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UNITED STATES v. NORTHWEST INDUSTRIES

July 11, 1969

UNITED STATES OF AMERICA, PLAINTIFF,
v.
NORTHWEST INDUSTRIES, INC. AND THE B.F. GOODRICH COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Will, District Judge.

OPINION

On May 21, 1969, the United States Government (hereinafter "the Government") filed the complaint in this cause alleging that the consummation of an exchange offer*fn1 made by Northwest Industries, Inc. (hereinafter "Northwest") to the stockholders of The B.F. Goodrich Company (hereinafter "Goodrich") on or about April 18, 1969, would violate Section 7 of the Clayton Act, as amended (15 U.S.C. § 18). The Government is seeking injunctive relief to prevent consummation of the exchange offer. On the same day that the complaint was filed, the Government moved for a temporary restraining order and a preliminary injunction. On May 22, 1969, this court entered an order temporarily restraining defendants from making the exchange offer effective pending determination of the Government's motion for a preliminary injunction.

The hearing on the Government's motion began on May 22, 1969, and continued for eighteen court days and two days of depositions through June 14, 1969. Determination of the questions presented by the Government's motion has consequently required extensions of the temporary restraining order to July 11, 1969.

The evidence before the Court, as required by the terms of the Clayton Act, has been directed to the nature, magnitude and ultimately the probable effect on competition of the proposed combination. Our findings with respect to this evidence may be stated initially as follows.

Defendant, Northwest, is a corporation organized and existing under the laws of the State of Delaware and maintains its principal office in Chicago, Illinois.*fn2 Northwest, chartered in August 1967, became a holding company in April 1968 and now owns a controlling interest directly or indirectly in the following operating corporations: Chicago & Northwestern Railway ("North Western"), Velsicol Chemical Corporation ("Velsicol"), and Michigan Chemical Corporation ("Michigan"). Through its acquisition in 1968 of a controlling interest in the Philadelphia and Reading Corporation, a holding company, Northwest also owns a controlling interest in the following operating corporations: Union Underwear Company, Inc. ("Union"), Imperial Reading Corporation ("Imperial"), Fruit of the Loom, Inc. ("FOL"), Acme Boot Company, Inc. ("Acme"), Universal Manufacturing Corporation ("Universal"), and the Lone Star Steel Company ("Lone Star").

Northwest is one of this nation's 130 largest industrial corporations in sales and among the 55 largest in assets. In 1968, Northwest had revenues of about $701 million, net income of about $52.5 million, and total assets of about $1.3 billion. As related to its diverse operating subsidiaries, Northwest's 1968 revenues were about 39 per cent from its railroad operations, 26 per cent from its industrial products group, 25 per cent from its consumer products group and 10 per cent from its chemical products group.

Northwest's railroad operations are conducted by its wholly owned subsidiary, the Chicago and North Western Railway Company ("North Western"). The railroad operations of Northwest are the fourth largest in the nation in trackage and thirteenth largest in gross operating revenues as measured by 1968 North Western revenues of about $276 million. The North Western operates approximately 11,600 miles of track in the eleven states of Illinois, Wisconsin, Michigan, Iowa, Minnesota, Nebraska, Missouri, Kansas, South Dakota, North Dakota and Wyoming. In extending its railroad operations, it has made the following acquisitions: 1. Litchfield & Madison Railway Co. (1958), 2. Minneapolis & St. Louis Railway Co. (1960), 3. Des Moines & Central Iowa Railway Co. (1968), 4. Chicago Great Western Railway Co. (1968). Also in 1968, the North Western and the Missouri Pacific Railroad each acquired 50 per cent of the stock of the Alton & Southern Railroad, a switching line in the St. Louis Gateway formerly controlled by the Aluminum Company of America.

Significant prospective increase in the magnitude of Northwest's railroad operations has also been presented by the evidence. In January, 1969, North Western completed an exchange offer for the stock of the Chicago, Milwaukee, St. Paul and Pacific Railroad Company ("Milwaukee Road"). An interstate Commerce Commission examiner recently gave conditional approval to the merger, which is now pending before the full commission. The Milwaukee Road operates about 10,500 miles of railroad in all of the States served by the North Western except Wyoming, and operates additionally in Montana, Washington, Idaho and Indiana. In 1968, the Milwaukee Road's railroad operations generated about $274 million in revenues. The merger of the North Western and the Milwaukee Road would have the sixth highest gross operating revenue of railroads in the United States and the combination would be the first in miles of track operated of railroads in this country.

