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11 DEJCL 25 Page (Cite as: 11 Del. J. Corp. L. 25)

Delaware Journal of Corporate Law1986

*25 ANTITRUST ANALYSIS OF MERGERS, ACQUISITIONS, AND JOINT VENTURES IN THE1980S: A PRAGMATIC GUIDE TO EVALUATION OF LEGAL RISKS

Ronald W. Davis [FNa]

Copyright 1986 by the Widener University School of Law, Inc.; Ronald W. Davis

I. INTRODUCTION AND OVERVIEW

A. Widespread Rumors of Death

The conventional wisdom today is that antitrust enforcement with respect to mergers, acquisitions, and joint ventures [FN1] is dead, *26 and, in the vernacular, that 'anything goes.' [FN2] In reality, these widespread reports of the death of antitrust law are greatly exaggerated.

There is, of course, no doubt that the current Administration has adopted a more relaxed antitrust merger and acquisition (M&A) policy than its predecessors. Nor is there any doubt that corporations have become more prone to taking antitrust risks. [FN3] Nevertheless, *27 M&A deals between major competitors continue to present material legal risks. Consequently, those planning corporate business and legal strategy without regard for such antitrust risks invite disaster.

B. The Antitrust Track Record: Good News and Bad News

Although there are significant signs and portents that legal risk from private litigation are increasing generally, the major antitrust risk to an M&A deal are the possibilities of protracted investigation and litigation by the Federal Trade Commission (FTC) or the Justice Department (DOJ). With respect to risks arising from government enforcement, there is both good news and bad news.

From the perspective of a party attempting to put together an antitrust- sensitive deal, the good news is that antitrust M&A enforcement activity by the FTC and DOJ has decreased to little more than half its previous level. [FN4] This is true despite an increase in M&A *28 activity by approximately 50% under the current Administration. [FN5] Looking at the matter in an admittedly simplistic fashion, if there were 1.5 times as many deals in 1981-83 as in 1978-81 but only .64 times as many new government M&A cases, the antitrust risk under the current Administration appears to have declined to 42% of that under the Carter Administration.

Moreover, since the most serious legal risk is a preliminary injunction, and since the risk of facing a government motion for preliminary injunction has declined precipitously, we might well discount the 42% figure to, arguably, 33%. In sum, it appears that in the current Administration the government enforcement risk has declined by about two-thirds. [FN6]

The bad news is that antitrust challenges to antitrust-sensitive transactions continue to be brought--or threatened--and that antitrust continues to stop some deals dead in their tracks. Research has identified thirty-three deals during the period January 20, 1981 through December 31, 1985, which were either enjoined, blocked by threat of litigation, or otherwise completely prevented or negated after the fact based on antitrust considerations. [FN7] These include cases brought by the FTC and DOJ as well as private litigation.

Copr. © West 2001 No Claim to Orig. U.S. Govt. Works


Moreover, these thirty-three blocked deals (referred to herein as antitrust 'Showstoppers') considerably understate the true impact of antitrust on M&A activity. Despite the current tendency to rush heedlessly into sensitive deals despite antitrust risks, a vast number of potential deals never materialize, or are even considered, because *29 of antitrust concerns. In short, section 7 of the Clayton Act continues to have significant impact.

Research has also identified sixty-seven deals (referred to herein as 'Compromises') in which a government challenge or investigation was resolved in some fashion, often by a formal consent decree, and the basic deal completed. Frequently, this was effected by divestiture of one of the overlapping businesses. From a legal perspective these sixty-seven resolutions included 100% victories for the government's antitrust claim. The government may, after all, have had no desire to block the deal as a whole but only to resolve an antitrust problem relative to a part of the deal. At the other extreme, Compromises took the form of a legal fig leaf hiding ignominious defeat for the government agency challenging the transaction. From a business perspective, the sixty-seven Compromises occurred both where antitrust created serious and fundamental business problems and where the consent decree represented only a minor nuisance.

Specific information on these thirty-three Showstoppers and sixty-seven Compromises (collectively referred to herein as antitrust 'Hits') are presented in Appendix I. The Hits are analyzed in greater detail in Part II, and appropriate lessons for risk evaluation purposes are presented throughout the article.

In addition to the 150 Hits, forty-seven antitrust Misses have been identified during the current Administration. This term encompasses lawsuits in which the governmental or private plaintiff was unsuccessful. Information on these forty-seven Misses ranged from bloody and exhausting legal donnybrooks to trivial annoyances for the parties involved and will be discussed more fully in Appendix II. [FN8]

C. Antitrust Hits and Misses: Assessing the Risk Factors in a 'First-Cut' LegalEvaluation

This article has two main purposes. The first is addressed primarily in Part II, which examines in greater detail the current Administration's enforcement record and the trends in private enforcement and judicial resolution of M&A cases. It is the author's *30 purpose neither to point with pride nor to view with alarm the policies of the FTC and the DOJ. What the public policy should be toward mergers is a question of considerable intellectual interest, but it is only incidentally related to this article, which is intended primarily for the hard-headed pragmatic, not the soft-headed intellectual.

Rather, the purpose of examining the record is: (1) to make the point that while enforcement activity overall is down by two-thirds, there is still a significant level of enforcement activity; and (2) to identify the significant factors contributing to antitrust risk in M&A deals to assist the practitioner at relatively early stages of the transaction in deciding which deals warrant an unusually high degree of antitrust concern and effort.

The bottom line is that: as of 1985, conglomerate antitrust theories are dead as a practical matter; vertical theories are moribund, and potential competition is seldom a practical concern. [FN9] Hence the main antitrust focus today is on the minority of deals in which the firms in question are competitors i.e., prior to the transaction the firms were clearly vying to sell the same (or similar) products or services to the same customers.

It is precisely in such situations that the currently fashionable *31 disdain for antitrust concerns may be extremely ill-advised. Clearly, however, manysuch deals are not in fact risky; as discussed in Part II: on an overall basis, roughly seven out of every 100 deals over $15 million are subject to serious investigation by the FTC or DOJ; of these seven, about three-quarters will ultimately be consummated without governmental challenge or threat of challenge (although some of these will be subject to private litigation), while one-quarter--or a little under 2% of the total--will be subject to government legal challenge or threat of challenge; a study of 319 antitrust-sensitive deals during 1981-85 reveals that certain industries are vastly more antitrust-sensitive than others; analysis of government data shows that size is another very material risk factor; although small deals are challenged from time to time, the risk of investigation and litigation increases significantly as the size of deal



increases; a study of actions commenced by the FTC and DOJ during the period from January 1981 through December 1985 shows that, regardless of what the DOJ says in its Guidelines, it seldom actually sues at market share levels below 15-20%; the risk increases significantly, however, where the combined share of market exceeds 20%, especially in certain industries.

D. Where Angels Fear to Tread

After analysis of the antitrust risk factors from a relatively naive statistical perspective in Part II, Part III and the remainder of the article offers a more analytical mode, appropriate in the minority of deals that really are antitrust-sensitive. Part III provides a thumbnail sketch of the history of antitrust M&A policy and a description of its somewhat uneven, if not schizophrenic, current posture.

One may wonder why such a theoretical analysis appears in an article intended primarily for the pragmatically minded. The answer, however, is straightforward. It is a common but utterly fundamental error to attempt navigation in the troubled waters of antitrust without appreciating that there is no widely accepted consensus on handling antitrust-sensitive deals. Instead, there are no fewer than three very different approaches: *32 (1) the Structuralist view (sometimes referred to herein as the 'Old Time Religion') which would ban essentially all mergers involving more than a very few percentage points of increased market share in identifiable markets; [FN10] (2) the Chicago School view, exemplified by Judge Bork of the D. C. Circuit, who indicates that any merger which leaves as many as three competitors in the market should be seen as per se lawful; [FN11] and (3) the DOJ view, which, like the Structuralists, strives mightily to shoehorn the relevant facts into a market structure/market share analysis (albeit in a far more principled way than the exponents of the Old Time Religion, who were forever coming up with outrageously gerrymandered 'markets'), and which draws from the market share analysis strong presumptions but not irrebuttable conclusions as to the legality or illegality of a deal.

A vast amount of confusion has resulted from the Administration's fully accepting the Chicago School analysis of such practices as resale price maintenance and its ceasing essentially all enforcement activity in that area despite the Supreme Court's repeated declaration that resale price maintenance is per se illegal. It is only natural, therefore, to suppose that the FTC and the DOJ likewise would have accepted fully the Chicago School view of M&A. They have not, in fact, accepted that very conservative approach as is conclusively demonstrated by the numerous enforcement proceedings listed in the appendices and discussed throughout the article.

That is by far the most important practical lesson which can be gleaned from Part III. Another is that the Old Time Religion is, in fact, not dead and buried but is, instead, alive and well and living in the First Circuit [FN12]--not to mention the Second, Sixth, and Tenth Circuits. [FN13] The significance of the gap between enforcement policy and case law is beginning to be widely recognized, and there *33 is an increasing tendency for competitors to initiate private antitrust litigation in opposition to deals passing muster at the FTC or DOJ. This strategy takes advantage of the difference between the Administration's approach and the Structuralist approach, still widely adhered to in the courts. Thus, through litigation, competitive advantages are prevented from accruing to their competitors.

There are many today who proceed on the assumption that such theoretical controversies are of interest solely to effete intellectuals, and that they have no major relevance to the real world of 'white knights,' 'bear hugs,' and 'golden parachutes.' And, indeed, the pseudo-pragmatic view of 'Why bother me with antitrust? No one worries about that any more' works very satisfactorily in the majority of deals. This is attributable precisely to the fact that the majority of deals have no real antitrust exposure under anyone's theory. When dealing with combinations of major competitors, however, that approach is the height of folly.

E. Antitrust Numerology

Although there are major differences between the Administration and the Old Time Religion exponents of the Structuralist School, it is essential to recognize some fundamental similarities as well. Accordingly, in every antitrust-sensitive deal, it is necessary to:



(1) identify the 'relevant' product and geographic market(s) affected by the transaction; (2) measure the historical market shares of the companies in question; (3) apply numerical market share criteria to determine whether the deal appears to be prima facie legal or illegal; and (4) consider any other factors, such as technology, barriers to entry, etc. that might serve to rebut the prima facie legality or illegality of the transaction based on market shares.

Each step in this process raises congeries of economic, business, and legal issues and is full of pitfalls for the unwary. Full treatment of the topic might well be the subject of an entire book. However, Part IV is intended to serve as a sound overview on the handling *34 of market structure issues in contemporary antitrust analysis. Part V offers similar treatment for nonstructural issues.

It is worth noting that during the current Administration, the agencies-- notably the DOJ in 1982 Merger Guidelines [FN14] which were substantially amended in 1984 [FN15]--have attempted to explain in a reasonably candid and assertive manner the way in which enforcement decisions are actually made. The Guidelines and the FTC Statement have been the subject both of considerable official [FN16] and unofficial [FN17] explanation and exegesis. Although this body of literature is commended to the reader, it is not a principal purpose of this article simply to augument that body of learned commentary on the Guidelines. Careful reflection is recommended on the application of the language of the 1984 Guidelines and the FTC Statement to any antitrust- sensitive transaction which the reader may have under view. The focus here is more on what the government has done than on what it has said.

The Guidelines are, in fact, surprisingly ambiguous in a large number of crucial areas. Moreover, as various commentators on M&A analysis have noted, many hypotheticals can be conjured up in which wooden-headed, literal application of the Guidelines could lead to absurd results. For that reason, it is vital to recognize that the DOJ Merger Guidelines are not, in fact, guidelines in any meaningful sense of the word. Whether simple and objective merger guidelines would do more harmthan good is an interesting public policy question. But the fact is that no such simple standards exist today. Consideration of these issues will be given in Parts IV and V, with the emphasis on concrete examples arising out of the recent case law and enforcement record, and not on abstract commentary.

F. Overview In sum, it is the purpose of this article to provide a guide to *35 M&A antitrust risk assessment for the nonspecialist--a guide based in theory and on practice. Numerous analytical refinements are omitted, as they seldom assume any practical importance. Instead, the essence of some relatively subtle and unresolved issues of antitrust theory at the cutting edge of the law are set forth.

Based on the discussion below, the following steps are recommended in evaluating the antitrust legal risk associated with a merger or acquisition:

1. Ascertain whether the firms involved actually compete with one another, and if so, where and with respect to what products or services. (Note that this basic information will not necessarily be known to the senior members of the organizations involved who are likely to be 'big picture' people.);

2. If the firms in fact compete, determine: (a) how the relevant business people regard the 'market' or 'markets' where overlaps exist; (b) what they understand the two firms' respective shares of the market to be, as well as the shares of the other major competitors; and (c) whether the businessmen's responses to (a) and (b) make sense;

3. Apply the DOJ market share criteria set out in the Merger Guidelines, [FN18] and consider also whether the deal appears similar on its face to deals actually subjected to antitrust challenge by the FTC and DOJ during the current Administration; [FN19]

4. To further assist in the 'first-cut' antitrust analysis, consider whether the size of the deal and the industry involved indicate low risk, moderate risk, or high risk; [FN20]



5. On the basis of the preceding factors form a preliminary view as to whether the deal appears risky and whether further analysis is in order;

6. If the answer is affirmative, locate in the organizations with detailed working knowledge of actual market condition, and visit (or revisit) the issues of: (a) product market definition, (b) geographic market definition, (c) market shares, and (d) barriers to entry. Recognize that while creativity in such matters is always valuable, these four concepts are now commonly understood to be interrelated, and that the single basic issue is what factors will inhibit the ability of the combined firm to enjoy market power for any sustained period;

7. If the deal still appears risky, consider the possibility of an *36 'efficiencies defense' as well as the applicability of other arguments discussed in Part V;

8. If there is any colorable antitrust case against the deal, consider the possibility of private litigation by a competitor who may see a business advantage in trying to block the deal. There is a pronounced trend toward granting 'standing' to competitors to assert such claims, perhaps arising from a feeling of many judges that the government is 'too lax' on merger enforcement. Private plaintiffs have, indeed, had some recent successes in blocking deals through litigation.

More detailed consideration of these points follows.

II. THE TRACK RECORD

A. The Record as a Whole

As previously indicated, antitrust legal challenges to mergers and acquisitions may be brought by: (1) the DOJ or the FTC; (2) competitors, customers, targets, or other private parties 'injured in their business or property'; and (3) state attorneys general suing under federal or state law, or both. In a hostile takeover situation, it goes without saying that the principal risk is a suit by the target. [FN21] In such circumstances, of course, the likelihood that suit will be filed and the vigor with which it may be prosecuted bear little relation to the merits of the cause. With respect to nonhostile deals, however, the track record of the last few years indicates that there are only two significant sources of material risk: (1) the FTC or DOJ, and (2) competitors concerned about the competitive advantage that will be enjoyed by the combined entity.

The author has identified a total of 319 deals during the period January 20, 1981 through December 31, 1985 [FN22] subject to antitrust *37 investigation (by the FTC, the DOJ, or the state authorities) and/or antitrust litigation (from any source, and frequently from more than one source). An extremely rough, but still useful, idea of the order of magnitude of antitrust risk in M&A transactions in the 1980s may be gleaned by looking at these 319 deals as a proportion of the 9906 deals reported completed in 1981 through 1984. [FN23] In short, it would appear that roughly 3 out of every 100 deals (including the very small ones) are antitrust-sensitive. And, of course, a great many of these ultimately succeed despite and legal exposure.

In order to look at the aggregate data in a more refined way, it is appropriate to begin with federal government investigations since that is the initial and normally the most serious risk a deal faces.

1. Federal Investigations

The HSR Act requires that most deals worth more than $15 million must be preceded by a premerger filing with the FTC and DOJ. [FN24] Roughly 100 transactions a month are reported to the agencies *38 under the HSR program. [FN25]

When a premerger filing is received, the first step is determining whether the filing appears on its face to be a complete and valid filing involving a reportable transaction. The second step is determining whether the deal is one of the majority which patently raise no antitrust concerns or is one of the minority which do require some level of scrutiny. In the latter case, because there are two agencies with overlapping authority to investigate and prosecute, it



is necessary to 'clear' the deal to one or the other agency. Obviously, that does not mean that the deal is 'cleared' in the ordinary sense; it means the opposite.

Based on data from 1981 to 1983, the latest available as of this writing, it appears that the agencies give some level of antitrust scrutiny to a surprisingly large percentage of deals; 21% in 1981, 19% in 1982, and 14% in 1983. [FN26] In addition, the agencies can and do investigate deals too small to be reportable either under the HSR scheme or otherwise. That such investigations are sometimes undertaken is confirmed by the fact that litigation is occasionally brought in such cases. However, the number of such investigations is not known. In still other cases companies are required outside the HSR program by the terms of old consent decrees or injunctions to notify the government of new acquisitions.

The first level of government scrutiny actually has little significance. Most of the deals selected for scrutiny are not in fact antitrust-sensitive as the term is used in this article. The problem is that something more than examination of the basic HSR filing--perhaps only a factual inquiry that can be resolved in a telephone call--is necessary for the DOJ or FTC staff to establish lack of antitrust concern with the deal. [FN27]

*39 Once a deal has been 'cleared' for investigation, the agency can resolve the matter either by dropping it if satisfied there is no real problem or by pursuing it further. This can be done on the basis of information voluntarily supplied by the firms, but normally it is done by issuing a request for additional information and documents pursuant to the HSR Act through a formal document universally referred to as a 'second request.'

Second requests are no laughing matter. From the companies' standpoint they tend to be comprehensive and burdensome at best and sometimes burdensome in the extreme. From the government's perspective, a second request is a clear indication that the matter is viewed seriously.

The track record on 'second requests' from 1979 through 1984, the latest year for which data were available, may be summarized as follows: [FN28]

------------------------------------------------------------------------------- 1979 1980 1981 1982 1983 1984

------------------------------------------------------------------------------- No. of 'second

requests' by FTC ............ 58 36 46 26 20 37

No. of 'second

requests' by DOJ ............ 51 38 33 24 28 40

'Second requests' as a

percentage of total

HSR filings received

by FTC and DOJ ........... 12.6% 9.0% 7.3% 4.4% 4.3% 5.5%



------------------------------------------------------------------------------- The percentages given are slightly misleading because many HSR filings relate to transactions subject to the primary jurisdiction of another federal agency. Outside this special category, from a simple statistical perspective, as if antitrust problems were as random as drawing numbers out of a hat, a deal of over $15 million, and therefore subject to HSR reporting, has about a one in twenty chance of being the subject of a major governmental antitrust investigation.

2. Government Legal Challenges

As previously indicated, [FN29] government sources indicate that fifty-one antitrust M&A lawsuits were filed by the FTC and DOJ in *40 1981-1984. A total of 254 'second requests' were issued during those years. [FN30] Thus, from a simplistic, statistical point of view, if your deal is among the one in twenty that is subject to a serious investigation, there is about a one in four chance that ultimately the government will sue if you go forward.

3. Government Victories

Even if your deal is the one of roughly every 100 that the government decides to challenge, all is no lost. A priori one might think that a court in the mid- 1980s would be particularly receptive to the pleas of a governmental antitrust plaintiff. When even the present Administration's enforcers cannot stomach the deal, it arguably must be truly objectionable. No doubt there are some judges who may feel that way, but the fact remains that there have been a number of significant 'Misses' [FN31] among the FTC and DOJ enforcement actions in recent years.

4. State Attorneys General

Although a number of lawsuits have been filed by state attorneys general in the 1980s--notably in the case of the oil industry deals of the last few years--to date they have enjoyed little success. That result is no doubt attributable partly to a lack of motivation on the part of the state authorities to pursue antitrust M&A enforcement activity and partly to a lack of available resources. In any event, based on the track record to date, a practical-minded person would conclude that the legal risk from this quarteris essentially nil.

5. Hostile Takeover Targets Based on the government track record as discussed above, it is apparent that in three sensitive deals out of every four, you can ultimately talk the government out of suing. This is done by persuading the relevant agency that the market definition differs from their initial impression, that barriers to entry are low, and so forth. In the case of a tender offer target which is also your competitor, none of these arguments will work. The only viable approach is raising the offering price by $10 a share. Otherwise, there is not a 25% chance of being sued--there is a 100% chance.

*41 For that reason it is hardly surprising that the record of wins and losses in litigations involving tender offer targets is a mixed one. [FN32] It is clearly elementary that where there is any degree of antitrust sensitivity about a tender offer, the potential problem merits a high degree of attention.

6. Competing Offerors

There have been several instances in recent years in which competing offerors have endeavored to use antitrust litigation as a means of knocking the high bidder out of the box. These efforts have been strikingly unsuccessful, [FN33] and the practical-minded may properly view the legal risk from that source as rather low. However,



considering its source, any litigation of this variety is likely to be expensive and burdensome.

7. Competitors

In dramatic contrast to the dismal record of the competing offeror is the far more favorable track record of the mere competitor--that is, the party whose motivation to sue is fear of injury to its basic business from a combination of two of its competitors. Whether a competitor to situated has standing to bring an antitrust action--and, if so, in what circumstances--is a difficult and highly controversial question. [FN34] Nevertheless, it is striking that competitors have recently blocked or undone four deals in private antitrust litigation, despite government approval in at least some instances. [FN35] Clearly the risks from this quarter are significant and growing. Their relevance to any particular deal will depend on the identity of the competitors *42 and on how litigious and injured they are likely to be--not to mention the basic merits of the antitrust case.

8. Customers

According to a popular and familiar shibboleth, the fundamental purpose of antitrust law is to protect consumers. Some, therefore, may perceive irony in the fact that it is evidently not economically feasible for consumers to pursue antitrust M&A litigation. As a practical matter, there is essentially no direct risk from this source. [FN36]

B. Industry Sensitivity

Thus far the focus has been the enforcement track record on an overall, undifferentiated basis. However, examination of the data in a somewhat more refined way, breaking down the information on enforcement activity by broad industry groupings, indicates that some industries are a great deal more antitrust-sensitive than others. A consideration of the reasons for this differential antitrust sensitivity follows in due course. First it is appropriate to look at the basic facts.

Two sources of data have been used. Considered first is data published by the FTC on the total number of HSR filings and the number of 'second requests' issued. Both were broken down by the two-digit Standard Industrial Code (SIC) broad industry groupings for the acquired entity with respect to each transaction. There are, undoubtedly, some problems with these data, including the fact that the two-digit SIC category in which the 'acquired entity' derived a majority of its revenues was not necessarily the product area presenting a perceived antitrust concern. There is, additionally, the fact that government data for the post-1983 period are not yet available. Nevertheless, if 30% of the premerger filings in a given industry result in investigations, it is fair to conclude that this industry appears to be antitrust-sensitive.

A second source of information was utilized to supplement and update the published government data. A classification of thirty-nine deals [FN37] indicated some published antitrust enforcement activity during *43 the January 1981 to December 1985 period by the two-digit SIC industry group in which the antitrust problem or concern apparently arose. Again, there are problems with these data. For example, published reports on the antitrust problem with a particular deal may have been vague, so that it was uncertain as to which SIC group the transaction should be assigned. By and large, however, the author's research for 1981-1985 and the government's data for 1981-1983 pinpoint the same industries as antitrust-sensitive.

A word of caution is in order before looking in detail at the industry-by- industry results. The discussion that follows, though exceptionally dull, may well prove of considerable utility to M&A practitioners. Certainly, it is hoped that the usefulness of the data will justify the tedium of the presentation. The utility of this analysis lies, however, in giving the practitioner some feel as to the mind-set he is likely to encounter as the FTC and DOJ examine his deal. Hopefully it will also be helpful in forming a considered judgment as to the amount of time and effort that should be devoted to any antitrust problem perceived. On the other hand, it would be very foolish to use the information below in an attempt to handicap a particular deal without first looking at the relevant facts in light of the principles discussed in Parts III-V. And it is not the intention of this article to give any aid and comfort to such foolishness. [FN38]



1. Agriculture, Forestry, and Fishing (SIC 01-09)

There were nine HSR filings in 1981-1983, generating no second requests. There was one antitrust Hit in a government proceeding, and one loss for plaintiff in private section 7 litigation. [FN39] Bottom line: low antitrust sensitivity.

2. Mining (SIC 10, 11, 12, 14)

There were sixty-one filings in 1981-1983, with four second requests (investigation ratio, 6.6%). Research discloses five deals *44 subject to enforcement activity, but only one Hit. Bottom line: low to moderate antitrust sensitivity.

3. Oil and Gas Extraction (SIC 13)

There were 135 filings in 1981-1983, generating a grand total of two second requests (investigation ratio, 1.5%). Research discloses no Hits or Misses, although one interesting private class action by customers is pending. [FN40] Bottom line: very low antitrust sensitivity.

4. Construction (SIC 15, 16, 17) There were forty filings in 1981-1983 with one second request (investigation ratio, 2.5%). The author discovered one deal in this category subject to enforcement action--a private lawsuit in which a $2.9 million judgment for plaintiff was reversed on appeal. Bottom line: very low antitrust sensitivity.

5. Food and Kindred Products (SIC 20)

There were 150 filings in 1981-1983, giving rise to fifteen second requests (investigation ratio, 10%). The author found a total of twenty-eight deals subject to enforcement activity in 1981-1985, with five Showstoppers, five Compromises, and four Misses. Both the FTC and the DOJ have been active in this area. Although (according to the M&A Almanac data) M&A transactions in this product category constituted only 3.5% of total activity during 1981-1984, the twenty-eight deals subject to investigation or litigation identified constituted 8.9 of the total number of sensitive deals. Bottom line: moderate to high antitrust sensitivity.

6. Textile Mill Products and Textiles (SIC 22, 23)

There were twenty-nine filings in 1981-1983 and one second request (investigation ratio, 3.5%). Only two antitrust-sensitive deal were located in this category during 1981-1985. Bottom line: low antitrust sensitivity.

7. Lumber, Furniture, and Other Wood Products (SIC 24, 25)

There were twenty-three filings in 1981-1983 and three second *45 requests (investigation ratio, 13%). The author located three antitrust- sensitive deals in 1981-1985, none of them Hits. Bottom line: low antitrust sensitivity.

8. Paper and Allied Products (SIC 26)

Twenty-seven filings were made in 1981-1983, generating three second requests (investigation ratio, 11.1%). The author located ten sensitive deals, including two Hits and three Misses, during the 1981-1985 period. According to M&A Almanac data, deals in SIC 26 amounted to 1% of all 1981-1984 deals, but according to the author's data,



antitrust-sensitive deals in this category amounted to 3.1% of all sensitive transactions. Bottom line: moderate to high antitrust sensitivity.

9. Printing and Publishing (SIC 27)

There were forty-two filings in 1981-1983 with four second requests (investigation ratio, 9.5%). The author located nine antitrust-sensitive deals in 1981-1985 including two Hits. In addition, several deals involving acquisitions by newspapers have been challenged on the basis of alleged injury to competition in local advertising markets; these were classified by the author in SIC 73. Bottom line: moderate to high antitrust sensitivity.

10. Chemicals and Allied Products (SIC 28)

There were ninety-nine filings in 1981-1983, generating fifteen second requests (investigation ratio, 15.2%). For the 1981-1985 period, the author has located twenty-five sensitive deals, including eight Hits and three Misses. M&A Almanac data indicate that chemical industry deals amounted to 3.8% of total activity in 1981-1984, while the author's research indicates that antitrust- sensitive transactions in this industry were 7.8% of all sensitive transactions identified. Bottom line: high antitrust sensitivity.

11. Petroleum Refining and Related Industries (SIC 29)

There were forty filings in 1981-1983, generating five second requests (investigation ratio, 12.5%). The recent spate of merger activity in this industry is well known. The author has identified twenty-five antitrust- sensitive deals, including eight Hits, during 1981-1985. Bottom line: high antitrust sensitivity.

