Monfort of Colorado, Inc. v. Cargill, Inc.
| Decision Date | 01 December 1983 |
| Docket Number | Civ. A. No. 83-F-1318. |
| Citation | 591 F. Supp. 683 |
| Parties | MONFORT OF COLORADO, INC., Plaintiff, v. CARGILL, INC. and Excel Corporation, Defendants. |
| Court | U.S. District Court — District of Colorado |
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William C. McClearn, James E. Hartley, Timothy M. Rastello and Marcy G. Glenn of Holland & Hart, Denver, Colo., for plaintiff, Monfort of Colorado, Inc.
Robert F. Hanley, Denver, Colo., Alan K. Palmer, Washington, D.C., and David R. Eason of Morrison & Foerster, Denver, Colo., for defendants, Cargill, Inc. and Excel Corp.
Plaintiff Monfort of Colorado, Inc. ("Monfort") commenced this lawsuit to enjoin the acquisition by defendants, Cargill, Inc. ("Cargill") and Excel Corporation ("Excel"), of the Spencer Beef Division of Land O'Lakes, Inc. ("Spencer" or "Spencer Beef"). Monfort claims that the proposed acquisition would violate Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 1 of the Sherman Act, 15 U.S.C. § 1. Plaintiff originally moved for preliminary injunction as a result of the imminence of the acquisition. Defendants, however, agreed to postpone consummation of the proposed acquisition and the parties stipulated to a consolidated preliminary injunction hearing and trial on the merits pursuant to Rule 65(a) of the Federal Rules of Civil Procedure.
This lawsuit presents the following issues which are, to a great extent, unique to the beef industry: whether Monfort, a competitor of the principal acquiring party, Excel, has standing to challenge the acquisition of Spencer by Excel; what are the product and geographic boundaries for the relevant markets in the beef industry when analyzing the proposed acquisition under Section 7 of the Clayton Act; whether the proposed acquisition would tend to lessen competition in violation of federal law; and whether the proposed acquisition must be enjoined pursuant to Section 16 of the Clayton Act to prevent threatened violations of the Act.
The court has carefully considered the evidence, exhibits, briefs and arguments of counsel and has thoroughly reviewed the case file. For the reasons stated below, the court finds that Excel's proposed acquisition of Spencer Beef should be enjoined in that it would tend to harm competition in violation of Section 7 of the Clayton Act.
In sum, we find and conclude as follows:
1. Monfort has standing to challenge the proposed acquisition;
2. The twelve state regional market for the procurement of fed cattle and the national market for the sale of boxed beef constitute economically significant markets or submarkets within the beef industry for purposes of analyzing the proposed acquisition under Section 7 of the Clayton Act;
3. The proposed acquisition may substantially lessen competition in the regional market for the procurement of fed cattle and the national market for the sale of boxed beef in violation of Section 7 of the Clayton Act; and
4. Monfort is threatened with significant loss or damage within the meaning of Section 16 of the Clayton Act as a result of the proposed acquisition, and injunctive relief should enter to prevent threatened violations of the Act.
Accordingly, the court finds that the defendants' proposed acquisition of Spencer Beef should be PERMANENTLY ENJOINED.
The following constitute the court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.
To better understand the issues and resolution of the case, an overview of the meat packing industry is helpful. This background is included in this section regarding jurisdiction and background analysis.
Each of the defendants is engaged directly in the sale, purchase or distribution of goods or services in interstate commerce. The production and sale of fresh beef constitute trade and commerce in and among several states and the District of Columbia. Accordingly, the court has subject matter jurisdiction over plaintiff's claims as may be required by either Section 7 of the Clayton Act or Section 1 of the Sherman Act. In addition, Defendants Cargill and Excel have admitted the personal jurisdiction of this court and have admitted that venue lies in this District pursuant to 15 U.S.C. § 22 and 28 U.S.C. § 1391(b) and (c).
Plaintiff Monfort is a Delaware corporation with its principal place of business in Greeley, Colorado. Monfort is engaged in the production, transportation and sale of cattle, beef and lamb products. Monfort has plants for cattle slaughter and beef fabrication in Greeley, Colorado, and Grand Island, Nebraska. In addition, Monfort owns and operates commercial feedlots in Kuner and Gilcrest, Colorado.
Defendant Cargill is a Delaware corporation with its principal place of business in Minneapolis, Minnesota. Cargill operates more than 150 subsidiaries in at least 35 countries. Cargill's subsidiaries engage in various pursuits, including grain merchandising and processing, cattle feeding and beef, poultry and egg processing.
