The opinion of the court was delivered by: DAWSON
This case presents an issue as to whether the acquisition by a large cooper producer of the assets of a substantial independent copper fabricator is a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, reading as follows:
'No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.'
Pretrial proceedings resulted in the entry on September 11, 1963 of Pretrial Order No. 1. This order established that on November 24, 1958, and at all times thereafter, defendant Kennecott Copper Corporation had been a corporation engaged in commerce and subject to the jurisdiction of the Federal Trade Commission; that prior to November 24, 1958, Okonite Company (New Jersey) was a corporation engaged in commerce and subject to the jurisdiction of the Federal Trade Commission; and that on November 24, 1958, Okonite Company (Delaware) was and still is a wholly owned subsidiary of the defendant Kennecott Copper Corporation; that on November 24, 1958, Okonite Company (Delaware) acquired the assets of the Okonite Company (New Jersey).
The parties stipulated that the Court had jurisdiction to determine whether this transaction violated Section 7 of the Clayton Act. They also stipulated that the relevant section of the country, within the meaning of Section 7 of the Clayton Act, for purposes of the litigation, was the United States of America as a whole.
It was further stipulated that relevant lines of commerce for purposes of the litigation were (a) insulated wire and cable and (b) refined copper.
It was further stipulated that plaintiff contended and defendant denied that (i) paper insulated power cable is a submarket of insulated wire and cable and (ii) that copper wirebar is a submarket of refined copper; and that each such submarket is in and of itself a line of commerce within the meaning of Section 7 of the Clayton Act for purposes of the litigation.
The pretrial order provided that the issues remaining for trial were:
I. Is paper insulated power cable an appropriate line of commerce within which to measure the probable effects of Kennecott's acquisition of Okonite?
II. Is wirebar an appropriate line of commerce within which to measure the probable effects of Kennecott's acquisition of Okonite?
III. May the fact of Kennecott's acquisition of Okonite result in a substantial lessening of competition or a tendency to monopoly in any line of commerce?
Those issues were tried. The Court now renders its opinion, findings of fact and conclusions of law.
In order that we may properly consider the significance of the evidence on these three issues, it is necessary at the outset to describe the position of Kennecott Copper Corporation and the Okonite Company in the copper industry. On November 24, 1958, Kennecott Copper Corporation acquired the assets and business of the Okonite Company. Kennecott was at the time the world's largest copper producer. It admitted in its answer that it is the largest domestic copper producer. Okonite was the country's second largest independent insulated wire and cable fabricator. Since its acquisition Okonite Company has operated as a wholly-owned subsidiary of Kennecott. About a month after the acquisition of Okonite, Kennecott transferred its subsidiary, Kennecott Wire and Cable Company (KWC), to Okonite.
The basic steps in the copper industry are mining, milling, smelting, refining and fabrication. There has been a tendency in the industry toward integration in the major companies of all these steps. Kennecott is completely integrated through smelting and largely integrated through refining. It owns five mining properties located respectively in New Mexico, Nevada, Arizona, Utah and Chile. It owns a refinery at the Utah location which refines the Utah production and a refinery in maryland which handles most of the output of the other properties. The American Smelting & Refining Company is under contract to refine the remaining production. Integration through refining now appears to be a general rule in the industry in the large companies at least. Anaconda and Phelps Dodge had become integrated through refining at an earlier date than Kennecott.
Kennecott is also integrated to some extent through fabrication. Prior to its acquisition of Okonite, Kennecott had two wholly-owned subsidiaries engaged in copper fabricating operations, Chase Brass & Copper Company, Inc. and Kennecott Wire and Cable Company. These two subsidiaries reflected the two basic industries which are customers of refined copper, i.e., wire mills and brass mills. In 1958, 59.2% Of refined copper consumption in the United States was by wire mills and 38.3% By brass mills.
In the years preceding the merger Kennecott was in general satisfied with its position in the brass mill industry. Chase Brass & Copper Company had 12-13% Of the industry and consumed almost 40% Of Kennecott's shipments of copper to brass mills. It had a young and alert management and was well able to expand, not only to maintain the company's share of the market, but to improve the company's position.
