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UNITED STATES v. ALUMINIUM LTD.

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY.


January 5, 1965.

United States
v.
Aluminium Limited, Alcan Aluminum Corporation, and National Distillers & Chemical Corp.

The opinion of the court was delivered by: COOLAHAN

Before JAMES A. COOLAHAN, United States District Judge.

COOLAHAN, District Judge: The plaintiff in this action on December 30, 1964 filed a complaint in this District against the defendants Aluminium Limited, Alcan Aluminum Corporation and National Distillers & Chemical Corporation wherein it alleged violation of the Clayton Act, Chapter 7 (15 U.S.C. Section 18) the complaint alleges that the proposed acquisition by Aluminium of the Aluminum Division of National Distillers, Bridgeport Brass Metals Division and National Distillers stock interest in Alroll, Inc. and Alplate Inc. would be in violation of the Act.

In addition to the filing of the complaint the plaintiffs obtained from the Court a temporary restraining order which was granted ex parte which enjoined Aluminium Limited from acquiring National Distillers Aluminum Division which acquisition was to be consummated between the parties today, that is to say, January 5, 1965.

 The Court granted a hearing on the injunctive phase of this matter on January 4, 1965. All parties and their present witnesses were heard on this date. Affidavits and legal memorandum in addition to the various exhibits and factual testimony was presented to the Court for its consideration. At the date of hearing an application to intervene was made by Scovill Manufacturing Company inasmuch as Scovill held an interest in Alroll, Inc. which was to be purchased by Aluminum conditioned upon the acquisition enjoined by the December 30 order of this Court. Scovill's percentage interest in Alroll, Inc. is the same as that of National.

 It appears from the affidavits filed with the Court, the exhibits and the testimony that the Aluminum Division of National was principally engaged in the sheet rolling industry at the semi-fabricating level, and on a non-integrated basis.

 This means that National does not control its own source of supply of aluminum ingots but must purchase same from one of the primary producers such as Aluminum, Ltd. While Aluminium may be a primary producer it has never been engaged in domestic competition in the United States on this level of the aluminum industry.

 National Contended that - with an exception that I shall later talk of - National contended that in order for its Bridgeport Division to become a profitable enterprise it was necessary to fully integrate backwards, that is to say, secure a position in basic aluminum operations. Efforts were explored to secure this position but it appeared that the costs were prohibitive and all plans taken in this direction proved unworkable and had to be abandoned.

 National's primary business is the distillation and distribution of alcohol and alcoholic beverages, although it has diversified into other fields, including metals. In 1961 National acquired Bridgeport Brass Company and hence entered into the metals field. Bridgeport had previously acquired the Hunter-Douglas Aluminum Corporation, which produced a line of venetian blind components known as "Flexalum." In addition Bridgeport fabricates aluminum awning components and siding which it markets under the Wall Master brand through the Brixite Manufacturing Company, which it acquired in 1964.

 Aluminum, Limited, is a Canadian corporation and is reputed to be the largest producer of primary aluminum in the world and purportedly accounts for 18.1 per cent of the total free world production of primary aluminum. In 1945, pursuant to the case of United States v. Aluminum Company of America, 148 F.2d 416 (2nd Circuit 1945), the controlling stockholders of Aluminium and Alcoa were ordered to dispose of one or the other shares of stock holdings over a ten-year period, that it stock holdings they had in either Aluminium or Alcoa, thereby breaking the bond of ownership which had previously linked the two giants of the aluminum industry and presumably enabling free competition between the two firms to take place. Since that date, however, Aluminium has not fabricated aluminum in the United States. More recently, however, it 1963 it acquired Central Cable Corporation, a producer of aluminum conductor wire, and Metals Disintegrating Company, a producer of aluminum powder and paste. To date these have been the only areas where Aluminium has competed for the U.S. domestic market.

 In 1960 Aluminium, National, Cerro Corporation and Scovill Manufacturing Company entered into a joint venture called Alroll, Inc., and began producing aluminum reroll coil. Of Alroll's 2,000 outstanding shares of capital stock, National, Cerro Corporation and Scovill Manufacturing Company, each owned 333 shares and Aluminium, Limited, owned 1,001 shares.

 In 1964 Aluminium and National in a joint venture created Alplate, Inc., to produce aluminum plate. Both National and Aluminium each own a 50 per cent interest in Alplate, Inc.

 In the proposed acquisition Aluminium will acquire all of National's interest in Alroll, Inc., Alplate, Inc., The Bricksite Plant at South Kearny, New Jersey, the California Plant of Hunter-Douglas, the Warren Ohio Plant, four warehouses located in Illinois, New Jersey, Georgia and Pennsylvania, and National's 50 per cent interest in Nesco Aluminum Sales, Inc., a warehouse distributor.

