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Lawyer, by bringing that information in here quickly”; I think it would be a great advantage.
A law that specified that requested information must be supplied after notification and before a merger is consummated, would place the shoe on the other foot. The result should be an enormous drop in the time required to investigate and to determine whether to challenge a section 7 matter.
I heard the discussion that the committee had with Mr. Kauper about CID's. I remember when the CID bill was passed by Congress, and I think it was about the early sixties, when that happened. But, I have always accepted the fact that the chief antitrust enforcer in this country was the Attorney General and his deputies. And we, at the Federal Trade Commission have had, since the very creation of the Federal Trade Commission in 1914 and 1915, when it was organized, the right to use section 6 to get information, and also sections 9 and 10, to have investigations to get information. The Attorney General doesn't have this right, unless he goes criminal, unless he goes down and asks for the creation of a grand jury, then he can play it both ways. He can parade witnesses through the grand jury and find out where all this information is, and then promptly get it. I don't have any doubt that he needs this power, and it should be given. We cooperate with the Department of Justice, and today I want to remind this committee that with respect to the exchange of information, it's nearly a one-way street. We give them everything we've got, and they don't give us much of anything. They can't give us anything they get under a CID, or grand jury, and therefore it's still a one-way street. I think we should exchange information across the board because our joint effort, as well as I think we have done, can be improved.
I think Congress is on the right track because if we don't stop these mergers and this movement toward more concentration and monopoly, you are all going to have to address yourselves to it as a political question, that's all there is to it.
Second, the legal standards for enjoining mergers should be liberalized. While antitrust enforcers have an impressive record of winning cases, they have not been so successful at winning meaningful divestiture. According to a former FTC chief economist, “In very few of the cases where the Government ultimately prevailed has there been completely successful divestiture of the acquired unit."
A landmark study of 39 mergers by Prof. Kenneth Elzinga supports this view. Of the 39 cases which the Government “won,” in only 6 did he find the relief ordered to be successful. In 21, the Government was completely unsuccessful, resulting in either no divestiture or an unsatisfactory one, such as of nonviable or de minimis assets, or a divestiture to a significant competitor.
Typical of these 21 cases is the Commission's "victory” in the Farm Journal case. The leading agricultural magazine acquired its chief rival, Country Gentleman, closed it down, and successfully solicited most of the latter's subscribers for subscriptions to the Farm Journal. The hearing examiner ordered divestiture, but noted that:
As a practical matter divestiture of the subscribers' list now will accomplish nothing. Respondent has, by now, extracted all the juice from that fruit as well as from the list of current Country Gentleman advertisers.
Country Gentleman is dead and the "assets" which it turned over to respondent are now without value to any newcomer or, indeed to any farm publication now in the field. When his corn is taken from him and the horse dies, it is the height of vanity to strew the bare corncobs over his grave. All that can be accomplished then, is simple divestiture of the two trade names and the two lists, although this at most may only disturb, but will not diffuse the coalescence which has taken place.
Even where a divestiture is more successful than in the Farm Journal case, it still takes inordinately long-so long that it may pay a firm to make an illegal acquisition and profit from its fruits, knowing full well that disgorgement will not occur for many years. Elzinga found that the average time from an acquisition to a divestiture was 5142 years. I would point out, Mr. Chairman, that's still a pretty good record, compared to the new section 2 Sherman Act cases, because the unvarnished truth is, in my lifetime, I haven't seen any monopolies broken
up. Many cases drag on much longer, despite continued Commission efforts to streamline trial procedures.
I have noticed that contrary views on the need for premerger notification have recently been expressed by the editors of the Wall Street Journal. On January 30, 1976, the Journal warned that the result of premerger notification legislation would be that, “A handful of young Harvard grads and efficient secretarial pool could prevent them with ridiculous
ease." The Journal thinks this would be a bad thing because it likes mergers. The main reason the editors advance as to why mergers are desirable is that when a firm with tax liabilities merges with one with tax credits, there is a big tax saving. And for corporations to pay less taxes is good because otherwise the money would go to Uncle Sam who would waste it. Some might agree with that, but I don't fall in that classification. I would thank them for that remark, though, because I should think you would read it with interest.
