UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

_____________________________________________________

DOCKET NO. 9300

PUBLIC VERSION

_____________________________________________________

IN THE MATTER OF

CHICAGO BRIDGE & IRON COMPANY N.V., 

CHICAGO BRIDGE & IRON COMPANY,

and

PITT-DES MOINES, INC.

____________________________________________________

ANSWERING AND CROSS-APPEAL BRIEF OF 

COUNSEL SUPPORTING THE COMPLAINT

____________________________________________________

Susan A. Creighton Steven L. Wilensky 

Director Chul Pak

Hector Ruiz

J. Robert Robertson April Tabor

Senior Litigation Counsel Cecelia M. Waldeck

Robert S. Tovsky

Rhett R. Krulla Michael A. Franchak

Morris A. Bloom Eric M. Sprague

Elizabeth A. Piotrowski Jeffrey Dahnke

Deputy Assistant Directors Michele Cerullo

Bureau of Competition Sebastian Lorigo

John Andrew Singer

Complaint Counsel

Yasmine Carson 

Honors Paralegal

Jacqueline Tapp

September 16, 2003 Investigative Assistant
i

TABLE OF CONTENTS

STATEMENT OF THE CASE ................................................. 1

STATEMENT OF FACTS .................................................... 4

1. A History of the Proceedings ....................................... 4

2. The Relevant Markets ............................................. 4

3. A 2-1 Merger that Creates a Dominant Firm with Market Shares of 73% 

to 100% and HHIs of 5,800 to 10,000 .......................... 5

4. CB&I and PDM Were Each Other’s Closest Competitor .................. 6

5. Respondents Accurately Predicted that the Acquisition Would Permit 

the Merged Entity to Raise Prices and Margins .................... 7

6. Since the Acquisition, CB&I Publicly Acknowledged that

Competition Has Been Substantially Lessened ..................... 7

7. The Merger Has Had Actual Anticompetitive Effects ..................... 8

8. Entry Has Not Restrained CB&I from Exercising Market Power 

Since the Merger .......................................... 10

9. The Facts Do Not Support Respondents' So-called "Exiting Assets Defense" . . 12

10. The ALJ's Divestiture Order Is Insufficient to Completely Restore 

Competition ............................................. 14

SUMMARY OF ARGUMENT ................................................ 15

1. Complaint Counsel Established a Strong Prima Facie Case ............... 15

2. Respondents Have No Evidence of Timely, Likely and Sufficient Entry ....... 15

3. The Commission May Affirm for the Independent Reason of Proof of 

Anticompetitive Effects ..................................... 16

4. Even If There Were an “Exiting Assets” Defense, Respondents Cannot 

Satisfy Any Element Thereof ................................. 17
ii

5. Complete Divestiture of the Acquired Assets Is the Appropriate Remedy 

for Respondents’ Illegal Conduct ............................. 17

QUESTIONS PRESENTED .................................................. 18

ARGUMENT ............................................................. 18

I. COMPLAINT COUNSEL ESTABLISHED A STRONG PRIMA FACIE CASE. .... 18

A. However Concentration Is Measured, the Acquisition Greatly Increased

Concentration in Highly Concentrated Markets to Extraordinary Levels. ..... 20

1. HHI Analysis Demonstrates High Concentration ................. 20

2. CB&I Acquired Its Closest Competitor, PDM, and Won Most 

of the Bids for a Significant Period of Time ............... 21

3. Respondents’ Contemporaneous Documents Confirm that 

CB&I and PDM Were Each Other’s Closest Competitor ...... 22

B. Respondents’ Argument that the ALJ Ignored Post-Acquisition Evidence 

Is Factually Incorrect and Legally of No Consequence ............. 23

1. Small Market Size Is Irrelevant as to Whether an Acquisition Meets

Section 7's Substantial Lessening of Competition Requirement . 25

II. RESPONDENTS FAILED TO REBUT THE PRESUMPTION OF

ANTICOMPETITIVE EFFECTS IN ANY OF THE RELEVANT 

MARKETS ................................................... 26

A. The ALJ Utilized the Correct Legal Standard: Entry Must Restore 

Competition to Pre-Acquisition Levels ......................... 27

B. The ALJ Correctly Assessed the Facts: Entry Will Not Restore 

Competition to Pre-Acquisition Levels ......................... 30

1. Entry Barriers Are High .................................... 31

2. There Is No Evidence of Sufficient Entry in the LNG Market ........ 34

3. There Is No Evidence Of Sufficient Entry in the LPG Market ........ 35

4. There Is No Evidence of Sufficient Entry in the LIN\LOX Market ..... 36
iii

5. There Is No Evidence of “Actual” Entry in the TVC Market ......... 38

6. Dr. Harris’s Critical Loss Analysis Was Badly Flawed ............. 38

C. Respondents’ Evidence on Customer Sophistication & Customer 

Opinions Does Not Rebut the Prima Facie Case .................. 41

D. Respondents Have Not Rebutted the Prima Facie Case in the TVC Market ... 44

III. POST-ACQUISITION EVIDENCE DEMONSTRATES THAT ENTRY IS NOT

 SUFFICIENT TO RESTORE COMPETITION TO PRE-ACQUISITION

 LEVELS. .................................................... 44

A. By Eliminating Its Only Significant Competitor, the Acquisition 

Increases CB&I’s Market Power .............................. 45

B. Actual Evidence of Anticompetitive Conduct Independently Requires a 

Finding of Liability against Respondents in this Case ............... 47

1. Respondents Engaged in Collusive Conduct through the Business

Managers Responsible for the Affected Customer Accounts ... 48

2. Respondents Failed to Rebut Evidence, Contained in their

 Contemporaneous Documents, that Respondents 

Increased Prices in the Relevant Markets after Entering 

into the Acquisition Agreement ......................... 49

3. Contemporaneous Documents and Other Evidence Reveal that

Respondents Increased Prices and Margins after Entering 

Into the Acquisition Agreement ......................... 50

4. The Acquisition Has Already Had Substantial Actual Anticompetitive

Effects ................................................. 51

5. CB&I’s Margins May Appropriately Be Measured by Examination of

CB&I’s Firm Bids and Budget Estimates ....................... 58

IV. RESPONDENTS’ “EXITING ASSETS” DEFENSE FAILS AS A MATTER 

OF FACT AND LAW ........................................... 60

A. The Evidence Does Not Show that CB&I Was the Only Available Purchaser . . 61
iv

B. The Evidence Does Not Show that Absent the Acquisition PDM EC 

Would Have Exited the Market ............................... 63

V. COMPLETE DIVESTITURE, THROUGH A MORE EFFECTIVE ORDER, IS

REQUIRED TO RESTORE THE COMPETITION ELIMINATED BY 

THE ACQUISITION ............................................ 64

A. The Commission Has the Authority, under the Clayton Act and the FTC Act,

to Order Effective and Viable Divestiture Relief to Restore the

Competition Lost as a Result of the Illegal Acquisition ............. 65

B. The Commission Has Authority to Unscramble the Merged Firm’s Assets 

and Business ............................................ 67

C. The ALJ Order Is Insufficient to Achieve Effective Relief; Complaint 

Counsel’s Order Should Be Accepted .......................... 68

1. CB&I Must Assign a Portion of Its Work-in-progress and 

Contractual Business ................................ 69

2. CB&I Must Take Affirmative Steps to Assure the Acquirer Has 

Sufficient Experienced Employees ....................... 74

3. CB&I Must Provide the Acquirer with Needed Transitional 

Assistance ........................................ 75

4. A Monitor Is Necessary ..................................... 76

5. The Form of Complaint Counsel’s Proposed Order Addresses 

Vagueness and Ambiguities in the ALJ Order to Foster 

Order Compliance and Enforceability .................... 76

VI. CONCLUSION. ..................................................... 79

APPENDIX A

PROPOSED FINAL ORDER
v

TABLE OF AUTHORITIES

CASES

Adolph Coors Co., 83 F.T.C. 32 (1973) .......................................... 50

American Medical International, Inc., 104 F.T.C. 1 (1984) ........................... 67

Ash Grove Cement Co. v. FTC, 577 F.2d 1368 (9th Cir. 1978) ......................... 66

Atlantic Refining Co. v. FTC, 381 U.S. 357 (1965) ................................. 66

Automatic Data Processing, Inc., 124 F.T.C. 456 (1997) ......................... 73, 75

B.F. Goodrich, 110 F.T.C. 207 (1988 ) ................................. 17, 23, 26, 68

California v. American Stores Co., 495 U.S. 271 (1990) ............................. 19

Cascade Natural Gas Corporation v. El Paso Natural Gas Co., 386 U.S. 129 (1967) .... 66, 73

Citizen Pub. Co. v. United States, 394 U.S. 131 (1969) .............................. 61

Coca-Cola Bottling Co. of the Southwest, 118 F.T.C. 452 (1995) ............. 21, 27-29, 46

Crown Zellerbach Corp., 54 F.T.C. 769 (1957) .............................. 66, 67, 68

Diamond Alkali, 72 F.T.C. 700 (1967) .......................................... 67

Ekco Products Co., 65 F.T.C. 1163 (1964) .................................... 67, 72

Ford Motor Co. v. United States, 405 U.S. 562 (1972) .............................. 65

Fruehauf Trailer Co., 67 F.T.C. 878 (1965) ...................................... 66

FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34 (D.D.C. 1998) .............. 22, 28, 29, 41

FTC v. Consolidated Foods Corp., 380 U.S. 592 (1965) .......................... 24, 45

FTC v. Food Town Stores, 539 F.2d 1339 (4th Cir. 1976) ........................... 25

FTC v. Harbour Group Investments, L.P.,1990-2 Trade Cas. (CCH) ¶ 69,247 

(D. D.C. 1990) ....................................................... 62
vi

FTC v. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001) ................... 19, 20, 22, 27, 28, 46

FTC v. Libbey Foods, Inc., 211 F. Supp. 2d 34 (D.D.C. 2002) ..................... 22, 45

FTC v. Mandel Bros., Inc., 359 U.S. 385 (1959) ................................... 66

FTC v. PPG Indus., 798 F.2d 1500 (D.C. Cir. 1986) ............................. 19, 20

FTC v. Ruberoid Co., 343 U.S. 470 (1952) ....................................... 66

FTC v. Staples, Inc., 970 F. Supp. 2d 1066 (D.D.C. 1997) ........................ 29, 46

FTC v. Swedish Match, 131 F. Supp. 2d 151 (D. D.C. 2000) ................. 22, 29, 38, 46

FTC v. Toys “R” Us, 221 F.3d 928 (7th Cir. 2000) .............................. 45, 50

FTC v. University Health, Inc., 938 F.2d 1206 (11th Cir. 1991) ....................... 20

FTC v. Warner Communications, 742 F.2d 1156 (9th Cir. 1984) .................... 61, 62

Glendale Federal Bank, FSB v. the United States, 39 Fed. Cl. 422 (Ct. Fed. Cl. 1997) ...... 60

Hospital Corp. of America v. FTC, 807 F.2d 1381 (7th Cir. 1986) ............ 19, 23, 44, 66

Hospital Corp. of America, 106 F.T.C. 361 (1985) ................................. 68

L.G. Balfour Co v. FTC, 442 F.2d 1 (7th Cir. 1971) ................................ 66

Lenox, Inc., 73 F.T.C. 578 (1968) ............................................. 50

Luria Bros. & Co. v. FTC, 389 F.2d 847 (3d Cir. 1968) ............................. 68

Monier Lifetile LLC, 127 F.T.C. 751 (1999) ...................................... 76

MSC Software Corp., Docket 9299, Decision and Order, 

November 1, 2002, http://www.ftc.gov/os/2002/11/mscdo.pdf ............. 74, 75, 77

Occidental Petroleum Corp., 115 F.T.C. 1010 (1992) ............................... 68

Olin Corp. v. FTC, 986 F.2d 1295 (9th Cir. 1993) ......................... 17, 60, 61, 63

Olin Corp., 113 F.T.C. 400 (1991) .............................. 60, 61, 66, 67, 72, 78
vii

Polygram Holding, Inc, 5 Trade Reg. Rep. (CCH) ¶15,453 (July 24, 2003) .............. 25

R.R. Donnelley & Sons Co., 120 F.T.C. 36 (1995) .................................. 46

Reichhold Chemicals, 91 F.T.C. 246 (1978). ...................................... 67

Reynolds Metals Co. v. FTC, 309 F.2d 223 (D.C. Cir. 1962) ......................... 68

RSR Corp., 88 F.T.C. 800 (1976) .............................................. 66

Schering-Plough Corp., et al., Dkt 9297 ......................................... 50

Tasty Baking Co. v. Ralston Purina, Inc., 653 F. Supp. 1250 (E.D. Pa. 1987) ............. 45

UAW v. NRLB, 459 F.2d 1329 (D.C. Cir. 1972) ................................... 47

United States v Archer-Daniels-Midland Co., 781 F. Supp. 1400 (S.D. Iowa 1991) ........ 23

United States v. Baker Hughes, Inc., 908 F.2d 981 (D.C. Cir. 1990) ........ 23, 26, 28-30, 61

United States v. Bethlehem Steel Corp., 168 F. Supp. 576 (S.D.N.Y. 1958) .............. 25

United States v. Blue Bell, Inc., 395 F. Supp. 538 (M.D. Tenn. 1975) .................. 63

United States v. Computer Associates International, Inc., 

2002-2 Trade Cas. (CCH) ¶ 73,883 (D.D.C. 2002) ........................... 52

United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586 (1957) ............... 19, 25

United States v. E. I. du Pont de Nemours and Co., 366 U.S. 316 (1961) ................ 65

United States v. Franklin Elec. Co., 130 F. Supp. 2d 1025 (W.D.Wisc. 2000) ............. 29

United States v. General Dynamics Corp., 415 U.S. 486 (1974) .................... 26, 45

United States v. Greater Buffalo Press, Inc., 402 U.S. 549 (1971) ................... 62, 63

United States v. Hammermill Paper Co., 429 F. Supp. 1271 (W.D. Pa. 1977) ............. 45

United States v. Pabst Brewing Co., 296 F. Supp. 994 (E.D. Wis. 1969) ................. 62

United States v. Phillips Petroleum Co., 367 F. Supp. 1226 (C.D. Cal. 1973) ............. 63
viii

United States v. Phillipsburg National Bank, 399 U.S. 350 (1970) ..................... 25

United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) ........................ 25

United States v. Syufy Enters., 903 F.2d 659 (9th Cir. 1990) ........................... 23

United States v. United States Gypsum Co., 333 U.S. 364 (1948) ...................... 50

United States v. United Tote Inc., 768 F. Supp. 1064 (D. Del. 1991) ................ 29, 41

Utah Pub. Serv. Comm’n v. El Paso Natural Gas Co., 395 U.S. 464 (1969) ........... 66, 73

STATUTES

Clayton Act,

Section 11(b), 15 U.S.C. § 21(b) ......................................... 65

Clayton Act,

Section 7, 15 U.S.C. § 18 .................................... 1, 18, 19, 25, 64

OTHER AUTHORITIES

4 P. Areeda, H. Hovenkamp & J. Solow, 

ANTITRUST LAW (rev. ed. 2000) .................................... 19, 62, 64

Dept. of Justice & Federal Trade Comm’n, Horizontal Merger Guidelines 

(1992, rev’d 1997) ............................................... passim

Elzinga, The Antimerger Law: Pyrrhic Victories, 

12 J. Law & Econ. 43 (1969) ........................................... 65

Federal Trade Commission Rules of Practice, 16 C.F.R. 3.43(b)(2) .................. 50, 60

Federal Trade Commission, A Study of the Commission's 

Divestiture Process, prepared by the staff of the Bureau of 

Competition (1999), http://www.ftc.gov/os/1999/08/divestiture.pdf ............... 70

Frequently Asked Questions About Merger Consent 

Order Provisions, http://www.ftc.gov/bc/mergerfaq.htm; ...................... 70
ix

Katz, M. & C. Shapiro, Critical Loss: Let’s Tell the Whole Story, 

Antitrust 49 (Spring 2003) .............................................. 40

Kwoka, J. & Warren-Boulton, R., Efficiencies, Failing Firms 

and Alternatives to Merger: a Policy Synthesis, 

31 Antitrust Bull. 431 (1986) ............................................ 60

Langenfeld, J. & W. Li, Critical Loss Analysis in Evaluating Mergers, 

The Antitrust Bulletin 299 (Summer 2001) .................................. 40

Posner, R., ANTITRUST LAW 132 (2001) ......................................... 28

S. Rep. No. 1775, 81st Cong., 2d Sess. (1950) .................................... 25

Statement of the Federal Trade Commission’s 

Bureau of Competition on Negotiating Merger Remedies (2003),

http://www.ftc.gov/bc/bestpractices/bestpractices030401.htm ................ 70, 76

Triggs, Casey, FTC Divestiture Policy, 17 Antitrust 75 (Fall 2002) ..................... 76

Von Kalinowski, J., ANTITRUST LAW & TRADE REGULATION (2d ed. 1996) ............ 16, 44
x

TABLE OF ABBREVIATIONS

The following abbreviations and citation forms are used:

ID- Initial Decision

IDF- Initial Decision Finding of Fact

CCPFO Complaint Counsel’s Proposed Final Order

CX Complaint Counsel exhibit

RX Respondents exhibit

CPF- Complaint Counsel’s Proposed Findings of Fact, filed February 14, 2003

CRF- Complaint Counsel’s Corrected Proposed Reply Findings of Fact, filed March 14,

2003

RPF- Respondents’ Corrected Proposed Findings of Fact, filed March 27, 2003

RAB- Respondents’ Appeal Brief, filed August 4, 2003

Citations to the trial transcript include the witness name and page number: Neary, Tr.1420.

Pages of exhibits are referenced by bates number: CX212 at CB&I-PL031718.

References to investigational hearing or deposition transcripts that have been included in the trial

record as exhibits include the exhibit number, the transcript page(s), the witness name, and

the designation “IH” or “dep”: JX 23a at 89 (Cutts, Dep.).

In camera material is bracketed and appears in bold.
STATEMENT OF THE CASE

Administrative Law Judge Chappell found correctly that “reliable and probative evidence”

established “that the effect of the Acquisition of PDM’s EC and Water Divisions by CB&I may be

to substantially lessen competition” in the field-erected, LNG, LPG, and LIN\LOX tank and thermal

vacuum chamber (“TVC”) markets in the United States. ID-3. Evidence of extremely high

concentration and barriersto entry, and in Complaint Counsel’s view, undisputed evidence of actual

or attempted collusion and dramatically higher prices and margins, establish that this Acquisition

clearly violates Clayton Act § 7. 

Prior to the Acquisition, CB&I and PDM knew that they were taking a beating from each

other, and they wanted to eliminate that competition to obtain higher margins. See Statement of

Facts ¶4 infra (evidence of head-to-head competition bidding down price; and that CB&I and PDM

were the lowest-cost competitors). PDM EC’s President, Luke Scorsone told his Board that a

combined CB&I/PDM could achieve “market dominance in the Western Hemisphere.” IDF-492;

Scorsone, Tr.5169. He later “brainstorm[ed]” with his staff and decided on a CB&I-PDM postmerger strategy to “create barriers to entry,” “defend an expanding market share,” and prevent

“smaller competitors to take share.” IDF-495; Scorsone, Tr.5204-5205. His plan was to achieve

higher pricesfortheir products and to increase margins from“12.5% to 17%.” IDF-495. PDM then

discussed this strategy directly with CB&I, prior to the closing and pending an FTC investigation.

Scorsone, Tr.5209; IDF-496.

After receiving numerous customer complaints, Staff commenced an investigation, this

Commission authorized compulsory process, subpoenas and CIDs were issued, and Respondents

asked for an extension of time to respond. Respondents then used this time to consummate the

Acquisition. 
2

Despite CBI’s dominance in each of the relevant markets, Respondents tell an “entry” story

that is without merit. No domestic competitor has competed successfully against CB&I/PDM in

LNG or LPG tanks or TVCs for decades, with the exception of Morse Construction, which built an

LPG tank near its facilities in the Pacific northwest, and AT&V, which built a very small LPG tank.

Strikingly, while this case was pending, CB&I acquired Morse too. The smaller domestic

competitors that, from time to time, build smaller LIN\LOX tanks have been doing so for years

without making any headway against CB&I, and thus do not constitute entry that constrains the

merged firm as the two firms would have constrained each other absent the merger. And there is no

evidence of domestic entry in the LPG or TVC markets. 

Respondents’ claim of foreign entry is equally unfounded. None of the foreign competitors

identified byRespondents has ever – either before or in the more than two yearssince the Acquisition

– built any ofthese productsin the United States. Indeed, despite Respondents’ unfounded assertions

about foreign entry in the LNG market, there is not one single document from the companies

expressing any concern about this alleged, new competition. Instead, just before the trial, CB&I’s

CEO, Gerald Glennwas asked byan investorwhether competitionhad changed since the Acquisition;

he responded that because CB&I had lower costs, it could be the “low bidder and make more money.