*46 12. Rubber and Plastics Products (SIC 30)

Twenty-six filings were made in 1981-1983, resulting in one second request (investigation ratio, 3.8%). The author located seven sensitive deals, including three Hits, for the 1981-1985 period. Bottom line: low to moderate antitrust sensitivity.

13. Stone, Clay, Glass, and Concrete Products (SIC 32)

There were fifty-four filings in 1981-1983, with nine second requests (investigation ratio, 16.7%). Twenty sensitive deals, including five Hits, were found in the 1981-1985 period. Bottom line: high antitrust sensitivity.

14. Primary Metal Industries (SIC 33)

Government data show fifty filings in 1981-1983, with eleven second requests (investigation ratio, 22%). For the 1981-1985 period, eleven entitrust- sensitive deals, including three Hits, were found. Deals in SIC 33 constituted 1.7% of all completed deals in 1981-1984, but 3.5% of all antitrust-sensitive deals located by the author. Bottom line: very high antitrust sensitivity.

15. Fabricated Metal Products (SIC 34)

The 1981-1983 data show fifty-two filings and four second requests (investigation ratio, 7.7%). The author found tensensitive deals during 1981- 1985, including four Hits. Bottom line: high antitrust sensitivity.

16. Machinery, Excluding Electrical (SIC 35)



There were 128 filings in 1981-1983, with twenty-four second requests (investigation ratio, 18.8%). The author's data show twelve sensitive deals, but only one Hit. Moreover, M&A Almanac data show that deals in this category amounted to 6.5% of total deals in 1981-1984, but the author's data show that antitrust-sensitive deals in SIC 35 were only 3.8% of all sensitive deals located. Bottom line: moderate antitrust sensitivity.

17. Electrical and Electronic Machinery, Equipment and Supplies (SIC 36)

There were eighty-four filings in 1981-1983, with nine second requests (investigation ratio, 10.7%). The author found twenty-five *47 sensitive deals in the 1981-1985 period, with eight Hits. M&A Almanac data indicates that SIC 36 accounted for 5.4% of all deals in 1981-1984, while the author's data show that this product area accounted for 7.8% of all sensitive deals. Bottom line: moderate to high antitrust sensitivity.

18. Transportation Equipment (SIC 37)

There were forty-two filings in 1981-1983, with seven second requests (investigation ratio, 16.7%). The author found twenty-one sensitive deals during 1981-1985, including six Hits. Bottom line: high antitrust sensitivity.

19. Photo, Medical and Optical Instruments (SIC 38) The 1981-1983 data show forty-five filings and five second requests (investigation ratio, 11%). Fourteen sensitive deals were located by the author, including four Hits. M&A Almanac data show that 3.7% of all 1981-1984 deals were in this product area. Likewise, the author's data show that 4.4% of all antitrust-sensitive deals located fell in this product category. Bottom line: moderate antitrust sensitivity.

20. Communications (SIC 48)

There were 113 filings in 1981-1983, generating five second request (investigation ratio, 4.4%). The author found ten antitrust-sensitive deals in 1981-1985. M&A Almanac data show that deals in the communications industry amounted to 3.5% of total 1981-1984 M&A activity, but they constituted only 3.1% of all sensitive deals located by the author. Bottom line: low antitrust sensitivity.

21. Wholesale Trade (SIC 50, 51)

One hundred and eighty-six filings were made in 1981-1983, generating five second requests (investigation ratio, 2.7%). Only five antitrust-sensitive deals were located by the author. Bottom line: low antitrust sensitivity.

22. General Merchandise Stores (SIC 53) Twenty-five filings were made in 1981-1983, generating one second request (investigation ratio, 4%). The author located only two antitrust-sensitive deals in 1981-1985. Bottom line: low antitrust sensitivity.

*48 23. Food Stores (SIC 54)

Grocery retailing acquisitions have long been a special target of the FTC. Thirty filings were made in 1981-1983, with one second request (investigation ratio, 3.3%). The author found nine antitrust-sensitive deals, including three Hits, in 1981-1985. M&A Almanac data indicate that deals in SIC 54 constituted only .5% of all 1981-1984 deals, but the author's research indicates that sensitive deals in this category constituted 2.8% of all sensitive deals. Bottom line: moderate to high antitrust sensitivity.

24. Miscellaneous Retail (SIC 59)



Twenty-eight filings and one second request were reported for 1981-1983 (investigation ratio, 3.6%. The author found six antitrust-sensitive deals, three involving drug store chains. Bottom line: low antitrust sensitivity.

25. Insurance (SIC 63)

There were 131 filings in 1981-1983, with one second request (investigation ratio, 0.8%). There were two reported antitrust-sensitive deals in 1981-1985, including one Hit. Bottom line: very low antitrust sensitivity.

26. Motion Picture and Video (SIC 78)

There were thirteen filings in 1981-1983, generating one second request (investigation ratio, 7.7%). The author located seven antitrust-sensitive deals, including three Hits, in this category during 1981-1985. M&A Almanac data indicate that SIC 78 accounted for only .6% of all M&A activity on 1981- 1984, but the author's data indicate that sensitive deals in SIC 78 amounted to 2.2% of all sensitive deals. Bottom line: moderate antitrust sensitivity.

27. Health Services (SIC 80)

This romp through the SIC codes ends on a high note, with a brief look at an industry which has been abundantly blessed with the attentions of the FTC, the DOJ, and even the attorney general of North Carolina. Government data indicate that seventy filings were made in 1981-1983, generating ten second requests (investigation ratio, 13.3). The author has located fifteen antitrust-sensitive deals in 1981-1985, including no fewer than nine Hits. M&As in the health services industry amounted to only 1.7% of total 1981-1984 deals, according to M&A Almanac data, but accounted for 4.7 *49 of all antitrust-sensitive deals located by the author. Bottom line: high antitrust sensitivity. [FN41]

C. Size of Deal of a Risk Factor

Government data on 2378 pre-merger transactions from 1981 to 1983 [FN42] indicate that large deals are far more likely to be investigated. The following table provides more detailed information.

1981-83 Pre-merger Filings, 'Clearances' and 'Second Requests' by Size ofTransaction

------------------------------------------------------------------------------- Size Range Percentage of Percentage of Percentage of

Filings in this Filings in Filings in

Size Range this Range this Range

'Cleared' to Receiving

FTC or DOJ 'Second

Requests'

-------------------------------------------------------------------------------



Below $15 million ..................... 12.2% 7.6% 2.1%

$15-25 million ......................... 23.0 14.5 6.2

$25-50 million ......................... 26.9 16.2 6.4

$50-100 million ........................ 17.5 18.5 8.4

$100-150 million ........................ 6.4 18.8 8.7

$150-200 million ........................ 3.2 22.4 9.2

$200-300 million ........................ 3.7 27.0 9.0

$300-500 million ........................ 3.2 40.0 13.3

$500 million-$1 billion ................. 2.8 53.0 22.7

Over $1 billion ......................... 1.3 56.7 23.3

All filings ............................ 100% 18.2% 7.4%

------------------------------------------------------------------------------- It may very well be that the size of the deal as a determinant of antitrust risk is a spurious variable, in that the legal risk arises from some factor which tends to vary directly with size, rather than arising from size per se.

*50 Such a possibility is supported by several observations. First, as a very general proposition, larger firms tend to have larger market shares, and it is almost a certainty that larger deals, as a group, will include more substantial increases in market concentration. Market share as an independent risk factor is discussed in Part II, section D. Second, as a group, large firms are very likely to be more diversified. Where two large and highly diversified firms combine, there obviously is a certain risk that a competitive overlap will result in some product area which will give rise to antitrust concerns. Third, as previously discussed, some industries are vastly more antitrust- sensitive than others; and it might well be that deals in the antitrust- sensitive industries tend to be larger than those in the nonsensitive product areas. Even so, the relationship demonstrated by the data between size of the deal and likelihood of antitrust investigation is a striking one.

By now we are accustomed to the oft-repeated claim by the enforcement agencies that they have abandoned the benighted view that 'Bigness is Badness.' The data suggest, however, that the agencies still tend to take a particularly close look at large transactions. This may not be based an much on the theory that 'Big is Bad' as on the theory that big anticompetitive deals do more harm to society than small anticompetitive deals. Such a view would, of course, tend to justify a greater level of enforcement resources.



The bottom line is that until someone either proves or disproves size as a spurious variable (an exercise outside the scope of this article and the research underlying it), the pragmatic practitioners would be very well advised to pay close and special attention to any antitrust concerns surfacing in the context of very large transactions. They should, however, still bear in mind that even 8% of the small deals are scrutinized, and 3% are investigated.

D. Share of Market as a Risk Factor

'The market' is an extraordinarily problematic concept in antitrust analysis. It is one at all uncommon to experience extreme difficulty in gathering accurate data on share of market once you have succeeded in learning what 'the market' is or how, in principle, one ought to measure share of market once one knows what 'the market' is and has accurate factual information at hand. [FN43]

*51 These sorts of analytical difficulties arise not only because litigants are prone to 'play games' with market definition and related concepts but also because of the perverse complexity of commercial life. In light of this, one might suppose that it is not the world's most terrific idea to rely heavily on market shares as a 'first-cut' factor bearing on legal risk assessment. Terrific idea or not, market share analysis is invariably the primary tool employed by the antitrust lawyer, or by the public or the private bar, no analyze a transaction.

Rare indeed are the deals in which no rational person could argue about the proper market definition. Much more common, however, are the deals in which, no matter which of several plausible alternative definitions one chooses, the market shares are clearly below the level likely to cause legal exposure. And while the concept of per se legality is foreign to antitrust jurisprudence, in those numerous deals where the shares are patently low, the practitioner may use market share analysis as a tool to determine: (1) that the deal is relatively free of legal risk and (2) that the antitrust team can safely fold its tent and steal away (unless, perhaps, one is dealing with a hostile tender offer or other circumstance where private antitrust litigation is highly likely, regardless of the intrinsic merits of the case).

'How low is low?' it may well be asked. Regrettably, the lawyer's customary two-handed opinion is inadequate to respond to this question. Instead, four different answers are required: (1) the 'answer' given by the traditional (pre- Reagan Administration) case law, (2) the official party line as found in the DOJ Guidelines, (3) the official party line at the FTC, and (4) what the government actually does about antitrust M&A enforcement.

1. Traditional Case Law

The traditional Supreme Court viewpoint on this subject is summarized by the holding in the Philadelphia Bank case that mergers producing 'undue' levels of market concentration are presumptively illegal. '[W]ithout attempting to specify the smallest market share which would still be considered to threaten undue concentration, we are clear that 30% presents that threat.' [FN44] In later cases, the Court struck down mergers with smaller combined market shares, reaching a nadir in the infamous Von's Grocery [FN45] case holding unlawful a merger *52 producing a combined share of market of 8.9%. This opinion must, on no account, be taken literally today.

A more detailed account of how the courts actually tended to decide cases before the 1980s is provided in a 1980 treatise on antitrust law. Seventy-eight judicial opinions on M&A transactions between competitors are rank ordered according to market share. [FN46] Examination of the results of these seventy-eight cases indicates: (1) mergers in the 1%-10% combined share range were generally held lawful (with some exceptions), and (2) mergers in the 10% plus combined share range were generally held unlawful (again with some exceptions).

To be sure, even in the olden days, merger analysis involved a great deal more that bean counting. But, in Part II the emphasis is on a 'first-cut' assessment of legal risk. The salient point for present purposes is that there is an abundance of legal authority which has never been overruled and which indicates that (at least in a relatively concentrated market) an over-10% merger is legally vulnerable if the government should choose to attack it. In addition, an attack from other quarters is possible, despite issue of a governmental blessing. Recent history proves, moreover, that the nongovernmental risk is not chimerical; it is real. [FN47]



2. What the Government Says

The government really says two things about market share risks, depending on which agency is doing the talking. The party line at the FTC is that: (1) market shares are relevant, and the agency intends to continue using market shares as a primary analytical tool; (2) the pre-1981 market share standards were too low; (3) numerous factors other than market shares are also relevant to the analysis; and (4) it is inadvisable to set up any specific market share guidelines for purposes of business planning and enforcement evaluation. [FN48]

The Antitrust Division of the DOJ is fully in accord with the first three of these propositions. It views market shares as relevant and the previous threshold standards as too low. But the DOJ disagrees with the last proposition, contending instead that specific market share guidelines are useful for purposes of consistency and *53 predictability in enforcement decision making and the resultant enhancement of business planning in M&A matters.

The DOJ party line on performing the analysis is as follows. First, define the product and geographic market, determine the proper method of measuring the shares of all (or, in any event, most) of the firms in the market, and then proceed with the measurement. Second, when these simple chores are accomplished, calculate the Herfindahl-Hirschman Index (HHI) of market concentration and the increase in the HHI resulting from the merger.

It is, in fact, easier to calculate the HHI than to spell it. Just add up the sum of the squares of all the firms in the market. For example, if there are ten firms, each with a 10% share, the HHI is 10 x 102, or 1,000 points. [FN49]

Calculating the change in the HHI (the 'Delta HHI') is even easier. Simply multiply the shares of the two combining firms by each other, and then multiply the product by two. In the previous example, if two of the 10% firms join together, then the Delta HHI = 2 x 10 x 10, or 200 points.[FN50]

The next step is to apply the following official party line DOJ standards: (1) if the post-merger HHI is in the under 1000 range, the DOJ 'will not challenge mergers in this region, except in extraordinary circumstances;' (2) if the post-merger HHI is in the moderately concentrated, 1000-1800 point range, the DOJ 'is unlikely to *54 challenge a merger producing an increase in the HHI of less than 100 points;' the DOJ, however, is 'likely to challenge mergers in this region that produce an increase in the HHI of more than 100 points, unless the Department concludes, on the basis of the post- merger HHI, the increase in the HHI, and the presence or absence of [numerous other factors] that the merger is not likely to lessen competition;' and (3) if the post-merger HHI is in the highly concentrated, over 1800 region the DOJ is 'unlikely' to challenge mergers with a Delta HHI of less than 50 points; 'likely' to challenge mergers with a Delta HHI of 50-100 points; and (if the post-merger HHI 'substantially exceeds 1800 points') will refrain from challenging mergers with Delta HHIs of more than 100 points 'only in extraordinary cases.' [FN51]

A special exception exists for acquisitions by dominant firms (with shares of 35% or more). The DOJ's position is that it is 'likely' to challenge acquisition by such firms of acquired companies with a market share of 1% or more. [FN52]

3. What the Government Does

Perusing the government's verbiage is a more pleasant and congenial endeavor than looking at what the agencies have actually done in the recent past. It is very useful, however, to examine the actual track record of FTC and DOJ lawsuits brought under the current Administration. This affords some insight as to the two enforcement agencies' actual 'threshold of pain' on market shares. Accordingly, a table is presented in Appendix III, [FN53] which is arranged by alleged Delta HHI and is presented in order from highest to lowest. Information is provided on market shares in M&A judicial and administrative proceedings commenced during the period January 20, 1981 through December 31, 1985. Included are: (1) Hits (as to which further information will be found in Appendix I) to the *55 extent that (a) the plaintiff was either the FTC or the DOJ, (b) the desired effect was achieved by litigation (including consent decrees, but excluding mere threats of litigation), and (c) the relevant information could be located; (2) Misses (as to which further information will be found in Appendix II); and (3) pending FTC and DOJ



litigation (which are, of course, neither Hits nor Misses as defined in this article).

Where a deal is alleged to be unlawful in two or more relevant markets, the government is taken at its word and only the market with the smallest alleged Delta HHI problem is included. In other words, it is assumed that the government would still have sued where increases in combined market shares were greater, had in perceived no problem in the other alleged markets. These deals, however, are marked with an asterisk, to indicate that a grain of salt may be in order.

In sum, the available evidence indicates that the FTC and DOJ under the current Administration seldom bring suit unless the combined share of market is about 20% or more.

III. BASIC ISSUES IN ANTITRUST M&A ANALYSIS

A. The Utility of Antitrust Analysis

As shown in Parts I and II, antitrust M&A enforcement has decreased significantly under the current Administration, but it has not disappeared. In short, the Administration believes in enforcing the antitrust laws relating to M&A transactions although its understanding of those laws is more restrictive than that of its predecessors. The overall level of M&A enforcement has been examined, and an effort has been made to identify and to quantify a set of 'risk factors.' These may be employed as an intellectually simplistic and naive, though useful, basis for identifying deals with real potential antitrust exposure.

While one may get this far without any real understanding of the finer points of antitrust analysis, regrettably one cannot get further. For example, take a $100 million deal in a 'moderate risk' industry, involving competitors with estimated 12% and 8% shares of an apparently plausible United States 'market' believed to be 'moderately concentrated. 'Under the law as it stands today, there simply is no set of simple and objective 'guideline' criteria which *56 is readily applicable to predict whether this 'grey area' deal will ultimately be an antitrust loser or an antitrust winner. [FN54]

Logically, then, there are three choices in dealing with a 'gray area' deal. One, you can decide to abandon the deal without further expenditure of time and effort. Two, you can proceed more or less blindly and hope for the best. Three, you can bite the analytical bullet and make a more refined assessment of the legal risks. With the third choice, it goes without saying that some useful insights are formed in the process as to appropriate arguments to make to the enforcement agencies or, if necessary, to the court.

Those who prefer either of the first two choices should read no further because they have now learned everything this article has to tell them. The third alternative, however, commends itself on practical, business grounds even to those hard-headed individuals temperamentally inclined to view antitrust metaphysics as no more suited to real men than is the consumption of quiche.

B. The Role of the Judge

The principal antitrust statute dealing with mergers and acquisitions is section 7 of the Clayton Act. [FN55] In effect, this directs a *57 court faced with M&A litigation to make an informed judgment as to the likely future effect of the deal on competition in any affected market(s). Such direction is embodied in the statutory language indicating that a transaction is unlawful if 'the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.'

A moment's reflection will suffice to make clear that in numerous circumstances the complexity of existing commercial reality and the inherent unpredictability of social and economic phenomena will make this judicial task extremely difficult. This is particularly so in view of the obvious fact that the most factually ambiguous circumstances are precisely those which tend to arise in actual litigation. By and large, the really easy cases never get to court.



Indeed, the job assigned the federal district judge by Congress in section 7 is much akin to that of the management consultant. It is only mildly facetious to suggest that any judge who happened to exhibit truly superior skill in diving the actual effect of specific mergers on competitive conditions is an individual who could multiply his income many-fold by becoming a management consultant or a financial adviser.

However difficult the job may be, a judge clearly must find some way of attempting it. Regrettably, however, the issue of how best to adjudicate an antitrust M&A case remains controversial. Such a decision requires a determination of what factual issues to consider and in what order, what weight to accord various types of facts, and what standards to employ so that 'like cases are treated alike, *58 and different cases differently.' Even so, one may fairly discern a dialectical process at work in the past thirty-five years of M&A jurisprudence, a process which has led in the 1980s to something resembling a synthesis of law for dealing with these types of issues. [FN56] Accordingly, abrief excursion into the past dialectics of merger analysis is extremely useful in illuminating the present.

1. Thesis

Probably the most obvious approach for a judge in an M&A case is to indicate to the plaintiff and defendant that each is free to introduce any and all facts relevant to competition in the affected market and to make any and all plausible arguments. The judge will then simply do the best he can. This might be called the 'kitchen sink' approach to adjudication, and is an approach which indeed represented the conventional wisdom of the bench and bar in M&A analysis during the early and mid-1950s. This is exemplified by the 1955 Report of the Attorney General's National Committee to Study the Antitrust Laws, which lays out congeries of 'market factors [which] may be helpful in determining the competitive consequences of any particular acquisition.' These factors are grouped into four main categories: (1) The character of the acquiring and acquired company, (2) the characteristics of the markets affected, (3) immediate changes in the size and competitive range of the acquiring company and in the adjustments of other companies operating in the markets directly affected, and (4) probable long-range differences that the acquisition may make for companies actually or potentially operating in those markets. [FN57]

No indication is given in the 1955 Report as to the relative weight to be accorded these broad categories or the numerous 'market factors' listed under each of the four main areas.

2. Antithesis

The 'kitchen sink' approach in the 1955 Report (and in some *59 case law of the early 1950s as well) was subjected to several related types of criticism during the succeeding years. First, many contended that the multiple factors approach failed to take proper account of the work of econometricians who believed they had found a significant positive statistical relationship between market concentration and profit levels. Many believed this alleged finding supported the economic theory that concentrated markets are characterized by tacit collusion, price leadership, and other forms of oligopolistic behavior and also to support the public policy consideration that section 7 cases should be decided mainly, if not exclusively, by reference to market structure, i.e., the market shares of competitors in a defined 'relevant market.' Second, the 'kitchen sink' approach was criticized as making it too hard for judges to decide cases--and too hard for businessmen to predict the likely reactions of the enforcement agencies and the courts to any particular deal. Third, the old approach was criticized for ignoring the alleged intent of Congress that the courts be hard on mergers, and for making it too easy for defendants to escape their just desserts by turning trials into 'economic extravaganzas.'

In a series of cases beginning in 1962, [FN58] the Supreme Court explicitly and fully accepted these criticisms and essentially held that: (1) combinations of competitors with significant market shares are prima facie unlawful, and that a court should not hesitate to strike down a merger based only on proof of the relevant market and proof that both parties possess significant shares; (2) only a few points of market share by both parties are enough to render a merger unlawful; and (3) a court should listen to any efforts made by the defendant to rebut a prima facie market share case but should be loathe to accept such a defense. [FN59]



3. Synthesis

An intellectual turning point was reached in 1974 when the Supreme Court for the first time ruled that defendants has succeeded in rebutting, by non-market share factors, a prima facie market structure *60 case. [FN60]That case signaled the beginning of a developmental process, the details of which are interesting, but beyond the scope of this article. The culmination of this process was a new synthesis of opinion on M&A analysis fairly said to be embodied in the 1982 DOJ Guidelines, the FTC Statement, and, most importantly, the currently effective 1984 DOJ Merger Guidelines.

In a nutshell, the current synthesis rejects the old 'kitchen sink' approach in that it continues to place primary emphasis on market definition and market share as the key factors in a 'first-cut' analysis. [FN61] On the other hand, the current synthesis rejects extreme structuralism as well. There are several reasons for this. First, more recent econometric studies cast doubt on the strength of the statistical relationship between concentration and profits. Second, even if such a statistical relationship exists, it is as plausible to speculate that profits and share result from both the greater efficiency and skill of the leading firms as it is to speculate that high market shares led to tacit collusion which led to high profits. Third, non-market share factors such as barriers to entry are highly relevant to understanding competitive conditions. Proponents of the current synthesis believe it is a mistake to ignore such relevant factors.

C. Where We Are Now

Whatever one may think on pure public policy grounds about the soundness of what is referred to above as the 'current synthesis' on antitrust M&A, it is essentially undeniable that this synthesis is inconsistent with a large number of relevant Supreme Court decisions which have never been questioned or overruled [FN62]--not to mention legions of lower court decisions.

It is hardly necessary to spell out the potential practical consequences in words of one syllable. Significant possibilities for business leverage arise out of this gap between enforcement policy and case law. This was illustrated quite dramatically in 1985 when two competitors succeeded, through private litigation, in blocking *61 Heileman's attempt to acquire Pabst on terms that had been approved by the DOJ. [FN63]

Moreover, the 'enforcement gap,' important as it is, does not by any means capture the full extent of the schizophrenia in current policy. The essence of the situation may be more fully grasped by recognizing that there are currently no fewer than three respectable, but quite inconsistent, answers to the question, 'What is the meaning of that 'competition' which, according to the language of the statute, is to be protected from any 'substantial lessening' through antitrust enforcement?'

Based on a dictionary definition of 'competition,' one might suppose that a market where 'competition' prevails is a market which, however structured, is characterized by a high degree of healthy business rivalry on price, service, product innovation, and related matters. In short, one might suppose that 'competition' is the name of a process. Though generally not articulated so explicitly as here, this view appears to be implicit in much of the best current judicial analysis of M&A matters. [FN64]

The second view is that 'competition' means a state of affairs in which the market is structured in a fragmented way. In short, 'competition' means lots of competitors. Logically, economic structuralism and philosophical Jeffersonianism are not quite the same thing. In real life, however, these two intellectual trends tended to be closely intertwined in the antitrust jurisprudence of the 1960s. [FN65]

The current Administration adheres to a theoretical approach apparently aimed at 'reducing' antitrust law to microeconomics. This is somewhat analogous to the argument that in principle biology may be 'reduced' to chemistry and physics. Accordingly, the current official enforcement view is that 'competition' means a state of affairs in which no one in the market, however structured, enjoys 'market power,' so that all participants are 'price takers', not *62 'price makers.' [FN66] A firm has 'market power' in this sense to the extent that it can choose to



operate at various points on its demand curve and still make a profit.

Obviously most markets are not fully 'competitive' in this sense, but the Administration appears to believe that it is the mission of section 7 to interfere with a deal only if the deal is likely to 'substantially lessen competition.' This means, in the Administration's view, either giving the combined entity increased unilateral 'market power' or increasing the likelihood of successful tacit collusion, so that all firms in the market will enjoy enhanced 'market power.'

In sum, just as the first view focused on conduct at the core concept of 'competition,' and the second focused on structure, the third theoretical view, that of the enforcement agencies in the 1980s, focuses on market performance. Curiously, however, only one aspect of competitive performance, namely price, is emphasized.

Few would doubt that the idea of linking the economic concept of 'market power' with the legal concept of 'substantial lessening of competition' is capable of affording helpful insights for antitrust M&A analysis. [FN67] If, however, one seriously attempted to equate fully the two concepts, exceedingly strange results could follow.

Much business rivalry, particularly in research and development, is motivated by a quest for market power. Certainly, however, this Administration would never try to block a merger solely on the ground that the combined entity could produce more desirable, technologically advanced products and thereby gain greater market power for itself. Parts IV and V examine other anomalies in the 'competition equals no market power' approach.

D. Sorting Out the Mess

By now it should be reasonably evident that antitrust law is not in a happy state. Perhaps it never was, but it surely is not now. That is emphatically not to say, however, that the situation is hopeless.

Now, as before, a great deal turns on an accurate determination *63 of the competitive arena in which the merging firms operate or, in more traditional terminology, a definition of the relevant market. This is the subject of Part IV, which reviews the Administration's commendable effort to replace the unprincipled gerrymandering so common in the past with objective analytical principles. Additionally, Part V discusses non-market share factors where it is clear that broadening the analysis by considering factors other than market structure can be accomplished in a reasonably principled and predictable manner and need not lead to unprincipled 'economic extravaganzas.'

IV. MARKET DEFINITION AND MARKET SHARE As demonstrated, the fundamental rule of antitrust M&A law is that a combination of direct competitors, producing a combined entity with a substantial share of market, is prima facie illegal--at least where the market is moderately or highly concentrated. It is readily apparent that there is no way of applying this rule and of determining whether a particular deal is legal without some set of operational criteria by which to define, in real life situations, the 'market' to which the basic rule relates. That exercise is, of course, what is known in antitrust law as 'defining the relevant market.'

Regrettably, it is at this point that a slight semantic embarrassment occurs. In the real world of antitrust counseling and enforcement, several different groups of people are encountered. These include: (1) marketing executives and consultants who may justifiably feel that they know something about competitive conditions in the marketplace; (2) economists, in their role as expert witnesses and gurus; (3) government enforcers imbued with the latest economic wisdom from the Windy City; and (4) judges, who may or may not feel obliged by the rules of the game to abide by Supreme Court precedents, whether or not such case law continues to enjoy the blessing of the American Economic Association.

