Blue Book No. 1150 1133 1132 Name of case United States v. The Procter & Gamble Company, et al. (Civil 1196–52, D. N. J. (Newark)): Complaint under sections 1 and 2 of the Sherman Act filed on December 11, 1952, charging the Procter & Gamble Co., Lever Bros. Co., the Colgate-Palmolive-Peet Co., and the Association of American Soap & Glycerine Producers, Inc., with restraining and monopolizing the manufacture and sale of soap and synthetic detergents for household use. It was alleged that in the year 1951 Procter, Colgate, and Lever produced and sold 75 percent of the national sales of household soap. The case is pending. United States v. National Ice and Cold Storage Co. of Calif., et al. (Civil 142290, S. D. Calif.): Complaint under sections 1 and 2 of the Sherman Act filed June 11, 1952, charging that the defendants conspired to restrain and monopolize the manufacture and distribution of ice for use in the preservation, processing, and shipping of perishable foods, and for use in transportation of passengers, in interstate and foreign commerce. The complaint alleged that the defendants and coconspirators control, manufacture, and distribute over 80 percent of the ice manufactured in the State of California for the above purposes. A consent judgment was entered on January 14, 1954. United States v. Union Ice Company, et al., (Cr. 22,360, S. D. Calif.): Indictment under sections 1 and 2 of the Sherman Act filed June 4, 1952, charging the defendants conspired to restrain and monopolize manufacture and distribution of ice for use in the preservation, processing, and shipping of perishable foods, and for use in transportation of passengers, in interstate and foreign commerce. The indictment charged that the defendants and coconspirators control, manufacture, and distribute over 80 percent of the ice manufactured in the State of California for the above purposes. Pleas of nolo contendere were entered in January 1954. Question No. 3 Has any definite evidence been submitted to the Commission that would indicate that private enterprise will produce (a) more synthetic rubber; (b) improved synthetic rubber; (c) cheaper synthetic rubber; if the plants are sold? Answer. The Commission has no "definite evidence" on these three questions. Our opinions and impressions, however, are as follows: (a) Will private industry produce more synthetic rubber? The March 1953 Report of the Reconstruction Finance Corporation was premised on the belief that the total demand for synthetic rubber would increase in both the near and long-term future. Estimates from the Department of Commerce, presented in the answer to question 4 below, conform with this premise. The RFC report concluded that as the demand for rubber exceeded the capacity of the present Government-owned plants, private industry, if it purchased the facilities, would create new capacity to satisfy this demand. The Commission reiterated this belief in its report to the Congress of January 24, of this year. As rubber demand increases, commercial self-interest will, the Commission believes, dictate the necessary increase in capacity either by the expansion of existing plants or the construction of new ones. (b) Will private enterprise produce improved synthetic rubber? The history of synthetic rubber has been one of constant product improvement in both the Government and private areas of production. The Commission believes that quality will continue to be improved when this industry is in private hands. Influences in this direction will be competition among private producers and the expected continuance of dynamic research in this field. (c) Will private enterprise produce cheaper synthetic rubber? The Commission's views on this question are presented in the answer to quession 10. Question No. 4 What is the best estimated available as to the projected supply and demand for rubber (synthetic on the one hand, and natural on the other) for the next 5 years? Answer.-Attached is a copy of a letter (dated February 21, 1955) to the Commission from Business and Defense Services Administration of the Depart ment of Commerce presenting estimates of rubber supply and demand for the next 5 years. To satisfy the demand for synthetic, the following domestic supply will be available, assuming the completion of the Commission's disposal program . (all capacities in long tons): The figures given by the Department of Commerce for demand for synthetic are not directly comparable with those given below. The Department of Commerce figures include the oil content of oil-extended GR-S 689,600; the long ton GR-S capacity figure for the plants proposed for sale by the Commission is net of oil content. As a guide to comparing these figures, production statistics for fiscal 1954 are helpful. In that year approximately 8.5 percent of GR-S production (including oil) was attributable to the oil content. DEPARTMENT OF COMMERCE, BUSINESS AND DEFENSE SERVICES ADMINISTRATION, Mr. M. G. HEINS, Jr., Rubber Producing Facilities Disposal Commission, Washington 25, D. C. DEAR MR. HEINS: We acknowledge your letter of February 15 requesting estimates concerning the supply-demand outlook for rubber for the next 5 years, and subsequent telephone conversations with you and with Mr. Harold W. Sheehan concerning your desire for a tabular statement which can be furnished to the chairman of the House Armed Services Committee. Agreed industry estimates on this subject have been made with our participation for 1955 and 1956. The remaining estimates shown in the table below have been made in the Rubber Branch of the Business and Defense Services Administration to meet your request. Starting from 1956, you will see that we expect a gradually rising world production of natural rubber, resulting from the coming into production of acreage planted or replanted with high-yield trees in Malaya during the past 7 years. The estimates for total new rubber consumption outside the