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because merger activity appears to be picking up from its depressed level of the past few years. As you know, merger activity runs in waves, the last of which crested in the late 1960's and early 1970's. If a new wave is on the horizon, it is none to early to prepare for it.

As an aside, Mr. Chairman, one of Dr. Scherer's predecessors, Dr. Willard Mueller, made a little study for us once in the 1960's, and each of these waves of mergers seems to be related to the economic fortunes of the country. So, when we have a merger problem the country is doing well. When we have a period of recession, we don't have too much of a merger problem.

I should make it clear that I am most emphatically not an opponent of mergers in general. Mergers can play an important and efficient role in allocating capital and economic resources. Many mergers are not anticompetitive and are not opposed by the antitrust agencies. However, there are mergers which hinder competition and we must be prepared to stop them.

From the beginning, the United States antitrust laws have tried to grapple with those mergers which hamper competition and tend toward monopoly. The Sherman Act itself was a response to a great wave of corporate consolidations in the late 19th century. It is generally agreed that the Sherman Act had little impact on the merger movement in succeeding years. Section 7 of the Clayton Act, enacted in 1914, was designed to meet what the public saw as a flaw in the Sherman Act.

Unfortunately, the relentless attacks of corporate respondents opened up loopholes that soon made the Clayton Act totally ineffective. The Federal Trade Commission, the major enforcer of the Clayton Act, brought only 31 complaints in the 1927–50 period and only four of those resulted in orders. No Commission orders were issued in the 16 years following the 1934 Arrow-Hart & Hegeman case, which ruled that the FTC had no authority to order divestiture of assets. One scholar summed up his examination of this dreary period as follows:

It is clear from this review of the formal complaints issued from 1927 through 1950 that the Commission's administration of section 7 of the Clayton Act in that peirod did not prevent or dissolve any mergers, though it may have affected the form in which some combinations were organized.

This sorry record, combined with a change of political climate spurred on by the Temporary National Economic Committee's findings, led ultimately to the passage of the Celler-Kefauver Amendments in 1950. The importance of those amendments cannot be overemphasized. For the first time antitrust enforcers had a workable tool. That tool was quickly picked up and utilized, as a 1967 FTC report published by your committee shows. From 1950 to 1967, 206 Government section ✓ cases were filed involving a total of 801 acquisitions which, in turn, involved almost $8 billion in commerce. Most of these actions were brought against large companies; 71 percent involved the largest 500 companies. The effect of this Government campaign can be demonstrated statistically. In 1951–54, 37 percent of all corporate acquisitions of greater than $10 million were horizontal; in 1963–66 the horizontal proportion had dropped to 15 percent. And most dramatically, the percentage of greater than $10 million acquisitions, by large companies, which were horizontal, declined from 62 percent in 1951–54 to 25 percent in 1963–66. As that study concluded:

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The simple fact is that the merger enforcement program since 1950 represents a unique event in American antitrust history. And when measured by its effects, it has had a fundamental and widespread procompetitive impact on the organization and performance of our economy.

I agreed with that analysis then, and my judgment is, if anything, reinforced now, nearly 10 years later. In that space of time the Commission has brought and either won or negotiated divestitures in a series of merger cases against many of the Nation's leading companies, including Allied Chemical Corp., Eaton, Yale, and Towne, ARA Seryices, Kennecott, Rockwell International, Pepsico, Anaconda Co., Bendix Corp., Heublein, Inc., Georgia-Pacific Corp., and Borg-Warner Corp., to name just a few.

Currently cases are pending at one stage or another against WarnerLambert Pharmaceutical Co., Fruehauf

Corp., American General Insurance Co., Jim Walter Corp., RSR Corp., Gifford-Hill & Co., CocaCola Bottling Co. of New York, SKF Industries, Nestle Alimentana S.A., and the Brunswick Corp., to give a partial listing: A number of investigations are also currently underway at the Commission. And, of course, as you are aware, the Antitrust Division of the Department of Justice is also extremely active in the merger area.

Despite this very considerable record of success, I feel that there are further amendments to section 7 which could make it an even more useful tool in preventing anticompetitive mergers. I will go into these later, but, first, I will attempt to answer some of the specific questions raised in Chairman Rodino's letter. Because some of the responses are voluminous and highly statistical in nature, I will only give a brief summary and submit the material for the record.

The Commission initiated 661 merger investigations between 1960 and 1975. The yearly totals have ranged from 77 and 68 in fiscal 1967 and 1968, respectively, to only 9 in fiscal 1975. The sharp differences in these figures illustrate very clearly the tendency of mergers to move in a pattern of waves and troughs.

