The opinion of the court was delivered by: McGARR, District Judge.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This action was commenced by the Federal Trade Commission
("FTC") on June 3, 1981. The FTC's complaint seeks a
preliminary injunction barring Great Lakes Chemical
Corporation ("Great Lakes") from acquiring the bromine-related
assets of Velsicol Chemical Corporation ("Velsicol").
Defendant Great Lakes is a Delaware corporation transacting
business in this district. Great Lakes is an integrated
producer of elemental bromine and several bromine derivatives,
including fumigants, solvents, lubricants and flame
retardants. Its 1980 net sales exceeded $125 million.
Defendant Velsicol is a Delaware corporation transacting
business in this district. Velsicol is a wholly owned
subsidiary of defendant Northwest Industries, Inc., which is
also a Delaware corporation transacting business in this
district. Velsicol's principal business has been and is the
production of agricultural pesticides. In 1976, Velsicol
merged with Michigan Chemical Corporation, another Northwest
Industries subsidiary, and thereby became a producer of
elemental bromine and bromine derivatives. Of Velsicol's total
1980 net sales, less than 7.4% were of bromine and bromine
The transaction at issue involves Great Lakes' proposed
acquisition of Velsicol's bromine-related assets, which
consist of a research and development facility in Ann Arbor,
Michigan; a plant in El Dorado, Arkansas that produces bromine
and bromine derivatives; Velsicol's bromine fields; and
Velsicol's bromine-related receivables. Currently, Velsicol is
conducting minimal basic research and development at its Ann
Arbor facility, and its El Dorado plant is temporarily shut
down. In exchange for these assets, Great Lakes will pay
approximately $29.7 million.
A four-day evidentiary hearing was held from June 28, 1981
until July 2, 1981, on the FTC's request for a preliminary
injunction. In addition to testimony, the court also had
before it numerous affidavits, hundreds of documents, and many
The FTC's action is brought under Section 13(b) of the FTC
Act, 15 U.S.C. § 53(b), which provides that a district court
may enjoin an acquisition when, both "weighing the equities and
considering the Commission's likelihood of ultimate success,
such action would be in the public interest."
A preliminary injunction is an "extraordinary and drastic
remedy," particularly in the merger and acquisition context.
FTC v. Exxon Corp., 636 F.2d 1336, 1343 (D.C. Cir. 1980)
(Section 13(b) action). "Experience seems to demonstrate
that . . . the grant of a temporary injunction in a Government
antitrust suit is likely to spell the doom of an agreed
merger. . . ." Missouri Portland Cement Co. v. Cargill, Inc.,
498 F.2d 851, 870 (2d Cir.), cert. denied, 419 U.S. 883, 94
S.Ct. 3210, 41 L.Ed.2d 1161 (1974). These general observations
are particularly important here, for Mr. Kampen, Great Lakes'
Chief Executive Officer, testified that Great Lakes would
exercise its right to cancel the transaction if a preliminary
injunction were entered.
In light of the severe adverse consequences of a preliminary
injunction, the FTC has a substantial burden under Section
13(b). First, it must prove a "likelihood of ultimate success"
in an administrative hearing under Section 7 of the Clayton
Act, 15 U.S.C. § 18, which bars mergers whose effects "may be
substantially to lessen competition." As this court has
previously noted in an essentially similar context:
What degree of certainty I must reach as to the
likelihood of such success has been the subject
of much judicial discussion. It is clear that the
word "may" in Section 7 is not to be used in the
loose sense with which it is employed in ordinary
conversation. The Government must prove not that
the merger in question may possibly have an
anti-competitive effect, but rather that it will
probably have such an effect. And the Government
must have demonstrated at this stage in the case
a likelihood that it can meet this burden.
United States v. Amsted Industries, Inc., 1972 Trade Cas. ¶
73,902 at p. 91,743 (N.D.Ill. 1972).
