Seitz, Aldisert and Stahl, Circuit Judges. Seitz, Circuit Judge concurring. Aldisert, Circuit Judge dissenting.
This appeal by Allis-Chalmers Manufacturing Company, appellant, pursuant to 28 U.S.C.A. § 1292(a)(1), is from an order of the district court*fn1 denying Allis-Chalmers' application for preliminary relief against allegedly threatened violations of the antitrust laws.
In December 1968, White Consolidated Industries, Inc., appellee, "a diversified manufacturer, specializing in a wide variety of machinery and equipment, household appliances, and industrial supplies," 294 F. Supp. at 1265, purchased 31.2% of the outstanding stock of Allis-Chalmers from Gulf and Western Industries. The avowed purpose underlying White's stock purchase is the acquisition of Allis-Chalmers,*fn2 and to that end White proposes to make a tender offer to Allis-Chalmers stockholders in order to increase substantially its share of ownership.
I. Proceedings in District Court
Alleging that White's acquisition of a substantial part of its stock and the proposed acquisition of additional stock constitute a violation of § 7 of the Clayton Act, 15 U.S.C.A. § 18, appellant Allis-Chalmers instituted the present action seeking a preliminary injunction to restrain White from acquiring any additional stock and from exercising its present share of ownership in any manner that would accomplish its takeover purpose.
After Allis-Chalmers filed its verified complaint, App. 5a, the district court issued an ex parte temporary restraining order prohibiting White from "directly or indirectly soliciting, contacting or communicating by public announcement or otherwise with other shareholders of Allis-Chalmers Manufacturing Company, or any other person, for the purpose of acquiring additional stock in Allis-Chalmers Manufacturing Company or announcing an intention of acquiring or of taking steps to acquire additional stock in Allis-Chalmers Manufacturing Company. . . ."*fn3 By agreement of the parties that order was extended until such time as the district court rendered a final decision on the application for preliminary injunction.
In response to the complaint of Allis-Chalmers, White filed a verified answer, App. 28a, and both parties submitted numerous affidavits and exhibits. The decision of the district court was based on the documents presented and on a hearing held on January 14, 1969, which was limited almost exclusively to oral argument by counsel.*fn4
On the basis of the affidavits, exhibits and legal arguments advanced by counsel, the district court concluded that appellant Allis-Chalmers had failed to demonstrate a reasonable probability of success on a final trial of the antitrust issues and hence denied preliminary injunctive relief.*fn5
For the reasons hereafter set forth, I believe a preliminary injunction should have been granted.*fn6
Section 7 of the Clayton Act, as amended in 1950, prohibits a corporation engaged in commerce from acquiring "directly or indirectly, the whole or any part of the stock . . . of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly." 15 U.S.C.A. § 18. The legislative history of the 1950 amendment indicates clearly the Congressional concern with "a rising tide of economic concentration in the American economy," Brown Shoe Co. v. United States, 370 U.S. 294, 315, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962).*fn7
In developing the criteria for determining the anticompetitive effects of mergers and acquisitions, the Supreme Court has made it abundantly clear that the focus is on "probabilities, not certainties. . . . Mergers with a probable anticompetitive effect were to be proscribed by this Act." Id. at 323. And, more recently, in FTC v. Procter & Gamble Co., 386 U.S. 568, 18 L. Ed. 2d 303, 87 S. Ct. 1224 (1967), the Supreme Court again noted that § 7 is designed to thwart anticompetitive practices in their incipiency, and that that policy would be frustrated by a "requirement that the anti-competitive power manifest itself in anti-competitive action before § 7 can be called into play." Id. at 577.
b. Application for Preliminary Relief
Basing its action on § 7 of the Clayton Act, Allis-Chalmers alleged that its acquisition by White would substantially lessen competition in each of several lines of commerce. Injunctive relief was sought under § 16 of the Clayton Act, 15 U.S.C.A. § 26, which empowers a federal court to grant relief in a private action,
against threatened loss or damage by a violation of the antitrust laws . . . when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity . . . and upon the execution of proper bond against damages from an injunction improvidently granted and a showing that the danger of irreparable loss or damage is immediate, . . .
