What's Wrong with Conglomerate Mergers?

Home , Business Roundtable, Conglomerate (company)

Fordham Law Review

Volume 49 Issue 1 Article 1

1979

What's Wrong With Conglomerate Mergers?

Michael Pertschuk

Kenneth M. Davidson

Follow this and additional works at: https://ir.lawnet.fordham.edu/flr

Part of the Law Commons

Recommended Citation Michael Pertschuk and Kenneth M. Davidson, What's Wrong With Conglomerate Mergers?, 49 Fordham L. Rev. 1 (1980). Available at: https://ir.lawnet.fordham.edu/flr/vol49/iss1/1

This Article is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Law Review by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact [email protected]. What's Wrong With Conglomerate Mergers?

Cover Page Footnote *Chairman, Federal Trade Commission. This Article is adapted from a speech delivered by Chairman Pertschuk in Washington, D.C. at the Time, Inc. Antitrust Seminar on May 7, 1979. **Attorney, Bureau of Competition, Federal Trade Commission. B.A. 1963, University of Chicago; J.D. 1966, University of Pennsylvania; LL.M. 1967, Yale University.

This article is available in Fordham Law Review: https://ir.lawnet.fordham.edu/flr/vol49/iss1/1 FORDHAM LAW REVIEW

1979-1980 VOLUME XLVIII

@ 1979 and 1980 by Fordham Law Review EDITORIAL BOARD

BENJAMIN J. DOUEK Editor-in-Chief TIMOTHY G. REYNOLDS VINCENT L. BRICCE Writing & Research Editor Articles Editor

MARY CHRISTINE DEVITA THOMAS J. HALL CHARLES E. RYAN Articles Editor Managing Editor Articles Editor PHILIP BRAVERMAN GLENN POGUST Commentary Editor Commentary Editor

RUTH D. RAISFELD WILLIAM J. RUANE Commentary Editor Commentary Editor

EzIo SCALDAFERRI KAREN AKST SCHECTER Commentary Editor Commentary Editor

ASSOCIATE EDITORS

BEVERLY DEICKLER ANITA R. GOLBEY VILLA HAYES EDWARD D. LOUGHMAN III FREDERICK H. McGRATH JOHN PATRICK SCIIMITT

MEMBERS

LINDA M. ARIOLA STEPHEN F. HEHL DONALD L. SHUCK, JR. JILL PARADISE BOTLER THOMAS W. IZZARD NAOMI SIEGEL DEBORAH A. DEMASI ADRIENNE MARSH LEFKOWITZ TIIOMAS S. SZATKOWSKI IRENE R. DIAMANT JOHN ANDREW MAHER ANDREW TUREFF JANIS RONEY EDINBURGH ROBERT WELCH MULLEN, JR.LUCILLE LABoZZETTA WEISBROT JAY FENSTER ANNE ADAMS RABBINO JACQUELINE C. WOLFF

STAFF PATRICK J. BARRETT STEPHEN J. GULOTTA, JR. RAYMOND F. O'BRIEN ROBERT J. BOHME EDWARD J. HENDERSON PATRICIA A. PERROTTA JEANNE P. BOLGER ROBERT L. HUBBARD DOMINICK PISTONE JOSEPH A. Coco CHRISTOPHER W. JONES BERNARD J. RHODES FREDDA COHEN STEVEN C. JOSZEF ALAN ROSS MARY JANE CONNELL DAVID E. JOYCE ANGELO G. SAVINO ROBERT P. CONNOLLY GERARD F. JOYCE, JR. WILLIAM S. SCIIREIER CATHERINE M. COSTA MARGARET KERN JUDAH SEPTIMUS MICHAEL COURTNEY JOSEPH KORNBLUM MICHAEL SIHAY SUSAN M. COYNE ESTELLE KRAUSHAR IRENE A. STEINER MARJORIE C. DHARAWAT DOUGLAS LOWE MARIO SUAREZ JAMES M. DOUGLAS JACQUELINE LUSSIER ANNETTE SWIERZRINSKI LOUIS C. DUJMICH WILLIAM MACDONALD ANNE T. VITALE ANDREA B. FELLER MYRA M. MANGAN CONRAD VOLDSTAD JOHN M. FIETKIEWICZ KENNETH MCPHERSON HARRY WAIZER PATRICK J. FoYE ROBERT J. MONGELUZZI BARRY WERBIN JAMES J. GANNON KAREN M. MULLER KATHLEEN H. WILSON ROBERT A. GAYNOR WILLIAM MURPHY BARBARA WRUIJEL JOSEPH GUGLIELMELLI BONNIE MUSSMAN BARRY ZINS LINDA TRUMMER-NAPOLITANO

ANN V. SULLIVAN Business Secretary

EDITORIAL AND GENERAL OFFICES Lincoln Center, 140 West 62nd Street, New York, N.Y. 10023

Published six times a year-October, November, December, March, April and May. Member, National Conference of Law Reviews. Printed by the Heffernan Press Inc., Worcester, Massachusetts. Second class postage paid at New York, N.Y. and at additional mailing offices. SUBSCRIPTION PRICE $15.00. SINGLE ISSUE $4.00. Make checks payable to FORDHAM LAW REVIEW. Subscription renewed automatically unless notified to contrary. For price of volumes and single issues prior to Volume XLII please inquire of William S. Hein & Co., Inc., 1285 Main Street, Buffalo, New York 14209. TABLE OF LEADING ARTICLES-TITLES

THE EXCHANGE OF PRICE INFORMATION AS A RESTRAINT OF TRADE: REASSESSING PER SE RULES IN LIGHT OF FIRST AMENDMENT PROTECTION OF COMMERCIAL SPEECH. Craig R. M aginness ...... 1005 THE IMPACT OF THE NEW BANKRUPTCY CODE ON THE "BANKRUPTCY OUT" IN LEGAL OPINIONS. Robert J. Harter and Kenneth N. Klee ...... 277 INTELLIGENCE GATHERING AND THE LAW: CONFLICT OR COMPATIBILITY? Benjamin R. Civiletti ...... 883 LAWYER-CONTROLLED TITLE INSURANCE COMPANIES: LEGAL ETHICS AND THE NEED FOR INSURANCE DEPARTMENT REGULATION. H. Lee Roussel and Moses K. Rosenberg 25 A NEW APPROACH TO BAIL RELEASE: THE PROPOSED FEDERAL CRIMINAL CODE AND BAIL REFORM. Edward M. Kennedy ...... 423 THE NEW UNIFORM LIMITED PARTNERSHIP ACT: A CRITIQUE. Robert A. Kessler ... 159 PROPOSED FEDERAL DISCOVERY RULES FOR COMPLEX CIVIL LITIGATION. Mtartin 1. Kam insky ...... 907 REGULATION OF INTERNATIONAL TRANSACTIONS UNDER THE COMMODITY EXCHANGE ACT. Jerry W . Markham ...... 129 SPEEDY TRIAL RIGHTS IN APPLICATION. Gregory P. N. Joseph ...... 611 TAX EXEMPT RELIGIOUS SCHOOLS UNDER ATTACK: CONFLICTING GOALS OF RELIGIOUS FREEDOM AND RACIAL INTEGRATION. Thomas Stephen Neuberger and Thomas C. Crumplar...... 229 WHAT'S WRONG WITH CONGLOMERATE MERGERS? Michael Pertschuk and Kenneth At. Davidson ...... 1

TABLE OF LEAIING ARTICLES-AUTHORS

CIVILETTI, BENJAMIN R., Intelligence Gathering and the Law: Conflict or Compatibility? 883 HARTER, ROBERT J., JR. AND KLEE, KENNETH N., The Impact of the New Bankruptcy Code on the "Bankruptcy Out" in Legal Opinions ...... 277 JOSEPH, GREGORY P.N., Speedy Trial Rights in Application ...... 611 KAMINSKY, MARTIN I., Proposed Federal Discovery Rules for Complex Civil Litigation 907 KENNEDY, EDWARD M., A New Approach to Bail Release: The Proposed Federal Criminal Code and Bail Reform ...... 423 KESSLER, ROBERT A., The New Uniform Limited Partnership Act: A Critique ...... 159 MAGINNESS, CRAIG R., The Exchange of Price Information as a Restraint of Trade: Reassessing Per Se Rules in Light of First Amendment Protection of Commercial Speech ...... 1005 MARKHAM, JERRY W., Regulation of International Transactions Under the Commodity Exchange Act ...... 129 NEUBERGER, THOMAS STEPHEN AND CRUMPLAR, THOMAS C., Tax Exempt Religious Schools Under Attack: Conflicting Goals of Religious Freedom and Racial Integration 229 PERTSCHUK, MICHAEL AND DAVIDSON, KENNETH M., What's Wrong With Conglomerate M ergers? ...... 1 ROUSSEL, H. LEE AND ROSENBERG,. MOSES K., Lawyer-Controlled Title Insurance Com- panies: Legal Ethics and the Need for Insurance Department Regulation ...... 25

COMMENTS AND NOTES

ACCOUNTANTS' LIABILITY FOR NEGLIGENCE-A CONTEMPORARY APPROACH FOR A MODERN PROFESSION ...... 401 ADMINISTRATION OF AMATEUR ATHLETICS: THE TIME FOR AN AMATEUR ATHLETE'S BILL OF RIGHTS HAS ARRIVED ...... 53 THE ATTORNEY-CLIENT PRIVILEGE-IDENTIFYING THE CORPORATE CLIENT ...... 1281 ATTORNEY'S FEES, UNCLAIMED FUNDS, AND CLASS ACTIONS: APPLICATION OF TIlE COMMON FUND DOCTRINE ...... 370 CHOICE OF FORUM PROVISIONS AND THE INTRASTATE DILEMMA-IS OUSTER OUSTED? 568 DE FACTO TAKINGS AND THE PURSUIT OF JUST COMPENSATION ...... 334 DRAINING THE Alcoa "WISHING WELL": THE SECTION 2 CONDUCT REQUIREMENT AFTER Kodak AND CalComp ...... 291 Driver v. Helms AND THE LONG-ARM, STRONG-ARM EFFECTS OF 28 U.S.C. § 1391(c) 83 DUE PROCESS BEHIND BARs-THE INTRINSIC APPROACH ...... 1067 FAIR TRIAL V. UNFAIR ADVERTISING: JURY AWARD ADVERTISING AND THE FIRST AM ENDMENT ...... 1309 FCC REGULATION OF BROADCAST NEWS: FIRST AMENDMENT PERILS OF CONFLICTING STANDARDS OF REVIEW ...... 1226 FINANCING THE SMALL CREDIT RISK CORPORATION UNDER SECTION 302(b)(1): A REJEC- TION OF THE MEANINGFUL REDUCTION TEST ...... 838 IMMUNIZING THE INVESTIGATING PROSECUTOR: SHOULD THE DISHONEST Go FREE OR THE HONEST DEFEND? ...... 1110 INMATE ABORTIONS-THE RIGHT TO GOVERNMENT FUNDING BEHIND THE PRISON G ATES ...... 550 JOINT CUSTODY AWARDS: TOWARD THE DEVELOPMENT OF JUDICIAL STANDARDS ..... 105 JUDICIAL SENTENCE BARGAINING IN THE FEDERAL COURTS ...... 586 LIABILITY INSURANCE FOR INSIDIOUS DISEASE: WHO PICKS UP THE TAB? ...... 657 THE LIABILITY OF PHARMACEUTICAL MANUFACTURERS FOR UNFORESEEN ADVERSE DRUG REACTIONS ...... 735 LIABILITY TO EMPLOYEES OF INDEPENDENT CONTRACTORS ENGAGED IN INHERENTLY DANGEROUS WORK: A WORKABLE WORKER'S COMPENSATION PROPOSAL ...... 1165 MISREPRESENTATION AND MATERIALITY IN IMMIGRATION LAw-SCOURING THE MELT- ING POT ...... 471 MUTUAL FUND ADVISORY FEES-Too MUCH FOR Too LITTLE? ...... 530 A NEW DIRECTION FOR IMPLIED CAUSES OF ACTION ...... 505 THE NEWSPERSON'S PRIVILEGE AND THE RIGHT TO COMPULSORY PROCESS- ESTABLISHING AN EQUILIBRIUM ...... 694 THE PETTY OFFENSE EXCEPTION AND THE RIGHT TO A JURY TRIAL ...... 205 POSSESSION AND PRESUMPTIONS: THE PLIGHT OF THE PRISONER UNDER THE FOURTH AM ENDM ENT ...... 1027 POTENTIAL PRODUCTION: A SUPPLY SIDE APPROACH FOR RELEVANT PRODUCT MARKET D EFINITIONS ...... 1199 RADAR SPEED DETECTION: HOMING IN ON NEW EVIDENTIARY PROBLEMS ...... 1138 RAIDING THE CONFESSIONAL-THE USE OF INCOME TAx RETURNS IN NONTAX CRIMI- NAL INVESTIGATIONS ...... 1251 RECKLESSNESS AND THE RULE lOb-5 SCIENTER STANDARD AFTER Hochfeldcr ...... 817 RETALIATORY EVICTION PROTECTION IN NEW YORK-UNRAVELING SECTION 223-b... 861 REVERSE FOIA SUITS AFTER Chrysler: A NEW DIRECTION ...... 185 SCAPEGOAT PICKETING: BEYOND THE PALE OF CONSTITUTIONAL PROTECTION ...... 794 SECTION 14 OF THE LANHAM ACT-FTC AUTHORITY TO CHALLENGE GENERIC TRADE- M ARK S ...... 437 TORTS IN SPORTS-DETERRING VIOLENCE IN PROFESSIONAL ATHLETICS ...... 764