The prospective extension of Northwest's railroad operations also involves an exchange offer North Western made in 1968 to stockholders of the Rock Island Railroad ("Rock Island") and the acceptance of the offer by the holders of 54.3 per cent of Rock Island's common stock as of September 30, 1968. North Western is presently a party to a consolidated ICC proceeding in which other railroads are also seeking control of the Rock Island. Rock Island operates over 7,000 miles of track in the States of Illinois, Iowa, Missouri, Kansas, Oklahoma, Texas, Arkansas, Louisiana, Minnesota, Nebraska, Colorado, New Mexico, South Dakota and Tennessee. In 1968, the Rock Island Railroad had a total operating revenue of about $239 million.

Northwest's consumer products group accounted for sales of approximately $174.9 million in 1968. These operations are conducted by the following subsidiaries of Philadelphia & Reading: Union Underwear Company, Inc., Imperial Reading Corporation, Fruit of the Loom, Inc., and the Acme Boot Company, Inc. Union, which operates plants in four states, manufactures and sells men's and boys' underwear, and dress and sport shirts, primarily under the "Fruit of the Loom" label. Imperial, operating eight plants in four states, manufactures and sells men's dress and sport shirts, men's and boys' dungarees and leisure-type jeans, ladies' and girls' shirts, blouses, and sportswear, and children's play clothes. Fruit of the Loom, Inc. does no manufacturing but owns the "Fruit of the Loom" trademark which it licenses primarily to manufacturers of apparel and home furnishings. Acme and its subsidiary, Joseph F. Corcoran Shoe Co., Inc. ("Corcoran") operate six plants in Tennessee and Massachusetts. Acme is the country's largest producer of leather boots and also manufactures boots having poromeric uppers. Its subsidiary, Corcoran, produces men's dress shoes, golf shoes and paratroop boots, utilizing both leather and poromeric materials.

Northwest's chemical products group accounted for sales of approximately $71.8 million in 1968. These operations are conducted by the Velsicol Chemical Corporation and Michigan Chemical Corporation. Velsicol, headquartered in Chicago, operates four plants in Tennessee, Illinois and Texas, and produces and sells pesticides, benzoic acid and its derivatives, and petrochemical resins. Michigan, headquartered in Chicago, operates four plants in Michigan, Ohio, and Arkansas, and produces and sells chemicals derived from brine, such as magnesia, bromine, and brominated compounds, including flame-proofing and flame retardant chemicals used primarily in the manufacture of plastics and textiles, and miscellaneous chemical products.

Goodrich is a corporation organized and existing under the laws of the State of New York and maintains its principal office in Akron, Ohio. In 1967, Goodrich was the nation's 83rd largest industrial corporation in sales and the 86th largest in assets. In 1968, Goodrich had net revenues of about $1.1 billion, net income of about $44.8 million, and assets of about $1 billion.

Goodrich is highly diversified and is composed of the following domestic divisions and subsidiaries: B.F. Goodrich Aerospace & Defense Products; B.F. Goodrich Chemical Company; B.F. Goodrich Footwear Company; B.F. Goodrich Industrial Products Company; B. F. Goodrich Textile Products; B.F. Goodrich Tire Company, and Ameripol, Inc. (formerly Goodrich-Gulf Chemicals, Inc.). In 1968, Goodrich derived about 40 per cent of its operating revenues from its tire division, 20 per cent from its chemical division, 15 per cent from its industrial products division, 5 per cent from its footwear division, 5 per cent from its aerospace division, and 2 per cent from its textile division. The remainder of Goodrich's operating revenues were derived from foreign sales.

The present Goodrich business organization has also developed to some extent through acquisitions. In 1961, Goodrich acquired the Rayco Manufacturing Company, a Pawtucket, Rhode Island manufacturer of automobile seat covers and convertible tops which are sold through Rayco's own national chain of approximately 140 stores and franchised dealers. In 1969, Goodrich purchased Gulf Oil Corporation's one-half interest in Goodrich-Gulf Chemicals, Inc. ("Goodrich-Gulf"), to become the sole owner of a major producer of synthetic rubber with annual sales of approximately $90 million. Goodrich-Gulf has since been renamed Ameripol, Inc. In 1969, Goodrich also acquired a Terre Haute, Indiana, trucker, Motor Freight Corp., which operates 19 terminals and about 1,000 pieces of equipment in the States of Illinois, Indiana, Ohio, Kentucky, Tennessee, Iowa, Nebraska and Missouri.

