolution decrees in both the oil and
tobacco trustvcases.5 These decisions were much heralded
coming at a time-when public antimonopoly feeling was.
rather strong. President Taft said this about the tobacco
decision:

I venture to say that not in the history
of American law has a decree more effective
for such a purpose been entered by a court
than that against the Tobacco Trustt
Relative to past decrees, the President may have been
correct but more perceptive men like Brandeis added:
The decision was wholly unsatisfactory.
Under the plan approved by the court the
tobacco company Will-be in a better position
than it was before the . . . suit . . .
because it can do in the future under the.
legal sanction of the decree, the things
that had heretofore been considered in
violation of the law°

The reluctance of the Court to establish a sufficient
number of new rivals and the resultant strong community of
interest that remained in the industry made these decrees,
as well as several that followed, nothing but paper tigers.8
So it was the trend continued.

The courts' aversion to order structural relief has

even affected, however subconsciously, its ability to find

an antitrust violation--thereby neatly eliminating the

 

 

 

80

relief problem. Handler described one incident of this in
his well-known TNEC monograph:
Indeed, one cannot read the opinion in the
Steel case without obtaining the firm
impression that the Court's apprehension of
the adverse effects of dissolution were in
part responsible for its doubtful construc-
tion and application of the law.

The increase in antimonopoly activity which began
shortly before World War 11 did not distinguish itself as
a time of effective relief. Adams labeled the Justice
Department victories of this time as "pyrrhic" because
of the lack of meaningful relief.10 Goldberg found the
same situation to prevail in his analysis of antitrust
consent decrees.ll Verily, the powers that be have shown
their preference for the industrial status quo.

In those cases where the government antitrust
attorneys have carefully prepared and adequately presented
their case before the court, and the court responds with
rulings in their favor, what explains the subsequent lack
of efficacious relief? One causative factor is the general

temperament or nature of the judiciary. Paying all due

respect for property rights, they argue that structural

relief
. . . is not to be used indiscriminately,
without regard to the type of violation
or whether other effeiEive methods, less
harsh, are available.

Dissolution has been avoided since it is " . . . an

13

extraordinarily difficult and expensive undertaking."

 

 

 

 

81

One judge warned about proceeding with "surgical ruthless-
ness" in relief orders.1u

The courts' shyness to order effective relief cannot
be totally attributed to a recalcitrant conservatism on the
part of the judiciary. At least an equal measure can be
attributed, bluntly speaking, to ignorance. When a judge
tries a man for assault with a deadly weapon, generally the
defendant's guilt or innocence can be clearly established.
If guilty, the judge can be quite confident that the
punishment he metes out will be acceptable, not to the
defendant perhaps, but at least to the judge's peers.

But when a judge tries a corporation for monopoly he
is, in the first place, not so sure of rendering the correct
verdict——and this uncertainty may cause him to hedge by
formulating a weak relief decree.

The blame for this latter characteristic of the
judiciary rests with the government's antitrust people. For

their function should include the education of the courts on

 

relief. After a good presentation of its case in the second
Shoe Machinery trial,15 Kaysen noted that the government's
relief presentation which followed was

. . . sketchy, poorly prepared, and failed
to come to grips with any of the problems
involved . . . (what was needed was) . .
a fairly detailed plan, well—supported by
evidence, not ten pages of generalizations
and citations from legal authorities,
supporteg by ten minutes of oral presen—
tation.1

In a similar vein the government antitrust lawyers have been

 

 

 

 

82

reprimanded for concentrating their efforts on securing a
“guilty" verdict and the "whateto—do-about—it—thereafter"

has been relegated to the background.17

This can only
serve to compound the problem.
What does all this mean? First of all, it means that

when someone says

dissolution, divestiture and divorcement

have ridden like the horsemen of the

Apocalypse . . . leaving a medley of.

headless, armless, and otherwi e dismem—

bered business organizations,1
colorful though this may sound, it is also false. In the
matter of antitrust relief, the more accurate maxim is:
"What man-has illegally joined together, let no court put-
asunder."19

As would be expected, the relief problem just

described carries over into Celler-Kefauver enforcement
along some rather familiar battle lines. On the one hand,
the counsels supporting the complaint usually take the
structural approach endeavoring to disgorge the acquired
firm-from its acquirer. The counsels for the respondent,
using the historical trend of judicial aversion to best
advantage, submit briefs against-divestiture portraying it
as "unduly harsh" or arguing that the "equities of this case
favor an alternative remedy to divestiture." In the first
merger-case brought under the amended law,lfluerespondent,

appealing a divestiture order by the FTC Hearing Examiner,

described that order as " . . . so impractical and

 

 

 

 

83

unreasonable as to be irrational, and so harsh and punitory
as to be vindicative."2O Attempts to avoid a divestiture
order do not stop at characterizing structural orders as

"harsh;' "malevolent," "unreasonable,”

or some.such synonym.
Those formulating relief decrees are also reminded of
various disastrous consequences which might-follow a
divestiture order. In commenting.on a court order directing
divestiture in the case of a bank acquisition, for example,
the president of the acquiring bank warned that.the divest—
iture of the new deposits might well cause "a run on the
bank."21 How many public servants would like to run the
risk of being held responsible for a run on a bank?

The most famous merger divestiture trial of all,

duPont—GM 11,22

was fraught with such tactics. The Court

was beseeched to consider the impact of divestiture upon

the stockholder, portrayed as an innocent bystander regarding
his corporations' antitrust violation, who must be protected.
from a complete divestiture order. One estimate placed the
tax burden on duPont stockholders at $580,000,00023 and a
decline in value of duPont and General Motors' stock of.
twenty to thirty per cent was predicted if the government's

2“ In addition " . . .

plan of divestiture were implemented.
there would undoubtedly be a severe crippling of General
Motors ability to raise new capital . . . (which) . . . could
easily become so serious as to thwart or inhibit that

company's future expansion . . . "25 And finally

 

 

 

 

BA

. . . I do not think it is over—alarmist
to say that the entire securities market
and even the entire economy might ulti-
mately feel the depressing effects, and
that the total adverse impact on the
public interest might be so serious as
to become a matter of genuine national
concern.

These arguments found friendly support in the law
journals.27 Even from across the border this ominous
prediction about the duPont stock divestiture sounded in
Canada:

It is clear that such a plan would result
in millions of shares being dumped on the
market in a few weeks time, which would

probably lead to a market crash of 1929

proportions. The shareholders would thus
be punished for a crime to which they were
never parties. Furthermore, the two com-
panies involved would find it very diffi—
cult to raise capital needed for growth.2

In this "prelude" to the chapter, the general atmos-
phere in which antitrust relief must breathe has been~
sampled. Those who feel the past is but a sample of the
future would have predicted the case for securing effective
relief under the 1950 antimerger law would be, prima facie,

quite weak.

Specific Problems.hiAntimerger Relief

But the prelude above far from covers the "why" of
ineffective relief. There are certain additional obstacles
which have arisen in Section 7 enforcement which also deserve
consideration. For the remainder of this chapter these
barriers to effective relief, as found in recent antimerger

cases, will be examined.

 

 

Asset Restoration

 

One of the greatest problems in relief is restoring
the assets of a firm after they have been consumed by a
merger——"unscrambling the eggs" as it is so often put.
Whenever one firm absorbs another, even if their locations
are geographically separate, the personnel remain separate
and unchanged, and the assets involved continue in their
general premerger usage, separating the two firms will
present problems. At the minimum, certain financial
functions will have been centralized such as the firm's
billing or its payroll; more than likely, various marketing
activities will have been coordinated or some centralized
direction taken as to the dispersal of sales personnel or
the shipment of goods. The promotional program might be
combined or centrally developed. All of these present some
obstacle to removing the acquired firm in one viable part.

But the problems mentioned above are rather minor
compared to those so often encountered trying to restore
a once viable firm. In fact, in the hypothetical example
just given, the obstacles are only procedural. In some
cases the firm to be restored, quite literally, no longer
exists. Probably the most unusual example of this situation
involved an FTC Order directing the divestiture of the
Dahl—Cro—Ma dairy in Hilo, Hawaii; before the order could

be carried out the dairy was wiped out by a tidal wave!29

 

 

 

86

An Act of God is not always necessary to make a firm's
restoration impossible; sometimes an act of manvwill suffice.
In 1955 the leading agricultural magazine,.Farm Journal,
acquired its principal rival, Country Gentleman. Essentially
what was acquired was a subscription list and the right to
solicit the substitution of Farm Journal for.unexpired

Country Gentleman subscriptions. Most.of these solicitations
were successful. A year.1ater when.the Federal Trade
Commission adopted the decision of the Hearing Examiner's
divestiture order, there was little.left to divest. .In the

words of the Examiner:

. . . as a practical matter divestiture of
the subscribers! list now will.aecomplish
-nothing. Respondent has,.by now, extracted

all the juice from that.fruit as_well as
from the list of current Country Gentleman
advertisers.

He then added, in language refreshing for a legal decision:

.Country Gentleman is dead and the "assets"
which it turned over to respondent are now
without value to any newcomer or, indeed to
any farm publication now in the field. When-
his corn is taken from him and the horse
dies, it is the height of vanity to strew
the bare corncobs over his grave. All that-
can be accomplished, then, is simple
divestiture of the 2 trade names and the 2
lists, although . . . this at most may only-
disturb, but will not diffuse the coalescence
which has taken place.

The FTC encountered a somewhat similar problem in the
Diamond Alkali—Bessemer Limestone acquisition.32- In August
of 1961 Diamond Alkali horizontally acquired Bessemer

Limestone, a portland cement producer. The same year

 

 

 

 

87

Diamond closed down its own portland cement plant, the
assets of which were sold and moved from Ohio to Florida.
In-May of 1964 an FTC Hearing Examiner ordered divestiture
of the Bessemer plant. But by then Diamond possessed but
one portland cement plant——the Bessemer plant. A divestie
ture order would, Diamond argued, eliminate Diamond as a
producer of portland cement and merely substitute another
owner of the Bessemer facilities.33 There seems no way to.
fashion an order resulting in the premerger status of two
portland cement producers though FTC counsel has suggested
that-Diamond keep Bessemer for up to three years, build a
new plant for itself, then sell the Bessemer plant.3u'

In 1956, the FTC filed complaint against the Erie
Sand & Gravel Co., holding three years later that Erie's
acquisition of-its principal rival in the sale of lake sand,
the Sandusky Division of the Kelley Island Company, violated
Section 7.35 Erie appealed the case to the Circuit Court
which remanded the case back to the Commission in 1961 for

36 But-by

further study on the relevant market question.
this time there was little point in the_Commission continuing_
the case. The acquisition consisted primarily of three
vessels, dock space, and leases on dock space. One of the
vessels was sold shortly after the acquisition; the other

two were sold in 1961. All three found service outside the

Erie relevant market. Faced with the impossibility of

ordering Erie to re-establish another lake sand producer,

 

 

 

88

there was little the FTC could do but dismiss the case as
"now in essence moot."37

The problem of asset restoration can become especially
acute when the complaint is directed at a series of acqui-
sitions. For example, the FTC looked askance on a series
of acquisitionsixlthe dairy industry by Foremost Dairies,
Inc.38 The complaint charged Foremost with violating
Section 7 in a string of dairy acquisitions.* In a lengthy
decision the Commission ordered the divestiture of the
following ten dairies:39

Crescent Creamery Co., Sioux Falls, S. D.

Moanalua Dairy Ltd., Honolulu, Hawaii

Rico Ice Cream Co. Ltd., Honolulu, Hawaii

Southern Maid, Inc., Bristol, Va.

Welch Milk Co., Welch, W. Va.

Banner Dairies, Inc., Abilene, Tex.

Tennessee Dairies, Inc., Dallas, Tex.

Phenix Dairies, Houston, Tex.

Golden State Dairy, California

Philadelphia Dairy Products, six states,
northeast area.

Divestiture of the three Texas facilities never took
place since most of these assets were either disposed of or
else combined with other Foremost operations in Texas.
Divestiture here, like in Diamond Alkali, would eliminate
Foremost from the Texas dairy market.

Divestiture of the two Hawaiian facilities was also
never accomplished. These facilities were combined with
Foremost's into a new single plant operation which technol-
ogically precluded corporate surgery. All that could

possibly be accomplished by way of structural relief would

 

 

 

 

 

89

be re—establishing the two Hawaiian companies as dairy sales
routes, dependent upon the Foremost plant for their produc-
tion. This was rejected.

Divestiture of the Virginia and W. Virginia properties
was accomplished-—but even here the problem of unscrambling
the eggs prevented a far from ideal relief situation. For
in this case too there was substantial consolidation of the
two acquired companies with existing Foremost plants.r The
closing and consolidation process meant that the establish-
ment of a new viable dairy and ice cream firm from the
Foremost assets would leave Foremost as Virtually a corporate,
shell in this market. So Foremost withdrew from the area.
Thus, the divestiture did not increase the number of
competitors.

Foremost did divest itself of the Philadelphia dairy
and the South Dakota dairy but was allowed to retain Golden
State Dairy, the largest dairy in all of California at the
time of its acquisition.

The net effect of the relief order? Due to the
unscrambling problem, the original divestiture order was met
ggly in the case of two of the ten acquisitionstxabe divested.

The FTC is not the only agency plagued with this sort
of problem in formulating relief decrees. The Justice.
Department filed suit against the 1958 acquisition of Blatz
Brewing Co. by the Pabst Brewing Co. But in the meantime

the Blatz operations were completely inosculated with

 

 

 

 

9O
Pabst's and the acquired brewery dismantled.Ll0 Restoring
Blatz, should a court so order, will require some imagination.
The Schenley case, found in the Chapter III sample,
also is illustrative of the restoration problem. This case,
settled by consent, had no divestiture provision because
Park & Tilford, under Schenley's stock control, had become a

mere shell; its stock was of no value.All

The Time Factor

The one factor which works against asset restoration
in all antimerger cases is the time factor. As a general.
rule, one could safely say that the unscrambling problem is»
a function of the time span from the time of the acquisition
to the time of the relief order. The longer this span, the
less likely are the chances for unscrambling. Industries
which are especially dynamic, such as the dairy industry
during these antimerger cases, present greater problems than
those more constant in their production and marketing
technology.

The average time span in antimerger cases was discussed
in Chapter III. These figures will not be repeated here.
Suffice it to say that one could hardly expect to re—establish
the premerger status in a market five or more years after
the absorption took place. The longer the tumor remains in

the body, the more difficult the surgery.

 

 

 

 

91

The Problem of the Partial Divestiture

 

The problem of establishing a viable independent
competitor often goes beyond the difficulties of unscrambling
the eggs some time after the acquisition. The problem of
physically extracting the acquired firm, it was just shown,
can be a barrier to effective relief. Closely allied to this.
is the problem of which assets should constitute the new firm.
These problems are interrelated, but can differ in nature.
The first was: Is it possible to disgorge a new firm? The
problem to be covered in this section: If so, what assets
do we disgorge?

This problem can be best understood by following a
hypothetical example. Firm A produces products X and Y. It
acquires Firm B which produces products Y and Z. Assume
all three products are sufficiently different so as to be in
different relevant markets for Section 7 purposes. Thus,
the only area of competitive overlap occurs in Product Y.

If the acquisition violates Section 7 in market Y, the
criteria of relief developed in Chapter III would require
only the divestiture of the Y business, i.e., the re—estab—
lishment of a viable independent firm producing Product Y.
If only the divestiture of Y were ordered, this would be an
example of a "partial divestiture." Defined roughly,
partial divestiture is the divestiture of fewer assets or
fewer product lines than acquired in an acquisition attacked

by the government. Full divestiture then would be the

 

 

 

 

 

92

divestiture of a business as acquired——i.e., any and all
product lines of the acquired company including those
which, if purchased separately by the acquiring firm, would
not violate Section 7.
There have been many cases where the relief decree
has ordered divestiture of less than what the-offending
acquisition consisted of, in the way of assets and/or product
lines. The partial divestiture is fairly common; and
theoretically, as was explained above, there might be no
objection to this. But in practice, the results of partial‘
divestitures have often been so defective as to indicate
this sort of relief order should be avoided whenever-possible.
A partial divestiture, since it consists of a "line of
commerce" as opposed to the operations of a once—going
business, generally is not conducive to re-establishing a
viable independent firm. If, in the hypothetical example,

Firm A is ordered to divest itself only of the assets used

 

in producing Y, chances are that the set of potential
purchasers of these assets will be other producers of Y who
have the ability to purchase these assets and put them to

use without "starting from scratch.” The true independent
purchaser would have to buy this cluster of assets, quite
possibly devoid of a home, and perhaps without even the human.
capital which normally accompanies a full divestiture. All
too often in the case of a partial divestiture, the assets

to be divested make their way into the hands of unacceptable

 

 

 

 

93

purchasers——and very seldom into the hands of an independent
purchaser.

The relief-decree in the Hooker Chemical consent order
directed such a partial divestiture.92This is one of the
cases in the study sample. Hooker had purchased Durez
Plastics & Chemicals, Inc., the largest producer of phenolic
molding compounds, then purchased the phenolic molding
assets of Monsanto Chemical Co. The consent order called
for the divestiture of the machinery and equipment purchased
from Monsanto. In-addition, an attempt was made by the FTC
to enhance the possible success of this partial divestiture
by ordering Hooker to aid the purchaser with engineering
assistance, customer lists, and a six-months supply of lump
resins at HOoker cost.

But "mothering clauses" such as this are-poor substi-
tutes for directing Hooker to divest a going phenolic molding
compounds business of sufficient size and adequate personnel
to enable its survival. In this case, the assets were
parceled out to a small company with insufficient backing
which droppedfrom the business. The phenolic molding
machines? They're now in the hands of Union Carbide. Thus
the Hooker acquisitions eliminated two phenolic.molding
compound producers and the relief failed to re—establish
even one of the independents.

Gulf Oil's acquisition of Warren Petroleum also was

settled by a consent order allowing Gulf to dole out several

 

 

94

packages of assets (roughly thirty per cent of.the Warren
properties) to tendifferent~purchaser33437.On the—surface

there-is-a prima facie caseethat such a relief order would

 

be inadequate. In this case, it was.-

-Warren Petroleum, as-a.medium size.independent-firm
in the petroleum industry (at times.a thorn to the majors),
has disappeared; W. K. Warren,;itsuable leader, now-sits
on the board of Gulf. The partiaigdivestiture-enabled Gulf
to retain key personnel whichlresulted;ianuif’s foothold
in natural gas and its achieving an aboveeindustry-average,
discovery rate for natural gas as well as~a most successful
marketing-program in~natural gas.“l

Of those assets divested, one petrochemical plant
went to Jefferson Chemical Corporation, Inc., a firm fifty
per cent owned by.Texaco. The cluster of assets which
commanded the largest price in the divestiture order, oddly
enough, a-group of tank cars which Gulf may have been glad
to sell, went primarily to General American Transportation,
one of the largest lessors of railroad cars (GATX buying.
over 85 per cent of these cars9.. Almost half of these-were
then leased back to Gulf.' The three butane gas properties'
to be divested commanded the second largest price in the
sale; they went to the Thermo-Gas Company which has since
been acquired by MideAmerica Pipeline Co. The Midland
Gasoline processing plant at Conroe, Texas, was purchased
by Champlin-Oil & Refining Co., later absorbed by_the

Celanese Corporation.

 

 

95

The remaining assets, less-the four per cent of the
original Warren properties, went to small independents in
the_petroleum-industry.~ No part of the order resulted in.
another independent center of initiative being added to
the petroleum industry to replace.Warren.

Perhaps the extreme example of neatly carving out
only.those assets of competitive overlap came in the Scovill
consent settlement.u5' Among the general hook, pin, and eye:
products produced by DeLong Hook & Eye, the acquired firm,
were safety and common-pins.r Specifically these were the
gnly notions also produced by Scovill. Hence, Scovill
argued it should be able to retain all of the assets and
personnel of DeLong, including its manufacturing plant, but
divest those DeLong machines capable of producing common and
safety pins and not use the DeLong plant in the future to
produce such pins. The FTC bought their argument. Since
the sale was-to be made in ninety days, it would be unlikely
that anyone would or could purchase these pin machines-unless
they were already in the.pin business and had a roof to put
over them. Sure_enough the Star Pin Company bought the.
handful of machines, the value of which amounted to less
than five per cent of the purchase price of the DeLong.
business.

After the Scovill settlement the FTC fought a long
legal battle with the Brillo Mfg. Co. (since acquired by»

Purex Corp.) over its 1955 acquisition of Williams Co., a'

 

96

manufacturer of industrial steel wool.“6 Brillo was and is»
a manufacturer of both industrial and household steel wool.
Using the Scovill settlement as an example, Brillo's counsel
was.able to convince the Commission that, since Scovill‘
could retain the DeLong.factory as lOng as it did not manu—
facture the specified pins therein, Brillo should be able
to retain the~Williams"factory as long as it refrained from
producing induStrial steel wool therein-—since industrial
steel wool was the only area of competitive overlap twixt
Brillo and Williams“1l7 The-Commission agreed; their order
of January, 1964, called for a partial divestiture limited
to all the Williams' assets, customer lists, and trademarks
but with the exception of the plant, machinery, and fixed
assets.Ll8

As in the_case_of Scovill, this type of order almost
precludes divestiture to anyone except those who already-
have manufacturing facilities ready to handleethe Williams'
business; i.e., the order in effect necessitates a horizontal
divestiture to someone with excess steel wool production
ready to take over the marketing function. This is what'
happened.

Partial divestiture has been ordered on the theory
that the anticompetitive effects of the acquisition are
eliminated if the acquiring firm does not use the acquired
firm to produce products in the area of competitive overlap.

But unfortunately, in practice, partial divestiture generally

Mt ._

 

 

 

97

seems to preclude the establishment of an independent firm.
All too often, divesting only the assets of some line of
commerce necessitates their sale in a horizontal manner.
As-a result there is much to be said for establishing

as a general relief principle the divestiture of all the'
lines of commerce acquired in an acquisition which violates
Section 7 in any particular line. The point is well taken-
that;

. . . preservation of competition dependS-on'

the survival of.effective competitive units,

not on isolated prflgucts in isolated geo-

graphica1_markets.
At least the burden of proof should rest upon the respondent
to demonstrate that his proposed partial divestiture order
will result in a viable independent company. For the
respondent purchased a company, not a series of isolated
lines of commerce any one of which can be readily divorced
from the going concern. The test is whether the order is~
likely to.restore a viable firm producing in that relevant
market where the violation was found. This test does not
eliminate the possibility of partial divestiture——but
practice indicates that disgorging the firm, as it once~
operated, better assures the chances of its viability and
independence.

Another disturbing aspect of partial divestiture bears

mention. Not infrequently, a partial divestiture will be

of de minimus proportions. Whether this is an intended or

 

an unforeseen result is uncertain. At any rate de minimus

 

 

 

 

 

98

divestiture not only does not extract enough assets to
establish the desired new entrant, it has no pro—competitive
effect at all relative to the acquisition challenged-by the

government.v Usually these settlements of de minimus propor-

 

tions are found in consent decrees.

For example, the Scovill divestiture mentioned earlier
consisted of $47,000 worth of pin machines from an acquisi-
tion costing almost $1.8 million. The Antitrusthivision,
frowned upon Hertz’s acquisition of thirty-seven motor
vehicle renting agencies costing approximately forty million.
dollars. (Is there any doubt why Hertz is #1?) The
complaint called for divestiture. Yet, in the 1960 consent
settlement, Hertz was only to sell up to 1,000 of its 5,000
cars in the Miami area (it finally sold 162) and 900 of the
6,000 trucks it operates in the New York metrOpolitan area
(which were sold'and then reverted to Hertz in.a bankruptcya
case).50‘ Jacobs, the Hertz president, was indeed correct
when he stated-the divestiture would have a "minimal effect“
on Hertz—earnings.51

Ryder System Inc., another motor vehicle leasing

company, also was_b1essed with a,de minimus divestiture~

 

order after attaining the rank of number two in the truck
leasing business——largely due to the merger route having
acquired some 8700 trucks from 1955 to the time of the

52

antimerger complaint. The divestiture order called for

the sale of four hundred trucks in total:

99

100 trucks to be sold in both Atlanta and Chicago

75 trucks to be sold in both Dallas and Nashville

50 trucks to be sold in Memphis.
This was less than five per cent of the number mentioned in
the complaint--and even at that Ryder completed only sixty
per cent of the divestiture order in the year allotted for
compliance. In August of-1962, the Chicago requirement was
reduced to 60; in July of 1963, the Memphis_requirement was
”053

reduced to A

Perhaps the extreme of de minimus.divestiture in a.

 

consent settlement is found in the case of Diamond Crystal's

5“ Jefferson

acquisition of Jefferson Island Salt Company.
Island cost approximately $5 million. The divestiture of
some."undevelopedV Seneca Lake property brought $A thousand
from a local resident! This did little to establish another«

salt producer!55

 

The Handling of Improvements

So far, unscramblingand partial divestiture have been
discussed as barriers to the asset restoration necessary for.
effective relief. Still another-barrier has been the contro—
versy over the disposal of post—acquisition improvements to
the acquired company. The controversy, briefly expressed,
is this: Assume Firm A acquires Firm B in violation of
Section 7. Assume further that before or during the govern—
ment suit Firm A adds substantial improvements to its B
plant. Query: should (and there is the legal question of

"can") the government order divestiture of Firm B with its

 

improvements?

 

 

 

100

If the relief is to restore Firm B as it existed
before the acquisition, then the improvements should not be
included in the relief decree, some would argue. After all,
they might add, if Firm B in its unimproved condition were
sufficient to cause a Section 7 violation, divestiture of
it sans improvements would be adequate relief.l

Two points can be made in rebuttal to this line of
reasoning. First, in a dynamic market the re-establishment
of Firm B as it existed at the time of acquisition, some
five or ten years later, may not make technological sense;
restoration to premerger status might dictate an outmoded
firm with no chance of survival. Second, it is logical
to assume that if the Firm B had not been acquired, it would
have added certain improvements itself; thus restoration of
Firm B in a meaningful premerger sense requires that it be
an improved Firm B that is re—established.

In the first litigated decision which required divest-
iture of a large firm, the FTC directed Crown—Zellerbach
(hereafter Crown) to divest itself of the St. Helens'

properties along with such improvements needed to insure the

56

 

viability of the new St. Helens. Since Crown had poured
better than $14 million into St. Helens, it took the position
that the Commission could require only the divestiture of

57

the original assets. In this case the Commission succeeded
in obtaining the eventual divestiture of the improvements

to St. Helens arguing that " . . . the broad purpose of the

 

 

101

statute cannot-be thwarted merely because respondent has-
commingled its own assets with those of the acquired
firm."58 The ninth circuit affirmed this order and Crown'so
appeal to the Supreme Court was-denied.59
But the issue was far from settled by the Crown case
and has crOpped up again. In the FTC's Reynolds case, the
Commission ordered divestiture of the florist foil acqui-
sition.found to violate Section 7 as-well as the building
60'

Reynolds had built to house the company. At the time of
the_acquisition the assets were housed in a leased building.
But the Court of Appeals for Washington D. C. did not-agree¢
with the Commission's order in-toto:

That-date (1956) marks the violation and on

this record delimits the properties to be

affected by the government's decree. After—7

acquired properties are not relevant, except

in the case where they represent reinvestment

of capital realized from the sale of property

included in.a forbidden acquisition and-

replacement of that property. 1

What are the implications of this line of reasoning?

There are three, whichin certain situations, could preclude

effective relief or nullify the intent of the law. First,

 

as was mentioned before, divestiture of only the acquired
assets, several years hence sans improvements, does not
enhance a potential customer's view of the assets. In other
words, who wants some aluminum foil machines without a.
plant to house them? Apparently no one; even Litton
Industries turned down the chance to buy them! The result

in the Reynolds—Arrow case: no divestiture was ever accom-

 

plished.

 

 

102

A second obvious ramification of this reasoning:
carried to an extreme, it could prevent divestiture if the
improvements were made in such a manner that they could not
be separated from thevacquiredassets.62

And finally, barring the divestiture of post—acqui-
sition improvements offers a firm an obvious way to enter
a market externally in violation of-Section 7, extend the
litigation process, in_the interim construct new facilities
using the acquired knowehow, and then divest the-old
acquired facilities at the appropriate time. Perhaps, by
that time, they would be ready for abandonment anyway!

To illustrate: Union Carbide desired to enter the
polyethylene film business which they did in violation of
Section 7 by acquiring Visking Corporation in 1956.63
Seven years later, the three Visking plants were dishon-
orably discharged from Union's ownership. But in the mean-
time Union built a new plant to produce polyethylene film
which it retained——though it was clear that the new plant
was an integral part of Union's Visking division.

In a somewhat similar vein, the Antitrust Division's

attack on Alcoa's acquisition of Cupples Products found

 

Alcoa using the Cupples acquisition to enter a new geographic

market.65 Having built a new fabricating plant in California
after the unlawful acquisition, Alcoa balked at divesting
this facility, arguing that it was neither a replacement

nor an improvement to Cupples. Nor was its divestiture said

103

to be necessary to restore Cupples as a viable firm to its
premerger condition since Cupples did not compete in the
California market prior to its acquisition by Alcoa. But
since Cupples had planned to expand into California prior
to its being acquired, the Alcoa management took special
precaution to avoid the divestiture of the Corona, Cali-
fornia plant. As one Alcoa vice—president directed:

. . . prudent business discretion required

that the new and separate business facility

to be built at the Corona site to be

financed by Alcoa, not be brought within

Cupples' ownership so as to subject it to

the possibility of divestiture. Accord—

ingly it was decided that the West Coast

plant should be, and should be clearly6

identified as, the property of Alcoa.
In short, allowingan Alcoa to keep a Cupples Corona plant
would have the effect of permitting entry into a market

thropgh an illegal merger.67

The Buyer Problem

The relief problem does not end with the solution of
"can we divest?" and "what-should be divest?" Then-follows:
"To whpm do we divest?" This again is not a new problem in,
antitrust relief.68 But the increase in divestiture orders
due to the Celler—Kefauver Act has made it more common.

What sort of buyer meets the relief criteria outlined

in Chapter III? A buyer who will operate the divested firm

successfully and independently. Unfortunately, like full

 

employment and stable prices, these can be rather contra—l

dictory. For the buyer who can generally assure success is

 

104

all too often one who does not meet the independence criterion,
e.g., a buyer already established in the industry of the
divested firm. In short, it can be tough to find a wealthy
individual (or group) interested in taking on the uncertain
financial support of a firm which has not been on its own /

for some time in an industry in which the buyer does not
already have financial or managerial ties. Our ideal buyer \
for divested assets would beziman in his middle forties, the
possessor of substantial liquid wealth unlinked to corporate
ties, having a sound knowledge of financial principles, a
streak of business "maverick" in him, and the good sense to
hire the most able of management to operate the divested
facilities.

These are stringent criteria. But the buyer criteria
are-not so stringent as to preclude ideal divestiture. In
the Spalding—Rawlings, National Sugar-Godchaux, and American
Radiator-Mullins acquisitions, divestiture seems to meet
these requirements to a "T." Independent firms were
re—established, backed by money independent of the markets
involved, and the firms stocked with adequate managerial
talent. The Spalding divestiture probably best meets the
standards for successful divestiture: the divested firm,
the Rawlings Company, was purchased by a group of private
investors headed by Burns, former president of RCA; the group
then retained the managerial services of Carr, former presi-

6
dent of Rawlings.