BOOK REVIEW

BARRY E. HAWK, UNITED STATES, COMMON MARKET AND INTERNATIONAL ANTITRUST: A COMPARATIVE GUIDE. D. G. Gill ...... 606 INDEX DIGEST

ACCOUNTANTS AUTOMOBILES Liability to third parties for negligence Passenger's rights under the fourth amend- 401-21 ment 1027-66 Presumption statutes 1040-50 ADlVIINISTRATIVE LAW AND Radar speed detection devices 1138-64 AGENCIES FCC: Regulation of broadcast news BAIL 1226-50 Federal reform under the proposed criminal FDA: Pharmaceutical regulation 752-63 code 423-36 FTC: Authority to challenge generic trademarks 437-70 BANKRUPTCY FTC: Limitation of conglomerate mergers 17-19 Impact of Bankruptcy Code on legal opin- FTC: Regulation of insurer advertising of ions 277-90 jury awards 1309-31 Federal administration of amateur athletics CLASS ACTIONS 53-82 Government funding of inmate abortions Attorneys' fees: Application of the common 550-67 fund doctrine to unclaimed funds 370-400 Intelligence-gathering and the law 883-906 IRS: Procedures for religious schools 234-48 CONSTITUTIONAL LAW Immigration Law: Misrepresentation and Abortion: Inmate rights to government materiality 471-504 funding 550-67 Regulation of international transactions Bail Reform: Proposed federal criminal under the CEA 129-58 code 423-36 Reverse FOIA suits 185-204 Fifth Amendment: Judicial sentence bar- ANTITRUST gaining 593-603 Just compensation 334-69 Conduct requirement under Sherman Act Tax return confidentiality 1251-80 § 2 291-333 First Amendment: Conglomerate Mergers 1-24 Commercial Speech: Unfair advertising Exchange of price information: First amend- 1309-31 ment considerations 1005-26 Fairness Doctrine 1228-36 First amendment limitations on § 1 vio- Limitation on antitrust violations 1005-26 lations 1005-26 Religious schools 258-76 Relevant market definition 1199-225 Scapegoat picketing 794-816 Fourth Amendment: ATTORNEYS Standing requirements 1028-40 Presumption statutes 1040-50 Attorney-client privilege: Identifying the Newspersons' privilege and the right to corporate client 1281-308 compulsory process 694-734 Fees: Application of common fund doc- Petty offense exception to the jury trial trine 370-400 205-27 Impact of Bankruptcy Code on legal opin- Prisoners' due process rights 1067-109 ions 277-90 Prosecutorial immunity in damage actions Lawyer-controlled title insurance compa- under § 1983 1110-37 les 25-52 Rights of amateur athletes 71-78 Misconduct in discovery proceedings Sixth Amendment: Application of speedy 907-1004 trial rights 611-56 CONTRACT LAW EDUCATION

Choice of forum provisions 568-85 Tax exempt religious schools 229-76

COPYRIGHTS & TRADEMARKS I EVIDENCE

Lanham Act: FTC authority to challenge Presumption statutes and the exclusionary generic trademarks 437-70 ruh 1040-50 Radar speed detection devices 1138-64 CORPORATIONS FAMILY LAW Attorney-client privilege: Identifying the corporate client 1281-308 Joint custody awards 105-27 Financing small credit risk corporations 838-60 FEDERAL COURTS New Uniform Limited Partnership Act 159-84 Complex civil litigation: Proposed federal discovery rules 907-1004 CRIMINAL PROCEDURE Contractual choice forum provisions 568-85 Application of speedy trial rights 611-56 Implied causes of action 505-29 Presumptions and the fourth amend- Implied causes of action for reverse FOIA ment 1040-50 suits 188-99 Proposed federal criminal code: Bail Judicial sentence bargaining 586-605 reform 423-36 Proposed criminal code: Bail reform Search and seizure: Automatic standing 423-36 rule 1028-40 Venue in actions against federal officials Prosecutorial immunity in damage actions 83-104 under § 1983 1110-37 IMMIGRATION LAW Misrepresentation and materiality 471-504 DAMAGES

Just compensation for de facto taking INSURANCE 334-69 Insurer advertising of jury awards 1309-31 Liability to employees of independent Liability for insidious disease 657-93 contractors 1165-98 Liability for Workers' Compensation ore- Money damages against federal officials miums 1165-98 87-95 Prosecutorial immunity in damage actions INTELLIGENCE arising out of exercise of official duties 1110-37 Intelligence gathering and the law 883-906 Retaliatory eviction in New York 876-81 Unclaimed funds in class actions 370-400 INTERNATIONAL & COMPAR- Violence in professional athletics: Civil ATIVE LAW Remedies 776-92 Transactions under the Commodities Ex- change Act 129-58 DISCOVERY JOINT CUSTODY Proposed federal rules for complex litigation 907-1004 Proposed judicial standards 118-26 DISCRIMINATION JOURNALISM Racial discrimination in religious Newspersons' privilege 694-734 schools 248-57 Regulation of broadcast news under the Scapegoat picketing 794-811 Fairness Doctrine 1226-50 LEGISLATION PRIVILEGES

Amateur athletes' Bill of Rights Attorney-client: Identifying the corporate 63-71, 79-82 client 1281-308 FTC Authorization Bill: Proposed limitation Discovery objections 925-28 on authority to challenge generic trade- Journalists' and the right to compulsory marks 437-70 process 694-734 Limiting conglomerate mergers 17-24 Passengers' rights to suppress evidence Model Uniform Product Liability Act 1027-66 738-44 Reverse FOIA suits 192-99 New Uniform Limited Partnership Act Tax returns 1251-80 159-84 Proposed federal criminal code: Bail reform 423-36 PROCEDURE See also Criminal Pro- Proposed federal discovery rules for complex cedure litigation 907-1004 Contractual choice of forum provisions Proposed guidelines for intelligence gather- 568-85 ing activities 883-906 Federal discovery rules in complex Proposed Internal Revenue Code confiden- litigation 907-1004 tiality amendments 1251-80 Venue in federal actions against federal Proposed New York reclassification of officials for money damages 83-104 misdemeanors 204-11 Proposed Workers' Compensation rules for PRODUCT LIABILITY employees of independent contractors 1189-91 liability insurance for insidious disease 657-93 Manufacturers' liability for unforeseen ad- PARTNERSHIP verse drug reactions 735-63 New Uniform Limited Partnership Act 159-84 RELIGION Tax exempt religious schools 239-76 PENAL LAW See also Criminal Proce- dure REAL PROPERTY Application of speedy trial rights 611-56 Just compensation for de facto takings Deterring violence in professional athletics: 334-69 Criminal remedies 770-76 Lawyer-controlled title insurance companies Inmates: Government funding of abortions 25-52 550-67 Retaliatory eviction in New York 861-74 Judicial sentence bargaining in the federal courts 586-605 REAIEDIES Petty offense exception to the jury trial right 205-27 Compensation for insured employees Presumptions and the fourth amendment 1165-98 1040-50 Deterring violence in professional athletics: Proposed federal criminal code: Bail Civil remedies 776-92 reform 423-36 Just compensation for de facto takings Radar speed detection devices 1138-64 334-69 Search and seizure: .Automatic standing Money damages against federal officials rule 1028-40 87-95 Prosecutorial immunity in damage actions PRISONERS' RIGHTS arising out of exercise of official duties I110-37 Due process 1067-109 Retaliatory eviction in New York Government funded abortions 550-67 874-81 SECURITIES LAW Negligence: Accountant's liability to third parties 401-21 Commodities regulation 143-48 Scapegoat picketing 803-11 Implied causes of action 505-29 Mutual fund advisory fees 530-49 Rule 10b-5 scienter 817-37 TRA]3E REGULATION

SPORTS Conduct requirement under § 2 of the Sher- man Act 291-333 Deterring violence in professional athletics Exchange of price information: First 764-93 amendment considerations 1005-26 Federal administration of amateur ath- FTC authority to challenge generic letics 53-82 trademarks 437-70 First amendment limitations on Sherman TAXATION Act violations 1005-26 International transactions under the Effect of I.R.C. § 302(b)(1) on small credit CEA 129-58 risk corporations 838-60 Limitation of conglomerate mergers 1-24 Tax exempt religious schools 229-76 Relevant market definition under the Tax return confidentiality 1251-80 Clayton and Sherman Acts 1199-225

TORTS See also Product Liability WOR].ERS' COMPENSATION Deterring violence in professional athletics 764-93 Liability to employees of independent con- Inherently dangerous work doctrine tractors engaged in inherently dangerous 1165-98 work 1165-98 TABLE OF CASES

Case names prefixed with an asterisk are the principal cases of Articles, Comments, or Notes.

