The opinion of the court was delivered by: MILLER
For whatever reasons, great interest rarely descends upon the fields of combat -- the nation's courtrooms -- when domestic corporations seek to resolve their differences. Aided by an interested public and the presence of a foreign combatant the present day's continuing saga of corporate warfare has brought before this Court what might appropriately be termed an epic battle.
On September 5 this novel suit, officiously labelled a "Tender Offer" case in some business circles, was commenced to block consummation of the transaction. In essence Copperweld seeks to enjoin the attempted acquisition on the ground that Imetal has violated the securities laws through the communication of its tender offer and that the acquisition, if realized, would violate the antitrust laws.
Plaintiff Copperweld is a publicly held corporation organized under the laws of the Commonwealth of Pennsylvania with its principal place of business in Pittsburgh, Pennsylvania. Its common stock and debentures are listed and traded on the New York and PBW Stock Exchanges. Copperweld manufactures specialty metal products which can be classified into three major groups: (1) alloy steel, (2) tubing, and (3) bimetallic products.
Plaintiff-Intervenor United Steelworkers of America, AFL-CIO (Union) is a national labor organization which is headquartered in Pittsburgh, Pennsylvania. It is the collective bargaining representative of all the production and maintenance workers employed by Copperweld at its Glassport (Pennsylvania), Warren, and Shelby (Ohio) plants.
Defendant Imetal is a corporation organized under the laws of France as a holding company with its headquarters in Paris. Formerly named Le Nickel it was for many years an operating company which engaged primarily in the business of mining nickel ore. Le Nickel at that time had two major subsidiaries, Pennarroya and Mokta, both of which mined and processed other minerals and metals. Mainly because Le Nickel wanted to lessen its dependency on nickel and needed capital for diversification and other business-related purposes, it decided to reorganize into a holding company which it did in 1974 after a transfer of its entire Nickel Division to a new company, Societe Metallurgique Le Nickel-SLN (SLN) and the sale of half of its holdings in SLN to Societe Nationale des Petroles d'Aquitane (Aquitane), a French petroleum company. Most of the proceeds from this sale to Aquitane were allocated for diversification and investment in the United States. A vastly held public company, Imetal's shares are traded on the Paris Bourse, France's principal stock exchange. Today it engages principally in mining and mineral processing. It has subsidiaries and affiliates throughout the world, some of which enable Imetal to conduct its business as "a major integrated industrial concern."
Imetal has no processing facilities in the United States.
In February of this year the search had narrowed to 11 with Copperweld's name still in the running. Mr. Harold Tanner, a representative of New Court, telephoned plaintiff's President, Phillip H. Smith, expressing a desire to meet with him concerning Imetal's possible interest. Mr. Smith, not seeing any business advantage for Copperweld, declined to meet with him.
In the spring many more companies were considered and another investment firm, Kuhn Loeb & Co. (Kuhn), was retained to assist New Court. By early summer the defendant had whittled the list to three and, because defendant was giving each a very hard look at this stage, they were assigned the code names of Bread, Butter, and Garlic.
In the latter part of June Villemejane was decidedly favoring Bread (Copperweld) and thereafter initiated an all out effort to uncover whatever knowledge he could about the company.
In August the plans were made by Imetal in New York with its legal and investment advisors on how to properly execute the tender offer. Contact by phone was again made on August 29 between Alvin E. Friedman, a Kuhn representative, and Howell A. Breedlove, a Copperweld Vice President, which resulted in a meeting between the parties on September 2, 1975. Copperweld's reaction to the proposal was again negative and the fighting began with vigor.
Pursuant to Rule 65(b) of the Federal Rules of Civil Procedure this Court on September 5 granted Copperweld's request for a temporary restraining order which had been simultaneously filed with a verified complaint
and a motion for a preliminary injunction. After rather extensive expedited discovery by both sides a hearing on plaintiff's motion for preliminary injunction commenced on September 15, at which time plaintiff United Steelworkers of America (Union) was permitted to intervene.
