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March 31, 1966

UNITED STATES of America, Plaintiff,
STANDARD OIL COMPANY (NEW JERSEY) and Potash Company of America, Defendants

The opinion of the court was delivered by: SHAW

SHAW, District Judge.

 This is an action by the United States brought pursuant to the provisions of Section 15 of the Clayton Act (15 U.S.C.A. § 25) to restrain defendants Standard Oil Company (Jersey) and Potash Company of America (PCA) from consummating an agreement whereby Jersey would acquire all the stock and assets of PCA in alleged violation of Section 7 of the Clayton Act (15 U.S.C.A. § 18).

 Jersey is a New Jersey corporation maintaining its principal place of business in New York. PCA is a Colorado corporation with its principal place of business in Denver, Colorado. Jersey organized a Delaware corporation known as Potash Company of America, Inc. (Delaware) to function as a wholly owned subsidiary of Jersey. On September 16, 1964 Jersey, PCA and Delaware became parties to an agreement captioned "AGREEMENT AND PLAN OF REORGANIZATION" whereby PCA would transfer all of its assets to Delaware in exchange for 850,000 shares of Jersey's par value capital stock. Upon consummation of the agreement PCA as an independent, separate corporate entity would pass out of existence and its successor, Delaware, would conduct the business in which PCA had been engaged. Consummation of the agreement was enjoined pending determination on the merits of the government's complaint alleging that the acquisition of PCA by Jersey in the form of a wholly owned subsidiary of Jersey would violate Section 7 of the Clayton Act.

 The pertinent provisions of the Act are quoted as follows:


"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."

 Both of the defendants are corporations engaged in interstate and foreign commerce and are subject to the jurisdiction of this Court. Production and sale of potash is the relevant line of commerce and the United States as a whole is the relevant geographical area or market within which the effects of the acquisition of PCA by Jersey upon competition must be measured. The parties have so stipulated and the stipulation is supported by the evidence. An association composed of potash producers called the American Potash Institute computes statistics of the trade in potash as a separate and distinct industry. The Bureau of Mines, Department of the Interior of the United States Government publishes a yearly pamphlet of information on the potash industry. Producers of potash in the United States compete with each other for the business of customers in all parts of this country.

 Approximately 95% of the potash produced is purchased by fertilizer companies for agricultural purposes. Potassium, a product of potash, is one of the three primary nutrients needed for optimum plant growth. The other nutrients are nitrogen and phosphate. Where soil in its natural state does not provide one or more of these nutrients in sufficient quantity, an application of some form of fertilizer is necessary to produce healthy crops. No one of these primary plant nutrients can be substituted for the other, and at present potash cannot be synthesized. Where soil requires these three nutrients, fertilizer companies combine them in a mixed fertilizer.

 The potassium content of potash is usually expressed by the trade either in terms of potassium oxide (K (2)O) or muriate of potassium (KCl). The K (2)O content represents the potassium concentration. The commercial muriate of potash has a K (2)O equivalent of approximately 60%.

 Potash produced in Canada is and will be competitive with potash produced in this country. Increasing amounts of potash produced in Canada are being sold in the United States in competition with potash mined in this country.


 As a corporate entity, Jersey functions primarily as an investment corporation. It invests the funds of its stockholders in subsidiary and affiliated corporations which are directly responsible for the operation of the various industrial enterprises which produce revenue for the parent company. Viewed in the light of its management, control and participation in the operating enterprises of its subsidiaries and affiliates which produce Jersey revenues, Jersey is, for all practical purposes, directly engaged in the business which each of them conduct. *fn1" It is the general policy of Jersey, subject to a few exceptions, to hold 50% or more of the capital stock of operating industrial corporations in which it invests its funds. The conduct of the business of these corporations is closely supervised by Jersey. *fn1"

 Jersey holds more than 50% of the capital stock of over 200 foreign and domestic corporations engaged primarily in exploration, production, refining, transportation and sale of petroleum and derivative products including petrochemicals. Its capital expenditures for research, exploration and capital investment are world-wide, extending into more than 100 countries. In addition to its broad scale participation in the petroleum and petrochemical industries, it has reached and is reaching into other areas of industrial enterprise. During 1964 it arranged for the purchase of the business of American Cryogenics, Inc., a company engaged primarily in the manufacture and sale of liquified industrial gases and associated equipment used to create extremely low temperatures. Jersey has engaged in the development of real estate in Texas for light industry, residential and commercial use; it has acquired interests in the manufacture of textiles and film from polypropylene and in the production and sale of fertilizer products in foreign countries; and also anticipates entry into the field of production of sponge iron.