 On October 8, 1964, National and Aluminium released for public information, in accordance with S.E.C. regulations, the details of the above described acquisition and slated January 5, 1965 as a closing date. Direct correspondence was had with the United States Department of Justice and information and data voluntarily supplied the Government as requested.

 The terms of the proposed sale provide for Aluminium to pay National upon closing, cash in the amount of $26,450,617, representing the book value of the liquid assets of Bridgeport's Aluminum Division. The sum of $17,828,304 will be payable over ten years by means of ten non-interest bearing notes of equal tenor to compensate National for the book value of its fixed assets. These fixed assets have a present insured cash value of $23,186,000 and by being conveyed at this book figure, are being sold for less than their actual value because of the deferred non-interest bearing notes used as the method of payment. This would indicate to a great extent the desire of National to rid itself of its admittedly floundering Aluminum Division, which it claims suffered substantial loss during its five years of operations and is currently alleged to be losing $15,000 per day. Testimony by the chief financial officer of National, William A. Jones, comptroller, clearly evidenced the current and long term losses suffered by the Aluminum Division and creating the atmosphere dictating this transfer.

 In order to prevail under preliminary injunctive relief it is necessary for the plaintiff, that is the Government, to establish a reasonable probability that it will prevail on the merits at trial in proving that there will be substantial impact upon competition if the proposed acquisition were permitted and thus cause the Court to preserve the status quo by injunction. I refer to United States v. Crocker-Anglo National Bank, 223 F. Supp. 849 and United States v. Chrysler Corporation, a case heard in this District, reported in 232 F. Supp. 651 (1964).

 The Government need not show irreparable damage since the public interest is not to be measured by the same standards applicable to private litigation. U.S. v. Ingersoll-Rand Company, 218 F. Supp. 530, affirmed 320 F.2nd, 509, another Third Circuit case.

 It is, of course, fundamental to the issuance of an interlocutory injunction that the matter rests within the sound discretion of the trial court. Such was stated in Ingersoll Rand, supra, 320 F.2nd 523. The Court is only required to find that a substantial lessening of competition is a likelihood.

 Section 7 exemplifies congressional intent to prohibit transactions with a probable anti-competitive effect and to prevent these acquisitions in their incipiency. Brown Shoe Company v. United States, 370 U.S. 294, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962). The plaintiff, however, must show that the threatened act was within the declared prohibition of Congress.

 The Government in this case contends that the lines of commerce to be effected by the proposed acquisition will be the fabrication of venetian blind components, the aluminum siding industry, and the aluminum awning business. It is contended that each of the aforementioned products constitutes a "line of commerce" in and of itself and therefore the impact on competition in these narrow areas are the relevant criteria to be considered. Through affidavits and testimony the Government has sought to establish that the fabrication of aluminum venetian blinds is a line of commerce separate and apart from the fabrication of iron or other type blinds. To substantiate this contention they introduced oral testimony to the effect that aluminum blinds chiefly accounted for the custom blinds market in the United States and were different in price and quality from the stock venetian blinds made of iron and other material.

 With respect to awnings, the Government produced a witness who testified that aluminum awnings differed greatly in style, price, design and snow load capacity from its canvas counterpart and therefore may be classified a separate and distinct line of commerce.

 With respect to siding as opposed to other building materials, testimony was introduced toward the concept that aluminum siding was cheaper and more economical to maintain than other building material such as asbestos, shingles and clapboard, although the installation cost of the material was the same in all cases.

 The Government's proof directed toward the establishment of lines of commerce seems to be in accord with the criterion for such divisions laid down in Brown Shoe Company, supra, and United States v. Aluminum Company of America (that is the Alcoa-Rome case), 377 U.S. 271, 12 L. Ed. 2d 314, 84 S. Ct. 1283 .

 The geographical market effected by the acquisition is contended as encompassing the entire United States inasmuch as the Aluminum Division to be acquired has distribution facilities throughout the country, although enjoying chief success in the north-east with Wallmaster and the far west with Flexalum. It seems appropriate to consider the United States as the market in question since both Aluminium and National do business on a nationwide basis.

 Assuming arguendo that the Government has established necessary prerequisites, lines of commerce and geographical market, it becomes incumbent upon them as plaintiffs to establish that there will be an impact upon, and a substantial lessening of competition from the proposed acquisition. This they have sought to establish by proving an effect on the independent fabricator who is not integrated with a primary producer. They reason that National is now a viable competitor of an independent nature and will be eliminated after this acquisition. This will then establish a trend so as to reduce the competitive ability of the non-integrated independent fabricator in each of the lines of commerce referred to.

