United States v. Wilson Sporting Goods Co.

• Citation: 288 F. Supp. 543
• Decision Date: 02 July 1968
• Docket Number: No. 68 C 549.,68 C 549.
• Parties: UNITED STATES of America, Plaintiff, v. WILSON SPORTING GOODS CO. and Nissen Corporation, Defendants.
• Court: United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)

288 F. Supp. 543

UNITED STATES of America, Plaintiff, v. WILSON SPORTING GOODS CO. and Nissen Corporation, Defendants.

No. 68 C 549.

United States District Court N. D. Illinois, E. D.

July 2, 1968.

Joel Davidow, Atty. Antitrust Division, Washington, D. C., John E. Sarbaugh, Kenneth Hanson, Attys., Antitrust Division, Chicago, Ill., for Government.

Howard Adler, Jr., Bergson, Borkland, Margolis & Adler, Washington, D. C., Richard Decker, Lord, Bissell & Brook, Chicago, Ill., Haven Y. Simmons, Simmons, Perrine, Albright & Ellwood, Cedar Rapids, Iowa, for defendants.

MEMORANDUM OPINION

MAROVITZ, District Judge.

Plaintiff's Motion for Preliminary Injunction

The Government brings this action under Section 15 of the Clayton Act, 15 U.S.C. Sec. 25, to enjoin a proposed merger between the defendant Wilson Sporting Goods Company (hereinafter "Wilson"), a subsidiary of Ling-Temco-Vought, Inc., (hereinafter "LTV"), and the defendant Nissen Corporation (hereinafter "Nissen"), on the ground that it would violate Section 7 of the Clayton Act, as amended by the Celler-Kefauver Amendment, 64 Stat. 1125, 15 U.S.C. Sec. 18.¹

On March 28, 1968, we issued a temporary restraining order temporarily preventing the companies from consummating the proposed merger, but allowing the respective shareholders, who were attending meetings to vote on the proposal that very day, to cast their votes. The merger was approved, but has been held in abeyance pursuant to our order, and pending a decision on the Government's motion for a preliminary injunction, with which this opinion deals.

At the hearings on the motion for preliminary injunction, both sides presented live testimony amounting to 350 transcript pages. Additional depositions were subsequently taken and made part of the record. The parties have presented quite elaborate briefs and documentary exhibits, and the Court has had the benefit of enlightening closing arguments, made after the papers and briefs were submitted. Hence, although further discovery remains to be completed, we have before us a substantial record upon which to base a ruling on the pending motion.

In order to justify the issuance of a preliminary injunction, we must, at the least, find that there is a reasonable probability that the Government will prevail at a trial on the merits.² As will be discussed later, other factors should be considered in deciding whether to issue a preliminary injunction, but they are generally subsidiary to the merits of the controversy.³ Hence, our initial inquiry must be addressed to the issue posed by Section 7—will the proposed acquisition tend to lessen competition in the line of commerce under consideration?

The Nissen Corporation, with headquarters in Cedar Rapids, Iowa, is the leading manufacturer and seller of gymnastic equipment in the country. It manufactures and sells a full line of gymnastic equipment, including, as illustrative examples, such items as parallel bars, sidehorses, horizontal bars, balance beams, rings, trampolines, and gymnastic apparel. It manufactures these products at its plant in Cedar Rapids. In addition, it owns or is affiliated with plants in England and Japan. During the past few years, in addition to gymnastic equipment, it has begun to manufacture and sell such other items as gym mats, table tennis tables, volleyball equipment and basketball backstops. And it apparently intends to soon introduce a line of track and field equipment that George Nissen, its founder, president, and majority stockholder believes, will be better than anything now on the market. Mr. Nissen has developed a company known as the highest quality manufacturer in the gymnastic equipment industry, with sales in 1967 of $4,207,234.

Ling-Temco-Vought, Inc., the parent of Wilson, is a giant conglomerate company with 1967 sales of approximately $1.8 billion. Wilson is engaged in the business of manufacturing and selling golf, baseball, tennis, football, basketball, and other sporting goods, apparel and accessories, as well as toys and molded plastic products. Wilson's product line includes over 8,000 items, and 70% of its sales consist of products of its own manufacture. Wilson has 13 manufacturing plants in the United States, and has sales branches in England, Germany, Hong Kong and Japan. In 1967, it had net sales of $89,066,000. It is the largest manufacturer and seller of a broad line of sporting goods in the United States. It is one of the most respected names in the athletic goods industry, and in a number of products, including tennis equipment, it is the leading seller in the country.