Acampora v. Birkland ...... 535, 543 Brown v. United States ...... 1036 Adams v. Dan River Mills, Inc..... 978 Brown Shoe Co. v. United States --- 1206 Alderman v. United States ...... 1062 Butz v. Economou ...... 1121, 1133 Allen & Co. v. Occidental Petroleum Cafeteria Employees Local 302 v. Corp ...... 949 Angelos ...... 807 Aluma Kraft Mfg. Co. v. Elmer Fox & *California Computer Prods., Inc. v. Co ...... 420 IBM Corp ...... 291-333 Alyeska Pipeline Serv. Co. v. Wilder- Callan v. Wilson ...... 213 ness Soc'y ...... 379 Cannon v. University of Chicago .... 510 American Banana Co. v. United Fruit Cantwell v. Connecticut ...... 274 Co ...... 607 Carpenters & Joiners Local 213 v. Rit- American Column & Lumber Co. v. ter's Cafe ...... 803 United States ...... 1010, 1020 Cass Student Advertising, Inc. v. Na- American Motorists Ins. Co. v. E. R. tional Educ. Advertising Serv., Inc. 1221 Squibb & Sons, Inc ...... 664 Castaneda v. Partida ...... 253 American Security Council Educ. Chaffin v. Stynchcombe ...... 594 Foundation v. FCC ...... 1227, 1244 Charles River Park "A," Inc. v. HUD 191 Ampicillin Antitrust Litigation. In re. 1288 *Chaunt v. United States ...... 471-504 Atlanta Baseball Co. v. Lawrence ... 784 Cheff v. Schnackenberg...... 215 Averill v. Luttrell ...... 784 *Chrysler Corp. v. Brown ...... 185-204 Baldwin v. New York ...... 215-16, 225 Cine Forty-Second St. Theatre Corp. v. *Barker v. Wingo ...... 611-48 Allied Artists Pictures Corp . . . 993 Barnes v. United States ...... 1043, 1049 *City of Buffalo v. J, W. Clement Co. Bates v. State Bar ...... 1023 346-58 Baxter v. Palmigiano ...... 598 City of Detroit v. Cassese ...... 364 Bayer Co. v. United Drug Co ...... 452 City of Philadelphia v. Westinghouse Beef Indus. Antitrust Litigation ..... 957 Elec, Co ...... 1286 Behagen v. Intercollegiate Conference Codispoti v. Pennsylvania...... 216-18 of Faculty Representatives ...... 76 Codling v. Paglia ...... 412 Bell v. Automobile Club ...... 988 Cohen v. North Am. Life & Cas. Co 671 Berea College v. Kentucky ...... 267 Colligan v. Activities Club, Ltd. .... 460 *Berkey Photo, Inc. v. Eastman Kodak Commissioner v. Sullivan ...... 242 Co ...... 291-333 Commissioner v. Tellier ...... 242 Bigelow v. Virginia ...... 1016, 1313 Compania Salvadorena de Cafe. S.A., Bivens v. Six Unknown Named Agents 1136 In re ...... 137-38 Blackledge v. Allison ...... 599 *Cort v. Ash ...... 505-29 Board of Regents v. Roth ...... 75 County Court v. Allen .. 1027. 1044. 1048 Board of Trade v. CFTC ...... 140 Crocker v. Winthrop Laboratories 747 Bob Jones Univ. v. United States ... 241 DeGregory v. Giesing ...... 803 Bower v. Peate ...... 1165 Detroit Bd. of Educ. v. Clarke ..... 365 Braiman v. Braiman ...... 115 DiGiovanni v. United States ...... 592 *Branzburg v. Hayes 703, 710, 725, 728-29 District of Columbia v. Colts ...... 214. 221 Brenden v. Independent School Dist. Diversified Indus., Inc. v. Meredith . 1287 742 ...... 75 Dodd v. Dodd ...... 11S Brewer v. Williams ...... 1062 *Driver v. Helms ...... 83-104 Briggs v. Goodwin ...... 1129 Duncan v. Louisiana ...... 211, 216 Broadway Delivery Corp. v. United *Ernst & Ernst v. Hochfelder . 817-37 Parcel Serv ...... 975, 982 Farber, In re ...... 705 Brown v. Board of Educ ...... 230 Farr v. Pitchess ...... 729 First Nat'l Bank v. Bellotti ...... 1316 International Bhd. of Teamsters v. Fisher v. City of Syracuse ...... 359 United States ...... 254 Fogel v. Chestnutt ...... 548-49 International Shoe Co. v. Washington 98 Forster v. Scott ...... 352 J. I. Case Co. v. Borak ...... 506, 512 Forsyth v. Kleindienst ...... 1132 Jones v. United States ...... 1033, 1051 *Franke v. Midwestern Okla. Dev. La Madrid-Peraza v. INS ...... 498 A uth ...... 829 Leary v. United States ...... 1042 Fred F. French Investing Co. v. City of Leasco Data Processing Equip. Corp. N .Y ...... 353 v. Maxwell ...... 97 FTC v. Sperry & Hutchinson Co. .. 1323 Lemon v. Kurtzman ...... 260, 263 Furnco Constr. Corp. v. Waters ..... 257 L. G. Balfour Co. v. FTC ...... 1213 Gagnon v. Scarpelli ...... 1106 Lindler v. District of Columbia ..... 1181 Galfand v. Chestnutt Corp ...... 544, 549 Linmark Assocs., Inc. v. Township of Gannett Co. v. DePasquale ...... 711 W illingboro ...... 1017, 1315 Garner v. United States ...... 1269 Lloyd Corp. v. Tanner ...... 812 Gaskin v. Stumm Handel GmbH .... 582 Lodge 743, Int'l Ass'n of Machinists v, Geiger v. Keilani ...... 581 United Aircraft Corp ...... 979, 982 Glanzer v. Shepard ...... 410, 415 Louisiana High School Athletic Ass'n v. Goldsboro Christian Schools, Inc. v. St. Augustine High School ...... 73 United States ...... 241 MacPherson v. Buick Motor Co .... 409 Gorman v. Gould ...... 879 McGautha v. California ...... 594 Goss v. Lopez ...... 75 McGlotten v. Connally ...... 246 Grain Handling Co. v. Sweeney ..... 672 McKesson & Robbins, In re ...... 405 Grand Jury Investigation, In re ..... 1297 McLean v. Alexander ...... 833 Green v. Connally ...... 240, 247 Maher v. Roe ...... 557, 565 *Greenholtz v. Inmates of Nebraska Mannington Mills, Inc. v. Congoleum Penal & Correctional Complex 1067-1109 Corp ...... 607 Greenman v. Yuba Power Prods., Inc. 412 Maple Flooring Mfrs. Ass'n v. United Griffin v. California ...... 598 States ...... 1011 Hackbart v. Cincinnati Bengals, Inc. 764 Markese v. Cooper ...... 876, 878 Hamilton v. Hardy ...... 747 Master Key Antitrust Litigation, In re 965 Hamilton v. Tennessee Secondary Mathews v. Eldridge ...... 1094 School Athletic Ass'n ...... 76 Meachum v. Fano ...... 1077, 1086 Hansen v. United States ...... 389 Meek v. Pittenger ...... 260 Harper & Row Publishers, Inc. v. Deck- Meiselman v. Eberstadt ...... 534, 543 er ...... 1287 Menard v. Houle ...... 806 Hazelwood School Dist. v. United Missouri v. National Organization for States ...... 256 W omen, Inc ...... 796 Heatransfer Corp. v. Volkswagenwerk 1215 Mittenthal v. Mascagni ...... 573 Herzfeld v. Laventhol, Krekstein, Montanye v. Haymes ...... 1086 Horwath & Horwath ...... 833 Moody v. Daggett ...... 1089 Hickman v. Taylor ..... 1287, 1290, 1300 Moore v. Bay ...... 282-85, 287, 290 Holzman v. DeEscamilla ...... 166 Moore v. Newell ...... 808 Howard Univ. v. NCAA ...... 74 Mormon Church v. United States ... 266 Hunt v. Mobil Oil Corp ...... 608 Morrissey v. Brewer ...... 1095, 1105 ILC Peripheral Leasing Corp ...... 1224 Murdock v. Pennsylvania ...... 274 Imbler v. Pachtman ...... 1111, 1116 NAACP v. Alabama ex rel. Patterson 77 J. B. Williams Co. v. FTC ...... 1329 National Hockey League v. Metropoli- Kassab v. INS ...... 497 tan Hockey Club, Inc ...... 993 Katz v. United States ...... 1031, 1052 National Parks & Conservation Ass'n v. Keystone Assocs. v. Moerdler ...... 352 M orton ...... 196 Keystone Assocs. v. State ...... 353 National R.R. Passenger Corp. v. Na- Insurance Co. of North Am. v. tional Ass'n of R.R. Passengers .... 510 Forty-Eight Insulations, Inc .... 663, 686 National Trailways Bus Sys. v. Trail- Insurance Co. v. Morse ...... 571 way Van Lines, Inc ...... 454 Network Coverage of the Democratic Selfway, Inc. v. Travelers Petroleum, Nat'l Convention ...... 1241 Inc ...... 452 Newhouse Broadcasting Corp ...... 1242 Senn v. Tile Layers Protective Union 807 New York State Dep't of Taxation & Shapiro v. Freeman ...... 943, 944 Fin. v. New York State Dep't of Law 1261 Sheppard v. Maxwel ...... 704 New York Times Co. v. Sullivan ... 1313 Sherbert v. Verner ...... 268 Simmons v. United States ...... 1035 Ohralik v. Ohio State Bar Ass'n .... 1021 Simon v. Bellinger ...... 1130 Organization For A Better Austin v. S. Klein Dep't Stores, Inc ...... 1327 Keefe ...... 807 Societe Internationale pour Participa- Orlando v. Robinson ...... 222 tions Industrielles et Commerdales v. Ovitron Corp. v. General Motors Corp. 1223 Rogers ...... 992 Palmer Trading Co. v. Shearson Spatz v. Nascone ...... 580 Hayden Stone, Inc ...... 143 Spears v. Berle ...... 354 Paul v. Davis ...... 1090 Sprague v. Ticonic Nat'l Bank ...... 382 Pearl Brewing Co. v. Jos. Schlitz Brew- Springfield, Bayside Corp. v. Hochman 815 ing Co ...... 982 St. Amant v. Thompson ...... 826 Pearsall v. Board of Supervisors ..... 362 Standard Oil Co. v. United States... 298 Pennsylvania Coal Co. v. Mahon .... 340 State v. Aquilera ...... 1156, 1163 Pennsylvania R. v. United States .... 388 State v. Dantonio ...... 1148 People v. Kopezak ...... 815 State v. Hanson ...... 1144, 1158 746 Phillips v. Kimwood Mach. Co ...... State v. Wojtkowiak .... 1144, 1147, I157 Piper v. Chris-Craft Indus., Inc .... 514 Streamwood Home Builders, Inc. v. Plasteel Prods. Corp. v. Helman .... 165 Brolin ...... 808 Plastilite Corp. v. Kassnar Imports .. 459 Sundstrand Corp. v. Sun Chem. Corp. 820, Pohlman v. Metro Trailer Park, Inc. 880 830 Polaroid Corp. v. Berkey Photo, Inc. 458 Tampa Elec. Coal Co. v. Nashville Porter v. American Optical Corp. ... 663 Coal Co...... 1220 Public Media Center v. FCC ...... 1235 Tank Truck Rentals, Inc. v. Commis- Pumpelly v. Green Bay Co ...... 338 sioner ...... 242 Quinn v. Aetna Life & Cas. Co ... 1320 Taylor v. Titan Midwest Constr. Corp. 584 Radiant Burners, Inc. v. American Gas Telex Corp. v. IBM Corp .... 316, 1214 Assoc ...... 1286 The Bremen v. Zapata Off-Shore Co. 568, Rakas v. Illinois ...... 1027, 1050 576 Regina v. Green ...... 770 Thom v. State Highway Comm'r .... 366 Regina v. Maki ...... 770 Timberlane Lumber Co. v. Bank of Reichert's Estate ...... 39 America, N.T. & S.A ...... 607 Reynolds v. United States ...... 266 Tomjanovich v. California Sports, Inc. 765 Reynolds Metals Co. v. FTC ...... 1212 Tomnitz v. Employers' Liability ..... 680 Robichaud v. Ronan ...... 1127 Tot v. United States ...... 1040 Roe v. Wade ...... 550, 560 Touche Ross & Co. v. Redington ... 514 Rolf v. Blyth, Eastman Dillon & Co. 835 Tracy v. Salamack ...... 1084 *Rouse Philadelphia, Inc. v. Ad Hoc Transamerica Computer Co. v. IBM '78 ...... 796, 815 Corp ...... 319, 327 Rusch Factors, Inc. v. Levin ...... 419 Transamerica Mortgage Advisors, Inc. Rutledge v. Liability Ins. Indus .... 1321 v. Lewis ...... 518 Saxe v. Brady ...... 535, 540, 543 Transportation Co. v. Chicago ...... 339 Saxon Motor Sales, Inc. v. Torino .. 806 Travelers Ins. Co. v. Cardillo ...... 673 Scherk v. Alberto-Culver Co ...... 149 Trustees v. Greenough ...... 381 Scheuer v. Rhodes ...... 1115 Turner v. United States ...... 1043, 1047 Schick v. United States ...... 214 Twin City Sportservice, Inc. v. Charles Schneider v. New Jersey ...... 273 0. Finley & Co ...... 1222 SEC v. Sloan ...... 142 Securities Investor Protection Corp. v. *Ultramares Corp. v. Touche ...... 401-21, 825 Barbour ...... 510 *United States v. Aluminum Co. of United States v. United Shoe Mach. America (Alcoa) ...... 291-333, Corp ...... 301, 304, 1284 607, 1206 United States v. Upjohn Co ...... 1297 United States v. Aluminum Co. of United States v. Vermeulen ...... 591 America (Rome Cable) ...... 1208 Universal Communications Corp .... 1239 United States v. Bechtel Corp ...... 608 *Van Gemert v. Boeing Co ...... 373, United States v. Benjamin ...... 824 383, 392 United States v. Bethlehem Steel Corp. 1209 Virginia State Bd. of Pharmacy v. Vir- United States v. Columbia Steel ..... 1205 ginia Citizens Consumer Council, United States v. Container Corp. of Inc ...... 1016, 1313 America ...... 1007 W SM , ]nc ...... 1243 *United States v. Davis ...... 838-60 Walinsky v. Kennnedy ...... 814 United States v. Empire Gas Corp. . 1215 Walz v. Tax Comm'n ...... 245 United States v. Fedorenko ...... 501-03 Washington v. Davis ...... 252 United States v. Gainey ...... 1041, 1047 Webb v. Texas ...... 731 United States v. Griffith ...... 320 West Willow Realty Corp. v. Taylor 808 United States v. Grinnell Corp ...... 306 White v. Guarente ...... 419, 420 United States v. Klein ...... 394 Wilko v. Swan ...... 149 Win. H. Muller & Co. v. Swedish Am. United States v. O'Brien ...... 1022 Line Ltd ...... 574 United States v. Pretzinger ...... 728 Winterbottom v. Wright ...... 409 United States v. Romano ...... 1042 Wisconsin v. Yoder ...... 271 United States v. Rossi ...... 499 Wiscope. S.A., In re ...... 136 Wolff v. McDonnall ...... 1074, 1084 United States v. Salvucci ..... 1028, 1038 Yoder Bros. v. California-Florida Plant United States v. Sisal Sales Corp .... 607 Corp ...... 1203, 1214 United States v. Socony Vacuum Oil Young, Ex parte ...... 88, 92 C o ...... 1013 Zurcher v. Stanford Daily ...... 710 RANDALL H. JENSEN

The Fordham Law Review has lost one of its youngest and brightest lights. Few people brought as much honor to the Law Review in so short a period of time as did Randy Jensen. As an author and editor he compiled an unprecedented citation record, a record that stands as a testament to his unique ability for analysis and writing. I was privileged to have Randy as an editor and was able to see his considerable talents at work. He would take a mass of jumbled thoughts and polish it into clean, hard prose. He wrote with vigor-always fluent, never flashy-and a comprehensive grasp of the subject matter. Above all, he insisted on new ideas and fresh thoughts; the commonplace and routine were anathema to him. In short, he has left us a standard of excellence with which to judge the Law Review in the future. Yet he was no mere legal mechanic. Life was to be enjoyed while duty was performed, and he enjoyed it fully. Athlete, musician, scholar-he was all these and much more. And of course there was his beloved flying. He loved to talk about flying, especially how it freed his mind from legal minutia and the humdrum existence of everyday life. Flying gave him a certain strength unknown to those of us who never leave land. In the air, he soared to new heights with defiance. On the ground, he walked apart from others, filled with the security of his own independence. His spirit brings to mind the words of Louis Untermeyer: "Ever insurgent let me be Make me more daring than devout; From sleek contentment keep me free, And fill me with a buoyant doubt. "From compromise and things half done, Keep me, with stern and stubborn pride, And when, at last the fight is won, God, keep me still unsatisfied." Our lives go on without Randy Jensen, but much has gone out of them. We give thanks that for a part, albeit brief, of our own journey in life we were able to enjoy the pleasure of his company.