 The second ground of impact is said to be the loss of potential competition engendered by National's removal from the business and its attendant effect of prohibiting that firm from integrating backwards into primary production. Likewise Aluminium will enter the field at an advanced stage and therefore another source of potential competition will be lost.

 The facts presently before the Court indicate that Bridgeport made every effort in its attempt to gain participation on its own or with others in the production of primary aluminum, but that it was thwarted in these efforts by financial difficulties to enter the primary field.

 Furthermore, the president of Bridgeport, Martin K. Schnurr, testified with great detail as to the steps taken to secure entrance into the basic aluminum field and the concomitant difficulties experienced which resulted in the decision to accept the Aluminum offer of purchase and make a public announcement of the same. The consequences of such a course of action and the accompanying losses currently experienced by the Aluminum Division militate toward the accomplishment of the proposed sale and leave only the alternative of dissolution and disposal of the various enterprises on a piecemeal cannibalistic basis to the highest bidder. The lack of buyers for the entire enterprise is graphically illustrated by the antitrust approach to this case which would undoubtedly preclude purchase by an already established integrated producer, most of whom presently compete in the market.

 Therefore the effect of National's sale of its assets, being forced by virtue of an injunction to terminate the contract with Aluminium would bring about a substantial lessening of competition in and of itself. The logic of the reasoning of the Government in this instance is difficult to ascertain when they state that an integrated fabricator would tend to lessen competition although they admit and would encourage both National and Aluminium to become fully integrated fabricators and thereby compete with the small independents they now purport to protect by virtue of this suit.

 The Government's proof indicated a paucity of evidence on the question of the effect of Aluminium into this market. Two of the three witnesses questioned would give no opinion on the effect of this proposed acquisition and the third, president of the largest aluminum siding manufacturer, did not indicate a lessening of competition but rather an encouragement of the same.

 This is not to say that the Government will not be able to establish this set of facts upon a full trial of the merits but they have not shown a reasonable likelihood of establishing the same so as to require the extraordinary relief of a preliminary injunction and thereby cause a substantial lessening of competition through the dissolution of a viable competitor.

 To preserve the status quo in the matter the Defendants Aluminium have submitted an order which this Court will sign and file with this opinion which provides for the separation of the property to be acquired from the aforementioned acquisition. Aluminium and/or Alcan stipulates not to commingle any of the property transferred but to preserve same in the manner in which it received them.

 Furthermore, they will not detract from the property but will only act to improve or enhance the assets acquired. They will try to preserve the customer relationship and keep the business as a going concern.

 The order has built-in safeguards requiring three months' notice to the Government of any proposed change so that the entity will be subject to scrutiny as it is being preserved and maintained.

 In addition the Court will see that the parties obtain as early date as is feasible under the circumstances and thereby act with due diligence to finally dispose of the controversy.

 The remedy of divestiture should adequately protect the public interest against the fear of monopoly and a lessening of competition through the admission of Aluminium into the United States market. The Government has expressed an opinion that divestiture encompasses difficult problems but it is difficult to see where these problems should be materially different than were National forced to divest itself of these properties by presently selling them off to the highest bidder. The impact upon competition would seem the same were dissolution to result now or were divestiture to be ordered at a later date. In balancing the equities the Court must consider the effect on the defendants and the public at large as a result of the granting of an injunction in the present case.

 In addition the defendants have presented this Court with a failing company defense in respect to the Aluminum Division of Bridgeport. The above disposition makes it unnecessary to currently decide this question. This matter is a proper subject for further exploration at a trial upon the merits along with the other greatly disputed questions of fact raised by the material submitted to date.

 Each acquisition or merger situation presents its own unique set of facts which must be tested by inquiry into the reasonable likelihood of the forbidden consequences alleged. The fact of acquisition alone does not create such a result. The Alcoa-Rome and the Alcoa-Cupples situations are distinguishable from the present set of facts. Likewise the Chrysler fact and the situation in that case is not present in this particular litigation. We have here a primary producer not before active in the domestic United States, in the fabrication facet of the industry.

 The Government's reference to the antitrust discussions in the corporate minutes are quotations out of context and relate to other and different types of mergers.

 THEREFORE, it is ordered that the restraining order heretofore granted be dissolved and the application for the preliminary injunction be denied, and further that this case be set down for trial on the merits on June 7, 1965.

 Scovill will be allowed to intervene in this case. This application is granted, if Scovill so desires, because they are part and parcel of this acquisition, or they may appear before the Court amicus curiae.

 In view of the time element I am giving this opinion orally pursuant to Rule 52(a) and a transcript can be obtained from the reporter.

19650105

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