In addition to proving likelihood of success, the FTC must
show that "the equities" favor enjoining the transaction. In
essence, this requires the FTC to prove that the harm to the
parties and to the public that would flow from a preliminary
injunction is outweighed by the harm to competition, if any,
that would occur in the period between denial of a preliminary
injunction and the final adjudication of the merits of the
Section 7 claim. Id. Courts have recognized that public
equities such as increased exports and benefits to local
communities are "important equities" that can lead to denial of
preliminary relief even where the FTC
shows the requisite likelihood of success. FTC v. Weyerhaeuser
Co., 1981-1 Trade Cas. ¶ 63,974 at pp. 76,047-48 (D.D.C.),
aff'd, ___ F.2d ___, 1981-2 Trade Cas. ¶ 64,263 (D.C. Cir.
1981). When weighing these equities, the court must consider
whether divestiture would be an adequate remedy if, in fact,
the FTC eventually prevails on the merits, since the purpose of
Section 13(b) is to preserve the ability to "order effective,
ultimate relief," not to bar all mergers that the FTC staff
preliminarily views as suspicious. FTC v. Exxon Corp., 1979-2
Trade Cas. ¶ 62,972 at p. 79,538 (D.D.C. 1979), aff'd,
636 F.2d 1336 (D.C. Cir. 1980).
The Section 7 analysis in this case is permeated by the
noncompetitive conditions of Velsicol's bromine-related
operations. As will be discussed in greater detail
subsequently, the weakened state of these operations is
significant in three respects.
First, when assessing the likely competitive effects of the
transaction, the declining condition and bleak prospects of
Velsicol's bromine-related operations are evidence of its
"weakness as a competitor." United States v. International
Harvester Co., 564 F.2d 769, 773 (7th Cir. 1977) (citation
omitted). The competitive weakness of one of the two merging
parties goes "to the heart of the Government's statistical
prima facie case," United States v. General Dynamics Corp.,
415 U.S. 486, 508, 94 S.Ct. 1186, 1199, 39 L.Ed.2d 530 (1974), and
warrants a finding that no substantial lessening of competition
is likely to occur in any market without reaching the issues of
geographic and product markets. Id. at 511, 94 S.Ct. at 1200.
As the Seventh Circuit held, such evidence "establishes that
the Government's past market statistics are really insufficient
to constitute a prima facie case" where the company's
weaknesses "would not allow it to be as strong a competitor as
the bald statistical projections indicate." United States v.
International Harvester Co., 564 F.2d 769, 773 (7th Cir. 1977)
Second, the evidence in this case has established a classic
"failing company" defense.
Third, even if the court were to conclude preliminarily that
the FTC had established a likelihood of success and that
Velsicol is not a failing company, the debilitated condition
of Velsicol's bromine operations is an important equity to be
considered because a preliminary injunction would exacerbate
Velsicol's problems even though the preliminary injunction
hearing involves only a tentative assessment and a final
adjudication of the above two defenses must await an
administrative hearing on the merits. See United States v. G.
Heileman Brewing Co., 345 F. Supp. 117, 122-24 (E.D.Mich. 1972).
The FTC focused on the definition of the relevant market,
which, as the FTC states, is typically where a Section 7
analysis begins. The purpose of defining the relevant market
is to provide a commercially meaningful context within which
to address the "crucial question" of the merger's competitive
effects. United States v. Pabst Brewing Co., 384 U.S. 546,
549-50, 86 S.Ct. 1665, 1667-68, 16 L.Ed.2d 765 (1966).
The court finds that the relevant market in this case
encompasses all flame retardants, however derived, rather than
brominated flame retardants only. This market definition gives
recognition to the substantial evidence of intense competitive
pressures flame retardants derived from bromine face from
flame retardants derived from other elemental chemicals such
as phosphorus, sulfur and chlorine.
Brominated and non-brominated flame retardants must be
included in a single market so as "to recognize competition
where, in fact, competition exists." Brown Shoe Co. v. United
States, 370 U.S. 294, 326, 82 S.Ct. 1502, 1524, 8 L.Ed.2d 510
(1962). Several "practical indicia" point to a single flame
retardant market: (1) a single end use; (2) industry
recognition; (3) the existence of producers who make both
brominated and non-brominated flame retardants; (4) similarity
in production processes; (5) common customers; and (6)
cross-elasticity of demand.