GERALD T. FoRD Editor-in-Chief, Volume 47

WHAT'S WRONG WITH CONGLOMERATE MERGERS? MICHAEL PERTSCHUK* KENNETH M' DAVIDSON**

INTRODUCTION O N March 8th of this year the Senate Judiciary Committee opened hearings' on legislation to halt the growth of the giant conglomerate enterprise through acquisition. There are many thoughtful observers who believe that this inquiry foreshadows one of the major public debates of the ninth decade of the twentieth century. While the 1960's and 1970's have been consumed with questions of the role of government in ameliorating social, economic and health disparities, the 1980's will confront fundamental questions concerning the responsiveness of America's private institutions; in particular, to what extent has, or will, the structure of industry become the dominant social, economic and political determi- nant of our society's direction. The intensity of the current conglomerate merger wave has re- charged the recurring American debates on the distribution of power in our society. Once again the discourse flows with the words of Jefferson and Hamilton, Sherman of the Senate, Presidents Theodore and Franklin D. Roosevelt and Woodrow Wilson, Brandeis, Kefauver and Hart. 2

* Chairman, Federal Trade Commission. This Article is adapted from a speech delivered by Chairman Pertschuk in Washington, D.C. at the Time, Inc. Antitrust Seminar on May 7, 1979. ** Attorney, Bureau of Competition, Federal Trade Commission. B.A. 1963, University of Chicago; J.D. 1966, University of Pennsylvania; LL.M. 1967, Yale University. 1. The Small and Independent Business Protection Act of 1979: Hearings on S. 600 Before the Senate Comm. on the Judiciary, 96th Cong., 1st Sess. (1979) [hereinafter cited as Judiciary Comm. Hearings]; The Small and Independent Business Protection Act of 1979: Hearings on S. 600 Before the Subcomm. on Antitrust, Monopoly and Business Rights of the Senate Comm. on the Judiciary, 96th Cong., 1st Sess. (1979) [hereinafter cited as Subcomm. Hearings]. These materials are not as yet available in published form. Statements of persons appearing before the Committee and Subcommittee are on file with the Fordhan Law Review. 2. See generally R. Hofstadter, The Age of Reform 213-54 (1955). President Wilson observed that large business organizations had so overwhelmed the individualistic spirit of the small entrepreneur that the nineteenth century ideals of free opportunity for every man were being undermined. As a result, he considered business consolidation a threat to political and economic freedom. Id. at 222-26. Theodore Roosevelt believed that in order to restore political leadership to the responsible middle class, monopoly needed to be regulated and limited. Id. at 236. Franklin D. Roosevelt, in his message to Congress urging the creation of a national commission to study the concentration of economic power and its effects, warned of the imminent danger presented by corporate growth. "[T]he liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself." FORDHAM LAW REVIEW [Vol. 48

Conglomerate mergers, which unite even purely unrelated business ventures into a single corporation, present a direct challenge to the balance of institutional power because there is almost no limit to the size a firm can achieve through such mergers. The fear is that these huge private organizations will increase their power at the expense of smaller and less organized groups and of the individual. Since 1890, Congress has periodically responded to the perceived dangers of disproportionate economic power through enactment of the antitrust laws. 3 The antitrust laws, taken as a whole, seek to maintain or enhance the responsiveness of business firms to society's needs by preserving the discipline of the competitive marketplace and the dispersion of economic power.4 Instead of nationalizing giant economic enterprises like many other industrialized countries, we have sought to preserve a balanced responsive marketplace. The growth of firms through conglomerate merger threatens to upset that balance. The danger of increasing and, ultimately, disproportionate power is real, even if often undramatic.5 I and a growing number of other people believe that the risks imposed can be best responded to by a new antitrust law which limits growth through conglomerate merger.6

I. ADVENT OF THE CONGLOMERATE MERGER Within the last twenty years most competition-devouring mergers-horizontal 7 or vertical 8-have been effectively deterred by

S. Doc. No. 35, 77th Cong., Ist Sess. 11 (1941). Justice Brandeis, considered the theoretician of the Progressive movement, R. Hofstadter, supra at 222, (hallenged the assertions of big business that competition involved wastefulness while monopoly led to efficiency, L. Brandeis, Shall lye Abandon the Policy of Competition, in The Curse of Bigness 104-05 (0. Fraenkel ed. 1965). "It may be true that as a legal proposition mere size is not a crime, but mere size may become an industrial and social menace .... ." Id. at 107. 3. The antitrust laws are primarily comprised of the Sherman Act of 1890 §§ 1-7, 15 U.S.C. §§ 1-7 (1976), the Clayton Act of 1914 §§ 1-8, 10-16, 26, 15 U.S.C. §§ 12-27 (1976), the Federal Trade Commission Act of 1914 §§ 1-11, 15 U.S.C. §§ 41-51 (1976) and the Celler-Kefauver Anti-Merger Act of 1950, 15 U.S.C. §§ 18, 21 (1976). 4. See United States v. Von's Grocery Co., 384 U.S. 270, 274-77 (1966); Brown Shoe Co. v. United States, 370 U.S. 294, 315-16 (1962). 5. See notes 28-31 infra and accompanying text. 6. See pt. IV infra. 7. A horizontal merger occurs when two companies in direct competition in the same type of product and in the same geographic market merge. See, e.g., United States v. Von's Grocery Co., 384 U.S. 270 (1966) (merger of two directly competing retail grocery store chains). See generaly L. Sullivan, Handbook of the Law of Antitrust § 204 (1977). 8. A vertical merger occurs when a company merges with one of its suppliers or customers. See, e.g., United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586 (1957) (purchase of a substantial interest in automobile manufacturer by its supplier, a manufacturer of automotive fabrics). See generally L. Sullivan, Handbook of the Law of Antitrust §§ 210-14 (1977). 1979] CONGLOMERATE MERGERS the aggressive, if belated, enforcement of the antitrust laws.9 Thus, today, our economy remains more competitive than that of any other industrialized country, though in some industries high concentration and the power of dominant firms still stifle competition. Blocked from further anticompetitive vertical or horizontal growth, the acquisitive instinct, undiminished, is deflected into conglomeration. 10 Ironically, when merger activity is directed primarily at achieving market power within an industry, it is at least limited by the size and importance of that industry. But the conglomerate merger, which unites firms in unrelated industries, is governed by no such natural boundaries. The growth potential of the conglomerate is manifested graphically in the history of Gulf & Western Industries, now the fifty-eighth largest industrial firm in the United States. I' Gulf & Western passed its corporate youth as a modest midwestern manufacturing firm with $8 million in annual sales and 500 employees. According to its most recent annual report, Gulf & Western has, over the past twenty years, gained control of over 100 companies employing more than 100,000 workers and earning $4 billion in annual sales. 12 Gulf & Western bought sixty-four advertising pages in Time magazine to boast that it owns Madison Square Garden, grows sugar cane in the Dominican Repub- lic, produces movies for Paramount Pictures, publishes books under Simon & Schuster, makes cigars, weaves clothing, manufactures 3 pulp, rolls steel and lends money, to name a few of its businesses. ' The conglomerate merger wave that gained public prominence in the 1960's 14 was initially regarded as faintly disreputable, an aberra- tion largely confined to a few singularly aggressive corporations like

9. Section 7 of the Clayton Act, 15 U.S.C. § 18 (1976). has been held to forbid horizontal mergers, United States v. Von's Grocery Co., 384 U.S. 270 (1966); United States v. Philadelphia Nat'l Bank, 374 U.S. 321, (1963), as well as vertical mergers, Ford Motor Co. v. United States, 405 U.S. 562 (1972); United States v. E.I. du Pont de Nemours & Co.. 353 U.S. 586 (1957). Section 7 proscribes mergers or acquisitions "where in any line of commerce in any section of the country, the effect . . . may be substantially to lessen competition, or to tend to create a monopoly." 15 U.S.C. § 18 (1976). 10. Cary, Wizen Firms Merge, N.Y. Times, June 23, 1978, § A. at 25, col. 2, Professor Cary, a former chairman of the Securities and Exchange Commission, states that the current conglomerate merger wave has "no economic raison d'etre." He contends that "[blig companies want to become bigger for the sake of bigness," and that the pursuit of "personal ambitions" and -power" often explain why conglomerate mergers occur. Id. See generally L. Sullivan, supra note 8 at § 207 (1977). 11. Fortune, May 7, 1979, at 294. 12. Gulf & Western Indus., Inc., Inside Gulf & Western: 1978 Annual Report 5, reprinted in Time, Feb. 5, 1979, at G&W 5. 13. Id. at G&W 8, 11-12, 14, 18, 22, 26, 34. 14. In 1960 manufacturing and mining firm acquisitions involved approximately $2 billion. By 1968, however, such acquisitions involved more than $15 billion. Subcomm. Hearings, supra note 1 (statement of F.M. Scherer at Figure 1). See generally L. Sullivan, supra note 8 at § 207 (1977). FORDHAM LAW REVIEW [Vol. 48

Gulf & Western, International Telephone & Telegraph (ITT) or Ling-Temco-Vought. But in the past few years the economic establishment has taken the plunge: Mobil Oil purchased Montgomery Ward, the seventh largest retailing firm in the United States;' - Ken- necott Copper purchased the Carborundurn Corporation for more than half a billion dollars; 16 Philip Morris inhaled Miller Brewing;' 7 and Sun Oil acquired a controlling interest in Becton, Dickinson, a distin- guished maker of fine surgical instruments, for $293 million. 18 19 In my March testimony before the Senate Judiciary Committee, I noted that last year the value of all publicly announced mergers exceeded $34 billion, the highest dollar volume of the past ten years.20 Of the more than 2,000 mergers announced during the year, eighty accounted for almost two-thirds of the total value. 2' Each of the eighty involved transactions valued in excess of $100 million. 22 W. T. Grimm & Co. reports that the number of large mergers is continuing to grow. Twenty-four mergers each having a purchase price of $100 million or more were announced in the first quarter of 1979, almost double the thirteen $100 million transactions announced in the first three months of 1978 and more than three times the number announced during the comparable period for 1977.23