 

105

Findinngny Buyer

 

Why are there not more successful relief orders like
Spalding, et_al.? In some cases divestiture fails when
no buyer can be found. Diebold claimed it could find no
one to repurchase its unlawful acquisition of Herring-
Hall—Marvin and the divestiture order was dropped. Lucky
Lager's acquisition of Fisher Brewing Company was allowed
to stand in spite of a consent order to the contrary when-
Lucky luckily could find no buyer.
Maremont retained possession of Saco—Lowell when the
divestiture order was.declared null and void after two
years of
. . bona fide and exhaustive efforts to
carry out the divestiture provision . . .
it appears that, notwithstanding such
efforts, the diygstiture provision cannot
be carried out..
In a similar vein the FTC rescinded its divestiture order
against Reynolds foil machines when Reynolds wrote ". . . no_
prospective purchaser has even shown enough degree in interest
. . . even to bring about the commencement of a negotiation

regarding price."71

Reynolds, in a certainly novel line of
argument, then proposed ". . . going out of business as an
acceptable method of divestiture and one most likely to

achieve the ends sought by the Commission . ."72

Though
the Commission adopted Reynolds' proposal, it is not at all
clear exactly how this type of order ". . . would enhance the

competitive situation the Commission is desirous of main—

taining in the florist foil industry."73

 

 

 

nr..._ __
r—___’

 

 

 

106

In the Hertz, Ryder, Automatic Canteen, Borden, ABC
Vending, Alcoa—Cupples and others (the list is not complete)
the problem of finding a buyer-—any buyer——has hampered
divestiture proceedings. Sometimes the problem takes on
humorous implications. In trying to sell off several
cigarette vendors, Automatic Canteen found the only inter-
ested purchaser of its Louisville, Kentucky vendor was a
rival who felt he could get the business cheaper if it
were sold to someone else; he drove the purchaser out of
business and then bought the assets in a bankruptcy pro-

7H

ceeding!

Finding the Right Buyer

 

A different shade of the buyer problem occurs when a
prospective purchaser is found but the purchaser is unsatis—
factory-—usually for one of three reasons.

First, a sale to the prospective purchaser may not
alleviate the trade restraint found objectionable in the
original acquisition. This would generally be the case if
the divested assets were sold horizontally to an important
rival of the divesting firm. This has occurred several
times.

The purchaser of the bulk of the Hazel—Atlas Glass
Company, acquired by Continental Can in violation of
Section 7, was the Brockway Glass Company, the fourth largest
producer of glass products. Its purchase of Brockway cata—

pulted it to number two in the glass industry.75 Had

 

 

 

 

107

Brockway been the original purchaser of Hazel-Atlas, this
merger would have been a likely candidate for a Section 7
complaint!

The sale by Crown of St. Helens to Boise Cascade could
hardly be classified a rousing choice of buyer. Boise—
Cascade had substantial timber holdings in the Pacific
northwest and was committed to entering the paper industry
on a large scale.76 Part of its growth has been via the
merger route; by 1963 it advertised: "Paper Is Now Our
Biggest Business."77 The opportunity to purchase the St.
Helens property eliminated substantial potential entry
on its own in the form of new capacity by Boise.

A second factor which would make a buyer unsatis—
factory occurs when the buyer is not truly independent of
the divesting firm, or some tie would still exist between
the divesting and the divested firms. An example would be
helpful to illustrate this.

Brown seemed reluctant to sever all ties with Kinney
after the historic Supreme Court decision went against them.
They pushed for a divestiture order which would allow the
Kinney management to retain their stock in Brown arguing
that preventing this " . . . would work an unnecessary

hardship on innocent third parties who are presently in the

 

Kinney organization and who own Brown stock.""8
In Union Carbide's first attempt to sell Visking,

they developed a sales agreement which would have enabled

 

 

108

them to keep all but one of the Visking patents and divide

sales territories between themselves and the purchaser.79
The Crown divestiture, which fell short on finding an

acceptable buyer, also established rather close ties in

production and marketing between Crown and Boise. Thus,

in this case, the ill effects of an unsatisfactory buyer

were compounded by a sales agreement which established ties.

of mutual interest between the firms involved. For example
the Agreement of Purchase and Sale, dated May 8, l963,
between Crown and Boise allows Crown to continue operating
one of the three paper machines at the St. Helens location
until either 1969 or 1972 when it is to be taken over by
Boise; Boise is to supply Crown with pulp for this machine;
Crown will supply Boise with wood chips for five years;
Crown will retain cutting rights on the St. Helens timber.
for another five years; and Crown will sell about half of
the paper produced by the two machines purchased by Boise
for the first four years after the divestiture. This is
all-done, according to Crown's president Sinclair, to

". . . protect the interests of the mills employees, the
community of St. Helens, customers supplied by the mill and

Crown Zellerbach stockholders."8O

Not that any or all of
these arrangements are per se wrong—-only that ties such-as
these can become the type that bind.

So far the problem of finding no buyer and the problem

of finding an unsatisfactory buyer have been mentioned.

 

 

 

 

 

109

Briefly the reader might be reminded that a part of the
unsatisfactory buyer problem is the non—viable buyer;

i.e., the purchaser for the assets is found; he is inde-
pendent of ties with the divesting firm and the relevant
market involved, but shortly after the divestiture he fails.
This happens with some frequency—-for example, in Hooker
Chemical and Hertz. This failure could be due to the nature
of the assets divested; at this time some of them are not
always the mostmodern,particularly in cases where the
divestiture occurred more than five years after the acqui-
sition.

Where does this line of thought lead? The buyer
problem consists of finding an independent and likely—to—be—
Viable purchaser. Often, however, no purchaser can be found
or, if found, the purchaser is unsatisfactory. We now turn
to the question: Why can a satisfactory purchaser not-be
found every time?

That the market for corporate control is imperfect is
one plausible and highly probable reason. It is beyond the
scope of this study to comment in any depth on this market.
However, anyone who goes through the correspondence between
a divesting firm (or its agent) and inquiring brokers and
firms cannot help but be impressed at least by the sheer
number of inquiries. Even as unlikely an asset as a salt
plant in Utah drew 207 different inquiries. Prospective
purchasers ran the gamut from a power boat company to a

tourist lodge.81

 

 

 

110

At times, as was mentioned above, the package of
assets being offered is insufficient to form a new firm or
so outmoded as to be unattractive to any existing firm.
Perfecting the market for corporate control would not,
for example, have made Maremont's muffler manufacturing
facilities less obsolete or put a roof over the Reynold’s
foil'machines.

In addition there is evidence of a certain (rather
understandable) recalcitrance on the part of some sellers
to comply with a divestiture order. It is beyond the scope
of an economic study to prove bad faith on the part of some
divesting firms. But some of the cases seem rather blatant.
In one~case, letters such as this were not uncommon:

I can understand Leslie Salt Company's

reluctance to provide a prospective pur-

chaser with the Plant Income Statements,

especially if not doing so might result in,

the plant not being sold during the period82.

specified by the Federal Trade Commission.
One unidentified telegram to Attorney General Kennedy
contained this plea: "Continental Moving All Key Per—
sonnel From Omar Plants in Order To Discourage Sale of
Omar, Inc. Please Investigate."83

Union Carbide, when asked why it did not publicize
the Visking plants it was to divest and in response to the
implication that this might demonstrate a lack of effort on
its part,rmw.this rather unique reply: "It would be imprac-
tical because such advertising would only attract large
numbers of curiosityeseekers hopelessly unqualified to

purchase and operate the business."8M

 

 

 

111

This sort of strategy, if not evidence of a lack of
effort to divest, does put Union in the position of being
able to contact only those buyers it prefers to buy Visking.
In other words, closely linked to the problem of the
divesting firm being balky in its divestiture efforts, is

the possibility of its.selecting a buyer it prefers to

 

own the properties to be divested.

As a general rule, having resolved itself that divest-
iture is inevitable, it is in the divesting firm's interest
to seek out or favor a buyer who will either be COOperative,
phlegmatic in his rivalry, or destined to fail. It is in-
the public's interest that the buyer be independent, a
business maverick, and destined to succeed, as has been
pointed out before. Consequently, effective antimerger
relief requires that the authorities not give the companies
involved free rein in-this selection.

There is evidence that companies have attempted to_
select the buyer in their interest; this, of course, should
not come as a surprise to anyone. Union Carbide presented
Texaco, Socony, Continental Oil, then Celanese to the
Commission as prospective purchasers of Visking. In the
Crown case:

Crown apparently pursued only Boise until we
demanded that it open negotiations among
potentials we selected from the total list~

it had furnished us of all personS‘wgo had
made any inquiries about St. Helens. 5

 

 

112

An investigation by the FTC ". . . revealed what had been
surmised: that Crown had discouraged negotiations with
others . . ."86 One wealthy businessman, with no ties in
the paper industry but with a reputation as an aggressive
competitor, complained that Crown "had ignored his possible
interest in purchasing St. Helens."87
In private correspondence with the author, concerning
a case which must remain unidentified, one party close to
the sale wrote:
At the time that we were negotiating for

the purchase of this plant, another . . .

firm . . . was also interested . . . (the

divesting firm) seemed to favor us as the

buyer (since) the (other company) is known

in the industry as a particularly destruc—

tive element as far as prices arg concerned,

and we were at least an unknown. 8

To recapitulate briefly, in this chapter, two main

barriers to securing effective relief have been defined,
explained, and illustrated with examples from actual cases.
The measures necessary to effectuate the structural relief
these obstacles at times prevent are reserved for the
following chapter——though some policy implications probably

seep from the discussion of the problems themselves. Two

other barriers remain to be discussed in this chapter.

The Marketing Order
The marketing order was rather briefly mentioned in
Chapter III. Its use has been common in antimerger

enforcement.

113

The marketing order, as the term is used here, is a
relief decree which directly involves the government in the
determination of the firm's marketing mix. This is in-
contrast to a pure divestiture order which leaves-the
divesting firm free to follow its own post—divestiture
course.

Generally, a marketing order will dictate some aspect
of a firm's price, product or customer selection policy for
some period of years. For example, such an order might-
direct_an integrated firm producing and converting Product X
to sell 50 per cent of its output from its first stage to
non—integrated converters at book cost plus 10 per cent for
a period of five years; the rationale being that such an
order assures the non-integrated converters of a source of
supply for five years and prevents the integrated firm from
supplying only its own converter, foreclosing the-others.
Bluntly, then, marketing orders call for governmental regu—
lation of some.part of the acquiring firm's marketing mix.

To an extent, a ten- or twenty-year ban on future
acquisitions without government approval meets the criteria
of a marketing order. It-puts a restriction on the firm's
marketing mix by cutting off a possible avenue of product
or capacity expansion and involves the government's partici-
pation in an external expansion decision. But in this
section we are more concerned with the implications of

marketing orders of-a different type or degree; i.e., there

 

114

are marketing orders and there are marketing orders. Those
marketing orders which bring the government into price and
customer selection policy in a direct and meaningful sense
are the ones considered first. The orders containing a
future ban on acquisitions will be taken up later.

To begin with, it should be stressed that the marketing
order is a deviation from the ideal of antitrust enforcement.
The aspect which makes antitrust enforcement palatable to the
libertarian is that the efforts by the government to enforce
free markets supposedly will not involve the government in
detailed regulation of markets. As Kahn in his excellent
work on "Standards for Antitrust Policy" put it: "The anti—
trust laws involve the Government in no entreprenurial
activity.proper and require no detailed review of either
basic investment or run-of—the-mill business decisions."89
Perhaps Kahn might have included the words "should not"
before "involve."

From a purely practical point of view, there is ample
historical support for avoiding this sort of order. In the
complex Hartford—Empire decree, where marketing orders were
substituted for structural relief, the Supreme Court
installed a complex regulatory scheme of compulsory patent

licensing, "reasonable rates,"

and complicated credit
arrangements. The scheme was.so complex, in fact, that all
of the companies involved decided to form a committee to work
out the difficulties among themselves!90 Such an arrangement

is hardly conducive to independent rivalry!

115

In the motion picture industry Marcus tells us:

The problems that arose.in connection

with these judgments were, in the annals~

of the Antitrust Division, unique in number
and complexity . . . Since l9A9, there has>
been no time when the Division has not had
~several problems to wrestle with which have
stemmed from the judgments. About two—.
hundred sections of correspondence on the
average of one and one-half inches in-
thickness have been Spawned from the
judgments. For one lengthy period, at'
least one-third of the entire correspondence
of the Antitrust Division was in the motion
picture field. Amendments to the judgments;
have exceeded the original*judgments in size.
In number they have been legion.

Back in 1940, when Wendell Berge headed the Antitrust
Division, he complained that-the policing of such decrees
was "highly difficult," that proof of non—compliance was
"as difficult as proof of a new equity suit," and that often.
lawyers can so skillfully guide the companies involved that
they accomplish what they want "without technically violating
the decree."92
Consequently, on both theoretical and pragmatic
grounds, there is a strong prima facie case against marketing
orders. The Court spoke wisely when it said:
The object to be sought, for the convenience
of the parties as well as the Court, is a.
decree which will embody the necessary
elements of suitable relief and require a
minimum of sppervision by the Cogrt and
reports and data by-the parties. 3
In spite of this, they are.often used in antitrust_

enforcement as a substitute, albeit an imperfect one, for

structural relief. There still exists the attitude, even

 

 

116

among lawyers working for the government, that divestiture,
is a harsh and radical remedy: better merely to substitute
some injunctive order directing the respondent to behave in
a certain way, subject to governmental scrutiny.
Of course, this notion is false. Divestiture.is

a conservative remedy since it eliminates the need for the
close regulation of future marketing activities. Unfor- A
tunately this line of reasoning falls on some deaf ears.9Ll

What-has been the form of marketing orders in Section

7 cases? Some have been distressingly-complex. The

American Cyanamid Final Judgment of August, 1962, involves

 

more than ten pages of marketing orders too lengthy to,
summarize here.95‘ They include such protective stipulations
as enjoining American from increasing its production of
melamine beyond thirty million pounds per year for a speci-
fied time, various patent license clauses, and purchasing
requirements. The court opens the door to becoming a regu—
latory commission for American. Should American feel the
price it pays for melamine it must buy from other producers
is "oppressively high," it may petition the court which will
(somehow) determine if the price is in fact "non-competitive."
A meaningful administration of this.decree would seem to be
a day-to-day job for someone with specialized skills in.
chemistry, accounting, and patent law.

In the Simpson Timber case, a consent order directing

the marketing of redwood timber was entered in place of

 

 

 

 

 

117

96 This case is one of

reeestablishing.theflacquired;firm.
many which pointlup the supposed rationale of a marketing.
order. The fourth largest seller of redwood lumber and-
lumber.products acquired another substantial seller of the
same product. In the consent decree negotiations, Simpson
probably argued as follows:- "The primaryrestraint you are
worried about is the possible foreclosure from the redwood
timber market of non-integrated lumber product manufacturers
with whom we compete horizontally and have sold lumber to
vertically. To protect their supply of redwood lumber, we
will agree to sell to them at reasonable prices 500,000,000
board feet of redwood timber over the next decade or so.
This-assures them of a source of timber supply and the
sticky problem of divestiture,is eliminated; we can all go
home." To many, this line of reasoning must be appealing;
at least it was to the powers that be in-this case.

Thus Simpson presently is to sell not less than«
35,000,000 board feet of timber per year to a select list-
of buyers until sometime in the 1970's at prices "less than
$20.00 per thousand board feet for stumpage, plus 8% per.
annum compounded from January 1, 1961, to cover actual
carrying costs," plus the logging costs if done by Simpson.

There are specific hazards to this decree-—which, in
general, apply to all such orders. Who in Washington is
going to see that the order is enforced? Is it left to the

good faith of Simpson? This is the sort of decree which any

 

 

 

 

 

 

118

accountant and lawyer worth their timber could evade—-and
that is no reflection on Simpson’s compliance. Finally,
there is-a great risk, as will be pointed out shortly, in
attempting to "peg" how a market~shouldeork‘several yearS'
into the future—-which is what this decree attempts to do
by allocating a certain portion of timber to a certain
group of customers for a certain length of time at prices
supposed to be reasonable both now and several years hence.
As it turned out, thus far Simpson has so exceeded its‘
quota to the designated group that it is obvious that what
it is directed to do in this part of the order would have
been done voluntarily.

Other examples of relief orders "pegging" what are
supposed to be competitive market arrangements in lieu of-
divestiture are: Prehler was to buy 22 per cent of the
electriCal insulation-products it distributes from manu—
facturers other than-MMM for five years; Diamond Crystal,
in another-involved marketing order, must offer 30 per cent
of the Louisiana rock salt from its acquired facility to-
"all other producers of salt for sale who do not have
resources and facilities for the production of Louisiana;
Rock Salt" for a period of ten years in place of re—estab-
lishing the company; International Paper can retain Long.
Bell Corporation providing it sells A0 per-cent of the.
output of a new paper and board mill (it was then building)

to non-integrated wholesalers and converters for ten years

 

 

 

 

119

at "standard prices"; General Shoe avoided divestiture in
part by agreeing to purchase a-certain percentage of the,
shoes sold by iii distributors from other manufacturers;
Georgia Pacific evaded divestiture by consenting to an
order whereby it kept the Crossett Company but makes
available 100,000 tonscfi‘coarse paper per year for five~
years to independent-jobbers and converters; then another~
five.years with a 75,000 per year quotas—all sold at a.
price calculated by averaging the going delivered price of
St. Regis Paper Co., Union BageCamp Paper Corp., Hudson-
Pulp & Paper Corp., and International Paper Co.97 One FTC
official-admitted that-such orders would require a "full-
time staff_member to police."

How do these orders "work out" in practice? Since
many of them involve consent decrees,-that~question~isV
difficult to answer, due to the paucity of data in these
settlements. However, there are some limited data on the
efficacy of these decrees. The data do not make a strong-
case for the government's ability to predict "what the
market should be like."

In the Gulf-Warren.consent decree Gulf consented to-
offer a certain portion of its LP gas to "independent non-
major refiners" or "independent non—integrated petrochemical

manufacturers." This was done to "protect" some firms-which

were customers of Warren, to insure that they would continueI

to be served. One of Warren's major customers of LP gas was.

 

 

 

120

Texas Butadiene and Chemical Company, one of the independents
as defined by the order. In 1962, Texas was acquired by a

subsidiary of the Sinclair Oil Corporation; all sales there—

 

after to Texas, who still desired to purchase LP gas from
Gulf’s Warren subsidiary, were now classified as sales to i
a "major." In order to meet the established percentage :
requirement, based on past sales which of course included

Texas as an independent, Gulf would be forced to discontinue

 

these sales, Texas forced to find a new source of supply.
Gulf was unable to meet its percentage requirement of
natural gas to independent refiners as directed in the order.
Here again an-unforeseen factor in a dynamic market nullifies.
what, if any, merit the percentage order had originally.
Gulf,consented to sell a certain percentage of its-natural
gas-to independent refiners. As in most all marketing orders
of this type, the percentage was based on that handled by,
the acquired firm prior to its acquisition7—then-extrapo—
lated into the future as if there is some magic aura about
that percentage to which the market should always conform.
But some markets change, and the market for natural
gasoline changed since the acquisition. Natural-gasoline
sold to independent refiners was used as a blending agent,
to increase the volatility of motor fuel. But since the
octane requirements_of motor fuel increased during thism
period, natural gasoline, with its low octane rating, fell

into disfavor with independent refiners who switched over

 

 

 

 

 

121

to a high gravity condensate. Gulf, ordered to sell so
much-natural gasoline to a certain class of customers,.
found the bottom to have dropped out of the market.98

Another example of the inability to extrapolate from
past market shares to what future market.shares "should be,"
occurred in-the-Lucky Lager order. Unable to divest Fisher
Brewing Company in the allotted time, Lucky was permitted
to retain the Fisher brewery. At the time of the acqui-
sition, Lucky had 12 per cent of the Utah market; Fisher
had 39 per cent of that market. Consequently, a rather
unique, albeit illogical order was entered on the theory
that the anticompetitive effects of the merger would somehow
be nullified, if the two companies were not allowed to sell~
more than 39 per cent of the Utah beer market combined.
However, Lucky found it could‘not continue to operate in the
Utah market with this restriction; for financial reasons it_
would have to withdraw if the order were not altered.

Luckily for Lucky, the percentage requirement was dropped-
when its results became apparent.

Recall the Brillo order of partial divestiture dis—
cussed earlier.in the chapter; Brillo divested only the
business but 393 the production assets of Williams which
remained with Brillo providing they were not used to produce:
industrial-steel wool. In-addition, this marketing order

waspentered:

 

 

 

 

 

122

It is further ordered that from and-after the
effective date of such divestiture, respondent
shall refrain for a period of five years from
selling industrial steel wool to customers of
The Williams Company excepting that respondent
may continue to sell industrial steel wool to
any customer it served in common with-Williams -
as ovauly 5, 1955, providing the maximum-unit
annual quantity sold to each such common~
customer does not exceed the total unit
quantity which respondent sold to it in the
twelve months immediately preceding July 5,
1955.99. ‘
In other—words, if Brillo sold 1,000 units of industrial
steel wool to a customer served by Williams in the twelve
months preceding July, 1955, it could not sell more than;
1,000 units per year to this customer for five years there-
after--and what it does sell must not be made on the Williams
machines. Clearly, the order is designed to be protective.
But even the best laid plans of mice and men . . and
this order, as is the case with others, had to be changed.
The Williams business went to the J.-H..Rhodes-Co. which
found it was,unab1e to supply all of the old Williams'
customers——which is understandable since the order did_not'
enable Rhodes to purchase any extra steel wool machines.
The old Williams customers were unable_to go to Brillo due
to the marketing order; in addition, since the machines were
not to be used to produce induStrial steel wool, Rhodes was
unable to go to Brillo to purchase industrial steel wool to
meet his customers needs. So, in 1965, the order was modi-,
fied to allow Brillo to produce industrial steel wool in

the Williams’ plant to supply Rhodes to in turn fill-his

customers' orders.

 

 

123

The Future Ban

There is another type of marketing order involving
the government in considerably less decision making, but.
due to its frequent and increasing usage, does merit
attention. This marketing order is the order barring a firm
from acquiring another firm (in a particular industry)
without prior government approval for a.given period of
years. In the sample of 39 cases drawn.for this study, 25
(or 64 per cent) had some form of future merger ban. All
but two of the cases in the UNSUCCESSFUL category included
some form of ban on future mergers without prior government
approval.

.What does the ban accomplish? First, it does not
prevent all acquisitions by firms under the bane-only those
not approved by the government. The government has approved
some, though data are not available as to how many. The ban
does n93, nor is it designed to, prevent any acquisitions
in markets p93 specified under the ban.100

The question of what standards the government is-to
use in approving the merger application of a firm under the
ban is unanswered. If the standard is close to a per se ban
(it is not at present per se), i.e., if it is next to
impossible to secure government approval for a proposed
acquisition in a market where a future ban exists, then in
industries of heavy government antimerger activity (such

as cement and dairy products) where several firms may be

 

 

 

12A

operating under such a ban, the market for corporate assets
may be diminished. On the other hand, if the standards
applied in approving an acquisition are the same as those
lapplied in any Section 7 proceeding (and there is some
legal opinion that they cannot be otherwise), then the ban
does no more than provide the government with a premerger
notification process.

Securing a limited premerger notification process may
be admirable and desirable; but it is not admirable if the
premerger notification is a quid pro quo for ineffective
relief, i.e., if the government secures a future ban without
prior approval in place of structural relief. Generally where
the government has secured structural relief, the ban was not
imposed. But in almost every case where no divestiture,
partial divestiture, or some marketing order was imposed,
the future ban is found.

What is disturbing about the future ban is the impli—
cation that it is a substitute for structural relief. In
at least five Section 7 cases settled in 1966 the FTC
imposed future_bans of five to ten years with no divestiture
ordered.lOl This reminds one of Christ‘s admonition to the
woman taken in adultery: "Neither do I condemn thee: Go,
and sin no more."102 In spite of possible Biblical
authority to the contrary, Elman correctly points out in

his dissent in National Tea:

 

 

 

125

If National Tea's past_acquisitions were
unlawful (as the Commission decision so
held) because their likely effect, indi-
vidually or cumulatively, was to lessen
competition in any market, the public
interest requires that divestiture be
ordered . . .103
The Environment of Antimerger Enforcement

That the economics of keeping markets free operates
in a legal-political environment is a statement which
probably surprises no one. To an economist working in-the
area of antitrust, the term "political economy" is indeed~
a meaningful one, one close to home.

Any enumeration of the factors which raise barriers
to antimerger relief would be incomplete without mentioning
the political-legal environment within which Section 7 is
enforced and any deleterious effect this environment might
have on the efficacy of the law. Since this is not a study_
in administrative law or political science, the remarks
will be brief--though brevity does not indicate a lack ofn
severity.

At the start of this chapter, the general rule was
stated that the longer a merger remains consummated, the
more difficult it is to unravel. One of the reasons for
the lengthy time Span between the acquisition and the,
relief order is that the adjudicative process can be so long.
The Methusalah of Merger Cases, the Pillsbury fiasco, was

literally litigated to death with the FTC finally dropping

the case after-fourteen years and some forty thousand pages

of evidence.104

 

 

 

 

126

That antitrust cases take too long is not a new
proposition; the problems of the "big case" have been

explored before—-yet still exist. Any lawyer interested

in dragging out a merger case has several excellent examples

to draw from. The Crown Zellerbach case, for example, lays

out an exemplary strategy for lengthening this time span
which in turn is so helpful in avoiding structural relief.
In the trial records of that case, pages 11 through 16A9

are consumed by pre-trial jockeying for position, corres-

pondence for extensions, pre—trial conferences, resetting
of trial dates, admissability of evidence questions, etc.

These tactics ran out over three years of the judicial

clock. One who reads the trial records in these cases

cannot help but be overwhelmed by the legal jockeying and

delay, nit—picking, the legal moves and countermoves—-

illustrated by briefs such as these:

Brief In Support Of Interlocutory Appeals
From Hearing Examiner's Ruling Denying‘
Motion Of National Dairy Products Corpor—

ation To Quash Subpoena Dated December 15,
1958,105

Respondent's Brief On Appeal From The Order
Of The Hearing Examiner Denying Its Motion
To Strike Proponent's Answer To Respondent's

Request For Admissions And To Have The
Matters Of Eact In Such Request Be Deemed
Admitted.10

Memorandum Reply To "Answering Brief To
Respondent's Interlocutory Appeals From
Hearing Examiner's Ruling" And "Answer
Opposing Request For Oral Argument 0n
Respondent's Interlocutory Appeal."107

7"

 

127

Briefs such as these may be very necessary and integral to
the litigative process; the author is not qualified to judge.
But there is no doubt that they lengthen the time span--and
structural relief becomes less probable.

The impact of politics on antimerger relief decrees
should not be discounted—-or minimized. That the Johnson
administration will not be distinguished for its emphasis
on antitrust enforcement is well known. A general directive
to "go easy" in antitrust from the President, without a
doubt, filters down into relief negotiations.

At times political "interference" has directly altered
a relief decree. The most impressive display of this is
show by Public Law 89—356, the Banking bill passed in
1966.108 This bill was in direct response to antimerger
activity directed against banking——and specifically nullified
three court divestiture orders! Even those who have resigned
themselves to the role of strong lobbies and powerful special
interest groups in a democracy cannot help but be somewhat
disturbed by the determined and successful efforts of the-
banking interests to ram this bill through Congress.

Of course, a piece of legislation is not always neces—
sary to weaken a relief decree. In the Union Carbide relief,
a June 1963,1etter from one of Louisiana's senators extolling
the virtues of selling the Visking plants to Ethyl Corporation
was sent to the Commission; four months later, the sale was

allowed. Senator Pastore ". . . preached anti-poverty to the

 

 

128

Justice Department and has all but undone the Government‘s
assault on Kaiser Aluminum & Chemical Corp.'s acquisition
from U.S. Rubber of a wire and cable plant in Bristol,

109

R. I." The divestiture order in the above case was

dropped.110

Political pressure, played from the poverty and unem—
ployment angles, also influenced the Continental Can relief
decree111 and the Justice Department's decisions not to
challenge the Firestone—Seiberling Rubber Co. and General

. . . 2
Electric—Landers, Frary & Clark acqu1s1tions.ll

Conclusions

What can we conclude on the general problem of asset
restoration as a barrier to efficient antimerger enforcement?
First, that the time span between the acquisition and the
divestiture order can, in a dynamic market setting, prevent
or make very difficult the unscrambling of two firms.
Second, divestiture of "bits 'n pieces" of an acquisition,
the so-ealled partial divestiture, has not distinguished
itself for efficacy. Third, a loose handling of the divest—
iture-of post-acquisition improvements could afford an
economic incentive to firms to expand in violation of-
Section 7, planning on divesting the acquired assets several
years hence. The answer to these problems, the task of the
next chapter, involves cutting down or eliminating this

time span. It does not require some per se rule regarding

 

 

 

 

 

129

partial vs. full divestiture or regarding the divestiture.

of post—acquisition improvements. Rather it requires a
closer adherence to the principle that relief iS'a failure,
if sufficient assets are not excommunicated to re—establish
an independent firm of sufficient size to survive. Normally,
this would seem to require full divestiture including any
post-acquisition.improvements.

With regard to marketing orders in antimerger enforce-

ment we can conclude:

l. The marketing order is considered by some to be
a substitute for structural relief.- This is an
error, for the marketing order is<a bastard form
of antitrust regulation.

2.; Assa substitute for structural relief, marketing!
orders have distinguished themselves for being
ineffective, difficult and/or costly to enforce,
often protective or anticompetitive in nature,
and being in effect a probable-bar to efficient
resource allocation.

3. They should be used parsimoniously, if ever.

Concerning those parts of the political-legal environ-

ment that hamper the securing of meaningful antimerger relief,

the author cannot express any solutions—~only-his chagrin.

 

 

 

130
FOOTNOTES
CHAPTER IV

lGeorge Perkins, "A Constructive Suggestion,"
Address before Chamber of Commerce, Youngstown, Ohio,
December 4, 1911, p. 1.

2Donald Dewey, "Romance and Realism in Antitrust
Policy," JPE, 63 (April, 1955), p. 93.

3

U v. Northern Securities Co.
(1904).

, 193 U. s. 197

4
See Matthew Josephson, The Robber Barons (New York:
Harcourt, Brace and World, Inc., 1962 ed.), p.

5U. S. v. Standard Oil Co. of N. J. 221 U. S. 71
(1911); U. S. v. American Tobacco Co. 221 U. S. 106 (1911).

6U. S., Congressional Record, December 5, 1911, p. 23
quoted in Eliot Jones, The Trust Problem in the United
States (New York: Macmillan Co., 1923), p. 461.

 

7Louis D. Brandeis, United States Tobacco Journal,
August 3, 1912, p. 5 quoted in Reavis Cox, Competition in
the American Tobacco Industry (New York: Columbia University
Press, 1933), p. 39. The shortcomings of the relief in the
tobacco case led to, and are well illustrated by, a later
antitrust case against the three leading tobacco companies
where,once again, little was done by way of relief to
inaugurate Viable competition. See W. H. Nicholls, "The
Tobacco Case of 1946," AER Proceedings, 39 (May, 1949),
pp. 284—296

8See: George E. Hale, "Trust Dissolution: ‘Atomizing'
Business Units of Monopolistic Size," Columbia Law Review,
40 (April, 1940), pp. 615— 632, Vernon Mund, Government and
Business (4th ed. New York: Harper & Row, 1965), chap. 10.

9Milton Handler, "A Study of the Construction and
Enforcement of the Federal Antitrust Laws," U. S. TNEC
Monograph No. 38 (Washington: U. S. Government Printing
Office, 19415, p. 84. See also U. S. v. Aluminum Co. of-
America, 91 F. Supp. 333 at 416 (1950).

10Walter Adams, "Dissolution, Divorcement, Divestiture:
The Pyrrhic Victories of Antitrust," Indiana Law Journal,
27 (Fall, 1951), pp. 1—37.

 

 

131

11Milton S. Goldberg, The Consent-Decree: Its
Formulations and Use (Michigan State University Graduate
School of Business Administration, Occasional Paper-No. 8;
E. Lansing, Mich.: Bureau of Business and Economic
Research, 1962).

 

 

l2Timken Roller Bearing Co. V. U. S., 341 U. S. 593
at 603 (1951), underlining mine.

