665 F.2d 10 (2nd Cir. 1981), 498, Grumman Corp. v. LTV Corp.
|Docket Nº:||498, Docket 81-7742.|
|Citation:||665 F.2d 10|
|Party Name:||GRUMMAN CORPORATION, Plaintiff-Appellee, v. The LTV CORPORATION, CKH Corporation, Jones & Laughlin Industries, Inc. and Vought Corporation, Defendants-Appellants.|
|Case Date:||November 13, 1981|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued Oct. 28, 1981.
Henry L. King, New York City (Bartlett H. McGuire, Arthur F. Golden, Paul R. Koepff, Andrew C. Jacobs, William L. Rosoff, David W. Ferguson, and Davis Polk & Wardwell, New York City, on the brief), for defendants-appellants.
Raymond L. Falls, Jr., New York City (David H. Hyde, Immanuel Kohn, William T. Lifland, Dudley B. Tenney, and Cahill Gordon & Reindel, New York City, on the brief), for plaintiff-appellee.
Before MOORE and NEWMAN, Circuit Judges, and TENNEY, [*] District Judge.
NEWMAN, Circuit Judge:
This is an appeal from the granting of a preliminary injunction that prevents the LTV Corporation from proceeding with a
tender offer to acquire, in stages, all of the shares of Grumman Corporation. The District Court for the Eastern District of New York (Jacob Mishler, Judge) issued the injunction after finding that Grumman had proved a likelihood of success on its claims that the proposed acquisition would violate § 7 of the Clayton Act, 15 U.S.C. § 18 (1976), and that LTV's Offer to Purchase violates the Williams Act, §§ 14(d) and 14(e) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. §§ 78n(d) and 78n(e) (1976). Grumman Corp. v. LTV Corp., --- F.Supp. ---- (E.D.N.Y.1981). We agree that the preliminary injunction was properly issued on antitrust grounds and therefore affirm, without reaching the Williams Act claims. 1
On September 24, 1981, LTV commenced a tender offer for the acquisition by CKH Corporation, its wholly owned subsidiary, of common stock, convertible preferred stock, and convertible subordinated debentures of Grumman, representing or convertible into approximately 70% of Grumman's outstanding voting shares. The price was $45 per share of common stock, approximately double the market price of Grumman stock during the week preceding the offer. LTV also announced plans subsequently to acquire the remaining 30% of Grumman stock. Grumman initiated this litigation on September 28. Following limited discovery, including 19 depositions, a limited evidentiary hearing on the motion for a preliminary injunction was held on October 6 and 7. Judge Mishler rendered a detailed opinion on October 14. Pursuant to an expedited appeal, we heard oral argument on October 28.
Mindful that target companies are quick to seek refuge in § 7 against an unfriendly takeover, see Missouri Portland Cement Co. v. Cargill, Inc., 498 F.2d 851, 854 (2d Cir.), cert. denied, 419 U.S. 883, 95 S.Ct. 150, 42 L.Ed.2d 123 (1974), we also recognize that when a takeover threatens horizontal integration, the courts have a clear duty to weigh carefully the claim for a preliminary injunction, F. & M. Schaefer Corp. v. C. Schmidt & Sons, Inc., 597 F.2d 814 (2d Cir. 1979) (per curiam ); Gulf & Western Industries, Inc. v. Great Atlantic & Pacific Tea Co., 476 F.2d 687 (2d Cir. 1973); Allis-Chalmers Mfg. Co. v. White Consolidated Industries, Inc., 414 F.2d 506 (3d Cir. 1969), cert. denied, 396 U.S. 1009, 90 S.Ct. 567, 24 L.Ed.2d 501 (1970), even though the true concerns of the "private attorney general" may be more "private" than "attorney general." If the effect of a proposed takeover may be substantially to lessen competition, the target company is entitled to fend off its suitor. Our focus is therefore not upon Grumman's motivation for bringing this suit, but upon the adequacy of its preliminary showing that the proposed takeover will violate § 7.
Judge Mishler ruled that Grumman had shown the requisite probability of success on its § 7 claims with respect to three distinct product markets: the carrier-based aircraft market, the major airframe subassembly market, and the nacelle (aircraft engine structure) market. For purposes of this appeal, LTV does not contest the appropriateness of these three product markets. Its primary contention is that the District Court misapprehended a likelihood of diminished competition within these markets, and it also contends that the scope of the markets was incorrectly defined. LTV does not dispute that during the past two decades Vought Corporation (LTV's subsidiary) and Grumman have been substantial competitors in the production of airplanes and aircraft components. The issue is whether there currently exists a prospect of significant future competition in the three relevant product markets and whether the nature of those markets is such that the proposed acquisition will probably have an unlawful anti-competitive effect.
1. Carrier-Based Aircraft. As both sides point out, the carrier-based aircraft
market has unusual characteristics. In this country there is only one buyer, the Defense Department. It decides which companies will be invited to submit bids for new planes. Bidding competitions occur infrequently and entail enormous costs. Grumman's evidence indicated that development of a proposal for the VTX, a carrier-based training aircraft, would cost more than $30 million. As for sales of currently available models, the District Court accepted Grumman's evidence that in the past three years the total for carrier aircraft was approximately $11 billion, divided among only four manufacturers: Grumman, 41.5%, Vought (alone and with Lockheed), 7.7%, and McDonnell Douglas, 50.8%. Plainly, this market is a "tight oligopoly," Stanley Works v. Federal Trade Commission, 469 F.2d 498, 504 (2d Cir. 1972), cert. denied, 412 U.S. 928, 93 S.Ct. 2750, 37 L.Ed.2d 155 (1973), in which it is important to prevent "even slight increases in concentration." United States v. Continental Can Co., 378 U.S. 441, 462, 84 S.Ct. 1738, 1749, 12 L.Ed.2d 953 (1964).
LTV challenges the Court's assignment to Vought of a 7.7% market share. That share represents $734 million in sales of the A-7 and $110 million in sales of the S-3 during the past three years. Apparently not disputing $533 million in revenue from A-7's in 1979 and 1980, LTV challenges the $201 million figure for 1981 on the ground that $112.6 million of the 1981 total represents A-7K's, which are land-based trainers for the Air National Guard, and $79.5 million represents modifications of existing aircraft. Grumman responds that the A-7K's are properly included since the planes are designed for carrier use and their sale keeps in operation a...
To continue readingFREE SIGN UP