SECTION 7 OF THE CLAYTON ACT WITH EMPHASIS ON F.ECENT DEVELOPMENTS Dissert at ion Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy In the Graduate School of The Ohio State University By Robert Demming I'yors, B.A.»M.A. The Ohio State University 195^ An'C"oved hv: CONTENTS CHAPTER PAGE INTRODUCTION ................................. 1 I HISTORICAL SUMMARY TO 19*4-0............. 4 G e n e r a l ............................... 4 The Merger Movements.................. 10 Legislation.......................... 21 Judicial History...................... 30 II THE FOURTH MERGER MOVEMENT -PHYSICAL ASPECTS. ..... ............... ... 46 G e n e r a l ............................... 46 The Profits - Merger S p i r a l ......... 43 The Tendency Toward Economic Concentration...................... 52 External And Internal Growth Of Industry Contrasted............... 63 The Divergence Between Plant And Company Concentration............. 69 III THE FOURTH MERGER MOVEMENT - ECONOMIC THEORY................................... 75 G e n e r a l ............................... 75 Introduction To The Theory........... 75 The Three Schools Of Thought......... ?6 The Economic Theory Of Vertical Integration........................ 96 Conglomer. te Merger Theory........... 98 Conclusions.......................... 99 IV THE FOURTH MERGER MOVEMENT - LEGISLATIVE HISTORY ................................. 100 The Defense And Norld War II Period • 100 The Kefauver Bills ................. 107 The Celler Anti-Merger Act of 1950, H.R. 2734 ........................ 109 Pest Celler Act Legislative Activity. 132 Conclusions.......................... 140 I 11 CHAPTER PAGE V THE FOURTH MERGER MOVEMENT - JUDICIAL HISTORY ................................... 142 Actions Involving Original Section 7 Of The Clayton Act................ 142 Selected Cases Arising Under The Sherman Act And The Clayton Act - Other Them Section 7 Of The Clayton A c t ............................... 152 Actions Involving Amended Section 7 Of The Clayton Act................ 171 Conclusions...........................179 VI THE FOURTH MERGER MOVEMENT - ADMINISTRATIVE POLICY ................................. 185 The Federal Trade Commission........ 188 The Department Of Justice .......... 193 Conclusions.........................197 VII SUMMARY AND CONCLUSIONS................ 198 APPENDIX: SECTION 11 OF THE CLAYTON ACT . 205 WORKS C I T E D ............................... 209 AUTOBIOGRAPHY ............................... 2?6 INTRODUCTION This dissertation surveys the economic, legislative and judicial record of Section 7 of the Clayton Act. This study will be restricted to private industrial and commer­ cial enterprises as these terms are Interpreted by the financial reporters. The term "Fourth Merger Movement" 1 is common in the recent literature relating to mergers. The current merger movement dates from 19^0 and is still In the process of development. For the purposes of the study of the "Fourth Merger Movement" collation of materials will be restricted to the period 19^0 - 1952. It is appreciated that this may not comprehend the entire period of the "Fourth Merger Movement", but it will document that portion. Because there are three Federal Statutes (exemption statutes and extra-jurisdictional statutes excepted and not considered herein) pertaining, in part, to the subject of ^Federal Trade Commission, Report on the Merger Moy.ement: A Summery Report, Washington: (19^8), p. v. 1 2 mergers, it is necessary to indicate the general import of each pnrl the resulting effect upon the treatment of this dissertation. 'f'he Sherman Act comprehends offending mergers ir­ respective of the devices used to effect the merger. The Clayton Act comprehends offending mergers utilizing the de­ vices of stock or asset acquisitions•^ mhe objective of the letter act was to "cone with monopolistic tendencies in their Incioiency and well before they have attained such p effects as would Justify a Sherman Act proceeding", rnhe ^ede-^al '’ypde Commission Act provides for enforcement pro­ visions of the Tiert,inert oerts of the Sherman Act and the Clayton Act, by the federal ^ a d e Commission. Inasmuch as the concept of mergers, from the Ju­ dicial, legislative and economic viewpoints, is likely to be the same, whether it be a proceeding under the Sherman Act or the Clayton Act, the writer has used, where neces­ sary, Bppronriate material as it developed under the var­ ious antitrust acts. rTie general objective of this dis­ sertation la to bujid an Integra ted structure applicable mhe letter was included in the 1950 amendment to Cectlon 7 of the Clayton Act. 7Senate Report No. 1*7?* on H.R. 273*+. 81st. Con­ gress, 2nd. Session (1O50V, pp. *+-5. 