498 F.2d 851 (2nd Cir. 1974), 1090, Missouri Portland Cement Co. v. Cargill, Inc.
|Docket Nº:||1090, 1091, 74-1024, 74-1025.|
|Citation:||498 F.2d 851|
|Party Name:||MISSOURI PORTLAND CEMENT COMPANY, Plaintiff-Appellant-Appellee, v. CARGILL, INCORPORATED, Defendant-Appellee-Appellant, and The First Boston Corporation, Defendant.|
|Case Date:||June 10, 1974|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued May 3, 1974.
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Daniel F. Kolb, New York City (Davis Polk & Wardwell and Charles J. Moxley, Jr., William T. Bickerstaff, Dale L. Matschullat, and Rhea Kemble Neugarten, New York City, of Counsel), for Missouri Portland Cement Co.
Gordon B. Spivack, New York City (Lord, Day & Lord, and John W. Castles 3d, Michael J. Murphy, David H. Marks, and Stephen J. Crimmins, New York City, of counsel), for Cargill, Inc.
Before WATERMAN, FRIENDLY and MULLIGAN, Circuit Judges.
FRIENDLY, Circuit Judge:
This appeal illustrates the growing practice of companies that have become the target of tender offers to seek shelter under § 7 of the Clayton Act, 15 U.S.C. § 18. Drawing Excalibur from a scabbard where it would doubtless have remained sheathed in the face of a friendly offer, the target company typically hopes to obtain a temporary injunction which may frustrate the acquisition since the offering company may well decline the expensive gambit of a trial or, if it persists, the long lapse of time could so change conditions that the offer will fail even if, after a full trial and appeal, it should be determined that no antitrust violation has been shown. Such cases require a balancing of public and private interests of various sorts. Where, as here, the acquisition would be neither horizontal nor vertical, there are 'strong reasons for not making the prohibitions of section 7 so extensive as to damage seriously the market for capital assets, or so broad as to interfere materially with mergers that are procompetitive in their facilitation of entry and expansion that would otherwise be subject to serious handicaps.' 1 These reasons are especially compelling when the target company fails to show that the alleged antitrust violation would expose it to any readily identifiable harm.
On December 19, 1973, Cargill, Incorporated (Cargill) announced an offer to purchase all the outstanding shares of common stock of plaintiff Missouri Portland Cement Company (MP). 2 In its offer, Cargill stated that it intended to acquire control of MP and either operate it as a subsidiary or merge it into the parent company. The purchase price was $30 per share in cash; this compared with a closing market price of $24.25 on December 18, 1973.
Two days later, MP began this action in the District Court for the Southern District of New York, seeking to enjoin Cargill from continuing with the tender offer. MP charged that Cargill had violated the securities laws in the course of publicizing its offer and that an acquisition of control by Cargill of MP or a merger of MP into Cargill would violate the antitrust laws. Again running true to the usual form, Cargill responded with accusations that MP had violated the securities laws in its public pronouncements opposing the tender offer and sought injunctive relief on its counterclaim. Judge Stewart held hearings on December 27, 1973, and on five days in early January 1974. These led to an order dated January 7, 1974, which, without any accompanying findings of fact or conclusions of law, enjoined Cargill from proceeding with the tender offer during the pendency of the action and placed both companies under certain other restraints. By this time Cargill had acquired 271,000 shares of MP, or approximately 19% Of the total, at a cost of roughly $8,130,000.00. A panel of this court ordered an expedited appeal, with briefs to be filed one week after entry of the district court's findings of fact and conclusions of law and with argument to be heard in the following week.
On April 15, 1974, the district court entered its opinion and amended order. The court held that MP had raised 'substantial and difficult antitrust questions' which merited further investigation. Finding that the balance of equities was in MP's favor, the court held that MP was entitled to preliminary relief on the antitrust claim. However, it rejected MP's claims that Cargill had violated the securities laws. On the counterclaim, it upheld one of Cargill's securities law claims but denied the rest. The court temporarily enjoined Cargill from proceeding with the tender offer or voting its stock and dealt with MP's violation of the securities laws in a manner recounted in the final section of this opinion. As both sides recognize, the critical determination was the court's finding of a probable antitrust violation, to which we now turn.