Thus, as the district court noted, "injunctive relief is particularly suited to the preventive function of § 7 and Congress has expressly extended the availability of the injunctive remedy to private parties . . . ." 294 F. Supp. at 1265. The Supreme Court has declared "that the purposes of the antitrust laws are best served by insuring that the private action will be an ever-present threat to deter anyone contemplating business behavior in violation of the antitrust laws . . . ." Perma Life Mufflers Inc. v. International Parts Corp., 392 U.S. 134, 139, 20 L. Ed. 2d 982, 88 S. Ct. 1981 (1968). See also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 89 S. Ct. 1562, 23 L. Ed. 2d 129, 37 U.S.L.W. 4424, 4432 (1969).
Recognizing that preliminary relief is a serious remedy,*fn8 and because application for such relief, particularly in a complex case, is often based on a record less comprehensive than that which a full adjudication would yield, the courts have required that a plaintiff show a reasonable chance of ultimately prevailing on the merits. In an action by a private party, the plaintiff must also show that it will suffer irreparable injury unless relief is granted. Note, 40 N.Y.U.L. Rev. 771, 778 (1965).
In a case in which the Government sought to enjoin corporate acquisitions which allegedly violated § 7 of the Clayton Act, we said that,
The burden so imposed is warranted by the extraordinary nature of the relief which is sought. But I am also mindful of the fact that it is preliminary relief which is being requested, and if the moving party establishes a reasonable probability of a § 7 violation the "possibility that the court may decide the right to permanent relief adversely to plaintiff does not preclude it from granting the temporary relief . . . ." Bergen Drug Co. v. Parke Davis Co., 307 F.2d 725, 727 (3d Cir. 1962). (In Bergen we reversed the denial of preliminary relief by the district court in a private antitrust action).
To the same effect, Judge Biggs, speaking for this court in Ingersoll-Rand, said:
Of similar import is Judge Bryan's explanation of a district court's function when preliminary relief under the Clayton Act is requested and granted:
It should be noted, of course, that nothing said in this opinion is to be taken as an attempt to determine finally any aspect of the ultimate merits of this case. The ultimate merits remain fully open for determination at trial. United States v. Atlantic Richfield Co., 297 F. Supp. 1061, 1067, 1074 (S.D.N.Y. 1969).
Allis-Chalmers is a large manufacturing company with annual sales of $821,000,000 during 1967.*fn9 With 18 plants and more than 30,000 employees, Allis is a major manufacturer of diverse capital goods and equipment for numerous industries, and is also a major manufacturer of construction and agricultural machinery and electrical generation, transmission, distribution and utilization equipment.
White is also a highly diversified manufacturer, with total sales of approximately $825,000,000 in 1968. White's tremendous growth in recent years has resulted in large part from a series of acquisitions,*fn10 one of the most recent being the 1968 acquisition of Blaw-Knox Company. Blaw-Knox is a major producer of foundry and mill machinery products, finishing and processing lines for the steel and non-ferrous metal industries, steel castings, material handling equipment and construction equipment. In addition, a significant part of Blaw-Knox's net sales are derived from the design and construction of chemical plants. Blaw-Knox's sales volume approximates $200,000,000 per year.*fn11
Allis-Chalmers alleges that its acquisition by White would have unlawful anticompetitive effects in some 20 separate lines of commerce. While the proposed acquisition might best be characterized as a conglomerate one, Allis maintains that there are also economically significant and adverse horizontal and vertical effects. (The proposed combination here has some of the attributes of what Professor Turner has called a "mixed conglomerate," -- "the acquisition of a company manufacturing a different product which is nevertheless related to a product or products of the acquiring firm because it can be produced with much the same facilities, sold through the same distribution channels, or made a part of the same research and development efforts." Turner, Conglomerate Mergers and Section 7 of the Clayton Act, 78 Harv. L. Rev. 1313, 1315 (1965)). Further, Allis contends that the lower court failed to consider and make findings of fact with respect to many of the alleged anticompetitive consequences which an acquisition by White would have.