15. Mobil Oil Corp.'s purchase of Montgomery Ward was the result of several transactions, In September, 1974 Mobil Oil acquired a majority interest in Marcor, Inc. In March, 1976 a new corporation, Mobil Corp., was incorporated in Delaware to operate primarily as a holding company. Then in April, 1976, Mobil Corp., Mobil Oil, and Marcor entered into a merger agreement in which Mobil Corp. (50.7%) and Mobil Oil (49.3%) acquired all of the stock of Marcor. In June, 1976 Mobil Oil became a wholly-owned sabsidiary of Mobil Corp. pursuant to a plan of reorganization and merger. In January, 1978 Mobil Oil became the sole owner of all of the shares of common stock of Marcor. Montgomery Ward is a wholly-owned subsidiary of Marcor. 2 Moody's Indus. Manual 2650 (1978). 16. As the result of a tender offer made Nov. 29, 1977, Kennecott Copper Corp. acquired the common stock of Carborundum Co. for a total purchase price of $571.5 million. On Jan. 12, 1978, Carborundum became a wholly-owned subsidiary of Kennecott Copper. Id. at 2516. 17. In June, 1969, Philip Morris, Inc. acquired a 53% interest in the Miller Brewing Co. for $130 million. On July 31, 1970, Philip Morris acquired the remaining shares of Miller Brewing for $25 million in cash and $72 million in subordinated notes due in 1982. Id. at 2815. 18. In January, 1978, Sun Oil Co., acting through a newly formed wholly-owned subsidiary, purchased approximately 34% of the common stock of Becton, Dickinson and Co. for an aggregate cost of $293 million consisting of cash and notes. Id. at 3079. 19. Judiciary Comm. Hearings, supra note 1 (statement of Michael Pertschuk). 20. Sulzberger, Legislation to Curb Big Mergers: Round 1, N.Y. Times, Apr. 12, 1979, § D, at 4, col. 1; see Judiciary Comm. Hearings, supra note 1 (statement of Alfred F. Dougherty, Jr. at 14-16). 21. These eighty transactions had a total value of approximately $21 billion. Judiciary Comm. Hearings, supra note 1 (statement of Alfred F. Dougherty, Jr. at 16). 22. Sulzberger, Legislation to Curb Big Mergers: Round 1, N.Y. Times, Apr. 12, 1979, § D, at 4, col. 1. 23. W.T. Grimm & Co., Press Release (Apr. 11, 1979P. For the second quarter of 1979, 18 mergers having a purchase price of $100 million or more were announced. W.T. Grimm & Co., Press Release (July 11, 1979). The total of 42 mergers in the first half of the year represents a 14% 1979) CONGLOMERATE MERGERS

Unlike the first great merger wave in the waning years of the nineteenth century, there is little entrepreneurial character here, less palpable villainy. No Rockefeller, Fisk, Gould, J. P. Morgan or Car- negie stands out in bold relief upon the nation's landscape. Corporate barons no longer hire private armies to enforce their will, nor flaunt the riches they have amassed. Those who manage vast corporate enterprises are now largely unknown, discreet, and sensitized to the importance of a beneficent public image. Of course, many corporate managers genuinely share popular concerns about environmental despoliation, product hazards, racial discrimination and other societal issues. They may well shrink from any oppressive exercise of the power accumulated in their hands. In any event, they also recognize that the interdependence of management and labor and of consumer and producer makes unrestrained corporate hegemony an illusory goal. Moreover, we acknowledge that significant benefits flow from the large modern enterprise. Few would advocate abandonment of the mass production and distribution systems that have widened and enhanced the availability of goods. Scale is indeed a prerequisite to certain economies. 24 However, few if any such economies flow from 25 conglomerate mergers. What, then, is the matter with conglomerate mergers? Why is it that Senators Kennedy, Metzenbaum, and others have introduced S. 600, The Small and Independent Business Protection Act of 1979, 26 to limit large mergers? Why did John Shenefield, Assistant Attorney General 2 7 for Antitrust, and many others testify that new legislation is needed?

increase over the first half of 1978. Id. Of these 42 transactions, eight had a purchase price of $500 million or more. In 1978, only two mergers were valued in excess of $500 million. Id. 24. See generally J. Bain, Industrial Organization (1959); Stigler, The Economies of Scale, 1 J. of L. & Econ. 54 (1958). According to Professor Bain, certain economies extant in large scale productions promote greater efficiency and higher productivity. As a firm's size increases, its costs per unit of output should decrease because a larger firm can more easily pay for and utilize those mass production techniques involving specialization of labor, management and machinery. J. Bain, supra at 146-52. 25. See notes 71-81 infra and accompanying text. 26. S. 600, 96th Cong., 1st Sess., 125 Cong. Rec. S 6667 (1979) [hereinafter cited as S. 600]. See Appendix I for the full text of the bill. An identical bill has been introduced in the House of Representatives. H.R. 3169, 96th Cong., 1st Sess. (1979). 27. Judiciary Comm. Hearings,supra note I (statement of John H. Shenefield at 34) ("We are faced in this country with a serious, fundamentally disturbing pattern of economic concentration, a pattern of which giant conglomerate mergers are a part, a pattern which carries with it social, political and competitive threats inconsistent with the nation's fundamental democratic pre- cepts.'. William C. Norris, Chief Executive Officer of Control Data Corp. statecd "I don't know anyone who wants to wake up some day and face the fact of concentration of virtually all business in a relatively small number of giant corporations." Id. (statement of William C. Norris at 4). Alfred F. Dougherty, Jr., Director of the Federal Trade Commission's Bureau of Competition urged that "[i]n light of ... the dangers inherent in the process of unlimited growth through conglomeration, it is essential that Congress act immediately to preserve the status quo FORDHAM LAW REVIEW [Vol. 48

Why do a solid majority of our citizenry believe that big business has too much power? 28 Why do a majority of persons earning more than $25,000 a year believe that "the growth of big business is 29 becoming a threat to the American way of life?" Critics discount such generalized reactions as misguided populist residue, asserting that no catalog of societal harms can be traced to the growth of big business. 30 Such objections are disingenuous. The "harms" caused by corporate growth tend to be incremental-a little more political influence or a little less competition-but the danger posed by the surge toward increasingly larger firms is en- croachment upon the viability of bedrock institutions: a free market, a responsive political system and a pluralistic society. If it were clear that the unchecked march of large conglomerate mergers would inevitably centralize substantially all political power in the boardrooms of a handful of firms, devolve absolute authority over the lives of workers and consumers to a handful of managers, or forestall or misshape all economic growth, then the Kennedy- Metzenbaum bill would doubtless galvanize popular support and sail through Congress. But the fact is such omnipotence is not attainable in our society. There is and will continue to be diverse and countervailing power affecting our social, economic and political institutions. The issue today concerns the maldistribution of that power, just as it did in 1890, 1914, and 1950 when the other major antitrust laws were passed. 3' That the growth of corporate power through conglomeration is incremental does not make it innocuous. That most businesses are not overtly greedy or cruel is beside the point. It is also irrelevant that many businesses devote substantial time, effort and talent to public causes. That business should be applauded for such contributions does not mean we can rest easy about augmented corporate power.

II. EFFECT ON THE BALANCE OF POLITICAL POWER First among our concerns is the tipping of the scales of political power. If we turn to the literature of political science we find substantial, though not definitive, evidence that political influence rises as a function of firm size. Professor Lindblom, in his seminal study of

. .Id. (statement of Alfred F. Dougherty, Jr. at 11). Representatives of the Consumer Federation of America, the National Grange, the United Mine Workers and the National Small Business Ass'n echoed these sentiments. Id. (statements of Kathleen F. O'Reilly, Robert M. Frederick, Sam Church, Jr., John Lewis). 28. Sulzberger, Legislation to Curb Big Mergers: Round 1, N.Y. Times, Apr. 12, 1979, § D, at 4, col. 1. 29. Poll of the Roper Organization, Inc., reprinted in Fortune, March 26, 1979, at 91. 30. See, e.g., Subcomm. Hearings, supra note I (statements of Donald I. Baker at 3, Richard A. Posner at 4, George J. Benston at 101, Edwin M. Epstein at 4-6). 31. See note 3 supra. 1979] CONGLOMERATE MERGERS

political and economic systems, 3 2 characterizes the business corporation as the preeminent force within the American political process, occupying a privileged position of political as well as economic pow- 33 er. Professors Salamon and Siegfried, conducting a survey of the literature and a preliminary econometric study of corporate size and political power, concluded that "larger firm size does indeed seem to yield '34 greater political power. Mergers can negatively affect the political balance in two ways: first, by reducing the absolute number and, hence, the potential diversity of political decision-makers and second, by enhancing the absolute political power of the merged firms. When two previously independent firms merge, one is left. If, prior to the merger, one of the preexisting firms had advocated a particular governmental policy, the other might well have been opposed or neutral. After the merger's consummation, the resources of the inte- grated organization are placed at the service of unitary policy advocacy. For example, before the merger of Mobil Oil and Montgomery Ward, Montgomery Ward was one of the few major business firms to advocate forcefully the creation of a Consumer Advocacy Agency. 35 After the merger, that independent business viewpoint was muted. The larger the firm, the greater and more diverse the political

32. C. Lindblom, Politics and Markets (1977). 33. Id. at 171-75. Professor Lindblom asserts that large businesses enjoy a number of advantages over other interest groups. For example, individual citizens have to first organize themselves before they can begin to influence government decisions. Corporations. however, are already orgainized for business purposes. It requires little effort for the business organization to direct its energies toward a political goal. Id. at 196. In addition, while citizen groups must rely upon volunteers, corporations enjoy the more dependable services of paid employees. Id. Further, corporate representatives are already known to government officials because of the corporation's business activities. When these same representatives solicit government help as individual citizens, "neither they nor [the] government officials will ordinarily note the differ- ence." Id. at 197. 34. Salamon & Siegfried, Economic Power and Political Influence: The Impact of Industry Structure on Public Policy, 71 Am. Political Sci. Rev. 1026, 1042 (1977). The authors hypothesized that "an industry containing large firms will have greater political influence than an industry of the same size but composed of more numerous small firms." Id. at 1032. The authors identified five basic aspects of our economic structure-firm size, industry size, market concentration, profit rate, and degree of geographical dispersion-that, they hypothesized, would affect the success an industry would have in taking advantage of the opportunities present in our political system to translate economic power into political influence. Id. at 1028-33. The authors conducted two empirical tests, one using the federal corporate income tax rates and one using state gasoline excise tax rates, to demonstrate the relationship between the five identified economic factors and corporate tax avoidance. Id. at 1036-42. The correlation between firm size and political influence was supported by the data. Id. at 1042-43. 35. Other large companies in favor of this agency included Levi Strauss & Co., Wrangler Hosiery Co. and TDK Electronics Corp. The Consumer Protection Act of 1977: Hearings Before the Senate Comm. on Governmtental Affairs, 95th Cong., 1st Sess. 30-36, 101-02 (1977). FORDHAM LAW REVIEW [Vol. 48 resources which it can marshal. Thus, in its campaign to postpone safety and emission standards, General Motors solicited support through letters to its thirteen thousand dealers, nineteen thousand 36 suppliers and 1.3 million shareholders. There are those who argue that despite great resources the political influence of large firms is effectively limited. Professor Epstein, for example, discounts the threat of corporate power, citing a number of potential safeguards and counterbalancing factors which, in his view, offer assurance that the democratic balance of power is not seriously threatened by the aggrandizement of corporate power."7 More than anyone else, Professor Epstein has catalogued and chronicled the political activities of large corporations. He categorizes eight political resources uniquely possessed by business firms, particu- larly the largest ones: wealth, organization, access, patronage, surro- gateship, influence over mass media, past political experience and 38 status of business managers. In works written in the late 1960's and early 1970's, he cites the following factors as limiting corporate influence: first, the belief by businessmen that corporate political activity is ineffective; second, the power of other interest groups, such as organized labor; third, public distrust of big business; and fourth, divergent or competing interests 39 among businesses. Professor Epstein's documentation of recent corporate political activity has far outstripped his previous analytic and predictive efforts. A 1974 prediction, for example, that firms would not make direct dona- tions to candidates if it became lawful to do so, is belied by his most recent works which show that larger firms are very likely to have 40 political action committees. Perhaps the most striking change since Professor Epstein wrote in 1969 has been in the role of political leadership assumed by corporate managers. At that time, he stated with confidence that "[a]s a group, corporate managers have eschewed general political leadership and have concerned themselves with limited politics for limited purposes. . . Indeed, excessive political activity on the part of a corporate

36. R. Nader, M. Green & J. Seligman, Taming the Giant Corporation 21 (1976). 37. See note 39 infra and accompanying text. 38. E. Epstein, The Corporation in American Politics 240 (1969). 39. Id. at 221-29; see Epstein, Dimensions of Corporate Power (pt. 1), 16 Cal. Management Rev. 9 (Winter 1973); id. (pt. 2) at 32 (Summer 1974). 40. Epstein, Business and Labor in the American Electoral Process: A Policy Analysis of Federal Regulation-The Rise of Political Action Committees 29-32 (August 1978) (to be published as a chapter in 5 The Sage Electoral Studies Yearbook (H. Alexander ed. 1979)). A political action committee is a committee established by a corporation or any group of persons to influence elections. In general, such committees receive contributions and make expenditures toward this end. Id. at 52 n.2. 1979] CONGLOMERATE MERGERS manager is looked upon somewhat askance by his professional col- '41 leagues." Finally, Professor Epstein cites as a major counterbalance to the risk of excessive corporate political influence the conflict of interest and opinion among businessmen. "Corporations utilize their political resources against each other as frequently as they do against other social interests. Indeed, internecine conflict among business organizations constitutes much of the substance of corporate political activity. '42 He also quotes with approval Adolph Berle's observation that "[tihere is no high factor of unity when several hundred corporations in different lines of endeavor are involved. '43 Surely the emergence of the Business Roundtable44 as the preeminent lobbying institution in Washington explodes these images of political paralysis or diffidence on the part of corporate managers. The Business Roundtable is unique in enlisting the personal and direct involvement of the chief executive officers of the major business firms in this country on a broad range of common corporate goals, such as the defeat of conglomerate legislation. It signifies the emergence of political activism as a first priority of the corporate manager. Indeed, the visibility and direct personal involvement of the chief executive officers remove any shadow of a doubt that agressive political activity has become not only respectable, but -the hallmark of a corporate leader. Corporate political successes have fueled even greater militancy. For example, during the early stages of business' battle to forestall creation of a Consumer Advocacy Agency, some business spokesmen argued that a federal consumer agency would duplicate funded par- 45 ticipation by public interest groups in agency rulemaking activity. Today, the Chamber of Commerce and other umbrella business lob-