There is not much controversy over the basic facts. We shall limit ourselves to the highlights, referring to Judge Stewart's as yet unreported opinion for amplification.
MP, a publicly held corporation whose stock is listed on the New York Stock Exchange, manufactures portland cement at three riverfront plants. One is located at St. Louis, Missouri, on the Mississippi River; another is at Independence, Missouri, on the missouri River; and the third is at Joppa, Illinois, on the Ohio River near its confluence with the Mississippi. MP sells the cement produced at these plaints through an eleven-state area. Several dozen competitors, including five with plants in Missouri on the Mississippi River, sell in various parts of this area, shipping much of their cement through distribution terminals located along the three great river systems. MP's production capacity is 10,000,000 barrels a year 3 -- this being some 2% Of
the national capacity and 8% Of the capacity within the eleven states MP serves. It is the country's twentieth largest cement producer; eight of the ten largest producers compete in part of MP's sales territory.
The district court focused its attention not on the eleven-state area but on four particular metropolitan markets within that area-- St. Louis and Kansas City, Missouri; Memphis, Tennessee; and Omaha, Nebraska. Figures supplied by MP 4 showed the characteristics of these markets to be as follows:
The record contains no figures to indicate the proportion of MP's sales represented by these four marketing areas; however, MP's figures show that in the company's other major metropolitan markets, Chicago, Louisville and Nashville, it has 9%, 10% And 15% Of the market, respectively. Those shares make MP the third leading cement supplier in Louisville and Nashville, and the seventh in Chicago. 5
Cargill is a huge privately held company with its headquarters in Minneapolis, Minnesota. It has been engaged in grain trading for over a century. Since 1932 it has operated river barges which carry bulk commodities and tow boats which push the barges. It has expanded into a variety of other bulk commodity businesses-- vegetable oil processing, animal feeds, sugar trading, ores and metals, fertilizers, ocean shipping, flour milling, corn wet milling, the manufacture of industrial chemicals, poultry products and salt mining. Cargill's policy is to derive profits by selling a large volume at low margin. 6
In August 1972, Cargill's Salt Department established the Salt Expansion and Diversification Group (Salt Group) to investigate expansion opportunities for the company. The Salt Group reported to the previously established Long Range Planning Committee of Cargill's board of directors, which was responsible for aiding the chief executive in framing recommendations for the board. After investigating a number of other industries, the Salt Group in the fall of 1972 determined that cement was a particularly promising prospect for Cargill and commissioned an extensive study of the industry. Stuart Leisz, a member of the Salt Group, was assigned to supervise the study. He retained a former cement company president as a consultant and undertook to explore the possible avenues of entry for Cargill into the cement business. After assembling financial and other data on every cement company in the country, Leisz on March 26, 1973, submitted a comprehensive report to the Salt Group recommending that Cargill acquire a cement plant producing between 1 1/2 and 3 million barrels per year. He specifically advised against entering the industry as a new producer for four reasons: (1) the cost of plant construction was prohibitively high-- estimated at $10-12 per barrel of annual capacity; (2) Cargill's 'limited knowledge of cement production and the basic major differences between our Salt Department and the cement industry' would render a 'trial and error start-up' too risky; (3) the delay that would be required for construction and for forming a new organization would be too long-- three to four years by Leisz' estimate; and (4) the company might encounter a shortage of qualified production personnel to operate a new plant.
During the summer of 1973, Leisz continued his study of the industry, contacting various cement companies in order to determine what plants might be available for purchase. In late September, the Salt Group rendered a comprehensive report to the Long Range Planning Committee based on Leisz' findings. The report advised that the most promising method of entry would be to acquire an established production unit by purchase or tender offer; it estimated that production facilities could thus be acquired at a cost of approximately $3-4 per annual barrel capacity. The report suggested that if the company chose the purchase route, either Valley Cement in Mississippi or Coplay Cement in Pennsylvania would provide Cargill...
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