Goodrich's tire division is headquartered in Akron and operates six plants in Ohio, Pennsylvania, California, Alabama, Oklahoma and Indiana. This division manufactures and sells vehicular tires and tubes and also manufactures automotive accessories and supplies.

Goodrich's chemical division is headquartered in Cleveland and operates plants in Ohio, Kentucky, Illinois, California and New York. This division produces and sells vinyl monomers and polymers, including polyvinyl chloride ("PVC") and other plastics, synthetic rubber, petrochemicals, and other basic chemicals.

Goodrich's industrical division is headquartered in Akron and operates plants in Ohio, New Jersey, Pennsylvania, Alabama, Massachusetts, California, Minnesota, Illinois, Indiana, Tennessee and Connecticut. Its industrial products line includes flat belts, V-belts, hose, sheet rubber, special industrial products, adhesive products, building products, golf ball centers, molded and coated products, footwear, plastic products, poromeric materials, shoe products, and sponge products. Its consumer products are rubber bands and household products, vinyl upholstery and wall covering, rubber latex hospital-surgical items, rubber latex surgeon's gloves, rubber sponge carpet cushion, rubber latex foam furniture cushioning, mattresses and pillows.

Goodrich's footwear division is headquartered in Watertown, Massachusetts, and operates plants in Massachusetts, North Carolina and Puerto Rico. This division manufactures and sells canvas, casual and golf shoes; and men's, women's and children's rubber, fabric and plastic boots.

Goodrich's aerospace division is headquartered in Akron and operates two plants in Ohio. This division manufactures and sells tires and tubes, wheels and brakes for aircraft, and other rubber and plastic aircraft components and products.

Goodrich's textile division is headquartered in Thomastown, Georgia, and operates plants in Georgia and Pennsylvania. It produces tire cord, industrial fabrics, and single and plied carded and combed yarns.

The evidence and testimony presented during the hearing on the Government's motion reflects the complex and comprehensive nature of the business activities of both Northwest and Goodrich that has been described above. As a result, the Government's allegations and its attempts to demonstrate the anti-competitive nature of the proposed combination include an extraordinarily wide variety of allegedly anti-competitive relationships, including traditional horizontal, vertical and potential competition, as well as some unique to the conglomerate phenomenon. Consequently, the evaluation of probabilities which determination of the Government's motion requires necessitates a similar variety in analysis.

CAUSTIC SODA

Both Goodrich and Northwest (through Velsicol) are present producers of caustic soda, a corrosive chemical which is used throughout the chemical industry as an alkalizer to neutralize acid waste and to make neutral salts of various types of acids. It is also used in large volume by the petroleum, paper, rayon, cellophane and aluminum industries, and is beginning to be used by the glass industry as a replacement for soda ash. As the market or "universe" in which Goodrich and Northwest compete in the sale of caustic soda, the Government has described what it calls the "inland waterway area," an area consisting of portions of twelve states adjoining the Mississippi and Ohio Rivers and their tributaries, going as far north as Chicago and almost as far south as Baton Rouge, Louisiana. In describing this market the Government fundamentally relies on the fact that Goodrich sold over 95% of its 1968 production in this area and also relies on the fact that Northwest sold 85% of its 1968 production in this same area.*fn3

Caustic soda is a by-product chemical which is generally sold in a solution which is 50% water to simplify handling. Because of its considerable weight, bulk and the special handling required, freight costs are considerable and, unless cheap water transportation is employed, the product is generally sold fairly close to the plant. Larger producers employ special barges and have terminal points along water routes from which they transport the product short distances over land. Both Goodrich and Northwest produce caustic soda which they sell in a 50% water solution. The Goodrich plant at Calvert City, Kentucky, and the Velsicol plant at Memphis, Tennessee, are located within 200 miles of each other and compete, particularly in Northern Alabama, Georgia, Tennessee and Arkansas. Moreover, this competition is expected to be increased when Goodrich constructs a caustic soda terminal it is planning to locate in the Kentucky lakes area.

In 1968, twenty different companies sold caustic soda in the inland waterway area, eight of which had production facilities in the area. The eight are: Pennsalt and Goodrich at Calvert City; Monsanto at East St. Louis, Illinois; Arkla at Pine Bluff, Arkansas; Velsicol at Memphis, and Stauffer, Olin, and Diamond Shamrock in the Northern Alabama, Mississippi, and Southern Tennessee area.