I

13U ‘

.US. V. General Electric Co., 115 F. Supp. 835 at l

870 (1953 5, underlining mine. i

4
l U. S. V. United Shoe Machinery Co. 110 F. Supp.
295 at 348 (1953)-

1
5Ibid.

 

l6Car1 Kaysen, United States v. United Shoe Machinery
Corporation (Harverd Economic Studies No. 99; Cambridge:
Harvard University Press, 1956), p. 343.

 

7The most colorful account of this occurs in Walton
Hamilton and Irene Till, "Antitrust in Action," U. S. TNEC
Monograph No. 16 (Washington, D. C.: U. S. Government
Printing Office, 1941) esp. pp. 3 and 59- 60. See also Mark
S. Massel, Competition and Monopoly (Garden City, New York:
Doubleday & Co. , 1964), esp. pp. 11 and 98- 104.

18H. Templeton Brown, "Injunctions and Divestiture, "

A. B. A. Proceedings, Section of Antitrust Law, 10 (1954),
p. 138.

QLouis D. Brandeis, The Curse of Blgness, ed. 0. K.
Fraenkel (New York: The Viking Press, 1935), p. 103.

2O”Respondent' s Appeal Brief," July 8,1959, p. 231
in Pillsbury Mills Inc., FTC Docket 6000.

21
WSJ, May 5, 1965, p. 1. See also U. S. v.
Philadelphia National Bank, 374 U. 8.321 at 371 (1963).

2
2 U. S. V. E. I. duPont de Nemours & Co., 366 U. S.
316 (19617.

gfieport and Recommendations of Andrew J. Dallstream,
Amicus Curiae with Respect to the Interests of Stockholders
of.E. I. duPont de Nemours & Co., in U. S. V. duPont,L et al.,
Civil No. 49 C 1071, U. S. D. C. for N. Ill., E. Div.,
August, 1958, p. 26.

241"Note, Clayton Act, Section 7 Remedies," Tulane
Law Review, 34 (February, 1960), fn. 36, p. 407.

 

 

 

 

 

 

132.

25Dallstream, op. cit., p. 38.

26Ibid., pp. 41-42.

27For example, see: "Note,-Clayton~Act, Section 7'
Remedies," op. cit., pp. 402-409; "Aspects of Divestiture
as an Antitrust Remedy," comment in Fordham Law Review,

32 (October, 1963), pp. 142—146-
28Donald Cock, "Acquisition of stock tending to
create monopoly--Equitable decree," Osgoode Hall Law
In this case the Supreme

Journal, 2 (April, 1960), p. 157.
Court remained unimpressed by these arguments and ordered
complete divestiture. For this bravery, they are to be
commended. And as is evident, the dire consequences never;
occurred. The stockholders received special tax relief<
[76 Stat. 4 (1962)]; the stock in both companies advanced

even five months after the verdict.
232,

. 9BNA Antitrust & Trade Regulation Report, No.
p. A-lO. Hereafter cited as, e.g., BNA ATRR 2322A-1O.

3OFarm Journal, FTC Docket 6388, 53 FTC 26 at 50 (1956).

 

311bid., p. 51.
32Diamond Alkali Co., FTC Docket-8572.
33"Appeal Brief of ReSpondent," September 22, 1964,

pa-26‘in.ibid.-
34"Answer-Brief of Counsel supporting the Complaint,"

November 13, 1964, p. 25 in ibid.
35Erie Sand & Gravel, FTC Docket 6670.
36Erie Sand & Gravel v. FTC, 291 F.2d 279 (1961).

3ZErie.Sand,& Gravel, op. cit., 6O FTC l9 (1962)°
38Foremost Dairies, FTC Docket 6495, 60 FTC 944 (1962).
39Ibidb, ppo 1047-10490

m

40HAnalysis, Divestiture Problems in Antimerger

Cases," BNA ATRR 196: ELl at B-3.
41Testimony of Emmanuel Celler in U.S., Congress,
Senate, Sbucommittee on Antitrust & Monopoly, Hearings on
Legislation Affecting Sections 7, 11, and 15 of the Clayton
2nd Sess., 1958. fn. 4, ppa 154:155.

Act, 85th Cong.,

 

 

 

 

 

 

 

 

 

133

Hooker Chemical, FTC Docket 8034, 59 FTC 254 (1961).

”3Guir Oil Corp., FTC Docket 6689, 56 FTC 688 (1960).
See Appendix A for documentation on the relief in this case;

and others mentioned in this chapter.
1MSee Gulf Oil Corp., 1962 Annual Report, p. 7; 196

Annual Report, p. 8.
”5Sooviii, FTC Docket 6527, 53-FTC 260 (1956).

u6Brillo Mfg, Co., FTC Docket 6557.
#7"Respondent“s Proposed Order," September-26, 1961,
V"'in’ibido.
" 48Thngorder described in.BNA ATRR 134: Ae12. If it
was an intended purpose of the decree to keep Brillo's

capacity in industrial steel wool constant, this was not-
accomplished by the order since the manufacturing-facilities-

are interchangeable between household and industrial steel
It does not take a production engineer to see~thati

wool.
this order can affect Brillo's capacity;in industrial steel

wool.

4

9"Proposed Order Ovaounsel Supporting The Complaint
And Reasons In Support Thereof," September 29, 1961, p. 4

in Brillo Mfg, Co., loc. cit.
5OSee,U.S.,v.cThe Hertz Corporation, BB #1444,
I, Complaint of

Antitrust Division Pleading File, Vol.
Maygl, 1959; Consent Order of June, 1960, and WSJ, June 30,

1960’ po‘So'
51WSJ,'ibid.

' 52See-U.s.-v. Elder System. Inca BB #155": Antitr"3t

Division Pleading File, Vol. I, Complaint-of October 3,

1960,Consent Order of June, 1961; Ryder had 15,500 trucks

at the time of the complaint.
53See correspondence and petitions-in Pleading File,

ibid..

54Diamond Crystal Salt Co., FTC Docket 7323, 56

FTC 818 (1960).
55This was not the only provision of the order;
But it was the only divestiture provision.

see,Appendix,A.

‘:=’1

 

 

 

 

 

 

 

134
56

57
"Respondent's Reply Brief," December 7, 1956,
p. 29 in ibid.

58

Crown Zellerbach, FTC Docket 6180, 54 FTC 769 (1957).

 

Crown Zellerbach, op. cit., at p. 807.

59Crown Zellerbach Corp. V. FTC, 296 F. 2d 800 (1961),
cert. denied 370 U. s. 937 (1962).“"

60Reynolds Metals Co., FTC Docket 7009, 56 FTC
743 (1960).

61
Reynolds Metals Co. v. FTC, 309 F. 2d 223 at
231 (19625.

62A factor, I suspect, in the substantial weakening
of the Scott relief decree, Scott Paper Co., FTC Docket 6559.
Cf. Commission Order of June 1, 1956 (described in BNA ATRR
12: A-3) with Commission's Modified Order of May 8, 1963
(described in BNA ATRR 146: A-20).

 

63Union Carbide Corp., FTC Docket 6826, 59 FTC
614 (1961).

4
"Answer Brief To Respondent's Appeal Brief," June 7,
1961, p. 57 in ibid.

6
5U. S. V. Aluminum Company of America, 233 F. Supp.
718 (1964) and 247 F. Supp. 308 (19621.

6"Government Memorandum In Support Of Divestiture Of
The Corona Plant," October 20, 1964, p. 3 in U. S. v.
Aluminum Co. of America, BB #1607, Antitrust Division

Pleading File, Vol. III.

67The fortitude of the lower court is to be commended
in this case for it finally ordered the divestiture of all
Alcoa ownership in Cupples and the California plant. See

U. S. V. Aluminum Company of America, 247 F. Supp. 316 (1964).

The Supreme Court's affirmation of this divestiture order

in Aluminum Company of America v. U. S., 382 U. S. 12 (1965),
hOpefully will cause lower courts to take a harder look at
the divestiture of post-acquisition improvements.

68See: Hale, op. cit., p. 629; Mund, op. cit., p. 157;
Philip Marcus, "The Impact on Business of Antitrust Decrees,"
Vanderbilt Law Review, 11 (March, 1958), p. 316.

69WSJ, August 19, 1963, p. 8; WSl, September 5,
1963, p._14.

 

 

 

 

 

 

 

135

70
. U’SZ'Y° Maremont Automotive Products Inc., BB #1543,
Antitrust D1v1sion Pleading File, Vol. I, Order of U.S. D.C.
for N. Illo of January 3, 1963. ‘ ‘ 1

71
Reynolds Metals-Co., loc. cit., letter from
Reynolds to the FTC, January-16, 196 , p. 5.'

2
7 Ibid., p. 7.

 

 

73Reynolds Metals Co., ibid., letter from Reynolds
to the FTC, December 27, 1965.

 

4
_ 7 "Report of Compliance," Automatic Canteen Corp. of
America, FTC Docket 6820, Vol. 6820—3-3-2..

75See Brockway Glass Company Annual Report of
September 30, 1964, p. 7; also WSJ, June 17, 1965, p. 12.

76Boise Cascade Annual Report, 1957, p. 2.
77Ibid., p. 1.
78"Dependants Suggestion As To The Form And Content

Of Proposed Judgment," December 10, 1959, p. 4, underlining
mine, in U.S. V. Brown Shoe Co., BB #1266, Antitrust'
Division-Pleading File, Vol. III.

79"Memorandum to Bureau of Restraint of Trade from
Bureau of Economics, Re Sale of Visking to Ethyl," October-7,
1963, pp. 4-5 in Union Carbide Corp., loc. cit.

BOWSl, April 13, 1964, p. 9..

81
"Compliance Reports," in Leslie Salt Co., FTC
Docket*8220.

2
8 Ibid. in 8220-3—3-2—2, Exhibit 123.

83Telegram of July 30, 1962, with respect to
Continental Baking, referred to FTC.

8l‘l"Statement" of Union Carbide to FTC, April 25,
1963, p. 12 in Union Carbide Corp.,loc° cit.

85"Memorandum to the Commission from the Bureau of

Restraint of Trade," undated, p. 3 in Crown Zellerbach Corp.,

loc..cit..

86Ibid., p. 6.

87Ibid.

 

 

 

 

 

136

88Private correspondence with author of January 16,
1967; see_a1so g;§._v.-A1uminum Co. of America, 100. cit.,
Vol.IV, for Alcoa's efforts to select the buyer of Cupples
and retain a measure of working control over the firm
after divestiture.

89Alfred E. Kahn, "Standards for Antitrust Policy,"
A. E. A.-Reading§ in Industrial Organization and Public
Polic , ed. Richard B. Heflebower and George W. Stocking-
(Homewood, 111.: R. D. Irwin, Inc., 1958), p. 354, reprinted
from Harvard Law Review, LXVII (1953), pp. 28-54.

 

 

 

90See Sigmund Timberg, "Equitable Relief under the
Sherman Act," University of Illinois Law Forum, 1950
(Winter, 1950), pp. 637—638; see also the excellent dissent
of Justice Rutledge, Hartford Empire v. EL§., 324 U.S.
570 at 575 (1945).

9lMarcus, op. cit., p. 323; see also the order in
.S. v. American Can Co., 1951 CCH Trade Cases, Par. 62,679.

(3

92Wendell Berge, "Some Problems in the Enforcement
of the Antitrust Laws," Michigan Law Review, 38.(February,
1940), p. 469.

93U.s. v. Pullman‘Co., 50 F. Supp. 123 at 136 (1943),
underlining mine.

9”See also Irston R. Barnes, "Considerations Concerning
A Public Policy Toward Administered Prices," in U.S.,
Congress, Senate, Subcommittee on Antitrust & Monopoly,
Administered Prices: A Compendium on Public Polic , 88th
Cong., 1st Sess., 1963, p. 77.

 

95U.S. v. American Cyanamid Co., 1964 CCH Trade Cases,
Par. 71,166.

96Simpson Timber Co., FTC Docket-7713, 6O FTC 42
at 51 (1962).

97See respectively: Minnesota Mining & Mfg. Co.,
FTC Docket 7973, 59 FTC 321—T1961); Diamond Crystal Salt Co.,
FTC Docket 7323, 56 FTC 818 (1960); International Paperggg.,
FTC Docket'6676, 53 FTC 1192 (1957); E. v. general Shoe
Co., 1956 CCH Trade Cases, Par. 68,271; Georgla Pac1f1c
Car-2., FTC Docket 0—751, see BNA ATRR 15“”3: 15.—"._11.

98"Compliance Reports," in Gulf Oil Corp., 100. cit.

 

 

 

 

137

99Brillo Mfg. Co., op. cit., Final Order, January 17,
1964, p. 2.(mimeo).

100
If anything, the ban encourages the firm to make
conglomerate acquisitions. See Chapter VI on the merger
activity since 1959 of firms in the sample.

101. . .
See: American-Bakeries, FTC Docket C-1111;
Broadway Hale-Stores, Inc., FTC Docket C-1057; May Department
Stores Co., FTC Docket 0-1105; NatiOnal Tea Co., FTC Docket‘
7453; Winn-Dixie-Stores, Inc., FTC Docket C-1110.

102

 

 

 

 

John 8:11 (KJV).
103Elmandissent, March 4, 1966, p. 3 (mimeo) in
National-Tea Co., loc. cit.

104
BNA ATRR 247: A—13.

105National Dairy, FTC’DOCKet 6551°

106Br111o Mfg. Co., loc. cit.

107Erie Sand & Gravel Co., loc° cit.
108See BNA ATRR 248: B-1.,

109JameS-Harwood, "The Mystique of Antitrust," Mergers
& Acquisitions: The Journal of Corporate.Venture, 1 (Fall,

1965), po 35.

1 O
1 Business Week, January 1, 1966, p. 22.

lllBNA ATRR 168: A—7.

112Harwood, 0p. cit., p. 35.

 

 

 

 

CHAPTER V
PUBLIC POLICY IMPLICATIONS

And he that will not apply New_Remedies,
must expect New Evils: For Time is the
greatest Innovator.

_—-Bacon, Of Innovations
Introduction

The obstacles to securing effective relief in anti—
merger cases have been documented in the previous chapter.
They were found to be formidable. The question which
logically follows is: what can be done about these
obstacles? Are there public policy measures.which can
surmount them?

In this chapter, three such public policy.measures
will be discussed. The first deals with facilitating
structural relief after a merger is found to have violated
the law. The second deals with stopping anticompetitive
mergers before they are even consummated. And the last
considers the possibility of requiring companies planning
to merge to first notify the government of their intentions.

Preceding this public policy discussion, a section has
been devoted to the costs of breaking the law as it is now

enforced. The purpose of this first section is to focus on

13 8

 

 

 

 

139

the likelihood of anticompetitive mergers continuing to be
consummated, given the present cost of engaging in such

mergers.

The Cost of Violating Section 7

 

The Celler-Kefauver amendment aims at terminating

both a situation and a practice. The situation to be undone

 

is an anticompetitive merger. The undertaking of anti—
competitive mergers is the practice the law seeks to stop.
The former looks to the past; the latter to the future.

That the law has been less than fully successful in
undoing anticompetitive situations was indicatedin Chapter
III. This has an important implication for the law's
impact in discontinuing the practice of undertaking anti-
competitive mergers. Indeed, preventing the practice in the
future is inextricably tied to the effectiveness with which
unlawful situations have been-dealt 111 the past. For, if
there has been no remedy applied to an anticompetitive merger
and no cost for consummating the merger, this will not bode
well for the deterrence of future anticompetitive mergers.

Exactly what are the costs of making an unlawful
acquisition? If the acquisition is never detected, or if
detected never prosecuted, the "cost" of making such an'
acquisition is nil. But assume the acquisition will be
attacked, post—consummation. Are there economic factors
acting to dissuade the acquiring firm from proceeding to

violate Section 7 anyway?l

 

 

 

 

 

140.

Without a doubt there are some. The crucial question
is—-how great are they? Without-attempting to.put.a monetary
value on them, since they will.vary.from case to case, the

following costs are quite likely to be incurred.

The Cost of Litigation

 

The most obvious is the cost of litigation. No effort
is made to belittle this expense.* Antitrust.lawyers do not
come cheaply, at least well—known ones. -Whi1e companies do
not disclose their legal expenses nor antitrust lawyers
their fees, it is known that the government.spent $90,000
in the trial year alone on the Bethlehemeoungstown case and
$80,000 for the trial year in Brown—Kinney-2-.There is no
doubt that respondents generally spend-more than the govern—
ment in these suits. Consequently the expense of litigation
is a cost to be considered in any.acquisition decision

bordering on the unlawful.

The Cost.of Divestiture

 

What other costs are there which.might.discourage the
consummation of an unlawful acquisition? lln addition to the
cost of litigation, the acquiring firm must also.consider
that-divestiture of the acquired facilities.m§y be ordered
(though obviously not necessarily) and this divestiture
process might be expensive. There are.obvious procedural
expenses inherent~in.a divestiture order. The facilities

to be divested must be publicized at respondent's expense.

 

 

141

The respondent or his agent will have to carry on extensive

correspondence with prospective purchasers. Extensive

negotiations with the government on possible purchasers and

terms of sale might be necessary.' Valuable managerial

resources may have to be allocated to handling the divest-

iture order. Owens—Illinois vice president Laughlin found. f
meeting a divestiture order his "principal activity" for

a year.

A divestiture order can also present personnel problems
which could be expensive. .Continental Baking's vice-
president Anderson, in his efforts to sell Omar, was so 4
impressive that one prospective-purchaser attempted to hire
Anderson away from Continental.Ll Vice-precident Hoover of

Continental Can found that under a divestiture order,

 

requiring the continuation of operations until compliance,

that
. . it was most difficult to keep an organi—
zation together . ... we have lost 108 people
. . we have not been able.to replace them
because it is very difficult to recruit people
when you don't know whether you are going to
continue in business.
Salesmen may have difficulty maintaining sales from plants
under a divestiture order-—particular1y if rival salesmen-
are adept at spreading rumors that the plant "will probably.
close down." Competitors of American Radiator's Youngstown
Division relished informing customers that " . . . the.

uncertain future of the Division makes it risky to carry

inventory of Youngstown products."6

 

 

142

The Profitability of Violating Section 7

 

Presently, many antitrust lawyers are advising clients
not to consummate certain mergers; that, given the present
standards of law, such mergers would be held in violation
of Section 7 and their clients subject to these litigative
and administrative expenses. But-economically does this
advice make sense?

Without gainsaying the cost of litigation in anti-
merger cases or the costs of administering a possible
divestiture order, one of the central hypotheses to flow
from this-study is that the economic cost of violating the
antimerger law, given.the present enforcement structure, is
so small that in many cases it should be almost completely
discounted.

Since there are no direct fines involved in violating
the law, since there are no nonepecuniary stigmas attached,
since there is no damaging publicity directed against-the
Section 7 violator, since the violator quite possibly will
be able to retain the fruits of his unlawful acquisition,
since divestiture can be a profitable.undertaking, and
since the litigative~and possible.divestiture costs might.
be rather minor compared to the.pecuniary benefits accruing
to the acquirer, the wiser advice might be to proceed with
the merger. In short, if a proposed acquisition appears to
be.a profitable move for a.company, it will quite likely be

profitable whether the acquisition violates Section 7 or not.

 

 

 

 

 

 

 

 

143

Of course, this does not mean that those firms making
acquisitions in violation of Section 7 have always come out
of them smelling like a rose. 0n the contrary, one of the
rather startling facts is how many acquisitions, though
violating the standards of Section 7, are losers! But they
were not losers because they violated Section 7; they were
acquisitions which never should have been made for reasons
other than legal.

Though data are not available on the relative profit-
ability of most Section 7 cases, it is known thatusuch.
vaunted acquirers as Alcoa, American Radiator & Standard
Sanitary, Continental Baking, Continental Can, Foremost,
National Homes, Reynolds, and Ryder all made unprofitable
merger decisions.7 The point is stressed that these
companies would have been well advised to forego these
acquisitions, not-because they would violate Section 7, but
because those supporting the acquisition apparently over—
looked or minimized some detrimental economic factor——such
as the inability of some of these firms profitably to manage
an acquired subsidiary operating in a more competitive
market.

As it turns out, a divestiture order can be a boon in
these economically unsuccessful acquisitions, serving as a
legitimate "out" for the acquiring firm. For the divesting
firm need not confess "we're losing our shirts and want out"

but can rather complain "we've got to divest——government

 

 

 

 

144

orders." American Radiator, though taking a loss on the
sale of its Youngstown Kitchen Division, admitted "the net
effect on earnings should be favorable since the division
was operating at a loss."8 National Homes eXpressed similar
sentiments about having to divest unwise acquisitions: "The
settlement was considered to be extremely favorable in that.
the decree did not require any action that would not other-
wise have been taken for business reasons."9 Top corporate
officers from Foremost Dairies, their firm having been in
serious financial trouble from overextending itself,
admitted that the divestiture order was "the best thing that
ever happened to Foremost." Most of the money derived from
the divestiture was reinvested in McKesson & Robbins stock.
One analyst commented that Foremost was

. . . making more money on this capital than

they would have if the Government hadn't

forced them to sell off those dumb milk com-

panies they insisted on buying. They

couldn't make 5 percent on their operations

before.

On the other hand, for those mergers wisely consummated

on economic grounds but later found to Violate Section 7,
and for which divestiture orders were entered, there are data
tending to verify the aforementioned statement: if the
acquisition looks profitable aside from the law, it will
probably be profitable in spite of the law. Brown Shoe's
1963 Annual Report showed a pre—tax gain on the sale of

Kinney of over $14 million.11 Crown—Zellerbach reported a

 

 

 

 

 

 

145

gain of over ten million dollars on the sale of the St.

Helens facilities.12

International Paper, allowed to keep
the Long Bell Lumber Corporation but required to divest
itself of certain stock interests held by Long Bell, took
advantage of the ten-year divestiture period, parceled

the stock out wisely, and made a profit on the sale of this
stock of over $9 million.l3l Not to be outdone, Owens-
Illinois reported a net gain of $15 million on the sale of

4
six National Container properties.l Union Carbide made a.

capital gain of fifteen cents per share on the sale of they
15

 

Visking plants. Spalding, though keeping the figure

secret, mentioned a gain on the sale of Rawlings in its

 

Annual Report.16 Imagine the foolishness of Gamble-Skogmo
backing out of acquiring Western Auto because they were
advised such an.acquisition would violate Section 7;
Gamble—Skogmo controlled Western Auto for about two years,
then sold control to Beneficial Finance turning a better
than $21 million profit on the deal, nearly doubling its

original investment in the short time period!

Section 7 Violations and Market Entry

 

Compounding the incentive to merge in violation of
the law is the probability that-the merger, even if resulting
in divestiture, will enable the respondent to remain in the
market. In that period prior to the government’s complaint
and during the litigation, the respondent should be able to

devise some way to hedge against an eventual divestiture

 

 

 

 

146

order. For some companies, as mentioned in the previous
chapter, this might take the form of using the facilities
until, by the time of relief negotiations, the facilities~
are no longer suitable for divestiture. But for some, the
.hedge takes the form of building new (and separate) facil-
ities duringthis time span-—the divestiture of only the
acquired facilities leaving the divesting firm with market
capacity to continue-as before.

A year before the divestiture of St. Helens, Crown
began construction of a new paper mill at Wauna, Oregon, to
manufacture tissue paper.18 This should dovetail nicely with
its eventual divestiture of the tissue facilities at St.
Helens. Union Carbide, as was previously mentioned, had
constructed a huge polyethylene film plant in Georgia prior
to divestiture of the three Visking polyethylene film plants—-
which it retained. Not all firms are quite this speedy:
Owens-Illinois did not have its 900—ton—per-day container
board mill, being constructed at Orange, Texas, completed by
the time of divestiture of its acquired mill.19

Other variations and nuances on this theme of minimizing
the cost of violating the law can be found—-such as negoti—
ating a harmless marketing order in lieu of divestiture,
settling for partial divestiture, or even obtaining a g:
minimus divestiture settlement.

Of course, pointing out that firms behave in such-a

manner as to reduce the costs of violating the antimerger

 

 

 

 

147

law, or that firms might make an acquisition knowing it.
violates Section 7, is not to disparage or criticize such
actions on the part of managers. On the contrary, such
action is perfectly rational; that is what managers are
paid to do.

The sole purpose in indicating this fact about anti-
merger enforcement is to show its inconsistency with an
established, long-verified fact of human behavior: if;
there is no way of preventing a particular act before it is
committed, and there is no punishment (i.e., cost) for com-
mitting this act if caught, the act will continue to be
perpetrated so long as it is profitable to do so.

As long as there is an economic incentive to merge in
violation of Section 7-—and there is evidence that under the
present enforcement structure this is still the case in many
mergers—-Section 7 will not be the preventive antitrust
measure Congress intended. Section 7 enforcement needs to
be infused with a bit of wisdom from one of the TNEC
monographs: "(Antitrust enforcement) . . . must remain
largely preventive. And prevention moves by example; it-
dangles before the many the fate of the few."20 But the
"fate" of some of the few thus far can only lead to this

sort of advice:

 

 

148

My client will come to me and say he plans to
merge with X. He asks what are my chances of
getting away with it? I tell him the Supreme
Court outlawed your kind of merger last term.
He repeats, what are my chances of getting
away with this one? Well, I say there's a
good chance the Government won't pay much-
attention to your merger. Besides, despite
the Supreme Court ruling the Government
recently let Y Co. buy Z Co. in a situation
like yours. And there'll be tax breaks and
bookkeeping gains if you have to give the
company up five years from now. So go ahead.
Hell, it's not law; it's Russian roulette.2

Implications for Public Policy

 

What is the answer? It is not an appeal to the
"corporate soul," beseeching managers to forego economically
advantageous acquisitions for the public good; it is not>
making the Clayton Act a criminal statute, heavily fining
executives who arrange anticompetitive mergers; nor is it
following Mencken's suggestion to make a violation of the
antitrust laws punishable by capital punishment!

The answer lies in structuringealegal framework better!
to prevent specific anticompetitive mergers before their
consummation and, if this fails, satisfactorily to unravel
these mergers after the fact--and by so doing to deter
future anticompetitive mergers. Three specific areas will
be considered as a means of stimulating such a preventive

environment.

 

 

 

149

Facilitating Structural-Relief

The first specific area is the encouragement of-
structural relief——along the lines endorsed in the previous
two chapters. This "encouragement" must be partly atti—
tudinal and educational in nature. Legislation requiring
structural relief in antimerger cases would not be wise,
for in some cases such relief is impossible. Instead,
there is need for the government antitrust enforcers to
impress upon the courts the need for structural relief in
antimerger cases. And there is evidence that there are
government antitrust enforcers who themselves are in need
of this education--particularly in the negotiation of
consent orders. There is need for a change in attitude on
the part of those responsible for the relief decree to~
realize that divestiture is not only a logical requirement

in antimerger cases, it is a minimal requirement.

The Spin—Off.

 

To facilitate structural relief, perhaps even as a;

- measure to encourage antitrusters that such relief is not
beyond their grasp in antimerger cases, legislation designed
to encourage "spin—off" would be desirable. Spin-off is a
simple way of dividing a corporation into two parts without
the problem of finding a satisfactory buyer for one of the
parts. Spin—off, therefore, under most circumstances, meets

the ideal structural criteria of establishing a new inde—

pendent firm.

 

 

 

 

 

150

Assume Firm X acquires Firm Y in violation of Section
7. Under a spin-off order, Firm X would reorganize Firm Y
as a corporation and sell the assets of Y to Corporation Y
in return for all of Y's capital stock; then Firm X
distributes the Y stock to its own stockholders in proportion
to their stockholdings in X. When the spin—off is completed,
the stockholders in X will have retained their holdings in X
but will also own Corporation Y's stock. If-the managers of
X and Y are not allowed to have holdings in Y and X respec-
tively, and the shares of the two companies are sufficiently
dispersed, then, barring collusion between the two, X and Y
will be independent firms again, the anticompetitive merger
being neatly undone.22

This process has been an option in several merger
cases. In the Crown Zellerbach case the FTC staff, not
enthused about St. Helens going to Boise—Cascade, tried to
work out a spin-off order.23 But Arthur Dean, speaking as
Crown's counsel, said he was appalled by the complexities
of establishing a new corporation-—that Crown's preference
was for a sale. So it was.

In the Commission order against Kaiser Cement & Gypsum
Corporation's acquisition of Olympic Portland Cement Company,
Kaiser was given the option of either divestiture or
spin—off.2Ll Kaiser took the divestiture option——selling
Olympic to Pittsburgh Plate Glass, much to the dissatis-

faction of two FTC Commissioners.25

 

 

 

 

151

Spin—off was available to Foremost Dairies as an
acceptable method of complying with its relief order. The
company's southeastern region was first going to be spun
off but then was sold instead to Home Town Foods, Inc.26l

After losing its Supreme Court appeal, Consolidated
Foods was given the option of selling Gentry to an acceptable
buyer or establishing a new Gentry via a spin-off method.
Consolidated considered a variation on the spin—off method,
namely spinning off a block of stock representing the new
Gentry to an underwriter for sale to the general public. But
here again the option was not taken, Gentry being sold instead

27

to Basic Food Materials Incorporated. General Dynamics,

in ridding itself of Liquid Carbonics, has the spin-off option
open to it also.28 But I am not aware of any case where the
spin—off option has been successfully used in a Celler-
Kefauver case.

Companies have several reasons for avoiding Spin—off.

For one, it does not allow them to pick a buyer. There is

 

also considerable uncertainty in the Spin-off method because
of its novelty, and also due to the uncertainty of how the

new Operation will fare on its own. Under a spin-off, the

 

managers of the acquiring firm dare not bleed the spun—off
assets of important resources or personnel lest it not
survive on its own thereby hurting their own stockholders'

interests.

 

 

 

The Spin-Off and Taxation

But there is another obstacle to spin—off——which
could be cured by legislation. This is the tax barrier
to this form of relief. There is no provision in the
Internal Revenue Code giving any special consideration for
involuntary sales pursuant to antitrust orders. Under
certain conditions, the stock spun off to the acquiring
shareholders constitutes a dividend and is therefore taxable
as income. It was this income tax on its shareholders, for
example, which discouraged Foremost from using the spin-off
method. For that matter when a company complies with a
divestiture order, it may have to pay capital gains tax,
the same as a voluntary sale; this also discourages companies
from agreeing to structural relief.29

The government's hand in securing structural relief
would be strengthened substantially if legislation were
passed changing the status of structural relief orders to
involuntary conversions for tax purposes, so that no gain or
loss would be recognized from either a divestiture or spin~
off. Companies would be economically encouraged to accept
structural relief. The government would be in a better
bargaining position to demand this sort of relief, partic—
ularly with courts which still consider structural relief
to be punitive. And by so doing, companies which had planned
to consummate anticompetitive acquisitions would realize that

the chances of keeping the fruits of their acquisition would

 

 

 

153

be substantially lessened. Such legislation is needed to
facilitate divestiture. The loss in tax revenue would be

offset by the gains in antitrust enforcement.3O

Preliminary Injunctions

Sincetflkaobstacles to structural relief can be
formidable, optimum antimerger enforcement would concentrate
on stOpping all anticompetitive mergers before their consum—
mation. The preliminary injunction is one technique to nip
a merger in the bud, thereby eliminating much if not all of
the relief problem. The preliminary injunction is simply
a court order telling a party that it is not to do something
until some issue concerning its proposed action has been
settled.31

In a merger case, then, a preliminary injunction might
order two firms planning a merger to hold off until the court
was satisfied that no Section 7 violation was likely to occur.
If a judge felt strongly that a proposed merger would quite
likely violate Section 7, he might grant a preliminary I
injunction against the merger until the legality was-settled
in the main action. On the other hand, if the government is
not sustained in its request, it would still be free to
continue its suit even though no preliminary relief was,
given. At law, the preliminary injunction does not constitute
a determination of legality or illegality.