After six days of testimony and reception of scores of exhibits we concluded the hearing on September 22. Briefs from all parties were submitted on September 29 with oral argument concluding the formalities on October 1.
The antitrust issues raised by the complaint involve Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 1 of the Sherman Act, 15 U.S.C. § 1. The purported securities violations deal with Sections 9(a)(2), 10(b), 13(d), 14(d) and 14(e) of the Securities Exchange Act of 1934 (Exchange Act), as amended by the Williams Act of 1968,
15 U.S.C. §§ 78i(a)(2), 78j(b), 78m(d), 78n(d) and 78n(e).
Jurisdiction for this suit obtains from 15 U.S.C. §§ 26, 78aa and 28 U.S.C. § 1337.
Before undertaking the real task engendered by this suit the Court wishes to clarify the preliminary injunction standards by which plaintiff's case will be measured.
Pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26, this Court is empowered to enjoin "threatened loss or damage by a violation of the antitrust laws" in the same manner and under the same principles as any other action for which such relief is sought.
The Court is well aware of the requirements plaintiff must meet to obtain a preliminary injunction in this jurisdiction. Only last year the test was again spelled out rather clearly by the Third Circuit:
As a prerequisite to the issuance of a preliminary injunction the moving party must generally show: (1) a reasonable probability of eventual success in the litigation, and (2) that it will be irreparably injured pendente lite if relief is not granted to prevent a change in the status quo. A.L.K. Corp. v. Columbia Pictures Industries, Inc., 440 F.2d 761, 763 (3 Cir. 1971).
Delaware River Port Authority v. Transamerican Trailer Transport, Inc., 501 F.2d 917, 919-920 (3 Cir. 1974). Writing for the Court Judge Rosenn also pointed to additional criteria that should, when relevant, be considered by the district court. Added to the above are ". . . (3) the possibility of harm to other interested persons from the grant or denial of the injunction, and (4) the public interest." Delaware River, supra, at 920.
In view of Delaware River and other Third Circuit cases
which have addressed the standards by which a preliminary injunction should issue, we were initially disturbed when plaintiff advanced what the Court considers to be a less stringent criterion that has been adopted by a line of cases in the Second Circuit. This different standard, though recognized in earlier decisions,
was succinctly set forth in Stark v. New York Stock Exchange, 466 F.2d 743, 744 (2 Cir. 1972) (per curiam) as follows:
Appellants assumed the burden of demonstrating either a combination of probable success and the possibility of irreparable injury or that they had raised serious questions going to the merits and that the balance of hardships tipped sharply in their favor.
In later decisions the Second Circuit has indicated that this relaxed standard is particularly well-suited to gauging the propriety of a preliminary injunction in a tender offer situation:
Recently we have emphasized the importance of demonstrating on a preliminary injunction motion the presence of serious questions going to the merits which warrant further investigation and trial.
In the instant case, the magnitude and far reaching consequences of the alleged violations of the antitrust and securities laws are such that, in our view, the public interest requires the application of a like standard.
Gulf & Western Industries, Inc. v. Great A & P Tea Company, Inc., 476 F.2d 687, 692 and 693 (2 Cir. 1973); accord Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247 (2 Cir. 1973).
Normally, in the absence of the lesser standard being expressly adopted by the Third Circuit the Court would be reluctant to permit Copperweld to avail itself of same. However, we have reason to believe that, should the Circuit have occasion to rule on the matter in the context of a case such as the one before us,
it would embrace the less stringent criteria. In Delaware River, supra, a case in no way factually and legally similar to ours, Judge Rosenn, after concluding that the "likelihood of success" test was not met, went on to say at p. 923 that a lower court may not abuse its discretion in granting an injunction ". . . even though plaintiffs did not demonstrate as strong a likelihood of ultimate success as would generally be required." Moreover the Third Circuit has cited the Gulf & Western and Sonesta decisions with apparent approval in at least one case involving a tender offer, Ronson Corp. v. Liquifin Aktiengesellschaft, 483 F.2d 846, 849-51 (3 Cir. 1973) (per curiam). See Elco Corporation v. Microdot Inc., 360 F. Supp. 741, 746-47 (D. Dela. 1973). In light of the above remarks and because plaintiff has not shown a likelihood of success in our judgment, we shall ponder only whether serious questions going to the merits have been adequately shown.