Caustic soda producers located in the so-called inland waterway area do not normally compete in the Gulf Coast area, where there is excess production. Indeed, between 40% and 52% of the total United States caustic soda production (over 8,000,000 tons in 1968) is concentrated in the Mississippi Delta-Gulf Coast area which includes Mississippi, Louisiana, Alabama and Texas. Gulf Coast producers, on the other hand, do ship up the inland waterway and beyond by barge and sell caustic soda in the inland waterway area competing with producers located in the area. Major caustic soda production facilities are located near Baton Rouge, Louisiana about 72 miles to the south of the southern boundary of the inland waterway area as described by the Government.

Of the total 1968 sales in the Government's inland waterway area of 908,607 short tons of dry weight caustic soda, Goodrich had sales of 98,000 short tons or 10.79%,*fn4 and Velsicol had sales of 24,067 short tons amounting to 2.65%. Evidence as to concentration shows the top five sellers in the inland waterway had a combined share of 48.98% of total sales, with the first four firms having about 43-45% of total sales. In 1968, Goodrich was apparently the third largest seller in the area and Velsicol was the eleventh.

On the basis of the 1968 figures, the proposed combination of Goodrich and Northwest would be the second largest producer in the area, with 13.4% of sales. Of significance also is Goodrich's plan to construct a new terminal in northern Alabama, and the fact that Velsicol announced an increase in its caustic soda capacity in late 1968 and expects to produce about 48,000 short tons of 50% water solution caustic soda in 1969, almost a 100% increase over its 1968 production of 24,067 short tons. Moreover, while the rated capacity for caustic soda of the Goodrich plant at Calvert City is 120,000 short tons per year, equipment delivery and technical operating problems prevented the Calvert City plant from operating at full capacity in 1968. Goodrich expects to operate the plant at its full rated capacity in 1969, and has indicated that it will attempt to sell all of this production in the inland waterway area.

MURIATIC ACID

With respect to muriatic acid, the Government alleges that the proposed combination of Northwest and Goodrich presents a potential impact on competition. Goodrich makes but does not presently sell by-product muriatic acid. Goodrich has, however, constructed a new plant to dispose of accumulated and accumulating chemical by-products from its Calvert City operation and expects to have this plant in operation by mid-1969. This plant is expected to produce annually approximately 50,000 tons of by-product muriatic acid, which Goodrich may either use in its Calvert City plant or market. Goodrich's studies to date have not demonstrated whether marketing of the muriatic acid production can be done profitably or in what geographic area. Northwest, through Velsicol, presently makes and sells byproduct muriatic acid at its Memphis, Tennessee and Chattanooga, Tennessee plants though the record is not clear as to the area in which it sells.

On the basis of the area where Goodrich believes it may be able to sell its production, the Government suggests another "inland waterway" market area. In the area described, demand is presently about 600,000 tons per year. Northwest, however, insists to the contrary that the area in which Goodrich may reasonably be expected to sell its muriatic acid offers a market for at least 1,200,000 tons. Northwest arrives at this figure by adding to the "lower inland waterway area" which the government suggests, a "northern inland waterway area" where the Director of Planning for B.F. Goodrich Chemical testified that another 600,000 are sold and Goodrich is studying the feasibility of selling therein.

Muriatic acid is shipped in a solution which is two-thirds water. Because it is even heavier than caustic soda and more dangerous to handle, the freight penalty is severe and shipment is more restricted. Since the plants of Goodrich and Velsicol are within 200 miles of each other in the lower portion of the inland waterway, they could be expected to compete.

It is estimated that Velsicol will produce 62,663 short tons of muriatic acid in 1969. There is, however, no evidence as to its sales nor the areas in which such sales may be made.

Whether Goodrich enters the muriatic acid market will depend upon the results of a market survey which Goodrich expects to complete later this year. But in 1966, Goodrich's study of the muriatic acid market led the company to the conclusion that oversupply and other factors made entry undesirable. The Director of Planning for B.F. Goodrich Chemical also testified that the muriatic acid market was one of oversupply in 1967. There is, in addition, some question whether the by-product muriatic acid from Goodrich's new plant will be of saleable quality. Goodrich's sale of muriatic acid will thus depend on its market survey, the economies of the operation of its plant, and the quality of the by-product muriatic acid it produces in its new plant. It nevertheless remains the case that there is incentive for Goodrich to market its muriatic acid, if economically feasible, since Goodrich recognizes as its alternatives either the sale of the muriatic acid or recycling it into its production process, and this recycling into Goodrich's vinyl chloride monomer process as hydrochloric acid would create a production imbalance which would require further adjustment.