Under Section 15 of the Clayton Act, the Department of

Justice and the Federal Trade Commission may petition the

 

154

court for such orders to prevent or restrain Violations of
Section 7, and the court may "make such temporary restraining
order or prohibition as shall be demed just in the premises."
The issuance is in the discretion of the court after a
summary hearing on the merits of the order.3

As might have been predicted, the government has not
always been successful in obtaining this form of relief.
From 1953 through 1964, the Department of Justice received
thirteen preliminary injunctions in Section 7 cases. In

1965 it lost three out of four requests.33

34

Through 1966,

the FTC has been successful only once.

Granting a Preliminary Injunction

A judge, in deciding upon a preliminary injunction
request, usually weighs three factors, the most important
of which seems to be the probability that the applicant
would prevail in the main action. For example, in rejecting
preliminary relief in the Nashville Bank case the judge made
it quite evident that he did not see anticompetitive aspects
in the merger in question.35

A second consideration a judge might weigh is the
probability and extent of injury to the applicant, if-the
motion were denied but the applicant prevailed in the main
action. Preliminary relief has been denied when the judge
became convinced that divestiture, though perhaps expensive
and even difficult, would still be possible should the

applicant prevail in the main action.36

 

 

 

 

155

And finally, a preliminary injunction hangs in part
upon the probable loss and/or inconvenience to the opposing
parties. For example, in rejecting preliminary relief in
the FMC-American Viscose merger, Judge Harris was strongly
influenced by the claim of Avisco stockholders that they
would suffer heavy pecuniary losses if the merger were
delayed.37

Where the judge has doubts that the opposing party
would prevail in the main action, and feels that structural
relief may not take place later, he is likely to be far
more lenient in granting preliminary injunctions. For
example Judge Rosenberg said:

I find it difficult to understand the
defendant's contention that this case be
allowed to go to final hearing without
injunction.and that if a violation . . .
has occurred that the remedy of divestiture
then be effected. Considering the hardships
of divestiture actions with their ramifi—
cations and complications and their painful
impacts upon all whom they touch, it is hard
to understand that such a device can be

reasonably considered as the ultimate
remedy to be employed here.3

The Strategy of Opposing Preliminary Injunctions

 

The approach taken by companies opposing a request
for a preliminary injunction is threefold. The first step
is to indicate that the government has not adequately shown
the probability that the merger will violate Section 7;
i.e., the respondents try to place the burden of a full—

scale investigation on the government before such an order

 

 

 

 

156

is issued. For example, in the Brown Shoe case the
respondents argued: "The drastic remedy should be granted
only upon a clear showing of violation_and the necessity
for its employment."39

The second tack is to impress upon the judge that
greater injury will be inflicted upon the company if the
injunction is granted than would be borne by the government
if the injunction were denied. Companies often claim that
their merger must be consummated immediately, so that
granting even a temporary injunction against the merger will
completely and forever frustrate the merger. Denying the
petition supposedly injures the government only slightly
"since divestiture is always available" should the
government win the full trial on the merits.

In the proposed Chrysler-Mack merger, the two companies
informed the judge specifically that granting a preliminary
injunction in this case would be tantamount to a permanent
injunction};0 Continental Can argued in a similar vein,
adding that the motion should be denied since the court
always had the ". . . power to order Continental to divest
itself of the assets so acquired . . . (and) . . . Continental
is prepared to assume the risk of adverse consequences, what»
ever they may be."41

The third approach in avoiding a preliminary injunction
is to convince the judge that it is unnecessary since the

two companies will be operated separately anyway and that,

 

 

157

consequently, divestiture will be no problem in the event
the merger is found in violation of the law.J42 There have-
been several such arrangements whereby the mergers have
been consummated under some sort of separate operating
agreement,“3 and there has been support for this type of
order since it supposedly offers the advantage of allowing
the merger to be consummated without hindering the prospect
of structural relief.“l

Relying in part upon this no-commingling, separate
operation argument, others have been able to convince the
courts (or Commission) to allow the merger to be made,
pending adjudication, provided that the assets are not-

commingled.b'5 The arguments behind these three approaches

to avoiding preliminary relief orders are worthy of

consideration.

In Support of Preliminary Injunctions

To argue that the government's request for preliminary
relief should be denied, because it has not "shown a clear
violation of Section 7," simply does not wash. The fact
that the government has filed suit indicates the strong
possibility of a violation. Granting a preliminary
injunction without a clear showing of guilt is not in contra~
diction to the principle of law that the respondent is
innocent until proven guilty. Those who so argue need to be

reminded that a preliminary injunction is neither a finding

 

 

 

158

of law, nor is it permanent. It is rather " . . . inter-
locutory, tentative, provisional, ad interim, impermanent,
mutable, not fixed or final or conclusive, characterized
by its for-the—time-beingness."l46
The second argument, that preliminary relief would
frustrate an otherwise lawful merger, i.e. one which
would survive the main action, is important since, if
valid, it seriously weakens any casezfix:increased use of

preliminary relief. Is it true that granting preliminary

relief causes permanent injury to the opposing parties,

 

nullifying in effect an otherwise lawful merger?

There is evidence that a government suit does under-
mine merger plans. There are several instances where merely
attacking a proposed merger is sometimes sufficient in
itself to halt merger negotiations. The following merger
negotiations, for example, were discontinued after the
government either brought suit or announced its intention
of doing s02”7

America Corporation-Republic
American Hospital Supply-W. H. Curtin & Co.
Calumet National Bank-of Hammond-Mercantile
National Bank
Chase Manhattan Bank-Diner's Club Inc.
Commercial Credit Corp.-General Finance Corp.
Humble Oil Co.-Tidewater Oil
Kaiser Aluminum & Chemical-Kawneer Co.
Molson Breweries Ltd.-Theo Hamm Brewing Co.
Pittsburgh Brewing Co.-Duquesne Brewing Co.
Stauffer Chemical Co.-American Viscose Corp.
Russell Stover Candies-Fanny Farmer Candy ShOps
Thrifty Drug Stores, Inc.—Save—On Drugs, Inc.
Title Insurance & Trust—Title Guarantee Co.

 

 

159

Other firms which have dropped merger plans prior to
a finding of illegality but after a preliminary restraining
order include Abbot Laboratories, Allied Chemical Corp.,
Amfac Inc., Chrysler Corp., Herff Jones, Ingersoll Rand
Co., Parents Magazine and Pennzoil; all of these have.
foregone proposed acquisitions prior to the finding of
illegality but following a temporary ban.“8

Do these examples indicatetmat it is the preliminary
ban which is the decisive factor in scuttling merger plans——
even though no Section 7 violation has yet been found? It
might, but the answer is not so affirmative once the post

hoc ergo propter hoc smoke has cleared. In the first place,

 

some of the above plans were scuttled, not because a prelim—
inary ban (or much-less the government attack) in and of
itself forced this action, but rather because in the course
of the preliminary litigation the respondent becomes aware
that the merger would not stand in the main action. To
blame the preliminary injunction as the causative factor
offers a convenient ”out” from an unlawful acquisition.
The argument that the negotiations cannot survive the
"delay" of a preliminary injunction also seems a bit far—
fetched. Merger consultants constantly admonish managers
to proceed with caution, not haste. One successful acquirer
has been quoted as saying: "We have never been in a hurry
to acquire anybody. Several of our acquisitions took over

one year and the largest took two years.”49 In surveying

 

 

 

 

160

the correspondence in relief fileS—-correspondence between
firms.selling assets and proSpective purchasers-—one does
not find this "must buy immediately" attitude which seems
to prevail when an acquisition is threatened with a
preliminary injunction. And given the present state of

merger case law, since Philadelphia Bank, Pabst and Von's,

 

a respondent truly desirous of merging, hampered only by
a preliminary injunction, can have the issue at law
settled far quicker than in the earlier days of Section 7
enforcement.50-

The main burden placed on firms by a preliminary.
injunction involves renegotiation of terms, repetition of
certain legal, clerical and administrative details, and
possibly refiling some prospectuses with the SEC. It is
quite true that during the time span for litigation,
unforeseen circumstances may arise which will frustrate the
merger, at least on its original terms. If this should
happen, then at least one party to the merger should be
grateful for the preliminary injunction!

In spite of the no—mingling agreement success in the
Spalding case, and even though the final results are not
yet in on several other orders of this type, the no—
commingling agreement——the third barrier to preliminary
injunctions--is a poor substitute for an outright ex ante

ban. There are three reasons for this:

 

 

1.

161

Preventing commingling is easier said than done.
On a purely procedural basis_it has presented~
difficulties. In Brown Shoe the court had to
specify and deal with eight different problems

to keep Brown and Kinney from mingling. Inevi-
tably, issues will come up which engage the:
court in a regulatory role attempting to-keep two
firms separate though together, apart though
joined.51'

Allowing the merger to be consummated--but
preventing commingling-éstill presents the "buyer
problem" if the merger is later found to violate
Section 7. While it may be easier to separate.
the partners of an unlawful marriage if they:
never lived:to‘gether, it still leaves- the problem
of with whom one Will live after the annulment.
And finally it seems naive to think that an
agreement not to mingle can really be effective.
For example, Standard Oil of New Jersey proposed
a ten point program to own PotaSh Company of
America yet keep Potash free from Standard's

influence. Judge Shaw wisely rejected the idea

that

 

 

 

 

162

 

. . . Potash Company of America, Inc. would,
in the interim . . . be, and continue to be

after divestiture by Jersey, the same oper—
ating corporate entity as PCA has been in

the past . . . There are many areas in

which suggestions from Jersey rather than.
directives could affect future policy pending
the outcome of this litigation. 2

Or as one judge colorfully put it: "It has been
said that after the saber thrust, the wound is
still there. The purpose of the injunction is

to prevent the wound ."53

Facilitating Prelimingry Relief

Consequently, there is a need for legislation enabling
the antitrust enforcement agencies to obtain preliminary
injunctions more easily. One such piece of legislation was
Celler's bill, first presented in the 87th Congress——but
never passed.5u This bill would not have given the courts
any more authority to issue preliminary injunctions; they
have ample authority as is. Instead the bill would have
encouraged the courts to give preliminary injunctions less
sparingly.

Helpful as this bill might be, an even sounder aid to
facilitate nipping anticompetitive mergers in the bud would
be a bill somewhat analogous to Section 7 (A) of the 1966
Bank Merger Act which provides an automatic stay upon a
challenged merger, unless the district court approves it.55
In other words, a law is needed which will reverse the

order of proof in preliminary injunction cases——allowing the

g-

 

163

government to seek preliminary relief and placing the burden
on the merging parties to show Why the automatic stay should
not be continued.

Companies should be able to have the stay lifted.

But this should be possible only upon a reasonable showing

 

that the acquired firm will be restored as an independent

should the merger eventually be found in violation of

Section 7. Such a law would dovetail nicely with the pro-

’vision advocated earlier to facilitate Spin—off. Thus,

one method which two companies might use to have an auto—

matic stay rescinded would be to submit a satisfactory

Spin-off plan to the court. But in the absence of such a

Plan, the preliminary ban would remain in effect until the
termination of the main action.

In brief, more effective antimerger enforcement
requires either (1) a change in attitude on the part of the
Judiciary in providing preliminary relief, or (2) legis-
lation reversing the order of proof in preliminary relief
cases, placing the burden on the respondent to demonstrate
that the merger clearly will not violate Section 7 or that
structural relief is likely should the government win the
main action. At the minimum, the government should only
have to raise doubts about the legality of an acquisition
to secure preliminary relief.

The notion that the "time" consideration is so all

important is spurious. Any pecuniary interests in immediate

 

164

consummation are subordinate to the public interest. Indeed,
the preliminary injunction is in keeping with the general
purpose of the Clayton Act-—stopping anticompetitive mergers

56

in their incipiency. Its use should be encouraged.

Premerger Notificapion

 

There is nothing presently preventing two companies
with marriage plans from asking the approval of the govern-
ment. In fact, the government encourages this very thing.
But, in the vast majority of cases, the couple prefers to
e10pe and let any interested parties learn of the union in
the papers or from "friends." Sometimes this takes time,
and an annulment becomes less likely.

The fact that the government has an advisory program
on proposed mergers was mentioned in Chapter II. Recall
that this was seldom used, since most businessmen are
"reluctant to dig their own grave." Because there is
presently no requirement that companies planning to merge
must report their intentions to either the Federal Trade
Commission or to the Antitrust Division, these two agencies
must go elsewhere to learn of mergers which might violate
Section 7.

Where must they go? They review newspapers, the
financial press, investment brochures, and trade journals
for information on prospective and consummated mergers.
Sometimes, the investigation of one merger provides infor-

mation on others. Occasionally, stockholders of one of the

 

165

parties to a proposed union, peSSimistic about its effects
on their holdings, will even write the government hoping
that a federal antimerger suit will emasculate the merger
talks!

Stanley Barnes, the former and most able chief of the
Antitrust Division, once testified that ". . . a good.part
of the time of the junior members of the staff is occupied‘
with ferreting out, before they occur, those mergers with
potential anticompetitive effects."57 In addition, he
stated that one third of the mergers which have involved.
detailed study by his agency were either already consummated,
beforehand or else were consummated before any preliminary
investigation could be completed. Mergers less likely to.
come to the government's attention are those by closely held
firms, partial stock acQuisitions where the percentage pur—
chased, though perhaps small, is still large enough to yield
working control, and small mergers, often in intrastate

commerce, noted only in the local press.

Premerger Notification Legislation

Several bills have been-introduced to enact some sort
of premerger notification program.~ For five consecutive
years, President Eisenhower recommended such a bill in his-
Economic Report of theAPresident‘.58 In the eighty-fourth
Congress,Senator Sparkman introduced S. 2075 proposing that
no firm could participate in a merger, if it had a net worth

of over $1 million, until ninety days after notifying both

166

the FTC and the Antitrust Division of its intentions. In
the House, Representative Patman preposed H. R. 6748
requiring advance notice of any merger involving a company
with a capital surplus and undivided profits of more than
$1 million. This bill called for a thirty—day post-notifi—
cation waiting period during which the companies were to
supply the government with any information requested con—
cerning the merger.59 Variations of this sort of legis—
lation have beenzipart of subsequent Congresses but-without
success.

Both the Antitrust Division and the Federal Trade
Commission have supported premerger notification legislation;
'but-their requests have not been granted--which of course is
not a novel state of affairs. The government supports
premerger legislation because it feels antimerger enforcement
will be improved thereby; that mergers which now go undetected,
or are detected later than might be liked, would no longer
remain-so; that personnel now scanning public sources for
potential Section 7 candidates could be used elsewhere more
productively.

The business community, on the other hand, has been
quite strongly united against the various premerger notifi—
cation bills. A sampling of firms listed on the New York
and American Stock Exchanges indicated ninety per cent

60 Why has the legislation not

Opposed such legislation.
drawn huzzahs from the business community? For a variety of

reasons which merit attention.

167

Draftinga Notification Statute

 

.One sticky problem, never satisfactorily solved, is
the drafting of such a bill to meet the objectives sought
be the legislation. An-idpgl bill would be worded so as
to elicit a notice from every merger which was likely to
violate Section 7——and no others. Ideally, all other
firms would be free of the trouble and expense of filing;
and the government would be free of the trouble and expense
of reviewing those proposed mergers not going-to violate
Section 7. Obviously, such an ideal bill could never be
drafted,

And there is legitimate concern whether any bill could
be drafted which, in even~a-far from ideal way, would accom-
plish what is expected of the legislation. For example,

a premerger notification bill needs exceptions; the govern-
ment would be flooded with notices if every little business
which was taken over by another business had to file; in
addition these small businesses should not be troubled with
~the expense of filing. Thus, the bills have to establish
some sort of floor to the reporting requirement.

But an even more troubling aspect of the drafting
problem is exempting those industries which have trans-
actions, which theoretically might be termed "mergers," but
for antimerger purposes are not. For example, in the
petroleum industry, independent oil producers often liquidate

-their.assets on very short notice to secure capital for

168

financing a new exploratory venture. These transactions
are, strictly speaking, mergers, but they are not the type.
of merger in which Section 7 enforcers are interested. In~
addition, these transactions must be carried out quickly.
The-ninety-, sixty-, or even thirty-day waiting period of
premerger bills would often.be too long; the opportunity
would be gone.61 Similarly, in the insurance industry, the
proposed legislation has raised the objection that it
includes transactions which are common and integral parts
of the insurance industry—ewhich do not warrant govern-
mental notice nor could they be delayed.62' This drafting
problem may seem minor but it is not--particularly to those
fearful of burdening the business community with more,
"unnecessary" reporting. The following groups were suf—
ficiently concerned about the law's potential impact on
various "normal" transactions.and negotiations in their
industries to request special exemption or exceptions of
some sort:
American Mining Congress
. American Pulp & Paper Association

'Life Insurance Association of America

Independent Petroleum Association of America

Milk Industry Foundation

Air Transport Association of America

National Coal Association . .
Texas Independent Producers & Royalty Owners Association
'Association of American Rairoads

"American Merchant Marine Institute

American Trucking Associations .

Investment Bankers Association of America

National Retail Merchants Association and others.

169

Alvord of the American Mining Congress offered a salutary
list of amendments needed in a general premerger notifi-
cation bill, too long to include here, but providing good

background on this problem.63

Other Objections to Notification

 

Even assuming the drafting problem could be solved,
i.e., that a bill could be so worded to exclude any
reporting of normal business transactions and insignificant
mergers, there are still other objections to the bill. A
common complaint is that the government agencies might View
the bill as a Congressional directive that any merger of
sufficient size to meet the reporting requirement is, payma
fagig, in violation of Section 7. In short, one objection
is that the bill might lead to an improper antimerger
enforcement!

The importance of secrecy in merger negotiations seems
well established.614 A premerger notification bill, if the
notices "leaked," could discourage or completely stop some
merger negotiations. Some have argued that this constitutes
a valid argument against such a bill. Former Antitrust
Division chief Bicks replied to this objection that govern—
ment antitrust employees would be bound by law not to

65

divulge such information. Another common complaint

against premerger notification is the cost. One estimate
placed the cost involved in such a notice at "a minimum of

$5,000."66 While this estimate seems rather high--my own

 

 

170

estimates place it closer to $150--there is no doubt that
such legislation would impose some financial cost on the
business community.67
Other objections expressed include a "concern" that
the government not become swamped with additional paperwork,
that the present situation-affords the government adequate
opportunity to learn of any important merger, that if it
does not, divestiture is always available, and finally the
interesting twist offered by the NAM that asking a corpor—
ation to report a proposed acquisition is somewhat akin to
(and equally as undesirable as) asking an individual to
testify againsthimself!68‘
In spite of these objections, premerger notification

has evoked a generally favorable response from that portion

of-the academic_community interested in the monopoly

|

problem.69 The reasoning of this group is that the govern-

|mentneeds to know about those mergers which will Violate

aSection 7 before they are consummated to the find that the
“enforcement of Section 7 be improved.
But note that premerger notification, as a means to
this admirable end, rests on-two premises:
1. that the government does not now know about those
mergers likely to violate Section 7 before their

consummation

 

 

171

2. that if the government did know of them and-had
a certain time period in which to examine them
prior to consummation, then enforcement would
be enhanced.
The author doubts the validity of both of these premises,
and consequently cannot share in the enthusiasm of some for
premerger notification.

Regarding the first premise: anyone who has spent
time with the Federal Trade Commission cannot help but be
impressed with the data gathered on mergers by the Bureau
of Economics. A most thorough job is done-—so thorough
that the important merger which slips by unnoticed is rare,
and more than likely will be a stock acquisition which is~
more easily undone later. True, the FTC staff scans much
material to garner these data—-but they are for the most,
part material which would be scanned anyway, even if there
were some premerger "warning system." In the case of the
Antitrust Division, it seems the passage of the 1962 Anti-
trust Civil Process Act lessened the need for premerger
notification as an informationaldevice.7O

The second major premise of those supporting premerger,
notification, viz. that it would enhance antimerger enforce—
ment via the "waiting period," is also shaky. As the law
now stands, the government can bring suit against a merger
under Section 7 any time after its consummation-~if the.

anticompetitive effects were not apparent at the merger

 

172

date but became obvious later, the_government could
challenge the marger at the later date.7l'

Premerger notification would not change the status of
this; the government would still be able to legally open a
case sometime after the merger's consummation. But if the
government is notified of a merger, has sixty or ninety days
to make its investigation, and does app bring suit during
that time—-that merger will be difficult to unravel at a
later date. First, the antitrusters will be reluctant to
bring.suit at this-time. And it is not inconceivable that
the courts will take a rather dim view of merger suits
broughtlnrthe government after it had previously-remained
silent during the waiting period and allowed the merger to
be made.

.Though premerger notification has found strong support
6 in both the legal and economic communities, its accolades
; are not warranted. No evidence clearly demonstrates that
:significant mergers are being consummated without the
Egovernment's knowledge. This indicates that such a law is
inot needed. In addition, the long-run impact of this legis-

lation on antimerger enforcement could well be deleterious.

 

 

 

y i

 

1

FOOTNOTES
CHAPTER V

lEconomic costs are the only ones considered here.
The Clayton Act is not a criminal statute; failure to comply
will not mean fines or jail sentences for exeCutives. In,
addition.there does not seem to be any social or occupa-
tional stigma involved in violating Section 7;-if anything,
being involved in a merger suit will probably raise an
executive's status in the business community.

2WSJ, May 22, 1959, p. l.

3WSJ, July 8, 1965, p. 1.

“Compliance File, Continental Baking Co., FTC
Docket 7880.

 

SWSJ, July 8, 1965, op. cit.

6U. S. v. American Radiator & Standard Sanitary Corp.,
BB #1275, Antitrust Division Pleading File, Vol. I.

7See respectively: (Alcoa- Cupples) "Affidavit" of!
Charles C. Moran, March 23, 1965, in U. S. v. Aluminum 00.
of America, BB #1607, Antitrust Division Pleading File,
Vol. III; (Alcoa—Rome) "Defendant' s Proposed Findings Of
Fact And Conclusions Of Law On Relief, " November 10,1965,
p. 9 in U_§'. v. Aluminum Co. of_America, BB #1512, Anti-
trust Division Pleading File, Vol.‘III; (American Radiator)
see fn. 8, this chapter; (Continental Baking) "Motion For
Extension Of Time, " February 7, 19§33 pp. 7- 8 in Continental
Baking, op. cit.; (Continental Can Affidavit of Helmer
R Johnson, July, 1964, pp. 3— 4 in U. S v. Continental
Can Co., BB #1301, Antitrust Division “Pleading File, Vol.
III; (Foremost) see fn. 10, this chapter; (National Homes)
see fn. 9, this chapter; (Reynolds Metals) "Petition.of.
Respondent To Reopen Cause For New And Additional Evidence
Or Alternatively For A Rehearing And For Modification Of
Order Of January 21,1960," March 11,1960 in Reynolds

 

 

 

, Metals Co., FTC Docket 7009; (Ryder) "Respondent's

Petition To Modify Final Judgment, " January 15, 1962, in

e U. s v. Elder System, Inc., BB #1564, Antitrust Division

 

Pleading File, Vol. I.

173

F._.h- a

 

 

 

174

8"American Radiator & Standard Sanitary Corporation
9 Month Report to Stockholders,” as quoted in George D.
McCarthy, Acqpisitions and Mergers (New York: The Ronald
Press Co., 1963), p. 40.

9

National Homes Corporation, 1962 Annual Report, p.

 

10"In Brief," Mergers & Acquisitions: The Journal
of Corporate Venture, 1 (Winter, 1966), pp. 7—8.

11Brown Shoe Co., 1963 Annual Report, p. 22.

12Crown Zellerbach, 1964 Annual Report, p. 3.

13International Paper Co., 1960 Annual Report, p. 28.
l“Owens—Illinois "Press Release," April 21, 1965.

15Union Carbide Corp., 1964 Annual Report, p. 2.
16A. G. Spalding & Bros., 1962 Annual Report, p. 3.
17ypg, June 21, 1960, p. 6 and ypg, June 28, 1960, p,
l8Crown Zellerbach, op. cit.

19Owens-Illinois,"Report of first quarter operations,
1966."

2OWalton Hamilton and Irene Till, "Antitrust in
Action," U.S. TNEC Monograph No. 16 (Washington: U.S.
Government Printing Office, 1941), p. 81.

 

21James Harwood, "The Mystique of Antitrust,"
Mgrgers & Acquisitions: The Journal of Corporate Venture,
1 (Fall, 1965), p. 34»

22For more information on the spin-off, see Stanley
Siegel, "When Corporations Divide: A Statutory and Financial
Analysis," Harvard Law Review, 79 (January, 1966), pp. 534—
570.

 

23"Memorandum to the Commission from the Bureau of
Restraint of Trade," March 19, 1964, in Crown Zellerbach,
FTC Docket 6180.

2MBNA ATRR 194: A—8.
25BNA ATRR 263: A-4.

26"Compliance Reports," Foremost Dairies, FTC
Docket 6495.

 

175

27"Compliance Reports," Consolidated Foods Corp.,
FTC Docket 7000.

28

 

BNA ATRR 283: A—23.

29Tax aspects of antitrust cases are explored in
more detail in: "Analysis, Income Tax Consequences of
Antitrust Payments," BNA ATRR 268: B—11 and Roger Noall and
Troxell D. Chase, "Tax Aspects of Antitrust Proceedings,"
Tax Law Review, 18 (January, 1963), pp. 213—250.

30There is some precedent for such legislation.
Distributions of stock pursuant to the 1935 Public Utility
Holding Company Act (I. R. C. Secs. 1081-1083) ordered
by the SEC and those ordered by the FRB pursuant to the
1956 Bank Holding Company Act (I. R. C. Secs. 1101-1103)
were covered by such provisions. Public Law 87—403 of
1962 provided that the distribution of stock in the
duPont—GM case would.be taxed as a return on capital
rather than as dividend income. In fact the tax laws should
encourage all spin-offs, not just those pursuant to
Section 7 orders. If all spin—offs were exempt from income
or capital gains taxation, there might be a voluntary decon—
centration.

31No distinction will be made here between the
preliminary injunction and the temporary restraining order.

32For the procedural framework of preliminary relief,
see "Note, Preliminary Injunctions and the Enforcement of
Section 7 of the Clayton Act," New York Univ. Law Review,
40 (October, 1965). pp. 772—774.“

33

 

Ibid., fn. 9.

3“It was widely believed at one time that the FTC did
not have such right of petition. As a result many antitrust
observers argued that the Commission also should have the
authority to seek preliminary relief in the federal courts.

7 The FTC had tried twice to secure such relief and each time
different circuit courts ruled against the Commission. See
' ETC v. International Paper Co., 241 F. 2d 372 (1956) and
Egg v. Dean Foods Co., 356 F. 2d 481 (1966). Bills were

‘ introduced in Congress to give the FTC this authority but
none was successful. How surprising it was to find later, in
spite of these defeats by the courts and Congress, in spite
of the bulk of legal opinion to the contrary, that the FTC
really had this authority all along-—thanks to five ardent
admirers of strong Section 7 enforcement on the Supreme
Court! See FTC v. Dean Foods Co., 384 U.S. 597 (1966).

 

 

176

35In spite of reports by the Federal Reserve Board,
the Federal Deposit Insurance Corporation, and the Department
of Justice on the adverse effects of this merger! See ULS.
v. Third National Bank of Nashville, 1964 CCH Trade Cases
Par. 71,209 at 79,830; see also ULS. v. Crocker—Anglo
National Bank, 1963 CCH Trade Cases, Par. 70,934 at 78,719
and U.S. v. Gimbel Brothers, Inc., 202 F. Supp. 779 at
780 TI962). '

36See for example: U.S. v. Food Machinery Corp. &
American Viscose Cor ., 1963—CCH Trade Cases, Par. 70:826
at 78,364; U.S. v. Third National Bank of Nashville, ibid.,
at 79,830; 9:9: v. Crocker—Anglo National Bank, ibid.,
at 78,729.

37

 

 

 

 

 

 

Ibid., at 78,365 and 78,367.

38U.S v. Ingersoll Rand Co., 218 F. Supp. 530 at
542 (19637? aff'd. 320 F. 2d 509 (1963); quoted with approval
in U.S. v. Chrysler Corp. & Mack Trucks, 232 F. Supp. 651 at
658_(l964); see also Crane Co. V. Briggs Mfg. Co., 80
F. 2d 747 at 750 (19605.

39"Memorandum Of Law On Behalf Of Defendants In
Opposition To Plaintiff's Motion For A Preliminary Injunction,"
'p. 17 in U.S. v. Brown Shoe Co., Inc., BB #1266, Antitrust
Division PIEading File, Vol. I, underlining mine.

MOU.S. v. Chrysler Corp. & Mack Trucks, op. cit. at
659; see also U.S. v. Von's Grocery Co., 1960 CCH Trade
Cases, Par. 69,698.

 

71"Memorandum In Opposition To Temporary Restraining
Order," p. 7 in U.S. v. Continental Can Co., BB #1301,
Antitrust Division Pleading File, Vol. I.

72For example see "Defendant's Memorandum In Oppo-
sition~To Plaintiff's Motion For Preliminary Injunction,"
April, 1960, p. 3 in pig. v. Aluminum Company of America,
(Alcoa—Rome), BB #1512, Antitrust Division Pleading File,
Vol. I.

73See for example: ULS. v. Aluminum Compan Of
America, (Alcoa—Rome), 1960 CCH Trade Cases, Par. 59,727;
EL§3 v. Aluminum Company of America, (Alcoa—Cupples), 1962
CCH Trade Cases, Par. 70,419; U.S. v. Brown Shoe Co., Inc.,
1956 CCH Trade Cases, Par. 68,—244; ULS. V. Greater Buffalo
Press, Inc., 1962 CCH Trade Cases, Par. 70,380.

 

 

 

177

“u"Note, Preliminary Relief for the Government under
Section 7 of the Clayton Act," Harvard Law Review, 79
(December, 1965), p. 393.

75Allis—Chalmers—Simplicity, BNA ATRR 222: A—15;
AluminflnnLtd.—National Distillers & Chemical, BNA ATRR
182: A—l6; Falstaff Brewing—Narragansett Brewing, BNA ATRR
218: A—8; First National City Bank—Hilton Credit Corp.,
BNA ATRR 234: A—lO; Rheingold Brewery—Jacob Ruppert,

BNA ATRR 227: A—9; Phillips Petroleum—Tidewater, Anti—
trust & Trade Regulation Newsletter, 5 (August 25, 1966).

M6Hamilton Watch Co. v. Benrus Watch Co., 206 F. 2d'
738 at 7 2 1953 .

77See America Corp., BNA ATRR 69: A—l3, 175: A—4;
American Hospital, 202: A-3, 228: A—7; Calumet National,
120: A-4; Chase Manhattan, 249: A—ll; Commercial Credit,
168: A—15, 169: A—8; Humble 011, 145: A—7; Kaiser,

73: A-ll; Molson Breweries, 193: A-6; Pittsburgh Brewing,
234: A-2; 236: A—l8; Stauffer Chemical, 65: A—8, 72: A—l4;
Russell Stover, 198: A—13, 207: A-l6; Thrifty Drug, 57:
A-20, 207: A—16; Title Insurance, 220: A—5.

This is not to imply that companies do not merge if
the government files suit or indicates to them that a suit
is being prepared. Witness the reaction of such corpor—
ations as Mead, Cenco Instrument, First National Bank of
Hawaii, and Ritter Co. See respectively: WSJ, June 1,
1966, p° 8; WSJ, October 1, 1965, p. 22; wst‘Juiy 27,
1966, p. 3; BNA ATRR 199: A—6. 1 ""

78See Abbot, BNA ATRR 179: A—5, 181: A—9, 217: A_9;
Allied Chemical, 145: A-ll, 153: A—5; Amfac, 276: A-6;
Chrysler, 160: A—9, 162: A-16; Herff Jones, 222: A—3,

288: A-4; Ingersoll Rand, 93: A—l3, 143: A—18; Parents
Magazine, 55: A—9, 58: A-6; Pennzoil, 236: A—9, 237: A—ll,

 

79The "chief executive officer of a successful
acquirer" as quoted by Forrest D. Wallace, "Some Principles
of Acquisition,” The Corporate Merger, ed. William Alberts
and goel Sega11(Chicago: Univ. of Chicago Press, 1966),
p. l 7.