. . than most of our competitors, if not all of them,” and that CB&I can “win the work” every time,

unless someone tries to bid below cost, in which case the attempted entrant will just “go out of

business.” CX1731 at 42-44. Mr. Glenn expressed absolutely no fear that any of these other firms

could constrain pricing by CB&I.

Indeed, as Mr. Glenn said after the Acquisition, CB&I “now ha[s] unequaled capability.”

CX1720. No wonder! Now that the “first and second lowest cost sellers” have merged into CB&I,

the merged firmhasthe abilityto “cause pricesto rise to the constraining level ofthe next lowest-cost
3

seller.” Dept. of Justice & Federal Trade Comm’n, Horizontal Merger Guidelines (1992, rev’d

1997) § 2.21, n.21. CB&I management even acknowledged that the Acquisition had created a “900-

pound gorilla” and that its margins were now going up dramatically. CX1681; CX1628-23. As Mr.

Scorsone had planned, higher margins were gained from higher prices, once PDM had been

eliminated. 

Respondents did not present any evidence of pro-competitive efficiencies or cost savings

arising out of the merger. Nor does PDM's "exiting assets" defense help Respondents, since PDM's

assets were not "exiting," and PDM did not try to sell the assets to anyone else.

Finally, Complaint Counsel has little quarrel, generally, with the thorough work of Judge

Chappell’s Initial Decision, except for two points: First, we believe that the undisputed evidence

established actual anticompetitive effects – an independent ground for affirmance. Detailed evidence

of higher post-merger margins and prices, none of which are attributable to pro-competitive

efficiencies or cost savings, demonstrate the illegality of this Acquisition. The ALJ also discounted

undisputed incidents of collusion, even though in one case the other bidder admitted that CB&I asked

to “coordinate on making a price bid to TRW,” and the customer testified that it was now “basically

hosed.” Gill, Tr.247, 274; Neary, Tr.1451.

Second, while Judge Chappellrecommended “complete” divestiture of PDM as a “viable and

going concern that will enhance competition” in the relevant markets, he omitted details of typical

Commission orders to ensure that such a divestiture be completely effective, including, inter alia, a

transfer of ongoing business. These additional measures are critical to restoring competition “to the

state in which it existed prior to, and would have continued to exist but for,” the unlawful

Acquisition. ID-120 (citation omitted). Accordingly, with the addition of these two points,

Complaint Counsel asks this Commission to affirm the ALJ’s Initial Decision. A proposed order is
4

attached. 

 STATEMENT OF FACTS

1. A History of the Proceedings

On August 29, 2000, CB&I agreed to acquire PDM’s EC and Water Divisions for $93.5

million. IDF-521-22. The Acquisition was consummated on February 7, 2001 (IDF-545), despite

the concerns communicated by FTC staff about the proposed merger and the outstanding subpoenas

and CIDs directed to the parties. Thereafter, the FTC staff continued its investigation.

The Commission issued the Complaint on October 25, 2001. The hearing commenced

November 12, 2002, and concluded January 16, 2003. In an initial decision filed June 12, 2003, the

ALJ found that there was reliable, probative, and substantial evidence that the Acquisition may

substantially lessen competition in the relevant markets. ID-3. The ALJ ordered divestiture of the

PDM EC and Water Divisions, finding that divestiture is the appropriate remedy to restore

competition. ID-121.

2. The Relevant Markets

JudgeChappell correctly found, andRespondentsdo not dispute, that the relevant geographic

market is the United States, and the relevant product markets are: (1) liquefied natural gas (“LNG”)

storage tanks, (2)liquid nitrogen, oxygenand argon(“LIN/LOX”)storage tanks, (3)liquid petroleum

gas (“LPG”) storage tanks, and (4) TVCs. IDF-14-85. LNG, LIN/LOX and LPG storage tanks are

large, field-erected tanksthat store gases and other products at low or cryogenic temperatures. IDF20-36. TVCs are large (over 20' in diameter), field-erected chambers that simulate the outer space

environment and are used to test satellites. IDF-37-45.
1

 For more detail, see CPF-129-46 (LNG), 147-70 (LIN/LOX), 171-78 (LPG) and 189-195

(TVC).

2

 Complaint Counsel measured market shares and computed market concentration based on

historicalsales since 1990. This methodology mirrors industry recognition of historical experience

as a critical factor in selecting vendors, a fact emphasized in Respondents’ business strategy and

marketing material. CPF-119-124. 

3

 Since 1975, CB&I and PDM were the only firms that built LNG tanks in the United States.

IDF-64. No foreign company has ever built an LNG tank in the United States. IDF-67.

4

 The only other competitor with significant sales since 1990, Graver, is out of business.

IDF-269-270. Two fringe competitors, Matrix and AT&V, comprise 4% of sales. IDF-269.

5

 The only remaining competitor is AT&V (IDF- 213) since CB&I acquired the other fringe

competitor (Morse). IDF-214. Including Morse’s sales, the CB&I/PDM/Morse combined market

share is nearly 100%. IDF-213-214.

6

 Since 1960, CB&I and PDM have been the only builders of TVCs. IDF-363. As recently

assixweeks before the Acquisition,CB&I vigorously competed against PDM, and advised customers

that CB&I would be a “long-term supplier and partner” of TVCs. CX 1599 at 7.

5

3. A 2-1 Merger that Creates a Dominant Firm with

Market Shares of 73% to 100% and HHIs of 5,800 to 10,000

Prior to the Acquisition, CB&I and PDM were, by far, the largest competitorsin the relevant

markets, each of which was highly concentrated.1 Table 1 below shows the market shares of the

merged entity, the post-merger HHIs and the increase in the HHIs (IDF-68, 218, 273, 371).2 

TABLE 1

Product Market Post-Merger Market Share Post-Merger HHI HHI Increase

LNG3100% 10,000 4,956

LIN/LOX473% 5,845 2,635

LPG591% 8,380 3,910

TVC6100% 10,000 4,999
6

4. CB&I and PDM Were Each Other’s Closest Competitor

With one or the other company accounting for nearly every LNG, LIN/LOX, LPG and TVC

project in the United States since 1990, not surprisingly Respondents’ ordinary course of business

documentsrepeatedly refer to each other as the closest competitor. Respondents’ business records

identify each other – to the exclusion of all other firms – as the “main competitor,” the “only

competitor,” the “major competitor,” the “two main players,” and a “formidable” competitor. IDF75-8, 228-30, 277-82, 376-77. Industry customers testified that “before [PDM] was taken off the

street . . . PDM was either number one or number two . . . [and CB&I was] either number one or

number two.” Gill, Tr.204-05; IDF-380.

The intense rivalry drove prices and margins down. For example, in March 2000, a CB&I

sales manager e-mailed his team to lament that PDM is “‘eating our lunch’ and we know much of it

is because of a CB&I cost problem. . . . What is PDM doing that gives them the ability to be this low,

this often? . . . We need to come up with a strategy to combat the effort PDM is making to erode our

market share.” IDF-484-86. A handwritten note from the files of PDM EC’s President described

1998-1999 as a period in which PDM was “forced to bid at lower margins” due to “competition

w/CBI.” IDF-488. Other documents warn that the price competition was forcing each company to

bid at “unattractive prices,” “negative margins” or only “slightly over PDM EC’sflat cost.” IDF-288,

487-90. There are numerous other examples of Respondents’ aggressive pricing, all of which

benefitted customers with lower prices. IDF-83-87, 286-89, 388-406.

Based on this evidence, the ALJ correctly found that prior to the Acquisition, “no other still

existing company challenged CB&I’s market power” like PDM, and having “bought its closest

competitor . . . CB&I is no longer required to submit the lowest possible bid to win projects.” ID95-96.
7

5. Respondents Accurately Predicted that the Acquisition

Would Permit the Merged Entity to Raise Prices and Margins

Respondents’ initial assessments of a possible merger recognized its likely impact: [ 

 ] and [ 

 

 ] [ ]. But they also saw an opportunity to gain “market dominance in Western

Hemisphere.” IDF-492. Executives described the combined entity as the “900 pound gorilla,” a

“powerhouse” and a “dominant force.” IDF-492-94; CPF-737.

While the Acquisition was still pending, PDM and CB&I executives met to “brainstorm”

about the merger’s “Objectives.” IDF-495. The group outlined the following objectives: (1) “Create

barriers to entry as they can be built;” (2) “Defend an expanding market share;” (3) “Ensure that we

do not allow smaller competitors to take share and pursue business in our attractive markets;” (4)

“Put plans in place to command premiums for the services we provide;” and (5) “Improve pricing to

achieve margin growth from 12.5% to 17%.” IDF-495. Respondents refined this strategy and

worked on it together prior to the closing of the Acquisition. IDF-495-96; Scorsone, Tr.5209; [ 

 ] at CBI003609-HOU; see CPF-729-748.

6. Since the Acquisition, CB&I Publicly Acknowledged that

Competition Has Been Substantially Lessened

For years before the Acquisition, CB&I’s SEC filings warned investors that intense

competition was one of the “Risk Factors” confronting CB&I. One typical SEC filing reported that

“aggressive price competition” has put “substantial pressure on pricing and operating margins.”

CX1633 at 18; see also CPF-754. However, with the elimination of PDM as its closest competitor,

CB&I’s post-merger SEC filings say nothing about competitors restraining its pricing power.

CX1021 at 7-13; see also CPF-757-758. CB&I’s recent presentations to investors emphasize
7

 For more detail, see CPF-1108-64 (Spectrum Astro), CPF-1165-80 (TRW), CPF-1181-

1220 ([ ]), CPF-777-830 and CRF 3.95, 3.618-3.641 (Cove Point), CRF 3.95, 3.254 (CMS),

CPF-929-954 (Memphis), CPF-1007-26 (Yankee Gas), CPF-831-882 (BP), CPF-1058-70 (Linde),

CPF-1071-86 (Praxair), and CPF-1087-1107 (MG Industries).

8

“margin improvement and accelerating earnings growth,” unimpeded by competition fromany close

competitor. CX1527 at 2; see also CPF-761-766.

On October 31, 2002 (six weeks before testifying before the ALJ), Gerald Glenn, CB&I’s

CEO, met with investorsto explain CB&I’s abilityto “win the work every time” against competitors.

CX1731 at 44-45. When asked about the increase in gross margins, Mr. Glenn confirmed that the

“margin levels are high. . . . [w]e can still be low bidder and make more money on it than most of our

competitors, if not all of them.” CX1731 at 41-42. When asked about changes in the competitive

landscape, Mr. Glenn responded that the “markets and prospects appear more attractive to us today

than at any time in our recent past. . . . [m]aybe its 30%” better. CX1731 at 4, 28; see CPF-753-776.

7. The Merger Has Had Actual Anticompetitive Effects

As predicted byRespondentsin their business plans, and by economic theory, the elimination

of CB&I’s closest competitor has allowed the merged entity to raise prices and increase margins. In

the LNG market, Respondents’ business records show pre-merger margins ranging from 2.5% to

15%. CPF-1027. CB&I’s documents show that post-merger margins range from 15% to 30% and

more. CPF-1028. In the other relevant markets, CB&I has raised prices dramatically since the

Acquisition. None of the increases in margins is attributable to reduced costs – Respondents did not

present any evidence of pro-competitive efficiencies or cost-savings arising out of the merger.

There are numerous instances of post-merger anticompetitive effects.7

! Spectrum Astro: After they announced the merger but months before the deal closed,

CB&I and PDM executives met and discussed bidding on a TVC project, saying that the customer

was now “D.O.A.” Two months before the deal closed, CB&I discussed colluding with PDM to 
9

[ ] to the customer. Then, for the first time they did not have “fractious competition” and

quoted high prices. After the merger, CB&I raised the price and the margin above pre-merger levels

(from 7.77% to 11.97% margin). IDF-425, 431-32. The customer was extremely unhappy. Scully,

Tr.1194; Scorsone, Tr.5112, 5114; CX1489 at 3; [ ], in camera; CX1705.

! TRW: Just weeks before this trial, CB&I met with its claimed competitor, Howard

Fabrication, and agreed to “coordinate on making a price bid” on a TVC project for TRW. CB&I

knew that it and Howard were bidders on this same project. As the customer, Mr. Neary, testified:

TRW is now “basically hosed.” Gill, Tr.247, 274; Neary, Tr.1451 (emphasis added).

! [ ] Prior to the merger, competition between Respondents reduced the price

by over $4 million on a TVC project for [ ]. [ ] On another

TVC project for [ ], Respondents initially bid [ ] before the merger. [ 

]. After the merger, CB&I was asked for a firm offer, and it proposed a price of [ ]. [

 

 ]. The only logical reason that CB&I would raise its price is the lack of competition postAcquisition.

! Cove Point: Before the Acquisition, CB&I competed against PDM and forced the

price on an LNG tank down by about $5 million and to a margin of 4-7%. But, once the merger was

announced (but before the deal closed), Respondents met to discuss pending bids. CB&I then

dropped out ofthe bidding, and the price went up in what PDM called a “fat” and “rich” bid, and the

margin increased to 16%. RX323 at 12. After the merger, CB&I again increased its price, and it

increased its margin to 22.3%, nearly double CB&I’s worldwide average margin. RX323 at 12;

Scorsone Tr.5263; CX1628 at 23.

! CMS: Using the “fat” and “rich” post-merger bid onCove Point as a new benchmark,

CB&I submitted a bid on CMS’ LNG project that is [ ] than what CB&I had bid for the

same-sized tank before the merger. [ ] The customer became “comfortable” with

CB&I’s post-merger bid after checking [ ] price and because CB&I’s bid was

[ ] [ ], but unknown to CMS, CB&I’s

post-merger Cove Point price provides a margin [ ] than the pre-merger margin

and [ ] the current worldwide margin level; nor can CMS know that CB&I’s current bid is

[ ] than what CB&I had normally bid when PDM existed as a competitive restraint.

[ ]; see graph opposite page 54, infra.

! Memphis: In 1995, with an [ ], CB&I beat PDM for an LNG tank. [ 

 ]. Both their bids were well below any other competitor’s bid. IDF-84. After the merger, CB&I

bid more than a [ ] margin for a similar tank in Memphis. CB&I based this [ ] margin on 

the actual margin they had at [ ]. [ ]. The

customer, who is obviously aware of foreign suppliers, has chosen not to pursue any ofthem, calling

CB&I the “only qualified supplier.” CX1157.
8

 Respondents' principal witnesses on the entry issue were senior executives of CB&I,

Messrs. Scorsone and Glenn, who spoke only about press releases by foreign firms mentioning

possible future entry into the United States LNG market, but these press releases were admitted into

evidence under the "state of mind" exception to the hearsay rule, and Mr. Scorsone conceded that

the press releases themselves were obtained from CB&I's attorneys rather than kept in the ordinary

course of business. Scorsone, Tr.5096-5097.

10

! Other instances ofhigher prices and margins post-merger include bidsto Yankee Gas,

Linde, Praxair, MG Industries and [ ], all of which also demonstrate that CB&I has had few

competitive restraints on it once PDM was eliminated. [ ], 1007-26, 1058-1107.

8. Entry Has Not Restrained CB&I from

Exercising Market Power Since the Merger

Respondents argue that entry by any number of foreign firms can provide the same

competitive restraint as PDM. However, the record is devoid of any CB&I documents or evidence

that mention these would-be entrants.8

! CB&I's business documents speak of the [ ] that

will be created upon acquiring PDM [ ], of the existence of "barriers to entry" (IDF-496),

and efforts to "ensure that we do not allow smaller competitors to take share and pursue business in

our attractive markets" and efforts to increase “pric[es] to achieve margin growth.” IDF-495. 

! CB&I's 1999 10-K boasts of its "long-term presence" in local markets, and how this

experience translates into a "competitive advantage through knowledge of local vendors and

suppliers, as well as of local labor markets and supervisory personnel." CX1032 at 8; see also

CX1033 at 4-5 (because of CB&I's "long and outstanding safety record, we are invited to bid on

projects for which other competitors do not qualify").

! CB&I's post-merger SEC filings say nothing about perceived or threatened

competition fromforeign or domestic firms as a "Risk Factor," whereas pre-merger filingsrepeatedly

cautioned investors that "competition has resulted in substantial pressure on pricing and operating

margins." Compare CX1633 at 18 with CX1021 at 7-13 and CX1718 at 3.

! CB&I has achieved significant growth in margins and revenues since the merger. As

noted above, Statement of Facts ¶7, margins on LNG projects are double and triple their pre-merger

levels. Prices have increased as well. Id. CB&I's investor presentations tout that CB&I is "well

positioned for revenue growth and margin improvement," and do not identify foreign or domestic

entry as a potential threat. CX1628 at 22; see generally, CPF-761-766.

! CB&I's October 2002 conference callwithinvestors, led byCEO Glenn, distinguished

CB&I's ability to "win the work every time" because of customers' desire to award projectsto firms
9

 Skanska/Whessoe won a recent LNG project for Dynegy in Louisiana, but only after CB&I

refused to bid. CPF-978-1006; IDF-89-101. Dynegy's consultant on the project, who has experience

and knowledge of bids submitted by Respondents and foreign firms on other United States projects,

expressed "concerns" that the price Dynegy will pay for the LNG tanks from Skanska/Whessoe will

be "higher" without CB&I's participation in the bidding. Price, Tr.622. Indeed, Whessoe's Dynegy

bid is [ ] than its bid four years earlier to another United States customer for the samesized LNG tank. [ ].

11

with a proven track record against the "low price and a potentialsecond classjob or shoddy welding"

provided by other firms. CX1731 at 44-45. Given its superior reputation with customers, Mr. Glenn

opined that "our markets and prospects appear more attractive to us today than at any time in our

recent past." CX1731 at 4, 28.

! Of the eleven new LNG projects in the United States currently under development,

CB&I has won or is currently the sole source on at least six projects, has a good chance of winning

four other projects, and has refused to submit pricing in a timely manner on the 11th project

(Dynegy). ID-103; CPF-581-591.

Respondents have come up with a long list of foreign and domestic firms as new entrants.

The specific evidence about each firmand why, even in combination, theywill not restore competition

to pre-merger levels are discussed at CPF-448-570 and CRF 3.57–3.227. Generally, the firms

identified byRespondents are not "new entrants" because they are the same firmsthat have tried, and

failed, to compete against Respondentsin the United Statesfor decades. None of the firms, including

the large foreign ones touted by Respondents, has ever constructed an LNG tank in the United

States.9 The firms attempting to compete in the LIN/LOX, LPG and TVC markets are small fringe

firms with poor reputations.

Foreign and domestic competitors cannot overcome the large cost-advantage enjoyed by

CB&I. A key merger planning document reveals that CB&I will "use pricing advantage as necessary

to not lose market share to competitors during the merger." IDF- 496; CX1544 at CBI057941; see

CX1731 at 42, 44-45 (Mr. Glenn's October 2002 investor conference call: "we can still be low bidder

and make more money on it than most of our competitors, if not all of them. . . . short of somebody
12

coming in, which they do, and just taking a big dive on the price, that we can win the work every time

technically. And if they want to dive [and] take the work for less than they can execute it for, that's

fine, we'll just sit and watch them go out of business, too"). Mr. Glenn added that CB&I was doing

better now than it had done in a decade and expressed no fear of competition.

CB&I’sinternal assessment ofits cost advantage is borne out by past bidding experiencesfor

LNG tanks in the United States. In 1994, Memphis Light and Gas received bids from CB&I and

PDM that were almost identical in price, but the quotes from Whessoe and TKK and their United

States partners were 40-60% higher. IDF-84. In 1998, [ ] compiled bids from PDM, CB&I and

Whessoe for various sizes and types of LNG tanks -- while PDM’s and CB&I’s prices were

comparable, Whessoe's prices were [ ] higher than CB&I's prices. RX157 at

[ ]02004; see also CPF-869-872. CB&I's recent bid to CMS demonstrates that even after raising

prices by [ ] from pre-merger levels, CB&I's bid was still [ ] below

[ ] bid.] [ ].

Other barriersthat impede entry into the relevant marketsinclude (1) the lack of a fabrication

facility in the United States (IDF-174; CPF-307-08); (2) an insufficient revenue base and scale

sufficient to compete forlarge projects(IDF-175-76;CPF-309-20);(3)lack ofknow-how(IDF-166,

329, 416;CPF-321-34);(4)lack ofprior experience (IDF-167-73, 252, 328, 334, 415;CPF-335-64);

(5) inability to complete projects on schedule (CPF-365-69); (6) lack of knowledge about local

business conditions (CPF-370-85); and (7) high sunk costs (IDF-333, 418; CPF-386-91).

9. The Facts Do Not Support Respondents' So-called "Exiting Assets Defense"

In May of 2000, PDM decided to sell the company. Its investment bankers identified dozens

of viable buyers. IDF-511, 528, 534. However, PDM never contacted any of these firms or any

other entities (except CB&I and Enron). IDF-529 ("I don't know of anybody that PDM contacted,
13

anybody other than CB&I and Enron"); Scheman, Tr.2931. Indeed, PDM turned away prospective

buyers who expressed interest in buying PDM. IDF-531.