Wilson does not manufacture or sell gymnastic equipment. It hopes to enter the market via this merger. Both the defendant companies, however, sell such items as gym mats, wainscotting, sweat suits, basketball backboards, volleyball equipment, and table tennis tables. These items concededly are relatively minor items for both Nissen and Wilson at this time, and Wilson does not manufacture most of them itself, but purchases them for resale.

A Government survey prepared in connection with this case, tabulated the 1967 sales figures of 23 manufacturers of gymnastic equipment. The information was collected by way of voluntary disclosure and subpoena. The companies range from Nissen, the leader, to K-Sports Co., with 1967 sales of gymnastic equipment totaling only $2000. The survey indicates initially that the consumer market for gymnastic equipment, the majority of which consists of institutional purchasers, is rapidly expanding.⁴ For example, Nissen's sales increased over 30% in the period 1965-1967. Nevertheless, because of the increased demand for gymnastic equipment, its share of the industry's total sales has fallen from about 38% in 1965 to 32% in 1967.

Secondly, the survey indicates that the industry is quite concentrated. Although figures were received for 23 companies, including all of the significant ones, it appears that the top four companies account for over 60% of the total industry sales reflected in the survey, and the top nine companies for over 97% thereof.⁵

In addition, the concentration reflected by the above figures may be somewhat understated. That is because only four companies are able to produce products that conform to Olympic or National Collegiate Athletic Association (NCAA) standards.⁶ Only such equipment, which must comply with rigid specifications, may be used at sanctioned meets.

Although the survey's figures include a composite of the sales of both Olympic and non-Olympic equipment, no figures were submitted to indicate the total sales of Olympic equipment relative to the remainder of the industry's products. But at the closing argument, defense counsel did not challenge the Government counsel's remark that Nissen's leading position is even more powerful in percentage terms with respect to Olympic equipment, and the market for these items even more concentrated than the market generally. Furthermore, many of the smaller companies do not sell nationally, and do not offer a full line of gymnastic equipment, and of trampolines.⁷ Hence, they constitute competition to Nissen only regionally, and with respect to certain non-Olympic equipment.

Nissen's respected position in the industry is reflected in part by its quality products and in part by the fact that it can sell its products at a dealer's markup of only 15%, while its competitors offer a 50% spread to the dealers. To some degree, although the precise amount is indeterminate, the reason for Nissen's smaller margin to the dealer is accounted for by its sales technique. Whereas its competitors generally sell through a dealer who expends most of the effort required to make the sale, Nissen boasts an eight man sales force which usually pre-sells its products to the ultimate consumer—the coach or athletic director of an institution in most instances. The order is then placed through a dealer who receives 15% for his trouble, but who is responsible for little of the actual selling effort. In addition, Nissen's products are considerably higher priced, in many instances, and it appears that Nissen's philosophy is to retain its current high profit margins at the expense of even higher volume and a larger share of the market.

Wilson is an aggressive company which intends to expand into the lucrative gymnastic equipment field, preferably by this merger. Its projected plans also call for expansion by merger into the production of sporting goods equipment such as archery equipment, fishing tackle, skiing equipment, and rubber sporting goods products such as balls.⁸ It has been attracted to Nissen by the expanding sales market for gymnastic equipment, Nissen's record of leadership and innovation in the industry, its financial position, and perhaps most of all by the opportunity to retain George Nissen as operating head of the business. Wilson represents that it intends to maintain Nissen as a separate corporation, with the same management, and does not intend to intermingle any of its facilities, sales operations, or other company functions with those of Wilson. In effect, according to Wilson, it intends to hold Nissen simply as an attractive investment. The Merger Agreement contained express acknowledgment of the intent to transfer the present Nissen assets to a new and separate subsidiary corporation, and the proxy statement sent to stockholders of both companies acknowledged the intention to maintain Nissen as a separate corporation and "to continue to conduct substantially the same business as is now conducted by Nissen under the same name, as a wholly owned subsidiary of Wilson."⁹

We believe this proposed merger quite appropriately should be denominated a "product-extension" merger, a term officially coined in the Federal Trade Commission opinion in Federal Trade Commission v. Procter & Gamble Co., 386 U.S. 568, 570, 577-578, 87 S.Ct. 1224, 18 L.Ed.2d 303 (1967) (hereinafter "Clorox"). That is because...