Kennecott was not satisfied with its position in the wire and cable industry, however. Its subsidiary in that field accounted for less than 2% Of wire and cable sales and consumed only about 10% Of Kennecott's shipments to wire and cable companies. Kennecott felt that in order to maintain or increase its competitive position in the wire and cable industry it would have to expand. It also felt it had to expand its fabrication facilities in order to market its copper.
In a memorandum to Kennecott's Board of Directors, the executive vice president of Kennecott stated in 1958:
'* * * In general, Kennecott's competitors in this hemisphere have been increasing their fabrication facilities through new plants and through acquisitions of fabricators. Some independent fabricators feel that they will in the future be squeezed by the integrated companies in their efforts to market their copper production. 'It, therefore, appears essential if Kennecott is to be able to sell its mine production of copper that Kennecott acquire additional fabrication to replace fabricating accounts which it will lose or which will purchase only reduced quantities from Kennecott.'
In early 1958 contact was established with the Okonite Company and merger negotiations began.
Okonite was the second largest of the independent insulated wire and cable companies at the time it was acquired. Only Essex Wire & Cable was larger in the independent field. General Cable Company was also larger, but it had a close relationship with American Smelting & Refining Company which owned roughly one-third of its common stock and therefore in the industry was not considered an independent.
Okonite's manufacturing operations were carried on in three plants located at Passaic, Paterson and North Brunswick, New Jersey. It also had a nationwide chain of sales offices located in the principal cities of the country and warehouses in Birmingham, Chicago, San Francisco and Syracuse.
The Okonite management was young and progressive and was reputed to be one of the most able in the industry. As an independent, Okonite relied on Research, leadership in engineering and a reputation for quality to help market its products and to earn premium prices where possible. It claimed to be a leader in its field in terms of know-how and production ability. Its product line was quite broad compared with other independent wire and cable companies.
Refined copper was Okonite's principal raw material. Most of the refined copper was purchased in the form of wirebar or the products of wirebar. It had no rod mill. In 1954 and 1955 Kennecott was Okonite's principal copper supplier, but Okonite's purchases from Kennecott declined steadily from 1954 on. Okonite purchased 3,975 tons of copper from Kennecott in 1954; 2,959 tons in 1955; 1,961 tons in 1956 and 150 tons in 1957. There were no purchases in 1958 up to the time of the merger.
Kennecott's main purpose in expanding in fabrication was to assure a future market for the sale of its copper. In a memorandum sent by the executive vice president of Kennecott's board of directors in 1958, he wrote:
'It is recommended that Kennecott acquire The Okonite Company, producers of insulated wire and cable, because the additional fabrication capacity will be essential to the future marketing of Kennecott's refined copper and will also provide a second profit on copper produced.'
Okonite was interested in the merger for financial reasons. It felt it had to expand to survive and that Kennecott could supply the necessary capital.
We had, therefore, dynamic, economic forces which tended to promote integration in the industry. It was in response to those forces that this merger took place. This tendency existed in the entire copper industry. The other two big copper producers in the United States are Anaconda and Phelps Dodge. In 1922 Anaconda acquired the predecessor company of Anaconda Copper & Brass Company because it was convinced that in order to protect the business of the company it should be placed in a position to control the outlets of its metals and to promote the sale and distribution of copper and brass products. Anaconda, in 1929, formed the Anaconda Wire & Cable Company by a series of acquisitions. Phelps Dodge acquired a copper product subsidiary as a result of acquisition in 1930. It was this tendency toward integration on the part of its two largest competitors that spurred Kennecott into the acquisition of Okonite. Mr. Milliken, the president of Kennecott, testified (Tr. 2355-56):
'Well, we thought we had a problem because, as I say, of this tendency on the part of our competitors in this country, Anaconda and Phelps Dodge, expanding their capacity, and also what seemed to be the attitude of the independents that they couldn't make money in copper fabrication. If those two things were ...