Instead, shortly after PDM announced its decision to sell the company in July, PDM offered

the company to CB&I. Glenn, Tr.4077-4078. CB&I offered $93.5 million for PDM, which was at

the "high end" of PDM's own valuation estimates and unlikely to be matched by any other firm. IDF524; Glenn, Tr.4261-62 (Mr. Glenn admitsthat PDM was worth more to CB&I than to other firms).

PDM viewed CB&I as a "preemptive buyer" and this meant that PDM "never went out to other

people." IDF-520. 

There is no evidence that PDM was failing or that its assets would have exited the market.

For years leading up to the CB&I transaction, PDM was a "profitable" company. IDF-535. Its

revenues and earnings steadily increased until 2000, when PDM suffered a loss, but the company

believed the decline was "short lived" and projected a return to profitabilityand continued growth the

very next year. IDF-544.

Had the CB&I transaction not proceeded, PDM's Board ofDirectors were advised that PDM

would seek other buyersrather than liquidate the company: "the Company would continue its efforts

to sell the PDM EC and PDM Water divisions by seeking other purchasers." IDF-551; see also

RX163 at TAN1000406 (investment banker advises that PDM's EC and Water Divisions "could be

marketed independently in stand-alone transactions"). Before making any recommendation to

liquidate, PDM executives had a fiduciary duty to exhaust alternative avenues, but its executives

never got to that point and the Board of Directors never took up the issue of liquidation because

CB&I’s offer had been accepted. IDF-549, 552.
14

10. The ALJ's Divestiture Order IsInsufficient to Completely Restore Competition

CB&I acquired both tangible and intangible assets of PDM’s industrial and water tank

constructionbusinesses, whichwere “inextricablyintertwined” because they routinely shared services,

human resources, physical plant and equipment. IDF-566-72. Among the most important assets

were PDM’s proprietary rights in existing customer contracts. CX334. This backlog of PDM

construction projectsrepresented the block of business that CB&I obtained fromPDM as a result of

the Acquisition. At the time of the Acquisition, these construction projects represented future

revenues for PDM in the form of work-in-progress as well as work to be started and completed in

the future. Almost all of these contracts have now been completed. However, as of December 31,

2001, the merged firm’s backlog of work orders had a total value of $835.1 million. CPF 1343.

The ALJlimited the divestiture to those assetsthat were purchased in the illegalAcquisition.

ID-120. The ALJ denied Complaint Counsel's request for divestiture of “45% of the total combined

dollar value of CB&I’s Tank Business Customer Contracts,” CCPO at II.C.3, because this would

result in divestiture of assets not obtained in the Acquisition – regardless ofthe fact that CB&I would

not have won all these contracts if PDM had still been in the market. ID-122. 

In order to be a viable and effective competitor in the relevant markets, a new company must

have a sufficiently large revenue base to compete for projects. IDF-586-90. Suppliers need a

substantial revenue base in order to meet customer demands for bonding and other financial

guarantees. IDF-589. Prior to the Acquisition, PDM’s revenue base was sufficient for it to compete

for LNG business. IDF-590. Moreover, the new company will need a track record of successful

project completionsin order to successfully compete in the relevant markets, but a track record takes

time to build if a company is starting from scratch. IDF-579; CPF 1339-42. 

A track record also requires experienced people, but the ALJ declined to order the transfer
15

of employees to the new company. ID-122. The Order issued by the ALJ only precludes CB&I

fromoffering incentives to its employees or enforcing non-compete clauses to keep employeesfrom

transferring to the acquirer, but fails to require CB&I to take affirmative measures to assure that the

acquirer has sufficient personnel. 

SUMMARY OF ARGUMENT

1. Complaint Counsel Established a Strong Prima Facie Case

Respondentsdo not dispute the market definitionsforLNG, LPG, LIN/LOX tanks and TVCs

that are field erected in the United States. The ALJ found that CB&I bought its closest competitor,

eliminating the strong bidding competition between them and allowing CB&I to achieve market

dominance, thereby establishing the prima facie case. ID-96. HHIs confirm this conclusion.

Whether one uses HHIs, a bidding model, or a “first” and “second” choice analysis, the Acquisition

eliminatedCB&I’smostsignificant competitorin the relevant markets, withno new entryto constrain

CB&I from raising prices.

2. Respondents Have No Evidence of Timely, Likely and Sufficient Entry

There simply is no evidence of any entry – only those same companiesthat were on the fringe

before the Acquisition and remain so still. Respondents also failed to introduce any evidence relating

to the “timely, likely and sufficient” standard that was established by the 1992 Merger Guidelines and

adopted by both the Commission and federal courts. Thus, the ALJ properly concluded that

Respondents could not rebut Complaint Counsel’s prima facie case. Of all the LNG projects for

whichRespondentsintroduced evidence, only one, Dynegy’sHackberryproject,mayuse a firmother

than CB&I – and even then only because CB&I refused to bid for that project. Evidence relating to

the activity of foreign LNG competitors in many instances consisted only of expressions of interest,

which they have done for over a decade with no actual entry whatsoever. The only competition to
16

CB&I in LPG or LIN/LOX tanks is AT&V, which competed in its own small way both before and

after the Acquisition, but has not restrained CB&I’s pricing like PDM once did. As the ALJ properly

found, AT&V does not compete on the same level as CB&I or PDM. There are no entrants of any

kind in TVCs or LPG tanks.

The ALJ also properly recognized that barriers to entry are high in each of the relevant

markets. Higher costs, reputation, the learning curve, specialized know-how, experience and

fabrication capability are all entry barriers in each of these markets. Foreign LNG competitors have

not surmounted these entry barriers. The alleged entrants in LIN/LOX, AT&V and Matrix,

demonstrate the existence of high entry barriers: collectively they have not achieved a price

constraining presence comparable to PDM. In the LPG and TVC markets, only CB&I is recognized

as a possible manufacturer of these products. 

Finally, Respondents’ claim that CB&I was not a competitor in the TVC market is not true.

For three decades, only CB&I and PDM competed for these projects. Right up to the Acquisition,

CB&I and PDM competed for TVC projects, and this competition drove prices down. Now, CBI

has the market to itself. 

3. The Commission May Affirm for the Independent Reason of Proof of 

Anticompetitive Effects

Complaint Counsel also introduced substantial evidence, not relied upon by the ALJ, that

CB&I hasincreased prices and margins post-Acquisition and engaged in collusive activity. Evidence

of such conduct or price increases proves the absence of sufficient competitive constraints and

“cements” Complaint Counsel’s case. Von Kalinowski, J., ANTITRUST LAW &TRADEREGULATION

(2d ed. 1996) at § 4.03[4] (hereinafter “Von Kalinowski”). The evidence of price and margin

increases is contained in pricing documentsthat were admitted and should not have been discounted
17

by the ALJ. Moreover, he discounted erroneously the undisputed evidence of collusion, which

established that the only CB&I sales manager for TVC products had attempted to collude with the

only other potential competitorfor a project. This evidence, too, demonstrates the risk of harm from

this Acquisition. 

4. Even If There Were an “Exiting Assets” Defense, Respondents Cannot Satisfy 

Any Element Thereof

The Commission has rejected Respondents’ so-called “exiting assets” defense. Olin Corp.

v. FTC, 986 F.2d 1295, 1305 (9th Cir. 1993). Even if this Commission were to create such a new

defense, Respondents’ argument fails, as the argument did in Olin, because they cannot establish

either of the two proposed requirementsforsuch a defense: (i) that the company made an exhaustive

effort to sell the assets to others in the market; and (ii) absent the acquisition, the assets would

actually exit the relevant market. ID-117-18; Olin, 986 F.2d at 1307. 

5. Complete Divestiture of the Acquired Assets Is the Appropriate Remedy 

for Respondents’ Illegal Conduct

The ALJ ordered “complete divestiture,” yet his order fallsshort of achieving this. Although

his Order provides a good basis for more competition than exists now, it isinsufficient to accomplish

the legally mandated goalofrestoring competition“to the state in which it existed priorto, and would

have continued to exist but for” the unlawful Acquisition. B.F. Goodrich, 110 F.T.C. 207, 345

(1988). The ALJ’s Order eliminated or modified provisions of the Complaint Counsel’s Proposed

Order (“CCPO”) that are critical to assuring a divestiture that results in a completely effective new

competitor, including: (i) that CB&I divest an appropriate portion of the merged business and

contracts; (ii) replace assets that have been disposed of or that have expired; (iii) take affirmative

steps to encourage the transfer of key employees to the acquirer; and (iv) provide transitional

technical assistance to the acquirer. The ALJ also eliminated, perhaps inadvertently, other language
18

and definitions that have been time-tested by this Commission in previous orders and which should

be restored. 

In sum, with the addition of the two points discussed herein (i.e., findings on competitive

effects and a more adequate divestiture), Complaint Counselrequeststhat the Commission affirmthe

ALJ’s Initial Decision and issue the attached Order.

QUESTIONS PRESENTED

Complaint Counsel does not appeal the ALJ’s Initial Decision, except as follows: 

1. Should the ALJ’s Initial Decision also be affirmed for the independent reason that the

Acquisition has caused actual anticompetitive effects in the relevant markets?

2. In order to restore competition lost as a result of the illegal merger, should the Commission:

a. Require CB&I to divest a portion of the merged business, including a portion of

contractual business?

b. Require CB&I to replace assets acquired from PDM that CB&I has eliminated?

c. Require CB&I to take affirmative steps to facilitate the transfer of key employees to

the divested company?

d. RequireCB&I to provide technical assistance to an acquirer for a transitional period?

e. Appoint a person to monitor CB&I’s compliance with the Commission’s Order?

ARGUMENT

I. COMPLAINT COUNSEL ESTABLISHED A STRONG PRIMA FACIE CASE.

The ALJ found that Complaint Counsel had established its prima facie case by showing that

CB&I’s acquisition of PDM produced a firm controlling a large share in each of the four relevant

markets. ID-88. 

Section 7 of the Clayton Act prohibits acquisitions “in any line of commerce or in any

activity affecting commerce. . . [if] the effect of such acquisition may be substantially to lessen
19

competition, or to tend to create a monopoly.” 15 U.S.C. § 18 (emphasis added). To prove a

violation of Section 7, Complaint Counsel “need only prove that the [acquisition’s] effect ‘may be

substantially to lessen competition.’” California v. American Stores Co., 495 U.S. 271, 284 (1990)

(emphasisin original) (citing 15 U.S.C. § 18). The law “does not require proof that a merger or other

acquisition [will] cause higher prices in the affected market. All that is necessary is that the merger

create an appreciable danger ofsuch consequencesin the future.” HospitalCorp. of America v. FTC,

807 F.2d 1381, 1389 (7th Cir. 1986) (“HCA”). Indeed, “Congress has empowered the FTC . . . to

weed out those mergers whose effect ‘may be to substantially lessen competition.’ ” FTC v. Heinz

Co., 246 F.3d 708, 713 (D.C. Cir. 2001) (quoting H.R. Rep. No. 1142, at 18-19 (1914)). The

purpose of the Clayton Act § 7 is to stop such a lessening of competition in its “incipiency.” United

States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 589 (1957).

Whether competition in the relevant markets is likely to be “substantially” affected by the

acquisition is measured by competition in the markets before and after the acquisition. See, e.g.,

Merger Guidelines; 4 P. Areeda, H. Hovenkamp & J. Solow, ANTITRUSTLAW ¶ 927 (rev. ed. 2000)

(hereinafter “Areeda”). The reason that high concentration may be a good barometer of whether an

acquisition“may” affect a market “substantially” isthe well-established economic theory“that,where

rivals are few, firms will be able to coordinate their behavior, either by overt collusion or implicit

understanding,” or unilaterally raise prices. Heinz, 246 F.3d at 715 (quoting FTCv. PPG Indus., 798

F.2d 1500, 1503 (D. C. Cir. 1986)); Merger Guidelines §§ 2.1, 2.2. Anticompetitive effects have

already occurred in this case. But this is rare, and it is the statistical market-share analysis that creates

a legal presumption that unilateral effects may be likely, and that is exactly what the ALJ found here.

Heinz, 246 F.3d at 715; ID-88.
20

A. However Concentration Is Measured, the Acquisition Greatly Increased

Concentration in Highly Concentrated Markets to Extraordinary Levels

No matter how concentration is measured in this case, the Acquisition greatly increased

concentration in highly concentrated markets. Judge Chappell found that Complaint Counsel had

established a prima facie case bypresenting reliable and probative evidence demonstrating that CB&I

and PDM were the number one and two competitors in all four product markets and that no other

company is likely to provide effective competition. ID-88. Based on his analysis of bidders, both

successful and unsuccessful, Judge Chappell properly held that “[w]here, as in the instant case, the

two largest competitors in thin product markets merge, the increase in market concentration and

substantial lessening of competition are merely common sense conclusions.” ID-89.

1. HHI Analysis Demonstrates High Concentration

Under the Merger Guidelines, concentration may be measured by determining the market

shares and the Herfindahl-Hirschman Index (“HHI”). PPG Indus., 798 F.2d at 1503; FTC v.

University Health, Inc., 938 F.2d 1206, 1211 n.12 (11th Cir. 1991) (HHI is the “most prominent

method” of measuring market concentration); Merger Guidelines § 1.5. The market definitions here

are not in dispute. IDF-14-19. 

When concentration is high in each relevant market, and the merger causes a significant

increase in the concentration (e.g., an HHI level over 1,800 and an increase of more than 100), an

acquisition is “presumed” to be “likely to create or enhance market power.” Merger Guidelines

§ 1.51 (emphasis added); Heinz, 246 F.3d at 715 (explaining that high concentration “establishes a

‘presumption’ that the merger will substantially lessen competition”). When post-acquisition HHI

measurements are in the range of 3,500 to 4,800, the FTC and courts have uniformly held that there

is “bya widemargin, a presumption that the merger will lessen competition.” Heinz, 246 F.3d at 716;
21

See Coca-Cola Bottling Co. of the Southwest, 118 F.T.C. 452, 586 (1995) (HHIs of over 3,570 are

“far above those that the courts have held to establish a legal presumption of illegality”). 

In each of the relevant markets, CB&I and PDM accounted for over 70% of all sales made

over the last decade. CPF-5. In LNG tanks and TVCs, Respondents accounted for all of the sales,

resulting in a post-Acquisition HHI of 10,000 – or, as the Merger Guidelines calls it “a case of pure

monopoly.” Merger Guidelines § 1.5, n.17; IDF-68, 371. In LIN/LOX, the post-Acquisition HHI

is 5,845. IDF-273. In LPG, the post-Acquisition HHI is 8,380. IDF-218.

Because sales of the relevant products are made infrequently, Complaint Counsel examined

market shares over eleven years, from 1990 to the time of the Acquisition in early 2001. Merger

Guidelines § 1.41 (“where individual sales are large and infrequent so that annual data may be

unrepresentative, the Agency may measure market shares over a longer period of time”). See

CPF 110-128. Measuring market share over a long period of time is also consistent with the

importance that customers place on reputation and experience in these markets. ID-107. 

2. CB&I Acquired Its Closest Competitor, PDM, and Won Most 

of the Bids for a Significant Period of Time

Under the Merger Guidelines, the undisputed fact that both CB&I and PDM have been

customers’ “first” or “second” choicesfor well over a decade for more than 73% to 100% ofthe bids

awarded in the United States demonstrates that “a significant share of sales in the market are

accounted for by consumers who regard the products of the merging firms as their first and second

choices.” Merger Guidelines § 2.211. The historical combined market shares of 100% for LNG;

73% for LIN/LOX (including Graver, which has since exited the market); 99% for LPG (including

Morse’s share, asit is now part ofCB&I); and 100% for large, field erected TVCs, demonstrates the

prima facie case. CPF-5, 180; Merger Guidelines § 2.211.
22

Although the ALJ did not rely on the HHI calculations, the market concentration evidence

in this case reaffirms the ALJ’s conclusion that Complaint Counsel has established a presumption of

illegality in all four markets. ID-96. The Acquisition combined the two leading competitors and

increased concentration substantially in each of the relevant markets, increasing the HHI to extreme

levels of 5,800 to 10,000 – the level of “pure monopoly.” Merger Guidelines § 1.5, n.17; CPF 99-

109. When one compares these HHIs to recent decisions where the FTC has prevailed, it is apparent

that Complaint Counsel’s prima facie case has already been made overwhelmingly. See, e.g., FTC

v. Cardinal Health, Inc., 12 F. Supp. 2d 34, 54 (D.D.C. 1998) (2,224 HHI); FTC v. Swedish Match,

131 F. Supp. 2d 151, 167 (D.D.C. 2000) (4,733 HHI); Heinz, 246 F.3d at 716 (5,285 HHI); FTC

v. Libbey Foods, Inc., 211 F. Supp. 2d 34 (D.D.C. 2002) (5,251 HHI). 

3. Respondents’ Contemporaneous Documents Confirm that 

CB&I and PDM Were Each Other’s Closest Competitor

Moreover, Respondents viewed each other as their closest competitor. ID-96; IDF-75-78,

228-232, 277-282, 376-79. Customers and other industry members shared this view. IDF-79-82,

232, 283-285, 380-386. In early 2000, Mr. Scorsone estimated for the PDM Board that PDM and

CB&I each had a 30% and Morse a 10% market share in domestic tanks (including cryogenic tanks)

for a total of 70% market share for the combined CB&I/PDM/Morse. CX660 at 3; Scorsone,

Tr.5179-5180. Mr. Scorsone also admitted that CB&I was PDM’s only competitor on domestic

LNG, LPG and TVC projects. Scorsone, Tr.5183; CX660 at 2, 5. He admitted that these were the

“best” estimates he could make. Scorsone, Tr.5181. There is no evidence to the contrary.

Moreover, competition between CB&I and PDM forced each company to reduce its price and

margins for the relevant products. ID-96; IDF-83-87, 231, 286-291, 388-406. 
23

Thus, no matter what method one uses to analyze the markets, before the Acquisition CB&I

and PDM dominated them; now only CB&I does. The only difference is that the tough competition

with PDM has been eliminated, and no one is poised to take PDM’s place. 

B. Respondents’ Argument that the ALJ Ignored Post-Acquisition Evidence Is

Factually Incorrect and Legally of No Consequence

Respondents argue that in finding a prima facie case, the ALJ erroneously relied exclusively

on pre-Acquisition market share data and ignored recent structural changes in the relevant markets.

RAB-12. Respondents are wrong in asserting that a court must take into account post-acquisition

evidence in determining whether the government has established a prima facie case. Courts have

consistently said market share data is sufficient to establish the government’s prima facie case. See,

e.g., United States v. Baker Hughes, Inc., 908 F.2d 981, 982-83 (D.C. Cir. 1990). In Syufy, cited

by Respondents, the 9th Circuit did not require the district court to take into account anything but

market share data in finding that a prima facie case had been established. United States v. Syufy

Enters., 903 F.2d 659, 665, n.6 (9th Cir. 1990) (“evidence of high market shares establishes a prima

facie antitrust violation, shifting to the defendant the burden ofrebutting the prima facie violation.”).

Similarly, in Archer-Daniels, also cited by Respondents, the court stated that “The HHI and firm

concentration ratios” “are sufficient to make out a prima facie case for the government.” United

States v Archer-Daniels-Midland Co., 781 F. Supp. 1400, 1421 (S.D. Iowa 1991).

Moreover, courts have consistently held that post-acquisition evidence must be viewed with

skepticism. “[P]ost-acquisition evidence that is subject to manipulation by the party seeking to use

it is entitled to little or no weight.” Hospital Corp., 807 F.2d at 1384; see also B.F. Goodrich Co.,

110 F.T.C. 207 at 341 (1988). If “post-acquisition evidence were given conclusive weight or allowed

to override all probabilities, then acquisitions would go forward willy-nilly, the parties biding their
24

time.” FTC v. Consolidated Foods Corp., 380 U.S. 592, 598 (1965). 

Nevertheless, the ALJ made extensive factual findings on post-acquisition competition and

entry in each ofthe relevant markets: LNG (IDF-88-165); LPG (IDF-233-49); LIN/LOX (IDF-292-

327); TVCs (IDF-407-414). Rather than ignoring this evidence, Judge Chappell considered it for its

proper purpose, deciding whether Respondents had rebutted the FTC’s prima facie case. ID-98.

Judge Chappell properly concluded that “the totality of the evidence establishes that potential and

actual entry is slow and ineffective and cannot keep these markets competitive.” ID-101.

In LNG,Judge Chappell analyzed the progress of eleven new LNG projects proceeding postAcquisition. ID-102. At the time of the decision, CB&I had been awarded one project and was

negotiating sole-source contractsfor five others. ID-103. Four other projects were not sufficiently

advanced to provide any basis for concluding that other manufacturers constrain CB&I’s exercise of

market power. ID-103. For some of these, Judge Chappell found that “the recent or potential

entrants’ level of participation rises only to the level of expressing an interest or participating in

preliminary meetings.” ID-103. For Dynegy’s Hackberry facility, the only post-Acquisition LNG

tank project that CB&I has not won, CB&I declined to submit a tank bid because it did not want the

customer to bid the tank competitively. ID-103; IDF-94-96. Judge Chappell similarly analyzed postAcquisition conditions in the LPG, LIN/LOX, and TVC markets and determined that actual or

potential entry is insufficient to challenge CB&I’s market power in those markets. ID-104-06.