50

U.S Philadelphia National Bank, 374 U.S. 321

0 V0
(1963); U.S. v. Pabst Brewing Co., 384 U.S. 546 (1966);
'

U.S. v. Von s Grocery Co., 384 U.S. 270 (1966).

 

 

 

178

51See U. S. v. Brown Shoe CO.L Inc., Op. cit.
Par. 68, 244 at —71, 117; see also the problems in U. S. v.
Greater Buffalo Press,pInc., BNA ATRR 53: A— 10 and
85: A—22.

52U.S. v. Standard Oil of New Jersey, 1965 CCH
Trade Cases, Par. 71, 503 at 81,235; see also U. S. v.
Ingersoll Rand, op. cit. at 543.

53

54"Analysis, Preliminary Injunctions and Temporary
Restraining Orders in Merger Cases," BNA ATRR 52: B—l.

55

Crane Co. v. Briggs Mfg. Co., op. cit. at-750.

 

 

12 U.S.C. 1828 07a.

56See U. s v.-Brown Shoe Co., 370 U.S. 294 at
346 (1962). ‘

7Testimony of Stanley Barnes in U. S. ,Congress,
Senate, Subcommittee on Antitrust & Monopoly, Hearings,
Legislation Affecting Corporate Mergers, 84th Cong., 2nd.
Sess., May—June, 1956, p. 162.

8

5 See Economic Report(s) of the President (Washington:
U. S. Government Printing Office), January, 1956, pp. 78— 79;
1957, p. 5151958, p. 64; 1959, p 53; 1960, p 0

59Joseph Burns, A Study of the Antitrust Laws (New
York: Central Book Co., 1958): p. 311.

60A Report on Results of a Survey of Business
Opinion Regarding Premerger Notification Legislation (New
York: Diversification Institute, affiliate of Boni,
Watkins, Jason & Co.)

61Testimony Oerussell B. Brown in 1956 Hearings,
Op. cit., p. 237.

62
Testimony of Thomas A. Bradshaw in ibid., p. 296.

 

 

63Test1mony of Ellsworth Alvord in ibid., p. 275;
see also Joseph Burns, op. cit., pp. 316—319.

6“See the excellent book by Myles L. Mace and
George G. Montgomery, Management Problems of Corporate
Acquisitions (Boston: Division of Research, Graduate
School of Business Administration, Harvard University,
1962), , 132

 

 

 

 

 

179

65Robert A. Bicks, "Recent Legal Developments:
The Department of Justice," in Legal, Financial, and Tax
Aspects of Mergers and Acquisitions, Financial Management
Series #114 (New York: American Management Association,
1957), p. 75.

66Testimony of Benjamin Castle in 1956 Hearings,
op. cit., p. 244.

671 am indebted to Mr. Norman Hahn, CPA, Vice—

president of the Kalamazoo Paper Co. for this estimate.

68Testimony of Harvey Crow in 1956 Hearings, gp.
cit., p. 222.

 

See for example: Carl Kaysen and Donald F.
Turner, Antitrust Polic (Cambridge: Harvard University
Press, 19595, p. 258; Joel B. Dirlam, "The Celler—Kefauver
Act: A Review of Enforcement Policy," in U.S., Congress,
Senate, Subcommittee on Antitrust & Monopoly, Administered
Prices: A Compendium on Public Policy, 88th Cong., lst
Sess., 1963, p. 130; Charles F. Phillips and George R.
Hall, "Economic and Legal Aspects of Merger Litigation,"'
Univ. of Houston Business Review, 10 (Fall, 1963),
pp. 58—59; J. F. Weston, The Role of Mergers in the Growth

of Lar e Firms (Berkeley: University ovaaliforn a Press,
19535, p. 99.

70See in general, R. K.-Decker, "The Civil Investi—
gative Demand," Kentucky Law Journal, 51 (Spring, 1963),
pp. 449—465; see also testimony of Lee Loevinger in U.S.,
Congress, Senate, Subcommittee on Antitrust & Monopoly,
Hearings, Authorization for Department of Justice to Make
Demand for Evidence in Civil Antitrust Investigations, June,
1961, p. 49; Annual Report of the Attorney General of the
United States (Washington: U.S. Government Printing
Office, 19645, p. 98.

 

7164 Stat. 1125 at 1126.

 

 

 

 

CHAPTER VI

CONCLUSION

 

The "Real" Impact of Section 7

 

The argument can be made that the "real" impact of
an antimerger law lies with factors other than the actual
undoing of those few mergers the government attacks; that
the law accomplishes its purpose p93 by the unraveling of
unlawful mergers but rather by its impact upon ".
mergers Egg consummated and which, therefore, never appear,
on a Commission or courtdocket."l

This line of reasoning, certainly not without.credence,
rests on the following notion: since 1890 the ghost of
Senator Sherman has supposedly been a member of every corpor—
ation's board of directors, influencing them against monop-
; olizing; now, since 1950, the spirit of Messrs. Geller and
a Kefauver also sits on these boards, participating in corporate
s merger.decisions, and often casting the deciding nay vote.
‘ In other words, the real thrust of Section 7 does not come
, through its dissolving of actual mergers; its impact lies in
the deterrence of-anticompetitive mergers that-would other-
wise have been attempted.

The difficulties of determining the extent that corpor_
ations have been dissuaded from mergers because of Section 7
are obvious. No one knows the extent to which the antimerger

law has been the critical factor in tabling merger plans,

180

 

 

 

181

though such knowledge would indeed be a valuable contri—

bution to merger literature.

The "Real" Impact and the Fortune 500

While it is beyond the scope of this study to
delve into this question, there is some evidence available
which indicates that the antimerger law does have a more
than de minimus impact at the merger planning stage.
National Economic Research Associates questioned Fortune's
500 largest manufacturing firms in an effort to learn if
the "anti-trust climate" has limited merger activity. Of
those responding, twenty-eight per cent said they had
abandoned mergers due to antitrust factors.2 Unfortunately
the interview method leaves much to be desired. In thisv
case, it tells nothing about mergers consummated in spite
of antitrust factors, nor does it indicate the extent to
which the law alone was the deciding factor in stopping
merger plans. Neither is it obvious what constitutes a
"plan" to merge. One firm's "plan" to merge could be far

more (or less) definite than another's "plan."

 

The ”Real" Impact and the Dairy Industry

Mueller's work on mergers in the dairy industry sheds
a more telling light on this conjectural impact of the law.3
The dairy industry has undergone rather remarkable concen—
tration as the result of mergers; indeed the eight largest

dairy companies acquired approximately 1800 concerns in the

 

 

 

182

period 1920 to 1950.LI In the six years from 1950 through
1955, these eight firms continued active acquisition
programs, acquiring 426 dairy concerns.5 But in the next
year, 1956, the FTC issued Section 7 complaints against
the nation's four largest dairy concerns.6

These complaints alone seemed to have an impact upon
merger activity by the large firms in the industry. In the
following six—year period, 1956 through 1961, these same
eight firms made only 165 acquisitions. Even more signifi—
cant, from 1962 through 1964, the big eight consummated only
I; acquisitions.7 Interestingly, 1962 was the year in which
the Commission handed down its first decision against one of
the four largest firms.8

Consequently, there is an excellent case that in the
dairy industry the antimerger law has had an impact in
stopping acquisitions beyond the number of consummated
acquisitions actually dissolved by Section 7. This is
further substantiated by the fact that mergers by firms pp:
in the top eight have continued at about the same acquisition
rate as existed prior to the Commission’s complaints.9 The
antimerger law seems to be the causative variable for the

decline in merger activity by the industry's leaders.

The "Real" Impact and the Cement Industry
The cement industry is one which has undergone con—
siderable merging in the last fifteen years, with horizontal

consolidation at the cement production level, and vertical

 

 

 

 

183

merging between cement producers and cement users. Though
the number of these mergers has not anywhere approached
those recorded in the dairy industry, this horizontal and
vertical integration in cement and into ready—mixed concrete
has provoked at least twelve FTC complaints since 1960.
If Section 7 really has this "hidden power" to stop mergers
at the planning stage, to the extent the FTC is successful
in winning these cases, one would expect to find an impact
on merger rates in this industry.

In the cement industry, the FTC recorded the following
acquisitions (by capacity) for a sixteen year period.10

1950—1951—— 4.06 million bbls.

1952—1953—— 1.20 million bbls.

1954-1955-— 6.65 million bbls.

l956—l957-—24.95 million bbls.

l958-l959——25.20 million bbls.

1960—196l-—23.85 million bbls.

1962—1963—— 3.85 million bbls.

1964-1965—— 9.30 million bbls.
Note that the six—year period from 1956 through 1961 was a
time when considerable cement capacity changed hands,
thirty—three plants in all. Note too, that after 1961 the
acquisition rate dropped off considerably.

In 1960 and 1963 the FTC filed complaints against
two of the above mergers, Permanente—Olympic Portland and
Diamond Alkali-Bessemer, winning both cases at the Commission

1 In each case, divestiture

in 1964 and 1965 respectively.1
was ordered. Since the second FTC complaint, there has not
been one horizontal merger in cement until 1965, when there

was one, and none involving any cement firm in the industry's

 

 

 

184

top twenty. In fact, with the one exception, all merger
activity in cement since the 1961 Diamond Alkali—Bessemer
union, has been either of the market or product extension
variety. Interestingly enough, the FTC has not attacked
any cement mergers of this type.12

The 1960's saw an increase in vertical integration
from cement to ready-mixed concrete and concrete products
via the acquisition route. In the decade 1950 through
1959, there had been an average of only 0.8 such vertical
acquisitions per year. But from 1960 through 1965, there
was an average of 6.3 per year.13

According to the Cement Report, the FTC has directed
the bulk of its antimerger attack against this vertical
integration. In a six—year period, it filed ten complaints
connected either totally or partially with forward vertical
acquisitions by cement companies of ready—mixed concrete
or concrete products firms.lu Since the FTC complaints
against some of these vertical acquisitions are fairly
recent, it is too early to observe, and even attempt to
single out, the impact of this antimerger attack on the rate
of vertical acquisitions in the industry. But to the extent
that the FTC wins these cases gpd secures meaningful struc—
tural relief, the number of such vertical acquisitions

should decrease if the antimerger law does in fact have this

qualitative effect.

 

 

 

185

Additional information is needed on merger rates in
various industries to more fully understand the impact
Section 7 has upon these rates; consequently the tentative
nature of these findings cannot be stressed too much. A
decrease in merger rates following some suCCeSSful anti—
merger activity does not mean that Section 7 was the chief
thwarter. For example, to attribute to Section 7 the
honor of stopping all significant horizontal mergers in
cement by the filing and winning of two antimerger cases

is a post hocergo propter hoc step to be taken with

 

caution. For in the time period covered by the Cement
Report, there were only two significant horizontal mergers
in cement, the two the FTC attacked. However, since there
were not any thereafter, and since the market and product
extension types of acquisition which have ppp been attacked
continue to take place (though at a decreased rate), there
is some basis for believing that Section 7 has-dissuaded

some companies from cementing relations with one another.

The "Real" Impact ppon Past Violators

Another possible teat of the "real" impact of the,
antimerger law is its impact upon-those who have been.
"caught" in the past. If Section 7 does have the deterrent
power, firms which have violated Section 7 or deemed it
wise to negotiate a consent decree in the past should be
wary of chancing another such unlawful covenant. If Section

7 were a law with exceptionally stiff penalties, one might

 

 

 

 

186

predict that Section 7 violators would be reluctant, at

least cautious, to consummate gpy more mergers. At a

minimum, it would be reasonable to predict that past violators
would not repeat the offense.

Companies who have been the recipients of more than
one antimerger complaint are few in number (but large in
size)-—such as General Motors, Proctor & Gamble, Alcoa,
Continental Can, and Anheuser-Busch. One could attribute
the small number of "repeaters" to the small number of
complaints that are issued each year relative to the number
of acquisitions made.

The fact that there are few "repeaters” is not to be
interpreted that firms who have been caught have refrained
from further merger activity. On the contrary, many of.
the firms in this study’s sample have continued to direct
rather substantial acquisition campaigns. Of the 39 firms
in the sample, at the most only 4 engaged in no further
mergers or joint ventures after their original Section 7
encounter.15 Two companies in the sample, Minute Maid and
Brillo, were themselves acquired.

Examining the merger activity of the firms in this
study's sample after they either lost their antimerger case
or settled it by consent order does point to one interesting
and significant impact of amended Section 7. Just as the
impact of Section 7 seems to manifest itself on the 3333 of

merger activity in particular industries, Section 7 has had

 

 

 

187

an impact on the direction of the merger activity of the
sample firms. An impact upon the direction of a firm's
merger endeavors means a change in the structural type of

merger it consummates.

The "Real" Impact and Diversification

 

For some of the firms, merger activity was directed
to foreign countries, with at least nine of the companies
entering into one or more acquisitions or joint venture
covenants with overseas companies. This is an obvious way
to prevent further encounters with the federal antimerger
law.

Others maintained their merger activity within the
United States' boundaries but emphasized acquisitions of
a more diversified bent, staying away from the horizontal-
vertical acquisitions and consummating instead product—
extension and conglomerate acquisitions. These are more
immune from the tentacles of the law. For example, Leslie
Salt, one of the sample companies, in refraining from
further acquisitions of rival salt companies, chose instead
to enter a joint venture with a publishing firm to raise
trOpical fish!

While none of the other sample firms have measured
up to Leslie's degree of diversity, one cannot help but be
impressed by the diversification moves that have been taken
following an encounter with Section 7. Via the acquisition

route, American Cyanamid has gone into floor cleaners and

 

 

 

188

shampoos; American Radiator has gone into space technology
instrumentation; Anheuser—Busch into can making; General
Shoe (Genesco) into clothing stores and clothing manufacture;
Hertz into equipment rental; Maremont into aerospace and
textile equipment; Schenley into advertising; Sohio into
plastic products; Hooker Chemical into feed supplements and
medical chemicals; MMM into cameras and pharmaceuticals;
National Sugar into flavored syrups; Reynolds Metals into
asphalt building products; Scott Paper into plastic coating
specialties; Scovill into refrigeration; and Union Carbide
into mattresses. This is only a partial list indicating,
in a sketchy way, the diversification that often follows

a Section 7 encounter.

While it is safe to assume that more horizontal and
vertical acquisitions would have been made by these firms
in the absence of Section 7, one cannot as yet predict that
this diversification strategy would pp: also have been
adOpted in the absence of Section 7 prosecution. Schenley
TEX have bought its advertising agency even if there were
no ban on certain other structural types of mergers. On
the other hand, Section 7 has contributed to diversification
if, in its absence, managerial merger efforts would have
been so directed toward horizontal acquisitions that little
time remained for exploring diversification acquisitions.

This is not to imply that all subsequent merger efforts

by the sample firms have been of the diversification genre.

 

 

 

189

On the contrary, for Continental Can acquired another
glassware firm, Gamble—Skogmo maintained its strategy of
acquiring retail merchandising firms, General Shoe
(Genesco) made other purchases in shoes, Maremont in
automotive parts, Automatic Canteen in vending machine
operations, Continental Baking in baking, Gulf in petroleum,
etc.

Nevertheless the general tenor of the merger strategy
of these firms has been to diversification. And it may
well turn out that one of the principal effects of Section 7
on industrial structure has been and is to increase diversi—
fication. Supporting this hypothesis is evidence presented
by Mueller to the Senate Antitrust & Monopoly Subcommittee.l6
His data show that from 1948 to 1953, horizontal mergers
comprised 31.0 per cent of the total universe of acquisitions
Of "large" mining and manufacturing concerns.l7 By 1954
to 1959, this percentage dropped to 24.8 and continued,
dropping to only 12.0 per cent for the period 1960 to 1964.
On the other hand, product extension and conglomerate acqui-
sition percentages rose from 51.8 per cent of the universe
in 1948 to 1953 to 55.1 per cent in 1954 to 1959 to 64.1

4.18

per cent in 1960 to 196 From 1948 to 1964, conglomerate

acquisitions were but 9.7 per cent of large acquisitions.
By 1965 they were 18.3 per cent and, for the first half of

1966, 20.8 per cent.19

 

 

 

 

190

How one.views this trend depends on his View of-the
large diversified firm as a threat to the vigor of compe—
tition. If one says, with Stigler, that " . . . the exact
mechanics by which the total power possessed by firms gets
larger than the sum of the parts escapesme,"2O then
diversification acquisitions will not command any concern.
On the other hand, one who rates Justice Douglas as a
jurist of the highest caliber and Henry Simons as an
economist of considerable merit will be troubled by a law

which seems to encourage this conglomeration.
Section 7 and Aggrpgate Concentration

The Rising Tide of Aggregate Concentration

While any conclusions on Section 7 and its impact~
upon the managerial mind must remain somewhat tenuous, one
thing is rather clear: if one intention of Congress in
passing the Celler—Kefauver amendment was to stop the
"rising tide of economic concentration," then Section 7 has-
failed.21 For by whatever measure adopted as an indicator

of aggregate concentration, the trend in the United States

 

has;been clearly to that of greater control by the largest
corporations.22

The recent report on Concentration Ratios in the manu-
facturing sector prepared by the Bureau of the Census shows

a steady increase from 1947 to 1963 in the aggregate concen_

tration of the 50, 100, 150, and 200 largest manufacturing

 

 

 

 

191

companies.23 Whereas the Share of value added in 1947 by
the 200 largest manufacturing companies was 30 per cent,
by 1963 this share had_increased to 41 per-cent. This
represents an increase of 11 percentage points or, in a
little over a decade and a half, a growth in aggregate

concentration of 26.8 per cent.

Mergers and Aggregate Concentration

There is no doubt that mergers have contributed
significantly to this increase in aggregate concentration.
Of the 720 large acquisitions made between 1948 and 1964,
the 200 largest manufacturing companies made 387 of them,

absorbing over 65 per cent of the assets of all large

 

companies acquired.during this time period.2L1 In a little
more than a decade following the Celler-Kefauver amendment,
2,000 firms with assets of approximately $17.5 billion were
acquired by the top 200 firms.25

Mueller estimated that at the rate of increase in
aggregate concentration he found from the time of the Celler-
Kefauver amendment to 1962, two—thirds of American.manu—
facturing assets would be controlled by the 200 largest
corporations by 1975.26

With increases of this magnitude, one can take little
solace in the notion that "perhaps the increases would have

been even greater in the absence of Section 7"-—just as

there is little solace to be gained aboard a sinking

 

 

 

I92

ship with the notion that the sinking could have taken place
a day earlier.

Moreover, there is no reason to 'believe that-merger
activity will subside in the future. Indeed, the FTC
recorded iplflé mergers in 1966. This was a slight.decline
from the record year of-l965, but the number of "large"
mergers increased for the fourth consecutive year.27 While
Section 7 will squelch some horizontal and vertical acqui-
sitions that would otherwise be consummated, acquisition
strategy will not subside unless business activity subsides.

Anyone interested in stopping either this trend in
overall concentration or the high level of merger activity
found in the American economy should be resigned to the
fact that Section 7 will not do the job. Short of defla—
tionary policy, which would be analagous to killing the
patient to stop the disease, the most effective method of
curbing mergers, and-no doubt the most efficient from an
enforcement standpoint, would be a change in the tax laws
which increased the relative attractivenesscn'internal

28

investment.

The Future of Relief
Only one conclusion can be drawn from the relief
secured in early antimerger cases: it has not been a
stunning success from the vantage-point of public policy.

Though a close look has not been taken at relief efforts

 

 

 

193

other than those in this study, a cursory acquaintance

with what has since happened permits these observations.

The Judicial Front

 

The judiciary still demonstrates its historical
reluctance to whole-heartedly embrace the notion of strict
(i.e., total) divestiture as being the logical relief in
an antimerger case. In fact, one can safely predict that
the Antitrust Division will continue to confront judges
who will fail to grasp the relief principles of the duPont
decision as outlined in Chapter II.

Encourgging Developments with
the Judiciary 5—

However there are some encouraging developments on
the judicial front. The Supreme Court's affirmation without
opinion of the Alcoa-Cupples case might convince some
judges that calling for the divestiture of post-acquisition
additions and improvements is not a.far—fetched plea sounded
only by rabid trust busters in the employ of the Antitrust

29

Division. The Supreme Court's per curiam approval here

 

of the divestiture of post-acquisition properties might
serve to instruct lower courts formulating relief decrees
that after-acquired properties gpg a part of the fruits of
the offense, that they should be, and legally can be,
included in a divestiture order. The relief order in the

Von's grocery case reflects this notion that the acquired

 

 

 

194

firm would have grown, in lieu of its being acquired, and
therefore the relief order should allow for this would-have-

taken-place growth.3O

An Old Story Repeated

 

Judicial reluctance to enact meaningful structural
relief has been nowhere more apparent than in the anti—

merger suit against El Paso Natural Gas.31

After being
decided for the government at the Supreme Court and "divest—
iture without delay" ordered in 1964, the case again came

to the Supreme Court three years later, this time on the
relief issue.32

The relief decree which El Paso had received in the
lower court, following the Supreme Court's initial decision,
was the cause of the second appeal to the Court. And the
second appeal was not without good reason, for in Justice
Douglas's words, the lower court's order was one

that promises to perpetuate rather than
terminate this unlawful merger, and that
threatens to turn loose on the public a new
company unable to maintain the competitive
:fii: Egg: Picific Nogphwept iilied bggore
ga ransac on 00 p ace.

It is not at all encouraging to note that the
Department of Justice was a party to this relief travesty,
for the appeal came from private parties having a pecuniary
interest in meaningful relief.3Ll But it is encouraging to
note that the Supreme Court accepted this case for review,

since relief decrees are ordinarily the domain of the lower.

court. Such an acceptance should be indicative of the

 

 

 

195

importance the Supreme Court wants placed on the relief
decree. The Court minced no words in rejecting the lower
court's relief order. In fact Douglas took the unusual
step of ordering a different District Judge to hear the
case, a judicial slap—in—the—face whichlnight encourage
others formulating relief not to mince words in their
relief orders. Perhaps Douglas also should have removed
those Justice Department lawyers who acquiesced to this
order!

One of the issues at law before the Supreme Court
in El Paso II was the right of private plaintiffs to inter—
vene in a relief order. The lower court had refused the
private parties the right to object to any proposed relief
formulation. Hopefully the Courtt overruling this refusal
will be an important step in encouraging other private
parties to intervene in unsatisfactory relief formulations.
What is now needed is the right for private parties to

intervene in the relief negotiations of consent settlements.

The Administrative Front

It is not inconceivable that the judiciary will have
to abdicate its traditional role as the main bastion against
structural relief; this role may be taken over by the
Federal Trade Commission. The FTC's propensity to substitute
a ban on future acquisitions for structural relief has been

nOted in Chapter IV. In addition, the Commission has not

 

 

 

196

distinguished itself in securing anything approaching full
divestiture in some of its other relief endeavors.

For example, the FTC's attack of Procter & Gamble's
acquisition of Folger was settled with Proctor & Gamble
keeping four out of the five Folger plants. As Commis-
sioner Jones said, dissenting from this partial divestiture:

The consent order reaches only the

periphery of the complaint. It allows

Procter to keep four of the five acquired

plants, thus perpetuating the major

structural change caused by this merger.

Instead of seeking divestiture, the order

seeks to regulate, in'a quite direct

manner and for a five year period, certain

aspects of the conduct of Procter . ."35
Commissioner Reilly was briefer in his dissent. He concluded
that the " . . . Commission thundered in the complaint and
cheeped in the order."36

In a similar vein, the Commission's recent settlement
of the Beatrice Foods case does not constitute structural-
relief of the magnitude ordered in the Commission order
against Beatrice. With the Commission again split, Commis-
sioner Elman complained that the settlement fell short
" . . . of the relief which the Commission, after extensive

consideration, determined necessary."37

The Commission's Rulemaking Poligy
One recent development to come out of the Commission,

and one which could prove the most effective deterrent to

 

mergers at the managerial planning stage, is its "close

Watch" policy on certain industries. For example, in order

 

 

 

 

197

to keep close tabs on mergers in food distribution, every
food retailer or food wholesaler with annual sales exceeding
$10 million must notify the Commission at least sixty days
prior to any merger with another food retailer or wholesaler.
All portland cement manufacturers must likewise give at

least sixty-day notice before acquiring any ready—mixed

38

concrete company. This thrust toward specific rules
regarding the reporting of merger intentions cannot help

but dampen some merger enthusiasm in the industries selected
for this close surveillance.

It is too early to evaluate this new direction in-
antimerger enforcement. The method is a start in the rule-
making procedure advocated by Commissioner Elman-of the
FTC.39 Elman-wants enforcement strategy to turn from the
normal case-by—case approach towards a strategy of examining
specific industries; the intent being to devise guidelines
on the legality of future mergers in these industries.

Heavy emphasis upon the guidelines approach is not
without its potential pitfalls. It is not inconceivable,
given the slow turnings of the wheels of justice, that it
will take a rash of mergers in an industry to precipitate
an industry—wide investigation of the mergers. In addition,
the specter of this enforcement strategy as being a step
away from the Commission approval of mergersvfldj_loom up
for some. FTC critics will be quick to predict the vacuous

and vacillatory administration of such an enforcement

 

 

 

 

 

 

198

procedure. And their extrapolations, if based on past
history of the commission form of regulation, will, unfor-
tunately, not be without warrant.

A Concluding Note on the Market
as.a Force for Relief

 

 

EXamining old relief decrees does not carry one to,
ebullient heights on the-efficacyofSection 7 relief. Nor
is-the probability high owaongress~passing new legislation
to strengthen the hand of the government in enforcing the
antimerger law. The future course that Section 7 enforcement
will have to steer through the courts and the Commission is
very bright for the prosecutors. But a no better prediction
than the weatherman's "mixed" can be made for securing more
meaningful relief.

In light of this, what solace can the proponent of
Section 7 enforcement take? He can find comfort in the fact
that where the angels charged with formulating antimerger
relief have feared to tread, the market mechanism has not
always been so cowardly. Anyone doing research in the
problem of relief as it relates to Section 7 violations
cannot help but come away with renewed or strengthened faith
in the market mechanism.

Market conditions may so change during a prolonged
adjudicatory proceeding that, at its conclusion, relief
negotiations may seem almost unnecessary, or at least not

nearly so pressing.

 

 

 

 

 

 

 

199

For example, in the Reynolds-Arrow acquisition, new
domestic entry-into the industry which took place during
the lengthy litigation, and the fierce new competition
from foreign foil companies, brought about a steady decline
in Arrow sales from 1960 to 1964 and effectively obliter-
ated any potential market leverage Reynolds may have had
from the acquisition.“0

While preparing its case before the Circuit Court
in the Union Carbide-Visking acquisition, the General
Counsel of the FTC advised the Commission to settle the
case outside of Court by allowing Union Carbide to sell
Visking to Texaco. Market forces were such that the
Commission lawyers were skeptical of retaining their
Commission victory on the appeal by Union Carbide.

In this case the Commission had found a Section 7
violation largely on the prediction that Union Carbide
would be able to drive non-integrated extruders of poly-
ethylene film "to the wall" by lowering its own film prices.
During the course of litigation, it became apparent, even
three years after the merger, that such was not going to
be the case. Union Carbide experienced a market share loss
of ten percentage points in film resin and thirteen per—
centage points in film production.“2 These losses came at
the expense of gains by Union Carbide's competitors in film

resins and film production, following the Visking acquisition.

Perhaps this offers a new explanation for some of the weak

 

 

200

relief decrees—-name1y that industry conditions had some-
times so changed that-the government became afraid to press
too hard or else thought that structural relief was no
longer as necessary as it one time may have been.

The above is not in any way to be taken as favoring
contentment with the status quo in antimerger relief. Nor
can it serve as ammunition for those who might argue that
anticompetitive mergers should be left to the market
mechanism to undo. The fact still remains that where there
is no meaningful cost to violating the antimerger law, the
law will be broken. Relying only on the market mechanism
to undo these mergers would offer would-be anticompetitive
mergers the time and the opportunity to try and entrench
their position against market forces. Undoubtedly, some
would be successful.

More than fifty years ago, Clark wrote that "only from
a strife with the right kind of rules can the right kind of'

M3 Business freedom must operate within a

fitness emerge."
framework of rules, lest the conduct of business destroy

the basis upon which the freedom rests. Since free access
by all to markets of more_than a few sellers is essential

to preserve business freedom, a rule against the consum_

mation of anticompetitive mergers in indeed logical.

 

201

For this rule to be effective, the penalty for its
violation must be stringent. The rule of quick, total
structural relief needs to be followed if the incentive to

consummate anticompetitive mergers is to minimized.

 

 

 

FOOTNOTES
CHAPTER VI

1Charles F. Phillips and George R. Hall, "Economic
aneregal Aspects of Merger Litigation," University of
Houston Business Review, 10 (Fall, 1963), p. 3.

2The Antitrust Climate, Mergers (New York: National
Economic Research Associates, Inc., 1966).

3Willard Mueller, "Merger Policy in the Dairy
Industry," an address before the 21st Annual Midwestern
Milk Marketing Conference, Michigan State University,
April 27, 1966, (mimeo).

l4lbid., p. 4.
5Ibid., adapted from Appendix A, p. 33.
6Foremost Dgggies, Inc., FTC Docket 6495; National
Dairy Products, FTC Docket 6651; Borden Co., FTC Docket
52; Beatirce Foods Corp., FTC Docket 6653.
7Mueller, op. cit., Appendix A.
8
Foremost Dairies, loc. cit., 60 FTC 1049 (1962).
9Mueller, op. cit., p. 30.

0These figures refer to cement acquisitions alone.
Figures adapted from Economic Report on Mergers & Vertical
Integration in the Cement Industry, A Staff Report to the
Federal Trade Commission (Washington: U.S. Government
Printing Office, 1966), Appendix D; hereafter cited as
Cement Report.

11Permanente Cement Co., FTC Docket 7939; Diamond
Alkali Co., FTC Docket 8572.

12

 

Cement Report, op. cit., Appendix D and p. 3.
13Ibid., adapted from Appendix E.
14

lbid., pp. 3—5.

15This is taken from records on company merger activity
midway through 1966, gathered and compiled by the FTC.

202

 

 

203
16Testimony of Willard Mueller in U.S., Congress,
Senate, Subcommittee on Antitrust & MonOpoly, Hearings,
Economic Concentration, Part 2, 89th Cong., 1st Sess.,
March—April 1965, pp. 501—537.

17"Large" means assets of over $10 million.
18Adapted from Mueller, Hearings,
p. 516.

op.
19

Cite, Table 5,
"Summary of Recent Merger Trends," Federal Trade
Commission, 1966, Table 9 (mimeo .

OGeorge Stigler,

"Mergers and Preventive Antitrust
Policy,” University of Pennsylvania Law Review, 1
(November, 19555, p. 18 .

Brown Shoe Co. v. U.S., 370 U.S. 294 at 317 (1962).
22

See testimonies of Gardiner C. Means, John Blair,
and Willard Mueller in U.S., Congress, Senate, Subcommittee
on Antitrust & Monopoly, Hearings, Economic Concentration,
Part 1, 88th Cong., 2nd Sess., July—September, 1964,
pp. 17—19, 80-81, 204—207, and 120—123 respectively.

23

As measured by value added by manufacture. See U.S.,
Congress, Senate, Subcommittee on Antitrust & Monopoly,
1963 Concentration Ratios in Manufacturing Industry, Part I,

89th Cong., 2nd Sess., 1966, Table 1A, p.
24

Mueller, Hearings, Part 2, op. c1t., p. 518.
251bid.

26Ibid.

, p. 519.