3 to Section 2. the Clayton Act. The specific objectives of this study are to re­ cord a summary of the data relating to private industrial and commercial mergers; report the current economic doc­ trine; analyze the legislative and judicial history; and indicate the executive and administrative policies re­ lating to such events. CHAPTER I HISTORICAL STJMMARV TO 19^0 hefinitlon Of A Merger The term merger Iw r 'been used in many forms of dress. exam-rvle, mergers have been treated under such diverse headings as Problems of Small Business, Economic Concentration, Hononoly, Combinations, Regulation of In­ dustry, Antitrust, Competition, ^ree Enterprise, Concen­ tration of Economic Power, Hnfalr Trade Practices, Bigpiess in Business, Consolidations, Monopoly Power, Economic Control, Social Control of Industry, Cartels and Corporate Acquisitions. One is mindful of the words spoken in the Rook of Genesis: "The voice is JacobTs voice, but the hands are the hands of Esau." There is no agreement amon^r the students of this sub.1 act. as to the definition of a merger. P r o b a b l y , de­ pending upon the objective to be served, many definitions serve thair purposes. ""o indicate one of many, reference U 5 in Bade to that of Professor Watkins, which pieces emphasis on the relation of the combination or acquisition to the establishment or extension of unified control in the in­ dustry concerned*^ Both Professors Handler and Opoenheim consider mergers under the terms "tightly knit combinations" or "confederetions" . '"heir concent of mergers and consoli— p datlone is essentially the strictly legal one, ' fT1hiB dissertation adoots the intent of the lan­ guage used in H.R. an Act adooted December 29, 1050, as an amendment to Section 7 of the Clayton Act, as its definition of mergers. '"hat is, an acouisition, directly or indirectly, of the whole or any part of the stock or share caoital or the acouisition of the whole or any part of the assets of another corporation, except where the sole ouroose in stock holdings is for investment or the formation of subsidiaries and agencies or extensions there­ of for the actual carrying on of the immediate business of the penuiring corporatlon,^ "Acquisition, as the word 1b ^Myrbn W* Catkins, "A Mew w*»v to Sound Mergers," ?3 forbes. (May 15, 1020), p. 3U. o ~S. C. Oppenheim, Cases on federal Ant1-Trust laws, West Pubp. Co., St. Paul, (lQ4fi) , Supplement (1952) ; Milton A, Handler, Cases Rnd other Materials on f"rade Regulation. 2nd. Rdition, foundation Press, New vork, fl<>51)« 'Ponularly referred to as the Anti—Merger A.ct of 1^50. ^Condensed from raragranhs 2, ? and 9- of H.R. 2'739. 6 used in that statute [former Section 7 of the Clayton Act) means ownership; ownership involves title, end title is of two kinds, l e g a l and equitable. u ’Investment' p.e need in this section [former Section 7 of the Clayton Act\ must be given its ordinary meaning of the use of money to purchase property for any purpose for which i n c o m e or profit is expected presently or in the future, speculatively or permanently, and should not be limited to the purchase of property for the sake of p direct return from such property. In the event that one corporation acquires el"1 the stock of another it is most difficult to svow that it was for investment purposes.-^ Although the above definition of merger does not comply with the strictly legal definition, it corresponds with that in general use by students of the subject who hav° bean required to sdprt a definition of mergers as a tool in measuring physical data and in standardizing their ^Federal Trade Comm1seIon v , Thatcher Mfg. C o ., 5 Fed. 2d” bl^T, (C.C.A.T 1925)* reversed on other grounds 2^2, U.S. 55U, 560. 2 Pennsylvania H.R. Co. v. I.C.C.. 66 Fed. 2d. 37, (C.C.A., 1933), affirmed 291, U.S.' 651. 3 Swift and Co.. v. Federal Trade Commission, 8 Fed. 2d. 5°5, TT925), reversed on other grounds 272, U.S. 55^. 7 concepts.^ It seems desirable, at this point in the diseer tation, to insert Section 7 of the Cleyton Act. The following Is a conroosite of the original Section 7 and of the amended Section 7. Celler Anti Nerper Act (Public Law 89Q— Rlst Congress) (Chanter 1184— 2nd Session) (H. R. ?734) AN ACT m o amend an Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies, and for other nurooses," approved October 15, 191^, (3& Stat. 730), as amended. Re jLt enacted by the Senate and House of Repre­ sentatives of the TTnlted States of America in Congress assembled,, "'hat sections 7 and lT~of an Act entitled "An Act to suonlement existing laws against unlawful re­ straints and monopolies and for other Durposes," approved ""he definition of a merger by 81aok * s Law Dietlon- ary. 3rd. Edition, (lq33), P» HBl, is: "The Uniting of two or more corooretions by the transfer of property of all to one of them, which continues in existence, the others being shallowed up. In regard *0 the survivorship of one of the constituent corporations, it differs from a 'consolidation*, wherein all the consolidating companies surrender their separate existence and tecome oarts of a new corporation." mhe language in Section 8623-67 of the General and foreign fornoration Act of Ohio, treats both merged and consolidated co^norations un^er the term "consolidated corporation".