It is vital to understand that each of these groups has a distinctive understanding of the term 'market.' Failure to grasp this point is a sure and certain recipe for hopeless confusion.

The Businessman's 'Market'--Marketing documents are invariably full of references to 'markets' and 'market shares.' Though such documents may give extremely useful insights into market conditions, it is essential to



understand what marketing personnel are referring to when they use the term 'market.' They are normally talking about those particular products which their firm happens to *64 produce--a universe which may omit many good substitutes in production, and even many good substitutes in consumption.

The terminology naturally follows from the salesman's (or marketing vice-president's) mind set. When he asks what his share of the market is, he means what proportion of sales did he actually make out of all the sales he might potentially have made--given the products he has to sell and the territory in which he has to operate. In other words, the salesman understandably wants to know his 'score' vis-a-vis the competition in the competitive arena which is somewhat arbitrarily defined by his present product line and his geographic coverage. He is less concerned with questions which are much more salient for antitrust purposes. For example, he is less interested in knowing his customers' alternatives to the product line which he sells and his own firm's alternative product possibilities, given its present capacity.

The Economist's 'Market'--From a theoretical economic perspective, 'market definition involves identification of clear gaps in the chain of substitutes, such that all goods or services included in the market are (1) very good substitutes for each other in demand or supply, and, in addition, (2) have no good substitutes outside the market.' [FN68]

Few indeed are the real life commercial situations which are in accord with these standards. In fact, it is not at all unusual to find a close and intimate link of substitutability along a whole chain of substitutes. Typically, this involves going from the small and cheap to the large and expensive--albeit a ridiculously large gap between the two ends of the chain.

Reflect, for example, on the chain of substitutes with the one-speed bicycle at one end and the Mack truck on the other. [FN69] Coherent 'market' definition in such commercial contexts can be a nightmare, and, if the truth be told, the card-carrying Ph.D. economist often has little to contribute to the process.

Moreover, this confusion is compounded by the 'market' definitions of the statistical relationship between profitability and market *65 share used by economists in the above-mentioned [FN70] econometric studies. Typically, the 'markets' employed in such studies were the four-digit SIC code product areas defined by the United States Census Bureau. The use of such 'markets' for statistical purposes is understandable because the relevant statistical data are so categorized by the Census. But the fact is that four-digit SIC product groupings: (1) tend to be rather broad; (2) seldom bear the faintest resemblance to theoretical economic markets, as succinctly defined above by reference to gaps in the chain of substitutes; and (3) practically never conform to the businessman's 'market' (as discussed above), or to the old school jurisprude's 'market,' or to the modern antitrust enforcer's 'market' (as discussed below). In short, with such garbage for data, it is truly remarkable that the econometricians found anything about the relationship between concentration and profits in the four-digit SIC 'markets.' SIC codes are not markets; and anyone who thinks that they are, and who uses that mistaken assumption in order to assess antitrust risk, is likely to come to grief. [FN71]

The Old School Jurisprude's 'Market'--The traditional black letter rule of product market definition, laid down by the Supreme Court in 1962, is as follows: The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. However, within this broad market, well-defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 593-595. The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors. Because § *66 7 of the Clayton Act prohibits any merger which may substantially lessen competition 'in any line of commerce' [emphasis supplied], it is necessary to examine the effects of a merger in each such economically significant submarket to determine if there is a reasonable probability that the merger will substantially lessen competition. If such a probability is found to exist, the merger is proscribed. [FN72]

Characterizing the case law of the 1960s and 1970s which applied this standard as a hopeless morass is perhaps a little harsh. Nevertheless, intellectually honest and thoughtful observers agree that the Supreme Court has too often



applied the Brown Shoe test in an unprincipled and result-oriented way, while the lower courts were frequently just confused. [FN73] Be that as it may, where the 'first-cut' analysis of a deal indicates that there may be a real problem if the 'wrong' market is defined, it continues to be an outstanding idea to begin to attack the problem of definition by looking at the Brown Shoe factors and asking: (1) Are the products you want to include in your 'market' in fact interchangeable in end use? For all customers, or only some? (2) Do the industry and the public recognize that these products are part of one 'market'? (3) Physically and otherwise, how similar or different are the products? (4) How similar or different are they in price? (5) Do the same customers buy all the products, or are they sold to different sets of customers? (6) Do the same sets of vendors sell all the products? (7) Do they go through the same channels of distribution?

Where most of these factors point in the same direction, there is a good chance that a real, relevant product market has been identified.

The Modern Enforcer's 'Market'--The 1982 and 1984 versions of the DOJ Merger Guidelines make a serious effort to bring method into this madness. [FN74] The 1984 version states: *67 The standards in the Guidelines are designed to ensure that the Department analyzes the likely competitive impact of a marger within economically meaningful markets--i.e., markets that could be subject to the exercise of market power. Accordingly, for each product of each merging firm, the Department seeks to define a market in which firms could effectively exercise market power if they were able to coordinate their actions. Formally, a market is defined as a product or group of products and a geographic area in which it is sold such that a hypothetical, profit-maxi mizing firm, not subject to price regulation, that was the only present and future seller of those products in that area would impose a 'small but significant and nontransitory' increase in price above prevailing or likely future levels. The group of products and geographic area that comprise a market will be referred to respectively as the 'product market' and the 'geographic market.' In determining whether one or more firms would be in a position to exercise market power, it is necessary to evaluate both the probable demand responses of consumers and the probable supply responses of other firms. A price increase could be made unprofitable by any of four types of demand or supply responses: (1) consumers switching to other products; (2) consumers switching to the same product produced by firms in other areas; (3) producers of other products switching existing facilities to the production of the product; or (4) producers entering into production of the product by substantially modifying existing facilities or by constructing new facilities. Each type of response is considered under the Guidelines.

***

In general, the price for which an increase will be postulated will be whatever is considered to be the price of the product at the stage of the industry being examined. In attempting to determine objectively the effect of a 'small but significant and non-transitory' increase in price, the Department in most contexts will use a price increase of *68 five percent lasting one year. However, what constitutes a 'small but significant and transitory' increase in price will depend on the nature of the industry, and the Department at times may use a price increase that is larger or smaller than five percent. [FN75]

The key concept is that the agencies will not call a given competitive arena a 'market' unless it is 'monopolizable.' [FN76] In other words, if, in our 'candidate market,' all of the producers assembled in a smoke-filled room had agreed to raise the price by 5% above prevailing levels, as a practical matter, is it likely that competition from sources outside the defined area would fairly quickly drive the price back down? If the answer is 'No,' the DOJ is saying that it would regard the competitive arena so defined as an antitrust 'relevant market.' On the other hand, if the answer is 'Yes--competition would drive the price down,' then the DOJ is saying that the original area is too small to be a legally 'relevant market,' and it has to be expanded.

By and large, the Modern Enforcer and the Old School Jurisprude look to the same types of evidentiary considerations when engaging in the 'relevant market definition' exercise. [FN77] They differ not in the kinds of evidence each considers pertinent to the analysis, but in the fact that the Old School Jurisprude adjudicates the issue



on the basis of a jumble of 'factors,' while the Modern Enforcer ties all the factors together using the key concept of the 'monopolizable market.'

Some have vociferously criticized the 'five percent hypothetical' concept in the new Guidelines on the grounds that reliable data as *69 to what would happen in the event of a 5% price increase are hardly ever available. It is argued that the Guidelines thus induce an element of speculation and factual uncertainty into an area that ought to be subject to far more objective and easily applied tests. In point of fact, it is entirely true that such data are seldom available. Arguably, this is somewhat beside the point. The real message of the Guidelines is: (1) when the government refers to a 'market,' it means an area within which the competition is very direct, and resources flow very fluidly from one spot to another; (2) it intends to apply this concept in a principled and consistent way, and intends henceforth to eschew the temptation to define outrageously gerrymandered markets for the sake of winning a case; and (3) it invites all interested persons to submit such relevant econometric or other evidence as may in fact be available.

The point is really this: It is true that in some sense of the word beer competes with milk, steak competes with cole slaw, and top-of-the-line cars compete with bottom-of-the-line cars. But what the DOJ is saying is that this sort of indirect, limited competition is not acceptable as a basis for relevant market definition. To prove that two dissimilar products are part of the same relevant market, one better be prepared to demonstrate that there is a very direct competitive relationship between them. [FN78]

*70 A. Product Market Definition: Lessons for Pragmatic Assessment of LegalRisks

First, the enforcement agencies today tend to adopt relatively narrow product definitions. This can be readily confirmed by examining the relevant markets alleged by the plaintiff in cases initiated by the FTC and the DOJ during the current Administration. [FN79] The narrowness of the government's 'markets' is, of course, the logical consequence of its effort to apply the 5% hypothetical concept. [FN80]

Second, narrow 'markets' make it easier to do deals between adjacent firms which compete only indirectly or occasionally, but harder to do deals between direct, head-to-head competitors. It is frequently said that the current guidelines contain 'rigged' market definition to facilitate mergers. This is an absurdly illogical statement. A moment's reflection will show that narrowly defined markets 'cut both ways,' making some deals easier and some deals harder to do.

Third, if sued by the government, do not despair of the possibility of proving to the court that the government's alleged 'market' is too narrow. *71 Do not despair, because defendants have done precisely that on two recent occasions, one in 1981 [FN81] and one in 1985. [FN82]

Fourth, don't take the language of the Guidelines too literally. For example, a former enforcement official relates the following instructive war story: One recent case before us involved a proposed merger between two firms that manufacture egg cartons. In seeking our approval of the merger, the parties urged us to view the production of egg cartons as only a segment of a much larger market comprising all polystyrene products formed on extrusion equipment. While the number of producers of polystyrene products making egg cartons is small, a much larger number use extrusion equipment to make other products. In support of their position, the parties relied heavily on the wording of a footnote in the 1982 Guidelines, which stated that, for purposes of applying the 'five percent test,' we would assume the industry to believe that the hypothetical price increase 'will be sustained for the foreseeable future.' Seizing on this phrase, the parties argued that, if manufacturers could rely absolutely on the five percent price increase being sustained over the forseeable future, virtually all of them would convert their extrusion equipment to making egg cartons. We rejected this contention as unrealistic. The parties did not adduce evidence of such large-scale shifts in production having occurred in the past in response to price increases. It appeared to us that nothing of the sort was likely to occur in the event of a future price increase. The demand for egg cartons depends wholly on the demand for eggs, and is quite inelastic. A sharp increase in the production of egg cartons would cause carton prices to plummet. This predictable market reaction would deter most manufacturers from converting extrusion equipment to making



egg cartons even in the face of a modest price increase. Our decision to reject the parties' argument is consistent with the new Guidelines, which provide that in assessing the likelihood of production substantiation in the face of a price increase, we will take into account any reasons why producers would find substitution unprofitable. [FN83]

*72 In essence, the DOJ concluded that the 5% hypothetical is a rather obtuse way of approaching market definition in the egg carton business. But the problem is that the 5% hypothetical may be a rather obtuse way of approaching many businesses. The bottom line is that while deep reflection on the meaning and implications of governmental prose can sometimes be useful, it is probably even more useful in pragmatically assessing legal risks in M&A transactions to apply insight, creativity, and common sense to the fundamental question: if this deal goes through, what are the factors which will inhibit the ability of the combined entity to raise prices or otherwise to act in ways that are harmful to consumers?

Fifth, creativity in market definition is wonderful, but mere gamesmanship is increasingly unacceptable. If you really have no antitrust claim (or defense, as the case may be), perhaps you should consider staying out of court. [FN84]

Finally, beware of precedent. It is obvious, though sometimes overlooked, that there is a large body of accumulated precedent on the subject of relevant market definition in particular contexts. And regardless of the way one might suppose the Guidelines would logically apply to a particular transaction, a court may well be constrained to act in accordance with what it views as binding precedent.

It is, moreover, not unusual to see hoary precedent applied with perhaps undue enthusiasm not only to market definition issues in particular industries, but also to general principles of market definition.

For example, the possibility of switching by producers or related products can be just as effective in inhibiting market power as the possibility of consumers switching to other products with the same or similar end use. This is one important point which is fully recognized in the Guidelines and in the FTC Statement. However, for reasons best known to itself, the Seventh Circuit has exhibited a particular reluctance to recognize this principle. For example, the court in Kaiser Aluminum & Chemical Corp. v. FTC, [FN85] specifically noted that an unusually dispositive record would be required to justify the overruling of prior pronouncements that supply substitution is not an acceptable basis for market definition.

*73 Another source of inhibition of market power in many markets is captive production capacity, and the Guidelines recognize that such capacity should normally be included in the market. [FN86] But, again, there is some judicial reluctance to accept this concept on the grounds of perceived inconsistency with prior precedent. [FN87]

B. The Relevant Geographic Market

Generally speaking, the observations offered regarding the remarkable divergence among the businessman's 'market,' the economist's 'market,' the traditional antitrust case law 'market,' and the new style enforcer's 'market' are as relevant to the geographic dimension of competition as to the product dimension concentrated on thus far in Part V. Some amplification is, however, in order.

1. Traditional Case Law

The level of economic sophistication and refined legal reasoning found in the traditional case law on relevant geographic market definition is illustrated by Supreme Court holdings that a pragmatic, factual approach must be applied; [FN88] that the geographic market area selected must correspond to the commercial realitiesof the industry; [FN89] and that it must generally coincide with the area where customers can turn, as a practical matter, for alternative sources of supply. [FN90]

2. The Current Guidelines



The current Merger Guidelines approach geographic market definition from a somewhat different perspective than traditional case law. The Guidelines start with where the sellers are located (not where the buyers are located, as indicated in many of the traditional cases) and ask whether there is any geographic area (however small) in the vicinity of the merging firms' plants which is 'monopolizable' in the sense described above. [FN91] In other words, if all automobiles in the United States were produced in Topeka, Kansas, the government would begin by asking whether all the producers could get away with imposing a 5% increase in the Topeka area, or whether any attempt to do so would bring in outside suppliers who would drive the price down relatively quickly.

*74 The Guidelines indicate that relevant factual inquiries in making this determination include: (1) shipment patterns, (2) evidence that buyers have actually shifted to sellers located in different areas (or considered doing so), (3) the relationship between price movements in different regions, (4) transportation costs, (5) local distribution costs, and (6) excess capacity of outside firms. [FN92]

Though conceptually different from the old approach to market definition, it is not at all clear that the new approach is likely to yield different results. Localized markets are still found in the case of retailer combinations. Regional markets are still found, for example, in the case of commodity products with high transportation costs. National markets are still found in the case of combinations of United States manufacturers that compete with one another throughout the United States.

3. The World Market

There is a certain popular genre of punditry which holds that antitrust is as outmoded as the horse and buggy, and nowhere is this more so than in the alleged failure of antitrust practitioners to recognize that in the late twentieth century we are operating in a global economy. This tirelessly reiterated theme, so beloved by contemporary editorial writers, is nicely captured in a short quotation from volume 1 of the 1985 Report of the President's Commission on Industrial Competitiveness, entitled Global Competition: The New Realty. This report states: 'When viewed as operating in an international market, American industries are much less concentrated than when viewed from the narrow context of a domestic market. U.S. antitrust law has not yet been interpreted to reflect the new global economy.' [FN93]

Heaven forbid that anyone should view markets from a 'narrow context,' but the problem with the second sentence in the above quotation is that there is not a word of truth in it. The fact is that United States law has been interpreted by the DOJ to reflect the principle that when the United States 'market' is too narrow to be 'monopolizable'--too permeable to foreign competition to permit *75 purely domestic producers to raise the price--then the United States as a whole is too narrow a market. In such circumstances, some broader area, whether a world market, a North American market, or some other suitably defined area, is appropriate. [FN94] The law has been so applied in enforcement decisions [FN95]; at least on one occasion, in Gearhart Industries, Inc. v. Smith International, Inc., [FN96] the law has so been construed by the courts. Here the court found that the relevant market was the world market for 'measurement while drilling' technology in the oil services industry. [FN97]

C. Geographic Market Definition: Lessons for Pragmatic Assessment of Legal Risk

First, where appropriate, consider carefully the concept of foreign capacity available for export to the United States. Some markets really are global in nature. Others, pace the President's Commission on Industrial Competitiveness, are not particularly vulnerable to foreign competition. However, in the opinion of the two enforcement agencies, there is a relatively common intermediate category of manufacturing markets where the primary competitors of any given domestic producer are other domestic producers. However, the ability of this category of domestic producers collectively to raise prices is substantially inhibited by foreign producers who may participate marginally in the United States market, or who can be shown to be preparing to do so but whose price- constraining potential is more *76 accurately indicated by demonstrating excess foreign capacity that is reasonably available for sale into the United States.



This is quite common, particularly in the case of commodity manufactured products. Anyone who undertakes a pragmatic assessment of legal risks should be alert to the possibility that in such cases the FTC or DOJ may well proceed on the basis of a United States national market, with shares measured in terms of United States manufacturing capacity plus foreign capacity believed to be reasonably available to serve the United States market (in the case of an increase in domestic prices).

In a combination of two major domestic competitors, this way of looking at things would tend to be very helpful, whereas, in a combination of domestic and foreign manufacturers, it might be very harmful. But in either event, it is extremely germane to risk assessment to know that the government may approach commodity (and sometimes other types of manufactured product) markets in this manner, using domestic capacity plus 'available' foreign capacity as the best universe for purposes of estimating market power.

Second, note that broad market definitions 'cut both ways,' just as narrow market definitions. Relatively narrow product market definitions can make it harder to do deals between present competitors but easier to do deals between adjacent firms. Likewise, the currently fashionable, relatively broad geographic market approach can make it easier to do deals between domestic competitors but harder to do a deal between a domestic producer and a foreign company with minimal or no participation in the United States market but substantial capacity available to serve that market.

Third, if sued by the government, take comfort in the fact that the government does not always win on geographic market definition. [FN98]

Fourth, beware of precedent. [FN99]

Fifth, beware of assuming that definitional gamesmanship will carry the day. For example, geographic market definition was the key substantive issue in Marathon Oil Co. v. Mobil Corp. [FN100] Here, the Mobil Court was unimpressed with expert testimony toward a *77 broad geographic market definition and faulted the defense's explanation of persistent observed differences in price among regions. [FN101]

D. Measurement of Market Shares

According to the DOJ: Market shares can be expressed either in dollar terms through measurement of sales, shipments, or production, or in physical terms through measurement of sales, shipments, production, capacity, or reserves. As a practical matter, the availability of data often will determine the measurement bias. When the availability of data allows a choice, dollar sales or shipments generally will be used if branded or relatively differentiated products are involved, and physical capacity, reserves, or dollar production generally will be used if relatively homogeneous, undifferentiated products are involved. [FN102]

Although the subject of measurement of market shares could not truthfully be described as intrinsically compelling, it can be extremely vital to the sound assessment of legal risks. A moment's reflection will show that a company's share of market sales in units may be quite different from its share of dollar sales, and both may be quite different from share of capacity. After all, the attempt is to apply a set of rules as to presumptive legality or illegality which turns on share of market. Several lessons may be gleaned from recent experience:

First, be aware of the government's strong preference for capacity in the case of commodity industries. In a great many industries, there is a commonly accepted way of measuring share of market--typically embodied in a trade association data gathering program. In this case, the antitrust analyst may generally rely heavily on data so gathered, inasmuch as: (1) it is likely that the commonly accepted approach to share of market is a sensible one in view of industry *78 conditions--otherwise it would not be commonly accepted; and (2) probably no one else has any better data. Moreover, there is no special preference in the case law for one way of measuring share of market over another. [FN103]



Commodity manufacturing industries tend, however, to be exceptions; and anyone who attempts to assess the risk of government action against a commodity industry merger should bear in mind the government's strong preference for capacity measures. This is true even if the industry commonly uses some other measure, such as unit sales, and even if capacity is hellishly difficult to measure accurately or consistently. This is, of course, normally the case.

Next, in some industries multi-year time periods may be appropriate for the measurement of market share. Normally the market share criteria described above are applied to the most recent year for which data are available. A couple of prior years of data may, perhaps, be considered as well. This normally indicates whether the most recent data contain any flukes. However, in the case of markets characterized by large but infrequent orders or by dramatic year-to- year shifts in market share resulting from other causes, measurement based on multi-year periods may be appropriate. [FN104]

E. The Herfindahl-Hirschman Index of Market Concentration

Having properly defined the relevant market or markets and having measured the shares of all (or most) of the firms in the market in the appropriate manner, the next step is to apply the appropriate market share criteria to determine whether the deal is presumptively legal or presumptively illegal. Because this subject is of considerable importance in terms of a 'first-cut' assessment of legal risk, several areas have been discussed already: (1) the traditional (and rather loose) case law standards, (2) the concept of the HHI and the Delta HHI as employed by the FTC and DOJ (and how these concepts differ somewhat from the standards of traditional case law), (3) the party line at the FTC and DOJ on the HHI standards employed in assessing mergers, [FN105] and (4) the somewhat different standards *79 which appear to be employed in actual practice at the two agencies. [FN106]

It is, of course, not particularly unusual to come across a deal which arguably is in considerable trouble under traditional case law standards, but which is clearly within the 'safe harbor' of the DOJ market share criteria. Consider, for example, a merger between Companies C and D in a market structured as follows: Company A, 20%; Company B, 20%; Company C, 7%; Company D, 7%; Companies E, F, G, H, etc. 1 or 2% each. Under traditional standards, this is a market with a reasonably high four-firm concentration ratio of 54% and a deal exceeding the old 1968 DOJ Merger Guidelines by a comfortable margin. [FN107] It is well within the range of presumptive illegality as found in many of the pre-1980 case law authorities. However, under the current DOJ Guidelines, the market HHI is probably in the 900-1000 range, depending on the precise shares of the small fry. (These data will, incidentally, probably be difficult to obtain.) Moreover, the Delta HHI is only ninety-eight points. Putting these two facts together, i.e., the market HHI and the Delta HHI, there is little doubt that the deal is within the 'safe harbor.'

How is one to assess the legal risk here? As an initial matter, one may conclude that the government is not likely to sue. This is certainly a good beginning. [FN108] But private litigation is a virtual certainty if the deal is a hostile tender offer. Even if the deal is a friendly one, the possibility of a private legal challenge by either a competitor or some other type of plaintiff cannot be overlooked. Thus, it is clear that the tension between the Guidelines and the case law is an issue that cannot be ducked in the process of risk assessment.

Actually, two issues are present here, and they are often confused. First, there is the issue of whether the HHI or the old four-firm *80 ratio is the best measure of market concentration. Though by no means devoid of intellectual interest, [FN109] this economic conundrum is far less important than the second question of whether or not the agencies have set too high a threshold of concern over market concentration--however market concentration is measured.

I discern no fewer than three schools of thought by the courts on this very important question. The first, which might be called the don't-tell-me-what- the-law-is approach, is well illustrated in an April 23, 1985 opinion by the Tenth Circuit in a case brought by a competiror plaintiff. The court stated: [Defendant] Excel would have preferred that the district court use the current Justice Department merger Guidelines both to define relevant markets and to ascertain whether the acquisition will substantially lessen competition. We agree with the district court's decision not to rely on these Guidelines. [FN110]

Second, there is case law indicating that the HHI is a perfectly splendid measure of concentration [FN111] and that the Guidelines set forth the right approach to merger analysis. [FN112]



Finally, from the other end of the spectrum and, perhaps surprisingly, it is not unusual today to find cases indicating that the current Guidelines are too restrictive or are being applied by the agencies in too restrictive a manner. For example, in a district court opinion rendered in January, 1985 denying the DOJ's motion for a preliminary injunction, the court observed: I have pursued the usual step-by-step procedure of determining the relevant market, examining the market structure before and after the merger [and finding shares of 41% plus 9%], and analyzing the mitigating factors. *81 However, if we were to look at the totality of this particular market, one notes that it is so fluid and volatile both from the perspective of the product user and from the perspective of the product supplier, that it is unlikely that any firm, no matter how great its market share may be at any given time, would exercise market power very long. [FN113]

To return to the hypothetical, how does one go about assessing the legal risk in the event of a combination of Companies C and D? The only general answer possible is to make some assessment of the likelihood of private litigation and examine carefully the various factors discussed in Part V.

V. RELEVANT FACTORS OTHER THAN MARKET SHARE

In order to assess accurately the legal risks, it is essential to keep in mind several fundamental, but often overlooked, points. First, although antitrust law has undergone a significant evolution since the 1960s, it remains axiomatic that a plaintiff need not show that a merger is certain to create an anticompetitive effect in the short run--but only that there is a substantial likelihood of such an effect in the foreseeable future. [FN114]

Second, two kinds of anticompetitive effects are feared: (1) that the combined entity will have unilateral market power; and (2) that the merger will result in increased market concentration, thereby making it easier for all firms in the marketplace to earn higher than competitive profits through tacit collusion.

Third, absent clear scientific evidence (and there is none) [FN115] that concentration is associated with tacit collusion, any market share *82 standards--the DOJ's current standards or anyone else's--are inherently arbitrary. [FN116]

Fourth, the fact that economists have not scientifically proved a proposition does not prove the proposition untrue. The tying of concentration with oligopolistic behavior grows more out of the collective experience of businessmen and business lawyers than out of academic economics. Nor is the fact that a legal guideline is arbitrary a reason, in itself, not to have legal guidelines.

Fifth, in view of the foregoing, the consensus of informed opinion today is that high market share serves only to put the burden of proof on the defendants. Market share alone does not provide a dispositive answer to the fundamental issue of competitive effect. [FN117]

Obviously it would far exceed the scope of this article to provide a complete discussion of the subject of rebuttal of a prima facie antitrust case. It is, however, useful to look briefly at the primary lines of argument used in such situations. Such arguments may have a tremendous bearing on assessing the risk in particular deals. [FN118]

A. Argument One: The Market is Dynamic The relevant time frame for an antitrust M&A analysis generally is approximately one to five years following the merger. There are two good reasons for this: (1) realistically, the chances are that projections of market conditions beyond the next few years are utterly speculative; and (2) in any event, in the long run, market forces will probably result in any economic power arising from the merger being competed away. Accordingly, the real mission of section 7 is to inhibit the anticompetitive accumulation of market power in the short run.

Thus, one begins with last year's market shares because, as a very general matter, these are probably the best prediction of next *83 year's market shares. There will, however, be occasions in which this general proposition is demonstrably false. That is to say, there will be circumstances where supervening events are very likely to make the



combined firm's share of market materially different from the pro forma pre-merger combined shares of market. [FN119] In such situations, it is deemed to be correct and proper for the court to take the relevant facts into account. [FN120]

There are two other particularly important points regarding market dynamics. First, in a dynamic market, regardless of the share of market that the combined firm is likely to attain after the merger, the mere fact that market shares bounce around from year to year is some indication (1) that the market is performing very competitively and (2) that market share analysis should be accorded less weight than in a stable market. [FN121]

Second, it is important to note the profound ambivalence of any finding that the market is increasingly concentrated and that one or both of the individual firms involved in the deal had been gaining market share prior to the deal. The leading Supreme Court cases, [FN122] not to mention innumerable lower court decisions continuing into the 1980s, [FN123] invariably took the view that any such evidence was the kiss of antitrust death. This view was derived, perhaps quite properly, from the courts' understanding of the legislative history of the Celler-Kefauver Act. Yet the current DOJ Guidelines are based on powerful economic logic to the effect that a firm which is gaining market share is a firm which is competing, while a steady loss of market share may signal oligopolistic behavior. [FN124] The Guidelines indicate that the DOJ is especially likely to sue when the market is *84 deconcentrating (at least where other factors indicating oligopolistic performance are present). [FN125]

B. Argument Two: Barriers to Entry are Low

There is a great debate among the theoreticians as to the true and precise meaning of the concept of 'barriers to entry.' That theoretical debate is not, however, relevant here. The salient point for present purposes is that if it is demonstrably easy for new firms to get into the market, then market shares should, in the view of the enforcement agencies and of recent judicial decisions, be accorded far less weight than if it is demonstrably difficult and expensive for new firms to get into the market.