Now, I'm not anxious to be known as a defender of young Harvard grads or Government waste, but this editorial strikes me as plain silly. If the best argument the Wall Street Journal can think up against a premerger notification bill is that such a bill prevents firms from avoiding taxes, I think such a bill should be passed today. This is particularly so, because there are many reasons why such a bill is needed, as I discussed above: (1) to enable antitrust enforcers to quickly gain information they can only obtain from the merging companies, (2) to stop the plague of interminable delay by corporate counsel in merger cases, and (3) to avoid the problem of obtaining meaningful divestiture which can result even when the Government ultimately wins its case.
Mr. Chairman, this is the end of my statement, and I will be glad to answer any questions.
Chairman Řodino. Thank you very much, Mr. Dixon. Let me ask you a few questions. First of all, I understand that the Federal Trade Commission currently has in effect a premerger notification program, is
Mr. Dixon. Under our broad section 6 powers we promulgated a notice to all industries in the late 1960's, requiring notification. I might say, sir, it has worked much better than I thought it would, then.
Chairman Robino. Well, let me ask you, if you say it's worked much better, do the firms provide you with the information concerning merger in a reasonable length of time before the consummation of the merger?
Mr. Dixon. No, sir.
Mr. Dixon. I think our general experience would be that we need that kind of an advance notice requirement in the law, so that we will be sure that we have all the information before we challenge. And, as I tried to highlight, I think it is most important that, whatever time is in the bill-if you pass such a bill—that that time doesn't start running until we get the information requested because today the lawyers that have advised the companies to merge are going to be the lawyers defending them; and, in my experience, they'll "spoon-feed" you one letter, or one piece of information a week.
Chairman RODINÓ. I have heard of so-called "midnight mergers. What is a so-called "midnight merger"?
Mr. Dixon. I don't know what a “midnight merger” is, other than that somebody sits down 1 minute before 12 o'clock and signs a contract to merge.
Chairman Rodino. Have there been such things!
Mr. Dixon. We have a lot of mergers that are obviously consummated in the highest degree of secrecy, and then announced with no prior notice-boom. Anyone who advises a large corporation, in a horizontal context, to do that is just asking for a challenge under section 7, is what he's asking for. We have had some beauties in our day.
Mr. SEIBERLING. Would the chairman yield?
Mr. SEIBERLING. Do you recall, in 1965, the merger, or the acquisition by Firestone of Seiberling Rubber Co.? [Laughter.]
Mr. Dixon. Yes; I do.
Mr. Dixon. I don't think I would, we knew all about that-both agencies. We wrestled around with it, and wrestled around with it, and we both waived on it.
Mr. SEIBERLING. But, while you were wrestling with it, they all of a sudden announced they had done it. Mr. Dixon. Yes.
Chairman RODINO. I think the gentleman from Ohio speaks with some authority about that. [Laughter.]
Mr. SEIBERLING. They got memorandums from me on both sides of the issue.
Mr. Dixon. I have some direct recollection of that problem.
Chairman Rodino. Mr. Dixon, in your opinion, which is a better remedy for a section 7 violation, divestiture after consummation of a merger, or a preliminary injunction before the merger is consummated ?
Mr. Dixon. A preliminary injunction, whether it is the type of injunction that would occur that is in this bill before the Senate, 1284; or whether it is an injunction that would have to be sought before a judge; or whether it is an involuntary agreement to hold as is, pending litigation.
The point is, when you get through, after an injunction ruling has been made, and it has been reviewed, even by the Supreme Court, you're not faced with a jumble of assets to unscramble.
Chairman Rodino. In other words, if it's a divestiture afterward, you've got a lot of difficulty unscrambling it.
Mr. Dixon. One of our very important cases was the challenge of Proctor and Gamble's acquisition of Clorox. I remember some of the numbers involved in that, that would illustrate it. I think they paid about $20 million for the assets. We challenged the merger, but before it was finally resolved, during that period of time, I think, profits had amounted to about $60 million on the operation of Clorox, by the acquiring company. And then, I recall, Procter & Gamble sold it, they spun it off, so to speak, and created a new company. I think they got something like $300 or $400 million.
I remember telling the principal officer of that company that I have a great deal of respect for, he must have been laughing all the way to the bank. But nevertheless, they very much desired not to have to divest themselves of that acquisition—but it was a long, hard fight.