Between 1970 and 1975, the Commission investigated 80 horizontal, 42 vertical, and 72 conglomerate mergers. These investigations occurred in 39 industrial groups. Leading the list were food and dairy products, 32; building materials, 22; beverages and concentrates, 14; automotive parts, 12; metals and metal products, 8; and service industries, 8.

There are five areas in which FTC merger guidelines have been issued. In 1967, enforcement policies were issued concerning vertical mergers in the cement industry and mergers in the food distribution industry. In 1968, enforcement policies were issued regarding the textile mill products industry and product extension mergers in grocery products manufacturing. The fifth enforcement policy, with respect to mergers in the dairy industry, was issued in 1973.

I have submitted to the committee a copy of each guideline issued and a description of Commission action taken pursuant to each guideline. I should point out that it is not quite accurate to speak of mergers which "violated" the guidelines because the guidelines are not proscriptive; rather, they constitute a type of early warning system. They are useful to both Commission staff and the industry involved as a means of identifying those acquisitions which will be scrutinized most carefully. The Commission never meant to prohibit every acquisition which exceeded the bounds of the guidelines, any more than it meant to

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validate every acquisition which fell below the limits set forth in the guides. A look at some of the food distribution mergers which exceeded the bounds of the guidelines demonstrates the reason for this policy. For instance, in 1973 there were two acquisitions of failing companies, six market extensions into remote rather than contiguous areas, and six acquisitions of stores which had been closed or were being shut down. A description of the circumstances surrounding each acquisition in the years following promulgation of the Commission's food distribution enforcement policy is included in the materials which I am submitting Mr. Chairman, you also asked me to describe the workings of the Commission's merger screening process. The best way to do so might be by following the course of a hypothetical merger, let us say, between Colossal Industries and Leviathan Corp., both makers of widgets. Knowledge of this merger would most likely be picked up either through our premerger notification program, if large in size, or through public sources such as the Wall Street Journal, Journal of Commerce, or trade publications within an industry.

Once the Colossal-Leviathan merger became known, it would be considered by the Merger Screening

Committee, which meets once a week. The committee is composed of representatives from both the Bureaus of Competition and Economics. Most mergers are immediately eliminated as potential targets for investigation, usually on a basis of small size and an apparent lack of competitive effect. The remaining mergers, such as Colossal-Leviathan's, are more carefully analyzed as to factors such as size, product lines involved, concentration, potential foreclosure, profits, and the state of entry barriers. If a member of the Merger Screening Committee is familiar with Colossal and Leviathan or the widget industry, he may make an oral analysis from which the committee can make a decision. Or a staff member may be called on to make a quick investigation and report back to the committee.

A third technique, which would be used if contact with Colossal or Leviathan was necessary, is to open a formal preliminary investigation assigned to an attorney. Before a preliminary is opened, clearance is sought from the Department of Justice's Antitrust Division.

Through one of these techniques the Merger Screening Committee will decide whether to recommend to the Director of the Bureau of Competition that he authorize a formal seven-digit investigation of the Colossal-Leviathan merger. In addition, if there is a difference of opinion within the Merger Screening Committee as to whether a merger merits an investigation, the matter is brought to the Bureau Director's attention for resolution. The final decision as to whether or not to authorize a seven-digit investigation is in the hands of the Director in both instances. We did that, as I told you the last time I was here, under a reorganization plan 4 delegation. Once the Bureau Director assigns a seven-digit number to the Colossal-Leviathan merger,

the screening process is over and a full-fledged investigation Of course, while the Commission has delegated to the Director of the Bureau of Competition authority to open or refuse to open a sevendigit investigation, it now retains at all times the authority to review and reverse any decision which the Director makes. To insure that the


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Commission's option in this regard is a meaningful one, the Commission has recently instructed the Bureau of Competition to provide the offices of individual Commissioners with all minutes of the Merger Screening Committee and a record of all determinations by the Director to initiate seven-digit investigations. In this fashion, all Commissioners will be informed promptly of those mergers which are being investigated and of those mergers which, after preliminary consideration, staff has determined not to pursue.

Mr. Chairman, you asked for a brief outline of my views in two areas which you plan to take up in more detail in later testimony, enforcement against "small" as opposed to "big" mergers and merger policy in the regulated industries.