Rather than ignore post-acquisition evidence, the ALJ used it for its proper purpose and examined

it in detail. Respondents simply do not like the conclusions the ALJ drew from it.
10 Similarly, there is no de minimis exception to the Sherman Act. United States v. SoconyVacuum Oil Co., 310 U.S.150, 224 n.59 (1940) (“the amount of interstate or foreign trade involved

is not material . . ., since § 1 of the [Sherman] Act brands as illegal the character of the restraint not

the amount of commerce affected”);see Polygram Holding, Inc, 5 Trade Reg. Rep. (CCH) ¶15,453

at 22,461 (July 24, 2003)(rejecting respondents’ argument that a joint advertising moratoriumshould

be excused because “the moratorium applied ‘only’ to two products and ‘only’ for a period of ten

weeks”).

25

1. Small Market Size Is Irrelevant as to Whether an Acquisition

Meets Section 7's Substantial Lessening of Competition Requirement

Respondents’ argument that Complaint Counsel cannot show a substantial lessening of

competition because of the small size of the relevant markets is legally and factually incorrect. To

think that products costing $10-50 million apiece are somehow insignificant would be plain error.

First,since the 1950 Celler-Kefauver Amendmentsto § 7 ofthe ClaytonAct, the sales volume

or size of commerce affected by an acquisition is not a factor in determining the legality of a

horizontal merger. S. Rep. No. 1775, 81st Cong., 2d Sess. p. 5, (1950). This is the plain meaning

of the phrase “in any line of commerce,” which the 1950 amendment added to the statute. United

States v. Bethlehem SteelCorp., 168 F. Supp. 576, 595 (S.D.N.Y. 1958) (A “merger violates Section

7 if the proscribed effect occurs in any line of commerce ‘whether or not that line of commerce is a

large part of the business of any of the corporations involved’”); United States v. du Pont, 353 U.S.

at 594 n.13. Thus, a properly defined or economically significant market is not exempt from Section

7 liability simply because it is relatively small.10 Courts have uniformly rejected Respondents’

argument. FTC v. Food Town Stores, 539 F.2d 1339, 1345 (4th Cir. 1976) (“The fact that the

markets in which the firms compete may be small is irrelevant under the Clayton Act, and does not

affect the legality of the merger”); United States v. Phillipsburg National Bank, 399 U.S. 350, 358

(1970) (“Mergers of directly competing small commercial banks in small communities, no less than

those of large banks in large communities, are subject to scrutiny under [§ 7 of the Clayton Act]”).
11 Between 1990 and early 2001, eight LNG tanks were sold in the United States with a total

value of $118.5 million (CPF 136, 146); 109 LIN/LOX tanks were awarded with a total value of

$107.3 million (CPF 151); fourteen LPG tanks were awarded with a total value of $52.1 million

(CPF 172); and one TVC was sold, with a total value of $12.3 million CPF 192. 

26

Moreover, the four markets had combined sales of about $250 million over the eleven years

prior to the Acquisition.11 This amounts to about $23 million per year, which is several times the

annual market size in Baker Hughes, 731 F. Supp. at 6, 9, n.6, which Respondents round upward to

“approximately $10 million.” RAB-10-11. Additionally, the amount of commerce in the United States

LNG tank market in the near future is likely to be high, both because of the upsurge in interest in

LNG and because of the high pricesfor LNG tanks following the Acquisition. Since the Acquisition,

CB&I hassold two LNG tanks in the United States, one to CMS and one to El Paso. IDF-105; RAB31. LNG tanks can cost around $50 million each. IDF-90. Numerous other projects, some of which

willrequire multiple LNG tanks, are currently planned. ID-103-04. Respondents’ brief concedes that

“LNG owners spend hundreds of millions of dollars on LNG tanks.” RAB-41. Even in the smallest

line of commerce, TVCs, TRW plansto purchase a TVC, with construction commencing in 2004, and

Spectrum Astro may procure a large TVC within three to four years. IDF-369, 408-09; Thompson,

Tr.2104.

II. RESPONDENTS FAILED TO REBUT THE PRESUMPTION OF

ANTICOMPETITIVE EFFECTS IN ANY OF THE RELEVANT MARKETS

Once Complaint Counsel has established a strong prima facie case through market share

evidence, the burden shifts to Respondents to provide similarly strong evidence to rebut the

presumption of anticompetitive effects. General Dynamics, 415 U.S. 486, 497-98 (1974). See B.F.

Goodrich, 110 F.T.C. at 305; Baker Hughes, 908 F.2d at 991 (“The more compelling the prima facie

case, the more evidence the defendant must present to rebut it successfully”). The ALJ properly found
27

that evidence presented by Respondents on alleged entry and customer sophistication simply did not

rebut the prima facie case, because they are not sufficient to constrain CB&I’s ability to increase

prices in the relevant markets. ID-101-02, 108-09.

 A. The ALJ Utilized the Correct Legal Standard: Entry 

Must Restore Competition to Pre-Acquisition Levels

Respondents have the burden to offer evidence that highly concentrated markets do not prove

a likelihood of anticompetitive effects. Respondents attempted an “entry” story, the legal standard for

which is clear, as set out in the Merger Guidelines and utilized by the D.C. Circuit and Commission

merger cases and recognized by the ALJ: entry must be (i) timely (within two years); (ii) likely to be

“profitable at premerger prices”; and (iii) sufficient to “deter or counteract” the possible

anticompetitive effects of the acquisition. Merger Guidelines §§ 3.0-3.4; Heinz, 246 F.3d 715-17

n. 13; Coca-Cola Bottling, 118 F.T.C. at 586; ID-100-02. 

The key factorin evaluating entry, asJudge Chappell correctly found, is whether it willrestore

competition to pre-Acquisition levels and constrain CB&I from raising prices. ID-101-02. Both

testifying economic experts, Drs. Simpson and Harris, agreed that entry would not be sufficient to

constrain CB&I fromraising pricesifCB&I and PDM had lower coststhan the potential competition.

Harris, Tr.7438; Simpson, Tr.3151-52. As the ALJ properly recognized, entry in this case cannot

restrain CB&I: “the decisive issue is that CB&I bought its closest competitor [PDM] which is not

likely to be replaced by an equally cost-effective and qualified competitor in any ofthe four markets.”

ID-95. This is classic footnote 21 Merger Guidelines material: two competitors, CB&I and PDM

were the lowest cost suppliers; they merged, and now prices are free to rise to the level bid by the

supplier with the next lowest cost. Merger Guidelines, n.21; see discussion III.A, infra.
12 The Merger Guidelines “represent the triumph of the economic approach; and the courts

have fallen into line with them quite readily.” R. Posner, ANTITRUST LAW 132 (2001). Indeed, in

Baker Hughes, the D.C. Circuit took the Department of Justice to task for failing to adhere to the

Merger Guidelines. Id. at 132 n.31.

28

Respondents erroneously cite Baker Hughes for the proposition that evidence of any actual

entry automatically rebutsthe government’s prima facie case and obviatesthe need to show evidence

of timely, likely and sufficient entry set out in the Merger Guidelines. RAB-14. Without citing any

authority, Respondents further argue that the Merger Guidelines do not require them to offer any

evidence on the third of these elements, sufficiency. RAB-33 n.17. Respondents fail to note that

Baker Hughes was decided prior to the 1992 Merger Guidelines, and fail to cite later cases from the

D.C. Circuit and the Commission adopting the three-element test that was set out post-Baker Hughes

and in the 1992 Merger Guidelines.

12

 Heinz, 246 F.3d 715-17 n.13; Coca-Cola Bottling, 118 F.T.C.

at 586; ID-101 (“the case law developed after Baker Hughes illustrates that a ‘quick and effective

standard’ for analyzing entry is no longer novel”); Merger Guidelines § 3.2.

Contrary to Respondents’ suggestion, RAB-33, Judge Chappell did not hold that an entrant

must replicate PDM in all respects, but instead examined whether new entry would be able to restore

pre-merger pricing, as is required by the Guidelines: “Where the likely and timely entry is not

‘sufficient to offset any post-merger pricing practices,’ defendants’ claim of entry and expansion is

‘insufficient to rebut the Government’s prima facie case.’” ID-101-02, citing Cardinal Health, 12 F.

Supp. 2d at 58. See ID-102 (“Rather, the inquiry is focused on whether those firms [the new

entrants] will actually prevent an exercise of market power.” (emphasis added)); Baker Hughes, 908

F.2d at 989 (The question is whether entry “would likely avert anticompetitive effects from [the]

acquisition”); Merger Guidelines § 3.2.
13

 The economic experts for both sides agreed that the mere fact that a merged firm loses

some sales does not imply that entry or fringe expansion will restore the pre-acquisition competitive

environment. Simpson, Tr.3151-52, Tr.3280-81; Harris, Tr.7792.

29

AsJudge Chappell correctly noted, Respondents’ evidence that other firms have bid on recent

projects does not, by itself, meet the sufficiency standard. ID-102. Respondents must be able to

demonstrate that competition from other firms will be sufficient to restrain the exercise of market

power by the merged firm. See United States v. Franklin Elec. Co., 130 F. Supp. 2d 1025,1033-35

(W.D.Wis. 2000) (rejecting defendants’ assertions that the presence of newly established competitor,

whose success was “highly uncertain,” would maintain the competition that had existed prior to the

acquisition); United States v. United Tote Inc., 768 F. Supp. 1064, 1080-82 (D.Del. 1991) (actual

entry insufficient to rebut prima facie case, unlessit would “constrain anticompetitive price increases

by incumbents.”). 

The Courts and the Commission have recognized that the simple presence of some potential

new competition is not sufficient to overcome the presumption of anticompetitive effects; those new

competitors must restore the lost competition.13 As the District Court stated in Cardinal Health:

“If the Defendants were to engage in anti-competitive practices after the mergers,

these and other smaller distributors would certainly win more business away from

the Defendants. However, . . . this Court finds that the likely and timely expansion

of entry into the market would not be sufficient to offset any post-merger pricing

practices that would result from the lack of competition. The record developed at

trial is not strong enough for this Court to conclude that the Defendants’ claim

of entry and expansion is sufficient to rebut the Government’s prima facie

case.”

12 F. Supp. 2d at 58 (D.D.C. 1998) (emphasis added). See FTC v. Staples, Inc., 970 F. Supp. 2d

1066, 1087-88 (D.D.C. 1997); Swedish Match, 131 F. Supp. 2d at 170; Coca-Cola, 117 F.T.C. at

960.
30

Finally, Respondents claimthat their evidence of entryisfar more compelling than the evidence

presented in Baker Hughes. As Judge Chappell noted, that is incorrect. Two firms had entered the

United States market in Baker Hughes and made actualsales of relevant productsin the year prior to

the merger, at prevailing, pre-merger pricing. Baker Hughes, 908 F.2d at 988-89. No competitor

here has had comparable success.

B. The ALJ Correctly Assessed the Facts: Entry 

Will Not Restore Competition to Pre-Acquisition Levels

Judge Chappell based his conclusion that other firms could not restore the competition lost

throughCB&I’s acquisitionofPDM on severaldifferent types of evidence. Judge Chappell found that

entrybarrierswere present in allfourrelevant markets. ID-106-8, IDF-166-76, 250-3, 328-34, 415-8.

Judge Chappell analyzed possible entrantsinto each of the relevant markets and concluded that these

possible entrants would not be as competitive as PDM had been. IDF-144-165, 237-249, 313-327,

410-414. Finally, Judge Chappell surveyed the winners, and likely winners, of new and potential

projects, and found that entry would not restore the pre-Acquisition competitive environment. ID102-6, IDF-88-143, 233-236, 292-311. 

Judge Chappell’s conclusion that entry would not restore the pre-merger competitive

environment is consistent with statements made byCB&I’s CEO, Gerald Glenn. Mr. Glenn admitted

that with the acquisition of PDM, CB&I “now ha[s] unequaled capability.” Glenn, Tr.4384; CX1720.

He also admitted that CB&I has lower coststhan its competitors. Glenn Tr.4381-82; CX1731 at 42.

Mr. Glenn said that CB&I can “win the work” whenever they want to, unless someone bids under

cost. Glenn, Tr.4380; CX1731 at 44. Mr. Glenn also admitted that reputation and quality work were

advantages that CB&I had that were not held by its potential competition. Indeed, CB&I’s

competitors include those that have financial difficulties, do “shoddy” work, and even if they try to
31

outbid CB&I, he expects them to eventually “go out of business.” Glenn, Tr.4380; CX1731 at 44.

Mr. Glenn expressed no fear of new entrants or expansion by existing competitors.

Despite this evidence, Respondents argue that Judge Chappell erred in concluding that entry

would not restore the pre-merger competitive environment and claim that the ALJ incorrectly found

barriers to entry (RAB-20-26), gave short shrift to price evidence from recent projects (RAB-34-39,

41-47), ignored a critical loss analysis performed by Respondents’ expert, Dr. Harris (RAB-47-48),

and gave little weight to opinions of customers (RAB-39-41). None of these claims are valid.

1. Entry Barriers Are High

Judge Chappell correctly identified several barriers to entry in the four relevant markets. An

entrant would need “sufficient personnelto design, engineer, and construct” the structures,specialized

equipment, experience in building the structures, a favorable reputation, and sufficient capital to bond

large projects. ID-106-8; IDF-166-76, 250-3, 328-334, 415-8. The only competitors with these

features were CB&I and PDM. 

LNG, LPG and LIN/LOX tanks hold large quantities of flammable or otherwise dangerous

gases; leakage fromone ofthese tanks could lead to fires and death, and liabilityfor losses. IDF-167,

330. TVCs are used to test satellites that typically cost from $50 to $200 million each, and an

improperly constructed TVC could damage or destroy a satellite or lead to faultytest results. IDF-40,

417. Consequently, customers of the relevant products strongly prefer to contract with companies that

have a long track record in constructing these facilities. IDF-167-69, 252, 328, 331, 415. 

Judge Chappell correctly recognized that experience in constructing these facilities also gives

a firm lower costs. IDF-170-71. CB&I has a cost advantage over new LNG entrants because of the

large number of LNG tanks it has constructed. IDF-172-73. Both Drs. Simpson and Harris agreed
32

that the knowledge and experience of CB&I versus the competition could be a barrier to entry.

Simpson, Tr. 3214; Harris, Tr. 7440. 

Regarding LNG tanks, Respondents contend that foreign companiesthat have built LNG tanks

outside the United States have already surmounted the entry barriers and thus can competewithCB&I

on an equal footing. RAB-20. This argument is without merit: Most of the barriers that Judge

Chappell identified apply to entry into the United States geographic market. Many United States

buyers have a strong preference for buying fromfirmsthat have previously built these structuresin the

United States. CPF 379-83; Price, Tr.578, 622, [ ], Outtrim, Tr.716. Experience in

building LNG tanks cost-effectively and on time is specific to the country where the tanks are built.

Companies that have not built LNG tanks in the United States are at a cost disadvantage relative to

those that have, CB&I and PDM. CPF 370-385, 542-554. 

CB&I informed its investors, prior to the Acquisition, that its local presence gives it an

advantage over foreign competitors. CX1032 at 8 (“The Company believes that it is viewed as a local

contractor in a number of the regions it services by virtue of its long-term presence and participation

in those markets. This perception may translate into a competitive advantage through knowledge of

local vendors and suppliers, as well as of local labor markets and supervisory personnel.").

When MLGW investigated the construction of an LNG tank in Memphis in 2001, it ignored

the foreign LNG competitors and said that CB&I was the only company that could provide a reliable

estimate. IDF-177. BP reached the same conclusion. IDF-112-13. Jean Pierre Jolly of Technigaz,

a French constructor of LNG tanks, testified that [ 

 

 
33

 

 ]

[ ]. 

Finally, any firmseeking to build LNG tanks in the United States will need a sizable workforce

and specialized equipment to erect the structures. The evidence indicates that the need to acquire

these resources is a barrier to entry into the United States market. IDF-582, 593-94; ID-106-07.

The history of awards for LNG tank projects further shows that foreign firms have not

surmounted the barriersto entryinto the United States. Prior to the Acquisition, these foreign builders

also possessed all the attributes cited by Respondents, yet they never built one tank here. IDF-67;

CPF-136, 146. In fact, these foreign builders were 40-50% more expensive than CB&I and PDM in

the only project for which they bid. IDF-84. 

Relying on two anomalous LPG projects, Respondents next contend that entry barriers into

the LPG market must be low because two small United States tank builders, AT&V and Morse, each

won an LPG tank project in the pre-Acquisition period. At [ ], the project won by AT&V

was extremely small. IDF-226; Simpson, Tr.3394-95; [ ]. The project won by Morse

was located very close to Morse’s base of operations, in the Pacific northwest, and very far from

CB&I’s base of operations. CPF 179. This gave Morse a substantial competitive advantage for that

project. CPF 376-377. And CB&I acquired Morse while this litigation was pending.

As with LPG tanks, Respondents argue that entry barriers into LIN/LOX tanks are low

because two United States tank builders, Matrix and AT&V, won LIN/LOX tank projects in the last

severalyears. This argument does not withstand scrutiny. Although Matrix built four LIN/LOX tanks

during the 1990s prior to the Acquisition, it never had a comparable reputation, and thus competitive

significance, as CB&I or PDM. IDF-320-23. In 2000, Matrix sold its subsidiary that had fabricated
34

its LIN/LOX tanks, thus it can hardly be considered a serious threat to CB&I. IDF-324. AT&V has

completed one LIN/LOX tank project and has been awarded two other LIN/LOX tank projectsduring

the post-merger period. However, as Judge Chappell noted, AT&V lacks the reputation and resources

to replace the competition previously provided by PDM. IDF-313-319. Thus, while AT&V and

Matrix were each able to win a few projects to build LIN/LOX tanks, neither firm was able to

surmount the barriers to competing in the LIN/LOX market at a level comparable to PDM or CB&I.

2. There Is No Evidence of Sufficient Entry in the LNG Market

Respondentsargue thatCB&I’sfailureto win the DynegyLNGproject demonstratessufficient

entry. RAB-14. Dynegy requested separate bids for the engineering study, for the overall engineering

work forthe terminal, and forthe LNG tanks. Puckett, Tr.4543- 44, 4570-71; CPF 980, 982-84. But

CB&I repeatedly declined to bid for each stage ofthe project. ID-103; IDF-96; CPF 981-94. Because

Dynegy turned to foreign LNG tank builders after CB&I repeatedly refused to bid in response to

Dynegy’s requests, Respondents infer that CB&I cannot profitably increase price as a result of the

Acquisition. CPF 978-1006; RAB-14-15; CRF 3.248. 

What the Dynegy project shows is that when CB&I refuses to bid, customers will turn to

higher-priced, less desirable foreign suppliers. Judge Chappell properly held that the Dynegy project

provides a basisfor determining “that other manufacturers do not constrain CB&I’s exercise ofmarket

power.” ID-103. 

Respondents also point to the activities offoreignLNG competitorssuch as SkanskaWhessoe,

TKK, and Technigaz in pursuit ofUnited States LNG projects as evidence of “actual” entry. RAB-15-

16. Judge Chappell carefully analyzed the evidence presented by Respondents at trial and held that

“[f]or some of these projects, the recent or potential entrants’ level of participation rises only to the

level of expressing an interest or participating in preliminary meetings.” ID-103.
14 Respondents claim that Daewoo/S&B, Tractebel, MHI, and IHI are also potential entrants

into the United States LNG market. RAB-27-29. But Respondents offered no evidence of their

35

Respondents’ factual assertion that the TKK/AT&V alliance is in the process of partnering

witha United States based firmto provide LNG process equipment isflatly contradicted bythe record.

RAB-16. The witness from this firm specifically testified that it would not partner with AT&V on

LNG projects because of AT&V’s lack of experience in constructing LNG tanks and the high risk

associated withLNG projects. Kistenmacher, Tr.903-05. The fact remains, despite the recent activity

for new LNG projects, Respondentspresented no evidence, outside ofthe Dynegyproject, that foreign

suppliers have any likelihood of winning an LNG tank contract in the United States, let alone

constraining CB&I’s pricing as did PDM.

Respondents next claim that “the ability of new entrants to compete effectively in places near

the United States, such as Trinidad and the Bahamas,shedslight on their abilityto compete effectively

in the U.S.” RAB-38. Barriers to entering the United States market, however, make this claim untrue.

CPF 370-375, 378-385. Moreover, CB&I only lost the Trinidad project after it bid a price that was

substantially higher than the price CB&I had charged the same customer before the Acquisition. JX

11 at ¶ 2. Evidence that CB&I lost a bid in Trinidad after it raised its price dramatically is hardly proof

of sufficient entry into the United States. With respect to the LNG tank project in the Bahamas, for

which Respondents claim the buyer received competitive pricing, the only evidence in the record

comes from the testimony of a former Enron executive, who admitted that he never actually saw the

bids. Carling, Tr.4481.

