that industry wide competition would be substantially lessened.
The Court is entreated to accept this reasoning merely on the basis of the inference that Reynolds would naturally engage in this reciprocal policy by virtue of its acquisition of Penick. As a matter of fact, Reynolds introduced testimony that reciprocal buying played no part at all in its organization. Furthermore, company policy was to increase business through competitive means by providing financial support to obtain production and technological advantages, both proper competitive weapons. At no time did the Government show or introduce proof that Reynolds had ever deviated from this non-reciprocal policy either in its own business or in the business of the concerns acquired by it under its diversification program. No proof was adduced to show other than the mere possibility that Penick's acquisition would have substantial impact upon competition.
Mr. Justice Stewart, concurring in Consolidated Foods, supra, states that 'Clearly the opportunity for reciprocity is not alone enough to invalidate a merger under § 7. The Clayton Act was not passed to outlaw diversification.' ( Concurring Opinion 85 S. Ct. page 1227). He continues, 'The touchstone of § 7 is the probability that competition will be lessened. * * * But the record should be clear and convincing that the requisite probability is present.' (Page 1228). He further states, 'Without post-acquisition evidence, the trier is faced with a blank slate and untested speculation.'
At best the Government has proven that reciprocity is currently present in the industry. From that they seek the inference that entrance into the market by Reynolds would greatly increase this reciprocity and hence materially lessen competition. However, Reynolds is not in the position of functioning in a closely allied field of commerce as was Consolidated. Reynolds' motives for acquisition are manifestly aimed at diversification rather than efforts to obtain leverage in the starch industry. Their contact with the paper producing firms is by no means on a reciprocal basis, nor is there any showing that there would be deviation of a serious nature from past policies a result of this acquisition. Again referring to Consolidated, we find that officials of the acquiring corporation sought to assist Gentry in selling and introduced principles of reciprocity into the sale program by supplying lists of their suppliers. While an acquiring corporation is not entitled to a 'free trial' period, neither is the 'mere possibility' of increased reciprocity enough for the Court to grant the desired relief.
The Government is not completely remediless since the threat of divestiture is present if the post-acquisition conduct and/or the trial of the case establishes the violation of Section 7 as claimed. The proofs of this case are only inferential and are not of the nature sufficient to disclose probable violations of the Act in-limine. The inferences are all based on the assumption that Reynolds' presence in the market would alone increase the reciprocity to so marked a degree that competition would be impaired and that it is impossible to otherwise compete by normal competitive means. These inferences are dissipated by the evidence given by Reynolds and by the competitive nature of the industry as emphasized by the increasing sales of all the firms and the marked rise of Grain Processing in a relatively short span. The entry into the market by Standard Brands, Best Foods and Anheuser-Busch has apparently not resulted in substantial impairment of the competitive make-up of the industry. Although reciprocity was allegedly increased by virtue of these acquisitions, there is no evidence in the record that they have been attacked by the F.T.C. or that great changes have been wrought in industry policy. Clearly these firms were more closely allied to the starch industry than a comparatively unrelated purchaser such as Reynolds.
As a matter of fact the tenor of the testimony is that industry prospects are optimistic, the size of the available market increasing and that many firms are contemplating substantial investments in plant and production facilities. In addition emphasis is on the development of various specialty products. The Reynolds witness mentioned the artificial sweetening process as an area of proposed concentration by Penick after acquisition by virtue of the new source of capital then available. Reciprocity is considerably downgraded in this field of operations.
In short we find that the evil here exists prior to the acquisition sought to be restrained. The injection of Reynolds into the market (as with any large company) presents the possibility of increasing this evil by increasing purchasing power. However, possibility is not probability and in light of the testimony the Court is impressed that the existing evil will be diminished rather than increased by the Reynolds acquisition because of their business policies and available capital.
In the face of the entire record presented, this Court cannot say that it is convinced that the Government's hypothesis is anything more than mere speculation inferred from a state of facts ambiguously conducive to such conjecture. The facts exist but the probability of the contention has not been established. The United States has not proven the probability of lessening of competition and the showing of a reasonable probability of success on final hearing in order for the injunctive relief to be granted. The Court is not convinced that the proposed merger 'may probably lessen competition.' There has not been a sufficient showing that the acquisition will create the probability of a protected market in the industry which cannot be penetrated by competing firms, and more particularly that Reynolds would engage in or encourage the type of practice prohibited. Consequently, the Government's motion for a preliminary injunction must be denied.
Let counsel for the defendants submit an appropriate order with consent of the Government as to form. Defendants are directed not to consummate the transaction for a minimum period of five days from the date of the filing of this opinion.
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