The opinion of the court was delivered by: RYAN
This proceeding has been had under paragraph "2" of the final judgment entered herein on November 24, 1964 which reads:
"2. Defendant Kennecott Copper Corporation is ordered to divest itself of the stock and business of The Okonite Company, the Delaware Corporation, and to cause the divestiture of such business activities by sale or other means or methods as the Court may hereafter determine and decree as just and equitable, so that the business of the Okonite Company and the parts and divisions thereof shall be reconstituted as an independent corporation capable of existence as a viable business."*
The proceeding has been initiated by the application of the defendant for judicial approval of an agreement of purchase dated October 15, 1965 between Okonite and Ling-Temco-Vought, Inc. which the defendant maintains and represents will achieve the antitrust purpose of the Final Judgment in this case and the purposes of Section 7, and also protect the public interest, i.e., the interests of the employees and customers of Okonite, the communities in which Okonite operates, and the public investors in Kennecott, as well as preserve the viability of Okonite as a competitor in the wire and cable industry.
The government opposes approval of the proposed sale of Okonite to LTV contending that it will not "constitute adequate relief in this case." It argues that its " spin-off" proposal is in fact entitled to a presumption over defendant's proposal of sale. We do not accept this as an accurate statement of the law. With the government's consent to the procedure, this hearing proceeded with the focus of the hearing placed primarily on the defendant's proposal. At the very outset of the hearing, we ruled that the defendant had the burden of proving that the sale of Okonite to LTV provided in the purchase agreement will be just and equitable, and will reconstitute Okonite as an independent corporation capable of existence as a viable business and in accord with the antitrust provisions and purposes of the final judgment. While, of course, we must weigh and determine the reasonably probable result of all possible means of divestiture, no one plan is graced with a presumption as to its merits. This brings us then to the contract or agreement of purchase now submitted to us for approval.
The Purchase Agreement in substance provides for the acquisition by LTV, or a subsidiary designated by LTV, of substantially all of the assets, business and goodwill of Okonite (including the Kennecott Wire & Cable Division) for a cash consideration, and the assumption of certain liabilities and obligations of Okonite by LTV, subject, among other things, to an appropriate order of this Court. The consideration to be paid by LTV (or a designated subsidiary) is approximately $30,000,000 - $25,000,000 to be paid in cash to Kennecott, plus the assumption or payment by LTV of approximately $5,000,000 of Okonite's long-term indebtedness to The Mutual Benefit Life Insurance Company, which loan had been outstanding when Kennecott acquired Okonite in 1958. It also contains a provision, which we are told LTV insisted upon, for the supply of copper by Kennecott, whereby Kennecott has agreed to sell LTV, at the latter's option, the following quantities of copper per year: 33,500 tons in 1966, 36,000 tons in 1967, and 37,500 tons each in 1968 and 1969 (Tr. 144-145a: DX1, Annex B).
It has been recognized by the parties that the divestiture decreed might be accomplished by one of two means or methods: by the distribution of the stock of "Okonite" or of a successor corporation to the stockholders of Kennecott (called by Government counsel a "spin-off"), or by sale of the stock or of the assets and business to a third party. Concerning the choice of these means and details of method to be employed, the government position was "the Court should first have an opportunity to consider a specific plan of divestiture submitted by the defendant." After the Supreme Court had granted the government's motion to affirm (on June 1, 1965, 381 U.S. 414, 85 S. Ct. 1575, 14 L. Ed. 2d 692), plaintiff submitted a proposed plan of divesture to accomplish the remedies directed in the final judgment. The plaintiff then recommended (in July, 1965) that "defendant be required to spin-off Okonite as a separate corporation under the supervision of a trustee appointed by the Court", and "that defendant be required to take several steps designed to give Okonite a fair start as an independent company."
As to the sale of Okonite to a third party, the government commented:
" . . . If a sale could be effected to a party acceptable from an antitrust viewpoint, and acceptable to defendant from its point of view, we would of course have no objection. However, defendant has so far not found a single eligible buyer, and it has had over eleven months to do so. Defense counsel has admitted, 'We have been hard at work, we have been talking to people, and we have been trying to find out how we could best dispose of this plant. It is a tough job.'"
Nevertheless, the defendant has after more than a year's activity, which included the employment of a recognized, reliable and experienced firm of investment consultants, produced a purchaser in Ling-Temco-Vought, Inc. which is ready, able and willing to purchase the assets and mark of Okonite at a price of $30,000,000, and to operate it as a separate, viable subsidiary entirely and completely divorced from Kennecott as to management, control and financial dependency. The government opposes the approval of this sale and asks that a "spin-off" be decreed upon nebulous, uncertain and indefinite terms which would require years of judicial supervision, and in addition would be the launching of a new venture, faced with every probability, if not strong certainty, of financial disaster or complete liquidation.