Recognizing that the muriatic acid market described has in the past been characterized by conditions of oversupply, that there is no assurance Goodrich's by-product muriatic acid will be of saleable quality, etc., if we assume that Goodrich could sell all the muriatic acid produced at its Calvert City plant and that Northwest could sell all the muriatic acid it produces, the two companies could account for 110,000 tons sold, or about 18% of the Government's suggested universe of 600,000 tons.

OTHER CHEMICALS

Besides muriatic acid, the Government contends that common control of Northwest and Goodrich would eliminate Goodrich as a likely independent entrant into the production and sale of various other chemicals which Northwest now produces or might subsequently produce. These are asserted to include benzoflex varieties of plasticizers and petroleum resins. Velsicol presently produces products of both these types. As to this alleged potential competition, evidence is presently particularly deficient in the critical areas of both production capability and market structure.

HCPD

The Government also maintains that there is potential horizontal competition between Goodrich and Northwest in the sale of Hexachlorocyclopentadiene ("HCPD"). HCPD is produced by chlorinating cyclopentadiene, and it is used in the manufacture of pesticides as well as various polyesters to which latter it imparts the quality of flame resistance.

At the present time, Velsicol is one of the two major producers of HCPD in the United States (the other being Hooker Chemical). Velsicol produced 26,686,000 pounds of HCPD in 1968; 17,365,000 pounds of this production were consumed internally by Velsicol; and 8,640,730 pounds were sold to outside concerns for $1,589,548.

Goodrich has cyclopentadiene available at Calvert City from its dripolene production, and Goodrich expects to have excess chlorine available at Calvert City very soon. Goodrich has indicated that it is in a position to produce HCPD economically since it has facilities to utilize the hydrochloric acid which is now produced as a by-product of the HCPD manufacturing process. Goodrich is now in the process of conducting market research and economic evaluation of the feasibility of making and selling HCPD. The Director of Planning for B.F. Goodrich Chemical Company has testified that the production and sale of HCPD is an attractive field for possible entry since there are only two major producers in the United States and demand for this product is growing. Also, he has testified that Goodrich has in storage about six million pounds of cyclopentadiene, the hydrocarbon starting material for the manufacture through a chlorination process of HCPD. It is not clear from the record thus far, however, whether Goodrich has the technical know-how and, perhaps more importantly, access to patents necessary to develop an HCPD process. Nor is there any evidence as to the market potential both as to quantity and area of distribution, profit potential, etc.

PVC

Another contention of the Government is that the acquisition of Goodrich by Northwest would harm competition in the sale of polyvinyl chloride (PVC). The contention here is that competition would be harmed horizontally with respect to future competition between Goodrich and Northwest (through Lone Star) in the manufacture and sale of plastic pipe, and vertically in that Northwest (through Universal, Acme and Lone Star) is a substantial user of and, therefore, customer for PVC.

PVC is a resin manufactured from the polymerization of vinyl chloride monomers. There are over 100 varieties of PVC resins manufactured in the United States. PVC is weather resistant and flame, oil and chemical resistant. It can be compounded with plasticizers to make flexible products (such as shower curtains, plastic tape and film for packaging) — with fillers and plasticizers to make semi-rigid products (such as wire cable insulation and weather stripping) — and with certain additives to make rigid products (such as pipe, window paneling, and house siding). PVC also competes with steel in the sheeting area for nonload-bearing kinds of end uses.

Goodrich is one of two companies which pioneered in the development of PVC uses and markets in the United States and is presently the leading producer of PVC in the country. In 1968, it produced and marketed about 20% of the approximately 2.3 billion pounds produced and the 2.2 billion pounds sold in the United States.

In 1968, of the 2.2 billion pounds of PVC sold in the United States, about 340 million pounds or 15% were PVC for rigid end use applications. Goodrich pioneered the use of rigid PVC in the United States and is the leading producer of PVC for rigid end use applications with 40% of the total sales in 1968.

Rigid PVC is sold in a concentrated but expanding market in which the top four producers of PVC for rigid end use applications accounted for over two-thirds of the total sales in 1968. The Government focuses somewhat unclearly on this rigid PVC market and on the market for the most important rigid end use application, PVC pipe, in contending that the combination of Northwest and Goodrich will lessen horizontal competition in this area.

