between General American and the new corporation will be in the sale of freight cars, a very small part of the business of General American, and only a portion of the business of Pressed Steel Car. Even in this field, operations of the two companies coincide only to a very limited extent. General American has no car building plant (except for tank cars) east of Chicago, and its freight car sales are largely limited to the market available to plants in the Chicago area. Pressed Steel Car, on the other hand has its main plants at Pittsburgh (its Chicago plant being out of operation for the past four years) so that its freight car sales are largely limited to the market available to plants in the Pittsburgh area.
Under these circumstances, it seems to the court that the proposed acquisition by General American of stock in the new corporation is not forbidden by the Clayton Act. As stated by the Supreme Court of the United States in International Shoe Co. v. Federal Trade Commission, 280 U.S. 291, 298, 50 S. Ct. 89, 91, 74 L. Ed. 431: "Mere acquisition by one corporation of the stock of a competitor, even though it result in some lessening of competition, is not forbidden; the act deals only with such acquisitions as probably will result in lessening competition to a substantial degree, Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346, 357, 42 S. Ct. 360, 66 L. Ed. 653; that is to say, to such a degree as will injuriously affect the public."
See, also, Vivaudou, Inc., v. Federal Trade Commission, 54 F.2d 273 (C.C.A.2d, 1931); Pennsylvania R. Co. v. Interstate Commerce Commission, 66 F.2d 37 (C.C.A.3d, 1933) affirmed 291 U.S. 651, 54 S. Ct. 559, 78 L. Ed. 1045; Temple Anthracite Coal Co. v. Federal Trade Commission, 51 F.2d 656 (C.C.A.3d, 1931); United States v. Republic Steel Corporation, 11 F.Supp. 117 (D.C.N.D.Ohio, E.D. 1935).
It is evident from the facts before the court that no such lessening of competition is involved in the instant case.
There is no contention by any one that the debtor's plan is not feasible. It is clear on the record and from the court's knowledge of the business and affairs of the debtor company, obtained through the long period of these proceedings, that the plan sets up a capital structure which should be sound and adequate for the business reasonably to be anticipated, that the new money provided under the plan which is raised by the sale of stock should be sufficient for the normal requirements of the new company, and that, under normal conditions, the capital structure is such as to give the new company adequate credit to provide for occasional extraordinary requirements. Accordingly, the court is satisfied that the plan is feasible.
No substantial contention is made by any one that the plan is not fair and equitable as among the several classes of security holders, or that it discriminates unfairly in favor of any class of creditors or stockholders. The debenture holders receive obligations which will be the sole obligation of the new company (aside from certain small underlying liens) for the full amount of their unpaid principal and interest, and under the offer made by the underwriters receive also a warrant which should be valuable in the event of substantial earnings. The new money, $2,150,000, is provided by the sale at par of first preferred stock junior to the obligations given to the creditors. The entire remaining stock of the new company is given to the preferred stockholders, who come next in line, except that a small amount of common stock is given to common stockholders in recognition of their potential equity in the assets of the company and the earning power which the company has shown in the past. It is impossible to evaluate, mathematically, the exact treatment which must be accorded to common stock in such a situation, but the court is satisfied that the treatment provided by the debtor's plan is fair to both classes, and this view is confirmed by the acceptance of the plan by both classes in substantially equal percentages.
The Gilchrist committee contends that this plan should be disapproved by the court, because the appraised value of the property is substantially in excess of the securities that will be outstanding; the contention being that such value indicates that General American will be receiving too large an equity in the company for its investment.
This contention is based upon appraisal reports filed early in the receivership proceedings.Beginning with a value found by the appraisers as the "going concern" value, and ignoring the liquidating value found by the appraisers, it is possible, mathematically, to show that there is a considerable equity for common stockholders, and that the portion which General American gets for its investment is too large. There are two persuasive answers to this contention: First, existing stockholders had the first opportunity to provide the necessary funds and were unwilling to do so; and, second, the large majority of the security holders have voted in favor of this plan, evidencing their belief that the equities being given to the corporation and persons providing the new funds ar fair and reasonable.
The Gilchrist committtee also objects that one of the points urged upon security holders at the hearing in favor of the debtor's plan, was the opportunity of the new company to avail itself of the management facilities of General American Transportation Corporation, which has been conspicuously successful in its field over a period of several years. It is claimed that there is no definite contract on the part of General American to provide such management. It is reasonable to assume, however, that any company making so large an investment in the new enterprise would assert itself in the management of the company to the extent permitted by its stockholdings. The contention that General American might use its knowledge of the Pressed Steel Car business to further its own business, at the expense of the latter, seems to be sufficiently answered by the fact that the large majority of the security holders of the company, by their assents to the plan, have evidenced their desire for General American management.
The representatives of the debenture holders who originally opposed the plan argued that since the present debentures have a conversion right (although admittedly of little or no value at the present time) and since it appeared from appraisals filed with this court that the liquidating value of the properties of the debtor was more than sufficient to pay the debentures in full, debenture holders should not be forced to accept securities, even for the full face amount of their debt with interest, in lieu of cash, unless debenture holders were protected against the possibility of inflation, and compensated for the risk of consenting to deferred payment, through some conversion right or warrant to subscribe to stock. It is unnecessary to pass upon the merits of these objections, because the underwriters, at the hearing of June 23, 1936, agreed to make available sufficient first preferred stock (approximately 35,000 shares) out of the 350,000 shares which they have agreed to purchase, so that there might be delivered with each $1,000 debentures issued pursuant to the plan a warrant entitling the bearer thereof to purchase 8 shares of first preferred stock at $7.50 per share for a period of six months after the new securities are announced to be ready for delivery, or, to the extent not purchased during such period, at $9 per share during the next six months. On the basis of this offer, all representatives of debenture holders previously opposing the plan have withdrawn their objections. The court is satisfied that the plan is fair as to the creditors affected thereby.
The debtor's plan now before the court in its final form has the approval of all the committees of bondholders and stockholders, except the Gilchrist committee. A large percentage of the stockholders (approximately one-fourth) have not voted at all, either for or against the plan. Crediting to the Gilchrist committee the full amount of preferred stock which it claims to represent and certain bonds and common stock which it claims to represent, the opposition to the present plan is still a comparatively small minority of each class of security holders. This court could not disapprove of the debtor's plan, having, as it has, such a large percentage of the security holders in its favor, except upon a very persuasive showing of unfairness or discrimination, and none such has been presented.
Accordingly, the court is satisfied that the debtor's plan is fair, equitable, and feasible, and that it does not discriminate unfairly in favor of any class of creditors or stockholders. The proposed certificate of incorporation of the new company which is to acquire the property of the debtor and to issue securities issuable under the plan should be submitted to the court for approval prior to the entry of the formal order confirming the plan. A form of order should be presented in accordance with this opinion.
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