In surveying the evidence, Judge Chappell correctly held that “Respondents have not

demonstrated that actual or potential entry issufficient to challengeCB&I’smarket power in the LNG

market.”14 ID-104. 
actual entry into the United States LNG market. 

36

3. There Is No Evidence Of Sufficient Entry in the LPG Market

Respondents assert that two new entrants, Matrix and AT&V, have entered the LPG market

and won half ofthe available jobsin the past three years, providing evidence of actual entry. RAB-17.

Matrix has never constructed an LPG tank. Newmeister, Tr.1609. Consequently, its competitiveness

in this market is questionable. AT&V has constructed only one LPG tank in the United States, but

the value of this project was a fraction of the value of the next smallest LPG tank constructed from

1990-2001. IDF-226. Thus, AT&V’s success in winning this project cannot constitute evidence that

AT&V could constrain CB&I’s pricing on more typical, much larger LPG tank projects. AT&V is

much smaller than CB&I; it is capacity constrained; and it is limited in its capacity to bond projects

in the United States IDF-238-39. Judge Chappell correctly found that in the LPG market “[a]lthough

AT&V provides some competition by bidding, the greater weight of the evidence demonstrates that

AT&V cannot compete with sufficient force to constrain CB&I’s market power.” ID-105.

Respondents also argue, based on self-interested testimony ofCB&I’s division president, that

CB&I lowered its price for an LPG tank to ABB/LUMMUS in response to pressure fromAT&V and

Matrix. RAB-42. Even if this is correct, evidence that CB&I reduced its price from its initial bid does

not constitute evidence that pressure fromAT&V and Matrix forces CB&I to offer prices comparable

to pre-Acquisition prices. 

4. There Is No Evidence of Sufficient Entry 

in the LIN\LOX Market

Respondents assert that three new entrants, AT&V, Matrix, and Chattanooga Boiler & Tank,

have entered the LIN/LOX market. RAB-18. Further, Respondents argue that the post-merger prices

for recent LIN/LOX tanks sold to Air Liquide, MG Industries, and BOC do not appear to be
37

significantly out oflinewithpre-Acquisitionprices.RAB-43-7. However, of the three alleged “actual”

entrants, only AT&V has won any LIN/LOX projectssince the Acquisition, and it was already in the

market prior to the Acquisition. Moreover, while AT&V has won three LIN/LOX projects, two for

BOC at Midland, North Carolina and Hillsboro, Oregon, and one for Air Liquide at Freeport, Texas

(IDF-295, 299, 302), AT&V’s performance on these projects has been [ ], and

project costs escalated after the bids were awarded. IDF-297; [ ]. Fringe firms and new

entrants do not provide the demonstrated performance and value necessary to constrain prices at preAcquisition levels. 

AT&V’s performance [ 

 

 

 

 ]. [ ]. Regarding the Midland, North

Carolina project, one witnesstestified that although the price was low in the beginning, because ofthe

many change ordersthe price ended up higher thanCB&I’s. IDF-314. In addition, there was a design

error and construction error on the project. IDF-314. While AT&V has offered initial prices as low

or lower than CB&I, AT&V’s poor previous performance along with [ 

 ] indicate that it cannot constrain CB&I’s pricing over the longterm to the extent that PDM would have done absent the merger. [ ]; IDF-317-9. AT&V

is much smaller than CB&I, with annual revenues amounting to approximately only 2-3% of CB&I’s

revenue. IDF-315. AT&V is capacity constrained and recently refused to bid two cryogenic tank

projects in the United States because of its limited field capacity. IDF-315. As in the LPG tank
38

market,Judge Chappell correctly held that “AT&V does not compete on an equalfooting withCB&I

in the LIN/LOX market.” IDF-315.

Similarly, Matrix’s high cost structure and limited reputation prevent it from constraining

CB&I’s pricing for LIN/LOX tanks to the extent that PDM would have done absent the merger.

Matrix won and constructed four LIN/LOX projects between 1998 and 2000. IDF-320. However,

Matrix sold the fabrication facility it used to fabricate LIN/LOX tanks in 2000. IDF-324. Despite

Respondents’ assertion to the contrary (RAB-44, n.27), Matrix must subcontract for LIN/LOX

fabrication work and consequently is a higher-cost, diminished competitor in this market. IDF-324.

Matrix has been a high bidder, and consequently non-competitive, on recent LIN/LOX tank projects.

IDF-321.

Chattanooga Boiler & Tank has never built a LIN/LOX tank. IDF-325. On the one occasion

that Chattanooga recently bid on a LIN/LOX tank, Chattanooga’s price was substantially higher than

any other competitor. IDF-326.

Accordingly, in assessing the cumulative impact ofthese three alleged “actual” entrants,Judge

Chappell correctly held that “Respondents have not demonstrated that actual or potential entry is

sufficient to challenge CB&I’s market power in the LIN/LOX market.” ID-106. 

5. There Is No Evidence of “Actual” Entry in the TVC Market

Industry participants testified that the only manufacturers of large, field-erected TVCs prior

to the Acquisition were CB&I and PDM. IDF-380-83, 385. The only company that, postAcquisition, had been asked to provide pricing on a TVC project other than CB&I (Howard

Fabrication) was not considered by the customer to have “the technical competence nor the financial

backing” necessary to award it a TVC project. ID-106. Judge Chappell correctly held that “[t]here

is no evidence of actual or potential entry in the TVC market.” ID-106.
39

6. Dr. Harris’s Critical Loss Analysis Was Badly Flawed

Respondents criticize the ALJfor discounting a critical loss analysis presented by their expert,

Dr. Barry Harris. RAB-47. This criticism is without merit for two reasons. First, a critical loss

analysisis only one ofseveralmethods for assessing whether a firmcan profitably increase price. The

ALJ used a different method (see Merger Guidelines § 2.2; FTC v. Swedish Match, 131 F. Supp. 2d

at 168-69): He carefully analyzed whether other firms could provide a competitive constraint

comparable to PDM and concluded that they could not. ID-101-09. 

Second, Dr. Harris’s critical loss analysis was badly flawed. His narrow analysis attempted to

predict whether CB&I would actually raise its prices and margins, and yet he failed even to consider

whether, in the two yearsfollowing the Acquisition, they had done so or attempted to do so. Nor did

he include in his analysis most of the business that CB&I has won since the Acquisition. 

A critical loss analysis seeks to determine whether a firm can profitably increase price by

comparing the profit that a firm would gain from getting a higher price on the units that it continues

to sell with the profit that it would lose because it sells fewer units at the higher price. A critical loss

analysis hastwo basic steps. The first involves calculating the critical loss, which is the largest amount

ofsales that a firmcould afford to lose in response to a given price increase before that price increase

becomes unprofitable. Two things determine a firm’s critical loss. The first is its variable profit, which

is the profit that it earns on the last units that it sells. The second is the size of the prospective price

increase. 

Dr. Harristestified that CB&I had a variable profit of 33% and could thus only lose about 13%

ofitssales before a 5% price increase became unprofitable. Harris, Tr.7900; CPF 603-04. Dr. Harris

based his estimate of variable profit almost exclusively on statements made by Mr. Scorsone. This

approach caused Dr. Harristo make majormistakes. CPF 598-630. In fact, Dr. Harris later conceded
15

 E.g., J. Langenfeld & W. Li, Critical Loss Analysis in Evaluating Mergers, The Antitrust

Bulletin 299, 313 (Summer 2001); M. Katz & C. Shapiro, Critical Loss: Let’s Tell the Whole Story,

40

that his approach caused him to incorrectly estimate variable cost in at least one instance. CPF 613-

614. In contrast to Dr. Harris, Dr. Simpson, Complaint Counsel’s expert, based his estimate of

variable profit on multiple sources and concluded that CB&I had a variable profit of 15% and thus

could lose roughly 25% (40%) of its sales before a 5% (10%) price increase became unprofitable.

CPF 602-12, 625; Simpson, Tr.3019. 

The second step in a critical loss analysis involves estimating the amount of sales that a firm

would actually lose for various prospective price increases. If this amount of lost sales exceeds the

critical loss, then the firm could not profitably increase price. Dr. Harris testified that CB&I’s actual

loss of sales resulting from a price increase would far exceed its critical loss because CB&I has won

only “18% ofthe dollars at risk post-merger” in the relevant markets. CPF 632. Dr. Harris bases this

claim, however, on an inaccurate sample of post-merger projects that includes projects outside the

relevant markets and projects sold before the merger, while excluding other projects that are clearly

in the relevant markets. CPF 635-41. For example, while including several small projects that CB&I

lost to AT&V, he ignored the nearly dozen LNG projects for which CB&I is the only contractor in

the running forrevenues of hundreds ofmillions of dollars. In contrast to Dr. Harris, the ALJ carefully

surveyed the set of new or potential projectsin the four markets and concluded that the evidence does

not demonstrate that other firms can “compete with sufficient force to constrain CB&I.” ID-104

(LNG), 105 (LPG), 106 (LIN/LOX), 106 (TVC). 

Finally, Dr. Harris made at least two other major mistakes in using a critical loss analysis to

assess CB&I’s market power. Dr. Harris ignored several caveats about using critical loss that have

been articulated in recent antitrust articles.15 CPF 598, 642-53. Dr. Harris also failed to check
Antitrust 49, 53-54 (Spring 2003).

41

whether the conclusions from his critical loss analysis were consistent with other evidence, which

showsthat the Acquisition gave CB&I market power and that CB&I has exercised this market power.

See generally Harris, Tr.7152-7989.

C. Respondents’ Evidence on Customer Sophistication & Customer Opinions Does

Not Rebut the Prima Facie Case

Respondents’ customer sophistication or “power buyer” evidence amounts to nothing more

than the unsupported assertionthatsome customers are big, and thusthey can keep CB&I fromraising

prices. The Merger Guidelines explain, however, that “[b]uyer size alone is not the determining

characteristic,” but that a defense may exist when large buyers tie up the market with “long-term

contracting” so that collusion would be difficult. Merger Guidelines § 2.12. Since the effects here

are principally unilateral and due to a lack of any other market factorsthat would constrain CB&I, that

scenario does not apply here. In any case, over the years, the “power buyer” defense has been given

little weight and is generally insufficient to counter evidence ofhigh concentration. University Health,

938 F.2d at 1213 n.13 (“[G]iven the FTC’s strong showing that the proposed acquisition is likely to

lessen competition substantially. . . we think that the existence ofthese sophisticated purchasersin the

relevant market, which may inhibit collusion, is insufficient to overcome the FTC’s case”); see also

Cardinal Health, 12 F. Supp. 2d at 61 (Buyer power “alone cannot rebut the government’s prima

facie case.”); United Tote, 768 F. Supp. at 1085 (D. Del. 1991) (Rejecting defense because it left

smaller buyers “unprotected”). 

As Judge Chappell correctly held, even though many of the customers are large, pricing is not

transparent to customers because sales are infrequent and confidentialityprovisions prevent disclosure

of contractual terms. ID-109; see, e.g., IDF-204-07. Consequently, customers are at an information
42

disadvantage to CB&I and do not possesssignificant bargaining power. ID-109. There is no evidence

that most customers have any idea that CB&I is raising prices and margins. Nor could they, since

PDM, the most relevant pre-Acquisition cost comparison to CB&I, is gone. 

Probably the best example of the customer’s information disadvantage is CMS’s selection of

CB&I asitsLNG contractor forthe expansion ofits LNG import terminal in Lake Charles, Louisiana.

IDF-105. Respondents cite to CMS’s belief that it received a competitive price because it obtained

information from CB&I relating to the costs and margins for the construction of the overall terminal

facility. RAB-31, 36. However, as explained, infra, CMS had access neither to the cost and margin

for the LNG tank itself nor to other LNG tank costs and margins, which show that CB&I has

increased its post-Acquisition LNG tank price from pre-Acquisition levels. See Section IV.B.

Respondents falsely assert that even Complaint Counsel’s witnesses believe that the

Acquisition will have no effect on competition. RAB-40. In fact, numerous witnesses, all of whom

experienced the head-to-head competition between CB&I and PDM, expressed concern that other

companies could not restore the level of competition that had existed between CB&I and PDM, and

that the Acquisition would reduce competition and lead to higher prices. Blaumueller, Tr.323-24;

Fontenot, Tr.2030-31; Gill, Tr. 249-50; Hall, Tr.1830-31; Kamrath, Tr.1990-91; Kistenmacher,

Tr.878; Neary, Tr.1456-57; Newmeister, Tr.2165-67; [ ]; Price, Tr.589-91,

622. Respondents’ characterization of Mr. Hall’s testimony is just flat wrong. RAB-40. Mr. Hall

stated that MLGW is “concerned about where we’re going to get competition for our bids in the next

few years. . . because we don’t see anyone out there with experience that could come into the market

and compete with CB&I/PDM.” IDF-183.

Respondents presented testimony from third parties who said that they believed there were

“sufficient” competitorsto maintain competition in some ofthe markets. See, e.g., CRF 3.381. None
CB&I Prices for CMS Lake Charles LNG Tank and Cove Point LNG Tank Compared to CB&I, 

PDM and Whessoe Price Quotations for Single Containment LNG Tanks

$22,250,000

$24,250,000

$35,000,000

$19,000,000

$20,000,000

$21,000,000

$22,000,000

$23,000,000

$24,000,000

$25,000,000

$26,000,000

$27,000,000

$28,000,000

$29,000,000

$30,000,000

$31,000,000

$32,000,000

$33,000,000

$34,000,000

$35,000,000

$36,000,000

$37,000,000

$38,000,000

$39,000,000

$40,000,000

118,000 120,000 122,000 124,000 126,000 128,000 130,000 132,000 134,000 136,000 138,000 140,000 142,000 144,000

Tank Size in Cubic Meters

Price

Cove Point PDM Price Quotes to Williams, Sept. 8, 2000 CX 1388 at CBI/PDM-H 4015363

CMS Lake Charles CB&I Price of 140,000 cubic meter LNG Tank J. Kelley, Tr. 6260
43

ofthese witnesses had any experience with the pre-Acquisition competition betweenCB&I and PDM

inthe United States. Respondents’ argument that the ALJ ignored testimony from these “sophisticated

customers” is incorrect. RAB-39-40. The ALJ gave proper weight to the testimony of these

witnesses and rejected it. For example, the ALJ noted that Mr. Eyermann, from Freeport LNG, and

Mr. Izzo, from Calpine, lacked foundation to testify about new entrants and their impact, if any, on

CB&I because they have not received any bids for their United States LNG projects. IDF-134, 142.

Mr. Izzo admitted any view he might have as to the competitiveness of the prices of the foreign firms

would be “speculation.” IDF-142; Izzo, Tr.6526. 

Respondents also cite to the opinions of Mr. Bryngelson of El Paso Natural Gas, Mr.

Sawchuck of BP, and Mr. Rapp of Bechtel that there is sufficient competition in the United States

LNG market to prevent CB&I from increasing prices. RAB-40. The ALJ correctly ignored these

opinions because theyalso lacked foundation. Mr. Bryngelson testified that El Paso had not purchased

an LNG tank since the late 1970's or the early 1980's and that past pricing for LNG tanks is “not

something that is well known.” IDF-204, 206. Respondents attach great importance to the fact that

customers such as El Paso employ consultants to help them to evaluate CB&I’s pricing. RAB-31.

However, Mr. Bryngelson conceded that “experienced engineering firms . . . can provide a rough

benchmark, but that’s about the best we can do” and that El Paso is “in the dark in terms of knowing

what the costs are for LNG tank suppliers.” IDF-206-07. 

Respondents cite to [ ] sophisticated pricing model for assessing LNG tank pricing as

reason why Mr. Sawchuck’s opinion relating to the Acquisition should be accorded deference. RAB31. Yet this very same pricing model showed that [ 
44

 ] [ ]. BP subsequently decided to negotiate for sole-source

agreements withCB&I for itsthree pending LNG import terminal projectsin the United States. IDF109-10. BP also concluded that “[s]ince their acquisition of PDM, CB&I now dominate the US

market.” IDF-112. 

As for Bechtel’s Mr. Rapp, he testified that the only two United States LNG competitors he

is currently aware of are CB&I and Technigaz/Zachry, a firm that [ 

 ], [ ], and he does not know

whether Technigaz/Zachry could be as competitive as PDM had been in the past. Rapp, Tr.1290,

1294.

D. Respondents Have Not Rebutted the Prima Facie Case in the TVC Market

Respondents suggest that CB&I was not an active participant in the TVC market. RAB-48.

Again, the record is to the contrary. As Judge Chappell correctly noted, a wide range of industry

participants and the parties’ contemporaneous documents attest to the fact that CB&I and PDM were

the only viable competitors in the TVC market, and that each was similarly situated. IDF-376-77,

380-85. CB&I and PDM competed against each other in the two TVC bidding contests after 1990.

CB&I and PDM competed vigorously for the TVC project for [ ] in 1996, which was won by

PDM after competition from CB&I forced PDM to lower its price. [ ]; CPF 1181-

1206. Prior to signing the Acquisition letter of intent, CB&I and PDM competed vigorously for the

TVC project for Spectrum Astro. IDF-368.
45

III. POST-ACQUISITION EVIDENCE DEMONSTRATES 

THAT ENTRY IS NOT SUFFICIENT TO RESTORE 

COMPETITION TO PRE-ACQUISITION LEVELS

The law is clear that Complaint Counsel is not required to demonstrate that the Acquisition

has led to actual anticompetitive conduct or post-Acquisition price increases. Hospital Corp., 807

F.2d at 1389. However, where there is such evidence that Respondents have increased price, it

“cements” Complaint Counsel’s case. Von Kalinowski at § 4.03[4] (citations omitted). In this case,

Complaint Counsel introduced evidence of numerous examples of anticompetitive effects, including

cooperative behavior between CB&I and PDM before they consummated the Acquisition, postAcquisition attempted collusion byCB&I with a potential competitor on a TVC project (an effect that

appears to have been interrupted by Complaint Counsel’s interviews and examination of witnesses),

and price increases as well as increases in margins, on relevant products, following the Acquisition as

well as following the signing of the Acquisition letter of intent. 

Under the law, proof of actual anticompetitive effects is sufficient to establish that the

Acquisition islikely to lessen competition. General Dynamics, 415 U.S. at 505, n.13 (“[P]ost merger

evidence showing a lessening of competition may constitute an ‘incipiency’ on which to base a

divestiture suit . . . .”); Merger Guidelines § 2.2; Tasty Baking Co. v. Ralston Purina, Inc., 653 F.

Supp. 1250, 1267 (E.D. Pa. 1987) (“The most recent evidence of defendants’ monopoly power is

found in defendants’ post-acquisition pricing decisions.”); Libbey, 211 F. Supp. 2d at 49 (“‘Proof of

actual detrimental effects’” can “‘obviate the need for an inquiry into market power, which is but a

‘surrogate for detrimental effects.’’”) (citations omitted); FTC v. Toys “R” Us, 221 F. 3d 928, 937

(7th Cir. 2000); Consolidated Foods, 380 U.S. at 598.
16 CB&I’s pre-Acquisition intent is highly probative of the likely effects of the Acquisition.

See United States v. Hammermill Paper Co., 429 F. Supp. 1271, 1287-88 (W.D. Pa. 1977)

(“evidence indicating the purpose of the merging parties, where available, is an aid in predicting the

probable future conduct ofthe parties and thus the probable effect ofthe merger”) (quoting Chicago

Bd. of Trade v. United States, 246 U.S. 231 (1918)).

46

The ALJ agreed that there was evidence that CB&I and PDM were each other’s closest

competitor and that this was a reason to condemn the Acquisition, yet he disregarded other evidence

of anticompetitive effects, as discussed infra. 

A. By Eliminating Its Only Significant Competitor, 

the Acquisition Increases CB&I’s Market Power

AsJudgeChappell properly recognized,CB&I and PDMwere eachother’s closest competitor,

driving eachother’s prices andmargins down. IDF-483-490; IDF-72-87 (LNG); IDF-227-232 (LPG);

IDF-277-291 (LIN/LOX); IDF-376-406 (TVC). Respondents do not dispute this evidence. Prior to

the Acquisition, each company determined that it would be better off if it eliminated the other as a

competitor (see Statement of Facts ¶4).16 The resulting elimination of PDM as a “substantial

independent competitor” is evidence of anticompetitive effect. Heinz, 246 F.3d at 717 (When two

competitors competed for the lower price position, it is simply “an indisputable fact that the merger

will eliminate competition between” them, and it would seemobviousthat prices would rise); Swedish

Match, 131 F. Supp. 2d at 169 (A “unilateral price increase by Swedish Match is likely after the

acquisition because it will eliminate one of Swedish Match’s primary direct competitors.”); Staples,

970 F. Supp. at 1083 (“The merger would eliminate significant head-to-head competition between the

two lowest cost and lowest priced firms in the superstore market”); Merger Guidelines § 2.21; R.R.