Before making a final decision that any merger is unduly risky on antitrust grounds, it is utterly vital to take careful account of barriers to entry. [FN126] As one former enforcer puts it, 'From my experience, looking at 20 or 25 mergers during the time I was with the Antitrust Division, if I could have one non-concentration factor to argue, it would be easy entry. The Division consistently has treated it as a trump card even when concentration apparently was high.' [FN127] Even when the agencies could not be persuaded on this point, the courts frequently have been impressed by defendants' arguments as to ease of entry. [FN128] In short, ease of entry is a trump card which can be played twice, once at the FTC or DOJ and once more in the courts. [FN129]

*85 Another key point is that there are markets in which barriers to entry are high, but barriers to expansion by smaller market participants are low--for example, because they can be shown to have substantial excess capacity. In either case the point is the same: despite relatively high market shares, there is a demonstrable source of countervailing power acting to constrain any exercise of market power by the combined firm. [FN130]

C. Argument Three: The Deal Will Promote Efficiency

If one thinks that 'competition' consists of lots of small companies with more or less equal resources fighting it out in the marketplace, then it follows logically that any combination of firms with a positive synergistic effect is suspect. If the combination will have a major synergistic effect, it ought to be highly suspect. This is, of course, an extraordinarily perverse kind of logic. Indeed, one might argue that it is a nice reductio ad absurdum of the concept of 'competition' as 'lots of competitors.'

Nevertheless, the idea that synergy per se is a negative factor in antitrust M&A analysis is arguably supported in one Supreme Court opinion. [FN131] While this 1967 opinion is customarily thought not to represent the current state of the law, it has never been overruled. Therefore, one can hardly be certain that a lower court would not attempt to follow it. [FN132]



The next stage in the analysis is to recognize that there are synergies, and then there are synergies. In fact, for antitrust purposes there appear to be no fewer than three kinds of synergies.

First, at one end of the spectrum is what might be called 'evil synergy,' a phenomenon which occurs when a merger is found likely *86 to facilitate 'predatory' or 'exclusionary' conduct. The idea of 'predatory' and 'exclusionary' conduct is a concept imported from the law of monopolization under section 2 of the Sherman Act. At its outer fringes it is a concept of deep and impenetrable obscurity, and any effort to define it precisely would far exceed the scope of this article.

Moreover, even if one confidently concludes that a given business strategy is likely to be 'predatory' or 'exclusionary,' it may still be extremely difficult for a court to predict whether that business strategy will in fact be adopted by the combined entity. This point only illustrates further that the judicial task assigned by Congress under section 7 is no sport for dullards. Be that as it may, two recent cases demonstrate that the courts take their jobs seriously and are prepared to rule against mergers which they view as likely to create perverse sorts of synergy. [FN133]

Second, there is a 'neutral' sort of synergy which is neither 'predatory' or 'exclusionary' conduct on the one hand, nor, on the other hand, a cost-saving production efficiency, e.g., shifting products between two plants, so that manufacturing costs are lowered. Examples include economies in advertising and other aspects of marketing, the enhanced financial stability and borrowing power of the larger combined entity, and so forth.

The third category, of course, is the most favored type of synergy. It takes the form of a material and demonstrable lowering of manufacturing costs through economies of scale or related means. The current official policy of the DOJ is set forth in the 1984 Merger Guidelines as follows: Some mergers that the Department otherwise might challenge may be reasonably necessary to achieve significant net efficiencies. If the parties to the merger establish by clear and convincing evidence that a merger will achieve such efficiencies, the Department will consider those efficiencies in deciding whether to challenge the merger. Cognizable efficiencies include, but are not limited to, achieving economies of scale, better integration of production *87 facilities, plant specialization, lower transportation costs, and similar efficiencies relating to specific manufacturing, servicing, or distribution operations of the merging firms. The Department may also consider claimed efficiencies resulting from reductions in general selling, administrative, and overhead expenses, or that otherwise do not relate to specific manufacturing, servicing, or distribution operations of the merging firms, although, as a practical matter, these types of efficiencies may be difficult to demonstrate. In addition, the Department will reject claims of efficiencies if equivalent or comparable savings can reasonably be achieved by the parties through other means. The parties must establish a greater level of expected net efficiencies, the more significant are the competitive risks identified in Section 3. [FN134]

This qualifiedly hospitable approach to an 'efficiencies defense' marks a major change from the policy enunciated by the DOJ in 1982. [FN135] This policy change seems to have been precipitated by the political and public relations beating taken by the DOJ over its initial handling of the Jones and Laughlin-Republic merger. In that connection it is significant that William Baxter, the former head of the Antitrust Division and the principal author of the 1982 Guidelines, has criticized the new approach on the grounds that it will lead to undue political influence in the enforcement process. [FN136]

Note that by hypothesis, we are dealing with a transaction which is likely to have some anticompetitive effect. If the deal is not at least partially anticompetitive, it presents no section 7 problem and requires neither an 'efficiencies defense,' nor any other type of defense. Fundamentally, the question is whether it is correct on public policy grounds to weigh and balance competitive harm against increased efficiency. For present purposes, the important point is that this question is deeply controversial, both in the case law [FN137] and *88 in the scholarly literature. [FN138]

This inquiry is at the cutting edge of the law, and it is clear that sophisticated assessment of legal risks requires a careful hedging of bets as to the acceptability of any 'efficiencies defense.' Probably the soundest overall conclusion is that as of 1986, genuine, demonstrable, and material production efficiencies can be regarded as a likely tie-breaker in otherwise close cases. An example is the situation where the combined share of market is approximately 20% and the market dynamics and ease of entry arguments are not compelling.



D. Argument Four: The Merger Will Enhance Competition by Creating a 'StrongNumber 3' Firm, to Give the Dominant Firms Some Competition

In a more perfect world this type of argument, if factually supportable, might carry considerable weight. It is, however, both *89 contrary to the approach of the current Merger Guidelines [FN139] and inconsistent with the weight of authority. [FN140] Accordingly, while this argument is one which the advocate may legitimately urge on appropriate occasions, it should not be given great weight in the assessment of legal risks.

E. Argument Five: The Market is Performing in a Very Competitive Manner

This is a situation where the enforcement agency or private plaintiff may fairly say, 'Heads I win, tails you lose.' Almost invariably one is told by the business people in a deal that the market is very competitive and there can't be any problem. But the concept of present competitive performance as a defense runs squarely into the 'incipiency' doctrine discussed above. [FN141] As the current Merger Guidelines say, 'The fact that the market is currently performing competitively casts little light on the likely effect of the merger.' [FN142]

By contrast, where an enforcement agency or court views the practices in a market as likely to facilitate collusion, the legal exposure increases significantly. Relevant factors include a history of collusion in the industry and/or widespread 'facilitating mechanisms' such as delivered pricing, price protection clauses, standardization of product *90 variables, etc. [FN143] As far as the DOJ and FTC are concerned, the existence of such negative market conduct factors is essentially viewed as a 'tie-breaker' in favor of enforcement action in otherwise close cases--just as productive efficiencies can be seen as a 'tie-breaker' against legal challenge.

F. Argument Six: The Deal Will Promote the International Competitiveness ofUnited States Industry

The subject of international competitiveness is tied closely to various analytical issues already discussed. Notably, these include geographic market definition (United States versus world markets), methods of calculating market shares (whether and how to include sales and capacity of foreign producers), and the 'efficiencies defense' (how to weigh productive efficiency versus possible injury to consumers). These factors aside, the antitrust enforcement agencies do not see themselves as having any special mission to promote the international competitiveness of United States industry generally, or any segment thereof. They are adamantly opposed on public policy grounds to anything resembling Japanese-style industrial policy. Moreover, they are buttressed in that position by traditional case law holding that a combination which injuries competition in a smaller market is not justified by any competition-enhancing effects in a larger market. [FN144]

Again, the advocate is perfectly free to argue that the promotion of United States international competitiveness is a factor of independent significance in the analysis. [FN145] However, prudent legal risk assessment would not dictate assigning major weight to this factor in a deal apparently in legal difficulty on the basis of the more recognized factors discussed above.

G. Argument Seven: The Deal Will Promote Employment in a Depressed LocalEconomy or Enhance Other Social Desideration

It is by no means unheard of for courts [FN146] and enforcement *91 agencies to take account of the effects of their decisions on employment and local economic conditions. Nevertheless, it is clear in principle that antitrust's main concern is with consumers and not with producers--whether shareholders, managers, or workers. Moreover, there exists today a very broad (though perhaps not quite universal) consensus that it is not the mission of the antitrust laws to promote goals such as the dispersion of economic power, equality of income, or full employment. In short, the mission of antitrust is limited to the preservation of competition in specific markets.



Accordingly, when pressed to include factors such as employment or local economic conditions in assessing the legal risk in a particular deal, the counselor is well advised to resist the temptation. Such factors will seldom save a deal in trouble on other grounds.

VI. CONCLUSION

Though somewhat complex, an accurate assessment of antitrust exposure in M&A transactions in today's enforcement environment is not beyond the wit of man. Parts I and II of this article have examined the overall picture today in terms of DOJ, FTC, state, and private enforcement. Additionally, three key 'risk factors' in M&A antitrust have been analyzed: industry antitrust sensitivity, size of deal, and size of market. How these three 'risk factors' can help the practitioner identify the one deal of roughly every twenty that is likely to present real antitrust concern has been demonstrated.

After examination in Part II of the elements of a 'first-cut' antitrust M&A analysis, Parts III, IV, and V considered: (1) the most important and fundamental analytical controversies pervading the antitrust M&A field; (2) the vital practical significance of these controversies, particularly in view of the ability of private litigants and courts to second-guess the enforcement decisions of the FTC and the DOJ; (3) the key elements in a prima facie case for or against a merger: product market, geographic market, and market shares; and (4) the most important arguments that may be used to suggest or rebut a prima facie case, including: market dynamics, ease of industry, and the 'efficiencies defense.'

*92 Though it is concededly somewhat burdensome to gather and interpret the relevant facts, when performed as indicated by the principles discussed, this exercise can identify with some accuracy which legally sensitive deals will be antitrust winners and which will not.

[Note: The following TABLE/FORM is too wide to be displayed on one screen. You must print it for a meaningful review of its contents. The table has been divided into multiple pieces with each piece containing information to help you assemble a printout of the table. The information for each piece includes: (1) a three line message preceding the tabular data showing by line # and character # the position of the upper left-hand corner of the piece and the position of the piece within the entire table; and (2) a numeric scale following the tabular data displaying the character positions.]



******************************************************************************* ******** This is piece 1. -- It begins at character 1 of table line 1. ********

******************************************************************************* ------------------------------ Acquiring and Acquired

Companies, Category, and

Description; Relevant

Litigation

------------------------------ SIC 01--Agricultaral

Production-Crops

Sunkist Growers,

Inc.--Growers Citrus

Products (A) ...............



Acquisition of business

operated as Arizona

Products Division

Sunkist Growers, Inc., 97

F.T.C. 443 (1981).

1...+...10....+...20....+...30



******************************************************************************* ******* This is piece 2. -- It begins at character 31 of table line 1. ********

******************************************************************************* ------------------------------------------------------------- APPENDIX I

Antitrust Showstoppers and Compromises

January, 1981--December, 1985

Product Area of Nature of Source of

Antitrust Concern Concern: Investigation

Horizontal, or Litigation

Potential

Competition,

Vertical

Conglomerate

-------------------------------------------------------------

Oranges, lemons, and

grapefruits (01) .... V(?) ............. FTC .............



31..+...40....+...50....+...60....+...70....+...80....+...90.




******************************************************************************* --------------------- Outcome

---------------------

1974 acquisition.

1977 complaint.

1981 consent

decree requires

divestiture of

citrus processing

plant and

warehouse, and

other relief.

Basically a

monopolization

case. Request for



extension of time

to divest was

denied in 1982.

92......0....+...10..




******************************************************************************* Notes: (1) 'Showstoppers'--designated by '(A)' after the identification of the

1...+...10....+...20....+...30....+...40....+...50....+...60....+...70....+...



******************************************************************************* ******* This is piece 5. -- It begins at character 79 of table line 38. *******

******************************************************************************* deal--refer to transactions which

79....+...90....+....0....+...10..




******************************************************************************* were (a) prevented or undone by a permanent

preliminary injunction, or (c) abandoned or

1...+...10....+...20....+...30....+...40....+




******************************************************************************* injunction, (b) effectively prevented as the result of a

otherwise terminated by litigation or threat of litigation. (2)

46.......+...60....+...70....+...80....+...90....+....0....+...10..




******************************************************************************* 'Compromises'--designated by '(B)' after the name of the deal--refer to

1...+...10....+...20....+...30....+...40....+...50....+...60....+...70...




******************************************************************************* transactions which were modified,

74...80....+...90....+....0....+...10..




******************************************************************************* though not wholly prevented or undone, as a result of antitrust litigation or

appendices include information on private, state, FTC, and DOJ litigation and

1...+...10....+...20....+...30....+...40....+...50....+...60....+...70....+....



******************************************************************************* ****** This is piece 11. -- It begins at character 80 of table line 42. *******

******************************************************************************* threat of litigation. (3) The

other enforcement actions. They

80..+...90....+....0....+...10...




******************************************************************************* include information on new enforcement actions commenced

outcomes in actions begun prior to January 20, 1981. (4)

1...+...10....+...20....+...30....+...40....+...50....+...




******************************************************************************* during 1981-85, as well as injunctive relief or other

The author has endeavored to make the appendices as

59....+...70....+...80....+...90....+....0....+...10..




******************************************************************************* complete as possible for the period January 20, 1981-December 31, 1985.

SIC 10--Metal Mining

The British Petroleum Company

Ltd. (through

Sohio)--Kennecott

Corporation (B) ............ Molybdenum(10) ........ H, PC ............

Acquisition

British Petroleum Co. Ltd.,

98 F.T.C. 128 (1981).

SIC 20--Food and Kindred

Products

Agri-Mark, Inc.--H.P. Hood,

Inc. (B) ................... Fluid grade milk

products (20) ....... V ................



1980 acquisition of assets of

dairy by farmers'

organization

United States v. Agri-Mark,

Inc., 1981-1 Trade Cas.

§ 63,967 (CCH) (D. Vt. 1981)

(consent decree).

United States v. H.P. Hood,

Inc., Crim. No. 83-00043-1

(D. Vt. 1983) ($30,000 fine

for violation of consent

decree).

Amstar--National Sugar

Refining Co. (A) ........... Sugar (20) ............ H ................



Acquisition of trademark from

bankrupt competitor

Cargill, Inc.--Spencer Beef

Div., Land O' Lakes Inc.

(A) ........................ Procurement of fed

cattle; sale of

boxed beef .......... H (oligopoly and

oligopsony) ....

Proposed acquisition by

Cargill sub., Excel Corp.,

of assets.

Montfort of Colorado, Inc. v.

Cargill, Inc., 591 F. Supp.

683 (D. Colo. 1983), aff'd,

761 F.2d, 570 (10th Cir.

1985).

Coca-Cola Co.--Associated

Coca-Cola Bottling Co.,

Inc. (B) ................... Chilled fruit drinks .. H ................



Acquisition

Coca-Cola Co., 102 F.T.C.

1102 (1983).

ConAgra Inc.--Peavey Co. (B) . Flour milling (20) .... H ................

Acquisition

ConAgra Inc., 101 F.T.C. 50

(1985).

Early California Industries,

Inc.--Pacific International

Rice Mills Inc. (A) ........ Rice Milling (20) ..... H ................

Acquisition

Flowers Industries,

Inc.--various acquisitions

(B) ........................ Bakeries (20) ......... H ................



Flowers Industries, Inc., 102

F.T.C. 1700 (1983).

G. Heileman Brewing

Co.--Pabst Brewing Co. (A) . Beer (20) ............. H ................

Tender offer

United States v. G. Heileman



Brewing Co., 1983-1 Trade

Cas. (CCH) § 65,399 (D. Del.

1983) (consent decree).

Christian Schmidt Brewing Co.

v. G. Heilemen Brewing Co.,

(6th Cir.) (affirming

preliminary injunction)

cert. dismissed, 105 S. Ct.

1155 (1985)

Kalmanovitz v. G. Heileman

Brewing Co., 1985-1 Trade

Cas. (CCH) § 66,389 (D.

Del. 1984) (dismissing

complaint).

G. Heileman Brewing

Co.--Joseph Schlitz Brewing

Co. (A) .................... Beer (20) ............. H ................

Tender Offer

Stroh Brewery Company--Jos.

Schlitz Brewing Co. (A) .... Beer (20) ............. H ................



Tender Offer

United States v. Stroh

Brewery Co., 1982-2 Trade

Cas. (CCH) § § 64, 804

(D.D.C. 1982) (denying

intervention); 1982-83

Trade Cas. (CCH) § 65,037

(D.D.C. 1982) (consent

decree), modified, 1983-2


(D.D.C. 1983).

The Stroh Brewery Co. v.

Malmgren, 1982-1 Trade Cas.

(CCH) § 64,670 (W.D. Wis.

1982) (denying preliminary

injunction)................. Beer (20) ............. H ................

SIC 21--Tobacco Manufacturers

American Maize-Products

Co.--Bayuk Cigars, Inc. (A) Cigars (21) ........... H ................




subsidiary of American

Maize, Inc., H. Swisher &

Son, Inc.

United States v. American

Maize-Products Co., 1984-1


(M.D. Fla. 1983).

SIC 22--Textile Mill Products

Kennecott

Corporation--Curtiss-Wright

Corp. (B) .................. Fabric air filter bags

(22) ................ H ................

Acquisition of subsidiary,

Dorr-Oliver, Inc.

Kennecott Corp., 98 F.T.C.

775 (1981).

SIC 26--Paper and Allied

Products

British Columbia Forest

Products Ltd.



(BCFP)--Blandin Paper Co.

(B) ........................ Coated groundwood

paper (26) .......... H ................

Acquisition. Antitrust issues

arose from competition

between Mead, a minority

owner of BCFP, and Blandin.

United States v. British

Columbia Forest Products

Ltd., 1983-1 Trade Cas.

(CCH) § 65,280 (D. Minn.


SIC 27--Printing and

Publishing

CBS--Fawcett Books (B) ....... Mass market paperback

books (27) .......... H ................

Acquisition, through



subsidiary

United States v. CBS Inc.,

1982-1 Trade Cas. (CCH)

§ 64,478 (S.D.N.Y. 1981)

(consent decree).

Pulitzer Publishing Co.--S.I.

Newhouse Publishing (A)..... Newspaper publishing

(27) ................ H ................

See 'Outcome'

1...+...10....+...20....+...30....+...40....+...50....+...60....+...70...




******************************************************************************* FTC ............. Consent decree

requires BP to

sell a 6.8%

interest in Amax,

Inc., a competitor

of Kennecott. BP

also will abandon

its proposed joint

venture with Amax

by virtue of which

BP was a potential

entrant. A 1984

petition to modify

c.d. was denied.

DOJ ............. Consent decree



barred dairy

acquisitions by

dairy farmer

cooperatives and

from

discriminatory

practices

regarding the sale

of raw milk.

DOJ ............. Department of

Justice threatened

litigation in 1982

on grounds of

increase in market

share, even though

no 'Jack Frost'

sugar was being

produced. Deal was

evidently dropped



following

Department of

Justice business

review letter.

Competitor ...... Preliminary

injunction issued

Dec., 1982.

Permanent

injunction issued

in 1983, pursuant

to which the plant

ws returned to its

former owner.

Affirmed by Court

of Appeals, April,

1985.

FTC ............. Consent decree



requires

divestiture of

Doric Foods, Inc.,

a subsidiary of

the acquired

bottling company.

FTC ............. Consent decree

requiring major,

but partial,

divestiture.

(Montana a.g. and

a number of others

vigorously argued

consent decree was

inadequate. Sept.,

1982).

DOJ ............. 1982 proposed

acquisition

appears to have

been blocked by

Department of

Justice threat to



sue 'unless the

merger is

restructured.'

FTC ............. 1983 consent decree

requires partial

divestiture. Case

was brought in

1980, on basis of

acquisitions back

to 1973.

DOJ ............. In November, 1982,

the government

investigation was

resolved by a

consent decree

calling for a

completion of

tender offer,

temporary hold

separate rate

arrangement,

followed by very

substantial

divestitures. In



December, 1984,

the Department of

Justice appears to

have cut back

substantially on

conditions for the

acquisition of

Pabst Brewing

whereupon two

competitors, Stroh

and Christian

Schmidt,

successfully

obtained a

preliminary

injunction which

served to block

the deal.

Competing bidder Victory for

defendant on



ground of lack of

standing.

DOJ ............. Deal blocked by

Department of

Justice

announcement, Oct.

21, 1981, of

intention to sue.

DOJ ............. 1982 consent decree

required partial

divestiture;

modified in 1983.

Unions and

competitor were

denied leave to

intervene in

Department of

Justice case.



Target .......... Preliminary

injunction denied.

Plaintiff showed

prima facie case,

but refuted by

other evidence.

DOJ ............. Consent decree

preventing sale of

Bayuk to any of

several named

major competitors

(with exception of

sale of one brand

of cigars).



FTC ............. 1981 consent decree

requires

divestiture of

competing business

owned by acquiring

company.

DOJ ............. 1978 case. 1983

consent decree

insulates Mead

from control or

influence over

Blandin.

DOJ ............. Case filed in 1978.



Consent decree

entered in 1981

requires

divestiture of

assets (mostly

intangible)

associated with

the Popular

Library paperback

name.

DOJ ............. In 1979 the two

companies began

printing St. Louis

papers jointly,

per Newspaper

Preservation Act.

When Newhouse

wanted to cease

publication in

1983. Department

of Justice

objected on



grounds that this

was the economic

equivalent of a

merger. The matter

was resolved when

an acceptable

buyer was found.

74...80....+...90....+....0....+...10..




******************************************************************************* Note: (1) See SIC 73 for newspaper acquisitions allegedly impacting

SIC 28--Chemicals and Allied

Products

Allied Corp.-Fisher

Scientific Co. (B) ......... High purity

hydrocloric and

hydrofluoric acid

(28) ................ H ..........

Investigation of legality of

acq. of Hi-Pure Chemicals,

Inc., a sub. of the

acquired company.

Allied Corp., 101 F.T.C. 721

(1983).

Allegheny International,

Inc.--Liquid Air. Corp. (A) Industrial gases (28) . H ..........



Sale of two Texas plants

Beatrice Foods Co.--Fiberite

Corp. (B) .................. Custom-compounded

reinforced

thermoplastics

molding compounds

(28) ................ H ..........

Acquisition

United States v. Beatrice

Foods Co., 1982-1 Trade

Cas. (CCH) § 64,698 (D.

Minn. 1982) (consent



decree).

Borden, Inc.--Reichold

Chemicals, Inc. (A) ........ Formaldehyde, phenolic

resin, and urea

resin (28) .......... H ..........

Proposed acquisition of

resins plant

E.I. du Pont de Nemours &

Co., Inc.--Conoco (B) ...... Acrylonitrile (28) .... V ..........

Tender offer

United States v. E.I. du Pont

de Nemours & Co., Inc.,


§ 64,479 (D.D.C. 1981)

(consent decree).

Great Lakes Chemical

Corp.--Velsical Chemical

Corp. (B) .................. Elemental bromine and

brominated flame

retardant (28) ...... H ..........



Acquisition of assets

(including patents)

FTC v. Great Lakes Chemical

Corp., 528 F. Supp. 84

(N.D. Ill. 1981) (denying

preliminary injunction).

Great Lakes Chemical Corp.,

Dkt. 9155, 3 TRADE REG.

REP. (CCH) § 22,130 (F.T.C.,

March 8, 1984) (summarizing

consent decree).

Nestle S.A.--Cooper-Vision

Inc. (A) ................... Various eye care

markets (28) ........ H ..........

Acquisition through sub,

Alcon Laboratories, Inc.

NL Industries--American

Cyanamid (A) ....................................... H ..........



Proposed acquisition of plant

SIC 29--Petroleum and Coal

Products

Bass Brothers Enterprises,

Inc.--Ashland OIl Inc. (A) . Carbon black (29) ..... H ..........


assets of Ashland's Carbon

Black Division.

Columbian Enterprises,

Inc.--Conoco, Inc. (A) ..... Same .................. Same .......


Conoco's subsidiary

Continental Carbon Corp.

Columbian Enterprises, Inc.,

Dkt. 9177 and Bass Brothers



Enterprises, Inc., 3 TRADE

REG. REP. (CCH) § 22,153

(summarizing adm.

complaints filed May 17,

1984).

FTC v. Bass Brothers

Enterprises, Inc., 1984-1


(N.D. Ohio 1984) (granting

preliminary injunction)

Gulf Oil Corp.--Cities

Service Co. (A) ............ Petroleum industry

(various products)

(29) ................ H ..........



Tender offer

FTC v. Gulf Oil Corp., No.

82-2131 (D. D.C., filed

July 29, 1982).

Cities Service Co. v. FTC,

No. 83-812; Gulf Oil Corp.

v. FTC No. 83-888 (D.D.C.,

July 19, (1984) (29

documents re 1982

proceeding, sought under

Freedom of Information Act

properly withheld).

Jim Walter Corp.--Pancon

Corp. (B) .................. Asphalt roofing and

asphalt and

elastometric roofing

(29) ................ H ..........



Acquisition

Jim Walter Corp., 102 F.T.C.

1816 (1983).

Mobil Corp.--Marathon Oil Co.

(A) ........................ Petroleum (various

products) (29) ...... H ..........

Tender offer

Marathon Oil Co. v. Mobil

Corp., 530 F. Supp. 315

(N.D. Ohio), aff'd 669 F.2d

378 (6th Cir. 1981) cert.

denied, 455 U.S. 982

(1982); denied, 455 U.S.

982 (1982); 669 F.2d 384

(6th Cir. 1982 denying

(Mobil's belated hold

separate proposal).

FTC v. Mobil Corporation, No.

C-81-2473 (N.D. Ohio, filed

Dec. 11, 1981).............. Same .................. Same .......



Owens-Corning Fiberglass

Corp.--Lloyd A. Fry Roofing

Co. (B) .................... Asphalt roofing

products (29) ....... H ..........


Owens-Corning Fiberglass

Corp. 97 F.T.C. 249 (1981).

FTC v. Owens-Corning

Fiberglass Corp., No.

84-7635 (N.D. Ohio,

complaint and proposed

consent decree filed July

31, 1984).

Standard Oil Co. of

California--Gulf Oil Corp.

(B) ........................ Petroleum (various

products) (29) ...... H ..........



Tender offer

Standard Oil Co. of

California 3 TRADE REG.

REP. § 22,144 (CCH) (FTC,

Oct. 24, 1984) (summarizing

consent decree).

See also, Mattox v. FTC,


§ 66, 191 (W.D. Tex. 1984),

aff'd, 1985-1 Trade Cas.

(CCH) § 66,410 (5th Cir.

1985) (upholding FTC

determination not to give

state attorney general

access to HSR materials).

Texaco, Inc.--Getty Oil Co.

(B) ........................ Petroleum (various

products) (29) ...... H ..........



Tender offer

Texaco, Inc., 3 TRADE REG.