A variety of chemicals are used to make flame retardants,
including aluminum, chlorine, phosphorus, sulfur, antimony,
boron, and bromine. Regardless of the chemical from which it
is derived, a flame retardant has but one purpose. All flame
retardants perform the same function of increasing the
ignition temperatures of the product to which they have been
added and slowing down the flame spread across the face of the
There is widespread industry recognition of a single,
overall flame retardant market. As summarized by Barry Saxe of
Stauffer Chemical Company, a manufacturer of phosphorus flame
In my judgment, there is a flame retardants
market, which consists of all flame retardants,
including those containing phosphorus as well as
those containing bromine. A consumer of flame
retardants is interested only in obtaining the
best flame retardant on a cost-performance basis
for a specific end use, such as urethane foams.
It generally does not matter to a consumer
whether the flame retardant it purchases for a
specific end use contains phosphorus or bromine
or some other chemical, so long as the flame
retardant purchased is the most cost-effective
one available for the specific end use.
Another practical indicia of a single flame retardants
market is that at least some producers make both brominated
and non-brominated flame retardants. For example, Ferro
Chemical Corporation makes brominated and chlorinated flame
retardants. Indeed, Velsicol, in addition to making PHT4 and
FireMaster 680, both brominated flame retardants, makes
chlorindic anhydride, a chlorinated flame retardant which
competes with Ethyl's brominated flame retardant for
application in polyesters. After the consummation of the
challenged transaction, Velsicol will continue to sell its
chlorinated flame retardant.
As one FTC affiant testified on deposition, the
manufacturing processes of brominated and chlorinated flame
retardants are essentially the same in that both require a
reaction process, a receiver tank process, separation,
grinding, and packaging.
Brominated and non-brominated flame retardants compete for
sales to the same customers on two distinct but equally
significant levels. On the level of direct sales, customers
who produce flame retarded materials (such as plastics and
polyesters) can select from among various brominated and
non-brominated flame retardants. Examples include:
(a) Olin's RF-230, which contains phosphorus and
chlorine, competes with brominated flame
retardants for application in polyurethane.
(b) Chlorindic anhydride, derived from chlorine,
competes with tetrabromophthalic anhydride for
application in polyunsaturates.
(c) Dechlorane Plus, derived from chlorine,
competes with brominated flame retardants for
application in polyolefin wire and cable.
(d) General Electric has replaced
tetrabromobisphenol-A, derived from bromine, with
a sulfur-based sulphonic acid salt for
application in its polycarbonate plastic.
(e) BASF replaced PHT-4, derived from bromine,
with a chlorinated flame retardant for
application in rigid urethane systems.
(f) Ethyl's brominated BT-93 competes with
Hooker's chlorinated Dechlorane Plus for
application in cross link polyethylene.
(g) Ethyl's brominated RB 49 competes with
Velsicol's chlorindic anhydride for application
(h) DBP, derived from bromine, competes with a
large number of chlorinated phosphorus compounds
for application in urethane foams.
Brominated and non-brominated flame retardants also compete
as components of materials, such as plastics, which, in turn,
compete with one another for end uses. Competition among flame
retardants at the end use level is substantial, since the cost
of the flame retardant may approach 25% to 30% of the raw
material costs of a plastic.
For example, three flame retarded plastics are used in the
manufacture of television cabinets, which today must meet
certain flame retardant standards. These three plastics are
HIPS, ABS, and Noryl. HIPS currently uses a bromine-based
flame retardant; Noryl uses a phosphorus-based flame
retardant; and ABS uses either a bromine-based or
chlorine-based flame retardant. The bromine-based flame
retardants presently used in HIPS are completely different
than the bromine-based compounds used as flame retardants in
ABS and are not interchangeable. In choosing among these three
plastics for use in the television cabinet, the cabinet
manufacturer looks at the cost of the three plastics in terms
of a cost-per-cubic-inch of plastic.
A second example of competition at the end use level
involves the competition between expandable polystyrene
insulation board and rigid urethane insulation board. Rigid
urethane board is more expensive than expandable polystyrene
insulation board and the extent to which customers trade off
between the two products is determined by the relative selling
prices. Any changes in those selling prices would change ...