Donnelley &Sons Co., 120 F.T.C. 36, 193-201 (1995) (combination of the two closest substitutes as

evidence of ability to unilaterally increase price after the acquisition (citing Merger Guidelines §
17 The Commission, courts and the Merger Guidelines allow consideration of such preacquisition industry evidence. E.g., Merger Guidelines §2.211, n.22 (“normal course of business

documentsfromindustryparticipants”);Coca-Cola, 117 F.T.C. 795, 945 (1994) (using Coca-Cola’s

“own documents” as corroboration of market dynamics); Heinz, 246 F.3d at 717 (“Heinz’s own

documents recognize the wholesale competition and anticipate that the merger will end it”).

47

2.21)). This finding is, as the Merger Guidelines explain, especially appropriate where a merger

involving the first and second lowest-cost sellers could cause prices to rise to the constraining level

of the next lowest-cost seller. Id. at n.21. 

The elimination of PDM, CB&I’s closest competitor, was part of a well-developed strategy

employed by CB&I. The plan all along was to get rid of their nemesis, PDM, and make higher

margins, as is revealed in numerous internal documents.17 IDF-491-496; see Statement of Facts ¶5.

CB&I considered solving its competition problemby buying PDM even though it recognized that they

could [ 

 ] [ ]; CX1627 at 138 (“Antitrust Issues”). Before closing

on the deal, Mr. Scorsone “brainstorm[ed]” with his staff and decided on a strategy to “[c]reate

barriersto entry,” “[d]efend an expanding marketshare,” prevent “smaller competitorsto take share.”

IDF-495; Scorsone, Tr.5204-5205. Indeed, their plan was to achieve “premiums” for their products

and “Improve pricing to achieve margin growth,” which is of course what CB&I actually did. IDF495 (emphasis added). Respondents had no expectation of losing market share from any alleged

entry. Scorsone, Tr.5208.

In the end, Respondents created what CB&I’s management called, the “900 pound gorilla,”

a “powerhouse” with “execution capabilities unmatched by competitors.” CX1681 at 1; IDF-494;

CX1720 at 1; CX1532 at 1. There is no evidence of anything post-Acquisition that might possibly

disturb CB&I’s vision of “margin improvement and accelerating earnings growth.” CX1527 at 2.
48

B. Actual Evidence of Anticompetitive Conduct Independently 

Requires a Finding of Liability against Respondents in this Case

The record is replete with extensive evidence of anticompetitive behavior by CB&I. None of

this evidence would exist if there were any genuine threat of entry at the same level as PDM. Thus,

it is no surprise that CB&I failed to offer any post-Acquisition company documents even mentioning

alleged entry as any kind of a threat. Nor did any CB&I witnesses (e.g., Lacey, Steimer, Miles, etc.)

come in and counter any ofthe evidence ofillegal conduct. See UAW v. NRLB, 459 F. 2d 1329, 1336

(D.C. Cir. 1972) (Failure to bring in documents and witnesses creates “the most natural inference, that

the party fearsto do so,” and that the evidence “would have exposed facts unfavorable to the party.”)

(citation omitted)). Instead, CB&I’s true view is best summed up by Mr. Glenn’s statement that the

only change in competition isthat CB&I can now “win the work” whenever it wants. Glenn, Tr.4379-

80; CX1731 at 44. 

The ALJ disregarded this extensive evidence of actual anticompetitive effect for four reasons.

First, the ALJ accepted Respondents’ unsupported and self-serving argument that only lower level

employees were responsible for the collusive acts and proposals. Second, the ALJ improperly

disregarded contemporaneous documentsonlybecauseRespondents’ officersand employeeswerenot

examined about them at the hearing. Third, the ALJ improperly excluded the deposition testimony

of Respondents’ designated expert witness – who stated that margins can appropriately be compared

between budget estimates and firmbids – because Respondents elected not to call himat trial. Fourth,

the ALJ improperly disregarded Complaint Counsel’s graphical presentations comparing admitted

evidence of prices and margins prior to and following the Acquisition. These cumulative errors

prevented the ALJ from recognizing the increase in Respondents’ prices and margins resulting from
49

the Acquisition. We ask that the Commission consider this evidence and consider Respondents’ failure

to rebut the evidence. 

1. Respondents Engaged in Collusive Conduct 

through the Business Managers Responsible 

for the Affected Customer Accounts

The ALJ accepted Respondents’ argument that they should not be held accountable for

collusion on the Spectrum Astro bid because the incriminating memorandum was written by a “lowlevel salesman (Dave Lacey).” ID-113-14. Similarly, although CB&I attempted to coordinate with

Howard Fabrication, another bidder on the TVC project for TRW, with a competing bidder, Howard

Fabrication, the ALJ accepted Respondents’ argument because “[t]he evidence presented does not

demonstrate that anyone inCB&I’smanagement was aware ofor approved such a proposal.” ID-114.

The record clearly shows that Messrs. Lacey and Miles of CB&I were each entrusted with

large projects or even entire product lines. CB&I had such confidence in Mr. Lacey that prior to the

Acquisition, he was assigned responsibility for all TVC accounts. CPF 1127. Mr. Scully of Excel

Systems, who recently worked at CB&I, considered Mr. Lacey as a member of middle management.

CRF 6.147-6.148. Mr. Lacey conceived the idea to acquire Excel Systems, and CB&I followed the

recommendation. CRF 6.152. Currently, Mr. Miles is CB&I’s Business Development Manager for

LNG and TVC, and was entrusted to represent CB&I before Dynegy on its $700 million Hackberry

LNG project. CPF 1173, CRF 6.127, 6.132.

Moreover, CB&I’s self serving characterization of its bad actors as “low-level salesmen” is

beside the point. Competition is diminished regardless of whether an officer admits to the wrongdoing

on the witness stand. The issue in this case is whether the Acquisition may substantially lessen

competition. Evidence that supports an inference of anticompetitive behavior is relevant to that
18 The Commission may take judicial notice that CB&I announced on July 25, 2003, that it

“wasserved with a subpoena for documents on July 23, 2003, by the Philadelphia office ofthe United

States Department ofJustice, Antitrust Division” for documents “that were the subject of testimony

in the FTC administrative law trial that concluded on January 17, 2003.” CB&I To Respond To

Department Of Justice Subpoena, http://www.CB&Iepc.com/cgi-bin.

50

inquiry. The Commission need not decide in this case whether collusion has actually occurred;

whether CB&I has engaged in criminal conduct is left for another forum.18

2. Respondents Failed to Rebut Evidence, 

Contained in their Contemporaneous Documents, 

that Respondents Increased Prices in the Relevant Markets 

after Entering into the Acquisition Agreement

There is extensive documentary evidence that Respondentsincreased price and margins after

entering into the Acquisition agreement. CPF 777-1220. However, the ALJ declined to infer

collusion or anticompetitive price increases based on Respondents’ contemporaneous business

documents because Respondents’ officers and employees did not testify regarding the contents ofthe

documents. ID-110 (“Complaint Counsel asked no witnesses at trial about this document.”); ID-111

(“No witnesses at trialwere asked about this document.”) (rejecting “Complaint Counsel’s arguments

pertaining to RX323, a document not used at trial”); ID-112 (“CX791 . . . was not used at trial with

any fact witness”); ID-113 (“The documentsComplaint Counselrelies upon, CX448 and [ ], while

admitted into evidence, were never used at trial with any witness”). This was error and ignores the

purpose of Lenox, Inc., 73 F.T.C. 578, 603-04 (1968) and Rule 3.43(2), which place on Respondents

the burden of rebutting whether such documents are “authentic” and “kept in the regular course of

business.” This is especially true here, where Respondents jointly offered all the documents at issue,

which were then admitted by the ALJ.

Respondents had the opportunity to present documents and testimony in an effort to rebut the

plain meaning of their contemporaneous documents, but Respondents failed to do so. The
51

Commission’s Rules recognize that “respondents are in the best position to determine the nature of

documents generated by such respondents and which come from their own files.” 16 C.F.R.

3.43(b)(2). Complaint Counsel’s documentary evidence should not be discounted simply because

Respondents chose not to call their employees who authored the documents. 

Moreover, Mr. Scorsone’s and Mr. Glenn’s unsupported claims that competition remains

intense following the Acquisition are at odds with their own contemporaneous business documents

and public communications, and are simply not credible. Little weight can be given to testimony that

is in conflict with contemporaneous documents, particularly when the crucial issues involve mixed

questions of law and fact. United States v. United States Gypsum Co., 333 U.S. 364, 396 (1948);

Toys “R” Us, Inc., 126 F.T.C. 415, 567 n.39 (1998); Adolph Coors Co., 83 F.T.C. 32, 185 (1973).

3. Contemporaneous Documents and Other Evidence

Reveal that Respondents Increased Prices and Margins 

after Entering Into the Acquisition Agreement

The Commission recently ruled that the post-trial illustration, in graphic form, of evidence in

the record compiled by the ALJ “may be an effective aid to the presentation and understanding of the

evidence adduced” at trial. September 27, 2002, Order re Upsher-Smith’s Motion to Strike

Demonstrative Exhibits that Are Not in the Record, Schering-Plough Corp., et al., Dkt 9297, at 2.

However, notwithstanding the Commission’s endorsement inSchering-Plough ofthe use ofchartsand

graphs as pedagogical aids to explain record evidence, Judge Chappell disregarded the charts and

graphs contained in Complaint Counsel’s proposed findings. Order Granting Respondents’ Motion

to Strike, June 12, 2003, at 2. While he could have examined the underlying evidence that shows

exactly the same data as the explanatory charts, he nonetheless disregarded the charts and the

underlying data, which had already been independently admitted. We thus ask the Commission to

consider these pedagogical-device summaries, their underlying exhibits, and the proposed findings
52

based thereon: CPF 801, 825, 826, 827, 828, 829, 830, 869, 882-896, 902-911, 912-928, 935, 1043-

1052, and CRF 7.106. 

4. The Acquisition Has Already Had Substantial 

Actual Anticompetitive Effects

Although the ALJ correctly found thatRespondentsfailed to rebut Complaint Counsel’s prima

facie case, the ALJ disregarded substantial, reliable and probative evidence of actual anticompetitive

effects ofthe Acquisition. Complaint Counsel urge the Commission to consider and adopt Complaint

Counsel’s findings relating to those anticompetitive effects: CPF 1119-1164 (Spectrum Astro);

CPF 1165-1180 (TRW); CPF 1181-1220 ([ ]); CPF 1053-1086 (Praxair/Linde); CPF 929-954

(Memphis LNG); CPF 831-928 (BP Projects); CPF 777-788 (Cove Point Phase I); CPF 789-811

(Cove Point Phase II); CPF 812-815 (Cove Point Phase III); CPF 816-830 (Cove Point - What Could

Have Been); CRF 7.106 (CMS). Notably, none of the examples of attempted or actual collusion or

increasedmargins have anything to do withRespondents’ claimthat “budget” and “firm” pricesshould

not be compared. Agreements not to compete and increased margins (when prices also go up) are

evidence of diminished competition.

Spectrum Astro: Priorto the closing ofthe Acquisition, CB&I and PDM management

discussed a pending TVC bid that each was making to Spectrum Astro. Scorsone Tr.5111-14;

CX1489 at 3; [ ]; CX1705. Soon thereafter, a memo was circulated at

CB&I suggesting that both PDM and CB&I [ ] or submit [ ] [ 
19 A plan to merge in the future does not authorize CB&I and PDM to collude. See United

States v. Computer Associates International, Inc., 2002-2 Trade Cas. (CCH) ¶ 73,883 at 95255

(D.D.C. 2002) (“The pendency of a proposed merger does not excuse the merging parties of their

obligations to compete independently”).

53

 ]. Then, for the first time CB&I and PDM did not have “fractious competition” between

them, and quoted high prices, as suggested in CB&I’s plan.19 Scully, Tr.1193-94. Moreover, after

the merger, CB&I raised the price of the TVC even further, by about $1.2 million or 11.7%, from

$10,760,800 to $12,019,000, and increased the margin from7.77% to 11.97%. IDF-424-25, 431-32,

434. The customer, Mr. Thompson, was extremely unhappy. Thompson, Tr.2111, 2057, 2065, 2072-

75; CX566 at 2.

There is simply no lawful reason why these two competitors were discussing a pending bid.

The fact that they saw nothing wrong with it, and indeed laughed about the fact that the customer was

going to suffer as a result oftheir collusion, is hardly exculpatory. Moreover, the undisputed fact that

Mr. Scorsone then authorized a significant increase in both price and margin after the merger was an

exercise by CB&I of market power created by the Acquisition. This evidence together with the

admission by Mr. Scorsone that CB&I lied to Mr. Thompson about the cost increases (Scorsone,

Tr.5123-25) show the ability and incentive of CB&I to behave anticompetitively. Respondents’

counsel made the same point himself when he asked Mr. Thompson, “And if you have an opportunity

later. . . to stuff some extra profit into the work, don’t you try to take it?” Thompson, Tr.2119-20.

Of course, the purpose and effect of the Acquisition was to afford CB&I precisely this opportunity.

TRW: In 2002, during the pendencyofthislitigation, CB&I attempted to collude with

Howard Fabrication, a company it claimed at trialwas a potential competitor. When TRW asked both

CB&I and Howard for TVC prices, CB&I’s Sales Manager, Mike Miles immediately asked Howard

Fabrication ifit would agree to “coordinate on making a bid or a price quote” to TRW, even after Mr.
CB&I Prices for CMS Lake Charles LNG Tank and Cove Point LNG Tank Compared to CB&I, 

PDM and Whessoe Price Quotations for Single Containment LNG Tanks

$22,250,000

$24,250,000

$35,000,000

$19,000,000

$20,000,000

$21,000,000

$22,000,000

$23,000,000

$24,000,000

$25,000,000

$26,000,000

$27,000,000

$28,000,000

$29,000,000

$30,000,000

$31,000,000

$32,000,000

$33,000,000

$34,000,000

$35,000,000

$36,000,000

$37,000,000

$38,000,000

$39,000,000

$40,000,000

118,000 120,000 122,000 124,000 126,000 128,000 130,000 132,000 134,000 136,000 138,000 140,000 142,000 144,000

Tank Size in Cubic Meters

Price

Cove Point PDM Price Quotes to Williams, Sept. 8, 2000 CX 1388 at CBI/PDM-H 4015363

CMS Lake Charles CB&I Price of 140,000 cubic meter LNG Tank J. Kelley, Tr. 6260
54

Miles became aware that both CB&I and Howard were bidding on the same project. IDF-450. The

customer testified that CB&I’s conduct had ruined the prospects for competition. IDF-452. 

Cove Point I: The margin increases at the Cove Point LNG project from 4-7%, preAcquisition, to over 22%, post-Acquisition, are undisputed. RX127 at 5; Scorsone, Tr.5263. The

ALJ concluded, based solely on the self-serving testimony of Mr. Scorsone, that CB&I was able to

dramatically increase its profits on Cove Point due to [ 

 

 

 ] [ ]. If true, the release should have been a cost saving

and the tank price should not have changed. But CB&I increased the price by [ ] above its own

pre-Acquisition estimate of what it would have bid. [ ].

CMS and Southern LNG: CMS has chosen CB&I to construct an LNG import

terminal facility that will include, among other infrastructure, an LNG tank. Respondents assert that

CMS Energy and Southern LNG used their clout to force CB&I to cut its prices and to provide an

“open book” arrangement. RAB-31. However, the “open book” pricing covered the cost of the

overall facility, a separate breakdown of the costs for the LNG tank was not provided. CRF 3.472;

[ ] (“[ 

 

 ]”)

Respondents further assert [ 

 
55

 

 

 ] [ ]. This mischaracterizes the evidence. The figure

cited by Respondents for the CMS project is [ ] and

is over

and above the price quoted by CB&I for the LNG tank. [ ]. The project

includes, as a cost element, the price of $35 million quoted by CB&I for the LNG tank. CRF 7.106;

J. Kelley, Tr. 6260, [ ]. The $35 million price CB&I quoted to CMS for the LNG tank is

[ ] higher than the price CB&I quoted to [ ], prior to the Acquisition, for the same size tank,

and is consistent with CB&I’s inflated, final price for the Cove Point LNG tank, which includes a

margin of [ ]. [ ], CPF-913, CPF-1049. The document cited by Respondents

for the Southern LNG project shows an [ ] margin over and above an “Admin” charge,

including technical service fee, of [ ] [ ] CB&I’s total margin on the

Southern LNG tank is [ ] [ ]. 

CMS may think that the price of $35 million quoted by CB&I for the LNG tank was within

range of a competitive price. J. Kelley, Tr. 6260, [ ]. CMS agreed to CB&I’s LNG tank price

only [ 

 

 ] [ 

 ]; see graph (opposite page). [ ] quoted to CMS a price

of
56

approximately [ ], or about [ ] than CB&I’s price. [ 

 ]; see graph (opposite page). Thus, in comparison with [ 

 ] and the [ ], CB&I’s

price to CMS of $35 million looked better. 

But CMS, of course, doesn’t know that prior to the Acquisition, CB&I had quoted to [ ] a

price of [ ] for basically the same kind of tank. CRF 7.106; [ ]. In

fact, as shown in the preceding graph, CB&I’s price to CMS for the tank is [ ] than the

price CB&I quoted for that size tank prior to the Acquisition (($35 million/[ ]. [ 

 ] CB&I is getting nearly three times the profit on [ ] job as it

would have when PDM was competing. See CRF 7.106; [ ]. (Using

[ ] as a benchmark); CPF 814; Scorsone, Tr.5263 (Gross profit margin on

[ ] went from about 4-7% with competition to over 22% without).

The Memphis LNG Projects: In 1995, with an [ ], CB&I beat PDM for

an LNG peak shaving plant in Memphis. [ ]. Both their bids were well below any other

competitor’s. IDF-84. For example, Whessoe was nearly 50% higher than CB&I on its bid for the

LNG tank. IDF-84. After the Acquisition, CB&I bid more than a [ ] margin for a similar tank

in Memphis. [ ]. CB&I based this [ ] on the [ 

 ] [ ]. Even though CB&I has now been able to increase its proposed margin by

[ ] the customer believes that it is stuck and cannot get a better deal from any of the alleged

foreign competitors. CX1157 at 1.
57

The BP Projects: Post-Acquisition, CB&I hassecured a sole-source relationship with

British Petroleum (“BP”) forseveral current LNG projects. BP chose CB&I because, based on actual

prices it obtained from

[ 

 ]; BP knew that with the elimination of PDM, CB&I dominated the United States

market; without PDM to turn to, BP has no choice but to acquiesce to CB&I’s demand that BP work

exclusively with CB&I. In 2001 BP analyzed the competitive environment post-Acquisition, and

concluded that since the Acquisition of PDM, “CB&I now dominate[s] the US market.” IDF-112.

Using a pricing model that is, in Mr. Scorsone’s words, “very, very accurate,” BP determined that

[ ] CB&I’s and PDM’s pre-Acquisition prices. [

 ]; Scorsone, Tr.4996. Now, after the Acquisition, despite the fact that CB&I could

raise its prices more than [ ], [ ], BP

has decided to negotiate for sole-source agreements with CB&I for its LNG projects in the United

States. IDF-110. 

Thus, two current customers, BP and Memphis Gas, both of which know about the alleged

entrants and the lower costs of CB&I and PDM before the Acquisition, today have chosen to stick

with CB&I, despite knowledge that CB&I’s current price is higher than they would have received

when PDM was around.

Linde/Praxair: In 2002, Chung Fan, a Linde manager with 20 years of experience

reviewing pricing information from LIN/LOX tank suppliers (Fan, Tr.946-48, 952-53), determined

that after the Acquisition, CB&I has raised prices approximately 8.7% to Linde on a LIN/LOX tank

to be built in New Mexico. IDF-336, 341-42. Mr. Fan based his conclusion on a pricing model that

Linde routinely uses to distinguish between reasonable and unreasonable quotes from vendors. IDF-
58

342. Linde’s model is able to accurately estimate the total price of a LIN/LOX tank within 2% of the

actual firm-fixed price. CX1584 at 1.

Separately, in 2002, CB&I submitted a bid to Praxair for a similar LIN/LOX tank, also to be

located in New Mexico. [ ] CB&I submitted virtually the same price to

Praxair for this tank as it had previously submitted to Linde. CPF 1075. Consequently, CB&I

implemented the [ ] as it did to Linde. [ ].

In 2002, CB&I submitted pricing to Praxair for another LIN/LOX tank, also to be located in

New Mexico. IDF-349. CB&I submitted “tight budget pricing” of [ ] for this tank. [ 

 ] CB&I based this price on the estimate for an equivalently-sized LIN/LOX tank to built in

Colorado Springs, Colorado in 2000 prior to the Acquisition; the budget price for the Colorado

Springs, Colorado tank was [ ]. [ ]. The increase in price from [ ] to

[ ] is precisely [ ], the same price increase observed by Mr. Fan and incurred by Praxair

on its first New Mexico LIN/LOX project. [ ].

The fact that all these prices had increased exactly [ ] from pre-Acquisition prices

confirms Mr. Fan’s detailed conclusion that his price fromCB&I had indeed increased by that amount.

These price increases were not the result of changes in cost, which had actually decreased (CX1605

at 2), but rather attempts to improve upon pre-Acquisition margins, which for PDM were

approximately 1%, and CB&I’s were even lower. CX243; CX764 at CBI-PL069333.