Size does not necessarily determine our attitude toward a merger. In analyzing the legality of a merger our focus is on its competitive effects and the consumer benefit from an action to block the merger. A merger's effect on competition is a product of many variables. The market share of the acquiring and acquired companies, concentration in the industry, the state of entry barriers, profitability, and whether the two firms were in actual or potential competition, are some of the most important. While a large merger in a large industry is likely to create anticompetitive effects more often than a smaller merger in a small industry, such is not always the case. For instance, recently the Anaconda Co. was sued by the Commission for its acquisition for $3 million of Systems Wire & Cable, Inc., a coaxial cable manufacturer. The total sales of the semiflexible coaxial cable industry involved were, at the time of the acquisition, only $28 million. However, because a rapid growth in cable television is expected, the coaxial cable industry is expected to expand dramatically and the acquisition removed a small but aggressive competitor from the fledgling industry. As a result, despite its small size, the acquisition was challenged by the Commission. Postcomplaint negotiations resulted in an agreement by Anaconda to divest the assets of Systems Wire & Cable.

There have been a number of cases brought in the regulated industry area, by both the Justice Department and the Federal Trade Commission, which have established the right of the antitrust enforcement agencies to examine mergers in such industries. Our Bureau of Competition does not hesitate to bring such cases. I fully support the Bureau's efforts to extend the enforcement of the Clayton Act as broadly as possible. Of course, specific statutory exemptions do limit our activities to a certain extent.

I would now like to turn to two areas of potential merger legislation which your committee might consider. First, legislation should be passed to deal with the American Building Maintenance decision. As you are aware, that decision held that section 7 of the Clayton Act applied only to acquisitions "in commerce," not to those "affecting commerce." The court ruled that although it was clear that Congress could have constitutionally reached acquisitions affecting commerce, it had not chosen to do so. By way of contrast, the courts have held that in the Sherman Act, Congress wanted to go to the utmost extent of its constitutional power in restraining trust and monopoly agreements,” and that act has been applied to intrastate activities which substantially affect interstate commerce.

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It is true that the American Building Maintenance decision left open the possibility that section 5 of the Federal Trade Commission Act could be used to reach intrastate acquisitions. The argument would run that section 5 now applies to activities affecting interstate commerce and has previously been held to reach transactions which violate the standards of the Clayton Act; therefore, one could reason, section 5 forbids intrastate acquisitions "affecting" but not "in" interstate commerce. The American Building Maintenance court explicitly noted that it was not deciding that question.

Rather than await a court clarification of this point, it seems preferable to me for Congress to make it clear that section 7 is similar to the Sherman Act in that it is intended to reach as far as the Constitution permits. Because merger enforcement is our first line of defense against monopoly, it is just as important for section 7 to have a broad reach as it is for the Sherman Act to do so. Further, even if the courts eventually rule that section 5 does reach intrastate mergers, that will do little good for my brethren over at the Antitrust Division.

The other areas of potential legislation in which I would like to stimulate interest today are

1. Premerger notification and information gathering, and 2. Standards for enjoining mergers. The Commission has previously told the Senate Antitrust Committee that there is a need for a waiting period in regard to large mergers to permit the enforcement agencies to determine whether particular acquisition should be opposed in advance of its consummation. I would like to reiterate that view.

Such legislation would help cure two banes on the lives of antitrust enforcement officials. First, foot dragging and resistance to government information requests is, traditionally, the stock in trade of corporate attorneys. It has been my experience, Mr. Chairman, that these antitrust attorneys apparently give advice to corporations to merge, and they obviously get paid for it. Then, if we challenge them, they get paid for defending the merger. I want to tell you and this obviously is not a new thought—the first time I ran into the proposed legislation was in the late 1950's when Mr. Celler and Senator Kefauver took the lead in that respect in the Senate, and bills were put in, in both Houses, in the late 1950's. As counsel I participated in these hearings. Well, about as far as we got it was up to the point of reporting it to the Full Committee, and there it ended.

I have learned very much from prior experience, trying this type of case, and sitting over there, the important thing, as I see it in this premerger notification is that notice has to be given in advance, and there is some period of time during which a corporation must supply information on the merger; and if it doesn't, then the merger cannot occur. That's what's important in this premerger notification. If the enforcement agencies have to have information, and a merging company has to give them the notice of its intent, and there is some period, whether it's 30 plus 45, or 30 plus 25, whatever it is, so that time would not start running until the company delivered what the gov. ernment asked them for. And I mean not one letter a week, like we usually get; but instead, we should be able to say, “You can shorten the hold-up time on your merger as much as you want, Mr. Outside

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