d. Basis for District Court Decision
In its opinion, the district court dealt specifically and primarily with three of the arguments advanced by Allis, evidently relating to issues which were emphasized at the oral argument:
Electric Home Appliance Market
(1) As to Allis' contention that it is a likely entrant into the electrical appliance home market where White is a substantial manufacturer, the district court found the evidence insufficient to establish imminent entry or any significant effect on market behavior resulting from an awareness by appliance manufacturers that Allis was a potential entrant.*fn12
(2) Allis-Chalmers also argued that a White acquisition would eliminate actual and potential horizontal competition in a line of commerce denominated as "large custom machine shop capability." Allis possesses a great deal of machinery and equipment, such as very large boring machines and lathes, capable of manufacturing a wide range of industrial items. Because Allis does not run its giant machine shops at full capacity, it seeks to take advantage of the unique equipment it has by selling "open time" on its machine shop facilities. Contending that the sale of "open time" is a meaningful line of commerce, that it possesses 15% of the nation's total giant machine shop capacity, and that White possesses similar facilities of about 5% of the national capacity, Allis argues that a combination of the two companies would eliminate present horizontal competition in the sale of open time by giant machine shops.
The district court treated the term "large custom machine shop capability" as referring to the capacity to manufacture a wide range of products and did not consider such capability per se as a distinct line of commerce. Thus, the court was willing to examine into specific categories of products which each company could produce with this "capability," but absent such information the court was unable or unwilling to evaluate the anticompetitive effects, if any, in any relevant markets.*fn13
Potential Entry Into Market -- Metal Rolling Mills
(3) The third area with which the lower court concerned itself in its opinion was the manufacture and construction of metal rolling mills. Blaw-Knox, a recent White acquisition, is one of the leading manufacturers of such mills. Allis contends that its own entry into that line of commerce is sufficiently probable to warrant restraint of White's projected takeover. The district court, on the other hand, found insufficient Allis' contentions that it was a potential entrant into this field, and further found that Allis did not stand "close enough to the edge of the metal rolling mill market to exert a competitive influence on others in that industry." 294 F. Supp. at 1268.
The court's conclusion was based in large part on its failure to find sufficient evidence, beyond an assertion by Allis management, that entry into the rolling mill industry is contemplated. In addition, the court noted the absence of evidence in the record to confirm that Allis has the technological or financial capacity to enter the market or the ability of the market to support an additional competitor.
From my review of the record I think further inquiry into Allis' status as a potential entrant into this industry is warranted. See United States v. Wilson Sporting Goods Co., 288 F. Supp. 543, 549 (N.D. Ill. 1968). The uncontroverted affidavits disclose that not only has Allis manufactured components and sub-assemblies of complete metal rolling mills for Blaw-Knox but also that Blaw-Knox has indicated to Allis its belief that the latter presently has the appropriate facilities and capability to manufacture a complete 10 or 12-inch rolling mill. App. 146a. Also, in an affidavit, the General Manager of Allis' Process, Equipment and Systems Division states that he has been negotiating with a European firm to obtain a license*fn14 to enable Allis to manufacture a continuous casting process and machinery for producing steel slabs. App. 293a, 294a. The process involved differs from those utilized by traditional rolling mills but is designed to produce the same end product.*fn15
In accord with its conclusion that Allis-Chalmers had failed to demonstrate convincingly a reasonable probability of success on final trial, the district court denied the application for a preliminary injunction.
As previously explained, in order for a private party to prevail in an action for a preliminary injunction in an antitrust case, there must be a showing of irreparable harm. In this respect, therefore, it is important to note that had there been a showing by Allis-Chalmers of reasonable probability of success on final hearing of the § 7 issue, the district court indicated that preliminary relief would have been warranted.*fn16 The court was evidently of the opinion that the irreparable injury Allis would suffer if an injunction were denied outweighed the harm to White likely to result if relief were granted.
I am aware that the district court's discussion of the issue of irreparable injury, quoted in the margin, was somewhat gratuitous and, at a subsequent hearing on appellant's motion for reconsideration of the denial of relief, the court said that it had not gone into the question of irreparable harm as fully as it might have had there been a finding in Allis' favor on the § 7 issue.*fn17 Nevertheless, I believe the court's tentative resolution of the balancing of hardships in Allis' favor was warranted by and finds adequate support in the record. The affidavits submitted by Allis show that the threat of a White takeover has had an adverse effect on professional and management employee recruitment, morale and performance, and has also had an adverse effect on Allis' business operations with customers withholding orders due to uncertainty of its future. App. 74a, 162a, 173a. Furthermore, important negotiations involving a proposed licensing agreement with a European producer to enable Allis to enter the home appliance field apparently have been stalled by the possibility of the acquisition by White. App. 76a, 77a.
