Mergers and acquisitions

“ Whatever the wisdom or logic of the Court's assumed arithmetic proportion between the number of single-store concerns and the level of competition within the meaning of § 7 as applied to horizontal mergers, it is simply not possible to make the further assumption that the mere occurrence of market-extension mergers is adequate to prove a tendency of the local market toward decreased competition. ”

“ Units of traders and producers snowballed by combining into so-called 'trusts.' Competition was threatened. Control of prices was feared. Individual initiative was dampened. While the economic picture has changed, large aggregations or private capital, with power attributes, continue. Mergers go forward. Industries such as steel, automobiles, tires, chemicals, have only a few production organizations. A considerable size is often essential for efficient operation in research, manufacture and distribution. ”

“ The Government, however, contends that a merger more closely resembles a stock acquisition than an asset acquisition because of one similarity of central importance: the acquisition by one corporation of an immediate voice in the management of the business of another corporation. But this is obviously true a fortiori of asset acquisitions of sufficient magnitude to fall within the prohibition of § 7; if a corporation buys the plants, equipment, inventory, etc., of another corporation, it acquires absolute control over, not merely a voice in the management of, another business. ”

“ In the formation of a consolidation or a merger the services of a promoter may be necessary. This is especially true if the various companies are direct competitors and deep-rooted jealousies exist. Under the circumstances an outsider has the best chance of effecting an agreement between the parties. The difficulty encountered in all consolidations and mergers is the exaggerated idea of officials regarding the importance and value of their own plant and organization as related to the rest. ”

“ Giving the matter in parenthesis the most liberal construction, it is only when there is an acquisition of substantially all the property of another corporation in connection with a merger or consolidation that a reorganization takes place. ”

“ It passed and amended § 7 on the premise that mergers do tend to accelerate concentration in an industry. Many believe that this assumption of Congress is wrong, and that the disappearance of small businesses with a correlative concentration of business in the hands of a few is bound to occur whether mergers are prohibited or not. ”

“ By using these terms in § 7 which look not merely to the actual present effect of a merger but instead to its effect upon future competition, Congress sought to preserve competition among many small businesses by arresting a trend toward concentration in its incipiency before that trend developed to the point that a market was left in the grip of a few big companies. Thus, where concentration is gaining momentum in a market, we must be alert to carry out Congress' intent to protect competition against everincreasing concentration through mergers. ”

“ A merger between the second and sixth largest competitors in a gigantic line of commerce is significant not only for its intrinsic effect on competition but also for its tendency to endanger a much broader anticompetitive effect by triggering other mergers by companies seeking the same competitive advantages sought by Continental in this case. ”

“ It is enought for us that Congress feared that a market marked at the same time by both a continuous decline in the number of small businesses and a large number of mergers would slowly but inevitably gravitate from a market of many small competitors to one dominated by one or a few giants, and competition would thereby be destroyed. ”

“ But mergers and holding corporations commonly involve buying out the interests which are to be absorbed, and call for the use of checks. If the money market is tight, therefore, the promoter of the combination may frequently find the lease the more advantageous form of consolidation. [199] The great advantage of the lease is that, when the money market is tight, it involves no financial plan, no underwriting, no outlay of "cash." ”

“ Economic arrangements between companies standing in a supplier-customer relationship are characterized as 'vertical.' The primary vice of a vertical merger or other arrangement tying a customer to a supplier is that, by foreclosing the competitors of either party from a segment of the market otherwise open to them, the arrangement may act as a 'clog on competition,' Standard Oil Co. ”

“ Therefore, if the proposed merger be deemed an assets acquisition, it is not within § 7. [12] Appellant argues vigorously that a merger is crucially different from a pure assets acquisition, [13] and appellees argue with equal vigor that it is crucially different from a pure stock acquisition. [14] Both positions, we think, have merit; a merger fits neither category neatly. Since the literal terms of § 7 thus do not dispose of our question, we must determine whether a congressional design to embrace bank mergers is revealed in the history of the statute. ”

“ The market share which companies may control by merging is one of the most important factors to be considered when determining the probable effects of the combination on effective competition in the relevant market.71 In an industry as fragmented as shoe retailing, the control of substantial shares of the trade in a city may have important effects on competition. If a merger achieving 5% control were now approved, we might be required to approve future merger efforts by Brown's competitors seeking similar market shares. ”

“ Where a company which is incorporated due to a division or a merger through division or the other party to such merger through division acquires a right of business, the acquisition value may be counted in the assets side of the balance sheet. ”

“ See, e.g., Kaysen & Turner, Antitrust Policy 133-136 (1959) (horizontal merger with direct competitor is prima facie unlawful where acquiring company accounts for 20% or more of the market, or where merging companies together constitute 20% or more of the market; acquisitions producing less than 20% market control unlawful only where special circumstances are present, such as serious barriers to entry or substantial influence on prices by the acquired company) ”

“ The test which the Government advocates is that it 'can satisfy its burden of showing that the merger may have the effect of substantially lessening competition by proving (a) the existence of substantial competition between two industries; (b) a high degree of concentration in either or both of the competing industries ”

“ Furthermore, in this fragmented industry, even if the combination controls but a small share of a particular market, the fact that this share is held by a large national chain can adversely affect competition. ”