The ALJ’s rejection of these price increases ignores both the evidence that Mr. Fan’s pricing

model had been highly accurate in the past and the remarkable coincidence that on three separate

LIN/LOX tank projects, CB&I’s pricing has increased [ ] over pre-merger bids. CPF-1068,

1086. 
59

[ ]: Respondents’ TVC pricing to [ ] demonstrates both how competition

between CB&I and PDM drove TVC prices down prior to the Acquisition and how, following the

Acquisition, CB&I has increased price. In [ ], [ ], which is now owned by [ ],

procured a TVC that [ ] now calls the [ ]. [ ]. [ ] used a

competitive bidding process to procure the [ ]. [ ]. Prior to the Acquisition,

faced with competition from CB&I, [ 

 ] to approximately [ ] million less than its original bid. [ ]; [ ].

In the end, [ ] was able to use the close competition between CB&I and PDM to lower the price

from CB&I’s initial high estimate of [ ] million down to PDM’s final price of approximately [ 

 ] million, to obtain additional items, and to benefit from CB&I and PDM’s cost-saving, design

innovations. [ ].

On a different project, at [ ], pre-Acquisition, PDM quoted a price of [ ]

in 1999 in its proposal to [ ], but the customer chose to postpone the project. [ ].

After the Acquisition, [ ] asked CB&I for a firm fixed price renewal of PDM’s earlier bid for

the TVC at [ ]. [ ]. [ ] was disappointed to receive CB&I’s post-Acquisition

price of [ ], an [ ], or over [ ] for the project from CB&I. [ 

 ]. 

5. CB&I’s Margins May Appropriately Be Measured by

Examination of CB&I’s Firm Bids and Budget Estimates

Respondents cite, as proofof actual entry, the prices provided bySkanska/Whessoe to Yankee

Gas and [ ] (RAB-15), yet fault the ALJ for recognizing that [ 

 ] than CB&I’s price. [ ]; RAB-36 n.18. However, this

same price comparison was, in fact, made by [ ] before accepting CB&I’s price [ 
60

 ] and is the very comparison Respondents have themselves cited as the means by which [ ]

verified the competitiveness of CB&I’s price. [ ] (“[ 

 

 

 ]”)

A budget price is an initial price quote that can provide the basis for selecting a supplier and

negotiating a final price. IDF-474. Judge Chappell relied on budget prices to correctly find that

Skanska/Whessoe was not competitive withCB&I in the United States LNG market. Later, however,

Judge Chappell incorrectly held that Complaint Counsel presented insufficient evidence of actual

anticompetitive price increases and margin increases because the evidence included firm fixed prices

and budget prices, which, in the ALJ’s view, amounted to “comparing apples and oranges.” ID-110.

This holding ignoresreliable and probative evidence fromCB&I’s own expert witness,John Vaughn.

Mr. Vaughn testified at his deposition that margins used in budget pricing are generally equivalent to

margins used in firm fixed pricing bids:

Q: So the margin estimates that are in a - the margins that are in these budget

estimates, are they irrelevant, since the budget prices are very soft?

A: No, I wouldn't say they're irrelevant, but what you try to do is use basically the

same philosophy . . . when you're putting in a . . . budget type job or a fixed price job,

it'sfairly common practice to use prettymuch the same generalrange ofmargin levels.

CX1578 at 32 (rejected exhibit). See CX1578 at 30 (Q: “So you’re comparing firm fixed prices to

budget prices?” A: “I think all we're doing here is looking at margin levels. I don't think it matters

which type of estimate you're looking at.”). This testimony confirmed that, consistent with Mr. Fan’s

analysis based on price and costs, Respondents’ margins prior to the Acquisition could properly be
61

compared to their margins following the Acquisition to determine whether margins had increased and

whether cost adjusted prices had increased.

Four weeks before the start oftrial, the ALJ granted Respondents’ motion to add Mr. Vaughn

as a witness to analyze and testify about CB&I’s prices. Mr. Vaughn worked for CB&I for 34 years,

including 16 years as an estimating manager. CX1577 at 63 (rejected exhibit). Complaint Counsel

then deposed Mr. Vaughn. CX1577, CX1578. Five weeks after the trial started, Respondents

withdrew Mr. Vaughn from their witness list.

Complaint Counselsought to introduce Mr. Vaughn’s margin testimony, but Judge Chappell

improperly excluded these deposition transcripts. It is undisputed that at the time of his deposition,

CB&I had designated Mr. Vaughn as a testifying expert witness. Under the plain language of

Commission Rule 3.33(g)(1)(II), these deposition transcripts from a person designated to testify on

behalf ofCB&I are clearly admissible. 16 C.F.R. 3.33(g)(1)(II); see also Glendale Federal Bank, FSB

v. the United States, 39 Fed. Cl. 422, 424-425 (Ct. Fed. Cl. 1997) (“By the time the trial begins, we

may assume that those experts who have not been withdrawn are those whose testimony reflects the

position ofthe party who retains them. . . . [T]he prior deposition testimony ofthat expert in the same

case is an admission against the party that retained him.”).

Thus, Judge Chappell’s rejection of Mr. Vaughn’s testimony was incorrect. In doing so, the

ALJ overlooked the testimony of CB&I’s own witness that fixed and budget margins are equivalent

and not “apples and oranges.” And the margins data gleaned from CB&I’s fixed prices and budget

prices to customers, as reflected in ordinary course of business documents, show that CB&I’s postAcquisitionmargins have increased substantially frompre-Acquisition levels. There have been actual

anticompetitive effects as a result of the Acquisition.
20 Although the Merger Guidelines have been revised three times - in 1987, 1992 and 1997 -

since the “exiting assets” defense was proposed, the concept of an exiting assets defense has not been

incorporated into the Merger Guidelines.

21 The only defense recognized by any court or the Merger Guidelines resembling this one

is the “failing firm” or “failing division” defense. That defense requires that the entity is (i) actually

failing; (ii) cannot be reorganized in bankruptcy; (iii) the respondent has made “unsuccessful, goodfaith efforts to” find other buyers; and (iv) otherwise, the assets would actually “exit the relevant

market.” Merger Guidelines § 5.1. As Judge Chappell recognized, Respondents did not meet any

62

IV. RESPONDENTS’ “EXITING ASSETS” DEFENSE FAILS 

AS A MATTER OF FACT AND LAW

Respondents’ last straw is their so-called “exiting asset” defense, which Judge Chappell

rejected in a thoughtful analysis. ID-114-118. Respondents claim, without evidence, that absent the

Acquisition, PDM’s EC Division may have ceased operating in the relevant markets, and thus the

Commission should ignore all the other evidence in the case. This defense is not based on any

accepted law but rather upon a 1986 article: Kwoka, J. & Warren-Boulton, R., Efficiencies, Failing

Firms and Alternatives to Merger: a Policy Synthesis, 31 Antitrust Bull. 431 (1986). 

But the Commission hasrejected this defense. Olin, 986 F.2d at 1307; Olin Corp., 113 F.T.C.

400, 618 (1991), aff’d, 986 F.2d 1295 (9th Cir. 1993). “In short, the facts would not support the

description of the proposed defense, even if we adopted the defense, and we decline to do so in this

case.” Olin, 113 F.T.C. at 618; see also FTC v. Warner Communications, 742 F.2d 1156, 1164 (9th

Cir. 1984) (The court “reject[ed] the argument” that Polygram “intends to leave the distribution

market due to economic necessity”). 

There is no reason forthe Commission to depart fromOlin here20– especiallywhen, asinOlin,

Respondents cannot establish either ofKwoka’stwo proposed requirementsforsucha defense:(i) that

the company made an exhaustive effort to sell the assets to others in the market; and (ii) absent the

acquisition, the assets would actually exit the relevant market.21 ID-116.
of these elements. ID-114, 115 n.3.

63

A. The Evidence Does Not Show that CB&I Was the Only Available Purchaser

Respondents never demonstrated that PDM conducted an “exhaustive” search for alternative

buyers. See Olin, 986 F.2d at 1307 (FMC failed to show “evidence that FMC’s management had

conducted an exhaustive effort to sell” the assets) (emphasis added); Citizen Pub. Co. v. United

States, 394 U.S. 131, 138 (1969). Respondents try to overcome this problem by urging the

Commission to adopt a standard not even proposed byKwoka that “Respondents need only show that

it is more likely than not that another purchaser of the PDM assets did not exist.” RAB-60.

Respondents craft this standard from thin air, citing the recitation in Baker Hughes, 908 F.2d at 987,

of the general burden of proof in establishing Section 7 liability, rather than the defendant’s special

burden in proving a failing firm defense (or a variant). Respondents’ proposed evidentiary standard

conflicts with all existing precedent, all of which require a “clear showing” that a thorough search has

been conducted and there are no alternative buyers. United States v. Pabst Brewing Co., 296 F. Supp.

994, 1002 (E.D. Wis. 1969); Warner Communications, 742 F.2d at 1164; United States v. Greater

Buffalo Press, Inc., 402 U.S. 549, 555 (1971).

But Respondents even fail to meet their own proposed standard. As Judge Chappell pointed

out, PDM identified numerous potential buyers but decided to take the “preemptive” offer fromCB&I

and not “go down the route of calling other people.” Scheman, Tr. 2931, 2939-40; IDF-520; ID-117-

18. Respondents simply offered no evidence that CB&I was the “only available purchaser” or that

PDM conducted an “exhaustive” search for alternative purchasers. IDF-520; ID-117-18. 

Respondents’ argument that “PDM engaged in a reasonable marketing effort” to sell PDM EC

by sending a press release to the Wall Street Journal – a document that was never offered at trial and
22

 FTC v. Harbour Group Investments, L.P.,1990-2 Trade Cas. (CCH) ¶ 69,247 at 64915-16

(D.D.C. 1990) (Merely sending “offering materials” and “brochures” and “exploratory phone calls”

was insufficient to establish the defense).

64

which has never been disclosed to Complaint Counsel – is simply insufficient as a matter of law.22

RAB-60-61. As Judge Chappell properly held, PDM has not made a “clear showing” that it

“undertook a well conceived and thorough canvas of the industry such as to ferret out viable

alternative partners.” ID-117, quoting Pabst Brewing Co., 296 F. Supp. at 1002, see also Areeda at

¶ 954d (“Failure even to inquire ofsuch obvious candidates as competitors. . . presumptively indicates

that the search has not been diligent”). 

Respondents also make the wholly speculative claim that “PDM EC would have been sold, if

at all, to a purchaser with a substantially smaller revenue base” which would mean that the company

“would not have been able to exert the same competitive influence as it did pre-Acquisition.” RAB50. Respondents do not explain why they should therefore be excused to eliminate competition

altogether by selling PDM EC to its closest competitor.

B. The Evidence Does Not Show that Absent the Acquisition 

PDM EC Would Have Exited the Market

The second requirement for Kwoka’s novel defense is that the assets would actually exit the

market. Courts and the Commission have made it quite clear, however, that simply wanting to exit

is not enough to trigger this requirement, and that is all Respondents claim here. See, e.g., Greater

Buffalo Press, 402 U.S. at 555 ( “owners wished to sell,” but defendant still had to prove that “there

was no other prospective purchaser for it”); United States v. Phillips Petroleum Co., 367 F. Supp.

1226, 1260 (C.D. Cal. 1973) (management’s desire to exit the business held insufficient); United

States v. Blue Bell, Inc., 395 F. Supp. 538 (M.D. Tenn. 1975) (company’s intention to divest itself

held immaterial).
65

Judge Chappell properly concluded, “[t]he evidence does not establish that PDM had made

the decision to close the business in the near future.” ID-117. Moreover, even if PDM liquidated the

EC Division, PDM would have sold the current contracts and all its assets to another company that

would carry out the current business in the relevant markets. Byers, Tr.6802-04. If CB&I had not

purchased PDM, under PDM management’s own plans, some company other than CB&I even now

would be building Cove Point’s LNG tank. Byers, Tr.6802-04. In other words, the assets would not

“exit” the market. Olin, 986 F.2d at 1307 (Commission was correct in rejecting defense because

“assets would not be exiting the relevant market”). 

There can be no doubt, therefore, that the sale ofPDM’s ECdivisionto some other competitor

would have been far preferable, from a competitive standpoint, than a transaction that solidifies

CB&I’s market leadership and puts them in the position to be the single dominant firm which can

“win” every job it wants. CX1731 at 44; see Areeda at ¶ 952b (“[E]xit might be preferable on

competitive groundsto acquisitionbyan alreadydominant firmbecause withoutsuchacquisitionsmall

rivals may have a better opportunity to pick up the failing firm’s customers or resources”).

Accordingly, the Commission should reject Respondents’ attempted defense, which is not supported

by law or by fact.

V. COMPLETE DIVESTITURE, THROUGH A MORE EFFECTIVE 

ORDER, IS REQUIRED TO RESTORE THE COMPETITION 

ELIMINATED BY THE ACQUISITION

The ALJ appropriately ordered complete divestiture to restore competition as it existed prior

to the Acquisition. However, the ALJ Order falls short of accomplishing that result because it fails

to transfer any business, except what little is left of PDM’s ongoing contracts as of February 7, 2001.

Complaint Counselrespectfully suggeststhat this Commission should not hesitate to use its equitable

powersto require CB&I to use its best effortsto reconvey to an acquirer PDM’sfair share of business
23 Respondents acknowledged that “[n]o one disputes that the FTC has the power. . . to enter

an order breaking up CBI.” (J. Leon, Tr.8311).

24

 See Elzinga, The Antimerger Law: Pyrrhic Victories, 12 J. Law & Econ. 43 at 45 (1969)

(“Along with reestablishing the acquired firm, it is also necessary that this ‘new’ firmbe made viable;

a mere shadow of itsformer self is not acceptable. Indeed, reestablishing ‘new’ firms that are unable

to stand on their own would make any relief efforts farcical.”).

66

that it would have had but for this illegal Acquisition. The ALJ Order also omitted certain provisions

that are normally included in an FTC-ordered divestiture, such as requirements to encourage the

movement of employees to the acquirer.

A. The Commission Has the Authority, under the Clayton Act and the FTC Act,

 to Order Effective and Viable Divestiture Relief to Restore the Competition 

Lost as a Result of the Illegal Acquisition

It is undisputed that divestiture isthe appropriate remedy for an acquisition found to be illegal

under Section 7 of the Clayton Act.23 ID-118-119. The Clayton Act states that upon a finding of a

Section 7 violation, “the Commission. . . shall. . . order. . . such person to cease and desist from such

violations, and divest itself of the. . . assets, held.” 15 U.S.C. § 21(b) (Emphasis added).

Divestiture relief must be effective to fully restore pre-Acquisition competition, for anything

less would be a “Pyrrhic victory.”24 As the Supreme Court observed, “if the Government proves a

violation but fails to secure a remedy adequate to redress it,” it has “won a lawsuit and lost a cause.”

United States v. E. I. du Pont de Nemours and Co., 366 U.S. 316, 323-24 (1961) (citations omitted).

Moreover, the Supreme Court made clear that the government’s choice ofremedyshould prevail: “We

think the public is entitled to the surer, cleaner remedy of divestiture. The same result would follow

even if we were in doubt. For it is well settled that once the Government has successfully borne the

considerable burden of establishing a violation of law, all doubts as to the remedy are to be resolved
25 “Those who violate the Act may not reap the benefits of their violations and avoid an

undoing oftheir unlawful project on the plea of hardship or inconvenience.” Id. at 326-27 (citations

omitted).

26 In Ford Motor Co. v. United States, the Supreme Court endorsed additional ancillaryrelief

to ensure the viability of the assets being divested. 405 U.S. 562, 575 (1972); see also Hospital

Corp., 807 F.2d at 1393; Ash Grove Cement Co. v. FTC, 577 F.2d 1368, 1380 (9th Cir. 1978); L.

G. Balfour Co v. FTC, 442 F.2d 1, 23 (7th Cir. 1971); Olin, 113 F.T.C. at 618-619; Crown

Zellerbach Corp., 54 F.T.C. 769, 807 (1957) (ordering divestiture, to ensure “the substantial

restoration of the competitive entity destroyed”).

27 In two related cases the Supreme Court ordered that gas reserves be given by the defendant

to the newly divested company “no lessin relation to present existing reservesthan Pacific Northwest

had when it wasindependent; and the new gasreserves developed since the merger must be equitably

divided between El Paso and the New Company.” Cascade Natural Gas Corporation v. El Paso

Natural Gas Co., 386 U.S. 129, 136-37 (1967). The Court explained: “The purpose of our mandate

was to restore competition” by placing the “New Company in the same relative competitive position

vis-a-vis El Paso in the California market asthat which Pacific Northwest enjoyed immediately prior

to the illegal merger.” Utah Pub. Serv. Comm’n v. El Paso Natural Gas Co., 395 U.S. 464, 470

(1969).

28

 Atlantic Refining Co. v. FTC, 381 U.S. 357, 377 (1965); FTC v. Mandel Bros., Inc., 359

U.S. 385, 392 (1959); FTC v. Ruberoid Co., 343 U.S. 470, 473 (1952).

67

in its favor.” Id. at 334 (emphasis added). Finally, the interest of the violator is not to be weighed

against the public interest, even if that means the violator would suffer some loss as a result.25

Thus, under the Clayton Act and the FTC Act, the Commission has ample authority to order

effective and viable divestiture and ancillary relief,26 including the division of commingled assets to

reconstitute a competitor.27 As an expert body responsible for determining what remedy is necessary

to eliminate the unlawful conduct it has found, the Commission has wide latitude, and a reviewing

court will not set aside or modify the FTC’s remedial provisions so long as there is a “reasonable

relationship” between the remedy and the unlawful conduct at issue.28 As Judge Posner made clear

in affirming the Commission’s decision and divestiture order in HCA, “the Commission has a broad

discretion, akin to that of a court of equity, in deciding what relief is necessary to cure a violation of
68

law and ensure against itsrepetition.” Hospital Corp., 807 F.2d at 1393 (7th Cir. 1986);see also RSR

Corp., 88 F.T.C. 800, 892-97 (1976) (Divestiture of plants that were not part of the original

acquisition); Diamond Alkali, 72 F.T.C. 700, 742 (1967) (Divestiture of acquiring company’s plant,

when it had already shut down the acquired company’s factory).

B. The Commission Has Authority to Unscramble 

the Merged Firm’s Assets and Business 

The Commission has a long history of ordering, implementing and enforcing divestiture of

integrated assets in consummated merger cases. Where respondents have commingled or dissipated

acquired assets, the Commission has employed its broad remedial authority to order divestiture not

only of the acquired assets but also of assets necessary to reconstitute a competitor. For example, in

Ekco Products Co. the Commission ordered the divestiture not only of the acquired assets, but also

contracts and other assets necessary to reconstitute the acquired business as a going concern and

effective competitor:

Respondent . . . shall divest . . . assets acquired . . . together with all additions thereto

and replacementsthereof which have been made since the acquisition: . . . distribution

agreements, supply and requirements contracts, . . . and . . . all other assets as may be

necessary to reconstitute . . . a going concern and effective competitor . . . .

Ekco Products Co., 65 F.T.C. 1163, 1228-29 (1964).

In Olin Corp., 113 F.T.C. at 619-20, asthe InitialDecision notes, the FTC ordered divestiture

of a cyanuric acid (CA) plant even though the threatened loss of competition involved different

chemicals, because it believed the CA plant was necessary “to ensure the viability of the divested

entity” as a producer of the chemicals at issue. ID-121. The Ninth Circuit found such an order

“within the range of properly exercised discretion.” Olin Corp. v. FTC, 986 F.2d at 1307. Other
29 In Fruehauf the Commission ordered divestiture ten years after the acquisition, including

divestiture of any other assets necessary to restore the acquired companies as effective competitors.

Fruehauf Trailer Co., 67 F.T.C. 878, 939 (1965). In Crown Zellerbach the Commission stated

“clearly, the broad purpose of the statute cannot be thwarted merely because respondent has

commingled its own assets with those of the acquired firm.” Crown Zellerbach Corp., 54 F.T.C.at

807 (1957). 

30

 Goodrich, 110 F.T.C. at 364; Occidental Petroleum Corp. , 115 F.T.C. 1010, 1292

(1992); Hospital Corp. of America, 106 F.T.C. 361, 521 (1985).

31

 Goodrich, 110 F.T.C. at 363; Olin, 113 F.T.C. at 620; Occidental, 115 F.T.C. at 1291;

HCA, 106 F.T.C. at 521;American MedicalInternational,Inc., 104 F.T.C. 1, 239 (1984);Reichhold

Chemicals, 91 F.T.C. 246, 291 (1978).

32

 Goodrich, 110 F.T.C. at 363; Occidental, 115 F.T.C. at 1292.

33

 Idem.