In 1968, about 65% of all rigid PVC applications were for pipe. B.F. Goodrich is the dominant producer of PVC for pipe applications, accounting for over 40% of the total United States sales in 1968. Goodrich's Industrial Products Division is engaged modestly in the manufacture and sale of plastic pipe from its plant in Marietta, Ohio. Its sales of plastic pipe in 1968 were about $500,000. Goodrich has indicated no present plans to expand its production and sale of plastic pipe.

Goodrich's activities, however, extend beyond that of an ordinary raw material supplier in that it has a program of showing potential customers how to make plastic pipe and fittings and providing customers with know-how. There has been evidence that Goodrich promotes the use of plastic pipe and assists customers in complying with production codes.

Northwest's Lone Star is a fully integrated steel producer located at Dallas, Texas. Lone Star produces cast iron and steel pipe which competes with PVC pipe for at least some end use applications and is potentially competitive as to a number of others. About 80-85% of Lone Star's sales are steel pipe, of which over one-half goes to the oil and gas industry. Lone Star markets its pipe in the southern and southwestern United States, principally in Texas, Louisiana, Oklahoma, Arkansas, Kansas, Colorado, New Mexico, Arizona and Wyoming. None of Goodrich's sales of its PVC pipe which is manufactured in Ohio were in this area.

Competition between plastic pipe and metal pipe, including cast iron and steel, is growing; and PVC is one of the most important plastics used to make pipe. Goodrich estimates that total annual sales of plastic pipe in the United States in 1968 were about $175,000,000 of which about $85,000,000 represented sales of PVC pipe. Plastic pipe, particularly PVC, is increasingly competitive for water supply, and drain, waste and vent end uses. PVC pipe is also competing with metal pipe for low pressure gas distribution and oil collection end uses, among others.

Steel pipe producers are generally potential entrants into the plastic pipe business which is, in many respects, complementary as well as competitive. There has been evidence that Lone Star in particular has been considering the possibility of either manufacturing or purchasing plastic pipe for sale and can be considered a likely entrant. Lone Star would use its existing metal pipe distribution system to market its plastic pipe.

Because of freight costs, plastic pipe apparently cannot be economically marketed more than approximately 400 miles from its production site. Northwest maintains that because the area in which Lone Star markets its pipe cannot be economically served from Goodrich's plant in Marietta, Ohio, the acquisition would not lessen the likelihood of Lone Star's entry into the plastic pipe business; and that if Lone Star entered the plastic pipe business, it would not be in competition with Goodrich in selling plastic pipe.

The total PVC market, like that for rigid end use applications alone, is highly concentrated. In the total PVC market the top four producers account for approximately 50% of the total sales. With respect to this total market for PVC and with respect to the manufacture of PVC pipe, the Government alleges that the combination of Northwest and Goodrich would result in vertical lessening of competition.

The vertical effects alleged relate to PVC as a raw material for a number of the products which Northwest manufactures through its various subsidiaries. The following divisions are actual or potential customers of Goodrich for PVC resins or compounds. In 1968, Universal Manufacturing purchased 2,250,000 pounds of PVC at a cost of $388,000 for use as wire insulation. In 1969 it expects to purchase 2,750,000 pounds of PVC at a cost of $480,000.00. In 1968, Acme Boot purchased 266,125 pounds of PVC at a cost of $53,718.00. PVC is used in Acme's new patented U-Nexus boot construction process. In 1969 Acme expects to purchase 418,435 pounds of PVC at a cost of $84,000.00.

Goodrich is a potential supplier of PVC resins and compounds to Northwest's Lone Star subsidiary if the latter does become a fabricator of plastic pipe. The principal interest of Goodrich in the pipe industry is as a supplier of compounds and resins to companies that fabricate plastic pipe. In 1968, the four largest producers of plastic pipe each consumed about 500,000 pounds of PVC per month, or 6 million pounds per year.

There have been discussions between officials of Lone Star and Goodrich with respect to Lone Star establishing a plastic pipe fabrication facility. These discussions occurred on January 21-22, 1969, and, at the conclusion of these discussions, an officer of Lone Star stated that the company was seriously interested in going into the plastic pipe business. It may also be noted that, as well as being a potential supplier of PVC to Lone Star, Goodrich would have considerable know-how to impart to Lone Star which it would presumably provide whether or not the companies were affiliated since Goodrich is aggressively seeking new PVC customers.