The pre-trial order entered in this action included the stipulation of the parties that "relevant lines of commerce for purposes of the litigation (a) insulated wire and cable and (b) refined copper."
All the findings of Judge Dawson (which I accepted after examination and review of the Court file and the trial testimony and exhibits prior to the entry of final judgment) are of course in the record before us. It was found specifically that
"Before the acquisition of Okonite, Kennecott, Phelps Dodge and Anaconda were dominant in copper production, and Kennecott was the only one of these major producers which relied upon independent fabricators for a substantial part of its copper sales. Phelps Dodge and Anaconda were expanding their fabricating capacity. Kennecott feared that the independent fabricating companies would sell out to copper producers or switch into other kinds of business. Therefore Kennecott bought Okonite to preserve a market for its copper."
The present Okonite Company consists of the original Okonite Company (which, when acquired by Kennecott on November 24, 1958, "was this country's second largest independent wire and cable fabricator") and Kennecott's own separate subsidiary in that field, Kennecott Wire and Cable Company (which in 1958 accounted for about 2% of wire and cable sales and then consumed about 10% of Kennecott's shipments to wire and cable companies). The entire assets and business of this subsidiary were transferred to Okonite about a month after Okonite was acquired by Kennecott.
The legality of Kennecott's acquisition of Okonite was weighed at trial against the government's claim that it violated Section 7 of the Clayton Act; it was found that it did and it was concluded that "the effect of Kennecott's acquisition of Okonite may be substantially to lessen competition in the line of commerce of paper insulated power cable" and "refined copper in the United States in violation of Section 7 of the Clayton Act."
The evaluation in this proceeding of the agreement of purchase brings us first to look at the present corporate structure and business of LTV and Okonite.
LTV produces no copper, and manufactures no wire or cable; it operates in lines of commerce wholly different from Okonite. LTV is primarily in the business of supplying aircraft, missiles, space vehicles and related electronic equipment to the government.
LTV functions through three 90% owned subsidiaries: LTV Aerospace Corporation, which manufactures aircraft, missiles and space vehicles; LTV Electrosystems, Inc., which designs and manufactures airborne electronic gear and electronic components for missiles, and overhauls and renovates military aircraft; and LTV Ling Altec, Inc., which is a producer of commercial and theatre sound systems, and testing equipment for prime government contractors.
LTV is "one of the nation's largest defense-space contractors." Its sales have grown in the last eight years from about $4 million to about $323 million; its assets, from about $3 million to about $127 million. This expansion has followed mergers and acquisitions.
LTV's 1964 consolidated sales were distributed approximately as follows: aeronautics - 38%; electronics - 32%; missiles and space - 29%; other products and services - 1%. Approximately 92.5% of LTV's consolidated sales in 1964 and 1965 were made under prime contracts with the United States Government or under subcontracts with other prime contractors (Tr. 240-241, DX 3, DX 5). The 1964 figures were: 99.9% for LTV Aerospace Corporation, 100% for LTV Electrosystems, Inc., and 30.1% for LTV Ling Altec, Inc.
For the past three years, LTV's sales have averaged $325 million per year (DX 3). During that period it earned an average of about 22% on its stockholders' investment after taxes (DX 3). We find that it has the financial and top level management capabilities necessary to purchase Okonite for cash, and thus sever all financial and management ties with Kennecott and to also maintain Okonite as a viable competitor. Plaintiff does not dispute that "LTV can maintain and support Okonite as a separate subsidiary or division with its own funds without further help from Kennecott."
The plants of LTV's three subsidiaries, LTV Aerospace Corporation, LTV Electrosystems, Inc., and LTV Ling Altec, Inc., are operated independently. Although more than three-fourths of its operations are concentrated in the Dallas, Texas area where LTV is headquartered, its plants and offices are spread about the continent from Winchester, Mass. to Anaheim, Calif., and there are LTV offices in Europe and Asia.
Okonite manufactures a broad range of insulated copper wire and cable, as well as some bare wire. About 77% of Okonite's 1964 sales of insulated wire and cable were of "power wire and cable" and its bare wire is also sold for "electrical transmission". Okonite's principal customers are the electric utilities and contractors and industrial firms involved in the construction of plants and buildings.
Okonite, founded in 1878 to exploit a newly-developed process for insulating wire and cable with rubber, was one of the first United States companies to successfully manufacture 345,000-volt cable. Okonite is a recognized leader in the high-voltage field. It has developed and employs a number of unique processes and equipment. Its headquarters are at its Passaic, N.J., plant. It also has plants in Paterson and North Brunswick, N.J., and Providence, R.I., making a total floor area of 1,612,000 square feet on 195.24 acres of land, employing about 1,800, and with a projected total for 1965 of approximately $70,000,000.00. Substantial amounts have been spent on modernizing the plants and installing new cable-making and processing equipment in recent years.
The objections of the government to judicial approval of the LTV agreement to purchase Okonite were clearly stated ...