“ Given a trend towards fewer and fewer sellers which promises to continue, it is clear to me that where the eight leading firms have over 40% of the market, any merger between the leaders or between one of them and a lesser company is vulnerable under § 7, absent some special proof to the contrary. ”

“ It cannot be denied, however, that all the other elements of good-will may have been acquired and built up by the old company and that without them the new concern would be unable to bring good-will into evidence simply by a change of management. It is true that the merger may be able to build up quickly a good-will of its own through the elimination of competition, and through the full utilization of all the advantages of the different units—such as access to supplies of raw material, favorable trade agreements of various sorts, and the like. ”

“ As a large concern grows through a series of such small acquisitions, its accretions of power are individually so minute as to make it difficult to use the Sherman Act tests against them * * *.
'Where several large enterprises are extending their power by successive small acquisitions, the cumulative effect of their purchases may be to convert an industry from one of intense competition among many enterprises to one in which three or four large concerns produce the entire supply.' S.Rep. ”

“ Every time you pick up the newspaper you read about one company merging with another company. Of course, we have laws to protect competition in the United States, but one can't help thinking that, if the trend continues the whole country will soon be merged into one large company. ”

“ Clearly the opportunity for reciprocity is not alone enough to invalidate a merger under § 7. The Clayton Act was not passed to outlaw diversification. Yet large scale diversity of industrial interests almost always presents the possibility of some reciprocal relationships. Often the purpose of diversification is to acquire companies whose present management can benefit from the technical skills and sales acumen of the acquiring corporation. ”

“ Shareholders of merging corporations surrender their interests in those corporations in exchange for their very different rights in the resulting corporation. In an asset acquisition, however, the shareholders of the selling corporation obtain no interest in the purchasing corporation and retain no interest in the assets transferred. In a merger, unlike an asset acquisition, the resulting firm automatically acquires all the rights, powers, franchises, liabilities, and fiduciary rights and obligations of the merging firms. ”

“ While agreeing with the Government that, with regard to manufacturing, the relevant geographic market for assessing the effect of the merger upon competition is the country as a whole, Brown contended that with regard to retailing, the market must vary with economic reality from the central business district of a large city to a 'standard metropolitan area'2 for a smaller community. ”

“ Kintner, The Federal Trade Commission in 1960 Apologia Pro Vita Nostra, 1961 Antitrust Law Symposium 21, 41.↑ For example, in some situations the merger of relatively small competitors may result in creation of an enterprise capable of meaningful competition with a company otherwise in unchallenged domination of an industry. ”

“ A merger requires public notice whereas stock can be acquired privately. A shareholder dissenting from a merger has the right to receive the appraised value of his shares * * * whereas no shareholder has a comparable right in an acquisition of stock. Furthermore the corporate existence of a merged company is terminated by a merger, but remains unaffected by an acquisition of stock.' Brief for Appellees, 30-31.↑ The legislative history of the 1914 Act is reviewed in Brown Shoe Co. ”

“ The joint venture, like the 'merger' and the 'conglomeration,' often creates anticompetitive dangers. It is the chosen competitive instrument of two or more corporations previously acting independently and usually competitively with one another. ”

“ The Government may introduce evidence which shows that as a result of a merger competition may be substantially lessened throughout the country, or on the other hand it may prove that competition may be substantially lessened only in one or more sections of the country. ”

“ Hence a stimulus for the undertaking of new enterprises which can create and market such securities; and these enterprises, whether in the nature of new railroad, manufacturing, or mining corporations, once developed, must go on producing and selling their products or services with or without a profit in order to meet their obligations and command a share of previously existing trade. Production elsewhere, as a consequence, is interfered with, displaced, and in not a few cases, by reason of better conditions, permanently undersold. ”

“ The landed interest controls at one time, and the mercantile and manufacturing interest at another. They do not perfectly balance one another, and it is not difficult to see that the mercantile and manufacturing interest, combined with the moneyed interest, is henceforth to predominate. ”

“ This argument, however, misconceives not only the power of Congress over interstate commerce but also the basic nature of public utility holding companies and the effect that stock ownership has upon their activities. The dominant characteristic of a holding company is the ownership of securities by which it is possible to control or substantially to influence the policies and management of one or more operating companies in a particular field of enterprise. ”

“ The exchange and issuance of new stock for the old stock of the constituent companies.
The merger of a number of corporations is generally held to be a method of consolidating. The difference is that a consolidation is a fusion while a merger is rather an absorption. The constituent companies are merged into an existing one and no new corporation is formed. The rights, franchises, and interest are deemed to be transferred to, and vested in, the corporation into which the various companies have been merged without any deed or transfer, and the liabilities follow the rights. ”

“ It is the present intention of the Board of Directors of TU to recommend the approval of the Merger Agreement to the Stockholders, unless another offer or proposal is made which in their opinion is more favorable to the Stockholders than the Merger Agreement. ”

“ This difficulty is accentuated in effecting a merger because of the irrevocable nature of the compact and the almost complete disappearance of lines of demarcation as to the tangible and intangible assets of the various units. These difficulties are overcome in many instances by the promoter’s keeping the terms arrived at with each company a secret. Direct dealing is possible in the case of a merger when the various companies are supplementary to each other, such as would be the case where a selling organization is merged into a manufacturing corporation the product of which it distributes. ”