CO-PRODUCT RESIN STREAM

The Government has also alleged that Goodrich, through its subsidiary Ameripol, is a potential supplier of resin-forming components to defendant Northwest's Velsicol subsidiary. Beginning with conversations which occurred on July 17, 1968, representatives of Ameripol and Velsicol have discussed the sale of by-products from Ameripol's Port Neches, Texas plant containing such components. The discussions concerned the sale of 2.4 million gallons of this by-product at 35¢ per gallon, or $840,000 annually. These discussions continued intermittently after July 17, 1968 and a sample was provided to Velsicol in February, 1969 pursuant to its prior request. No further contact with Velsicol was made by the Ameripol representative after April 16, 1969 in light of the Northwest offer to purchase Goodrich stock.

FOOTWEAR

Northwest, through its subsidiary Acme Boot Company, Inc. (Acme) and its subsidiary, Joseph F. Corcoran Shoe Co., Inc. of Stoughton, Massachusetts, manufactures and sells approximately $40 million worth of footwear annually, the bulk of which consists of boot sales. Acme has been dominant in the cowboy boot market and has an overwhelming share among major United States manufacturers in certain boot submarkets. Acme apparently accounts for 85% of all major producer's national sales of cowboy boots, 90% to 95% of paratroop boots and 24% of Wellington boots.

The B.F. Goodrich Footwear Company markets a broad line of footwear throughout the United States. In 1968, the sales volume of Goodrich Footwear was $52 million. This consisted primarily of sales of boots (over-the-sock) in the amount of $6 million, canvas and casual footwear in the amount of $38 million (ranking number two in United States sales), and rubber rainwear (over-the-shoe) and industrial footwear in the amount of $8 million. In 1968, Acme's boot sales were $34,171,000 comprised of 4,334,378 pairs of boots of all the types it manufactures. The 1968 figure of $6 million in boot sales for Goodrich was comprised of 1 million pairs of all the types of boots that Goodrich manufactures. Further breaking down the Goodrich sales: $4.5 million, or 75% (850,000 pairs) were women's, misses' and children's vinyl fashion boots; approximately $600,000 (30,000 pairs) were miscellaneous apres-ski boots; and the remaining $900,000 consisted of $300,000 (65,000) pairs of men's waterproof molded vinyl Wellington boots and $600,000 (50,000) pairs of men's heavy duty rubber waterproof boots.

Some of Goodrich's boot products appear to be directly competitive with Acme's, such as synthetic versus leather Wellingtons and laced leather boots. Women's and children's high style synthetic boots are not competitive with Acme's present line, but Acme is a possible entrant therein, having already considered making such products.

Another area of potential competition involved is canvas and casual shoes. Goodrich is the country's second largest seller of canvas and casual shoes with 1968 sales of $38 million. The Government describes this as a highly concentrated field where the top three sellers account for 60% of total sales. Acme may be a potential entrant into this market, having already started producing synthetic casual footwear.

Northwest is the country's fifth largest maker of golf shoes, with 1968 sales of $1,800,000 (approximately 157,000 pairs) or about 6% of the national sales of all manufacturers. The Government describes a universe exclusive of imports, in excess of $29 million. The top five producers account for about 60% of this market. Goodrich, while not a manufacturer, sells golf shoes produced by others similar to Northwest's but of a synthetic material. Its 1968 sales were $155,000 which amounted to 10,000 pairs. It has recently undertaken a vigorous promotional campaign and anticipates a substantial increase in golf shoe sales in 1969 to 20,000 pairs, and its sales projection for three years hence is 100,000 pairs. Northwest contends that the golf shoes sold by Goodrich are not reasonably interchangeable or competitive with the leather golf shoes sold by Northwest as to quality and use, because Goodrich's golf shoes are made of a polymeric vinyl material which does not permit the foot to breathe, Goodrich's golf shoes being designed particularly for use under wet playing conditions.

The footwear products of Acme and Goodrich are distributed largely through similar channels and sales organizations. Acme products are found in many of the same 20 to 25 thousand retail stores selling Goodrich footwear and are advertised in the same publications. The combination of Northwest and Goodrich could distribute and advertise jointly a broad line of footwear, which would afford lower marketing and distribution costs than each now bears, and would tend to create a stronger relationship with the customers of each, to the disadvantage of their competitors unable to market a comparable broad line.

Canvas and casual footwear have also frequently been promoted in conjunction with wearing apparel. The Government contends that if Goodrich Footwear is acquired by Northwest, many items in the Goodrich line of canvas and casual footwear could be advertised, promoted and sold in combination with apparel products sold by Northwest (through Union and Imperial), affording the same sort of competitive advantages described above with respect to the combination of footwear alone.