United States after 1956 represent a projection from 1956 at the rate of approximately 5 percent annually, which is less than the rate of growth experienced in recent years. The expectation that foreign countries will increase their use of synthetic rubber, as a result of plans now afoot for manufacture of this material in the United Kingdom and France, and for expansion of production in Western Germany, and (assuming disposal) as a result of cultivation of foreign markets by private owners of our synthetic rubber industry, is reflected in the estimates. The order of magnitude is necessarily guesswork, but the estimates enable the balance of natural rubber (after foreign demand) to be calculated to show how much might become available for use in the United States. It should be stated that foreign consumption estimates exclude the Iron Curtain countries consumption of rubber that is produced within Iron Curtain areas, as this unknown amount does not affect the calculations; estimated imports of natural rubber into Iron Curtain countries are however included and counted as foreign consumption. The estimates for total new rubber consumption in the United States after 1956 represent a projection from 1956 at the rate of approximately 3 percent annually, which is near the rate of population growth, and well below our past rate of growth of rubber consumption. Natural rubber consumption in the United States is taken as almost equal to the "world production less the foreign consumption," and the remaining tonnage required to make up the total estimated United States consumption for each year would represent the domestic demand for synthetic rubbers of all types. Actually, annual consumption may be expected to fluctuate, with "downs" as well as "ups," according to past experience, instead of steadily increasing. All of these estimates assume normal economic operations, no unusual interruptions, a world without a major war, and no serious trade depression or unusual boom. The table indicates a declining tonnage of natural rubber annually available for importation into the United States, and a need for considerably increased use (both in tons and in percentage of total new rubber) of synthetic rubber in each succeeding year. Since 1949, the lowest ratio of natural rubber to total new rubber consumption in any year in the United States was 36 percent in 1952, a year of Government restriction of consumption of natural rubber to facilitate maximum strategic stockpiling of the commodity. The outlook for 1958 and 1959 would call for a ratio lower than 36 percent. Because of the high rate of United States consumption of natural latex, the outlook is for a sharper contraction in percentage usage of dry natural rubber than of total natural rubber, which will necessitate industry adjustments in compounding and rubber formulas. The present capacity for production of the synthetic-rubber facilities which may be expected to become privately owned, plus those neoprene and N-type facilities already in private hands, is well known to your Commission. You will be able to calculate a projected degree of adequacy of supplies of synthetic rubber based on these existing capacities. In doing so, it should be borne in mind that the United States consumption usually fluctuates considerably within a year on a seasonal basis, and from economic causes, and that natural-rubber production also fluctuates from seasonal as well as economic conditions, so that a theoretically "balanced" position for a year would not necessarily mean a similarly balanced position for each half of the year. Future capacity for production of synthetic rubbers will undoubtedly be increased, perhaps by process changes, and by additions of equipment, expansions here and abroad, and removal of bottle'necks, so the existing capacity is not the sole consideration. It is not inconceivable that during this term of years there may be some exports of Iron Curtain-produced synthetic rubbers to Europe or other parts of the free world. Sincerely yours, Questions No. 5 and No. 6 E. G. HOLT, Assistant Director for Rubber, Chemical and Rubber Division. 5. What is our present stockpile position with respect to natural rubber? 6. The stockpile report to the Congress indicates that our objective has been reached and I presume, therefore, that our stockpile of natural rubber is adequate. Who has agreed to this finding in (a) Government, (b) industry? Answer. The Office of Defense Mobilization, by letter dated February 28, 1955, supplies the answers to questions Nos. 5 and 6: "DEAR MR. PETTIBONE: This is in reply to your letter of February 17 requesting information with regard to questions 5 and 6 of the attached letter dated Feb ruary 15 from Representative Carl Vinson, chairman of the House Committee on Armed Services." "Reply to question 5: "The stockpile objective for natural rubber has been attained. "Reply to question 6: "(a) The last complete review of the stockpile objective for natural rubber was made in 1951 by the Munitions Board and approved by the Chairman of this Board in November 1951. The following governmental agencies concurred in the proposed objective: State, Interior, Reconstruction Finance Corporation (Synthetic Rubber Division), Agriculture, Tariff Commission, Navy, Army, Air Force, and the Munitions Board. The Department of Commerce (National Production Authority) and the Defense Production Administration were of the opinion that the proposed objective was 25 percent higher than could be justified and so informed the Chairman of the Munitions Board in writing; "(b) The rubber industry was consulted with regard to the policies and procedures to be used in arriving at a revised stockpile objective for natural rubber at a meeting of the Munitions Board Rubber Industry Advisory Committee held in July 1950. The membership of this committee is attached. The Industry Committee members were not consulted with regard