resources, Swedlow (at the moment, capital-short) would be able to continue the research and development necessary to preserve its position as a leader in acrylic technology; second, Swedlow could continue for the present as a domestic source of high-tech military transparencies without giving cause for concern over foreign ownership of an important defense resource; and, third, an amalgam (appropriately circumscribed so as to prevent the "leakage" of knowledge the Commission fears) of the technologies of PPG and Swedlow might lead to the development of yet more sophisticated materials and/or transparencies than either could produce alone.
The Commission urges that PPG and Swedlow, believing that they will eventually be one, will have small incentive to continue to compete against one another during the pendency of the FTC proceedings under any form of hold separate order. The Commission submits that the disincentive to compete under hold separate orders is particularly strong in high technology industries in which the large sums of money required for research and development are rarely committed if the parties suspect the results are likely to be duplicative, and only one of them, in any event, may be the successful bidder on any contract offered.
The record at this point, however, is hardly reassuring as to the inevitability of a unitary PPG-Swedlow enterprise. Given the odds at present that the merger ultimately will be permanently disallowed, the uncertainty as to how matters may stand at the conclusion of the case offers considerable inducement to both PPG and Swedlow to keep the latter as viable and attractive to potential third-party purchasers as possible in the event of divestment, if only for PPG to have some reasonable prospect of recouping its substantial investment in Swedlow (assuming, of course, it has not been allowed to spirit away Swedlow's proprietary technology). And, because PPG will be the end beneficiary of Swedlow's profitability in the interim, merger or no, PPG has at least some current incentive to see it thrive, even at PPG's expense.
Nevertheless, to be approved by the Court, any hold separate relationship will necessarily entail, inter alia :
1. an express undertaking by PPG and Swedlow to continue to compete in the aircraft transparencies market, and any subdivisions thereof, in the exercise of their respective best business judgments and without regard to the merger agreement, as if they were in all respects separate and independent business entities, with a breach of such undertaking (as well as any other term of the order) to be punishable as a contempt of court;
2. a voting trust of Swedlow stock, with bare beneficial ownership in PPG, the trustee to be Court-appointed and altogether independent of, and unrelated to, any current or prospective participant in the aircraft transparency market here or abroad;
3. an express prohibition of joint commercial activity, or the transfer of any assets (including, but not limited to, non-public financial information and scientific knowledge and technology) between Swedlow and PPG, except in the exercise of the best business judgment of the transferor without regard to the merger agreement, and with the prior permission of the Court, with adequate notice and opportunity to be heard thereon to be given to the Commission; and
4. continued judicial supervision of the relationship.
The Court concludes that a hold separate order containing at least the foregoing conditions will enable Swedlow to remain a viable separate business entity during the pendency of the FTC proceedings which could later be sold if divestiture were ultimately ordered, and complete permanent relief could be implemented with relative ease.
It is, therefore, for the foregoing reasons, this 21st day of February, 1986,
ORDERED, that plaintiff's motion for a preliminary injunction is granted; and it is
FURTHER ORDERED, that within fifteen (15) days the parties may present, jointly or independently, proposed forms of hold separate orders in accordance with the foregoing; and it is
FURTHER ORDERED, that, after hearing, upon entry of a hold separate order, PPG and Swedlow may be relieved of the injunction to the extent thereof, and may proceed to consummation of so much of the merger agreement as is consistent therewith, subject to any further order of Court.
In accordance with the Memorandum and Order entered herein on February 21, 1986, it is, this 21st day of February, 1986,
ORDERED, that defendants PPG Industries, Inc., and Swedlow, Inc., their officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them, are hereby restrained and enjoined from any further performance of the "Agreement and Plan of Merger," dated August 21, 1985, as amended January 9, 1986, pending conclusion of administrative proceedings known as Docket No. 9204 before the Federal Trade Commission or further order of this Court.