Before discussing the merits of the antitrust claims the Court wishes to summarily dispose of two threshold arguments asserted by defendant.
First it is charged that Copperweld has failed to define the relevant lines of commerce and, because "[determination] of the relevant market is a necessary predicate to a finding of a violation of the Clayton Act . . .", United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 593, 1 L. Ed. 2d 1057, 77 S. Ct. 872 (1957), Imetal contends that this portion of the case is precluded. In support of this position defendant cites the test set forth in Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 325, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962) along with the ruling of Judge Fisher in Ronson Corp. v. Liquifin Aktiengesellschaft, 370 F. Supp. 597 (D.N.J. 1973). The problem with defendant's position is that Copperweld has introduced evidence, as discussed below, which supports a finding of its relevant markets. This fact renders Ronson wholly inapplicable because in that case the plaintiff introduced nothing to support its market participation.
Nor can we strictly apply the test of Brown Shoe because, considering the nature of this proceeding, the factors therein enumerated were designed we think for proving a Section 7 violation on the merits.
Secondly it is charged that Copperweld has no standing to raise these antitrust questions because it has made no showing of threatened competitive harm to itself. From a purely competitive standpoint this acquisition most probably will not hurt plaintiff. However this is not a Section 4 Clayton Act case whereby only one who is injured in his business is permitted to seek treble damages. 15 U.S.C. § 15. The instant suit is being brought under Section 16, 15 U.S.C. § 26, which permits any corporation to sue for injunctive relief against threatened loss. Plaintiff has alleged threatened irreparable harm, to wit, possible action by the government for divestiture. Moreover in discussing the legislative history of Section 7 then Chief Justice Warren noted that the statutory objective was to protect ". . . competition, not competitors. . . ." Brown Shoe, supra, at 320. We believe the plaintiff has standing to raise the issues herein.
COUNT I -- Potential-Competition Theory
Copperweld's initial theory that the acquisition would violate the antitrust laws rests on Section 7 of the Clayton Act, 15 U.S.C. § 18. It provides in pertinent part:
No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.
One of the first cases involving judicial construction of Section 7 following the 1950 amendment was the celebrated Brown Shoe Co., Inc. v. United States, supra. In discussing the legislative history of § 7 the late Chief Justice Warren, writing for the majority, observed that Congress was fearful of the increasing tendency toward concentration in the American economy. Id. at 315. He then goes on to list eight factors which Congress discussed in redrafting § 7, six of which we deem worth mentioning in the context of this case. These six points can be summarized as follows:
(1) Section 7 was intended to apply to any merger tending to lessen competition;
(2) it was designed to arrest such a merger in its incipient stages;
(4) Congress neither defined the standards nor adopted any tests by which the effects of a merger on competition are to be determined;
(5) however, it did indicate that the merger must be examined in the context of its particular industry; i.e., with an awareness of industry trends toward domination, concentration, fragmentation, market entries, barriers to entry, etc.; and
(6) in light of the statutory language any assessment of a merger's effect must be concerned only with probabilities, not certainties.
The anticompetitive effects wrought by the merger in Brown Shoe were pursuant to classic horizontal and vertical arrangements.
