The opinion of the court was delivered by: PARKER
In this proceeding the Federal Trade Commission (FTC or Commission) seeks a preliminary injunction pursuant to Section 13(b) of the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 53(b) (Supp. V 1975). The Commission requests the Court to enjoin Tenneco, Inc. (Tenneco) from completing steps to acquire the Monroe Auto Equipment Company (Monroe) and to maintain the status quo during the pendency of administrative proceedings which the Commission has commenced against the two respondents. The Court has considered the parties' memoranda of points and authorities, supporting affidavits, the relevant portions of the depositions of various witnesses and the oral arguments of counsel.
Essentially, this litigation concerns a challenge to a proposed diversification acquisition involving two corporations. The Commission contends and the respondents deny that but for the proposed merger, the corporations are or would be competitors. The Court finds that no actual competition exists and that while there is the possibility of potential competition, the petitioner has failed to demonstrate sufficiently that there is a reasonable probability that it will prevail at a trial on the merits. In accordance with Rule 52 of the Federal Rules of Civil Procedure, the Court enters findings of fact and conclusions of law and determines that the application for a preliminary injunction should be denied.
The Federal Trade Commission is an agency of the United States Government charged by law with, inter alia, the enforcement of the Federal Trade Commission Act, 15 U.S.C. § 41 et seq., and the Clayton Act, 15 U.S.C. § 12 et seq. Tenneco, a Delaware corporation with its principal place of business in Houston, Texas, resides and transacts business in the District of Columbia. Monroe, a Michigan corporation whose principal place of business is Monroe, Michigan, also transacts business within the District. The respondents are engaged in "commerce" as defined in Section 4 of the FTC Act, 15 U.S.C. § 44, and in Section 1 of the Clayton Act, 15 U.S.C. § 12.
In January, 1976, the chief executive officer of Monroe informed the president of Tenneco's Walker Manufacturing Division that Monroe was interested in being acquired by Tenneco. Monroe's interest in the acquisition was represented to be economic in nature and prompted by a decline in its profits and by the desire of its principal stockholders to obtain greater investment security. Walker's management was receptive and the parties entered into merger negotiations with the understanding that Tenneco's approval would be required. In December, 1976, the companies jointly announced a preliminary agreement whereby Tenneco would seek to acquire, pursuant to an exchange offer, at least 80% of Monroe's shares. If successful, the exchange offer would be followed by a merger of Monroe into a subsidiary of Tenneco. In February, 1977, Tenneco filed with the Securities and Exchange Commission its registration statement concerning the shares of its common stock that it intended to offer in exchange for the shares of Monroe. In March, 1977, the FTC sought Section 13(b) injunctive relief in this Court, and at an initial hearing, counsel for Tenneco and Monroe stipulated that the companies would suspend further merger efforts pending a hearing and ruling on the application for a preliminary injunction.
Section 13(b) is a recent statutory enactment.
It authorizes the Commission to seek injunctive relief when it has reason to believe that a planned acquisition violates the laws which it enforces. The injunction is designed to maintain the status quo and to protect the public interest. Thus, the Commission would not be required at a later date to initiate divestiture proceedings. Once the Commission is advised that an acquisition may be impermissible under law, an investigation is launched. The investigation in turn may lead to the issuance of a formal complaint by the Commission.
The FTC issued an administrative complaint against the respondents on March 15, 1977, and charged that:
The effects of the steps taken by Tenneco to acquire Monroe constitute an unfair method of competition in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act, . . . and the proposed acquisition by Tenneco of Monroe, if consummated, may be substantially to lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act, . . . and constitute an unfair act and practice in or affecting commerce, in violation of Section 5 of the Federal Trade Commission Act . . . .
On that same date, it filed a complaint with this Court "[to] enjoin . . . consummation of the acquisition and [to] preserve . . . Monroe as a viable and independent entity until the complaint . . . is dismissed by the Commission or set aside by the Court on review, or until the order of the Commission made thereon has become final." Argument on the motion for preliminary injunction was concluded on May 6, 1977.
The relevant language of Section 13(b), which is a general grant of authority, provides in part:
Whenever the Commission has reason to believe --
(1) that any . . . corporation is violating, or is about to violate, any provision of law enforced by the . . . Commission, and
(2) that the enjoining thereof . . . would be in the interest of the public -- the Commission . . . may bring suit in a district court of the United States to enjoin any such act or practice. Upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest, . . . a preliminary injunction may be granted . . . .
The petitioner seeks to halt the proposed acquisition on the basis of this statutory language.
Tenneco is a multi-business concern. Its Walker Manufacturing Division (Walker) is a leading manufacturer and distributor of exhaust system parts both to the domestic replacement market and to its submarket, the independent aftermarket.
In 1976, Walker accounted for approximately 36% of shipments to the replacement market and 39% to the independent aftermarket. Walker also purchases shock absorbers from Monroe which it resells to its customers. In 1976, these sales amounted to $283,000, accounting for approximately 1/10 of one percent of shipments to the shock absorber replacement market, a market it did not enter until October, 1974.
A Tenneco subsidiary, Mechanex, sells a product called a steering damper. There is sharp dispute between the parties as to whether or not this device is a traditional shock absorber for antitrust purposes. Mechanex does not manufacture the steering damper, however. It purchases its ...