 In the administration of its investment policies, emphasis has been placed upon expansion of present corporate subsidiary and affiliate enterprises and continuing search for profitable diversification in new fields either by self-development or acquisition. *fn2"

 In 1963 Jersey's gross revenues totaled $11,931,463,000; its assets aggregated $11,996,691,000; and its net profits after taxes were $1,019,469,000. It was reputed in 1963 to be the largest industrial corporation in the United States and in the world in terms of assets, and the second largest in the world in terms of net profits.

 In 1963 Jersey's total capital of $11.9 billion was employed: $5.6 billion in the United States; $2.7 billion in other Western Hemisphere countries; and $3.5 billion in the Eastern Hemisphere. The company's 1963 net income of $1 billion was derived: $354 million from the United States; $310 million from other Western Hemisphere countries; and $355 million from the Eastern Hemisphere.

 Liberal capital expenditures over the years in furtherance of the policy of expansion and diversification of corporate activities have resulted in a significant growth of Jersey in terms of capital assets and profits. Jersey's capital assets in 1948 approximated $3.4 billion and its net profit after taxes for that year was approximately $365 million (compare with previous statement of assets and earnings for 1963).

 The coordinated functions of a Board of Directors, an Executive Committee and a Board Advisory Committee on investments (BAC) encompass the responsibility for top level decisions of Jersey in business management of existing enterprises and formulation of policy for future expansion and diversification.

 The Board of Directors approves the investment of funds of the stockholders, examines management and policy of affiliates, and makes available to affiliate companies the advice and guidance of Jersey staff groups organized for purposes of research and expert analysis of profitable business management and launching of profitable new enterprises. The members of the Board of Directors are executive officers of Jersey who work full time and meet once a week as a board.

  The Executive Committee of Jersey consists of the Chairman of the Board of Directors, the President of Jersey and six vice presidents. This committee meets daily and has the delegated authority to act on behalf of the Board of Directors between meetings of the board. This delegation of authority is subject to only "a few specially exempted functions, such as the declaration of dividends and a few things of that type." *fn3" The Executive Committee also reviews the budgets of affiliates. The actions taken by the Executive Committee are reported to the Board of Directors during each weekly meeting and, in general, are approved by the board. The board does, however, reserve the power to reject recommendations of the Executive Committee and to make changes in actions taken by the Executive Committee.

 BAC is a committee consisting of executive officers in the major staff groups of Jersey. *fn4" The function of the BAC is to appraise and analyze proposals made to the Executive Committee or the Board of Directors of Jersey by affiliated companies or by staff departments with respect to proposed investments. All proposed projects of a staff group or affiliate above a certain dollar volume (approximately $5 million) are presented both to BAC and the Executive Committee. BAC conducts the more detailed review of such proposed investment projects, makes recommendations to the Executive Committee and also reports directly to the Board of Directors. It maintains close association with the activities of the various departments and staff groups of Jersey.

 Jersey has numerous staff groups which assist in the discovery, analysis and appraisal of expansion opportunities available to affiliates and in profitable investment diversification by Jersey in new fields of industrial enterprise. Some of these exist in corporate form for various tax and legal reasons and others are in the form of Jersey departments. Projects are also initiated by affiliates and, if a project is recommended by an affiliate, it is reviewed by the appropriate staff group of Jersey. Final decision is made by the Board of Directors acting upon the expert analysis of a project developed by competent personnel in the staff groups and in the lower echelons of the affiliates. Where Jersey does not have an organization or a department staffed for the expert analysis of a proposed project which appears to be worth considering outside consultants are engaged. Basically, the Board of Directors fixes the guide lines for investment programs and objectives and relies, in making final decisions, on the information which is developed and flows to it from its advisory groups. *fn5"

  Esso Chemical Company (Esso) is a corporate advisory and study organization wholly owned by Jersey. It does not operate any business. It came into being to expand Jersey's chemical operations by adding to the product lines and to strengthen Jersey's position in the agricultural markets. Its function and purpose is to advise Jersey with respect to interests and investments in the chemical fields which include potash and fertilizers. It has an agricultural chemical division. It functions as a staff organization in corporate form to initiate recommendations and to review any proposal for a chemical venture made by any affiliate company. This corporation was organized in 1963 by combining several other companies of the Jersey organization working on chemicals. Study and analysis of all chemical activities of a commercial nature presently in existence or proposed are now combined in Esso. *fn6"

 Jersey Production Research Corporation is a corporate entity wholly owned by Jersey. It has the responsibility to conduct research for prospective oil deposits and to bring to the attention of Jersey any other mineral deposits, including potash and phosphate, which are discovered during the course of the discharge of its primary function of exploration for oil.