Chairman RODINO. Mr. Dixon, in the Dean's Food case and the Alaska pipeline statute, both those instances gave the FTC power to obtain preliminary relief in that merger case. Now, how many times since the Dean's Food case has the FTC exercised preliminary injunction powers?
Mr. Dixon. Only one time, sir. That was after Dean, but not after the Pipeline case.
Chairman RODINO. Sir?
Mr. Dixon. I speak for myself now, my experience teaches me, principally from observing the efforts of the Department of Justice. The Department of Justice has had that right under their empowering section that whenever they had reason to believe the law was about to be violated, they would go into court. We couldn't do that, but we took the “All Writs” approach and went into court, and we won. Since the Alaskan pipeline bill, we were put on the same legal footing as Justice, with authority to seek the aid of the court on a TRO.
But here is what's wrong with that. You go down and file such a petition with the district judge, and you put yourself in his little tender hands. I think the Federal Trade Commission is as much an expert, or a better expert than any district judge in the United States, but I have never been able to sell that to the Congress, even though that's how it was meant in the beginning. Do you realize that in 1950 and I don't know what measures Congress used when they delineated it, but they paid district, judges $5,000, I guess Congressmen got $7,500; and you paid the Trade Commissioners $10,000. Well, that was overcome pretty quickly. But nevertheless, I think that's the kind of expertise that's supposed to be on the Commission.
Now, if we have to send our staff off, under legal authority, into a given district court, different judges impose different burdens upon you. I believe that a district judge is about as near to the “Almighty” himself as anybody in this country can be. He imposes certainly a heavy burden of showing him that there is a probability of illegality.
He can make you prove your case right in front of him by affidavits and/or hearings, if he wishes to do it.
Now, if he disagrees with you, what are you going to do? Now, the Department of Justice had no other choice, if they use the section that they've got, but to come right back to that same judge and file a complaint, and try a case on the record in front of that same judge that may very well have already gone through the evidence to his satisfaction, and then he says, “You didn't carry your case again,” and then they have to pick it up. So, they go back to the district court just building a record for review. They used to use the expediting statute and went to the Supreme Court and now they do just like we do, they come up through the appellate courts.
Chairman RODINO. Well, let me ask you this, Mr. Dixon--and this is my last question—I value your opinion. I believe that Mr. Engman, the previous chairman of the Federal Trade Commission, testified that he felt that the Government should be required to show some minimal standard for premerger relief. And under S. 1284 the filing of a complaint is in effect an automatic stay.
Mr. Dixon. I prefer your proposal, I prefer it; because, wrong or right, there is no standard that holds those judges in line, they can impose whatever standard they wish. Under your proposal, the only way that the defendant could overcome the injunction would be by showing what we have done was frivolous.
Chairman RODINO. Thank you, Mr. Dixon. Mr. Hutchinson?
Mr. HUTCHINSON. Mr. Dixon, the Justice Department and the Trade Commission seem to be doing the same thing in regard to merger cases and everything else. Why should we have two agencies? Why shouldn't we just have one or the other?
Mr. Dixon. Well, I spent the early part of my life, in competition, physical competition. I think competition is even good in Government; there is a kind of low-level competition between us. But we follow the administrative way, and they are truly an executive branch of the Government.
Now, we are not wasting any of the money you give us, we are working hand in hand daily in liaison; and, for God's sake, we've got more targets than both of us can take care of now. You could say, well, let's just take all the moneys and give them to one agency, or the other. If you did that and asked me which one to give it to, I would suggest you give it to the Federal Trade Commission.
Mr. HUTCHINSON. I can understand that, yes, sir. Mr. Dixon. I could make a pretty good case for it. Mr. HUTCHINSON. Well, I'm not asking you to make that kind of case right here. I know it's awfully easy to say, now, look, here is unnecessary duplication because you've got both these agencies; and you say they have a low-key competition with each other, and that's good. But, on the other hand, I don't think the public generally thinks the Government should be competing with itself.
Mr. Dixon. Well, I think you could make a good strong argument that if you've got people doing the same thing, that's wrong. But, let's take the Clayton Act. The Clayton Act has four basic sections in it that have to be enforced : Section 2 deals with discrimination, both in price and services; section 3 deals with exclusive dealing and time contracts; section 7 with mergers; and section 8 with interlocking directors.