Burlington Industries, Inc. v. Edelman
| Decision Date | 30 July 1987 |
| Docket Number | Civ. A. No. C-87-274-G. |
| Citation | 666 F. Supp. 799 |
| Parties | BURLINGTON INDUSTRIES, INC., Plaintiff, v. Asher B. EDELMAN, Dominion Textile Inc., Samjens Partners I, PaineWebber, Inc., and James J. Ammeen, Defendants. |
| Court | U.S. District Court — Middle District of North Carolina |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Hubert Humphrey, James T. Williams, Jr., and James R. Saintsing, of Brooks Pierce, McLendon, Humphrey & Leonard, Greensboro, N.C., and Irvin B. Nathan and Melvin Garbow, of Arnold & Porter, Washington, D.C., for plaintiff.
Daniel W. Fouts and Charles T. Hagan, of Adams Kleemier Hagan Hannah & Fouts, of Greensboro, N.C., and Jay Greenfield, Sidney S. Rosdeitcher, and Martin Klotz, of Paul, Weiss, Rifkind, Wharton & Garrison, of New York City, for defendants Asher B. Edelman, Dominion Textile Inc., and Samjens Partners I.
William K. Davis, of Bell, Davis & Pitt, Winston-Salem, N.C., for defendant James J. Ammeen.
On April 24, 1987, Samjens Partners I ("Samjens"), a partnership whose partners are a limited partnership comprised of entities controlled by Asher B. Edelman ("Edelman") and a subsidiary of Dominion Textile Inc. ("Dominion"), filed with the Securities and Exchange Commission a Schedule 13D disclosing its ownership of approximately 7.6% of the outstanding common stock of Burlington Industries, Inc. ("Burlington"). On this Schedule 13D, Samjens disclosed its intent to attempt to acquire a controlling interest in the outstanding stock of Burlington. Burlington commenced this action on April 29, 1987, claiming that Samjens violated federal and state laws in connection with its efforts to acquire Burlington. On May 6, 1987, Samjens commenced an Offer to Purchase (and filed Schedule 14D-1) all outstanding shares of Burlington stock. On May 12, 1987, Burlington filed an amended complaint containing claims in opposition to the tender offer.
Burlington's primary claims allege violations of federal securities laws. Burlington alleges that James J. Ammeen ("Ammeen"), a former vice president of Burlington, disclosed confidential inside information to PaineWebber Incorporated ("PaineWebber") and to the members of Samjens in violation of section 10(b) and section 14(e) of the Securities Exchange Act of 1934. Burlington further alleges that the Schedule 13D and Schedule 14D-1 filed by Samjens contain materially false and misleading information in violation of sections 13(d) and section 14(d) of the Williams Act.
Burlington also asserts that Samjens acquisition of Burlington would violate Section 7 of the Clayton Act, which prohibits one corporation from acquiring another corporation where the acquisition might substantially lessen competition or tend to create a monopoly. Burlington contends that a combination of Burlington and Dominion would substantially lessen competition in the United States denim market.
In addition to these federal causes of action, Burlington asserts several actions under North Carolina law, including breach of contract and fiduciary duty by Ammeen; tortious interference with contract; inducing, aiding, and abetting the alleged breaches of contract and fiduciary duty; and unfair trade practices.
Burlington now moves for a preliminary injunction against Samjens, Edelman, Dominion, and Ammeen. Burlington does not request injunctive relief against PaineWebber. Specifically, Burlington asks the court to enjoin these defendants from, among other things, pursuing the present tender offer or making additional tender offers; acquiring, selling, or voting any shares of Burlington stock; disclosing any confidential inside information concerning Burlington; and "attempting to take any other steps in furtherance of their plan to acquire control of Burlington." Burlington also asks the court to require defendants to correct allegedly false statements made in filings with the Securities and Exchange Commission. Finally, Burlington prays that the court order defendants to divest themselves of all Burlington common stock, and, to help ensure this divestiture, Burlington asks that the court empower Burlington to refuse to transfer on its books any shares defendants might attempt to transfer to a third party. Defendants fervently oppose Burlington's motion. In addition, defendants move that the court dismiss Burlington's claims under Section 7 of the Clayton Act for a lack of standing.