 Esso Research and Engineering Company has been described as the "principal research arm of the Jersey family." *fn7" It not only includes research on a broad scale in connection with petroleum, petroleum processes and petroleum production, but also conducts research in other fields. It covers a broad field of research on behalf of Jersey in contrast to the specialized field in which Jersey Production Research Corporation operates.

 Esso Exploration Company is another fact finding corporation whose responsibility to Jersey is to explore the possibility of oil deposits in various parts of the world where Jersey does not have an existing affiliate company operating. This corporation is managed by a staff department of Jersey known as the Producing Coordination Department. The five regions of the world to which the investment interests of Jersey extend are the United States, Canada, Latin America, Europe, Africa and the Far East. Jersey has on its Board of Directors a contact director for each of the various production classifications such as chemicals, refining, etc. This director maintains contact on a world-wide basis for the particular producing function for which he has responsibility, and he works together with a regional contact director. For example, Mr. H. W. Fisher, Vice President and member of the Board of Directors of Jersey, is the contact director in the chemical field. Mr. J. F. White is the regional contact director for Canadian operations. According to the testimony of Mr. Rathbone, Chairman of the Board of Directors of Jersey, these two men would function together in bringing any matter of proposed investment in the chemical field to the attention of the BAC, the Executive Committee of Jersey and, finally, to the Board of Directors of Jersey in the manner and subject to established policy with respect to corporate capital investment program processing. *fn8"

 The principal industrial producing affiliates of Jersey identified in ranking order of significance for furtherance of Jersey's interest in potash and fertilizer industries are: (1) Imperial Oil, Limited (Imperial) is the largest integrated oil company in Canada. In 1963 its revenues exceeded $1 billion. Its market extends from coast to coast in Canada. In addition to its sale and distribution of petroleum products, it has also, among other things, engaged in the sale and distribution of mixed fertilizers. These mixed fertilizers are obtained by purchase from a manufacturer. Seventy percent of Imperial's stock is owned by Jersey. The remaining 30% of stock interest is widely held by the public. Jersey votes its shares of stock in Imperial every year for the election of Imperial directors. Proposed items in excess of $300,000 in the fiscal capital budgets of Imperial are referred to Jersey for comment.

 (2) Humble Oil and Refining Company (Humble), a petroleum company operating in the United States, is a wholly owned subsidiary of Jersey.

 (3) Enjay Chemical Company (Enjay) is a wholly owned subsidiary of Humble engaged in the United States in the operation of a petrochemical business.

 (4) International Petroleum Company (International) is a wholly owned subsidiary of Jersey. It is an oil producing and marketing corporation operating in the Caribbean area. International and Esso collaborated on the studies which led to the entry by Jersey into the production and sale of mixed fertilizers in the Caribbean area. A more detailed discussion of Jersey's interest in the mixed fertilizer business will follow under another caption.

 The evidence leaves no doubt as to the fact that Jersey has the available expertise to discover and competently evaluate the potential of profit in new fields of capital investment; that it has embarked upon and emphasized a policy of continued economic growth consistent with maintenance of current percentage of profit return; and that it has the capital resources for acquisition of a profitable enterprise by purchase, or for the undertaking of large and long-term capital financing of a self-developed business deemed likely to enhance the ultimate overall profit return to its stockholders.

 At the present time neither Jersey nor any affiliated company is engaged in the extraction of minerals from the earth (other than oil) or the processing thereof. Hence, the mining, processing, and marketing of potash would be a new venture enterprise for Jersey which Jersey contends would not be attractive to it except by acquisition of a company like PCA which has acquired experience and developed expertise in the field of mining, processing, and marketing of potash. Jersey denies that it has given serious consideration at the top echelon of management to a self-developed or "grass root" project in the potash industry.


 PCA was organized during 1931. It started to produce potash in 1934 and has been and still is engaged almost solely in the business of exploring for, mining, processing and selling potash. Among the nine companies producing potash in the United States it is the largest producer. It ranks second in North American production. In terms of total current revenues and net profit after taxes from the sale of potash it ranks among the most successful companies in the potash industry occupying an enviable position in that field.

 PCA has enjoyed continuous and profitable growth over the years and during the fiscal year ending June 30, 1964 its earnings and total assets were reported at record levels. Sales totaled $23,279,153 and net profits after taxes amounted to $3,171,609. It had total assets in the amount of $54,330,667 and a net worth of $40,224,794.

