Merger Doctrine: Some Emerging Issues

Loyola Marymount University and Loyola Law School Digital Commons at Loyola Marymount University and Loyola Law School Loyola of Los Angeles Law Review Law Reviews 4-1-1970 Merger Doctrine: Some Emerging Issues Howard Adler Jr. Recommended Citation Howard Adler Jr., Merger Doctrine: Some Emerging Issues, 3 Loy. L.A. L. Rev. 279 (1970). Available at: https://digitalcommons.lmu.edu/llr/vol3/iss2/8 This Symposium is brought to you for free and open access by the Law Reviews at Digital Commons @ Loyola Marymount University and Loyola Law School. It has been accepted for inclusion in Loyola of Los Angeles Law Review by an authorized administrator of Digital Commons@Loyola Marymount University and Loyola Law School. For more information, please contact . MERGER DOCTRINE: SOME EMERGING ISSUES by Howard Adler, Jr.** The late 1960's witnessed an unprecedented merger movement-a movement distinguished particularly by the number of very large acquisitions that were made. Statistics compiled by the Federal Trade Commission show that in 1968 there were 201 acquisitions of manufacturing or mining concerns having $10 million or more in assets, and that these acquisitions accounted for a combined $12.8 billion in assets. Twenty years earlier, in 1948, there were only six acquisitions in this size category, and they accounted in toto for only $101 million in assets.1 The current merger movement is also distinguished by the dramatic role being played by the "conglomerates". While there are many significant differences among the group of companies commonly known as conglomerates, they do tend to have some characteristics in common. They are new, at least when compared to the established giants of American industry; they tend to be more highly leveraged in their financing than the old line companies; and of course they have achieved rapid growth through acquisitions, including tender and exchange offers made for sometimes unwilling corporate partners. It was probably inevitable that both the pace of merger activity and the techniques being used by some conglomerates would lead to governmental action aimed at slowing down the merger trend. Tax legislation designed to inhibit the use of debt securities in acquisitions has been enacted;' the Securities and Exchange Commission has adopted rules that require a conglomerate to make separate financial reports for each of its component product lines; 3 accounting rules believed to encourage acquisitions are being modified; and last, but not least, the * This article is adapted from remarks originally prepared for delivery at the American Bar Association's National Institute Program, "Conglomerates and Other Modem Merger Movements," held in New York City, October 23-25, 1969. ** Member of the Bar, District of Columbia, Chairman, Section 7 of the Clayton Act Committee of the American Bar Association's Section on Anti-Trust Law. I Hearings on S.R. 40 Before the Subcomm. on Antitrust and Monopoly of the Senate Comm. on the Judiciary, 91st Cong., 1st Sess., pt. 8A, at 43 (1969). 2 See Comment, An Analysis of Accounting and Tax Considerations Which Affect Conglomerate Growth, 3 Loy. L.A. L. REv. 348, 359-72 (1970). 3 See Comment, An Analysis of Accounting and Tax Considerations Which Affect Conglomerate Growth, 3 LoY. LA. L. REV. 348, 358-59 (1970). LOYOLA UNIVERSITY LAW REVIEW [Vol. 3 Antitrust Division of the Department of Justice has been unleashed.4 The current activity of the Antitrust Division in opposing very large conglomerate mergers is in sharp contrast to the passive role assumed by the Division during the previous administration. The prior administration's position reflected a deliberate policy judgment by Assistant Attorney General Donald F. Turner that Section 7 of the Clayton Act,5 as presently written, would not prohibit conglomerate mergers just because they are large. It was his position, as reflected both in an article6 written while he was still a professor at the Harvard Law School and in the Division's Merger Guidelines 7 issued on the eve of his return to Harvard, that in most cases the effects of conglomerate mergers were too ambiguous to permit Section 7 to be invoked. Shortly after the current administration took office, it became clear that it would assume a more militant stance against conglomerate mergers. In March of 1969, Assistant Attorney General Richard McLaren announced to the Congress that the Division was "willing to risk losing some cases to find out how far Section 7 will take us in halting the current accelerated trend toward concentration by mergers. . .. "s Attorney General Mitchell has enthusiastically supported Mr. McLaren and in a speech to the Georgia Bar Association in June, 1969, he announced that "the Department may very well oppose any merger among the top 200 manufacturing firms . . ." and "will probably oppose any merger by one of the top 200 manufacturing firms with any leading producer in any concentrated industry."' Mr. McLaren has certainly fulfilled his promise to explore the outer limits of Section 7. Since April, 1969, he has brought five potential landmark cases which should go a long way toward determining the latitude of applicability of Section 7 to large conglomerate mergers. Ling-Temco-Vought's (LTV) acquisition of Jones & Laughlin Steel Corporation (J&L) has been challenged; 10 three separate cases have been 4 Address by Attorney General John N. Mitchell, before Georgia Bar Ass'n, Savannah, Ga. June 6, 1969, in 5 TRADE REG. REP. 1150, 247, at 55,509 (1969). 5 15 U.S.C. § 18 (1964), amending 15 U.S.C. § 18 (1946). 6 Turner, Conglomerate Mergers and Section 7 of the Clayton Act, 78 HARv. L. REv. 1313 (1965). 7 Department of Justice, Merger Guidelines, in 1 TRADE REG. REP. %4430 (1968). 8 Statement by Assistant Attorney General in Charge of Antitrust Division, Richard W. McLaren, before House Ways and Means Comm., Mar. 12, 1969, in 5 TRADE REo. RE'. fI 50,233, at 55,465 (1969). 9 Address by Attorney General John N. Mitchell, supra note 4. 10 United States v. Ling-Temco-Vought, Inc., Civil No. 69-438 (W.D. Pa., filed Apr. 14, 1969). The Department's challenge to LTV's takeover of J&L has, however, now been settled. A consent decree was entered granting LTV the right to retain 19701 MERGER DOCTRINE filed attacking International Telephone & Telegraph's (ITT) acquisition of Canteen Corporation, Grinnell Corporation and The Hartford Fire Insurance Company;' and the Department sued to enjoin Northwest Industries' attempted takeover of the B.F. Goodrich Company. 2 Similar issues were raised by the FTC's complaint against the threatened takeover of Allis-Chalmers Manufacturing Company by White Consolidated Industries, Inc. 13 This article, however, deals primarily with new issues of merger doctrine raised in the recent Department of Justice complaints. Conglomerate mergers are not virgin territory to the Supreme Court.' 4 The Court has discussed and developed concepts of potenti (...truncated)