REP. (CCH) § 22,120 (FTC,

Feb., 13, 1984)

(provisional consent

decree); 3 TRADE REG. REP.

(CCH) § 22,146 (FTC, May 2,

1984) (denying access to

HSR materials to state

attorneys general); 3 TRADE

REG. REP. (CCH)§ 22,168

(FTC, July 10, 1984) (final

consent decree).

In re Petroleum Products

Antitrust Litigation, MDL

150, oral order consent

decree Cal., Feb. 2, 1984)

(granting FTC access to

documents under seal, on

condition they be shared

with no one, including

Congress).

Lieberman v. FTC, 1984-2


(D. Conn. 1984) (granting

summary judgment to



plaintiff, the attorney

general of Connecticut,

seeking access to HSR

materials)

Petroleum (various

products) ........... H ..........

California v. Texaco, Inc.,


§ 66,253 (Cal. Super. Ct.

1984) (dismissing complaint

on ground that the

Cartwright Act, which has

no language comparable to

Clayton Act Section 7, does

not apply to the

acquisition).

Offshore oil leasing .. H ..........

Pennzoil Co. v. Texaco, Inc.




§ 65,848 (N.D. Okla. (1984).

(denying preliminary

injunction, aff'd, 1984-1

Trade Cas. § 65,896 (10th

Cir. 1984).

Retail gasoline ....... H and V ....

Fairlawn Oil Service, Inc. v.

Texaco, Inc., § 1984-1 Trade

Cas. (CCH) § 65,899(D.R.I.

1984) (denying preliminary

injunction sought by Rhode

Island in parens patriae

case and by customer).

SIC 30--Rubber and

Miscellaneous Plastics

Products

American Hospital Supply

Corp.--American Cytoscope



Makers, Inc. (B) ........... Urological catheters

(30) ................ H ..........

Acquisition


Corporation, 97 F.T.C. 920

(1981).

Dunlap Olympic Ltd.--Youngs

Drug Products Corp. (A) .... Condoms (30) .......... H ..........

Acquisition of certain assets

Nibco Inc.--Celanese

Corporation (B) ............ Drain, waste, and vent

fittings (30) ....... H ..........

Acquisition of Piping Systems

Division

SIC 32--Stone, Clay and Glass

Products



Canada Cement Lafarge

Ltd.--General Portland Inc.

(B) ........................ Cement (32) ........... H ..........

Acquisition

Canada Cement Lafarge Ltd.,

100 F.T.C. 563 (1982).

Flintkote Company--G.&W.H.

Corson, Inc. (B) ........... Dry-mixed concrete

products (32) ....... H ..........

Acquisition of Home-Crete

Division

United States v. The

Flintkote Co., 1981-1 Trade

Cas. (CCH) § 64,032 (D.D.C.


Gifford-Hill-American

Inc.--Interpace Corp. (B) .. Concrete pressure pipe

(32) ................ H ..........

Acquisition of Lock Joint

Products Division of

Interpace

Gifford-Hill-American, Inc.,



99 F.T.C. 372 (1982).

Lehigh Portland Cement

Co.--U.S. Steel Corp. (B) .. Portland Cement (32) .. H ..........

Acquisition of Universal

Atlas Division

Lehigh Portland Cement Co.,

98 FTC 856 (1981).

See also Lone Star

Industries, Inc. v. FTC,

No. 82-3150 (D.D.C., June

8, 1983) re Freedom of

Information Act request for

cement industry merger

analysis documents)

Pilkington Brothers

P.L.C.--Libby-Ownes-Ford

Company (LOF) (B) .......... Float glass (and

related products

(32) ................ H ..........



Acquisition of 30% stock

interest

Pilkington Brothers P.L.C.,

Dkt. C-3136, 3 TRADE REG.

REP. (CCH) § 22,167 (F.T.C.,

June 22, 1984).

SIC--Primary Metal Industries

Alcan Aluminum Co. Atlantic

Richfiled Company (B) ...... Aluminum can body

stock (33) .......... PC .........

Acquisition of certain

aluminum assets

United States v. Alcan

Aluminum Ltd., 1985-1 Trade

Cas. (CCH) § § 66,427; 66,428

(W.D. Ky. 1985) (consent



decree).

The LTV Corporation--Republic

Steel Corp. (B) ............ Hot rolled carbon and

alloy sheet steel;

cold rolled carbon

and alloy sheet

steel; stainless

sheet and strip

steel (33) .......... H ..........

Merger of Republic with Jones

& Luaghlin Steel

United States v. LTV Corp.,


(D.D.C. 9184), aff'd,


§ 66,235 (D.C. Cir. 1984)

(dismissing purported



appeal by

Wheeling-Pittsburgh Steel

Corp., which had not

intervened at district

court level).

United States Steel

Corp.--National Intergroup

Inc. (A) ................... Steel products (33) ... H ..........

Proposed merger

SIC--Fabricated Metal

Products

Alcan Engineering

Co.--Aluminum Plumbing

Fixture Co. (A) ............ Heavy gauge vandal

resistant stainless

steel and aluminum

plumbing fixtures

( 34) ............... H ..........



Acquisition

United States v. Alcan

Engineering Co.,1981-2


(N.D. Cal. 1981)

(preliminary injunction);


§ 64,697 (consent decree).

American Brands, Inc.--Ofrex

Group, Ltd. (B) ............ Home and office

staplers (34) ....... H ..........

99% stock acquisition

United States v. American

Brands, Inc., 1983-1 Trade

Cas. (CCH) § § 65,275; 65,276

(S.D.N.Y. 1983) (consent

decree).

Newell Companies,

Inc.--Stanley Works (B) .... Drapery hardware (34) . V(?) .......

Assets acquisition

United States v. Newell

Companies, Inc., 5 TRADE



REG. REP. (CCH) § 50,861 (D.

Conn., proposed consent

decree filed April 4,

1985).

Pillsbury Co.--Wilton

Enterprises, Inc. (A) ...... Cake decorating

supplier for

consumer hobbyists

(34) ................ V ..........

Acquisition

Parrish's Cake Decorating

Supplies, Inc. v. Wilton

Enterprises, Inc., 1984-1


(N.D. Ill. 1984).

SIC 35--Machiner, Except

Electrical



Cross Company--Kearney &

Trecker Corp. Corporation

(B) ........................ Machining centers and

head changers (types

of machine tools)

(35) ................ PC .........

Merger

United States v. Cross &

Trecker Corp., 1981-2 Trade

Cas. (CCH) § 64,169 (E.D.

Mich. 1981) (consent

decree).

SIC 36--Electric and

electronic Equipment

General Electric Co.--Calma

Co. (B) .................... Computer aided

designer and

manufacturing

systems (CAD/CAM)

(36) ................ H ..........



Acquisition

General Electric Co., 99

F.T.C. 422 (1982).

Harvey Hubbell, Inc.--Ohio

Brass Company (B) .......... Underground power

distribution

equipment (36) ...... H ..........

Acquisition

United States v. Harvey

Hubbell, Inc., 1982-1 Trade

Cas. (CCH) § 64,516 (D.

Conn. 1981) (consent

decree), modified, 1983-2


(D. Conn. 1983).

International Business

Machine Corp. Intel (B) .... Memory and

microprocessor chips

(36) ................ V ..........



Acquisition of 12% stock

interest


Machines Corp.--Rolm Corp.

(B) ........................ Mil-spec commercial

based computers (36) PC .........

Acquisition

United States v.


Machines Corp., 1985-1


(D.D.C. 1985) (consent

decree).

Spectra-Physics,

Inc.--Laserplane

Corporation (B) ............ Machine control laser

products and systems



(36) ................ H ..........

Stock acquisition

United States v.

Spectra-Physics, Inc.,


§ 64,290 (N.D. Cal. 1981).

Warner Communication,

Inc.--Polygram Records,

Inc. (A) ................... Pre-recorded music

(36) ................ H ..........



Merger

Warner Communications, Inc.,

Dkt. 9174, 3 TRADE REG.

REP. (CCH) § 22,134 (FTC

Mar. 22, 1984) (summarizing

complaint).

FTC v. Warner Communications,


(CCH) § 66,025 (C.D. Cal.)


injunction), rev'd, 742

F.2d 1156 (9th Cir. 1984).

SIC 37--Transportation

Equipment

Allied Corp.--King Radio

Corp. (B) .................. Avionics products (37) H ..........


Allied's Bendix Division

Cooper Industries,

Inc.--Westinghouse Electric

Corporation (B) ............ Aviation lighting

equipment (37) ...... H ..........



Acquisition of aviation

lighting business

United States v. Cooper

Indus. Inc., 5 TRADE REG.

REP. (CCH) § 50,859 (D.D.C.,

proposed consent decree)

filed Mar. 6, 1985).

General Motors Corp.--Toyota

Corp. (B) .................. Automobiles (37) ...... H ..........

Joint venture

General Motors Corp., 3 TRADE

REG. REP. (CCH) § 22,108

(FTC, Dec. 23, 1983)

(summarizing provisional

consent decree), 3 TRADE

REG. REP. (CCH) § 22,139

(FTC, Apr. 11, 1984)

(summarizing

modifications).

Chrysler Corp. v. General



Motors Corp., 1984-1 Trade

Cas. (CCH) § 66,021 (D.C.C.

1984) (denying motion to

dismiss).........................................................

LTV Corporation--Grumman

Corporation (A) ............ (1) carrier based

aircraft sold to

U.S. Navy, (2)

airframe subassembly

contracting, (3)

nacelles (37) ....... H ..........

Tender Offer

Grumman Corp. v. LTV Corp.,

527 F. Supp. 86 (E.D.N.Y.

1981), aff'd, 665 F.2d 10

(2d Cir. 1981) (preliminary

injunction), 533 Supp. 1385

(E.D.N.Y. 1982) (plaintiff

entitled to attorney's

fees)

FTC v. LTV Corp., 81 Civ.

3517 (E.D.N.Y., filed Oct.

27, 1981)................... Carrier based aircraft H ..........



Yamaha Motor Company,

Ltd.--Brunswich Corporation

(A) ........................ Outboard motors (37) .. PC .........

Joint venture

Yamaha Motor Co. v. FTC, 657

F.2d 971 (8th Cir. 1981).

SIC 38--Instruments and

Related Products

Schulumberger, Ltd.--Accutest

Corp. (A) .................. Automatic test

equipment for

digital integrated

circuits (computer

chips) (38) ......... H ..........

Acquisition by sub, Fairchild



Camera Instrument Corp.

Schlumberger, Ltd. TRADE REG.

REP. (CCH) [1979-83

Transfer Binder] (FTC,

summarizing complaint

issued Jan. 28, 1983), 3

TRADE REG. REP. (CCH)

§ 22,136 (FTC, Feb. 17,

1984) (dismissing

complaint).

Xidex Corp.--Scott Paper

Company and Kalvan Corp.

(B) ........................ Diazo and vesicular

microfilm; overall

market for

non-silver duplicate

microfilm (38) ...... H ..........



Acquisitions (inc. assets of

a division of Scott)

Xidex Corp., 102 F.T.C. 1

(1983).

SIC 39--Miscellaneous

Manufacturing Industries

Gulf & Western Industries,

Inc.--Wallace Metal

Products, Inc. and National

Casket Co. (B) ............. Burial caskets and

burial casket

knock-down component

parts (39) .......... H ..........



Acquisitions

Gulf & Western Indus. Inc.,

101 F.T.C. 707 (1983).

SIC 48--Communication

GTE Corporation--Southern

Pacific Co. (B) ............ Long distance

telephone service

(48) .............................

Acquisition of Sprint network

United States v. GTE Corp.,

1985-1 Trade Cas. (CCH

§ 66,354 (D.D.C. 1984).

Pacific Power & Light

Co.--Continental Telecom,

Inc. (B) ................... Long distance

telephone service

(48) ................ C ..........



Acquisition by sub, Pacific

Telecom, Inc. fo two subs

of Continental.

SIC 49--Electric, Gas, and

Sanitary Services

Waste Management, Inc.--SCA

Services, Inc. (B) ......... Waste management (49)

and waste collection

(420 ................ H ..........

Tender offer

United States v. Waste

Management, Inc., 5 TRADE

REG. REP. (CCH) § 50,852

(D.D.C., proposed consent



decree filed Sept. 12,

1984).

SIC 53--General Merchandise

Stores

BATUS, Inc.--Marshall Field &

Company (B) ................ Department stores (53) H ..........

Acquisition

BATUS Inc., 100 F.T.C. 553

(1982), modified, 3 TRADE

REG. REP. (CCH)

§ 22,207(F.T.C., Nov. 13,

1984).

SIC 54--Food Stores

Albertson's Inc.--Fisher

Foods, Inc. (B) ............ Grocery stores (54) ... H ..........

Acquisition of California

Division

Albertson's Inc., 97 F.T.C.



343 (1981).

A&P--Chatham Super Markets

(A) ........................ Grocery stores (54) ... H ..........

Proposed acquisition

Allied Supermarkets, Inc. v.

Tengelman

Warenhandelsgesellschaft,

No. 80-0196, (E.D. Mich.,

Jan. 19, 1983) (granting

preliminary injunction).

Godfrey Company--Jewel Co.

(B) ........................ Grocery stores (54) ... H ..........

Acquisition

Godfrey Co., 97 F.T.C. 4567

(1981), 99 F.T.C. 621

(1982) (modifying consent

decree, 100 F.T.C. 460

(1982) (modifying consent

decree).

National Tea Co.--Applebaum's

Food Markets (B) ........... Grocery stores (54) ................



National Tea Co., Dkt. 9126.

SIC 59-Miscellaneous Retail

Anacomp, Inc.--DSI Corp (B) .. Data Processing

equipment and forms

(59) ................ H ..........

Acquisition

Revco D.S. Inc.--Zale

Corporation (B) ............ Retail sale of ethical

drugs (59) .......... H ..........

Acquisition

United States v. Revco D.S.,

Inc. 1981-2 Trade Cas.

(CCH) § 64,220 (N.D. Tex.


SIC 60--Banking



National Bank and Trust

Company of

Norwich--National Bank of

Oxford (B) ................. Banking (60) .......... H ..........

Merger

United States v. National

Bank and Trust Co. of

Norwich, 1984-2 Trade Cas.

(CCH) § 66,074 (N.D.N.Y.

1984).

SIC 63-Insurance Carriers

Baldwin-United

Corporation--MGIC

Investment Corporation (B) . Private mortgage

guarantee insurance

(63) ................ H ..........

Acquisition

United States v.

Baldwin--United Corp.,


§ 64,788 (S.D. Ohio 1982).

SIC 72-Personal Services



ARA Services, Inc.--Means

Service, Inc. (B) .......... Textile rental

services (72) ....... H ..........

Acquisition

United States v. ARA Servs.,


(CCH) § 65,209 (S.D. Ohio


Mission Industries,

Inc.--Petrolane, Inc. (B) .. Testile rental

services (72) ....... H ..........

Acquisition of sub, Valley

Industrial Services, Inc.

SIC 73--Business Services

Tribune Company--Luzadder,

Richard L. and Peggy S. (A) Local advertising and

local print

advertising (73) .... H ..........

Acquisition through sub, of

several 'shoppers' owned by



the Luzadders.

United States v. Tribune Co.,


§ 65,075 (M.D. Fla. 1984).

SIC 78--Motion Pictures

Kerkorian, Kirk--Columbia

Pictures Inc. (A) .......... Motion pictures (78) .. H ..........

Proposed further acquisition

of stock by 25% owner (with

control fo MGM Inc., a

competitor of Columbia).

National Amusements,

Inc.--General Cinema Corp.

(A) ........................ Movie theatres (78) ... H ..........


assets

Viacom International--The

Movie Channel (joint

venture of Warner

Communications and America

Express Co.) (A)(D) ........ Pay television



programming

involving picture

licensing (78) ...... H, V .......

Merger/joint venture

Proposal 1: merger of

Viacom's sub, Showtime, and

The Movie Channel, with

additional equity ownership

in new; entity by MCA Inc.

(through Universal Studios

Inc.) and Gulf & Western

(through Paramount

Pictures)

Proposal 2: merger of HBO and

Showtime, but without

participation by studios.... Pay TV programming of

movies .............. H ..........



SIC 80--Health Services

American Medical

International, Inc.--French

Hospital (A) ............... Genral acute care

hospitals (80) ...... H ..........

Acquisition

American Medical

International, 3 TRADE REG.

REP. (CCH) § 22,170 (FTC

1984), modified, 3 TRADE

REG. REP. (CCH) § 22,209

(FTC 1984).



American Medical

International--Lifemark (B) Hospitals (80) ........ H ..........

Merger

Beverly Enterprises,

Inc.--Beacon Hill American

Inc. (B) ................... Nursing homes (80) .... H ..........

Acquisition


Inc--Mediplex, Inc. (B) .... Nursing homes (80) .... H ..........

Acquisition


Inc.--Southern Medical

Services, Inc. (B) ......... Nursing homes (80) .... H ..........

Acquisition

United States v. Beverly

Enterprises, 1984-1 Trade

Cas. (CCH) § 66,052 (M.D.

Ga. 1984).

INA Corporation--American

Health Services, Inc. (A) .. In-patient psychiatric



care (80 ............ H ..........

Acquisition by sub., Hospital

Affiliates International,

Inc.

United States v. Hospital

Affiliates International,


(CCH) § 64,696 (E.D. La.

1982).

National Medical Enterprises,

Inc.--National Health

Enterprises, Inc. (B) ...... Nursing homes (80) .... H ..........

Acquisition

SIC 89--Miscellaneous

Services

Wheelabrator-Frye,

Inc.--Pullman, Inc. (B) .... Industrial chimneys

(design,



engineering, and

construction) and

electric arc

furnaces (design,

engineering, sale)

(89) ................ H ..........

Tender offer

United States v.

Wheelabrator-Frye, Inc.,


§ 64,018 (D.D.C. 1981).

Wheelabrator-Frye,

Inc.--Signal Cos., Inc. (B) (1) Intellectual

property re fluid

catalytic cracking

and heavy oil

cracking (89) ....... H ..........



(2) Building of

refuse-to-energy

plants (16) ......... H ..........

------------------------------------------------------------------- 1...+...10....+...20....+...30....+...40....+...50....+...60....+..



******************************************************************************* ****** This is piece 17. -- It begins at character 68 of table line 373. ******

******************************************************************************* competition in local advertising markets.

...... FTC ............. Consent decree

requiring

divestiture

reached after

internal wrangle

at Federal Trade

Commission over

public interest in

challenging this

very small

acquisition.

...... FTC ............. In 1981 Federal

Trade Commission



denied petition

for divestiture to

Allegheny(per the

terms of a 1978

consent decree

including Liquid

Air Corp.).

Grounds not given,

but Allegheny's

Chemetron

subsidiary is in

the same business.

(In 1982 the two

plants were

successfully sold

to Airco, which is

said to have no

operations in the

local market).

...... DOJ ............. Complaint filed

1980. Consent

decree requiring

divestiture of

business competing



with that of

acquired firm.

...... DOJ ............. Litigation

threatened (Jan.

1, 1985) if

acquisition

proceeds. Deal

abandoned.

...... DOJ ............. Consent decree

requires

divestiture of

target's interest

in a joint venture

with competitor of

du Pont.



...... FTC ............. In 1981 Federal

Trade Commission

lost preliminary

injunction motion

under Section

13(b), 1984

consent decree

requires licensing

of technology and

other steps to

establish a new

competitor.

...... FTC ............. Merger abandoned

after Federal

Trade Commission

voted to seek



preliminary

injunction, July,

1984.

...... FTC ............. Deal abandoned after

Federal Trade

Commission

decision, Jan.,

1985, to seek

preliminary

injunction.

...... FTC ............. District court

granted

preliminary

injunction in

1984.

Administrative

litigation

pending. Most or

all respondents

have sought

dismissal on

grounds of

abandonment of



proposed

transactions.

...... Same ............ Same

...... FTC ............. Federal Trade

Commission

obtained temporary

restraining order,

but Gulf, while

purportedly

interested in

reaching a consent

decree, refused to

meet Federal Trade

Commission's



divestiture

demands and

instead used its

antitrust

litigation as a

basis to withdraw

from its agreement

with Cities

Service. The

latter sued for

breach of contract

in Oklahoma state

court; result not

known.

...... FTC ............. Acquisition in 1972.

Complaint in 1974.

Fifth Circuit

remanded in 1980,



for another run at

geographic market

definition.

Complaint amended

in 1982. 1983

consent decree

requires

divestiture of

four plants, three

presently shut

down (presumably

due to the

understandable low

demand).

...... Target .......... Preliminary

injunction granted

by district court

and affirmed by

Sixth Circuit.

Last minute hold

separate proposal

by Mobil was not

warmly received.



...... FTC ............. Action for

preliminary

injunction mooted

by target

company's success.

...... FTC ............. 1981 consent decree

called for partial

divestiture.

In 1983

Owens-Corning was

denied relief from

the divesture

requirement. 1984

consent decree

$800,000 penalty

and provides for

trustee to sell



the assets for

whatever he can

get.


requires

substantial

divestitures of

marketing,

refining, and

pipeline assets,

and hold separate

order pending such

divestitures.




requires

substantial

divestitures of

pipeline interest

and refining,

marketing and

retailing assets.



...... State Attorney

General ....... Dismissed by lower

court. Current

status of case not

know.

...... Competitor,

disappointed

bidder, and

potential

target in

other oil

industry

takeovers ..... Preliminary

injunction denied.

No antitrust

injury.



...... State Attorney

General;

customer ...... Preliminary

injunction denied.

Mail difficulty

with plaintiffs'

case was that

Texaco had 'fixed

it first' by

entering into an

agreement with

Power Test Corp.

to sell the

overlapping

assets.


requiring



divertiture of all

overlapping

assets.

...... DOJ ............. Acquisition halted

by November 1984

threat of

injunction.

Department of

Justice and

companies

continued to

negotiate. Current

status not known.

...... DOJ ............. Overlapping assets

taken out of deal

in 1981, under

threat of

litigation.




requiring partial

divestiture and

related relief

...... DOJ ............. Complaint filed in

1980. Consent

decree requires

partial

divestiture.


requiring partial

divestiture.

...... FTC ............. Acquisition and

complaint in 1980.

1981 consent

decree requires

partial



divestiture.


permits company to

keep the interest

in LOF but (1)

requires

divestiture of its

interest in a

Canadian joint

venture and (2)

places limitation

on its control of

joint venture

operation in

Mexico.




providing that

asset acquisition

be restructured as

a joint venture;

joint venture

entity will

produce product;

for two parents on

a tolling basis.

Parents will

compete in

marketing.

Numerous

structural

provisions.



...... DOJ ............. In Feb. 1984

Department of

Justice decided to

sue. Subsequently

reversed itself;

consent decree

agreed on in

March, 1984

requires sale of

two mills. In Dec.

1984 Deparent of

Justice petitioned

for appointment of

a trustee to sell

one of these

plants.

...... DOJ ............. Deal abandoned in

March 10, 1984 'as



a result of the

Justice

Department's

announcement on

February 15 that

it would file suit

to block the

proposed merger of

LTV and Republic

Steel Corp.'

...... DOJ ............. 1979 acquisition.

Complaint filed in

1980. Full

divestiture of

assets per consent

decree.




requiring

divestiture of a

unit of the

acquiring company.


requires full

divestiture.

...... Competitor ...... 1973 acquisition.

1981 judgment for

$4.5 million.

Pillsbury then

shortly sold most

of the business to

an unrelated

buyer. The 1984



final judgment

requires

completion of

divestiture, as to

trademarks, etc.

Verdict predicated

on entrenchment

and alleged

postacquisition

predatory and

tortious conduct.

...... DOJ ............. 1979 acquisition.

1981 consent

decree requires

partial

divestiture.



...... FTC ............. Complaint charged

acquisition was

illegal because of

G.E.'s stock

interest in a

competitor.

Consent decree

provides for sale

of stock interest.

...... DOJ ............. 1978 acquisition.

1981 Consent

decree required

substantial

divestiture, but

was modified in

1983.



...... FTC ............. Feb., 1983 letter

agreement

promising no HSR

second request in

exchange for

limitations on IBM

director,

evidently relating

primarily to on

confidential

information

received by Intel

regarding IBM's

competitors.

...... DOJ ............. Nov., 1984 consent

decree requires

divestiture of a

division of Rolm

Department of

Justice said it



looked into PBX

business as well,

but found no

problem.

...... DOJ ............. 1978 acquisition.

Complaint same

year. 1981 consent

decree requires

compulsory royalty

free licensing of

certain

technology.

...... FTC ............. Federal Trade

Commission sued

under Section



13(b). District

court denied

preliminary

injunction, mainly

on basis of the

Federal Trade

Commission memos

prepared by

Chicago School

economists. Ninth

circuit reversed,

granting

preliminary

injunction Feb.,

1985 report

indicates

resondents have

moved to dismiss

the administrative

litigation on

grounds that the

deal is dead.



...... FTC ............. Company agreed in

March 1985, to

divest acquired

company's Airborne

Weather Radar

Division.

...... DOJ ............. 1982 acquisition

complaint and

consent decree

filed in 1985.

Consent decree

requires advance

notice of future

acquisitions.




limiting size and

time period of the

joint venture and

imposing other

terms.

...... Competitor ...... Case settled; exact

terms not known

...... Target .......... Preliminary

injunction

granted; affirmed

by Second Circuit.



...... FTC ............. Action for

preliminary

injunction under

Section 13(b)

mooted by target's

success in

litigation.

...... FTC ............. 1981 Eighth Circuit

decision upholds

1979 Federal Trade

Commission order,

based on the

actual potential

entrant doctrine.

...... FTC ............. Following the

complaint, company

was sold to a

third party. In



1984 the Federal

Trade Commission

decided, after

some controversy,

to drop the matter

without seeking

limitations on new

acquisitions.

...... FTC ............. Complaint (1980, for

1976 acquisition)

focused on injury

to competition in

this high-tech

area. 1983 consent

decree required

non-exclusive



licensing to all

applicants on

specified terms.

Also required

complete

divestiture of

certain

intellectual

property. Xidex

keeps the plant

and equipment,

which evidently

have less

commercial

significance than

the intellectual

property in

question.

...... FTC ............. 1979 and 1980

acquisitions



Complaint filed in

1981. Significant

partial

divestitures were

made by G&W. The

second of those

was pursuant to a

1983 consent

decree. The first,

in 1982, was to

competitor

(Audeco) in the

midst of

negotiations with

the Federal Trade

Commission staff,

to its great

consternation.

There was talk of

a Section 13(b)

action seeking

rescission, but no

action was taken.




pattenred in style

and purpose on

AT&T decree Filed

on 1983; approved

in Dec., 1984.

...... DOJ ............. In August, 1984, the

Department of

Justice threatened

litigation. Same

issues as

GTE-Spring and

AT&T consent

decrees. Decision

in April, 1984,

not to challenge

deal so long as

parties live up to

detailed

non-descrimination

agreement with

Alaska Public



Utilities

Commission.

...... DOS ............. 1984 consent decree

permits tender

offer but requires

substantial

partial

divestiture.

Tunney Act

approval pending.


provided for

partial

divestiture. After

certain

divestitures were



made, defendant

successfully

petitioned to be

relieved of

further

obligations.


limiting future

acquisitions.

...... Competitor ...... Deal called off in

Feb., 1985.


required

significant

partial



divestiture.

...... FTC ............. Acquisition and

consent decree in

1980. In 1981

Federal Trade

Commission denied

National's motion

to be relieved of

obligation to buy

from a specific

wholesaler. In

1983 it approved

divestitures of 31

stores to Gateway

Foods. (It is not

known whether

Gateway was

already in the

market.)