41. E. Epstein, supra note 38 at 228 (1969). 42. Id. at 227. 43. A. Berle, The American Economic Republic 13 (1963), quoted in E. Epstein, supra note 38, at 229. 44. The Business Roundtable is an association whose membership is limited to 200 corporate chief executives. These officers seek to influence political decisions which will affect the economy and business. The Business Roundtable researches and prepares position papers on various issues, such as taxation, energy and inflation. These position papers are then circulated among government officials and other interested parties. In addition, the members of the Roundtable often testify before congressional committees. The Conference Board, Redefining Corporate- Federal Relations 87-88 (1979). 45. See, e.g., The Consumer ProtectionAct of 1977: Hearings Before the Senate Comm. on Governmental Affairs, 95th Cong., 1st Sess. 107-10 (1977) (statement of J.W. Riehm on behalf of the Chamber of Commerce); Public Participationin FederalAgency Proceedings Act of 1977, S. 270 (pt. 1): Hearings Before the Subcomm. on Administrative Practice and Procedure of the Senate Comm. on the Judiciary, 95th Cong., 1st Sess. 145 (1977) (statement of George L. Gleason on behalf of the American Nuclear Energy Council); id. at 180 (statement of Frederick T. Poole on behalf of the American Farm Bureau Federation). FORDHAM LAW REVIEW [Vol. 48 bies, fresh from their victory on the consumer agency, have set their sights on defeating and rolling back efforts to provide46 even limited funding of public interest voices in rulemaking. Nor is organized labor an effective countervailing force. The stun- ning defeat of labor's prime legislative goals, including the Labor Reform Act of 1977, 4 7 despite a fresh labor-supported presidential victory and Democratic majorities in Congress, supports Professor Lindblom's thesis that the political power of labor is dwarfed by that 48 of business. Although Ralph Nader and public interest groups were thought to have enjoyed a status as a roughly equivalent counter-force to corporate lobbying in the 1960's, the defeat of the Consumer Advocacy Agency bill-the linchpin of the consumer groups' strategy-signaled a very significant loss of potency in the 1970's. Whether this perceived shift accurately reflects the measure of power in Washington remains to be seen. But today it cannot be said with confidence that public interest groups and the labor movement stand as bulwarks against abuse of corporate political influence. The large conglomerate firm has particular political advantages. According to Professor Blake:

One of the most potent economies of scale of large conglomerate firms is surely tile effective presentation of their case for favorable treatment by government. A single- product firm, operating directly or through a trade association, has relatively few possible pay-offs over which to amortize large investments in lobbying or political good will. A conglomerate's many divisions, however, deal with every important agency of government, and the number of possible pay-offs is much greater. Furthermore, conglomerate firms can mobilize special interest support from a much wider range of sources; they are likely to deal with more unions, more categories of suppliers and customers, and more mass media than single-product firms; and they are likely to be, 49 or deal with, important constituents in more states and electoral districts.

It is not that the large firms will prevail in every instance; it is the array of resources currently available that suggests that quantum leaps in size by the largest firms could distort our political processes. For example, ITT's effort to acquire the American Broadcasting Company in 1968, although ultimately aborted, found 300 Congressmen and Senators protesting the opposition of the Justice Department's Antitrust Division to the merger.50 Can there be any doubt that this collective show of political concern can be traced, at least in part, to ITT's 265

46. For a brief general discussion of the Chamber of Commerce and similar business associations, see The Conference Board, supra note 44, at 84-90. 47. Labor Reform Act of 1977: Hearings on S. 1883 and Related Bills Before the Subcomm. on Labor of the Senate Comm. on Human Resources, 95th Cong., 1st Sess. 3 (1977). 48. C. Lindblom, supra note 32, at 198-99. 49. Blake, Conglomerate Mergers and the Antitrust Laws, 73 Colum. L. Rev. 555, 591-92 (1973). So. R. Nader, M. Green & J. Seligman, supra note 36, at 223. 1979] CONGLOMERATE MERGERS subsidiary corporations, its 200,000 shareholders and 400,000 employees and the spread of ITT operations to every state of the Union? Inevitably each of us draws upon his own experience to impart immediacy to recitations of fact. For me, perhaps the most enlighten- ing encounter with tangible conglomerate power occurred during my days as Chief Counsel to the Senate Committee on Commerce."' There I experienced firsthand the attempt by the El Paso Natural Gas Co. to obtain legislation nullifying a Supreme Court decision directing El Paso to divest itself of the Pacific Northwest Pipeline Corp. 5 2 El Paso's lobbyists argued that divestiture would render the Pacific Northwest virtually destitute of natural gas supplies, strangling the economic life 5 3 of Washington, Oregon, Wyoming, Idaho and Utah. The Committee engaged the services of two leading experts on natural gas competition in the country, Stephen Breyer and Paul MacAvoy, who determined quite the opposite. Indeed, they stated that the divestiture was unlikely to have any effect on the gas resources 54 available to consumers in the Pacific Northwest or California. This did not deter El Paso or the captive management of its Pacific Northwest subsidiary. Employing its vast economic and political re- 55 sources, including the lobbying services of at least one ex-governor, teams of experts and advocates spread throughout every nook and

51. Chairman Pertschuk served as the Commerce Committee's Chief Counsel from 1964 to 1977. 52. United States v. El Paso Natural Gas Co., 376 U.S. 651, 662 (1964). This litigation was actually the subject of five different opinions by the Supreme Court. In California v. Federal Power Comm'n, 369 U.S. 482 (1962), the Court set aside the Commission's approval of a merger between El Paso and Pacific Northwest because the Commission had acted during the pendency of an action filed by the Department of Justice in federal district court for alleged antitrust violations. Id. at 487. The district court subsequently dismissed the antitrust suit but the Supreme Court reversed on appeal. El Paso Natural Gas, 376 U.S. at 652, 662. Upon remand, El Paso and the United States agreed to a divestiture decree which was then entered by the district court. The Supreme Court again reversed because the decree did not comply with the Court's mandate in El Paso Natural Gas. Cascade Natural Gas Corp. v. El Paso Natural Gas Co., 386 U.S. 129, 136 (1967). The Court again remanded "with directions that there be divestiture without delay." Id. at 142. The district court held further hearings and entered a new decree of divestiture, United States v. El Paso Natural Gas Co., 291 F. Supp. 3 (D. Utah 1968), but the Supreme Court reversed on the same ground as before-that the decree did not comply with the Court's previous mandate, Utah Pub. Serv. Comm'n v. El Paso Natural Gas Co., 395 U.S. 464, 471 (1969). Upon remand, the district court entered a third decree of divestiture and the Supreme Court affirmed. United States v. El Paso Natural Gas Co., 358 F. Supp. 820 (D. Colo. 1972), aff'd mem., 410 U.S. 962 (1973). 53. See, e.g., Natural Gas Supply for Pacific Northwest: Hearings on S. 2404 Before the Senate Comm. on Commerce, 92d Cong., 1st Sess. 29-30 (1971) (letter of Robert W. Macfar- lane); id. at 61-67 (statement of William P. Woods); id. at 95, 103-04 (statement of Howard Boyd); id. at 227-28 (statement of Edmund G. Brown); id. at 406-07 (statement of John W. Gallivan). 54. Id. at 231-48 (statement of Stephen Breyer and Paul MacAvoy). 55. Id. at 227-28 (statement of Edmund G. Brown). Mr. Brown served as Governor of California from 1963 to 1967. FORDHAM LAW REVIEW [Vol. 48 cranny of the Northwest overwhelming, with charts and elaborate presentations, virtually every public utility commission, 6 newspaper and editorial board, 7 chamber of commerce58 and labor union.5 9 Indeed, the Commerce Committee even heard from school superinten- dents60 and hospital administrators, 6 1 terrified by the prospect that their institutions would be forced to shut down, bereft of natural gas, should El Paso leave the Pacific Northwest. Ultimately a bill62 cosponsored by most of the Senators from the Northwest was introduced to overrule the Supreme Court's several times reaffirmed decision. 63 The broad political support for the legislation stemmed from the ability of this huge firm to marshal an incredi- ble array of political and legal talent to sell its side of the story in a political vacuum. And why did that vacuum exist? At least in part because the one existing firm which had a countervailing stake in an independent Northwest pipeline company had become a subsidiary of El Paso, with management dedicated to the preservation of the merger. The legislation ultimately faltered after allegations of improper efforts by El Paso to influence state Democratic Party officials in 64 Utah. The issue in those proceedings was whether the consumers in California and the Pacific Northwest would be better served by the existence of two Pacific Coast pipeline companies rather than one. As separate entities each had a more limited area of primary geographical interest but also each provided a threat of potential competition should the other abuse its position. Now that a strong and independent pipeline company is flourishing in the Northwest, I do not believe that a single community leader would any longer insist that people of the Northwest would be better served today by a single gas company that also supplied Southern California.

56. See, e.g., id. at 52-53 (statement of the Wyoming Public Service Comm'n); id. at 46 (statement of the Oregon Public Utility Comm'n). 57. See, e.g., id. at 406-09 (statement of John W. Gallivan). At the time of the Commerce Committee hearings, Mr. Gallivan had been the publisher of the Salt Lake Tribune since 1960. 58. Id. at 325-53. The chambers of commerce of approximately seventy-five cities and towns in the Pacific Northwest adopted formal resolutions in favor of the proposed legislation, 59. See, e.g., id. at 29-30 (letter of Robert W. Macfarlane). Mr. Macfarlane wrote on behalf of the Idaho State AFL-CIO, of which he was President. 60. See, e.g., id. at 71 (statement of Louis Bruno). Mr. Bruno testified on behalf of the Washington State public schools and universities, as state Superintendent of Public Instruction. 61. See, e.g., id. at 130 (statement of John Bigelow). Mr. Bigelow, Executive Vice President of the Washington State Hospital Ass'n, testified on behalf of hospitals in the state. 62. Id. at 378 (S.2404). 63. United States v. El Paso Natural Gas Co., 376 U.S. 651 (1964); see note 52 supra. 64. See N.Y. Times, Nov. 24, 1971, at 17, col. 2; id., Dec. 25, 1971, at 6, col. S. 1979] CONGLOMERATE MERGERS

III. EFFECT ON THE CORPORATION'S RESPONSIVENESS TO SOCIETAL NEEDS Beyond the political power of the very large firm is the direct power it exercises over the lives of the communities, workers and consumers that come within its orbit of operation. In an atomized, competitive marketplace composed of hundreds of smaller firms, a company's behavior is for the most part determined by market forces. But as firms grow larger, and as their power in each of the markets in which they operate grows, they begin to make more decisions of broader social impact which are not always dictated by cost or efficiency; for example, plant and office openings and closings, hiring and promotion decisions, charitable contributions and choices as to appropriate technology. Many of these decisions must reflect the preference or perhaps the social consciousness of the corporate manager. Some businessmen and at least one school of economic theory would have us believe that corporate decision-making is solely or invariably dictated by profit considerations, either because managers wish to maximize profits or because the market will quickly discipline those who do not. 65 These theorists might concede that managers of dominant firms have some discretion because of market imperfections, but would otherwise maintain that the market, not the manager, dictates corporate policy. While it may be true that in a world of perfect information and ideal competitive markets, managers might well not possess discretionary power, in this world information is costly and imperfect. The instantly self-correcting markets envisioned by some economists simply do not exist. Accordingly, managers do have discretion. As Professor Lind- blom notes: "[C]orporate executives cannot . . . unerringly find one correct solution to their complex problems. Since they cannot, they have to exercise discretion." 66 Every time cost-benefit analysis fails to identify a single profit-maximizing course of action, the firm is required to decide between alternatives on grounds which reflect the preferences of the managers. The market cannot correct for each "wrong" choice because other firms will be making numerous decisions, some of which will also be wrong and thus counterbalancing. Some "wrong" choices, moreover, while damaging to society, may not affect a firm's efficiency in the marketplace. Take, for example, prejudice against hiring qualified blacks and females as corporate

