US v. Baker Hughes Inc., Civ. A. No. 89-3333.
| Decision Date | 21 February 1990 |
| Docket Number | Civ. A. No. 89-3333. |
| Citation | 731 F. Supp. 3 |
| Parties | UNITED STATES of America, Plaintiff, v. BAKER HUGHES INCORPORATED, Eimco Secoma, S.A., and Oy Tampella AB, Defendants. |
| Court | U.S. District Court — District of Columbia |
Anthony V. Nanni, J. Robert Kramer, II, Bruce K. Yamanaga, Charles R. Schwidde, Jerry D. Threet, Antitrust Div., Dept. of Justice, Washington, D.C., for plaintiff.
William J. Baer, Washington, D.C., for Baker Hughes and Secoma.
David Marx, Jr., Chicago, Ill., Ronald A. Bloch, Lizbeth R. Levinson, Washington, D.C., for Tampella.
The United States, invoking Section 7 of the Clayton Act, 15 U.S.C. § 18, seeks by its complaint to enjoin a proposed acquisition on the ground that it may substantially lessen competition in hardrock hydraulic underground drilling rigs. The proposed acquisition has been postponed pending this decision on the merits, which is now before the Court after two days of hearings and the filing of proposed findings of fact. The record consists of numerous exhibits with significant portions highlighted by the parties, affidavits and live testimony from four witnesses. The issues have been fully briefed and argued.1 Jurisdiction and venue are conceded. This Memorandum constitutes the Court's findings of fact and conclusions of law as to Count One of the complaint.2
The proposed transaction involves two foreign corporations which supply hardrock hydraulic underground drilling rigs to customers in the United States and elsewhere in the world operating out of Finland and France, respectively. By an agreement dated July 29, 1989, Oy Tampella AB, a Finnish corporation, will acquire Eimco Secoma, S.A. (Secoma), a French corporation, which is owned by Baker Hughes Incorporated of Houston, Texas. Oy Tampella's Tamrock division and Secoma are each major industrial concerns doing business in a variety of mining products. They compete with each other and other concerns in various countries around the world.3
Each company has a separately incorporated small U.S. sales and service subsidiary (Tamrock, Inc. and Secoma, U.S., Inc.) to aid its U.S. sales of the rigs, which Tamrock manufactures and assembles in Finland, and Secoma assembles, primarily from parts made by others, in France.
There are three primary types of hardrock hydraulic underground mining rigs: face drills (often called "jumbos"), roof bolters and long hole drills. These rigs perform different functions in an underground mine or tunnel where hardrock is encountered. Jumbos drill horizontally into the face of the mine tunnel. Roof bolters drill holes vertically into the floor or roof of the tunnel; a bolt is then inserted into the hole and later a brace. Long hole ("production") drills are used to reach into and open up ore bodies. "Hardrock" is rock that requires a drill force of approximately 20,000 pounds per square inch for penetration.
This proposed horizontal acquisition combines two major companies now directly competing in the United States for hardrock hydraulic underground drilling rigs. Tamrock, the acquiring company, has in recent years had the largest share of this country's business in these rigs.
The United States asserts it has met its burden under Section 7 of the Clayton Act because the proposed acquisition will increase the already dominant position of Tamrock, which has accounted for about 40 percent of U.S. sales in recent years. Applying traditional antitrust doctrine, see, e.g., United States v. Philadelphia National Bank, 374 U.S. 321, 363, 83 S.Ct. 1715, 1741, 10 L.Ed.2d 915 (1963), against what it considers this decisive circumstance, the United States contends that it is reasonably likely that the proposed acquisition will substantially lessen competition in the sale of hardrock hydraulic underground drilling rigs in a distinct market, i.e. the United States.
Vigorously contesting these premises as overly simplistic, the defendants contend that factors unique to the hardrock drilling equipment business make the conclusions drawn by the Department of Justice inappropriate and the authorities relied on inapplicable. This opposition is not an idle one. It is supported by a factual showing that requires close analysis to determine whether given the nature of this particular industry permanent injunctive relief is in fact required to sustain the objectives of the Clayton Act. The United States has the ultimate burden of proving a Section 7 violation by a preponderance of the evidence.
The proof has focused on two markets, the United States and the entire world. Most of the evidence concerns the United States market, for obvious reasons.
References to competition throughout the world were pertinent because, as will be discussed below, some competitors of Tamrock and Secoma based abroad may successfully enter the United States market in the future. Market sales in 1988 of hydraulic rigs throughout the world are noted below.
HYDRAULIC RIGS
WORLD MARKET SALES 1988
Jumbos Longhole Bolting Scaling Total
Tamrock 128(10) 36(3) 21(2) 20 205
Atlas-Copco 77(3) 13 11 101
Secoma 36 2 19 57
Furukawa 49 49
Montabert 12 2 14
Gardner-Denver 8 8
PTT 2 2
Bohler 4 4
Sig 2 1 3
AMV 1 1
Boart 5 1 1 1 8
Toyo 12 12
Fletcher 1 1
Dux 1 1
Tokyo Ryuki 1 1
Stromnes 1 2 3
XX 1 1 2
___________________________________________________
338 57 53 24 472
PX 47.4
For the years 1986 to 1988, purchasers of hardrock hydraulic underground drilling rigs used only four of the companies listed above to supply rigs for their mining or tunnel work in the United States. For those years, sales in the United States were made by the leading companies as summarized in the following table provided by the Department of Justice:
1986 to 1988 U.S. Unit Sales
Firm Units % Share
Tamrock (Finland) 42 40.8
Atlas Copco (Sweden) 26 25.2
Secoma (France) 18 17.5
Gardner-Denver
(U.S.A.) 17 16.5
_____ ______
103 100.0
Secoma improved its position in 1989. Also in 1989, Ingersoll-Rand, Inc., a substantial American concern, re-entered the business and made one U.S. hydraulic jumbo sale for delivery this year. Another U.S. concern, Cannon Industries, also sold a single hydraulic jumbo in 1989. Other firms participated only in a minor way in the U.S. market at one time or another during the last four years.
The appropriate geographic market for measuring the probable competitive effect of the proposed acquisition is the United States. While the merging parties are importers contending with strong competition around the world from other foreign concerns, these concerns generally consider the United States a distinct market. Furthermore, the principal focus of the Clayton Act is upon domestic conditions. The world markets are pertinent to exports of rigs by U.S. companies, presently done in a small way by Gardner-Denver and Ingersoll-Rand.
Information concerning sales of rigs in various countries is not precise. Competitive conditions in various countries differ, as do market shares. The position of the merging companies in foreign markets varies, although measured by the years 1986-1988 Tamrock-Secoma's position in the United States is approximately the same as it is in the world. In some particular foreign countries, however, different foreign companies not subject to the reach of the Clayton Act have much greater market strength than a combined Tamrock-Secoma. There is no proof which enables the Court to appraise the effects of the proposed acquisition in foreign markets. On the other hand, the competitive conditions in the United States have been adequately developed, and likely developments have been explored.
Section 7 of the Clayton Act is aimed at ensuring competitive effect "in any section of the country" (emphasis added). 15 U.S.C. § 18. Moreover, there are attributes of the United States market which separate it and distinguish it from other world markets, and it is not so intermeshed with the trade and business elsewhere that it is not itself distinct, separate and different, as subsequent discussion of the nature of the competition will illustrate. The competitive effect of the proposed acquisition within the United States is economically significant and that market must serve as the geographic standard for appraising its likely consequences.5
The appropriate "line of commerce" for appraising the competitive effect of the proposed merger is claimed by the ...
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