Preliminary Injuction Thwarting Conglomerate Merger Denied (Missouri Portland Cement Co. v. Cargill, Inc.)

St. John's Law Review Volume 49, Winter 1975, Number 2 Article 6 Preliminary Injuction Thwarting Conglomerate Merger Denied (Missouri Portland Cement Co. v. Cargill, Inc.) Robert A. Stern Follow this and additional works at: https://scholarship.law.stjohns.edu/lawreview Recommended Citation Stern, Robert A. (1975) "Preliminary Injuction Thwarting Conglomerate Merger Denied (Missouri Portland Cement Co. v. Cargill, Inc.)," St. John's Law Review: Vol. 49 : No. 2 , Article 6. Available at: https://scholarship.law.stjohns.edu/lawreview/vol49/iss2/6 This Note is brought to you for free and open access by the Journals at St. John's Law Scholarship Repository. It has been accepted for inclusion in St. John's Law Review by an authorized editor of St. John's Law Scholarship Repository. For more information, please contact . ANTITRUST LAW PRELIMINARY INJUNCTION THWARTING CONGLOMERATE MERGER DENIED Missouri Portland Cement Co. v. Cargill, Inc. Section 7 of the Clayton Act' makes unlawful those corporate acquisitions which may have substantial anticompetitive consequences. By employing the word "may," Congress indicated that its concern was with "probabilities, not certainties." 2 Thus, in determining the legality of a particular merger, a court will consider the "reasonable likelihood ' 3 of a lessening of competition. In the case of a conglomerate merger, however, the determination of legality may be especially difficult since the effects of the merger on competition are often not as readily identifiable as those accompanying the more traditional horizontal and vertical mergers. 4 Nevertheless, conglomerate mergers are subject to the same anticompetitive prohibitions embodied in section 7. In Missouri Portland Cement Co. v. Cargill,Inc.,5 the Second Circuit considered the propriety of a district court order preliminarily enjoining the continuation of a tender offer which threatened to result in the effectuation of an unlawful conglomerate merger. Reversing the district court's determination, the court concluded that the target 1 15 U.S.C. § 18 (1970). Section 7, in part, provides: 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. 2 Brown Shoe Co. v. United States, 370 U.S. 294, 323 (1962). 3United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 592 (1957). 4 A conglomerate merger consists of any acquisition other than a horizontal or vertical merger. A horizontal merger occurs between two companies that are direct competitors of each other. A vertical merger is one where the acquired firm is, or might easily become, a customer or a supplier of the acquiring firm. Hearings on Economic Concentration Before the Subcomms. on Antitrust and Monopoly of the Senate Comm. on the Judiciary, Part 2, Mergers and Other Factors Affecting Industry Concentration, Pursuant to S. Res. 40, 89th Cong., 1st Sess. 515-20 (1965). Conglomerate mergers can be divided into three broad subcategories: product-extension mergers, geographic market-extension mergers, and pure conglomerate mergers. A product-extension merger involves a merger of companies which use a common distribution system for products which do not directly compete with one another. A geographic market-extension merger occurs between companies which manufacture the same products but distribute them in different geographic markets. Id. Mr. Justice Douglas has defined a pure conglomerate merger as one where "there are no economic relationships between" the two companies involved in the merger. FTC v. Procter & Gamble Co., 386 U.S. 568, 577 n.2 (1967). 5498 F.2d 851 (2d Cir.), cert. denied, 95 S.Ct. 150 (1974). 260 SECOND CIRCUIT NOTE, 1973 TERM of the merger plan, Missouri Portland Cement Co., had failed to establish the probability that its acquisition by Cargill might have substantial anticompetitive effects.6 By so holding, the court may have introduced a new permissiveness with respect to the validity of conglomerate mergers. In 1973, Cargill, a large diversified corporation engaged in grain trading and other bulk commodity businesses,7 announced an offer to purchase all outstanding shares of Missouri Portland (MP), a publicly held corporation manufacturing portland cement and selling it in an area encompassing eleven states.8 Upon acquiring control of MP through the tender offer, Cargill intended either to merge it into the parent organization, or to operate it as a subsidiary. 9 In either event, due to the unrelated nature of the companies involved, the proposed acquisition would constitute a pure conglomerate merger. 10 The management of MP resisted Cargill's takeover attempt in the district court on the grounds that both the antitrust and securities laws had been violated. The court found no improprieties in Cargill's tender offer under the securities laws," but held that the contemplated merger raised "substantial and difficult antitrust questions"' 2 justifying the 6 Id. at 866. The case was remanded to the district court for the framing of a temporary injunction to allow the tender offer to continue pending litigation on the merits. Id. at 875. 7 Cargill's bulk commodities included such items as sugar, ores and metals, fertilizers, industrial chemicals, poultry products, and salt. Id. at 856. 8 Cargill originally contended that the eleven-state area in which MP sold its product was the correct geographic market. The district court, however, found that the acquisition would foreclose competition in four metropolitan markets: St. Louis and Kansas City, Missouri; Memphis, Tennessee; and Omaha, Nebraska. Id. at 856. Although for purposes of the appeal Cargill assumed arguendo the correctness of the district court's definition of submarkets, this interpretation may have been faulty. For example, in United States v. Marine Bancorporation, Inc., 94 S. Ct. 2856 (1974), the Supreme Court stated that for purposes of § 7 "section of the country" means "relevant geographic market" and the latter concept means the area in which the relevant product is in fact marketed by the acquired firm. Id. at 2870 n.20. Additionally, the Sixth Circuit, in United States Steel Corp. v. FTC, 426 F.2d 592, 596 (6th Cir. 1970), affirmed the findings of the FTC that the relevant geographic markets for the sale of portland cement in that case were the northeastern United States and the New York metropolitan area. 9498 F.2d at 855. 10 See note 4 supra. Although MP contended that the proper classification was a product-extension merger, Judge Friendly disagreed. He pointed to FTC v. Procter & Gamble Co., 386 U.S. 568 (1967), (...truncated)