27HReport on 1966 Merger Activity," FTC, as reported
in BNA ATRR 294: A—24—25.

See for example: John Bossons, Kalman J. Cohen,
and Samuel R. Reid, “Mergers for Whom—-Managers or Stock—
holders?," Carnegie Institute of Technology Workshop on
Capital Market Equilibrating Processes, Working Paper #14

(mimeo), April, 1966; J. F. Weston, The Role of Mergers in
the Growth of Large Firms (Berkeley:

Press, 1964

University of Cali-
fornia Press, 1953), p. 104; Milton Friedman, Capitalism
and Freedom (4th ed.; Chicago: University of Chicago
). pp. 130-132.

29Aluminum Company of America v. U. S., 382 U. S,
12 (1965).

 

 

 

204

30~ee BNA ATRR 291: A—l, judgment reprinted at x 1 3
3*U s. v. El Paso Natural Gas Co., 376 U s

651 (1964).

32See Cascade Natural Gas Corp El Paso Natural
Gas Co., 386 U S

. v.
129 (1967).
331bidu at 1141-“20
3MThe U.S. was an appellee in this case, ibid. at
137 and 141.

 

 

Procter & Gamble Co., FTC Docket C 1169 Jones
dissent, February 9, 1967, p. 2 (mimeo).
Ibid., Reilly dissent, p 1.
37See WSJ, May 10,
D. 5.

1967, p. 30 and ESQ, May 26 1967,

This select1ve premerger notification has been
accomplished, without anyadditionalCongressional legislation,
under Section 6 of the Federal Trade Commission Act,
717 (1914);

38 Stat.
see Antitrust & Trade Re ulation Newsletter,
6(February 28,19675, 4 and BNA ATRR 289: A— 1— 3.

39Philip Elman,

 

"The Need for Certainty and Predict—
ability 1n the Application of the Merger Law," New York
University Law Review, 40 (October, 1965), pp

. 613-627
and ‘Comment Rulemaking Procedures in the FTC's Enforcement
of the Merger Law, " Harvard Law Review, 78 Pt. 1 (December,
1964), pp. 385— 391. There is sympathy for this approach
in the Department of Justice as well See address of Donald
Turner,“Proposed Merger Guide11nes," in Current Antitrust
Implications 1n the Merger Field, proceedings of the anti-
trust committee Federal Bar Association (transcript
Washington: Bureau of National Affairs

 

S
, September 17, 1965).
Petition OfRespondent To Reopen Cause For New And
Additional Evidence Or Alternatively For A Rehearing And
For Modification Of Order Of January 21,1960," March 11,
1960 in Reynolds Metals Co., FTC Docket 7009.

“Memorandum to the Commission from General Counsel, "
March 26,1962 in Union Carbide Corp., FTC Docket 6826.

2Ibid., p. 6
433“ B Clark, The Control of Trusts (1914),
as found in Walter Adams and Joel E Dirlam

p. 201
, “Brown Shoe:
In Step with Antitrust," Washington University Law
Quarterly, 1963 (April 1663) p 15

 

 

 

 

BIBLIOGRAPHY

205

 

 

 

BIBLIOGRAPHY

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Brandeis, Louis D. The Curse of Bignese. O. K. Fraenkel
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Burns, Joseph. A Study of the Antitrust,Laws. New York:
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Clark, John B. The Control of Trusts. New York: The
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Haley, B. F. (ed.). A Survey of Contemporapy Economics,
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206

 

207

Heflebower, Richard B., and Stocking, George (eds.).
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Jones, Eliot. The Trust Problem in the United States.
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Josephson, Matthew. The Robber Barons, 1962 ed. New
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Kaysen, Carl. United States v. United Shoe Machinery
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Kaysen, Carl, and Turner, Donald F. Antitrust Policy.
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Mace, Myles L., and Montgomery, George G. Management
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Martin, David D. Mergprs and the Clayton Act. Berkeley:
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Massell, Mark S. Competition and Monqpoly. New York:
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McCarthy, George D. Acquisitions and Mergers. New York:
The Ronald Press Co. ,1963.

 

Mund, Vernon. Government & Business. 4th ed. New York:
Harper & Row, 1965

Nelson, Ralph L. Merger Movements in American Industry,
1895-1956. Princeton: ‘Princeton University.
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Penrose, Edith. The Thegry of the Growth of the Firm.
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Weinberg, M. A. Take—Overs and Amalgamations. London:
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Weston, J. Fred. The Role of Mergers in the Growth of
Large Firms. Berkeley: University of California
Press, 1953.

 

 

208

Articles and Periodicals

 

Adams, Walter. "Dissolution, Divorcement, Divestiture:
The Pyrrhic Victories of Antitrust," Indiana Law
Journal, 27 (Fall, 1951), pp. 1—37. '—

 

. "The Aluminum Case: Legal Victory--Economic
Defeat," American Economic Review, 41 (December,
1951), pp. 915-922.

Adams, Walter, and Dirlam, Joel E. "Brown_Shoe: In
Step with Antitrust," Washipgton Universipy Law
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. "Steel Imports and Vertical Oligopoly Power,"
American Economic-Review, 54 (September, 1964),
pp. 626-655.

Adelman, M. A. "Small Business--A Matter of Definition,"
American Bar Associationi Section of Antitrust Law
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Baumol, William. "On the Theory of the Expansion of the
Firm," American Economic-Review, 52 (December,

Berge, Wendell. "Some Problems in the Enforcement of
the Antitrust Laws," Michigan Law Review, 38
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"Big get Bigger: Bud, Schlitz and Pabst pull ahead,"
Printers' Ink, February 10, 1967, pp. 11—19.

 

Bok, Derek C. "Section 7 of the Clayton Act and the
Merging of Law and Economics," Harvard Law Review,
74 (December, 1960), pp. 226—355.

Brown, H. Templeton. "Injunctions and Divestiture,"
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Carter, William A. "The Clayton Act, Original Section 7:
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Cock, Donald. "Acquisition of stock tending to create
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"Comment, Aspects of Divestiture as an Antitrust Remedy,"
Fordham Law Reviep, 32 (October, 1963), pp. 135—146.

 

209

Cook, Paul W. "Merger Law and Big Business:- A Look
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Daly, Thomas F. "Current Trends in Relief under Clayton.
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Day, Richard E. "Conglomerate Mergers and 'The.Curse of
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Decker, R. K., "The Civil Investigative Demand,"
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Dewey, Donald. "Romance and Realism in Antitrust Policy,"
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Duke, Robert D. "Scope of Relief under Section 7 of the
Clayton Act," Columbia Law Review, 63 (November,
1963), pp. 1192—1211.

Dulin, Jacques M. "Availability of Civil Demand to
Investigate Preposed Acquisition," George Washington
Law Review, 34 (October, 1965), pp. 150-158. ’

 

Elman, Philip. "Rulemaking Procedures in the FTC's
Enforcement of the Merger Law," Harvard Law Review,
78 (December,1964), pp. 385-391.

. "The Need for Certainty and Predictability in the
Application of the Merger Law," New York University
Law Review, 40 (October, 1965), pp. 613-627.

 

Fish, Sidney. "Antitrust Landmark Cases," Journal of
Commerce, June 21, 1965, p. 3.

 

"Government Agency Profile—-the FTC," Mergers & Acquisitions:
The Journal of Corporate Venture, 1 (Spring, 1966),

pp. 76-780

Hale, George E. "Trust Dissolution: Atomizing Business
Units ovaonopolistic Size," Columbia Law Review,
40 (April, 1940), pp. 615-632.

 

Handler, Milton. "Recent Antitrust Developments,"
Michigan Law Review, 63 (November, 1964), pp. 59-94.

Handler, Milton, and Robinson, Stanley D. "A Decade of
Administration of the Celler—Kefauver Act,"
Columbia Law Review, 61 (April, 1961),pp. 629—679.

 

 

210

Harbeson, Robert W. "The Clayton Act: Sleeping Giant
of Antitrust?" American Economic Review, 48 (March,
1958), ppo 92-104. '

Harwood, James. "The Mystique of Antitrust," Mergers-&
Acquisitions: The Journal of Corporate Venture,
1 (Fall, 1965), p0 350

Heflebower, R. B. "Corporate Mergers: Policy and Economic
Analysis," Quarterly Journal of Economics, 77
(November, 1963), pp. 537-558.

"In Brief," Mergers & Acquisitions: The Journal of
Corporate Venture, 1 (Winter, 1966), pp. 7-8.

Kerr, William T. "Divestiture of illegally held Assets:
Observations on its Scope, Objective, and Limitations,"
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Lewyn, Thomas M., and Mann, Stephen. "Some Thoughts on
Policy and Enforcement of Section 7 of the Clayton
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(February, 1964), pp. 154-157»

Machlup, Fritz. "Theories of the Firm: Marginalist,
Behavioral, Managerial," American Economic ReV1ew,

57 (March, 1967), pp. 1-33.

Manne, Henry G. "Mergers and the Market for Corporate
Control," Journal of Political Economy, 73 (April,

1965), pp. 110—120.

Marcus Philip. "The Impact on Business of Antitrust
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pp» 303-330.

Markham, Jesse. "Merger Policy under the new Section 7:
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"The Brown Case and the New Antimerger

Martin, David. 1963)
3

Policy," American Economic Review, 53 (June,
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McGuire, J. W., Chiu, J. S. Y., and Elbing, A. U.

" American
"Executive Incomes Sales and Profits, .
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Nicholls, W. H. "The Tobacco Case of 1946," American
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211

Noall, Roger, and Chase, Troxell D. "Tax Aspects of
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1963), pp. 213—250.

 

'Wbte,Ayailability of Divestiture in Private Litigation
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pp. 267-283.‘

"Note, Clayton Act, Section 7 Remedies," Tulane_Law
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"Note, Preliminaryifiuunctions and the Enforcement of
Section 7 of the Clayton Act," New York University
'Law Review, 40 (October, 1965) pp. 771-784. '

 

"Note, Preliminary Relief for the Government under
Section 7 of the Clayton Act," Harvard Law Review,

79 (December, 1965), pp. 391-406.

"Note, Section 7 of the Clayton Act: A Legislative
History," Columbia Law Review, 52 (June, 1952),
pp. 766-781.

Phillips, Charles F., and Hall, George R. "Economic and~
Legal Aspects ofMerger Litigation," University of
Houston Business Review, 10 (Fall, 1963), pp. 1+9B.

Saving, T. R. "Estimation of Optimum Size by the Survivor.
Technique," Quarterly Journal of Economics, 75

(November, 1961), pp. 569-607»

Schwartz, Louis B. "New Approaches to the Control of
Oligopoly," University of Pennsylvania Law Review,

109 (November, 1960), pp. 31-53.’

Siegel, David D. "The Antitrust Civil Process Act:
The Attorney General's Preaction Key to Company
Files," Villanova Law Review, 10 (Spring, 1965),

pp. 413—434.

Siegel, Stanley. "When-Corporations Divide: A Statutory
and Financial Analysis," Harvard Law ReView, 79

(January, 1966), pp.-534-570.

Stepanek, Michael. "Implied Powers of Federal Agencies
to order Divestiture," Notre Dame Lawyer, 34

(August, 1964), pp. 581—593.

"The Economies of Scale," Journal of

Sti .
gler, George 1958), pp. 54-71.

Law and Economics, 1 (October,

 

 

212

Stigler, George. "Mergers and Preventive Antitrust
Policy," University of Pennsylvania Law Review,
104 (November, 19537, pp. 176—184.

"Monopoly and Oligopoly by Merger," American
Economic Review Proceedings, 40 (May, 19505,
pp. 23—34.

Timberg, Sigmund. "Equitable Relief under the Sherman
Act," University of Illinois Law Forum, 1950
(Winter, 1950), pp. 629—658.‘

Whitney, Simon N. "Mergers, Conglomerates, and
Oligopolies: A Widening of Antitrust Targets,"
Rutgers Law Review, 21 (Winter, 1967), pp. 187_261,

Whitney, Simon N. "Vertical Disintegration in the Motion
Picture Industry," American Economic Review

Proceedings, 45 (May, 1955), pp. 991-498.

 

Legal Cases

ABC Vending Corp., In the matter of. FTC Docket 7652.
CCH Trade Regulation Reporter (FTC Transfer Binder
1963—1965), Par. l7,lO9—-stipulated order requiring
divestiture.

American Bakeries, In the matter of. FTC Consent Order
C—llll (196677as found in CCH Trade Regulation
Reporter (FTC Transfer Binder 1965-1967), par. 17,605,

Arrow—Hart & Hegeman Electric Co. v. Federal Trade
Commission, 291 U.S. 587 (1934).

*Automatic Canteen Co. of America, In the matter of.
FTC Docket 6820.

Beatrice Foods Co., In the matter of. FTC Docket 6653.
CCH Trade Regulation Reporter (FTC Transfer Binder
1965-1967), Par. l7,244——Opinion of Commission.
Ibid. at Par. l7,398——Final order of divestiture.
Ibid. at Par. l7,949-—Proposed consent order
modifying above divestiture order.

 

 

Borden Co., In the matter of. FTC Docket 6652. 62 FTC
130 (1963).

*Brillo Mfg. Co., In the matter of. FTC Docket 6557.

 

 

 

*Sample case. See Appendix A for additional information.

 

213

Broadway Hale Stores, Inc., In the matter of. FTC Consent
Order C—1057 (1966) as found in CCH Trade Regulation
Reporter (FTC Transfer Binder 1965-1967), Par. 17,502.

 

Brown Shoe Co. v. U.S., 370 U.S. 294 (1962).

Cascade Natural Gas Corp. v. El Paso Natural Gas Co.,
386 U.S. 129 (1967).

Consolidated Foods,gIn the matter of. FTC Docket 7000.
62 FTC 929 (19587—-Opinion of Commission. CCH
Trade Regulation Reporter (FTC Transfer Binder
1961—1963), Par. I6:362-—Final Order on relief.
329 F. 2d 623 (1964)——reversing Commission. 380
U.S. 592 (l965)——Circuit Court reversed by
Supreme Court.

*Continental Baking Cog; In the matter of. FTC Docket 7880.
Crane Co. V. Briggs Mfg. Co., 280 F. 2d 747 (1960).
*Crown Zellerbach, In the matter of. FTC Docket 6180.

Diamond Alkali, In the matter of. FTC Docket 8572.
CCH Trade Regulation Reporter (FTC Transfer
Binder l965—1967),Par. l7,36l—-Opinion of the
Commission of October, 1965.

*Diamond Crystal Salt Co., In the matter of. FTC Docket
7

Erie Sand & Gravel Co., In the matter of. FTC Docket 6670.
CCH Trade Regulation Reporter (ETC Transfer Binder
1959-1960), Par. 28;358-—Opinion of Commission and
order of divestiture of October, 1959. Erie Sand
& Gravel Co. v. Federal Trade Commission, 291 F. 2d
279 (l96lS——Circuit Court remand to FTC for addi—
tional evidence. 60 FTC 19 (1962)-—Commission
dismissal of complaint.

*Farm Journal, Inc., In the matter of. FTC Docket 6388.

Federal Trade Commission v. Dean Foods Company, 356
F. 2d 1 l9 , reversed 384 U.S. 597 (1966).

FEderal Trade Commission V. Eastman Kodak Co., 274 U.S.
I9 1927 .

 

*Sample case. See Appendix A for additional
information.

 

214

Federal Trade Commission v. International Paper Co.,
241 F. 2d 372 (1956).

 

Foremost Dairies, In the matter of. FTC Docket 6495.
60 FTC 944 (1962).

Georgia Pacific Corp., In the matter of. FTC Consent
Order C-751 (1964) as found in CCH Trade Regglation
Reporter (FTC Transfer Binder 1963—1965), Par.

1 ,929.

 

*Gulf Oil Corporation, In the matter of. FTC Docket 6689.

Hamilton Watch Co. v. Benrus Watch Co., 206 F. Supp.
73 1953 .

Hartford Empire v. U.S., 324 U.S. 570 (1945).

*Hooker Chemical Corp., In the matter of. FTC Docket
8034.

*International Paper Co., In the matter of. FTC
Docket 6676.

International Salt Co. v. U.S., 332 U.S. 392 (1947),

*Leslie Salt Co., In the matter of. FTC Docket 8220.

May Department Stores Co., In the matter of. FTC Consent
Order C-1105 (1966) as found in CCH Trade RegulatiOn
Reporter (FTC Transfer Binder 1965-1967), Par. 17,684,

*Minnesota Mining & Mfg. Co., In the matter of. FTC
Docket 7973.

*National Dairy Products Co., In the matter of. FTC
Docket 6651.

*National Sugar Refining Co., In the matter of. FTC
Docket 6852.

National Tea Co., In the matter of. FTC Docekt 7453. CCH
Trade Regulation Reporter (FTC Transfer Binder “—
1965—1967), Par. l7,463-—Opinion of the Commission
and Order of March, 1966.

‘1

. *Sample case. See Appendix A for additional
1nformation.

 

 

215

Permanente Cement Co., In the matter of. FTC Docket 7939.
CCH Trade Regulation Reporter (FTC Transfer Binder
1965-1967), Par. l7,222——Consent order requiring
divestiture of March, 1965. Ibid. at Par. 17,613--
Order approving divestiture of July, 1966.

Pillsbury Mills Inc.,gIn the matter of. FTC Docket 6000.
57 FTC 1414'(l960)--Fina1 Order of divestiture.
CCH Trade Regulation Reporter (FTC Transfer Binder
1965;1967), Par. l7,484—-Final Order of dismissal.

Procter & Gamble Co., In the matter of. FTC Consent
Order C—1169 (1967) as found in CCH Trade Regulation
Reporter (FTC Transfer Binder 1965—1967), Par. 17,858.

 

*Reynolds Metals Co., In the mptter of. FTC Docket 7009.
*Scott Paper Co., In the matter of. FTC Docket 6559.
*Scovill Mfg. Co., In the matter of. FTC Docket 6527.
*Simpson Timber Co., In the matter of. FTC Docket 7713.

*Spalding, A. G. & Bros., In the matter of. FTC
Docket 6478.

Thatcher Mf . Co. v. Federal Trade Commission, 272
U.S. 554 (1926).

Timken Roller Bearing Co. v. U.S., 341 U.S. 593 (1951).

 

*Union Bag & Paper Corp., In the matter of. FTC Docket 639l.
*Union Carbide Corp., In the matter of. FTC Docket 6826.
*The Vendo Company, In the matter of. FTC Docket 6646.

U.

—_

v. Aluminum Company of America, 91 F. Supp. 333 (1950),

S.
H;§- v. Aluminum Company of America and Rome Cable Corp.
Antitrust Division Blue Book No. 1512. 1960 CCH
Trade Cases, Par. 69,727——decision on temporary
relief. 214 F. Supp. 501 (1963)—-Decision dis—
missing complaint. 377 U.S. 271 (l964)——reversed
by Supreme Court.

 

 

. *Sample case. See Appendix A for additional
information.

 

 

216

Egg. v. Aluminum Company of America and Cupples Products
Cor . Antitrust Division Blue Book No. 1607.
247 F. Supp. 308 (l962)——preliminary injunction.
247 F. Supp. 316 (l964)--Final Judgment. 382 U.S.
l2 (l965)—-aff'd by Supreme Court.

U.S. v. American Can Co., 1951 CCH Trade;Cases, Par. 62,679.

“U.S. v. American Cyanamid Company. Antitrust Division
Blue Book No. 1565.

*U.S. v. American Radiator and Standard Sanitary.
Antitrust Division Blue Book No. 1275.

U.S. v. American Tobacco Co., 221 U.S. 106 (1911).

*U.S. V. Anheuser—Buschngnc. Antitrust Division Blue
Book No 1421.

a:
'C.‘
w

v. Bethlehem Steel Corporation. Antitrust
Division Blue Book No. 1313.

*U.S. v. Brown Shoe Co., Inc. Antitrust Division Blue
Book No. 1266.

I

U.S. v. Chrysler Corp. & Mack Trucks, 232 F. Supp.
651 (1964).

*U.S. v. Continental Can Company. Antitrust Division
Blue Book No. 1310.

CI
[/1

r

. v. Crescent Amusement Co., 323 U.S. 173 (1944).

C."
U)

r

v.Crocker-Anglo National Bank, 1963 CCH Trade
Cases, Par. 70,934. '

*U.S. v. Diebold Incorporated. Antitrust Division
Blue Book No. 1471.

 

 

 

ELS. v. E. I. duPont de Nemours & Co., 351 U.S. 377 (1956).
ggs. v. E. 1. duPont de Nemours & Co., 353 U.S. 586 (1957).
ELS. v. E. I. duPont de Nemours & Co., 366 U.S. 315 (1961).
ELS. v. El Paso Natural Gas. Co., 376 U.S. 651 (1964).

 

*Sample case. See Appendix A. for additional
information.

 

 

 

 

 

217

U.S. v. Food Machinepy Corp. & American Viscose Corp.,
1963 CCH Trade Cases, Par. 70,826:

*U.S. v. Gamble—Skogmo, Inc. Antitrust Division Blue
Book No. 1513. '

U.S. v. General Electric Co., 115 F. Supp. 835 (1953).
*U.S. v. General Shoe Corporation. Antitrust Division
Blue Book No. 1220.

C.‘

.S. v. Gimbel Brothers Inc., 202 F. Supp. 779 (1962).

C.‘

S. v. Greater Buffalo Press, Incgg et al., 1962
CCH Trade Cases, Par. 70,380. ‘

*U.S. v. The Hertz Corp. Antitrust Division Blue
Book No. 1444.

*U.S. v. Hilton Hotels Corporation. Antitrust Division
Blue Book No. 1229.

UL§. v. Ingersoll Rand Co., 218 F. Supp. 530 (1963),
aff'd 320 F. 2d. 509 (1963).

*
'C‘.
(D

V. Jerrold Electronics Corp. Antitrust Division
Blue Book No. 1318.

*U.S. v. Lucky Lager Brewing Compa_y. Antitrust Division
Blue Book No. 1370.

 

*U.S. v. Maremont Automotive Products. Antitrust Division
Blue BOok No. 1543.

U.S. v. Minute Maid Corp. Antitrust Division Blue Book
No. 1253. 1955 CCH Trade Cases, Par. 68,13l-—
Consent Decree.

U.S. v. National Alfalfa Dehydrating and Milling Company.
Antitrust Division Blue Book No. 1398. 1963 CCH
Trade Cases, Par. 70,665--Consent decree.

U.S. v. National Homes Cogp. Antitrust Division Blue
Book No. 1485. 1962 CCH Trade Cases, Par. 70,533-—
Consent decree.

U.S. v. Northern Securities Co., 193 U.S. 197 (1904).

‘_F

*Sample case. See Appendix A for additional
information.

 

 

 

218

*U.S. v. Owens-Illinois Glass Company. Antitrust
Division Blue Book No. 1310.

 

.S. v. Pabst Brewing Company, 384 U.S. 546 (1966).

 

.s. v. Philadelphia National Bank. 374 U.S. 321 (1963).

 

.S. v. Pullman Co., 50 F. Supp. 123 (1943).

 

3|:

.8. v. Ryder System, Inc. Antitrust Division-Blue
Book No. 1564.

 

*U.S. v. Schenley Industries, Inc. Antitrust Division
Blue Book No. 12147

 

.S. V. Standard Oil Co. of N. J., 221 U.S. 71 (1911).

C}

. . v. Standard Oil Co. of N. J., 1965 CCH Trade
Cases;'Par. 71,503.

*U.S. v. Standard Oil Company of Ohio. Antitrust
Division Blue Book No. 1490.

ELS. v. Third National Bank of Nashville, 1964 CCH
Trade Cases, Par. 71,209. '

 

 

 

U.S. v. United Shoe Machinery Co., 110 F. Supp. 295 (1953).
U.S v. Von's Grocery Co., 1960 CCH Trade Cases, Par. 69,698.
HL§. V. Von's Grocery Co., 384 U.S. 270 (1966).

 

Winn-Dixie Stores, Inc., In the matter of. FTC Consent
Order C-1110 (1966) as found in CCH Trade Regulation
Reporter (FTC Transfer Binder 1965-196“), Par. 17,694.

 

Reports, Papers, and Addresses

American Bar Association. Merger Case Digest. Revised,
January, 1964.

American Management Association. Lega1,_Financia1, and’
Tax Aspects of Mergers and Acquisitions. Financial
Management Series #114. New York: American
Management Association, 1957.

 

*Sample case. See Appendix A for additional
information.

 

 

 

 

 

219

Bock, Betty. Mergers and Markets, Studies in Business
Economics No. 85. New York:\ The National
Industrial Conference Board, July, 1964.

Book, Betty. Mergers and Markets, Studies in Business
Economics No. 93. New York: The National
Industrial Conference Board, 1966.

Bossons, John, Cohen, Kalman J., and Reid, Samuel R. Mergers
for Whom-~Managers or Stockholders? Working Paper No.
14, Carnegie Institute of Technology Workshop on
Capital Market Equilibrating Processes, April, 1966.

Cohen, Kalman J., and Reid, Samuel R. Bank Mergers
for Whom-~Managers, Stockholders, or the
'Public'? Working Paper No. 10, Carnegie Institute
of Technology Workshop on Capital Market Equili—
brating Processes, April, 1966.

 

Dallstream, Andrew J. Report and Recommendations of Andrew
J. Dallstream, Amicus Curiae with respect to the;
Interests of Stockholders of E. I. duPont de Nemours,
and Company. (In U. S. v. duPont et al., Civil Action
No. 49 C 1071, U. S. D. C. for N. I11.) August, 1958).

 

Diversification Institute, affiliated with Boni, Watkins,
Jason & Co., Inc. A Report on Results of a Survey .
of Business Qpinion regarding Premerger Notification
Legislation. New York, nd.

Federal Bar Association, Antitrust Committee. "Proposed
Merger Guidelines," a transcript of a panel dis—
cussion at the annual meeting, Chicago, Illinois,
September 17, 1965, in: Current Antitrust Implica—
tions in the Merger Field. Washington: Bureau
of National Affairs.

Goldberg, Milton S. The Consent Decree: Its Formulations
and Use, Occasional Paper No. 8} E. Lansing:
Michigan State University Bureau of Business &
Economic Research, 1962.

Mueller, Willard F. "Merger Policy in the Dairy Industry,"
address before the 2lst Annual Midwestern Milk Marketing
Conference, Michigan State University, April 27, 1966.

National Economic Research Associates, Inc. The Antitrust
Climate: Mergers. New York, 1966.

 

Perkins, George. "A Constructive Suggestion," address
before Chamber-of Commerce, Youngstown, Ohio,
December 4, 1911 (pamphlet).

 

 

220

Public Documents

Annual Report of the Attorney General of the United States.
Washington: U.S. Government Printing Office, 1964.

Economic Report(s) of the President. Washington: U.S.
Government Printing Office, 1956-1960.

Federal Trade Commission. Economic Report on Mergers &
Vertical Integration in the Cement Industry.
washington, D.C., April, 1966.

Federal Trade Commission. Report on Corporate Mergers-
and Acquisitions, 1955.

Federal Trade Commission. "Summary of Recent Merger
Trends," (mimeo), 1966.

Hamilton, Walton, and Till, Irene. Antitrust in Action,

TNEC Monograph No. 16. Washington: U.S. Government
Printing Office, 1941.

Handler, Milton. A Study of the Enforcement of the
Federal Antitrust Laws, TNEC Monograph No. 38.
Washington: U.S. Government Printing Office, 1941.

Report of the Attorney_General's National Committee to
Study the Antitrust LaWs. Washington; U.S.
Government Printing Office, 1955.

U.S. Senate, Subcommittee on Antitrust & Monopoly.
=Administered Prices: ‘A Compendium on Public Policy.
'88th Cong., lst. Sess., 1963. ’

U.S. Senate, Subcommittee on Antitrust & Monopoly.
Hearings, Authorization for Department of Justice
to make Demand:fianvidence.in Civil Antitrust
Investigations. 87th Cong., lst. Sess., June, 1961.

U.S. Senate, Subcommittee on Antitrust & Monopoly.
Hearings, Economic Concentration, Part 1, 88th
Cong., 2nd Sess.: July—September, 1964.

U.S. Senate, S ommittee_on Antitrust & MonOpoly,
Hearings, Economic Concentration. Part 2, 89th
Cong., lst Sess., March-April, 1965.

U.S.-Senate, Subcommittee on Antitrust & MonOpoly.
' Hearings, Legislation affecting Corporate Mergers.
84th Cong., 2nd Sess., May-June, 1956.

 

 

 

221

U.S. Senate, Subcommittee on Antitrust & Monopoly.
Hearings, Legislation affecting Sections 7, 11, and
15 of the Clayton Act. 785th Cong., 2nd sess.,
April-May, 1958.

 

U.S. Senate, Subcommittee on Antitrust & Monopoly.
Hearings, Premergpr Notification Legislation.
86th Cong., 1stSess., 1959.

U.S. Senate, Subcommittee on Antitrust & Monopoly.
Report, COrporate Mepgers and Acquisitions.
85th Cong., lst Sess, March, 1957.

U.S. Senate, Subcommittee on Antitrust & Monopoly,
Report, 1963 Concentration Ratios in Manufacturing,
InduStry. 89th Cong., 2nd Sess., 1966.

 

 

 

 

ADDENDUM TO BIBLIOGRAPHY

There are certain sources to which I am certainly
indebted but they are too numerous for individual listing.
I mention them in a collective manner in this addendum.

The Wall Street Journal provided additional information
on corporate merger activity, the relief problem, as well-
as the data often needed to compute acquisition prices in
the case of stock exchanges. My debt to the Bureau of
National Affairs Antitrust & Trade Regulation Report,
including its "Analysis"7section, is substantial; almost
every issue contained information enabling me to keep
abreast of antimerger developments. Various issues of
Management Reports Inc. Antitrust and Trade Regulation
Newsletter were also helpful. The Annual Reports, SEC
Prospectuses, and press releases of the acquiring and~
acquired-corporations were also read and proved useful in
identifying the activities and properties of these companies
or verifying data on acquisition dates, prices, etc.
Moody's Industrial Manual was also an important source in
this regard.

 

 

 

Finally, this thesis would not have been possible
. without the use of the Pleadipg Files made available to me
(at the Antitrust Division and the Docket Files and Compliance
Reports made available to me at the Federal Trade Commission.
I have perused these files and reports for all the cases in
my merger sample plus several others.* While I have cited
much of the published legal material relating to these cases
in either this bibliography or Appendix A, there are numerous
sources, particularly the legal briefs and compliance reports
upon which I relied heavily in my research, which are not
aublished but are available in the aforementioned Files.
[one of the sources of this nature are herein specifically
ited. Whenever a specific brief, report, or memorandum was
entioned in the text, the document was found in the File
or that particular case.

. fiv

*ABC Vending, Alcoa-Cupples, Alcoa—Rome, Borden,
olidated Foods, Diamond Alkali, Erie Sand & Gravel,
nost, Minute Maid, National Alfalfa, National Homes,
?illsbury.

222

 

 

 

 

APPENDICES

 

 

 

 

 

APPENDIX A

THE SAMPLE CASES

 

224

 

 

225

AMERICAN CYANAMID CO.-FORMICA CO. AND PANELYTE
DIVISION OF ST. REGIS PAPER CO.

Complaint filed October 5, 1960, amended October 13,
1960, to drop the complaint against-Panelyte; Antitrust
Division Blue Book No. 1565.

Disposed of by Consent-Decree of August 4, 1964.
1964 CCH Trade Cases, Par. 71, 166.

Date of merger(s): Formica Co. acquired in April,
1956; Panelyte in August, 1958.