69

examples abound.29 The Commission has ordered respondents, inter alia, (1) to assign current

contracts, as well as customer records and files, to the acquirer to restore competition;30 (2) to divest

post-merger improvements;31(3) to divest or license respondents’ technology;32 and (4) to provide

technical assistance to the acquirer of the divested assets to enable the acquirer to compete in the

production and sale of the relevant product(s).33

C. The ALJ Order Is Insufficient to Achieve Effective Relief; 

Complaint Counsel’s Order Should Be Accepted

The Initial Decision acknowledges that “[t]he Commission has ordered divestiture of

integrated assets in consummated merger cases numerous times where violations of the Clayton Act

have been found,” citing Olin, Crown Zellerbach and Ecko Products, in which the Commission

ordered divestitureofafter-acquired assetsas necessaryto restore effective competitionto the relevant

market. ID-120. However, the ALJ incorrectly limited the the Commission’s remedial authority to
34 The Initial Decision relies on Reynolds Metals Co. v. FTC, 309 F.2d 223, 230-31 (D.C.

Cir. 1962) and Luria Bros. & Co. v. FTC, 389 F.2d 847, 865 (3d Cir. 1968), but neither case

supports this proposition. The court in Reynolds Metal found that there was no record support for

divestiture of assets beyond what was acquired in the unlawful acquisition, but indicated that on a

sufficient showing of necessity, such divestiture might be sustained. The Third Circuit in Luria Bros.

distinguished Reynolds Metals by observing that, unlike in that case, the Commission’s order against

Luria Bros. was directed at assets obtained in the illegal acquisition; nowhere in Luria Bros. does the

court state that “[a]n order can only be directed at assets obtained by the buyer ‘as a result of the

illegal acquisition,’” as indicated in the Initial Decision. ID-120-21.

70

divesting whatever isleft of assets acquired byCB&I fromPDM on February 7, 2001.34 ID-120-121.

Thus, Complaint Counsel’s Proposed FinalOrder requires CB&I to restore or assist in restoring assets

and business that no longer exist. CCPFO ¶ II.D. Further, for the reasons discussed below, the ALJ

Order falls short of restoring two competitive and viable businesses.

1. CB&I Must Assign a Portion of Its Work-in-progress 

and Contractual Business

The Acquisition combined two thriving, and intensely competitive, ongoing businesses. Since

the Acquisition the merged firm has continued to thrive, completing work under old contracts,

securing contracts for new work, and bidding and generating estimates, designs, engineering details,

and sole-source agreements with customers for prospective new work. The ALJ Order would limit

divestiture to whatever isleft ofthe contracts held by PDM priorto the Acquisition and leave to CB&I

the entirety of the merged firm’s current business portfolio. This will neither restore competition

completely nor assure the viability and competitiveness of the divested business.

If CB&I and PDM, or its successor(s), had continued to compete, each would have won a

portion of contracts and business opportunities that have instead been garnered by the merged firm.

The ALJ Order, however, inexplicably treats all contracts captured bythe merged firmasthe exclusive

property of CB&I and omits language that makes clear that intellectual property to be transferred to

the acquirer includes customer lists, customer records and files, bidding and estimating documents and
35

 See, e.g., IDF 586-90 (a large revenue base is necessary to be a viable competitor).

36 Respondents concede that effective relief must include much more than what is required

in the ALJ order. J. Leon, Tr. 8312 (personnel); J. Leon, Tr. 8316-17 (divested business must have

work in the pipeline).

37 The Commission’s institutional experience with merger remedies, including negotiated

consent settlements and their aftermath (e.g., order enforcement and civil penalty actions), servesto

informthe Commission’sjudgment asto what reliefmay effectively restore the competition lost from

a particular illegal acquisition. See, e.g., Statement of the Federal Trade Commission’s Bureau of

Competition on Negotiating Merger Remedies (2003) [hereinafter “Merger Remedies Statement”],

http://www.ftc.gov/bc/bestpractices/bestpractices030401.htm; Frequently Asked Questions About

Merger Consent Order Provisions, http://www.ftc.gov/bc/mergerfaq.htm; Federal Trade

Commission, A Study of the Commission's Divestiture Process, prepared by the staff of the Bureau

of Competition (1999), http://www.ftc.gov/os/1999/08/divestiture.pdf.

38 Complaint Counsel’s Proposed Final Order eliminates the requirement that Respondents

transfer a portion of CB&I’s employees to the Acquirer and specifies Respondents’ obligation to

provide incentives to customers to consent to transfer or assignment of contracts and to provide

incentives to employees to move to the new company. 

71

other confidential material relating to business opportunities.

The Initial Decision finds,35 Respondents concede,36 and the Commission’s experience

instructs37 that divestiture of an ongoing business, including a customer base, is needed to assure the

viability and effectiveness of relief in this case. Several witnesses testified as to the desirability of

Complaint Counsel’s proposed remedy.38 Neary, Tr.1489, 1502 (Reestablishing PDM would give his

company the “competition” they’re “looking for”); Simpson, Tr.3606-09 (“PDM EC was as strong

a competitor as it was because it possessed certain tangible and intangible assets. For a reconstituted

firm to be as strong a competitor, it, too, would have to possess these tangible and intangible assets.

. . . Things such as the fabrication plant PDM EC had, its work force, its engineering staff and its

intangible assets, such as its learning by doing, enabled it to compete as a very strong competitor in

this marketplace.”). 

As shown in Table 2, below, the record demonstrates that, prior to the illegal Acquisition,
39

 See, e.g., IDF-74, 79-82, 228-232, 269, 277-291, 363, 376-406, 483-487.

40

 See, e.g., IDF-483: PDM is the “single largest” reason CB&I lost business in the United

States; competition from PDM accounted for 33% of CB&I’s lost business.

72

PDM’s EC and Water Divisions accounted for about 48% of the merged firm’s 1999 United States

revenues, and about one-third of world revenues, from tanks and specialty structures: 

TABLE 2

CB&I and PDM 1999 Tank and Specialty Structure Revenues

($ Millions)

World United States

PDM EC & Water $280.9 $188.0

CB&I $558.6 $201.8

CB&I/PDM Combined Revenues $839.4 $389.9

PDM % of Combined Revenues 33.5% 48.2%

CB&I % of Combined Revenues 66.5% 51.8%

Excludes repairs, modifications and turnarounds.

Source: PDM: CX 522 at TAN 1003382 (PDM EC Division 1999 revenue $185,659,000); CX 522 at

TAN 1003388 (breakdown of PDM EC Division sales by region 1997-1999 (“Domestic 50%”); CX 525

at TAN 1000383 (PDM Water Division 1999 revenue $95.2 million); CX 554 at 2 (PDM Water “WHAT

WE DO” “DESIGN, FABRICATE & CONSTRUCT WATER STORAGE TANK PROJECTS THROUGHOUT THE

U.S.A.”), 10.

CB&I: CX 1032 at 51 of 56 (CB&I 1999 revenue $295,697,000 flat bottom tanks; $82,147,000 low

temperature/cryogenic tanks & systems; $65,646,000 specialty & other structures; $63,443,000 pressure

vessels; $51,648,000 elevated tanks); CX 1032 at 50 of 56 (CB&I 1999 United States revenues 36.1% of

world revenues).

The ALJ found that prior to the Acquisition, PDM and CB&I were each other’s closest

competitors.39 The record is replete with examples of the aggressive manner in which PDM and CB&I

bid against each other to win contracts.40 Absent the merger, if PDM (or its successor) and CB&I had

continued to compete for new contracts and business opportunities, CB&I and PDM each would have
41

 See, e.g., IDF-177-203, 335-52, 419-470.

42 There is continual turn-over of the merged firm’s projects. “CBI has 300 projects going

on at any given time, in various stages.” J. Leon, Tr.8318.

43 See Utah Pub. Serv. Comm’n , 395 U.S. at 470, and Cascade Natural Gas Corp., 386 U.S.

at 138. The Commission has ordered the assignment of customer contracts in past administrative

73

won some of the contracts now held by the merged firm. In order to restore competition to its preAcquisition state,41 effective divestiture relief must reestablish CB&I and the new PDM to their

respective pre-Acquisition competitive positions in today’s market. 

However, the ALJ Order “does not require CB&I to divest a portion of its backlog of work

or customer contracts entered into by CB&I post-Acquisition,” even though the PDM contracts

acquired by CB&I have been completed or are nearing completion and have been succeeded by new

contracts and business opportunities, at least some of which PDM likely would have won ifit had not

been acquired byCB&I.42 ID-122. Limiting divestiture to only what remains of the contracts acquired

from PDM would render any remedy “a divestiture in name only” and would leave the new company

with almost no ongoing business. Olin, 113 F.T.C. at 585;see also Ekco Products, 65 F.T.C. at 1217

(the Commission may order the divestiture of additional assetsto take into account a firm’s probable

growth that would have occurred, absent the merger). As CB&I’s counsel put it plainly: 

In order for this company, new company, to work, it has to have work in the system.

You can't just create it and then say, go out and find work, because it takes sometimes

six months to a year for a job once you find an opportunity for it to come in.

Everybody recognizes that. 

(J. Leon, Tr.8316-17). Thus, to effectively restore pre-Acquisition competition, the Commission

should require CB&I to restore PDM’s pre-Acquisition share of business by assigning to the acquirer

rights in customer contracts and work-in-progress currently held by the merged firm proportional to

that held by PDM prior to the Acquisition.43
litigations involving consummated mergers, see, e.g., supra note 30, and in consent ordersresolving

such litigations, see, e.g., Automatic Data Processing, Inc., 124 F.T.C. 456 (1997) (Order ¶ ¶ I.E.,

II.A., V., VII.). 

44 Many of the contracts currently held by CB&I contain non-assignability clauses and key

employee provisions that require the customer to approve the assignment of the contract or the

replacement of key employees on a project. IDF 580. See also IDF 581. At the time of the

Acquisition, Respondents obtained consent from PDM’s customers to transfer their contracts to

CB&I. J. Leon, Tr.8317.

74

In order to restore a current pipeline of work, the proposed Final Order requires CB&I to

assign a portion of its customer contracts, pursuant to a process whereby the acquirer nominates

contracts in consultation with the Respondents, Commission staff and a monitor. CCPFO ¶ II.C. In

accordance with the respective revenues of CB&I and PDM prior to the Acquisition, see Table 2,

supra, the proposed FinalOrder requiresthat the contracts assigned to the acquirershall, in aggregate,

have a monetary value of no lessthan 33% ofCB&I’s Tank Business Customer Contracts and no less

than 48% of CB&I’s United States Tank Business Customer Contracts. CCPFO ¶ II.C.4.(a). The

proposed Final Order further requires that the assigned contracts be equitably distributed among the

relevant products and among the various types of productsthat CB&I (and, prior to the Acquisition,

PDM) manufacture. CCPFO ¶ II.C.4.(b),(c). The proposed Final Order requires Respondents to

secure the customer approval necessary to transfer such contracts and business opportunities.44

CCPFO ¶ II.C.3. By obtaining a portion of the merged firm’s current business, the acquirer will

inherit, and be in a position to build upon, a track record immediately upon divestiture and will have

sufficient work-in-progress to sustain the acquirer’s operations.

2. CB&I Must Take Affirmative Steps to Assure the Acquirer 

Has Sufficient Experienced Employees
45 “Now, it was pretty easy to get people to assign their contracts to CBI in the PDM

transaction.” J. Leon, Tr.8317.

46 ID-123. Complaint Counsel agree with the ALJ that “employees are not owned by the

company for which they work.” Id. We do not contend that “at-will employees are assets that may

be divested.” Id. However, the Commission has the authority to order Respondents to take

affirmative actions to facilitate the acquirer’s ability to hire employees of the now-merged entity and

to induce themto accept such employment. (See, e.g., MSC Software Corp., Docket 9299, Decision

and Order ¶ V., November 1, 2002, http://www.ftc.gov/os/2002/11/mscdo.pdf) . 

75

The ALJ found that “educated, experienced, and knowledgeable employees are required to

build the relevant products.” ID-122. Respondents’ counsel admitted that “You would have to give

[the acquiring company] enough personnel so that everybody would have the expertise to do every

kind of tank.” J. Leon, Tr.8311-12. The ALJ also found that “[m]any of the contracts presently held

by CB&I contain non-assignability clauses and key employee provisions that require the customer to

approve the assignment of the contract or the replacement of key employees on a project.” IDF-580

(emphasis added). Thus, the transfer of key employees may be critical to securing the customer

approvals necessary to transfer business from CB&I. Indeed, CB&I’s own success in convincing

customersto assign PDM contractsto itselfislikely attributable to the fact that key personnelworking

on those projects also transferred to CB&I.45

The ALJ Order precludes CB&I from taking steps to prevent or discourage employees from

accepting employment with an acquirer (see ALJ Order ¶ IV.), but fails to require CB&I to take

necessary affirmative steps to encourage key employees to transfer to, and continue to work for, an

acquirer of the PDM assets.46

The record showsthat the know-how and expertise ofthe former-PDM personnel contributed

to PDM’s competitive track record and reputation in the industry. See, e.g., IDF-168, 170-71, 252,

323, 328-31, 334, 415-16, 578-79. Restoring pre-Acquisition competition means assuring the acquirer
47

 See, e.g., MSC Software, id; ADP, 124 FTC at 475-76 (Order ¶ VI).

48

 See, e.g., Monier Lifetile LLC, 127 F.T.C. 751, 758-89 (1999).

76

will have the necessary experienced personnel in all aspects of ongoing operations to secure and

complete the assigned contracts and to bid independently and competitively on new business.

Recognizing the total integration of PDM’s former workforce with CB&I’s, Paragraph II.F. of

CCPFO requires CB&I to take actions necessary to encourage the transfer of sufficient personnel to

the acquirer, including the payment of financial incentives. CCPFO ¶ II.F. These requirements are

similar to those in numerous past Commission merger orders.47

3. CB&I Must Provide the Acquirer with Needed Transitional Assistance

The ALJ declined to order CB&I to provide transitionaltechnicalassistance and administrative

services to the acquirer because this “may provide an opportunity for anticompetitive behavior,”

“Complaint Counsel did not demonstrate that [these transitional services] are not available from a

source other thanCB&I,” and “these assets were not expressly acquired byCB&I in the Acquisition.”

ID-123. This misses the point that PDM’s entire body of relevant experience and know-how was

absorbed by CB&I in the Acquisition. 

Respondents alone are uniquely able to provide the kind of short-term technical and

administrative assistance that would help an acquirer assume Respondents’ assigned business and

assimilate Respondents’ transferred employees. Complaint Counsel therefore propose that CB&I be

ordered to provide transitional technical assistance and administrative services at the request of the

acquirer.48 CCPFO ¶ ¶ II.G.,H.

4. A Monitor Is Necessary
49

 See Merger Remedies Statement, regarding appointment of monitors; Casey Triggs, FTC

Divestiture Policy, 17 Antitrust 75, 76 (Fall 2002).

50 IDF-576-77.

51 Compare ALJ Order ¶ I. with CCPFO ¶ I.S., which defines intellectual property. 

77

The ALJ Order also eliminated the provision for appointment of a Monitor. ID-123. When

the Commission orders respondents to provide an acquirer with needed short-term assistance, the

Commission frequently also provides for the appointment of an independent third party to oversee

Respondents’ compliance with their order obligations.49 The need for a Monitor, whose presence

would also deter collusion, is particularly great in this case given the commingled assets and operations

Respondents must divest and the difficulty of assuring that CB&I provides to the acquirer all

intellectual property to which it is entitled. We therefore propose that the Final Order provide for the

appointment of a Monitor whose responsibilitywould be to ensure that Respondents comply with the

terms of the Order. CCPFO ¶ V.

5. The Form of Complaint Counsel’s Proposed Order 

Addresses Vagueness and Ambiguities in the ALJ Order 

to Foster Order Compliance and Enforceability

The ALJ Order also omitted the definitions, requirements and standard language that were in

the order proposed by Complaint Counsel. For example, the record establishes that an effective

divestiture must include the merged company’s intangible assets, including technology, know-how,

and customer information.50 The ALJ Order, however, eliminates the definition for such included

intellectual property proposed byComplaint Counsel.51 The absence of a definition creates ambiguity

about the scope ofRespondents’ obligation to divest intellectual property and may lead to compliance

issues, enforcement problems and a less effective divestiture. Moreover, Respondents have
52 Compare CCPFO ¶ II.E. and ALJ Order ¶¶ II.A.2, A.3., & A.4. See MSC Software Corp.,

Docket 9299, Decision and Order ¶ I.L.1.a., November 1, 2002. 

78

inextricably commingled CB&I’s and PDM’s intellectual property into the merged firm. It is not

feasible to purge CB&I of intellectual property, including know-how and trade secrets, it acquired

through the Acquisition, since PDM’s intellectual property, in the form of know-how and trade

secrets, residesin employees who may continue to work for CB&I. Accordingly, the proposed Order

requires CB&I to grant to the acquirer an unrestricted, irrevocable, nonexclusive license, with right

to sublicense, all intellectual property ofthe merged firm, excluding trademarks and trade names, with

a corresponding grant back to CB&I of PDM technology. The licenses place CB&I and the acquirer

on an equal footing to compete for business opportunities now held by the merged firm as well as for

new business. In addition, it can more practicably be implemented and more readily enforced than

the attempted disentanglement of PDM and CB&I intellectual property, required in the ALJ Order.52

The Commission’s order enforcement experience teaches that a successful divestiture remedy

can be best achieved when order requirements are clearly defined and delineated, and order language

and provisions that the Commission has experience in interpreting and enforcing are used. Clarity,

certainty and enforceability in Commission orders is critical. Language and requirements that have

become standard in Commission merger orders have proven themselves, over time, to be effective in

achieving the Commission’s remedial objectives. Complaint Counsel’s Proposed Final Order is

therefore presented in the formused forCommissionmerger orders, and the requirements are the same

as, or similar to, those used in numerous past orders where their effectiveness has been established in

the course of repeated use over time.

Finally, Respondents’ other arguments make no sense and are internally inconsistent. On the
53 Respondents miscite numerous testimony to imply that customers do not want PDM to be

restored. This assertion is untrue. See, e.g., Hilgar, Tr.1540 (Would be “bad” only if there was

“nothing left o[f] either of two companies after any FTC action”); Bryngelson, Tr.6156 (He would

be interested in giving “one or two jobs” to the new PDM); Sawchuck, Tr.6066 (“I think we would

have to see the final outcome and how it was. . . finally set up”).

79

one hand, they claim that this Commission should not order the divestiture of the entire PDM assets

acquired because it would be punitive. RAB-56-57. But in the same brief, they argue that a divestiture

would not give the new company enough assets to be a strong competitor. RAB-52-56, 54 n.33.

Which is it? We prefer to believe the uncontroverted evidence on this point as well as the admission

of Respondents’ counsel who told the ALJ: 

Here, the companies have been fully integrated at the management level, at the

engineering level, at the fabrication level, at the field erection level, every level . . . and

if you were only to spin off some personnel and assets to make products in these

markets, that company would wilt like a rose left out too long. There is not enough

business. So, you would have to give it all this other stuff to make flat bottom tanks,

to make gravel tanks, to make all kinds of other stuff.

J. Leon, Tr.8311-8312;see also Tr.8330 (“There’s no evidence to contradict” that the EC and Water

Divisions must be sold together). As was the case in Olin, the record supportsinclusion of the Water

Division with all the other tank assets given the close pre-Acquisition interrelationship between the

PDM EC and PDM Water Divisions, and the necessity of divesting sufficient assets to re-create the

combined divisionsforthe resulting entityto be competitively viable. 113 F.T.C. at 619-20; IDF-503,

566-72; ID-121. In short, what is required here is a complete divestiture of what was illegally

acquired and a replacement of the assets and business that PDM would have had but for the

Acquisition.53
80

VI. CONCLUSION

Knowing about the antitrust risk, Respondents took a chance that, by closing their deal and

telling the FTC staff later, the dominance they sought would be CB&I’sto keep. Complaint Counsel

respectfully requests that, for the foregoing reasons, the Commission order CB&I to divest all of the

assetsit acquired from PDM, and take other steps necessary to reestablish an independent, viable and

effectively competitive business in the relevant markets. 

Dated: September 16, 2003 Respectfully submitted,

______________________________

J. Robert Robertson

Complaint Counsel

Federal Trade Commission

600 Pennsylvania Ave. N.W.

Washington D.C. 20580

(202) 326-3498
CERTIFICATE OF SERVICE

I hereby certify that I caused a copy of Public Version of the Answering and Cross-Appeal Brief of

Counsel Supporting the Complaint to be delivered by hand to

The Commission

Federal Trade Commission

H-104

6

th and Pennsylvania Ave. N.W.

Washington D.C. 20580

by hand to:

Nada Sulaiman

Winston & Strawn

1400 L Street, N.W.

Washington, D.C. 20005

(202) 371-5700

and by facsimile and by overnight express courier to:

Jeffrey A. Leon

Duane M. Kelley

Winston & Strawn

315 W. Wacker Drive

Chicago, IL 60601-9703

(312) 558-5600

Counsel for Respondents Chicago Bridge & Iron Company

N.V. and Pitt-Des Moines, Inc.

________________________

Hector Ruiz,

Attorney

Dated: September 16, 2003
APPENDIX A

PROPOSED FINAL ORDER