SHOE COMPONENTS

Goodrich is the country's third largest producer and seller of shoe components (heels, soles, and sole sheets), with 1968 sales totalling $12 million or 13.8% of the total industry sales reported by the Rubber Manufacturers Association. The top four producers account for about 60% of the total sales of $88-89 million. Acme is one of the country's largest users of shoe components. Goodyear is the largest supplier of shoe components to Acme, and its Neolite brand name is featured in Acme's catalog; conversely, Acme is one of the ten largest customers of Goodyear for shoe components; in 1968 Goodyear sold Acme over $1 million of shoe components. In 1968, Acme purchased about $430,000 of shoe components from Goodrich. The Government contends that if Northwest gained control of Goodrich, the latter would not only retain the present business from Acme but could reasonably be expected to obtain up to an additional $1 million of Acme's requirements, now going to Goodyear and to smaller suppliers.

In addition, Acme buys $600,000 annually of a poromeric leather substitute made by duPont called "Corfam." Goodrich recently started making a similar product called "Aztran" which it now claims to be superior. The Government contends that if Northwest and Goodrich are combined, Goodrich could obtain all of Acme's requirement of artificial leather.

Finally, another vertical aspect of the combination of Goodrich's and Northwest's footwear activity arises from Goodrich's production of PVC. Acme is the owner of a patented process called "U-Nexus" by which PVC is injected between the footwear sole and the upper to form a waterproof bond between the two. The Government contends that if Goodrich were acquired by Northwest, Acme could be expected to purchase its PVC requirements solely from Goodrich.

PRODUCTS MADE BY GOODRICH AND USED BY THE RAILROAD INDUSTRY

YARN

Among the various fabrics manufactured by the Goodrich Textile Division of the B.F. Goodrich Company is "sales cotton yarn" (yarn sold on the market instead of being used for internal consumption) in the range of 20/1 to 30/1, combed and carded, warped and knit, and single or plied. Goodrich yarn is known in the trade as high quality yarn. In 1968, Goodrich produced approximately 26 million pounds of 20/1 to 30/1 count cotton yarn and its total dollar sales were $15 to $17 million.

Cotton knit underwear is made out of cotton knitting yarn in the range of counts from 20/1 to 30/1. In 1968, Northwest (through its subsidiary Union Underwear) manufactured 23,878,000 pounds of 20/1 to 32/1 count cotton knitting yarn. This yarn was used in Union's production of knit men's, boys' and infants' underwear. Union does not sell any "sales" yarn.

Goodrich Textile Division is the major supplier of "sales" yarn to Union. In 1968, Union purchased 1,360,000 pounds of 20/1 to 30/1 count cotton knitting yarn at a cost of $852,000, and of this total Goodrich supplied 1,251,000 pounds at a cost of $772,000. In 1968, Union was Goodrich Textile Division's fifth largest yarn customer and its fourth largest knitting yarn customer.

The General Manager of Goodrich's Textile Division testified that if Northwest obtains stock control of Goodrich, Union would have available to it approximately 10-15 million pounds of cotton yarn and would be able to obtain from Goodrich Textile Division its total "sales" yarn requirements. He testified that an underwear manufacturer can secure yarn for its own knitting and fabricating operations more economically from captive production than it can purchase that yarn on the market, and that the difference in cost between captive yarn and yarn produced on the open market can be as high as 5 to 10 cents a pound. He thus concluded that if Northwest had stock control of Goodrich, Union would have an advantage over other competitors who bought from Goodrich Textile Division inasmuch as Union would have available a cheaper captive source of supply.

Northwest urges that, rather than focus on 1/20 to 1/30 cotton yarn, the court consider cotton yarn generally as the relevant line of commerce. It relies on evidence showing that there are over 19,000,000 spindles in the United States devoted to the production of cotton yarns; that a spindle can, with relatively minor adjustments requiring a shutdown of about two hours, be converted to produce yarn of a different count; and that cotton knitting yarn producers make such changeovers frequently, usually within size ranges they are set up to run, such as 10's to 30's count yarn. The General Manager of Goodrich's Textile Division testified that he and his sales department estimated that about 100 million lbs. of 20's to 30's cotton knitting yarn was produced in the United States, and that Goodrich has 20% to 25% of that production, but that to his knowledge no published figures for United States production are available and that certain yarn mills producing and selling cotton knitting yarn in the 20's to 30's range were not considered. In view of this testimony and the lack of other evidence, not only is the Court unable to determine from the evidence before it whether the 20's to 30's count range of cotton knitting yarns constitutes a relevant line of commerce, but the Court ...


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