In determining whether to grant a preliminary injunction under Federal Rule of Civil Procedure 65, a trial court must evaluate the interplay of four factors: (1) the probable irreparable harm to the moving party if the preliminary injunction is not issued; (2) the probable harm to other parties or persons if the preliminary injunction is issued; (3) the likelihood of the moving party succeeding on the merits of the underlying claim; and (4) the public interest. An order granting an injunction must specifically set forth, in reasonable detail, the reasons for its issuance. Fed.R.Civ.P. 65(d). The court has evaluated the parties' evidence, and, for the reasons that follow, the court grants in part and denies in part plaintiff's request for a preliminary injunction.
Section 7 of the Clayton Act, prohibits a person engaged in commerce from acquiring the stock or assets of another person engaged in commerce, "where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly." 15 U.S.C. § 18 (1973 and Supp.1987). In interpreting this statute, the Supreme Court has ruled "that a merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market, is so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have such anticompetitive effects." United States v. Philadelphia National Bank, 374 U.S. 321, 363, 83 S.Ct. 1715, 1741, 10 L.Ed.2d 915 (1963). Accord United States v. General Dynamics Corp., 415 U.S. 486, 497, 94 S.Ct. 1186, 1193-94, 39 L.Ed.2d 530 (1974); Liggett & Myers v. FTC, 567 F.2d 1273, 1275 (4th Cir.1977).
Plaintiff claims that a merger of Burlington and Swift Textiles Incorporated, a subsidiary of Dominion, would lessen competition in the United States denim industry. The court surmises that this merger would indeed present legally viable antitrust issues. Burlington and Swift are two of the five largest manufacturers of denim in the United States. These five manufacturers, according to the figures before the court, produce approximately 80% of the denim manufactured in this country thereby evidencing that denim is a highly concentrated market. And denim, as a readily recognizable product, may well constitute a distinct "product market" as defined by Supreme Court decisions. See IV E.W. Kintner, Federal Antitrust Law 337-413 (1984). A combination of Burlington and Swift would control approximatley one-third of the United States denim market. The courts have frequently invalidated corporate combinations where the resulting increase in concentration is less than the increase taht would attend a Burlington and Swift merger.
Furthermore, the Department of Justice merger guidelines indicate that the Antitrust Division of the Department of Justice may challenge a merger of Burlington and Swift. The "Justice Guidelines" measure market concentration thresholds attending horizontal mergers in terms of the Herfindahl-Hirschmann Index ("HHI"). The HHI evaluates market concentration through a formula that accounts for the relative size and distribution of the firms in a particular market. The HHI measure is simply the sum of the squares of each firm's market share in the relevant market. The HHI increases as the number of firms in the market decreases and as the disparity in size among those firms increases. For example, a market consisting of two firms with market shares of 60% and 40% would have an HHI of 5200 (60 squared + 40 squared). A market consisting of 10 firms with market shares of 10% each would have an HHI of 1000 (10 squared + 10 squared + ...). A market consisting of 100 firms with market shares of 1% each would have an HHI of 100. The Justice Guidelines indicate that a market with an HHI exceeding 1800 is a highly concentrated market and that an acquisition, in such a highly concentrated market, which increases the HHI by more than 50 presents serious antitrust problems.
The figures in this case indicate an unacceptable change in the HHI. According to Swift's estimates, the top five producers of denim in the United States control the following market shares:
Cone Mills 25.2%
Burlington 25.1%
Greenwood 11.0%
Riegel 10.7%
Swift 8.1%
Source: "Expansion and Modernization Proposal: February 1987" (Koon Dep. Ex. 1 at 1415). The current HHI for this market is:
25.2 × 25.2 = 635.04
25.1 × 25.1 = 630.01
11.0 × 11.0 = 121.00
10.7 × 10.7 = 114.49
____________ ________
HHI = 1,500.54
The post-merger HHI would be:
33.2 × 33.2 = 1.102.24 (25.1% of Burlington added to
25.2 × 25.2 = 635.04 the 8.1% of Swift)
11.0 × 11.0 = 121.00
10.7 × 10.7 = 114.49
____________ ______
HHI = 1,972.77
The change in HHI would be 472.23 (1972.77 less 1500.54), a figure suggesting that the Department of Justice is likely to challenge the merger.