to the specific stockpile figures since this information is classified. "We initiated another complete review of the stockpile objective for rubber in July 1954. Changes in military programs have delayed submission of miliitary requirements, but we have been informed that this difficulty has been very recently resolved and that the military requirements will be available within the next few months. "In this study the Department of Commerce is estimating the emergency civilian requirements for rubber and has solicited industry advice in accordance with customary past practices. "Before promulgation of a new stockpile objective for rubber, in accordance with our usual procedures, the study will be reviewed by both ODM's Interdepartmental Chemicals and Rubber Advisory Committee and the Materials Advisory Committee with the following departments and agencies participating : Defense, State, Commerce, Interior, Agriculture, Treasury, Labor and the Tariff Commission. "If any further information is desired, please do not hesitate to call upon us. "Sincerely yours, Question No. 7 "ARTHUR S. FLEMMING, Director." Assuming that the sales prices for the plants are based on a going-business basis, how were each of the plant sales prices established (i. e., amount to be produced, selling price, anticipated net profit, etc.)? Answer. The sales prices represent the composite judgment of the three Commissioners and staff members who dealt with this subject. Because the plants differ in such particulars as size, location, efficiency, and the extent of incorporation of new or specialized techniques of manufacture, it was not practicable to use one formula for each situation. In some cases normal standards had to be adjusted in order that criteria of the act other than "full fair value" be met. Before and during the negotiating period studies by industrial engineers employed by the Commission were made. At the request of the Commission, the prospective purchasers gave comprehensive information covering proposed plant operations and their opinions as to future earnings. The information given by these bidders was compared with data assembled independently by the industrial engineers. As the Commission stated in its report to the Congress, primary reliance was placed on potential earning power of the facilities in arriving at their sales prices. In adopting this method, the Commission followed the procedure generally used in valuing going businesses. The earning power valuations were made for the Commission by the independent industrial engineers retained by it; their methods are presented below. The usual procedure is to examine the record of past operation, adjust each element of cost for any anticipated changes in conditions, calculate, on this basis, the probable average annual future earnings and finally capitalize these earnings at a rate considered appropriate for the risks of the particular type of business. It should be noted that, in this instance, the differences between past and future conditions are more marked than often is the case. Under Government ownership the plants have been operated as an integrated unit. Butadiene and most of the styrene have been charged into the copolymer plants at cost of manufacture. The selling price of GR-S and butyl has been arbitrarily fixed by the Government. Under private ownership most of the butadiene and copolymer plants will be operated as single units; in some cases, the butadiene plant will be operated in conjunction with the adjacent copolymer plant; all plants will be operated on a profit-making basis. Selling prices of butadiene and synthetic rubber will be fixed by free market conditions. Each copolymer plant will probably produce a greater diversity of products. In the calculations, ranges of prices and costs were assumed, and several valuations of each plant were made based on varying sets of assumptions. The following table shows analyses on a unit basis of typical butadiene and copolymer plants and indicates the relative importance of each element of cost. The following comments summarize the important assumptions made and the reasons therefor: GR-S and butyl selling prices : The assumed selling price of standard GR-S and butyl was 23 cents per pound f. o. b. producing plant, the current Government selling price. Raw materials: Butadiene and butyl plants: All prices f. o. b. producing plant. Yields were based on performance of recent past at each plant. Normal butlyenes and isobutylene in BB stream were priced at from 13 to 15 cents per gallon, based on the alternate use value of 115/145 aviation gasoline, the most valuable and largest other use for butylenes. This price range is less than most of the Government's current purchase contracts and reflects the recent decline in the price for 115/145 avgas paid by the Government, the principal purchaser. Butane at Borger was priced at from 51⁄2 to 6 cents per gallon based on its use in liquefied petroleum gas. Copolymer plants: Butadiene was priced at from 14 to 15 cents per pound at which prices adequate profit would be attained by the butadiene plants. Styrene was priced at from 17 to 18 cents compared to the present quoted market of 18 cents. Styrene plant: Benzene was priced at 43 cents per gallon and propane at 4.3 cents, which prices are about the present cost to the Government. Conversion costs were based on the performance of the recent past. Depreciation rates used were 71⁄2 and 10 percent of the purchase price which assumes a remaining life of assets purchased of from 13% to 10 years. Administrative, selling, and research and development: Butadiene plants, 31⁄2 percent of sales. Copolymer plants, 41⁄2 and 6 percent of sales. Insurance: Government is self-insured. To allow for insurance other than minor insurance now carried by the Government, a cost of $0.75 per $100 of value was allowed, based on the advice of a leading insurance agency. 55066-55-No. 10-2 |