 Mining and processing of potash by PCA has been conducted in New Mexico in what has been described as the Carlsbad area. Facilities there, owned and operated by PCA, have potential production capacity of approximately 1,000,000 tons of KCl annually or approximately 600,000 tons K (2)O. It has been producing and selling almost at capacity *fn9" and has enjoyed a ready market for all the potash that it had potential capacity to produce. From the evidence this also seems to be true as to its competitors.

 During the year 1950, PCA began to explore for potash in Saskatchewan, Canada. An ore body was delineated in the Saskatoon area in 1953 and operations were begun to construct a mine shaft and a surface plant. Work on this was completed during 1958 and limited mining operations were begun and continued until November 1959 when damage due to water seepage into the mine shaft necessitated extensive repairs and a shutdown. It was further found during the short period of operation that the existing concentrating facilities were inadequate to remove insolubles from the ore. Further work was done to secure the mine shaft and to modify the surface installation. During trial it was anticipated that PCA would be able to resume its production at Saskatchewan during March 1965.

 PCA's undertaking to mine potash in Canada was a pioneering operation. A shaft was sunk to a greater depth than had ever been previously undertaken and unforeseeable problems of water seepage were encountered. There is evidence that these problems which PCA encountered with the mine shaft would not recur with PCA or others because of knowledge gained by PCA's experience.

 The total capital cost of PCA's Saskatchewan facilities amounted to approximately $43,500,000. The plant has a present capacity of about 600,000 tons of muriate of potash annually and a potential for increased production when and if a larger concentration facility is built. It is anticipated that production costs will be less in Canada than in New Mexico and that the ore body, on the basis of prospective rate of production, will, on a conservative forecast, last at least a hundred years. PCA has been one of the lowest cost producers in Carlsbad and it is anticipated with the operation of its Canadian mine that it will achieve a production cost basis comparable to that of the lowest cost producer in the world.

 PCA has large and rich potash ore reserves in both the United States and Canada and a time advantage of at least five years in conventional shaft mining in Saskatchewan over any other competitor except International Minerals and Chemical Company, placing it in an excellent position to supply all of Jersey's present and future potash requirements. The facts as just mentioned were, among others, persuasive to Jersey in reaching its decision that acquisition of PCA was economically attractive.

 The price offered by Jersey (850,000 shares of Jersey par value capital stock, the equivalent of $73,525,000) amounts to a premium of about 30% based on 1.26 million shares of PCA stock outstanding at a market value of approximately $45 per share. In addition to this Jersey was to assume long term debts of PCA in the amount of $15,000,000.

 There is no dispute about the fact that PCA is a strong, active competitor in the production and sale of potash in the United States. During the year ending June 30, 1963 PCA had domestic sales of 760,419 tons of KCl and foreign sales of 134,462 tons. In the year ending June 30, 1964 it had domestic sales of 807,540 tons and foreign sales of 191,630 tons. Its domestic sales for the year 1964 represented 17% of total sales in the potash industry in the United States. This is based upon total United States sales of potash including imports. At time of trial it was estimated that its facilities in Carlsbad, New Mexico had been producing approximately 18% of total United States potash producing capacity. A distinction is made between potential and actual production.

 It should be noted, however, at this juncture, in connection with resources and economic strength that while PCA is the largest producer of potash in the United States and is projected to be the second largest in North America, nevertheless, it is a small competitor in the potash industry when compared in terms of total net worth, revenues, and net profit after taxes. *fn10" It is only in the potash industry in which PCA is almost exclusively engaged that it holds a predominant position.

 If Jersey acquires PCA, there would be no company presently engaged in the potash industry which would be substantially comparable to Jersey in terms of total assets, net worth, revenues, and net profit after taxes.


 Potash is generally found in bedded deposits of marine evaporites or naturally occurring brines. It is extracted from the earth by mining and is processed for commercial use in a surface concentration plant. The principal source of supply in the United States has been from the Carlsbad area of New Mexico where the resources are being rapidly depleted. It is estimated that the resources of potash there will be exhausted in less than 20 years.

 In recent years it has been discovered that rich and virtually untapped potash beds are located in the Saskatchewan province of Canada, and the attention of the potash industry is being focused upon production there as the probable principal source of supply for the future needs of the markets in North America and abroad. The quality and the thickness of the ore beds in Saskatchewan, so far as is presently known, are much better than those in Carlsbad. However, the best ore beds known to exist at Saskatchewan are located at a greater depth from the surface of the earth than those in New Mexico, thus creating more serious engineering problems in mining. The evidence does not indicate, however, that there would be an ultimate competitive disadvantage.