65. Milton Friedman, chief spokesman for the "Chicago school" of economics, adheres to this view. Professor Friedman sees the corporate executive merely as an employee of the owners of the corporation. As such the executive's sole responsibility is to maximize corporate profits for the benefit of the corporate owners. D. Bell, The Coming of Post-Industrial Society 291-92 (1973). 66. C. Lindblom, supra note 32, at 155 (emphasis added). FORDHAM LAW REVIEW [Vol. 48 executives. If, in hiring, a firm always selected white males whenever they were as qualified as black or female applicants, the effect would be to drastically reduce the representation of blacks and females, yet not affect the efficiency of the firm. Where particular prejudices are widespread, corrective governmental action may be necessary to protect particular groups or communities. 67 Normally, however, we rely upon the diversity and dispersion of power within our society to accommodate differing personal preferences and interests. Growth in firm size magnifies the scope of a firm's discretionary power and the impact of idiosyncratic views held by that firm's management. Theoretically, the public has means other than legislation to alter socially harmful behavior of large firms. Shareholders have the right to control management policy through corporate governance and consumers have the power to impose their views through collective action. Neither of these, however, has provided an effective means of controlling corporate behavior. As Adolph Berle and Gardiner Means demonstrated forty years ago, the term "shareholder democracy" is mostly a fiction as applied to the control of large, widely held corporations. 68 Proxy fights for any purpose are rare and expensive. Shareholders are primarily concerned with the firm's investment performance rather than with the exercise of its corporate discretion. When they are offended by the corporation's actions, they are far more likely to sell their shares than attempt direct action. Consequently, attempts to make firms more socially responsible 69 through corporate governance campaigns, such as Campaign GM, have been more notable for their occurrence than for their successes. Attempts to mobilize consumers face equal if not greater problems. Consumers generally pay more attention to price and quality than they do to a firm's pollution, hiring practices or other public activities. The farmworkers' grape and lettuce boycott, the Nestle boycott and the

67. See, e.g., Civil Rights Act of 1964 §§ 201-20', 42 U.S.C. §§ 2000a to a-6 (1976) (forbidding discrimination in public accommodations); id. §§ 401-410, 42 U.S.C. §§ 2000c to c-9 (1976) (forbidding discrimination in public education); id. §§ 701-718, 42 U.S.C. §§ 2000e to e-17 (1976) (forbidding discrimination in employment opportunities). 68. A. Berle & G. Means, The Modern Corporation and Private Property 78-83, 244-52 (rev. ed. 1968). 69. During Campaign GM, the General Motors Corp. solicited the proxies of more than 1.4 million of its shareholders. Included in GM's solicitation statement was a twenty-one page booklet rebutting a one hundred word proxy solicitation by the Project on Corporate Responsibility. In addition, GM hired nearly one hundred professional proxy solicitors to contact shareholders on a personal basis. Campaign GM spurred a proliferation of shareholder proposals directed at social issues. As a result of these efforts, some financial institutions have established procedures to consider shareholder public policy proposals. These proposals, however, rarely manage to attract a sufficient number of votes to become effective, perhaps because so many shares are owned by financial institutions. R. Nader, M. Green, & J. Seligman, supra note 36, at 82-83, 90-91. 19791 CONGLOMERATE MERGERS efforts directed against J. P. Stevens suggest it is hard to arouse and organize consumers and that, ultimately, such efforts are of only 70 limited effect. Even if shareholder or consumer control were more feasible and effective, it could only be focused on narrow, discrete issues. The number of decisions of potential public importance made by corporate managers is great and the information needed to decide those issues for each large firm is voluminous. Moreover, the issues on which the public could both be aroused and achieve a consensus are likely to be few. Finally, the costs of concerted action are great. Consequently, apart from egregious instances, neither shareholders nor consumers can act as an effective check on the discretionary power or political activity of large corporations. The social sciences also indicate other concerns that may not be fully alleviated by market forces. It has been suggested that in growing larger, firms become disproportionately more complex, and that the flexibility and innovativeness of the smaller firm is replaced by a rigidity and routinization that is less responsive to the needs of society. 71 We know that complexity increases more rapidly than organ- izational size.72 This leads to the establishment of increasingly formal operating and reporting procedures. 73 For the very large firm, specialization, complex patterns of coordination, the preservation of historical investment in production facilities and the accommodation of inter- nally competing interests tend to suppress innovation, except when stimulated by external factors such as environmental regulation or 74 foreign competition.

70. See A. Etzioni, Modern Organizations 102 (1964). Professor Etzioni states that organized consumer activity is very rare and is usually limited to extreme cases of exploitation. He suggests that most consumers are unwilling to devote energy, time and money to such activity. Id. 71. See generally K. Arrow, The Limits of Organization 49 (1974). 72. T. Caplow, Principles of Organization 29-34 (1964). Professor Caplow's analysis demon- strates that "[t]he relational complexity of small groups increases rapidly with small increases in size," id. at 29, and that the potential complexity of large organizations is staggering, id. at 33. 73. R. Cyert & J. March, A Behavioral Theory of the Firm 101-13 (1963). Among the conclusions that the authors draw concerning standard operating procedures in a large organization are: (1) large organizations seek to avoid uncertainty by following regular procedures and by reacting to feedback from the outer world rather than forecasting the environment; and (2) the procedures that these organizations follow dominate the decisions that are made. Id. at 113. The authors classify the standard operating procedures of a large firm into two categories, general and specific. An example of a general operating procedure is "avoid uncertainty" or "maintain the rules." Id. at 102. An example of a specific operating procedure is to maintain and continue making records and reports. Id. at 103. 74. See B. Klein, Dynamic Economics 17 (1977); H. Leibenstein, Beyond Economic Man: A New Foundation for Microeconomics 134 (1976). Professor Klein notes that in fifty inventions occurring in relatively static industries, none came from major firms. In fact, all the inventions came from newly established firms or firms whose main business was in other industries. -In other words, as long as organizations remain highly dynamic they can produce a series of FORDHAM LAW REVIEW [Vol. 48

As Professor Galbraith has observed: "There is not the slightest reason to believe that after being absorbed by the conglomerate, the small enterprise is more innovative, more efficient, more effective or more profitable than before. If anything, the evidence is in the other direction."7 5 That statement is supported by the economic literature that punctures the myth that research and development activity stead- ily increases in proportion to firm size. Indeed, with some exceptions, there is substantial evidence that as firm size increases from large to giant, research and development effort does not increase proportionate- 76 ly. Also, the lessened responsiveness that has been associated with large firm size may not fully call forth the disciplining forces of the market. To the extent that a firm has what Professor Burton Klein calls "static efficiency" 77-that is, the ability of a firm to produce according to existing standards and technology-it will reap the rewards of a successful production system and can use those resources to stifle, delay or, if necessary, imitate changes forced by more innovative competitors. Enhancement of the standard of living is, however, heavily dependent on innovation. Accordingly, we should not encour- age a shifting of production facilities through mergers to even larger firms that may compete efficiently but be even less inclined to inno- vate. The debate over potential benefits and costs of large or increasing firm size will doubtless continue. That debate-about scale economies and dynamic versus static efficiencies-is, however, only partially relevant to the debate on limitations on conglomerate mergers because the proposals restrict mergers but not other means of growth in firm size. 78 Professors Scherer and Dennis Mueller have reviewed the economic literature on the efficiency effects of large conglomerate mergers. 79 Professor Scherer concludes that large mergers "seldom

important advances . . . . But once firms in an industry become static the discoveries will come from newcomers." B. Klein, supra. Professor Leibenstein's analysis of group effort concludes that the larger the group, the more difficult it is to introduce positive change. H. Leibenstein, supra. 75. Future of Small Business in America (pt. 2): Hearings Before the Subcomm, on Antitrust, Consumers and Employment of the House Comm. on Small Business, 95th Cong., 2d Sess. 39 (1978) (statement of John Kenneth Galbraith). 76. Kamien & Schwartz, Market Structure and Innovation: A Survey, 13 J. of Econ. Literature 1, 9-11 (1975). After comprehensively surveying the empirical studies in this area, the authors conclude that "[rlelative [research and development] activity ... appears to increase wIth firm size up to a point then level off or decline beyond it." Id. at 32. Moreover, "ihe largest [diversified] firms generally appear to be far less efficient innovators than smaller rivals." Id. 77. B. Klein, supra note 74, at 9, 35-36. 78. See pt. IV infra. 79. Mueller, The Effects of Conglomerate Mergers: A Survey of the Empirical Evidence, I J. of Banking & Finance 315 (1977); Scherer, The PosnerianHarvest: Separating Wheat from Chaff, 86 Yale L.J." 974 (1977). 1979] CONGLOMERATE MERGERS yield significant efficiencies."80 Professor Mueller's conclusion is even stronger. In his words, the empirical literature he reviewed "draws a surprisingly consistent picture. Whatever the stated or unstated goals of managers are, the mergers they have consummated have on average not generated extra profits for the acquiring firms, have not resulted in increased economic efficiency." 81 Significantly, the legislative proposals presently being considered are designed to permit those mergers which enhance economic efficiency. 82 Also, because the various proposals would restrict mergers rather than firm size, 83 they would not prohibit the achievement of any scale economies realizable through internal growth.

IV. PROPOSALS TO LIMIT CONGLOMERATE MERGERS Several approaches to limiting large acquisitions have been suggested. One approach, incorporated in the Kennedy-Metzenbaum bill, is to permit acquisitions if the would-be conglomerateur can demonstrate positive societal benefits from the transaction.8 4 Although I am sympathetic with the rationale of this approach, it could result in complex and lengthy litigation. At this moment, therefore, I favor the "cap and spin-off" approach embodied in the Federal Trade Commis- sion (FTC) staff proposal developed by the FTC's Bureau of Competi- tion. 85 The FTC staff proposal permits large firms to acquire other large firms, provided that one or more viable entities of aggregate size comparable to the acquired firm are divested . 6 Unlike the Kennedy- Metzenbaum bill, the proposal does not absolutely forbid any merger. It offers firms great investment flexibility. It has been designed to minimize disruption of normal capital markets and not to adversely affect shareholders. When acquisition-minded firms believe that significant efficiencies can be obtained by mergers, the Bureau's proposal offers all firms-even the largest-the opportunity to take advantage

80. Scherer, The Posnerian Harvest: Separating Wheat from Chaff, 86 Yale L.J. 974, 988 (1977). Professor Scherer qualifies this assertion by adding that "most sizeable mergers. . have tended to have only minor anticompetitive effects. If I am right, mergers contribute little in general either to efficiency or to monopoly. They are a deadly serious but preponderantly sterile game that diverts managerial attention from running existing operations well." Id. 81. Mueller, The Effects of Conglomerate Mergers: A Survey of the EmpiricalEvidence, I J. of Banking & Finance 315, 344 (1977). 82. S. 600 § 3(a)(2), supra note 26; see Appendix I. 83. Id. § 2. 84. Id. § 3(a)(1), (2). This would not apply to mergers of firms when each firm has assets or sales exceeding $2 billion. Such mergers are flatly forbidden. Id. § 2(a). 85. The FTC staff proposal takes the form of a new § 7B of the Clayton Act. See Appendix 1I for the full text of the proposal. 86. Id. § 7B(a)-(c). Mergers and acquisitions would continue to be subject to the strictures of current antitrust laws. Id. § 7B(i)(1). FORDHAM LAW REVIEW [Vol. 48 of such efficiencies. Moreover, the difficult issue of whether efficiencies will result from a merger does not become the subject of enforcement proceedings. The acquiring firm is free to assess, without government interference, the possible efficiencies and benefits to be derived from proposed mergers and, indeed, may pursue acquisitions for any reason consistent with present law, subject only to the obligation to divest 87 businesses of comparable size. A few more points about conglomerate merger efficiencies are in order in response to the recent testimony presented by experts assembled by the Business Roundtable, the National Association of Man- ufacturers, the Chamber of Commerce and other business lobbying organizations. 88 They argued that the limitations on mergers proposed by the Kennedy-Metzenbaum bill would result in efficiency losses, in particular by insulating bad managers, and would unfairly deprive current shareholders of an opportunity to realize a profit on their shares. 89 Neither argument is a well-supported criticism of the Kennedy-Metzenbaum bill, which specifically addresses the efficiencies issue, 90 or of the FTC staff proposal. 9' The staff proposal explicitly assumes the salutary effect on management of corporate takeovers. But profit calculations by the staff show takeovers of poorly managed firms are not characteristic of the current merger wave. 92 The benefit of such mergers, therefore, is largely potential or theoretical. Even so, the opportunity for beneficial, that is, efficiency-enhancing, takeovers should be preserved. The "cap and