Since most, if not all, sizeable mergers are inherently suspect under § 7, especially where the acquiring firm engages in business activities similar to or related to the acquired firm, we five years later witnessed the birth of the "product extension" merger. FTC v. Procter & Gamble Co., 386 U.S. 568, 18 L. Ed. 2d 303, 87 S. Ct. 1224 (1967). In this case Procter & Gamble (P & G), a diversified manufacturer of household cleaning items, acquired Clorox Chemical Co., a leading liquid bleach producer. The merger had no vertical characteristics yet it could not be classified as truly horizontal since P & G, not being a manufacturer of liquid bleach, was not a competitor with Clorox in that particular line of commerce. The Federal Trade Commission argued that the takeover enabled P & G to extend its already similar product line and, because of other relevant market factors, tended to lessen competition. By agreeing with the government the Supreme Court, in holding § 7 to bar certain acquisitions involving noncompetitors, also gave impetus to what is now called the "potential-competition doctrine."
In Count I, plaintiff alleges that it manufactures and sells eight major products which constitute separate lines of commerce in the United States. Since these products are sold in markets alleged to be oligopolistic it is contended that defendant, by entering this market through acquisition, would be violating the "potential-competition doctrine" that has evolved from judicial decisions construing Section 7 of the Clayton Act. In our view some background on this doctrine would be a beneficial prelude to our discussion of this claim.
The emergence of the potential-competition doctrine as we know it today is comparatively recent. True, it was probably given birth over a decade ago, see United States v. El Paso Natural Gas Co., 376 U.S. 651, 84 S. Ct. 1044, 12 L. Ed. 2d 12 (1964), but it really attained stature in the seventies with the Supreme Court's decision in United States v. Falstaff Brewing Corp., 410 U.S. 526, 35 L. Ed. 2d 475, 93 S. Ct. 1096 (1973). Because it had been evident that § 7 was applicable to all mergers that may substantially lessen competition the economic alignments between the acquiring and acquired firms no longer mattered.
After Procter & Gamble the reasoning behind the doctrine was clear: an enterprising concern which gains market entry by acquisition may, because of its success in similar or related fields and financial resourcefulness, become such a dominant force in the new market that prevailing conditions could be upset thus effecting competition detrimentally; however if that same firm would enter the market as a new entity by internal expansion it could well cause a beneficial effect on competition.
A "potential competitor" was aptly described in United States v. Penn-Olin Chemical Co., 378 U.S. 158, 174, 12 L. Ed. 2d 775, 84 S. Ct. 1710 (1964):
The existence of an aggressive, well equipped and well financed corporation engaged in the same or related lines of commerce waiting anxiously to enter an oligopolistic market would be a substantial incentive to competition which cannot be underestimated.
Thus one who is not competing, but could be competing, may cause a procompetitive effect as the Court in Falstaff supra, at pp. 531-32 observed:
Suspect also is the acquisition by a company not competing in the market but so situated as to be a potential competitor and likely to exercise substantial influence on market behavior. Entry through merger by such a company, although its competitive conduct in the market may be the mirror image of that of the acquired company, may nevertheless violate § 7 because the entry eliminates a potential competitor exercising present influence on the market.
The Supreme Court, not having made its position clear concerning application of the doctrine in Procter & Gamble, left no doubt with the Falstaff decision. In this case defendant, the nation's fourth largest beer producer operating regionally, acquired a local concern in the northeast sector of the country so that it could go national. Since Falstaff had not competed in that geographic market the government contended it ". . . was a potential competitor so situated that its entry by merger rather than de novo violated § 7." Id. at 532. The district court, finding that Falstaff had no intention of entering that market de novo, concluded that it was not a potential competitor and dismissed the complaint. The Supreme Court in reversing that decision saw error in the district court's assumption that, but for de novo entry, one could not be deemed a potential competitor. Id. Writing for the majority Justice White then goes on to articulate what has become the second criterion by which it can be determined whether one is a potential competitor under § 7:
[The] District Court failed to give separate consideration to whether Falstaff was a potential competitor in the sense that it was so positioned on the edge of the market that it exerted beneficial influence on ...