Defendant Excel is a wholly-owned subsidiary of Cargill. It is a Delaware corporation and has its principal place of business in Wichita, Kansas. Excel was formerly known as MBPXL. MBPXL was formed in 1974 as a result of a merger of Missouri Beef Packers and Kansas Beef Industries. In 1979, MBPXL was acquired by Cargill and in 1982 its name was changed to Excel Corporation.
Defendant Excel is engaged in the slaughter and fabrication of beef and beef by-products. Excel has five plants engaged in beef slaughter and fabrication: Rockport, Missouri; Friona, Texas; Plainview, Texas; Dodge City, Kansas; and Cozad, Nebraska. A sixth plant in Wichita, Kansas, is engaged only in beef fabrication. It is significant that Excel is the second largest beef packer in the United States. Ex. 19 at 5 (MBPXL Annual Report 1981-82).
On June 17, 1983, Excel signed an agreement to acquire the Spencer Beef Division of Land O'Lakes, Inc. Land O'Lakes, Inc. is an agricultural cooperative with its principal place of business in Arden Hills, Minnesota. Spencer Beef is engaged in the slaughter of cattle and the fabrication of beef. It has plants in Spencer and Oakland, Iowa, and Schuyler, Nebraska. The Oakland and Schuyler plants have facilities for both slaughter and fabrication. The Spencer plant is engaged only in cattle slaughter. The Schuyler plant has been closed since late December of 1982. Spencer Beef is the third largest beef packer in the United States. Ex. 66 at 53, 55; Ex. 74, Att. 39 (T. Pace)
IBP, Inc., who is not a party in this action, is the largest beef packer in the United States. Ex. 22 at 5 (Excel Corp. Annual Report, 1982-83); Ex. 18 at 4; Ex. 19 at 5. IBP is a subsidiary of Occidental Petroleum Corporation, a giant multinational corporation. During the year ending December 31, 1982, Occidental Petroleum reported combined sales of well into the billions of dollars, earnings into the hundreds of millions, and assets in the billions of dollars. (See sequestered Appendix A filed with the Clerk of the Court; See also Ex. 65 at Doc. I.D. No. 1507).
Monfort maintains that Excel's proposed acquisition of Spencer Beef would result in an anticompetitive effect on the relevant markets in the beef industry in which Monfort operates. Therefore, an analysis of Monfort's claim necessarily involves a determination of the relevant markets in the beef industry and an examination of the effects that the proposed acquisition would have within those markets.
The production and sale of beef and beef products is a multi-billion dollar industry. As currently comprised, all parties concede that the industry is competitive and that profit margins are low. Defendant Excel maintains that profit margins in the industry average between .5% and 1.5% as measured against sales. Monfort's profit margin for their fiscal year ending September 2, 1983 was .8% as measured against sales. T. Monfort.
The production process in the industry begins with the feeding or grazing of cattle. There are three basic categories of cattle: (1) fed steers and heifers ("fed cattle"); (2) nonfed steers and heifers; and (3) cows and bulls.
Fed cattle are steers and heifers which have been fattened in a commercial feedlot for a period of 100 to 140 days. Commercial feedlots may be independent or integrated with the operations of a beef packer and these feedlots are generally located in areas with an abundant supply of feed grains. In addition, because of transportation costs, beef processing plants tend to be located in the proximity of commercial feedlots.
Fed cattle generally yield cuts graded USDA "good" or better. Nonfed cattle generally yield beef for grinding, by-products and cuts graded below USDA "good".
In 1983 the commercial cattle slaughter in the United States was broken down in the following way: grain fed steers and heifers — 69%; nonfed steers and heifers — 8%; and cows and bulls — 22%.
Cattle are slaughtered at two types of plants, namely, plants which engage only in slaughtering cattle and plants which have facilities for both the slaughtering and fabrication of beef products. After slaughter, the carcass is either kept by the slaughterer for further processing or transferred whole to an independent fabricator.
At times the initial processing will be performed at a slaughter plant and then completed by an independent fabricator. "Fabrication" is the process whereby the carcass is broken down into either whole cuts (referred to as "primals", "subprimals" and "portions") or ground beef.
An "integrated firm" is a firm that both slaughters cattle and fabricates carcasses. An integrated firm generally conducts this operation in a single plant; however, in some instances, one plant may slaughter cattle and ship the carcasses a short distance to another commonly-owned plant for...
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