Relief-Ordered

a. Divestiture within 2 years of American Cyanamid's
Willow Island melamine-producingfacilities (or
the option, not taken, of leasing same for a S-year
period to a lessee, the lessee agreeing to construct
a new melamine plant within 5 years-and to supply
American Cyanamid's domestic melamine needs during
the lease period).

b. 20 year ban on acquisitions of firms engaged in
~manufacture or sale of dicy, melamine, melamine
resins, laminates or their end products without
government approval.

c._ Divestiture of the Willow Island plant to include
technical assistance from American Cyanamid as well
as employment rights to Willow Island personnel.

d.' 10 year restriction on American's expansion of its
melamine capacity to a maximum of 30 million
1bs./yr. and a restriction of American's domestic
production of melamine to 30 million 1bs./yr. This
restriction to be rescinded should Willow Island“
or U.S. melamine capacitybe increased by 25
million 1bs./yr., over and above American Cyanamid's
capacity at time of divestiture.

e. American must purchase, at the acquirer's option,
at least 50% of its outside melamine requirements
from the acquirer, for a lO—year period, at
prevailing market prices.

 

 

226

f. 10-year buying requirement imposed on American to
purchase, after divestiture of Willow Island,
melamine from other producers in amounts equivalent
to its requirements for melamine used in the manu-
facture of laminates.

g. Patent licensing provisions and other miscellaneous
marketing orders.

Special Comment

American Cyanamid negotiated an order requiring divest-
iture of properties other than those cited in the com-.
plaint as violating Section 7. The rationale behind-

this substitution of assets to be divested apparently
~goes something like this: the restraint lies in vertical
foreclosure, with American Cyanamid being the sole
domestic seller of melamine and Formica being a sub—
stantial buyer of melamine,for use in making its laminated
products; the restraint can be alleviated by relief-

at either end of the vertical chain. The government
(rightly) argued that allowing the Formica acquisition

to stand would discourage entry into both melamine and
laminated products since, at the time the complaint,
American Cyanamid was the sole domestic producer of
melamine for sale and, its owning both Formica and
Panelyte, would decrease the selling alternatives of a
new melamne producer. And this situation would certainly
cause any potential independent producer of laminated'
products to have_qua1ms about his source of melamine
resins. ' ‘

The divestiture order is lacking in itself due to the
terribly complex nature of the marketing order which
accompanies the structural relief. This order will
either not be enforced or, if enforced, will involve
the government in watchdog activities that are repuge
nant to the concept of antitrust. There also is little
doubt that American was-eager to substitute the Willow
Island facilities for the divestiture of Formica.
Subsequent to the complaint, the threat of new entry
into melamine became apparent. In fact, by 1966, there
' were eight producers selling melamine in the U.S.
according to.the 1967 Chemical Buyers Guide. Melamine,
a homogeneous product with a declininggrowth rate,
also faces stiff competition from overseas capacity-—.
in fact there seems little doubt that a better margin
is to be made on a branded differentiated product like
Formica (see "Chemical Profile: Melamine" in Oil,
Paint and Drug-Reporter, Chemical Profiles. New York:
Schnell Publishing 00.). In 1960, the year of the

 

 

 

 

 

227

complaint, American opened a ppw_melamine plant using
"an improved process for the production of melamine"
at Wallingford, Conn. (see their 1959 Annual Report,
p. 5). This is further reason for American Cyanamid's
trying to preserve the Formica acquisition at the
eXpense of their Willow Island facilities.

 

Forcing American to divest Formica would have left
American as a strong competitor in laminated products
and would have eliminated most of the complex marketing
order. The Willow Island plant was sold in November,
1964, to the Fisher Chemical Company and operates as
the Fisher Melamine Corp. with headquarters in New
York City. While Fisher is a satisfactory buyer of
the melamine plant, this divestiture probably accom-
plishes little. It is unfortunate that the divestiture
substitution was allowed and the resultant marketing
order was instituted. The relief is DEFICIENT.

 

 

228

AMERICAN RADIATOR AND STANDARD SANITARY-
MULLINS MANUFACTURING CO.

Complaint filed March 30, 1956; Antitrust Division
Blue Book No. 1275.

Disposed of by Consent Decree of September 20, 1960.
1960 CCH Trade Cases, Par. 69,810.

 

Date of merger: January, 1956.

Relief-Ordered

a. 5-year ban on acquisitions of any manufacturer or
distributor of plumbing fixtures without government
approval.

b. Divestiture of its Youngstown Kitchen division
(formerly Mullins) plants at Salem and Warren,
Ohio, including improvements at Warren, Ohio.

c. Divestiture of the Liberty Plant at Warren, Ohio,
and Plant No. 3 at Salem, Ohio, acquired from
Mullins Mfg. Co.

d. Divestiture of stock interest in In—Sink-Erator.

lSpecial Comment

Divestiture of the bulk of the assets formerly consti-
tuting Mullins took place in November, 1961, to an
independent group of purchasers headed by Leonard
Morey. The name of the new company is Mullins Mfg. Co.
Since Mullins cost American Radiator $36 million and '
was divested for $6.2 million, obviously the "new"
Mullins was not the size of its former self. But
American suffered heavy losses on the acquisition of
Mullins and its value had declined accordingly.
Divestiture resulting in a new and independent
-Mullins is SUCCESSFUL relief.

 

 

 

 

 

 

 

 

229

ANHEUSER-BUSCH, INC.-MIAMI BREWERY
OF AMERICAN BREWING CO.

Complaint filed October 30, 1958; Antitrust Division
Blue Book No. 1421.

Disposed of by Consent Decree of January 11, 1960.
1960 CCH Trade Cases, Par. 69,599.

Date of merger: February, 1958.

Relief Ordered

a. Divestiture of the Miami brewery, with improvements,
in such manner that the.brewery be re-established
-as an Operating competitor in the Florida market.

b. Seemingly a permanent ban on Florida brewery
acquisitions.‘

c. 5-year ban on acquisitions in brewing without
government approval.

d. Ban on selling Anheuser's "popular price" beer
in Miami area until 6 months after divestiture.

Special Comment

The Miami brewery was sold in October, 1961, to
National Brewing Co., Baltimore, Maryland, a regional
brewing company which is not a member of the nation's
10 largest brewers. National was #16 in 1965 and

1966 with 1.9% of the national market according to
Printers' Ink (Feb. 10, 1967, p. 12). Since National's
regional efforts in the marketing of its beer were not
~in the scuth, National is an acceptable buyer for the
divested brewery. A case of SUFFICIENT relief.

 

 

 

 

 

 

 

230

AUTOMATIC CANTEEN CO. OF AMERICA-
ROWE CORP.

Complaint filed June 14, 1957; Federal Trade Commission
Docket 6820. I

Disposed of by Consent Order of June 23, 1958.
54 FTC 1831 (1958).

Date of merger: December, 1954.

Relief Ordered

a. Divestiture within one year of 13 Rowe subsidiaries
(local vending machine operators in areas also
served by Automatic Canteen).

b. lO-year ban on future acquisitions of any vending-
machine manufacturer in competition with vending
machines produced by Automatic Canteen.

c. lO-year marketing requirement that Automatic offer
for sale at least 50% of its annual production of
each type of vending machine it manufactures to

vendors.other than its own.

Special Comment

In this case Automatic Canteen was allowed to keep that
part of RoWe it really wanted—~namely its facilities
for manufacturing vending machines.~ Automatic, the.
nation's largest purchaser and operator of vending~
machines, had no manufacturing facilities prior to .
acquiring Rowe, the latter producing 12% of the nation's~
machines at the time of the complaint. The-l3 local
operators to be divested were an ancillary part of the
acquisition-—indeed since the consent order, Automatic
has acquired more than that number of the same sort of
operators. The 13 subsidiaries and their dates of

divestiture are as follows:

 

 

 

 

 

 

231

Rowe Service Co., Inc.

Los Angeles September, 1958
California Cigarette Concession

Los Angeles September, 1958
Rowe Cigarette Service

San Diego January, 1959
San Jose Cigarette Service

San Jose May, 1959
Cigarette Service Co.

Denver September, 1959
Wagg Cigarette Service

Louisville November, 1959
Syracuse Cigarette Service

Syracuse July, 1959
Ace Wheeling Cigarette

Wheeling, W. Va. October, 1958
Allegheny Cigarette Service

Pittsburgh June, 1959
AceCigarette Service.

Brackenridge, Pa. June, 1959
Acme Cigarette Service

Greensburg, Pa. June, 1959
Acorn Cigarette Service

Aliquippa, Pa. June: 1959
Uniontown Cigarette Service

Uniontown, Pa. June. 1959

The total price received-byAutomatic in the divestiture
of the 13 vendors was-less than $2 million as compared
to the acquisition price of over $8 million. To:
"offset" the vertical part of the acquisition, the
government agreed to a marketing order to "protect"

the non-integrated vending machine operators for 10
years. This-is no substitute for structural relief.
Consequently, the case results in UNSUCCESSFUL relief.

 

 

 

 

 

232

BETHLEHEM STEEL CORPORATION—THE YOUNGSTOWN
SHEET AND TUBE COMPANY

Complaint filed December 12, 1956, Antitrust Division
Blue Book No. 1313.

Disposed of by Final Judgment prohibiting the merger
and holding it to be unlawful, December 19, 1958.

168 F. Supp. 576 (l958)--Decision of DistrictCourt.
Date of merger: Merger consummated on paper only with
the stock distribution and asset commingling never
having taken place.

Relief Ordered

a. lknunction against completing the merger.

Special Comment

By stOpping this merger in its incipiency, no relief
problems resulted. A case of SUCCESSFUL relief.

 

 

 

 

 

233
BRILLO MFG. CO.-WILLIAMS co.

Complaint filed May 22, 1956; Federal Trade Commission
Docket 6557.

Disposed of by Opinion of the Commission finding

Section 7 violation on July 31, 1963; Final Order on

relief, January 17, 1964.

56 FTC 1672 (1960——Commission Order vacating Hearing
Examiner's Initial Decision and
Order and remanding case to
Examiner for further proceedings.

CCH Trade Regulation Reporter (FTC Transfer Binder
1963—1965), Par. l6,543—-Opinion
of the Commission, July 31, 1963.

CCH Trade Regulation Reporter, (FTC Trade Binder
1963—1965), Par. l6,746-—Fina1
Order on relief.

Date of merger: July, 1955.

Relief Ordered

a. Divestiture within one year of all patents, trade—
marks, trade names, and customer lists formerly
belonging to Williams Co.

1 b. Brillo is allowed to retain the manufacturing
facilities and fixed assets of Williams but is not
to use them in the manufacture of industrial

steel wool.

Vc. 5—year ban on competing for the industrial steel
wool customers formerly served by Williams
"excepting that respondent may continue to sell
industrial steel wool to any customer it served

in common with Williams as of July, 1955, providing
that the maximum unit annual quantity sold to each
such common customer does not exceed the total

unit quantity which respondent sold to it in the
twelve months preceding July 5, 1955."

 

 

 

234

Special Comment

Since industrial steel wool was the only area of
competitive overlap between these two firms, Brillo
being the only one of the two that produced household
steel wool, Brillo was able to convince the FTC that
the anticompetitive effects of the acquisition would
be offset if it were to produce no industrial steel
wool with the Williams assets.

There are severe weaknesses in this order. Provision
a almost precludes divestiture to anyone except those
(few) firms which already had the manufacturing
facilities to handle the Williams' business; i.e.,
the order in effect necessitates a horizontal
divestiture to someone with excess steel wool
production ready to take over the marketing function.
Provision p, since theproduction facilities for

steel wool are interchangeable between industrial and
household steel wool, does in fact expand Brillo's
capacity in industrial steel wool-—for Brillo, by
using the Williams' assets to make household steel
wool, will be able to free some of its equipment,
formerly needed for household wool, for use in the
production of industrial steel wool. And provision p,
the marketing order, is clearly a protective device
which "hallows" market shares until 1969 which existed
in 1955.

The Williams "business" was sold in January, 1965, to
the J. H. Rhodes Co., of Chicago for $260,000.
Ironically, as was mentioned in Chapter IV, Rhodes was
unable to supply all the old Williams customers (under~
standable since Rhodes was unable to buy the Williams
production facilities). The marketing order prevented
the old Williams' customers from going to Brillo and
Rhodes from sub—contracting his needs for industrial
steel wool with Brillo. So, in 1965, the order was
modified to allow Brillo to produce industrial steel
wool in the Williams plant to supply Rhodes to in

turn fill his customers orders. A case of UNSUCCESSFUL
relief.

 

 

 

235
BROWN SHOE CO., INC.-G. R. KINNEY CO., INC.

Complaint filed November 28, 1955; Antitrust Division
Blue Book No. 1266.

Disposed of by Final Judgment entered December 8,

1959, and affirmed by the Supreme Court.

1956 CCH Trade Cases, Par. 68,244-—Government motion
for preliminary injunction denied
and no commingling requirement
instituted.

179 F. Supp. 721 (l959)——District Court finding of
Section 7 violation.

370 U.S. 294 (l962)——Supreme Court affirmation of
District Court. '

Date of merger: March, 1956, under conditions of
no—commingling laid down by court.

Relief Ordered.

a. Full divestiture of Kinney.

Special Comment

Kinney was sold in August, 1963, to F. W. Woolworth
for $39 million in cash and $6 million in promissory
notes. Woolworth's size in retailing makes it a less-
than-optimum purchaser, Woolworth being one of the 50
largest merchandising firms in the U.S. A case of
SUFFICIENT relief.

 

 

 

236

CONTINENTAL BAKING-CO.—OMAR, INC.
AND 7 OTHER BAKERY ACQUISITIONS

Complaint filed May 5, 1960; Federal Trade Commission
Docket 7880.

Disposed of by Consent Order of May 11, 1962.
60 FTC 1183 (1952)

Date of merger(s): 1952—1958; Omar, Inc.-—November,
1958.

Relief Ordered
a. Divestiture within 6 months of Omar, Inc.

b. lO-year ban on acquisitions in bread and bread-
type rolls without government approval.

Special Comment

The divestiture in this-case took place in November of
1963 with the 4 Omar plants being sold to a new entrant
in the baking business headed by William Frostand known
as OmarBakeries, Inc., purchase price was $4 million.
But.thepartial divestiture negotiated in the consent
order does not go far enough. Continental Baking was

'allowed to dispose of only one of the 8 acquisitions

cited in the complaint—gandzat that, one with which it
was-losing considerable-money even before the FTC
complaint was-issued. It is quite likely thats
Continental was glad to be rid of Omar! On the other
hand, Continental was allowed to retain all of the.
profitable bakeries. Of,8 acquisitions totaling

over $25 million, it divested only 1, and the loser

at that. A case of DEFICIENT relief.

 

 

 

 

237

CONTINENTAL CAN CO.-HAZEL-ATLAS GLASS CO.

Complaint filed September 10, 1956; Antitrust Division
Blue Book No. 1310.

Disposed of by Opinion of Supreme Court, finding
merger in violation of Section 7, June 22,1964.
1956 CCH Trade Cases, Par. 68 ,479——Order denying
government's motion for
temporary restraining order.
217 F. Supp. 761 (l963)-—District Court dismissal
of case.

378 U.S. 441 (l964)——Opinion of Supreme Court reversing.

District Court.
Date of merger: September, 1956.

Relief‘Ordered

Final Judgment on relief of November 18, 1964, called
for:

a. Divestiture of 9 of the 11 Hazel-Atlas plants.

1 b. lO—year ban on acquisitions in glass manufacture.

Special~Comment

Though structural relief was finally enacted in this,
case, after the plants were held by Continental for

8 years, the divestiture ordered was not complete;

9 of the 11 plants were to be divested. Eight of
these plants were sold in September of 1964 to
Brockway Glass Company, already the 4th largest glass
container producer in the U.S. (#2 as a result of the
divestiture). Continental argued that since it lost
so much money on Hazel-Atlas, it would be unwise to
sell the assets to a firm not already in glass con—
tainers since anyone else "would have no reasonable
chance of succeeding." However, the validity of this
assertion was never demonstrated. For essentially
political reasons, Continental was. allowed to keep the
two profitable plants in West Virginia (BNA ATRR 168:
A-7 and Continental Annual Report, 1964, 45 The
remaining plant to be divested was sold in 1963 to
Alexander H. Kerr.

 

 

 

 

238

The relief is DEFICIENT, largely due to the inadequate
buyer of the divested plants and also due to the
partial divestiture. The Wall Street Journal quoted

one antitrust lawyer as saying:

Continental Can came out of it pretty well.
It got rid of the HazeleAtlas plants it
didn't-want, was allowed to keep the two
better ones, and got a foothold in the glass

business. (June 17, 1965, p. 12

 

 

 

 

239

CROWN ZELLERBACH-ST. HELENS PULP & PAPER CO.

Complaint filed February 15, 1954; Federal Trade
Commission Docket 6180.

Disposed of by Supreme Court denial of petition for
certiorari, June 25, 1962.

54 FTC 769 (1957)--Initial Decision of Hearing Examiner.

and Order of divestiture.

54 FTC 798 (1957)-—Commission Opinion and Order of
divestiture.

296 F. 2d 800 (1961—-affirming Commission's Opinion
and Order of divestiture.

370 U. S. 937 (1962--certiorari petition denied by
Supreme Court.

Date of merger: June, 1953.

Relief Ordered

a. Divestiture "to restore St. Helens Pulp & Paper
Company as a competitive entity in the paper
trade, as organized and in substantially the
basic operating form it existed at or around
the time of the acquisition.

Special Comment

i This was the first litigated case which required the

s divestiture of a large firm. In addition, the relief
involved the question of considerablepost-acquisition
improvements to the acquired property, Crown having
put $14.3 million into St. Helens during litigation.‘
However the Commission wisely held that "the broad
purpose of the statute cannot be thwarted merely
because reSpondent has commingled its own assets with
those of the acquired firm." (54 FTC at 807)

Unfortunately, the relief in this case is DEFICIENT
due to the Commission‘s approval of Boise Cascade
Corporation as the buyer of the St. Helens facilities.
Boise, by virtue of its timber holdings and lumber
operations in the Pacific northwest, was a natural
entrant into paper——in fact, it-had committed itself
to pulp and paper as early as 1958 and gave every
indication of entering the market on a large scale
(see Annual Reports of Boise, 1957, p. 2, 1958, p. 2;
1959, p. 3). By 1963, a year before its acquisition

._. ._. . _,

 

 

240

of St. Helens, Boise's,Annua1 Report claimed: "Paper-
is now our biggest business." (5} 1) Before buying
St. Helens for $28 million in April, 1964, Boise
Cascade had already made 5 acquisitions in paper and
had constructed as many paper plants in the west.
With the rapid expansion of the western paper market,
'it would not-seem unreasonable to expect a paper firm
not already committed to this market to be the pur-
chaser of St. Helens rather than one already in the
market. There is evidence presented in Chapter IV
Crown pursued only Boise as the buyer for these assets,
ignoring other potential buyers. In addition, the
terms of the sale so closely tie Crown and Boise
together in reciprocal sales, pulp, and facilities
agreements that one can justifiably question the
degree of rivalry that will be found between the two
companies (see "Agreement of Purchase and Sale,"

May 8, 1963).

 

 

 

 

241
DIAMOND CRYSTAL SALT CO.-JEFFERSON ISLAND SALT CO.

Complaint filed December 2, 1958, Federal Trade
Commission Docket 7323.

Disposed of by Consent Order of February 4, 1960.
56 FTC 818 (1960).

Date of merger: January, 1957.

Relief Ordered

a. Divestiture of Jefferson's "Seneca Lake" property
in New York.

b. lO-year ban on acquisitions in salt production or
salt distribution.

0. lO-year marketing order requiring Diamond to
offer to sell up to 30% of the annual production
of rock salt at Jefferson, La.

"in good faith in accordance-with respondent's
regular credit requirements, and at
respondent's regular prices, terms, and.
conditions, and in weights and packages,

types and grades, regularly produced at
respondent's Jefferson Island plant, to

all other producers of salt who do not
have resources and facilities for the
production of Louisiana Rock Salt ."
This is further complicated by a system of
allotments to purchasers based on their past

purchases.

Special Comment

 

This case is an example of de minimus divestiture, the
"Seneca Lake" property commanding a price of $4,000 in
June, 1960, from a resident of the area, Robert
Hillman of Rock Stream, New York. The marketing order
is a complex one, attempting to "protect" the non—O
integrated users of Louisiana Rock Salt while letting
the heart of the acquisition go unsevered. The relief

is Clearly UNSUCCESSFUL.

 

242
DIEBOLD INC.-—HERRING-HALL-MARVIN SAFE CO.

Complaint filed August 24, 1959; Antitrust Division
Blue Book No. 1471.

DiSposed of by Consent Decree of May 10, 1963.

197 F. Supp. 902 (l961)--DistrictCourt summary dis-
missal of complaint.

369 U.S. 654 (l962)--Supreme Court reversal of District
Court and remand for trial on the

merits.
1963.CCH Trade Cases, Par. 70,738--Consent Decree.

Date of merger: September, 1959.

Relief»Ordered

a. Divestiture within one year of Herring-Hall—Marvin,
reactivating it as "an operating business."

b. Divestiture order dropped-if, after 1% years,
compliance has been unsuccessful..

c. 5-year ban on acquisitions in the production or
distribution of bank protection equipment, without

government approval; increasing to 10 years if
there is no divestiture ofHerring-Hall-Marvin.

Special Comment

Diebold never complied with the divestiture order and
was allowed to keep Herring-Hall—Marvin. A case of

UNSUCCESSFUL relief.

 

 

243

FARM JOURNAL, INC.-CURTIS PUBLISHING CO.
(COUNTRY GENTLEMAN)

Complaint filed June 30, 1955; Federal Trade Commission
Docket 6388.

Disposed of by Order of Commission adopting Initial
Decision of Hearing Examiner, July 17, 1956.
53 FTC 26 (1956).

Date of merger: September, 1955.

Relief Ordered

a. Divestiture of trade names, subscriber lists, and
advertiser lists of Country Gentleman magazine.

Special Comment

This case involved the acquisition by the nation's
largest general interest farm magazine of its only
national competitor. Since Farm Journal had already
solicited the subscribers of Country-Gentleman,
transferring their subscriptions, and already had
the use of the advertising lists, this divestiture
was able to accomplish little. Restoring Country
Gentleman was, for practical purposes, impossible.
The ”Country Gentleman" name was sold for $1 to
Patent Press, Inc., in December, 1956; the same
month the other trade name involved, "Better
Farming," was sold to Watt Publishing Co. for $500.
The two lists brought $30,000 from Mailing Service
Inc. in November, 1956. Relief in this case is
UNSUCCESSFUL.

 

 

244
GAMBLE—SKOGMO, INC.-WESTERN AUTO SUPPLY CO.

Complaint filed April 1, 1960; Antitrust Division.
Blue Book No. 1513.

Disposed of by Consent Decree of July 18, 1960.
1960 CCH Trade Cases, Par. 69,770.

Date of merger: sufficient capital stock for control
acquired-by August, 1958.

Relief Ordered

a. Divestiture of stock had taken place by the time
of the consent decree; the decree prohibited~
Gamble-Skogmo or its president from acquiring
any future interest in Western Auto and the
exchange of information between Gamble-Skogmo
and Western Auto.

Special Comment

Though the consent order did not call for divestiture,
the effect of the Section 7 action was the stock
divestitureIMIUflioccurred Just prior to the consent
decree. The stock was soldin July, 1960, to Beneficial
Finance Co. for $45.2 million.

Those who are unconcerned about conglomerate or
"long—pocket" acquisitions might consider the relief
in this case as successful. However I evaluated it as
SUFFICIENT. While structural relief was enacted, and
rather quickly Beneficial Finance would not seem to be
the most ideal of purchasers due to its size and
"long-pocket." This case is a borderlineone, the
deciding factor being one's views on acquisitions

by large conglomerates. I rate it SUFFICIENT, with
the reminder that this category represents satisfac—
tory relief settlements.

 

 

245

GENERAL SHOE CORP. (NOW GENESCO)-DELMAN, INC.
AND 17 OTHER ACQUISITIONS

Complaint filed March 29, 1955; Antitrust Division
Blue Book No. 1220.

Disposed of by Consent Decree of February 17, 1956.
1956 CCH Trade Cases, Par. 68,271.

Date of merger(s): 1950—1954, with 18 acquisitions
mentioned in complaint; Delman, Inc. purchased in
January, 1955.

Relief Ordered

a. 5-year ban on acquisitions in shoe industry
without government approval.

b. Divestiture within 2 years of stock in each shoe
manufacturer or shoe retailer in which a minority
of outstanding stock is held.

c. 5-year requirement to purchase a minimum of 20%
of its shoes from other shoe manufacturers.

d. Provision for patent licensing at reasonable
royalties and the supply of technical assistance
to other shoe manufacturers.

Special Comment

Structural relief was substituted in this decree for

a ban on future acquisitions, patent licensing, and the
regulation of Genesco's purchases of its shoe require—
ments. No significant structural relief was ordered.

A case of UNSUCCESSFUL relief.

 

 

246
GULF OIL CORP.-WARREN PETROLEUM CORP.

Complaint filed December 13, 1956; Federal Trade
Commission Docket 6689.

Disposed of by Consent Order of January 5, 1960.
56 FTC 688 (1960).

Date of merger: March, 1956.

Relief Ordered

a. Divestiture within 3 years of certain Warren
properties to buyers other than 23 specified
oil companies:
the "Harris properties": Butane Gas, Inc.,
Butane Wholesale Gas Co., Harris Distributors, Inc.
Dri—Gas division .
all railroad tank cars owned or controlled by Warren
natural gas facilities at San Pedro, Cal.
petrochemical plant at Conroe, Texas
Madill gas processing plant, Madill, Okla.
Ringwood gas processing plant, Ringwood, Okla.
Midland gas processing plant, Conroe, Texas.

b. lO—year ban on acquiring more than 20% of the assets
of any producer of LP or natural gas marketer with
U.S. sales of more than 125 million gallons of LP
and/or natural gas.

0. lO—year requirement to offer 48.64% of their LP gas
to independent, non—integrated LP gas marketers.

d. lO—year requirement to offer 2.58% of their LP
gas to independent, non-major refiners.

e. lO—year requirement to offer 44.8% of their natural
gasoline to independent U.S. non—major refiners.

f. lO—year requirement to offer 3.52% of their total
supply of LP gas to independent non—integrated
U.S. petrochemical manufacturers.

 

247

Special Comment

This order is UNSUCCESSFUL due to both the marketing
order, which is extremely complex, and to the insuf-
ficiency of the divestiture requirement. The whole
order runs 10 pages with the marketing percentages
being established to the second decimal point. The
marketing order requires only that Gulf "offer" these
percentages for sale to certain non—majors--which
brings in the question of "intent" in ascertaining
whether the "offers" have been in good faith when

the percentage requirements are not met. The greatest
problem with the marketing order was outlined in
Chapter IV——namely that markets change, and Gulf
found, in some cases, that there simply was no market
for the percentages it was required to offer. The
complexities in administering this marketing order,
and the misallocative results that would follow were
it closely adhered to for ten years, clearly point out
that the marketing order is a euphemism for government
regulation. The assets to be divested in this case
were parceled out in a piecemeal fashion to 10 different
purchasers, with 29% of the acquired assets being
divested and less than 4% ending up in the hands of
small independents in the petroleum industry. No part
of the order resulted in another independent center of
initiative being added to the petroleum industry to
replace Warren. The acquisition gave Gulf its foothold
in natural gas and certain key personnel from Warren,
including the services of W. K. Warren who now sits

on Gulf’s board. This has manifested itself in Gulf's
above—average industry discovery rate for natural gas

(Annual Re orts, Gulf Oil Corporation, 1962, p. 7;
1965, p. 8).
The divested assets went to:

Harris properties, Dri-Gas division to Thermo-Gas

Co. in August, 1962, for $10.1 million; since
acquired by Mid—America Pipeline Co.

railroad tank cars—-sold piecemeal with bulk of them-

going to General American Transportation in July,
1962, for $19 million, the largest lessor of tank
cars in the U.S.

San Pedro natural gas facilities-—to Bray Oil,
Calif., in December, 1964, for $450,000

Conroe petrochemical plant—-Jefferson Chemical Corp.,
a subsidiary of Texaco, in January, 1960, for
$500,000

 

 

248

Madill & Ringwood plants—-to National Fuels Corp.,
Texas in December, 1962 for $4,860,000.

Midland p1ant-—to Champlin Oil & Refining Co. in
December, 1962 for $3,530,000; now owned by
Celanese Corp.

oxygen equipment at Conroe p1ant——to Grenader
Equipment in December, 1960 for $62,500; now
owned by Jefferson Chemical.

The relief in this case is UNSUCCESSFUL.

 

 

249

THE HERTZ CORP.—37 MOTOR VEHICLE
RENTING AND LEASING COMPANIES

Complaint filed May 1, 1959; Antitrust Division
Blue Book No. 1444.

Disposed of by Consent Decree of June 29, 1960.
1960 CCH Trade Cases, Par. 69,762.

Date of merger(s): 1954—1958.

Relief Ordered

a. Divestiture of one Miami Beach car rental agency
and one New York City truck rental agency.

b. 5-year ban on non-competition covenants in car and
truck rental business and on exclusive concessions
agreements without government approval.

0. 3—year ban on acquisitions in motor vehicle rental
business in those cities where Hertz already has
50 plus cars and/or trucks, without government
approval.

Special Comment

This is an example of de minimus divestiture with some
marketing orders thrown in for good measure. The value
of the assets mentioned in the complaint totalled $40
million. The Miami Beach business was sold in March
of 1961 as a market extension acquisition to American
Material and Equipment Company, car renters in New
Orleans, for less than $500,000. The truck rental
business in New York was Sold for less than $3 million
in April, 1962, to Tetrick Leasing Corporation which
subsequently went broke, the operation reverting back
to Hertz. Altogether, 162 cars in Miami were sold.
A case of UNSUCCESSFUL relief.

 

250

HILTON HOTELS CORP.-HOTELS STATLER CO.
(control of 9 "first~class" hotels
and l in construction)

Complaint filed April 27, 1955; Antitrust Division
Blue Book No. 1229.

Disposed of by Consent Decree of February 6, 1956.
1956 CCH Trade Cases, Par. 68,253.

Date of merger: October, 1954.

Relief Ordered

a. Divestiture of 3 hotels, the Jefferson in St.
Louis, the Mayflower in Washington, D.C., and'
either the Roosevelt or the New Yorker in New
York City.

b. 5-year ban on hotel acquisitions in selected
cities without government approval.

Special Comment

Hilton, the largest hotel chain in the U.S. by value
'of assets, revenues, and number of rooms, acquired
Statler, the second largest hotel chain in the U.S..
The relief ordered did not require divestiture of any
of the hotels acquired in the acquisition; instead
Hilton was allowed to substitute 3 of its own hotels
in-compliance with the order. The consent decree

is lacking in 3 ways:

 

a. it is a partial divestiture, 3 hotels being
sold where 9 were gained

b. there is evidence that the substitution of
hotels was indeed to Hilton's advantage: the
occupancy rate of the hotels kept was 5%
greater than those divested; the average
number of rooms per hotel kept was-1,033, of
those divested, 888. The order resulted in
Hilton keeping Statler hotels in Boston,

Buffalo, Cleveland, Dallas} Detroit, Hartford,
Los Angeles, New York, St. Louis, and Washington
D.C. (see Moody's 1956 Bank & Finance Manual, ’

pp. 786-790)

*Opened in January, 1956-

 

251

c. the 3 hotels which were sold went to less than
could be desired purchasers: the Jefferson was
sold in December, 1955, for $7.5 million to the
Sheraton Corporation of America; the Mayflower.
and the Roosevelt were sold in March, 1956, for
$14.9 million to the Hotel Corporation of
America.

The relief obtained is UNSUCCESSFUL.

 

 

252

HOOKER CHEMICAL CORP.-DUREZ PLASTICS & CHEMICALS, INC.-
and the molding materials assets of-
Monsanto Chemical Co.

Complaint filed July 28, 1960; Federal Trade Commission
Docket 8034.

Disposed of by Consent Order of August 31, 1961.
59 FTC 254 (1961).

Date of merger(s): February, 1955, and September,
1958, respectively.