Regardless of the potential antitrust problems that attend an attempted merger, the law requires that a private party, such as Burlington, must have standing to...
To continue reading
Request your trial
-
Moore Corp. Ltd. v. Wallace Computer Services, Inc., Civ. A. No. 95-472 MMS.
...114 S.Ct. 491, 126 L.Ed.2d 441 (1993); Burnup & Sims, Inc. v. Posner, 688 F.Supp. 1532 (S.D.Fla. 1988) (same); Burlington Indus., Inc. v. Edelman, 666 F.Supp. 799 (M.D.N.C.1987) (same), aff'd, 1987 WL 91498 (4th Cir. June 22, 1987); II Phillip Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 38......
-
Consolidated Gold Fields PLC v. Minorco, S.A.
...one." Carter Hawley Hale Stores, Inc. v. The Limited, Inc., 587 F.Supp. 246, 250 (C.D.Cal.1984); see also Burlington Indus., Inc. v. Edelman, 666 F.Supp. 799, 805 (M.D.N.C.1987). For example, each of the injuries alleged by Gold Fields would occur if the combining corporations controlled a ......
-
Consolidated Gold Fields v. Anglo American Corp.
...("the interests of the target corporation itself .. are outside of Clayton Act section seven's protection"); Burlington Indus. v. Edelman, 666 F.Supp. 799 (M.D.N.C.1987); Carter Hawley Hale Stores v. Limited, 587 F.Supp. 246, 250 (C.D.Cal.1984). Commentators have also questioned standing fo......
-
In re Adelphia Communications Corp.
...are uncommon, they have been required where the financial risks justified bonds of that size. See, e.g., Burlington Indus., Inc. v. Edelman, 666 F.Supp. 799 (M.D.N.C.1987) (half a billion dollar bond enjoining a tender offer); Texaco, Inc. v. Pennzoil Co., 626 F.Supp. 250 (S.D.N.Y.1986) (on......
-
Table of Cases
...429 U.S. 477 (1977), 1, 60, 410, 484, 485, 488, 494, 542 Budd Co., 86 F.T.C. 518 (1975), 351, 352, 361 Burlington Indus. v. Edelman, 666 F. Supp. 799 (M.D.N.C.), aff’d , [1987 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 93,339 (4th Cir. 1987), 494 Burnup & Sims, Inc. v. Posner, 688 F. Supp. ......
-
Judicial Relief and Remedies
...incumbent management to defend their own positions, not as an attempt to vindicate any public interest.”); Burlington Indus. v. Edelman, 666 F. Supp. 799, 805 (M.D.N.C.) (“The type of injuries about which a target such as Burlington complains —potential loss of employees, possible diversion......
-
Stopping a Train: Why it is So Difficult for a Private Plaintiff to Block a Deal
...dismissed target corporation’s antitrust claim because a target did not have antitrust standing); Burlington Indus., Inc. v. Edelman, 666 F. Supp. 799, 805 (M.D.N.C. 1987) (“Denial of standing a target corporation to seek an injunction preventing a hostile takeover makes imminent sense when......
-
CHAPTER 11 HOSTILE TAKEOVERS IN THE MID-NINETIES: A BACKGROUND PRIMER
...in the absence of fraud, to grant relief to the target. d. Bids Based on Inside Information. In Burlington Industries, Inc. v. Edelman, 666 F.Supp. 799, 817- 18 (M.D.N.C), aff'd CCH Fed. Sec. L. Rep. ¶ 93,339 (4th Cir. 1987), the target successfully [Page 11-55] defended against a hostile o......