...... DOJ ............. Partial divestiture



of 13 retail

outlets, pursuant

to threat of

litigation. No

consent decree.

...... DOJ ............. 1981 consent decree

requires partial

divestiture.


1984; consent

decree requires

partial

divestiture.




requiring

divestiture of

competing

subsidiary of

acquiring company.


requiring

significant

divestitures.

...... DOJ ............. Agreement (June

1983) under threat

of litigation,

resulted in

substantial

divestitures prior

to completion of

deal.




requires

divestiture.

...... DOJ ............. Department of

Justice threat in

1981, evidently

mooted by

'greenmail'

transaction which

put Kerkorian out

of the picture.

...... DOJ ............. Deal abandoned under

threat of

litigation,

February, 1983.



...... DOJ ............. (1) Department of

Justice never had

any trouble with

horizontal aspects

based on 'low

barriers to

entry.' But first

deal abandoned

under twice

reiterated threat

of suit, as a

vertical

combination

creating barriers

to entry. June,

August 1983.



...... DOJ ............. No objection, Aug.

1983

...... FTC ............. 1979 assets

acquisition.

Complaint filed in

1981.

Administrative Law

Judge decision in

1983.

Administrative Law

Judge ordered

divestiture plus

piror approval of

future

acquisitions.

Commission

retained

divestiture, but

overturned prior

approval, on

grounds of

avoiding undue

interference in



the market for

sale of hospitals,

but substituted

pre-acquisition

notice provisions.

...... FTC ............. One hospital was

divested in order

to satisfy

antitrust

concerns. No

consent decree

entered.


to avoid threat of

litigation, 1983.


to avoid threat of

litigation, 1982.




per consent

decree.

...... DOJ ............. 1980 acquisition and

complaint.

Acquirer divested

competing

hospitals

following 1980

preliminary

injunction. 1981

consent decree

restricts future

acquisitions.

...... DOJ ............. Under threat of



litigation,

acquirer agreed to

lease certain

nursing homes to

third parties,

September, 1982.


1980. 1981 consent

decree requires

divestiture of

overlapping

assets.

...... DOJ ............. 1983 agreement

(without consent



decree) requiring

competitive

bidding, monitered

by Department of

Justice by 13

prospective

exclusive

licensees of

Wheelabrator-Frye

proprietary

technology.

...... DOJ ............. Agreement also

requires Signal to

terminate its

relationship as US

representative for

a German company.

--------------------------------------------- 68.....+...80....+...90....+....0....+...10..



[Note: The following TABLE/FORM is too wide to be displayed on one screen. You must print it for a meaningful review of its contents. The table has been divided into multiple pieces with each piece containing information to help you assemble a printout of the table. The information for each piece includes: (1) a three line message preceding the tabular data showing by line # and character # the position of the upper left-hand corner of the piece and the position of the piece within the entire table; and (2) a numeric scale following the tabular data displaying the character positions.]



******************************************************************************* ******** This is piece 1. -- It begins at character 1 of table line 1. ********

******************************************************************************* -------------------------------------------------------------------- APPENDIX II

Antitrust Misses

January, 1981-December, 1985*

Acquiring and Acquired Product Area of Antitrust Nature of

Companies, Category, Concern Concern:

and Description; Horizontal,

Relevant Litigation Potential

Competition,

Vertical

Conglomerate

-------------------------------------------------------------------- SIC 01--Agricultural

Production-Crops

Alexander & Baldwin,

Inc.--Rogers Foods,

Inc.................. Potatoes (01) ............... H ............


Bubar v. Ampco Foods,

Inc., 1982-2 Trade

Cas. (CCH) § 64, 793



(D. Ind. 1982).

1...+...10....+...20....+...30....+...40....+...50....+...60....+...




******************************************************************************* --------------------------------------- Source of Outcome

Investigation

or Litigation

---------------------------------------

. Unsuccessful

bidder ......... Private action

dismissed for

lack of

standing.

69....+...80....+...90....+....0....+..




******************************************************************************* * Notes: 'Misses' included in Appendix II include instances in

a way which was neither partly or wholly successful from the

1...+...10....+...20....+...30....+...40....+...50....+...60..




******************************************************************************* which antitrust litigation was terminated in

plaintiff's standpoint, including (a) a loss

63....70....+...80....+...90....+....0....+..




******************************************************************************* on the merits, (b) a loss on a preliminary injunction motion, following which

terminated, (c) a decision that plaintiff lacked standing, and (d) a decision

1...+...10....+...20....+...30....+...40....+...50....+...60....+...70....+....




******************************************************************************* the litigation was

by plaintiff to dismiss its

80..+...90....+....0....+...




******************************************************************************* case (for watever reason). Appendix II includes entries for

January 20, 1981 to date, as well as cases brought prior to

1...+...10....+...20....+...30....+...40....+...50....+...60.




******************************************************************************* cases begun and terminated during the period

1981 but terminated during the relevant

62.....70....+...80....+...90....+....0....+..




******************************************************************************* period. Pending actions are not included in Appendix II. Deals

successful and some unsuccessful, are included in Appendix I.

SIC 14--Nonmetallic

Minerals, Except

Fuels

Eastern Industries

Inc.--various

acquisitions ........ Aggregate and blacktop (14) . H ........

Acquisitions

Joseph Cicione & Sons,

Inc. v. Eastern

Indus., Inc., 559 F.

Supp 671 (E.D. Pa.

1983).

SIC 16--Heavy

Construction

Contractors

S. E. Johnson

Co.--various

acquisitions ........ Asphalt paving contracts

awarded by State (16) ..... H, PC ....



Acquisitions

Arthur S.

Langenderfer, Inc.

v. S. E. Johnson

Co., 729 F.2d 1050

(6th Cir.), cert.

denied, 105 S. Ct.

511 (1984).

SIC 20--Food and

Kindred Produts

Beatrice Foods

Company--Tropicana

Products Inc......... Ready-to-serve chilled

orange juice (20) ......... H ........

Acquisition

Beatrice Foods Co.,



101 F.T.C. 733

(1983).

Dairymen,

Inc.--Munford, Inc... Dairies (20) ................ H ........

Acquisition of Munford

sub, Farmbest Foods

Inc.

Dairymen, Inc., 100

F.T.C. 533 (1982)

(granting seller's

motion to dismiss on

grounds that

repurchase by it

would not be a



suitable remedy);

102 F.T.C. 1151

(1983) (dismissing

complaint).

Occidental Petroleum

Corp.--Wilson Foods

Corp................. Meat packing (20) ........... H or PC ..

Unsuccessful tender

offer by subsidiary,

IBP Inc.

Pillsbury

Co.--Stokely-Van

Camp Inc............. Canned vegetables; focus on

'white beans in sauce'

(20) ...................... V, H .....

Proposed acquisition;

Pillsbury was outbid

Quaker Oats.

SIC 25--Furniture and

Fixtures

Sealy, Inc.--plant



acquisitions ........ Bedding (25) ................ V(?) .....

Acquisitions

Ohio-Sealy Mattress

Mfg. Co. v. Sealy,

Inc., 669 F.2d 490

(7th Cir.), cert.

denied, 459 U.S. 943

(1982); Ohio-Sealy

Mattress Mfg. Co. v.

Kaplan, 745 F.2d 441



(7th Cir 1984).

SIC 26--Paper and

Allied Products

B.A.T. Industries,

Ltd.--NCR Corp....... Chemical carbonless paper ... PC .......

Acquisition (by

subsidiary of BAT)

of NCR's Appelton

Papers Division

B.A.T. Indus., Ltd., 3

TRADE REG. REP.

(CCH) § 22,218

(F.T.C. Dec. 17,

1984) (final order

dismissing

complaint).

North American Philips

Corp.--MLC, Inc...... Magnetic ledger cards for

Philips machines (26) ..... V ........

Acquisition



MLC, Inc. v. North

American Philips

Corp., 1983-1 Trade

Cas. (CCH) § 65,351

(S.D.N.Y. 1983).

SIC 28--Chemicals and

Allied Products

BASF Wyandotte

Corp.--Allegheny

Ludlum International

Corp................. Organic pigments (28) ....... H ........

Acquisition of

Allegheny's

Chemetron Pigments

Division

BASF Wyandotte Corp.,

100 F.T.C. 261

(1982).

Procter & Gamble

Co.--Chlorox ........ Bleach (28) ................. C ........



SIC 30--Rubber and

Miscellaneous

Plastics Products

Crane Company Harsco

Corporation ......... Pipe couplings (30) ......... H, PC, V .

Tender offer for up to

20% of stock

Crane Co. v. Harsco

Corp. 509 F. Supp.

115 (D. Del. 1981)


injunction).

SIC 32--Stone, Clay

and Glass Products

Ibstock Johnson

Limited--Glen-Gery

Corporation ......... Facing brick (32) ........... 4 ........



Acquisition

United States v.

Ibstock Johnson

Limited, No. 80-2840

(E.D. Pa., filed

July 21, 1980).

SIC 35--Machinery,

Except Electrical

Smith International,

Inc.--Gearhart

Industries, Inc...... Oilfield services

products--MWD (measurement

while drilling) technology

(35) ...................... H or PC ..

Tender offer

Gearhart Indus., Inc.

v. Smith Int'l.,

Inc., 592 F. Supp.

203 (N.D. Tex.

1984).

Trane Co.--General

Electric Co.......... Central air conditioning

(35)



Acquisition of Central

Air Condition

Division.

Central air condition (35) .. H ........

O'Connor Securities v.

Trane Co., 561 F.

Supp. 301 (S.D.N.Y.

1983) appeal

dismissed, 718 F.2d

26 (2nd Cir. 1983).

Verdo Company--Stoner

Manufacturing

Corporation (C) ..... Vending machines for food,

beverages, and cigarettes

(35) ...................... H ........



Acquisition

Lektro-Vend Corp. v.

Verdo Co., 660 F.2d

235 (7th Cir. 1981),

cert. denied, 455

U.S. 921 (1982).

SIC 36--Electric and

Electornic Equipment

Exxon Corp.--Reliance

Electric Corporation

(C) ................. Electronic variable speed

drives (36) ............... PC .......

Acquisition

Exxon Corp., 100



F.T.C. 434 (1982)

(dismissing

complaint).

SIC 37--Transportation

Equipment

Champion Spark Plug

Company--Anderson

Co................... Windshield wipers (37) ...... PC .......

Acquisition

Champion Spark Plug

Co., 3 TRADE REG.

REP. (CCH) § 22,163

(F.T.C. June 20,

1984) (dismissing

complaint).

Tenneco, Inc.--Monroe

Auto Equipment Co.... Automotive shock absorbers

for the aftermarket (37) .. PC .......



Acquisition

Tenneco, Inc., 98

F.T.C. 464 (1981),

rev'd, Tenneco, Inc.

v. FTC, 699 F.2d 346

(2d Cir. 1982).

Whittaker

Corp.--Brunswick

Corp................. Valves for aerospace

applications (37) ......... H ........



Tender offer

Whittaker Corp. v.

Edgar, 353 F. Supp.

933 (N.D. Ill.

1982).

SIC 38--Instruments

and Related Products

Healthdyne,

Inc.--Narco

Scientific, Inc...... Infant warming systems,

phototherapy systems, and

infant monitoring systems

( 38) ..................... H, PC ....

Tender offer

Narco Scientific, Inc.

v. Healthdyne, Inc.,

No. 82-4521 (E.D.



Pa., filed Oct. 12,

1982).

Johnson &

Johnson--American

Medical Electornic

Corp................. Electronic thermometers (38) H ........

Acquisition

Johnson &

Johnson--Stem Tech .. Pain control products (38) .. H ........

Acquisition

McDonald v. Johnson &

Johnson, 722 F.2d



1370 (8th Cir.

1983), cert. denied,

105 S. Ct. 219

(1984), reversing,

537 F. Supp. 1282

(D. Minn. 1982).

Ardito v. Johnson &

Johnson, 1982-2

Trade Cas. (CCH)

§ 64,954 (D. Minn.

1982).

United States Surgical

Corp.--Hospital

Products Limited .... Surgical sterilizing devices

(38) ...................... H ........

Threat of imposition

of constructive

trust on assets in

the course of

pending litigation

in Australia.

Hospital Products Ltd.

v. United States

Surgical Corp.,



1982-2 Trade Cas.

(CCH) § 64,770

(S.D.N.Y. 1982).

SIC 42--Trucking and

Warehousing

Waste Management,

Inc.--EMW Ventures

Incorporated ........ Solid waste

collection--front-loader

service and roll-off

service to contract

customers (42) ............ H ........

Acquisition

United States v. Waste

Management, Inc. 588

F. Supp. 498

(S.D.N.Y. 1983),

rev'd, 743 F.2d 976



(2d Cir. 1984).

SIC 49--Electric, Gas,

and Sanitary

Services

Waste Management,

Inc.--Chem-Nuclear

Systems, Inc......... Waste disposal (various

alleged submarkets) (49) .. H, PC ....

Tender offer.

Chem-Nuclear Systems,

Inc. v. Waste

Management, Inc.

1982-2 Trade Cas.

(CCH)§ 64,860 (W.D.

Wash 1982).

SIC 51--Wholesale

Trade--Non-durable

Goods

Coca-Cola Bottling Co.

of Lake Charles,

Inc.--Dr. Pepper

franchise (C) ....... Soft drinks (51) ............ H ........



Acquisition

Bayou Bottling, Inc.

v. Dr. Pepper Co.,

543 F. Supp. 1255

(W.D. La. 1982),

aff'd, 725 F.2d 300

(5th Cir. 1984),

cert. denied, 105 S.

Ct. 123 (1984).

SIC 53--General

Merchandise Stores

BATUS, Inc.--Marshall

Field & Company (B) . Department stores (53) ...... H ........

Acquisition

BATUS, Inc., 100

F.T.C. 533 (1982),

modified, 3 TRADE



REG. REP. (CCH)

§ 22,208 (F.T.C. Nov.

13, 1984).

Icahn, Carl--Marshall

Field & Co. (C) ..... Department stores (53) ...... Not known

SIC 54--Food Stores

Grand Union

Co.--Colonial Stores

Inc.................. Grocery stores (54) ......... PC .......

Acquisition

Grand Union Co., 102

F.T.C. 812 (1983).

SIC 56--Apparel and



Accessary Stores

The Limited,

Inc.--Carter Hawley

Hale Stores, Inc..... Retailing of women's apparel

in shopping malls (56) .... H ........

Tender offer

Carter Hawley Hale

Stores, Inc. v. The

Limited, Inc., 587

F. Supp. 246 (C.D.

Cal. 1984).

SIC 60--Banking

Rainbolt,

H.E.--Central

National Bank ....... Banking (60) ................ H ........

Acquisition of stock

interest

Central Nat'l Bank v.

Rainbolt, 720 F.2d



1183 (10th Cir.

1983).

Virginia National

Bankshares--First

State Bank of Wise .. Banking (60) ................ H ........

Acquisition

United States v.

Virginia Nat'l

Bank-Shares, Inc.,

1982-2 Trade Cas.

(CCH) § 64,871 (W.D.

Va. 1982).

SIC 70--Hotels and

Other Lodging Places

Holiday Inns,

Inc.--Chateau

LeMoyne ............. Hotel rooms (or Holiday Inn

hotel rooms) (70) ......... H ........



Acquisitions of hotel

Domed Stadium Hotel,

Inc. v. Holiday

Inns, Inc. 732 F.2d

480 (5th Cir. 1984).

SIC 72--Personal

Services

Rose-Neath Funeral

Homes, Inc.--various

acquisitions ........ Funeral homes (72) .......... H ........

Acquisitions

Mulhearn v. Rose-Neath

Funeral Home, Inc.,

1982-2 Trade Cas.

(CCH) § 64,731 (W.D.

La. 1981).

SIC 73--Business

Services



Equifax, Inc.--various

acquisitions ........ Credit reporting (73) ....... H ........

Acquisition

Equifax, Inc., 98

F.T.C. 1 (1981)

(dismissing

complaint).

Pioneer Press,

Inc.--Pickwick

Publishing Co. (C) .. Local advertising (73) ...... Not known

Acquisition of

newspapers

Besser Publishing Co.

v. Pioneer Press,

Inc., 571 F. Supp.

64, (N.D. Ill.

1983).



SIC 78--Motion

Pictures

Carrolls Development

Corp.--varous

acquisitions of

motion picture

theatres ............ Motion pictures ............. H ........

Acquisitions

United States v.

Carrolls Development

Corp., 1982-1 Trade

Cas. (CCH) (N.D.N.Y.

1981) (modifying

consent decree).

---------------------------------------------------------------- 1...+...10....+...20....+...30....+...40....+...50....+...60....




******************************************************************************* subject to multiple legal challenges, some

..... Victory for

defendant at

trial.

..... $2.9 million

awarded by

district court

Reversed by

Sixth Circuit

in 1984, on

grounds that

acquired



companies were

not 'in'

interstate

commerce.

..... FTC .............. Administrative

complaint filed

1978.

Administrative

Law Judge ruled

against

respondent in

1980. Reversed

by FTC in 1983.

..... FTC .............. 1980 acquisition.

Administrative

litigation filed



in 1980. 1982

consent decree

signed, calling

for ban on

further

acquisitions.

Instead of

accepting

consent decree,

the

Commissioners

decided to

dismiss the case

on grounds that

complaint

defined too

narrow a

geographic

market.



..... Target ........... Suit in district

court in

Oklahoma City

filed in January

1984.

..... Target,

competitor, and

customer ....... Suit reported

filed in July

1983.

..... Licensee,

competitor, and

would-be

purchaser ...... Section 7 issues

are part of an

extended and

complex

antitrust



donny-brook.

1982 Seventh

Circuit opinion

holds that

competition has

been restored

and divestiture

is not

appropriate;

reserves

question whether

one may ever use

diverstiture in

a private

action. 1984

opinion holds

that plaintiff

may sue for

post-verdict

consequences of

pre-verdict

acquisitions.



..... FTC .............. Complaint filed

1980.

Administrative

Law Judge ruled

for respondent

in 1983. Upheld

by FTC in

December, 1984.

..... Corporation whose

assets were

purchased ...... Summary judgment

for defendant.



..... FTC .............. Administrative

complaint filed

in 1979. Victory

for respondent

in

administrative

litigation in

1982.

..... Competitor ....... Divestiture

affirmed in

1967. Purex sued

in 1967 for

previous ten

years of

damages.

Ultimately lost

in 1981 on

grounds of

absence of



antitrust

injury.

..... Tender offer

target ......... Motion for

preliminary

injunction

denied.

..... DOJ .............. 1979 acquisition.

Complaint filed

in 1980.

Department of

Justice

announced on

July 8, 1981

that it had

decided to

dismiss without

prejudice.



..... Target ........... Preliminary

injunction

denied; case not

strong enough on

the merits.

..... Shareholder of

purchasing

company ........ Action dismissed

with prejudice

by stipulation.



..... Competitor (and

successor in

interest to Mr.

Stoner, the

principal of

the acquired

company) ....... 1981 Seventh

Circuit opinion

holds 1959

acquisition was

lawful based on

(1)

post-acquisition

indicia of

competition and

(2) weakened

competitive

strength of

acquired company

in 1959.



..... FTC .............. Case brought in

1979. Dismissed

in 1982, on

grounds that

Exxon may have

thought it was a

potential

competitor but

actually wasn't;

the

'breakthrough'

by Exxon which

led it to buy

Reliance (to

market the

product) was

really

impractical.



..... FTC .............. Acquisition in

1978. Complaint

filed in 1980.

1984 FTC

decision upholds

Administrative

Law Judge in

dismissing

complaint, based

on the

reasonably

competitive

nature of the

market and the

dozen potential

entrants.

..... FTC .............. 1977

Administrative

Law Judge

decision

dismissing



complaint was

reversed by

Federal Trade

Commission in

1981. This was

reversed by the

Second Circuit

in 1982 on the

basis of

perceived

weakness in the

Federal Trade

Commission's

factual case as

to actual

potential entry

and perceived

potential entry.

Federal Trade

Commission's

motion for

rehearing en

banc was denied.




injunction

denied for want

of a prima facie

case. Court

thought

plaintiff's

product market

was too narrow.

Dictum

specifically

finds targets

have standing

under Section 7.

..... Target ........... Action was dropped

when offeror

raised the price

it was prepared

to pay for the



stock.

..... Principals of

acquired

company

(aggrieved by

low receipts

under earnout

provisions of

contract) ...... Summary judgment

for defendant

based on lack of

antitrust

injury.

..... Principals of

acquired

company ........ Defendant

ultimately won

the McDonald

litigation, on

grounds of



standing. In

Ardito,

plaintiff

defeated summary

judgment motion,

but outcome of

case is not

known.

..... Competitor

(affiliated

with defendant

in the foreign

lawsuit) ....... Claim dismissed as

premature.



..... DOJ .............. Partial victory

for Department

of Justice on

merits at

district court

level was

reversed by

Second Circuit

in 1984, on

grounds that

ease of entry is

so great that

future market

shares are

likely to differ

from past market

shares.




injunction

denied, for

failure to make

out a prima

facie case.

..... Competitor and

unsuccessful

bidder ......... Summary judgment

for defendants,

for lack of

antitrust



injury.

..... FTC .............. 1982 consent

decree provided

for partial

divestiture.

After certain

divestitures

were made,

defendant

successfully

petitioned to be

relieved of

further

obligations

..... Target ........... Press report of



Feb. 9, 1982

indicates that

complaint

alleges

antitrust and

numerous other

violations. No

reported

decision.

Marshall Field

was acquired by

BATUS, as white

knight, thus

mooting the

litigation.

..... FTC .............. 1978 acquisition.

Held illegal by

Administrative

Law Judge in

1981. Reversed

by Federal Trade

Commission on

July 9, 1983.




injunction

denied on

grounds of (1)

absence of

standing by

targets and (2)

poor case on

merits.

..... Target ........... Complaint

dismissed,

basically on

grounds of lack

of standing,

1983.



..... DOJ .............. Preliminary

injunction

denied. Folksy

bench opinion

(1) finds

government's

geographic

market too small

and (2) thinks

acquisition will

benefit

competition. The

Department of

Justice elected

not to appeal,

and the

statutory stay

expired.

..... Holiday Inns

franchisee,



aggrieved by

increase in

competition .... Complaint filed in

1978. District

court granted

summary judgment

for defendant in

1982. Affirmed

by Fifth Circuit

in 1984.

..... Competitor ....... Dismissed,

principally for

want of

antitrust

injury.



..... FTC .............. Federal Trade

Commission

dismisses old

case, following

Ninth Circuit

decision in 1980

that the

original product

market

definition was

wrong.

..... Competitor ....... Complaint

dismissed in

1983 with leave

to amend. Focus

of complaint was

on predatory

practices.



..... DOJ .............. Old case.

Defendant was

relieved of

divestiture

requirement in

1981 over

Department of

Justice

objections.

------------------------------------------- 65..70....+...80....+...90....+....0....+..



------------------------------------------------------------------------------- APPENDIX III

Federal Trade Commission/Department of Justice

Merger & Acquisition Antitrust Litigation

January 1981-December 1985

Deal (and Category) Alleged Market Alleged Shares

and Delta HHI

------------------------------------------------------------------------------- Calmar, Inc.-Realex Corp. (miss)

(DOJ) ........................... Plastic pump dispensers

(U.S.) .................. 58% + 21%

(2436)

AMI-French Hospital (Showstopper)

(FTC) ........................... General acute care

hospitals in San Louis

Obisbo Co., Calif........ 55.6% + 19.5%

(2213)

Allied Corp.-The Signal Cos., Inc.

(compromise) (DOJ) .............. Air turbine starters (for

aircraft) in the

non-communist market .... Approx 50% +

20% (1975)

Tribune Co.-Mr. & Mrs. Richard

Luzadder (Showstopper) (DOJ) .... Local advertising in

Osceola Co., Fla......... 40% + 20%

(1600)



Calcutt, Henry C.-Central State

Bank and State Savings Bank

(miss) (DOJ) .................... Banking in Benzie Co.,

Michigan ................ 28% + 25.7%

(1439)

National Medical

Enterprises-Modesto City

Hospital (Pending) (DOJ) ........ General acute care

hospitals in the

Modesto, Cal. area ...... 34% + 14%

(capacity)

(952)

British Petroleum-Kennecott Corp.

(Compromise) (DOJ) .............. Molybdenum (U.S.) ......... 67.8% + 5.6%

(881)

Ofrex Group-American Brands

(Compromise) (DOJ) .............. Home and office staplers

(U.S.) .................. 67% + 5.6%

(804)

Borg-Warner-Echlin Mfg. Corp.

(Pending) (FTC) ................. Carburetor kits (U.S.) .... 38% + 10% (760)

Cooper Industries-Westinghouse

Electric Corp. (Compromise)

(DOJ) ........................... Aviation lighting (U.S.) .. 54% + 7% (756)

Nat'l Bank & Trust Co.

Norwich-Nat'l Bank of Oxford

(Compromise) (DOJ) .............. Commercial banking in



Chenango Co., N.Y........ 56% + 6% (672)

Ancher-Daniels-Midland-Nabisco

Brands (Pending) ................ High fructose corn syrup

(U.S.) .................. 21% + 12%

(capacity)

(504)

Great Lakes Chemical

Corp.-Velsicol Chemical Corp.

(Compromise) (FTC) .............. Elemental bromine (U.S.) .. 41.4% + 5%

(414)

ConAgra-Peavey Co. (Compromise)

(FTC) ........................... Bakery flour (11 western

states) ................. 24.3% + 8.5%

(413)

Baxter Travenol

Laboratories-American Hospital

Supply Corp. (Compromise) (DOJ) . Electronic flow control

devices ................. 21% + 9.5%

(402)

Industrial Asphalt Inc.-Huntmix,

Inc. (Pending) (DOJ) ............ Asphalt concrete in W. San

Diego County,

California............... 18% + 11% (396)

(Production)

15% + 9% (270)

(Capacity)

Virginia Nat'l Bankshares-First



State Bank of Wise (Miss) (DOJ) . Banking in Wise Co.,

Virginia ................ 18.2% + 10.1%

(368)

General Electric Co.-Calma Co.

(Compromise) .................... CAD/CAM systems (U.S.) .... 17.3% + 9.8%

(339)

American Maize-Products Co. Bayuk

Cigars (Showstopper) (DOJ) ...... Cigars (U.S.) ............. 20% + 8%

(units) (320)

10% + 6%

(dollars)

(120)

Baldwin-United-MGIC Investment

(Compromise) (DOJ) .............. Private mortgage guarantee

insurance (U.S.) ........ 39.7% + 4%

(318)

Columbian Enterprises-Conoco

(Showstopper) (FTC) ............. Carbon black (U.S.) ....... 20.96% + 7.6%

(318)

Beverly Enterprises-So. Medical

Services (Compromise) (DOJ) ..... Nursing homes in Macon,

Ga....................... 29% combined

(287)

Waster Mgt., Inc.-EMW Ventures

(Miss) (DOJ) .................... Front-loader solid waste

collection in Houston,



Tex...................... 15% + 9% (270)

Warner Communications-Polygram

Records (Showstopper) (FTC) ..... Pre-recorded music (U.S.) . 18.9% + 7.1%

(268)

ARA Services-Means Services

(Compromise) (DOJ) .............. Textile rental services in

the

Cleveland-Akron-Lorain

SMSA .................... 18.6% + 6.6%

(245)

Newell Companies-Stanley Works

(Compromise) (DOJ) .............. Drapery hardware (U.S.) ... 14.8% + 7.8%

(231)

B. F. Goodrich Co.-Diamond

Shamrock Corp. (Pending) (FTC) .. Vinyl chloride monomer

(U.S.) .................. 10.3% + 10.3%

(212)

LTV-Republic Steel (Compromise)

(DOJ) ........................... Hot-roller carbon and

alloy sheet steel (U.S.) 12.6% + 8.2%

(207)

Bass Brothers Enterprises-Ashland

Oil (Showstopper) (FTC) ......... Carbon black (U.S.) ....... 15.7% + 7.3%

(200)

Socal-Gulf (Compromise) (FTC) ..... Kerosene jet fuel in the

Eastern Seaboard and

Gulf Coast .............. 11.1% + 8.8%



(195)

Weyerhaeuser Co.-Menasha Co.

