Appeal from an order of the District Court for the Southern District of New York, Charles E. Stewart, Jr., Judge, granting a preliminary injunction enjoining defendant Cargill from further soliciting the tender of shares of plaintiff pending final determination of the action and providing for other relief.
Waterman, Friendly and Mulligan, Circuit Judges.
This appeal illustrates the growing practice of companies that have become the target of tender offers to seek shelter under § 7 of the Clayton Act, 15 U.S.C. § 18. Drawing Excalibur from a scabbard where it would doubtless have remained sheathed in the face of a friendly offer, the target company typically hopes to obtain a temporary injunction which may frustrate the acquisition since the offering company may well decline the expensive gambit of a trial or, if it persists, the long lapse of time could so change conditions that the offer will fail even if, after a full trial and appeal, it should be determined that no antitrust violation has been shown. Such cases require a balancing of public and private interests of various sorts. Where, as here, the acquisition would be neither horizontal nor vertical, there are "strong reasons for not making the prohibitions of section 7 so extensive as to damage seriously the market for capital assets, or so broad as to interfere materially with mergers that are procompetitive in their facilitation of entry and expansion that would otherwise be subject to serious handicaps."*fn1 These reasons are especially compelling when the target company fails to show that the alleged antitrust violation would expose it to any readily identifiable harm.
On December 19, 1973, Cargill, Incorporated (Cargill) announced an offer to purchase all the outstanding shares of common stock of plaintiff Missouri Portland Cement Company (MP).*fn2 In its offer, Cargill stated that it intended to acquire control of MP and either operate it as a subsidiary or merge it into the parent company. The purchase price was $30 per share in cash; this compared with a closing market price of $24.25 on December 18, 1973.
Two days later, MP began this action in the District Court for the Southern District of New York, seeking to enjoin Cargill from continuing with the tender offer. MP charged that Cargill had violated the securities laws in the course of publicizing its offer and that an acquisition of control by Cargill of MP or a merger of MP into Cargill would violate the antitrust laws. Again running true to the usual form, Cargill responded with accusations that MP had violated the securities laws in its public pronouncements opposing the tender offer and sought injunction relief on its counterclaim. Judge Stewart held hearings on December 27, 1973, and on five days in early January 1974. These led to an order dated January 7, 1974, which, without any accompanying findings of fact or conclusions of law, enjoined Cargill from proceeding with the tender offer during the pendency of the action and placed both companies under certain other restraints. By this time Cargill had acquired 271,000 shares of MP, or approximately 19% of the total, at a cost of roughly $8,130,000.00. A panel of this court ordered an expedited appeal, with briefs to be filed one week after entry of the district court's findings of fact and conclusions of law and with argument to be heard in the following week.
On April 15, 1974, the district court entered its opinion and amended order. The court held that MP had raised "substantial and difficult antitrust questions" which merited further investigation. Finding that the balance of equities was in MP's favor, the court held that MP was entitled to preliminary relief on the antitrust claim. However, it rejected MP's claims that Cargill had violated the securities laws. On the counterclaim, it upheld one of Cargill's securities law claims but denied the rest. The court temporarily enjoined Cargill from proceeding with the tender offer or voting its stock and dealt with MP's violation of the securities laws in a manner recounted in the final section of this opinion. As both sides recognize, the critical determination was the court's finding of a probable antitrust violation, to which we now turn.
There is not much controversy over the basic facts. We shall limit ourselves to the highlights, referring to Judge Stewart's as yet unreported opinion for amplification.
MP, a publicly held corporation whose stock is listed on the New York Stock Exchange, manufactures portland cement at three riverfront plants. One is located at St. Louis, Missouri, on the Mississippi River; another is at Independence, Missouri, on the Missouri River; and the third is at Joppa, Illinois, on the Ohio River near its confluence with the Mississippi. MP sells the cement produced at these plants through an eleven-state area. Several dozen competitors, including five with plants in Missouri on the Mississippi River, sell in various parts of this area, shipping much of their cement through distribution terminals located along the three great river systems. MP's production capacity is 10,000,000 barrels a year*fn3 -- this being some 2% of the national capacity and 8% of the capacity within the eleven states MP serves. It is the country's twentieth largest cement producer; eight of the ten largest producers compete in part of MP's sales territory.
The district court focused its attention not on the eleven-state area but on four particular metropolitan markets within that area -- St. Louis and Kansas City, Missouri; Memphis, Tennessee; and Omaha, Nebraska. Figures supplied by MP*fn4 showed the characteristics of these markets to be as follows:
St. Louis, Missouri Metropolitan
Missouri Portland Cement 28%
Universal Atlas Cement 18
Kansas City, Missouri Metropolitan
Missouri Portland Cement 30%
Universal Atlas Cement 12
General Portland Cement 4
Memphis, Tennessee Metropolitan
Missouri Portland Cement 30%