 There are two methods of mining the ore: conventional shaft mining and solution mining. Presently almost all of the potash produced in North America is recovered from underground beds by "room and pillar" conventional shaft mining. Generally a shaft with an inside diameter of approximately 16 to 18 feet is sunk to the level of the underground horizontal potash bed. The underground workings are extended from the shaft, usually in several directions. Not all of the ore from the beds can be extracted because a certain quantity must be left to support the overlying geological structures. The ore is brought to the surface by mechanical means, crushed, purified and concentrated to the point where it contains approximately 60% K (2)O.

 In connection with the depth at which potash can be mined by conventional shaft mining, it was stipulated at the time of trial that "no producer is now mining potash deposits at a depth of more than 3350 feet below the earth's surface by the shaft method. Potash Company of America plans to mine potash in Saskatchewan by the shaft method at depths up to 3465 feet. It is not now known whether it is possible to mine potash found at greater depths by the shaft method."

 There are two methods of solution mining described as selective and non-selective. It was stipulated by the parties that "in a selective solution mining process a hot brine saturated with respect to sodium chloride but undersaturated with respect to potassium chloride is circulated underground and is intended to remove the potassium chloride from the underground mineral deposits. In a non-selective solution process a hot liquid undersaturated with respect to both sodium chloride and potassium chloride is circulated underground to extract both these chemicals." Solution mining can be conducted at greater depths than shaft mining.

 Because the extensive rich deposits of potash in Saskatchewan are located at greater depths from the surface of the earth than may be feasible to mine by the shaft method, it is likely, as Saskatchewan comes to be the principal source of North American supply, that solution mining will of necessity be utilized to a considerable extent. The areas within which shaft mining can be successfully undertaken, so far as is presently known, are limited. The best ore beds seem from the evidence to be located at depths greater than 3500 feet from the surface of the earth. It has been determined that solution mining is technically feasible and that when some further technological problems are solved, the only difference between shaft mining and solution mining will be a matter of production costs. It has been reported that large scale production by the shaft method is more economical, but on small scale production, avoidance of the initial expense of construction of the shaft mine would off-set the differential in production costs. Another favorable factor is the short period of time within which a solution mine can start to produce.

 The feasibility of solution mining and a comparison of costs of shaft mining is set forth in a memorandum to W. E. Wallis of the Producing Coordination Department of Jersey by T. E. Gillingham a consulting mining engineer engaged by Jersey on a consultant basis. *fn11"

 No doubt, in view of the cost differential on large scale production, solution mining will not be undertaken to a great extent until some further technological problems have been solved bringing cost production to a comparable basis with shaft mining, or until the demand cannot be satisfied by resources available for shaft mining. However, one company, Kalium Chemicals, Ltd., has entered into commercial production using a solution mining technique at its facilities in Saskatchewan. The first Kalium shipment of potash was made September 29, 1964. It should also be noted that other companies, including Imperial Oil, have experimented with solution mining and have not entirely rejected ultimate feasibility.

  Based on past experience, it seems clear that at least four to five years is required to construct a shaft mine and a surface concentration plant. Preliminary to this is the exploratory work of locating the ore reserves by drilling test holes. Because of the amount of initial capital investment and the period of time before production can begin, entry into the potash industry by shaft mining is limited to companies with substantial capital resources. In lesser degree the same is true of solution mining. The companies now engaged in North American production in this country and Canada, with date of entry into the industry and with current production or imminent potential production, are shown on the following chart: PRODUCTION DATE OF (TONS KCl OR COMPANY ENTRY LOCATION EQUIVALENT) American Potash & 1916 California 350,000 Chemical Corp. U.S. Borax & 1931 New Mexico 867,000 Chemical Co. Potash Co. of America 1934 New Mexico 1,040,000 1965 Saskatchewan * 600,000 Bonneville, Ltd. 1938 Utah 100,000 International Minerals 1940 New Mexico 665,000 & Chemical Corp. 1963 Saskatchewan ** 1,600,000 Duval Corp. 1951 New Mexico 551,000 Southwest Potash Corp. 1952 New Mexico 1,000,000 National Potash Co. 1957 New Mexico 450,000 Kalium Chemicals, Inc. 1964 Saskatchewan 650,000 Texas Gulf Sulphur 1965 Utah 550,000


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