(Pending) (FTC) ................. Corrugating medium (11

western states) ......... 13.1% + 7.4%

(194)

Stroh-Schlitz (Compromise) (DOJ) .. Beer (9 states in the

southeast) .............. 13.4% + 6.9%

(185)

G. Heileman Brewing Co.-Pabst

Brewing Co. (Compromise) (DOJ) .. Beer (U.S.) ............... 10.5% + 7.6%

(160)

HCA-HAI (Pending) (FTC) ........... Hospitals in Chattanooga,

Tenn..................... 12.9% + 5.3%

(137)

Gulf & Western-Wallace Metals

Products (Compromise) (FTC) ..... Burial caskets (U.S.) ..... 10% + 5% (100)

Mobil-Marathon Oil Co. (FTC case

mooted by private Showstopper) .. Retail sale of gasoline in

Illinois ................ 11.1% + 4.5%

(100)

Revco-Zale (Compromise) (DOJ) ..... Retail sale of ethical

drugs in Tyler, Tex...... 10% + 3.6% (72)


Corp.-American Cytoscope Makers

(Compromise) (FTC) .............. Urological catheters

(U.S.) .................. 8.1% + 3.6%

(58)



Albertson's-Fisher Foods

(Compromise) (FTC) .............. Retail grocery stores in

L.A. and Orange

Counties, Cal............ 4.9% + 3.6%

(35)

Allied Corp.-Fisher Scientific Co.

(Compromise) (FTC) .............. High purity acids ......... Not given in

complaint

Allied Corp.-King Radio Corp.

(Compromise) (FTC) .............. Weather radar systems ..... Information not

available

BATUS-Marshall Field & Co.

(Compromise) (FTC) .............. Retail sales by department

stores in the Milwaukee

SMSA .................... Not given in

complaint

Canada Cement Lafarge,

Inc.-General Portland, Inc.

(Compromise) (FTC) .............. Cement in two southern

regional markets ........ Not given in

complaint

Coca-Cola Co.-Associated Bottling

Co. (Compromise) (FTC) .......... Chilled fruit drinks

(U.S.) .................. Not given in

complaint

Flowers Industries-various

acquisitions (Compromise) (FTC) . Various bakery markets .... Not given in



complaint

General Motors-Toyota (Compromise)

(FTC) ........................... Small automobiles in U.S.

and Canada .............. Not given in

complaint

Gifford Hill-American-Interpace

Corp. (Compromise) (FTC) ........ Pressure pipe, large

diameter pressure pipe

and concrete pressure

pipe in a 5-state area .. Not given in

complaint

Gulf-Cities Service Co.

(Showstopper) (FTC) ............. Kerosene jet fuel (in

several regions) ........ Not given in

complaint;

combined

share said to

be 17%

Hospital Corp. of America-Forum

Groups Inc. (Compromise) (FTC) .. Hospitals in certain local

markets ................. Information not

available.

Interwork Inc.-Houston Natural Gas

Corp. (Compromise) (FTC) ........ Purchase and sale of

natural gas in certain

local markets ........... Information



not

available.

Kennecott Corp.-Curtis-Wright

(Compromise) (FTC) .............. Fabric air filter bags

(U.S.) .................. Not given in

complaint

Lehigh Portland Cement Co.-U.S.

Steel Corp. (Compromise) (FTC) .. Portland cement in a

midwestern regional

market .................. Not given in

complaint

LTV Corp.-Grumman Corp. (FTC

complaint mooted by private

Showstopper) .................... Carrier-based aircraft .... Information not

available

Midcon Corp.-United Energy

Resources, Inc. (Partial

Compromise) (FTC) ............... Transportation and sale of

natural gas in certain

local markets ........... Information not

available

Olin Corp.-FMC Corp. (Pending)

(FTC) ........................... Chemicals for sanitizing

swimming pools .......... Information not

available

Owens Corning Fiberglass



Corp.-Lloyd A. Fry Roofing Co.

(Compromise) (FTC) .............. Asphalt roofing products

in 7 western states ..... Not given in

complaint

Pilkington Bros.-Libby-Owens-Ford

(Compromise) (FTC) .............. Float glass in U.S.,

Canada and Mexico ....... Not given in

complaint

Schlumberger-Accutest Corp.

(Showstopper) (FTC) ............. Automatic test equipment

for digital integrated

circuits (U.S. and world

markets) and two

narrower product markets Not given in

complaint

Sonoco Products Co.-Container

Corp. of America (Pending) (FTC) Composite cans ............ Information not

available

Texaco-Getty Oil Co. (Compromise)

(FTC) ........................... Various petroleum industry

markets ................. Not given in

complaint

Waste Management, Inc.-SCA

Services, Inc. (Compromise)

(DOJ) ........................... Numerous waste collection

markets ................. Not given in

complaint



-------------------------------------------------------------------------------

[FNa] Associated with the firm of White & Case in New York. A.B., 1968, Princeton University; J.D., 1975, Columbia Law School.

[FN1]. The principal antitrust statute applicable to acquisitions and joint ventures is § 7 of the Clayton Act, 15 U.S.C. § 18 (1982) [hereinafter cited as § 7] which provides in relevant part that an acquisition of stock or assets is illegal in circumstances 'where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.' In January 1986, President Reagan decided to recommend changes in the language of Section 7. The proposal will involve (i) amending the statute to specify that a merger shall not be held unlawful unless there is a 'significant probability' of anti-competitive effect and (ii) listing factors which the court should consider in making such a determination. The Administration's bill is discussed in Davis, Antitrust, The Trade Deficit and U.S. International Competitiveness: A Time for Rethinking, 18 N.Y.U. J. INT'L L. & POL. (1987) (forthcoming). Antitrust challenges to mergers, acquisitions, and joint ventures (referred to collectively below by the phrase M&A transactions) are most commonly brought under § 7 because, under that statute, a plaintiff need not show that the M&A transaction will actually create a monopoly; rather, he need only show that there is a significant likelihood that, if the deal is not enjoined, a substantial lessening of competition will result. See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294 (1962). However, M&A transactions are also subject to challenge as unreasonable restraints of trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (1982), [hereinafter cited as § 1], see, e.g., United States v. Columbia Steel Co., 334 U.S. 495 (1948); as acts of unlawful monopolization, attempts to monopolize, or conspiracies to monopolize under § 2 of the Sherman Act, 15 U.S.C. § 2 (1982) [hereinafter cited as § 2], see, e.g., United States v. Southern Pac. Co., 259 U.S. 214 (1922); as unfair methods of competition in violation of § 5 of the Federal Trade Commission, 15 U.S.C. § 45 (1982) [hereinafter cited as § 5], see, e.g., Golden Grain Macaroni Co. v. FTC, 472 F.2d 882 (9th Cir. 1972), cert. denied, 412 U.S. 918 (1973); and as violations of state antitrust statutes. For example, such a state law violation is alleged in Texas v. Coca Cola Bottling Co. of the Sw., No. 84-CIV-15586 (D. Tex. Sept. 24, 1984). With perhaps debatable wisdom, Congress has chosen to build an unusually high degree of procedural redundancy into antitrust M&A enforcement. At the federal level, two enforcement agencies, the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ), have overlapping jurisdiction. The DOJ has the power to institute actions in a United States district court pursuant to the Clayton Act § § 4A and/or 15, 15 U.S.C. § § 15a, 25 (1982). The FTC has the power to institute administrative proceedings pursuant to FTC Act § 5, and to seek preliminary injunctive relief from a district court pursuant to § 13(b) of the FTC Act, 15 U.S.C. § 53(b) (1982). To provide advance notice of M&A deals to the DOJ and FTC, the Hart-Scott- Rodino Act, 15 U.S.C. § 18a (1982) (HSR Act) requires premerger notification of large M&A transactions. Although the finer points of the HSR reporting scheme involve issues that are unusually complex, arcane, and full of traps for the unwary, as a very general matter deals worth more than $15 million are likely to require notification, and deals worth less than that are likely not to require such notice. The HSR program incorporates a mandatory waiting period--usually of 30 days but subject to administrative shortening ('early termination') or lengthening (by a 'second request' from the FTC or DOJ in connection with its antitrust review). The majority of reported M&A reported deals are patently not antitrust- sensitive and are investigated by neither the FTC or the DOJ. Where investigation does appear to be required, the two agencies consult with one another and usually reach quick agreements on which one will investigate. Contretemps are few but can be egregious in rare instances. For example, in 1981 the DOJ investigated a deal pursuant to the HSR Act and decided to take no action. In 1982, however, the FTC sued, claiming that the transaction which its sister agency had blessed in the preceding year was in violation of the antitrust laws. The procedural redundancy does not stop with the DOJ and FTC. In addition, private plaintiffs 'injured in their business or property' by reason of injury to competition resulting from an illegal M&A deal may sue under § 4 of the Clayton Act, 15 U.S.C. § 15(a) (1982), and may attempt as well to obtain injunctive relief under Clayton Act § 16, 15 U.S.C. § 26 (1982). Target companies, third-party competitors, customers, shareholders, and others have



endeavored with striking success in some cases--and dismal failure in others-- to avail themselves of these legal opportunities in recent years. For good measure state attorneys general are also empowered to institute antitrust M&A litigation in their capacity as parens patriae under § § 4B-4H of the Clayton Act, 15 U.S.C. § § 15b-15h (1982). In addition--depending, of course, on the law of the state in question--state attorneys general may also initiate antitrust challenges to M&A transactions under relevant provisions of state law. Recent years have seen some increase in such litigation at the state enforcement end, but with few positive results. On the whole, state attorneys general have been far less active than private competitors in 'supplementing' the enforcement efforts of the two federal agencies.

[FN2]. A typical example is found in Antitrust: House Judiciary Panel Holds First Hearing on Mergers, Focusing on Takeover Phenomenon, Daily Rep. for Executives (BNA) A-22, 23 (Apr. 4, 1985), summarizing the testimony of Prof. James Ponsoldt of the University of Georgia to the effect that '[t]he FTC and Justice Department under the Reagan Administration have failed to enforce Section 7 . . . thus ignoring or revising the intent of Congress.'

[FN3]. But see FTC, Seventh Annual Report to Congress Pursuant to Section 201 of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (May 31, 1984) [hereinafter cited as Seventh HSR Report], which states: Although the number of second requests issued as a percentage of reportable transactions [has decreased sharply from pre-Reagan Administration levels] this persistent downward trend may in part reflect a beneficial deterrent effect of the premerger notification program. Because the program enables the enforcement agencies to detect and challenge virtually all sizeable anticompetitive acquisitions before they are consummated, businesses may be increasingly avoiding transactions that approach the line of illegality. Id. at 3. Former Chairman Miller of the FTC, who signed this report, is well known for his dry wit and tongue-in-cheek humor.

[FN4]. The following data are taken from Seventh HSR Report, supra note 3, at app. B, Table XII.

-------------------------------------------------------------------------------

1978-80 1981-83 1981-83 as &

of 1978-80

------------------------------------------------------------------------------- New M&A Suits Filed by DOJ ....................... 28 16 57%

Preliminary Injunctions Sought by DOJ ............ 14 4 29%

Administrative Complaints Issued by FTC .......... 30 21 70%

Preliminary Injunctions Sought by FTC ............. 8 4 50%

All New Actions .................................. 58 37 64%



All Preliminary Injunction Motions ............... 22 8 36%

------------------------------------------------------------------------------- 1984 data are consistent with this picture, showing a modest increase in antitrust enforcement activity over 1983--arising in large measure from a modest increase in overall merger activity. See FTC, Eighth Annual Report to Congress Pursuant to Section 201 of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Appendix C, Table XII (Sept. 19, 1985) [hereinafter cited as Eighth HSR Report].

[FN5]. See, e.g., M&A Almanac: 1984 Profile, 19 MERGERS & ACQUISITIONS No. 5, at 25 (1985) (the number of million dollar deals completed from 1978- 1980 was 4,555, compared with 6,960 form 1981-1983). (Data from this source and prior yearly profile issues of the same publications are referred to hereinafter as M&A Almanac data.)

[FN6]. Although the overall level of M&A activity is driven by many factors other than antitrust policy, there is every reason to suppose that some of the increase in M&A activity that we see in the 1980s is attributable to companies attempting deals which they simply would not have tried during previous Administrations. The Socal-Gulf deal appears to be an obvious example, but there are many others, and the phenomenon is a pervasive one. If there are more legally sensitive deals than before, then that is an additional reason why the 42% figure in the text should be discounted. There would be no point, however, in trying to refine the figure to four decimal places, and on the whole the conclusion in the text is accurate enough: that federal enforcement activity regarding antitrust-sensitive deals has fallen by some two-thirds in the present Administration. (As we shall see, however, some of that 'enforcement gap' has been made up from non-governmental sources.)

[FN7]. See discussion under infra Part II.

[FN8]. Another 44 M&A transactions have been found as to which lawsuits and/or investigations are believed to be pending as of December 31, 1985. Antitrust investigations are frequently unpublicized, however, and it is virtually certain that more than 44 deals are under investigation (or subject to pending litigation) as of the writing of this article. In addition, 125 deals have been identified in which there was a government investigation, but no enforcement action was taken, under the current Administration. That number, again, is undoubtedly too low. The Eighth HSR Report, supra note 4, indicates that 254 deals were subject to second requests pursuant to the HSR process during 1981-1984.

[FN9]. A conglomerate deal is one where the parties neither compete with one another, nor are they potential competitors, nor are they involved in customer- supplier relationships. Conglomerate deals are not per se legal. Quite the contrary, if anyone can succeed in showing that such a deal would be likely to injure competition somewhere, then it is presumably illegal. The problem is that it is extraordinarily difficult to show that a deal between two companies in unrelated markets is likely to injure competition. Vertical transactions involve customers and suppliers. The DOJ has brought two such legal challenges in the present Administration (see entries on DuPont- Conoco and GTE-Sprint in app. II), and there has been some other vertical antitrust litigation as well. Nevertheless, vertical cases are so few and far between that practical men and women invariably pay little heed to such risks, and based on the current track record, they are right to take that approach. Four potential competition cases have been brought by the enforcement agencies in the current Administration: Alcan-Arco, IBM-Rolm, B.A.T.-NCR, and Grand Union-Colonial (see apps. I & II), and there has been some private litigation as well. Potential competition theory is alive and well and is accepted by the current Administration's theoreticians. However, conventional wisdom holds that only in quite unusual market contexts will a combination of mere potential competitors pose an injury to competition. Again, the hard of head will invariably



put potential competition concerns to one side--at least until litigation ensues. (Incidentally, one should distinguish between pure potential competition and a situation where the companies in question do compete with one another, though in an incidental way--where they are, if you will, on the fringes of each other's markets. That is a stickier wicket, and raises issues addressed in Part IV below). Accordingly, because of space limitations and the limited practical importance of conglomerate, vertical, and potential competition analysis, the scope of this article is limited to antitrust risk assessment in horizontal transactions.

[FN10]. See Merger Guidelines of Dep't of Justice-1968, 2 TRADE REG. REP. (CCH) § 4510 (1968).

[FN11]. Bork, Emerging Substantive Standards--Developments and Need for Change, 50 ANTITRUST L.J. 179, 184 (1981). For a capsule summary of the current state of the law, see Davis, Horizontal Merger Policy--Some Modest Proposals to Ameliorate the Chaos in the Courts, 54 ANTITRUST L.J. 1261 (1986).

[FN12]. Cia. Petrolera Caribe, Inc. v. Arco Caribbean, Inc., 754 F.2d 404 (1st Cir. 1985).

[FN13]. Montfort of Colo., Inc. v. Cargill, Inc., 761 F.2d 570 (10th Cir. 1985), cert. granted, 106 S. Ct. 784 (1986); Christian Schmidt Brewing Co. v. G. Heileman Brewing Co., 753 F.2d 1354 (6th Cir) , cert. dismissed, 105 S. Ct. 1155 (1985); and United States v. American Cyanamid Co., 719 F.2d 558 (2d Cir. 1983), cert. denied, 465 U.S. 101 (1984).

[FN14]. 47 Fed. Reg. 18,493 (1982), reprinted in 2 TRADE REG. REP. (CCH) § § 4500-05 [hereinafter cited as 1982 Guidelines].

[FN15]. 49 Fed. Reg. 26,823 (1984), reprinted in 2 TRADE REG. REP. (CCH) § § 4490-94 [hereinafter cited as 1984 Guidelines]. See also FTC, Statement Concerning Horizonal Mergers (June 14, 1982), reprinted in 2 TRADE REG. REP. (CCH) § 4516 [hereinafter cited as FTC Statement].

[FN16]. See, e.g., Current Antitrust Enforcement Policy and the Revised Merger Guidelines, Remarks by Assistant Attorney General J. Paul McGrath before the New York Round Table (June 7, 1984).

[FN17]. A particularly useful example is Salop & Simmons, A Practical Guide to Merger Analysis, 29 ANTITRUST BULL. 663 (1984), which does an admirable job of translating the theoretical concepts of the Guidelines into questions which a businessman can understand. Other sources of unofficial exegesis of the Guidelines are cited throughout this article.

[FN18]. See infra text accompanying notes 51-54.

[FN19]. See infra text accompanying note 53.

[FN20]. See infra text accompanying notes 37-41.

[FN21]. There is a conflict of judicial opinion as to whether tender offer targets generally have standing to assert antitrust claims. Compare Grumman Corp. v. LTV Corp., 665 F.2d 10 (2d Cir. 1981); Marathon Oil Co. v. Mobil



Corp., 669 F.2d 378 (6th Cir. 1981), cert. denied, 455 U.S. 982 (1982) (in favor of standing by targets) with Central Nat'l Bank v. Rainbolt, 720 F.2d 1183 (10th Cir. 1983) (target company has no standing, at least where 'there is no evidence the defendant . . . will use his various interests [in competitors] to the detriment of' the target). But as a practical matter, the acquiring company in a hostile transaction that is vulnerable on antitrust grounds--and, of course, most tender offers, like most M&A deals as a whole, are not antitrust-sensitive--will presumably be sued in a jurisdiction where it is established that target companies do have standing to sue.

[FN22]. Although I have cast my net widely, there is little doubt that some relevant, publicly available information will have slipped through. The object, however, is not to provide a definitive analysis of every antitrust investigation, but instead to get an accurate idea of the overall picture. This research excludes deals in industries where antitrust analysis of mergers is part of a special regulatory scheme and hence is not governed by the general antitrust laws, i.e., the railroad, airline, and ocean shipping industries. Banking mergers are subject both to special antitrust regulation by the Federal Reserve Board (and other regulatory authorities) and the general antitrust laws; the research reported here includes banking mergers only to the extent that they have been subject to challenge under the general laws, and thus excludes numerous antitrust-sensitive deals scrutinized by the banking authorities, just as it excludes all antitrust-sensitive mergers scrutinized by the Interstate Commerce Commission and other specialized regulatory agencies.

[FN23]. See Mergers & Acquisitions (Almanac and Index issues for 1983 through 1985). The basic data base is said by the publisher to include all transactions (excluding real property deals) involving United States companies valued at $1 million or more. Deals in regulated industries are included in these data. One could debate endlessly about the proper method of looking at the overall level of M&A activity and the best way of calculating the percentage of all deals that were antitrust-sensitive, but such a debate would serve no purpose within the scope of this article. For example, the total of 319 sensitive deals identified by the author includes a sizeable number which were closed prior to 1981, but in which litigation was begun in the current Administration (or continued into the current Administration). To tne extent that the numerator includes old deals but the denominator does not, it might be argued that we are comparing the proverbial apples and oranges. On the other hand, undoubtedly some 1984 deals will be challenged in litigation, and so there is probably a rough symmetry to the comparison.

[FN24]. See supra note 1.

[FN25]. In 1981, 1083 transactions were reported; in 1982, 1144; in 1983, 1128; and in 1984, 1400. See Eighth HSR Report, supra note 4 (App. A).

[FN26]. See id. at App. B, Table I (1983 data), Seventh HSR Report, Table I (1982 data) and 47 Fed.Reg. 29,184 (1982) (1981 data). More specifically, 'clearance' to investigate was received in 1981 for 166 deals out of an adjusted total of 762 filings (the adjustment having been made in order to eliminate incomplete filings, deals subject to the primary antitrust jurisdiction of a special regulatory agency, etc.). In 1982 there were 137 'clearances' to investigate out of an adjusted total of 713 filings.

[FN27]. The scope of information required in a pre-merger filing is not extensive, and a large part of it consists of dollar revenues by Standard Industrial Codes (SIC codes). Though useful, SIC code data are notoriously unreliable as indicators of competitive overlap or of market share.

[FN28]. Eighth HSR Report, supra note 4.

[FN29]. See id.



[FN30]. Id. at App. A.

[FN31]. See app. II and infra notes 81, 82, & 97.

[FN32]. Compare Grumman Corp. v. LTV Corp., 665 F.2d 10 (2d Cir. 1981); Marathon Oil Co. v. Mobil Corp., 669 F.2d 378 (6th Cir. 1981), cert. denied, 455 U.S. 982 (1982) (victories for targets at the preliminary injunction stage), with Carter Hawley Hale Stores, Inc. v. Limited, Inc., 587 F. Supp. 246 (C.D. Cal. 1984) (victory for offeror both on the merits and on the issue of antitrust standing by target companies).

[FN33]. Kalmanovitz v. G. Heileman Brewing Co., 595 F. Supp. 1385 (D. Del. 1984); Pennzoil Co. v. Texaco, Inc., 1984-1 Trade Cas. (CCH) § 65,848 (N.D. Okla.), aff'd 1984-1 Trade Cas. (CCH) § 65,896 (10th Cir. 1984).

[FN34]. E.g., in Chrysler Corp. v. GM, 589 F. Supp. 1182, 1184 (D.D.C. 1984), the DOJ, as amicus curiae, vigorously, though unsuccessfully, urged that the motivation of competitors in such litigation is highly suspect, and that standing ought to be accorded only after 'searching scrutiny.' These issues will presumably be addressed by the Supreme Court in Monfort of Colorado, Inc. v. Cargell, Inc. 106 S. Ct. 784 (1986).

[FN35]. See app. I, entries under (1) Cargill-Land O'Lakes, (2) Heileman- Pabst, (3) Pillsbury-Wilton, and (4) A&P-Chatham.

[FN36]. But note that at least one such case is pending, a customer class action case filed in the United States District Court of New Mexico in December 1984, challenging the acquisition of CASCO by the Public Service Company of New Mexico.

[FN37]. These include: (a) Hits (i.e., Showstoppers and Compromises); (b) Misses (all as defined supra text accompanying note 8); and (c) other situations, including investigations and lawsuits believed pending as of March 31, 1985, deals where there was a second request during 1981-1985 but no decision to sue, as well as other deals as to which there is published evidence of antitrust sensitivity.

[FN38]. Industries not covered below may be presumed either (1) to be low to antitrust sensitivity, based on the enforcement track record of the last four years; or (2) subject to special antitrust regulation apart from the general antitrust laws, and thus outside the scope of this article.

[FN39]. More detailed information on Hits and Misses in each SIC category is found in app. I and II.


[FN41]. See generally Miles, Hospital Mergers and the Antitrust Laws: An Overview, 29 ANTITRUST BULL. 253 (1984).

[FN42]. Source: Sixth, Seventh and Eighth HSR Reports. Data for years subsequent to 1983 are not yet available. The 'adjusted' total of 2378 transactions for these three years reflects the elimination of filings for deals within the



primary jurisdiction of some agency other than FTC or DOJ as well as certain other eliminations.

[FN43]. See infra Part IV.

[FN44]. United States v. Philadelphia Bank, 374 U.S. 321, 364 (1963).

[FN45]. United States v. Von's Grocery Co., 384 U.S. 270 (1966).

[FN46]. IV P. AREEDA & D. TURNER, ANTITRUST LAW 34-81 (1980).

[FN47]. See supra notes 32-35 and accompanying text.

[FN48]. See FTC Statement, pt. II, 2 TRADE REG. REP. (CCH) § 4516, at 6901- 02.

[FN49]. The reader may wonder why anyone should think it is a clever idea to take the sum of the squares, instead of simply adding the shares up. Consider two markets: Market A, where the four largest firms have shares of 65%, 5%, 5%, 5%, and Market B, where the four largest firms have shares of 20%, 20%, 20%, and 20%. The two markets have the same 'four-firm ratio,' 80% but one might well suppose that they will work in a very different fashion. Indeed, one might well think that Market B will be far more competitive than Market A. Reflecting that supposed difference, the HHI of Market B is 1600 plus points (plus, because we have to account for the squares of the market shares of the remaining 20%), and the HHI of Market A is 4500 plus points. The point is that Market A, with one overwhelmingly dominant firm, is probably going to be a great deal less competitive than Market B--a point which is captured in some gross sense by Market A's much larger HHI. These matters are further discussed in the sources cited infra at note 110.

[FN50]. In the post-merger HHI for the market as a whole, the individual shares of Companies A and B disappear, to be replaced by the combined shares of A and B. Algebraically, Delta HHI = (A + B)2-A2-B2 = (A2 + 2AB + B2)-A2-B2 = = 2AB. Quod erat demonstrandum.

[FN51]. Guidelines § 3.11, 2 TRADE REG. REP. (CCH) § 4493.101.

[FN52]. Id. at § 4493.102.

[FN53]. This table does not represent the sum total of all FTC and DOJ M&A litigation during the relevant time period, because it omits cases begun under prior Administrations. However, to the extent that these old cases turned into Showstoppers, Compromises, or Misses during the Reagan Administration, they are included in app. I or II.

[FN54]. It is worth noting that reasonable persons disagree as to whether this state of affairs is a good thing or a bad thing. I support the view that any really simple and objective guidelines would lead to incorrect, socially harmful results in far too large a proportion of cases. Simplistic guidelines based on market shares are arguably deficient in another respect as well. Not only do they tend to lead to the wrong result in many situations, but they are not even objective, because there is always ample room for debate about the definition of the market. There is, by the way, a temptation--which I resist--to add the qualification that no simple guidelines are appropriate 'in the present state of economic knowledge.' The author's personal opinion is that there never will come a time



when all qualified professionals agree on whether a given criminal defendant is 'sane' or 'insane,' and likewise there never will come a time when all qualified professionals will agree or disagree on whether a given merger is 'substantially likely to injure competition' or not. To be sure, these kinds of disagreements arise in part out of incomplete professional knowledge. They arise in part out of conflicting values and ideologies. They arise in part out of intellectual confusion, laziness, and shoddy thinking. But when all of these problems are overcome, differences of opinion will still arise out of the sheer complexity of human behavior and social phenomena. It is only fair, however, to point out that persons of great wisdom and high professional standing hold contrary views concerning the desirability of objectiveguidelines. E.g., Turner, Observations on the New Merger Guidelines and the 1968 Merger Guidelines, 51 ANTITRUST L.J. 307 (1981). See generally Kauper, The 1982 Horizontal Merger Guidelines: Of Collusion, Efficiency, and Failure, 71 CALIF. L. REV. 497 (1983).