87. For a detailed analysis of the FTC staff proposal, see Judiciary Comm. Hearings, supra note 1 at 107-18 (statement of Alfred F. Dougherty, Jr.). 88. Ira Millstein, an antitrust attorney and member of the firm of Weil, Gotshal & Manges, and Professors George J. Benston of the University of Rochester, Yale Brozen of the University of Chicago, Edwin M. Epstein of the University of California at Berkeley, David Schwartzman of the New School for Social Research and Gordon Tullock of the Virginia Polytechnic Institute were identified during the hearings on S. 600 as testifying at the request of the Business Roundtable. Former Assistant Attorney General for Antitrust Donald I. Baker, Professor Brozen and Professor Richard Posner of the University of Chicago testified at the request of the National Association of Manufacturers. Professors Brozen and Schwartzman testified at the request of the Chamber of Commerce. Professor William F. Baxter of Stanford University testified at the request of the American Petroleum Institute. Although not identified during the hearings with any particular business lobbying organization, Betty Bock, Director of Antitrust Research for the Conference Board, and Professors Phillip Cagan of Columbia University, Kenneth Dam of the University of Chicago, Michael Gort of the State University of New York at Buffalo, Jesse Markham of Harvard University and J. Fred Weston of the University of California at Los Angeles testified at the request of one or more of the participating business groups, Subcomnn. Hearings, supra note 1. 89. See, e.g., id. at 20 (statement of Donald I. Baker); id. at 46-48, 61-62 (statement of George J.Benston); id. at 4-5, 8 (statement of Yale Brozen); id. at 7-8, 19-20, 26-27 (statement of Richard Posner). But see notes 93-96 infra and accompanying text. 90. S. 600 § 3(a)(2), supra note 26; see Appendix I. 91. See Appendix II. 92. Judiciary Comm. Hearings, supra note 1 at 2 7-28 (statement of Alfred F. Dougherty, Jr.). 19791 CONGLOMERATE MERGERS spin-off' approach permits such mergers, without growth in firm size, between even the largest firms when concurrent divestitures are made. Even the claim that shareholders of the acquired firm benefit when they sell at a premium is disputable. A number of professionals in the financial community have expressed great concern about the current takeover activity. For example, Leonard Leiman, a corporate attorney, questions whether the investor interested in long term value is treated fairly under the tender offer rules. 93 And even if their parochial interests were to be accommodated, he questions the overall public benefit of current defensive maneuvering by target companies to avoid hostile takeovers. 94 Similar concerns were expressed by Walter Kis- singer, chief executive officer of the Allen Group, Inc., 95 and William 96 Cary, former chairman of the Securities and Exchange Commission.

CONCLUSION Perhaps in a world of complete information it would be correct to associate benefits with the current crop of conglomerate mergers. It is not clear, however, that shareholders who sell out are getting "full value" for their shares, or that only the acquiring firms are paying the "premium" price the shareholders are required to accept. Moreover, profitability data suggests that the firms being taken over are well run and are not being improved by their acquirers. 97 Under such circum- stances, it seems fanciful to denounce merger limitations with projec- tions that are based on unrealistic assumptions. Even more disturbing is the failure of the representatives of big business to address either the perceived harms to business and society associated with the increasing number of corporate takeovers or to address the proposals that permit beneficial mergers. The evidence is that few benefits, if any, can be expected to result from conglomerate mergers. The current bumper crop of takeovers offers little prospect of socially desirable results; growth in firm size is what these conglomerate mergers do offer. The various proposals to

93. Leiman, On Corporate Takeovers, N.Y. Times, Apr. 26, 1979, § A, at 23, col. 1. 94. Id. 95. Kissinger, Against Forced Takeovers, N.Y. Times, Jan. 22, 1978, § 4, at 19, col. 1. Mr. Kissinger asserts that the shareholders of acquired companies in corporate takeovers are frequently shortchanged. "[Liured by the prospect of a quick profit and dismayed by the recent history of a depressed stock market, [shareholders] will have parted with investments in companies with good growth records and excellent profit potential at prices representing histori- cally low multiples of earnings." Id. Moreover, according to Mr. Kissinger, the toll exacted on the lives of people within the target company during a takeover can be severe. Id. 96. Cary, When Firms Merge, N.Y. Times, June 23, 1978, § A, at 25, col. 2. Professor Cary states that "[tiakeovers are wonderful for lawyers and bankers, stock jobbers, arbitrageurs and finders.... But they are just shuffling pieces of paper. Organizing and financing new industrial productivity has taken a secondary role." Id. 97. Judiciary Comm. Hearings, supra note 1 at 27-29 (statement of Alfred F. Dougherty, Jr.). FORDHAM LAW REVIEW [Vol. 48 limit growth by merger are designed to preserve the benefits to society that some mergers offer. Consequently, the economic costs of the proposals appear negligible. On the other hand, the political and social benefits of the new legislation appear to be substantial. Indeed, the evidence suggests that rid of large conglomerate mergers, we could anticipate a gradual deconcentration of economic power as the economy expands. Conse- quently, we would be less likely to suffer a hazardous drift in the balance of power within our society if any of the current proposals were enacted.

APPENDIX I S. 600 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Small and Independent Business Protection Act of 1979". Sec. 2. Notwithstanding any other provision of law, no person shall merge or consolidate with any other person engaged in commerce, or acquire, directly or indirectly, such amount of the stock or other share capital of such other person as to enable such person to control such other person, or acquire, directly or indirectly, a majority of the assets of such other person, if (a) each person has assets or sales exceeding $2,000,000,000; (b) each person has assets or sales exceeding $350,000,000; or (c) one person has assets or sales exceeding $350,000,000 and the other person has 20 per centum or more of the sales during the calendar year immediately preceding the acquisition in any significant market. Sec. 3. (a) Except as provided in subsection (b), it shall be an affirmative defense to an offense under sections 2(b) and 2(c) that (1) the transaction will have the preponderant effect of substantially enhancing competition; (2) the transaction will result in substantial efficiencies; or (3) within one year before or after the consummation of the transaction, the parties thereto shall have divested one or more viable business units, the assets and revenues of which are equal to or greater than the assets and revenues of the smaller party to the transaction. (b) Such affirmative defense shall not be available if one of the parties to the transaction has within one year previous to the transaction been a party to a prior transaction coming within the provisions of section 2(b) or 2(c). Sec. 4. (a) Authority to enforce compliance with section 2 is vested in the Attorney General of the United States and the Federal Trade Commission. 1979] CONGLOMERATE MERGERS

(b) The Attorney General and the Federal Trade Commission shall adopt procedures by which parties to a transaction within the terms of sections 2(b) and 2(c) can ascertain the determination of the Attorney General or the Federal Trade Commission as to whether or not the transaction is within the terms of any of the affirmative defenses set forth in section 3. If the Attorney General or Commission, pursuant to such procedures, advises a party that a transaction is within the terms of any of the affirmative defenses set forth in section 3, the Attorney General and the Federal Trade Commission shall be barred by such advice in the absence of proof that the determination was based in whole or substantial part on an intentional misstatement by the party requesting such advice. Sec. 5. Injunctive relief for private parties may be granted under the same terms and conditions as prescribed by section 16 of the Clayton Act. Sec. 6. (a) As used herein, "efficiencies" shall include economies of scale in manufacturing, marketing, distribution, and research and development. (b) As used herein, "significant market" means any line of commerce in any section of the country which has annual sales of more than $100,000,000. Sec. 7. (a) The provisions of this Act are in addition to and not in lieu of other provisions of the antitrust laws and nothing in this Act shall be deemed to authorize or make lawful anything heretofore prohibited or made illegal by other antitrust laws. (b) This Act shall apply to all mergers or consolidations occurring after March 11, 1979.

APPENDIX II PROPOSED NEW SECTION 7B OF THE CLAYTON ACT

Sec. 7B (a) No person shall merge or consolidate with any other person, or acquire, directly or indirectly, any of the voting securities or assets of any other person, if (1) the acquiring person or the acquired person is engaged in commerce or in any activity affecting commerce; and (2) as a result of the acquisition, the sum of the total assets and the annual net sales of the acquiring person in the most recent year, divided by two, would exceed $2 billion, unless the acquiring person has filed with the Federal Trade Commis- sion (the "Commission") and the Assistant Attorney General in charge of the Antitrust Division ("Assistant Attorney General") a plan of divestiture that meets the requirements of paragraph (b) of this section. Such plan of divestiture shall constitute a portion of the notification required to be filed under Section 7A of this title, or, if the acquisition FORDHAM LAW .REVIEW [Vol. 48 is exempt from the requirements of that section, shall be filed at least thirty days before consummation of the acquisition. (b) The plan of divestiture shall provide that the acquiring person or its successor in interest will divest, not later than one year after the consummation of the proposed acquisition, a business entity or entities of comparable value to the assets or voting securities it plans to acquire. Business entities divested by the acquiring person within one year prior to the filing of the plan of divestiture shall satisfy the requirements of this section in the same manner as business entities to be divested. The plan of divestiture shall specify the business entity (or entities) to be divested, its value, the means by which divestiture will be accomplished and the person or persons to which such entity will be divested. The plan of divestiture may specify one or more alternative means of divestiture. The divestiture of a business entity under the plan may take the form of a divestiture of all or substantially all its assets or of all voting securities held by the acquiring person. (c) Not later than one year after the consummation of the acquisition, the acquiring person or its successor in interest shall divest the business entity (or entities) specified in the plan of divestiture. The divestiture shall be made by one of the means specified in the plan of divestiture. (d) Authority to enforce compliance with this section is vested in the Commission and the Assistant Attorney General. In addition to all other remedies available to them, the Commission or the Assistant Attorney General may (regardless of whether the acquisition is subject to the requirements of Section 7A of this title) request additional information or documentary material pursuant to subsection 7A(e)(1) to determine whether the plan of divestiture complies with the requirements of this section, and either the Commission or the Assistant Attorney General may file a motion in a United States district court for an injunction against consummation of an acquisition on the grounds that the plan of divestiture does not comply with the requirements of this section. The district court in which such motion is filed is authorized to enjoin the proposed acquisition until it determines that the plan of divestiture satisfies the requirements of this section. (e) The Commission, with the concurrence of the Assistant Attorney General and by rule in accordance with section 553 of title 5, United States Code, consistent with the purposes of this section, may define the terms used in this section and may prescribe such other rules as are necessary and appropriate to carry out the purposes of this section. (f) (1) Acquisitions of assets in the ordinary course of business or of voting securities that do not confer working control of an issuer shall be exempt from the requirements of this section. (2) Acquisitions of assets valued at less than $100 million or of 1979] CONGLOMERATE MERGERS

voting securities that confer working control of an issuer which, together with all entities it controls, has total assets of less than $100 million, shall be exempt from the requirements of this section. (3) Acquisitions by foreign persons of assets located in the United States, or of voting securities of United States issuers, shall be exempt from the requirements of this section unless as a result of the acquisition, the sum of the total United States assets and the annual net sales of the acquiring person in or into the United States, divided by two, would exceed $1 billion. (4) Acquisitions by foreign persons of assets located outside the United States or of voting securities of a foreign issuer shall be exempt from the requirements of this section. (g) (1) The "value" of a business entity shall be the acquisition price of that entity. If an acquisition has not yet been consummated, the value shall be the projected acquisition price. If no such projected acquisition price can be determined, the value shall be the fair market value, determined in good faith by the board of directors of the acquiring person. The business entity (or entities) to be divested shall be deemed "of comparable value" to the assets or voting securities to be acquired if as a result of the acquisition and the divestiture, the sum of the total assets and the annual net sales of the acquiring person in the most recent year, divided by two, does not exceed $2 billion. (2) A person has "working control" of an issuer if that person holds twenty-five per cent or more of the voting securities of such issuer, providing no other person holds a greater percentage of the voting securities of such issuer. For the purposes of this section, the total assets and annual net sales of a person shall include all assets and annual net sales attributable to all entities of which the person (or any entity which it controls) has working control. (h) Beginning in 1981, in the first three months of each calendar year, the Commission shall adjust the total assets and annual net sales figures established by this section. This adjustment shall be based on the ratio of the implicit price deflator for gross national product as calculated by the Department of Commerce, Bureau of Economic Analysis, for the immediately preceding year to the same deflator for 1979. Each adjusted figure shall be published in the Federal Register and shall be effective upon publication. (i) (1) Nothing contained in this section shall be construed to provide any defense or immunity to any acquisition that would otherwise violate any of the antitrust laws. (2) The provisions of this section shall apply to all transactions consummated after March 11, 1979. (j) Any person, or any officer, director, or partner thereof, who fails 24 FORDHAM LAW REVIEW to comply with any provision of this section shall be liable to the United States for a civil penalty of not more than $10,000 for each day during which such person is in violation of this section. Such penalty may be recovered in a civil action brought by the United States.