In addition, serious harm to Allis might result if White nominees were to become members of Allis' Board of Directors, thus gaining knowledge of Allis' business or trade secrets, future plans, or other significant information, which would be "irreversible" in the event of ultimate divestiture. See Crane Co. v. Briggs Manufacturing Co., 280 F.2d 747, 750 (6th Cir. 1960).
Significant also is the financial impact a White takeover would occasion, as White has admitted that access to Allis' cash resources is necessary to finance White's acquisition of the Allis stock. App. 196a. While I am cognizant as well of the financial problems White will face as a result of a reversal of the lower court's action, I am of the opinion that the maintenance of the status quo is necessary to assure the viability of Allis-Chalmers as an independent, healthy entity should it ultimately prevail on the merits.
Further, White contended at the oral argument of the appeal before this court that the possible action by the Federal Trade Commission, discussed later, takes away the element of "future harm to the public" cited by the district court in its evaluation of the issue of irreparable injury. See note 16, supra. I agree with appellant, as asserted in its reply brief (pp. 5-6), that the opposite may be true. The possibility of action by the Federal Trade Commission makes the remedy of divestiture a more likely one in the event violation of the Clayton Act is found, and the "irreversible" anticompetitive effects which would result if a merger has in the meanwhile been consummated would truly be highly prejudicial to the appellant as well as to the public.
As was stated by the district court in United States v. Ingersoll-Rand Co., 218 F. Supp. 530, 542 (W.D. Pa.), which we affirmed in 320 F.2d 509 (3d Cir. 1963);
Relying on Ingersoll, the inadequacy of divestiture was reiterated by Judge Wortendyke in United States v. Chrysler Corp., 232 F. Supp. 651, 658 (D.N.J. 1964). See also American Smelting and Refining Co. v. Pennzoil United, Inc., 295 F. Supp. 149, 157-158 (D. Del. 1969).
While I take no position on the matter of divestiture at this time, there has been some doubt expressed as to whether such remedy is available in an antitrust action by a private party. Note, 40 N.Y.U.L. Rev. 771, 776 (1965). Cf. Note 49 Minn. L. Rev. 267 (1964). If divestiture is unavailable or uncertain as an ultimate remedy should the present action remain a private party suit, there may be even more reason for affording preliminary relief to appellant at this stage.
II. Reversal by This Court
On the question of whether there has been a showing of reasonable probability of success on final trial of the § 7 issue, I am compelled to disagree with the district court.
In United States v. Ingersoll-Rand Co., 320 F.2d 509, 523 (3d Cir. 1963), Judge Biggs said:
On the record before the district court, I am constrained to hold that it was improvident to conclude that there was not a reasonable probability of showing a violation of § 7 of the Clayton Act on final hearing and thus to deny preliminary relief.
While the lower court's conclusions with respect to the issues dealt with in its opinion have already been mentioned, certain other issues raised in the complaint and affidavits, and more fully developed in the briefs and oral argument in this court, sufficiently indicate, in my view, the probability that a White acquisition may substantially lessen competition in a number of relevant lines of commerce. (With the possible exception of the machine shop capability and large steel castings, the parties seem to be in agreement that for present purposes the relevant geographic markets are nationwide. The "nation as a whole" may be "a section of the country" within which to measure the anticompetitive effects of an acquisition or merger. United States v. Kimberly-Clark Corp., 264 F. Supp. 439, 455 (N.D. Cal. 1967).)
Before discussing those issues, I should emphasize that the points I find persuasive were neither cogently nor forcefully presented to the district court at oral argument. Indeed, the district court's opinion dealt extensively with the major arguments which Allis' counsel presented to it in the lengthy oral hearing on January 14, 1969. But I believe that in our role as an appellate court, in an important case of this type having far-reaching economic consequences not only to the immediate parties but to the public as well, we are duty-bound to consider all issues properly raised by the complaint and having record support.
a. Metal Rolling Mills -- Blaw-Knox
Turning to the merits of the alleged anti-competitive effects of a combination of White and Allis-Chalmers, the main areas of concern appear to involve White's Blaw-Knox subsidiary. I have already dealt with the issue of the potential entry of Allis into the metal rolling mill market. (See point (3), Potential Entry Into Market ...