[FN55]. See supra note 1. Section 7 was enacted in essentially its present form by the Celler-Kefauver Act of 1950. Section 7 as it existed prior to 1950 was unsatisfactory in various respects, notably in that it contained a gaping loophole permitting assets deals and statutory mergers (as distinguished from acquisitions of stock) to go unchallenged. In addition, § 7 and other relevant statutes (cited supra note 1) were generally interpreted by the courts in an extremely lenient manner with respect to combinations of direct competitors. The Celler-Kefauver Act was enacted in a context of (1) widespread public concern, bordering on hysteria, over a perceived post-war 'merger wave' and a 'rising tide of concentration'; and (2) widespread dissatisfaction with the perceived deficiencies of prior law, as outlined in the preceding paragraph. Clearly § 7 in its present form is properly understood as a Congressional instruction to the courts to be tougher on mergers than they had been before 1950. If, however, one wishes to be intellectually honest, it is difficult to go much beyond that general observation concerning the murky legislative history of the Celler-Kefauver Act--a history which may accurately be characterized as a well from which rhetoricians of the most varied ideological hue may freely dredge up isolated quotations for whatever views they may espouse.

[FN56]. See Joffe, Guidelines--Past, Present and Future, 50 ANTITRUST L.J. 187, 201 (1981).

[FN57]. See 11 J. OF REPRINTS FOR ANTITRUST L. & ECON. 1, 139 (1980).

[FN58]. Brown Shoe Co. v. United States, 370 U.S. 294 (1962).

[FN59]. The 1968 Justice Department Merger Guidelines, reprinted in 2 TRADE REG. REP. (CCH) § 4510, exemplify the antithesis, just as the 1955 Attorney General's Report exemplifies the thesis.

[FN60]. United States v. General Dynamics Corp., 415 U.S. 486 (1974).

[FN61]. For that reason it continues to be true that where a deal plainly involves a combination of significant competitors, the FTC or DOJ staff is going to be very interested in hearing the parties' views as to why they think the deal is legal. Sometimes, of course, one chooses not to tell them, but that is a key tactical decision which ought to be made on a considered basis.

[FN62]. The case for this proposition is made brilliantly by Fox, The New Merger Guidelines--A Blueprint for Microeconomic Analysis, 27 ANTITRUST BULL. 519 (1982) [hereinafter cited as Fox].

[FN63]. Christian Schmidt Brewing Co. v. G. Heileman Brewing Co., 753 F.2d 1354 (6th Cir.), cert. dismissed, 105 S. Ct. 1155 (1985). Certiorari was dismissed because the case was moot; the target company having decided, as a



result of the litigation, to be acquired by another party.

[FN64]. See, e.g., FTC v. Bass Bros. Enterprises, Inc., 1984-1 Trade Cas. (CCH) § 66,041 (N.D. Ohio 1984) (granting preliminary injunction), and FTC v. Great Lakes Chem. Corp., 528 F. Supp. 84 (N.D. Ill. 1981) (denying preliminary injunction). See also American Medical Int'l, 3 TRADE REG. REP. (CCH) § 22,170 (FTC), modified, 3 TRADE REG. REP. (CCH) § 22,209 (FTC 1984) (expatiating on the significance of non-price competition in antitrust M&A analysis).

[FN65]. See, e.g., Von's Grocery Co., 384 U.S. at 270.

[FN66]. Highly fragmented agricultural or other commodity markets would be examples of 'competitive' markets in this sense, at least to the extent that they are not subject to government regulation.

[FN67]. Perhaps the chief utility of this concept is to rebut the arbitrary, illogical, and unprincipled approach to market definition taken in some of the traditional authorities purporting to apply the Brown Shoe criteria.

[FN68]. Alpert & Kitt, Is Structure All?, 53 ANTITRUST L.J. 255, 265 (1984). These authors go on to say, 'When market gaps do not occur at convenient places, somewhat arbitrary judgments must be made at the margin, with the result that no definition will unambiguously pass both of these standards.' Id.

[FN69]. Cf. Grand Union Co., 102 F.T.C. 812 (1983), an FTC opinion written by an economist-commissioner which lucidly explains the intellectual pitfalls in relying on rigid market definitions in fuzzy situations.

[FN70]. See supra notes 57-58 and accompanying text.

[FN71]. HSR sales data reporting is done by four-digit SIC codes (as well as the narrower seven-digit codes). This is required for the sake of consistency and orderly presentation in these government filings, and it is surely helpful to the practitioner and the enforcer in identifying antitrust trouble spots to have such SIC data available. But it is common ground in the antitrust community that SIC codes do not provide answers; they only help suggest the questions. Thus, to reiterate the point in the text: attempting to use SIC data as a key tool in risk assessment is foolhardy.

[FN72]. Brown Shoe, 370 U.S. at 325.

[FN73]. See generally, L. SULLIVAN, HANDBOOK OF THE LAW OF ANTITRUST § § 12- 21 (1977).

[FN74]. To reiterate a point made earlier, it is beyond the scope of this article to provide a complete and definitive analysis of the Guidelines--either on the subject of market definition or any other pertinent subject.

[FN75]. Guidelines § § 2.0, 2.11, 2 TRADE REG. REP. (CCH) § 4492 (footnotes omitted).

[FN76]. The FTC endorses the DOJ view that the key concept in market definition is the exercise of market power--and that the old Brown Shoe, count-up-the-factors approach should be abandoned insofar as it tends to produce



oddly configured, gerrymandered 'markets' not subject to the exercise of market power. However, the FTC does not endorse the DOJ 5% test set forth in the text above, but instead tries to weigh the amount of harm to consumers (whether in the form of an extra 5% price increase, or in some other form) against the duration of possible market power arising from a merger. Campbell, A Federal Trade Commission Perspective, 51 ANTITRUST L.J. 295 (1982). How, the bemused reader may well inquire, is the FTC staff supposed to perform this balancing test in any consistent and coherent way? And even if they can, is it any way to run a railroad to have two agencies with overlapping jurisdiction adopt different approaches on a fundamental issue such as market definition?

[FN77]. See Guidelines § 2.12, 2 TRADE REG. REP. (CCH) § 4492.102.

[FN78]. Concededly, the '5% hypothetical' test is not easily applied in all circumstances, but then neither was the old Borwn Shoe count-up-the-factors approach. There are, however, several far more trenchant criticisms of the modern enforcer's approach to market definition. First, suppose that before the merger the market was already monopolized, or in any event subject to higher than competitive price levels. In such a context, a literal application of the Guidelines test leads to an incorrect conclusion; in short, literal application leads us to think that a narrow market is not 'monopolizable,' when in fact it is already being monopolized. See Note, The Cellophane Fallacy and the Justice Department's Guidelines for Horizontal Mergers, 94 YALE L.J. 670 (1985). On the other hand, it may well be argued that to define markets by reference to a hypothetical price increase above a hypothetical competitive price level--as distinguished from the actual price level observed in the real world--would be to pile speculation upon speculation, resulting in utter confusion. The anomaly discussed in the previous paragraph may be attributable to an Administration view that it is not the mission of antitrust law to improve competitive performance--only to prevent anticompetitive markets from becoming more anticompetitive. See Ordover & Willig, The 1982 Merger Guidelines: An Economic Assessment, 71 CALIF. L. REV. 535, 542-43 (1983). If that is in fact the Administration's view--and I find the Guidelines to be studiously ambiguous on this point, cf. § 3.45, 2 TRADE REG. REP. (CCH) § 4493.405--its soundness on public policy grounds is subject to debate. See, e.g., Fox, supra note 62. Another fundamental criticism is that while the Guidelines indicate that 5% for one year may be inappropriate in some cases, they give absolutely no clue as to when, how, or why this may be so. In that regard, the useful suggestion has been made by one observer that if 5% produces a big change in profitability, then 5% is probably an inappropriately high percentage to use, and vice versa. Baker, The 1984 Justice Department Guidelines, 53 ANTITRUST L.J. 327, 329 (1984). That seems to be a sensible answer in principle, but the point badly needs to be clarified. (Recent HSR requests have used 10% for two years--as compared with 5% for one year--presumably as a tool to see what the parties came up with by way of trying to 'expand the market.') In addition to these two fundamental problems with the 5% test, numerous other anomalies could result from a blindly literal application of the language of the Guidelines on market definition. See generally Werden, Market Delineation and the Justice Department's Merger Guidelines, 1983 DUKE L.J. 514 (1983).

[FN79]. See Appendix III.

[FN80]. The market-submarket concept--or 'markets within markets,' if you will--as found in the old Brown Shoe line of cases, is regarded by modern enforcers as illogical and unsound in principle (although there are some few recent cases in which a broader relevant market and a lesser included market have been alleged, e.g., United States v. Tribune Co., 1984-2 Trade Cas. (CCH) § 66,075 (M.D. Fla. 1984)). It is reasonably accurate to say that the relatively narrow 'markets' that tend to be discerned by the government today correspond roughly to the old Brown Shoe concept of the 'relevant submarket.' A merger between two adjacent firms operating only on the fringes of each other's markets would typically be treated as a potential competition case today, not a horizontal case, in contrast, for example, for old precedents such as United States v. Continental Can Co., 378 U.S. 441 (1964) (metal cans and glass containers found to be one 'market').

[FN81]. FTC v. Great Lakes Chem. Corp., 528 F. Supp. 84 (N.D. Ill. 1981).



[FN82]. United States v. Calmar, Inc., 612 F. Supp. 1298 (D.N.J. 1985).

[FN83]. Furth, Applying the Merger Guidelines, 53 ANTITRUST L.J. 335, 341 (1984) (footnotes omitted) [hereinafter cited as Furth].

[FN84]. Though no invidious observations are intended, three recent M&A cases seen to provide object lessons concerning the futility of the any-port- in-a-storm theory of market definition. They are: Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480 (5th Cir. 1984); Carter Hawley Hale Stores, Inc. v. Limited, Inc., 587 F. Supp. 246 (C.D. Cal. 1984); and Besser Publishing Co. v. Pioneer Press, Inc., 571 F. Supp. 640 (N.D.Ill. 1983).

[FN85]. 652 F.2d 1324 (7th Cir. 1981).

[FN86]. Guideines § 2.23, 2 TRADE REG. REP. (CCH) § 4492.203.

[FN87]. Crane Co. v. Harsco Corp., 509 F. Supp. 115 (D. Del. 1981).

[FN88]. Brown Shoe, 370 U.S. at 336.

[FN89]. Id. at 336-37.

[FN90]. United States v. Marine Bancorporation, Inc., 418 U.S. 602 (1974).


[FN92]. Id.

[FN93]. Vol. 1, 1985 REPORT OF THE PRESIDENT'S COMMISSION ON INDUSTRIAL COMPETITIVENESS--GLOBAL COMPETITION: THE NEW REALITY 40 (1985).

[FN94]. Guidelines § 2.34, 2 TRADE REG. REP. (CCH) § 4492.304. Note, however, that injury to competition in wholly foreign markets is not within the scope of United States antitrust law. See U.S. Dep't of Justice, Antitrust Div., Guidelines for International Operations (1978).

[FN95]. See, e.g., Pilkington Bros., P.L.C., Dkt. C-3136, 3 TRADE REG. REP. (CCH) § 22.167 (F.T.C. 1984) (consent decree); United States v. Allied Corp., No. 85-2474 (D.D.C., filed Aug. 2, 1985) (analyzing market structures on basis of sales in the non-communist world).

[FN96]. 592 F. Supp. 203 (N.D. Tex. 1984). This case illustrates two trends noted in this article: (1) the proclivity to define the market broadly in geographic terms, where such a broad definition appears justified in the facts; and (2) the proclivity to define the market rather narrowly in product terms.



[FN97]. The DOJ took a great deal of heat for analyzing the combination of Republic Steel and Jones & Laughlin Steel on a United States market basis, not a world market basis. United States v. LTV Corp., 1984-2 Trade Cas. (CCH) § 66,133 (D.D.C.), appeal dismissed, 746 F.2d 51 (D.C. Cir. 1984). Though it is not the purpose of this article to defend the government's handling of that case (or any other), the DOJ was surely correct in viewing import quotas and other restraints on international commerce as relevant to the analysis. One account of this episode--surely not the high water mark of recent antitrust jurisprudence--will be found in Furth, supra note 83.

[FN98]. E.g., United States v. Virginia Nat'l Bankshares, 1982-2 Trade Cas. (CCH) § 64,871 (W.D. Va. 1982) (an opinion highly recommended to those who like their market definition analysis melded with a bit of homespun judicial wisdom).

[FN99]. For example, there is some old authority indicating that extra- United States markets are impermissible in antitrust analysis. E.g., United States v. International Tele. & Tele. Corp., 306 F. Supp. 766 (D. Conn. 1969).

[FN100]. 530 F. Supp. 315 (N.D. Ohio), aff'd, 669 F.2d 378 (6th Cir. 1981), cert. denied, 455 U.S. 982 (1982).

[FN101]. The process of geographic market definition--like other parts of the analysis--is aided to no end when the advisor or judge actually has access to all the facts. For example, in Joseph Ciccone & Son, Inc. v. Eastern Indus., Inc., 559 F. Supp. 671 (E.D. Pa. 1983), the credibility of an expert witness testifying on the relevant geographic market was not enhanced when he failed totally to consider shipments data and left out 40 to 50 firms that were actually operating in the geographic area he defined.


[FN103]. But see Crane Co. v. Harsco Corp., 509 F. Supp. 115 (D. Del. 1981) (sales preferred to capacity).

[FN104]. Pullman, Inc. v. J. Ray McDermott & Co., 631 F.2d 736 (N.D. Ill. July 31, 1980), aff'd, No. 80-2071 (7th Cir. Sept. 24, 1980).

[FN105]. Although the FTC differs from the DOJ in terms of the desirability of establishing specific market share standards, it is nevertheless official policy at the FTC to use the HHI as a significant tool for assessing the likely competitive effect of mergers. Grand Union Co., 102 F.T.C. 812, 1053-54 (1983). Moreover, as a general matter, if a merger involves a high enough Delta HHI to concern the DOJ staff, it would probably be of concern to the FTC staff as well, and vice versa.

[FN106]. These four points were covered in the text accompanying supra notes 48-53.

[FN107]. 1068 Merger Guidelines § 6, reprinted in 2 TRADE REG. REP. (CCH) § 4510, at 6884.

[FN108]. The DOJ gives itself leeway to challenge such a transaction in the rare case where exceptional circumstances might justify a challenge--for example, where Company D had just made a breakthrough discovery which was likely to give the combined entity a market share well in excess of the pro forma 14% figure. See also Domed Stadium Hotel, Inc., 732 F.2d at 492 (dictum indicating that there is no concept of per se legality in antitrust



M&A law; a merger resulting in a low combined share of market may be illegal if shown to be likely to injure competition).

[FN109]. See, e.g., Weinstock, Some Little-Known Properties of the Herfindahl-Hirschman Index: Problems of Translation and Specification, 29 ANTITRUST BULL. 705 (1984); Cohen & Sullivan, The Herfindahl-Hirschman Index and the New Antitrust Guidelines: Concentrating on Concentration, 62 TEX. L.REV. 453 (1983) ; Calkins, The New Merger Guidelines and the Herfindahl- Hirschman Index, 71 CALIF. L. REV. 402 (1983).

[FN110]. Montfort of Colo., Inc. v. Cartill, Inc., 761 F.2d 570, 579 (10th Cir. Apr. 23, 1985), aff'g 591 F.Supp. 683 (D. Colo. 1983) cert. granted, 106 S. Ct. 784 (1986). The court's subsequent discussion of market concentration and market share, id. at 21-22, conspicuously omits any reference to Drs. Herfindahl and Hirschman and their famous Index.

[FN111]. FTC v. Bass Bros. Enterprises, 1984-1 Trade Cas. (CCH) § 66,041, at 68,609 (N.D. Ohio 1984).

[FN112]. Id. at 68,620.

[FN113]. United States v. Calmar, Inc., 612 F. Supp. 1298, 1307 (D.N.J. 1985).

[FN114]. See, e.g., FTC v. Warner Communications, Inc., 742 F.2d 1156 (9th Cir. 1984) (vigorously reaffirming the so-called 'incipiency doctrine'-- the principle that it is the mission of § 7 to nip anticompetitive trends in the bud).

[FN115]. See generally Pautler, A Review of the Economic Basis for Broad- Based Horizontal Merger Policy, 28 ANTITRUST BULL. 571 (1983). The numerous concentration-profitability studies reviewed by Pautler may usefully be compared with the approach taken by Gale & Branch, Concentration Versus Market Share: Which Determines Performance and Why Does it Matter?, 27 ANTITRUST BULL. 83 (1982), which finds that high profitability is far more highly correlated with individual share of market than with market concentration. The authors draw the public policy inference that there is little reason for merger enforcement to be concerned with tacit collusion, but fail to draw the equally obvious inference that unilateral market power resulting from horizontal mergers may be a serious problem.

[FN116]. The principal authors of the 1968 and the 1982 DOJ Merger Guidelines concur on the arbitrariness of any specific standards. Turner, Observations on the New Merger Guidelines and the 1968 Merger Guidelines, 51 ANTITRUST L.J. 307, 311 (1982); Baxter, A Justice Department Perspective, 51 ANTITRUST L.J. 287, 292 (1982).

[FN117]. Recentcases in which a prima facie case against a deal has been rebutted include Calmar, 612 F. Supp. at 1298; United States v. Waste Management, Inc., 743 F.2d 976 (2d Cir. 1984); and Stroh Brewery Co. v. Malmgren, 1982-1 Trade Cas. (CCH) § 64,670 (W.D. Wis. 1982).

[FN118]. The arguments described below involve highly interrelated concepts. They are presented here in separate form to make the analysis a little clearer.

[FN119]. The 'failing firm defense,' Guidelines § 5, 2 TRADE REG. REP. (CCH) § 4495, is one example of this



proposition. In reality, however, the 'failing firm defense' is merely a special case of the general proposition that where the acquired firm's share of market fails to reflect either its true strength or its true weakness, the courts should take all relevant facts into account. Cf. Kaiser Aluminum & Chem. Corp. v. FTC, 652 F.2d 1324 (7th Cir. 1981) (discussing the competitive weakness of the acquired firm as a factor in the analysis).

[FN120]. See e.g., United States v. General Dynamics Corp., 415 U.S. 486 (1974) (declining coal reserves made historical coal sales an improper basis for decision; prima facie case rebutted); Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255 (7th Cir.1981) (post-acquisition evidence showed that preacquisition shares were an unsound predictor of competitive consequences of the deal).

[FN121]. Pullman, Inc. v. J. Ray McDermott & Co., No. 80C-3555 (N.D. Ill. July 31, 1980), aff'd No. 80-2071 (7th Cir. Sept. 24, 1980).

[FN122]. E.g., United States v. Philadelphia Nat'l Bank, 374 U.S. 321 (1963); Brown Shoe Co. v. United States, 370 U.S. 294 (1962).

[FN123]. E.g., Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255 (7th Cir. 1981), cert. denied, 455 U.S. 921 (1982).

[FN124]. See F. SCHERER, INDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE 239-41 (1980).

[FN125]. Guidelines § 3.45, 2 TRADE REG. REP. (CCH) § 4493.405. See generally Greenfield, Beyond Herfindahl: Non-Structural Elements of Mergers Analysis, 53 ANTITRUST L.J. 229, 246-47 (1984).

[FN126]. As one FTC opinion puts it, without barriers to entry, M&A cannot create market power. Grand Union Co., 102 F.T.C. at 815.

[FN127]. Baker, The 1984 Justice Department Guidelines, 53 ANTITRUST L.J. 327, 332 (1984).

[FN128]. E.g., United States v. Waste Management, Inc., 743 F.2d 976 (2d Cir. 1984). The district court in that case had found that there were low barriers to entry into the relevant local market for waste disposal service, but believed that it was constrained by prior precedent from utilizing such evidence to rebut a prima facie case based on share of market. While the lower court may have correctly captured the mood of the Supreme Court jurisprudence of the 1960s, the Second Circuit held that, as matter of law, the district court's reluctance to give weight to ease of entry was unsound and, as a matter of fact, the only way in which defendants could retain their 48% share of market was by behaving competitively. The lower court's decision in favor of the government was reversed. See also Calmar, 612 F. Supp. at 1298; Joseph Ciccone & Sons, Inc. v. Eastern Indus., Inc., 559 F. Supp. 671 (E.D. Pa.1983); and FTC v. Great Lakes Chem. Corp., 528 F. Supp. 84 (N.D. Ill. 1981).

[FN129]. A recent tender offer case, Whittaker Corp. v. Edgar, 535 F. Supp. 933 (N.D. Ill. 1982), illustrates another important point, namely that market definition issues and barriers to entry are correlative concepts. The court was not entirely sure whether there was (1) a broadly defined market with low shares or (2) a narrowly defined market with high shares but low barriers to entry. Either way the bottom line was the same: no likelihood of injury to competition.



[FN130]. Weyerhauser Co., Dkt. 9150 (FTC Feb. 18, 1981) (initial decision), aff'd 3 TRADE REG. REP., § 22,315 (1985).

[FN131]. FTC v. Procter & Gamble Co., 386 U.S. 568 (1967).

[FN132]. Indeed, this sort of global distrust of bigness and synergy appears to underlie a 1985 First Circuit opinion, Cia. Petrolera Caribe, Inc. v. Arco Caribbean, Inc., 754 F.2d 404 (1st Cir. 1985), though the precise holding of the opinion (which reverses the district court's grant of summary judgment for defendants) is that a small competitor which alleges that it will be 'squeezed out' of a market as a result of a merger of two larger competitors-- with the prospective squeezing out to occur by unspecified means, or at least means which are not described in the opinion--states a claim for relief under the Clayton Act.

[FN133]. Montfort of Colo., 761 F.2d at 570 (ruling for plaintiff on the merits, largely on the basis of the 'cost-price squeeze' variety of 'exclusionary' conduct); Christian Schmidt Brewing Co., 753 F.2d at 1354 (upholding preliminary injunction, largely on the basis of the anticompetitive exclusive dealing variety of 'exclusionary' conduct).


[FN135]. 1982 Guidelines, 2 TRADE REG. REP. (CCH) § 4505.10.

[FN136]. Political Pressure on Justice Department Seen Rising Under Proposed Merger Rules, Wall St. J., June 8, 1984, at 9.

[FN137]. Compare Stroh Brewing Co. v. Malmgren, 1982-1 Trade Cas. (CCH) § 64,670 (W.D. Wis. 1982) (economics of scale resulting from merger considered as one significant factor in court's finding that the prima facie market share case against the merger was lawful), with RSR Corp. v. FTC, 602 F.2d 1317, 1325 (9th Cir. 1979), cert. denied, 445 U.S. 927 (1980) (plaintiff's argument that 'the merger can be justified because it allows greater efficiency of operation' is one which 'has been rejected repeatedly'). Clearly the court in RSR was correct, at least to the extent that the jurisprudence of the 1960s was hostile to efficiencies. See supra note 130. It is debatable, however, whether the Supreme Court has ever categorically rejected an 'efficiencies defense.' For a statement of the argument that such a defense is legally cognizable, see the extensive dictum on efficiencies in a 1984 FTC opinion, American Medical Int'l, 3 TRADE REG. REP. (CCH) § 22,170, at 23,051-55 (F.T.C.), modified, 3 TRADE REG. REP. (CCH) § 22,209 (F.T.C. 1984). If we may assume that this gratuitous discussion in AMI represents the current official FTC opinion, then it is fair to conclude that between 1982 and 1984 both enforcement agencies have become more hospitable toward efficiencies. Compare the 1982 FTC Statement § IV, 2 TRADE REG. REP. (CCH) § 4516. Actually, it is entirely possible that no one at the FTC could say whether the 1982 Statement or the AMI opinion represents current official policy at the FTC. But for present purposes, the closest we can come to a bottom line is that if your deal is being investigated by the FTC staff and if you have some efficiencies arguments, it is a good idea to make these arguments as forcefully as possible.

[FN138]. Compare IV P. AREEDA & D. TURNER, ANTITRUST LAW 146-99 (1980); Muris, The Efficiency Defense Under Section 7 of the Clayton Act, 30 CASE W. RES. L. REV. 381 (1980); and Williamson, Economies as an Antitrust Defense Revisited, 125 U. PA. L. REV. 699 (1977) (all urging some form of an efficiencies defense), with Fisher & Lande, Efficiency Considerations in Merger Enforcement, 71 CALIF. L. REV. 1580 (1983) (arguing against such a defense). Briefly, this heated debate turns on several issues, each excruciatingly difficult: (1) whether it is consistent with the



spirit of antitrust to try to weigh competitive considerations against other considerations; (2) even if such weighing is desirable in the abstract, how it can be done on some principled and coherent basis; (3) whether the costs of such a defense (in terms of increased complexity, cost, and uncertainty in the enforcement process) would not outweigh any likely benefit to the economy for adapting such a defense. For purposes of pragmatic legal risk assessments, the bottom line is that the 'efficiencies defense' concept is a mare's nest.

[FN139]. See Clanton, Recent Merger Developments: Coming of Age Under the Guidelines 53 ANTITRUST L.J. 345, 347 (1984), which cogently points out that the stringent 50 point Delta HHI test in highly concentrated markets serves to inhibit mergers which might result in effective challenges to dominant firms. Such a standard, if literally and rigidly applied, could well result in enforcement decisions injuring competition.

[FN140]. See, e.g., United States v. Von's Grocery Co., 384 U.S. 270 (1966); cf. Christian Schmidt Brewing Co. v. G. Heileman Brewing Co., 753 F.2d 1354 (6th Cir.), cert. dismissed, 105 S. Ct. 1155 (1985) (where one of the two successful plaintiffs, Stroh, was itself one of the three dominant factors in the beer industry). But see Kaiser Aluminum & Chem. Corp. v. FTC, 652 F.2d 1324, 1341 (7th Cir. 1981).


[FN142]. Guidelines § 3.45, 2 TRADE REG. REP. (CCH) § 4493.405. Not surprisingly, judicial opinions upholding mergers frequently expatiate on how competitively the market is performing, but such findings are invariably found in conjunction with findings of low barriers to entry. By contrast, there is little judicial support for upholding mergers in well-defined markets with high barriers, solely or principally on the basis of the fact that the leading firms are in the habit of behaving competitively. To the extent that such factors are taken into account in enforcement decisions by the agencies and the courts, the key factor often turns out to be a high degree of buying power on the customer side of the market. See, e.g., 3-2 Vote Lets Whirlpool Buy Kitchenaid, 209 209 FTC: Watch 1 (Apr. 26, 1985).

[FN143]. Guidelines § 3.44, 2 TRADE REG. REP. (CCH) § 4493.404. To like effect are Marathon Oil Co. v. Mobil Corp., 669 F.2d 384 (6th Cir. 1982), cert. denied, 455 U.S. 982 (1982), and FTC v. Weyerhauser Co., 1981-1 Trade Cas. (CCH) § 63,974 (D.D.C.), aff'd, 665 F.2d 1072 (D.C. Cir. 1981).

[FN144]. E.g., United States v. Philadelphia Nat'l Bank, 374 U.S. 321 (1963).

[FN145]. See Great Lakes Chem. Corp., 528 F. Supp. at 98 (one of numerous factors in support of the deal is that it enhances exports, thereby promoting the national interest of the United States).

[FN146]. FTC v. Weyerhauser Co., 665 F.2d 1072, 1083 (D.C. Cir. 1981); Great Lakes Chem. Corp., 528 F. Supp. at 98. As the reader will have discerned by now, the latter opinion is indeed a well from which few relevant considerations were omitted.

END OF DOCUMENT


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