Relief Ordered

a. Divestiture within 90 days of the assets acquired;
from Monsanto Chemical Co.

b. lO-year ban on acquisitions of manufacturers or~
distributors of phenolic molding compounds.

c. 6-month requirement to make available to the
purchaser at-Hooker's cost its requirements of
lump resins and resin compounds-needed to manu-
facture phenolic molding compounds; to make
available technical assistance; and to make
available customer lists of those firms pur—.
chasing phenolic molding compounds.

Special Comment

Relief is UNSUCCESSFUL in this case due to the partial
divestiture and the failure of the decree to re-establish
-even one viable firm. The combined purchase price of

the two firms mentioned in the complaint is over $63,
million. The assets to be divested brought$150,000,
from the Duraphane Co. of Sterling, Conn.- The assets
were never used and are now in the hands of Union

Carbide.

 

 

253
INTERNATIONAL PAPER CO.—LONG BELL LUMBER CORP.

Complaint filed November 6, 1956; Federal Trade
Commission Docket 6676

Disposed of by Consent Order of June 25, 1957.
53 FTC 1192 (1957)

Date of merger: November, 1956.

Relief Ordered

a. Divestiture within 10 years of stock in Longview
Fibre Co., held by Long Bell prior to its being
acquired.

b. 10—year ban on acquisitions in paper or paperboard
production or the converting thereof if such facil—
ities compete with any International Paper Co. mill.

c. lO—year marketing order regarding International's
proposed mill in the Pacific coast area directing
it to contract to sell 40 per.cent of its tonnage
of paperboard to nonintegrated purchasers in an.
ll—state area.

Special Comment

Long—Bell had planned to build a kraft pulp and paper
mill in the Pacific northwest. This merger, and the.
following failure on the part of-the government to
secure divestiture, foreclosed Long—Bell's entry into
the paper industry on the west coast. The stock in.
Longview Fibre was sold by 1963 at an estimated price»
of $13.6 million, Long—Bell costing International
Paper $117 million in 1956. The attempt to ”protect"
the non—integrated converters by a marketing order in;
lieu of divestiture makes this-relief UNSUCCESSFUL.

 

 

254

JERROLD ELECTRONICS CORP.-IO COMMUNITY
ANTENNA SYSTEMS .

Complaint filed February 15, 1957, amended to include-
a Section 7 violation on April 2,1959; Antitrust
Division Blue Book No. 1318.

Disposed of by Final Judgment of District Court,
chober 11, 1960; affirmed»by Supreme Court, March-20,
l9 1 ' ‘

187 F. Supp. 545 (l960)--opinion of District Court.

365 U. S. 567 (l96l)--per curiam affirmation of judgment
by Supreme Court.

Date of merger(s): 1955-1959°

Relief'Ordered

a. Ban on=future_acquisitions of community television
antenna systems until April 2, 1962.

b. Marketing orders:

- no tyingin of equipment sales with services:

- no tying-of service sales with equipment

- no tying in of equipment sales with other equipment

- no covenants not to purchase from Jerrold rivals_
to be entered with customers, subject to certain
provisions.

Special Comment

*This is an eXample of the substitution of a marketing
order and a future ban on acquisitions for structural
relief. All ten acquisitions were allowed to stand.

By structural standards, this relief is UNSUCCESSFUL. ,

 

 

 

255

LESLIE SALT CO.-DESERET SALT CO.
& CALIFORNIA-SALT CO.

Complaint filed December 14, 1960; Federal Trade-
Commission,DocketK8220.

Disposed of by Consent Order of December 8, 196l.>
59 FTC 1278 (1961)

Date of.merger(s): December, 1958, and January, 1958,
respectively.

Relief Ordered
a. Divestiture-of Deseret Salt Co.

b. lO—year ban on acquiring any U.S. salt producer
or distributor.

c. At buyeris option, it may sell Leslie up to 25,000
tons of salt per year for 2 years, with priCe
determined by an FTC formula.

Special Comment

The California Salt Co. acquisition was not considered
as,a,partcxfthe relief problem in this analysis since-
.the acquisition was actually made in 1924 with Leslie
owning two-thirds of California‘s.stock since 1936.

The complaint with regard to California Salt wash
dismissed. The Deseret.facilities were divested in
November, 1965, to the Hardy Salt Co. of St. Louis for
$631,000. Hardy then becamea new entry in this region-
makingthe relief in this case SUFFICIENT.

 

 

256
LUCKY LAGER BREWING CO.-FISHER BREWING CO.

Complaint filed February 18, 1958; Antitrust Division
Blue Book N00 1370.

Disposed of by Consent Decree of October 6, 1958.
1958 CCH Trade Cases, Par.-69,160.

1962 CCH Trade Cases, Par. 70,508 (denial of plea to
modify consent decree).

 

Date of merger: June, 1957.

Relief Ordered

a. Divestiture of Fisher Brewing Company within
9;months.

b. If no divestiture. takes place within 9 months, then
Lucky Lager may keep Fisher but the two would be
"perpetually enjoined and restrained .-- . from
selling . . . more than 39% of the beer consumed

in Utah."
c. Banon brewery acquisitions in Utah.

d.* 5-year ban on acquisitions in brewing without
government approval.

Special Comment

No divestiture was made during the 9 months allotted

for the sale; therefore Lucky Lager retained possession
of Fisher with the 39% market share rule going into
effect--this being the share of the market Fisher had

at the time of its acquisition by Lucky Lager. This is
an example of the government, by injunction, trying to.
preserve a past market share. Since Lucky Lager had
about 12% of the Utah beer market prior to its acqui—;
sition of.Fisher, this marketing Order forced the
respondent intoselling less beer than it had been.
selling in Utah. Not surprisingly, Lucky Lager found

it could not afford to sell beer in Utah under-this“
market share restriction. Though Lucky' 8 original
attempt to have the order modified was rejected, I
learned from the Antitrust Division that the 39% require-
ment was quietly drOpped when its results became apparent.
With no structural relief and an unfortunate attempt at
market share control by the government, this relief is

UNSUCCESSFUL.

 

 

257

MAREMONT AUTOMOTIVE.PRODUCTS, INC.—
SACO-LOWELL.SHOPS

Complaint_origina11y filed June 23,1960, amended
December 9, 1960; Antitrust Division Blue Book
No.-1543.

-Disposed.of by Consent Decreeof December 9, 1960.
1960 CCH Trade Cases, Par. 69,881.

Date of merger: May, 1960 (23%); October, 1961 (91%).

Relief Ordered

a. Divestiture of Saco-Lowell muffler manufacturing.
facilities.

b. Maremont barred from purchasing or distributing
,mufflers made in these facilities or from dis-
criminating in sales to any purchasers.of.
mufflers made by Saco—Lowell facilities.

c._ 3eyear ban on-acquisitions of any muffler manu-
facturing firm.

Special Comment

Though divestiture was ordered, Maremont claimed that
after 2-years of attempting to comply with the order,
it hadabeengunsuccessful. The District Court, in,
January of 1963, rescinded the divestiture order. The
relief is UNSUCCESSFUL. .

:'

 

 

258

MINNESOTA MINING & MANUFACTURING CO.—
PREHLER ELECTRICAL INSULATION CO. &
INSULATION & WIRES INC.,
A SUBSIDIARY OF i
ESSEX WIRE CORP. ‘
l
l

Complaint filed June 24, 1960; Federal Trade
Commission Docket 7973.

Disposed of by Consent Order of August 24, 1961.
59 FTC 321 (1961).

Date of merger(s): March, 1956, and August, 1956,
respectively.

Relief-Ordered

a. Divestiture of Insulation & Wires Inc. before
January 1, 1962.

b. lO-year ban on acquisitions of any distributors
of electrical insulation products.

c. 5—year requirement to make available to the
purchaser of Insulation & Wires the electrical
insulation products manufactured by MMM on the,
same terms as these products are sold to other
distributors.

d. 5—year requirement that Prehler, which continues
under MMM ownership, buys 22% of its total annual
purchases of electrical insulation products from-
suppliers other than MMM.

Special Comment

In my analysis, relief is considered Deficient when
structural relief borders on Sufficient but a complex
marketing order is added to the decree. In this case
the structural relief is only partia1—-and by itself
would make the case a toss—up between the Deficient
and the Sufficient categories. However the marketing
order definitely drops the case to the lower rung.
This marketing order was not an easy one for the
government to enforce, with considerable question
later arising as to what products constituted those
falling within the 22% purchase requirement.

 

259

The divestiture part of the consent order was completed,
in October, 1961, when-Insulation & Wires was repur—
chased by its former parent, Essex Wire Corp. However.
Prehler, the larger of the two acquisitions and the
second largest distributor of electrical insulation
products in the U.S.,-remained with MMM. In light

of MMMlslpast.acquisition;history in electrical
.insulation.(8 acquisitions from 1952-1956) and its
dominant position in electrical insulation tapes,
Prehler should also have been divested, leaving MMM

as a potential competitor to both the new Prehler

and Insulation & Wires. A case of DEFICIENT relief.

 

 

260

NATIONAL DAIRY PRODUCTS CO.—21 CORPORATE
AND 18 NON—CORPORATE ACQUISITIONS IN THE
DAIRY INDUSTRY AND 1 ACQUISITION
IN THE VEGETABLE OIL INDUSTRY

Complaint filed October 16, 1956; Federal Trade
Commission Docket 6651.

Disposed of by Consent Order of January 30, 1963.
CCH Trade Regulation Reporter (FTC Transfer Binder'
1961—1963), Par. 16,282.

Date of merger(s): 1951—1956.

Relief Ordered

a. Divestiture within 18 months of two dairy
acquisitions: White Ice Cream and Milk Company,
Wilmington, N. C., and Plains Creamery, Inc.,
Amarillo, Texas, with National barred from com—
peting in these markets in the sale-of processed
fluid milk for 5 years.

b.' Ban on future acquisitions without government:
approval until October, 1963.

Special Comment

Divestiture of the White assets took place in June of
1964,125 months after the acquisition, to E. H. Evans
and a number of local investors for $1.3 million; now
operating as Whitebrook Farms Inc. Divestiture of the
Plains assets took place in January of 1965, 124
months after the acquisition, to L. B. Parker of
Dallas, a former manager for the Borden Co., and A. C.
Goldtrap, owner of the Ace Milk Co. of Fort Smith,
Ark., for $1.46 million; presently operating under the
same name, Plains Creamery.

This is a difficult case to evaluate. Since the
acquisitions in the complaint were acquired by National]
Dairy for $14.28 million, a divestiture of less than

$3 million may seem to be of de minimus proportions and
a case of Unsuccessful relief. Actually I have class-
ified this case as DEFICIENT. Though the structural
relief which took place is only partial, two of the
most important acquisitions were severed. In addition,

 

 

261

though there are 39 acquisitions in the complaint, in
some of the cases these were not processors of fluid;
milk products but rather milk routes or creamery
stations of a rather small size, presenting no great
anticompetitive problems.

In this antimerger action, as was the case with the
Foremost example given in Chapter IV of the text,
there were facilities closed down or converted shortly
after their being acquired. Though structural relief
would have been difficult if not impossible in some of
these cases, it is unfortunate that the following
acquisitions were allowed to stand.

a. Versailles Farm Products Co., St. Louis, Mo.--
a modern, profitable operation and an important
producer of ungraded milk for National-Dairy's
Kraft Foods Co.

b.' Ak-SareBen Ice Cream Co. and Irvington Dairy,
both of Irvington, Neb.——both profitable oper-
ations competing with a National Dairy
subsidiary.

0. Garden Farm Dairy Inc., Denver, Colo.--a large~
and profitable milk and milk products company,
the third largest in the Denver area.

d. Giles County Dairy Products, Pulaski, Tenn.——
primarily a cheese producer in competition with
National Dairy's Kraft Foods Co.

e. Indiana Condensed Milk, Indianapolis, Ind.—-
though ICM was liquidating its assets, National
was an unfortunate purchaser-in view of its
position in this market. The operation-was
converted from condensed milk to cheese and,
by 1962, completely absorbed in National's.
operations in the Indiana area.

f. Ballard Ice Cream Co., Indianapolis, Ind.——
a company directly competing with a National
subsidiary, closed down after 6 months-and
consolidated with National's Huntingdon plant.

g. United Dairy Farms of Albany, Inc., Albany, N. Y.--
a profitable firm in competition with a National'
subsidiary, since converted from milk processing
to cottage cheese production.

 

 

262

The largest acquisition in the group, the Humko Co.,
was purchased for over $8 million; National wastumko's
largest customer-for Humko's edible oils, used mainly:
in salad dressings and mayonnaiseetype dressings
produced by National Dairy's Kraft Foods Co. There

was no relief-taken concerning this acquisition.

 

 

 

263

NATIONAL SUGAR REFINING CO.—CERTAIN-ASSETS
ACQUIRED FROM GODCHAUX SUGARS, INC.

Complaint filed July 25, 1957; Federal Trade
Commission Docket 6852.

Disposed of by Consent Order of February 1, 1962.
60 FTC Ell (1962).

Date of merger: June, 1956.

Relief Ordered

a. Divestiture within 6 months of the assets
acquired from Godchaux.

b. S—year ban on acquisitions in sugar refining and
beet processing.

Special Comment

Divestiture took place in the "spring of 1962” (May?)
for $9.7 million. The divested assets are now-owned
by a new company, Godchaux Sugar Refining Co., a new
entrant into the business headed by the "new"
Godchaux's president, J. Lobo. A case of SUCCESSFUL
relief.

 

264

OWENS—ILLINOIS GLASS CO.—
NATIONAL CONTAINER CORP.

Complaint filed December 4, 1956; Antitrust_Division-
Blue Book No. 1310.

Disposed of by Consent Decree of July 8, 1963.
1963 CCH Trade Cases, Par. 70,808.

 

Date of merger: October, 1956.

Relief Ordered

a. Divestiture of properties acquired from National
Container to include:

— the Jacksonville, Fla., paperboard mill,

- 5 fiber box manufacturing plants

— inventories of the above properties

— at the purchaser's option, 209,000 acres of
woodland as a source of pulpwood.

b° If the woodland option is taken, purchaser must
agree to sell pulpwood to certain Owens—Illinois
plants; if not taken, Owens-Illinois must agree'
to meet certain pulpwood needs of the purchaser.
for up to 10 years.

Special Comment

Relief in this case can be characterized as "too little
and too late." According to the 1956 Moody's Industrials
(p. 884), National Container was comprised ofv7 paper
mills, l8 converting plants, and 514,000 acres of timber.
The divestiture called for the sale of only 1 of 7 paper
mills and but 5 of the 18 converting plants, leaving
Owens with the bulk of the acquisition.

 

The property to be divested was sold in April, 1965, to
the Alton Box Board Company, Alton, Illinois, for an
undisclosed sum. Thus, even the plants Owens finally
had to sell were held for more than 8 years. The
divested plants did go to a satisfactory buyer, Alton
being one of the smaller container companies, as a
market and product extension acquisition enabling

Alton to expand its operation in the southwest and
southeast. The partial divestiture is the "hole" in
this case, a case of DEFICIENT relief.

 

265
REYNOLDS METALS CO.—ARROW BRANDS, INC.

Complaint filed December 27, 1957; Federal Trade
Commission Docket 7009.

Disposed of by Circuit Court affirmation of Commission
Order to divest.

56 FTC 743 (l960)——Commission Opinion and_0rder to Divest.
309 F. 2d 223 (l962)——Commission Order affirmed.

Date of merger: August, 1956.

Relief Ordered

a. Divestiture of Arrow ”as a competitive entity."
The Circuit Court modified the divestiture order
in that Reynolds was not required to divest the
building it had purchased, after the acquisition,
to house Arrow Brands. (Arrow, prior to its being
acquired, operated in a leased building.)

Special Comment

No divestiture resulted in this case, Reynolds finding
it impossible to sell the Arrow equipment without a
building. The court claimed ”after-acquired properties
are not relevant” but, in fact, they are in the securing
of structural relief. No doubt Arrow would have made a
more attractive package if the building were included
in the divestiture order. The order to divest was
modified on May 26, 1966, since Reynolds was unable to
find a buyer. The quid pro quo for the dropping of the
divestiture order makes little sense--in return for
drOpping the divestiture order, Reynolds is required to
withdraw from the foil business and refrain from having
any interest in any florist foil or laminated aluminum
gift wrap company for 5 years. According to Reynolds,
this modification of the order would "accomplish the ends
the Commission has in mind and-would enhance the competi-
tive situation the Commission is desirous of maintaining,
in the florist foil industry." (letter from Reynolds to
FTC of Dec. 27, 1965). By what process this modification
enhances competition in florist foil is beyond my ken.

A case of UNSUCCESSFUL relief.

 

266
RYDER SYSTEM, INC.—l7 TRUCK RENTAL FIRMS

Complaint filed October 3, 1960; Antitrust Division
Blue Book No. 15 .

Disposed of by Consent Judgment of June 15, 1961.
1961 CCH Trade Cases, Par. 70,056.

1962 CCH Trade Cases, Par. 70,443 (modification ofi
order reducing divestiture requirement).

 

 

Date of merger(s): May, 1955—November, 1959.

Relief.Ordered

a. Divestiture of 100 trucks in Atlanta and Chicago;
75 trucks in Dallas and Nashville; 50 trucks in
Memphis.

b. 3—year ban on acquiring any truck leasing oper—
ation in any of 65 cities where Ryder had 50 or
more trucks, without government approval.

Special Comment

The 17 acquisitions mentioned in the complaint were
acquired by Ryder at a cost of $20 million and included
approximately 8700 trucks. The divestiture of 400
trucks is a partial divestiture of de minimus propor—
tions. Ryder parceled the trucks out in a rather piece—
meal fashion and without great haste. After one year,
by June, 1962, the Atlanta and Dallas requirement had
been met but only 60 trucks had been sold in Chicago,

7 in Nashville, and none in Memphis. In August of

1962, the order was modified to accept the 60 sold in
Chicago as meeting the requirement, droppin the total
to be sold to 360 trucks. Then in July, 1963, after
Ryder had sold 44 of the 50 required in Memphis, the
order was considered to be met. Thus Ryder finally

sold 354 trucks. A partial divestiture of this nature

is UNSUCCESSFUL relief.

 

267

SCHENLEY INDUSTRIES, INC.—PARK & TILFORD
DISTILLERS CORP.

Complaint filed February 14, 1955; Antitrust Division
Blue Book No. 1214.

Disposed of by Consent Decree of April 3, 1957.
1957 CCH Trade Cases, Par. 68,664.

 

Date of merger: December, 1954.

Relief Ordered

a. 10—year ban on acquiring any other whisky distiller
or whisky distributor without government approval.»

Special Comment

Only a ban on future acquisitions resulted from this i
case—~the government not pressing a demand for divest-
iture "on the theory that nobody would want to buy
Park & Tilford." (WSJ, April 4, 1957, p. 4) In the_
time span from the EEEuisition to the consent decree,
many foreign suppliers of whisky, who distributed;
through Park & Tilford, had canceled their agency
requirements with Park & Tilford; consequently the
company became, under Schenley’s parentage, a shell.
The lack of any structural relief makes this-case'
UNSUCCESSFUL.

 

268

SCOTT PAPER CO.—SOUNDVIEW PULP CO.
DETROIT SULPHITE PULP & PAPER CO.
HOLLINGSWORTH & WHITNEY CO.

Complaint filed June 1, 1956; Federal Trade
Commission Docket 6559.

Disposed of by Consent Order of April 23, 1964.

57 FTC 1415 (l960)——Commission Opinion and Order of-
divestiture.

301 F. 2d 579 (l962)--Opinion and Order remanding
case to FTC for taking of additional evidence.

CCH Trade Regulation Reporter (FTC Transfer Binder»
1963—1965), Par. 16,706—-Opinion of the Commission
on Remand reaffirming Section 7 violation.

1964 CCH Trade Cases, Par. 71, O97-—Consent Order.

 

Date of merger(s): November, 1951, September, 1954,
and October, 1954 respectively.

Relief Ordered

a. Ban on acquisitions of any firms engaged in the
manufacture or distribution of sanitary paper
products without FTC approval.

b. If Scott acquires any concern not manufacturing
sanitary paper products within 10 years, Scott is
not to rebuild any of the paper machines acquired
to sanitary paper products production for 10
years, or, if Scott acquires a pulp mill, it is I
not to use any of the pulp in the manufacture of
sanitary paper products.

c. Scott is to attempt to divest 2 rebuilt paper-
machines at the Detroit operation after 5 years;
these are to be sold by the end of 7 years to an
FTC-approved purchaser who will use the machines
for sanitary paper products production. If, at
the end of 7 years, this divestiture has not
taken.place, Scott is barred from using any
paper machine acquired in the Detroit operation
in the production of sanitary paper products.

 

 

269

Special Comment

The Commission was bold in its initial order to divest,
calling for the divestiture of all 3 firms including
improvements, since all 3 violated Section 7. This
would have been a sizable divestiture since the purchase-
price of the 3 firms totaled over $100 million and
Scott had put an additional $109 million in capital
additions and improvements into the facilities. But

in its modification of the order, the Commission did an
almost complete reversal. Structural relief is now
limited to 2 paper machines, to take place 17 years
after they were acquired! The rest of the order
consists of an artificial attempt to keep Scott from;
becoming too dominant in sanitary paper products. A
case of UNSUCCESSFUL relief.

 

 

270
SCOVILL MFG. CO.—DELONG HOOK & EYE CO.

Complaint filed March 12, 1956; Federal Trade
Commission Docket 6527.

Disposed of by Consent Order of September 15, 1956.
53 FTC 260 (1956)

Date of merger: April, 1955.

ReliefrOrdered

a. Divestiture within 90 days of all machines and
related equipment at DeLong plant used in the
manufacture of safety and common pins.

b. Ban on manufacturing safety and common-pins in
DeLong factory.

Special Comment

This case provides an-example of partial divestiture,
Scovill successfully convincing the Commission that-
since the only area of competitive overlap involved
in the acquisition was the manufacture of safety and
common pins, satisfactory relief would require only
to sell these pin machines and refrain from using the
acquired plant to make these pins. An order of this
sort almost dictates divestiture to an established
pin manufacturer, which is what happened, the
machinery going to the Star Pin Co. of Shelton,
Conn., for $47,116 in December, 1956. The divest-
iture was de minimus, DeLong being purchased for
$1.8 million. No independent pin manufacturer was
restored. Horizontal divestiture, and de minimus
divestiture at that, is UNSUCCESSFUL.

 

 

271
SIMPSON TIMBER CO.-M&M WOODWORKING CO.

Complaint filed January 4, 1960; Federal Trade
Commission Docket 7713.

Disposed of by Consent Order of January 4, 1962.
60 FTC 43 (1962).

Date of merger: August, 1956.

Relief Ordered

a. Divestiture of 500,000,000 board feet of
redwood timber over a l3-year period at a
rate not less than 35,000,000 board feet/
year and at a price less than $20 per
1,000 board feet for stumpage plus 8%/year
compounded from 1/1/61 to cover carrying
costs. Five companies are excluded as
purchasers.

b. Ban on acquiring over 100,000,000 board feet
of old growth redwood, in the form of either
timberlands or logs.

c. lO—year ban on acquiring any redwood sawmills.

d. Ban on owning more than 202,000 acres of.
redwood-type timberlands during duration of
this order.

Special Comment

In this case, a marketing order was substituted for
structural relief. The order does nothing to re-
establish another independent grower and seller of
redwood timber. Ironically, the order accomplishes
nothing which Simpson would not have done itself as~
the owner of M&M. Simpson exceeded its 35 million
board ft/yr. requirement indicating that sales of
this magnitude were what it would normally consum—
mate, sans the marketing order. A case of
UNSUCCESSFUL relief.

 

 

 

272
A. G. SPALDING & BROS.—RAWLINGS MFG. CO.

Complaint filed December 8, 1955; Federal Trade
Commission Docket 6478.

Disposed of by Circuit Court affirmation of

Commission Order to divest, March 22, 1962.

56 FTC 1155 (l960)—-Commission's Opinion and
Order to divest.

301 F. 2d 585 (l962)——affirming Commission.

Date of merger: December, 1955.

Relief Ordered i

a. Divestiture of Rawlings' assets so as to
restore Rawlings as a viable competitor.

Special Comment

Divestiture took place in October of 1963 for

$10 million to a group of private investors

headed by John L. Burns, former president of ‘
RCA. The group had no previous connection with

the manufacture or distribution of sporting

goods. A case of SUCCESSFUL relief.

 

273

STANDARD OIL CO. OF OHIO-
LEONARD REFINERIES, INC.

Complaint filed December 31, 1959; Antitrust
Division Blue Book No. 1490.

Disposed of, without prejudice, January 22, 1960,
pursuant to a stipulation based on defendant's,
non-merger agreement of January 20, 1960.

Date of merger: never consummated.

Relief Ordered

a. No relief necessary due to defendants'
agreement not to merge.

Special Comment

This case is included in the sample since it was
a government Section 7 action that stopped this
merger, even though no "official" Section 7
victory accrued to the government. Since the.
merger was stopped in its incipiency, this case
falls in the SUCCESSFUL category.

 

274
UNION BAG & PAPER CORP.-HANKINS CO.

Complaint filed June 30, 1955; Federal Trade
Commission Docket 6391.

Disposed of by Consent Order of March 23, 1956.
52 FTC 1278-(1956).

Date of merger: June-July, 1954, 8 1/3% of
Hankins stock purchased.

Relief Ordered

a. Divestiture of any Hankins stock held by
Union Bag & Paper.over 9%‘of.thatv
outstanding.

b. Removal of any interlocking directorates
between the two firms.

Special Comment

In this case, Union was attempting to take over
control of Hankins-by purchase of stock and the
placing of men on the Hankins' board. The relief
nipped any potential restraint in the bud by-
removing any interlocking directorates and,
limiting Union's stock ownership in Hankins.
Acaseof SUCCESSFUL relief.

 

275
UNION CARBIDE CORP.—VISKING CORP.

Complaint filed July 8, 1957; Federal Trade
Commission Docket 6826.

Disposed of by Commission approval of sale of
assets, November 1, 1963.

59 FTC 614 (l96l)——Commission Opinion and Order
to divest.

CCH Trade Regulation Reporter (FTC Transfer
Binder 196311965), Par. 16,638—-Commission order
approving sale of assets.

Date of merger: December, 1956.

Relief Ordered

a. Divestiture of Visking's polyethylene film
manufacturing facilities, with the exception
of the new film plant in Cartersville, Ga.

Special Comment

The Visking operation at the time of acquisition
consisted of 3 plants producing polyethylene film;
in addition, Visking did about 50% of its business
in cellulose meat casings. Union Carbide kept the
latter operation as well as a new film plant that
was built by Visking after it was acquired.

Consequently this is a case of partial divestiture,
Visking costing Union $91 million and being divested;
for $17 million. The divestiture took place in
November, 1963, to the Ethyl Corp. The combination
of a partial divestiture and the rather poor selec—
tion of a buyer makes for a case of DEFICIENT relief.
While Ethyl is not the worst of all purchasers of_
the assets, potential competition was lost in the
sale. As Ethyl's 1963 Annual Report puts it: the
acquisition "strengthens our position in the
packaging field, where the film is widely used, and
fits very well into our situation as a producer of
paper and packaging materials and a manufacturer.

of chemical intermediaries for other plastics."

(p. 4). Though Ethyl is a better buyer of these

 

276

assets than the others Union suggested, such as
Allied Chemical, Texaco, Socony—Vacuum, and
Celanese, I lean with the dissents of Commis-
sioners Elman and Higginbotham that a better
purchaser should have been found. At any rate,

as a memorandum from the FTC's Bureau of Economics
put it, Ethyl is a "minimally acceptable" pur-
chaser (Memo of 10/7/63). The Cartersville plant,
which was not divested, was in every way a part

of the Visking organization—-it was constructed
and operated by Visking people and its products
were marketed through the Visking division. By
keeping this plant, Union Carbide retained sig-
nificant fruits of the acquisition.

 

277
THE VENDO CO.-VENDORLATOR MANUFACTURING CO.

Complaint filed October 11, 1956; Federal Trade
Commission Docket 664 .

Disposed of by Consent Order of September 5, 1957.
54 FTC 253 (1957).

Date of merger: September, 1956.

Relievardered '

a. Divestiture of trademarks and patents acquired.
in the merger.

b. lO—year ban on acquisitions of soft drink
dispenser manufacturers. ;

Special Comment

No meaningful structural relief took place in this
case. The patents and trademarks to be divested
were apparently quite worthless; no one even tried
to purchase them. A case of UNSUCCESSFUL relief.

 

 

APPENDIX B

278

(a)

(b)

(C)

(d)

AGGREGATE COMPLAINT AND DIVESTITURE VALUES
FROM CHAPTER III

The total value of assets against which 19 of the 21'
FTC Section_7 complaints were issued is $665,927,000.
This sum represents the market price of all acqui—
sitions included in the sample cases with the following
exceptions: Minnesota Mining & Manufacturing; Union
Bag & Paper Co. Most of these figures are taken from
the Commission complaints, corporate records, or the
business press. A promise of confidentiality on.

some of the prices comprising this total prevents a
case-by-case breakdown of these figures.

The total value of assets against which 13 of the 18
Department of Justice Section 7 complaints were
issued is $466,028,000. This sum represents the
market price of all acquisitions included in the
sample cases with the following exceptions: American
Cyanamid; Bethlehem Steel; General Shoe (now Genesco);
Jerrold Electronics; Standard Oil of Ohio. For the
reason given in (a), these figures cannot be broken,
down.

The total value of assets divested as a result of the
Section 7 actions in the 19 FTC cases found in (a) is
$128,809,000. Note that this figures does not include
any figures for the cases excluded in (a). The prices
comprising this total are all market prices paid for
the divested assets. For the reason given in-(a),
these figures cannot be broken down.

The total value of assets divested as a result of

the Section 7 actions in the 13 Department of Justice
cases found in (b) is $199,085,000. Note that this
figure does not include any figure for the cases
excluded in (b). The prices comprising this total
are all market prices paid for the divested assets.
For the reason given in (a), these figures cannot.
be broken down.

279

*****

 

 

APPENDIX» C

280

 

 

281

Average Time Spans

 

Number of Months from Acquisition to Government Complaintl

 

 

FTC Sample Department of Justice Sample
Automatic Canteen 30 American Cyanamid 54
Brillo 10 American Radiator 3
Continental Baking 46 Anheuser—Busch 8
Crown Zellerbach 8 Bethlehem Steel 0
Diamond Crystal 23 Brown Shoe -6
Farm Journal —3 Continental Can 0
Gulf Oil 9 Diebold —l
Hooker Chemical 42 Gamble—Skogmo 20
International Paper 0 General Shoe 2
Leslie Salt 24 Hertz 31
MMM 48 Hilton 6
National Dairy 41 Jerrold 38
National Sugar 13 Lucky Lager 8
Reynolds Metals 16 Maremont 1
Scott Paper 32 Ryder 24
Scovill 11 Owens—Illinois 2
Simpson Timber 41 Schenley 2
Spalding 0 Standard of Ohio 0
Union Bag & Paper 0
Union Carbide 7
Vendo l

399 1 2

 

Number of Months from Acquisition to Divestiturel

 

Automatic Canteen 51 American Cyanamid 101

Brillo 124 American Radiator 71

Continental Baking 6O Anheuser—Busch :4

Crown Zellerbach 130 Brown Shoe %

Diamond Crystal 41 Continental Can 9

Farm Journal 15 Gamble—Skogmo 33

Gulf Oil 73 Hertz lg

Hooker Chemical 40 Hilton 57

International Paper 7 Ryder . . 102

Leslie Salt 83 Owens—IllinOis

MMM 62

National Dairy 125

National Sugar 71

Scovill 20

Spalding 94

Union Carbide 83 638
1079

1In some cases, where a series of acquis1tgonsoprmonths
divestitures was involved in the action, the num er
recorded above is an average of the series.

 

 

 

 

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